How To Think About Bitcoin as an Investor

Hi and welcome to the Stephan Livera podcast focused on Bitcoin and Austrian economics. Today for episode one hundred and nine we have Preston Pysh, the co-host of The Investors Podcast. So if you've got friends who are investors who are struggling to conceive of Bitcoin correctly, this is the perfect episode to share with them. But first, let me introduce the sponsors of the podcast. So firstly, Kraken, one of the longest standing Bitcoin exchanges, really impressive exchange with a really strong track record on security and acting ethically in the space. They've got high trading volume and low fees, with no minimum or hidden fees. Kraken have twenty four seven support and on the institutional and business solution side, they are providing best in class accounting, reconciliation and reporting services for cryptocurrency hedge funds, asset managers and fund administrators. Kraken Cracken have an OTC desk, they offer five fiat currencies and they also offer margin and futures trading. To learn more and sign up, go to the Cracken link in the show notes. Next, Unchained Capital, they're doing Bitcoin financial services and they're offering a multi-signature vault and also Bitcoin collateralized loans. So with the vault, you can use Trezor or Ledger, it's a web interface, it's really simple to set up, and I'll be having Drew Bansal back on from the team to talk about their products as well soon. Unchained also offer Bitcoin collateralized loans, so you can get USD liquidity without selling your bitcoins, meaning you don't trigger a capital gains event. So if you wanna learn more about that and sign up, go to the Unchained Capital link in the show notes. Preston Pysh is a globally ranked podcast host of the Investors Podcast, and he's done his share of Bitcoin interviews with people like Trace Mayer and Tour de Meister as well. He's also done some work on the Mayer Multiple, and Preston has done some statistical work on this, so I'm sure you will enjoy this interview. Preston, welcome to the show.

Hey, Steven. Just so awesome to be here. I love you, what you do, I love your work, and excited to be on your show.

Yeah, man, I'm a fan of your work as well. I know you've done, your fair share of Bitcoin interviews with legends such as Tua Demista and also, our now mutual friend, Plan B as well. So, yeah. So look, Preston, I, I know you've obviously got a big focus. You Cast, very well known, you know, very, accomplished in that regard. And I think you can really speak to how an investor is typically thinking and how they normally assess these kinds of opportunities. But I think the crazy thing with Bitcoin is it's different. And, yeah, so I guess it might be interesting just to hear from your perspective how did you first tumble down this Bitcoin rabbit hole?

It's funny that you, you say it that way because I always felt from the very beginning, and I've been in the- Bitcoin space since 2015, that I was an outsider, even though I came from a finance background into Bitcoin, because it seemed like so many people in the space really kind of-- maybe this is my own bias, but it seemed like everybody had a, a hardcore tech background. they were coders and whatnot, and so I just always kind of felt like I was, you know, part of the group, but the guy that was the weird one on the side there that came from the finance- angle. So it's, it's kinda neat to see everything kinda merging together now here in twenty nineteen where you're starting to see all the paths kinda come together, but early on, it, it never felt like that for me personally.

Right. And in the early days, I think obviously there was the cyberpunks and libertarian people who were some of the first few people, and then that next sort of wave, which we might call the twenty thirteen and fourteen people, were sort of like the payments people, right? but I think one of the challenges with Bitcoin Bitcoin is that it requires, it's such a multidisciplinary thing, so it's not easy to just come at it from one angle. You sort of need at least a little bit of each of these different disciplines. What was your experience in that?

So what really kind of got me interested was back in twenty fifteen, I was seeing what was happening from a central banking standpoint. I was really looking at quantitative easing and saying, "This just-- this doesn't add up. Like, there's no way this ends well." I was looking at long-term debt cycles, which we can maybe talk about later on, that literally are eighty-year-long cycles that play out in the credit markets that take very long times to, to- Come to some type of finalization or, or some type of fix. And so I'm just searching around, I'm just like, "How, how are we possibly gonna do another Bretton Woods?" Was basically the question I was asking myself back in 2015. And, I mean, it just was like, Bitcoin kind of popped up, and I was like, "What the heck is this?" And as soon as I heard that Bitcoin had a fixed monetary baseline and that it was this protocol-based digital, currency that you couldn't create Create more of it, you basically, through blockchain technology, basically fixed the, the units in the digital space. I was just like, "Holy moly, this, this is the fix, right? This could potentially be what it is that I'm trying to understand how this is all gonna play out." And for me, it just really kinda clicked. It helped that I had a little bit of, background or understanding in encryption. And so for me, the tech- I think for me to bridge the gap into the tech was a little bit faster than maybe some other people in finance that maybe don't have some, a, a little bit of a background in that. So, you know, right from the get-go, I was like, "This is amazing, this sounds incredible," and I just couldn't read enough at that point about how it works and, and more about it.

I think to me, the common error that I see, and I call this like a, it's just a category error, right? A lot of people who are looking at Bitcoin Think of it like they would a stock or a bond, right? And if I'm a stock investor, I'm thinking, okay, what's the dividend I'm gonna receive from this company? What will the future capital appreciation be in this stock? That is the way I will assess this stock. Or if it's a bond, I'm looking at, okay, what is the interest payment? What is the, again, the capital appreciation that I may experience? And then it's a whole new world to take someone out of that mindset and then think about it like, oh no, actually, this is like This new form of money. How do you, think about that?

Well, you couldn't have described that any better because you basically described me whenever I first became an investor, because I came into investing, I came in with a really simple thesis. It was, "Who's the best investor in the world? Let me study everything I can get my hands on and every book that that person's ever, ever read, and then let me mimic that approach." And so, you know, this is back in the early two thousands, this is Warren Buffett is the guy, right? And he implements an approach called value investing, where you basically look at the future cash flows that a business could produce, you then do a discount cash flow model based on interest rates, and you say, "I think the company is worth this many dollars per share today." And based on that, if I can buy it for ten dollars cheaper than that price, well, then I wanna start buying as much of that as I can possibly buy. So what you have in the financial sector is a ton of people who think through what I just described. That's how they view every single investment, and it's almost like a dogma, within certain communities that that is the only way that you can value something And so I, I think it doesn't help that Buffett's comments on gold are very negative from the standpoint that, you know, he has all these analogies that he's used for the, through the years that basically says gold is worthless. And so you have that same community that's saying, "Well, there's no cash flow that gold is kicking off." And just, you can just replicate this argument into Bitcoin, and you can see why so many of them have an issue with Bitcoin is, Bitcoin's not kicking off a dividend, it's not kicking off a coupon like a bond kicks off, and therefore, because there's no future cash flow, I can't discount that cash flow back at an appropriate discount rate to come up with a value today. That's the end of the thesis. And so I think that that's why you have such an enormous amount of friction, especially with people in traditional finances, because they're looking at it from that lens or looking at it from that optic. Now, what I find fascinating about Buffett's approach is Not all of his, not all of his investing decisions are based exactly off the model that I described, but I would argue most of the people that follow him in finance would tell you that it is. He, he also does other investments that he's looking at from a growth standpoint. So he might buy, let me just give you an example. So like, let's say, this might be a bad example, but I'm gonna use anyway 'cause everyone's gonna understand it. But early on, let's say you went and ate at a Chipotle, and there was only ten restaurants in the local community, and you were looking at it, you're saying, "Hey, their operations are great. I could see them opening one of these in a store, in a town next door." And They could put four hundred stores in the country. So you could go out and you could say, "Hey, I think that there's a four X upside to this business, regardless of the cash flow, just because they're gonna have that many more stores and the market cap on the overall business is gonna go up four hundred percent because of the growth that can still happen based on how many stores I, I suspect they could put across the country." So whenever you're looking at investing from that lens Then you could start talking about how Bitcoin could be valued, in my personal opinion. And so when you're talking about a currency, which is what my opinion Bitcoin is, is it's, it's a currency. So when you look at other currencies, what's the total market cap of the US dollar? What's the market cap of the, of the yen? What's the market cap of, you, you name a currency, the euro, whatever. And if you think or you buy into the narrative that Bitcoin could become one of those currencies, then the question becomes, well, how big is it today? Is it ten stores big? And could it become a hundred stores? And for me, when I'm looking at the value of Bitcoin, that's absolutely how I'm doing it, and I would argue that most investors con-consider that approach very reasonable and viable. in the value investing space, which I would argue is about half of the investing community, they wanna see cash flows, they wanna see profits, and they wanna see that discounted cash flow model to come up with what they think the value is. So they're just having an extraordinarily difficult time looking at this from maybe that lens.

Yeah, that's-- I really like that explanation because to me it-- and I can speak to this world, and I can at least understand that world because I went through university finance classes and so on, and there they teach you, again, you know, these different models and the idea is that you wanna try to, you wanna assess things in terms of how much return are they giving you versus how much risk and so on. And there's, you know, these different ways of thinking about it, particularly as you mentioned the DCF, calculating things on NPV, net present value, and so on. So it's just a range of those things, and to some extent, it's, I think, as we were mentioning offline, it's like eighty years of conditioning, right? It's like, it's just people have been in this mindset and, I I mean, to some extent, part of it is, you know, if you look at certain books, right? If you read, Stocks for the Long Run by Jeremy Siegel, right? And in that book, I think he mentioned something like six or seven percent real return over like two hundred years, and there are certain mantras as well, right? It's time in the market, not timing the market. And then, how, how do you then sort of take someone out of that into kind of thinking about, oh, okay? How, how, how would I invest when that cycle is potentially coming to an end?

So I absolutely love your statement, "eighty years of conditioning." And the reason I love that statement is because I had briefly mentioned before this idea of a long-term credit cycle. So the person, for me, that made that idea just etched that in my brain is a guy named Ray Dalio. anyone in finance knows who Ray is. His per- Personal net worth is anywhere from like sixteen, eighteen billion dollars. And Ray made a video, and this most of Ray's entire investing approach was based on this idea of large credit cycles and business cycles that ride on these larger credit cycles. He made a video, it's called, How the Economic Machine Works. I can honestly tell you, this video is thirty minutes long, it's on YouTube, I'll give you a link so you can share it with your listeners, and I would honestly tell you, this has to be one of the most valuable thirty minutes I've ever watched in my entire life of a video, and it goes into detail, and, and in a simple way for people to understand what in the world is happening in financial markets and why you've seen interest rates go down since nineteen eighty-one consistently, and now they're, the ten-year Treasury went from Sixteen percent back in nineteen eighty one, and now today it's at one point seven percent, and why that is happening and why it's taking so long to play out. This video is amazing. But anyway, going to your point of eighty years of conditioning, so you have things like recency bias, okay? In financial markets, you've got to understand cognitive biases, and you better understand them extremely well so you just don't get destroyed. So the first one I, I would say under this idea of eighty years of conditioning is recency bias. We rely on habits to make- Make us make things easier, because few people want to reinvent their lives every single day. Because we rely on these habit loops that just run in our subconscious of our brain, we just automatically assume that we're accounting for all the instances and the, the things that are gonna happen to us based on the, call it the last ten years or the last fifteen years, we think that those are the only type of events that can happen in these two or three standard EVAs That's a huge bias. And so if you're looking at something that only happens every eighty years or every hundred years, guess what? You're gonna potentially fall victim to that. You have another thing called normalcy bias Normalcy bias is that, and you hear people say this all the time, "Well, nothing bad's happened in the last ten years, so therefore the deduction is nothing's gonna happen, bad is gonna happen in the future, which is just totally nuts." But I'll tell you on Twitter, I can't tell you how many times I've made a comment that's probably somewhat, you know, antagonizing in a way or whatever, and I hear people say, "Well, it hasn't happened in the last five years, so it's not..." It can happen again, and my response is typically, "Ah, the definition of normalcy bias." But anyway, I think, I think that those are really important for people to think about, and I would really challenge people to go watch this video, on these long-term debt cycles, 'cause it's just insane, it'll make your mind melt.

Yeah, fantastic comment, and I think one thing that's underlying some of that is this perception, and again, this is what we're taught in finance courses at university, it's, "Ah, the government ten-year bond is the risk-free Great. And I think, I think to your point again around recency bias and normalcy bias, we've all tricked ourselves into believing that this government tenure, particularly the US government tenure, is seen as the risk-free rate. But really, is it a risk-free rate?

Well, think about it like this, if you were, let's just say you're thirty-two years old, right? If, if somebody's listening to this and they're in their early thirties That all they've seen since they have been of age to participate in markets is that interest rates being around like two or three percent is normal, right? Like that's all you know because You weren't even part of the two thousand eight crisis, like they, they've all entered the market, all they know is that the stock market just always goes up and that interest rates are always low. And so you talk about normalcy bias and recency bias and these kind of things, like you can see why people just look at what's happening today, with, you know, our Federal Reserve here in the US dropping in a quarter of a trillion dollars in the last four days into the repo market, and they're just like, "Ah, well, that's what happens," you know? It's, it's crazy.

Absolutely. And so I think the other thing is around how often, as you were mentioning, the change in a monetary standard, right? Are we getting- We're gonna have another Britain Woods, and that may-- that sort of event may happen every thirty or forty years, right? probably the last big kind of event like that is the whole nineteen seventy-one when the gold window was closed. But again, it's how can a person think about ways to position themselves for a change in the monetary order?

Well, yeah, and I, I would argue that really the last time the world has had a monetary order that was That was actually sat down with a bunch of people from a bunch of different countries to have an agreement struck was really kind of Bretton Woods in nineteen forty four, because what happened in '71 was more of The US basically defaulting on their promise, because the promise was, "We're gonna fix the dollar to gold, " and therefore, if all you other countries fix your currency to the dollar, then the whole world is-- has a fixed baseline of currency, and then trade amongst nations can be fair and favorable, right? But through that time in nineteen forty four up until seventy one, I would argue the adjustment of the money multiplier, and if you don't know anything about that, just Google it, and you can kind of understand how a country can conduct monetary expansion, but do it in a kind of a sly and sneaky way, through the adjustment of the money multiplier up until we got to a point where we couldn't back it with the gold supplies that we had, therefore we had to come off the, the, the gold standard, was the break- Breaking point, and then the narrative that was sold was, "Ah, you don't necessarily have to have sound money, and that works as long as..." Central bankers don't adjust and manipulate it slowly over time, but what we've had happen is that it has been adjusted and manipulated over time through the drop of the interest rate, and therefore you have what you have playing out. The, the default point comes when you can't go any lower than zero. So that works, you can come off of a gold standard, you could do it all day long. But all the central planners have to-- every dollar that they put into the system, they've gotta take another dollar out, and they have to do this consistently over the long period of time. And that, in my opinion-- this is all, you know, Preston Pysh's opinion-- over time, they would put, you know, one dollar in, and they'd take fifty- Cents out, right? And they would do that slowly, and it happened so slow over decades that it never really seemed like it was a thing. And so you can see how normalcy bias, recency bias takes hold because this is happening over an entire person's lifetime, that they're not noticing what's actually taking place and what's taking place is you're seeing a very, very slow default, and once everybody's at zero globally across the board, and we're almost there. That's when you have everyone say, "Uh, we need something that has a fixed monetary baseline, we need sound money," and so now what is that? And so that's, that's to be determined at this point.

Yeah, great, great points there. And one thing that commonly comes to mind or is often raised at this point is this point of, "Oh, aren't these people just a bunch of perma-bears? Why are you always calling the end of, you know, the end, the, the fire and brimstone?" And, you know, who's to say now is the time? Who's to say, "Oh, because, you know, we've had, you know, people who are calling the end in 2

Anyone who's listening might be in their mind thinking, "Well, okay, yeah, what we're doing now isn't sustainable, but how do we know how much longer it could go?"

Well, and I think that's a-- I love that point, and I think a lot of people that might follow my Twitter feed might think that I'm a perma-bear or, or however somebody might classify it, when in all actuality, I'm definitely not. I've been participating in the markets the whole time. But I guess the thing that piques my interest is all the maneuvering and all the The manipulation really is kind of what it is for me, 'cause every time I see manipulation in the market, I wanna say, "Hey, somebody's doing something that's not right," and I wanna highlight it so everyone can see it. But I think when you're talking about the timing piece I think that, I really don't think that you're gonna see a, a major catastrophic failure until you're truly at the point where all participants, all of these countries are at zero or lower And I think even then, I think I could conjure up an argument on, on how central banks could still keep it afloat even with negative interest rates, but, but in order to do that, they would have to remove all physical currency from the system Forcing people into digital currency, and even then, I think it's gonna be hard for them to-- I, I think it's gonna be extremely hard for them to control because there's other options that now have entered the market in the private sector, basically. I don't know if you'd call Bitcoin or any other cryptocurrency, the private sector, but that's, I guess how I view it is you have this competition to government currency, and so that's why I don't know that they're gonna be able to sustain it when it goes down. Too negative.

Yeah, that's also the other question as well. So great point around the negative interest rates. And I think a common question that listeners might be thinking is, why are people essentially giving up their money to borrow, right? Or not borrow, rather they're buying these bonds that they know they're gonna lose money on. And the best, or most coherent explanation that I've heard is that essentially it's a greater fool game. Bonds have an inverse relationship between the yield and the price, and because everyone just keeps buying, pushing up the price, obviously Basically that's push-pressing the yield down, and that's why we're seeing it push into negative. Is that explanation consistent with what you believe, or do you think there's some other explanation, explanat- sorry, explanatory factors around that?

So your description of it being a greater fool's theory is one hundred percent valid. Where I would maybe argue it a little bit differently, I think banks have to participate by law at this point, and that's where, 'Cause you're not seeing a lot of the negative rates being pushed into the private sector beyond the commercial, too big to fail banks. And so I think that's another factor that makes it so hard to understand the timing of how this all kind of plays out, because if the banks can kind of shield a lot of the negative interest rates from the private sector of how that materializes into, into people like you and me and how we borrow money, that's gonna make it Run even longer than I think some might expect, but, it's really hard, it's really hard to say or, or no. I just think that that might be the only argument that you could say that would, allow it to even persist longer is that the banks are shielded that and the banks are in cahoots. And I wouldn't even be surprised that in some countries you start to see banks being nationalized and they're not even in the private sector at this point because they then become the government and then it's, I think it really gets mushy. At that point.

Excellent, yeah. and so I guess if somebody's listening now and they are coming at it from a more traditional investor point of view and they're assessing Bitcoin, they may be looking at it from a slightly different argument case, or they might be thinking of things like, "Oh, is Bitcoin uncorrelated? Or what is the Sharpe ratio of Bitcoin? " Or potentially they might be looking at, "Okay, it's, you know, it's returned quite a lot over the last ten years or so. " So, how- What are, are those some factors in your mind that you think a traditional investor might look at Bitcoin and assess it in some way that they might think, okay, it's worthwhile at least taking a position?

So I, I absolutely think that this is the most exciting point to sell on Bitcoin is really kind of the Sharpe ratio matched with the fact that it doesn't have correlation to all the other assets. I think where you're having trouble getting traction on it is, first of all, most people in finance don't understand this technology, and they don't buy into the idea that it's safe at this point because they don't understand it. You're never gonna think something's safe unless you inherently understand how it works and how it functions. Now, where I think you're gonna have a psychological bias that overrides that lack of understanding is when a market cap in Bitcoin reaches a level that you're Your typical investor just says, "You know what? Maybe I'm just-- I just don't understand it. Obviously people do because the market cap's one trillion dollars." And so then they're gonna say, "They're just gonna default to their..." The lazy part of their mind that says social proof has decided that this is something that I need to participate in. And so I think we're waiting for that to happen, and so it's just gonna be a little bit of time before that gets in there. I think the other part from a, from the financial sector standpoint is, I think when you get Bitcoin settled derivatives in place You're then gonna have ETFs that get approved, and then you're gonna have vehicles that are so much easier for the day-to-day investor to just throw a hundred bucks or even a thousand bucks or ten thousand bucks at Bitcoin because their friends are making A thousand percent return last year, right? Like that's,

the, that's

gonna be, i-in my opinion, this bull market that's getting ready to happen That I think we are just starting to experience, that I think is gonna easily run to the start or basically the end of twenty twenty-one, is gonna be the ETF Derivative, Wall Street getting on board, bull market, when, when we look back at it. And I think most of it's gonna be because we have backed, we have Bitcoin settled, you're gonna ETFs, and you're gonna have all these people saying, "You know, it wouldn't hurt to just have a half a percent exposure." That's gonna be the narrative that I think you're gonna hear Wall Street saying in about a year from now.

Right, yeah, it's fascinating how, because we're sort of a little more insider or we have a little bit more connection with it, we're sort of able to see it beforehand. And part of it is that we realize just how small it is right now, and, to, to the points you were making as well, it's also that point around, career risk as well. So I think it may-- right now it's still seen as, "Oh, Bitcoin's still a little bit of a weird thing," but eventually, once the first few influential people start getting The career risk goes the other way of if you don't hold Bitcoin, now there'll be the question asked of, "Why didn't you buy some?" Yeah,

there's gonna be a flippening. I, I mean, my personal opinion is that there's gonna be a flippening of it, of that point of view, and I think that there is a lot of career risk for a lot of, fund managers at this point because truly, when you're talking about something that has a market cap of, call it two hundred billion dollars like Bitcoin is today, I, and

Professional money managers that are sixty years old, they're looking at that and saying, "Yeah, right. that's, that's absolutely nothing right now. You got individual companies with a trillion dollar market cap, and if you're trying to call that a currency, Let me know when it hits a trillion dollars, and then I'll, I'll take a look at it. So, and, and that's a risk that they're taking, but I think that that's what they're defaulting at, is they're saying, "I don't understand the technology, wake me up when it's a little bit higher, and then maybe I might take a lo-- a closer look at it." But I think the thing that, in my personal opinion, the thing that really got my attention was the Sharpe ratio. When I looked at the chart of the Sharpe ratio

With no correlation to anything else, I'm just thinking, my God, that's the holy grail of, of an investment that I have ever seen. And I mean, it's not like the Sharpe ratio has outperformed in some parts of the year since twenty thirteen versus other assets, it has absolutely crushed By a landslide, every single other asset that existed since twenty thirteen, the US stock market, the commodities market, the bond market, any other currency, emerging markets, I mean, you name it, and Bitcoin has outperformed it without even a blemish of a day since twenty thirteen. So that's, that's insane. Like, that's totally insane. And then you wanna combine the fact that there's no correlation to anything, I mean, it's just like an investor's dream. I mean, it's indescribable.

Right. Yeah. And I think to me, this, I think Plan B has shown this really well on some of his graphics as well, where he shows things like, what if you just did, literally, if you just did one percent Bitcoin allocation, ninety-nine percent cash, and you still got better return for less risk than going a typical

sixty Argument, in my opinion, is what in a year from now, if you see the market cap-- if you, I think if you see the market cap go over half a trillion dollars, I think you're gonna start seeing Your smarter fund managers say, "Hey, I think even just one percent exposure to this is gonna do wonders for your portfolio if, if this whole central banking narrative blows up." And I think that the insurance risk of putting one percent of your money in it is gonna be the thing that just takes this thing to a whole other level.

Right. And I, I wanna also try and explore a little bit of- What might be, whether it's psychological motivations or whether it's kind of institutional setup that might be keeping people out of Bitcoin right now? Could it be that some of these professional fund managers and professional money managers aren't Geared to buy Bitcoin because they might have a certain mandate that stops them from-- they might have a mandate that keeps them invested only in, say, the top stock markets of the world.

I think that's probably some of it, but I'd be willing to bet that, how did you describe it earlier, the, basically the ego risk or the risk of people- Being worried that they would get it wrong and then that being branded onto them is way more of what's keeping people out of it at this point.

Yeah, that makes a bit of sense to me as well. and I think ultimately from a retail investor point of view, it may just be a point around stagnation, right? So they just sense this idea and potentially there is this question that many people are discussing, is this idea of, are we becoming Japanified, right? Is the whole world Just starting to become, low growth economy like Japan did, and because we've got a bunch of zombie companies who are surviving basically thanks to cheap credit. And so in that world, they're looking for a way out or at least some way to get some return, and potentially that's another angle.

So my personal opinion, we are absolutely seeing that across the entire world. What happened to Japan? You know, you look at their market in the- nineteen ninety, it peaked, you saw basically an eighty percent decline, it's come up a, a tad from there, right? But it's been struggling. Their interest rates are at zero, you're effectively seeing, which I, I find this absolutely fascinating, through their quantitative easing efforts, they've had to start buying up their stock market in order to pro-provide enough liquidity into their system, and what you've actually seen is the nationalization of the companies in Japan. The ownership they've been buy- So much of their equity market that you're actually seeing, I mean, if you're looking at it from an ownership and voting rights standpoint, that the government is nationalizing their stock market to just, just to provide enough liquidity to keep the zombies alive. And that's truly, you know, when you look at, at the price that's being paid for these policies and the fact that you don't have sound money, what it really is is, is the zombieification of companies. And I think the other huge consequence of this is, think about it, if you're, if you're exercising quantitative easing and you're printing a bunch of cash and then you're bidding the price of bonds into oblivion and paying any price for them, because that's effectively what's happening. Who's buying those bonds? These bonds are in tranches of billions of dollars, and so the people that are holding those bonds are very wealthy individuals or corporations, very high capitalized corporations that are sitting on these bond tranches. So if you're taking cash that you just printed out of thin air and then buying those, those securities off the open market, and remember, when you have a buyer, an, a buyer of endless money on one side and a pur- person who's selling, guess what happens to the price? It goes up, right? And the yield goes down. And so when you have these large influxes of capital to the few that are holding these enormous securities, what you're effectively doing is you're just obliterating the middle class. You're, you're putting, you're stuffing all this money into the hands of people that, in Ray Dalio would call them the haves, and you're limiting or making the game a whole lot harder for the have nots. And so what you're seeing by that, by that policy is you're seeing it represented in politics. I mean, here in the US, you have a billionaire versus a socialist running for, for president, and it shouldn't be a surprise to anybody because that's what the, that's what the policy is producing, it's, it's producing this polarization effect. Where you have all the money being stuffed into the hands of the people that have securities that are now the, the, the individuals that are now employing that cash flow. And guess what? There's only so many boats you can buy with the cash that you're handed, right? So it goes into buying securities and it, it goes into buying and bidding up the prices of the stock market.

Yeah, I think that's definitely what we've seen in terms of stock market rising and bond price, bond- Bond prices and bond yields going the other way. So it, it's just, it's become a game of own assets, and if you own assets, then you can benefit at least a little bit out of this inflationary system, but it just drives this overall, lack of productivity or at least a, a, a distortion in the way that the economy gets set up.

Well, if, and if you even wanna com-compound it even further, think of it from a corporation standpoint. So if I'm Apple, and I can, I, I- I've got just a treasure chest of money on my balance sheet. I can go out with interest rates super low, which is a consequence of quantitative easing, because, you know, the government was buying up all the bond market, pushing yields down. I can now go out and I can borrow A crapload of money, billions upon billions of dollars, at nothing percent interest rate, and then I just buy back more stock. Because if my company is returning ten percent annually and I buy back more stock, I'm basically providing a larger and more substantial yield to the few shareholders that continue to hold the stock. Because I'm buying the stock from people that are selling, so I'm, I'm basically doing that same thing, but I'm amplifying it because credit is so cheap for the, the companies that have performed. So it's just, it just further amplifies what we were describing before.

Yeah, that's a great, articulation of that point. I'm also interested to talk about some of your work with the Meier multiple. So now I know this is something that you invented and you coined it after Trace Meier, who essentially came up with it. So for, for listeners who aren't familiar, what is the Meier multiple?

So Trace Well, let me, let me rephrase it. So back in 2017, Bitcoin was going crazy. the price was just going nuts into the summer and then into the fall and then really kind of right up to Christmas timeframe in 2017. And, you know, I've participated in enough markets that when you see something literally going parabolic, you just gotta be ready 'cause it's typically gonna get really painful in a, in short notice. And so I'm looking everywhere on the net, and I'm thinking, I've gotta do something to prove to myself mathematically that I'm making a good decision opposed to an emotional decision. That, 'cause at the time, I was like, I need this, I need to lower my position size. I, I still believed Bitcoin was gonna go long, right? I think it's going really long, but in that moment, I felt like the buying was outstripping the number of people that could sustain that buying rate. And so I- I felt like there was an opportunity for a short term sell, which then I would try to re-enter the market. And so I was looking for anything I could find that had some type of statistical analysis or way of trying to value, shorter term position or shorter term holdings in Bitcoin. And so I came across an article that Trace had written, and I, to be quite honest with you, Trace was a leading factor of my entry into Bitcoin in twenty fifteen. And so I read an article where he was showing, "Hey, the, the, the current price compared to the two hundred day moving average is a great way to look at whether it's overheated or maybe a great time to buy." But on the article, Trace only had, I don't know, he probably had eight different examples in time that showed, "Hey, here's when it's high, here's when it's low." So I love statistics, I love math, I love numbers, and I was like, "Alright, I wanna do this for every single day that Bitcoin is traded." And so I went and I just pulled some data and I ran a, you know, histogram on it and I just plotted it, got a bell curve, and then, just looked at, okay, what's in the realm of normal for this multiple and what's in the, in the realm of two or three standard deviations. And what I found was What was published on our site, if you go to mayormultiple dot com, it has kind of the way we were thinking about it. I'm really poor at updating it, and there's been a bunch of people in the community that have created tools now that automatically provide you the day to day of what the multiple is, but, it helped me, I think I sold my position in December, probably the seventh or eighth of December of twenty seventeen, which was, you know, it was like eighteen thousand dollars at that point. I then again used the mayor multiple to buy back in this past, that basically at the start of, of, twenty nineteen, when it was at a point five, I reinitiated some of my position and I was able to buy it at thirty-six, thirty-seven hundred dollars. Per Bitcoin. And I, I kind of suspect that there, that the halving had, had a, had a role in the timing of how it had to play out. I wasn't a hundred percent sure after seeing, you know, Plan B's work. Now it's just for me much more obvious than it was at the time because it was a lot of intuition, it was a lot of luck. Let me emphasize that. What I did was a whole lot of luck, but I was able to use the mayor multiple to, to help time the exit and the re-entry, with Bitcoin. Now, I think it's important for people, my opinion is, I don't necessarily know that this next cycle, assuming we do go through another bull market, which I think we will, I don't necessarily think that I would sell on the next, bull market, because I'm afraid that, This could be a point where Bitcoin really kind of moves into a whole different level of how it's viewed as a currency, where back then I definitely didn't think that it was at that point. I thought, I felt that you had many more years ahead for it to kind of reach that status, and luckily that was a good assumption because it could have been a, a bad assumption, I guess, at the time, but at the time that was my, that was my opinion.

Right, and I think perhaps you were speaking as well to this idea that at that point in 2017, we didn't really have Lightning Network going, we didn't really have all these ways to kind of easily transact back and forward. I mean, yes, there are on-chain transactions, but it, it's just, it just wasn't at the level, I suppose, in terms of broad mainstream understanding, acknowledgement of Bitcoin as a potential currency and as a potential money. Would that be your view? Absolutely.

So I was, I remember that December, I was at an Army Navy football game. I'm in a box talking to a bunch of bankers, people that are very high up in the banking sector from-- So I went to West Point, there, these were alumni that were pretty accomplished alumni, and I remember I brought up Bitcoin and they just looked at me and almost laughed. They were just like, "Yeah, right." You know, it was kinda like, "Are you kidding? Are you, are you serious right now? Are you joking?" And I just kinda looked at him like, "I'm, I'm kinda serious, I guess." And, I think for me, that was really obvious that, you know, this wasn't at a point where anybody, was talking about it in a way that they took that serious. I find those conversations are very different now. I still think that they're not at maturity by any shape of the imagination, but I think maybe another year or two, It'll be, it'll be an absolute, at, at a point where everyone absolutely understands what you're talking about, they understand the arguments, they understand whether they have a position or not is unknown, but they're gonna look at it in a completely different light, in my opinion.

Right. And I think what it would take is perhaps in the next few years, it'd start to be seen more like a competitor to gold, right? So people compare to gold's whatever seven or eight trillion, they might think of Bitcoin in a similar way to That, and I suppose for it to really go to the full way, it would have to essentially get fully financialized, right? So people might even be thinking in terms of debt and credit in terms of Bitcoin, although I think my view is we'll see a world with a lot less debt, and it'll be mostly an equity based world, hypothetically, if we get there and, you know, the world is operating on a Bitcoin standard, it'll be sort of very equity based. What's your view then in terms of what might it look like in a few years' time once it's a little developed. Will we see a little bit more of these financial products being commonplace?

Yeah, I mean, I think so. And I think that the challenge for gold moving forward, and I'll, I'll be full and open here, I have gold options, I own gold companies, at this point, and, even though I, I own those, which I think they're very bullish in the next year to three years, I think as Bitcoin- I-if in fact the narrative that, that we're both suggesting is happening, plays out, I think you're gonna f-find people very quickly understand why Bitcoin is more valuable than gold just because of the utility standpoint. and as, as more and more people would adopt that and use it, I think that everyone's kinda looking at gold from, from the side saying, "Uh, so what's, what's the point anymore? Like, yeah, it's held up." I, I'm, I'm being serious, that's how I would look at it. It's just like, okay, I can't go out and like, go to the store and spend an ounce of gold to buy this, like, that's ludicrous. The storage to-- for gold is ludicrous. The fact that I can't perform I'm holding, like, if I buy some gold bars and I have them at my house, I don't know what's in the middle of those, and I'm not gonna cut 'em apart to find out. So, you know, by running a full node, I can effectively cut the gold bar apart, it- When you understand the technology and you understand what it's replacing, it's just so obvious, why it has so much more utility.

To reflect perhaps one of Safedine's arguments here is that there is still I think one point that Safteen has been making recently is this point that it wasn't necessarily a technical failure of gold, because people did have these other ways of doing it, right? They had other ways like clearing houses and so on. It was more of a political vulnerability that gold had that made it get really centralized. And I think the point that I've heard Safteen make on this is that also the idea with Bitcoin is that enough other people can run their own full nodes such that it, it just changes the game in terms of people being able to verify the supply and so on. but there is a point to be made there around like liquidity of gold and, enough of a custom and history that certain cultures they like to give gold and so on. So it, it remains to be seen.

I mean, no matter what, you're always gonna have people tell you that the analog record and, and analog track sounds better than the digital one, but we-- I think most people know the truth.

Yeah, look, I, I agree. I think ultimately the world is moving to a Bitcoin standard, and we're just, we're just early, we're just, trying to help other people see what we see. I, I'm also curious to ask a little bit around the overshoot and undershoot factor. So coming back to the mayor multiple a little bit, might it be one way to think of it like it's like a rubber band, and it sort of, it, it gets a bit over, it's like you've pulled that rubber band a little bit too far,

I think of it like historically, I can't remember the exact numbers, but I think on your website you were saying historically the average mayo multiple has been like a little bit above one.

Yeah, it's, it's historically around one point four. So let, I'll just give you an example. So if the, if the price of Bitcoin was fourteen dollars, everyone get excited, the, the moving average would be ten dollars. So that would be a one point four on it.

Right. And so I think the other thing then is sometimes it, it, even with the- This recent kind of crazy run up earlier this year, right? So it was maybe three and a half thousand or whatever at the bottom, at the end of last year, and then earlier this year around June, during the time of Bitcoin, twenty nineteen, actually, the price is like, it was hitting fourteen thousand in USD terms, which was quite clearly overstretched, right? So it kind of had to come back down a little bit and sort of wait a little while before it can keep going up.

Yeah, and it's funny because literally on the day that it hit fourteen thousand, I saw the Had, had, had touched a point that in the past has really been a very hard layer for it to go through, and, you know, I went on Twitter and I said, "Hey, this price is really exciting, but it's probably a great time to stop allocating your, your, fiat into Bitcoin and just kind of hold up for thirty, sixty, ninety days until it kind of comes back down into reality." Because again, I look at it like the, the number of people that are bidding that price Price and that are fomoing are too limited to sustain the rate at which the fomoing is occurring. I don't know if I described it real well there, but you need more people to be able to think of it like this. If I came up and I said, "Steven, you come with me," and then you grab another person, you say, "You come with me too." Like, there's, there's, there's a limit to how many people we can grab and take with us in these bull runs. And so when you think of how- Fast, it's accelerating. Think of it like if you're running ten times faster than you normally run, well, now you can't even grab one person, you can only grab one person at half the rate that you were doing before. And so I think that's kind of what you run into with some of these ramp ups, because there's, there's something in the news, in this case, I think it was the Facebook announcement that caused all the-- I mean, come on, C-SPAN was running, everyone's talking about crypto, and it's like, "This thing never dies." And

Yeah, yeah. and I think a big part of it is the emotions that play into it. So people get caught up and they think, "Okay, this is it, this is the one, guys," and it's not really, obviously. and then on, on the downside, the same thing can happen there as well. "Oh, it's dead, pack it up, it's all over." So, I guess as, in, you know, you run an investors podcast, you've got to learn to- Stay your emotions, or at least be a little bit more objective in that. Do you have any advice for listeners or any thoughts on how they can take that emotion out of it and think in a more objective fashion when they're investing?

So, fr-from an emotional standpoint, I'd tell you that whenever you have your strongest emotions, just do the exact opposite. So, whenever I reentered the position in 2019, the Wall Street Journal came out with an article, and they-- the, the headline on the article was Bitcoin is dead, this thing, like, this thing is done. And I was thinking, alright, here we go. Like, like that's all I needed. I just needed somebody to tell me, like, it's all, it's over, stick a knife in it. And then looking at the mul- the mayor multiple and it being at like point five, I was like, okay, well, it's time to take a position again because everyone's thrown in the towel, there's total capitulation at this point. and so that would be the opposite of how I felt. Now, Necessarily how I felt, you know, I'm reading the article, I was like, "Oh, this isn't good," but this is typically when I'm right, is whenever I take a, a position when it feels so bad. And so on the other side, if you're taking a position and it feels oh so good, like you just crushed it, like you're up, I don't know how many percent, right? And the thing is just running, it's going parabolic, you're seeing the, the, the whisker just blowing out to the upside, you're seeing like thousand dollar moves. I mean, this is a perfect example of what happened in the summer. I was, I got on a flight, I think I was flying to like Texas or something like that. I got on the flight and it went from thousand. And I was, I was flying with another person, I said, "You watch when we land, it'll be a thousand higher." And I said, "And then it's gonna peak." And so, and so we landed and it hit fourteen thousand, I said, "It's not going much higher, this is it." And so sure enough, I mean, it just, phew, because it just can't-- it, it was like everything in me wanted to throw another, you know? You know, thirty, forty thousand at it, like when I got off that plane. But I knew, that's the worst time to do something is when it just feels so good. And so just, you know, you just, you wait and you just do the, you have to do the opposite of, of your extreme emotions. And I, I emphasize it with extreme because you're gonna have these times and you're like, "Ah, this feels kinda right," and it might be. But whenever it's extreme, that's when you do the opposite. as far as, I'll try to quantify it, 'cause you were asking for me to quantify it, and that's much more qualitative. I would tell you from a quantitative standpoint, the mayor multiple helps a lot. Another tool that I've- Recently, s-kind of started looking at is this idea of incorporating a moving average combined with an RSI, which is a relative strength indicator, for anybody that runs like a trading view, Charting tool, you can pull these up, it's really easy. The RSI, you just click on there and it'll drop it in there. But I found that if you've never entered a position and you're trying to find like that perfect moment that you can take a position and not have your temperament tested look for the price to be under the, the fifty-day moving average and make sure your chart's in days. if you find the price under the fifty-day moving average and the relative strength indicator, the RSI, is below a forty, kind of below a forty or a thirty, you're probably gonna get a great price and you're probably gonna be able to enter the position and not really have to worry too much about, Feeling really bad in the next ten days. Like you're probably gonna enter the position and it's gonna go in a, in a very favorable direction for you. And for anybody that wants to kind of test that out, I'd tell you to plot fifty-day moving average, your RSI, and look at when it's under, when the price is under the fifty and your RSI is under, call it a thirty. You, you're gonna have a hard time finding that to be a bad entry point into Bitcoin. So, I, if, if you're really nervous about it, I'd tell you to wait for kind of one of those indicators, which they'll happen, they don't happen a lot, but they happen every year. And, and I would caveat that with, make sure that you're not- I, I would tell you to read Plan B's article on the larger cycles, the larger four-year cycles, and make sure that you're not entering during one of those periods of time, and they usually last about a year to a year and a half, so kind of stay away if you're trying to enter positions at, in, during those timings.

Right, yeah. And, I guess, yeah, that's interesting, ways to think about it. And I think, let me now just also represent the, Bitcoin Tina view of no trading and you should be very wary of Many selling because the price might get away from you, and we're going through a historical time, and maybe one of these times it's gonna come and you might think that you're selling out so that you can buy more cheaper, but actually it's gonna get away from you, and now you're gonna have even less bitcoins, and if we're moving to a Bitcoin-denominated future, then you're, you might be behind on that. What's your view there?

I think that what you just said is probably the most important thing that was said during this entire discussion, right there. And I'm, I Reason at all. I just think that when you have something that has this much volatility, which it has eighty percent volatility in a single year, that it can go down, if you think you're gonna trade that and outperform its, its sheer performance of two hundred percent annually, you are absolutely kidding yourself Like you are totally kidding yourself.

I w- I would make the argument that it would be impossible to do, absolutely impossible to outperform somebody who just has a buy and hold strategy. Now, I said that telling you that I sold in twenty seventeen, but when I bought in twenty fifteen, it was just, it, it was a buy and hold strategy. I wasn't trading it day to day. The only thing I did was keep adding to the position. I thought I had a very ju- You see, once in a lifetime opportunity to get out and get back in at a better price after I paid taxes, which is just such a huge consideration that people completely forget about I had that, I had accounted for, alright, if it goes down this much, and I paid just ridiculous taxes on this, can I still enter with a high level of confidence that I can get the, the position back and still be ahead? And let me tell you, that was still relatively hard to do, and I don't even know that it'd be replicable if I tried to do it again. So, your point of buying and holding, I, I think is just, boy people, I love this Charlie Munger quote, and I know Charlie Munger's not a Bitcoin fan. Rat poison is, I think, the exact, terminology. Charlie, Charlie Munger has this awesome quote. He says Don't just do something, stand there. And you couldn't get a better quote to represent what you should do in Bitcoin other than just buy it and just sit there and enjoy the ride.

Fantastic, and I think it may be that, a listener wants to use the mere multiple just to time their buys, right? They might just use it as like, "Oh, okay, I'm gonna put a little bit more in now," "Okay, I'll wait for a good opportunity to buy," "Okay, now I'll buy a few more now." That, that may be one way to think of it as well.

Well, and I, it's exactly how to think of it, and that's, that's why we designed the tool, and put the, the information out there was for people that are entering their position, particularly people that are entering their position for the first time, because the only way I can describe this to somebody is, you're jumping on a rocket ship. It isn't gonna be comfortable. It might not go the direction that you think it's gonna go after you get on it, but if you can, if you can get situated on it and stay on it for, I would argue, ninety days You're gonna find that the thing is going in a direction that, assuming you get the four year cycle timing right, which I think is an important consideration for people to understand, right now I don't think it's too important for people to understand because I think we're beyond the, the kind of the bottom of that four year cycle or the, the bottom part of the four year cycle, but for people listening to this in the future you gotta understand that, and I think that once you get situated and you get on it, the tools that I'm talking about are to help you get on that rocket a little easier so that the ride's not so bumpy in the first thirty, sixty, ninety days.

Fantastic, I think that's a great way to articulate that. so look, I think we're, we might, call, c- come to an end there. but Preston, make sure you tell my listeners where can they follow you online and where can they find the Investors podcast?

So I'm very active on Twitter. I thoroughly enjoy, interacting with the Bitcoin community on Twitter because, man, they're some smart people. I mean, it's just-- it is such a delight to talk with people on Twitter, and I mean, yeah, so you get some- You get some people that are, very, colorful in the way that they, interact, but I, it's all part of the community that I love. And, if you guys wanna follow me on Twitter, I'd love to have you as a follower. Just my handle's just Preston Pysh. And, our website, The Investors Podcast. we study all these different investing billionaires. We read the books that they read. We talk about the books that they read. We really try to cover all different angles of finance. And, We'd love to have you guys check out the show. It's just at, at theinvestorspodcast dot com.

Fantastic. Well, it's been a pleasure chatting with you, Preston, and, thanks for joining me.

Wonderful to be here. Such a pleasure to be on your show.

So I hope you enjoyed that, and remember, this is a great episode to share with your friends who are investors in a more traditional sense, and they're thinking the traditional stocks and bonds. This episode might help them understand why Bitcoin is different, as Preston's story could really help them see things from that different perspective. As always, the show notes and transcript are at my website stephanelivera.com. Lastly, just a reminder about the Lightning Conference. It is October 19th and 20th in Berlin. The website is the light- Lightningconference dot com. It's got an absolutely amazing lineup. I'm looking forward to seeing a bunch of you there. I'm one of the MCs for the conference as well. So that's it from me. Thanks for listening, and I'll see you in the Berlin citadels.