Bitcoin Will Eat the World’s Biggest Asset | Leon Wankum
00:02 So let's imagine we would have a deflationary currency like Bitcoin. A house in the late 40s was worth or cost $4,000. Now it should cost $400,000. But it costs $400,000. So your house isn't getting more valuable, your dollars is becoming worth less. Exactly. So since money is a bad store of value, people invest their money in real estate and use real estate as a store of value. For me personally, it doesn't make any sense to save in real estate.
00:26 As real estate increased by 200 times, Bitcoin can increase by 2,000 times. coin will replace real estate and also government bonds as these two financial instruments that are used both by private actors and publicly listed actors and governments to manage inflation. Okay, digital real estate. Yeah. Let's go. So Leon, welcome to the show. I say this almost every episode right now, but we have been looking to do this for such
00:57 a long time. Very true. I'm glad we can finally sit down and do it. Same here. Tell everyone who you are, because you've got an interesting, background before coming into Bitcoin. Yeah, sure. So I tell you about my Bitcoin story and then about the real estate and Bitcoin framework that I kind of operate now. But I got introduced into Bitcoin actually in the UK. I was studying in Bath. Oh, cool. Yeah, I was studying philosophy and ethics.
01:22 My sister lives very near Bath. Nice. Beautiful. It's a beautiful city. And I actually heard about Bitcoin at a rave first time. Me too. Good. Back in 2011 for me. Yeah, 2012, 2013, like that time frame. And I thought it sounded absolutely back shit crazy and wanted nothing to do with it. I actually liked it, to be honest with you, at the time already. I liked it. And then my friends started using it.
01:48 They started to show me certain websites where they were interacting with Bitcoin or making use of Bitcoin. And then I fell into the rabbit hall of the Austrian School of Thought or Austrian economics. And then I finished my bachelor's degree. I did a bachelor's in philosophy and ethics. a bachelor's in business management. And then I studied financial economics in Glasgow. And that's when I decided to write my master thesis about Bitcoin. So I was one of the first students in financial economics to write a master thesis about Bitcoin. Very cool. Yeah, I was very interesting. So what was the thesis specifically about? Actually, the thesis was about at the time, I tried to understand what Bitcoin
02:24 was. Just pull the mic in a little bit more. Yeah, sure. At the time, I tried to understand what Bitcoin was in most of the work on Bitcoin, the academic work, was on Bitcoin the network or the protocol. So from the perspective of cryptography, and less so from the perspective of an economist. So I started to look at Bitcoin the monetary unit. And I wrote my thesis about Bitcoin as a monetary alternative and its use case as a medium of exchange in the internet mostly.
02:49 And yeah, it was good. I looked at the Remitance market, Bitcoin's potential for the Remitance market. The Lightning Network, just at the Internet, time started to go, the idea was formed already, but the Lightning Network wasn't live. Tell me again what year this was you were writing this. 2015. Okay. This was in 2015. So you were early on some of those narratives then, because I, like I first got into Bitcoin in 2016. Yeah. I don't remember remittance being a big topic until maybe 2018, 2019. Yeah. I think it wasn't so much, but it was something I found interest in,
03:21 because at the time I had a family friend who was living in South Africa. And he told me that there are lots of workers from Zimbabwe and they work on South Africa and if they use Western Union, they have to pay 10 to 15% transaction fees. So he came up with a company called, I think it was called Mama Money. I don't know if it still exists and I don't know what the trajectory of the company was, but he introduced me to the idea that Bitcoin was money that could be used to save on exchange fees for global remittance. So I looked into that narrative and I wrote my master thesis and that's how I got introduced into Bitcoin and then I kind of of changed path, so to say.
04:00 At the time, I thought I would go into the music industry. But what made me change my mind was an internship I did in Los Angeles. So in 2000, I think it was 2016. So after my writing my master thesis all the year before, in 2014, I was an intern in Los Angeles for a record label. And I was sitting down with the guy I was working for. And he told me, Leon, you're a smart guy. You should go into finance.
04:23 You should not go into the music industry. because LimeWire and Napster are just destroying our revenue model. And then I thought to myself, actually, if the MP3 file is destroying physical currency or fiat money, why wouldn't Bitcoin, sorry, if the MP3 file is destroying CD sales, why wouldn't Bitcoin destroy fiat currency? So then understanding how LimeWire, Napster and the MP3 file changed the music industry made me more interested in Bitcoin. So then I decided to leave the music industry
04:57 and go into real estate development and finance. And that's what I'm known for today. So in 2016, I joined a real estate development company in Hamburg, Germany. R.ED Baufeld, it's a development company. And it sits under a holding company that we also developed a year early in 2015. We set up a company called OneWest Developments
05:18 that's still operating. And we invest in real estate. we acquire Bitcoin and we also have a venture armed. But the venture arm is small. Our biggest investment is in real estate. So from 2015-2016 until 2020, I was working in real estate development and I was stacking Bitcoin. But actually, I wasn't really part of Bitcoin culture.
05:41 I wasn't attending any conferences. And it was only in 2019 when I went to the Honey Badger in Riga, my first Bitcoin conference actually, I started to delve a bit deeper into the real potential of Bitcoin and starting to comparing it to real estate. Because at the time I did two things. I always compared Bitcoin to what I knew about Fiat money, which was based on the fact that we use Fiat money mostly to buy goods and services.
06:12 Because it has lost the store value function and debt function moved into other asset classes, like real estate, also into the equity markets, also into the art market. I was looking at Bitcoin only as a medium of exchange. I wasn't even hoddling Bitcoin much. I was just using it to buy goods and services. And then in 2020, it also had to do with the emergence of some of these players that are big today. Like Michael Saylor bursted onto the scene and he started to talk about Bitcoin as property
06:39 and Bitcoin as land. And at the time, I was already forming my thoughts around the digital real estate thesis. And that really pushed me to look into the potential of Bitcoin by comparing it to the market cap of real estate. Because if we talk about Bitcoin as digital gold, it actually doesn't give a good idea for the potential of Bitcoin because the market cap of gold at the time was 10 trillion. Today it's 30 trillion. It's bigger.
07:04 But the real estate market cap is 3 to 500 trillion. So it's the largest store value in the world. And that I think helps to give a better idea of the real potential of Bitcoin. And then I left the real estate business in 2021. I became a writer for Bitcoin magazine. I started to publish my first articles. One of them was called Bitcoin's digital real estate. I was in 2021.
07:25 And I formed my thesis about Bitcoin taking over real estate as the dominant store of value for humanity, which has led me then to write the book. Amazing. It's interesting that you sort of went straight to Bitcoin as a medium of exchange. I don't think many people, like maybe in the very early days when Bitcoin really didn't have a price. But especially like when I got into Bitcoin, it was the dominant narrative from the start for me, was that this was like savings technology essentially. Why did you get stuck in the medium of exchange things solely at first?
07:56 Because I was an anarchist and I just looked for a technology to circumvent government regulation. So the narrative that caught me in Bitcoin was not, I think the hoddle meme didn't exist even at the time. So hodling wasn't even a thing. So what I liked was it was used by WikiLeaks and it was used in different markets that were not regular. And that's what caught my interest because at the time I really fell in love, so to say, with Kalmanger, Ludwig von Mises in the Austrian School of Economics. And I started to really despise the government and centralization. So what kind of got me into Bitcoin was my anarchistic and libertarian worldview. Yeah.
08:37 And I hope Bitcoin becomes that in a real way. Like I hope it does become the meaning of exchange. Do you think that's still likely? It's a big debate because I think it's one of the biggest debates that we have to do. I mean, I don't want to go into, you know, the BIP 1 or 10 debate. I think that debate has solved itself. But what I do want to get into and what I also talk about in the book, if, let's say, the Austrian School of Economics is correct.
09:03 And I think we can assume so because the cypherpunks, and if you look into the Cypherpunk mailing list and the emails that were exchanged, they were very aware of Ludwig von Mises, the regression theorem, Karl Menger and his book Principles of Economics. Because Kyle Menga, who is the founder of the Austrian School of Economics, he wrote a book called Principles of Economics in 1871. And in it he described what good money is. And he made the argument that good money needs to be a good store of value
09:27 in order to be used as a medium of exchange. Meaning the store of value function is the most important function. And then the question is, if Bitcoin is this great store of value, how can we make use of it as a medium of exchange? And I believe that at the time, I thought Bitcoin will be used directly for payments, predominantly. but what I came to understand now. And also if you look back at some of Hal Finney posts in the Bitcoin talk forum,
09:54 I think most people are aware of his post where he talks about Bitcoin is going to go to 10 million, plus Bitcoin is not going to scale by itself. It's going to scale as a base layer. And then you have financial institutions issuing currencies and financial instruments on top of Bitcoin. And I think that's where we are now. So first of all, we have currencies like Cashew. So Cashew you can say is a Bitcoin-Bact currency that can be used. that is a medium of exchange.
10:19 And then you have these preferred equities, which are actually financial instruments, also built on top of Bitcoin. So I can't 100 per se say how it's going to play out, but I can say two things. Number one, from my personal experience, I do regret spending so much Bitcoin early on. I would have, of course, love to still sit on that.
10:38 It would give me a completely different trajectory of life and potentially more optionality because just sitting on purchasing power gives you this freedom and gives you time. And number two, most people will not interact with Bitcoin the way that we did in its early days. I think we can see it. You attended the Bitcoin Treasury conference as well. And without now saying, is it good or is it bad how Bitcoin is adopted in the capital markets,
11:05 it obviously is adopted in a significant way. And most people that are shareholders of these companies, either they have the common equity, the common stock, or they have these perpetual preferts. they necessarily are not even aware of the fact that you can hold Bitcoin in self-custody. And yesterday on stage with Grant Cardone, he made a comment. He said something along the lines of, I have no idea how a phone works and I have no idea how electricity works, but I use it every day. And I think it's similar with Bitcoin. Most people will be exposed to Bitcoin through financial markets or financial products without necessarily knowing how,
11:45 Bitcoin, the protocol, fundamentally works. But we should still, of course, educate people on it. But I'm just saying as this technology scales in billions and potentially hundreds of millions of people are coming in, they are coming in through avenues that are easy for them to understand. And since most people are very busy and stressed, they don't have the time to be as informed as we are. Bitcoin is a hard asset. It took discipline to build your position and the platform you use for Bitcoin Back Loan should have the same discipline. That's Ledden, the lead sponsor of what Bitcoin did. When the next opportunity comes along, a leaden loan puts liquidity in your
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13:36 BitGo pioneered commercial multi-sig, and their cold storage combines distributed keys, offline key generation, and geographically separated vaults. Head to Bitgo.com to get started with institutional grade custody. Your Bitcoin secured like an institution's. That's Bitcoin. Okay, let's get into your digital real estate theory. Where's the best place to start? I think the best way to start is also how I structure the book is if we look into the dominant narrative of real estate
14:08 and the dominant narrative of Bitcoin, it is actually very similar. So if we look into two things, number one, how has real estate become so valuable and why do people invest in real estate? So since 1971, that's the date that we all know when Richard Nixon announced that the US would go off the gold standard, which then actually happened in 1973. The inflation rate, meaning the rate of currency debasement of the US dollar, is almost on par with the compound annual growth rate of real estate, meaning on average, the. amount of money, the amount of US dollar since 1971 has increased by around about 7% every year, six and a half to seven percent. And residential real estate by around about five and a half to six percent. So your house isn't getting more valuable, your dollars becoming worth less. Exactly. So since money is a bad store value, people invest their money in real estate and
15:02 use real estate as a store of value. And if you own real estate, you number one, you participate in the appreciation of scarce assets. And you also participate on the value creation that is happening in a certain economy. I give you an example. Manhattan, it's a widely discussed example, not just because Michael Saylor made this example, but also because the Wall Street in the financial world really sits here in New York. So if you would have bought land in Manhattan two or three hundred years ago, you would just sit on that land. You would basically become rich because of the debasement of currency and because of the economic activity in Manhattan
15:37 and in the financial markets that globally are directed through NASDAQ through the Wall Street and through these institutions in New York, right? And now if you look into the Bitcoin Protocol, if you own Bitcoin, the monetary unit of the protocol, you participate in the value creation of the Bitcoin network, meaning any company, rather it's Bull Bitcoin, rather it's strategy, rather it's Pupke or rather it's your podcast. Any company that uses and makes use of Bitcoin increases the value of Bitcoin. So as a holder of Bitcoin, you benefit from people having a demand for Bitcoin. and that's the same investment thesis behind land.
16:14 So the investment thesis behind land in real estate is the same investment thesis that exists behind Bitcoin. And Bitcoin is just absolutely scarce. So land is relatively scarce. Bitcoin is absolutely scarce. And I quickly want to give an example that I also have in my book. That example I give at the end of my book, but it's actually a good example to understand the potential of Bitcoin.
16:33 So in the city of Hamburg, which is one of the biggest cities in Germany, a friend of mine told me his grandparents bought a property I think it was in the 50s, it doesn't matter, 50s, 60s or 70s, for 70,000 Deutschmark at the time, right? This was after the Second World War. Germany was completely destroyed, and people told his grandparents, you're crazy. Germany is never going to get back on its feet. The house is totally overpriced.
16:57 It's a bad investment. You shouldn't do it. And now, 50 to 7 years later, that same building is worth 7 million euro, which is the equivalent of 14 million Deutsche's. mark because there was a conversion from the pound and the Deutsche mark to the euro, right? Well, not the pound. Sorry, not the pound. From the euro and the European currencies to...
17:21 No, we stuck to our guns on that one. Sorry, from the euro into Marx. So that's an increase of 200. Okay. So if you look at that, that just gives an idea of what Bitcoin could turn into because today the Bitcoin price sits at around $80,000 or whatever. And people already think it's overpriced. And I think looking at the development of real estate and the price appreciation of real estate helps to understand how Bitcoin could develop over time, right?
17:49 And as real estate increased by 200 times, Bitcoin can increase by 2,000 times because it's digital and it's absolutely scarce. And just like any digital counterpart overtakes its analog processor. For example, today we create as much information through WhatsApp and through. the internet, then humanity has done in the first 100,000 years of its existence. So why would Bitcoin not be worth 10 to 100 million at someday in the future, right? So real estate and the scale of real estate and the development of real estate prices just help me personally to understand the trajectory that Bitcoin could take. And then number two, I want to talk about the collateral function, because I think that would
18:32 also play into Bitcoin's use in capital markets. So real estate is not just so high in demand because it's relative. Fiat currency is debased and people use it as a savings account. They also use it as collateral. So this is true for private households. Either they own their home, which is bought with debt, or companies on real estate, lend against it to buy more real estate. Pension funds, financial institutions, even nation states sit on large real estate portfolios.
19:02 And as these portfolios increase in price, they lend against it and then give out more currency. So for the fiat system to continue to work, real estate prices need to be pushed up to appreciate in order then to lend against it. But Bitcoin is actually better collateral than real estate. So the function that real estate today holds in the global financial system, number one, being a store of value, and number two, being collateral, Bitcoin can actually play. So that's the digital real estate thesis. That is the general thesis of the book. And if you want, I can go on to the second part, but maybe we'll Yeah, I have some questions first. So I was talking to my
19:39 mom about this recently she's I don't know exactly know how old she is let's say she in a 60s I think um when she bought her first home um it cost her less than a year's wages and now like if you had the same we're trying to buy the same home and you had the comparative wages it'd probably be something like 10 years of wages is that all the case of people looking for somewhere to put their debasing money because my question there really is I don't think people know that's what they're doing But is that what they're doing subconsciously? I thought it is what people are. I mean, I'm aware of it because I'm a real estate.
20:15 But I mean, first of all, yes, right? So another question is it consciously, is it subconsciously? It's a good question. I assume that people do it consciously because I do it consciously. But you're a real estate developer who's also into Bitcoin and into Austrian economics. Like you have a different background to most people. Like I think if I went out and asked my friends that have no idea about this world, why they're buying a home, they wouldn't necessarily see it as like a fiat debasement.
20:37 hedge. Yeah, okay, because probably. I mean, the question is, how deep do you want to go into that rabbit hole, right? Like, me as a developer, when I started developing real estate and I started being active, I mean, I started spending time on building sites when I was 14, because that is the family business. So I grew up around the real estate business. Unfortunately, when I was around 11, it went bankrupt, and then we had to rebuild it. But that was good because I also built my character and it made me hungry. But at the beginning, I was always aware that as a real estate developer, I'm talking about myself, right? I was always aware of the fact that fiat money has no bottom and that real estate appreciates in the face of inflation.
21:22 So I was aware of that. But I wasn't aware of the significance of real estate for the global financial system. So I do believe, I mean, I can't really speak for everyone, but I do believe most people at least know you should buy a home. It's like that's just culturally accepted and it's a norm. Maybe people don't really understand why, but people kind of understand, put your money in brick and mortar, and I'd say, you know, 20, 30% of the people understand you do it because it's relatively scarce. But even those people don't really understand the significance of real estate being a dominant store of value because it's not normal. I mean, if you look at the trajectory of humanity for the past, we take the past 5,000 years, right? Because we always say gold exists for 5,000 years.
22:04 in that time frame, and you can look into any culture in the world, go talk about African civilizations, you talk about European civilizations, the Greeks, the Romans, you talk about the Shogunat system in Japan, or you look at India, South America, the Inca and Maya, ownership of land was always tied to political power and the ability to generate cash flow through agriculture to then also pay your soldiers.
22:33 So senators in Rome had to own. own land and a certain number of soldiers. But real estate and land wasn't used as money. People use gold to store value. They use gold to pay for things. And I used land more as a business. So the use of real estate as a form of money is an abnormality. And I think it was a necessity.
22:53 And it was almost logical for that to happen. Because with the emergence of electricity and then the emergence of the computers, there was a mismatch information digital. We had electronic information, but we had no electronic money. So the best next thing that we were able to use was real estate, because real estate in the secondary market is then collateralized and financialized and tradable through claims and derivatives made on real estate. Since gold is so heavy and it's difficult to carry,
23:27 and it doesn't work in a debt-based system, because in a debt-pay system, if you give out loans, you need the asset to create cash flow in order to pay back the principal. So real estate has worked so well in the Fiat framework as money because banks lend out money for the purchase of real estate. And then the asset itself through its cash flow gives the borrower the ability to pay back the principle. So within the framework of a debt-based system, it was almost logical to use real estate as money, but that in itself shows that the system doesn't work because it has created so many
24:02 negative secondary order effects, one of them being the so-called housing crisis, where living expenses, like you just explained, have become so high that it makes society. It makes actually, it makes it difficult to build a home, to build a family, and I think it's one of the biggest issues, socioeconomically, that is tied to the field system. And the worst example that I have, and that I have in my book is in Sydney, it takes up to 40 years for people to save up, to have the money to then go get a mortgage. Yeah, I mean, Australia housing market is absolutely wild. I don't know for sure, but it must be up there with the most inflated in the world.
24:38 I know Canada is also bad. But that was one of the questions I wanted to ask because I don't feel like direction that you're right everywhere in the world. But there are pockets where this is far worse than others. Like, Australia is terrible. But like in France, housing isn't monetized the same way. Do you know why that is? I actually don't know much about France and that term, but Japan. I can talk about Japan because there would be an example.
25:01 where housing is not financialized. Yeah. It's because culturally, the Japanese, like the demographic change in all the industrialized societies was met with high levels of immigration. In order, I'm not going to get into the topic of immigration now, but the reason why politicians did it, I mean, there's different theories about why they did it, but from an economic perspective, it was in order to save the housing market. in order to save the pension system and so forth.
25:34 The pension system in itself is a scam. That's why it won't work anyway, but the Japanese are culturally different. They like their own culture so much. The Japanese are almost like the Germans in the 1920s or the Prussians in the 1920s, where they are aggressively patriotic. And they would rather have a demographic change
25:52 where housing declines and value rather than having cultural changes. So the reason why real estate in Japan, It's not used as a store of value. It's because there's no demand. They've not imported demand. They have not imported demand, basically. So in France, by the way, I don't know the specifics of France, but the financial markets and the tax incentives in France
26:13 maybe work in a certain way where it makes more sense to place your money in venture capital or in the equity markets. Whereas I can talk about Germany, for example. In Germany, the tax incentives are structured in such a way where you want to park your money into real estate. So if you're in real estate and you live in a house, you can sell it tax free after two years. And if you develop our own real estate
26:34 and you do it in a company that's taxed like an individual, you can sell it tax free after 10 years. So these are all incentives to park your money in real estate. And in England, the financialization of the country in itself, if you really look into Britain and to UK, after the UK lost most of its colonies, the North, which was the industrial base, like Newcastle and Manchester,
26:59 but also places like Birmingham, they basically lost most of the industrial base. They lost most of the jobs and everything concentrated in London. Oh, yeah. I mean, I'm from Manchester. The north-south divide in England is crazy. It's crazy, right? And I think what the English did, and it's a model that the Germans are actually playing now, instead of maybe changing the economic system and be a bit less socialist,
27:24 they became a bit more socialist. It also has to do with the influence of the Fabians in London. I mean, the mayor of London, he's also a Fabian, and the Fabians were just a socialist that were, in contrast to the Marxists, less aggressive. And Keynes, so John Meyer and Keynes, he wasn't a Fabian, but he was around the Fabians, and the Fabians also funded the London School of Economics. So most people think that the London School of Economics is a capitalistic university, but it's actually a university that's more centered towards the left. So if we talk about the financialization of housing, I think it's also, caused by the shift towards more socialist tendencies in Europe, where the working population and the planning of the economy
28:13 has become integrated into politics, and it's not even questioned. So it has become a way to save a dying economy on paper because let's say you have economic decline, but suddenly housing appreciates tremendously and the financial products that are built and the derivatives that are built around the housing market also appreciate tremendously.
28:37 Suddenly you have created growth. So I think real estate has become a vehicle to drive supposed economic growth in dying economies that are losing their industrial base. It's hard to talk about real estate as a whole globally because obviously it's not a global asset. fungible like they're in their particular locations but are we in a bit of a housing bubble like in australia it seems clear that that is a bubble but more generally do you think we
29:06 are like i've seen houses in london that are selling now for the same price they were selling 10 years ago and and that's in like the economic capital of the UK do is there a bit of a housing bubble right now yes or no i mean there are always this and since i'm like 14 people always tell me oh don't go into real estate there's a housing bubble it's going to crash like in five years and two years there's boom and bust cycles and I think looking at the Lindy effect which says that the longer something existed, the longer it might exist,
29:34 we can have these boom and bus cycles in real estate for longer than we think. So yes, we are in a bubble, but we always are, to the debasement of currency in a way. But something that really changed in November of 2021, actually with the previous bull market
29:49 at the same time of the end of the previous bull market, interest rates were raised. So interest rates raised from like one and a half, two percent, up to three, four, five percent. And that meant that the cost of money increased. With the cost of money increasing, people have less access to capital to buy real estate. And I think that was part of a systematic shift. And I want to explain what I mean by that shift. Two things happened. So November 2021, the Fed raised interest rates. And globally, that caused central banks to raise interest rates. And that caused demand for housing to go down.
30:23 So since then we can see the prices of real estate have not recovered. They continue to go down. And what happened next week, the yield on the US 5 and 10-year treasury were both raised. So now it makes more sense to buy a U.S. treasury short and midterm than to invest your money into real estate. So in order to manage inflation, central banks have to raise interest rates. And then in order to keep demand for treasuries, they have to raise yields. That means that it makes more sense now to sit on your money and buy a US Treasury rather than buying real estate.
31:02 So all these dynamics that have shaped the real estate market and that have helped the real estate market to appreciate and value are changing now. So that's what I call a systematic shift. So I believe that we are in a paradigm shift where real estate as this dominant vehicle for wealth accumulation is being replaced by Bitcoin long term. This is something that obviously we only see now. But short term, it's being replaced very short term by government bonds now. Because there's different markets and some of the European markets are interesting and the US market in the 80s.
31:43 So what happened in the 1970s, Volker, who was the head of the Fed, had to raise interest rates to manage inflation. because inflation was just ramping up significantly. In 82, they started to lower interest rates, and they started to lower interest rates and also yields on government bonds, on treasuries. And that's when a lot of the pension funds started to divest out of treasuries into real estate. So really, this boom in real estate that we had
32:12 in the late 70s and the 80s, and then up until 0809, and then again, from 2015 to 2001, was a rotation out of government bond, into real estate. And I think now there's a rotation out of real estate into government bonds, but now when we look at the bond market, there are bonds that are not issued by the government, but by private companies that now have even higher yields than government bonds. And these are the perpetual preferreds of some of these companies that are publicly listed
32:47 and hold Bitcoin on their balance sheet. So I think what we can really see is how interest rates start to, catch up to Bitcoin's compound annual growth rate. So at the end of this systematic shift, which might be in a few generations, I think that Bitcoin will replace real estate and also government bonds as these two financial instruments that are used both by private actors and public listed actors and governments to manage. to manage inflation. So with this demonetization that you're talking about, the demonetization of housing, Bitcoin is obviously going to play a role in that, we think.
33:31 How long do you think it takes until houses are priced fairly? And what is fairly? So if you have a million-dollar house, how much of that is just financialization and how much of that is value? Very good questions. That I also try to answer my book.
33:49 It's not that easy, actually. Yeah. Marty actually published an article a while ago where he tried to come up with a framework assessing the percentage of the monetary premium sitting in real estate, meaning the percentage of money that sits in real estate because people use it as a savings account. And it's actually difficult to do that. One thing you can do, you can measure real estate prices in gold. Or you can say, okay, how much was a house in the 1940s, for example?
34:16 And the average price of a home in the late 1940s in the U.S. which was after the Second World War, when we already had certain levels of inflation, was around $4,000. And if it would follow only the rate of inflation, it would be around $80,000 now. But actually the average price is $430,000. So that means, like, over 80% of the money,
34:45 of the value of a property, can be attributed to the monetary premium. that is being parked in it. And I can even go a step further. So let's imagine we would have a deflationary currency like Bitcoin. A house in the late 40s was worth or cost $4,000. Now it should cost $400,000. But it costs $400,000.
35:07 Yeah. It's almost hard to understand like to kind of press that like the level or the negative effects on inflation on the housing market because actually with the innovations, that we have in building culture and 3D printing, everything should be cheaper. But because innovation is financed through credit, innovation translates into higher property prices. It's like it doesn't make it right. That's crazy. Like if you really think about it, it's like illogical.
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38:11 And the big question there is, like, can governments afford for the housing market to crash like this because in Australia, the housing market is ever on savings account. It's where they park all their money. It's far bigger to the average Australian than like an equity market. People aren't really investing in the Australian Stock Exchange. They're investing in real estate. So what happens if the financialization, the premium there gets wiped out? It's an issue. I don't think they wanted to happen. It's not going to happen. It's a very good question because I also didn't answer the second part of your question. Sorry, because you kind of ask me, you know, the demonetization of housing, like how is it going to?
38:46 And I think it plays in also to what you just asked. Because personally, as a bitconer, you know, once you understand that Bitcoin is this pristine unit of account, you start to measure everything in Bitcoin, right? And a house might have cost like a few thousand Bitcoin, let's say 10 years ago and today it costs around four or five Bitcoin. So the demonetization of real estate is happening right now as we speak and it's happening very, very fast because you need to measure the value of real estate in Bitcoin, not in fiat currency.
39:16 Yeah, but is that the demonetization of housing or is that just the monetization of Bitcoin? Both. Okay. That's both. So then the question is how, like if we have both is happening at the same time. So the monetization of Bitcoin is happening alongside the demonetization of real estate. And now the question is, is the money that flows into Bitcoin? Is it new currency through productivity, new credit?
39:42 Or is it also because people sell their real estate and buy Bitcoin? And I think that is happening. So I had in Prague two years ago, somebody came up to me. And he said, are you Leon? Like, yes. And I said, you know, I really want to thank you. My family owned around 700 units. So that's, I think, probably over a billion dollars.
40:01 We sold it all. We went into Bitcoin at like 30K, 40K. We went all in. And you like, you changed basically the life of my family for like multiple generations. And I was like, cool. That's crazy. That's crazy. But like you say, it definitely is happening.
40:17 It is happening. But it's happening at such a small scale. Yes. Yeah. I guess my question is like, when does this really ramp up? Is this all the case of just education in terms of both the fiat system and Bitcoin? Yeah, because I think both can happen at the same time. So these moves can happen at the same time.
40:34 So we can see individuals moving their money from real estate into Bitcoin. We can see younger generations, Generation Alpha, Generation Z. they prefer to buy Bitcoin rather than investing into real estate also because the areas of entry are lower, but at the same time, governments can continue to debase the currency, and real estate can continue to appreciate in Fiat terms. I mean, this can both head in at the same time, but why real estate keeps appreciating in fear terms, Fiat keeps depreciating in real terms. This is just a nominal appreciation. So this is something that's just happening on the books. So governments, of course, this goes for the United States.
41:17 This is true for Europe. And it's true for China, by the way. The housing bubble in China actually reached levels that are way more severe than in the Western world. In China, maybe you notice there are cities where nobody even lives. But in China, they kind of happily let the housing market crash, right? Yeah, they let it unwind because it's a communist system. They don't really care, you know what I mean? I just let it unwind.
41:39 And it's like you deal with it as the consumer because it's great for the greater good. But it's not a good thing. The thing that I could see happening much more quickly is people who have second homes. Stop looking at that as an investment and that money maybe goes to things like Bitcoin. Like in Australia, again, like I say, the housing market's crazy. I've got friends not particularly wealthy who have two homes, two mortgages. They are deeply in debt, but it's just the assumed knowledge that that's the right thing to do is like put money in housing. And that second home scenario is one where I can clearly see Bitcoin taking over very quickly.
42:13 Yeah. Yeah. What do you think people should look at real estate as? Because for me, like I've said this before on the show, like we're looking to buy a house the next whenever the time is right. I don't see that as an investment. That's somewhere that me and my family are going to live. Bitcoin's my investment. Like is that the mindset everyone needs to have?
42:33 I think that's the smart mindset. Like people can think whatever they want. I'm not going to tell people what to do, what to think. But I do think like we as Bitcoiners culturally represent a cultural shift and this shift can take over the mindset of the general population. Because it's a trend, just realizing that like, if you really think about it, right, if you've bought a real estate, it's just, it takes time. It's costly.
42:59 And buying Bitcoin is so much easier. For me, it's mentally even hard to understand. I want to also talk about the difference, by the way, between saving in real estate, investing in real estate and real estate development, just maybe touching on briefly. But for me personally, it doesn't make any sense to save in real estate. So real estate to answer your question should become or will become a consumer go, just like a car or anything like that. And I think that happens on a personal level at first, then it's happening culturally, and then over time, let's give it another two or three generations in 20 or 40 years. Also governments will be forced to rethink the economic model because obviously a system that has never really worked now.
43:43 is kind of coming to its endpoint, right? And we see it with the global conflicts. We can see it with the housing bubble that's popping and so forth. When I said to you before, like, governments aren't going to want to let the housing market fail. It seems like there's a role that Bitcoin can play in that in order to help the housing market as well. Yes. So the things that companies like Horizon are doing where you can use Bitcoin as part of a mortgage. Same with Andrew Hone's companies for mainly commercial at the moment, I think.
44:13 You'd be better explaining what they're actually doing, but you want to explain what they're doing and what role that might play? Sure. Great question. Very important. Because as real estate unwinds, as the currencies being debased, you actually want to add Bitcoin and dual collateralize it with real estate.
44:34 Because what you do by adding Bitcoin as collateral, either to a mortgage or also commercially, you help the asset class of real estate be exposed to less risk. Because if we look at the risks of real estate, the risk of real estate is, first of all, like hyperinflation. Imagine like the currency hyperinflates, whatever that means, and whatever time frame, the value of real estate will basically go close to zero, right? So if that, it would be the case.
45:02 This is like the worst case scenario. I don't believe in a hyperinflation scenario, but I'm just saying let's think the theory till its end, so we understand why practically Bitcoin should be. added to real estate, adding Bitcoin into real estate loan protects real estate from the monetary premium flowing from real estate out into Bitcoin. And number two, the nominal value that has been created in real estate can be saved with Bitcoin. So what Horizon is doing and what Andrew is doing on a commercial scale, they basically, if you own
45:35 real estate, you have the ability to refinance. this is something that is being regularly done. Yeah. So there's a 1031 exchange in the US where investors can roll over profits from from real estate into Bitcoin. You can refinance real estate and then put that money into a new deal. But what you can also do now, you can refinance your property, take that value and buy Bitcoin with it. So you kind of secure the value that you create it. So as a developer, I think that's very interesting.
46:05 It's a way of hedging the demonetization of housing. Exactly. That's a way to hatch the demonetization of housing. I think it's like the logical next step that needs to be done. And if that does happen at a large scale, that's insane demand on Bitcoin. How big did you say the global housing market is? It's three to 500 trillion. It's hard to say. But there's different estimates.
46:31 But I'd say around 300 trillion sits in real estate. And plus a lot of the value that sits also in air. equities in the public market is also tied to real estate. A lot of the companies have real estate on a balance sheet. Then you have reeds. So it's hard to really say, but it's like $3 to $500 trillion, something like that. And so going back to your sort of analysis on what the premium on top of the actual value is, at 80%, we're talking hundreds of trades.
46:56 $250 trillion, like huge amounts of money. Yeah. And why would that roll into Bitcoin not equities or gold? Yeah. Good question because that's what people ask me. You know, they say like everything you talk about we could do with gold. No, you can't because gold has literally failed. The reason Bitcoin exists is because gold has failed.
47:16 And the reason why real estate is used as a store of value is because gold has failed. Gold is too heavy. And you can create claims on gold, but that creates a problem of trust. Can you trust these claims? We have learned that you can't trust these claims. That's why Bitcoin exists. That's why we use Bitcoin. So I think that the.
47:37 equity market can also not fulfill this role because equities are not money. That's the difference between saving and investment. So because our financial system has been so broken, saving and investing have actually kind of become the same thing. Because if you save or if you invest into real estate, you actually want to save because you understand that money is a bad store value. So gold has failed as a technology. That's why we have Bitcoin.
48:05 The equity market is an investment. vehicle, it's not a savings vehicle, and we need a savings vehicle, and that savings vehicle is Bitcoin. And I think it just also, if we talk about the civilizational progress, we need a digital money in order to move up the Kartashev scale, right? I mean, if we really want to use or make use of the energy that exists in our solar system, we need to have a monetary base that allows us to really create value and really be productive, because the issue with inflationary currencies is that any type of innovation is financed through credit which translates into higher land prices which then creates higher living costs which creates stress and if and it also creates
48:48 and this stress means we don't have time to really think about real innovation you know what i mean like this goes a bit deeper than just the housing market but it's such a big topic because i think the financialization of housing is really holding civilization back to go into the next days of the next stage of its civilizational progress. That's really how I look at it. And so this shift is maybe one of the most important shifts within the hyper-bitconization and with the emergence of Bitcoin is this near-perfect form of money. The shift from physical into digital real estate, I think is one of the biggest shifts. Yeah. And is, I mean, this is a very long process, right? And it's naive to think that all that money is going to necessarily just go to Bitcoin,
49:35 at least at first. Like I imagine there's plenty of other places, but it'll get some of it. And that some of it is a huge amount of demand on Bitcoin. And maybe that's then a self-fulfilling prophecy where just more and more becomes Bitcoin. I want to talk about the stuff that Andrew Hones is doing because it's very cool because for anyone that doesn't know,
49:53 he's like basically facilitating, taking out a mortgage on a property. And if the property, let's say it's commercial property, it's worth $10 million, he might give you a loan for $12. And $2 million of that goes into Bitcoin on top of buying the property. How does that change the way that real estate investing actually works?
50:10 I think, by the way, I haven't talked with Andrew for a while, but we used to bump into each other and discuss. I think at the beginning it was hard to understand for people how great this idea is, like how important it is. Like for most regulators, it's changing now in the US. I mean, you have a regulatory clarity that is emerging slowly where you can include Bitcoin into mortgages. Yeah, this is it Pulte came out and said, I forget his name, but yeah, they're going to start looking at like Bitcoin as a... Exactly. Yeah, exactly. So that's important, by the way. Bitcoin does need regulation to succeed. But in order for Bitcoin to be adopted and to have an effect on a demonetization of housing, unfortunately, there needs to regulatory clarity because otherwise products like that cannot be launched and it cannot be used. But I think it's just, if you think about the global financial system, let's look at the emergency.
51:04 of Bitcoin. So I think it's not a coincidence that Bitcoin emerged in 2009 at the peak of the housing bubble. Because I think the way that I look at it always as a real estate developer, I was like real estate is going to be replaced by Bitcoin as the financial backdrop of the global financial system. In an order for that to happen, you need products like the one you just talked about in order to take the value out of real estate and save it into Bitcoin. Because if you don't do that, we might have a crash. So also as a German, if I look at inflation, I always look on first World War, Weimar Republic, second World War. The negative effects on inflation.
51:38 If money loses value, everything loses value, including human lives. So let's say Bitcoin would not exist. I would be really worried. I would look at the housing market and I would say, once the housing market comes, I don't think it will pop, but it will unwind in some way or another. Once the housing market would unwind, would have literally civil unrest. Because people would lose everything they own. because most of their wealth is in real estate.
52:04 So now you could, of course, sell all your properties and buy Bitcoin, but that's not logical because if you look at the average real estate deal, it's a capital structure. You have the investor, the borrower, you have the bank, the lender, and you potentially also have various other people with interest, including architects, tenants and other forms of investors. So now you need to work within that financial structure. And having these structured products,
52:32 I think helps pulling out that monetary premium into Bitcoin and helping people to capture that monetary premium rather than having that monetary premium be inflated away. So in order to capture that monetary premium and create a reality where we won't have civil unrest, I think we need to have these Bitcoin products that work as a balance towards the increasing debasement of currency debt in the past. This is, by the way, not just true for the past 100 years,
53:02 inflation has always caused civil unrest. With Bitcoiners, we like to talk about Rome, but also the Byzantine Empire. When Mehmet in 1453 took over Constantinople, there was also a debasement of currency that happened to 300 years before that. So we really could look at most of the big empires into the world. The moment they collapsed was mostly tied
53:27 with the debasement of currency. And this is what's happening today again, but for the first time in history, we have an asset class that can be held and used without any way of debasing. Because I think it's very hard almost to comprehend from the human mind what the emergence of an absolutely scarce digital store value that cannot be debased arbitrarily has as an effect on human civilization. It could potentially bring us into a reality where we call it. less dependent on the government and centralized institutions because history is always, we move from centralization into decentralization, right? It kind of always moves like that. So we moved now, I think the last 100 years we really saw like centralization taking hold,
54:17 political institutions, you have the European Union, you have the UN, also the way that the United States are run today, it's not like 150 years or 100 years ago. So now we have- The World Bank, the IMF, all of that, right? So Bitcoin really is part of this huge systematic shift and you need to make it easy for people to capture the monetary premium that sits in other asset classes. And I think these structured products obviously are part of that. The pendulum is shifting. Pendium is shifting. So this is obviously like I understand why you focus on real estate.
54:49 This is like your bread and butter. But this is going to affect everything. Everything with a monetary premium has a potential to be demonetized because of Bitcoin. Like our Pokemon cards, whatever the hell it is. I'm curious, I really want to know what kind of time frame you put this over. Because like, I think if the world hyper-bitcoins tomorrow, great for Bitcoin is bad for the world. If this happens over a hundred-year period, I think that can be managed and good for
55:13 everyone. Like how long do you think this will take? Yeah. I mean, maybe a few hundred years. I'll be interested to see. I think when we pass away, we probably will be still expecting some of the shifts that we thought would emerge to emerge, to emerge, because it takes time.
55:32 And also, we also, I'll be honest with you, my theory on Bitcoin, we talked about my master thesis. When I read my master thesis now, 10 years later, I can already see that some of my thinking was flawed because I also applied what I learned about fiat money onto Bitcoin. Give me an example. Bitcoin being used as a medium of exchange on the Internet. I looked at the HTTP protocol and into Bitcoin.
56:01 I was like, wow, the World Wide Web really needs a currency. I was like Bitcoin really fits into it. I made all these calculations on how much money will be saved on the internet by just all e-commerce running on Bitcoin. And that never happened. It's still true though. It's still true. No, it's still true.
56:16 But it was just the wrong way to look at it because I looked at Bitcoin thinking of Bitcoin to be this medium of exchange because I only new money to be a medium of exchange. I grew up with Fiat money and all I did with the money was either spend it on consumption or invested. But all the monetary alternatives that we have today, real estate, collectibles, you talked about the art market, also private equity and venture capital to some extent, these are actually all forms of money. So everything that they do, Bitcoin can do just better.
56:54 So maybe it also takes time for us. as Bitcoin monetizes, it maybe also teaches us how perfect money should behave. Because we only think how perfect money should behave. Yeah, we don't know. We've not lived it. We haven't lived it, yeah. I do wonder if Bitcoin is like an actual medium exchange on the internet might happen because of the agenic economy.
57:14 And I'm not naive enough to think it would be just Bitcoin in that sense. It's really like money with a digital signature. Like that, that still might come true. Could be casual or something like that. No, I'm not sure. Sure. This can all happen in parallel, by the way. It can happen in parallel. So you've got a section in here on corporate Bitcoin treasury strategies. How does that play into the real estate market and this big thesis?
57:38 Yeah. I finished a book around a year ago already. And then I said, actually I should add a chapter on corporate Bitcoin adoption. Because at the beginning, I was very skeptical of everything that was happening. Because of me being someone coming from, I guess, a bit of more of an old school mindset and how Bitcoin like should be used or could be used. And then I started kind of to to really understand that the emergence of if Bitcoin is being adopted as a store of value, it also needs to be adopted by by companies and capital markets. It's like obvious. Like if you're a company, the goal of having a company is to make profits. and profit should be measured in the most or the best money there is.
58:26 And since Bitcoin is the best money we have, the performance of a company should actually be measured and its ability to accumulate Bitcoin. Not only, I'm saying not only, but I'm talking about finance companies, only finance companies. I'm not talking about companies that set out to innovate in certain industries or within a certain technological framework. I'm talking about financial companies.
58:50 So if we talk about a company like Strife, it's a finance company. So what should a finance company do? It should create value for its shareholders. What is the most valuable thing that exists? It's Bitcoin. So it's only logical that a financial company that wants to provide value for its shareholders is going to accumulate Bitcoin. So once I looked at it like that, I said, you know what?
59:17 The demonetization of housing is happening in most. multiple stages. One of them being people preferring to save in Bitcoin rather than buying real estate. Another one being people selling real estate to buy Bitcoin, refinancing real estate to buy Bitcoin, or making use of Bitcoin in some form or another to accumulate Bitcoin. And the other form is, I ask myself, why do people own real estate? And it's first of all to save and to participate in depreciation and to generate income, right? But there's a certain overhead. with that. So let's say I want to save for my pension and I own a few rental properties. It actually takes a lot of time to manage these. I'm sure. Right. But now if I own strike, right,
01:00:03 a perpetual preferred by strategy, I have less of a headache. I have a bit less appreciation to the upside. But if I buy it in a bear market, there actually is a lot of appreciation potential, plus I have income. So I think that the emergence of these people, Perpetual Preferts play into the demonetization of housing because they give investors the ability to create income and participate in some form of value appreciation without investing into real estate. So we can already see that the speculative behavior
01:00:40 that was really concentrated in the real estate market is moving out of there, not just into Bitcoin, but also into the capital markets with companies that own Bitcoin, And then they use the money that they raise to buy Bitcoin. So I think this all plays into the demonetization of housing. You still put your capital at risk, but you get your income with zero headache. Yeah.
01:01:01 Yeah. It makes sense. Okay. Last section. It says money, coordination and civilization. This is the interesting thing. What do you see as the civilizational shift if all of this happens? If Bitcoin does demonetize all these markets?
01:01:17 I think when I look at it. at the history of humanity, I always look at we have these cycles. We rise and we fall. And these cycles can also be linked to death cycles. I mean, there's people like Ray Diya that talk about it and other people that talk about it, right? So this thought is, it's not new,
01:01:39 but I think Bitcoin adds a new variable into that equation because in the past, all forms of human civilizational progress. Let's take, for example, South America, Right? If we look now, for example, the language of the Maya was destroyed. So when the Spanish went there, they just didn't allow people to speak the language. When they did, they cut their tongues out, they burned most of the writing. Or you had this library in Alexandria that was burned. Or you also in Babylon, by the way, had a huge library.
01:02:14 And when the Mongols came there, they destroyed and burned everything. So there was no way for humanity to store information and value over time. It was built and destroyed and we had to rediscover things. And now we always, there's even an argument to be made, are we, have we progressed or have we actually not developed as humanity? That's not an argument that I will kind of discuss today, but it's an interesting argument. And the reason for that was it was hard to save information and to save value. Now with the internet, we can save and protect information,
01:02:54 and with Bitcoin, we can save and protect value. So that gives a complete different framework for civilizational progress. And I think that in itself, and in real estate, by the way, as the biggest store value is so important in that shift, because the demonetization of real estate and the positive secondary order effects that that can have on civilized. are part of the shift. I think it's fascinating, man. I obviously, I only got this book in my hands this morning. You're doing the launch tonight at PubKee.
01:03:28 Yeah. I want to read it and I think we should do another show because I'm sure I'll have more questions. Is there anything that I've missed that you really want to touch on? I don't think so, to be honest. No. Okay. I think this has been very cool. I'm really looking forward to reading this book.
01:03:45 I've got a long flight coming up. So there you go. But I appreciate you coming on the show, man. We've been talking about doing this for a long time. Yeah, thank you. Thank you so much. Actually, you know what? Before we close out, tell everyone where they can get the book, where they can follow you.
01:03:57 Oh, yeah. Do your shilling? Sure, no, I should. So the book is available with Bitcoin magazine. You can also order the Amazon. You can find my stuff on Leonvancum.com.com. I also have a newsletter, leonvancum.combe.combe. We're published once a month.
01:04:12 But on my website, you find all the links. Awesome. Thank you so much, man. Thank you, man. That was great.
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