I think this cycle is a cycle where we break the sovereign debt markets, where every single major country finally admits that we will do anything it takes to make sure that the government does not go bankrupt. And so we're going to remove all this pretense about caring about sound money, and we're just going to start printing money like it's going out of style. And so I think this cycle is going to be a bit different than the last cycle where the fed and then every other central bank said oh we've overdone it let's try to reduce it they tried but the governments are still printing money because they need to get reelected and we're in an inflationary environment you know there's too many old people everyone's going to go to war at some point so everyone's beefing up on defense and so the central banks have come back in it's okay we got to print money but we can't really call it quantitative easing or the you know the things that we called it before so we'll make up new names for it but it's the same thing And so we want to protect the government bond market and make sure the government can continue to borrow at below the economic growth that they're creating. And so I think right now we're in this cycle where people are realizing this and you have the professional investor class are also realizing it because they've had the worst bond performance, at least in the United States, since the War of 1812. Over the last three years, U.S.
Treasuries, 30-year Treasuries down 50% on a real basis. That is the worst return since 1812. Now. You wouldn't know that by listening to the financial press, but bond investors are getting absolutely eviscerated.
And as they come to the realization that this is not good, maybe we should own something else, that's sort of this secular rise and sort of Bitcoin. So I don't think it's going to be a similar type of credit event that's going to cause prick the bubble and crypto and everything else that happened in 2021. But there's going to be... some change in that mindset.
And that's what I'm looking for. And there's no real one thing you can point to. It's kind of just be cognizant of the fact of why do you think the market's going up? Is there something that's happening that's challenging that worldview? I really want to push you on this.
This is very interesting. Okay. So you said a lot of things in that.
So I just want to cycle through, recap what you just said, make sure I understand it. And then I'm going to see if we can start prognosticating about some of the things that might be the signs this time. Okay. So in 21, we were at a point where for people inside the know of crypto.
Yeah, sure. Everybody knew about it, but something happened in 2017 during that bull run where it really started to, like, I was starting to hear about it. They were making documentaries about it.
And at the time I was not somebody that paid attention to finance at all, dude, I could not have been more heads down building businesses. And. But I was still hearing about it.
Like it sort of cracked that first thing. And then it just disappeared. Now, I didn't realize there was a retrenchment.
I wasn't paying attention like that. But people just stopped talking about it. Then obviously, I think it was in 2020, it starts really popping off again. And then in 2021, it's insane. So, okay, now we have, if I had to boil down what you were looking at in that moment, the rate of adoption, speed to awareness, however you want to think about that was just way outpacing what you would expect to happen from a, this isn't euphoria perspective.
And in fact, that's, that's a, um, a marker I want to put on the table right now. This euphoria, I'd never felt it before. Cultural euphoria, obviously I'd felt it in my own life, but cultural euphoria is a very different thing. And then I, I now know it when I see it.
And so that starts really popping off. Okay. So the rate of growth of, just to use FTX as an example, was just too much.
Okay, so question number one. The second thing that you look for is the momentum in the credit market, credit, liquidity being the same thing, it's money printing. So the governments are pouring artificial money into the system. Those two things in 21, they gave you the signals that, okay, we've got heavy euphoria, things are moving too quickly in terms of rate of adoption, and...
The very thing that crypto is a response to, inflation of the money supply, has slowed. Time to get out. Makes perfect sense. Now, as we go into this next cycle, you've said something multiple times in this interview, and sometimes you say it very casually, as you just did, which is, everyone's going to be going to war soon, so they're building up their military.
Hold on. That's a very big statement. So is that going to be part of what you're looking at? Because one of my employees here was doing his breakdown of what he's going to look for, what his selling signs are.
And very similar to what you just broke down for 21. But I worry that he's going to get blindsided because he's looking at old signals in a new market. Do you have sort of the beginnings of an idea of what you're going to be looking for in this moment? Is it a build towards war? Is it euphoria?
If it's not credit, what is on your mind? Well, I think that we're going to get some sort of Reddit event in the government bond markets. Did you just say you thought they were just going to print, print, print, print, print, print, print?
Yeah, they're going to print, print, print. And I think some people are going to try to exert an influence of saying, hey, these bond markets, they still matter. We're not going to buy a treasury at 4% when nominal growth is at 6% or whatever it is, right?
And there will be an event. And there will be a way and an off ramp to say, okay, we want to reform. the system or change something and we'll see what the authorities decide to do i think they're just going to keep printing more money and we keep going higher can you say more about that please if we think back to the stats i just said so the bond market as of uh we want to think about really when this bull market started to gain a lot of steam was october of last year so essentially what and I'm going to focus on the US Treasury market because that's the most important one globally and every other market sort of depends on that from a government bond perspective. You have this thing where interest rates on the debt was rising, but at the long end, it was rising faster. So post the September Fed meeting, the spread between the 10-year bond and the two-year bond was increasing, meaning that 10-year yield is rising faster than the tier yield.
And in general, the yields are both rising at the same time, which is basically called a bear steepener in fixed income trading terms. And that is deadly for banks and the entire financial system. Because the entire financial system is modeled post 1970s, 80s on this assumption that when back-end interest rates rise too quickly, that the...
authorities will come in and print money to save the system. Now, they did do it. So the market got it right.
But in the meantime, all these financial institutions, in the way that their complex financial derivatives are structured, ignore this particular quadrant of the potential outcomes, and thus have massive losses. And this is what we were seeing across the banking system. So if you looked at the Regional Bank Stock Index, or KBW Index, which is all US banks, They're getting crushed going into late October of last year.
And so what happened? The US Treasury and Janet Yellen, she said, okay, I'm going to stave this market. I'm going to issue a bunch of short-term debt and take money out of the reverse repo program at the Fed, which is just this $2 trillion facility of cash just sitting there that's outside of the financial system. And she offered a higher rate on short-term treasury bills to entice this money out, which reflates the system, gives more credit money into the system. And that sort of helped fuel this bull run that started essentially on November 1st of 2023. So we're going to get another event like that, because if the Fed, the Treasury, and their other...
global central banks and fiscal governments, if they continue to do what they're doing, but say that on the one hand, we want to try to fight inflation by not printing money, we're going to get another situation like we got in the third quarter of last year, where the bond market says, hold on a second, what do you want to do? Do you want to safeguard the value of fiat currency? Or do you want to make sure that the government is funded?
And I don't know when that situation is going to happen. There's lots of tricks that they can pull. probably a little bit too mundane for this particular venue, if you really want to get into US money markets.
But there's going to be another situation like that. And you could see a general risk off, meaning financial assets decline on that situation, on the fear that maybe this time they're not going to save the banks and print the money and reflate the system. I don't think that's going to happen. I think they'll do the same thing they've done every single other time.
But... you could get a situation like that but if i have to really think about what could stop this particular bull market it's going to be something about the belief of institutions buying bitcoin so what's the narrative right now you never sell because the institutions like blackrock and fidelity they're they have to buy all this bitcoin because there's all this pent-up demand from institutions who want to incorporate bitcoin into their portfolios and there's all these diamond hands out there who aren't going to sell their bitcoins to the very low supply of bitcoin left to sell which means the price goes asymptotic on on the upside now obviously that can be true for a while but it won't be true forever and so at the point in time where we start to see a massive um leveling off of the allocations of money into these products then that narrative starts to shift and people become less confident that there will be you know a few hundred million dollars of buying a bitcoin every day from all these major etf fund managers and i think that might be the thing that i'll be looking for which says okay whatever the price of bitcoin is at that point maybe it's time that i think about at least for the other non-bitcoin and ethereum assets getting out of all of those, right? And I have a very big venture capital portfolio of early stage crypto tokens that will need to be liquidated. And then on a more philosophical level, I have to think about, well, if Bitcoin has risen to such a high level relative to the energy that it represents, maybe I should own a power plant or a massive stake in Exxon Mobil or something where I actually own the fundamental energy source and I got it at a very cheap price relative to the price of Bitcoin. And that's a way that I can take some chips off the table in Bitcoin terms.
But what I probably won't be doing is selling Bitcoin or Ethereum for fiat because I still think that the fiat system is fucked and I don't want to participate in that. But primary energy, if I can own those resources at a very attractive price because Bitcoin and Ethereum and these other assets have been bid up to such an insane level, then that's probably something I should be doing. Okay.
So to recap, the thing that I found. really intriguing because I've not heard this idea before, is that there's going to be an incident in the bond market. Now, what I took that to mean is that something is going to happen that will make the biggest buyers of bonds step back and say, we're not going to buy bonds anymore.
And now the US government is in a really dark place. And I think it was you that said, Powell is just out there flexing. The person who's actually in control is Janet Yellen, because the Treasury can ultimately just tell them what to do.
Um, and because I think it was Powell that said, like, we can't keep doing this. We can't just keep printing, printing, printing. Yeah.
He says it, but he has no power. He can't, he can't tell the federal government what to spend his money on. He's just, he's just, you know, the central bank. Yeah.
It's interesting. You say it like that. So am I right?
Is that what you're saying? That people will say, um, and, and enact, we are not going to keep buying bonds because, um, your fiscal policy is irresponsible. And it's causing strangeness in the bond market that makes it problematic for the reasons that you explained earlier. And that is, I mean, that's catastrophe for the Treasury, if I'm understanding this right. Exactly.
Their number one job is to make sure that Janet Yellen's job is to fund the president in whatever he or she would like to do. Right. If Biden wants to spend $10 trillion on through bonds. So.
She must have a well-functioning U.S. Treasury market, and she will do whatever she can to make sure that is the case. And so if it means changing the rules on the fly or if it means co-opting the central bank to do what you need to do, she will do that. Or whoever is in her seat if she leaves after the Biden administration.
So that's that person's job, and they will do that. And so when this really bad thing happens in the bond market. then we get to the final stage of essentially the the sovereign bond bubble which is okay let's stop around we will print money in whatever quantities needed to keep the 10-year bond rate at x whatever that is right they'll go full japan that's the end game then we get bitcoin 1 million 10 million or whatever whatever and and then it's okay at some point we get off the train like okay bitcoin's great it's gone to this insane value because they've printed all this money is there a real asset real energy producing asset that we should own that is more essential than bitcoin and i've gotten it at a great price because of how high bitcoin has been bid to again it's more of a theoretical philosophical thing of is there something else to buy when you want to sell bitcoin that's not fiat Well, that's the second part. So there's two things you said that I think are really interesting. One is what happens.
The second one is how you respond. Okay, so the what happens scenario, I was actually misunderstanding it, so I'm glad that you clarified. So what's really happening is the bad thing happens in the bond market that pisses the bond purchasers off.
They stamp their feet and say, hey, you need to calm the bond market down, which they're going to do by saying, we got you. We're going to print money until the end of time. Don't worry. We're going to maintain the price that you need to not end up being underwater.
That. is going to cause a massive run into cryptocurrency. And that's going to create that just hyper euphoria potentially.
Obviously, I know this is just the, I've asked for the thing that's in the back of your mind. This isn't the thesis you're operating on right now, but that could potentially cause a massive run into crypto, which creates that euphoria that I was talking about, drives the price up, the numbers you threw out a million, 10 million, whatever. I know those are sort of the fantasy numbers that you hear people in crypto circles throwing out as the end game.
But if it makes that kind of run, you're like, okay, now's probably a time where I go. All the big wins have been had. I mean, this is just like Warren Buffett said, all the eye-popping wins of Berkshire Hathaway are in the rear view mirror.
Like you're not going to get that anymore because I'm having a hard time finding a place to put this money. So you know that that isn't going to be, we're now getting into the zone I was talking about earlier where Bitcoin just becomes sort of boring. It just chops side to side for the next two decades.
And that's when you start looking for, in the example that you gave, the underlying energy producing asset that you can be in once you've taken sort of the max out of the value, the volatile value of crypto. It's a put option on government bond market. And so I think we're at the point where the largest government bond market admits that we can't afford this, so we're just going to print the money anyways. And that's the option that you're really trading on Bitcoin.
You want to be around for that, because that's going to be... And if it happens this cycle, it's going to be absolutely insane. And so that's why I'm writing an essay right now. And the tenet of the essay is people don't have enough imagination about how ridiculous this bull market can get. So if we combine the Bitcoin is now available from a financial perspective to be ingested into tradified portfolios, and you have tradified portfolios do not want to own bonds, because everybody knows that this is what's going to happen in the treasury market and, you know, JGB market, ECBs, bonds, China bonds, all the different bond markets.
If these confluence of factors, this is the situation where the 40% of managed money that's in fixed income or basically sovereign bonds globally a portion of that goes into crypto and so you have a massive amount of fiat that can only go through a very very small door you just get insane price appreciation across the whole space i don't think people appreciate that right now they're like oh is bitcoin at 70 000 maybe i should take some out to well no you fucking shouldn't this is a time if this is the narrative that you're operating under when bitcoin was 16 000 we haven't even gotten to that point yet we've just started this is just like the amuse-bouche. It's not even the fucking entree yet. So it's for just getting started in this thesis of the collapse in terms of we have this one asset that's real.
We have this whole Fugazi financial system. For the first time in history, we have an ability to express a put option on these bonds in an easy digital fashion versus going out and holding a vault of gold, which is quite difficult. So that is the... insane bull market thesis that I've been operating under. We're marching towards that.
I don't want to be under allocated if I'm right. If I'm wrong, we get, you know, maybe Bitcoin goes to 100,000, 200,000, whatever it is. And okay, cool. Made a good, good chunk of money.
We'll prepare for the next cycle because it's coming. If it's not in the 2025, 2027 timeframe, it'll be when there's the global world war of the, you know, end of the decade or a little bit after as we've come to this situation where every government's printing money because they're going to war with each other. So that's the trade. It only is going to happen once. He's got to be around for it.
Okay. So that is the, I mean, for anybody that's holding Bitcoin, that is certainly the fantasy scenario. Do you see going to 100K in this cycle? as an inevitability? Or do you see something that could derail us from that now?
I think it's an inevitability and more. And because now we have the banking system, at least in the West, and obviously there'll be ETFs in China and in the UK, China being Hong Kong and Europe as well. So you have TradFi now has a stake, has skin in the game.
And like, this is amazing. We have had the fastest growth in assets in these products of any ETF ever. And so BlackRock, largest asset manager in the world. This is their best selling product so far, right?
Trading billions of dollars a day. They're getting ingested hundreds of millions of dollars a day of inflows. They're charging fees on that. Fidelity, all these other asset managers crushing it, right? But you have all these institutions, the sell side financial institutions who depend on the fee that BlackRock pays them to access the markets.
So if you think that you're a trading desk and a JP Morgan, a Citibank, Goldman Sachs, Morgan Stanley, blah, blah, blah. You're like. Fuck yeah. I love crypto. BlackRock has a price insensitive buyer, all these people allocating.
They need to buy and sell Bitcoin every single day to manage their fund. There are people doing arbitrage trades who now need to interact with me on a trade fight basis to trade these assets. If there's an Ethereum ETF or some of the other altcoin ETFs that these funds want to launch, great.
More fees, more time for me that I have to do things. for these large asset managers and it's volatile they're there's buying and they're selling there's opaque markets people don't know what the price of these things should be as a sell side investment bank you're like this is amazing and so they aren't going to stop with bitcoin you know i think there was i read some tweet today that some lawmakers in america or democratic lawmakers are saying oh petitioning gensler to say don't allow the ethereum etf Now, maybe that would have been a very convincing argument if the banks didn't have a skin in the game, but banks run governments. The Tritify banking system in the U.S. runs the U.S. government, and now they have a stake in let's financialize crypto. Let's make as much money in fees as possible off of this amazing product that has been going gangbusters for the past eight weeks. Fuck that.
We're going to launch every single crypto we can while the going is good and earn these fees. And so. I think there's just going to be more capital coming into play as you have the TradFi financial ecosystem putting on a full court marketing press to convince people why, oh, yes, look at the U.S. government.
It's unsustainable. Jamie Dimon says this about every single quarterly report. And he said the U.S. government is spending too much money.
There will be a fiscal crisis. And now he has a way to directly profit off that, which is, oh, yeah, we have a Bitcoin ETF. Now I'm going to change my tune on Bitcoin. I'm going to safeguard the way for my clients to own Bitcoin. As long as you custody with JP Morgan and use a BlackRock product, it's all great because we're getting paid to do it.
And so now you have the TradFi marketing machine out there saying it is safe to invest in crypto. Here's a product that you can do it. It's custody by these big banks.
Why wouldn't you own it? So we have interest aligned in terms of a price perspective for a very short period of time. So I think again, we're just getting started. It's just Bitcoin.
Why wouldn't you do more of it if it's so successful? An Ethereum ETF, a Solana ETF, every fucking crypto you can during this cycle, do it. It's literally just paperwork. And watch the billions of dollars gush in. The fixed income market is however many hundreds of trillions of dollars.
Obviously, not all of that's going to go into crypto. But even a small portion of that that says, I don't want to own government bonds because of all the things that we've talked about today. And now JP Morgan, my...
My RIA is telling me that I can invest in this product and it's custody at the bank. I don't have to worry about private keys. It fits into my investment mandate. Don't have to do any more forms.
Fuck it. Let's go. I get to import this thing that is going to, on its face, solve the problem that I'm trying to escape, which is a government bond market that is not paying me what I should pay to take on this sort of risk. Hearing you talk it really, there's something about the... the energy, the intensity around the bond market that's making me see the relationship between us, the buyers of bonds and the government in a way that I never really thought about it.
I always saw it as, this is a place for me to put my money that's safe, that I'm going to get some sort of mild return. But when you start thinking about it in terms of, hey, you're asking me to fund the government and all the things that it's doing, you better pay me a worthwhile return in order to do that. This goes back to one of the things you were saying earlier.
I don't remember what triggered this thought, but the thing I really want people to be able to do is just something super simple to put their money in, to not have to think about it, to get that return. But of course, that for some people to win, somebody else is going to lose. But it gets very interesting with bonds helping fund them to grow the things that they're trying to spend the money on. Very intriguing.
Let me ask you, what do you think happens with ETFs when the natural volatility of crypto kicks in? Like when I think about, OK, Bitcoin, yes. volatility, super strong narrative. ETH, yes, maybe a little bit less conviction on my part for ETH, just because I think it's a harder narrative around the distributed computer.
I just think it's harder for people to understand. How does that translate? Am I storing wealth in ETH? So that was a little trickier. Once you get down to Solana, now it's like, whoa.
Now we're really talking narrative. You've got to be deep in that. It becomes like, do you buy into the tribe?
So that feels like it's really going to have volatility, which could be amazing briefly and then really traumatic. So how do you think ETFs will respond to that level of volatility? The banking system is saved by the central banks and the government squashing volatility and printing money to save them every time they fuck up. But at the same time, they essentially take all the fun out of markets. Nothing fucking moves anymore.
Passive investing is destroying the banks because they can't earn any money because nothing moves. There's no dispersion. There's no difference between Tesla, Microsoft, and Nvidia.
So why even invest in the stock market? Just put your money in your retirement account, check the box, and it just goes into spies and queues. So if you think about a trading floor, and obviously a lot of friends are working in trading, no one's getting paid like they used to because nothing's moving.
So now we have a new asset class and you have insane volatility. You have a fundamental appetite for a new type of financial system. And you are the gatekeeper between capital that can't exit the tri-fi system and these crypto products.
It's going to be amazing. You can write research reports for days. You have thousands of different things doing thousands, like different people, characters saying they're going to do this, that, and the other thing. You have so much dispersion, so much volatility, so many things to talk about.
You could call your client. Maybe it's Solana today. Maybe it's dog with hat tomorrow. It doesn't fucking matter. You have an ability as a salesperson of a conversation with your client to solve their problem.
Government bond markets aren't paying me. Hey, guess what? This week it's Solana. Next week it's ETH. Next week it's Bitcoin.
This happened. That happened. There's stuff going on.
You have a conversation. Oh, great. Okay.
I'm going to allocate here. Oh, sell this, buy that. Sell this, buy that.
Sell this, buy that. Trading, fees, emotion, pathos. This is what markets are made of and what has been destroyed by central banks over the past 30 years.
Banks are going to love this. The trading desks are going to love this. They have a reason to call their clients now.
These products are going to make them billions of dollars because we are unlocking human emotion in a form that's digestible for these triad-fi institutions in a way that hasn't been available to them probably since... you know 2000 to the 99 1997 to 2001 in the dot com area so that's what this is going to bring to tradfi and they're going to love it and they're going to do whatever they can politically to make sure that there's nothing stopping these etf fund managers from onboarding as many different crypto assets as possible now that they've gotten through the bitcoin hurdle and they've seen how successful it is and how much money they're making from it okay so uh that is a really interesting picture that i have never heard anybody else say. Taking a different angle on that, it feels like an angle that has to be considered is the people that are in ETFs want the set and forget thing that you think is destroying the passive investing that you think is destroying the markets. And that when there's volatility, there is going to be an outcry to the government to protect them. louder than anything you've heard in a long time.
Because when somebody's thinking about being in an ETF, it's like they're not going to the ass egg to go and buy and figure it out themselves. So there is an amount of, I don't want to deal with it. I just want somebody else to do it. So two things are going to happen.
One, volatility hits and a subset of people will freak the fuck out. And then it becomes a question of how does the government respond? I'm guessing with regulation.
So that'll be interesting. And then... The second thing is when you have people having a reason to call their clients, I worry that you get into the Wolf of Wall Street days of penny stocks and hyping people up and selling narrative. And there is a reason that those guys went to prison. Are you not worried about the way that people will get suckered in by con men?
Well, the con men, let's assume that this is what happens. The comment is your JP Morgan salesperson. Is that guy going to jail? Probably not. Jamie Dimon going to go to jail for anything that happened to JP Morgan?
Absolutely not. Now, again, I think that the tri-fi banks will overdo it, right? They're going to pump this narrative.
They're going to beat the drum as loud as they can because this is going to be soon to show. Let's see, maybe end of the year, there's going to be some banks that were probably very crypto forward. And you're going to see their financial results. And they're going to tell the market, hey, guess what? My sales and trading operation.
beat expectations by some wide margin because we went hard into crypto trading and facilitating the flows related to these, whatever the suite of the ETFs are, and OTC trading and blah, blah, blah, blah, blah, right? And then every other investment bank in their managing director committees were like, well, what's our response to that? We can't let XYZ Bank have this desk, and we've been poo-pooing it for the last decade.
Go hire a team now. We need to be this, that, and the other. That's how these banks work.
Usually it's Goldman Sachs and JP Morgan make the money first and then everybody else scramble to follow and fucks it up. And so that's probably what's going to happen here. And I agree with you.
Of course, the volatility is going to be insane on the upside and things go down as much as they go up sometimes. And when the bear market starts, and maybe some of these more questionable cryptos that got put into some of these investment products go down 95% because something happened to the networkers. some developer rug them.
Yes, of course, there's going to be public outcry of, oh no, my retirement account had this ETF and I watched the commercial on CNBC and that guy in the suit said, this was a great investment, sir. And I put my money in and oh shit, I lost it. Representative XYZ, you've got to fuck these people because I shouldn't have been allowed to buy this product. I absolutely agree with you.
And the second that we start seeing that as a movement catching steam and the bank's ability to beat back that narrative. they can't forestall that that's probably a sign that we probably might revert the pizza Peak saturation of like the institutions and crypto and whatever the price is at the time it might be time to take things off the table so I hadn't thought of that before but as you say that that is probably another thing I'm going to keep in the back of my mind as a sign post of okay has it gotten so out of hand and losses started to creep in that the bank's political power to just ram things through um has been checked a bit by some outraged small mom and pop investors. What are the signs that you see on the horizon that a financial crisis might be headed our way? I absolutely agree that there's going to be a major financial crisis, probably as bad or worse than the Great Depression sometime near the end of the decade. Before we get there, we're going to have, I think, the largest bull market in stocks, real estate, crypto, art, you name it, that we've ever seen.
since World War II. And the reason I believe that is if we back up to like 1945, essentially Europe blew itself up. China was destroyed by a civil war and Japan, Russia essentially fought the war for everybody else and massive destruction.
So if you look across the world, the only country that was left was the US. And they had a manufacturing base that was unharmed from the war. And they essentially rebuilt the war and reaped enormous benefits. And we're still, you know, people who are American are still living off of those benefits today. But at the end of the day, everybody started believing this thing called, you know, Keynesian economics, which basically is if something gets in trouble, the government should rush in, spend money.
If they don't have the money, the central bank should print it. And, you know, everybody collectively in the world, depending, no matter if you're, you know, what sort of ism you believe in. Subscribe to this theory. And what that means is, you know, we all have collectively agreed that the government is there essentially to attempt to remove the business cycle. There should never be bad things that happen to the economy.
And if there are, we want the government to come in and essentially destroy the free market. So every time we've had a financial crisis over the last, you know, eight years, what happens? The government rushes in and they.
essentially destroy some part of the free market because they want to save the system. And what does that mean? It's like whack-a-mole. So every time there's a disturbance, you know, the central banks, like the Federal Reserve in the U.S., they come in, they print money, they enact a bunch of regulations, and they basically say, OK, we don't want this sector to fail.
We don't want, you know, the creative destruction that is so-called capitalism, if you actually believe in that. We don't want that. And every, you know, five, seven years, there's another sector of the economy that's essentially price fixed.
And so we've gotten to this point where globally, central banks have basically destroyed the free pricing mechanism in just about every single sector of the financial economy, except one, which is the government bond markets. Because they're so large, so unruly that it's practically impossible to essentially remove the market forces from this part of the market. But the problem is right now we're going to try. We've gone from, I don't know, 100 percent. debt to GDP globally to about 360% as per the World Bank.
And we are accelerating the amount of debt that we're adding onto the pile. Why? Because in the rich world, including China, Russia, and Brazil, we've stopped having enough kids.
So the population is actually declining. So if you have all this debt and you don't have more humans being born to essentially do stuff to pay it back, The only way to ensure the system is solvent is for the governments and the central banks to start printing money. And now we've gotten to the situation where we have all this debt that needs to be rolled over.
We have a population that has been told that, hey, you're good. Anything ever happens, we, the government, are going to come in and we're going to make sure that, you know, you have enough food to eat. You got health care.
We're going to protect you, blah, blah, blah. Right. And all that's expensive, especially as you have less and less humans who are doing productive stuff.
And so we're just going to keep adding on debt because that's the only way the government can stay in business. And now we've gotten into a situation where there's so much debt that and it's accelerating in an exponential fashion that in order to save the market this time. Right.
So I think in the next three to six months, there's going to be some sort of major market disturbance and probably in the U.S. Treasury or. other large global bond markets.
And the solution is going to be, let's print the most money that we've ever printed to try to save essentially this fiat financial system that we've created since World War II, which is going to, in the first instance, create a massive bull market in anything, you know, like stocks, crypto, real estate, things that have a fixed supply. Maybe they're productive, they have some earnings. And then after that, we're going to find out, actually, the government can't save everything. They can't just print as much money as they think, just try to save themselves and fix the price of the yield of their bonds.
And we're going to get a generational collapse. And hopefully that doesn't coincide with a major global conflict. Usually it does.
I hope it doesn't, because I don't really want to live through World War Three while I'm alive. But that's sort of the my overarching like macro cycle thesis. So, you know, massive top 2026 timeframe and then, you know, some sort of, you know, great depression like situation happening towards the end of the decade.
If you want to take a look at the progress of human civilization in the past 150, 200 years, it's all predicated on hydrocarbons. The moment we started extracting oil, commercially out of the ground and turning it into thousands of different products that we all use every day that basically powers our modern life development supercharged right? You know we went from I don't know how many billions of people in the 1970s to today a population more than doubled right and that's all because we were able to harness this particular type of potential energy of the earth that's underneath us.
Okay and we we've piled on all this debt we brought forward all this future growth And we haven't really innovated on another form of energy that makes us that much more productive. You know, maybe if the world started adopting nuclear today, immediately, like small nuclear reactors in our cars, our apartments powered by nuclear energy, maybe we'd have a chance at growing our way out of this debt. Or, you know, if there's some magical alien that comes down and gives us, you know, some basic resource that allows us to tap a new source of energy and like we can commercialize it instantaneously.
Yes, then we can pay back all this money. Or if the population doubled overnight, right, to 16 billion people, then OK, great. We've built all this stuff. There's more people that need to use it.
OK, we can pay back this debt. But barring any of these, you know, I like to say it takes 18 years to make an 18 year old. So it's pretty much impossible to create humans out of thin air, no matter what any politician tells you.
And, you know, we're not really, you know, what we seem to be doing is in certain countries is saying, you know, hydrocarbons are worthless. We want to use these other forms of energy that are less dense, less productive and somehow think that we're. We're going to grow our way out of this debt, which is mathematically impossible. There's just no other way, if the government wants to save itself by it, than printing money. And printing money isn't growth.
It's just a piece of paper out of thin air. And once the population thinks, hey, there's more and more of these pieces of paper floating around, There's only so many real goods. There's only, you know, there's only so much oil. There's only so much electricity. Well, I guess I should be consuming everything I can now.
That's not actually generating real growth. If we could just print our money and generate real growth, then Rome would have survived. Zimbabwe would be the richest country in the world.
Same with Argentina. We've had, you know, the Weimar Republic in Germany. Like, if this was the answer, there's plenty of other, you know, societies that have tried this.
And the result was... always the same, massive inflation, and then social unrest and collapse of the government. So I think we've proven over thousands of years of human history that printing money is not growth.
It's a shimmer and at the party that lasts for only so long. And then, you know, it's bad news bears. This is the thing that really freaks me out about what Ray Dalio is talking about is the predictability of this cycle. And what I want to do, you're really good at explaining this. I want to go through the different things.
that build up to this moment, this inevitable moment. And then one of the things I want to make sure we talk about later is getting the timing right on this is next to impossible. And so that's going to loom in the background.
But first, I just want to go through the things. Now, you said that you hope that this doesn't all happen in a moment of political instability, but I would like to quote Arthur Hayes. To Arthur Hayes here real fast. This is from it.
This is the opening line from one of your recent articles. You said, World War III has already begun, whether the mainstream media and political elite wish to acknowledge it or not. So let's talk about the political instability.
We're going to get to the debt. We're going to get to the banking crisis, inflation, all of that. But set the context for us right now.
What's happening right now that unnerves you from a political standpoint? So for whatever reason. And I don't know why Western Europe starting and then America following has it in for Russia.
And if you read the, I think it's Mackinder, his global home island theory that he wrote, I want to say in the early 19, early 20th, end of the 19th century, whatever. He was a very famous. war strategist.
And he basically said that the home island is essentially Eurasia, right? So think of China, Russia, Western Europe, right? Whoever controls that portion of the world controls the world. And so if you think about the naval powers, such as Great Britain and the US, let's talk about Great Britain first, right? What was the British foreign policy all about in the 19th century and early 20th century?
preventing a strong continent. Whether it was France or Germany, they didn't care. They just don't want a unified Europe.
Now, as Russia industrialized in the late 19th century, they started to worry about, okay, well, what about Russia? We can't have an alliance of German, strong Germany after Bismarck, united Germany and Russia because Russia has all these commodities. That would be the worst thing that could ever happen for us, Great Britain and naval power. So what do they do with it?
There's a series of alliances that precipitate. World War I, which was let's make sure that Germany and Russia are not friends. And essentially, that was a strategy going into World War I. You know, obviously that blew up.
What was the strategy in World War II? You know, if you take a look at the rise of Hitler and, you know, all the different Western powers that were OK with Hitler, as long as he was going to turn his army and just fight Russia, right? You know, Hitler wrote about this. He said, we want to create the space. for the German people to eradicate the Slavs in Russia and go in there.
And the Western Europe was perfectly happy about that because again, what do they want? They don't want a united home island. They don't want a united Eurasia because that threatens the hegemon, Great Britain at the time.
Obviously that didn't work out so well. Hitler turned his army on the other half of Europe and then everybody started fighting again. And then we ended that war. And then what we were left with, we were left with the United States versus Russia again.
And again, it was all about let's make sure that, you know, Russia and China aren't aligned. Or Russia and the rest of Russia and Europe aren't aligned. That's why, you know, the US poured however many billions of dollars through the Marshall Plan into rebuilding Western Europe to make sure it was a bulwark against Russia and the virus of communism. And, you know... I forgot.
I was reading a recent book. It was called The Wars of Asia, 1911 to 1949. And the author made a very good point about why communism is so hated as a form of government to anything that's not communism. And the reason it is because, you know. Obviously communism has its flaws, but at its the kernel of truth for lots of people is we're going to completely uproot the social system. We're going to replace the classes that are oppressing us.
It's not like, OK, it's one class of elite who was running things. We're going to go over to the other class of elites, which is like socialism, fascism, capitalism. It's just one group of elites versus the other. Communism is let's destroy the whole class of elites and bring the people up to power. Now, obviously.
That never actually happens, but in the beginning it does. And so if you're a bourgeois intellectual and, you know, in one of these other systems, you're like, I can't have communism take over. I can't have the actual workers rise up, replace me as an entire class, and then try to rule, which is why they hate communism so much.
And so, you know, the Russian system and what they're trying to export in terms of ideology is so hated in the, you know, liberal democratic or pseudo-fascist West. In any case, the U.S. has now locked the hedge with Russia to make sure that a divided Eurasia, because a strong Eurasia will control the world because it controls most of the natural resources of the world and most of the population. And that's been the U.S. foreign policy since the end of World War II.
Fast forward to the 90s when the Soviet Union collapses, the U.S. response was not, let's do another Marshall Plan and rebuild Russia. It was, let's incentivize a bunch of former gangsters now called the U.S. old oligarchs to come in and take all the natural resources, impoverish their people and move their wealth to London and New York. Right.
And so that was the policy. Now, out of that came essentially Putin, who was all about let's build a strong revisionist, the Russian ideal. Believe it or not, whether you think that's good or bad, but that's his appeal to the Russian people is, hey, you guys suffered through the end of the Soviet Union. The West was not your friend.
You know, they stole your shit. I'm here to rebuild the. Russian for the Russian people.
That's his message to his constituents. You know, you can like it or not like it. And so now we're at the situation where... Russia invades Ukraine and the West is pumping in resources to essentially fight them using the blood and tears of the Ukrainian people.
It's not Americans fighting. It's not Europeans fighting yet. Right.
So it's a it's a proxy war between Russia and the West. Obviously, Russia is tacitly supported by by China and the rest of the world is like, well, we don't want a part of this. We're probably not aligned. We don't want to get involved in this thing. So.
So we have this sort of a setup of all over again of what was happening in the late 19th century of the West aligning to create a divided Eurasia. And so, you know, we can call it a conflict or a skirmish or whatever, but you have I don't know how much how many billions of dollars have been authorized by U.S. Congress to essentially ship weapons into Ukraine. You have NATO shipping in weapons, different countries providing intelligence so that the Ukrainian forces can.
attempt to stymie the Russian advance. Now, while yeah, there's not boots on the ground from the West and Russia, to our knowledge, maybe there are, I don't know, it's basically a war. And so you could make the argument that World War III has already started.
It's just not this hot, super kinetic, you know, I'm going to fill my nukes at you kind of thing that we had in the last World War. Now, why do you think this matters? Is this going to play out in In energy prices, is it going to play out as a debt problem? Why does this become part of the backdrop of the context that will lead to this coming financial crisis?
So at the end of the day, human civilization is the transformation of the potential energy of the sun and the earth into useful economic work. So cheap energy prices equals prosperity. Russia is the largest commodity exporter in the world. They have oil, they have natural gas, they've got metals, they've got food.
The Ukrainian breadbasket was one of the largest wheat exporters in the world. Sunflower seeds, oils, all this stuff is in this region. And now the West has decided that we're no longer going to trade with Russia on paper. Now, if you actually look at the details, you know, India, China, some of these other countries are basically buying the Russian stuff, refining it, selling it back to the Europeans and the Americans at a higher price. Right.
So the result of this policy of let's ostracize Russia is let's just raise prices on our energy inputs globally. And so there is. The war is causing the inflation that now the central banks have to fight by raising interest rates, which then bankrupts the banking system because they now have all these bonds that are underwater. So this ideology of we need to fight Russia to keep the Eurasian island fractured is the proximate cause of the inflation that's causing the financial crisis in the West itself.
So it's a dumb policy, but... It is the natural result of what happens when you say, I'm not going to trade with the largest commodity exporter in the world. I think it's important to break down exactly the cocktail of things that go into making an economy weak. This was something that took me a long time to learn. And for anybody that's been watching the show for a while, they've gotten to go on this journey with me of figuring out how all this works, the debt cycle, exactly what happened with the banking crisis, inflation, all of that.
How does how does this begin? Does it all start with the money printing, which leads to the inflation, which causes the banking crisis? What comes first? How does this ball get rolling?
So, you know, the situation wouldn't be so bad if there wasn't all the money printing prior. So at the end of the day, let's take the U.S. for an example, because it's the largest and richest country in the world. My opinion and thesis is, you know, back in the 1970s, The U.S. government made a tacit promise to the baby boomers and they said, hey, go out, work, spend your money, don't save. We got you. We're going to make sure that when you get old, you're going to have health care covered by the government.
And don't worry, you can be as energy inefficient as you want, two cars in the garage, driving all over the place, not supporting public transportation. We're going to make sure that where there's oil, we're going to get it. So our defense budget is going to be astronomical.
And so the baby boomers are great. We're going to go out there and live our lives and consume the most that any generation ever has in human history, U.S. baby boomers. And what's happened?
Health costs continue to rise. Now, they didn't rise so much starting until maybe five or 10 years ago because they're in the productive years of their life. But now, and I'm sure probably you've had some guests on talking about what they call U.S. sick care, right?
The amount of money you spend in the last 10 years of your life dwarfs all the money you spent proceeding. And the way the incentives work in the U.S. health care system, there's no incentive to actually have preventative care. It's, you know, when you get sick, what's sticking up in the hospital and like just go to town on the insurance company, which essentially is a U.S. taxpayer of Medicare and Social Security.
Now, no U.S. politician, I don't care if you're Republican or Democrat or. third party, whatever, can stand up there and say, I'm going to reform the U.S. health care system. And guess what, baby boomers who are the richest cohort and the most politically active, your health benefits are going to decline.
You will not get reelected. And so the These two programs are sacrosanct. You also will not get reelected saying, hey, we're going to really tackle this, you know, this runaway U.S. defense budget. We're not going to go around the world bombing everybody to make sure that you have enough oil so that you can have the new.
you know, badass pickup truck in your garage guzzling oil, you also will not get reelected. So healthcare and defense, these line items in the government budget cannot be altered under the current political system and what has been promised to the people over the last 50 years, which basically means that as the population gets older and as the world becomes more multipolar, meaning there's other challengers, namely China, who are saying, hey, this. quote unquote rules based order that's determined by 4% of the population doesn't work for the rest of the 96 of the population that never got a say in what this order was.
We want a new order. We want to have our own commodities. We want to have our own material. We also want to eat a bunch of beef and drive a car, right? If you think about the per capita energy uses of the world.
For it to match the United States on the global level, we require an inordinate amount of energy that we just don't have, right? That just means inflation. So what our country is doing is they actually, we're going to keep our stuff for ourself.
We'll only export finished products, which makes things more expensive. And so this is all happening before we even got to what's going on today. And as we've had less and less kids, because rich people have less kids, and when women have the choice of contraception, they choose not to have as many children.
The Federal Reserve is like, well, OK, we don't have any growth of humans. We don't have any, you know, we have an escalating cost of keeping the political promises we made to our people. The only option is to print money to make sure that the government can fund itself at an affordable level. And every time there's a financial crisis, instead of reforming the banking system and allowing some people to fail, they just print money to make sure that the banking system is sound and the goal of the banking system is to take. the people's savings and hand it to the government.
That is why the banking system must always be saved from the government perspective, because that's what it's there for. And different countries use their banking systems in different ways to essentially get to the same goal of funding the government at a cheap level. And so that's why whenever the banking system is threatened, the government or the central bank must come in and save it by printing money.
So we've gone through this situation, you know, coming up in today, where, you know, the U.S. went from, I don't know, 30 percent. That's a GDP in the 1980s to 130 percent today, which is, you know, a massive amount. And if you read, I forgot the other author, a professor named Rogoff wrote a piece about debt. Maybe the 2011 book came out. I forgot when.
Sometime in the last 15, 20 years. And he empirically showed that once a country crosses about 130 percent debt to GDP, there is always a default. And the default could be massive currency depreciation.
It could be massive financial repression or it could be some sort of default in the government bond market every single time. No exceptions. Right.
So they're at this level already. And now the inflation comes and the inflation is part and parcel result of there's less humans doing productive things. The war on climate change and the rebuke of hydrocarbons. And then.
More players in the world wanting, getting assertive over their natural resources, saying it shouldn't just all go to the United States and Western Europe. It should come to our people. We should enjoy the same standard of living that we see in the Hollywood movies.
The idea that 130% debt to GDP has always historically equal default. I've never heard that before. That's troubling. We'll come back to that. So the idea of money printing, this is what I want to anchor people around.
So, okay. So you. make all these promises to a gigantic generation. That generation does not replenish themselves.
So they're not more people to be productive and take care of them. And so your only tool that you have is to start using debt. The only way to manage the debt is to print money, to not default on it.
And now walk us through, this took me a while to really get my head around, the idea that money printing is inflation. Inflation is simply saying that the amount of money is inflating. like a balloon compared to the things you can buy with it.
So since there are no additional things to buy, then people just start charging more for the things that are on offer because there's more money floating in the system. How accurate is that? That's basically it, right?
There's the denominator, the amount of money is just growing infinitely. And then the stuff, the finance stuff that I think about finance stuff is energy, right? We produce, and that is in my opinion, hydrocarbons, because that is the thing that powers are.
entire global civilization. I don't care what you believe about the good or evil of oil, but your entire modern life is predicated on oil, whether you believe it or not, whether you want to believe it or not. And so it's not as if we've gotten that much more productive in pulling oil out of the ground or have found or decided to commercialize nuclear energy, which has been around since, I don't know, the 1960s, right? For whatever reason, we as a civilization globally decided to ignore this amazing energy source.
and poo-poo it. Now, if we had decided back in the day to commercialize nuclear and spend the amount of energy and money that we have spent on wind and solar on making nuclear the safest possible energy usage and the smallest possible delivery mechanism, we might not be in this situation. But those are the political choices we made as a civilization.
So the amount of energy and how much energy we're producing every year is not growing. In actual fact, we hit peak oil a while ago. meaning the entire growth of the oil industry has been predicated on U.S. shale. And the number of new discoveries and new wells being drilled is declining precipitously because shale depletes itself very quickly.
But it's not like we're finding a new Saudi Arabia every 10 years. No, you know, these massive oil discoveries, we're just not making them like we were in the 60s, 70s, 80s. And so more debt, the amount of energy...
producing is flattish. And so that's why we're going to have energy inflation. And when you have energy inflation, you have goods inflation, because every single good we use is a derivative of energy. So this is a unique take, at least for me. You're the only person that I've heard anchor everything around energy.
I've heard you say, and this is really important for people if they want to understand the point of inflation and why it becomes so problematic, is that what you're really trying to do across time is preserve your purchasing power as it relates to the amount of energy. So... Energy is going to determine the cost of a flight.
Energy is going to determine the cost of a car. Energy is certainly going to determine the cost of gas, plastics, on and on and on. Like even when it's not, plastics can be confused because it's made of the same substance roughly. But even just to do the creation, all of that stuff requires energy, which right now, obviously the main source of that energy is still currently coming from fossil fuels.
So understanding that, that you're in this race against that. So now you've got two problems. Problem number one is what you just laid out, that we're flattish.
We're not finding new Saudi Arabias every 10 years, which would be lovely and would certainly help make that easier. Setting aside any, obviously, potential global warming issue, but just from an energy cost standpoint. So then problem number two becomes that we're inflating the money supply. And so.
now the cost of that is already going up. So what I want to get into, so if we know that we have this magic mark of 130% debt to GDP is going to equal a default, we're already at 130% debt to GDP. But we have two promises, health care and that to keep the prices where they are from an energy perspective, we're going to have to run around the world, defense, to make sure that we have access to the flows of oil.
We're gonna be doing more money printing. Now walk me through what are some of the things that are other than that, because the crazy thing is is you listed those two, I wasn't even really thinking about those two as being something that's gonna cause us to inflate. I was thinking about, for instance, the BTFP, Bank Term Funding Program, so which is basically stealth money printing, quantitative easing, just under a different name. It's actually bigger than the COVID stimulus, which was $4.1 trillion.
So walk us through what are some other things that you see on the horizon that are going to lead to more inflation? So that's sort of in the past. In the future, we have essentially the rest of the world, and call it the non-aligned countries. They don't subscribe to the West, i.e.
NATO or the China sphere, right? They're just, hey. We're a bunch of countries.
We've been impoverished ever since pretty much forever. We have the natural resources that are needed to power the green revolution. We have hydrocarbons. We have people who will come into the U.S. and be your nurses, will clean your toilets, will take care of your children, right?
This is what we have. We want to take these resources for ourselves now. We don't want to choose a side, China or the U.S. We just want to get wealthier ourselves.
How do we do that? We trade. What do we trade?
We trade higher value goods. So an example would be Indonesia, a large producer of nickel, one of the largest in the world. Joko Widodo, the president of the country, has recently banned the export of raw nickel.
He said, you know, guys, you want some nickel? Come down to Indonesia, build some sort of manufacturing plant and export the refined product. So I think if I read the statistic recently.
They went from about a billion dollars of economy around nickel when they were just exporting the raw stuff to something about 20 billion dollars of value added when they were said, guess what guys, you need to build stuff to employ our people to elevate the standing of our country. So this is just one country. The rest of the of the world is like, why the fuck are we letting these guys come down here, own our natural resources, not give us jobs and then send back the raw stuff and then we import finished goods, right?
That's been the entire structure since World War II and why stuff is very cheap in the U.S. and Western Europe relative to how expensive things are in the rest of the world. And so they're fed up with this. And now sort of they've broken the ideological conditioning.
Maybe some of the leaders who were on the take from all these countries over the long run power. And they're like, we want to be like the Americans and the Western Europeans. We've seen the movies. We want to be like them.
Why can't we be like them? Well, we're going to stop giving you guys all of our stuff, essentially, almost for free. And so this is just a movement, resource nationalism. This is what they call Kirill Sokolov from 13D calls it the allegiance of the aggrieved. The aggrieved being anyone who's suffered post-colonial issues from essentially being an economic vassal of some European nation or America.
And so they are saying they're gaining their voice again. And at a time when the You know, the appetite of the Western public to go and knock heads against a wall is declining. And so you have this situation where the raw stuff that powers the awesome standard of living that's in Western Europe and America is going to get more expensive because it doesn't come from those countries themselves. And in the case of America, America has all the stuff it ever needs.
It's just that the companies in charge would rather ship all the stuff out to, you know, third world countries and have a cheaper labor base than employ Americans who are expensive. Europe's not so lucky. But I think that is a source of inflation that's only going to grow as the rest of the world says, I want to live in the Hollywood movie too.
Is it austerity or war? Are those really the two options? Or do you see us being able to really, in this moment, use Bitcoin as the arc that allows us to avoid? either of those catastrophic floods. Crypto is a way for you to sidestep some of the negative impacts of austerity.
And austerity is not uniformly distributed in terms of its pain, right? The people who have the most pain are those who have the most assets because the cash flows are depreciated under austerity. There's no more government printing press that's making these things go up in value. So if you did the thing that you're told to do, get on the hamster wheel, work your ass off, and you were able to, through hard work, build up.
a fiat nest egg and you recognize that this situation is untenable in terms of a very small size of the population getting very, very wealthy while everyone else is suffering, then it behooves you to get out of those fiat assets. Now, previously there wasn't really an easy way to do that, but now we have crypto. So now if you have fiat assets that are your saving vehicles or even just the little bit of fiat money that you're able to save, you can now sidestep.
You can vote for austerity to rebuild your society into a more equitable situation, but at the same time preserve the little bit of wealth that you've been able to accumulate in the fiat system by porting it over to crypto. And then once things have reset, then re-evaluating, okay, well, maybe I am okay with owning a government bond that yields 10% if the economy is growing at 5%. That's a great return for me.
I don't need to have this crypto thing. Maybe it's too volatile for me. Maybe I lost a little bit of money trading some particular coin. I just want to own some sort of bond in a government that I believe in and respect.
Cool. Now you're getting paid to take that risk versus now you're not getting paid appropriately to take that risk. This is a really interesting moment that we live in. So history doesn't repeat, it rhymes.
When you look back, I think Ray Dalio has done such a good job of breaking this down, how the... the debt cycle loops and how going back 500 years, you see the rise and fall of empires that they roughly last 150-ish years, that the sequence of events is such that you have a debt jubilee. I mean, I guess it doesn't start with a debt jubilee, but every cycle will repeat with that. Because you said you use that as a way to reset to get a more equitable situation. But the reality is it's only going to be equitable for a while because once you're dealing in a world where people clip coins, which is the OG way of inflating money, or the current way, which is you literally just you have the Fed buy assets from the government, you're inflating the money supply.
You're reducing what you reduce its purchasing power, that it is inevitable if you allow that, that people will. get themselves out of trouble because if people are in pain, they're going to freak out. They're going to lash out at the government. They're going to say, I want you to protect me, which it's predictable. So you know that people are going to do that.
So you print money so that you can get reelected. So as long as people have to get reelected, and one of the ways to get reelected is to print money, people are going to do that. And so you end up back in this cycle. The fascinating thing is that... It only comes down to any one person's individual lifetime.
That's all they know. And that's all they really care about. And so if you can push this off. 150 years, you really don't care, and it begins to loop.
However, we are living through a technological revolution right now that I think is causing a rapid divergence between the generations, which caused them to have very different worldviews. And so you have this, I'll call it a bifurcation, but I really think it's... more of a shattering, but just for simplicity's sake, I'll say a bifurcation between people who believe in the traditional system because they know it, they're used to it, it's the devil you know, and then people that believe in, and the way I think about it is, will tomorrow be more digital than today?
If yes, why would I ever think that money wouldn't become digitized? And so it just, for me as somebody who breaks on the digital side, when I looked at crypto, I was like, oh yeah, that. It makes sense to me that isn't a fake asset or whatever people call it, magic internet money. All of money is simply a narrative.
We all simply decide to agree that, oh, gold has value because it's scarce. The paper money has value because the government says that it does. Crypto has money because there's Bitcoin.
There's only 21 million of it and that's it. And so we all agree that that's the thing. And so I will be very interested to see as we march towards this.
adopting cryptocurrency if we really can take that as this off-ramp that will avoid us ending up in a hot war. I don't know that governments will allow it to happen. What do you think about that? How stern slash violent do you think the government's response is going to be? Will they control it through ETFs?
And so same as it ever was, or will they say, we're not going to allow this and find a way to put capital controls on it? The smart governments will do the ETF route, which is allow the traditional tradify people to give you a crypto derivative, like a Bitcoin ETF. That's the smart way to do it because it's the nonviolent way to do it. And people think that they've escaped this financial apocalypse.
but not really. They've only just given their money to BlackRock. And the time in which they actually want to use Bitcoin for what it's there for, which is decentralized money, moving it around 24-7 between whoever they feel like, they'll be told, no, if you want to get out of the ETF, you must sell it back for fiat and then do with your money what you please.
You don't own Bitcoin. People think they do. That's the best way to do it. The worst way to do it is to go out and ban it. Because when you ban something as a government, especially in a digital age, where people have information at their fingertips, then they go, oh, well, maybe there's something here.
Why is the government telling me I can't do it? Maybe I should read a little bit more about this. And then they decide, oh, the government's telling me I shouldn't do it because it's not in their interest, then I'm going to do it anyways.
Because you've banned it, you've given it airtime, you've proven the point that everyone on the crypto ecosystem has been saying for many years, which is the government doesn't have your best interests at heart. That's why you're there banning your economic freedom. And then you create the demand for the thing and people will get it anyways. Right. So if you think about, you know, the common narrative of like very, you know, authoritarian governments in the West, oh, China just does whatever they feel like.
You know, Bitcoin's not even banned in China. China bans a lot of things, have not banned Bitcoin. There are not, it's hard to trade it on sure in China, but it is not banned. But they did ban it. Because.
No, Bitcoin is not banned. You can own Bitcoin to a Chinese person. They've shut down the exchanges.
You just can't mine it? You can't mine it. And as a exchange, the large exchanges no longer offer a Bitcoin, RMB trading pair. But you can still trade at OTC and you can still own it. Because, you know, Chinese government's smart.
They know if I ban something, then Chinese people will find it valuable because the government told me I can't do it. Now, that is why. If the government and the elites want to stay in sort of this financial position, the ETF is the best thing that they can do because people believe that they've achieved financial freedom when they actually have just handed over fees to the same people who have been fucking them for the past 80 years anyways.
So that is the smart thing to do. But ultimately, I think that that attitude is very defeatist. If you do believe that a government is a representative body of the will of the people and you just default to saying that.
it can never change because the elites in charge want it to stay that way, well, then nothing will ever change. And that's, you know, that's a lot, that's a big detriment, you know, to writing. argument that a lot of people give, whether they're a boomer or somebody who's much younger is, oh, Bitcoin is really good. I understand decentralized money, sound money, inflation resistant, blah, blah, blah. Great.
But oh, but the elites won't let it happen. So I'm not going to own Bitcoin because the people in power are threatening and they're not going to let it survive. Well, fuck that. Buy some Bitcoin.
Tell your friend to buy some Bitcoin. Shut up from the rooftops. Create a movement. Be part of it.
Try to change things. So I think that's a very defeatist attitude. And if that's the attitude that everyone wants to have, then you deserve to be a fucking death serve.
What do you really think? Come on, Arthur, say something strong. Come on, man.
Stop with this wishy-washy bullshit. Yeah, that's very on point, I think. I maybe have a little more empathy for...
Here's what I really think. I think nuanced ideas are extremely difficult. I think the government is extremely powerful. staring down the barrel of the government and deciding that you're going to stand up to them.
I just do not fault the average person for not being willing to do that. So I have deep empathy for people who either A, don't understand it, don't want to spend their time wrapping their head around it. Or if they do believe as, as I quite frankly do that at some point, and honestly, the ETFs maybe give me a little bit of comfort. Cause I'm like, okay, that, that gives them a way.
that and other centralized exchanges like Coinbase, give them a way to grab it, to do a thing with it, right? To feel like they have control. And then people that are sort of, hey, I would at least like to hedge my bets. When you think about the Second Amendment, not to get into this debate, but when you think about the idea behind that was, hey, the government may go tyrannical at some point.
And you may need to be able to defend yourself. That, I think people lose sight of that and they think that, oh, a gun is, you know, for a home invasion or whatever. Sure, that too, yes. But like the original intention was the government may turn on you and you need to be able to protect yourself.
And that America anyway was set up with that in mind. Like we're putting all these balances of power because governments tend towards tyranny and so you need a way to protect. So anyway, that having Bitcoin is a bit like the financial equivalent of the Second Amendment.
I have the right to maintain my own money. I have the right to control it. I don't have to. I can keep it in a centralized system because, good Lord, it is so easy to lose your crypto if you are not very careful clicking on an errant link, forgetting your seed phrase.
I mean, just, whew, it does make me tense on that side as well. But at least I know that I have the right. It's interesting, and I thank you for letting me think through this stuff in real time, but that is why I find myself so drawn to this is, okay, we have a broken system that is an affront to human dignity, using your words, because of the way that it can be inflated.
I think the memes law says that you should just be able to tell somebody, save your money and you're going to be fine. I know that we don't necessarily agree on that, but that feels really true to me that that should just be a right, that no one should be able to take your money and spread it across everybody else. I have a feeling that's going to be one of the more controversial things that I say today, just trying to predict the comments.
But so you start putting that together and you give me the Second Amendment of financials, and now I can take custody of my own money. I don't think it's unseizable. I think maybe I'm against the...
the Bitcoin tied on that. I think the government can wrench attack you with crucial tools. Oh yeah, the hammer attack is the low tech is the hammer attack. Hammer, knee, private key. Okay, so here you go.
I've never heard that before. That's good. That memes law right there.
That one will spread. Hammer, knee, give me your key. Yeah. Facts.
So what do you think about the ETFs? Is that a move you're like, oh man, this is amazing or- do you think because a lot of people are like hey blackrock could end up owning so much of bitcoin that it becomes a problem so i think that bitcoin is decentralized peer-to-peer anyone should be able to own it and if we've constructed the game theory and the economic incentives in the right way we should have created a system that should be able to prevent sort of one centralized entity passively destroying the system we're going to find out If BlackRock owns, I don't know, 20, 30% of the float of Bitcoin, and there's changes that need to be made, and you need to have the community buy-in, could their passivity obstruct that process? I don't know. We're going to have to find out about that. But the beautiful thing about Bitcoin, which is different than gold, is that Bitcoin must move to have value because the miners who expend energy to improve work, to upkeep the system and process transactions, must have transactions to process so that they earn fees to pay for the electricity and the energy that they're expending.
Versus gold, gold is just a piece of, it's a thing. If the gold sits in a vault for the next 10,000 years, it's still gold. If no one trades another Bitcoin ever again, it falls to zero. So if we do get a centralizing force in Bitcoin that essentially hoovers up all the supply and doesn't do anything with it, then it goes to zero.
That's beautiful. We have the out already. Bitcoin is worthless if you do nothing with it.
If we do nothing with the tenets of peer-to-peer decentralized money, you've essentially just gone around in a circle and done nothing. And so I think that... When people start to realize that, that we must do things for the ecosystem, we must use this currency, we must try to create a farm to table Bitcoin powered economy, so that the currency moves in a circle around, you know, humans and maybe AIs in the future, then we've done something, we've created the movement that creates the value for Bitcoin.
If all we've done is stuffed it in our wallet, or stuffed it in our retirement account in on a BlackRock ETF, we've accomplished nothing we have not done what bitcoin is there to do and therefore we will be rewarded with a zero and so i think that's absolutely beautiful and that is and then we can rebuild the system again it's just it's a common delusion that we created this computer game called bitcoin and now it has economic value we can do it again and try to make rectify the mistakes that we made in the first iteration so do you think that bitcoin has a fatal flaw No, I don't think it has a feed-off law. I think that it's a resetting system that will respond to, you know, if the external environment doesn't create movement, the currency isn't moving. If it's not being used, then it should be worth nothing. Interesting.
Tell me why that's a good thing. Because if, again, if we go back to the rentier, like just a person sitting on a government bond and doing fuck all with their life. not improving the human condition at all, but they get to enjoy the fruits of everyone else's labor by doing nothing.
Is that a sustainable situation? Because that is what the fiat currency system is. Accumulate a bunch of assets, sit on your ass, do nothing.
And because you're rich, you're going to be fine. Or you can accumulate a lot of Bitcoin, but you better do something with it. You better invest in companies or spend your Bitcoin on services to... prove that this is a currency system that should be used or do something to increase the value of this system. Otherwise, what you've spent all your effort doing is going to amount to nothing.
You don't just get to sit on your ass just because you're rich at the extreme. Obviously, we're not at that point right now. This is a very down the line type of thinking taken to the extreme.
But I think that Bitcoin in its design solves this issue of the rentier situation where you have a bunch of... very lazy rich people who are rich because they're rich and they don't do anything else to keep them rich. Okay.
That feels weird to me. So I've heard, I'm assuming when you say rentiers, you're talking about what people commonly refer to as rent seekers, which was a concept I never No, no. I mean, maybe it's more of like the, it's like a pre-French revolutionary, like essentially you had rentiers, which was the French. government bond and it paid, I don't know, 3% or 4% coupon, whatever it was.
And so you basically had all the nobles did fuck all. They owned all these government bonds that paid all this interest. And the government just taxed the fuck out of all the serfs and everyone working on the farmland.
And so then everyone else got to build their nice chateaus and sit on their ass. That's what I mean by rentier. It's somebody who just earns interest.
They do nothing. Great life if you're able to have it, but you're not producing any sort of productive value for the economy. And obviously that was a corrosive factor that led to part of the reason that led to the French Revolution.
That's what I mean when I say rentier. It's I've got a lot of capital. I just own a security that pays me some interest, but I'm not doing anything else to contribute to society. I'm not making money essentially move. Similar to Bitcoin, if it all just sits in an ETF, it's not moving.
It's not doing anything. What have we really created? Okay, just another financial asset that's held in a portfolio.
That's not why it was valuable in the first place. It was valuable in the first place because we created a new way to move value throughout a human economy. So it must move.
It must do something to be valuable, to prove that it's a peer-to-peer decentralized. monetary system. If it's just sitting in a portfolio, then just own something else.
But why own Bitcoin? You're not owning it for what it's there to do. So this sounds like a contradiction of the narrative around Bitcoin being digital gold. Because what I hear you describing is Ethereum. No.
Ethereum, so I'll separate Bitcoin as money. It's a monetary system. You're able to move monetary values around.
Ethereum is a decentralized computer. Now, Ethereum and Bitcoin could have, I think, competed on mininess, if not for the 2016 DAO hack situation. So for those of you who don't know what happened, there's a company called Slockit, Stephen Toole.
And he wanted to basically do a big raise of money for his IoT protocol called Slockit. So he said, why don't I create the first decentralized VC firm where everybody could put in Ethereum into this fund, and then people would get these governance tokens, the DAO, Decentralized Autonomous Organization, the DAO token, and they could vote on projects. Guess what the first project was?
Sloket, his company. And so the DAO, as this innovative way to crowdfund, raised, I think at the time, $150 million worth of ETH. Now. Unfortunately, the acumen of the engineers, and maybe some people say there was some foul play involved, I don't know, created a situation where somebody was able to execute the smart contract in a way that wasn't anticipated, and they were able to siphon off money from the DAO treasury. And so we had this situation where the Ethereum network, this is, I don't know what percent of the network, this was what is massive.
This is back in 2016, Ethereum had only launched. a year a little bit over a year prior in 2015. so vitalik and all of the you know big stakeholders in bethlehem had a problem if we ascribe to the moneyness that blockchain what happened to the blockchain nothing can change it's immutable we should never change it because we want to be sound a sound cryptographic cryptographic piece of money that means that the dow hack should be left alone and Okay, too bad that people lost all their money on this project, which was a big percentage of the network at the time. We're going to be money.
Money says you can't ever change, just like Bitcoin, immutable. There is no changing. You send Bitcoin to the wrong place, sorry, that's it. The community in Vitalik and some of the other people thought, no, we want to be the decentralized computer. And to afford this vision of being a decentralized computer, we need it to be usable.
We need to have this network continue. And therefore, we're going to advocate for a hard fork that rolls back the network to a time before the DAO hack was created, fix this issue so that everybody gets to keep their money. Right. And this is what happened.
They chose, let's be a better decentralized computer and get more users on board and give them a redo versus being the hardest money ever known, which is Bitcoin. And obviously, the community voted in favor of this because there was two currencies created. uh ethereum under the symbol eth and ethereum classic under the symbol etc look at the price of the two ethereum is what i don't know what is it now four thousand whatever it is etc is maybe it's a few hundred bucks um if that i don't even know if it still exists so the community voted we don't want money we've got bitcoin bitcoin's money we want a decentralized computer be the best decentralized computer you can ever be ethereum and that's what they've done so i this and i know lots of people in crypto will disagree with me on this but that is how My mind works on the difference between Bitcoin and Ethereum and predicated on this pivotal event in 2016. Then if I'm understanding you correctly, Bitcoin, you believe anybody holding Bitcoin, if they want to really make this a thing, they're going to have to build on that network and be able to buy a cup of coffee with Bitcoin.
Or do something. Maybe it's not a cup of coffee. Maybe it's I'm going to settle sovereign nations, trade flows and whatever.
It just needs to be used for something. It just can't just sit in. and an address and do nothing for the next thousands of years.
No, obviously you can do that right now because it's only 15 years old. We're talking about a very long tail situation, not something that's going to happen anytime soon. It's more of a philosophical discussion of what you think Bitcoin should be doing in the next 100 or 200 years.
Yeah. You said earlier that we could reset the system and solve the flaws that we built into it. So I'm having a hard, because when you describe that, that sounds like a flaw to me. As somebody who really likes the idea of Bitcoin as digital gold.
I... I have admittedly had in the distant recesses of my mind that question of, well, what happens when the last block reward is given and that's it? All 21 million Bitcoin are now out there. And I know that that's decades away, but that was sort of in the back of my mind.
Now, it feels like a flaw to me that you would need like, hey, I need somebody to do something with gold to make sure that we can keep it as gold. Like. I want gold to just be the thing that we all agree has properties. I don't buy Peter Schiff's argument that the thing that makes gold valuable is its utility in jewelry and whatever. I think that the reason that people like it for jewelry is that they believe it's a quote-unquote precious metal.
And if they didn't believe it was because I can make something look like gold, but if you then believe it isn't actually gold, then you're bumming out. So the only thing that really makes that cool... is that it's rare and that we all agree, oh, it's a rare thing that we all agree has utility.
Okay, cool. So that's going to be the thing that so many cultures over time have gravitated to and said, this is the thing that stores money better than seashells, as an example, or glass beads, whatever. It's just super hard to fake in a way that like diamonds are easy to fake, at least now.
Gold is very hard to fake. Gold is scarce. Cool.
We're going to use gold. Okay. Bitcoin to me, that narrative, like I'm here for that. But when I think about, oh, hey, TikTok, y'all better find a reason for this to exist. Otherwise, the miners, now miners, but in the future, they won't be miners.
They need to have a way to generate funds to pay for the electricity, as you said, to secure the network. That feels like a ticking time bomb. Well, it's very...
important, subtle, fundamental difference between Bitcoin and gold. Gold is a financial asset. It's not a monetary network. Bitcoin is a monetary network plus the financial asset.
So what is the monetary network of gold? People walking. So what did I do before I had any way? How do I transport my gold somewhere else?
I got off my ass. I picked up my gold coin. I walked over there and I did something with it. The monetary network is me, a human being. eating, getting calories, doing something, right?
Or I set it in a horse and carriage, or now I have a Brinks truck, right? That's the monetary network of gold. And the asset is gold.
They're two different things. Whereas Bitcoin is a network and a monetary asset in the same thing. Bitcoin has value because it was created through this monetary network.
If the monetary network doesn't have activity, it's not worth anything. Therefore, just like Bitcoin, the monetary network must do something or it has no value. And therefore the currency... its native currency has no value either.
It doesn't do anything. So that's what people get mixed up when they think about gold versus Bitcoin. Yes, it's a very simple analogy, digital gold.
But when you actually think about what is gold and what is Bitcoin on a very first principles basis, they're different in a very fundamental and subtle way. Yep. That is clear, man.
It is crazy how no matter how much I learn about all this stuff, as the Island of my knowledge grows. So grows the shore of my ignorance. It is, uh, it's, it's unbelievable.
So is sailor out of his mind? Is he playing a genius? Okay.
Tell me more. So if there's, if there's the looming, like we have to find something to do with this, he is betting everything on the fact that we will figure out something. Cause that, that man is leveraged. So guess what?
So Saylor is doing very smart trade, which is he's borrowing money in a depreciating asset at a low rate because he has a corporate entity that's able to access this market. So if you're a listed company in the U.S. or elsewhere, you're able to access the corporate bond market and you're able to borrow at a very, very attractive rate. So he's able to borrow U.S. dollars. We know that U.S. dollars, the quantity of them.
will increase in the future. What does he take this depreciating asset and does with it? He buys Bitcoin. So he short dollar, long Bitcoin. Short the thing that's going to increase infinitely, long the thing that only can have a certain amount.
So from a corporate finance perspective, it's a expected value positive trade because the asset his just funding currency is going to inflate his the thing he's buying is going to have a finite amount and so you know i don't know what he pays on his debt like two or three percent He has a other software business on top. So the interest costs of his debt is either partially or in full covered by the income he earns from his software business. So he basically has created almost a free option or an option with a very, very low carry on the future value of Bitcoin.
So what does he do? Prior to the ETF, he had two value drivers for his company. Anyone who wanted to buy Bitcoin from a traditional TradFi basis couldn't because they didn't have a vehicle to do it.
But anyone in TradFi could buy a listed U.S. security, which is what MicroStrategy is. So if his company is just a Bitcoin option play and you want to buy Bitcoin, you buy MicroStrategy. And you don't give a fuck what he does because he's the only game in town for this strategy. Okay, now it's a bit different with the ETF. The ETF now powers a second link of this strategy, which is Bitcoin number go up.
Okay, well, if there's only so much Bitcoin that's freely tradable, because a lot of it's held in wallets or lost or hasn't been buying yet, whatever. And now you have this juggernaut BlackRock Fidelity and all these people who are buying, I don't know how many billions they've bought Bitcoin in the last eight weeks or so. That makes the fiat number of what Bitcoin is worth. go up.
And he's a corporation. He cares about his fiat value because that is what his reporting currency is. Now, so before he got the value, I'm going to get inflows into my company because they want to own a Bitcoin proxy, but now they have another Bitcoin proxy called an ETF.
I get number go up on the other side and this option becomes very, very valuable. And so again, genius. Okay.
Let's look at it from a slightly different angle for a second. So time horizons matter a lot. So maybe this won't matter at all because he's got enough time to figure that out. The narrative last cycle on Bitcoin was digital gold.
The narrative this cycle, or the meme, I should say, the meme this cycle is never sell. Now, hearing what you're saying, that does not make sense to me at all. So it becomes a... keep an eye on whether this actually becomes a functioning network for something other than just storing wealth, that if you see that it's not going anywhere positive, then you better get the hell out while the getting is good. And that is a far less compelling argument.
So the only thing, and because again, I like to try to predict the comments to see my own argument from the outside, which is why I do that. Uh, seeing that argument from the outside, people are going to say, that's ridiculous. Of course, we will come up with something. Um, you 15 years in, do you think that there's anything meaningful other than Bitcoin as a, as a, um, awesome narrative as a, as it being a store of wealth? Is there anything lightning network or otherwise?
So if you're not familiar with ordinals, they are on Bitcoin and FTs on Bitcoin, but not really. We can get into the reason why people are really interested in that. But yeah, if the meme is simple, NFT is on Bitcoin. So what are we doing?
We're bringing human culture. And I think NFTs as a data construct bring human culture to crypto. So we're going to bring human culture to the biggest and most valuable crypto of them all, Bitcoin. And Ordinals have already proven that they have generated massive amounts of transaction fees for the miners as people are inscribing them. and trading them with each other and this is only going to increase so i think we have found one killer transaction generating method which is let's bring culture to bitcoin people like to trade these things now you can trade an ordinal on bitcoin versus you know a punk on ethereum or whatever right so theory of proven that we have we have done something someone's come up with uh some innovative ways to use the the taproot technology to inscribe these ordinals and create this demand for culture on Bitcoin.
And that's generating massive amounts of transaction fees that are going to miners to keep them fed. So again, we've done something in the short term, but I would push back on this notion of like, in markets, I operate in sort of like two to three year cycles. And so obviously what goes up comes down.
It's not that Bitcoin is not going to experience another 75, 90% fall from whatever the all-time high is this cycle. But right now, the narrative is never sell. Do you want to go short against that narrative? Absolutely fucking not.
If you don't believe in the narrative, just don't enter at all. But do not go short because you're going to get blown the fuck up as somebody just found out shorting MicroStrategy stock on some sort of like an arbitrage trade between MicroStrategy and Bitcoin. Because the implied Bitcoin price of MicroStrategy is higher than what the spot price of Bitcoin is.
And so people did went long Bitcoin, short MicroStrategy. And the premium is keeping is gapping and forcing people out of their positions. So Saylor is a meme god right now. He's got. hold.
I'm one of his memes. I'm well aware. Yeah. How many chairs am I sitting on? Yes.
He's got the narrative. Do not short him. If you don't believe in what he's saying, you think it's complete bullshit, just don't own the stock. Don't short the stock.
Don't do anything with it, but don't go short. Very interesting. Yeah. Look, I needless to say, I'm a huge believer in Bitcoin. It is...
a very, I like to know what is true. That is always my guiding force. If ordinals actually solve the problem, we'll see, because I think there's now going to be a, I mean, maybe just multiple communities will spring up, but right now you've got NFTs, I would assume from a trading volume position is just absolutely orders of magnitude larger than ordinals. I don't know that. So maybe I'm wrong and the problem's already solved.
That's my gut instinct. Is that true? I don't know. I would assume that trading volume on like ERC20 NFTs is definitely higher than Orinol. So it's not even major wallets yet that support it.
Obviously, I mean, I've invested in one. But yeah, it's a nascent space. But we've proven that there is demand for block space that isn't just, let me just move some Bitcoin between my Coinbase and Binance account.
Right. So I think that's the thing that I want to see. Not that we've solved the problem of how do we keep the miners. incentivize the transaction fees to keep the machines on in 2140 when the bitcoin block reward ends it's okay we all know this problem is coming there are different communities spreading up creating intrinsic demand for block space on the bitcoin blockchain if we can do it with ordinals what will be the next thing that the community comes up with i don't know but to say that you're going to not participate in this bull market because of something that's going to happen in 2140 okay fine But then, yeah, sit it out.
But that's probably, if you're thinking about it from an investment or trading perspective, that's probably not the right way to look at things. What is the right way? So yeah, we'll just ask that.
What is the right way? If you're somebody who is very into markets and you like to manage your money, and this is something that you enjoy doing, which obviously this is what I do for a living, momentum trades, especially in such a meme culture like... crypto where there's no manipulation from outside stratified forces, the trend is your friend until it ain't. We're not at that point yet where it ain't. So you follow the trend.
And I think it becomes obvious to you in sort of absurd moments of why the trend is probably time to fade the trend. There are multiple opportunities for people to get off the train in 2021 and early 2022. Some people did. A lot of people didn't.
But you just have to understand what you're doing and understand that nothing goes up forever. Nothing goes up in a straight line. There are ups and downs.
And at a certain point, then there will be a correction. But be ready for it. That is the first part of the wave. Everything goes up.
Looks like it's going to last forever. But then we get the big explosion. We lead to something like the Great Depression. How does that party end? Just all the money got poured into the new hype thing.
Let's say it's AI. And what makes the music stop? Well, if we've already printed money to do yield curve control and the system is still buckling, whether that's the price of oil is $1,000 a barrel now or something like that, it's going to be some energy component of it or the cost of end-of-life care.
is millions of dollars, right? You can't print healthcare, you can't print oil, right? So these are the things that are going to go up massively in price.
And then the system just breaks because people are like, holy, hold on a second. Like, yes, the government bond yield is two and a half percent of the banking system is solid on a nominal fiat basis, but it costs me $10,000 to fill my gas tank. Just being obtuse here, right? And then there's social unrest because I can't get enough to eat or you broken the promise of the lifestyle that I'm supposed to live being in this country, but I was promised to vote for you and I'm no longer going to be there.
And then it's, okay, well, if I don't have it internally, let me go out and get it somewhere else. Right. Oh, don't worry, everybody.
We're going to go over there and take their shit and give it to you. So support me as a politician. Right.
And trade no longer becomes the way in which we acquire the things we need. We resort to force. And then that's unfortunately how we lead to conflict.
OK, so is to when you look at that, is this a U.S.-China conflict? Do you see that going? um hot uh hopefully not i mean maybe it's i think it's um i forgot i can't pronounce her last name uh pippa m something rather uh she let she coined the phrase a um a hot war a world war in cold places cyberspace the arctic circle space right there's wars going on right now in these different fields that are not the same as boots in the ground and the kinetic you conflict.
What's more important today, owning territory or owning your citizens'data, right? So there's different things that we consider important in the substrate to our modern life. So if we are in this new AI world, your data is more important than going out and acquiring new territory.
So it might be that the war is not to shoot them up on some border, but it's, you know, aggressive hacking between different countries trying to ensure that they have access to certain data or their AIs are able to operate in certain fashions, right? So we don't, it could be a different type of war, not exactly the same war that we're used to. Maybe that's even more dystopian.
I don't know. I'm hoping that we don't, you know, get into, I'm just going to go take your shit and, you know, maybe get to the nuclear situation. But again, whatever it is that countries believe is the The good that they need to provide to their people to stay in power, they're going to try to go out and take it for somebody else.
All right. I'm going to set aside the most dire stuff, largely just because I hope it doesn't happen. And two, I don't know, just like the best thing so rarely ever happens.
I think the worst thing so rarely ever happens, not that it doesn't happen. I am certainly a student of history and am well aware that things do actually go off the rails. But let's take. a scenario where we don't end up in a hot war, but we do get that rubber band snap effect. We just printed too much money.
Gas tank is way too expensive to fill. We do have the social unrest. Government does lock things down, put in capital controls.
We do more silly things like sanctioning countries, and so they're terrified of buying our debt. And we just end up in a position where other countries are incentivized to. begin to break away from the dollar.
Do you see a real threat to de-dollarization? And if so, how does that impact the average person? So de-dollarization negatively impacts the financial elite of America. It could have zero, if any, impact to the average American. Because I've argued in some essays that the current system of You know, the fiat financial system that works in America doesn't really benefit the average American.
It benefits New York and San Francisco and LA, right? Essentially the coast. People who are in finance, people who are in tech, right? America as a place is a great landmass, right?
It has enough food to feed itself. It has enough oil. I think the US is either number one or number two largest oil producer in the world, right?
I think number one, yeah, which I was surprised by. It's protected by two oceans and Canada and Mexico, you might as well just call it part of America, right? And if you count the Mexican population and growth in terms of their demographics, America actually can hit the replacement rate of what was it? 2.05 kids per woman. So as an economic unit, America is unique in that it can become an autarky.
And it basically was until World War I. And so we can go back to that place. But the current crop of people who are in power would lose standing in that sort of situation, which is why they continue on carrying about what the value of the dollar is, because their wealth is international companies where half the business is. abroad where the workforce is in China, Vietnam, wherever, right? It's not in America. So de-dollarization is, you know, pointed at this big thing and America needs to protect the dollar, but for who? It doesn't actually benefit the manufacturing worker, the UAW, you know, union worker or the UPS truck driver, right?
I mean, so... It's a question of what the political system is there to benefit. Who is it there to benefit? And so America and the de-dollarization, it's bending about as a super bad thing.
And yes, it's bad for some people who are tied to the fiat financial system, and that's where their wealth is. But if you want to think about it from the average American person, made in America is great. Wages for the bottom 50% rise.
They have better purchasing power. Yes, stuff is more expensive, but at least they're able to get it. There's lots of parts of the world in Europe. is probably the most fucked, where they don't have population growth, they don't have energy, and they don't have enough food. That's where you probably could see a big internal conflict again, as the edifice of the euro crumbles, where these countries don't want to be tied to a bunch of faceless bureaucrats in Brussels who tell them what to do.
Do you see that as a real concern? I didn't realize that Europe was higher risk. Yeah, I think Europe is higher risk because, again, it's dying. like the rest of the world, it doesn't have energy security.
It doesn't have food security. I mean, most of the productive region of Germany was powered by Russian gas, right? The Ukrainian breadbasket helps feed a lot of Europe, right? North African oil and natural gas helps keep things running in most of Europe.
And so removing those things, Europe's fucked. The Euro's fucked. It's a... poor.
It's a construct, you know, this I'm quoting, paraphrasing macro guy Felix Zulauf, the euro was created to keep France strong and Germany weak. And it's attempting to paper over these differences in economics with this structure that just doesn't work. And it'll come to a head when all of a sudden there's just not enough stuff to go around. And Europe's traditional trading partners are like, well, if you're going to be aligned with the US, then we're no longer going to sell you stuff on a preferential basis. There's no longer any Russian gas.
There's no longer a bunch of West African countries willing to sell you stuff cheaply. We're just going to let you figure it out yourself. And what's the answer? Print more money.
But again, with the Euro perspective, you have a bunch of countries that think that they are some sort of democratic polities. and the population, why we have the hero anymore. But there's obviously an elite that likes the hero, and that could come to blows. Okay, so I've talked to Ray Dalio several times, and one of the things that I'm asking him routinely is because he sees so much disruption coming, what do we do about it?
Where do we go? And he keeps drumming this idea that what matters is how people treat each other. And he said, you want to be somewhere where people are treating each other well.
there's rule of law that you can trade. What is the move? And is this how crypto enters your thesis? What is the move if the Western world does get dramatically disrupted, either hot wars and cold places or capital controls. So the government is trying to lock things down, yield curve control.
You know, they're just doing all of those things to continue to prop up the system. What's the play? You obviously are American, but you do not live in America.
Yeah. How do you think about that step? And is cryptocurrency part of that? So the easiest thing right now is to protect your financial wealth, right?
For the first time in human history, we have a financial system that is not predicated on government violence that is crypto. It's an opt-in violence-free, violence-free coercion system where I can opt into this Bitcoin blockchain-based financial system. And now I have a way to transact with anyone around the world on an honest, transparent, open source basis. And I can escape the fiat system with as much or as little wealth as I deem appropriate.
So now I have the ability to take my wealth outside of the government system and Unlike gold, nobody knows how much crypto I have. I can store my crypto in my head. I can memorize my private keys and my seed phrases and restore any of my wallets.
And not that I do this, but you can do it if you're good at that. So you can hold as much wealth that you could in Fort Knox in your head. That's absolutely revolutionary. And so we have the financial freedom if you choose to use it. And so once you've obtained financial freedom, then it's about, as Balaji says, choose your tribe.
We're as a place that has the same ethos as you, you know, has a good food supply, the weather, you like the weather, but most importantly, you like the community of people who are there. There's no prescriptive of where that is that's very personal. Maybe it's where you are right now. And the only thing you need to do is obscene your financial freedom such that if the borders close and whatever, you're cool.
You're able to maintain purchasing power in energy terms. But you're around a community of people that you like and love. So I think, yeah, the community aspect is a very personal one. There's no one right place. The financial aspect is if you have the ability to do so, get your financial freedom for.
the amount of capital that you wish from the fiat financial system, if you believe in the thesis of me and others and that the math is going to collide with bad politics, then you now have financial freedom, which gives you the ability to move if you want to or not want to. So the thing I think a lot about with this is timing. I'm obviously a big believer in crypto, but I really don't want to leave where I'm at.
And not only am I in America, which does not strike me as the most crypto friendly place. I'm in California, which has definitely done some legislative things that I have found questionable. But man, I don't want to leave. So is that how they get you? Like that you just wait until it's a little too late?
Or did that play into your decision to move out of the US? No, I moved out of the US because it's just not. A place that resonates with me personally.
I love being in Asia. I love the people. I love the culture. Yeah, just my place, the economic opportunity, all that kind of stuff.
For some people, America's great, and that's fine. It's a very personal thing. But yes, there's a lot of inertia with people and money. They understand how this monetary system works.
Bitcoin didn't exist 20 years ago. You're really going to take your hard-earned money and you're going to put it in... magic internet money with a bunch of people with like pink pudgy penguins and crypto punks as like avatars who are like debating macroeconomic policy on twitter and other social media platforms you might think these you know we're a bunch of fucking clowns over here right and so like why would i why would i trust this financial system versus the man or the woman in a navy suit with an earnest tie and a pair of louboutins on right so it's all these things that factor into whether or not you trust the financial system or not. Again, very personal, but the unfortunate part is that most people aren't taught the math. They don't understand how a bond works.
They don't understand how a bank creates and removes credit from the system. They understand why mathematically this cannot continue the way it's going, and that there will be a reckoning. And history has told us the exact playbook they're going to use. It's not as if they're hiding it from us. There's paper upon paper written about exactly how to financially repress a population.
to make sure money doesn't leave the banking system, to use the banking system to purchase the government debt at a level the government can afford that is below the level of growth in the economy such that the government profits. This has all been written about. You can read it on the internet, but most people are too lazy or too distracted or they work a job and they're just too tired to open up a book and read.
But it's all there for you to read. And if you read it all, you'll understand very quickly that the situation cannot continue and you have to do something. And that something depends on your financial position. Obviously, I'm in the position to put a lot more of my wealth into crypto and not care too much where the price goes.
Maybe you're not. The most insidious part of inflation is that the poorer you are, the harder, the more percentage of your income is spent on energy. Therefore, the more inclined you are to become a degenerate speculator, because the little bit of money you're able to save, you need to lever up so much just to make an impact on the depreciation of your wages versus the cost of food and fuel.
that you make bad choices, especially if you're not educated about what these financial markets are. Because that's been essentially government policy globally is to keep people in the dark about how money works so they can blindly trust the supposed person in power. Yeah, that's something that I heard you say that really hit me, which is that inflation makes a speculator out of all of us.
Speculation is the one thing that really I find super unnerving that I To me, speculation and gambling are basically the same thing. Like people are just taking a guess. How is it, though, that people cannot understand the system and yet still feel the force that compels them to be a speculator? Is it that they're looking at their wife and their kids and they're like, I'm only going to get a 2% raise, but I can feel that that's not enough. Like, I don't even know if they like it doesn't seem like they would think through all of that.
So what is the instinct that kicks in that makes people speculate? Because I want to I know. I can't earn my way out of this. I can work as hard as I want. I can put as much overtime but I'm only going to make so much money.
Period. But I watch the TV and I see the successful, mostly men, driving a fancy car, has nice clothes, whatever. And six months before, he was on the street. Whatever the story is, it's Horatio Alger, you know, rags to riches, very little effort. There was this thing I did.
It was trading stocks or whatever it is, right? Usually it's financial markets because things move so fast and can apply leverage. And yes, there are people who have done that. But the majority of people who try that fail. because it's very, very difficult to do.
And so you're desperate. You're like, I know I need to uplift my economic earning potential, but working my job in my lane, I can't do it. It's just impossible.
I see myself losing day after day after day. I see my family having a lower standard of living day after day after day. If I could only pick the right stock, if I could only predict where the yen-euro crosses go on 200 times leverage. If I could only hit black five times in the roulette world, if I could only, you know, go to the casino and play crap, if I could only, and then you spiral out of control.
Yeah, it's interesting. The idea of creating a financial system that people can, and I'll use my words, that people can bet on to create capital, to move capital into the system. So if I'm a company and I'm trying to grow, I could say, hey, who would like a piece of this?
I don't even have to offer a dividend, like dividend stocks I understand because they actually, you're getting profits out of the company. That makes all the sense in the world to me. When I was first, when I was in my 20s, trying to wrap my head around the stock market, I was like, okay, so wait a second.
Some of them are baseball cards and some of them are dividend paying stocks. That was like, that just made sense to me. I was like, okay, well.
Sure, like if this thing, which does not pay me a dividend, but if I can get somebody to pay more for it, to own it for whatever reason, then I can, which is that they think somebody else is going to buy it from them. Now, all of a sudden, that company has access to capital. I see why that's good. I have a chance if I can actually sell it to somebody, then, okay, that makes sense for me.
I'm able to make more money. I mean, it's really a genius system, but hiding inside of it is the greater fool theory of, well, wait a second. If the stock isn't paying a dividend, then if no one else is willing to buy it for more and the number is not always going to go up, I mean, it's never always going to go up, but it can go up for some companies for a very long period of time.
But it's really ingenious. But yeah, the element of speculation, the element of I have to, the element of I don't know what I'm doing, but I'm going to YOLO in anyway. It all makes me very nervous. So one thing I hear people say a lot is crypto is your exit from that system, where because it can't be inflated, and this is the thesis with Bitcoin, and again, stop me if I go awry. Bitcoin has a finite supply.
Going back to one of the things you said very early on is that it's risky stuff, but it's a fixed supply. That idea of it's a fixed supply. There's only 21 million of them.
They're not going to be any more made. They can't be more made cryptographically. And therefore, if everyone agrees that it has value and I put money in that, then that money should maintain its value because it's not going to get inflated away. But is that really an exit from the system of having to speculate?
Or is it just another bit of speculation? So you can speculate in crypto. absolutely.
There is all you can speculate in Bitcoin itself. Right. You know, you put a lot of your wealth in it.
It's very volatile. It goes up and down a lot. Right.
So when you're moving yourself out of the speculator category, if you're putting a certain amount of money into crypto, for example, and you say, I'm going to assume this goes to zero and I'm not going to care, then you're not speculating. Right? You're speculating on a future, but again, your lifestyle is not going to be impacted.
Like the worst part about speculating is I need this to go up because I need to buy my dinner tonight. Right? And so that is when you get into problems. But yes, speculating on more humanity getting into a new system and that system being worth more because there's a bigger community, fine, but just choose the size.
It's all about sizing. No one knows the future. We're speculating every second of every day, every step we take, right?
We're speculating on things. We have informed historical experience to say that this thing is less risky than the other, but none of us know what the future holds. We're always speculating.
The question is the size and the risk, right? Don't put your whole net worth into crypto where if the price goes down a little bit, you can't eat. That's not smart.
It seems that don't put your money in the S&P 500 or some other stock industry and go long too much where if it goes down 1%, you can't eat. Again, it's all about creating a system that works for you and where your financial position is in life. And if you do want to go into the super leveraged speculating aspect, make sure it's a pot of money that you can afford to lose. What's your thesis on crypto?
Why do you think that it's going to be here for the long run? It's been around for 12 years, 13 years, something like that. Obviously, it's done well, but that's a pretty short period of time. What is the thing that gives you confidence that it's going to keep mattering? So it's a financial system that's gone from zero, right?
First Genesis Black in 2009, to a system that has weathered multiple crises, right? And the most recent we had one of the largest exchanges in the world, a bunch of the largest lenders, some of the largest hedge funds, massive amounts of fraud. All this happened in the span of six months.
People lost hundreds of billions of dollars in value, yet blocks kept being produced every 10 minutes for Bitcoin, 10 seconds for Ethereum, and whatever the blockchains are for a lot of other currencies. The decentralized finance or DeFi movement People were still trading on decentralized exchanges. People were still borrowing and lending different currencies on some of these lending platforms.
The financial architecture worked, even though we had to buy and sell. We had one of the biggest losses of wealth and biggest amounts of financial malfeasance ever in the crypto ecosystem. And I mean, if you want to compare the amount of money that Sam Bankman Freed and his crew allegedly stole from their customers, it would rank as one of the largest thefts, financial frauds in human history.
Right. All this happened. There was no bailout.
There was no central bank that said we need to preserve the system and therefore, assuming they could. print a bunch of Bitcoin or Ethereum or whatever and make sure these entities are made whole so that certain people don't lose any money. None of that happened.
People lost a lot of money, but the architecture of the system worked. The community was still there. People are still shipping code.
I was just at Token249 in Singapore. The energy, 11,000 tickets sold out, basically almost took over the whole of Marina Bay Sands Convention Center for this conference. People around the world believe in this system.
They're some of the smartest people in the world. people in the world who I've ever met who are building this system. You take a look at who are the smart people in the scleric financial fiat system? A bunch of fucking Muppets, right? They're there because they've always been there.
Not because they're special, not because they're inspiring. So they're not building anything new. They're trying to keep the old thing relevant.
And so that's why I believe this is going to have staying power because the math works, the top. the cryptography works. But most importantly, the people are so impressive and so dedicated and so enthusiastic about what they're building. And I've worked at a bank too. There was none of that energy working on, working in the studio.
traditional financial structure. We're there punching a clock, earning a paycheck and trying to take as much risk as possible. So we make a little bit of money so we can get the fuck out of there.
Okay. But there is a question to be asked, which is there's regulation for a reason and that the average person, I mean, look at FTX, the very thing that we're talking about. It's very impressive to me. And again, I want to say I am a big believer in crypto for a different reason than you, which is interesting.
But. But at the same time, I want to face head on the things that strike me as worrisome. And this may be a feature and not a bug, and we may all just have to wrap our heads around it. But the amount of regulation that's in the TradFi world is pretty extreme.
Now, I will admit the first time I realized that just because I had over a million dollars that I was suddenly a qualified investor is not the term. that I was now accredited. I was an accredited investor.
And I was like, but wait, I don't know anything more about investing money now. I know how to make money. I don't know how to invest money.
And so I was very shocked by that. It just seems stupid that you couldn't pass some sort of test and be able to do your thing. But at the same time, there are people get their wallets drained constantly in crypto.
The amount of malfeasance just in FTX is just. absolute bananas. And either crypto tends to attract those people or the current lack of regulation just. creates the incentive structure where that's what's going to happen.
One thing to jump in there is that FTX was regulated in I don't know how many jurisdictions around the world. They had licenses all around the world, right? So the the notion that regulation would have stopped the FTX is patently false. They were highly regulated, not as regulated as a bank I wouldn't say, but they did have regulators around the world that had given them licenses and they were supposed to do things in a certain way. Right.
If you want to take the other example, like let's take a look at Credit Suisse. Now, they didn't steal anybody's money. Right.
But Credit Suisse was a global, systemically important bank, G-CIP. Right. And yet the most highly regulated of regulated industries in the world, banking, the most highly regulated of regulated banks, Credit Suisse in Switzerland, fucked up and blew up and required the Swiss taxpayers to bail them out for umpteen billions of dollars. Right.
So financial regulation. When the incentive structure doesn't work, it's useless. It doesn't solve anything. It makes you feel good at night.
That's fine. You can get your money back on a nominal basis. But what happened? They printed more money and made us all poorer in the result. So I would say that financial regulation, yes, it's nice that a bank needs to be run in a certain way, but it doesn't prevent bad people from doing bad things.
It just makes the, if someone's going to run a scam, it usually makes it bigger. To hear more about Ray Dalio's warning on the upcoming recession, which we're almost certainly already in, watch the full episode here. Talk to me about the three forces that you see that are influencing this moment. We've got banks collapsing, US dollars under attack, looming recession.