
Parker Lewis of Unchained Capital rejoins me on the show to talk about the environment central banks have created, what that has done to money and our ability to save.
We chat:
- Fiat financialisation of the economy
- Inflation and Deflation properly considered
- Bitcoin’s growth amongst institutions today
- Multi sig with Unchained
- Loans with Unchained
- Living off your Bitcoin using collateralised loans
Parker Lewis links:
- Twitter: @parkeralewis
- Unchained.com
- Bitcoin Loans: The Ultimate Guide to Bitcoin-Backed Loans
- Bitcoin is the Great Definancialization
Sponsors:
- Swan Bitcoin
- Unchained Capital (code LIVERA)
- CompassMining.io
- Hodl Hodl Lend
- CypherSafe (code LIVERA)
- CoinKite.com (code LIVERA)
Stephan Livera links:
- Show notes and website
- Follow me on twitter @stephanlivera
- Subscribe to the podcast
- Patreon @stephanlivera

Podcast Transcript:
Stephan Livera:
Parker welcome back to the show.
Parker Lewis:
Stephan. Great to be back on. I appreciate you having me and look forward to the conversation.
Stephan Livera:
Yeah. So there’s been so much going on in the Bitcoin space. I’m sure you guys are super busy over there at Unchained, and it’s just a really crazy environment. I think it’s worthwhile talking a bit about what brought us here and what are some of the ways we can sort of manage our way out, obviously with Bitcoin being a big part of that answer. It seems one of your recent pieces over on the Gradually then Suddenly series, there’s this whole idea of Bitcoin as the great definancialisation. Can you tell us a little bit about what spurred that piece?
Parker Lewis:
So it’s an idea that I’ve been thinking about a lot, but this idea that I think a lot of people can sense it and it’s difficult to quantify, but that one of the root causes of the definancialization, in my opinion, and I break it down in the piece is that the actual monetary structure or the debasement of money that is engineered by central banks, forces people in to financial assets as a way to offset inflation. And that what we actually see is that not to a full extent but that a lot of the risk-taking is really not forced. And I think it’s more akin to taking risks with a gun pointed to your head, and we don’t know really, truly how much malinvestment there is other than it exists as a function of the, of the fed and central banks all over the world, debasing money and forcing people into essentially investing between a rock and a hard place.
Stephan Livera:
Yeah. And I was struck by this idea that it’s central banks are essentially pulling this great trick onto the rest of the world that we all must perpetually take risk just to even stay afloat.
Parker Lewis:
Yeah. And that’s a key theme of the article, which is that I tried to articulate it in the piece, but I think it’s good to talk about it as well that this idea that I talk about, which is, or explain that if you have money, then that is actually the end point of one cycle of risk-taking. And what I mean by that is that for you to have gotten money, you would have taken some risk before that which merited somebody compensating you for that risk. and that doesn’t necessarily mean investing in a stock or a bond and having it go up in price and selling it for more money. It means that if you committed yourself to running a podcast or working on a Bitcoin project like Unchained capital, or investing in educating yourself how to play the violin and performing and going to Juilliard, and then performing, and people paying for that, or someone like Russell Okung putting his blood, sweat, and tears into being a football player, and then being paid for that basically risk is putting in time and energy to delivering some form of value to other human beings.
Parker Lewis:
And there’s no assurance that someone’s going to pay you for that or that you’re going to be successful in your endeavor, but that the end point of a risk-taking cycle is somebody compensates you money. And then from that point in time, you shouldn’t be forced in to perpetually taking more risks. That there’s risk taking and then there’s savings and that, in the Feds construction of the economy, it essentially forces people into never ending risk-taking, which if you multiply that or considered that on an economy-wide or aggregate basis, it’s incredibly unhealthy that we’re all forced into that position by the fed engineering. And that the beautiful thing about Bitcoin is that it essentially stops that negative feedback loop. That it allows people to have a form of money that works in their favour rather than against it. And if you just take that fly out of the ointment between money being engineered to lose its value, versus not just the opposite, but just taking away that, that says, let’s just make it neutral. And let’s let the market decide that all economic incentives by that critical barrier become aligned. And rather than people perpetually taking risks, they get the benefit for the risks that they’ve already taken. And then the consequence of that as well is that every economic decision point that they come to in their life, whether it be from the investment perspective or the consumption becomes more informed by better prices. And you ultimately have a world where when you reintroduce a more obvious opportunity cost to money, then, then you ultimately get a more stable economic system.
Stephan Livera:
Of course, now I’m on your side, right? I’m in the Austrian camp, but I can, I can presume I can imagine, or I’ve seen other people let’s say on the Keynesian side, they might come back and say something like, Oh, well, how is it fair that you expect to just sit on your money and get a free return out of that? Isn’t that how can you expect that?
Parker Lewis:
I think there’s a Keynesian trope, I would say, which is, and maybe this is what we’re, at least it’s one thing that I talked about. And I think kind of speaks to the heart of your question, which is that if I have a currency that’s appreciating, the people will never spend it. And that if there is a slowdown in economic activity or growth, don’t, we need that lever to be able to debase currency, to be able to create the incentive for people to spend money. And I think that is one of the most lazy, uninformed, uneducated breaking with reality view of the world. That, that, it’s just ridiculous. And the way that I describe it in the piece is, imagine that there were a world where there were only 21 million Bitcoin and there’s 7 billion people and, or 7 billion plus people.
Parker Lewis:
And there’s 7 billion plus people are all using Bitcoin. And the function of money is coordinating economic activity in trade. All 7 billion people actually have to consume things every day. They need food, water, energy, healthcare, XYZ, name whatever you want. Those people are all demanding things every day they are going to be spending. So that’s one idea, that you will have no problem with people spending a currency that has a fixed supply, even if it’s appreciating. And it’s this concept that Saifedean talks about, I think in large part in The Bitcoin Standard, but conversations that I’ve had with him elsewhere, which there’s this idea of time preference and the idea of time preferences, there’s high time preference and low time preference and high time preference. You’re weighting the present over the future more so. And then if you have low time preference, you’re weighting the future over the present, but in either of those scenarios, there’s this recognition that everybody has positive type preference.
Parker Lewis:
Everybody on the margin is inclined to wait the present over the future because the future is uncertain and because our lives are finite. And that gets back to the same idea. If you use the example or the way that I visualize this for people to try to articulate it, is if you had 21 million Bitcoin and yes are divisible to a hundred million units, but there’s 7 billion people, those 7 billion people have to consume things every single day to survive. And that’s how you know, that despite the fact that if a currency is appreciating or depreciating, people are going to spend it because money is only a utility for us in helping to more efficiently effect trade. And so it’s just ridiculous that people would think that if a currency is appreciating that people won’t spend it, they will spend it every day and they’ll actually spend it more because it’s doing a better job at getting them the things that they actually value in the real world.
Parker Lewis:
The other way, I kind of counter that just for the Keynesians or the modern monetary theorists out there is that Bitcoin has gone up five fold in the past six, seven months, and people are selling it every day. And then when Bitcoin just dropped 15% from 60,000 to roughly 50,000 or 12 and a half percent or however much it is that the people are both selling that and buying that. What’s actually happening is the Bitcoin’s becoming the most liquid good in the market. And emergent consensus is occurring before our eyes, that Bitcoin is being adopted as the monetary standard of value. And so I think that we don’t need an incentive to spend money. The money is meant to be spent. It is the economic good that facilitates this exchange. And by definition, that means spending and for every exchange, someone is saving money and then somebody is forgoing that saving for present consumption. And that happens naturally, and it actually happens more efficiently and with less distortion when the money and the underlying base of money is not being manipulated.
Stephan Livera:
Yeah. Great explanation. So I think there’s probably two key points that I would draw out of what you were saying. So firstly, I would say, I would summarize that really it’s the fallacy of composition. So what some Keynesians say is, Oh, look, there’s going to be this deflationary spiral. If people aren’t spending and all the businesses will go out of business and people will lose their jobs and that’ll be terrible and we need to stimulate the economy. However, that’s a fallacy of composition, just because some businesses are going out are going on to, and some people are losing their jobs. It doesn’t mean all of them will. And so we can’t just say that just because some businesses that exist today in the fiat high time preference world may not exist in the Bitcoin low time preference world. Kind of I’m kind of loosely speaking there.
Stephan Livera:
But it also means that people will repurpose those resources into other things. And that may mean that they repurpose the production into things that are only going to come due or only going to be fully produced in 10 or 20 years. I mean, talk about aged whiskey or whatever, or forests or cutting down the trees or whatever they’re going to reorient their production. And so there will be jobs in those other industries. Right. And then the other point to which you were talking about was just about the way that it’s like sorry, the second point was around the money that you are. Well, I’m sorry. I’m totally, I’m missing it there. What was the second point?
Parker Lewis:
I was making one point that money is a utility to exchange and that even in an appreciating world, people have present demands and positive time preference, even if they’re low time preference. And then the second piece that kind of, I just use the more empirical example that as Bitcoin increases in value, that people are spending it every day, that they’re, foregoing that spending it. And then I think one idea too, that you’re keying in on there, which I think is the right one is, and I didn’t mention this before, but it’s this idea that Bitcoin is just a neutral currency. It’s not actually inherently deflationary. And I think this is another thing that many people miss. And I think it’s just a default position because they’ve been trained to believe that inflation is necessary, that they just have never actually thought about what if there were a neutral currency that was neither increasing or decreasing what it means for it to be quote deflationary.
Parker Lewis:
And really what I think about that, it is that in a world where you have a neutral currency, that’s neither increasing or decreasing, deflation has actually just an increase in purchasing power. And increasing in purchasing power means definitionally that the currency is doing its job of accumulating capital or helping society accumulate capital and making it essentially making goods more abundant. And so what I mean by that is if you have a fixed amount of money and you’re actually having more goods such that the purchasing power of the money is increasing, and the prices are decreasing, you have a money that only exists in that world. that means that it’s doing its job. That it’s basically, it’s more effectively communicating prices, communicating information through an economic system. And the output of that ultimately being the greater productivity of those people that are functioning with that money.
Parker Lewis:
So it’s like a currency that is increasing in value and increasing in purchasing power means that it’s doing its job and you wouldn’t actually have an increase in purchasing power and people wouldn’t be giving up their money for, for essentially more and more goods, if the utility of those goods that they’re getting, isn’t delivering value to them. But they’re also doing it with the expectation that the economy is working so well, and productivity is increasing that they’re going to get money because they’re delivering value to others. And so that is, it is a core fallacy of Keynesian and MMT, monetarist theory. However you want to describe it. I definitely think that it’s very shallow thought.
Stephan Livera:
Yeah, I see. Yeah. And as you were saying with the inflation aspect and the conversation around inflation versus deflation, sometimes it’s people operating on different definitions. So the classical definitions of inflation and and deflation are more about inflation means an increase in the supply of money. And a deflation is a decrease in the supply of money, but then nowadays people conflate inflation with say CPI, and then they’re talking, it becomes more of a conversation around purchasing power. So I guess if we’re going to be technical or the way I would explain it, it’s Bitcoin currently is dis-inflationary, it is inflating at a reducing rate until we obviously hit the 21 million and today it’s what 18.7 million or something like that. But in terms of its purchasing power, it is deflationary. It is going up over time. And that is where the kind of conversation comes in around. I think it’s that point around moneyness. And I think you make this point as well, which is that thinking about savings versus investment, and basically people have, in some sense, turned the stock market, stonks into a monetary instrument, haven’t they?
Parker Lewis:
Yeah. And I think there’s a lot of debate that happens about this, which is monies versus near monies. And there’s this recognition that money is never absolute that I think that there is a good that emerges. That is the most common use of, I guess, the term money. But that if I’m thinking about Bitcoin or the dollar, a Bitcoin or gold, you’re evaluating Bitcoin’s monetary properties based on the relative strengths to other forms of, or other goods that could be used as money. But while that may be true, there’s also a reality that people have started to use things that are not definitionally good forms of money as that are near monies, or are they argue that they have moneyness. And in those instances, like, they’ll say stocks have some moneyness to them.
Parker Lewis:
Or real estate is a store of value. And I think that is really just a function of the bastardization of money that it, that it’s more realistic that those things aren’t money, or they don’t have any moneyness. It’s just people are being forced in those types of assets to offset the depreciation in money that is being engineered by central banks. And so, and it’s one of those, it’s one of the ideas that I talk about in the piece that’s Bitcoin is the great definancialization is that Bitcoin will help reverse course, and it will help draw the distinction between investments and savings. and one of the ideas that I talk about is there’s this idea that most people have in their head that they must make their money grow. And it’s really that people have this idea to a large extent in their heads and it’s been ingrained in it because they’ve also been trained to understand that their money loses its value.
Parker Lewis:
And that there really is a very, very clear distinction or definition between saving and investment. Again, speaking to what I brought up before saving is you’ve already taken risk and you’ve got money investment. You’re putting that money back at risk. You’re putting it in some endeavor and the endeavor is to get more money to have –you’re taking risk and you’re getting reward back when those lines become blurred to the point that they can’t be decipher where we even have this conversation of how good of stores of value are stocks or real estate, or is there moneyness in this in or not? In my view, it is no, absolutely not. The problem is that the lines became blurred and Bitcoin is unblurring those lines and that as more people learn about Bitcoin and as knowledge distributes people figure it out that they don’t actually need to make their money grow.
Parker Lewis:
They just need a better form of money and that’s what Bitcoin is, and that’s what it represents. And that doesn’t mean that there won’t be investment. And that’s another one of the, I’d say Keynesian tropes that it’s on the one hand it’s that people won’t spend in the consumption side, but it’s also that if you th this idea, Oh, no, if we just have this better for me of money, that people won’t invest, and that’s also just false because while we all have present needs, and we all need to consume things in the present, like food and water and energy and health care, we also all want to improve our lives. And we are all also rewarded for doing that. And that is the function of trial and error and investment. And so it’s this fear that if you have a better form of money, that people won’t do that, but it’s actually the money that creates savers that create savings to then invest and consume. All that is happening is the economic incentives are being flipped from incredibly distortive or manipulative and ultimately counterproductive to one where there’s a virtuous feedback loop.
Stephan Livera:
Yeah. I love that explanation because a Bitcoin is unblurring that line because now that we have a real choice of money in a real way to actually save our value into the future, that is just the step. And that’s going to be part of the change that we see over this call it 10, 15 years, whatever it is, as the world Bitcoinizes, then people can really get away from doing what they’ve had to do in the past. And I think it’s funny because if we take, you know what you’re saying, and we look at what people say in the let’s call it the traditional wealth management, personal finance, or even some of these financial independence kind of communities they’ll be talking about, Oh, Hey, you’ve got to stack it away into your ETF. And that’s how you save for the long term. Or everyone wants to become a property mogul. And they think this is the way that you know, you go to the barbecues or you go to the events and everyone’s talking about this apartments and houses that they bought and so on. And that’s very much a phenomenon here in Australia. And I’m sure it’s very much a phenomenon elsewhere around the world where everyone will go and chat about their investment. And they’re not having that clear delineation as you made it between savings versus investment, because they’ve all been blurred.
Parker Lewis:
And I think one of the examples that I’ll use when I was just coming out of college or university and I was working at Deutsche bank, and most people that work a nine to five job or work for a fortune 500 company will relate to this. You basically, they make it very easy for you to take risk and essentially not save, but they bill it to you as savings. And one example is if your 401k, you click and you can max out your 401k and they make it super easy for you to do that. Well, what are they doing? They’re making it very easy for you to continue to take risk perpetually, but they’re doing it under the guise of risk taking. And what do they do? They give you 10 mutual funds and you have no idea what they actually hold.
Parker Lewis:
They say something like conservative investment grade bond index, a high yield bond index, high-tech growth stocks, blue-chip stocks. And you just choose a couple of those. And you say 20% of this one and 30% of that one, and maybe 10%, but you have no idea what risk you’re actually taking. It’s just Madison Avenue marketing. But at the end of the day, you are taking risks and they’re making it very easy and you then equate it with savings because you’ve been conditioned to do that. And it becomes so second nature. And there’s a very big difference between that. It’s not just passive investing and active investing. I would say passive investing, a hundred percent of the time is a terrible decision. It’s you have to be intentional of the risk that you are taking. And if you’re not, that is what I would call the form of investment that is trying to replicate what just a better form of money should do for you on its own.
Parker Lewis:
And that there really is. I experienced this, I think most Bitcoiners experience that there’s something deeply carthartic about finally having a form of money that works in your favor rather than one that works against it. That is the opposite of that. And that Phil Geiger and I, we often joke about it here at the office, that it doesn’t, it shouldn’t be intuitive to people that they have to work during the day, and then turn into a stock picker at night and become an expert within that. There’s just not something that’s normal about that, but it’s been entirely normalized and Bitcoin’s fixing that.
Stephan Livera:
Yeah, that’s excellent. And so taking that then to the traditional investment world and finance world, now we’re getting into this position where there are large investment entities, and these could be pension funds. They might be insurance companies. They are now in a position where they have to invest some money or endowment funds as well. And they have to invest the money on behalf of their customers or their beneficiaries and so on. But now they’re getting to a point where they actually can’t make enough return, compared to what they need to isn’t that what you’re saying as well?
Parker Lewis:
Yeah. 100%. You know, it’s the pension funds. I’d say that it’s not just that the pension funds have liabilities, that they can’t meet, it’s that the function of monetary debasement forces people into taking risks that they otherwise wouldn’t take if not for the manipulation in the markets. And that there’s a really, really negative outcome that comes from that, in that what many of them are finding is they’re doing the work, is that Bitcoin facilitates the function that they actually need better than any type of financial risk that they could take. It’s almost it’s the best of both worlds. I firmly believe that even though Bitcoin is volatile, it is the opposite of taking not taking risks. It’s the definition of savings. It’s just, you’re saving in a better form of money. And that a lot of the forward I’d say, maybe not even forward-thinking institutions, but those that are able to work through the noise and understand Bitcoin for what it is, it’s going to achieve their goal of achieving the returns because its purchasing power is going to increase.
Parker Lewis:
But it’s also doing that while not taking risk and not taking in many cases, number of them will continue to take counterparty risk and use custodial solutions. But it’s the best of both worlds. and if you can achieve your goal of storing value that you’ve already created in the world, rather than taking risk increasing your purchasing power and eliminating a lot of the I think structural challenges that exist in financial assets, namely stocks and bonds that you’re going to work out better than anybody else that is more resistant to that change.
Stephan Livera:
And if you had to compare, obviously those of us in the orange pilled world, versus those in the more normie financial world, if you will, and some of them, the way they are thinking about it, it might be more like, Oh, see, I’m just going to take a little, 1% position on Bitcoin. How are you seeing that shift in their thinking? Are they coming around to that? Or are they mostly in that kind of toe dipping level from your experience in your assessment of the industry?
Parker Lewis:
My experience, I think we’re seeing both. Right. and I’ll speak to some of things that I see privately, but then others that I, that I see publicly just to articulate it’s that we see the Mass Mutual’s of the world, where they announced a hundred million dollar position and that’s four basis points, 0.04%. Then you see the Teslas of the world again, different types of institutions and they think differently and they’re doing it for different reasons and they have different governance structures, but they moved a billion and a half. And that’s far more than four basis points. I’m not sure what percentage of the cash, but I believe it was around 10% or if it wasn’t as high single digits or low double digits it was a more significant position. I think Michael Saylor really said it best.
Parker Lewis:
I think we’ve all been walking around the space for awhile, but he says things a lot of times that are better than we could ever say them. But he said in one of the earliest interviews that he did, that if you actually understand Bitcoin, there’s no way that you only have 1% of your assets in it. And I think that’s really true. And I think it’s a part, it’s natural to call it what you need, education, knowledge distribution, but as your understanding of Bitcoin changes over time. And I think that Bitcoin is bigger than all of us and we all each think about Bitcoin differently and that’s fine, but as one’s ability to understand how and why Bitcoin has a credibly fixed supply, your willingness to store more value in the network necessarily increases. And that the way that I would probably describe and the way that I recommend to people is that if you just knew that the idea behind Bitcoin is that there will only ever be 21 million.
Parker Lewis:
And if that statement were true without any understanding beyond that the minimum that you have to have is 1%, because that thing is incredibly asymmetric. It represents the greatest asymmetry that exists in the world. But as you start to gain an appreciation for how or why that’s possible that something could be finite and scarce in the world, and that thing might be digital, and maybe it has to be digital to be finite scarce. Then you start to realize that you can’t just have 1% of your assets in that thing. And then as you start to develop conviction around it, not just an understanding of how it might be possible, but that it’s probable. Then you’re probably looking at five to 10 to 20%. And then if you get to be the real crazy people like ourselves, where it becomes increasingly inevitable and that while we believe it’s inevitable, we’re also, I’d say probably the greatest skeptics where we try to undercut our own belief kind of understanding of the network that once it starts to become inevitable, that you start to look at it in a world where the majority of your assets would be in Bitcoin.
Parker Lewis:
And that it’s not some ‘Hail Mary’ or trying to get rich quick it’s that you’ve created value in the world. And how are you going to best protect that? Every financial decision counts and Bitcoin is the best store of value because it is the best form of money that ever existed. So in the experience that I’m seeing, I’m seeing a range of institutions doing the ‘dip the toe in the water’ versus the actual taking a material position. and I think that that’s just a function of knowledge and it’s natural. It’s the same idea for individuals as it is for institutions. And it’s going to map to, and it will map to an individual or an organization’s understanding fundamentally of how and why Bitcoin has a 21 million fixed supply and what that represents.
Stephan Livera:
And also as the cycles take place, typically people learn. And so even for somebody, hypothetically, let’s say somebody started with a 5% allocation into Bitcoin. Then after another cycle, they might be 20, 30% into Bitcoin. And so just over time, people end up being close to all in, or very, very high percentage allocations in Bitcoin. But I guess then the question is, do you think some of these institutions will learn even faster than that? They would learn even without having gone through a full cycle? Or do you think that you kind of have to have been through a full bull and bear to really get to that point?
Parker Lewis:
I’d probably say somewhere in between not to be hedgey, but I think that certain people will, because the access to information is only improving that really provides that bread trail, or kind of where Michael Saylor’s ability to go down the rabbit hole or Ross Stevens in 2020 or 2019. And even if those guys were paying attention to it before, it just continues to get easier podcasts, books, blogs, whatever it may be. More and more information is there and it can, it can accelerate the path. There’s also a reality that for the average person, not necessarily of average intellect, just the normal person, Bitcoin is difficult. It is not intuitive. And the questions about what, what is, and what is it, money and can Bitcoin be it, those are just hard questions regardless of someone’s intellect.
Parker Lewis:
And that realistically there is a function of time seeing the network operate, going down, having the incentive to go deeper, deeper down the rabbit hole that your confidence and your understanding and your willingness to store more wealth than the network necessarily increases from 0 the first time that you bought a Bitcoin to today or tomorrow, or the next day or a month from now or a year. And so there will be people that fall down that path faster than others, but it’s also part of the, probably the human condition of figuring out and becoming comfortable with the idea of Bitcoin as money, which is something that’s fairly foreign and mentally, I struggled with it for a long time. And practically speaking of everyone admitted, they, everyone probably does to different extents. So people will, people have the tools in front of them to fall down the rabbit hole faster and harder than they’ve ever had before. And that will only accelerate. But it also will remain hard for people and I’d say more people than less.
Stephan Livera:
Yeah. And I think, while we can talk about it at a more intellectual level. There’ll be some who just it’s just a peer pressure social thing, or it’s an emotional thing they might be. So I guess at one level they might just be looking at, Oh, Hey, what are my family and friends doing? And then the other aspect is maybe it’s an emotional thing. Like I’ve felt enough pain. I feel the necessity that I need this thing, or it’s a greed thing. Like, I feel like, Hey, the greed is going to motivate me to go and learn more about this thing, as opposed to just kind of staying in the fiat world.
Parker Lewis:
And there’s two realities there, which is one, once you have some Bitcoin, you have a vested stake, and you’re more curious, you’re paying attention more. You’re seeking information on the margin more than somebody else. So there’s a benefit to just dipping the toe in, and then go from there. And then there’s, there’s another reality that when the price is going up and in fear and speculation and Hey, my friends are getting rich and I don’t want them to without me. While that if they’re just operating on that that’s inherently irrational Bitcoin and its price going up is also a price signal. There’s also information being communicated as part of that process. So even if you don’t know why, if you’re buying it because the price is going up again, possibly irrationally, you’re taking a very rational decision, whether you know it or not, that there’s a signal being sent, which is the market is converging on Bitcoin as money, and that is causing its price to go up.
Parker Lewis:
Price is the output, monetary properties are the input. And the price going up fundamentally on the margin, not to say a hundred percent of people that buy it, do it, but the reason why it goes up consistently over time and why it always finds a higher base is because people are evaluating the credibility of its monetary properties. And then the people that are being dragged in by FOMO or some other speculation, and aren’t doing the fundamental work they’re following that price signal. and what oftentimes happens is they get dragged in via FOMO. And then a certain percentage of those people naturally seek out information and understand the right reason, the fundamental reason, the 21 million, how it works, why it works, how transformative that technical innovation is and what it means and that converts long-term holders and people that then become from a dip, the toe in the water and a somebody that’s just there for the easy money that falls down the rabbit hole and understands the real reason why they should be there. And they turn into storing more of the wealth and the network to decide that they want to convert their goods and services to Bitcoin like a Tesla. So I just think about it as it’s a, it’s an evolutionary process and people will be at different ends of the spectrum and get there for different reasons, but they’ll end up in the same place inevitably for the right reasons.
Stephan Livera:
Yeah. And it’s an interesting example there with Tesla, because they are now accepting Bitcoin for their cars and you can actually pay with Bitcoin. And the important point as well is that they are using open-source software, they’re accepting Bitcoin. And they’re planning to hold the Bitcoin, which is very much more advanced than the typical 2013, 2014 merchant adoption, but really they are just insta-dumping it for Fiat, right?
Parker Lewis:
Yeah. Yeah. I mean, I think I found that announcement to be I mean, it’s important for a number of reasons there’s, there’s the reality that they announced when they announced that they bought a billion and a half a Bitcoin a couple of months ago that they would, I don’t know what the language was in the SEC filing, but it was along the lines of, we plan to accept Bitcoin for the people who have the opportunity to buy cars for Bitcoin. So it was already messaged that they’d be doing this, but they announced that they did it. And then that it’s live. And that they’re using internal and open source tools, only internal open source tools, which means that they’re somehow, but practically speaking, they’re investing resources within Tesla to understand the technical applications of Bitcoin, which is really important.
Parker Lewis:
They also said that they’re gonna anything that’s paid in Bitcoin, they’re gonna retain in Bitcoin. It’s part of how they’re managing treasury. And that they’re storing their wealth. They’re putting their balance sheet in Bitcoin to protect the future of the company for their employees, for their investors, for their customers. And that there is, so there are so many people that look at it and say, Bitcoin’s too volatile. It’s not used as a day-to-day currency. And the reality is that that’s that’s an evolutionary path that as people decide that they’re going to store wealth in Bitcoin, that is the necessary precursor to I’m going to directly transfer my goods and services for it. And you’ve already grappled with that question of volatility. and you’ve come to understand that volatile things are not necessarily risky. And the reverse or the opposite is also true.
Parker Lewis:
And this is a demonstration, which we can make the fundamental argument and you and I, we can go out there to the world and we can intellectually say no, but you see, as it’s not too volatile and people will actually sell their goods and services for it. But then when you have the covers to say, Hey, and Oh, by the way, Tesla’s actually doing it right now. And you, the onus is really on you to understand why, because they’re doing it, it’s real. And they do it. Somebody else is going to do it. And practically speaking, somebody else already is doing it. Coinkite any number of people that just aren’t nearly as flashy, but the headlines, they anchor people and they turn what is an intellectual conversation into a real-world marketplace. And when others see it happening, they may not know why, but they can no longer deny that it’s happening.
Parker Lewis:
And there’s just a reality that whether it’s an appeal to authority, what may have you in my book, Tesla has no more authority than the Coinkite’s of the world, or the Unchained Capitals of the world. But others think differently. And it helps set an example and others are contemporaries of, of different types of people. and having those contemporaries do things cause change to happen. So it really does have an impact and it demonstrates a leadership position for a number of ways and for different reasons.
Stephan Livera:
Yeah. And now we have this increasing ability to access Bitcoin because now we’ve got a lot more of a conversation around new Bitcoin funds coming into play. We’ve got a lot more conversation around ETFs and it’s going to be a matter of time until a US Bitcoin ETF is fully formally approved. We’ve got, I think it’s fidelity, SkyBridge Van Eck, BitWise, I know NYDIG also are looking at getting into that game. So, and we’ve got large banks and custodians getting into the game. How are you looking and thinking about that accessibility question? Yeah,
Parker Lewis:
Yeah. Look, I think that just as Tesla is buying Bitcoin and then GM, Ford, every other fortune 500 company has inevitably maybe not everyone, but practically speaking, many of them are questioning both their approach to treasury that Michael Saylor really has helped lead the charge on that that’s happening one corner of the world. And as that’s happening, it also impacts other people that are investors in companies like Tesla or MicroStrategy, and those types of people that may be traditionally more financial investors. They are people that invest in ETFs and you and I, we believe that people should hold their own keys to their Bitcoin. And I think that over time, the longer that somebody holds Bitcoin, the more likely they are to understand why they should do that and why it delivers greater security. But what ultimately is beautiful about Bitcoin is that it is the most free market in the world.
Parker Lewis:
And oftentimes gets ragged on for being manipulated by XYZ. But practically speaking, it is the most free and unmanipulated market in the world. And it is attracting all sorts of mind share. And so when I see the Fidelity’s of the world, the SkyBridges of the world, the Van Ecks, the Bitwise, the Valkyries, the NYDIG is working on ETFs. I think they’re increasing competition. They’re delivering products to the market that wouldn’t be being delivered if people didn’t demand that. And that is and that competition is good. And that there likely speaking, won’t be a thousand different ETFs, but there’s going to be an ETF and it’s going to solve a need for people. And I think that one of the needs is gonna solve as a, there’s a product in the market called GBTC and it’s a terrible product, but people demand it in a big way because certain people are not at the point where they want to take on that risk or not.
Parker Lewis:
That’s a bad way to say it, take on the responsibility I don’t think it’s risk, it’s only a risk if you spend the time to understand and to take it seriously. But there are people in the world that are at that stage of their Bitcoin lifecycle, and you can either have a product like GBTC that has four layers of counterparty risk and 2% fees, and it’s not managed to NAV and look GBTC will likely be converted, but the point is that as more competition exists in the space of institutional money management, having access to Bitcoin, that’s a good thing because it will ultimately result in better products with lower fees. NYDIG just announced yesterday. I believe it’s not even their ETF, but they have a fund that gives access to the institutional money managers and they reduced the operational fees or the management fees on that down to 30 basis, point 0.3%.
Parker Lewis:
So that’s ultimately good. Bitcoin is going to flow to those vehicles again, over the long-term. I believe more Bitcoin will, far more Bitcoin will live outside of it than in it. But like in this current iteration of Bitcoin, it’s a positive thing. And it may be the most positive because it’s helping to mainstream Bitcoin and it’s a function of Bitcoin stealing mind share as Bitcoin steals mind share and the monetary network advances. And I’m excited for it again, I’m going to go out and push hold your own keys till the cows come home. But but I also support different types of custody and different products. And ultimately the competition is good for Bitcoin.
Stephan Livera:
Of course. Yeah. And I think you make a really good point about how it’s a stepping stone for many people that it’s not the final step that they just buy this thing and leave it in there. And obviously I think both you and I would encourage people to not just kind of buy it and leave it on a brokerage or some kind of exchange, and just trust them. You want to actually take a more active step here and take responsibility for yourself and for those keys there is an, it also does kind of bring up that conversation about how people look at the glassnode statistics and say, Oh, look, the coins on the exchanges are going down, but I wonder whether that is just kind of keeping more coins or going to the big custodians, right. The call it, whatever Coinbase Custody and you know, Anchorage and BitGo and those players. And I wonder then is that you know, is there an opportunity here to get more people into a multisig self custodial scenario here?
Parker Lewis:
Well look, I think that there certainly is. And there I ultimately think that that will be the clear standard and companies like Unchained Capital and companies like Casa. We are in the process of establishing that as a standard. So, well, it’s not a hundred percent clear how much of the Bitcoin that’s leaving the exchanges is going more primary custodians versus non-custodial, but I can tell you that a lot of assets are coming onto platforms like Unchained capital and Casa. And that is a good I also believe that competition between Coinbase and custodians, like fidelity and NYDIG and Gemini are good, right? Like, Bitcoin decentralizes fundamentally the longer that Bitcoin continues to work, the more people that get drawn into it, the more decentralized Bitcoin becomes. And that is inevitably a good thing. So rather than there be one Coinbase, it’s a good thing that Fidelity exists and that BitGo exist and NYDIG exists and Gemini exists and others will that those people be in competition because they’re offering custodial solutions for a certain target market and they have to compete with each other and that forces each of them to be better and their products to be better.
Parker Lewis:
That being said, there’s also a reason why NYDIG invested in Unchained. And I think that there’s a reality that when we estimated that the non-custodial, the market that we estimate to be not on exchange or not on a custodian is larger than those that do. And I think that there’s a fundamental reason why that is, but you have somebody like NYDIG that when I think about them and we’ve established a relationship, they took a minority stake in Unchained capital, but it was really precipitated by a relationship that we developed personally with their management team. and they wouldn’t have invested in Unchained if they didn’t see the value and they they’ve directly communicated that they see value and they understand why people want to hold their own keys, should hold their own keys.
Parker Lewis:
And why that is viable and that they’re interested individually as NYDIG. But I presume each one of these custodians is going to come to the same conclusion that market is big. It’s likely bigger than their own market over time. Again, they might not believe that as much as I believe that. But in that world, you have this custodial architecture and this non-custodial architecture, those two things compliment each other. At the end of the day, both of them are large. Both of them are going to be viable. What binds us all is a belief in Bitcoin. And that, I do think part of the recognition on their side of why people hold their own keys, why that’s important for individuals to have that capability, but also why it’s important for Bitcoin that NYDIGs involvement in Unchained and their investment in Unchained will help institutionalize the non-custodial business.
Parker Lewis:
It will help bring not just the capital that we need to build the platform. But then similarly Fidelity through their venture arm invested in Casa. And that’s good. That’s great. Right? And as we get more capital to invest in these solutions, we will make it easier. We will make it more secure for our clients, but then more holistically as we invest in open-source applications like Caravan or as open source applications like Specter get built. And all of that as a function of there is an incredibly valuable asset, which is Bitcoin. It has a finitely scarce supply, and we’re in the process collectively. Well, whether it’s the Fidelity’s of the world, the NYDIGs, the custodials, the non-custodial that we’re figuring out the ways that people can most securely secure that, and the best are gonna win. And in NYDIGs case they’re helping us actually advance the non-custodial architecture and have the resources to be able to realize the vision that we have. And as we do that the whole ecosystem will get better, not singularly because of NYDIG and Unchained, but because of the competition, that’s happening to deliver the most value to Bitcoiners.
Stephan Livera:
Yeah. That’s a really great way to put it because you can see it depending on how you think about it. You might think, Oh, see, all these people are just going to the custodial things and that’s not true Bitcoin, and that’s not going to help overall. But on the flip side, that money coming in does drive interest and it drives attention. It drives mindshare. And then the investments made by some of these companies, for example, like NYDIG investing into Unchained. It helps the overall ecosystem because now if you want to have self custody multisig, you can achieve that. And that’s some of the tools that Unchained are providing and the ecosystem and the competition out there. We could almost think of it. Like it doesn’t matter that much the dog wagging the tail, or the tail wagging the dog. Well, ultimately Bitcoin is becoming more valuable. And the view that let’s say you and I have is that when you use non-custodial Bitcoin, it’s so much more powerful. And so other people will see that benefit too.
Parker Lewis:
Yeah and I think that one of the things that you know, especially people that have a fundamentally sound understanding of Bitcoin like Robbie and Ross and the team at NYDIG, and I’ve seen it from others at, at other institutions that they recognize that there are both worlds and they are both important and that they’re often times are, and will continue to be contexts where they might have investors that need a qualified custodian like NYDIG. But then they, as individuals might need a non-custodial solution like collaborative custody at Unchained that both those things are true at the same time. And that I think for stewards of capital and certainly executives like Ross Stevens and Robbie Guttman that in their own interest, if they have Bitcoin and they are, they are interested in preserving value and creating value that they want to help build the banks that they need.
Parker Lewis:
Right. And they see value in both and they’re helping to fund both. And they’re also helping to fund other parts of the ecosystem. I think there’s a reality that, and this is something that I said when we announced the deal, that it takes Bitcoin minded entrepreneurs to create value for Bitcoin. And that’s the team at NYDIG is, and that’s what they saw at Unchained. And that’s why they’re helping to fund our business and ultimately to help fund the development of both open source and non-custodial applications that we offer here, because they’re important. Somebody that doesn’t understand Bitcoin, that is looking at it more from a traditional Silicon Valley VC of the world, that this is about blockchain and the thousand different cryptocurrencies. They’re not going to look at a company like Unchained and understand why it is that we’re building the things that we are, it takes a Bitcoin. and ultimately the what, from what I’ve seen in the space that Bitcoiners understand Bitcoin. And they’re more open to competition and they’re open to, to wanting to further the development of Bitcoin while also being just straight up capitalist and wanting to create value for themselves. And the way that they do that, the beautiful thing about Bitcoin is that can do both at the same time.
Stephan Livera:
That’s awesome. And so for listeners out there, because I think many of them might be sitting on say a single signature wallet, or maybe they’ve left their coins on the exchange, or maybe they’ve just got a small amount on a phone wallet, maybe they’ve got a little bit of what’s the word hesitation around going to something like an Unchained multisig setup. So can you just tell us, what does it take to get an Unchained multisig setup? What does that process look like?
Parker Lewis:
Yeah, so I like to think about it as we have a range of clients that we work with that most even, even the most sophisticated Bitcoiners have questions about multisig and that realistically speaking people, do not change how it is. They’re securing their Bitcoin for a marginal improvement in security, that people only change how it is they’re securing their Bitcoin if the increase in security and the sleep at night benefit is material. And that’s what we’re seeing with platforms like Unchained Capital and Casa, that these, these applications were released kind of over 2018, 2019. And it required time for early adopters to come in and for the platforms to develop and for the security to improve them for early standards to start to emerge, which we still think that we’re early at, and there’s a lot of ways that we can continue to improve the security.
Parker Lewis:
But that recognizing that it’s not just about the fact that people that are new to Bitcoin or that might be working with a single key. And they’re non-technical, it’s just that there’s a reality that any time you’re asking people to change how it is, they’re securing their Bitcoin, that people do not take that decision lightly, nor should they. And one of the ways that I would describe it is the bar that we set for ourselves as a company as well as in general, people that hold Bitcoin. It’s not like if Twitter goes down for five minutes, because if Twitter goes down for five minutes, you show back up five minutes later and you start tweeting again or reading your tweets. Whenever you’re dealing with Bitcoin, every single instance matters, it can’t fail once. And you have to be damn sure that that you do not screw up.
Parker Lewis:
And one of the benefits about Bitcoin is it drives ultimate accountability. There is no moral hazard. There are no bailouts, all Bitcoin transactions are final. If you screw something up, it’s on you. And the ultimate benefit to the network is massive because it aligns all incentives. But when we’re talking about the development of multisig and the application of multisig and collaborative custody and the application of multisig in collaborative custody with a new partner, like Unchained, which we’ve been in the market since 2019, but when we were establishing it as a standard we’re on that path it required a lot of diligence on behalf of a lot of forward-thinking Bitcoiners, but we’re at the point now where we have a concierge program. And that program is designed to take people who are both the most sophisticated Bitcoiners but haven’t used multisig and help them understand the important aspects of multisig that they need to know to, in order to use multisig safely and securely.
Parker Lewis:
But also put those people who’ve never had Bitcoin or are somewhere in between to help them go from zero to holding their own keys and holding their own keys in multisig. And one of the ways that I really think about it is through multisig and particularly the application of collaborative custody. We’re taking a lot of people that would otherwise not feel secure in holding their own keys and putting them in a position and empowering them to accelerate their process, to doing just that, to having absolute control of their wealth in the form of Bitcoin and in the form of holding Bitcoin with keys and that they ultimately have unilateral control over. So when people come to Unchained, even if they don’t they could be the most sophisticated and they could be starting at zero. We have a concierge onboarding process where clients sign up for it.
Parker Lewis:
We ship them keys directly from the manufacturer or they can bring their own keys. We help them set those keys up. we talk to them, we help them explain how keys work, how to backup keys, why we approach custody, the way that we do, we then move over to their Unchained capital account. We help them use those keys to build a, a multisig wallet with Unchained. We demonstrate for them how they can use our open source application caravan should anything happen to Unchained? The whole core of our idea is a fault, highly fault tolerant form of custody. And then we also provide them with opera operational security guides. It is the best money that people can spend. And the service is basically a crash course in how Bitcoin actually works. And when I talk to a lot of people that are coming into to Bitcoin for the time, and we’re starting to reach people that you know, are in their fifties and sixties, run businesses, aren’t super technical.
Parker Lewis:
We’re finding that they’re able to easily get up that curve because not just that it’s multisig, not just because it’s collaborative custody, but because we have this concierge process and we can help educate them. And it’s really that even for somebody and I believe this from a number of VCs that I’ve spoken with, a lot of VCs have never touched a Bitcoin private key. And there’s a reality that you can not understand Bitcoin in the way that you would, if you’ve actually touched a private key, set up a key, used a backup, understood how a Bitcoin address works and sent money to and from a non-custodial solution, where you’re actually creating a cryptographic signatures with your own private keys. And so I tell people that when you go through that process, there’s nothing that says that you actually have to use it, but the education alone allows you to understand things about Bitcoin that you couldn’t otherwise understand.
Parker Lewis:
And once you do understand those things, you are going to be more confident in storing more wealth in Bitcoin. And in the Bitcoin network, it is a natural precursor to getting Bitcoin is interacting with keys. If you haven’t done that, you don’t stand a chance. And so I recommend people go through that process, because if you set up keys, you build a vault, you do test transactions. Nothing that says you have to move the majority of your wealth over to that. However, it is so easy and it is digestible. And we are there as a partner that we do. And we are every day expanding the universe of people that are going to naturally be capable of holding their own keys and accelerating them down that path. So you come in and you sign up for concierge, we send you keys, we help you set up those keys. We help you build a multisig vault. We have, in certain cases, we’ve, we’ve done it in 24 hour period for clients that are purchasing large amounts through our OTC desk, but in general, people should expect a one week to two week process, and then they can go from zero to multisig holding their own keys. And it’s it’s a really valuable
Stephan Livera:
Yeah, of course. And so this is also available, not just for individuals, but you offer this on a business level as well, with the business concierge service. So what’s what’s the difference there on the business side?
Parker Lewis:
Yeah. And I think one thing that’s important to know about our platform at Unchained Capital is that really what defines it is our approach to custody, collaborative custody, and then how we integrate financial services. When people come to appreciate the nature and our approach to security and custody of Bitcoin, for those people that demand private key ownership and value our approach and value us as a partner, we want to serve those people in both their personal capacity, their retirement capacity and their business capacity, that there are synergies between being that one-stop shop. But we also recognize as a company, as individuals, because we work across different contexts, that there are different challenges and problems to be solved when you’re dealing with a business that’s securing Bitcoin versus an individual. When you’re in the individual context, it’s your Bitcoin, it’s yours alone. You can secure the keys.
Parker Lewis:
You might share one of the keys with a loved one, a spouse, a partner, maybe a child, or maybe a sibling, but it’s your Bitcoin. And you’re in control when you start to bring in multiple people in an organization of people definitionally the complexity of how you store that Bitcoin, particularly if you’re doing it in a non-custodial arrangement like collaborative custody with Unchained, it’s a different challenge. It’s not, it’s only different from effecting the financial controls, but it’s also different in terms of how the keys are held. What controls need to exist on the physical side, in terms of segregating keys across individuals, what type of redundancy you need for each of those keys, whether or not you should have multiple individuals that have access to the same key or how you should think about redundancy within your organization. And so there’s more people involved.
Parker Lewis:
There’s different considerations to be hat. And so the difference, the key distinctions between the the individual concierge and the business concierge is businesses tailored to the needs of an organization that has multiple people. Now, if you have a small business, and you’re the only one that is going to be touching keys, you can just sign up for individual cause your individual context is going to map very similar to your business context. But as soon as you start to introduce multiple people in the organization of people, there’s, you have to educate more people on private key ownership. So it requires more meetings with more people. You’re going to have different considerations as it relates to operational security. You’re going to, the nature of your secure locations of where you store those keys and backups is going to change.
Parker Lewis:
And you’re also going to need consulting as it relates to that process of the nature of, it’s not just where keys are stored, but it’s also, well you might have four people that need access to keys. And if we’re working at two of three with, with backups and recovery seeds, which is how our application works, clients have two keys, we have one, but then our clients will have backups that you might have want to have two people that have access to the same key. And you might wanna make a copy of that key. And you might want to have two other people that have access to the other key to make sure that you always have redundancy if someone’s out of the loop or they’ve gotten sick, or they got hit by a bus that you’re there and secure. So there’s a, there’s a lot more time that is spent on our side. There’s more considerations, there’s different considerations. And it really just maps to, and requires a different process. But with both pieces of that, we want to create an easy path for people to go from zero to multi-sig and that’s the whole point. And we try to accomplish that through concierge.
Stephan Livera:
Of course. Yeah. And that’s great. And I’d, I’d highly encourage listeners out there to consider Unchained they’re a really top-notch team. I’m a big fan of their work. And so whether you’re an individual or you’re looking for retirement, or you’re a business person, I think they’re a great place to look. And also I wanted to chat a little bit as this has become a topic that people are talking about. Now it’s this idea of living on your Bitcoin. So I guess high level, there’s a few ways people can go about this, right? So people might be thinking, okay, number one is just spend some Bitcoin right now, obviously, depending on which country you’re in, you’ll be paying capital gains tax and that’s a capital gains event, et cetera. Another option. And I’m not necessarily recommending this, but some people might look at some of the interest accounts sort of things that are available in the space, but then thirdly, there’s this collateralized loan idea. And so it’s this idea that you can collateralize some Bitcoin and get back some Fiat, and now yes, you’re paying interest, but that’s a potential option in terms of you know, being able to unlock some of that value. So can you tell us a little bit about how that loan would work and how that would work if let’s say somebody wants to you know, go through that process and then maybe they’re rolling over that loan.
Parker Lewis:
Yeah, sure. So a couple of key considerations upfront, one when you’re taking a loan, the most important thing is the security of your Bitcoin. And I think that the most important education that people need to go through is understanding what is happening to the Bitcoin when you are taking out a loan and that Bitcoin is serving as collateral. You need to understand that from principally two sides. First, how the Bitcoin actually being secured from a custody perspective and then two, what is the nature of the legal agreement with the person that’s providing the loan? And a couple of things that I would mention there for people on the legal side, in the case of Unchained, the Bitcoin remains in the title of our clients, which is a really important legal distinction. It is not a liability of Unchained. It’s not a liability and an asset.
Parker Lewis:
Which means that if anything ever happens to Unchained from a legal perspective, It’s not a liability of our estate that you wouldn’t have to you know, submit a claim in an Unchained bankruptcy should that ever happen, which we never expected to. But if it did, it’s your asset, it remains in your title throughout the entirety of the loian, which is something that most people don’t have an appreciation for. But myself having worked previously in the bankruptcy world understand and appreciate very well. Second thing is how the Bitcoin is custodied. In our world, we don’t, rehypothecate collateral Bitcoin sets in a multisig address. We allow our clients to have one key. In that instance, our clients have one key. We have one key in our third-party part of our Citadel SPV holds the third key.
Parker Lewis:
That is really important. People might look at it and say, well, I’m not in control. And how do I know Unchained and Citadel SPV can’t collude point is that no single party has unilateral access. It’s in cold storage, private keys distributed across three parties, and borrowers can verify 100% of the time that the Bitcoin hasn’t moved, because if every one of Unchained loans exists that same way that if it ever happened, that wasn’t the case for one borrower, all borrowers would know about it. So it’s an important part where we think about minimizing trust, that’s required in Unchained to ultimately increase security of our borrower. So those that becomes the first part you have to evaluate, if the whole purpose of you taking out your loan is to preserve your Bitcoin, then in your evaluation of a lender or whether or not you should take that.
Parker Lewis:
That is the first and most important thing you should evaluate. If you are uncomfortable there where it’s either becoming a liability of your lender a company called Cred was a lender and they recently filed for bankruptcy. and a lot of their borrowers that have posted collateral are going to be out all their Bitcoin. If your lender is rehypothecating collateral, again, it’s up to you to evaluate whether or not you should do that, but you need to understand what the risks that present, and then that will cause you to evaluate whether or not you’re comfortable in that arrangement. But know the risks that you’re taking when that happens. Then when you get from there, it’s an evaluation of, okay, well, what, what are the other, what are the other potential risks? Well going in what the interest rate that you would pay is and it’s very clear in our case that our loans have fixed interest rates.
Parker Lewis:
They vary based on the duration between three months and three years. And there are no pre penalty payments. So if you take out a loan, you do pay an origination fee, but then if you prepay it early you don’t pay a penalty. And I’d say most loans in the space that work that way. But then there’s also this consideration of there are risks and that’s why we want everyone to be educated on those risks, that we effectively we manage our loans essentially as margin facilities. So as we don’t rebalance every night, but we rebalance on thresholds. And that is one of the risks where you know, if, if the price of Bitcoin falls precipitously there’s a risk that if Bitcoin gets to a certain threshold and you haven’t posted additional collateral or repaid a portion of your loan, that your Bitcoin could be liquidated.
Parker Lewis:
And we want everyone to understand those risks. One of the things that we’ve done recently to help avoid them is that we’ve lowered both the loan to value that we issue loans at. We’re actually requiring more collateral. We’re not doing it for some financial engineering or rehab application perspective where we can lend out more collateral on the backend. It’s principally to ensure that clients don’t have a combination of margin calls or get liquidated. We’re basically helping our clients be more conservative in terms of how they borrow, but it still remains a risk and it needs to be a risk. People need to understand how the margin requirement works. Now it must be maintained. and that they’re in a position. We always tell people don’t borrow against all your Bitcoin. I wouldn’t recommend borrowing against more than 25% of your Bitcoin. One of the ways that we help people manage that is by actively reducing the loan to value ratio.
Parker Lewis:
Today, we lend at 40% loan to value. So if somebody wanted a hundred thousand dollar loan we’d require $250,000 worth of collateral to give a sense, just using an example. But then once a loan comes to maturity, like you asked about, then borrowers can either repay the loan or or they can request to renew the loan and take out a new loan. And in the vast majority of all of our borrowers when a loan comes to term. They do take a new loan out and just roll it essentially refinance the old loan and have a new loan with a new term. So there’s a lot of, there are risks involved, but for a lot of our clients it adds a lot of value for those that use it conservatively, don’t get ahead of their skis. Borrow conservatively, and are able to manage and consume in the present to a certain extent while not having to forego the future optionality of their Bitcoin future upside.
Stephan Livera:
Yeah. So I guess to summarize that then obviously, as you mentioned, there are some risks you have to consider that, and obviously Unchained are doing everything they can to minimize the risk as well, by giving the client the possibility to hold one of three keys and know that it’s not being rehypothecated. And as you mentioned, the risks around liquidation. So I guess that one just means basically you need to be you want to be prudent and you want to over collateralize the amount. And I mean, you could theoretically, like if the requirement is 250% of the amount you’re loaning, you could, like the client could potentially put in even more if they wanted to, right. And just borrow less on it. And then that way they’re even more safe. And I guess the other part is to make sure that they’re not putting up a big percentage of their stack into the loan, that they’re doing a small portion of their stack on to the platform. And then in doing that, they are, I guess, minimizing that risk. And let’s say, hypothetically, the Bitcoin price were to drop quite a lot. They could then potentially put in some more Bitcoin to avoid being liquidated.
Parker Lewis:
And that’s a good point because, people can and do put way more than 250% to avoid just that. To say, I’m under no circumstance. Am I going to be subject to a draw down in the price that could result in a liquidation. Now at 40% loan to value for full liquidation require at a six, approximately a 55 to 60% drop in the price which is significant. And but for that reason, and to give you a sense right now, our borrowers, and one of the things that prompted the change, many of our borrowers were remaining in over collateralized positions as the price of Bitcoin goes up, which is one of the unique features about our loans is that as the price of Bitcoin goes up, we do allow for people to take collateral back up to a certain extent.
Parker Lewis:
And we also increase that threshold also to not to prevent from people from taking their collateral back, but just to ensure that their loans stay in a conservative position. So before we used to issue loans at a 50% loan to value, we’ve reduced that, which essentially requires more collateral or the 50%, but then rather than when Bitcoin got to 250%, so say they, they took out a a hundred thousand dollar loan. And then before they would’ve had to post $200,000 worth of collateral, if the price went up such that it was 250,000, we’d allow for collateral to be returned. Now we require it to be 300%, 300,000 before we reduce collateral. And we only reduced down to 250% rather than 200%. But to give people a sense, too, right now, on average, our clients have 400% collateral so we’re at a below a 25% loan to value because they’re choosing to be conservative, which we certainly encourage, and they can do that, not worried about their collateral, because it’s all segregated.
Parker Lewis:
It’s in dedicated multisig addresses where clients want to, they have one key. We have one key and our independent third party does. So in their view, in many of our client’s cases, it’s, I’m doing this to ensure against having to actively manage margin. And I’m comfortable that the Bitcoin isn’t at risk. It’s not moving. I can see, I can validate on chain. I can validate I can put a watch only wallet with my own node if I want to. And I’m, I’m comfortable that my Bitcoin is there. So I’m, I’m actually feeling more secure because I know how it’s custodied and having it be in an over collateralized position more than is required. Yeah.
Stephan Livera:
And in terms of the interest rates then, is that possible to also be I guess, capitalized into the loan? Or is it more just like people could borrow, they could just borrow the amount additional if they, like, let’s say they had a lot of Bitcoin, but they didn’t have a lot of income they wanted to do that kind of collateralized loan. Is that also a possibility? Is that something people do as well?
Parker Lewis:
Truthfully right now, we do not offer that as an option. Certain people, we basically, their interest only loans. They they’re required to pay Fiat interest dollar interest. And, but certain borrowers do take out more and than use the dollars to fund the interest. So they do do that. We just don’t allow them to immediately take collateral and convert that into interest.
Stephan Livera:
And then just in terms of, I guess, rolling over the loans, I guess the choice there is also around if they wanted to let’s say, do the full three-year loan, then the interest rate for that is around 14%. Whereas if they’re doing the shorter term, they are doing it at a lower interest rate. I think that’s anywhere between sort of 10, 11% ish. Yeah.
Parker Lewis:
That’s between on an APR basis is between 11 and 14%. I would say we have the generally have the highest rates in the market, and we’re proud of that. And it’s because we don’t take additional risks with your Bitcoin. If people want to know the true cost to borrow against their Bitcoin, it’s the rate that we have. If you’re getting a lower rate, it’s likely because the security isn’t as high or additional risks are being taken. And I often tell that there’s a reality that our loans and interest rates effectively act as almost like a forward interest rate of the currency with some discount being put in for the over collateralized nature that when people ask me about why the interest rates are so high, I turn around and I asked them what interest rate would they lend to somebody else to allow them to hold Bitcoin rather than themselves?
Parker Lewis:
Because that’s effectively what we’re enabling via our loans. So the interest rates aren’t low, but the thing that characterizes our borrowers are really a combination of three or four things that they’ve held Bitcoin for a long time. So they have a very low tax basis such that if they were to sell any Bitcoin to fund a purchase, it would result in a high cap gains tax. Second thing is that because they’ve held Bitcoin for a long time, that Bitcoin represents a disproportionately high share of their net worth. And then the third thing is they’ve managed to hold the Bitcoin to the point that it does represent both a high disproportionate share of their net worth, as well as having a low tax basis means that they really believe in Bitcoin and they want to preserve that future optionality. And so when they think about that world of again, I’m never somebody that predicts prices, but I do think the Bitcoin adoption is going to go up a 100x that they would rather pay between 11 to 14% than forego that upside optionality.
Stephan Livera:
Yeah, I see. And so the way they might be thinking about it is if they want to invest in something, or maybe it’s even a business project that they want to invest in, they realize that by using this kind of loan for them, it forgoes the capital gains tax. And it like, essentially it means they have to forego less sats net-net so long as they’ve managed their risk appropriately and it all plays out. Then essentially they end up foregoing less sats because now they didn’t have to spend, and they didn’t have to pay that same level of capital gains tax that they otherwise would have had to right.
Parker Lewis:
Yeah. 100%. And that’s how we think about some of the things about our entire platform, which is we want our clients to have as much Bitcoin as possible. Our clients having as much Bitcoin as possible is good for Unchained. It’s good for them. And when we, when we think about scenarios where it’s a reason why we’ve lowered LTV is that we do not, like clients getting liquidated and being uneducated of the risk is not good for Unchained. And we’ve actually had a number of clients that came through that said that they, they actually chose Unchained because we did reduce the LTV that they looked at that, and they said, that’s not what somebody would do if if they were trying to drive loan ;volume. and we did particularly in the world where we’re not rehypothecating collateral to really help our clients protect themselves by forcing them to be more conservative.
Parker Lewis:
But then when we think about our whole platform, it’s this idea of we are Bitcoiners. We have needs ourselves. we want to have better ways to secure our Bitcoin. And then we have needs as Bitcoiners. And if we’re delivering value, it is allowing in many ways more than one, our clients to hold on to Bitcoin and to maximize the value of it. And loans are just one small part that the custody is a big part. We help people execute on the OTC side, buying and selling. we actually don’t sell, but we have in a certain few, few instances for clients that were only set up with us. But that’s how we think about the platform. And we think about our loans as a tool, again, if used correctly and people need to understand the risks, we’ve got a guide that we call it the ultimate guide to Bitcoin backed loans that everyone should read before they take out an Unchained loan that if you know the risks, and if you do a conservative, like it can be a very powerful tool. If you don’t do it conservatively and you don’t understand the risks you can get rekt, and we don’t want to do that.
Stephan Livera:
Of course. Yeah. And I guess one other point for listeners who might be thinking well, okay, so it’s kind of between 11 or 14%. I mean, the actual rates on the site, but hypothetically, if they wanted to, if they were comfortable with a, more with the rates moving around a little bit, I guess they could go for a shorter term, but just keep rolling it over. Correct?
Parker Lewis:
Correct.
Stephan Livera:
Yup. And also from an international perspective, obviously Unchained is based in the U S can you spell out any additional considerations there for people who want to do that international?
Parker Lewis:
Yeah. So we do, one we facilitate custody internationally. So if people just want collaborative custody and want to work with on chain, we can help them. We do lend in certain international markets. Not many today are really focused on the U S but we do we do lend in Australia. And we do lend in Canada. We’re, we’re looking at other jurisdictions and we have lent and others beyond there, but we’ve really looked at it on a case by case basis. But really people’s expectations should be, beyond United States, Canada and Australia, we’re not really available beyond those markets on the lending side, but then again, on the custody side, we can help people.
Stephan Livera:
Gotcha. Of course. Yeah. That’s great to hear. Yeah, and I think it’s also just interesting that as the world is moving into a more Bitcoinised world, I think, I mean, I’ve often commented on this, that I think we’re moving into a more equity based world, but just right now, we’re living in a very debt-based world. And so this is almost like the judo move of using the fiat system to fund your whether, whether it’s your business or your living expenses and things like that in the here and now, while still holding onto more of the thing the game of musical chairs and you want to be holding Bitcoins when the music stops. But I guess over time, do you see it, like you think interest rates on these kinds of loans might come down over time, or what do you, do you have any speculation on that? Or if you’re allowed to comment publicly or not?
Parker Lewis:
I’ll happy to comment publicly. I expect them to come down, but I don’t expect them to come down like people think they’ll come down because more capital and more institutions are becoming comfortable with not only holding Bitcoin, but then also working against it as more capital will drive down those rates. and we’re, we’re incentive. We’re incentivized just as NYDIG announced that they were reducing the fees on their, on their Bitcoin into their fund, a Bitcoin fund for institutions. We’re, we’re, we’re incentivized to go out and find cheaper sources of capital and pass those on to our clients. If we’re not doing that, we’re not doing our job. At the same time there is a reality that as more people start to appreciate the beauty of Bitcoin and just how valuable these things called Bitcoin are that creates competitive pressure as to people I think about it as for every dollar that is going to one of our borrowers, that is somebody that’s foregoing the right to own Bitcoin themselves.
Parker Lewis:
And that there is this natural relationship that as people get more comfortable with providing capital to lend against Bitcoin, the more likely they are to want to own Bitcoin. And that it’s not necessarily an equation, someone’s looking at it as well. Is this as good a collateral as a home it’s actually better? Should the rate be lower theoretically, but the person also has the opportunity to buy the Bitcoin and the person isn’t just going to buy the home. And so that reality of what the loan means that it is effectively forward currency rate and the fact that Bitcoin has so much stronger monetary properties than the dollar, that people kind of get wise to not wanting to give up the future asymmetry that’s in Bitcoin themselves. Not to say that they don’t, they will, and there will be more capital.
Parker Lewis:
But the reality is that will buoy the rate of interest that rather than seeing something like 3 or 4%, again, if Bitcoin isn’t being rehypothecate, if it was just a true rate of interest, that reality that what’s happening on the other side is that someone’s foregoing the right to gain more Bitcoin for the fact that you get to keep it as a borrower dictates that the rates will come down, but I expect them to be in high single digits rather than, than low double digits, but not kind of dropping to a manipulated world where, and again, I have to reiterate for people, a mortgage for a super wealthy person has only 3% via monetary manipulation. And in the Bitcoin world, everything is inherently non manipulated and it is really set by the free market. So it’s difficult to envision a world where we get to something crazy, like 2 to 3% interest rates to borrow against Bitcoin.
Stephan Livera:
Yeah. That’s really fascinating to think about. And I think you had a really great answer on that point and yeah, I wonder what happens. I mean, looking further out into the future, into this kind of in a, in a more Bitcoinised world, I think, yeah. Maybe loans, won’t be that easy to come by. Like it, once we are in a fully Bitcoinised world, obviously that’s, that’s a ways off. Right. But I think it’s, we have to remember that loans right now are only so cheap because of all the Fiat manipulation.
Parker Lewis:
Yeah, yeah. In many ways, and in many markets and in Bitcoin, it just happens to be more, I’d say the opportunity cost is more direct because if you think about a lender and imagine whatever context they’re lending in. High yield credit kind of junk bonds, triple C credit mortgage backed securities, CMBS, investment grade, treasury, whatever you want to think about the person that’s probably valuing the lending capital, literally doesn’t want to own the underlying asset. That will be different in Bitcoin. It already is today. And so, because Bitcoin is just a better form of money and everybody needs money and as more people think about it as that, the more they come in. Oftentimes I think about it as a credit instrument, but then they get more comfortable with that type of lending. They love it. And they’re like, Oh, wait, what if I had just owned Bitcoin? What if I own 10% of Bitcoin? You know? So those, just those natural considerations, just really interest rates in this market, more so than they do in any other, because the lenders inherently, because Bitcoin is money, they’re going to be owning the money themselves too. They’re want to own the underlying asset.
Stephan Livera:
Yeah. It’s really funny when you put it that way, because it’s almost like you want, like, hypothetically, right. Just, just talking it out, right. It’s almost like as a customer on these kinds of loan products, you want the other side to be really interested to lend for Bitcoin, but not to go buy it themselves because once they’ve gotten to that point of wanting to buy it themselves, and then now there’s actually less availability for you to borrow. So it’s a funny –
Parker Lewis:
Right? Yeah. And that’s what that’s, that’s what makes a market, right? That the interest rate gets set on that kind of finding that balance, where somebody is willing to forego their right to just buy it outright versus charge somebody in interest and then use that interest to buy Bitcoin. and that we find a balance or equilibrium and what we call our interest rate.
Stephan Livera:
Yeah. Really fascinating stuff. So probably a good spot to wrap up here. Parker, I’ve really enjoyed chatting with you, obviously, before we let you go, where can listeners follow you online?
Parker Lewis:
So you can check us out on our website. We got a new URL http://www.unchained.com. And then also you can, so all the things that I’ve written about the article that we were talking about earlier, that Bitcoin is a great definancialization. It’s on our blog under our resources there, but there’s also a lot of product resources as well. And then if not at our website, you can reach me on Twitter. I’ve got laser eyes and I’m @parkeralewis.
Stephan Livera:
Excellent. Thank you, Parker.
Parker Lewis:
Thanks, Stephan. Always a pleasure.