Preston Pysh, co founder of The Investor’s Podcast network rejoins me to talk about Bitcoin, inflation, bonds, and investing in a bitcoinised world. 

Time zone: Thursday 11th June 7pm PT, 10pm ET, Friday 12th June 12pm AEST. It will be broadcast on YouTube Live at the link below, and on my twitter periscope @stephanlivera.

Preston Pysh links:

• Twitter: @PrestonPysh
• The Investor’s Podcast: Theinvestorspodcast.com
• Prior SLP appearance: SLP109

Sponsors:

• Swan Bitcoin
• Unchained Capital

Stephan Livera links:

• Show notes and website 
• Subscribe on YouTube: @stephanlivera
• Follow me on twitter @stephanlivera
• Subscribe to the podcast 
• Patreon @stephanlivera

Podcast Transcript:

Stephan Livera:

Alright, so now my guest today is Preston Pysh. He first appeared on the show episode 109. Now that was a very popular episode. We spoke about how to think about Bitcoin. If you’re an investor. Now he is the co-founder of the investors podcast network, and he’s obviously also a host of the investors podcast, which is a phenomenal podcast, highly recommend checking that out. So Preston, welcome back to the show, man. It’s, I’m glad to chat with you again.

Preston Pysh:

Great to be back Stephan. Great to be here.

Stephan Livera:

Preston. It’s been really crazy recently. I mean, I guess we should first talk about what happened recently. So we’ve obviously over the last few weeks, you know, May 11th or 12th. I can’t remember off the top of my head. We had the halving happen. And so that has sort of changed the dynamic as well a little bit because obviously people were a little bit more, they were sort of thinking the price would be a bit lower than what it is now and perhaps the price has risen up. And that has changed a little bit of the dynamic around the miners and how many coins they have available and how much equipment they’re on. So I think it might be good for you to start off there just on your thoughts on the having and the dynamics there with the miners and the price dynamic over these last few weeks.

Preston Pysh:

Yeah. You know, the thing that I think a lot of people forget about when you go through the halving event, they think that it’s just going to be kind of this immediate thing where you start to see the price run. But I think they forget that a lot of the miners are sitting on a treasury of Bitcoins on their balance sheet that were put there at a flow rate that was twice as much as what it is post halving. And it takes time to attrit that treasury of Bitcoin that are sitting on their balance sheet because that’s how they receive their payments and then their bills are in Fiat. So it takes some time to chew through that. Now, what I think is interesting about this more recent halving that we just experienced was prior to the halving, we had this massive derivatives meltdown on the global economy made the price of Bitcoin shoot down to like $4,000 bucks.

Preston Pysh:

It had an aggressive recovery following that, but I think the miners were already fighting for anything that they could capture at that point near the end of the previous four year cycle. So when that price hit and it was way down, way lower than I think any of them were expecting, I think it sucked a lot of the Bitcoins off their balance sheets. And I think that might’ve been why we saw, even though, I mean that first epoch, and then the first half there that took place after the halving cause the halving happens right there in the middle of the epoch. I mean they were struggling. You could see it, they were falling way behind on the timing in their ability to solve the blocks. And so even though they were struggling, I think the reason you still saw the price go up, which is what I was not expecting at all.

Preston Pysh:

I was expecting us to see a bit of a correction there and the price because of all the difficulty that was being experienced by the miners, but you didn’t see that. And that was quite interesting. And then today you saw some interesting stuff, again, happening from a macro standpoint where market was down extremely hard. You saw a lot of people, especially if you had derivative exposure that they had the swap into fiat in order to take care of a lot of that kind of stuff. And again it played out a little bit in the Bitcoin market or at least that’s my assumption is that you saw some people having to liquidate some of their Bitcoin positions in order to make good for their other positioning in the market.

Stephan Livera:

Right. Another interesting element to layer on there we see some discussion around, say Cash App or greyscale, and people say, Oh, look, how many coins these guys are buying. They’re buying up all the supply, but it’s not the most relevant thing to consider. So let’s consider the overall number of Bitcoins that exist today. It’s something like 18.3 million in that range. Isn’t that surely a more important indicator. And it’s not necessarily that every HODLer is hardcore strong hand HODLer. There’ll be a lot of those people who, as the price rises, they might sell some. And so we have to consider that as well as the mining coins. Right?

Preston Pysh:

Totally agree with you. I think that when you get near the end of the four year cycle, I think that your price floor is most likely being set by a lot of how the miners are selling and putting that new supply onto the market. But you’re exactly right. If somebody comes along and let’s say they come on hard times and they need to sell some of their coins in order to cough up some, some Fiat to pay their bills that are denominated in Fiat. Well, you can have HODLers selling their coins. There’s, there’s really no way to be able to quantify it exactly. but my suspicion is that kind of at the end of the four year cycle at the start of the new four year cycle I think a lot of the price floor kind of being set by those miners, or at least that’s my assumption, which could be completely wrong, but that’s, that’s how I’m looking at it.

Stephan Livera:

Right. It could be because it could be that. So the story is that the stronger or more efficient miners kind of win at the expense of the weaker miners and that effectively. And this is kind of the story from say, Matt, D’Souza right from Blockware, where he would say something like the more efficient miners are able to do it for a lower cost and therefore they can hold onto more of the Bitcoins restricting more of the new incoming supply, meaning there’s less available to be bought. And that is the kind of driver for the price.

Preston Pysh:

I’m of the firm opinion that Moore’s law is a integral part to the incentive structure. So, you know if these guys are buying and girls are out there buying brand new rigs, well guess what, that thing’s going four times the speed as somebody who bought one, four years ago. So if you’re able to run four times faster than your competitor that has a huge impact on the margins that you’re capturing for your electrical expense. Now, if you’re getting electricity for free or any of those other variables, which are real variables that has to be accounted for. But if we’re talking about the whole network as a whole, I’m telling you that has a big impact net if you’re looking at it from a network standpoint. So the fact that new entrants can step in and capture more.

Preston Pysh:

And I think that’s something that’s really interesting about Bitcoin compared to a lot of other coins. And when you look at the incentive structure, it’s almost always, when you do something like this, that the first mover, the first person there has all the advantage. But what I find a little fascinating about Bitcoin is if you buy a new hardware rig and you step into the market to mine, especially at a time like this, where we’re at in the four year cycle, you have the advantage, you have the advantage over the person. Who’s had the hardware for four years. Now, you might not have the intellect of how to manage your risks as a miner throughout that four year period and that experience set. But as far as from a pure hardware competing standpoint, dude, you’re set up.

Stephan Livera:

Awesome. And look, I would love to chat about an interesting theme that you’ve been hitting. You’ve been hammering this theme recently of what’s your unit of account, right? Bitcoin as Numeraire, right? Because we are seeing this of crazy, like obviously today was a little bit of obviously a down on the stock market. But up until today, we’ve seen just this crazy rally and people are thinking, Oh wow, stocks are back. But we’re measuring this. What are we measuring it in?

Preston Pysh:

So I was ready for this question tonight. So I’m gonna read a top line revenue of a company for you. Okay. And I’m going to start in 2012 and I’m going to just read out the top line. This is the, all the money that the business comes in for people that might not have an accounting background. That’s your top line. So if we were talking and this is not the company that I’m talking about, but let’s just say we were talking about Coke for every can of Coke. If the can of Coke was a dollar, that top line is the dollar, and then all your expenses, the sugar, the tin, the, all that kind of stuff, your distribution, let’s just say that’s 90 cents and you have10 cents remaining. That’s your bottom line. The 10 cents is your bottom line. So as I’m going through this, that will help frame this for people that don’t have the accounting background.

Preston Pysh:

So I’m reading the top line of a company here, a company that everybody knows. And I’m gonna read off these numbers starting in 2012, and here’s how they go 7.9 billion the next year, 4.2 billion, quite a, quite a drop right the year after that 80 million, the year after that got a little bit better, 290 million. The year after that, it got worse 220 million the year after that, 120 million the year after that 10 million the year after that 40 million. This is the top line of Google. Okay. Doesn’t seem like it makes any sense whatsoever people hearing that are just like, yeah. Right. He’s lying. Right. But what I did is and if I was gonna read, so I was reading the top line of Google denominated in Bitcoin since 2012 till now. Okay. Let me read it to you in Fiat terms, right?

Preston Pysh:

So this is the top line of Google and fill out terms 46 billion, 55 billion, 66 billion, 74 billion, 90 billion, 110 billion, 136 billion, 161 billion. Right? So that’s what everyone sees in the market. But if you start looking at things with a slightly different lens and you start looking at it, denominated, if I go back in time. So like that first one that I was denominating in Bitcoin. In 2012, I took $46 billion. And the price of Bitcoin back then was $5 and 77 cents. And I did nominated the number that I first announced into Bitcoin using that $5 and 77 cent price. And so when you look at that, if you were going to graph it, okay, if I was just going to do a real simple X,Y axis graph, the top line is going straight down, right. It’s going straight down now let’s do this from a financial valuation standpoint, which is through it.

Preston Pysh:

That’s my bread and butter. That’s what I really like to talk about. You think I like to talk about Bitcoin, dude. I really like to talk about financial valuations. So you then take, let’s just take the free cash flows, which I could have done, but I didn’t. But if I go in there, I was looking at the free cash flows. It’s going to be very similar to the top line, as far as it going down, if I denominated it in Bitcoin. So when you’re doing a free cashflow analysis and trying to determine the value of a business, what you’re doing is you’re interpolating. What you think those free cash flows are gonna look like in the future. And one of the best ways to do that. And there’s no way to prove that that’s going to happen because you’re really looking at how the company can sustain its enduring competitive advantage into the future.

Preston Pysh:

Based on the competitors that are in the market, based on the assets that sit on their balance sheet and how competitive those assets will remain into the future. You’re trying to interpolate what you think the projection of those future free cash flows are gonna look like. Well, when I go back and I denominate things in Bitcoin and the free cash flows are going down and I’m using those future free cash flows going down, because my expectation is that these companies are not going to start using Bitcoin as their unit of account today, the free cash flows keep going down. So now I have to discount those back to today. Those future free cash flows back to the present today to come up with evaluation on what the business is worth today. Well, when you start doing that math things start looking a little crazy, like nowhere near the valuations that you’re seeing in the open market, because everyone’s doing those valuations right now, but guess what they’re using, they’re using Fiat. And boy, it turns into a completely different world. When you start looking at things through this type of lens,

Stephan Livera:

Right? So we’re going through this massive globally changing global level change over time. And it’s, you know, some could say it’s slow, but some could say this is actually quite a quick change. And because people are stuck in perhaps an older mindset or they’re sort of thinking, okay, discount cash flows. What’s my discount rate. They’re assuming that the underlying, you know, unit of account is stable through that time, or perhaps it’s low inflation and it’s not going to be that much, but depending on what you count it as it’s a huge, huge difference.

Preston Pysh:

And this goes to like one of my biggest gripes with academia, because if you go into academia, they’re going to be like, well, so what’s our risk free rate, right? What’s the risk free rate? Well, God you tell me, man, because based on the way that they’re manipulating the bond market, which is where your risk free rate is coming from, it’s a total disaster. There is no cost of capital that anyone can possibly use. It’s like a unicorn. It’s not even real at this point. And so for me personally, anytime I do valuations for businesses, I’m always using an internal rate of return. I’m not doing these you know, the valuations that they want you to use in business school. Because for me, when somebody says the value of Google is $110 a share, my immediate response to that person is at what discount rate, right?

Preston Pysh:

I can come up with any valuation I want for a company. I can say Google is worth a thousand dollars. I can come up with $5 a share, right? If I adjust the discount rate to whatever I want it to be. So that’s the irony for me is you’ve got all these yahoos out there in wall street that are saying, Oh, well the discount rate is 2% on. That’s less than that. If you’re using the 10 year treasury, right? You’re at like 80 basis points, which is a total flippin’ joke. So the lower that you push those discount rates, the higher, the asset price goes, if you’re doing that. So when people are saying, Oh, the evaluation is this will, I know that they’re just cooking the discount rate down to nothing. Right? So that’s why I’m a big fan of the internal rate of return.

Preston Pysh:

The IRR calculation is because when you think about the variables that go into those equations, academia acts like the price isn’t given to you. But it is it freaking is like, I can pull up the ticker for any company. And the price is right there. It’s a given like when you’re solving any type of math problem in any type of math class, you have givens and you have unknown variables. Like the price is flipping given to you. You know what it is, you know what? You can go on the open market and buy it for right now. So why in the world would you treat that as an unknown in the equation? And I’m going off on a tangent that’s far off the topic where we probably need to be talking to, but you got me on a pet peeve

Stephan Livera:

No, I enjoy this stuff. I mean for listeners who perhaps are not as familiar with kind of the stuff you’ll learn at, like university and finance. And so the internal rate of return is essentially you’re trying to calculate what is the rate of return that would kind of set the value to zero. Right. And so that’s kind of, and then so typically the way people might think about it is they might have say a hurdle rate and they want to be able to beat this given rate. But it, the problem, I think it just, it even comes back to our theme, which is what’s your numerator, what is your unit of account? And as you correctly, point out that if you measure the S&P in Bitcoin terms, you are down massively over the last few years. And yeah. And I think, yeah, I think recently you tweeted down 89%. And so this is early 2nd of June S&P was down 89% in Bitcoin terms. Yeah. Right now, I guess the only point that maybe again, putting my skeptics hat on, like, I’m obviously in the same view, but somebody might look at a Bitcoin proponent and say, well, aren’t you guys just cherry picking the 2017 run-Up like, isn’t that just cherry picking. You’re just choosing kind of a nice data point data period. What would you say to that?

Preston Pysh:

So my comeback to that is pick any four year period of time because the protocol has a four year halving cycle built into it. So if you’re plucking dates, like I think it’s unfair if a person would use a date between now and the next 70,000 blocks, right. Because that is, that is a very aggressive bull market in Bitcoin. So that’s just as unfair as somebody saying, go back to December of 2017 until the you know, a year and a half after that. And another 70,000 blocks from that. So what I would tell somebody if you really want to try to understand how much these things eatin’ away at Fiat grab any four year period of time since inception, whatever that range is that you want to block, pick it, pick one date out of the, out of the air between inception of Bitcoin till now, and then go four years beyond that. And I think that’s your true gauge as to how much it’s debasing Fiat.

Stephan Livera:

Yeah. I think that’s, that’s a great way to put it because it’s kind of like, you can cherry pick either way, right? So you could pick, as you mentioned, so going from December, 2017, at $20,000 down to, I think the bottom was like, I don’t know 3,000 or 4,000 in December, 2018 ish. Right. But then also from then upwards is also a huge change as well. Yeah So you’ve got, you’ve got to be fair about it. And I think four years is probably a fair way to put it, which as you rightly say, Oh, we’ve got an audience question here. So we might just pull this one up on screen. So Eddie’s asking, how does all of this work with growth stocks or unprofitable public companies? Are they all doomed?

Preston Pysh:

You know I’m much more of a value guy or a momentum guy. So when people say growth typically fits into my momentum bucket. And so when I’m looking at growth companies in Bitcoin terms it’s pretty easy to do it because I’m just looking at for me to conduct a momentum position. I’m really looking at this statistical volatility range of that specific security, currency, commodity bond, whatever it doesn’t matter. I’m looking at the historical price action and what kind of volatility it has on a long term basis. And then all I’m doing is looking at when it breaks outside of that for like a two standard deviation move. And whenever I see that happen, it’s you know it’s an algorithm that I’ve written myself as to how I conduct momentum investing. So that’s how I look at growth picks if it’s not value based, if it’s not based on the fundamentals of the income statement and the balance sheet, that’s all I’m doing it. So can I do this by denominating all the previous price points into Bitcoin, you better darn well believe I can.

Stephan Livera:

That’s awesome.

Preston Pysh:

And am I, you better darn well, believe I am.

Stephan Livera:

Yup. And also I think something that is starting to jar for a lot of people, it’s a jarring contradiction is the real world. The we’re seeing massive unemployment. We’re seeing all these problems and yet the stock market just recently, it’s like rallying back up. How can that be?

Preston Pysh:

Yeah, that made a lot. And I’m not trying to say this as to stroke my ego or anything. I totally don’t. But back in and this was interesting because our momentum trigger went green at a time when I was just like, what? Right. Cause we had the big, I mean shock. And shortly after the momentum trigger on all of our indicators, the NASDAQ popped first, the S&P quickly followed. And when I start seeing all those indices that are tracking a lot of different companies all start popping green. I was like, yo, this thing’s coming straight back up. And you know I post a couple charts on Twitter and I put a range fan. You know, I put where it was at before. And then I put a range fan there that was just like a sideways V.

Preston Pysh:

And I said, Hey, I know this sounds crazy, but I really think this is what we’re dealing with moving forward, which is just this crazy volatility in equities, because at the end of the day, it all comes down to how many units is, the central banks pumping into the system. And you know, it’s always been interesting because I’ve always thought of the markets as being much more mathematical than emotional. I think there’s definitely an emotional aspect to it. And I think there’s this reflexivity to it, but I really think that it’s very math based and I think it comes down to, Hey, if I just somehow come up with another 3 trillion and pop it into the market, what impact do you think that’s going to have? It’d be like you and me playing a game of monopoly. Right. And let’s just say there’s a hundred thousand dollars in the game.

Preston Pysh:

And then who’s ever working. The banker position comes up and says, alright, I understand there’s a hundred thousand dollars between you guys playing this game, but now I’m going to drop $500,000 into the game. What in the world do you think is going to happen? We’re going to start bidding the prices of different, the different assets on the board, you know, instead of park place being $400, I’ll start saying, Hey, I’ll buy that from you for $1500. Right? Like all those things start popping out. And so that’s dude, that’s what you got going on right now.

Stephan Livera:

And also there has been a little bit of scorn or derision heaped on, let’s say the Robinhood traders, right? Like that’s the kind of, Oh, those are the amateur kind of traders. And sure. There’s obviously there’s some gambling going on, right. People are treating at like, Oh, it’s all just penny stock world and so on. But I think it may be really that’s misunderstanding the root cause. Wouldn’t you say that many of these people are sort of being driven into this kind of investing because their underlying money is just losing value over time. Wouldn’t you say?

Preston Pysh:

Quick bucks man, I mean, it’s just, it’s just total speculation. And if there’s one thing we’ve learned about the, the population these days, they’ve got a short term focus. And so when their buddy said, I just made a thousand bucks on Robinhood, well then their buddy signs up with and they drop a hundred bucks in there and they try to start doing the same thing. So it’s sheep like psychology at its best.

Stephan Livera:

Yeah. Yeah. I’m also interested to discuss some there was some recent back and forth with yourself and with Mark Cuban. Right. And so I think these were some, it was interesting to watch those arguments play out. Right. So you were talking about obviously the problem, some of the problems of which what’s your unit of account right now, Mark Cuban’s sort of response was saying, essentially, I’m just going to quote, he’s saying, he’s basically saying, Oh, look, Preston you’ve got a lot right up until the Bitcoin part, but under an all Bitcoin system, how does the inflation of Bitcoin from supply and demand impact those without assets? And if you’re trying to acquire Bitcoin and so.

Preston Pysh:

Then if I jumped off the top rope and slammed them, that’s right.

Stephan Livera:

I mean, because I guess in Mark’s mind, it’s like, he thinks all actually, if the economy is growing, the money supply has to grow with it potentially right now, how would you respond to that?

Preston Pysh:

I don’t even need the respond to it. But if I had to, I mean, it comes down to this. If people start receiving salaries in Bitcoin and it’s going up in value, I mean, the problem he’s describing is flipping laughable. And I said this on another podcast. So if people hear the one that I did yesterday and this one, they’re going to hear it twice, but I want to put this out there. So to understand his position, you’ve got to understand, well, where he’s at right now. He owns, he has a couple operational businesses. You know, everyone has, these billionaires, they got non-operational subsidiaries. Then they have operational subsidiaries. His big revenue drivers are a couple key things. His NBA team, they’re not playing. He’s got a data analytics company that provides information to sporting events. They’re not having any sporting events.

Preston Pysh:

He owns a movie theater business, which is huge. No one’s going to see movies like, no, one’s going to the movie theater to see movies. So he’s got a major top line kind of issue. He’s got a major bottom line kind of issue, which means he has free cash flow issues. And when you’re looking at something and people are saying, Oh my God, this thing’s going to take off. Well, how do you get exposure to that when you don’t have any free cash flows? The only way to do it is you’ve got to start selling things on your balance sheet. And so I would argue he is balance sheet rich and cash flow statement poor. And that would not be something that I would want to be, you know as I’m there kind of torquing them and saying, Hey, good luck with your top line this year, this and that.

Preston Pysh:

You know, like that’s not helping him want to listen. Or so you know, I’m probably need to take a different approach. But when I look at his standpoint and his concern, I mean, I think he’s scared about this. I think that’s why he keeps engaging with us, because I think he can see that we have very strong arguments that he has not been able to shoot down. And if I was him, I’d be scared to death that maybe we’re right. Because if you’re sitting on a lot of assets that you then have to sell

Preston Pysh:

At a price, that you might not want to sell them for, because maybe they’re very illiquid. And when you’re talking about operational subsidiaries, typically they are very illiquid. And there’s only a few people that are willing to buy something like that. So not a good position to be in when you win. There’s potentially a big opportunity. That’s going to look like a rocket ship coming forward. Now whether those are, you know, whether that’s what he’s actually seeing or not. That’s what I’m seeing when I see his point of view is all of those things. So some stuff to think about Mark.

Stephan Livera:

Right? And he’s thinking in a very fiat denominated mindset. So I think that’s the fundamental error in his thinking that I guess we, as kind of Bitcoin, people would say, well, look, you gotta you have to consider this other view.

Preston Pysh:

We’re very biased. You know we have a bias and he sees it a different way, he has a bias, he has a Fiat bias. He thinks that the system that he made all of his money under is the right system. And, you know, if we were in his shoes, we’d probably think the exact same thing, but you gotta challenge. You gotta kill your previous thoughts. I just want to Charlie Mongers, big thing, like what, what can you do today to kill some of those preconceived notions that you have from the past?

Stephan Livera:

Right. The other big argument that people bring up is the whole correlation or decorrelation argument right now, depending on what time period, you assess all over, people have said. So typically, if you’re looking on a longer time basis, Bitcoin has been decorrelated from the stock market. But over certain shorter time periods, I think people can point and say, Oh, look, you guys were first saying Bitcoin was decorrelated. But now look over this short period, I saw it with correlated. What do you say now Bitcoin people? What’s your view on this whole correlation, decorrelation aspect?

Preston Pysh:

There’s, I think there’s something to it on the days like we saw today where the market was down extremely hard. We saw that back in the March timeframe. And I think for, for me, all it tells me is how, how reliant everything is on the dollar today. Because when you see the market move like that, this is people having to get into cash. They have to come up with Fiat because they’re getting margin called. They’re getting all these kinds of things and they have to come up with Fiat because all those, all those instruments are denominated in Fiat. So they’ve got to come up with Fiat in order to adjudicate the margin calls. And I mean, just think about all the people on Robin hood that buying calls with no fee on all this stuff that they’re following Dave from Barstool radio, and they’re just buying call options on it.

Preston Pysh:

Right? So like all those liquidations. And I mean, those guys are the small fish in a massive pond of Wall Streeters that are allocating billions. But that’s how I see it as being the dollar is polarizing that I think when you look at Bitcoin, I think it’s more reflected on all the other when, when you look at the people that own Bitcoin people, don’t just own Bitcoin. There’s some people out there that do, but especially people on wall street, I mean, it might be, it might be one position of 20 or 30 that’s in their portfolio. So if they start taking some heat in some other areas, well, they got to sell, well, the ones that are the winners in order to come up with the cash in order to adjudicate that. So there’s Bitcoin, right? So when you look at the sell off in those short periods of time where you’re having a fiat crunch, and that’s what this whole thing, this whole incoming, debacle that we’re experiencing is because my God, they can’t control the dollar.

Preston Pysh:

They’ve got to print more dollars. All this dollar denominated debt that’s around the globe is like a major issue for the Fed that they’ve got to print more. And it’s like a black hole that they keep shoveling more and more Fiat into. I had a person once explain it to me like this. And I like this analogy. Imagine making a fire, like that’s kinda small and you’re adding some wood to it, but then you have like, let’s make it bigger. Let’s make it warmer. So you make it bigger. Well, when you do that, you have to supply it with not just a little bit more wood. You’ve got to supply it with a lot more wood. Now think about it becoming a bonfire. And it’s massive. Now you’re like literally chopping down an entire forest to keep this thing going. And the sustainment of what it requires to keep the fire going at the, at the pace it was going requires this ever growing because it’s based on area and it’s not linear, it’s exponential.

Preston Pysh:

And that’s exactly what you have going on right now with the dollar. I mean, they just printed at levels that are unfathomable, unfathomable relative to all the other central banks. I mean, they just printed, like there was no tomorrow. And although the value of the dollar went down over the last couple weeks, I would argue that for how much they printed in the dollar only went down that much is mindblowing. And now all the other countries are gonna try to keep up because, I mean this is a tragedy of the commons type situation where it’s competitive devaluation of Fiat currency amongst nations, in order to engineer growth inside of their domestic country, this is nuts.

Stephan Livera:

It is insane. And we see just, it just becomes more and more breathtaking the levels, the, the audacity of the ostentatious displays of, you know, kind of money printing and whatever it takes right now, I guess the other point, I’m really curious to know what you think now. I love the point you were saying they can’t control the dollar because that to me is also ticking off this idea as well of the Euro Dollar, which I’m sure you’re familiar with. Right. and so people like Jeffrey Snider from Alhambra capital spoken about this kind of concept that the central banks really they don’t necessarily even have the full visibility over the full picture because people can rehypothecate US Dollars outside of that specific US system. And so what’s your view on that impact of the Euro dollar system onto US Dollar Inflation?

Preston Pysh:

You know, I don’t know enough about it to give you insightful information to be quite honest with you. But I will say this there’s tons of dollar denominated debt. And so what kind of made a lot of this arise through the years is once we came off a gold standard countries like Japan, China, you name it, were all like, well, if we devalue our currency, we can suck dollars into this country, like a vacuum, right. It’s just like pressure, you know, when you study fluid dynamics, the pressure that you get on an air foil or whatever, it just sucks the Fiat right straight into their country whenever they debase their currency. And so where does that money go? Well, that money ends up on the balance sheet of the government. And so then the government’s like, well, how do we get rid of this?

Preston Pysh:

Well, then they start issuing dollar denominated debt. And so that’s where this, this loop of dollars, just getting spread all over the world. It’s a network of it is a total network effect, right? Because they could take advantage of the fact that it wasn’t pegged. Well, you can keep that game rolling for a very long period of time, as long as you have positive interest rates. But once you start getting interest rates down to zero, and you’re still playing these games, like, dude, you get to an end game and that’s where we’re at is, and you’re not at complete zero. I don’t even know that you’ll get to complete zero nominally, but in real terms?

Stephan Livera:

Negative.

Preston Pysh:

Especially if you’re using Austrian economic type inflationary metrics, my God, you’re like, yeah. I mean, it’s like laughable to think that you’re in any type of positive in real terms. It’s laughable.

Stephan Livera:

Yeah. Yeah. And when we talk about Bitcoin versus Fiat money, I think it’s also interesting to understand that. Okay. So most of the world considers well US dollar is the world’s reserve currency currently right now it’s arguably also true that in some sense, the US has bag holders, not just in the US but all around the world. And so that in some sense, gives them more of an ability to inflate a little further just because contracts and things are denominated in U.S. dollars. And so I guess the point I’m trying to understand your view there is how do you compare say, so we were speaking earlier about how, if you denominate the S&P into Bitcoin, it’s down a lot. Is it, but the thing to remember though, is that the US dollar is almost like the, the least bad of a bad bunch, right? So the, all the other Fiat currencies, maybe they’re just inflating even more. So what’s your view on that? And is it sort of, does it in the short or medium term help the US dollar at least relative to other Fiat monies?

Preston Pysh:

No. I think what happens is, is you have this competitive devaluation that’s happening. Like when you go back and you look, I’d have to pull up the chart, but like, I want to say from 2015, through like 2018, if you looked at how the ECB was printing in relative terms to all the other central banks, it was ungodly like they were on fire. And that’s why you saw the stock market over in Europe do so well during that period of time. Prior to that is when the U.S. was, you know, the basing heavily. And so it’s this rat race of devaluation. So what you’re really getting at is, well, if everyone’s doing it and it’s really kind of this no one ever really outpaces the other person well then, is it a bad thing? And I would tell you, it’s a very bad thing.

Preston Pysh:

And here’s why. You are, the price that’s being paid through quantitative easing, because that’s the only thing that they’ve been doing. They have not been doing UBI up until just recently around the world. And so as all these central banks were conducting quantitative easing, what they’re really doing with those policies is they’re just ripping the heart out of the middle class of every single country around the world. Which is polarizing the politics, which is polarizing pretty much everything between rich and poor. And you’re making the rich really tiny, but with a whole lot of magnitude, and you’re making the poor really large with a teeny tiny amount of magnitude. And when I say magnitude, I mean buying power and so what you’re doing is you’re setting up this scenario of just total conflict and the further that you push on a string, and that’s a Ray Dalio term, the more that you push on a string through these policies, the more that you make that even more fierce between those two polarization of, of communities between rich and poor. So I think.

Stephan Livera:

Yeah, right. It’s a politically very concerning and we’re seeing you know, a lot of discussion around things like UBI. And, you know, I think maybe this is another area as well to discuss. So when the central bank prints money or at least raises its monetary base, that doesn’t necessarily always flow out into the everyday, you know, people like you and me sometimes that just flows into financial assets. So do you see that there may be more of a populist op role and more of a, an argument that, Hey, you know, you’re printing to bail out these big companies. Why don’t you bail me out, Joe Sixpack? What’s your view there?

Preston Pysh:

I mean, you’re already seeing it. You’re, I mean, that’s what Antifa, in my opinion, when you look at Antifa and they’re an, anticapitalist a movement among other things that’s exactly what they’re saying. That’s and they’re so angry. They’re saying, well, you know, what, if I can’t have any of this, I’m just going to burn everything down. I’m going to create anarchy. That’s how, and I’m not saying that I agree with that. I’m just telling you that that’s their movement. And in my opinion, those are complete results of an inflationary, monetary policy that’s existed for decades. And then whenever we did get to an end game, they started doing quantitative easing and pumping all the money into the hands of the few. That’s what’s created this. And so if we look at how they could have handled it over the last 10 years, if they wouldn’t have just done quantitative easing, and they would have done UBI you would have got to the same point.

Preston Pysh:

You would’ve got to the same breaking point, but it would have just taken more time. You would have been able to do it maybe for 15 years or 20 years or whatever. But what’s interesting now is because they’ve decided to only use quantitative easing exclusively for 10 years. And they’re now down the 0% interest rates all over the globe. Especially if you look at it in real terms they can’t turn that off. You know, people might think, Oh, well, they can just stop doing quantitative easing. We’ll just do UBI now. And we’ll make these people stop being so aggressive. You can’t do that. And the reason you can’t do it is because you have this fiscal spending habit that is accelerating out of control. And by fiscal spending, like all the congressional representatives for whatever country are allocating and obligating tax dollars at a pace that far out strips, the receipts that they’re receiving.

Preston Pysh:

And because of that, they can not afford interest rates to go up. So if you can’t afford for interest rates to go up, you have to keep doing QE because you cannot allow the bond market to sell off. You have to step in and have a backstop on the bond market that says, all right, we’re going to peg the rates at 50 basis points. And if anybody steps in and tries to sell it beyond that we’ll step in and buy it, period, no matter what, regardless of, they’re already doing it in the junk bond market, which is nuts, they’re stepping in and saying, I know these are zombie companies and they should probably die, but we cannot afford interest rates to go up. So we’re just going to buy it as the cash. Now let me put this in a really easy to understand example for people.

Preston Pysh:

Let’s pull out the monopoly game again. So you and I are playing monopoly and we have a banker. Okay. And let’s say the banker wants to insert more cash into the game because let’s say you’re falling behind Stephan and I’m winning. Right. Let’s just reverse that because that’s just sounds like I’ve got an ego you’re winning I’m losing. Yeah. You’re winning and I’m losing. Okay. And so this central, the person who’s playing the banker in the game says, all right.I’m going to add some liquidity here so that Preston doesn’t throw up his hands and quit the game. So here’s how I’m going to do it. Stephan, do you have park place? Do you have some different assets that you can sell me? This is the banker talking, right? Because I’m going to insert a thousand dollars into the game, but you got to sell me some of these assets that you’ve got, and I’ll give you some straight cash baby. You’re going to get the cash, right? So you sell it because you have no choice it’s the government, and you sell those assets. The liquidity now comes onto your balance sheet. You’re holding it. I got none of that. I got none of that action. And now, what are you going to do with your money? You’re going to look over at my board and you’re going to look at the only assets, the pieces that I have on the game. And you’re going to say, Hey, Preston, I want to buy those from you.

Preston Pysh:

And because there’s less assets on the board, there’s the assets, are even scarcer than they were before the price is going to get bid. Right. And I’m going to give that to you. And then I’m going to get a little bit of the action of the cash, but it’s only going to hold up for a little bit, because as I go around the board, you’re just going to keep sucking it away from me because I literally have no assets. Cause you keep buying them all from me. Yeah. That’s quantitative easing.

Stephan Livera:

Yeah. So it’s like this Pac-Man effect right they just keep a pacman it up and they accumulate all these assets. And then the government legal system kind of helps facilitate this kind of transfer of claim over real property and real you know, profitable businesses and some not so profitable, but still, yeah.

Preston Pysh:

Run the UBI example through the monopoly game. Okay. So UBI, the bank steps in, they’re like. Alright, we’re just going to give everybody a cool hundred bucks or 200 bucks or whatever you get it. I get it. Right.

Preston Pysh:

So if you do this enough, like I just don’t even have an incentive to play the game. I’m just like, well, I’m just going to sit here. And this is going to keep giving me more money, right. Especially if I’m a lower skilled, and how it really equates into the economy is if you have a lower, skilled labor and the UBI cheques that I’m getting are exceeding what I was making through my labor before, what incentive do I possibly have to actually go back to work? I don’t. And so both of those options are not options. You want to insert into a game that is quote unquote free and open because you create these incentive structures for the participants to start doing weird things that, that don’t contribute to productivity in the end. And that’s what you want in a free and open market is that everyone’s working towards this common objective of free and open market, or I’m sorry, being productive members of society. So when you start messing with the money, you break these incentive structures and you get all these warped and weird things that start playing out. And if you do it for decades, you really start to see some just wicked, terrible things.

Stephan Livera:

Absolutely. So I mean, we’re talking about bonds. I want to just highlight a question here. So thank you, Kyle, for the super chat. And the question is how long do you expect bond yields to stay at these low levels? Will it take a CPI rating above 3% and is the end game when bond yields rise?

Preston Pysh:

So yeah. They’re going to keep these rates at next to nothing cause they have to based on the fiscal comment earlier, right. And they’re going to keep them there until something breaks is my opinion and I could be wrong. That’s just Preston Pysh’s opinion. And I mean, you can find an academic in any institution that will disagree with me like that. But my opinion is these things are not going anywhere. And what you’re going to see is you’re going to see them break and they’re going to break in a very aggressive way, almost like how an explodes and the water comes out of it. That’s how I think they’re going to break.

Stephan Livera:

Speaking of breaking. I think it’s time to talk a little bit about the stock to flow model and the stock to flow across asset model. So I think guys like you and me are seen as we’re enthusiastic about it. And you know, we’re talking about this idea of four year cycles. So where are you currently sitting at in terms of your thought on these models? There has been some discussion about whether they are spurious or whether the co-integration does not exist or cannot be proven or just maybe it can’t be proven yet perhaps or has not been proven yet. Where are you sitting at this point on things like stock to flow and stock to flow across asset model?

Preston Pysh:

I mean the only thing that I saw that proved co-integration wrong was a person who assumed that the four year having cycle wouldn’t happen, that the protocol would not have in the future. And if that’s a true statement, then you don’t have co-integration. So for me, like I immediately look at that statement or that theory and I say, okay, so then what probability are you putting on another having cycle to happen? Because as a person who participates in markets and don’t have some academic paper to sell somebody so that I can get a doctorate or whatever, gee whiz degree I look at that as being so unprobable that it’s laughable. I literally laugh at that because it’s that ridiculous. But that’s me and other people might have a different opinion on the probabilities of that. So as far as I’m concerned, co-integration exists.

Preston Pysh:

I have not found anything that can argue it the other way. So if co-integration exists and you have an R squared value of 95% that gets really interesting, especially when I can back it up with a really clean narrative as to why price is driven higher, because you have a having you’re having the supply, but you’re also supplementing the people that are mining it through a difficulty adjustment. And those two things are literally, you know, like this they’re there together. It’s like peanut butter and jelly. Like when people talk about the four year having, if they’re not talking about the two week difficulty adjustment with it, well they’re only talking about half of what’s going on here. It’d be like, if we were talking about physical mining of gold and all of a sudden, every single gold miner in the world, mind half as much the next day.

Preston Pysh:

And I said, you know what? I know you’re not profitable because you’re only mining half as much as you were before. But all of the people that worked for you just got like twice as good, right? That’s the thing that people aren’t thinking about. And they’re not, they’re not adding those two things together to understand why the price goes up. They steal the difficulty in adjustment ensures that some of the miners, not all of them, some of the miners remain profitable. And if they remain profitable, that means they’re going to bid the price because they’re not going to sell as much.

Stephan Livera:

Yeah. And I think so then it’s a question then of if you like this stock to flow model and you think, yeah, this is something I want to look at. Then the question becomes, what are some ways that you might think about trying to invest based on it, right. And you might be trying to invest when the price is low. You might be potentially, there might be some people who want to try to play that cycle. And so some people are thinking, okay, I might try to sell above a certain price. So the analogy plan B has used is something like taking chips off the table. Another strategy may be as you were mentioning selling, put options or selling, put options. What are your thoughts on that idea of the, how a person might apply some of those ideas?

Preston Pysh:

You know, I’m a little hesitant to comment on it and here’s the reason why I like to read a lot of books on how my brain works. I think it’s very important for people to understand what kind of cognitive biases can pop out of some of the things that you say multiple times. I do. I think a put option could work of course, to protect, like, the scenario that you’re describing, let me just illustrate it for people. So what we’re talking about is it’s the fall of 2021, the stock the flow of a model is absolutely correct. The price runs over $200,000 and now you’re at that critical point where you’re at block height of 700,000. And the model is saying that it’s going to come back into a little bit of a reality, and you’re going to maybe lose half of your position if you continue to hold long.

Preston Pysh:

So what do you do? And I guess the reason I’m a little hesitant to answer that is because I don’t want to condition myself to say that I’m doing anything right now. I’m going to see where I’m at at that point in time and make an informed decision based on the circumstances. Could I put a put option on there when the price is at $200,000 and basically write it as, or buy it as an insurance policy? Of course, is the price going to be 40% of my underlying to do something like that? Probably. And that’s probably why plan B said I’m going to sell some of my position is because he doesn’t want to cough up 40% of how big his net worth is going to be at that point in Bitcoin, in order to buy a contract that would protect that, that’s a huge premium to pay for something that would maybe lose that amount. Right. And that’s the challenge is you don’t know what those are going to be out. You don’t even know if you’re going to be there. You don’t understand the macro backdrop of this central bank was literally just lit on fire by protesters which could have happened. I don’t know any of that stuff. And so when we get near that, if that’s how everything shakes out now, it’s all looking. We’ll readdress that when we get a little closer to it.

Stephan Livera:

Sure, sure. Totally fair point. And I think it’s also, you’ve got to think about a whole range of things, right? Like what’s the tax costs going to be of doing that. And what are some potential things that might be occurring at that time? And I think we’ve, you do also have to consider this concept of how many more cycles are there. Right. Is it there such a thing here as an escape velocity for Bitcoin?

Preston Pysh:

Yeah. I kind of think that there is, but I’m not convinced of it. You know, I’m open to the idea that this thing just keeps running these, these four year cycles and dips and stuff. I mean that could happen. I kinda suspect though that, especially with what we’re seeing, the unrest that we’re seeing right now, I mean, in Seattle, we literally have a total anarchy they’ve taken over the city hall and they’ve got like zones that are set up like a military operation, like you’re seeing in Afghanistan or Iraq or something like going on in Seattle right now. So when I say things like, well, maybe in a year and a half from now that they’re burning down central banks in various parts of the world, like I know that sounds really extreme to some people that might be listening to it. But based on what I’ve seen in the last couple of weeks, nothing would surprise me at this point.

Stephan Livera:

Where was I going with the question you had? I was just asking about like, yeah, just generally that idea of escape, velocity, what would it look like? You know?

Preston Pysh:

Yeah. So whenever I’m looking at this incoming cycle, like and I tell people back in 2017, when the price was spiking, you know, we had the mayor multiple at two and a half, almost three standard deviations. And I made the bold call right back in December of 2017 to say, yeah, I’m going to take some chips off the table. And I played it. And I was very lucky that I was able to remove my position and then get back in, especially at the price of that I was able to get back in. I think a lot of that was locked because the stock to flow model was not out yet. But I looked at whenever the price had gone two and a half, three standard deviations that previously, and there weren’t too many data points, but previously it had taken more than a year to even come close to starting a recovery. So I just suspected that we were going to have something similar. Luckily I was right. Which involved a lot of luck.

Preston Pysh:

This time around, we have a different backdrop than we had in 2017 in December of 2017. Back then we didn’t have the bond market blowing up and blowing up. Meaning like today, like the Fed’s a buyer at pretty much anything, but for the bond market, like they cannot allow rates to go up at all. And not just the U.S. Fed. I’m talking to every central banker in the world. They can’t allow rates to go up. So if that’s true, and then you start to see municipalities fail and you start to see every single company, you see unemployment in excess of 20%. If all those things are still playing out by next fall, 20 fall of 21, but worse, I don’t know how this thing couldn’t go all the way. Right? Like, to me, if you’re seeing something that’s blown through a hundred thousand and you already got the Robin Hood, you know traders going, what do you think they’re going to do?

Preston Pysh:

If they start seeing Bitcoin run like that, it’s going to be insane. So if I had to side with one way or the other, whether it is going to achieve escape velocity, or it’s not, it’s going to come back down and go through another four year cycle. Dude my bet is that it would go all the way that it’s going to achieve escape velocity, but who knows. It really depends on where we’re at in a year from now, when we see that backdrop. And I think that’s going to be a really key point to to the backdrop because, you know, plan B saying, Hey, I’m going to take some chips off the table. But if all those things are playing out, ain’t no way he’s taking chips off the table. He’s way too smart to be taking chips off the table with all those things. What are you going to put it in the Fiat that’s causing all the issues? I mean, come on.

Stephan Livera:

Exactly. So what about the view of, let’s say somebody who’s thinking they’re a property investor and they, you know, they want to take some real property at that time. What would you, how would you kind of assess that from like again, an investor’s mindset?

Preston Pysh:

I think that would be a conservative play. I think that who’s ever doing that. They have to have an understanding of how properties work and the free cash flows that they kick off and the demand for the type of property that they’re going to own. There’s a lot of variables that go into that. And so like, if you don’t have that skill set. You could, you could get yourself in a world of hurt. So I would challenge people that you need to, if you do want to do some of those things and say unlocking it, man, I just made $5 million. I just made 10 million bucks or whatever. Right. I’m going to lock this in. I’m going to go buy a building. And there’s no way that that can ever, if I own that building, there’s no way I could ever lose that, that buying power that that building brings.

Preston Pysh:

And I think that’s going to be a smart decision for a lot of people to do things like that, but they’ve got understand what they’re getting themselves into. They got to understand how to manage things like that. They’ve got to understand how to value things like that, especially in a time when the measuring sticks a little strange and you feel like you’re an Alice in Wonderland. So a lot of things to consider. And and if this thing runs, it might run for a while. It might run more than people even understand. Right. I mean, if this becomes global money and people are, you know, going into the Liquid network in order to conduct day-to-day purchases and then they have their other, I mean, all those things can happen.

Stephan Livera:

Yep. Yeah. And I think I’m also really interested to discuss this concept of investing in a Bitcoinised world. Right. So this is something you’ve spoken about. And I think you naturally, you’re thinking in that term, in those terms, in terms of free cash flows, right. So it’s kind of like where we’re moving from one measuring stick to another, and for now most people see it, like the best risk adjusted return they could get is Bitcoin. But what sort of scenario, what would it take for you then shift out of that and start going into more of a traditional investing mindset and looking more for like free cash flows and trying to earn money denominated in Bitcoin.

Preston Pysh:

Yeah. And I mean, I’m excited for that to happen, but I think it’s important for people to understand that I don’t suspect this is happening anytime soon. I think this is definitely down the road more, but when it, when it gets there, boy, I’m going to be so excited because I’m going to be able to do all the things that in my opinion, are, are my forte, which, which is the valuation of businesses. So some things that would have to happen, first of all, the company would have to have some type of allocation on their balance sheet to own Bitcoin, just like you would own any type of marketable security that today. So like when I say marketable security, that’s just a fancy way in accounting terms for like Berkshire Hathaway, people were like, Oh, Berkshire Hathaway owns Coca-Cola you’re right. They own it as a non-operational subsidiary, as stock on their balance sheet. That’s listed as a marketable security under the current assets on the balance sheet. So if I see a company that starts saying we’re going to own Bitcoin in the same manner that we own, non-operational securities that to me, that’s an interesting point. The other thing that I’d have to see is it has to be some type of meaningful amount because if the company is doing 1%

Preston Pysh:

Allocation of their free cash flows into Bitcoin as a marketable security on their balance sheet there’s no way that’s going to outpace the underlying currency, at least from my projections in the next three years, there’s just no way. So it’d have to be some type of meaningful amount. If you see a company that would go crazy and say, Hey, I’m going to denominate my entire unit of account for all free cash flows into Bitcoin. And that’s the key point is if a company, so, you know, like when a company makes a hundred bucks on their top line and their bottom line is 10 bucks, 10% margin from their top line.

Preston Pysh:

Let’s just do some real generic. We’re not getting into amortization or depreciation or anything like that. We’re just going to say that that $10 is free cash flow. Just generically. If that company has taken that 10 bucks and they’re denominating all of that straight into Bitcoin that might catch my interest, you’re going to need, you’re going to need something like that to outpace the currency. And I view it as a currency. I’m calling it a currency even though from for tax purposes, it’s treated like a marketable security. So that would picque my interest a lot, especially if the company had a history of free cash flows and they had assets sitting on their balance sheet that had an enduring competitive advantage in the marketplace that would really pique my interest. Another thing that I would look for with this is going back to, I was talking about how I conduct momentum investing. I’d be watching the price action, and I’d be looking at a breakout in, in Bitcoin denominated terms for the price, a statistical change in the price action from a momentum standpoint.

Stephan Livera:

Yeah. Very fascinating. And I think it is worthwhile calling out, as he said, it’s a longterm thing. This, you know, this is not, we’re not talking like next year, this kind of thing, but I just think it’s interesting just to think about what it would look like and because we’re going through this big transition period. And so I guess talking about, then let’s say some of the Bitcoin companies today, they, some of them will think about things in terms of Bitcoin terms. Right. Just as like a, more like a comparative, right. So they might just sort of say, okay, am I making money in Bitcoin terms? Or am I only making money in Fiat terms? And in fairness, it’s hard to make money in Bitcoin terms today. Like, it’s just very, it’s like extremely difficult. So do you have any thoughts on how you would value companies in this transition period? Would you look at companies that are, you know trying to hold Bitcoin, as you said, as a marketable security in that transition period, or is this more like something like, you would only look at that that’s kind of, you know, 15 years, 20 years away.

Preston Pysh:

So if we’re talking hurdle rates and IRR’s and things like that, they’re going to have a hard time outpacing it super hard time. Now, are they going to be on my radar? Am I going to be watching them? Hell yeah, man, I’m going to be watching it. I’m going be watching the decisions of the executive leadership. I’m going to be seeing how they’re talking about it in their quarterly calls. And then you know, it’s going to be interesting to track, but as far as if I show up a little late to the game of swapping over into equities for my allocation, because they’re now denominating all their free cash flows into Bitcoin and things like that. I don’t mind being a little late to the game and missing out on a little bit of upside, but you better believe I’m thinking about those kind of things.

Stephan Livera:

Yeah. That’s really fascinating stuff to think about. And I think it’s and maybe some of this comes back to what we were talking about earlier with, you know, people like Mark Cuban and so on and people who are balance sheet rich, but cash flow poor. Because fundamentally if the world really is changing it’s numeraire well, you’ve got to look at who’s looking out for that. And who’s who’s thinking in the right context

Preston Pysh:

Buffet talks about this in his shareholder letters. I want to say, Oh man, I’m going to mess it up. It was in the early eighties, I want to say maybe 1983 shareholder letters he talks about maybe it was ’81. I can’t remember. I know that when we think about inflation back in ’81, it was the worst. You had your ten year at like 16 point something percent back then. He wrote about this idea of companies that have a lot of tangible assets on their balance sheets, really struggling and inflationary environment. And the reason why is because for them to replace, let’s just take if you were a farmer. Farmers have tons of tangible assets, they’ve got tractors, they got this, they got intangible assets, like nothing. So if the farmer needs to go out and buy a new tractor and inflation is rip-roaring high, like that depreciation on that vehicle is very difficult for them to recuperate and buy the new tractor.

Preston Pysh:

Whenever the old one dies when you’re dealing with a company that has a lot of intangible assets on their balance sheet you can adjust the prices almost immediately. Like I mean, what we’re doing right now is an intangible asset that you can run advertising on and whatever, and you can adjust the prices of those advertisers in the future and things like that. So people that own businesses or business owners, shareholders who have companies with really rich balance sheets that are heavily intangible assets that have a heavy amount of intangible assets relative to tangible assets, I think are going to have a much easier time dealing with what’s about to happen. Just because you’re going to get into a really unique environment with respect to inflation, or, I mean, we could go down that rat race of terminology, but yeah, I’m tired of talking about it.

Stephan Livera:

Yeah,

Preston Pysh:

Go ahead. Stephan. Yeah. Sorry.

Stephan Livera:

Oh, well I think to me, I think we can draw lessons from history as well. Right? So reading books like The End of Money by Adam Ferguson is a good one. I’m talking about the way people were viewed when they were trying to store their wealth outside of the traditional or the local Fiat money. I wonder in your mind, I know you’re quite well read as well. I mean, you’ve got this whole, a row of books, my trophy. Yeah, incredible series of books there, are there any things that you can see as parallels from, you know, when humanity or certain parts of the world were changing over from one money to another?

Preston Pysh:

I mean, the most drastic scenario for me is 1920s, Germany, it’s just mind boggling what they went through in the pictures and things like that. I think what’s, what’s interesting about today versus back then is people have read about that in history. Everyone’s seen those pictures, but that was in a time when money was not digital today, money’s digital. I don’t care what anyone says. Like when you can take a credit card and you can swipe it, or you can go online and pay bills and all that stuff, it’s completely digital. So what, this is the question I would pose to somebody, what would a Weimar 1920’s, Germany, hyperinflation type event look like if it happened in the modern era, you’re not going to see the money on the streets. So what would it look like? How would they hide the printing?

Preston Pysh:

My opinion is they’ve been hiding the printing for, for 10 years strong with QE in an extreme way. And it’s really obvious if you understand how bonds work, because the yields on the bonds have just kept going down globally. And guess what causes that when you buy and you bid the price. So there’s your printing, but when you only have a handful of people in the world that work on wall street and they trade billion dollar bond torches that see that the price is keeps going up and they get a fat bonus every year. A they’re not going to complain about it and be, there’s only a few of them. So like, who are they telling that it’s not their talent and that it’s just the fed bidding the price, nobody. So that’s how I would challenge it. And I don’t know that I answered your question exactly, but I think it relates back to that, that specific point in time really rings a bell in my head. And I often ask myself, well, what would that look like in the modern era?

Stephan Livera:

Yeah, no. And I think it was a great answer because we have to just think about who has it’s.

Stephan Livera:

Like looking back to who benefits, right? So it’s not necessarily like, Oh, there’s a deep, dark conspiracy, but it’s just more like the people in that system, they want to benefit themselves. And they’re just going to rationally take the certain actions that benefit them. And if they can find some way to throw off the cost into the future, or they can find some way to throw off the cost in a hidden way, they would rather do that, then put it into an obvious way that hits everyone right now. And so I think that’s probably, you know, the, I guess the underlying concept to try and understand. And I think we’ve really nailed that this episode. So yeah, I guess if you’ve just got any you know closing thoughts in terms of considering Bitcoin as the numeraire or any other pieces that you’d like to leave as a parting advice.

Preston Pysh:

You know.I’d say people who listen to, maybe this discussion are thinking, Oh my God, I gotta, I gotta do all these different things. I’d tell you the exact opposite. I’d tell you, just keep it really simple. Charlie Munger has a quote. I really like, and I know Charlie Munger, isn’t the most popular guy in the Bitcoin community, but he has a quote. He says, don’t just do something stand there. And that’s what I’d tell people to do is just buy your coins. Don’t trade them. Don’t pay short term capital gains tax because you think you can out trade it. Meanwhile, you’re running the risk of a major player, major whale stepping in and bidding the price 30% in a freaking day, right? Like you are not smarter than the market price action on this. So don’t try to be just buy it, just hold it. Don’t try to be too cute. You know, we were on Twitter today. There’s a bunch of people talking derivatives. I was one of them talking about doing long calls and just forget all that crap. Like if this stock to flow model is right, you don’t need any of that stuff. You just got to keep it simple and don’t just do something, just stand there with your Bitcoins.

Stephan Livera:

I love it. I think that’s a fantastic way to finish listeners, make sure you follow Preston online. His handle is @PrestonPysh on Twitter and Preston where can they find you?

Preston Pysh:

Yeah, just on Twitter. I really enjoy engaging with people on Twitter. So my handle’s right there. You can see my name. That’s how it is on Twitter. Also I have a podcast we go by, we study billionaires or at the investors podcast, you can type that in type my name in, and you should be able to see some of the episodes. We talk about a lot of things other than Bitcoin. So if you do have an interest in some of the valuation and software, you’ll, you’ll get that itch definitely scratched, but Stephan, I love coming on your show. I love your show. I think you do an amazing job. You ask incredible questions, dude. Please I would love to come back on your show. I really enjoy your show.

Stephan Livera:

Of course, man, I really enjoyed chatting. It’s always a pleasure to chat with you Preston. So thank you. So listeners you can find all my stuff online at stephanlivera.com or @StephanLivera. But I think that’s pretty much gonna do it for us. So thank you for joining me, Preston.

Preston Pysh:

Great to be here.

Stephan Livera:

See you guys in the citadels.