Bitcoin and Macro Collide

Hi, you're listening to the Stephan Livera podcast, a show about Bitcoin and Austrian economics. Today for episode two hundred and three, my guest is Raoul Pal, CEO and co-founder of Real Vision, and he also writes Global Macro Investor. Now, Raoul first joined me in episode ninety-three about a year ago, which was a widely shared episode, so I'm sure you will also enjoy this. This chat, but first a special message.

"This is one of the best setups in any asset class I've ever witnessed," said Raoul when the ball hit the It's run. Bitcoin is likely set to be the best performing major asset in the world by a big margin And so the bull began its run. My conviction levels in Bitcoin rise every day. I'm already irresponsibly long as the bull begins. It's run. I am now thinking it may not even be worth owning any other asset as a long term allocation, said Raoul, when the pool began. Its run. Visit swanbitcoin dot com. The bull has begun its run.

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Use the code LIVERA for a discount. Onto the interview with Raoul. Raoul, welcome back to the show. Hey, it's good to be here. Raoul, you've been, commenting a lot on Bitcoin and look, our la-the last time we chat, we had a chat was about- Almost a year, about a year ago. so I'd love to, yeah, get your thoughts, where are you, w-w-what's, what's updated in your thinking around Bitcoin over that time?

Well, quite a lot's happened, maybe.

you look, we've now gotten to the period, again, most of your listeners, I mean, there's nothing new here, we've now gotten to the period where the halvings happened. Exactly at the time when the central banks turned to the largest ever amount of easing we've ever seen. So quantitative easing meets quantitative tightening in Bitcoin meets a fabulous chart pattern, which was this massive wedge pattern that eventually broke, and around a period of, you know, massive global uncertainty. So basically, Bitcoin and Bitcoin and the kind of macro world were on two separate paths that were converging, and they've just met. So Bitcoin has become for me the most dominant trade potentially in the world right now. You know, if last time when we were speaking, I was probably very interested in the bond market, now I think that on a risk-adjusted basis Bitcoin probably has the best opportunity on Earth at this point going forwards, whether that's over the time horizon of the next six months or whether this time horizon of the next eighteen months. What's really interesting to me is, is now we've just had the macro and Bitcoin colliding at the same point. With everything that's going on, we've also had a couple of key developments. The key development in the United States was the ability for US banks to custody Bitcoin assets. What does that mean? That really basically means that banks can Prime bro- broker hedge funds for Bitcoin, and that's a massive thing. So to be able to custody it for them and custody it for other institutions makes it very powerful. I mean, people like Fidelity had already started that process, but now the banks are involved and that means they're allowed to offer leverage on the positions, et cetera, which is what the prime broking world does and offset it against other positions. So that's telling us that basically we're getting a chance to front run the hedge fund world, Paul Tudor Jones. That was another development since we last spoke. You know, Paul publicly stating that he had Bitcoin in his fund allowed others to follow suit, and the prime brokers are now gonna make that easier. So we're basically getting the ability to front run the institutional capital, particularly the hedge fund capital. We know the family office space has been moving in here over time, and as people like Fidelity build out the- These custody solutions that they know and trust, then that allows them to start moving into the space as well. Meanwhile, we're getting much closer to the Bitcoin ETF I think, you know, whether it's Bitwise or whether it's a few others, somebody's gonna get it launched at some point soon. That's gonna bring in the RAA or the Registered Investment, Advisor Market into this. So that's advising on the pools of capital of, you know, a average or, you know, a average middle income and wealthy individuals. So that's another wall of capital to come. The other thing, Bitcoin now is a what, a two hundred and forty billion dollar market cap. It's still small as an asset But let's say it does double by the end of the year. Well, at about five hundred billion, you're now getting to be a real asset in terms of size for institutions to get involved, and the more it goes up The more that they have to get involved because it's a larger part of the asset market. So you've got this kind of weird convexity where it's like the market is short calls, where the more it goes up, the more it's gonna drag people in, and obviously that's gonna drag in retail as well. So you've got this kind of reflexive loop building where- The chances of a really powerful move going forwards are extremely high. Additionally, I look at Bitcoin versus other asset prices, so, you know, just graphing, let's say Gold versus Bitcoin, basically gold is breaking down or Bitcoin breaking up versus gold. So then I looked at the Nasdaq, you know, that's been a pretty good market, surely that's looking like it's gonna outperform, well, it's not. There's like a head and shoulders top pattern on that ratio of the Nasdaq and bit-- in Bitcoin terms, again, looks like Bitcoin is gonna outperform the Nasdaq. Well then, w- I looked at emerging markets because, you know, often they can produce good returns. Same thing, emerging markets are breaking down versus Bitcoin. I've looked at the TLT, i.e. the bond market, breaking down versus Bitcoin. So I've gone through pretty much every asset class, even stocks like Amazon are starting to underperform Bitcoin. So we've got this perfect storm where it looks like everybody's about to come into the space, Bitcoin looks like on the chart patterns it's got about to outperform everything. It broke an enormous chart pattern in its own right. We've had the regulatory changes to its advantage, the macro's turned completely to its advantage, and- I don't see many scenarios in which Bitcoin doesn't do extremely well. So a long answer, but hopefully covered a lot of ground there.

Yeah, you certainly did. And I think it's interesting as well that the image, the perception of Bitcoin has changed also. Would you- I'm wondering what your view is on this idea that obviously in the earlier days, Bitcoin had more of a dark web image, and I think that obviously still exists, but perhaps the image has changed regardless. What's your view on, on that?

We've definitely Real Vision played an important role in that because of the kind of people who watch Real Vision, and we've been featuring for a long time, so we've got a lot of, you know, a lot of people who look at traditional asset markets have started to understand how this fits in and how the macro and Bitcoin have all collided into the same spot. I think that, that, that's really helped drive, and that's not, you know, blowing our own trumpet, but it's a reality of the situation. I think also the sheer quality of the people who are involved in this space has gone from being People at the fringes of finance and the fringes of technology and the libertarian element to Fidelity. You know, that says it all. So the quality of people in the space, both from the finance space particularly, where it's sucked in more and more and more intellectual capital, has meant that the kind of renegade developers who are developing it now have the guys who understand and speak the language of Wall Street, and that's really helped. But what's fascinating is what- Well, you know, you've been promoting and doing your job in, in broadening the net here as we have at Real Vision. If you think about it, when's the last time you saw a proper article in The Economist or The FT? Yes, in the web section of The FT, you'll see some Bitcoin bashing and a bit of Bitcoin stories. But there's not a lot there, so it's really not covered by the mainstream, except when something happens, like somebody wants to scam bitcoins on Twitter by stealing a bunch of addresses. So, so underneath, the narrative has definitely changed because of who's involved. The media hasn't yet caught on. The media's more neutral than it was, but it's not got to the point where it realizes the role that Bitcoin is gonna play in the future.

Excellent, and I definitely- I think you, your, your voice on, in speaking on Bitcoin has helped shift the conversation a little bit, and it's probably an interesting trend that in, within a company or within a fund, it's often an individual who first comes to understand more about Bitcoin and they get, become fascinated by it, and then they turn that company to try and purchase Bitcoin or to invest in Bitcoin. Have you, seen that story play out in any of your experience or with your contacts?

Relentlessly since- So I started writing about it in two thousand and eleven, I've seen that process all the way through. So friends of mine who were hedge fund managers first looked at it, first bought it for themselves, and eventually got it into their fund. And even to this day, you know, almost every month when I write Global Macro Investor, I will write about Bitcoin and I will get an email back saying, "Hey, listen, how'd you do this?" you know, what exchange should I use? What wallet should I use? And then you hear that they've got involved, and then they start looking at it for the fun. So that process is ongoing, it goes on on a daily basis, and more and more and more people get sucked into the space. People are really understanding it, particularly now, you know, the simple level of quanti-quantitative easing meets quantitative tightening is a very powerful message. And anybody right now who understands gold can understand the value proposition of Bitcoin. And I basically send anybody the way of, Safdie's book and say, "Listen, just read the Bitcoin Standard and you'll understand where the role is of Bitcoin if you understand the role of gold."

That's phenomenal. Yeah, that's excellent. And I'm also wondering, it may be a similar story with the Macro Strategy News, where they essentially went and purchased a large amount of Bitcoin, I believe twenty-one thousand four hundred and so, bitcoins. do you see that that is another similar story? That we will see playing out over the next couple of years.

Yeah, interesting. Michael's another Real Vision subscriber, another Real Vision fan, but, yes, I mean, he did something which I think is incredibly forward-looking. And what it's basically said is to other treasurers is you have another option. And again, that's a function of the macro meeting Bitcoin, because as yields have gone to zero and excessive largesse by the central banks have meant that people are nervous about what the value of money is is whether that's inflation or devaluation of currency purchasing power, et cetera, or just a lack of returns and an, an increase in correlation amongst all assets, Bitcoin offers a solution for people. So I think it's very big news. I think more and more people will do it. I mean, we, we also know obviously that all the big Bitcoin exchanges that are hugely profitable have huge stores in their treasury of Bitcoin as well. You know, whether it's Block one and probably got about You know, a billion or two, or whether it's, you know, Binance or any of these guys, BitMEX, they all have massive treasury operations with Bitcoin. And I think, you know, once- Coinbase goes public, which I think, you know, it seems like that's the rumor it's gonna happen. If that's the case, the market will understand the power of Bitcoin in treasury and the multiplier effect it can have on the valuation of a company. So yes, I think it's another massive watershed moment.

Excellent. And in terms of the, there might also be an angle there around acquisition. So because MicroStrategy saw a, quite a large price rise in their stock price. I, I wonder as well whether companies that now accumulate a Bitcoin, holding become acquisition targets in their own right.

Well, look at Mike Novogratz's firm, Galaxy. So Galaxy, you know, is really a- An asset management company does some trading, et cetera, but what it does hold is a ton of crypto. So it starts performing, massively, and it's up a hundred percent in the last month. and I think that doesn't go unnoticed. in what it can do for your share price. I'm not sure it's necessarily an acquisition because if you wanna go and buy that many Bitcoin, you can figure a way of buying it. So it doesn't make an acquisition, but it makes it very attractive for people who want to drive up the value of their share price, particularly if we're going into, you know, a fully fledged crypto bull market.

yeah. and, and I also believe that we are seeing demographic trends that are playing in favor of more people getting into Bitcoin. We could see potentially young people, or productive people who don't wanna be part of, say, this, the government social contract, right? And they may say, "Well, fine, I'll just leave the country with twelve seed words in my head," you know? So that's just one example, and there may be people who- Yeah. You know,

I, I don't think that that's the predominant driver here. So, you know, if you look at the millennial population in general, they're more, biased towards government than against government. It just depends what kinda So I don't think it's the rebellious nature of, of that generation. What it is, is very simple. Is if you are a thirty-two year old now, which is the average millennial, and you're trying to decide, now you're in your peak earnings career, earnings point, and you will be for the next twenty years, is where, where do you invest? So you've got the equity market at all-time record high valuations, you've got the bond market at all-time record low yields, you've got the corporate bond market at all-time record low yields So, and property markets are too expensive. So you don't have any choices. How are you supposed to build wealth when the forward expected returns of most asset prices are negative over the next ten or twenty years? It becomes extremely difficult, and then you've got the risk of, okay, maybe the way to solve the debt situation is to create inflation. So maybe you have to deal with inflation as well. So that's a terrifying set of circumstances for an investor at a young age to deal with. But Bitcoin is the opposite. It's the complete opposite. It's kind of the same opportunity set The baby boomers were given in 1982, with the bond market at 18% yields and the stock market at a P/E of seven. They had almost nothing but potential upside in both those assets, and they built wealth on the back of it. So the younger generation has an opportunity to build wealth in a new financial system, if they've got the vision to agree it. Now, what's interesting is this was driven by a retail revolution to start with. They're also much more savvy in digital assets, and by the time you get to Gen Z, that's younger, they grew up with the value of digital assets. You know, they've grown up on Minecraft, and they know the value of skins, and they know the value that you trade tokens, and so for them- To them, it's obvious. Bitcoin isn't unusual to them, it's kind of what money should be. So I do think that this generation almost has no choice, 'cause I can't find another asset. Yes, you might be able to buy emerging market equities, because some of those, they've underperformed developed markets for the last fifteen years, and they're pretty cheap, not ridiculously cheap, but pretty cheap. But there's nothing that offers the twenty, fifty X opportunity with, call it a, you know, seventy percent downside or fifty percent downside the Bitcoin has. I mean, nothing is close to that risk reward opportunity. And so, you know, you've seen it in the narrative of Bitcoin now, the dollar cost average, the DCA, you see it in everybody's tweets, because people have started to understand that that's the way to build wealth in this. It's just dollar cost average, put some money away. And understand that this is a long-term investment opportunity, and you're investing in a whole new future. Phenomenal. And

it's been said that in Bitcoin, it sort of operates on these four yearly cycles, right? As people talk about the halving and Sock to Flow and so on. What's your view around that? Do you believe that it's, it's just gonna continue going in these four year cycles, or does it just become, let's say, a decade of, of people all dollar cost averaging?

It depends how fast it goes. I mean, the boom-bust cycle is Because Bitcoin isn't manipulated by government markets, it will have a boom-bust cycle, and that's fine. I mean, don't forget the US economy had a boom-bust cycle, a, a kind of four-year boom-bust cycle for several hundred years, and the UK too. In fact, every industrialized economy has a boom-bust cycle. It's only in recent years with central bank manipulation that the boom-bust cycle has been drawn out. So the busts are bigger and the booms are less good, but they go on for longer. So I think it's normal to have a

It's unlikely to have another halving cycle. I think it'll be slightly different next time around because obviously as people learn how this works, it's less likely to happen because it kind of gets front-run or it gets accentuated because people know that, you know, eighteen months after the halving, we should peak and then we, we all leave it for a while and buy it back later or just hold on. So, I, I'm not sure, but that cycle is around for a while, I think. It depends on the, the institutional adoption as well. But, you know, the commodity markets are cyclical. I, I think it's normal for assets to be cyclical, and, you know, I think it makes sense 'cause it also washes out speculative excesses.

Right, and, you, you mentioned also just around the dollar cost averaging, I'm also curious your thoughts around this perception of whether people view Bitcoin as a risk-on sort of asset, and how does that influence their decision to keep dollar cost averaging or to speculate?

Look, Bitcoin isn't correlated with anything in the longer term. The closest correlation is central bank balance sheets, but it's really not. So I don't think it's particularly a risk-on asset. In short term, yes. But in longer term, no. So I think it can get caught out with liquidations, and that's normal because it's a quality collateral. So if you have to liquidate an asset to pay for losses elsewhere, you might liquidate your Bitcoin as you do your gold. So yes, there's a bit of that, but overall, I just don't see those correlations playing out. So I don't think it's risk on risk off. I think it's a different cycle, and that's why it's so valuable in a portfolio is because it, it doesn't play the same way Those other asset prices. Right now, pretty much everything is the same. You know, stock markets go up, oil goes up, you know, the dollar goes down Et cetera, et cetera. The, the trade is all the same trade, but Bitcoin's not, so it's super valuable in a portfolio.

Also, if a lot of people start buying Bitcoin, I guess one concern that's been voiced by people is that, you know, Bitcoin becomes, captured by the government or perhaps it, people, the government tries to act against it. But at the same time, we've seen this recent news from the OCC and so on. So how do you think about that, that question of whether the government's future May, negatively impact Bitcoin.

My answer to that is, who cares right now? 'Cause it's not gonna happen at two hundred and forty billion dollar asset, nobody cares. It's just not big enough. You know, come back to me when it's a five trillion dollar asset, and then we can worry about that and talk about jurisdic-- jurisdictional risk. But, you know, in a globalized world, we have jurisdictional arbitrage. So with a digital asset, it's very hard to get around jurisdictional arbitrage because, let's say, the Cayman Islands will say, "Well, we're not banning it," so in which case people hold it in the Cayman Islands or change residency. So I think it's very difficult to deal with, and I think gold has proven that

Ban it, because there's always a jurisdiction that allows it. So I'm not worried about that, and I'm certainly not worried about it at this price. You know, again, maybe when Bitcoin's trading two hundred and fifty thousand dollars, somebody's gonna say, "Well, I'm not sure about this," and we'll see it in emerging markets where people use it as a way out. So we're seeing it in Turkey right now, that money's flowing out of Turkey and into Bitcoin. you know, there'll be governments who'll try and ban it for that, but again, it

you know, VPNs and just various, various protections, it's really difficult. Now, it doesn't mean that they can't track you and everything else, but it's just highly unlikely. And also sorry, the, the other thing is, you know, everybody's building a digital currency as well. So, you know, every central bank is building out a digital currency plan now. And if that's the case, then what they're saying is there are gonna be digital on-ramps and off-ramps for Bitcoin. And I don't see a problem. I don't see Bitcoin as a currency. I don't think it's ever gonna compete with, with, with currencies of states. I think what it is, is a reserve, pristine reserve collateral asset, and that's And it's, you know, sure, periodically people try and ban it in various places to stop capital flight, but other than that,

no. So Raoul, did you have any thoughts around which countries you might be, you might see Bitcoin be adopted more quickly, or did you just see this as just, this is just like a global phenomenon?

Well, it depends what you mean by adopted. Again, s-some people have a vision that it's gonna be a currency and somebody's gonna convert their currency into Bitcoin. That's not gonna happen, I don't think. It's too volatile an asset You know, once you're closest to the twenty-one million coins and we've got deeper markets with lending markets across a, you know, extended yield curve, et cetera, et cetera, then you might be able to have a more stable currency. But right now, it doesn't work for that. So our country's gonna put it within their reserves for sure. I think that'll be another big milestone that we'll probably see over the next three years. There are countries who want to move digital. I mean, I, I live in the Cayman Islands, and the Cayman Much of the legal regulation was drawn up here in the Cayman Islands, it's a lot of it's offshore, a lot of the tokenization came here in the Cayman Islands, and I think, you know, eventually, we're also seeing Switzerland allowing the build out of this. So I think there's countries that are gonna embrace it, countries that will ignore it, and countries where it becomes the option of choice, as you say, for people like Brazilians or, or, Turks or people who have weaker currencies or bad governments. So it has different purposes for different- Different people, but my guess is we're gonna start to see a few countries here and there, as I said, add it to their reserves, and I think that's a really big deal.

Right. And so that may even be a similar story, like we were saying, a few individuals within certain government departments who first hold Bitcoin in their own right and then decide to try and agitate within, that department as well.

Well, if you think about it, so let's say you're a, a Latin- American country with weak trade balance and you, the vagaries of the business cycle always hurt you, and you can't build a sovereign wealth fund to protect yourself 'cause you don't have oil So how do you stop your currency keep getting trashed and inflation coming, and then, you know, then your currency gets too strong and, you know, the, the problems of, of those kind of emerging markets? Well, if they put Bitcoin in their reserves? Their chances of their reserves going up faster is better. They get diversified re-reserves and they could offset their flows. So you will probably get first mover advantage in that. So my guess is we're gonna see some small countries try it, and I think that's super interesting. I'm, I'm hearing stories all over the place of countries looking at this right now, and I think that's a, that would be clever. Now, it would start at a small allocation, you know, two percent. Something like that. But again, even two percent allocation to Bitcoin can make dramatic portfolio effects in your, in the reserves of a country. So, you know, I, I, I think there's a real validity to that.

Also, we've got all this, you know, Corona stuff going on. We've got countries that are, you know, going through some phase of lockdown or easing or in some yo-yo position. Do you have any thoughts around what, what some likely government responses are over the next few years? years and whether that impacts, you know, the economy and people's ability to save, for example.

Yeah, I mean, look, for sure the government response and the central bank's response isn't over. My core thesis is that we are slowly Moving into an insolvency event because GDP growth looks like it stalled globally at like negative five to negative seven percent. So it's stalling at negative five, negative seven, seven percent coming up from the low This would still be the largest recession outside of the Great Depression. And my fear is, normally things revert back to normal gradually, and this one reverts slower. The slower it goes, the more impinged the cash flows are, the more chances are that these indebted companies- households and small businesses go bust. And if that's the case, central banks will firstly try and do anything they can to solve that But they can't really solve the solvency event. Adding more debt or lower cost of funding to a solvency event when somebody hasn't got the capital to pay it means that it becomes a government problem. So you're seeing the central banks begging governments for fiscal stimulus. And that's, yeah, direct handouts to businesses and households, through to, you know, eventually we'll have much bigger stimulus in terms of infrastructure build, trying to generate demand to plug that gap from the minus five percent and get it back to two percent GDP growth. You need to generate a hell of a lot of GDP growth to do that, so you're gonna need a hell of a lot of stimulus. And all that basically means when you translate it is, it's all gonna end up on the central bank balance sheet, and it, there's just gonna be more monetary printing. It's the only So if that's the case, then the value of fiat currency overall declines. Now, whether it's the value of the dollar or a basket of global currencies, I think overall they'll decline. And that's incredibly bullish for Bitcoin. The other thing I think is coming still is negative interest rates. I think they'll selectively use negative interest rates, and I think one of the reasons, digital currencies are being pushed through is you can therefore allocate, Different interest rates to different people. So you don't penalize households or the pension system, but you penalize saver, other, other sa-- larger savers, corporate savers so they don't keep money stored in the money markets, stuff like that. There's a number of things that will happen, but negative rates again. So I think we've still got a future of negative rates? Then massive monetary printing, which all of which is incredibly bullish for Bitcoin, and then you're gonna have the perceptions of the risk of an inflationary event at the end of it. I don't necessarily think that's coming, but the market's gonna wanna price it at some point, and that's also good for Bitcoin. So, you know, again, as I've said, the macro has met the micro here, and it is like a perfect storm for Bitcoin.

Right. And so, some people have characterized this view as Something, well, the view, their view is something like we'll have deflation first, then inflation in terms of fiat currency inflation. Would you say your view is something aligned with that, or how would you differ, differ from that?

I don't think we're gonna get inflation. We didn't get inflation off the New Deal back in the nineteen thirties. We never managed to generate it. I think with the aging population of seventy-six million, baby boomers in the US alone retiring over the next, retiring and Coming out of the workforce and then dying over the next twenty, twenty-five years, it's really, really difficult to offset that deflationary pressure. So I don't see it happening. I can see the value of money itself falling, but the inflation of higher wages and larger demand, I just don't see there. We'll have inflationary episodes for sure, but I think the trend remains lower. I see. And,

just as well with the, you know, many businesses struggling and so on. You know, a comment someone might be thinking, "Well, hang on, how are people gonna save into Bitcoin if they've lost their jobs? What are they gonna do now?"

Yes, but I don't think, as I said, I don't think the re-retail is gonna be the big driver this time around. I think retail will adopt and continue to do so. I think people will lose their jobs, and that will also stop a lot of the speculation going on in the stock market. But unlike the stock market where there are actually no natural buyers, you know, corporate buybacks were the big buyers and, and index funds from the millennials, well, I think the index fund flows start slowing down as Stimulus wears off and buybacks stopped a while ago, so we have no real natural buyers for equities at the moment on a structural basis. But crypto is entirely different, we're at the opposite end of the spectrum where we're getting adoption. So I don't think it's driven by retail this time around, I think it's driven by institutional, and so that's to come. So it doesn't worry me, I guess.

I see. Also, some people in the Bitcoin world have, commented about the possibility of derivatives and whether they would suppress the Bitcoin price if, let's say, the, you know, the proverbial tail wagging the dog. Do you see that kind of scenario, or do you see it more like, that's not really a likely scenario?

Well, I've been involved in derivatives my entire career, and I've never seen derivatives dampen the price. I think what they do do is reduce volatility over time, but then produce these bouts of hyper volatility because people use leverage. Derivatives are just leverage. So are we gonna see more leverage coming into the Bitcoin market for sure? as more institutions and hedge funds play it, they will use leverage. The derivative market over time, because as people can sell options and get the yield from selling options, stuff like that will mean that you tend to stabilize the price somewhat, because they're the opposite to market flows generally. So that's definitely coming. I don't perceive it to be a huge problem. What's also very interesting about Bitcoin is if you think of Bitcoin as a collateral- It is amazing collateral compared to treasury bonds, 'cause treasury bonds right now as collateral, if there's ever a collateral shortage, which happens from time to time from excessive leverage, well, the central bank just supply more of it. So you just, you lower the value of your collateral and you keep extending these boom-bust cycles into, you, you never get the downside, the bust cycle. But if you start using Bitcoin as a collateral, it's super interesting 'cause you can't change the supply, so you can't have central bank interference in the natural boom-bust cycle of excessive leverage. And that's one of the things, if you think of the Austrian economic community that were one of the early adopters of Bitcoin as a kind of philosophy They're gonna be right because we're gonna have a proper boom-bust cycle, because as a collateral, there's no way it can be manipulated, unlike current collateral systems. So I think even though we will end up with more leverage, the leverage will be self-regulating, which is what we've all been desperate for for a long time.

I love the comments around collateral, and it may even be a point that over time, Bitcoin collateral becomes more preferred than other forms and potentially- I think for sure

it's going to, for sure. It's such a pristine collateral, and it's transferable, it's divisible, it's, it's segregated, you know? 'Cause most collateral is pooled, and pooled collateral means that you have problems on who has ownership. The rehypothecation of collateral was one of the big issues in two thousand and eight. With blockchain and Bitcoin, that all goes away. So it's probably the best collateral there is if it didn't have the volatility that it's got. Because if your collateral is too volatile, then- Then it keeps forcing you to reduce leverage at the wrong times. So volatile collateral's not super useful, but over time, I think as volatility comes down in Bitcoin, it'll become increasingly a preferred source of collateral. Okay,

so given that Bitcoin represents pristine collateral Would it be fair to say that the interest rate charged for a loan where you're using Bitcoin as the collateral could be lower than for other forms of collateral?

I mean, I think without a question, yes, because it's non-rehypothecated collateral. So it's, it's, it's incredibly valuable in that return, in, in, i-i-in that term. I was talking to somebody about this today. I mean, one thing we haven't had in Bitcoin yet, and it's coming, 'cause you can see it in DeFi and you can see it in Ethereum, is there point, and it will probably trade eventually below government bonds. That's super interesting, because, you know, some of the things that I've discovered in my journey through understanding the plumbing of the financial system is that there are real issues at Clearing level, clearing house level, like the DTCC and Euroclear, in who owns the bonds in the effect, in the, in the event of a default on collateral, because don't forget, the collateral of the current system is government bonds, and let's say Spain went bust or Italy went bust This huge problems and the what gets taken by the lender of last resort, the ECB or the Fed, would be bonds held within the, within those clearing systems. And the problem is, is that at that level, they're non-segregated, so you and I could lose bonds out of our pension system, out of our pension funds. So With Bitcoin, that goes away. Now, it does mean that the people will end up building blockchains for collateral as well, for standard collateral, and that's another good thing. So I think there's gonna be different pricing of collateral, and I think Bitcoin will probably be, once the volatility goes, more pristine collateral. Gold is a pretty pristine collateral. then there'll be collateral that's held on blockchains, so government bonds that are registered on blockchains will be more, worth more than government bonds that aren't. So we'll get different prices for money for different collateral. But also, I'm just really interested to see how the yield curve is in, in the cryptocurrency market over time, because there's, there's gonna have to be some format for that.

Yeah. And so as the yield curve for Bitcoin develops, well, I guess, how long do you think it would be before we start to realistically see that? Are we talking five years, ten years, or even less?

Well That's what DeFi is, right? So if you think about Ethereum, the proof of, work is doing Similar things, 'cause you're basically holding-- you're ho-- you're being forced to hold the Ethereum for a certain period of time, of which you get rewarded for it. So that's the step of starting a money market. The next part is DeFi, so people are saying, "Okay, on a monthly rate, you can earn X." So that's the next part of the money market, which is the private lending markets. Once you get enough people doing that, you can form a benchmark which would be like LIBOR. Which, which would be like LIBOR. So LIBOR is essentially a basket of lending, of, of, of cost of lending from various banks. So then you've got benchmark lending rates. So once you've got that, you can also go out further in the future. So I think people are working on this, and this is probably within five years we're gonna get pretty close to it, maybe within three. Now, it doesn't mean it's gonna be liquid or anything else yet. You know, we got a long way to go, but I think it's starting to get interesting.

so I guess I'm curious why you see that like that has-- that would have to be an Ethereum thing, and it couldn't just be done as

I'm just curious why, why you believe that?

no, what I'm saying is Ethereum's doing it now, right? So a lot of that kind of work is happening on Ethereum now. Doesn't mean it's not gonna happen on the, on the Bitcoin blockchain either. But it's not, you know, that's not where most of the development is in this space yet. and will, will that come for sure? Because, you know, I actually think, you know, I know there's this tribal warfare between all of this stuff, and I don't believe in any of Collateral and reserve assets, and I think Ethereum is a different system, and they will work hand in hand, and so they should. So I think, you know, it's like having a government bond market, it's like having a corporate bond market, all of these things together is all coming.

Alright, and I think the other really interesting topic, and you touched on this earlier, is this whole war on cash that we're seeing, and I think you, you made, you made a really interesting observation there around this idea with central bank currencies and them potentially being able to distinguish and say, Yeah, you're a corporate, we're gonna give you negative rates, and okay, you're a retail person, okay, we will give you like a zero rate or a very low rate. What's the sort of timeframe you're looking at there in terms of negative rates?

Well, the G30, I've just got an article on my desktop, the G30 produced a, a document called "Risks, Opportunities, and the Challenges Ahead of Digital Currencies and Stablecoins". It sounds like they're further away than most of us think, but closer than most imagine. So it's coming, and I-- but I don't know how fast. So I think that's gonna be a really, really interesting development as that comes and cash is taken out of the system. Because, you know, a very interesting thing happened in Switzerland when Switzerland went to negative rates, one of the big, regional pension funds said, "Fine, we're just gonna go and take two hundred and fifty million dollars of cash out and put it in a vault," and the bank said, "You can't." Because contractually, we have to deliver you cash or cash fund-fungible asset and we'll transfer you money, but you can't take it out of the system. So It's interesting 'cause it's already there in some respects. So, so that development is coming. Now, it's also a good thing because it means the bloody onro-- on ramps and off ramps from, you know, the tax systems we live in become much easier to manage. So this clunkiness between the legacy world and the new world goes away. So, in some aspects, it's, it's negative because of how- Governments will have total control over your money and control over the particular interest rates that you use, or even delivering you unemployment benefit directly to your wallet. All of that stuff, some of it's good, some of it's bad. But if you think in Bitcoin terms, it's only a good thing 'cause it makes it easier. And it integrates-- if we think of Bitcoin in terms of not being a money, but being a reserve asset, well, it makes it very easy for institutions, banks, people, everybody to be in and out of use Using Bitcoin as a, as a, as collateral, as a reserve asset, as all of those other things.

Right. So perhaps it's, it's like Bitcoin is the escape from the financial repression that people face in the normal financial world.

Absolutely right. People can step out of it. You know, Bitcoin-- if you don't agree with how your government's running your money, you can go into Bitcoin. Now, yes, you will run into regulation issues, but you can make those choices now. And don't forget, right now, you know, Turkish people have difficulty getting money out and Brazilians Getting money out, many, many people around the world do, so that's not unusual. But Bitcoin makes it relatively easy to do that, to get money in and out. It's a little bit easier than gold is, although gold isn't particularly hard and it's worked for, you know, a few thousand years, so I'm not gonna discredit it for that purpose. But it works, and the world needs that, and it has always needed that, and Bitcoin solves it really well, particularly for the modern age, particularly in the world of, of digital assets and digital currencies, digital stablecoins and all

I mentioned earlier, the volatility can make it difficult for people who want to do day-to-day commerce. But I'm also curious whether you've, you know, you've played around with or you've looked into Bitcoin's Lightning Network, which allows people to do this kind of peer-to-peer trading in a way that, you know, is faster than, you know, just Bitcoin on-chain. Yeah,

and I'm super interested in the Lightning Network personally. Who the hell wants to spend Bitcoin?

I mean, that's the pro-- that's the actual problem here is, I think Bitcoin is evolving not as money, but as a reserve asset that has incredible upside. So nobody wants to sell it in exchange for a good. You might do it because you've made a lot of money and you wanna buy a house because you have a utility value. But it, it's, it's just not the kind of thing where you wanna buy coffee with. So I think they're developing it, but I don't think it's gonna be used for that. I really don't. You know, I think in-- it's becoming clearer and clearer that Bitcoin has a massive advantage over everything else in terms of being The purest and hardest of all assets.

I see, yeah. So I guess, I mean, I can think of examples, but perhaps they-- we would say they're more on the margins. So someone who is earning Bitcoin, you know, somebody who has to earn Bitcoin because they've been shut down, those kinds of people might have more use for Lightning Network, but I think to your point, it's more that the hodler, you know, the, reserve asset story is much larger than that story, right? I

mean, I mean, arguably, people would argue remittances is probably something good for the Lightning Network. But there again, you know, ten minutes to get a confirmation doesn't really bother remittances right now. Western Union's a nightmare. So I'm not sure even remittances need instant payment systems. You know, we've even seen India introduce UPI, which is their universal payments interface, which is, fifty times faster than the Bitcoin network. It's not even a crypto or blockchain-based system. so it can be sold. Those payment systems can be- be solved outside of this. But the, again, the pristine ness of the asset can't be solved by anything else. And I, you know, that's, I think the one thing above all is that.

So that's really the strongest, part of the Bitcoin story. Yeah,

I mean, there's many, there's many parts of it, and there's, you know, it may evolve over time, and let's say Bitcoin, we've got to the twenty-one million coins, and Bitcoin is now the global reserve asset, and it's worth whatever it's worth. You know, its volatility then dampens to almost nothing be-c-because it becomes like a government bond or reserve asset, it's got a yield curve, all of that stuff. Then it's different. Then may-maybe there's a real place for Bitcoin as money. But right now, I don't think it matters. I don't think it's the problem to solve.

I see. And, Raoul, let's chat a little bit about Real Vision. Tell us the latest, with Real Vision and, what you're doing.

Well, we've got some exciting news. When is this coming out, by the way?

I was gonna put it out later today, so,

Okay. So we've-- so without announcing too much, there's a- We're about to do a lot more in the crypto space, so I think that's gonna be very interesting for many people listening to this. We already do a lot in the crypto space. We've also got some interesting stuff going on right now. We're just launching our Festival of Learning. We did a massive crypto event in, about two months ago, a month and a half ago, which was called, The Crypto Gathering. We had nine and a half thousand people join us for that with all the kind of great and good of the industry. We're gonna do another virtual event, but Learning. It's all about how to become an investor, how to understand what these markets are, you know, how to run portfolios, how to think about risk, how to think about time horizon, how to research ideas. So that's just launching now, and I think a lot of people will find that super interesting because I know a lot of people in this space are also, investors overall. So, you know, we're doing that, but, you know, we're also about to launch, and this is hot off the press that nobody yet knows, so here's a, here's a Full community product. So that's gonna allow our audience to deeply interact with each other, share content, interact with the people that, that, that they see appearing on the platform, and for also for third parties, maybe you wanna have your community on that platform, on the BrillVision community, and you'll be able to do that and interact either in a private channel or a public channel with your audiences where you can even post your podcast there, et cetera. So we're, we're gonna build that huge, community because- We don't really have a community in finance outside of Twitter, and at two hundred and eighty characters, it's a bit restrictive in terms of how we all wanna talk. You know, we wanna publish research papers and videos and long-form trade ideas and analysis on how we're thinking about things, and Twitter doesn't do a good job of that. So we're gonna do it as part of Real Vision. And so that, that's a, that's hot off the press, nobody else knows that.

Fantastic, that sounds really cool. So, definitely I'll be interested to, released. So, Raoul, I know you've got a run, so just before we let you go, where can listeners find you online?

The easiest place is find me on Twitter, at raoul, r a o u l g m i. And I'm active on Twitter a lot, and, so if you wanna find out the thing about Real Vision, you'll find me on there, and you'll find some stuff about Real Vision. And, you know, I, I love interacting with people, so if you got questions, you got any feedback from the

And, thank you for joining me. Yeah, thanks so much. Really enjoyed it as ever. I hope you enjoyed the show. Make sure you share it with your friends and subscribe. You can find it at Stephan Livera podcast in all of your podcatcher applications, and you can find my website, stephanlivera dot com. That's it from me. Thanks, and I'll see you in the citadels.