SLP233 Vijay Boyapati – Bitcoin Valuations & Cycles

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Vijay Boyapati rejoins me on the show to talk about where we’re at in the cycle. We talk through:

  • Possible valuations for bitcoin
  • Common misunderstandings
  • Errors people make in bull runs
  • Why Bitcoin is not tulips
  • Bitcoin Derangement Syndrome

Vijay links:

Prior episodes:

Sponsors:

Stephan Livera links:

Podcast Transcript:

Stephan Livera:

Vijay welcome back to the show.

Vijay Boyapati:

Thanks Stephan. It’s great to chat with you as always. And I hope I’m keeping my record as being the guest who’s been on your show the most. That’s a very important record to me because it was my first podcast I did and I still think it’s the best Bitcoin podcast out there.

Stephan Livera:

Well, thank you very much Vijay. And I think you are, although I haven’t checked the numbers recently, I should run the numbers. It’s going to be, it’ll be between you and Pierre. So quite fitting. So yeah, so obviously the market situation and Bitcoin has been continually changing over time. And now it’s, you know we’re kind of getting to that point where we have to start thinking about what kind of market do we think Bitcoin is competing for? And so you had a great thread around it valuations. I’d love to get into some of that. So I think it would be good if you could perhaps spell out what are some of the high level, you know valuations that we could think of for Bitcoin.

Vijay Boyapati:

Yeah, absolutely. And to give a little bit, bit of context my background is in Austrian economics. I’m a computer scientist by training, but I’ve spent a lot of time studying Austrian economics. And when I first came across Bitcoin in 2011, the question that most interested me was how does this have a price at all? This question that economists really should be stunning is, how are prices set and how are they formed. More recently I’ve become interested in valuation frameworks and not just how does Bitcoin have a price, but what price should you assign to it? And so I’ve been kind of thinking about digging around what valuation frameworks are there out there. What have people used? And I came up with the four main ones that I’ve seen in my you know, about nine years thinking about and observing the Bitcoin market.

Vijay Boyapati:

The first framework is the one that pretty much everyone thinks of when they first come across Bitcoin, which is, this is just the tulip mania. This is another huge bubble. This thing doesn’t have any intrinsic value. It’s some crazy token that’s being created on the internet. How can it have value? Eventually the bubble is gonna burst. And if you were to believe this framework, you’d probably assign a long-term price target to Bitcoin of zero. And this is the framework that you’ll see still being used by people like Peter Schiff and Nouriel Roubini, and Paul Krugman, and you know, the kind of people who can’t get away from that first skepticism and open their mind and sort of see that there’s an underlying innovation here. That’s very important. So the second framework is that Bitcoin is a new monetary good.

Vijay Boyapati:

And it’s clearly solved some problem because there are certain people who value it, but the set of people who do value it is limited and is limited to people who are either technologically savvy or who have an ideological affinity to Bitcoin. So libertarians, for instance, and if you were to believe this valuation framework you’d probably assign a price target to bitcoin of somewhere between 10,000 and a hundred thousand, because there are still, you know, a lot of people are who fit that category, libertarians and people with a technology background. And there’s a lot of savings in Silicon Valley. So that, gets you know, a decent price level, but it’s not sort of what I would call geo-politically significant. The third valuation framework that I’ve found is that Bitcoin is essentially digital gold. It’s a better version of gold.

Vijay Boyapati:

It has the same attributes that make gold good as a store of value. And in fact, it’s better than gold along these attributes, especially along the attribute of scarcity, it’s a strictly finite supply and transmissibility or transportability it’s like gold with teleportation built in. So I can transmit a hundred million dollars worth of Bitcoin across the world almost instantly. Whereas doing that with gold is much more difficult. Now, if you were to believe this framework, you’d think that it totally makes sense for Bitcoin to have a market capitalization that’s, you know, equivalent in the same ballpark as gold. So you’d probably assign a price level somewhere between 300,000 US dollars, which is slightly below Gold, anywhere up to maybe a million dollars, which is higher than Gold’s market capitalization, because you believe that it serves the same purpose as gold, but it does so in a better way.

Vijay Boyapati:

And the final framework that I’ve seen is that Bitcoin becomes the world’s monetary base, the global reserve asset that nation states and large financial institutions keep their savings in. And that is a model which sort of views Bitcoin as serving the same purpose that gold served in the 19th century when gold was the reserve currency of the world. And if you were to believe this, valuation model or framework, you would basically have to assign a price level to Bitcoin, so that all the Bitcoins added up to the total global wealth. And that gets you to a price level of somewhere on the order of $10 million per Bitcoin or higher than that as the global economy grows.

Stephan Livera:

Yeah. So I think it’s, I wanna go back to the tulip kind of idea. So I guess talking thinking of what someone like, you know, the typical skeptics nowadays someone like Peter Schiff, who just can’t get past the subjective theory of value. I guess at the, if we had to push it to the maximum level, what those kinds of people could say is, Oh, well, see, you’re just, you’re just living through this kind of bubble period. And, you know, it might be that, you know, the bubble hasn’t popped yet. And I suppose our answer, at least the way I would think of that is more like, well, hold on. Were tulips able to be sent around the world where they strictly scarce. Did they have all these additional qualities? And I think the other point is just that really with these kinds of past bubbles tulips and South sea, et cetera it’s not that they were like, it kind of died and then just rerose again. And again, wouldn’t you say?

Vijay Boyapati:

Yeah, I completely agree. I think the second point is really important. Historically, there are no bubbles that I’m aware of that burst and then came back and then, you know, had had another popping and then came back. But each time they came back, they came back even bigger. I’m not aware of any such bubble and one that continued for an entire decade. It’s just, it would be historically unprecedented. There’s clearly something valuable that’s been created, created here, clear technological and monetary innovation. So it’s sad that after 10 years people are still using these analogies, I can understand maybe in the first two or three years, someone might see it and think that way, but after a decade you’re really not thinking critically if you believe that valuation model.

Stephan Livera:

Yeah. And it’s probably also fair to point out that just living in a fiat money world with, a wash with credit expansion might be a harder point to come back to, to say, well, what if every asset is being pumped by this fear that, you know, central banking and a fractional reserve could it be that Bitcoin’s value is being artificially pushed up, but also everything is being pushed up by that?

Vijay Boyapati:

Yeah I think that’s a fair point. I do think that all assets are being inflated by the fact that the total amount of Fiat money out there has increased tremendously. But when you get into a situation where the, the inflation gets out of control, people will flock to the most liquid goods first. Things are the most tradeable. So if you look at the, the Weimar hyperinflation, yeah. People fled the rentenmark to real assets, things like food and real estate. But the thing that they prefer the most was gold and gold skyrocketed during the hyper-inflation because it was the most liquid, tradable, good. And I think that’s what you’ll see. If we get into a situation where the inflation gets out of control, that people will flock to the most liquid globally traded good. And Bitcoin is really fits the bill quite well.

Vijay Boyapati:

It’s deeply liquid it’s traded across the entire world. It can be transmitted across the entire world, gold’s, sort of similar as well, but it has a disadvantage that I’m transmitting. It is very difficult. And I’ll give you an example, one case where this might be important. Imagine if you’re the leader of a nation state, that’s not viewed very favorably by the United States. And you’ve essentially been kicked out of the global monetary system because the US doesn’t like you. So for, for instance, Venezuela, and you’re running out of savings, your nation’s running out of savings and you want to repatriate your gold. You don’t hold your own gold because you know, it’s hard to move gold around and you’ve trusted for a long time that the gold you had in the bank of England is your gold and you can get it when you want and you ask them, can I have, can we have our gold back? They say, no, you can’t have your gold back because we don’t like you anymore. That is a situation where there’s a huge advantage in having Bitcoin versus gold, because the gold that you have is hard to move around. It’s hard to pay other nations with because you have to physically transport it. So if you’re a nation, which has become a pariah, there are huge advantages to holding Bitcoin versus gold.

Stephan Livera:

Yeah. And so moving up to the next valuation category or bucket, if you will, the new monetary tech for the tech savvy cypherpunks and libertarians, I’m curious what you think there because some might, I guess some people could say, Oh, well, fine. Bitcoin might be this useful tool, but in reality, it’s difficult to use. And to me, I think that ignores the reality of what this is, right. If it’s a better money well then people will make better technology and better user experience for that. And really what’s driving it is what was the better money, not what has the best UX, if you will. But how do you think about that?

Vijay Boyapati:

Yeah, I think you’re absolutely correct. The fundamental problem is making a better money. The user interface is something that takes time and at the same thing, applied to the internet, for instance, as a comparison, a Bitcoin is only a decade old. If, if we were to look at what the internet looked like a decade after it had, it’s really begun being used in the way we think of the internet today, that gets you to, you know, the early two thousands. And I don’t think many people back then really appreciated how important the internet was. It took another decade, you know, 2010, 11 and 12. When people recognize that this is gonna be profoundly important to the way the world economy works. And I think the same thing will be true for Bitcoin too. We don’t fully understand how it’s going to change the financial system, but it seems important.

Vijay Boyapati:

And it seems a little difficult to use, and the internet was still difficult to use in the early two thousands. And the internet penetration was still quite low but in time, the technologies to make it more approachable and easy to access were developed and they were developed because the underlying thing that had been built was very, very important. And the same thing is going to be true for Bitcoin. We still see a lot of innovation companies coming into the space, trying to make it easier for people to use. And I think one of the areas of innovation that we’re gonna see a lot of work in over the next say three to five years, is making it easy for people to self custody and to feel confident holding their own coins and sort of reduce the mental burden of managing your own private keys.

Stephan Livera:

Yep. And speaking of the demographics as well, I think even if you just looked at libertarians only, we haven’t even hit saturation even in that demographic yet. Right. There are a lot of libertarians who are not into Bitcoin. Maybe they got confused by all the Bcash stuff, or maybe they hold a very small amount of Bitcoin. They haven’t actually really dived deep into this and actually taken a significant position into Bitcoin. Wouldn’t you say?

Vijay Boyapati:

That’s a great point. I hadn’t even thought about the penetration that even amongst the demographic who should be most sympathetic to Bitcoin is still fairly low. I mean, I don’t have a specific number on the top of my head. I would imagine it wouldn’t be more than say 30%. So there’s still a lot of room to grow in even the most sympathetic demographic. And so that gives you a sense of how much opportunity there is, how much upside there is amongst other demographic who don’t really even think about these issues or why they’re important.

Stephan Livera:

Right. And I think also from a cycles perspective, and I’m sure you have probably noticed this perhaps even in yourself and also in your observations of other people who are in the Bitcoin world is that oftentimes it just takes time to build some conviction and it might need a full cycle. At least one, maybe even two cycles before someone has built up, more of a conviction into holding a significant part of their wealth into Bitcoin, rather than let’s say the dipping your toe in. And so it, I think it fundamentally is just going to take time for enough people to have gone through a cycle.

Vijay Boyapati:

I think this is something that we’ve spoken about in one of your previous podcasts. I talk about, I’ve talked about on Twitter, the psychological process of becoming open to or curious about Bitcoin and being willing to allocate some of your savings to it. And I talk about the idea of touchpoints, which is number of times you’ve heard about Bitcoin or someone you trust explaining it to you or having a small allocation to it. And seeing that allocation increase in value to the point where you are curious, and you dive down the rabbit hole and for some people the number of touch points they need as much higher than other people. So for instance I heard about Bitcoin twice and that got me interested, partly because of the people who told me about it, I really trusted. And partly because they were sort of explaining something in fertile ideological ground, I was, you know, a libertarian, I am a libertarian and it was something that, and I’m interested in economics and monetary theory.

Vijay Boyapati:

So, you know, when something like Bitcoin comes along, I’m pretty receptive to hearing about it. But for the average person, it may take 10 or 15 times before they think, Hey, I keep hearing about this from my friends. Why don’t I put a little bit of time in and figure out why this is important, because I don’t want to be the last person on this bandwagon, if Bitcoin becomes really big or it could be that a person has been gifted some Bitcoin a few years ago, and it was worth a hundred dollars a few years ago, and now it’s worth a thousand dollars. And that alone was enough to picque their curiosity to the point where they’re now going down the rabbit hole. And honestly, I can tell you from my own personal experiences has happened among family members of people who I’ve gifted small amounts of Bitcoin to over the years. And they’ve sort of, their curiosity has grown with the price, which is kind of natural as well.

Stephan Livera:

Yeah. Yeah. And I’m curious as well. So I know you a little while ago, you went on Tom Woods’ show to talk about Bitcoin to his audience. And it’s just a funny thing because it seems like libertarians should be all about Bitcoin and yet so many of them are not. Why do you think that is?

Vijay Boyapati:

Yeah, that’s a good question. And I’m going to say something controversial. I didn’t expect to see something controversial on your podcast, but I’m going to assign the blame here to someone who I otherwise hold in high esteem and that’s Murray Rothbard. And I think the problem stems back to a misinterpretation of the in regression theorem, which is a theory of how does money get its original value. And I think Rothbard was the first person to really take Mises’ regression theorem, and misinterpret it in a way that said money can only evolve as something that starts as a commodity with a real utility. So you know, something that you can use to dig holes or something used for jewelry or something like that. And I think that was a big mistake. And if you look in the Austrian community, a lot of people clung to that idea for, for many years and some of the prominent Austrians still haven’t fully grappled with it.

Vijay Boyapati:

And haven’t fully figured out that that interpretation of the regression theorem is wrong. So that that’s at least my thinking on what happened in libertarian circles, there was that initial skepticism and dismissal and debate about, Hey, can this thing be money? And I think a lot of people became hostile because of that debate because debates like this can often get heated. And I think there was some animosity that was created in, in the libertarian community and in Austrian circles. It’s unfortunate. I think when I look at Rothbard’s writing, I think he was a brilliant historian and a brilliant polemicist and a great sort of motivated to bring people to libertarianism. But I didn’t, I don’t think he was the same caliber of economist that Mises was. I think Mises was a giant and really several of the things that he worked on were revolutionary. And I think this is just a case where something that he believed was sort of misinterpreted and twisted a little bit. And I don’t think Mises himself would have looked at Bitcoin and said, this can’t possibly be money. This thing is like a Ponzi Scheme or something like that. I think Mises would have been much more curious and would want to have understood what it was and how it got value in the first place.

Stephan Livera:

Right and that may well be true that this confusion around the regression theorem was what led many Austro-libertarians to not go down the Bitcoin rabbit hole as it were. But I suppose the other point there is that a lot of libertarians are not necessarily Austrian. So I guess some of them that wouldn’t even matter. So what about the non Austrian libertarians, even though you and I are in that camp? What about those other non Austrian ones? Why aren’t they into Bitcoin?

Vijay Boyapati:

That’s a good question. I guess I can’t, I don’t have a general answer for you. I’d need to look at the specifics of particular people and why they’re dismissing it. It may be that they’re just slow. Some people are slow on the uptake in recognizing that something is important. It’s kind of like investors in a way. Some people are quick and they see that something is important and they move quickly to take advantage of that. And some people are just slow. And I think probably the same thing is true in libertarian circles as well. Libertarians on average, my guess is they’re more curious and more intelligent than the average person, but there’s probably still a spectrum of levels of curiosity and openness. And there’s probably a whole bunch of people who are just naturally not that curious about new technologies.

Stephan Livera:

Yeah. And it could also just be that look it’s technology. It can be difficult for people if they’re not a tech savvy person. But I anticipate a lot of those people will come in over this next cycle or so, and with the gold idea of Bitcoin being something in that range of valuation, as you said, something like 300,000 to 1 million that is I wonder then whether we start to get into that we could potentially hit close into that range at the top of this cycle before crashing back down again. Do you have any thoughts on what changes in the broader, let’s say investment world, if Bitcoin were to get close to that kind of valuation?

Vijay Boyapati:

I think it’s possible. I definitely think it’s possible. And one of the things that I think is most fascinating to me from the beginning when I first came across Bitcoin is this is the first time in history that we’ve seen a good being monetized, the process of gold becoming money, took thousands of years. And so we get to observe this in real time and we get to learn how it happens and what it looks like. It’s not a simple, straight linear process. It’s messy and it’s there are ups and downs. There are booms and busts, but one of the most fascinating things that I’ve observed is that it sort of happens in these cycles. And these cycles are like a fractal pattern, a fractal pattern of increasing magnitude. And what I mean by that is if you’re super impose the price chart of a Bitcoin bull cycle from 2011 to 2013, if you superimpose that on the bull cycle from 2016, to the end of 2017, it looks almost identical and that’s. And even crazier to me is if you superimpose that pattern on the gold price chart from 1980 to 2010, it looks pretty much the same.

Vijay Boyapati:

And what I’ve speculated is this might be something that’s inherent to the social dynamic of monetization. And so if we do that again, if we take the price chart of 2017 and super impose it on the current price chart, rescale for the current price level, that that would get you to at the end of this bull market, if it plays out in a similar way to the previous one to a price level of 325,000 per Bitcoin somewhere in October, 2021. Currently we’re ahead of schedule. That is the price now is higher than it should be if you were to follow exactly the 2017 bull market. So we’re moving faster than we did in the last market market cycle. I personally find that very, very strange. I would have thought that this bull market would take longer to play out just because of the scale of the market. So I’m surprised. I think this is pretty interesting. It’s pretty it’s cool. And it could partly be explained by the fact that the the people coming into the market right now very large institutional players moving very large amounts of money. And that’s perhaps why things are moving more quickly than they did in the last cycle.

Stephan Livera:

Yeah. And also on this whole idea of additional adoption, I think from your bullish case for Bitcoin, I can’t remember, or maybe it was one of your tweets. I think you were saying something like this whole thing might take 50 years. But it seems nowadays the way I’m looking at it now, it might actually be 10 or 20 years from now. Do you have any thoughts on that kind of timeline idea of when you would anticipate we see this kind of final, full global adoption?

Vijay Boyapati:

Yeah, so I have, for a long time I’ve been kind of agnostic to price, you know, price movements in the short to medium term, I haven’t had strong predictions, on what would happen. I’ve been I’m as bullish as anyone on Bitcoin in the longer term, say 50 years. I think there’s almost an inevitability to it becoming a global reserve asset. But you know, recently there’s been a lot of analysis done by plan B about Bitcoin being adopted in a very sort of predictable way. And to be honest, I was kind of skeptical that something like that could even be possible because it almost violates what we as Austrians think of as there being no statistical laws that you can sort of rely on that all action can be changed at any time in market.

Vijay Boyapati:

It’s all market dependent and dependent on the actions of individual in the particular time period. But then the analysis that plan B has done is very interesting and it’s eerily accurate. It’s almost scary to see how accurate it is. And if anything, I think Saifedean may have said this might be the first sort of statistical economic law that anyone has ever created. And if it’s the case that it follows this same pattern into this bull cycle, think, I think plan B might be up for a Nobel prize in economics.

Stephan Livera:

Right. And as you say, generally speaking in Austrian economics, it’s not that there’s like some statistical laws that we can divine through statistical analysis. But I suppose the, maybe a Saifedean counter to that point would be something like now that we have this monetary set point of 21 million, maybe that really does change some things about, you know, the way economics works, because now the total supply is known, or at least the eventual total supply is known. Yeah.

Vijay Boyapati:

Yeah. I mean, perhaps the fact that we, that people’s expectations about that supply becoming sort of becoming more and more confident over time is one way to explain this growing belief that stock to flow is a valid model. And there may be a feedback loop here as, as more and more people believe that the model is actually correct. It follows the model even more closely. So that would be an interesting thing we’re learning. And I think it’s really good for us as Austrians to keep an open-minded be observant and watch the market and see how things play out. I probably am not quite as confident as plan B in the model. I’m open to it being correct. And I think it would be absolutely incredible if it was correct. My bullishness is more for the longer term, and I personally always urge caution for anyone getting into Bitcoin to think about this as an opportunity that they should have like a decade horizon on buy some so that, you know, you don’t feel uncomfortable with the amount you own and just forget about it and come back in a decade and see where you’re at.

Vijay Boyapati:

I think it’s a little bit dangerous to think that you can buy something and next year it’s going to be up 10X, if it is up 10X, that’s fantastic. That’s great for you. And it’s great for the whole community, but don’t come into the space predicated on an assumption that’s true, be cautious, be patient and read as much and learn as much as possible to increase your conviction so that you feel comfortable owning Bitcoin for a long period of time.

Stephan Livera:

Right. And with this cycle, I think the narrative has shifted as well, that, or at least it’s more like people have settled down onto more like a store of value long-term narrative where perhaps historically it was a bit more confusing. And there were other ideas around what possible narratives there were like, is this a crypto world? Or is this some other thing going on where now I think there’s at least a stronger contingent and a stronger messaging around what Bitcoin is.

Vijay Boyapati:

Yeah. I think this is the first bull cycle when we have the correct narrative, there’ve been, like you say, a whole bunch of narratives floating around those one for a while though. It was, everyone was all about blockchain is important, but Bitcoin is not. And within the Bitcoin community, I think the big, important debate was what is Bitcoin? Is it payment technology? Is it a payment rail or is it a savings technology? Is it something more akin to digital gold? And that debate really came to a head in 2017 with a big split of the network. And I think the important thing is that that split really resolved one of the biggest risks for Bitcoin, which is what is it? We’re not really sure what it is. And there was a big risk at the time a perceived risk amongst investors that the whole thing could fall apart because the community couldn’t get together.

Vijay Boyapati:

What happened in fact is when the networks split the market overwhelmingly voted for Bitcoin as digital gold as a savings technology, as a reserve asset. And the fact that that was resolved and now we’ve sort of gotten past the whole idea that blockchains are important and Bitcoin is not, this is the first bull cycle when people, I think now generally view Bitcoin as a fantastic store of value. And they also recognize it is the only blockchain of any significance or any value. And that’s incredibly important. I think having that narrative in place is going to be enough to get us from where we are now to Bitcoin attaining and eventually eclipsing gold in market value. To get it beyond that To get it from gold, to being the world reserve asset that the narrative might need to expand or be improved in some ways to bring along skeptical nation States or central banks. But having the narrative we have now is enough to get us to being digital gold in my opinion.

Stephan Livera:

Yeah. And also this is a point I have mentioned as well around what we might call order of operations, right? So it seems that there’s a lot of, if we look out into the more shitcoin and crypto world they are often talking about DeFi. And as though, you know, you need to have all these kind of fancy, complicated financial instruments, and, you know, you can’t do that on Bitcoin. Therefore, that’s why we need a shitcoin for that. And I mean, to me, the way I’ve always thought about that is more like, well, we need to get the money right first. And Bitcoin has a lot more growing to do before those things are, you know, hundred percent necessary. So you can experiment with them. And to some extent, you know, that there is some level of Bitcoin DeFi nowadays with things like, you know, hodl hodl lend sponsor of my show. But also other things like, you know, lightning pool and this idea of, you know getting return for being a routing node and things like that. What’s your thoughts on you know, so-called DeFi it and its, you know, potential importance to Bitcoin and when that would even become a relevant factor.

Vijay Boyapati:

Yeah. I liked the way you framed that. I think you’re right. You need to get the foundation set before you start building the rest of the house. And I feel like some of these other projects are they’re really experimental. I don’t, I don’t take them seriously at all. They’re sort of working on the roof before they have any kind of foundation. I am, I’m personally very skeptical of the whole DeFi movement or like building this kind of stuff on Ethereum, because one thing I think is underappreciated is that whenever you have any contract, which makes reference to something in the physical world or some entity that can be coerced by the state, then having it in a decentralized system doesn’t really help you much. And I’ll give you an example. So in 2017, there was this huge ICO boom.

Vijay Boyapati:

When people thought, Hey, this is a really great way to build these contracts, which are on Ethereum and we can raise money and we can do it completely outside of the purview of any regulation. And I think that was, people were quickly disabused of the idea that that was possible because you know, companies that are running and raising capital and have an office can still be subpoenaed by the SEC and they can be physically coerced. And if you have a business which is using these contracts, or you have some physical object, which uses a contract, those things exist in the physical world and can be coerced. So I think the use of decentralization in those situations is almost like decentralization theater. It’s not useful. It doesn’t help. There’s no advantage of doing those same things with you know, Amazon web services and using a Postgres database. I don’t see the advantage there. In fact, it’s much less efficient to do it on something like Ethereum. It’s only in the, in the world of money, which is sort of ethereal and doesn’t have physical form and can be transmitted and transported around the world that I think it makes sense to use a blockchain.

Stephan Livera:

I see. And so I guess one interesting counter example, there might be something like Bitcoin DLCs, right. But I suppose if I interpreted your view right there, you, I guess you’re kind of viewing that, like that’s a bit more of a sideshow compared to the, you know, the main stage, which is Bitcoin as money.

Vijay Boyapati:

Yeah, I think so. And I think there are businesses that are building on Bitcoin and building sort of financial products on Bitcoin, like lending and derivatives and things like that. I have not yet seen an example where that’s been done in a truly decentralized way on top of Bitcoin. So something like BlockFi that’s a company that’s building these products lending products on Bitcoin, those products are I think are totally fine. And but, but I think also blockfi is a company that can be coerced in the future. If the government says we don’t want these products to exist, they can just go shut down block by. It will be interesting to see if someone could build a truly decentralized lending market on top of Bitcoin and have you know, market interest rates being set in a decentralized way. If that’s possible that’s fantastic. I just, I don’t believe I’ve seen that yet.

Stephan Livera:

Right. Typically it’s needed some kind of entity to help facilitate. And maybe that is good enough in terms of people having service and having someone they can talk to and figure out how to use it with. So yeah, I think

Vijay Boyapati:

I just want to cover what you said just now a little bit more, this is an example of something called wrapped Bitcoin, where you can wrap a bitcoin and trade it on some Ethereum markets. But the wrapping process actually requires you to set up an account with what’s the business, BitGo. So already the whole point of having a decentralized system of trading wrapped Bitcoin as it’s called on Ethereum is kind of a farce because you’re dealing with the centralized authority already. And if big Bitcoin gets rated, then that is gone. The wrapped Bitcoin that you’re trading on theory is gone. So it’s kind of theater to do that and to do it on Ethereum when you could do the same thing just by creating, you know, a web app and just using a database to track trade Bitcoins back and forth, just like you could trade Bitcoins back and forth with someone on Coinbase.

Stephan Livera:

Yeah. Sort of related, but I’m also curious to get your perspectives on stablecoins here. So obviously I don’t view stable clients as any kind of monetary competitor with Bitcoin, but I’ve seen different perspectives in the community. Some are bearish, some are bullish, some views stablecoins, more like they might be the grease that enables people to kind of get in and out of different exchanges or the stepping stone for people who want to try and start with those before then getting into Bitcoin. Do you fundamentally view stablecoins in a similar way, or are you kind of bullish or bearish on them?

Vijay Boyapati:

I think they sort of they aid the on-ramps. They aid people in being able to get fiat money into Bitcoin, especially in places where it’s not easy to get. You know, if there’s an exchange which only takes dollars, it might be easy to use tether in a place where dollars are not available in your country. In general though, I just sort of see them as money substitutes for Fiat currency. I don’t think they’re particularly interesting. It’s just that you can trade them digitally. They’re still completely centralized, which is they’re missing the property that makes Bitcoin interesting and makes it useful as an uncensorable digital store of value is that it, they’re not, it’s not centralized, there’s no central party that can roll back your savings in Bitcoin. If they wanted to, with something like Tether I don’t believe that at all. I it’s entirely possible that the company that runs Tether could be shut down and all your savings are taken away. So I’m only, I’m only positive on them in the sense that they make it easier for some people to get their Fiat savings into Bitcoin.

Stephan Livera:

Right. And yeah, from what I know it seems like exchanges typically, like having it just as a way to help people in and out as well. And there are some people who just view it, like, I just want to be temporarily in that stable coinand so on. And so they’re trying to minimize the amount of time that they’re in it, but I suppose there might be others who actually try to hold some of their value in TERA because they would rather not hold it in their local fiat, that kind of thing. But that’s, I guess that’s kind of a difference.

Vijay Boyapati:

Yeah. Well, one other comment, I think there are people who do arbitrage and try to make profits from the spread between various exchanges. And it’s easier for them to transmit a dollar value, tradable dollar value between exchanges using something like Tether than going through the banking system, because the banking system is so old and antiquated and terrible that everything takes so long. If you’re trying to try to arbitrage say a $10 spread between Coinbase and Binance, and you’re trying to move dollars between them, it’s much easier to use something like Tether than it is to do it through the banking system.

Stephan Livera:

Yeah, for sure. Also I guess a few might be interesting to talk about a few insights in terms of how these bull cycles go just for maybe some listeners are a little newer, they aren’t familiar, or maybe they weren’t paying as much attention during the 2016 and 17 runs. But I think it’s interesting to point out and note that there will just be pullbacks along the way, and people might get, they might end up losing a lot of money if they’re trying to call tops and bottoms and trying to trade in and out.

Vijay Boyapati:

Yeah. If you if you look at previous bull market cycles, nothing happens – The process of monetization we’ve already does not happen in a straight line. It happens in, in sort of it’s a very bumpy ride. And if you look at previous bull market cycle, there were several tops called through the cycle. I mean, there were people calling the top at three thousand, five thousand, nine thousand, 15,000 and every one of those was wrong. So if you want to sort of see the big gains over the long term, you’re not going to be trying to trade these things because – trade these tops, because it’s very easy to get tricked and see something. I see a price movement to let’s say this cycle, it gets to 75,000 and then it drops down 30 or 40%. It drops down to 40,000.

Vijay Boyapati:

A lot of people are going to panic and sell out because I think this is the end. Bitcoin’s gonna drop all the way back down to 3000 or something like that. In any bull cycle, you should expect that there are going to be at least three or four drops, which are at least 30%. And if you haven’t experienced it before a 30% drop is very, very painful. And the only way you’re gonna survive, this is if you have conviction, you go down the rabbit hole and understand why Bitcoin is long-term really valuable. And you should go through and listen to every one of Stephan’s podcasts to get conviction. And maybe put your Bitcoins somewhere where it’s hard to get it out. So it’s hard to, to trade it. So put it in cold storage, put it in a lock box somewhere and just forget about it. And don’t even look at the price. That’s what I tell people, buy some amount of Bitcoin that you feel comfortable about and just hold it for five to 10 years. And don’t even look at the price until then.

Stephan Livera:

Right and I think it’s a common tendency for not for everyone, but for some people to feel like they can try to pick the tops and the bottoms or that okay, if there’s a drop, it might only be 20% drops and then they might lever into a certain position and then actually get wrecked because it dropped more than they thought it would. And then there’s tears at the end. Whereas it’s so much more simple to just simply, you know, take a position and you know, if you’re able to, and you’ve got income and you’re happy, then keep, you know, dollar cost averaging or stacking sats or auto stacking, whatever you want to call it. Just play it like that. And that’s the simple way that you know, people who’ve done that strategy have done well.

Vijay Boyapati:

Yeah. Another common mistake in bull markets is I don’t want to buy now because it’s already gone up so much. And it’s funny. A friend reminded me just yesterday of an email exchange we had going back to, I think it was 2012. And he said, Oh, I don’t. I just, I really don’t want to buy Bitcoin here. It’s $13. It’s gone up so much in the last few days. I just feel really uncomfortable. And he reminded me of that and how painful it was to look at that and think, Whoa, I was like I was getting worked up over a few dollars. I didn’t see the big picture here. And I think Bitcoin is still an asymmetric bet. I still think it has massive upside from here. So a mistake people make is, I don’t want to buy it now because it’s gone up a lot. So I’m going to wait for a pullback and buy it on the pullback. But let’s say the price is $15,000. You wait for a pullback, it could get up to 25,000 and pull back to 20,000. And then you’ve, you haven’t bought in. The better way to think about it is not, I’m trying to find the exact right price, that the right way to think about it is what fraction of my portfolio am I comfortable owning in Bitcoin and just buy that fraction and just sit on it for as long as you can.

Stephan Livera:

And obviously as this cycle plays out, I’m sure we will see the same characters, right? Peter Schiff, Nouriel, Krogman whoever else they’ll come out. Every time there’s a drop. And a one thing that I’ve noticed really is that they’re very short-term focused, right? They look at the short-term drop of, you know, 20% or 30%, and then they weren’t look back at the actual long-term where we’ve seen, you know, multiple multiples, literally Bitcoin has gone to multiples of what it used to be. And it’s almost like there’s this selection bias of people who are able to be long-term thinkers versus the people who only see things in the short term.

Vijay Boyapati:

Yeah. I joked about this on Twitter when Bitcoin recently dropped, I think it was from like 18,500 to 17,000. And I was like, see, Peter Schiff is right. You know, obviously they’ve totally missed the forest for the trees. They haven’t seen the big picture. And I think just a little more cynically, I think in the case of Peter Schiff and Nouriel Roubini, I think this is a motivated dishonesty. I think they see that they get a lot of engagement from this and it’s good for their brand. And some of Peter Schiff’s tweets, so inherently dishonest that I still find it hard to figure out if he’s either a dishonest person or he’s just stupid. And I keep sort of going back and forth between those two. But it may be that he’s actually really smart. He’s figured out that he mentioned on Twitter that his number of followers has gone from 200 to 300,000 just by tweeting about Bitcoin.

Vijay Boyapati:

That’s all he tweets about, even though he’s sort of a used gold salesman was found. We can get a lot of engagement by talking about Twitter because the Bitcoin community is a very active passionate community. And if you tweet anything about Bitcoin. You’re gonna get a lot of people engaging with you. And I think this is going to be the first cycle when you see a lot of celebrities getting involved in Bitcoin too. So this bull run is gonna have a lot of attention. It’s going to be, it’s going to be crazier than anything you’ve ever seen. It’s going to be like a circus. So prepare your body for 2021. It’s going to be a very wild ride.

Stephan Livera:

And I remember even in the 2017 cycle, there were, you know, it was like Katy Perry is coming out with her own coin or something. I can’t remember exactly right. They were all coming out with their own coin. That was the thing. Right. Whereas maybe this time it’ll be more like, you know, Bitcoin bling or I dunno, who knows, who knows what’s going to happen.

Vijay Boyapati:

Yeah. I’d almost forgotten about that. You’re absolutely correct. It sort of illustrates how we’ve finally honed down to the correct narrative back then. It was like all about blockchain. So everyone had their own blockchain and that was cool. But I mean, of course that idea is completely absurd. You don’t want to have one money for buying bread and another money for paying gas. You want one money, just a single good hard money and that’s Bitcoin. So this cycle is going to be completely Bitcoin dominated and everyone, every celebrity and their dog is going to want to talk about Bitcoin. So it’s going to be very, very exciting and interesting. And everyone’s going to be talking about it good or bad. And people who’ve been talking about Bitcoin like yourself for a long time are going to get a lot of inbound media attention.

Stephan Livera:

Yeah. Though, we will see, I mean, I guess if everyone wants their own blockchain and their own their own coin there might be, you know it may be that you know, Bitcoin obviously will grow a lot and we will see less as a percentage who would get fooled by shitcoins, but it might actually still be bigger in absolute terms. Right. Just because of the numbers involved here. So there may still be a lot of people who get confused and go buy shitcoins and et cetera.

Vijay Boyapati:

Yeah, you’re right. That’s a good point. In relative terms, I think it’ll get much smaller, but as Bitcoin becomes massive, there will still be some sort of fraction of people who own Bitcoin, who are degenerate gamblers and who will want to, you know, try their luck in some of the Altcoins. And because the Altcoins are so small and so illiquid any small fraction of Bitcoin moving into them can massively spike their price. So move them from like a quarter of a penny to like nine or 10 pennies. So, and that can get certain people excited, like, wow, I can make 50 X on this altcoin, but really only a few people can make that because it’s so illiquid, anyone who was coming in with, you know, a large amount of capital would completely lose all of their capital doing that. But there will be some fraction of people who sort of fall for this. And it’s unfortunate because, you know, we’ve gone through a couple of these cycles where we try and we care about people and their savings, and we don’t want them to be hurt. And as much as you warn people beforehand, there will still be some fraction who fall for this nonsense.

Stephan Livera:

Yeah. It’s unfortunate to see, but I guess you know, just got to try to keep putting out good material and hope that people catch onto it. Also I was interested to get your thoughts around some of the let’s call it platform risks or technological risks around things like Ethereum, because I think it’s important to just kind of spell out for people. What’s the difference between Bitcoin that’s built and engineered to last for the long-term versus, you know the way people are building on things like Ethereum, what are some of the practices that you’re seeing over there?

Vijay Boyapati:

Ethereum is exciting to a certain mindset. The engineering mindset, people who like writing code and scripting and things like that, sort of a Silicon Valley mindset and engineering mindset, which is obsessed with direct utility. And so they see Ethereum and they think I can build all these things on top of it. Therefore it must be useful. It’s not thinking about it from a monetary perspective. And the value comes from stability and credibility of monetary policy. And in that regard, I think there is no old coin that comes anywhere close to Bitcoin. And that includes Ethereum. There is no credibility to the monetary policy with Ethereum, and you can see that because in the early days they have a contract on Ethereum, which was kind of like they sort of touted as a decentralized venture capital fund.

Vijay Boyapati:

And then someone figured out a hole in the contract where they could steal money from this fund. And what they did was they essentially rolled it back. They forked the Ethereum blockchain. So that bug was kind of the theft of the funds was wiped out. And that really tells you that there’s no credibility to Ethereum’s protocol being immutable. They can change it at any time. And and part of the problem there is that you have a founder, you have one person who has enormous influence over the development of Ethereum, which is Vitalik Buterin, and that’s totally fine as a software project, but it’s not fine as a monetary. Good. It’s not something that you can trust. So in regards to the credibility of monetary policy, I think there’s only one coin that’s that has that credibility and that’s Bitcoin.

Stephan Livera:

Absolutely. You know, that’s why I stay a Bitcoin only, and I encourage listeners to just stay Bitcoin only. And don’t get tricked with some of these charlatan scam projects going on. So I guess probably a good spot to wrap up here, Vijay. Do you have any closing thoughts for the listeners?

Vijay Boyapati:

I think it’s we still haven’t gotten into the frenzy phase of the bull market when it’s going to become really hard to concentrate and pay attention. Anyone who’s been interested in Bitcoin for awhile will know the feeling that when you’re going through a bull market, it’s hard to concentrate on work. It’s hard to concentrate on anything. I think this is the best time to, if you’re building things sort of batten down the hatches and build as fast as you can, if you’re interested in investing, then spend as much time as you can digging into the important materials. And how do you self custody and things that will help you with your conviction during a bull market. One of the things I like to say is that people’s conviction is tested much more in a bull market than in a bear market, because you see some fraction of your savings growing enormously, and it’s really hard to hold onto it unless you have that long-term conviction. So before we get into the crazy phase, which I think is probably gonna happen in the next few months now is the time to spend time learning or building, or doing the things that are important before, you know, you’ll be completely distracted. All of us will be completely distracted once we get to the parabolic phase of the bull market.

Stephan Livera:

Yeah, definitely. I think it’s bring you back memories there. So looked Vijay. Thank you very much for joining me listeners, make sure you follow Vijay @Real_vijay on Twitter. And if you haven’t already gone read his article, the bullish case for Bitcoin. Thanks, Vijay.

Vijay Boyapati:

Thanks. Stephan

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