The Bearish Case for Bitcoin

Hi and welcome to Stephan Livera podcast, a show about Bitcoin and Austrian economics. Today, for episode three hundred and thirty two, I'm speaking with Vijay Boyapati. He is a well known author in the space and so his book The Bullish Case for Bitcoin recently came out, of course, based on his article The Bullish Case for Bitcoin. So today we talk about that, various aspects of the under- Understanding in this broader Bitcoin space about Bitcoin and various ideas like the progression steps of money, and we also talk about some of his more bearish ideas on Bitcoin. So I think this will be an interesting one for listeners, and I hope you enjoy it. This show is brought to you by Swan Bitcoin, the easy way to accumulate Bitcoin while also receiving a world class education and world class support. Now, Swan are bringing back gifts, so you can gift Bitcoin to your loved ones. Now, this- Can come with a custom message, your recipient will get an email, and they can claim that by creating their own Swan account, and then at that point, they will convert the USD value you sent to them into Bitcoin. So let the team at Swan help Orange Pill your friends. You can give the gift of Bitcoin to your loved ones, and they will also receive education along the way. So go to swanbitcoin dot com slash gift. Now, if you've been listening for some time but haven't thought to upgrade your security or take that step of self-custody, my favorite hardware wallet is the Cold Cold card. Now, you can use the cold card in a single signature setup on its own or as part of a multi-signature setup, and it has all sorts of different features. Like, you can use passphrase with it, you can have a JuraS pin, you can have a BrickMe pin that bricks the device, you can use SeedXor, and you can also use the Address Explorer. So that's a really interesting feature where you can check that you actually hold the address that you are trying to receive to. So this can improve our security and give us more confidence that, yes, I I really do control this Bitcoin address or the keys associated for that address. Now go and purchase yours, it's the website is coinkite dot com and use the code Livera to get a discount on your cold card or on your metal backup products, they've got the seed plate. Now if you're looking to upgrade to multi-signature, Unchained Capital can help with what's called collaborative custody. Now with securing your coins, you wanna make sure you aren't leaving single points of failure. That means don't leave your coins on the exchange and potentially Think about whether you're just using one hardware wallet and you haven't considered the backup and testing that with Unchained and multi-signature, you can give yourself more peace of mind by creating a setup where you can still make a mistake and not lose your coins. So if you're interested, go to Unchained dot com, they've got a concierge onboarding program that can help you get started easily with multi-signature where they will ship you two hardware wallets, they'll do a call with you and deposit a thousand dollars of Bitcoin in your vault and get you Going on that journey of multi-signature self-sovereignty. So, so go to unchain dot com and use the code Livera when signing up for the Concierge onboarding program. And now, on to the show with Vijay. Vijay, it's a pleasure to chat with you again.

It's great to see you again, Stefan. And I, since I haven't spoken to you in a long time, I have to say congratulations. I'm very, very happy for you. Congratulations on, on getting married. It's very exciting news.

Yeah, thank you. Yeah, Yeah, it's just something, I've been, you know, keeping on the down low a little bit, but, yeah, we, we'll see how things go and especially getting out of the Australian gulag has been, very liber- liberating. It must

feel liberating.

Yeah, getting out of Australia was just insane and, and now it's just kind of living, sort of a more nomadic-ish life. So, I think that's definitely something as well for the, the Bitcoin people out there. More, more and About me, let's, yeah. So

I was just gonna say, I, I mean, I think that would be so interesting, just an episode on, on hearing your experience with the nomadic lifestyle. And I mean, Bitcoin enables people to live that nomadic lifestyle, and you, you're, you're living it, it's not just theory. And I, I think it's so cool that you, sort of up and left Australia and, and, and found a new life. So I, I think it would make for a great episode, I, I would definitely listen to it

With Rigel, CoinShore NZ, but, I'll do one where I kind of talk more about my own actual experience, and I've spoken at some of the conferences a little bit about it as well, but, probably not, not as many podcast episodes on it as I-- So that's definitely coming. But let's talk about you. You've, you've got this little book coming out, you, what, tell, what's, what's this book out, hey? So you've heard the, you,

you've heard the title. It's Many times over the last few years, but I wrote an article in 2017 and published it in 2018, and it, it got way more readership than I ever expected. it was read over a million times, translated into twenty languages by volunteers, I didn't pay for any of that. People just came to me and said, "You know, this really helped me, so I wanna translate it into Chinese or Korean or Italian or Tamil, just a whole bunch of different languages." And at the time, a lot of people asked me to turn it into a book, because there were some people like our, you know, mutual friend, Bill in Canberra, a Bitcoiner, the-- who's famous for saying, "Hold on, comrades, don't trade." he would print my article out on paper and give it out as kind of a cheap version of a book. but, you know, I didn't-- at the time, I didn't think there was much I wanted to add to the article. I thought, "Well Kinda what I wanted to say about Bitcoin. It's, it, it provides an economic framework for understanding why does this thing have any value and, and why is the value going up, which I think are two of the most important economic questions of the last century really. This is, no one thought something like this was possible, so how is it possible? so anyway, I provided what I thought were decent answers, but then, in, in, in the years that followed, the market really matured a lot and, and changed quite a bit. The circumstan senses around Bitcoin changed a lot, and then in twenty twenty with the pandemic, the response from central banks was so crazy, so unprecedented, the monetary situation that we were living in with the printing of trillions of dollars, I thought provided a new context in which to revisit my article, and to turn it into a book. And, and then I, I also realized over those years that there are a couple of important topics that I didn't cover in the article that I really should cover in a longer book. So, you know, I, I be- Began writing, the book version, expanding on the article, updating the article and adding a bunch of new content. And I remember speaking to a bunch of other Bitcoin authors like Seifordine, Nick Bhatia, Jan Pritzker, a bunch of these guys, and I, and, Jimmy Song as well. And I asked all of them, "Should I, you know, go find a publisher? Should I try and do this myself?" Every single one of them said, "Publish it yourself, self-publish because you control the rights, you have so much more flexibility If you wanna do translations, you can do translations. If you wanna do giveaways, you can do that. You can do whatever you want because you own the rights. Don't use a publisher. and so I took their advice, and Safe was the one who emphasized this the most, it was really helpful. So I launched my book on Kickstarter, in June of this year, yeah, June, June this year, a-a-and it did really well. It sold, just on Kickstarter, it sold about one hundred and fifty thousand dollars worth, was, you know, excited if I sold ten thousand dollars worth of books, so it was a, it was a pretty big success and I think the book is doing really well since it's l-launched more widely, it's on Amazon and you can buy it at retailers like Barnes and Noble, so people who've read the article will be familiar with Chunks of the book, but it does cover things like the historical origins of Bitcoin. I never talked about that in the article, and it also talks about the topic of what is Bitcoin and kind of gets into the block size war a little bit and why Bitcoin is the way it is and why it's not a payment system, which is a, a debate that I, I took part in a lot in 2017. I was debating people like Eric Voorhees and Mike Belushi and, Wences Casares These were all on private mailing lists, they weren't public debates, but I was debating these guys about why I thought Bitcoin had to be the way it-- is now. but it wasn't, it wasn't obvious then, and I thought that was a topic that needed to be revisited. so yeah, that's, that's a little bit of history about the book and, and how it came to be and, you know, what's in it and how it's different to the article.

Yeah, that's fantastic, and I'm, I definitely am keen to And as I've been chatting with Vijay for years, but I've never actually met him in person. So one of the few people in the Bitcoin space who I've not, had the pleasure of meeting yet, but we'll make it happen. Probably Bitcoin twenty twenty-two. So shout out for Bitcoin twenty twenty-two conference. I think it's b dot t c slash conference for people who are interested. That'll be in Miami in April, so I'm really looking forward to that one. and yeah, so I think the book is really going to help people because it's weird Sort of has more, I guess, credence around it or just kind of credibility. And so they, they're gonna think of you more as like, "Oh, hey, you're, you're an author, right? Like, you know, now that you've written this book and it's out there with your name on it and, you know, nice graphics and things." and I- It's all- It's, it's very interesting

that, that, that certain symbols can, confer credibility or gravitas like that. You're exactly right. And it doesn't make me

way, like, you know, people get PhDs and then for some reason other people think, "Oh, that, that, they must be really smart." It's just really kind of social credibility that comes from it. But that, that has value in its, itself, because when you recognize that, you recognize there may be people who are skeptical about Bitcoin and maybe they wouldn't give too much credence to an article, but seeing it in, in a physical form and holding it and, and seeing, you know, things like the dedications on the back from people like Jack Dorsey and, from Michael Saylor, those things gonna add credibility, so it helps to get people maybe over the hump to even consider reading something like this.

Of course, yeah, because those of us in Bitcoin world obviously see, see it as an excellent, excellent thing, but people who are still in fiat world aren't, maybe they're not, they're not quite connected to it yet, and so they, they need some of these credibility markers, right? And that's, I think it's the same thing when you look at, let's say the typical corporate media who they ask on the show, Title, right? It needs to be someone who's like a, oh, this guy's director of this company or he's a CEO of that or, a-and they, they don't really understand that concept more of just like, oh, you're just, this guy's just an expert in this area or he's just, he's written a very influential thing in this area. They don't, they don't sort of grok that idea very well. So they need to just say, oh, it's an author, it's Vijay Boyapati, the author of this, you know, Meritocratic sort of, society. But I can understand maybe it's like a, it's like people use little heuristic shortcut. Okay, this guy's a CEO or he's a founder of this company, must be, must be legit. I think that's, that's what goes in their mind.

I know this is a little bit of a tangent, but I think that's a very, very important point that most people don't think about. And I'm, I'm reading a book actually right now which goes into this in great depth. It's called Public Opinion,

by, by Reality is so complex and nuanced, and so we create these simplified mental models, and we have these tools for understanding the world, and one of the tools we have is just authority. How do we know something is true? We rely on a set of authority figures, and, and we all do this to a greater or lesser extent, where we over time learn to trust certain people because they've said things that made sense to us, or they've said things that we think are obviously correct, and, and we lean on them. this is just a sort of, epist-ep It's really interesting that you brought up, and because I'm reading it, I, I thought it would be just kind of cool, cool to highlight that. I, I mean, you're right, and that's the

thing. Even, even in, let's say, court cases, they might have competing experts, and they are, these are like maybe PhD level, oh, PhD, there you go, there's that heuristic again, but these are, again, expert levels, but they are com- they're, they're, they're talking about the same set of facts, but with

as opposed to an Austrian economist, and they are looking at the same set of facts, but they have extremely different views about what caused what and what's the solution, what's the problem, what's the solution. And so it's just such a different, I guess, that's, that's the importance of having actual free speech and ability to talk about it and actually debate these ideas out there, because otherwise they'll say, "No, listen to--" and, I mean, just like with all the hysteria stuff, right? It's gonna be, "Listen to the experts, don't worry,

Saying, right? Yeah. They're gonna say, "Inflation, you know, it's, it's actually not that bad because the cost of your debt is getting wiped away, pleb. Just don't worry about the fiat inflation."

Yeah, and the fact that the, the, the great masses have to rely on these tools creates the opportunity for people who wanna manipulate them. and one thing I think I've learned very clearly over the last decade is the media's real job isn't to inform the public, it's to shape public opinion. At least that's what they're trying to They want the public to believe a certain set of things, and they need to guide the uninformed public to those opinions. And it's actually been, you know, a great disservice to the media in general that the internet exists, because people can look for alternative points of view and search for the truth if they, they're so inclined. and this has really broken the stranglehold the media has had for the last century, in, in shaping public opinion and getting the public to do what the- People, the elites, the people in power want them to do.

Yeah, I love that point you're making because it's really, some of the people in the media, in at least the corporate media, they see their role is more like narrative crafting than it is actually about objectively trying to report things. And so it's just become this weird game of credentialism, as, as you were saying, like people, oh, look, he's a PhD, he's a CEO, he's a, you know, oh, he's, he's with the World Bank or the IMF or the BIS

governments that are supposed to have all this power over us, and, and yet there are these freedom fighting individuals, bitcoiners, cypherpunks, libertarians, whatever you wanna call them, they're out there trying to speak the truth about what's going on in terms of fiat, in terms of inflation, in terms of what makes a good money, and it's kind of strange to see how, especially now in, you know, as we speak now, December twenty twenty-one, we're seeing so much censorship, suppression of alternative viewpoints, and I wonder would that same thing happen in a Bitcoin Bitcoin versus fiat context, will they start censoring Bitcoin voices and saying, "No, this isn't, no, listen to the experts, this is, this is misinformation." We're gonna, we're gonna tag your tweets and tag your blog posts and your Facebook posts and whatever, this is misinformation because the real inflation rate is only six percent, not thirty percent, you plebs.

I, I mean, I think so. I think the real battle is to come with Bitcoin, when the, when the state truly awakens to the existential threat, the Bitcoin po- loses to its most important sovereign power, which is control over monetary policy, oh, you could probably say control over the military is up there as well, but those are the two really big ones, so yeah, that kind of censorship is, I, I think something that we should expect in the future.

Yeah, for sure. and so I think we've seen a real shift in the space. I think a lot more people start to understand this idea now that, Bitcoin isn't directly going to be the money for a lot of people, that they, they are going to Going to use the Lightning Network and other people, you know, let's say the, the Michael Saylor style is, if you can access cheap credit, do it, right? That, that, and it's like this idea, and if you can access cheap credit, I can understand from his point of view, and even like from a just a, just a financial or just an accounting sense, yeah, you're just, you're tying up less of your own assets, you're just using the fiat system, and it's just like PS speculative attack thesis as well. So I-- but at the same Is kind of the people who are like, "No, zero fiat, just like get on zero, don't even touch fiat, and just like fully engage in the circular economy." I'm curious, do you have any thoughts on that?

Yeah, I've, I've never, been that tied to the payment use case of Bitcoin. I've always thought And this is something that, you know, talking about the article and it'll be interesting to talk about some of the influences of the article. I've always thought of the roles of money, the most important role of money is the store of value use case. I think it's so much more important where people save their money than how or the medium that they spend their money in, because the pool of savings is the original fount of power, that's where power comes from, and that's why governments always want The money, the means of savings to be controlled by them. You could think of a situation like Argentina, for instance, where you have a detachment where people, if possible, will try and save in the dollar, and people will spend in the peso. That really undermines the power of the Argentinian government, because the main mechanism with which governments choose to appropriate savings through a population to sort of parasitically suck away- way, savings out of this large pool of savings that exists in a, in a, in an economy is through inflation. And so if the means of savings isn't something that they can inflate away, they lose that power. So I've always thought the store of value function of money is critically important, By, by far the most important, and then afterwards the, the medium of exchange has, you know, some function. We do need a medium of exchange to s-sort of satisfy the double coincidence of wants problem, but And this is interesting because I feel like the Austrian school actually really emphasizes the medium of exchange role of money and, and the double coincidence of wants problem and how that's really important. I've sort of, in my retrospective of thinking about money very deeply for the last ten years, have come to a different conclusion, and I feel like it's actually just as a sort of point of interest, I think it's a big lacuna in, in the Austrian school of, Thought on money, I think the Austrian account of the origins of money is missing a critical piece, and I'll just give you a brief summary of why I think that. The Austrian story of the origins of money is that you start, society starts off in a state of barter, where people have very inefficient transactions with each other, like an apple grower is trying to trade with a fisherman, and they don't necessarily wanna trade at the same time, so that, that you have trade that doesn't happen because of that and, and obviously because you don't have prices, it's really hard to know what the exchange ratios are and all that. So what happens is people who wanna do trade wanna keep something that's more marketable, so they look for a commodity such as seashells or maybe gold or something else which is more marketable and which they can do their trade with, and so they keep some of their savings in that. The big problem, and that, that's fine, right? Eventually the thing becomes more and more marketable and then you say it's money. That's basically, it's pretty But if the good that is becoming monetized and is becoming more marketable is largely inelastic in supply, what you have to expect is as, as, as adoption grows, the purchasing power of that monetary good must go up. It has to go up. As the number of people in, you know, a village who own gold goes from one person to a hundred people, to a thousand people, the purchasing power of gold in that village is gonna go through the roof. And one, one, one thing That every Austrian should know is that whenever you see, have a market signal of something going up in purchasing po-power, there are gonna be speculators who recognize that. You know, we're not stupid as humans, we see when something is going up in value and we get attracted to that and, and we wanna trade on that. And the thing I think is interesting is Austrians really don't reflect on that part of the monetization of a monetary good. They just talk about the medium of exchange role and the marketability. They don't talk about- The speculation that would happen in money and why it would have to happen in money. In anything that's going up in value, merchants and, you know, people who are using money are gonna say, "Oh, well, I want more of it." And that speculation actually hastens the process of monetization. That's what I think is the big hole in the, the Austrian story of the origins of money.

Interesting. So, I mean, isn't that like, aren't we... What about like just the Misesian idea of just speculation, like as in ideas that you are entering into a certain act, there, there's a speculation involved with all of those acts.

Yeah, I mean, sort of by definition, every exchange that we do is a speculation. What I'm talking about more is the kind of speculation where you're looking at the price of something like you'd look at the stock market and you're trying to anticipate where that price is going, and if you think it's gonna go up, you inve- you invest in it now because you expect to get a future gain, over time. And my point is that when something is being monetized, even if it's just because people

For marketability purposes, someone else is gonna recognize the purchasing power of that thing is going up, and they're gonna say, "I want more of that." And I'm sure throughout history, there are periods of time where gold was starting to become money in some society, and someone said, "Whoa, this is becoming way more valuable. I wanna hoard gold right now. I wanna hold a lot of gold because in a year from now, I'll be able to purchase ten cows instead of three cows because gold is becoming money in that society." And by doing that, by speculating in gold in way and increasing its purchasing power, they're hastening its adoption as money, because the pool of savings in that economy going into gold is increasing and eventually stabilizes and everyone has some savings in gold, but they're pushing gold towards that end, and that's what Bitcoiners are doing as well. They're recognizing that there's a likelihood in the future that Bitcoin will be money, and because its supply is inelastic, it's a really good bet to own some now, because if it does become money, it's gonna- To be worth a lot more in the future, but the very act of going and buying and holding Bitcoin with that belief hastens that future happening. It's, it's a difficult thing to sort of reason about because it's kind of a feedback loop.

I see, yeah. And so I think there is actually an interesting section from Menger's, on the origins of money, and I'm sure you probably recall this as well. There's a section where he says something like, "Some people will realize it before others, right? " And that, that's perhaps what you're actually

recognize this before other people will, and of course, any Bitcoiner, especially the early Bitcoiners, did recognize this before other-- Of course. Now, the caveat here is, did you hold, right? There are a lot of people who kind of had some coin in early years and then kind of frivolously spent it away or lost it or whatever. The question is, did you recognize it early and then did you hold? That's the, of course, the part. Yeah, but that's the part

I feel like the Austrians really skimmed over. This transition from something, you So marketable that it's a medium of exchange. That's a very interesting part of the monetization, and there's a lot of things that you can study in that, like what is the shape of that monetization? Is it linear? Does it go up in a straight line or is it exponential or are there cycles? Now, you know, now we seem to have learnt that there are cycles. so I, I, I think that's just a, a big gap where Austrians just kind of brushed over it and said, or didn't even say, didn't even realize they were brushing

Now that we have Bitcoin and we're, we're witnessing in real time the monetization of Bitcoin, that you can't skim over it. This is happening right now. Bitcoin is clearly not a widely used medium of exchange, but it does have some monetary function, right? We all recognize it's doing something that is, a function of money. It's providing the ability to keep your savings into the future. It's doing that very well, but it's not yet a medium of exchange. So the period we're in, I think, is fascinating. Because it's exposing a whole new area of monetary economics that most people hadn't really thought about very much ten years ago.

Yeah, I think. And I think the maybe, I guess to steelman, right? Like if you were talking to say Bob Murphy or Joe Siler or someone, they might-- maybe they would come back to you and say, "Well, actually, the Mengerian and Misesian stories around how money forms and the most sellable good and so on, maybe that's like-- it's not necessarily that it actually physically happened in that historical order. It's more Mentally, here's the process, like, here's the theoretical steps that are required, and this is how we can sort of a priori see, this is how money would form. But I think to your point, it's, it's true that we definitely could see more explanation around how adoption happens, and it could well be that because at the time Menger was writing and Mises was writing and Rothbard was writing, you know, gold had already monetized, right? Thousands of years ago. That's a great point. So they missed out on the chance to see that.

monetized before. That Bitcoin is in living memory, and maybe even, you know, going back even thousands of years, no one had witnessed this before, and even thousands of years ago, they couldn't use the internet to communicate directly all around the world in an, in, in an instant. So maybe those are some reasons why this time is different. Yeah,

because with gold, the monetization of gold, we didn't witness it. It was a historical event, and, and a lot of the data is missing. So we, we don't know, and, and the theory of the origins Money is somewhat speculative because of that. I mean, it's an a priori theory as well. Does that a priori theory actually apply to history? I, I'm fairly confident it does to a large extent, but then we're missing lots of details, like the, the, the store of value transition. That, you know, that could have taken thousands of years and we just don't know how that played out with gold. But now we're, we're witnessing it, so it's, it's super exciting as someone who's a student of economics to be able to witness something like this, M-type event, so i-it's cool. I think, you know, we can benefit from it just from a, an academic point of view.

Yeah, certainly. And I think even the point you raised around four-year cycles, I mean, it seems to-- like, the thing is, at least now my recollection may be different from yours, but at least for me, in sort of twenty fourteen and fifteen, around those time, in the bear cycle, it wasn't clear that Bitcoin was gonna come back, right? Like to the broader world, it was kinda like, " Who knows, right? 'Cause back then it was different. You just weren't sure it was coming back. And then I think in twenty eighteen and nineteen, you were sort of a bit more, "Oh, okay, it's, it's, look, we're just gonna wait it out for a little bit, and it'll be back." And sure, lo and behold, yeah, it did, it did come back. But then the question is, are we actually still going to have four-year cycles, or is it actually just like four-year cycles are gone now, and actually it's just

kind And we have to observe and we have to see, it could be that the market has reached such scale and matured so much now that we have all this financialization on top of Bitcoin, that could pro-provide enough stability that we're gonna, we're not gonna see these big swings up and down, because we have futures markets and we have derivatives and people can make bets on the future price of Bitcoin very easily now, so, so that, that tends to have the effect of kind of dampening, I think, dampening these cycles, but we don't- No, we, we, we have to kind of observe and see and, and learn.

Right. Because, and that's the other thing, I mean, we could wake up tomorrow and it's hyperbitcoinized, right? Like we could just, you know, you-- it, it could happen really quick, maybe not, maybe not in like overnight, but it, it could just sort of in the space of a few months, like, just shoot from whatever, fifty k price to, you know, millions of dollars effectively per coin. And so for all we know, like, that's kind of

It will just happen with adoption over time, and crucially, as you point out, it's people adopting it as their savings, right? Like mentally, do I save into Bitcoin? And so I think that's an interesting point as well, probably a point to get your thoughts on El Salvador as well, because obviously El Salvador have recently put in the Bitcoin law, Bitcoin is now legal tender, you don't pay capital gains tax to spend Bitcoin in El Salvador if you're, like, yeah. And so what's your thought on that? And is that really the right kind of adoption? Or would you, I guess, if I were to kind of try and think what your view is, it's really more about how many new holders are being created in El Salvador, not how many people are, say, transacting.

Yeah, the number of people who wanna keep their savings in, in Bitcoin in El Salvador is the thing that I would be most interested in. Like if they, they distributed a bunch of Bitcoin to their population, if those people just immediately sell it and spend it on something, then it's, it, it, it doesn't really have much significance. Now, the thing with El Salvador that's interesting is they've re-removed one of the major frictions for Bitcoin, the transactional use of Bitcoin, which is the taxation on capital gains. In most Western countries like the US and Australia, you, you know, you have bi- you buy Bitcoin at say a hundred dollars, and then, you, you go and try and buy something with it when it's two hundred dollars, you have to pay tax, on the gain when you spend that. You could, you know, be buying, I don't know, Lunch or something like that, but you have the extra annoyance of having to record the transaction and, and pay tax on the, the excess value of your Bitcoin over that period of time, which is a huge, huge friction. No one wants to go and buy coffee and then think, "Oh, I have to file taxes because of that." so they removed that, but I don't think actually that- Was the primary friction that prevented transactional use. I think the primary friction is the opportunity cost of relinquishing something that is going, going up in, in value a lot. And we all know the story of Laszlo Hanyecz who, you know, spent ten thousand Bitcoin for two pizzas, and, and the regret any one of us would feel getting rid of ten thousand bitcoins for two pizzas. And so I think over the years people sort of realized, wait a second, why am I spending this? I mean If I have dollars around, why wouldn't I spend the dollars first? it's kind of like Gresham's Law, you get rid of the crappy money first and you keep the good money. so I think people have realized that Bitcoin is to be used for savings primarily, and this gets back to, you know, one of, I, I think one of the big influences that my article ha-had, and I think I'm most proud about, is really dispelling this idea that money has to be first and foremost a medium of exchange. I mean, it's, it may People coming into Bitcoin to sort of realize how big this narrative was, but from two thousand, I don't know, almost from the beginning to, to, to the block size war and the end of the block size war in two thousand and seventeen, there's a very powerful narrative that unless Bitcoin is a payment system or a medium of, of exchange, it's failed. And there was a, you know, a whole schism in the, the Bitcoin community, with the split of the network and the creation of B-Cash in, in August two thousand and seventeen And I argued for a long time, very passionately, that that was a, a failed vision and it couldn't, it simply couldn't work. And I, for the reason that money needs to be a store of value first. And there was an article in Bloomberg a couple years ago which talked about this and said, despite all the efforts, all the marketing efforts of, you know, some of Bitcoin's greatest stars like Roger Ver, Bitcoin Cash doesn't have much merchant adoption at all. And that made complete sense to me. Why would a merchant want to adopt something like Bitcoin Cash when the pool of savings isn't in Bitcoin Cash? The merchant wants to accept the savings of the population as income, and maybe one in ten thousand of their customers has any Bitcoin Cash, so why would they go to the, you know, extra, mental burden to have a, a payment system and figure out even what Bitcoin Cash is, just be-- to take one in ten thousand customers? It makes no sense at all. So, so- That, that was one of the things I was most proud about with the articles, shifting that narrative and also explaining the economics of the evolution of money. Most people, I think in, in the space at least, didn't really have a good conception of the evolution of money. They, they didn't have a good like, money can serve multiple purposes and how are these purposes linked to each other? Maybe they thought a little bit about unit of account, most people didn't talk very much about store of value at all in, in twenty seventeen and earlier. And if they did, they didn't understand how they were connected. They didn't understand that, you know, money starts off as a collectible, it's just something that people value value for its own intrinsic, like curiosity, like, you know, because gold is shiny, people might have picked it up and said, "Oh, this is cool, I wanna hold it because of that." And then it slowly becomes a store of value, and eventually, once it's plateaued in its purchasing power, it becomes suitable as a medium of exchange because the, the opportunity cost of relinquishing it drops because most people have some savings in it, and eventually, it becomes a unit of account. That evolution, of money, that aspect of, of my art article in my book, I think a lot of people didn't understand that, but I think now it, it's much more widely understood, and I think most people now, when they talk about Bitcoin, the narrative is m- the, the dominant narrative is much more about Bitcoin being a store of value. I get it, it's a store of value, or it's becoming a store of value. They don't say, "Well, Bitcoin, I can't buy my coffee with Bitcoin." Like that, that argument has largely, disappeared. there was one other thing, and About this a little bit. What, the other influence I think my article had was the monetary premium idea. The idea that all monies have this thing which is a monetary premium, which is an excess price over what could be justified by its use demand alone, and that's what really distinguishes money from other goods which have utility, like oil or wheat, where most of their price, almost all of their price, can be explained by their utility. Money is very spe- special, and, and the reason it has this premium is because people value it for the functions of money that it provides society that we really need, right? We really need the function of a store of value, we really need the function of a medium of exchange, we really need the function of a unit of account. A-and, and I think the, the importance of that insight i-is that money doesn't get its value from its utility, you know, its, use cases, it gets its value from its monetary premium, which is really- Contra what someone like Peter Schiff thinks, he's very confused on this, where he'll say, "Gold is valuable because you can use it," and Bitcoin has-- Bitcoin can't store value because there's nothing to store, you can't do anything with it. He's really misunderstood why money has value, and he un-misunderstands the idea of the monetary premium. He thinks the monetary premium comes from the fact that people use gold in their teeth or whatever, but the, the, the truth is that most- Gold doesn't do anything, it sits as bars, sitting still in vaults in banks around the world, and that is a reflection of gold's monetary premium. So those are a couple of the ideas, you know, getting back to my article and my book that I think were really misunderstood when it first came out, and, and I feel, you know, most proud of, to sort of correct and get people into what I think is a much, a, a narrative which is much closer to reality.

Back to the show in a moment. Have you thought about getting involved with Bitcoin mining? Compassmining.io are making it easy to do this. You can go to the website, select an ASIC mining machine, either a new one or a second-hand one, and it will show you the estimated online date for that machine, and you can have that online at a facility where you can get a competitive power rate, as opposed to the residential rates that many of us are getting. Now, you don't need advanced technical knowledge to get started. You can start easily. On Compass Mining, they can guide you along the way where you select for mining pool to have your hash rate pointed towards, and then you will receive sats. So go and sign up at compassmining dot io. And in Bitcoin mining, there's also Brains, brains dot com, that's Brains with two eyes. They are a Bitcoin company through and through. They were the first to support Taproot. They are really principled and always looking at ways to improve the Bitcoin protocol, and they are currently working and trying to drive adoption. On Stratum v2, which is the next generation pooled mining protocol. Also, they've got Brains OS Plus. This is firmware for your ASIC mining machine with auto-tuning features, so this can get you more bang for your buck as well. They also operate SlushPool, the first Bitcoin mining pool. They've mined over one point two five million bitcoins. Now, with Brains, they are also offering all sorts of educational content and dashboards, such as their Insights dashboard showing profitability. Calculators and blog posts on their website, so I highly recommend you go and check them out. It's brains dot com, that's brains with two i's. And finally, lend at hodl hodl. This is Bitcoin DeFi, this is a peer-to-peer Bitcoin-backed lending platform. You can lend or borrow stablecoins globally and anonymously using Bitcoin as collateral. So if you need a small amount of fiat short-term liquidity, you can put up some Bitcoin as collateral and borrow stablecoins against that, and you still hold one of three keys. In the ETH grow throughout that whole deal. On the other hand, if you have stablecoins, you can earn some extra interest. You can lend that out, and you are the one who defines the terms and the APR for those deals. So if you want to sign up, go to lend dot hodlholdl dot com. That's l e n d dot h o d l h o d l dot com. Back to the show. The monetary premium point is an interesting and important one because there are other people who, maybe not as well-read or perhaps they disagree, but their, their view is something like, "Oh, we need things to be productive, right? It needs to be a productive asset, right?" And they're not understanding that, say, Mises spoke about money as a sui generis good. It's unique. It's not a consumer good, nor a capital good. It's sui generis. It's its own special category. Now, there are different arguments even on here, point, I think someone like, Walter Block might have tried to make an argument that money itself is like a capital good and others, but, I think the broader point though is it doesn't have to be productive. What money does is it solves your future uncertainty, right? I might break my arm tomorrow and I need to go to the hospital and pay, or I need money to pay for that. So- I would actually go slight- slightly further

than you went, Stephan. I, I would say it's bad for money to be productive. I, it actually harms the functions of money A money that has a lot of utility is actually gonna be less useful as money, because its purchasing power is gonna move around for its non monetary uses. So wheat is actually pretty bad money, cows are bad money, because the demand for them is gonna shift for non monetary reasons, which you don't want money to do. so the more useful something is, the worse it is for money.

Interesting. And so then that might actually be, in some sense, an argument against trying to bring in other, additional, more expressive- Smart contracts into Bitcoin, or it might be an argument against, let's say, the argument of, let's say, timestamping or decentralized ID, to anchor into the Bitcoin blockchain. Although in practice, those uses will get priced out than just simply being able to hold Bitcoin. But theoretically, that-- if we take that to its conclusion, that means we don't want, quote unquote, smart contracts in Bitcoin, even though, to be clear, Bitcoin does have smart contracts, it has time locking and multi-signature, but the, the shitcoiner version of that.

I've made this argument with Ethereum as well. It's not so much that I've said smart contracts are completely useless or that they're bad, it's more that I've said that the, the price level-- a lot of people are confused with Ethereum. They think the price level is related to the usefulness of these contracts and the fact that Ethereum sort of flies around in these contracts that makes Ethereum's price go up. Ethereum's price is directly related to its reservation demand, which is people's desire to just hold Ethereum in reserve The contracts don't do anything, and the same, the same thing is true with Bitcoin. The price level is related to how much people wanna keep Bitcoin as their cash balance, which is reservation demand. so I, I think the, the contracts, it's fine to have them there, but it's, it's incorrect to focus on them as the causal reason for the price level that Bitcoin or Ethereum have.

Yeah, good way. That's a great explanation there. and so I guess let's turn it now You said you've got a, a second part coming. You got a, you got a bearish case for Bitcoin. So, tell us about this.

Yeah, well, you know, I think over the years, what we Bitcoiners really would have loved to see is, critics We, we don't ask that there aren't critics of Bitcoin, we just want a better caliber of critic. We want someone, we, we want someone who really understands Bitcoin deeply and understands the economics of Bitcoin and the pros and the cons. And i-i-it's not that I have, something new coming out, this is actually covered in my book. I have a whole section on real risks. A-and I thought it would be interesting because as Bitcoiners, I think we are in the best position to critique Bitcoin and to think- Think about, well, what are its weaknesses? What are the risks? What are the economic risks of holding Bitcoin? and I think what we could do is we could do like a mini bearish case for Bitcoin, and that's not to say that I'm a Bitcoin bear, I'm, I'm hugely bullish. If you, if you kind of looked at what my ownership position is, I'm a bull, I'm not, I'm not a bear. But I think it, it is helpful for us to play out, that experiment, be honest about the risks, a-and You know, when people come to Bitcoin, one of the first questions are what are the risks? And I think they are much more appreciative when you're honest about them. so, you know, I think it would be good to just chat about a couple of them with you, and I'd love to hear your opinion on these. These are ones that are in my, in my book, that I've talked about.

so I think custodial is probably a big one, right? Yeah. I think a lot of custodial use is probably the main, it's probably a

The risk has sort of come about because you now have these big institutions coming into Bitcoin, and a lot of them don't feel confident enough to, confident enough yet to, to manage their own keys. And so what they're doing is they're, they're sort of pushing the risk off onto someone else. And, and some of them are regulated as well, and, and reg-- they're doing this for regulated, regulatory reasons, where regulators are saying, "You need to keep your bitcoins with, a regulated custodian." and so- So there are custodians out there who have gone and sought, you know, a license from the government. That doesn't necessarily mean they're any better, right? It, it just means that they're, they're following the government's, rules and regulations, and that makes them, it, it allows them to get more business because of that. And Coinbase is an example of a regulated custodian that a lot of big institutions have put their bitcoins at, and Coinbase actually holds a very, very large fraction, I think a disturbingly large fraction fraction of the total supply of Bitcoin. The risk here with custodians is if you have a major, attack or compromise of one of these custodians where their, their keys are compromised, and it could be, it could even be an internal attack, right? You could have a Coinbase employee who goes rogue, and figures out their internal systems and, and breaks it and steals, I don't know, a hundred million or a billion dollars worth of Bitcoin, and, and, and poof, just like that, the institutional confidence In storing bitcoins is completely decimated. you could, you could see something like that cause a massive, massive drop in the price of Bitcoin because you'd have the big money, which really affects the price level a lot, if they all panic because they think, we don't have confidence anymore in our ability to safely store Bitcoin because it's a new asset where the storage problem is completely unique. It's, it's not like storing gold where, you know, that's a problem that's been- Been understood for many thousands of years, you put a lot of heavily armed people around the gold, and it's in one location, and it can only be attacked by people going to that location. With Bitcoin, it can be attacked from People anywhere on Earth, right? the Mount Gox heist, heist happened by a Russian hacker attacking a Japanese exchange. So Bitcoin exchanges are vulnerable no matter where they are, and they face attackers from people all around the world. So I think if there was a major custodian that faced a significant attack and a significant loss of funds, that would cause a massive loss in confidence in Bitcoin as a currency, 'cause people would say, "Well, how do you even own this thing safely?" And I think a drop in price, a significant drop in price, has a long term effect because monetary goods, this is another thing I talk about in my book, is they're path dependent. People's confidence in them is, is really largely based on looking at past prices. And as the price is going up, people become more confident, and when you have a crash, people's view of the, the, the money is that, oh, that was all irrational, this doesn't make sense, maybe this thing is completely dead. so people's confidence in- The money can be associated with past, past price movements, and if you had a massive crash because of, you know, a failure at a custodian, it could be many years before confidence was recovered. And I think about, you know, we, we talked a little bit about two thousand and fourteen, perhaps that was before the show started, but there was a long winter You know, to end of two thousand thirteen, all the way to maybe the end of two thousand sixteen, where it, it seemed like Bitcoin could be dead, and people's sort of confidence in Bitcoin had really been shattered by that crash. So I would say that those two things in combination, the path dependent nature of money and how people's confidence can be affected by a price crash, and confidence being lost by a custodian being compromised, could cause a very long term- Could cause long term damage to, to confi-confidence in Bitcoin. I will say though, on, on the opposite side of that coin, practices in the space related to security have improved so much, and the technology around securing Bitcoin has improved so much since, two thousand and thirteen and fourteen. I mean, Mark Kappelis was a complete bumbling fool, and he was controlling hundreds of thousands of bitcoins, and, you know, his key management was terrible embarassingly bad. I think if you looked at places like Coinbase now, their key management is probably very, very sophisticated. so I, I think this is a, a relatively small risk, but you have to account for it, you have to think about it, and if it did happen, you have to sort of recognize that it would be a huge blow to confidence in Bitcoin.

Yeah, right. And so certainly it's important that, the-- I think the self-custody culture is, Staying strong so that people are helping, decentralize the system and avoid, and sort of protect the system against that kind of risk. And also related is the rehypothecation one also. Let's say someday there's all these banks and everyone's just operating with these paper IOUs, is that an opportunity for capture of the system?

Yeah, absolutely. And this is actually one of the, the big failures that occurred in the two thousand and eight financial crisis is that you had all these banks Passing around these collateral assets and thinking that they were worth a certain amount, they were all rated triple A, and at the moment when it became clear, that they weren't worth what they were said they were and they weren't really triple A, mortgage bonds, they were actually, you know, C or, or basically they would all default Every, the, the whole system froze up instantly, and you had a very steep drop in prices because liquidity dis-disappeared from the system. And you could imagine the same thing happening in Bitcoin, where you have a bunch of these financial players rehypothecating and making loans, and a bunch of the loans are bad, and the loans are just circulating around in the system, and then one of the players realizes that the loan is bad and that they can't collect it back, and then that causes a freeze in the system, and everyone says, "Well, Well, we can't get the collateral back, so we need to cover our losses. How do we cover our losses? We sell Bitcoin. We sell Bitcoin, the price goes down. That makes losses bigger in other places, and everyone starts selling at the same time, and you have a liquidity crisis, and Bitcoin just collapses in price. Now, one thing which makes that even scarier with Bitcoin is it's not a bond. It doesn't have cash flow, so there's no inherent, you know, utility flaw from cash flow. It could drop A gigantic amount if there's a liquidity crisis because of, you know, excessive rehypothecation. The, the one thing I think that helps a little bit in the Bitcoin space is it's closer to a free market. the bigger problem that happened in the financial sector with the housing crisis was that you had these rating agencies that were created by the government, which had all of this power and which everyone trusted, saying certain, mortgages were triple A when they clearly weren't triple A. I think there's less likelihood in the Bitcoin space of bad loans circulating that way and being treated really, really well, but that again is a risk and it's something that people who are investing in Bitcoin should think about. The financialization of Bitcoin that's happening, where players like BlockFi are allowing you to collect interest and, they're, they're taking your Bitcoin and give you interest, but they're lending it to someone else, that produces a risk in the system, a systemic risk that could hurt the price Price of Bitcoin if there's a liquidity crisis and the loans in the system are really bad.

So on rehypothecation, I think this is probably the point that the likes of Caitlin Long or someone like Trace Mayer might speak about that as well and talk about, okay, and that's why Trace Mayer used to do that whole proof of keys, campaign. And so I guess part of the idea there is that because more and more people were self-custodying, then they would try to stop that kind of risk. But I guess also the other point is that un- Under those kinds of circumstances, if there are a lot of companies trading around with IOU tokens of Bitcoin but not real Bitcoin, then-- and if they were in the kinds of positions where they had-- they were now short Bitcoin because they just realized they actually didn't hold the correct amount, amount of Bitcoin, because their IOUs weren't true, then those people who are holding Bitcoin benefit because now they're running to try and cover their short or, in some cases, go bankrupt, right? So I guess that's kind of- Like in, in certain scenarios, it could actually be good for the whole-- if you hold your Bitcoin in your hardware wallet or in your multisig, that could be a benefit for you.

Yeah, absolutely, and that's actually what happened with bank runs in the nineteenth century. If you were holding physical gold, you could benefit 'cause there was a huge demand to get the physical gold, because bank-- the, the amount of paper out there was, you know, way more than the gold that it represented, so people were desperately trying to get the physical gold to, to sort of- match the paper claims that were floating around. So yeah, yeah, yeah, that's a, that's a good point for sure.

Yeah, but of course, depends on how the thing goes, and of course, it, it matters for the hodler that are you holding your own keys, of course, as we say, not your keys, not your coins. and so there's also, you mentioned the Gox supply, is there a po-- are there potential overhang issues, right? Like if somehow, I, I mean, we don't know if Satoshi is dead or

all gonna hit the market at once and tank this thing, and as you mentioned earlier, the path dependence. What do you think there?

Yeah, so the biggest theoretical overhang is the one you mentioned, which is Satoshi, who mined probably a million bitcoins, but I think that one's very, very unlikely. Anyone who is able to hold Bitcoin to the point where they're worth tens of billions of dollars and those bitcoins have never moved, I think we should safely assume that person is either dead or they destroyed the keys or, or they have the, the greatest willpower in, in- In human history, which I think is very, perhaps, you know, unlikely. So I, I don't think that supply overhang is really too much of a concern, but the ma-the Mount Gox trust overhang is an active supply overhang, which is gonna be distributed in the next few years. And so the backstory is, the dominant exchange in, two thousand, like, maybe two thousand ten or eleven to two thousand thirteen was Mount Gox, a J-Japan based exchange run by a French guy. Guy called Mark Capellas, and, and he was incredibly incompetent. He'd never done anything like this before. He just slapped it together. To be fair, he, he bought the exchange from, I think it's Jed Mcaleb?

Jed Mcaleb, I think. Yeah. Jed,

Jed Mcaleb, and, and he, the, the exchange when Mark Capellas bought it was already insolvent. it, it had more obligations than the Bitcoin it actually held. and, and Jed really didn't know what he was doing either. so What happened is the exchange ultimately collapsed and people who had bitcoins on there weren't able to access them anymore, and the whole thing went into receivership and Carpelus went to jail for a while. And so the bitcoins that were left at the Mt. Gox exchange were held by a trust, and this trust is responsible for distributing the bitcoins, and the whole thing was complicated by court cases against the trust and people claiming that they actually, one of the, there was a guy who had a deal with Mount Gox, Peter Viscines, who was- Viscines,

yeah.

Viscines, who was, saying actually I had a deal, you know, to, an exchange partnership with them, so they, a lot of those bitcoins belonged to me. And so they, they, they had to untangle all of this and it took many, many years, and a lot of people actually gave up on their claims. They had claims to bitcoins on Mount Gox and they sold them to other people for pennies on the dollar because they thought, "I'm never gonna get

dollar, and sell my claim to some company, and that company can hold out and see if they can get the full Bitcoin. but it looks like the trust is finally gonna be distributing the bitcoins that it has, and I think the supply it has is somewhere in the order of a hundred to a hundred and fifty thousand bitcoins. Now, that's a very substantial supply overhang that if someone were to, you know, go to an order book at some exchange and do market sell with those bitcoins, the price of Bitcoin would drop eighty- Percent, of course, that's not how you would sell such a large block. You would go and look for large buyers and try and do an over-the-counter deal. But the question is, can the market absorb such a large supply shock? And of course, the answer is yes, it can, but at what price? What price can it absorb that? And it could be that the price that it absorbs that amount of Bitcoin is five thousand dollars per Bitcoin. Maybe, I don't, I'm not saying that's true, but it could be the case that, the supply and demand curves for that amount of supply overhang meet at that price level, because when you have a big supply overhang, it seems really scary, but any amount of supply can be absorbed if you reduce the price, right? Because then the, the purchasing power of that drops enough that there's someone out there who can say, "Yo, I'll take the whole thing." at five thousand dollars, Saylor might say, "Gimme the whole lot, gimme a hundred and fifty thousand bitcoins, my co-my corporation can get a loan and buy the whole So the question is, where, what does the demand curve look like? We don't know, and that's scary, it's really scary to think about that. we'll find out over the next year, how, how that supply overhang affects the market price. The positive side might be that the people who are receiving those bitcoins might be holders now. They might say, "Well, you know, I've seen what Bitcoin's-- I've had to wait all of these long years to get these bitcoins, but I've actually seen what it does over time, so maybe now I'm Hold, the negative side of that is maybe they're like, "We've waited this long, we wanna cash out. we bought, we bought these claims for Bitcoin for ten cents on the dollar, we're running some hedge fund, and we wanna show a profit to our clients, we're just gonna flip this as soon as we get it." and this is an open question, I think it's definitely a scary question, and I think, the bearish case would be the market can only absorb this overhang at a much lower price level for Bitcoin.

Yeah dynamics there, because there might be some users or holders who are like, "Yeah, I'm a die-hard hodler, I'm..." Why would I cash out? I'm holding Bitcoin is cashing out, you know? That, they might be in that mindset, and then other people are more fiat-denominated and they're thinking, "No, I, I gotta show some fiat gain for my investors or whatever." But also, you know, the likes of MicroStrategy, they've got maybe a hundred and twenty thousand bitcoins or something like that, so, you know, there might be big corporate Matters, right? So let's say, you know, we're in a bit of a dip now, and then maybe next year the big euphoria happens and all these companies and corporations are buying it up, buying it up, buying it up, and then the coins come released, well, it'll get bought up by all these companies. But if let's say The coins, the Mount Gox overhang, supply overhang coins come out before that, then maybe we get another, you know, twenty fourteen, fifteen, sixteen bear market.

Well, I think, you know, I think a good case can be made that the Mount Gox trust may have triggered the two thousand and seventeen bear market, the end of, or the end of the bull market, I think some people have argued, because the, the thing is the trust has, it had both Bitcoin obligations, people had Bitcoins, deposited at Mount Gox, but they also had dollars deposited at Mount Gox, and so Gox had to, create enough dollars that they could match all of the dollar claims that they needed to make, a-and I think it's been- Argued pretty convincingly that they sold pretty heavily into the, the, the mania of the, the parabolic phase of, of the end of the bull market, and they potentially could do that. That's the perfect time if you wanna unload supply is the mania phase of any bull market, because you have this massive demand and you can just dump into it without moving the price too much. You don't wanna do the dumping in a bear market because there's so little liquidity, you can't squeeze this massive amount of supply Supply through this small, tiny window of demand, but when the window of demand is huge, you can squeeze a huge amount of supply. so you mentioned MicroStrategy, just want to comment on that. The average price of those hundred and twenty thousand bitcoins that they purchased is, I think, about thirty thousand dollars. Yeah. Michael, Michael's sales kept updated. So you could, you could even use that as kind of a yardstick and say, well, the Gox supply overhang is about the same size, and, and MicroStrategy accumulated that much at twenty-nine thousand Or thirty thousand. So maybe that's the clearing price, which would be a big drop, right? That would be kind of, make a lot of people feel-- it would be stomach churning and make them feel sick, but that's a possibility, and we have to acknowledge it.

Yeah, I mean, the way I think about it is, I guess- I'm, I'm, I, I was a, I was a new coiner in twenty thirteen, so I've lived through multiple eighty percent drawdowns, so I sort of live on that idea that, hey, there could be an eighty percent drawdown. So if we're fifty K now, it, it could go to ten K. I mean, I don't know, like, maybe I'm overly, but I guess that's maybe that's like the PTSD of, prior cycles coming to us there. But I am also curious as well because I think we are going to More people coming in institutionally as well. So for example, they want exposure in other ways. They are buying the likes of the publicly listed Bitcoin miners, right, Hight Eight, Riot, Marathon, and so on. they are looking, and potentially now there's a new Bitcoin bond, right, El Salvador, there might be all these people who are currently stuck paying, stuck in a negative yielding bond, and they might think, well, hey, I want a six point five percent coupon, I would like a Bitcoin dividend with the Bitcoin bond. Do you have any thoughts? On that.

yeah, I think the Bitcoin bond is interesting. I think Nick Carter had a good comment on the, the Bitcoin bond that you can get the same exposure synthetically just by buying El Salvador's bonds directly, their non-Bitcoin bonds, plus buying Bitcoin. And so the, it's kind of, it's a little bit of a gimmick, the, the, the Bitcoin bond is a little bit of a gimmick. but yeah, I think, you know, the macro environment that we live in where government bonds have negative yield is certainly a big- driver for people to, to own something like Bitcoin. Bitcoin, a-a-this actually is a good segue to the next big risk that I think we should talk about. Bitcoin and most monetary goods like gold and Bitcoin, that don't produce a yield, do best in negative interest rate environments, when the y-the real yield is negative, which means that you are losing value by holding fiat money. You're literally losing purchasing power, either Directly in nominal terms, where you give a loan, to the government and you give them a hundred dollars and after three years, they give you ninety dollars back, which is absolutely crazy. I mean, that when, when you have, you know, negative interest rates that, that are that high in magnitude, people start hiding money under the mattress because it's better to hold cash. but so negative interest rates are, are, are great for Bitcoin and we, we kind of live in a, in a period of- Negative interest rates, but I think a big risk that we need to consider for Bitcoin and another bearish case for Bitcoin is Bitcoin is now a macro asset. It has reached macro scale, it's a trillion dollar asset, and I think it's vulnerable to Federal Reserve policy changes. If the Federal Reserve t-meaningfully tightens monetary policy, I think, and I think this is actually already happening I think that could have a big impact on the price. Some people are saying right now, "Well, there's all this inflation around, why did Bitcoin drop?" And, and my answer to that is that markets aren't present looking, they're future looking. They're trying to anticipate what's happening in the future, and I think markets are actually starting to price in the possibility that the Fed is gonna tighten monetary policy. a-and if the Fed did tighten monetary policy, it would have the same effect that it did on gold in, in the early '80s. Because during the '70s there was a long period of inflation, a decade of inflation, and then Paul Volcker came around and said, "We have to end this. We-- this is gonna result in a crisis of confidence in the dollar." And, and he, raised interest rates to an unprecedented level of twenty percent short term interest rates. So you put your money in the bank, you get twenty percent back, And, and this is when monetary goods like gold and Bitcoin would do poorly, because if there's a real yield, an actual, you know, yield where you're getting more purchasing power of time just by holding money in the bank, you're gonna take it out of something like gold, which doesn't have any yield, it doesn't produce cash flow, and you're gonna go put it in the bank. This is what sucked all of the power out of gold and ended the bull market in gold, in the early '80s. The Federal Reserve has that theoretical power, and because- Bitcoin is a macro asset now. If the Fed came out and said we're putting interest rates to five percent now, I think it would be a devastating blow to Bitcoin. Now, on the positive side of that, I think the US Federal Reserve is-- has painted themselves into a corner. They're in a much, much more difficult position today than they were in 1980 when Paul Volcker did this. In 1980, the US debt position was only forty percent of GDP. Today, the US debt position and the debt position countries across the world is over a hundred percent of GDP. If the Federal Reserve were to meaningfully increase interest rates, they could make the US debt unserviceable. That means the US government couldn't pay its debt, and if you look at the US budget and you look at the fraction of the budget that goes to the military and to Social Security and interest payments, the interest payments is a big chunk. It's a really big chunk, and if interest rates, you know, doubled or tripled that That chunk gets really, really big, and so the US is trying to service its debt, and then it wouldn't be able to service its debt because the, the Federal Reserve had increased interest rates. That is the, the one thing I think saves us and, and really makes it unlikely the Federal Reserve is gonna, raise interest rates a lot. But in the case that Bitcoin was starting to monetize very rapidly and they got afraid, there is that possibility. So that is another major bear- A bearish case for Bitcoin is the Federal Reserve has the power to attack the price level of Bitcoin by raising interest rates.

Yeah. So it's essentially, it's true to say that a lot of the, like, stock market run up and things like that, a lot of that has actually been driven by very easy monetary policy, right? Like, people have done those charts showing like M2 money supply growth and like stock market going up and things. And so that's been also one of the arguments of like, "Oh, see, Bitcoin is becoming just another macro asset, therefore, you know, why And so on. Although of course, I think you could still argue that Bitcoin's returns are still just so much greater, and so I guess that's also one other aspect. And obviously, it's, it's its own system. It's, you're create-- we're creating this whole parallel alternative system that you can use. So that's probably one way to summarize some of that. And but, look, at the end of the day, I think the chances that they're gonna stop-- that they're going to stop printing, I think that's extremely, extremely low, right?

I, I think we should be, somewhat cautious about the next six months. I think there is such a strong public sentiment now around inflation that there's political pressure on the Federal Reserve. The first thing that they're gonna do is not actually tighten, they're gonna jawbone. This is how the Federal Reserve often does things. They're trying to bring the market back and sort of control inflation by saying, "We will tighten, you watch us, we'll tighten, we'll really come for you with these higher interest rates." And sometimes that works because perceptions in markets can have a big impact, and if people think, "Oh, that's gonna happen," that changes the bond market, changes prices, and that has flow on effects into the economy. but I, you know, I, I am not entirely sure. I think there is a decent chance that the Federal Reserve does a token interest rate hike in the next six months. If they do, even a token interest rate hike, I think, will have a big impact on a number of macro assets, not just Bitcoin. Bitcoin will, I think, have a big impact on the stock market, a massive impact on gold, and I think Bitcoin will be caught up in this, in, in, in the sort of way that Bitcoin was caught up in the macro environment when the COVID pandemic happened. There was just a general worldwide liquidity crisis, and everything collapsed. I think if the Federal Reserve tightens, and I think there's a decent chance they do, it's possible that we'll have, you know, a similar effect. I do think though that the Federal Reserve will have to unwind Whatever it does, because I think what they'll do is they, they've spent the last decade inflating the biggest bubble that we've ever seen to try and get out of the last bubble. If they, you know, if they get a pin and prick the bubble, and it, it's not gonna explode in an orderly fashion, it's just gonna explode all at once, and it's gonna be really messy, and I think what they'll do is they'll panic and sort of rewind their course and go back to massive monetary printing to try and keep the bubble from fully collapsing. So I think long-term this is gonna be bullish for Bitcoin, but I think short term we should be very wary of major movements in Bitcoin's price because of the Federal Reserve.

Right. So they could try something in the short term, then see it tanks the market, and then all of a sudden say, "Oh no, no, no, no, guys, it's alright, come back, we'll lower the rates again, please come back." Like, you could imagine that kind of scenario. and I guess that's the other one as well, the idea, and people talk about this often, Banning mining was, in some sense, an attack on the network, and Bitcoin came through with flying colors, right? So as I recall, I think it was June or July, China banned mining, and then as of probably a few days ago, so as we speak, it's fifteenth of December twenty twenty-one, Bitcoin mining hash rate came back up to around a hundred and eighty exa hash and basically is now back at all-time highs, so or close to. So what's your thought there on the risks around a concerted state attack? How, how much of a risk do you think

The most important risk to consider for the long term. I mean, the other risks, some of them are kind of short term that we've been talking about, but state attack, I think, is a real risk and everyone should, take it seriously. I think the idea that Bitcoin is inevitable is a little bit naive. states are incredibly violent and powerful, and if anything has been proven over the last, you know, two years, is that the state can get the, the masses of people to do absolutely crazy things that we would never- Never have expected in Western, sort of liberal societies, and I mean liberal in the classical sense, you know, valuing freedom, I don't think we've seen a concerted state attack. I think we've seen indirect attacks. I think that the Chinese mining ban isn't what I would consider a concerted global attack on Bitcoin. I think if Bitcoin really were beginning to monetize very quickly, if it, say, got to the capitalization of gold and was looking like it was gonna double, that would- That would be very, very scary for nation states. That would be at the point where they're starting to say, "We might lose control of monetary policy because of this." I think that's when you'd see a concerted state attack, which could include a number of things like Banning exchanges, banning the ability to buy Bitcoin, banning the, even the ability to own Bitcoin or transact Bitcoin, perhaps trying to attack the mining facilities. That's, that's a vulnerability of Bitcoin is that mining is physically concentrated in a location or multiple locations. Those are centers for attack, those are places you can go to. I mean, the network itself is kind of this, digital, ethereal thing that you can't touch or poke, but the miners- The physical and that those are the places where governments could go and say, "We're, we're confiscating all of this, you're all going to jail." I, you know, I, I think whether or not that happens really depends on whether Bitcoin gets enough political capture. We need Bitcoin to get, we need to have enough people in, inside the state who have a strong incentive to defend Bitcoin, and we're not there yet. I don't think we're even close. We have positive signs that that's happening and we're getting- A growing base of politicians who are pro Bitcoin, at least in the Western countries, and especially in America. But we're not at the point where we can say confidently, "Oh yeah, we have this huge majority in the US Congress, there's no way they would ever be able to ban Bitcoin." I think the entrenched interests, the banking interests, still have far more power than the Bitcoin interests. so it's a race, I think we're, what we're- We're seeing is a race to get enough political capture that it becomes infeasible, politically infeasible to shut Bitcoin down, and I'm cautiously optimistic about that personally, but I, I don't sort of have a sense of inevitability. I think the real battle will come when Bitcoin surpasses gold in market capitalization, on an upswing. That is the moment when I think central bankers around the world and the, the establishment and the elite will get together in a serious way and say What do we do to stop this? That's when the test, the real test for Bitcoin comes. Can it survive a concerted state attack? It's an open question. I'm, I'm hopeful, cautiously optimistic. We need Bitcoin, we need-- it's our, it's our one true hope for human liberty. But there are so many times in history when, human liberty has been stamped out by, by governments that we, we, we just can't rule that positi- possibility out.

Right. And as you rightly say, I mean- I mean, the craziness of the last few years, you would have thought, I mean, there were many times where someone would have said, "Oh, they won't mandate this or require that," there'd be riots in the streets. And maybe there have been some protests, but maybe not at the, quite the level that we thought. Like maybe the population has become docile in certain ways. And so it is important, as you say, to build support, and that can apply at multiple levels, right? That could be at the individual level of having lots of people who represent maybe their vote or Their money, that like what aspects they might be doing, then the, like if you are winning politicians over into, like, as in sitting politicians into the Bitcoin interest, as it were, then I think those are all things that as you grow that base, then the risk of this concerted state attack diminishes.

Yeah, yep. I, I think there's another risk as well, this is a, a lesser risk, but I think it's worth mentioning, is people losing confidence in Bitcoin Because they've put so much faith in a model o-of what Bitcoin should do price-wise, and this isn't a criticism of Plan B in particular, but there's a lot of people who've been sort of following, stock to flow model and really sort of taking it as a crystal ball for the future. I've always been skeptical of models in general, i-think historically it's been very interesting that it's followed that model pretty well and it- It's worthy of comment and trying to understand why that's the case, but I've always been skeptical of putting too much faith. I've always thought the best bullish case for Bitcoin is to look at, at its comparative advantages as money and to see that those comparative advantages will bring, people to Bitcoin at the margin. How fast that happens, I don't know. but I, I, I worry a little bit that, you know, recently it looks like Bitcoin's price might not be following the model exactly the stock to- Flow model, and that people because of that are just gonna give up and say, "Well, this is the end of the game, I'm outta here, I'm not interested in Bitcoin anymore because the model's broken and now I can't expect to have huge gains in the future." I think that's really a, a bad way to look at it because for me, I don't know what Bitcoin's gonna do in the short term, and, and sometimes I feel like I'm bearish on the price, although this never causes me to sell, I'm bearish on the price in At least a fifty percent chance it becomes the reserve currency of the world. If it becomes the reserve currency of the world, it's at least a hundred x. And if anyone gave you those odds at a casino, like there's a fifty-fifty shot to make a hundred times your money, you would always, always, always take that bet. And so you should, I think, hold Bitcoin because it, it is the best risk-reward trade-off that, that you could imagine. so I, I remain very, very bullish on Bitcoin because Of that, but I worry that people around me and people who have just come to the community have come to it because they think it's easy to predict the price and, oh, wow, I can look at this model and it tells me I'm gonna make three or four x my money in three months, and, oh, I didn't, so I'm out of here. That, that's what I really, I, I, I have a lot of concern about that.

I see, yeah, and some of that is just human nature, people are chasing, like, I think people are

So it's kind of, it takes time to actually build and come to that long-term bullish perspective of like, you know what, even if the price is going down, I'm still bullish long-term. And that's, that's hard, and I think that's also part of the educational journey that obviously you're trying to help, I'm trying to help with that, a bunch of us are all trying to put this material out there to, I guess, give lessons from the past and as well as our theory about what we believe is happening in the future. So, probably a good spot to To wrap up here, Vijay, but if you've got any tips for people out there on how to, you know, weather the cycles and steel themselves, and of course, where can they get the book?

Yeah, so I, I think the best way to weather the cycles is to say, "I wanna have some of my savings in Bitcoin, but I'm gonna view it as a, you know, a long term investment. I'm, I'm willing to hold my Bitcoin for four years to ten years. And I think if you're willing to do that, I think you're gonna level you'll do really, really well. people in general with technology, tend to overestimate how important the technology is in the short term, but they really underestimate how important it is in the long term. And you see that with the internet, we had the crazy bubble in two thousand and it crashed, and people thought, "Oh, this is the most important thing ever," and it didn't happen, it didn't seem to be that important, so they, there was this huge despair, and they're like, "Oh, this, okay, maybe the internet isn't really big at important than the fax machine. But in the long term, i-it's way more important than anyone imagined. It's transformed everything, it's gotten into every single sector. I think the same thing is gonna be true of Bitcoin. There's gonna be too much hype in the short term, and then people are gonna be disappointed, be like, "Ah, this isn't that useful." But give it the timescale of a decade, and I think it's gonna be one of the most important things that has ever been created on the level of the internet. so, you know, that, that, Long term, take some of your savings that you're willing to, you know, you can handle the volatility of the fifty or even eighty percent swings, and just put it away to the side, and I think you'll be very happy in ten years, just as you would if you bought Apple or Google and held it for ten years. Regarding my book, you can get it on Amazon, you can get it on other retailers like, at other retailers like Barnes and Noble, but most people are probably gonna get it from somewhere like Amazon.

Fantastic. Vijay, it was a pleasure chatting with you again

I can't wait, it's gonna be awesome.

I hope you enjoyed the show, make sure you share it with your family and friends so they can learn about Bitcoin, and you can find me at stephanlivera dot com. Thanks for listening, and I'll see you in the citadels.