Clay Finck (00:02:12):

Now, like I mentioned in this intro, on today’s episode, we’re going to be chatting about the Bitcoin Conference Josh and I have recently attended in Miami, and just chat about some of our biggest takeaways from the event. I had many people ask me, “Is this a work event? Is it all fun? Is this suit and tie deal?” And my answer to that is I went primarily just to network and connect with others. I got to connect with many people I already knew from TIP like Preston and Trey, and I also had the opportunity to meet some of the guests I’ve had on the show, which includes Andy Edstrom, Dylan LeClair, and Jim Kreider. And not only that, I had the chance to meet a lot of new people in this space who I hadn’t met before like Josh.

Clay Finck (00:02:52):

And it’s just really cool to be able to connect with all these like-minded people who are just so smart and have done so much research on this topic and just bring this whole new perspective and their own life experiences. And it’s just really cool to be down there and meet all these people in person. And for those who aren’t familiar, the Bitcoin Conference was held in Miami Beach at this massive convention center down there. On Thursday and Friday, there were speakers all day on the main stage, and there were speakers on a number of other smaller stages as well. Then there were just hundreds of booths set up with all these companies in the space there, so you could go and chat with them and find out more about their products and services.

Clay Finck (00:03:30):

It was just also a really good opportunity if anyone wants to get a job in the space. A lot of times, the hiring manager will be there directly. For example, a software engineer, those are pretty well in a shortage today that I’m aware of. So, it’s a great opportunity to get a job in the space if any of the listeners are interested in that. I had such a good time at the event, and admittedly, I already purchased my ticket for next year, even though we don’t even know where the conference is going to be at. So, what are you guys’ initial takeaways on the event?

Josh (00:04:00):

Well, I can confirm that it was definitely not a suit and tie event. You could get away with a t-shirt and shorts there all day. Yeah, as long as you’ve got a Bitcoin tattoo somewhere, I mean, you’d be left alone. Very lax, very cool environments. You get to meet a lot of people. Just walking the halls, you see people you recognize from the industry, which is really cool. They get their own mini celebrity week, which I think they semi-enjoy and are probably annoyed with, but it was a really cool, really fun event to partake in. And I’m definitely buying a ticket for next year as well, and I think Dan may have already done so.

Dan (00:04:31):

Yeah. I wasn’t there, folks. One of the most bittersweet weeks of my life, I had my second child. Fortunately, he and mom are healthy, but the FOMO was just out of control. I mean, I felt like a dog stuck in a cage staring at a bone covered in peanut butter. I mean, it was just insanely hard to not be there. I mean, I’m incredibly blessed for what happened, but seemed like a pretty incredible week. And I mean, outside of just the networking and fun, as I know we’ll get into in this episode, a lot of substance, very exciting time to be a Bitcoiner for a plethora of different reasons. So I was able to tune into a lot of the conference while holding a week old, but man, was it tough to miss out.

Josh (00:05:09):

The cool thing I think what I enjoyed most about it was meeting some people, Clay included, who… And I didn’t know anybody when I showed up really. I knew Jim Kreider just from our talk on our show couple months ago. Clay, I knew a bit, but never met them in person. We all went out to eat the first night and it was just a cool atmosphere to meet some new people. And besides those guys, met three or four other guys we hung out with the next night, which was… It was just a joy. It was fun to hang out with all these good people, just genuinely positive people there, and the atmosphere reflected that.

Clay Finck (00:05:37):

Yeah. Dan, congratulations on the newborn. That’s a good excuse to not go to the conference.

Dan (00:05:43):

Thanks. Josh actually gave me an open dime. If anyone’s not in Bitcoin, it’s a Bitcoin hardware device with a transaction from his date of birth. So, it’s a cool gift from a great friend and podcast partner. And my guess-

Josh (00:05:56):

Aw.

Dan (00:05:56):

If price does anything like we expect, whatever amount of money on there, it’s going to be pretty exciting when he gets old enough to know what’s going on with that thing.

Clay Finck (00:06:04):

I love it. Well, let’s dive in to talk about some of the speakers. One of the first events on the main stage was… It was a talk called Billionaire Capital Allocators. It was led by Greg Foss, and Ricardo Salinas was on the stage as well as a few other capital allocators. And I thought this one was a really interesting panel. Ricardo Salinas is the third richest man in Mexico, and some of the others on the stage managed large funds. Foss definitely did not pass up the opportunity to be the center of the stage as he was fired up as I’m sure you guys loved. Ricardo-

Josh (00:06:38):

He didn’t even sit down. He sat all these guys down and then just paraded around hogging the mic the whole time, which was hilarious.

Clay Finck (00:06:44):

Yeah, he definitely took advantage of the opportunity. And Ricardo is the guy that really fascinated me on the panel. He’s worth well over $10 billion, he’s lived through hyperinflation in Mexico, and he stated on the stage that 60% of his liquid net worth is in Bitcoin. Think about that. And listening to this talk, one item that stuck out to me was Dan Tapiero talking about the traditional 60/40 stock-bond portfolio. He mentioned that holding that portfolio has worked since 1981, as interest rates since then have gone straight down. As many people in finance know, this pushes up the prices of both equities and bonds.

Clay Finck (00:07:23):

Now, today, we’re running into some issues. We have $200 trillion sitting in the bond market and all of it is negative yielding after you account for inflation. So if the bond yields 2% and the CPI inflation is 8%, and many of us know that CPI inflation might be not quite telling the truth, then you have at least a negative 6% yield on your money. So logically, he comes to the conclusion that money is going to have to flow out of bonds into other asset classes. And obviously, Bitcoin is one of them is what he believes. And he walks through, well, if you have $200 trillion in bonds and any fraction of that flows into Bitcoin, Bitcoin’s just under 1 trillion. So, it becomes pretty obvious that Bitcoin is a very big asymmetric opportunity just through that one lens.

Dan (00:08:14):

So, everything you just said is… Obviously, these are themes we hit all the time on our show. I think the question you have to ask when you sort of unpack this reality, right? And the reality is just a totally artificial cost of capital that’s being accentuated and magnified by CPI prints that are honestly mind-blowing. I mean, I heard, I forget what show she was on, but Lyn Alden saying, “I knew inflation was coming. Prints like this are surprising.” We obviously have ancillary factors like Warren, what not? Well, we do have to play out the scenario of what if these perpetuate at the numbers they are? What if they do come back a little bit, but they’re three, four, 5%, they’re not 2%? The entire stack of the way capital is allocated is impacted, as you’ve just referenced, right? So inflation is impacting real yields, which is then impacting the risk-free rates, fixed income, and then on top of that, equity. The whole stack is compromised when these numbers are skewed in a way they hadn’t been in quite some time, right? Huge systemic event.

Dan (00:09:05):

And when you unpack that reality, you then have to ask, “Okay, so who’s the affected?” As career firefighter, paramedics expecting a pension, and being around a cohort of people that are expecting a pension, people that are exposed to large amounts of money, that nominated explicitly in the fiat currency, are going to be the bag holders. And this is something that Ricardo referenced specifically. He mentioned the word pension several times in warning, honestly, average folks. It’s like he wasn’t speaking to other hedge fund managers and billionaires. He was talking to the average person saying, “Hey, it’s the vulnerable that are potentially affected by this.” Right? The elderly, the lower class, the middle class that’s reliant on pensions and other defined benefit plans, things like that. So that’s something we’re extremely passionate about is just first of all, your personal portfolio getting away from fixed income allocations, and then secondarily, hedging risk in systemic debasement in things like pensions, which we’re “relying on.”

Josh (00:09:59):

A couple other things that he said that really stuck out to me was this is a guy who’s a Mexican billionaire worth, like you said, Clay, $10 billion. He referred to Fiat as a fraud multiple times. And that’s something that you expect some pleb on Twitter to say, having no skin in the game, and it’s [inaudible 00:10:15] anyone, just whatever, some guy you don’t know. But when people at this level are calling this a fraud and a Ponzi, and then he talked about how initially when he was working in Mexico, his first job, he was making $2,000 a month. He said, “Because of the hyperinflation, that was equivalent to $20 a month, just a few years late.”

Josh (00:10:30):

This guy has lived through massive hyperinflation that’s in order of magnitude less money in a couple of years. And he said that Mexico back in those times was dependent on US dollar. Everyone would just simply use dollars. Well, what we’re looking at now is a collapse of potentially the US dollar in the end here. And so, there really is nothing else underpinning any of this. It’s going to be a very different situation than Mexico’s hyperinflation or Venezuela’s hyperinflation. This is potentially hyperinflation of all fiats in tandem around the world. This is an entirely different animal. And it’s scary stuff when people of this caliber are ringing alarm bells to this degree.

Dan (00:11:05):

The other comment I got to throw in here is he did repeat this phrase, “the fiat fraud”, a number of times. So, that’s one of the themes he explored. Then another theme that he explored was he was very clear that he’s Bitcoin focused. He did spend some time up front railing on altcoins and the use case for altcoins. And those two themes are connected because in order to thwart the “fiat fraud”, as he calls it, you’re going to need a decentralized mint, you’re going to need immutable monetary policy by way of decentralization. And that’s why a good first principles critical thinker, which he appears to be on first glance, recognizes any protocol that’s not accomplishing that decentralized immutable mint is not solving the fiat fraud. It was kind of interesting to see those two things marry because he is interested in upending the fragile foundation of the entire system. And in our humble opinion, there’s only one protocol that’s even remotely close to accomplishing that.

Clay Finck (00:11:58):

Related to Josh’s point talking about how this is a billionaire who’s seen a lot and studied a lot, it reminded me of Jack Dorsey tweeting months ago that hyperinflation is coming. This guy runs Block, previously Square, and he is peering into every single transaction that’s happening. So, he’s able to look behind the curtain on what’s actually happening in our economy. And he called it months ago before inflation has really ticked up to the eight and a half percent that we’re seeing today.

Josh (00:12:27):

Yeah. And he was just ripped apart, like a pack of hyenas got at him, on Twitter by people. The mainstream economists were all scoffing and looking down their nose at them, but you’re absolutely right. The guy’s been at the forefront of this for years and he’s looking at millions of transactions. I think Square or Block has got 70 million customers. He’s got a fairly good sample size here to just peel through and sniff what he’s stepping in.

Dan (00:12:49):

To push back a tiny bit, and I may get lambasted here by some hardcore plebs, but we do have to remember, I think the definition of hyperinflation is 50% month over month. So, we’re nowhere even remotely close to the actual textbook definition. I mean, is that theoretically feasible? Yes. But there’s an unbelievable diversity of perspective on exactly what the inflationary environment’s going to be in the future. I think what most semi-macro knowledgeable individuals agree on is to some extent, debasement in inflation are just mathematically guaranteed with where debt levels are at. But in terms of actual hyperinflation, I mean, we’re nowhere close to that, but I don’t mean to undermine the significance of the prints coming out.

Josh (00:13:29):

Yeah, no, I agree with you that we’re not obviously seeing textbook hyperinflation. This isn’t Venezuela, not yet at least. But I think what he was trying to get at with a bit of hyperbole was this is going to be more significant than people are spouting about. This is going to be a bit more of a needle mover than most mainstream economists are willing to admit or say. I think that’s what his point was.

Dan (00:13:49):

Agreed.

Clay Finck (00:13:51):

So after Dan Tapiera’s point on the 60/40 portfolio, Ricardo couldn’t help but jump in and mention that bonds are a terrible investment in that he wouldn’t touch them with a 10-foot pole. And I think Ricardo really enjoys leaning into the Bitcoin crowd as he seems to be very active on Twitter and interacting with a lot of the others in the space. And it’s just so fascinating to hear this from some of these people, because I interact with people in the traditional finance world, called financial advisors, and a lot of them are just still interested in the 60/40 portfolio and aren’t really shying away from it. So, it’s just incredible to see these two completely opposite ends of the spectrum that aren’t really willing to budge.

Clay Finck (00:14:34):

My last comment is what I’ve really liked about this panel is that these guys are all new, outspoken people in the space that I’m aware of at least. When I listen to a lot of these guys, they understand where the traditional finance world is coming from. And they’re up there saying that Bitcoin is a great asymmetric play and like you guys mentioned, it’s the only really play from a cryptocurrency standpoint. And this isn’t people on the stage who have always had their identity tied to Bitcoin in some way. Max Keiser comes to mind. He’s been in the space forever. That dude’s never going to change his mind on Bitcoin. And these guys are all new. They’ve been in the traditional finance world and they’re allocating real capital. And since they’re allocating capital, they’re always looking to just be mindful of where the world is potentially moving towards.

Josh (00:15:21):

Yeah. And I think Max Keiser is a funny one to bring up because he’s obviously been right for a long period of time, but the guy… And again, I’m going to reference this and say, “I love the guy to death,” but he parades around in orange boxers and orange kicks with a mallet. And he almost has like a joker persona. People on the outside are not looking at Max Keiser and taking him serious. He has a bit of a clown attitude about everything, whereas, these four billionaires sitting on stage saying, “Yeah, it’s a giant Ponzi scheme and it’s a fraud,” and they have significant portions of their wealth in it, that moves the needle for a regular person who wants to start taking this serious.

Dan (00:15:53):

Yeah. I want to make one more comment about the risk parody, sort of 60/40 discussion. I think you too will agree, but push back if you don’t. A very key disclaimer here is timeframe, because right now, the risk-off facet of choice is still the US dollar, US treasuries. It’s going to be that way for quite some time. Just like liquidity speaks, that’s where people are flocking in credit crunches and de-leveraging events. Now, obviously, we think a lot of these events are going to be rescued by the centralized powers that be. But if you’re thinking on a six month, two year time-frame, you’re going to be, “What are these guys talking about? I would’ve been safer if I’d stayed in my total bond market fund when things collapsed or if I just stayed in cash or whatever.”

Dan (00:16:33):

You can picture those scenarios. And I think this is why it’s important to reiterate, we’re talking on 5, 10, 15, 30 year time-frames. At least, Josh and I are on our show. We’re talking about building long-term generational wealth through the duration of a career, not on a five year timeline. Now on ours, we had an episode with Dr. Jeff Ross and we kind of discussed and explored the move of Bitcoin, which we think will eventually be from risk-on, sort of correlated to the NASDAQ let’s say, to eventually risk-off. It’s got architecture that indicates probably going to eventually settle into being a risk-off asset. It’s far from that currently. But I’m assuming you guys agree. It’s important to delineate time-frames-

Josh (00:17:09):

Absolutely.

Dan (00:17:09):

On what you’re talking about when you’re saying, “Fixed income is a bad trade.”

Josh (00:17:13):

Yeah, I agree. The one last thing I’d like to leave everyone who’s listening with from this talk was Tapiero said, toward the end, that Bitcoin is bigger than anything he’s ever seen or studied and Bitcoin in its truth. And this is a guy who has been an institutional investor for a long period of time. He’s not just peering into something like this for the first time. For him to say this is the biggest thing he’s ever seen in the space, that really should strike a chord if you’re paying attention.

Clay Finck (00:17:35):

Well said, both of you. Let’s transition to talk about the Samson Mow announcement. He was on the stage just for a few minutes. And first off, I think what he is doing in the space is just absolutely incredible. He’s working with sovereign countries who are some of the biggest capital allocators of them all. He’s played a big role in helping El Salvador get more acquainted with Bitcoin as they are currently working on a billion dollar Bitcoin bond. And at the conference, he announced that Mexico is proposing a bill to make Bitcoin legal tender. Not quite as big as the El Salvador announcement last year. It depends on the lens you’re looking through.

Clay Finck (00:18:13):

El Salvador actually made it legal tender. So, there’s a big difference between proposing and actually making it legal tender. And we also found out recently that Samson is leaving his job at Blockstream to focus solely on nation state adoption. So he must be pretty busy talking with nation states, especially in Latin America, and helping them learn more about Bitcoin and how Bitcoin, it can help them. And this announcement is only a few minutes. He mentioned some things about some smaller countries adopting Bitcoin, but I think the big deal here was him leaving Blockstream I believe last month and the Mexico announcement of it being proposed to be a legal tender.

Josh (00:18:50):

Yeah. So, he talked about three different countries or three different area. One of them was a city. It was Prospera, Honduras. The other was Madeira, Portugal. And then like you said, it was the potential bill being raised by Senator… I think it’s in Indira Kempis? But she’s putting forth a bill for that to become legal tender in Mexico, which, I mean, that’s a huge deal. There’s no telling if it’ll actually happen or not, but just the fact that it’s being proposed and talked about and being taken seriously. It’s been a crazy couple years in Bitcoin, that’s for sure-

Dan (00:19:16):

I wanted to-

Josh (00:19:17):

For these things to be happening.

Dan (00:19:18):

Yeah. The quote by the Mexican Senator really harkens back to some of the spirit of the Bitcoin human rights discussion. I think of Alex Gladstein and all of his pieces, his new book, Check Your Financial Privilege, Bitcoin empowering the third world, those that are disenfranchised and cut off from the traditional banking system. She has this quote where she says, “In Mexico, 67 million people are not included in our financial system. Bitcoin is the solution to that problem. Through financial inclusion and financial education, the people can have a better quality of life.” And she thinks Bitcoin is an empowerment tool to accomplish that, which is-

Josh (00:19:53):

It’s really cool to hear.

Dan (00:19:54):

Significant. And I wholeheartedly agree. Bitcoin is the bank for the unbanked, right? You’re going to have a massive cohort of people around this globe who are totally cut off from traditional financing. Guess what? They’re going to leapfrog. They’re never going to have bank accounts as we know them today. They’re going to jump straight on to a decentralized, open, censorship-resistant, inherently global monetary network that’s 10X better than what we have currently. And it’s remarkable to see people like her recognize this and be fighting for it on the political stage. And the more that her constituents digest and understand this, following the incentives and the game theory is pretty inevitable, at least in our mind, where it heads.

Josh (00:20:30):

Absolutely. One of the cool, little… Just about what’s going on in Portugal there is there’s no taxes on spending Bitcoin and no income taxes. So the only taxes, as far as I understood from that talk, were 5% on corporations. So I mean, if you have a binational, sounds like an awesome place to move everything to and take advantage of that tax situation, which is almost none, and spend some of your Bitcoin if you’ve made some large gains on it.

Dan (00:20:52):

It’s sovereign individual thesis playing out in real life.

Josh (00:20:55):

Exactly.

Dan (00:20:55):

For the people that sovereign individuals are-

Josh (00:20:57):

This arbitrage is amazing. It’s happening.

Dan (00:20:59):

Yep. I mean, innovation leads to prosperity, and if you’re not bringing in innovation, you’re not going to have prosperity. And this is playing out more visibly because this is a money that’s less easily controlled by centralized powers, right? So as money moves from the levers of the state to the levers of the individual, once again, this is a long term theory of the nation state, but you’re going to likely see nation states need to acquiesce more to citizens the way companies do to customers. And we’re watching it. I mean, it’s not just a theory anymore. We’re watching it play out the last couple of years. At least for me, it’s happening on the nation state level a lot sooner than I anticipated.

Dan (00:21:38):

The other funny thing, guys, is people are expecting these. People were disappointed with the announcement from Mow. Especially after the El Salvador thing last year, people were like, “This is going to be like Mexico’s going all in,” or some other massive country. And people were genuinely bummed. And it’s like we’ve got a country where this is legal tender, we’ve got provinces with their leaders getting up in front on a conference in Miami saying, “Come to our location, because we’re accepting Bitcoin,” gradually, then suddenly. We’re still in the gradually phase, but where the crack is widening. We’re watching it in real time.

Josh (00:22:07):

Yeah, it is definitely increasing, man. The spigot, it’s opening.

Clay Finck (00:22:12):

Well said. Well, let’s transition to another group of speakers, Michael Saylor and Cathie Wood. They talked quite a bit about regulations and that kind of ties into the political and sovereign aspects you guys are chatting about. And first off, having these two at the conference is pretty big. They’re both really big names in the space, and these are two people that investors are always tuning into to hear what they have to say. The first point that Cathie Wood had was related to the politicians. She mentioned how many politicians are beginning to realize that there are more and more people out there that are becoming single issue voters. And that single issue is your stance on Bitcoin. So if politicians are pro-Bitcoin, they can pick up a lot of new voters, whether that politician’s on the right or the left, because this is a bipartisan issue.

Clay Finck (00:22:57):

So politicians are asking the people what they want as far as Bitcoin regulation goes, and we’re seeing more and more pro-Bitcoin regulations coming out. Most notably, I would mention Texas. Texas is bringing in a lot of businesses, especially when it comes to the Bitcoin mining space. And Austin is also a big city when it comes to Bitcoin companies. All of this really brings in additional tax revenue for their state and it helps stabilize their grid as far as the Bitcoin mining piece goes. So Preston talks about this too a lot of times is how the United States is one country, but there’s 50 states in that country that are all competing for these US businesses. So, it’s really interesting to see that game theory play out just in the US alone.

Josh (00:23:42):

Yeah. On the same note as the politicians, Cathie Wood, she mentioned how Yellen is kind of softening her tone towards Bitcoin just in the last week. And she believes personally, she said she doesn’t have any insight information, but she thinks Gensler has gotten into her and kind of whispered in her ear, “Hey, let me help you out. Let me help you understand a little bit more about this.” Because I don’t want to mischaracterize this, but what she said the other day was this guy named Satoshi came up with this way for people to exchange value without an intermediate, without a middle man or a bank. Her demeanor towards it was, “This is an interesting thing that’s going on and I’m learning about it.” Compared to the disposition she had towards this a year to two years ago, or five years ago in 2017 when she was speaking and some guy was holding a Buy Bitcoin sign behind her, this is this entirely different world she’s operating in as far as I can tell.

Dan (00:24:29):

Oh, completely agree. Her comments blew me away. She’s probably getting the canvas ready to paint CBDC on it, but still she’s recognizing the innovation, and that’s a huge step forward and just an indicator that this is not going anywhere. This is not a fad that’s going to disappear next week. You’ve got the head of the SEC and Treasury and every person you can imagine now. We got an executive order from The White House. This is not disappearing, whether you want it to do so or not. This commodity security distinction, which you alluded to, Josh, is really significant. And I know there’s a lot of hardcore libertarian Bitcoiners that are like, “Screw regulation. It doesn’t matter. This thing…” You know what? I understand that and I get that disposition.

Dan (00:25:12):

But let’s just talk about the potential regulatory framework we’re going to see this decade. It’s very clear when looking at Gensler and the way this is being tossed around. As you said, Bitcoin is a commodity and the rest of these tokens are going to be fed to the wolves, that being the SEC, and based on the Howey Test, I’m no Howey expert here, but it seems quite obvious they’re securities and that distinction is really significant and it’s a very big deal for Bitcoin. And it should be on the mind of investors from a risk analysis standpoint. This being a commodity in many ways de-risks it. It’s going to be left alone in a way that securities won’t be, at least in my opinion. And once again, surprising. I mean, it does appear that Gensler, it’s widely known he’s taught a course on Bitcoin at MIT, and I think he understands the innovation here and I think it’s his intention, at least within the confines of the current framework and expectation to “leave it alone” based on today’s standards.

Josh (00:26:11):

Yeah. And Saylor referenced the presidential order, which basically was ordering an assortment of different three letter agencies to learn as much as they can about this industry and understand it. But he said, “There is no outcome other than favorable for Bitcoin at this point.” And I think primarily Dan, like you just said, because as Gensler has made it very clear that this is a commodity and that it’s basically outside of their jurisdiction and there’s no worry about them trying to clamp down on it in any meaningful way.

Dan (00:26:36):

It’s going to be interesting to see when the CFTC really starts making noise on this because this could go from we’ve long viewed this as sort of a threat to these agencies, but you could see this becoming the CFTC’s little power baby, that they now have domain over this huge, blooming asset class. At least to my knowledge, and I don’t know if you guys know more, they’ve been fairly quiet on this front. I mean that it’s obvious that it’s going to be in their domain, but they haven’t been talking much about it. So, it’ll be interesting if they ever come out and start getting more vocal.

Josh (00:27:06):

It will be. One of the comments I have on this. Cathie Wood said… This was an interesting comment she had. She thinks Bitcoin’s going to be successful and appreciate in value whether we see inflation or deflation. And deflation might sound surprising to people, but I think she’s talking about in the slightly longer-term deflation, which would be, Bitcoin’s got no counterparty risk because one of the largest problems with deflation is that there’s a lot of assets that are floating around, that are paper, that potentially have a cascading counterparty problem. Bitcoin clearly doesn’t have that problem. So I mean, something to mull over and think about. This thing could potentially work just as well for you financially in an inflationary atmosphere or a deflationary atmosphere. And who knows? We might see some combination of stagflation, which is kind of both. So-

Dan (00:27:47):

Did you guys hear Saylor’s comment? I loved his comments on Merrill Lynch in this talk. He’d said 24 months ago, they were basically like, “No, we won’t touch this with a 10-foot pole.” And now, he’s getting email in his inbox from them with analysts on Bitcoin. And this plays into something that Josh and I talk about on our show. We have these four I’s that we go through, at least our exposure to people that work in traditional finance, of at first, it was idiotic, then it becomes interesting, then eventually it’s important, and we’ll get to a point where it’s imperative. I think we’re mostly in the interesting phase fringing on important, but the tune has changed so dramatically from Bitcoiners being the biggest buffoons on planet earth to now, every brokerage firm on planet earth having a new branch that’s researching this full time. It’s adorable.

Clay Finck (00:28:37):

Yeah, pretty incredible stuff. I love the four I’s analogy you guys use and bring up often on your show. And I completely agree that many people, me and you guys probably included, have moved through each of those four I’s. And people also talk about the three touch points where it takes three times three to hear about Bitcoin to actually start learning about it and maybe potentially buy some. Before we close out our discussion on Saylor and Cathie, I wanted to pull a quote from Cathie Wood as I just thought it was just so interesting that people might hear a quote like this and just think that it’s a big nothing burger. She goes, “Listen to every word because every word is important. Bitcoin is the first global private, it’s open source, but there’s no government involved, digital rules-based monetary system in the history of the world. It is a very big idea.” I just thought that quote was so profound, especially with the number of people that just totally ignore this asset.

Josh (00:29:40):

Yeah. And I think she said that she uses that to kind of catch people that are maybe ignoring it, “Here, think about it in this way and there’s certain points.” And she’s absolutely right. That nails it, that set of outlines, the complete idea of what this encompasses, which is something that we just have never seen before and we’re unlikely to ever see again. So, once in a millennium kind of thing.

Dan (00:29:59):

I recommend, if you’re listening and that went over your head, rewind this episode and go re-listen to that sentence. And I don’t mean to sound hubristic here because we’re far from arrival. We’re still learning a ton. But if every single word in that sentence doesn’t click for you, the implications don’t click for you. You need to keep learning until they all click for you because all those things combined are the innovation here. There’s so many mind-blowing things that have coalesced in this protocol. I love how she laid that out. Great sort of headline thesis for what Bitcoin is and why it matters.

Josh (00:30:31):

Absolutely. And if all of that stuff, if nobody heard that, here’s the one thing that Cathie Wood said that might catch your interests which is her price target for Bitcoin by 2030 is $1 million. So, that’s interesting.

Dan (00:30:42):

Well, I love the way she got there too, before we [inaudible 00:30:45]-

Josh (00:30:44):

Two and a half percent of assets will be allocated to Bitcoin, right?

Dan (00:30:48):

Yeah.

Josh (00:30:48):

That’s insane.

Dan (00:30:48):

So, she’s saying I think something to the effect of two and a half percent of institutional assets will be in this. So, that’s a ton of money. I don’t mean to undermine that amount of money, but that’s totally feasible. And this is why, in our humble opinion, this is the largest addressable market mankind has ever seen. And when you think about the bite that this could take out of a plethora of asset classes, I mean it makes your head explode, man. I mean, it keeps me up at night thinking about all the use cases that this could absorb and how much capital could flow into this. Scary-

Josh (00:31:15):

Oh-

Dan (00:31:15):

And exciting stuff.

Josh (00:31:16):

I want to just take one second here, I promise it won’t be long, to diverge on use cases because I don’t know if anyone… This wasn’t announced at Bitcoin 2022, but it was just before it. Lightning Labs is working on what’s called Taro. It’s a piggyback onto Lightning Network, which will allow them to have stable coins running on Lightning, any kind of asset you can imagine running on Lightning. So you have an instantly settled, completely bare asset that’s settling around the world for less than pennies, that completely dis-intermediates any use for 99% of shitcoins at this point. [inaudible 00:31:44] have been saying this is going to happen, but this is actually happening. This is something they’re working on, they’re very close to completing, and this is going to change everything in this realm. It’s going to be a giant steamroller and it’s happening.

Dan (00:31:56):

We would be getting into the weeds here, but to kind of summarize, Josh and I were actually talking about this at work. Anyways, the point we were establishing with each other in the locker room was this is an altcoin absorber. An analogy I drew was it’s as though right now we have all these people inventing different internets. The TCPIP has come out and tons of other people are inventing base layer internet protocols. And when you see innovation like this on the base layer of Bitcoin, it is like watching HCTPS or SMTP come on top of TCPIP in the internet protocol stack. Translation, one of these is going to be able to do most, I’ll use the most use cases.

Dan (00:32:36):

And moves forward like this on the Lightning Network are going to absorb an enormous number of altcoin use cases, which is just back to… This is an investment podcast, this is part of the risk profile. Is your altcoin that you’re investing in have the potential to be absorbed onto a more secure, more liquid protocol like Bitcoin? In our opinion, most of these use cases are going to get absorbed, and innovation like this that just keeps happening year after year is evidence that this is likely to occur as we move into the future.

Josh (00:33:03):

Yeah, and it’s happening extremely fast. I mean, we’ll get to Jack Mallers and I’m not going to ruin that one already, but just what he’s single-handedly is doing in combination with this and a myriad of other things going on in the space, it is moving at a pace that nothing else in the world, besides maybe Elon Musk’s rockets are moving.

Clay Finck (00:33:19):

Yeah. A lot of people think innovation will happen linearly and adoption for that matter. And this is something that’s happening exponentially year after year. So it’s pretty incredible to be a part of this movement and still be early on it. Let’s talk Peter Thiel. This was one of the speakers I was most looking forward to. His book, Zero to One, very popular book, and a lot of people know who Peter Thiel is. Co-founded PayPal with Elon Musk and the PayPal mafia. So at the beginning of this one, he played this video where it was him speaking in 1999, about how since everyone will eventually have a cell phone, countries won’t have control over what money people hold.

Clay Finck (00:33:59):

He was mainly referring to how other countries won’t be able to stop their citizens from holding US dollars. And this was in 1999, he is saying this. But today, it’s really anyone that has a cell phone has access to Bitcoin, the asset. And governments really can’t stop it without shutting down the entire internet, which is truly incredible to think about when you have many countries that have hyperinflation, you have censorship, and things of that nature. I had an episode with Alex Gladstein, where we discussed all these issues and the things Bitcoin is doing for those that need it most really. And then during Peter Thiel’s speech, he hit on the idea of money being high velocity or low velocity.

Clay Finck (00:34:39):

One example he lays out is gold, which is low velocity, as it mainly sits in central bank vaults, while the Visa payment network is efficient at transferring value very quickly, which makes it very high velocity. Then he ties in Bitcoin and Ethereum saying that, “Bitcoin is the replacement for gold while Ethereum is potentially the replacement for Visa, if it actually ends up working.” And those are his words, not mine. I’m sure a lot of people at the conference would disagree with that conclusion as Bitcoin currently has the Lightning Network that can be used to transfer value instantly, which you guys just outlined were some of the innovations we’re seeing, and that’s also with zero fees. So, what are you guys’ opening thoughts on Peter Thiel’s speech?

Dan (00:35:21):

One thing I want to throw in here at the beginning to piggyback on your cell phone comment and sort of his comments back from the late 90s, there’s a tweet by Will Clemente that I think is apropos here. He says, “We should expect Bitcoin’s network effect to expand faster than the internet for one simple reason. The internet spread on analog rails. Bitcoin is spreading on the digital rails of the internet itself.” And this is some of what Thiel was hitting at, and it actually goes back to the previous segment we just had of exponential adoption. Because you’re building out rail cars on an already existing railroad, you don’t have to lay the rail ties.

Dan (00:35:55):

And that’s why things are moving so quickly in Bitcoin and why the potential is so dramatic that continue to move forward at this exponential pace because of how widespread internet adoption is. I mean, he’s talking a little out of turn here, I don’t have the research right in front of me, but I think there’s some expectations that smartphone use especially in the third world is going to double even the next five to seven years. So the increase of technologies like this are piggybacked on the internet itself, which is extremely entrenched, and the implications are dramatic.

Josh (00:36:27):

One thing I didn’t know about PayPal so much, I’ve never really done a deep dive on them, he said that when they started, they had a lot greater of a goal initially, him and Musk. He said they wanted to replace the central bank or treasury. They didn’t actually know the difference between the two at the time. Which is hilarious that they founded this company about money and didn’t know the difference. And the other thing I wanted to comment on is exactly what you got to, Clay, at the end there, which was, he said Ethereum is like Visa, Bitcoin is like gold. I don’t know what his knowledge base is on what’s going on in Lightning, but clearly, he doesn’t quite understand or hasn’t… I don’t know what his deal is there, but obviously, Lightning is going to be far superior to Visa very quickly.

Dan (00:37:02):

The thing too, and I think we were maybe texting about this with you, Clay, from this speech he gave was comparing Bitcoin market cap and equity the last time we had a significant inflation environment. So he had this chart up where he said, “There was a period of time…” Was it in ’80? I can’t remember. Maybe, ’80?

Clay Finck (00:37:21):

1980.

Josh (00:37:21):

It was early 80s, yeah.

Dan (00:37:22):

“Where global equity was at 2.5 trillion, and then the market cap of gold was at 2.5 trillion.” And today, we sit in an environment where global equity is something like 115 trillion. And if you look at comparable hard money assets, let’s call it gold, 12 trillion. Although, I think tradable gold is somewhere between five and 7 trillion. You add a trillion dollars of Bitcoin. Let’s say we have a sea of five to 7 trillion of hard money assets juxtaposed against equities at 115 trillion. In my opinion, it’s very clear which direction osmosis is going to move economically, especially in an inflationary environment like we talked about off the front. It seems very plausible that it’s going to move towards hard money assets, and our contention is there’s nothing better on planet earth than Bitcoin.

Dan (00:38:04):

Before I get off this, it does make me think of our discussion with Lawrence Lepard. He did something similar to what Thiel did when he was on with us, and he talked about gold’s move from when we broke the peg in ’71, basically that decade going from $35 an ounce to $700. And he said, essentially at that point, gold itself got to about 7% of global assets, which in today’s dollars would be about 35 trillion. He did the same math. I just did hard moneys at five to 7 trillion. He thinks this inflationary environment’s going to be far more dramatic than what we saw in the 70s, early 80s. So he kind of has the lower bound of hard money assets this decade and maybe the next decade at, we’ll call it, 5X where it is today. Point is this is some long-winded elaboration on how we can compare this potential inflationary environment to the last time we were in something similar and the move we sought to hard money, which has not yet occurred in dramatic fashion, which is I think extremely bullish for Bitcoin.

Josh (00:39:03):

Yeah. For Bitcoin, hard money. And it reminds me of, I can’t remember the bond investor off the top of my head, who said this now. It might have been Paul Tudor Jones actually. He said, “Gold’s a race horse, but Bitcoin’s a Ferrari. In this environment, this Ferrari is going to move.” The other thing that he said, which I found kind of funny, is at the end, he kind of outlined the enemies of Bitcoin and Buffet was at the top of the list having called it “rat poison.” He called him the “sociopathic grandpapa from Omaha.” I thought that was hilarious.

Josh (00:39:31):

He said Dimon has called it worthless, Jamie Dimon from JP Morgan. Larry Fink from BlackRock, I believe, is pro-blockchain, which is kind of assuming that this whole blockchain, not Bitcoin nonsense. And he called this the geritocracy versus youth movement. The Bitcoin and crypto I guess would be the youth side of that. The geritocracy is these old men that don’t understand it who are against it because of they have interests against it. Warren Buffet owns a whole bunch of other financial assets that are giving him the inclination to be against something that would destroy those things. So, it’s pretty obvious that his incentives are against Bitcoin.

Dan (00:40:05):

It’s a scathing comment on Buffet. TIP could be in Buffet’s crosshairs here. I mean, it’s like TIP Network is Buffet gone, Bitcoin right now. You know what I mean? You’ve got all these value investors who met at a Berkshire… What is it? Preston and Stig met at a Berkshire meeting, right?

Clay Finck (00:40:21):

Yeah.

Josh (00:40:22):

I think so.

Dan (00:40:22):

And man, everything’s going bright orange over there. Is it just an age-

Clay Finck (00:40:30):

We need to bring Buffet on the podcast.

Dan (00:40:30):

Yeah. I mean, is it just an age thing with Buffet? What’s your take, Clay, on that?

Clay Finck (00:40:34):

Well, I think there’s a number of things at play here. One, Buffet’s been known for saying that technology or certain things are in the too hard pile. So, Buffet’s widely known for staying invested in his circle of competence. He doesn’t really study macro. Who knows how much he’s actually studied macro or how much he’s actually studied Bitcoin, hard money? A while back, a year or two ago, he owned a little bit of gold miners, but I’m pretty sure he ended up selling that. So, he’s a long term equity value investor.

Clay Finck (00:41:06):

And like Peter Thiel mentioned on the stage, he’s talking his book. He knows that if all this money were to flow to gold or Bitcoin, whatever the hard money asset is, that it would not be good for his equity portfolio. And we saw it in the 1940s and the 1970s, we saw high inflation and de-leveraging in the system. That would be a very bad decade for equities. You guys have studied Dalio and studied the long term debt cycles. This cycle could be much worse than the 1940s and 1970s like what Ricardo was talking about with potential hyper-inflationary scenarios where all the leverage just gets completely wiped out.

Dan (00:41:43):

Yeah.

Josh (00:41:43):

Yeah, I think you’re right.

Dan (00:41:44):

Here’s the other Buffet comment I have, and I’m no Buffet historian here, but if I remember correctly, Warren did sit out most of the.com boom and bust, right? So, he sat around in his candy equities while the system ballooned up and then imploded. And I think that he thinks he’s looking at the same thing. Where I disagree, and the main piece that I believe he’s missing is he is looking at Bitcoin through the lens of a tech stock instead of viewing it as a foil to the entire foundation of the global monetary system, right? And he-

Josh (00:42:19):

Well-

Dan (00:42:20):

I don’t know how much time he’s taken, but it’s a different asset than he’s aware of. And the ironic thing is I kind of view being Bitcoin focused or Bitcoin only as similar to a Buffet perspective. We’re waiting out altcoin mania because it’s devoid of fundamentals hanging in the value investments, right? That is Bitcoin. But back to Buffet’s confusion, I think he thinks he’s looking at the same thing he saw in 1999 that he thinks is going to implode. But he’s made one key miscalculation, and that’s the real problem that Bitcoin is solving at the base. And that-

Josh (00:42:54):

Yes.

Dan (00:42:55):

That mistake he’s making is in part because of potentially a lack of macro interest. Just the thought.

Josh (00:43:00):

Yeah. I mean, the guy was over 70 years old even in the.com era. I think that he’s just very comfortable in the water he swims in and he’s not going to be jumping into the other stream. [inaudible 00:43:11] salmon or jumping up stream and he’s not following. He’s going to go drop his eggs over in the calm stream that he’s in.

Clay Finck (00:43:18):

Yeah. Another comment I’d like to add is I’m pretty sure he’s been on the record for saying that the businesses he owns, they’re going to transact in whatever currency everyone’s using. So, a lot of the companies he owns and operates are essentials to the economy. Call it insurance, railroads, utilities, these are not going anywhere whatever happens with the currency. And you got to remember, this guy is… His time horizon is practically forever. I mean, he’s looking for companies that are going to be around for a very long time, they’re kicking off these free cashflow. So he knows that even in this kind of scenario, obviously he’s not positioned ideally for that transition to happen, but it’s not like he’s going to get totally wiped out.

Clay Finck (00:44:01):

And it reminds me of kind of the tortoise and the hare analogy. People were calling Buffet, his methods are dead, his time is gone while Cathie Wood’s Ark Invest is going to the moon. Everyone’s a [inaudible 00:44:13]. Well, now, you look back and compare Berkshire to Ark over the last two or three years, Berkshire’s actually outperformed it. It depends on the timeframe you’re looking at probably, but Ark has just come way back with interest rates moving back up. And even Buffet, after people have said, “Yeah, his time is gone. He’s lost it,” he even outperformed Ark over the last few years. So, I think that’s also worth mentioning and just to give something to Buffet. Let’s transition again. Do you guys want to cover what Jack Mallers’ announcement was at the conference?

Josh (00:44:45):

Yeah, absolutely. Give it a quick, couple minute introduction to what Lightning Network is. So basically, Lightning Network uses the Bitcoin’s blockchain base layer for security. So, there would be a transaction that happens on the Bitcoin blockchain that would lock those coins into a wallet. Now, from that time, they’re enabled on the Lightning Network. So, there’s no credit going on here at all. This is all still bare assets. So say, one Bitcoin is locked in a specific wallet. Now, that one Bitcoin is enabled on Lightning and there’s another set of nodes that can now transact through channels back and forth together. Let’s say, Dan and I each have a node. We open a Lightning channel between each other. Now, Dan and I can transact unlimited amount of times instantaneously that one Bitcoin balance between ourselves. So I can send Dan half a Bitcoin, he can send it back, as many times as we want, no transaction fees, because all of this is being done off chain.

Josh (00:45:35):

So the thing that this improves on is speed, number one. Number two, transaction fees are negligible to almost zero. They are less than a penny. And so, what happens is this is a network of multiple nodes. So Dan and I and say… I think right now there’s 16,000 Lightning node. So, they’re routed through nodes. So if Clay wants to receive a transaction from me and Dan’s node is connected to Clay’s node, my transaction goes to Dan and then to Clay, and it could go through say, 25, 30 of these nodes in order to get to the place it’s going. The whole time this is happening, nothing’s happening on the Bitcoin blockchain. All of this is completely off chain, which is the reason it can be happening so fast.

Dan (00:46:08):

Yeah. So, to draw an analogy-

Josh (00:46:11):

The bar tab analogy would be perfect.

Dan (00:46:12):

Yeah. I was going to say Bitcoin has a scaling issue, right? The base chain is settling every 10 minutes. I think the throughput, something like five transactions a second. Visa is doing thousands. So, Lightning’s created… And by the way, it’s not like we’re married to Lightning. There’s another second layer of protocols that could be built. But this is basically enabling more throughput. It’s the scalability solution to a very secure but limited base chain. And the thing Josh hinted at, a common analogy in Lightning is it’s like opening a bar tab and then opening and settling the bar tab, which is actually this two of two multi-synced transaction that is the Lightning Network. That is, those are base layer Bitcoin transactions.

Dan (00:46:50):

But what Mallers is doing, to bring this back to this discussion, he runs a company called Strike that’s enabled on the Lightning Network. And where this really gets pretty frisky and exciting is this is when we see multiple use cases coming together, and this is one of the most fascinating things about Bitcoin. You come in with one lens or perspective, something grabs you, that’s store value or whatever. Store value is a common one. Maybe, it’s decentralization, censorship, or resistance, whatever. And then, you realize, “Oh no, this money turning network’s going to do it all.” And what Lightning ends up kind of signaling is that, “Hey, this is more than just a store value protocol. This is also going to work for medium of exchange,” because Lightning theoretically has unlimited throughput if enough liquidity and nodes are available, right? So, it’s pretty remarkable what’s happening. And back to the speed, which we’ve hinted at a number of times in this episode, I mean, Strike is moving at a torid pace. Some of the announcements that went down… What is it? It’s NCR, right? That’s the payment processor?

Josh (00:47:43):

Yeah.

Dan (00:47:44):

Cash Apps’ using it, Shopify is using it. You’re just starting-

Josh (00:47:47):

Blackhawk Network.

Dan (00:47:48):

Blackhawk Network.

Josh (00:47:49):

Yeah. So, NCR makes one in six payment terminals in the world. So, there’s a one in six chance that your Lightning payment’s going to work at whatever merchant you’re at. Sorry to just take it right from you, Dan, but what this does is it completely dis-intermediates Visa altogether. It creates a way for transactions that happen so that all of the middle men are completely cut out. That two and a half to 3% fee that every merchant is paying to Visa or MasterCard or Discover, it’s now zero. So the incentive here now is if I’m a merchant and I’m watching inflation numbers go up, I’m getting squeezed on both ends. The customers don’t want to pay more. My suppliers are charging me more. I’ve got to find some way to maintain my margins. And this is the lowest hanging fruit there is.

Josh (00:48:27):

I can just simply start using this new payment network and I can recoup 3% of these transactions that… So, I own a small business on the side. There’s a significant amount of money that we bleed every year paying two to 3% to Visa. It’s a lot of money and I absolutely want to make sure I can figure out how to make this work because I’d rather not see five figures just not disappear every month or two or every year to Visa.

Dan (00:48:50):

Once again [inaudible 00:48:51]-

Josh (00:48:51):

[inaudible 00:48:51] there’s lot of others.

Dan (00:48:51):

Follow the incentives. The beauty of this talk that Mallers gave was he basically went through the history of credit card processing. He went back to the 1940s with credit cards and basically said, “The rails of the ways in which money move in the credit card system have not changed since…” I think he said 1949. The consumer facing apps have changed dramatically, and we’ll get to that in a second. But the actual rails, the intermediaries, the way money’s moving, the fees that are being collected, haven’t been innovated on since the mid-20th century. And let’s talk about this intermediation.

Dan (00:49:23):

In a credit card transaction, you’ve got the consumer, you have the merchant, you have the consumer’s bank, you have the merchant’s bank, and then you have a credit card processing company, and then a credit card company. You have all these intermediaries. This is a protocol that enables, “This is backed. I’ve got the white paper back up here.” This is a peer-to-peer monetary network. This is in the title of what Bitcoin is. We get back to peer-to-peer payments with Lightning, where I, as the merchant, and Josh, as the consumer, can have a transaction and get rid of… I mean, if we start doing the math here, you’re talking two to 3% savings on every single transaction on planet earth.

Dan (00:49:57):

The incentives are there and here’s where people get confused. The application layer, the consumer layer, right? The cash app that you’re using, the Venmo that you’re using, the payment processor, the point of sale you’re using, none of that needs to change. They can integrate with Lightning Network. The other component that has to be identified is the distinction between Bitcoin, the asset and Bitcoin, the network. You do not need to transact in Bitcoin. You can have a company like Strike take your euros, convert them into Bitcoin, and send US dollars across the country. So you put euros in, somebody gets USD out. You don’t even know that you’re using the Bitcoin protocol. This is that let’s draw another internet analogy here. We’re on… What are we on, Skype? None of us have any clue what part of the internet protocol stack these data packets are traveling through, right? We’re just talking-

Josh (00:50:44):

[inaudible 00:50:44].

Dan (00:50:43):

And there’s video here.

Josh (00:50:44):

Just works.

Dan (00:50:45):

This is how Bitcoin’s going to work in the monetary future. You’re going to have people moving fiat currencies, maybe CBDCs, stable coins, who knows what it’s going to be? They’re going to be using the most secure, stable, monetary protocol on planet earth to move those units, those data packets, back and forth, and they may not even know that Bitcoin’s involved. This is where it’s taken over, man. I don’t know what to tell you.

Josh (00:51:08):

Yeah. The other thing that he said, which is really cool. So Visa, MasterCard, Discover, those are closed networks. If you want to use Visa, you’ve got to get Visa’s permission, you’ve got to have Visa’s say so, or MasterCard or Discover. With this, this is an open network. There’s no coming to ask, “Mother, may I?” If you know how to code, or you can find someone who does, you can plug into this and you can make whatever app you want. Do you want to compete with Strike and make a new Strike you think can be better? You can immediately do it. There are no gatekeepers.

Josh (00:51:34):

And that is just such a different world than people are used to in the world of finance. You don’t have to go ask a government institution. You don’t have to go get someone’s permission in any capacity. You can just build on an open source network called Lightning. And oh, one other thing I want to add about Lightning before we move off topic. I don’t think people understand the scale at which this thing can move. Visa does at the maximum 65,000 transactions per second, which is a lot. Theoretically and practically, Lightning can do 1 million transactions per second. So, I mean, we’re talking about a 15X increase on the maximum amount of transactions that Visa ever does. So, there’s some room for massive scaling here.

Dan (00:52:12):

And we’re also talking about immediate cash finality. I mean a typical credit card system, there’s a whole debt layer, folks, that’s built on this system. These things are settling two to 15 days after your transaction. On the Lightning Network, we’re talking about immediate cash finality. Another thing we have to introduce, and I think this is where the Lightning Network really clicked for me practically, was just the use cases. There’s so many you can think of, but one very practical one is podcast 2.0. We’re on it. It’s a new way that you can podcast and get revenue directly from listeners where people can stream you, I mean, fractions of a cent, right? They can send you five satoshis for a comment in the podcast that they enjoy streamed over the Lightning Network. It potentially completely redefines the way content creators are going to get paid. That’s one example. Another is the way you pay employees. There’s already things being built out. I think Strike is involved in some of this where you can pay employees by the second or by the minute, right? So, this is-

Josh (00:53:08):

I can’t imagine what nightmare the accounting would be for that.

Dan (00:53:09):

We’re talking about streaming money here though. This is money-

Josh (00:53:12):

Yeah, that’s cool.

Dan (00:53:13):

That’s going to be streamed over the internet. We’re not going to live in a future where you’re getting paid every two weeks, right? Where is it in my bank account? That data cease to exist as money is moved natively to the internet. And this is one of the key differences of… This is maybe a blunt way of describing it. We’re on an analog monetary system that’s been uploaded to the internet. The Bitcoin protocol and the stack that’s going to be built on top of it is-

Josh (00:53:34):

Digital native.

Dan (00:53:36):

Native to the internet. And there’s a huge difference there, and we’re seeing that manifest in the Lightning Network.

Josh (00:53:40):

Absolutely.

Clay Finck (00:53:42):

I hear all this and all I can think about is the Trojan horse. You have costs going from 3% to near zero, you have instant finality, you have the decentralized piece of it. Everything you guys outlined, it just screams Trojan horse in my head. So, what are the announcements that Jack Mallers made in relation to the partnerships he set up for Strike?

Josh (00:54:07):

Basically Shopify, they partnered with NCR, which is a huge payment processing network and they create one of the six terminals. And then, partnerships with the Blackhawk Network. And that in itself, covers a wide swath of the transactions. He said Walmart was on the list, Walgreens, McDonald’s, [Spiro 00:54:24], Chipotle, and there was long list of companies that will almost immediately be enabled for you to just walk in and use a Lightning wallet, pay with a QR code, have your money switched into Bitcoin at the speed of light over to the other guy’s terminal, flip back into dollars, and on you go.

Clay Finck (00:54:40):

I have questions for you guys related to the Lightning Network. I often think, “Okay, how scalable is it?” Is it possible today for Amazon to plug their company into Lightning and start seeing some of these cost savings or does Lightning itself need to scale with people depositing Bitcoin into payment channels and more development happening on the back end?

Josh (00:55:00):

The one thing about Lightning that I think maybe is confusing for people, it doesn’t matter how many channels are on there. So, I was just looking at this block clock I have behind me. One of the metrics it’ll display is how many Lightning nodes are in the network right now. And just earlier today, it was 16,500. So what that is, is 16,500 nodes that have channels set up in between each other. If you can imagine in your head, a giant web of points, each one connecting to the next, kind of like the internet. It’s the same thing. But the amount of channels and number of nodes doesn’t matter. What matters is that one node can speak to another that’s five hops or 10 hops or 50 hops away. So right now, to my understanding, again, I’m going to caveat with that because I’m not a computer engineer, this thing can do a million transactions per second.

Josh (00:55:40):

So, there’s absolutely nothing keeping Amazon from using this. This could absolutely scale right now to fully do every single transaction that they accomplish in a single day, and as far as I understand, the rest of the world as well. It is still a beta project. So, I mean, there are still some kinks to be kicked out of it. But I’ve not heard of anyone not being able to establish or send a transaction in quite a long time. And the only issue that people could run into at this point is simply liquidity issues. So large transactions, something in the order of 5,000 to $10,000 or higher, you might not be able to send it through because if the channel liquidity is not high enough, it’s simply not going to go. So with those larger payments, you just have to go back to the Bitcoin blockchain for those.

Dan (00:56:24):

Yeah. I was just going to say, Josh nailed it. Liquidity based on my understanding is one of the primary hangups. And like I said, we’re throwing in disclaimer after disclaimer, but we’re not experts. I mean, we do both run Lightning nodes. We both messed with liquidity on the Lightning network. I think I’ve heard Preston Pysh mention this. Using Lightning, running a node, and actually working on inbound liquidity and messing with these channels really helped click for me how this thing works. I would say first off, it’s not all that intuitive. Especially, for the tech dunces like us, it’s actually quite complex. And it does lead me to believe you’re going to have primary players like Strike, who are managing liquidity in this space, or smart note operators who… There is an opportunity there I think on routing fees on Lightning, even though they’re infinitesimal. If you have enough throughput, I think there is some revenue to be generated there in a totally secure, risk-free fashion. But it is just a function of liquidity. It’s exponentially increasing, but there’s not a ton of liquidity locked up on the Lightning Network. But that’s-

Josh (00:57:20):

It’s 3,600 Bitcoins right now, which is actually quite a lot. But the problem is not the total amount of liquidity locked up. What the problem is it’s always the weakest link in the chain. So if your transaction’s going just fine, it’s moving along through five different nodes. And then it hits a node where suddenly there’s a dead end and there’s only one Bitcoin of liquidity left and your transaction’s more than that, stops there and it fails.

Clay Finck (00:57:40):

Next question. So, the liquidity piece might be an issue. Is there an incentive for more liquidity to be placed on the Lightning Network? Is it just a matter of Strike filling in the gap if it needs to be filled in, or what do you guys think about that?

Dan (00:57:55):

Let me chime in here. So my thought on this, and tell me if either you disagree, the motivation to lock up liquidity is the motivation to use Lightning. So, it’s like consumers demand it and merchants see the benefit. So we talked about this earlier, right? This intermediating, all these fee collectors saying, “Hey, this is a secure, instantaneous, immediately cash final, global monetary network we want to be part of. We’re a large corporation or a large merchant. We want to use Lightning Network. So, we’re willing to lock up liquidity.” They’re not losing anything there, right?

Josh (00:58:25):

Right.

Dan (00:58:26):

It’s another function of understanding Lightning. It’s not like they’re giving money away. They can extract their money at any time. They’re just inserting liquidity so that their merchants can use this new monetary network. So for me, I mean, there are ways to make money on Lightning, through routing fees and other things, but the primary motivation to onboard is the motivation to use this new, frictionless monetary network that is Lightning and Bitcoin. Does that make sense?

Josh (00:58:48):

Yeah. And as this happens, the interesting thing about it is this is not a credit system. This is a bare asset system. So this requires the lockup of more and more Bitcoin over longer periods of time, while simultaneously increasing demand. Because as the Lightning Network gets more useful, demand will inevitably rise and you’re simultaneously locking up assets while increasing demand. It’s just almost like a supercharged way to increase the value of Bitcoin.

Dan (00:59:11):

Makes an already scarce protocol that much more scarce.

Clay Finck (00:59:15):

Incredible. Thank you for laying out the Lightning Network. I am definitely new to that piece and I think the listeners will really enjoy that too. Let’s talk about another panel and that’s with TIP’s very own Trey Lockerbie and Preston Pysh, as well as Dr. Jeff Ross, Jeff Booth, and Mark Moss. Unfortunately, they got cut a bit short, it was only about 20 or 25 minutes, but there were some good pieces of information I thought out of this one. And this was them discussing the macro-economic landscape. Macro is something that a lot of people in this space like to talk about. With inflation running hot and the fed raising rates, this leads to headwinds for many asset classes, I would say including Bitcoin in the short run at least.

Clay Finck (01:00:00):

Trey opened it up asking Dr. Jeff Ross why Bitcoin is trading with high correlation to the stock market. He essentially said that the market treats Bitcoin like risk-on asset, similar to stocks. So if investors are wanting to flock to safety, they’re going to want the USD. But all the guys on the stage probably believe that the USD is going to perform miserably over the next decade relative to Bitcoin. So, any pullback we see in 2022 is going to be very short term as the rapid adoption of Bitcoin continues. A lot of people who own Bitcoin get that, and that’s why Will Clemente posted the statistics that 63% of Bitcoin has not moved over the past year. And that just tells you how many people understand that this is a long-term investment, and to be treated like a savings account is something that Dr. Jeff mentioned in relation to Bitcoin.

Dan (01:00:51):

I think we need the humility as Bitcoiners to recognize that first off, volatility is a manifestation of uncertainty. And I think Ross said something else to the effect of, “The people at this conference are not the market makers in Bitcoin.” And-

Josh (01:01:06):

Very true.

Dan (01:01:06):

That has changed a lot recently. For a hardcore five to seven year pleb, the institutional money coming in has totally changed the landscape. And you have to remember, these allocators are feeling the pressure because the coin is flashing brighter orange, you’re seeing super bowl commercials, millennials are hysterical. There’s just so much noise in this space. It’s crazy, even having been in this for a little less than five years, just where we are today compared to when Josh and I first got interested in this. But these massive institutional players who are just at the very beginning stage of allocating, but they are currently allocating, they don’t fully understand what they’re involved in. This is still a tiny market cap, which it is in the grand scheme of things in their mind. And so, it’s totally understandable that this is going to be linked in their portfolios to risk-on assets.

Dan (01:01:54):

Another thing to consider is their portfolios, although they’re the experts, they do reflect the preferences of their constituents. And on a global scale, people don’t understand what this asset is yet. My point I’m making is I think we’re a long way from this decoupling. I think we will decouple from risk-on assets, but I think it could be a long way off, because I think until institutions really understand and big money really understands what it’s invested in, this is going to be in the risk-on bucket for a long time, even though architecturally and fundamentally, it’s designed to be a risk-off asset.

Josh (01:02:28):

I think we should all hope that it remains in that bucket for quite a long time, because the way I view it, the only way that this turns into a very quick situation where trillions of dollars are pouring into Bitcoin out of the bond market and all these other risk-off quality assets at this point, at least how people view them, the only way that happens is if stuff really hit the fan in a major way. And I don’t think any of us want to see that happen. We’d prefer to see this happen in a more orderly fashion. I think we all believe that this is probably going to happen in the longer term, 10 to 20 years.

Josh (01:02:56):

This just makes me think of the conversation we had with Lawrence Lepard and the conversation he had with Preston, which he basically said, “This is a two to five year thing.” That means that some bad things are going to happen in the very near term. In order for it to happen that quickly, some really crazy stuff has to happen. So let’s all hope and be optimistic that this happens in more like a 10 to 20 year time-frame, in a more orderly transition, and everyone can kind of, like we’ve kind of said before, build a new house on the old foundation without letting this-

Dan (01:03:23):

Yeah, we-

Josh (01:03:23):

Thing collapse.

Dan (01:03:24):

We talk on our show quite a bit about just be careful what you wish for. It’s cool to sit around and say the whole system’s falling apart, but that’s not fun for humanity. That’s probably not good for a lot of even your inner circle. In my life, most of those that I love and care for aren’t, by my lens, properly protected against the really fragile systems. So, I do really appreciate… The Jeff Booths, the Greg Fosses. I mean, Pitch talks about this a lot too of let’s hope not. Let’s hope that we can have this new system being built alongside the old and we can kind of slowly move from one to the other because I think that would be a net positive for human thriving.

Dan (01:04:03):

I think you need to be ready for it not to work that way. And when you look through monetary history, these things do often have a tendency to happen pretty violently and abruptly. So be prepared, but I think I would encourage people to be philanthropic and benevolent in the way that they think about this happening instead of just being like, “I got mine. So, screw everybody else.” That’s not a good way to look at the rest of mankind as we make a transition out of what’s a pretty precarious predicament.

Clay Finck (01:04:30):

Yeah. To follow up on that, you said be careful what you wish for, and that reminds me of Jordan Peterson. He was another speaker at the event. He was hitting hard on a lot of people think Bitcoin’s just going to be this savior to everything in our lives and everything’s just going to be great once Bitcoin is the base monetary standard. And he really emphasized that we should be cautious, and Bitcoiners might be right about many of the good things that it’s going to bring, but that doesn’t mean that it’s not going to come with unintended consequences. So, I think it’s important just to stay humble. I love what you guys are doing with your podcast and trying to educate people and just trying to bring it down to just your everyday person. You guys are firefighters, you’re talking to everyone at your firehouse. So yeah, I completely agree with everything you said, Dan, and I think that part really hit a chord with me.

Dan (01:05:23):

I do love what Peterson said there. He made this other comment, something to the effect of, “When paradigm shifting discoveries happen, they rarely go in the direction we anticipate.” I mean, look at how most people perceive the internet early on, and look at what it’s become. I do think Bitcoin is designed, you could say, with mankind in mind, right? And I think based on the way I size it up, it’s pushing things in a positive direction. But we need to have the humility to understand A, we don’t fully understand Bitcoin whatsoever. There’s still so much to learn even for people that have spent thousands of hours studying it. B, to try to transpose that new discovery on all the things that are other discoveries that are going to happen, the trajectory of mankind. There’s a lot of unknowns and we do need to keep our eyes and ears open. If you’re just expecting this thing’s perfect, it’s always going to be perfect, that’s a troublesome, dogmatic viewpoint. And nothing should be above scrutiny, Bitcoin included. So, I did love kind of where that challenge that Peterson presented at the conference.

Josh (01:06:22):

Yeah. As I was thinking about the unknown unknowns, something that… In essence, humility, it’s understanding that I’m smart enough to know that I don’t know everything, and therefore, there are tons and tons of consequences to the things I don’t know that could potentially trip me up. That’s the kind of humility I loved out of Peterson.

Dan (01:06:38):

Clay, the one other thing I wanted to say from this macro panel, my highlight quote, Pysh said, “When you’re looking at a protocol, is it going to be decentralized in 20 years?” And this really is the crux of the biscuit. The protocol that you’re investing in, is it going to stay that way? Does it have the architecture to survive institutional adoption, nation state on slot, yada dada da? Back to what we covered earlier on, in our viewpoints, Josh and myself think there’s really only one protocol that shows the potential to withstand what we perceive as viable risks. But I just loved kind of pushing that timeframe out that far, and I think that’s maybe the most important question you could be asking in all of crypto right now.

Josh (01:07:22):

Yeah. And Preston’s advice was simply buy Bitcoin and fall asleep for five years. I mean that basically is it. That’s all you have to worry about. Just do that and forget about it. Don’t trade it, don’t try to get cute. Just sit on it.

Dan (01:07:33):

Stop listening to our shows. Turn them off. Just [inaudible 01:07:36]-

Josh (01:07:35):

Don’t [inaudible 01:07:36] either.

Dan (01:07:36):

Fall asleep.

Josh (01:07:37):

Don’t [lever 01:07:38] it. It’s painful.

Clay Finck (01:07:40):

Let’s see. Should we cover the macro panel a little bit more, or what do you guys think?

Dan (01:07:45):

It is kind of a shame that they got cut short, to be honest with you, because there was some… Mark Moss said some really good stuff too. He actually hit some on the Bitcoin of all things. Moss said, he spent some time unpacking. We’ve known it is store value, but it could enter that medium of exchange realm. And we’ve explored that some throughout this episode already, but this is I think what really sends people down the Bitcoin rabbit hole, when you see the elephant from one direction and then you move the other direction and you start to kind of piece together what thing is. And I mean, as we’ve already covered, this is how the internet came to fruition, right? The first application for everybody was email. And then next thing you know, now it’s just doing everything.

Dan (01:08:24):

And the internet is subsuming all of information globally. And so, the one thing I really like about Mark Moss is he’s very multifaceted and interdisciplinary in the way he thinks. And he brings in both from a monetary history and just history perspective, but also currently contemplating the interplay of all these different dynamics. And I think that is the ignition for the Bitcoin bomb, right? You’ve got store value here, meaning of exchange here, censorship, resistance. And you’re combining all these things and realizing just the wide, swathing implications of this protocol on so many different spectrums of the ways human beings exchange value. And that was one point Mark made in there.

Clay Finck (01:09:03):

Another thing related to the macro panel and your comments right now on the internet, we’ve used the US dollar since 1971, since it was de-pegged from gold. And it’s pretty insane to think about how revolutionary the internet was and how far it’s come since 1999, 2000, whatever year you want to call it. And we’re 20 plus years into this internet movement and we’re still using the US dollar. And that’s where Jeff Booth kind of comes in. Jeff is always hitting on this fact that technology is deflationary. The internet is massively deflationary, which means it lowers costs and brings abundance to everybody. But the conundrum we’re in is that our current system requires growth and inflation and prices across the board. So to offset that, we’ve seen massive increases in the debt levels of the government, of consumers. You see all these headlines how credit card debt, real estate debt, any kind of debt, it’s hitting new all-time highs.

Clay Finck (01:10:05):

And it’s just something that continues to blow my mind. And Jeff mentioned how he invests in technology companies and he only invests in the companies that are bringing abundance to everyone and the companies that are lowering cost for everyone. And you have these two colliding forces that are constantly fighting each other. This force is fighting each other, tapping at an increasing rate of change, and it just seems like it’s not going to end well unless we have some sort of financial system to transition to over time because in the end, technology is an unstoppable force. And that’s me just paraphrasing many of the teachings I’ve learned from Jeff Booth and none of it’s really my own, original thoughts. So, just incredible things that Jeff Booth has been teaching everyone in the Bitcoin space.

Josh (01:10:51):

It’s kind of hilarious too when you read his book and you understand the deflationary inherency of technology. And you look around and you say, “The government has to be so flagrant and so glutinous with its spending to outdo this ridiculous amount of technological innovation that all these private businesses are accomplishing, that they can manage to still just bludgeon deflation by being just so aggrandizing with printing money in every turn in the last year.” Well, 2020 was the most ridiculous overstep of that. We’ve seen between three and $4 trillion just getting tossed to the giant hog trough for everybody. And now, we’re seeing the inevitable occurrence of what happens. This is going to cause inflation in a very meaningful way for probably quite some time that we may not have even seen the top of yet. Basically, what I’m saying is just a comment on the gluttony is so over the top and the government printing money that they’re able to counteract this deflation, and then on top of that, pour on an extra helping of inflation for all of us.

Dan (01:11:47):

What Booth does for me, gentlemen, is this. His book, The Price of Tomorrow, and a lot of other thinkers, drive you back to why is leverage where it’s at? So, this is an exercise I’ve gone through. So we’re at this point, it’s really popular in the Bitcoin space to talk about the end of a long term debt cycle, and all this money printer go burr, and all this monetary and fiscal policy. Why are we here fundamentally? And Booth got into this and I’ll get to his quote in a second. But basically, he works through as economies of scale grew inherently global and demands on the velocity of money increased, we had to move away from a hard money standard. We had to innovate. There needed to be a new monetary technology. And so, we moved to notes backed by hard money, which moved us into a credit based system, which centralized control of the monetary system, which enabled manipulation of money, right?

Dan (01:12:35):

This is back to first principles of why did people have control of the money? It’s because the velocity of money globally necessitated a new monetary technology. So, he has this quote that… This was the standout quote for me of the entire conference. I tweeted it out. He said, “The technology of Bitcoin allows you to build a system, peer-to-peer, that doesn’t require debt for velocity of money.” And he followed it up by saying, “This is the most important part of Bitcoin.” And it hit me like a ton of bricks. Why do we have a credit-based system at the base layer of money? It’s because of the limitations on velocity. Bitcoin brings back hardness and enables velocity. And its implications are just, they’re hard to conceptualize, but once you get there… And Booth has a unique way of hammering that home.

Josh (01:13:20):

You did a really good job of explaining that because I don’t think I really appreciated how incredibly important that was until maybe just right now, when you said that again and when you went through that whole thing. That is really huge. That’s a profound statement. It really is.

Dan (01:13:34):

Yeah. That quote, that’s in the top 10 Bitcoin quote for me [inaudible 01:13:39]-

Josh (01:13:39):

Jeff Booth is a sneaky genius.

Dan (01:13:41):

Yes, he is.

Josh (01:13:41):

He is so soft spoken and so just mellow, that you almost are… You just don’t appreciate the genius he has until you really dig deep into it, read his book, and listen very carefully to what he has to say.

Dan (01:13:53):

And the thing I love about his book is, The Price of Tomorrow, I think he uses the word Bitcoin once. He has a follow-up article. If you do read The Price of Tomorrow by Jeff Booth, you have to read his article, The Greatest Game, which is… I’ve even heard him admit this is basically the last chapter to the book as he’s come to understand Bitcoin as the transition or the solution out of the inflationary predicament we’re in. But those are must reads. It’s a quick read too. The Price of Tomorrow is a really profound but fast book.

Clay Finck (01:14:23):

I love it. Well, do you guys have any closing thoughts or anything else you guys wanted to cover in regards to the conference?

Josh (01:14:29):

I have a couple of quotes from Jordan Peterson’s talk that I thought were… I mean, everything Jordan Peterson says is awesome, but this is just a couple of things. One of the fundamental axioms of a free market is that the only way to properly compute the horizon of the future is by sampling it, perhaps summing the free choices of a multitude of free agents. And he was going on about why capitalism is superior to socialism. And I think he really struck the heart of the matter, which is what capitalism is inherently is a decentralized computer of hundreds of millions of minds, all making independent decisions of what’s best for themselves, communicating those prices, again, decentralized, in a decentralized fashion to everybody else.

Josh (01:15:08):

And those cascading price signals through the system allow everybody to understand what value is, where and why, and to operate with rationality. And that’s why capitalism works so well and why centralized control inevitably fails, because there is no single entity or person that has enough knowledge, enough information to coalesce all of it into a better system than capitalism, just because one single mind or a group of minds can’t be smarter than literally everybody else in the world. I think that was an important one.

Dan (01:15:39):

I think my kind of closing remarks on the conference are, we often close guest appearances or shows this way, don’t trust any of these people we’ve just mentioned. Don’t trust us, including me. Don’t [inaudible 01:15:51]-

Josh (01:15:51):

Definitely not Dan.

Dan (01:15:52):

Seriously. Go do your own homework. We’re just a couple of firefighter clowns that are regurgitating information. Study for yourself. That is the whole ethos of Bitcoin. Don’t trust, verify. And I think one of the awesome components of this conference is it’s so readily apparent there’s no heroes. We had Kevin O’Leary get up on stage, and then following on the analyst desk, I think it was Marty Bent, Guy Swan, I think Mark Moss was on there, and they were tearing Kevin O’Leary apart. You have this massive A-list influencer-

Josh (01:16:21):

Love this year.

Dan (01:16:22):

That just got on stage and was touting Bitcoin. And they just proceed to tear them apart on the analyst stage. Frustrating as that can be for people, that is the ethos of Bitcoin. It’s go learn for yourself, study, learn these concepts, make your own decisions. So yeah, do it. Go do that homework. Don’t trust what we’re saying. Podcasts are great, but you got to read books. Go beyond just Bitcoin books too. If all you’re ever reading is others writing about Bitcoin, you’re definitely in the middle of a bubble group. Think, expand, never stop learning.

Josh (01:16:50):

Well said. And if you’re looking for resources, our website, bluecollarbitcoin.io, we’ve got a spot for a bunch of resources that you can find and follow. Depending on how much time you have, we’ve got kind of disseminated into different periods of time for how much you want to spend learning about Bitcoin.

Clay Finck (01:17:06):

Fantastic. Well, it was a pleasure doing this episode with you guys. There’s no way we could have covered a lot of the content that happened at the conference, but hopefully, we hit some of the highlights. Josh, it was fantastic meeting you there. Dan, I’ll have to check it. See you down to Miami next year, but it was just such a good time down there. And I’m really glad I had the opportunity to meet you, Josh, and many others in the space and can’t wait for next year. So, thank you guys for joining me.

Josh (01:17:31):

Definitely mutual, Clay. It was a pleasure. Thank you.

Clay Finck (01:17:34):

All right. I hope you enjoyed today’s episode. Please go ahead and follow us on your favorite podcast app, so you can get these episodes delivered automatically. If you’ve been enjoying the podcast, we would really appreciate it if you left us a rating or review on the podcast app you’re on. This will really help us in the search algorithm, so others can discover the show as well. And if you haven’t already done so, be sure to check out our website, theinvestorspodcast.com. There, you’ll find all of our episodes, some educational resources, as well as our TIP finance tool that Robert and I use to manage our own stock portfolios. And with that, we’ll see you again next time.

Outro (01:18:11):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin, and every Saturday, we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.