Bitcoin Heroes, Villains, Survival, and Capitulation

Welcome to the Stephan Livera podcast.

Hey guys, it's your host Stephan Livera, and today my guest is Dan Held. Dan is the co-founder of Interchange HQ and Pixco, and formerly he used to work at Uber, and he has been around in Bitcoin for a long time. He previously worked with Change Tip, Blockchain, and he was the co-founder of of Zero Block, which was later acquired by Blockchain. So Dan's been around in the space for something like six years or something, and very recently he's been very prolific with some articles, so obviously I had to get him on. Welcome on, Dan. Thanks for having me. So I, I've been really impressed by some of the articles that you've been writing, and also you've done some podcast appearances on some of my, you know, colleague, Bitcoin podcasters, such as, Noted Podcast with Pierre and Michael, and also, Bottom Shelf Bitcoin and And, Vortex as well from the CryptoCast network. So, yeah, I thought it would be f-fascinating to maybe launch into a bit of a discussion around, you know, just because you've been around in Bitcoin for some time, let's talk a little bit about some of the narratives that were in play in that time around sort of two thousand and twelve, two thousand and thirteen versus what people are selling now as the narrative.

Yeah, that's a great place to start. you know, I've been in this space for almost six years, I've, I've survived this long. I haven't gotten, super mega wrecked yet, so that was, that's been nice. no mount gox funds. you know, I didn't send my Bitcoin to the wrong address, so, yeah, I've, I've survived this long. but yeah, back in twenty twelve, twenty thirteen, you know, I think the community back then was, primarily comprised of, of essentially libertarians. these would be the libertarian types who would either be gold bugs or, they might own a few guns, and, you know, they were very kind of focused on being fiercely independent and that That fierce independence was really important because that, that was about freedom, it's about the freedom to, to, to transact, to store your money in whatever you wanted to, and, and you didn't have to ask anyone permission. And so, you know, we, we've definitely seen kind of an ebb and flow of, of narratives over time, but that's where I think kind of early on in the Bitcoin community, the narrative of store of value was so strong, is that it, it really resonated with these libertarian types who were, you know, the types, like I said, to buy gold and, and kind of be a little bit wary of the government. And, we've definitely seen that narrative in like twenty fourteen, twenty, late twenty thirteen, twenty fourteen, kind of shift to Exchange narrative as different businesses raised money on the premise that Bitcoin was good for payments, and, that, that's where I think we really saw that, that narrative around You know, oh, Bitcoin being useful because we're paying for socks with it. that's, I think that's when it really started to trend as different VC backed companies tried to figure out, hey, how do we increase usage of our mobile product or our desktop product, and how do we, how do we take a fee or how do we take a commission on activity on the network? hodling doesn't give you that much revenue generation because it's a one and done sort of thing.

Yeah, I, I, I think that's a great answer, and it's just interesting to see the way that some people have tried to almost assert that now You know, oh, you guys are trying to change it back to being store of value because you failed at being a medium of exchange. but I think actually if you look back at really in those early days when some of the earliest people around 2011, 2012 were getting involved In their mind, it really was store of value.

Totally, and, and if you look at some of the early, you know, this is what's funny is that, you know, people look at the white paper and they're like, "Oh, you know, oh my God, there's one sentence that talks about-- " There's one sentence that talks about, you know, e-commerce and payments, and, "Well, well, yeah, of course. I mean, Satoshi's built-- spent a bunch of time building this. You know, he architected the DNA of Bitcoin as a, To be very, you know, Austrian school of economics, you know, deflationary money with the twenty-one million hard cap and all these other parameters, and then, you know, he, he spent all this time crafting it and then, and then, and planted that, that seed, planted that new species, right? You know, at the peak of despair. And, and then people look at the white paper, they're like, "Oh, well, look, he talks about payments here." And then they have a few other comments on, on Bitcoin Talk and other places where For Bitcoin, which would be like micropayments and, and, and things like that, and you, you look at it and you're like, okay, well, yeah, sure, because the cypherpunks are a group of cri- cryptographers who had talked about e- you know, electronic cash and, and talked about privacy, and he's essentially writing marketing materials for those, that, that core group that he's, that he's planting that seed, you know, he's planting the seed at the right season, it's the right, it's the right genetic makeup, and he White paper in that sort of merchant or e-commerce, use case was, he highlighted that as a potential use case for it because he's trying to resonate, you know, he's trying to have his message of Bitcoin resonate with this core group of people that are, that are gonna help build, like, they're gonna help him build it.

Fantastic answer, and I really liked your article series, where you talk about those four. So listeners, if you haven't already, go and check out Dan's series called Planting Bitcoin, and that, so that's a four-part article. It's got species, season, soil, and gardening. So fantastic, explanation there. And I think another question that you, you raised that in the early days, there were a lot of libertarians who were into Bitcoin, but what I find nowadays is that there are many libertarians who actually aren't Aren't that into Bitcoin. So my question to you, Dan, then, is, do you have any thoughts on, you know, why aren't some libertarians into Bitcoin?

I definitely think there's a generational gap here. you know, I'm, I'm a millennial. I'm I'm, yeah, I've been around for a little while, and, and when I first, when I was, first growing up, I had cassette tapes, you know, so I was part of the analog generation where everything was physical and not a lot of the world had moved into digital yet. And, you know, over time, I, I became a digital native. You know, the millennials are the first generation to be digitally native. And so I think when Bitcoin came around, our generation is most open to it, versus any other older generation. And so I see the gold bugs, you know, being primarily, you know, individuals that aren't millennials, maybe baby boomers, that really like the tangibility and the physical nature of gold. And their, their mental models, since they weren't digitally native, I think they struggle with the concept of, of something like Bitcoin. And, yeah, I think that, that would, I think greatest explain-- That, that's the best explanation I have for why there's such a discrepancy between libertarians and, and their, and their choice of a store of value.

Right, I see. And I also noticed that even just setting the generational gap and technological competence aspects aside, I have-- I'm curious to get your thoughts. One area that I perceive is some libertarians are kind of like political tragics, and they just, they just like being annoyed about how things are going the wrong way from a government point of view, that they don't really see the value in Actually using something like Bitcoin as a way to sort of restrict the role or the size of the government.

Yeah, I mean, that's, that's what Bitcoin's truest, you know, ultimate goal is here. Y-you know, people get too in the weeds of like, "Oh, how does it work?" And, and I don't see it being used for commerce, and, and you have to zoom out and go and look at, "Why was this architected?" And what does this mean if it accomplishes that goal of becoming the ultimate store of value, and that, that Removing the power of money from governments, you know, it's a separation of-- We had the separation of church and state, and now we have the separation of money and state, and that's incredibly powerful because it enables us to have a financial skin in the game vote when it comes to government policy around our money and around wars and around taxation. Whereas before we never really had that. We had a political vote, but those don't mean as much, the, the financial vote is much more powerful.

Yeah, excellent points there. And now, another- One thing you mentioned earlier that I'd like you to touch on is just you survived over this five or six years. What does it take to survive in Bitcoin?

It's, Oh man, I mean, one, and I think this is, and I'd like to, you know, I, I might be writing some content around this in the future, which is being convicted in your trade. And I think that's a core life skill to have for anything, whether that be your job or investments or relationships. You know, really being as, as rational as possible in choosing the right direction to go, and then when you go that direction, be convicted. You know, huddle because you, you entered this investment with a strong thesis. And if the thesis, if, if the thesis hasn't changed due to material reasons, then you continue to huddle. And I think it takes that really disciplined, really deep down core belief in order to survive. in addition to that, you know, I would say one is just, yeah, to, to survive this long, you have to be kind of paranoid. I, I never trusted Mount Cox. You know, you-- if you don't control your private key, you don't control your money. So I, I think that there's a healthy balance between custodial and non-custodial, where if the likelihood of you messing up your own self-custody solution is, is high, then you maybe you'd, maybe you'd keep your funds on Coinbase, but if you're super confident, you know, maybe you split up your funds between different cold storage, solutions and, and Coinbase or another custodial solution.

Fantastic answer on conviction and a little healthy dose of paranoia. You know, I think they are definitely essential for long-term success and survival in this industry. Now, speaking of kind of early narratives, another phenomenon that I notice, and I, you know, I'd love to get your thoughts on this, Dan, is this phenomenon of how early-day Bitcoin heroes sometimes become villains. Are we all doomed to live this out like some weird kind of Batman, you either die a hero or live long enough to start your own shitcoin?

Yeah, I think, you know, it's- It's funny because, you've got these, these quote-unquote heroes from, from way back in the day, for like Roger, the Roger Veer type, and, you know, I'm a little sad what, with what happened with Roger, because Roger's the one who actually reached out to me to buy my first product, ZeroBlock, and I've spent a bunch of time with Roger. And, you know, I think what happened with Roger, I'll use Roger as the example and then I'll zoom back out to kinda address the question more comprehensively. Ra- you know, Roger had gone around and he had been Bitcoin Jesus. He had given people free bitcoins and he had gone around and convinced restaurant owners to accept Bitcoin, and for him, his entire identity was wrapped up in these cheap payments. and so when, when the core protocol- When the co-core dev team and the rest of the community made a decision to preserve what had made Bitcoin great to begin with, which is this censorship resistance, being as decentralized as possible. But he had to s-that to make that decision, you had to sacrifice cheap payments. I think that really wrecked his mental model of, of what this all meant and what it meant to him and, and who, what his identity was. You know, as zooming back out a little bit I think, I think what, what, what happened is the heroes that became villains, those were typically the individuals who didn't fully understand Bitcoin. if you didn't grok what it was about, then you're going to be on the wrong side of history, and the community is going to not appreciate your perspective as much as they used to because now you're against their philosophy. And we've seen a, we've seen quite a few individuals maintain their status as heroes in the space. like for example, like Turtlemaster, he's still around. He was one of the, the first probably crypto economists that I've ever heard of in the space, and I, I believe that he was writing content About Bitcoin economics in twenty eleven, twenty twelve. So, you know, he, he's still around and, and I think the people that don't turn into villains are the ones, are the, the ones who have a, like a good moral compass and a good rational perspective on the world.

Yeah, I think it's very similar to that, I think it's a famous saying by, I think it's Warren Buffett, it's saying something like, "Only when the tide goes out do you discover who has been swimming naked." Totally. Okay, and then, so let's talk about some of the angles that they then go down. So some of them start their own altcoin, some of them become concerned trolls, for example, the twenty-one million, you know, hard cap, or they talk about things like fungibility, scalability. Do you wanna comment a little on those?

Yeah, the concerned trolling is a really annoying new phenomenon. I guess it probably always persisted, but seems to be becoming quite the pastime in this space, and was one of the reasons why I started writing this content because it's, You know, it, it's, it's intellectually dishonest most of the time because they don't attempt to come to their own understanding and, and instead, instead they espouse different concerns that could have been easily addressed if they had spent ten minutes reading up on the topic. You know, for example, let's see, we had, you said the twenty-one million hard cap, you know, that, that in particular is something that I'm gonna be addressing here soon. y-y-essentially people claim that the twenty-one million hard cap is a bug, not a feature, for two reasons. One is that deflation is bad, and the other reason is that The as the block reward, exponentially drops over time, that, miners won't be adequately, adequ- adequately compensated for their protection of the network, and so I've got two articles coming out that addresses both, both of those points. on the deflation side, the Bank of International Settlements did an analysis over a hundred and fifty years of financial history, over sixty different countries, and have found that deflation, deflationary spirals don't happen. so that was pretty profound, and that's one of the core, elements of research that I pull into my deflation article. In, in addition, I, I make a compelling case, or at least I think I make A compelling case that it's impossible to choose an inflation rate. simply put, because you can't ingest enough information in order to help you determine what that inflation rate should be. there's a good analogy that I like to use, which is the Fed is like an individual who's driving the car, which is the economy. And you're receiving little bits of information, so the, the whole-- the, you know, you're really using the rearview mirror to drive, 'cause you're using historical data, and you're not even seeing the entire picture, you're seeing bits and pieces of the picture. And then when you decide to steer the steering wheel, or press the brake, or press the gas, there's like a twenty-second delay. And so, I, I think- You know, for the deflationary side, that was what was the one of the most compelling reasons why I wanted to-- why, why I thought Bitcoin was interesting. in fact, it's, it's one of the greatest components of Bitcoin for a couple reasons. One By not choosing an inflation rate, Satoshi realized, "Hey, I, I can't, I don't know how to choose one." And he's actually quoted as to have saying, "You know, if we were to have trusted third parties, which he's being a little sarcastic in saying like, if we were able to trust external data, you know, put into the blockchain, maybe we could come up with an inflation rate, but essentially not choosing one is choosing one because the, the market decides what the proper deflation rate or the proper growth rate of the economy should be." And then the twenty-one million hard cap was created also to incentivize participation in the network, because as more and more users buy, the price goes up, they tell their friends, their friends buy in, and that causes the network to gather more users, makes the market cap go up, which also increases the amount of mining, or the hash rate, because the hash rate follows price. And that improves the security of the network, and because the network is larger, more robust, and has more users, then more developers want to build on the network. So the twenty-one million hard cap is a critical component for both the monetary policy and the incentivization of the network. And the idea that, you know, as, as the block subsidy drops over time, as like less and less bitcoins are printed, that the transaction fees alone won't power the network, I, I think is kind of silly because there's, there's two easy analogies we can make here. One is a quote from Yogi Berra where he says, "You know, no one goes there anymore, it's too crowded." And, and two would be with Jevons, with the, Jevons Paradox, as things become more efficient, they're used more often. So for example, with, a fuel economy for cars, as the fuel efficiency gets higher and higher, more and more miles are driven. So I see technologies like Lightning increasing on train transa-transactions, not decreasing them. And so- While transactions overall in aggregate, if you combine layer one, layer two, become far cheaper, layer one will likely have more and more transactions due to the network effect of having super- Fast, cheap transactions on layer two.

Yeah, I think I like the idea there that because Lightning increases the overall value of Bitcoin, it's-- we're actually gonna see more Lightning transactions and more Bitcoin transactions. So that's an interesting angle. Now, coming back to this whole idea of heroes and villains, do you wanna comment a little bit on the role of ego in Bitcoin?

Yeah, well, you know, I think the one thing we can depend upon is that humans will act like humans, and that's Bitcoin was designed precisely for that, in terms of how it incentivizes participants in the network. and when it comes to ego, I, I like I said before, you know, with the Roger Rivier example, for him, his entire identity was wrapped up in him being Bitcoin Jesus, and I think with a lot of other individuals in this space, they've been given- You know, Roger Ver included, given an, a, a ridiculous amount of, of sort of, people essentially believe them to be thought leaders and visionaries, and I find most to be mediocre at best, having like flawed mental models or Merely getting popular, I, I guess this is, this is the same in the mainstream markets as well, I guess. So no surprise there, but, you know, the hope was with, with Crypto, you've got, these are all transparent, open source, you know, data driven protocols. I guess I had a higher standard for what people might consider truth and rationality, but instead we've seen, almost complete opposite of that, where it's mainly meme or narrative driven thought processes where, you know, if you think rationally, people say, say you're fudding and that you don't, you're not being optimistic about the space. And I simply think if an idea can't survive a high amount of criticism, then it wasn't a good idea to begin, to, to begin with.

Fantastic thoughts. And I think that ties into the next t-topic that I was keen to discuss with you, is just this concept of Bitcoin as the apex predator, the one that can survive. Can you talk a little bit about, you know, and I know you've mentioned this in your articles, but if you could just give a brief overview on this idea of Bitcoin as the apex predator?

Yeah, so Satoshi, when he, when he genetically engineered Bitcoin, he took splices of DNA from a couple different other organisms that had never survived. They were on the operating table, but had never gone into the wild. And those organisms, those were, that was Beemoney, Hashcash, and BitGold. And he spliced some of that DNA together. To create Bitcoin. And the, the DNA that he spliced to create Bitcoin enabled Bitcoin to have certain traits, and those traits give it an incredible amount of, of survivability in, in, in, in kind of fierceness. It, you know, it makes it the apex predator of money. And some of that would be, you know, the essential properties of money like, fungibility, divisibility, durability. Those are all kind of the classic traits that money needs to have. But Bitcoin was encoded with even more powerful ones, twenty-one million hard cap. It had, decentralization and, you know, which means just not a centralized control mechanism. you had a clear, transparent, non-changing monetary policy too, and that was huge. Bitcoin's monetary policy hasn't changed in a decade. That's, that's very, very important.

Yeah, fascinating points. And then I think the next question then is, what would it take to topple Bitcoin?

Yeah, and, you know, I, I think about this every day, and if there's something that comes along that I think will topple Bitcoin, then I'll certainly invest in it. I, I, I consider myself a Bitcoin realist. I think Bitcoin has all the properties that I want from a sound money that's nuclear grade resistant, so that's why I like it. If something better comes along, great, I'd love to see it. And so I think to topple Bitcoin, you've gotta topple quite a few different things. One, you have to topple the genetic code, the traits that it has as money, then you have to replicate its initial, initial launch, which was about as fair as you could possibly do, and that's what I wrote up in Bitcoin's distribution was fair article. I mean, Satoshi took extraordinary steps in order to launch it fairly, and he chose to be anonymous. I'm, I'm using the pronoun he, by the way, 'cause that's what he chose on his P2P foundation profile, so I'm using the pronoun that he, he, he wanted. But, yeah, Satoshi was anonymous, the launch was as fair as he could have done, he's never touched his coins. You have the traits of it as a money that are really, really powerful. The network effects so far are massive in terms of hashing, exchanges, volume, users, and all of that kind of wraps up nicely together into something. It's called like the Lindy effect, which is the longer Bitcoin survives, the more people will believe that it'll survive, and the stronger network effect it gets, and it's this sort of snowball effect. And at this point, I'm not sure what could kill that snowball effect. I think the only thing you could do is delay it, but I'm not sure if you can really stop it.

Yeah, excellent. And then, just as a devil's advocate question, how about if someone hypothetically tried to recreate the Bitcoin or Satoshi origin? Story as best as they possibly could, but today, and then they tried some sort of gimmick to make their coin look, quote unquote, harder than Bitcoin.

That's pretty tough. I'm, I'm not sure how you'd go about doing that because I think Bitcoin's launch, and this is what I cover in Planting Bitcoin, was not only the, the species and the soil and the gardening techniques, it was timing too. It was the right season to plant that seed. It was at the peak of the financial crisis. You could imagine if you had published Bitcoin during You know, the, the internet bubble, it may or may not have gotten traction 'cause you're like, "Why do I need this thing? I've got a PayPal." so I, I think to replicate it again, and, and for a, a founder to stay anonymous would be really hard nowadays. still amazing that Satoshi did that considering he had no idea if it was gonna be worth anything. I mean, it didn't have value for a year and a half, and, to be that, that forward thinking is incredible, and then also that no one- De-anonymized him, definitely shows that he was a cypherpunk, by the way. I mean, that's clear evidence that he's a cryptographer and probably really understands security well. And, and privacy. But yeah, I, I'm not sure how you harder, how much harder you could make it, because it already has about as hard parameters as you can get to be sound money. so I'm, I'm really not sure if it, if it's possible.

Fantastic. And, and I, I agreed, absolutely. And the other thing is also the aspect of community around Bitcoin. So it's not just the code, but the community that sort of supports that hardness.

That's right. Yeah, it's the, the shared illusion that we all have together that Bitcoin's monetary policy is the correct one, and through that shared illusion, we, we kind of gather that network effect of strength in terms of us all being the hodlers and buyers of last resort. Bitcoin will never go to zero 'cause I'll buy as much Bitcoin as there is at a dollar. I will, I will take as many loans out as possible. So, you know, I think, and that's where the piece, the piece I wrote, "Hodlers Are the Revolutionaries." I, I really wanted to highlight such the, the immensely important role that hodling plays in Bitcoin. In fact, Satoshi highlights it as a critical role because the, the The holding, you know, the, the network doesn't have any value if no one values the network, and holders are the initial people that were willing to go, okay, yeah, sure, miners are mining, but they're mining and these coins aren't worth anything, and the holders go, well, maybe these coins are worth more than zero, and they start buying. And they buy and they hold, and then that, and then they tell their friends about it, and that creates the kind of inception of why Bitcoin as a network has any value, and that kicks off a really cool, exciting cycle. Where holders hold, price increases, they tell their friends, the friends buy in, the price increases, and that increases the number of miners out there and the number of developers.

Right. And now, then, similar, related to that question before, is what about if a government-- So there's a bit of chatter now about this concept of a CBDC, a central bank digital currency. What are your thoughts on whether a government, the possibility, or would they be successful or would they just fail if they tried to make a CBDC that was, quote-unquote, hard like Bitcoin?

Yeah, well, the reason why we believe that Bitcoin's hard cap will stay Stay at twenty-one million is because of the monetary policy continuity. It's that it's been the same for ten years, and even if you made a fixed supply in one of these fiat currencies, I don't trust that you're gonna keep it fixed. It's, both the parameter and the trust in that the parameter isn't gonna move. and people make that same excuse for Bitcoin, but the entirety of why everyone bought into Bitcoin is that it will stay fixed, so I don't see that changing because that community has fully bought into that. in addition, I don't think central banks will ever issue their own currency directly to consumers, because if you did, you would immediately be competitive with all your commercial banks. And if I'm a depositor, I'm gonna go deposit with the Fed, 'cause I, there's a lot less counterparty risk if I deposit with the Fed versus my local bank branch.

Yeah, much, much better choices that way. Alright, and so look, we're going through this, you know, quote unquote Bitcoin bear market. What do you think capitulation looks like?

That's a, that's a great question. And after living through two bear markets, I, this is my third one. So the first one was, mid 2013, when the price went from 10 to 260, back down to like 70, and then from 70 to 1200, and then back down to 185 or 180-ish. And so, yeah, this is my third cycle. The twenty fifteen, cold crypto winter was very, very cold. you know, I think capitulation there is, is, I, I think there's a couple different ways to, to quantify it. One would be, no one talks about it, no one talks about Bitcoin anymore, no one talks about crypto anymore. I think that, that's a good sign that you've kind of bottomed out. Another would be the rage quits. We've got the Mike Hearn classic rage quit. and he got super wrecked due to his immature, his immature, philosophy and, and management style, so he deserves what he got there. and we'll see others as well who don't have enough conviction, again, in life, if, if you go into investments and your, your investment thesis hasn't changed, then, and if you panic sell or you, you sell because you dislike comments that someone made in the community, then maybe you shouldn't be investing. So I think we'll see quite a few different rage quits as people's conviction wasn't nearly as high as they thought when the price was much higher. and I, I mean this across all different crypto assets, not just Bitcoin. I think we'll see it kind The board. However, I do see Bitcoiners having the, the most conviction in their trade due to the really strong culture and strong kind of religious views in a way, I mean, it's a quasi-religion, and, that's the good thing about Bitcoin is you have very convicted hodlers versus the other individuals holding other currencies may or may not be as strongly convicted.

Yeah, agreed, agreed. Do you have any thoughts on who will be the next prominent Bitcoiner to rage quit?

That's a great question. I mean, if Roger gets really wrecked. I don't see him rage quitting crypto as a whole, but I could see him rage quitting Bitcoin and then going into like another currency like Monero or Zcash or something like that. but that's technically not a crypto rage quit where they exit the space altogether. I think we'll see some prominent ICO founders probably rage quit. I, I wouldn't wanna speculate as to who exactly, but More than likely, if everything else goes away and there's no fame and all your developers are leaving, and there's no, you know, you're, you've got a shell company with a couple people around, you're probably just gonna rage quit and say, "This was all not worth it." So I, I could see kind of a wave of ICO founders, like a large wave of them, would rage quitting all at once.

Yeah, yeah. And, I, the, it's funny because with, with these cycles that, as we've observed from 2013 to what we're seeing now, some people have tried to, you know, draw out charts and, draw almost like fractals. So the idea here is that perhaps the, these cycles are almost getting longer. The idea that each cycle, the up and down cycle is getting elongated. Do you have any thoughts on what that might look like? Look like applied to Bitcoin.

Yeah, so that's a great question. you know, I think it's tough to assign a, a ton of value to technical analysis because it's really just a bunch of lines on a chart. However, I think underneath that, we should be cognizant of the value that it brings, which is that it might quantify human behavior and sentiment. so I think there's some validity to it. I wouldn't assign too, too much value on these nice linear, you know, you draw a line here and draw a line there There and it shows little cross and you're like, "Well, that's what's gonna happen? " You know, I, I wouldn't say it's that precise, but I think it's a good tool to use with, a lot of other tools, you know, whether that be, or tools or metrics like Google search queries or wallet creations or volume, et cetera. And so I think, you know, Marad has a really good analysis that he's done that I think is probably a very rational lower bound estimate for how low this might go. And And you've got all these lines on the chart and a bunch of other things as well, but I, the TL;DR is that I think, I think we bottom out, mid-late 2019, and that's, that's kind of the bottom probably at three to four thousand, per Bitcoin. not sure though. no, no one has any idea of what might happen. This, this time may be different. but if you look at all the fancy lines and put them all on a chart, I think Marad has done the best job of, of doing that. he kind of predicts that bottoming out at twenty nineteen and then a peak back, I think, at twenty, twenty twenty-two or twenty twenty-three. And so I think that's a good conservative perspective. Again, caveating that no one knows what's gonna happen and this time is probably gonna be Regression and a bunch of charts and TA, then that's a likely outcome.

Yeah, agreed. I think, that those are probably likely outcomes and obviously most people nowadays are, I think, of the opinion that the halving is what helps drive some of these cycles. Do you have any thoughts on how the halving impacts it?

Yeah, I mean, I went to some, some, having parties in 2016, which was kind of fun, BitGo threw one of those. And, I think it does represent a, a pretty cool moment where the issuance rate or the inflation rate is, you know, drops, drops in half, and it's an important moment because it reduces the amount of supply hitting the market. I'm not sure how much it really impacts the market, more so the psychology of it. and here's why, you know, for example, even if you drop- In half the number of coins issued, well if the coin's values go up, then it's technically, you know, they kind of neutralized, and, and two, I think You know, I think it, it does represent something kind of, and I think this is where it does have an effect, is that due to less coins hitting the market, you know, you've got, so like, like I don't think selling pressure subsides because the, the ASICs that you bought were with fiat, right? And those cost a fiat fixed value, and then your electricity is in fiat, and so it doesn't matter that less coins are hitting the market, you still need to sell a certain dollar-denominated amount of coins. and so I think what it really does is the Havening one demonstrates to everyone over and over again with each Havening event, "Hey, there's less and less coins hitting the market," and, and it changes our psychology or perception of what that coin is worth because now there's less of them. There's less of them being produced, and I think knowing that only a certain number are hitting, that are being produced in every block, the block reward, I think when we see that number decrease, it changes the psychology of everyone.

Right, and we're very driven by, you know, perhaps in the short run, we're very driven by that kind of psychology, but perhaps in the long term, it's really about what is the hot, cold, hard, you know, hardness of that money and the stock-to-flow ratio.

Yep, yep.

Yeah, so with comparing to the traditional finance world and, you know, what we've seen happen over the recent decades with stocks and bonds, some people have made the argument that really what we've seen over the recent decades was not necessarily natural growth, but rather an abnormal- growth as a product of things like, say, rates falling, boomers buying, demographics. What's your view there?

Yeah, I think that's very accurate. Where, the Deutsche Bank in twenty twelve published a, a paper called A Journey into the Unknown, and that is truly, truly the case when we look at debt to GDP ratios of, of very large economies across the world, including the, the United States, China, Japan, Germany. it's not a pretty scenario, and we've never seen this outside of warfare. In terms of how much debt, we, we have in terms of GDP. So I think, you know, when we look at that, so we look at structural issues, which is that, other structural issues being like no centralized or, or clear, transparent clearinghouse for derivatives, which is a powder keg sort of, You know, tail risk event. So you combine those, you combine, and then you look at like demographic and cultural trends where you have baby boomers. You know, they certainly weighed into the, to the, you know, decisions that led quantitative easing and, and the decisions behind certain economic parameters and their- They're, kind of getting closer to retirement, so their, their accounts are swelling to the largest values they're going to be. And so, you know, I think it's that demographic, you've got structural, and then maybe cultural as well. You know, we're seeing a, unfortunately, I, I think the next wave of Bitcoin holders are probably gonna be the very wealthy as they flee, inflationary or socialist policies of their countries. I, I see kind of a resurgence in socialism. due to, you know, different factors of the economy, but yeah, I certainly think what we've seen over the last ten years is a very rare moment in time, and Deutsche Bank's Journey of the Unknown also looks at, real returns of all asset types for many different countries over a period of two hundred years, and truly the growth that we've seen in the last ten years is very, very high considering the amount of risk in the system, considering I, I don't think it's been as productive as other, other part, other, you know, other, points, in our, our journey along, you know, in our economy essentially growing, this is a very, very different time.

Yeah, so I agreed on those points that, you know, from a traditional finance point of view, PE ratios are quite high at the moment, therefore you would have to anticipate that we're gonna continue going up into almost all-time high PE ratios, which, you know, is possible, but maybe not the most likely outcome. but, but then to present a slight counterpoint, what about the view from people like, say, Jeremy Siegel, Stocks from the Long Run, where I think he-- in his book, he went back something like two hundred- years and said, "Oh, okay, look, looking across this two hundred year sample, there was something like six or seven percent, I think it was six point seven percent, compounded return." Do you have any thoughts on that?

Yeah, I mean, depends on which equity market he looks at. if you look at Germany, it's-- Germany was a really robust, huge economy, and same with Russia. And, you know, you had, you had two different cultural revolutions, in those two countries that basically wiped out- All equity holders, or, or severely, you know, hurt their performance, and it, you would be remiss not to-- if you were a portfolio manager back then, you would be remiss not to invest in those countries, they were considered very big economies, and so if you cherry pick and just look at US data, I bet there's a rosier picture than if you looked at a global return, because I think global return, if you include Germany, the real return across- Across all asset classes over two hundred years, I think is around one to two percent.

Very dismal indeed. And speaking of allocators, what happens when pension funds can't achieve their target eight percent returns, or when individuals can't achieve their desired ten percent returns?

Yeah, great question. I mean, we're-- that's another structural issue in this, in the system, which is the pension funds taking a future rate of return and essentially discounting that back, and, and if you change or tweak that, that rate of return that they're expecting to get, then their liabilities balloon. and so I think the rate of returns that they've chosen as probabilistic, like seven or eight percent, is unlikely to happen, and what we'll see is a huge delta between, the assets that they have have and the ability to meet their obligations or promises, and I, I think that delta is gonna cause severe consequences and probably a lot of trust ish-issues in the economy as people realize, well Maybe those couple guys from Deutsche Bank or Goldman Sachs or JP Morgan who, who built these models, they really just built a bunch of guesses, and they were hoping that they'd hit a certain rate of return, and it's unlikely that they will. And so that, I think, will drastically change the landscape, which might also increase the affinity or the, the want for a, an asset like Bitcoin, which is really, really cool. And I think we'll see. You know, what's funny is a lot of people go, "Well, if Bitcoin becomes big enough, banks will just..." You know, the government will just ban it, and I'm like, "Well, when Bitcoin gets big enough, when, when Bitcoin gets big enough, everyone's gonna own it, whether it be directly or indirectly. It'll be your pension fund that owns it or, or a hedge fund or a venture capital fund. And so I think, or, or the business that you're-- the equity that you invested in, they started accepting Bitcoin and now they're ho-- they're hoarding some. So I think when Bitcoin gets big enough that people worry about it, everyone will kind of own it directly or Correctly and, and so everyone will have some financial skin in the game.

Absolutely. And so if that process continues of basically pension funds and individuals not really receiving the desired or required returns, what do you think are some likely government and central bank responses? And do you think we're likely to see more of a continual inflation scenario or more like a deflationary collapse scenario?

I see more of like a hyperinflation policy because it's a bit easier than defaulting. I, I see, I see governments printing more and more, it makes it easier for politicians who ultimately control, the economy or control their central banks, it makes their, their process a little bit easier 'cause they can kick the can down a little bit further down the road, You know, I, I think, I think they're sort of, they're on a, you, you know, they, they can't really change course, and there's not a lot they can do. I, I think at the end, the last, the smart central banks, and I'm hoping the US government does this, because I like this country, I think we've got our flaws, but we, we ultimately have some really good people here, and I think we're a really great shining beacon of, of how growth should look. And so my hope is that countries like, like the I hope their central banks decide to hedge. They see, they see Bitcoin hit a two trillion market cap, and they go, "You know what? Maybe we should buy ten billion dollars worth, just in case. And since they can print money, it's a pretty easy purchase. And so my hope is that a lot of the, I, I would say countries that I, I more respect, and, and I think champion better ethical values, and I'm not gonna name the ones that I don't believe have that, I hope that the countries that are more ethical or Or, or more capitalist focused will decide to back their currencies with Bitcoin, rather than just be completely disconnected from it. so that's my, that's my hope.

Fantastic. And now, in that, in that vision, then do you see these as drivers for what your business does, such as Interchange HQ? And maybe you wanna tell us a little bit about what Interchange HQ does.

Yeah, so I'm with the company Picks and Shovels, one of the co-founders, and our product is called Interchange, which is a portfolio management tool for institutional traders. Our thesis is that speculation will be one of the primary use cases for all crypto assets, and that institutional money will continue to flow into the space. Due to the very onerous and complex amount of data that they have to wrangle together, whether that be on-chain transaction data or exchange data or fork data or all these other sources, maybe SAFs or, or private sales that they invest in, it's really, really complex. And so what we do is we pull that all together, sanitize it, standardize it, make sense of it, and then calculate different, performance metrics to where they can have visibility into their workflow. In their performance, whereas before they were kind of flying blind.

Right. And who do you see as your potential customers? Would they be, say, taxation and accountants, special-accounting specialists, or more like the company itself? What's the main customer there?

Yeah, so I, I would say Interchange is primarily targeted to institutional traders, and that would be bucketed, types under that would be hedge fund, family office, and venture capital. There could be a potential for us to sell this software to fund admins or accountants in the future, where we could power their core accounting engine.

Fantastic. So tell us a little bit more about the, perhaps the difficulties then in kind of pulling the data and sort of sanitizing it and making it clean and e-easy to use.

Yeah, well, you know, firstly, you've got to connect to a bunch of different exchange APIs, each one is different, each one is weird and messed up in its own way. They have no standardization. There, there's some funky, you know, you'll find that an API endpoint isn't documented or you can't get view-only permissions from an exchange. Like, if you get view-only permissions, it also includes withdrawal permissions, which is nuts. you know, some exchanges you can't pull data from their API like trade data past thirty days, and so then you have to have the user export their trade data past thirty days via CSV. So, i-it's just this crazy patchwork of, of ridiculous APIs that, you know, look, I mean, I get it, the exchange wanted to go out and they wanted to attract trading volume, they make money on, on trades, and so an API- While is kind of directly correlated with that, isn't as important as maybe the UI and trade execution via logging into their exchange account. So I can see why it wasn't prioritized, and, and that's where the value in our business lies, is, is helping everyone deal with this. Very, very complex, myriad of different protocols and data types and, and pulling that all in.

Fantastic. And I see this really as like a B2B type product, and I suppose as an example, if you're a trading firm and you want to know what your traders are doing with crypto, and this product, the Interchange product, can help provide that data in a way that's easier for you to sort of supervise. So if you're the manager of that trading team, or if you need to do accounting and taxation calculations. On the trades done, or if you're the market risk specialist that wants to analyze, okay, make sure the traders are, you know, staying within certain positions. These, this is-- are these the sorts of scenarios that you see your customers would use your data for?

Yeah, you know, I definitely see, the first, the product initially is for the fund manager and some other traders. later down the road, we can definitely see a, a world where we become the glue between the fund and the rest of their, either back office team or LPs or other stakeholders, kind of being the, the, you know, once we have that visibility for them, they can then share that visibility with other parties, and that enables them to better communicate and better operate, their fund.

Fantastic. Alright, well, I think they're pretty much the key things, I thought it's been a great discussion. Did you have any closing remarks for the listeners?

You know, I think with the recent Bitcoin Cash fork, there's something I'd like to say there, which is that if you live by the fork, you're gonna die by the fork. And This is a, a prime example of why forks are a very bad way of doing governance. And, you know, it's-- I, I, I find that the time that we've all spent on forks We're gonna look back upon with embarrassment. This was an astronomical waste of time. It's not good governance, we've empirically seen this. And Intuitively, it makes sense too, because you split the community and you split the network effect. And so, I think we had to learn, you know, through pain, that forks aren't good. My hope is that fork season is largely over after this Bitcoin Cash fork.

No, agreed, agreed. And so, listeners, you can find Dan on Twitter, his handle is at dan held, and, Dan, you've also got a medium account, that's at dan h e d l. The site for Picks and Shovels is picks dot co. Ho, have you got anywhere else that you would like listeners to find you, Dan?

I think that's enough. you know, pix.co is for business, and then if you wanna read up on my, my personal thoughts in the space, the Twitter and, and Medium handle will, will get you there.

Excellent. Well, thank you very much for coming on, Dan. It's been a pleasure. Thanks for having me. Alright, guys, let me know what you thought of that conversation with Dan Held. I particularly liked his discussion on what it takes to survive in Bitcoin, meaning

As always, guys, I really appreciate the reviews. I've picked up a few five star reviews just recently. Also got a new Patreon supporter. so yeah, just remember to rate, review, subscribe. Show notes are on my site, stephanelivera dot com. That's it from me. Thanks, guys. See you next time.