Latest / What Bitcoin Did / Bitcoin Will Eat the World’s Biggest Asset | Leon Wankum

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Bitcoin Will Eat the World’s Biggest Asset | Leon Wankum · What Bitcoin Did

0:00
So let's imagine we would have a deflationary currency like Bitcoin. A house in the late 40s
0:08
was worth or cost $4,000. Now it should cost $400, but it cost $400,000. So your house isn't
0:15
getting more valuable. Your dollar is becoming worth less. Exactly. So since money is a bad
0:19
store value, people invest their money in real estate and use real estate as a store of value.
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For me personally, it doesn't make any sense to save in real estate. As real estate increased by
0:28
200 times, Bitcoin can increase by 2,000 times.
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Bitcoin will replace real estate and also government bonds as these two financial instruments
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that are used both by private actors and publicly listed actors and governments to manage inflation.
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Okay, digital real estate.
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Yeah.
0:51
Let's go.
0:51
So, Leon, welcome to the show.
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I say this almost every episode right now, but we have been looking to do this for such a long time.
0:57
Very true.
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i'm glad we can finally sit down and do it but same here um tell everyone who you are because
1:03
you've got an interesting background before coming into bitcoin yeah yeah sure um so i tell
1:09
you about my bitcoin story and then about the real estate and bitcoin uh um framework that i kind of
1:16
operate in now but i got introduced into bitcoin actually in the uk i was studying in bath oh cool
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yeah i was studying philosophy and ethics my sister lives very near bath nice beautiful it's
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It's a beautiful city.
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And I actually heard about Bitcoin at a rave first time.
1:31
Me too.
1:31
Good.
1:33
Back in 2011 for me.
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Yeah, 2012, 2013, like that time frame.
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And I thought it sounded absolutely batshit crazy and wanted nothing to do with it.
1:41
I actually liked it, to be honest with you, at the time already.
1:44
I liked it.
1:45
And then my friends started using it.
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They started to show me certain websites where they were interacting with Bitcoin or making use of Bitcoin.
1:52
and then I fell into the rabbit hole of the Austrian School of Thought or Austrian economics
1:57
and then I finished my bachelor's degree. I did a bachelor's in philosophy and ethics and a
2:02
bachelor's in business management and then I studied financial economics in Glasgow and that's
2:08
when I decided to write my master thesis about Bitcoin. So I was one of the first students in
2:12
financial economics to write a master thesis about Bitcoin. Very cool. Yeah, I was very interested.
2:16
So what was the thesis specifically about? Actually the thesis was about at the time
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I tried to understand what Bitcoin was.
2:24
Just pull the mic in a little bit more, sorry.
2:26
Yeah, sure.
2:26
At the time, I tried to understand what Bitcoin was.
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And most of the work on Bitcoin,
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the academic work was on Bitcoin,
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the network or the protocol.
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So from the perspective of cryptography
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and less so from the perspective of an economist.
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So I'd started to look at Bitcoin,
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the monetary unit.
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And I wrote my thesis about Bitcoin
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as a monetary alternative
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and its use case as a medium of exchange
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in the internet mostly.
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and uh yeah it was it was good i looked at the remittance market uh bitcoin's potential for the
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remittance market um the lightning network just at the time started to go uh the idea was formed
3:01
already but the lightning network wasn't live tell me again what year this was you were writing this
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2015 okay this was in 2015 so you were early on some of those narratives then because i i like i
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first got into bitcoin in 2016 i don't remember remittance being a big topic until maybe 2018 2019
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19? Yeah, I think it wasn't so much, but it was something I found interesting because at the time
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I had a family friend was living in South South Africa and he told me that there are lots of
3:27
workers from Zimbabwe and they work in South Africa and if they use Western Union, they have
3:31
to pay 10 to 15 percent transaction fees. So he came up with a company called I think it was
3:36
called Mama Money. I don't know if it still exists and I don't know what the trajectory of the
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company was but he introduced me to the idea that bitcoin uh was money that could be used to
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save on exchange fees for global remittance so i looked into that narrative and i wrote my master
3:52
thesis and that's how i got introduced into bitcoin and then i kind of changed the path so
3:59
to say at the time i thought i would go into the music industry and but what made me change my mind
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was an internship i did in los angeles so in 2000 i think it was 2016 so after my writing my master
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thesis or the year before in 2014 i didn't in i was an intern in los angeles for a record label
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and i was sitting down with the guy i was working for and he told me leon you're a smart guy you
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should go into finance you should not go into the music industry because uh lime wire and napstar
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are just destroying our revenue model yeah and then i thought to myself actually if the mp3 file
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is destroying physical currency or fiat money why wouldn't bitcoin uh sorry if the mp3 file is
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destroying cd cells why wouldn't bitcoin destroy fiat currency so then like understanding how
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limewire napstar and the mp3 file changed the music industry made me more interested in bitcoin
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so then i decided to leave the music industry and go into real estate development and finance
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And that's what I'm known for today.
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So in 2016, I joined a real estate development company in Hamburg, Germany,
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R.E.D. Baufeld.
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It's a development company and it sits under a holding company
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that we also developed a year earlier in 2015.
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We set up a company called One West Developments that's still operating
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and we invest in real estate.
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We acquire Bitcoin and we also have a venture arm.
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But the venture arm is small.
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our biggest uh uh our biggest uh investment is in real estate so from 2015 2016 until 2020 i was
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working real estate development and i was stacking bitcoin but actually i wasn't really part of
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bitcoin culture i wasn't attending any conferences and it was only in 2019 when i went to the honey
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badger in riga my first bitcoin conference actually i started to delve a bit deeper into the real
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potential of bitcoin and starting to comparing it to real estate because at the time i did two things
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i always compared bitcoin to um what i knew about fiat money which was based on the fact that we use
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fiat money mostly to buy goods and services because it has lost the store value function
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that function moved into other asset classes like real estate also into the equity markets
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also into the art market, I was looking at Bitcoin only as a medium of exchange.
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I wasn't even hodling Bitcoin much.
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I was just using it to buy goods and services.
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And then in 2020, it also had to do with the emergence of some of these players that are big
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today, like Michael Saylor bursted onto the scene and he started to talk about Bitcoin as property
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and Bitcoin as land.
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And at the time, I was already forming my thoughts around the digital real estate thesis.
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And that really pushed me to look into the potential of Bitcoin by comparing it to the market cap of real estate.
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Because if we talk about Bitcoin as digital gold, it actually doesn't give a good idea for the potential of Bitcoin.
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Because the market cap of gold at the time was 10 trillion.
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Today it's 30 trillion. It's bigger.
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But the real estate market cap is 300 to 500 trillion.
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So it's the largest store of value in the world.
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And that, I think, helps to give a better idea of the real potential of Bitcoin.
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and then I left the real estate business in 2021.
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I became a writer for Bitcoin Magazine.
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I started to publish my first articles.
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One of them was called
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Bitcoin is Digital Real Estate.
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That was in 2021
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and I formed my thesis about Bitcoin
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taking over real estate
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as the dominant store of value for humanity,
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which has led me then to write the book.
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Amazing.
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It's interesting that you sort of went straight to Bitcoin
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as a medium of exchange.
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I don't think many people,
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like maybe in the very early days
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when Bitcoin really didn't have a price,
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But especially like when I got into Bitcoin, it was the dominant narrative from the start for me was that this was like savings technology, essentially.
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Why did you get stuck in the medium of exchange thing solely at first?
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Because I was an anarchist and I just looked for a technology to circumvent government regulation.
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So the narrative that caught me in Bitcoin was not, I think the hodl meme didn't exist even at the time.
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So hodling wasn't even a thing.
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So what I liked was it was used by WikiLeaks and it was used in different markets that were not regulated.
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And that's what caught my interest because at the time I really fell in love, so to say, with Karl Menger, Ludwig von Mises and the Austrian School of Economics.
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And I started to really despise the government and centralization.
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So what kind of got me into Bitcoin was my anarchistic and libertarian worldview.
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Yeah. And I hope Bitcoin becomes that in a real way. Like, I hope it does become the
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meaning of exchange. Do you think that's still likely?
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It's a big debate because I think it's one of the biggest debates that we have today. I mean,
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I don't want to go into, you know, the BIP-10 debate. I think that debate has solved itself.
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But what I do want to get into and what I also talk about in the book,
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if, let's say, the Austrian school of economics is correct, and I think we can assume so because
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the cypherpunks and if you look into the cypherpunk mailing list and the emails that were exchanged
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they were very aware of ludwig von mises the regression theorem karl menger and his book
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principles of economics because karl menger who is the founder of the austrian school of economics
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he wrote a book called principles of economics in 1871 and in it he described what good money is and
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he made the argument that good money needs to be a good store of value in order to be used as a
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medium of exchange meaning the store value function is the most important function and then the
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question is if bitcoin is this great store of value how can we make use of it as as a medium
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of exchange and i believe that at the time i thought bitcoin will be used directly for payments
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predominantly but what i came to understand now and also if you look back at some of how finny
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posts in the bitcoin talk firm i think most people are aware of his post where he talks about
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bitcoin is going to go to 10 million plus bitcoin is not going to scale by itself it's going to scale
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as a base layer and then your financial institutions issuing currencies and financial instruments on
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top of bitcoin and i think that's where we are now so first of all we have uh currencies like cashew
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so cashew you can say is a bitcoin-backed currency that can be used as a medium of exchange
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and then you have these preferred equities which are actually financial instruments also built on
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top of bitcoin so i can't 100 say how it's going to play out but i can say two things number one
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from my personal experience i do regret spending so much bitcoin early on i would have of course
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loved to still sit on that it would give me completely different trajectory of life and
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potentially more optionality because just sitting on purchasing power gives you this freedom and
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gives you time and number two most people will not interact with bitcoin the way that we did in
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its early days i think we can see it you attended the bitcoin treasury conference as well and without
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now saying is it good or is it bad how bitcoin is adopted in the capital markets it obviously
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is adopted in a significant way and most people that are shareholders of these companies either
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they have the common equity the common stock or they have these perpetual preferreds they
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necessarily are not even aware of the fact that you can hold bitcoin in self-custody
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and yesterday on stage with grant cardone he made a comment he said something along the lines of
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I have no idea how a phone works and I have no idea how electricity works, but I use it every day.
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And I think it's similar with Bitcoin.
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Most people will be exposed to Bitcoin through financial markets or financial products without necessarily knowing how Bitcoin, the protocol, fundamentally works.
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But we should still, of course, educate people on it.
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But I'm just saying as this technology scales and billions and potentially hundreds of millions of people are coming in,
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they are coming in through avenues that are easy for them to understand.
12:02
And since most people are very busy and stressed, they don't have the time to be as informed as we are.
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institutions that's bit go um okay let's get into your digital real estate theory yeah where's the
13:55
best place to start i think the best way to start is um and also how i structure the book is um if
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we look into the dominant narrative of real estate and the dominant narrative of bitcoin it is
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actually very similar so if we look into two things number one how has real estate become so
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valuable and why do people invest in real estate so since 1971 that's the date that we all know
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when richard nixon announced that the u.s would go off the gold standard which then actually happened
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in 1973 the inflation rate meaning the rate of currency debasement of the u.s dollar is almost
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on par with the compound annual growth rate of real estate meaning on average the amount of money
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The amount of US dollar since 1971 has increased by around about 7% every year, 6.5% to 7%.
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And residential real estate by around about 5.5% to 6%.
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So your house isn't getting more valuable, your dollar is becoming worth less.
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Exactly.
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So since money is a bad store of value, people invest their money in real estate and use real estate as a store of value.
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And if you own real estate, number one, you participate in the appreciation of scarce assets.
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and you also participate on the value creation that is happening in a certain economy.
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I give you an example.
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Manhattan, it's a widely discussed example, not just because Michael Saylor made this example,
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but also because the Wall Street and the financial world really sits here in New York.
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So if you would have bought land in Manhattan 200, 300 years ago, you would just sit on that land.
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You would basically become rich because of the debasement of currency
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and because of the economic activity in Manhattan and in the financial markets
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that globally are directed through nasdaq through the wall street and through these institutions in
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new york right and now if you look into the bitcoin protocol if you own bitcoin the monetary
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unit of the protocol you participate participate in the value creation of the bitcoin network meaning
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any company rather it's bull bitcoin rather it's strategy rather it's pubkey or rather it's your
16:01
podcast any company that uses and makes use of bitcoin increases the value of bitcoin so
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So as a holder of Bitcoin, you benefit from people having a demand for Bitcoin.
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And that's the same investment thesis behind land.
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So the investment thesis behind land and real estate is the same investment thesis that exists behind Bitcoin.
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And Bitcoin is just absolutely scarce.
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So land is relatively scarce.
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Bitcoin is absolutely scarce.
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And I quickly want to give an example that I also have in my book.
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That example I give at the end of my book, but it's actually a good example to understand the potential of Bitcoin.
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So in the city of Hamburg, which is one of the biggest cities in Germany, a friend of
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mine told me his grandparents bought a property in the, I think it was in the 50s, for, it
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doesn't matter, 50s, 60s or 70s, for 70,000 Deutschmark at the time, right?
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This was after the Second World War, Germany was completely destroyed, and people told
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his grandparents, you're crazy.
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Germany is never going to get back on its feet, the house is totally overpriced, it's
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a bad investment, you shouldn't do it.
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now uh 50 to seven years later that same building is worth seven million euro which is the equivalent
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of 14 million deutschmark because there was a conversion from uh the pound and the deutschmark
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to the euro right it was well not the pound and not the point sorry not the point from uh from
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the euro and the european currencies to to uh we stuck to our guns on that one sorry from the euro
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into uh into marks so that's an increase of 200 okay so if you look at that that just gives an
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idea of what bitcoin could could turn into because today the bitcoin price sits at around 80 000
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or whatever and people already think it's overpriced and i think looking at the development
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of real estate and the price appreciation of real estate helps to understand how bitcoin could
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develop over time right and as real estate increased by 200 times bitcoin can increase by
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2 000 times because it's digital and it's absolutely scarce and just like any digital
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digital counterpart overtakes its analog um precessor for example today we create as much
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information through whatsapp and through the internet than humanity has done in the first
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100 000 years of its existence yeah so why would bitcoin not be worth you know 10 to 100 million
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at some day in the future right so so real estate in the scale of real estate and the development of
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of real estate prices just help me personally to understand the trajectory that Bitcoin could take.
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And then number two, I want to talk about the collateral function, because I think that would
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also play into Bitcoin's use and capital markets. So real estate is not just so high in demand
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because it's relatively scarce, fiat currency is debased and people use it as a savings account.
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They also use it as collateral. So this is true for private households, either they own their home,
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which is bought with debt, or companies on real estate lend against it to buy more real estate.
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Pension funds, financial institutions, even nation states sit on large real estate portfolios.
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And as these portfolios increase in price, they lend against it and then give out more currency.
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So for the fiat system to continue to work, real estate prices need to be pushed up to appreciate
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in order then to lend against it.
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But Bitcoin is actually better collateral than real estate.
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So the function that real estate today holds in the global financial system, number one, being a store of value, and number two, being collateral, Bitcoin can actually play.
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So that's the digital real estate thesis.
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That is the general thesis of the book.
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And if you want, I can go on to the second part, but maybe we'll-
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Yeah, I have some questions first.
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So I was talking to my mom about this recently.
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She's, I don't know exactly how old she is.
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Let's say she's in her 60s, I think.
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when she bought her first home
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it cost her less than a year's wages
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and now
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if you were trying to buy the same home
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and you had the comparative wages
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it would probably be something like 10 years of wages
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is that all a case
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of people looking for somewhere
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to put their debasing money
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because my question there really is
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I don't think people know that's what they're doing
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but is that what they're doing subconsciously
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I thought
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it is what people
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are i mean i'm aware of it because i'm a real estate developer i mean first of all yes right
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so another question is it consciously is it subconsciously it's a good question i assume
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that people do it consciously because i do it consciously but but you're you're a real estate
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developer who's also into bitcoin and into austrian economics like you you have a different background
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to most people like i think if i went out and asked my friends that have no idea about this
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world why they're buying a home they wouldn't necessarily see it as like a fiat debasement hedge
20:38
mm-hmm yeah okay because uh probably i mean the question is
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how deep do you want to go into that rabbit hole right like uh me as a developer when i started
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developing real estate and i started being active i mean i started spending time on building sites
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when i was 14 because that is the family business so i grew up around the real estate business
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unfortunately when i was around 11 i went bankrupt and then we had to rebuild it but that was good
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because I also built my character and it made me hungry.
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But at the beginning, I was always aware that as a real estate developer,
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I'm talking about myself, right?
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I was always aware of the fact that fiat money has no bottom
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and that real estate appreciates in the face of inflation.
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So I was aware of that.
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But I wasn't aware of the significance of real estate
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for the global financial system.
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So I do believe, I mean, I can't really speak for everyone,
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but I do believe most people at least know you should buy a home.
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It's like that's just culturally accepted and it's a norm.
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Maybe people don't really understand why, but people kind of understand put your money in brick and mortar.
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And I'd say, you know, 20, 30 percent of the people understand you do it because it's relatively scarce.
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But even those people don't really understand the significance of real estate being a dominant store of value because it's not normal.
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I mean, if you look at the trajectory of humanity for the past, we take the past 5000 years, right?
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Because we always say gold exists for 5000 years.
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in that time frame and you can look into any culture in the world go talk about African
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civilizations you talk about European civilizations the Greeks the Romans you talk about the Shugunat
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system in Japan or you look at India South America the Inca and Maya ownership of land was always
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tied to political power and the ability to generate cash flow through agriculture to then also pay
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or soldiers so senators in rome had to own land and a certain number of soldiers but real estate
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and land wasn't used as money people use gold to store value they use gold to pay for things and i
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used land more as a business so the use of real estate as a form of money is a abnormality and i
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think it was a necessity because it was almost logical for that to happen because with the
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the emergence of electricity and then the emergence of the computers, there was a mismatch.
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Information digitalized. We had electronic information, but we had no electronic money.
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So the best next thing that we were able to use was real estate, because real estate in the secondary market
23:16
is then collateralized and financialized and tradable through claims and derivatives made on real estate.
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Since gold is so heavy and it's difficult to carry and it doesn't work in a debt based
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system because in a debt based system if you give out loans you need the asset to create
23:34
cash flow in order to pay back the principal.
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So real estate has worked so well in the fiat framework as money because banks lend out money
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for the purchase of real estate and then the asset itself through its cash flow gives the
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borrower the ability to pay back the principal.
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So within the framework of a debt-based system, it was almost logical to use real estate as
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money, but that in itself shows that the system doesn't work because it has created so many
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negative secondary order effects, one of them being the so-called housing crisis, where
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living expenses, like you just explained, have become so high that it makes society...
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It makes it difficult to build a home, to build a family, and I think it's one of the
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biggest issues socioeconomically that is tied to the fiat system and the worst example that i have
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that i have in my book is in sydney it takes up to 40 years for people to save up to have the money
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to then go get a mortgage yeah i mean australia housing market is absolutely wild i i don't know
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for sure but it must be up there with the most inflated in the world um i know canada is also
24:39
bad but that that was one of the questions i wanted to ask because i don't feel like um
24:43
directionally you're right everywhere in the world but there are pockets where this is far worse than
24:47
others like like say australia is terrible but like in france housing isn't monetized the same
24:52
way do you know why that is i actually i don't know much about france in that term but japan
24:58
i can talk about japan because there would be an example where housing is not financialized yeah
25:02
it's because culturally the japanese like the demographic change in all the
25:10
industrialized societies was met with high levels of immigration in order i'm not going to get into
25:19
the topic of immigration now but the reason why politicians did it i mean there's different
25:25
theories about why they did it but from an economic perspective it was in order to save the housing
25:30
market in order to save the pension system and so forth the pension system in itself was a scam
25:35
that's why it won't work anyway but the Japanese are culturally different they
25:40
like their own culture so much the Japanese are almost like the Germans in
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the 1920s or the Prussians in the 1920s where they are aggressively patriotic
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and they would rather have a demographic change where housing declines in value
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rather than having cultural changes so the reason why real estate in Japan is not used as a store of value it because there no demand they not imported demand they have not imported demand basically so in france by the way i don know the specifics of france but you know the financial markets and
26:11
the tax incentives in france maybe work in a certain way where it makes more sense to place
26:16
your money in venture capital or in the equity markets whereas i can talk about germany for
26:20
example in germany the tax incentives are structured in such a way where you want to
26:25
park your money into real estate so if you own real estate and you live in a house you can sell
26:30
it tax-free after two years and if you develop or own real estate and you do it in a company that's
26:36
taxed like an individual you can sell it tax-free after 10 years so this is these are all incentives
26:42
to park your money in real estate and in england the financialization of the country in itself if
26:49
you really look into and into into into britain into uk after the uk lost most of its colonies
26:55
the north which was the industrial base like newcastle and manchester yeah but also places
27:00
like birmingham they basically lost most of the industrial base they lost most of the jobs and
27:06
everything concentrated in london oh yeah i mean i'm from manchester the north south divide in
27:11
england is crazy it's crazy right and i think that what the english did and it's a model that
27:16
the Germans are actually playing now.
27:18
Instead of maybe changing the economic system and be a bit less socialist, they became a
27:24
bit more socialist.
27:26
It also has to do with the influence of the Fabians in London.
27:28
I mean, the mayor of London, he's also a Fabian, and the Fabians were just socialists that were,
27:35
in contrast to the Marxists, less aggressive.
27:38
And Keynes, so John Mayer and Keynes, he wasn't a Fabian, but he was around the Fabians, and
27:43
The Fabians also funded the London School of Economics.
27:46
So most people think that the London School of Economics
27:48
is a capitalistic university, but it's actually a university
27:51
that's more centered towards the left.
27:53
So if we talk about the financialization of housing,
27:57
I think it's also caused by the shift towards more socialist
28:05
tendencies in Europe, where the working population
28:11
and the planning of the economy has become integrated into politics,
28:16
and it's not even questioned.
28:18
So it has become a way to save a dying economy on paper,
28:24
because let's say you have economic decline,
28:27
but suddenly housing appreciates tremendously,
28:31
and the financial products that are built and the derivatives
28:33
that are built around the housing market also appreciate tremendously,
28:37
suddenly you have created growth.
28:39
So I think real estate has become a vehicle to drive supposed economic growth in dying economies that are losing their industrial base.
28:51
It's hard to talk about real estate as a whole globally because, like, obviously it's not a global asset.
28:56
These aren't fungible.
28:57
Like, they're in their particular locations.
28:59
But are we in a bit of a housing bubble?
29:01
Like, in Australia, it seems clear that that is a bubble.
29:05
But more generally, do you think we are?
29:06
I've seen houses in London that are selling now for the same price they were selling 10 years ago.
29:11
And that's in the economic capital of the UK.
29:14
Is there a bit of a housing bubble right now?
29:18
Yes or no.
29:18
I mean, there always is.
29:19
And since I'm like 14, people always tell me, oh, I'm going to real estate.
29:22
There's a housing bubble.
29:23
It's going to crash like in five years, in two years.
29:26
There's boom and bust cycles.
29:28
And I think looking at the Lindy effect, which says that the longer something existed, the longer it might exist,
29:33
we can have these boom and bust cycles in real estate for longer than we think so yes we are in
29:39
a bubble but we always are due to the debasement of currency in a way but something that really
29:44
changed in november of 2021 actually with the previous bull market at the same time of the end
29:51
of the previous bull market interest rates were raised so interest rates were raised from like
29:56
one and a half two percent up to three four five percent and that meant that the cost of money
30:00
increased with the cost of money increasing people have less access to capital to buy real estate
30:08
and i think that was part of a systematic shift and i want to explain what i mean by that shift
30:14
two things happened so november 2021 the fed raised interest rates and globally that caused
30:20
central banks to raise interest rates and that caused demand for housing to go down so since
30:24
then we can see the prices of real estate have not recovered they are continue to go down and
30:29
what happened next week, the yield on the US five and 10 year treasury were both raised. So now it
30:37
makes more sense to buy a US treasury short and midterm than to invest your money into real estate.
30:44
So in order to manage inflation, central banks have to raise interest rates. And then in order
30:50
to keep demand for treasuries, they have to raise yields. That means that it makes more sense now
30:56
to sit on your money and buy a US treasury rather than buying real estate. So all these dynamics that
31:05
have shaped the real estate market and that have helped the real estate market to appreciate and
31:10
value are changing now. So that's what I call a systematic shift. So I believe that we are in
31:17
a paradigm shift where real estate as this dominant vehicle for wealth accumulation is being replaced
31:25
by Bitcoin long term.
31:27
This is something that obviously we only see now.
31:29
But short term, it's being replaced very short term
31:33
by government bonds now because there's different markets
31:37
and some of the European markets are interesting
31:40
and the US market in the 80s.
31:44
So what happened in the 1970s, Volker,
31:47
who was the head of the Fed,
31:48
had to raise interest rates to manage inflation
31:52
because inflation was just ramping up significantly.
31:55
In 82, they started to lower interest rates and they started to lower interest rates and also yields on government bonds, on treasuries.
32:03
And that's when a lot of the pension funds started to divest out of treasuries into real estate.
32:08
So really this boom in real estate that we had in the late 70s and the 80s and then up until 08, 09 and then again from 2015 to 2001 was a rotation out of government bonds into real estate.
32:24
And I think now there's a rotation out of real estate into government bonds.
32:30
But now when we look at the bond market, there are bonds that are not issued by the government,
32:37
but by private companies that now have even higher yields than government bonds.
32:41
And these are the perpetual preferreds of some of these companies that are publicly listed
32:47
and hold Bitcoin on their balance sheet.
32:48
So I think what we can really see is how interest rates start to catch up to Bitcoin's compound annual growth rate.
32:56
So at the end of the systematic shift, which might be in a few generations, I think that Bitcoin will replace real estate and also government bonds as these two financial instruments that are used both by private actors and publicly listed actors and governments to manage inflation.
33:24
So with this demonetization that you're talking about, the demonetization of housing,
33:28
Bitcoin is obviously going to play a role in that, we think.
33:31
How long do you think it takes until houses are priced fairly?
33:38
And what is fairly?
33:39
So if you have a million dollar house, how much of that is just financialization and how much of that is value?
33:46
Very good questions that I also try to answer in my book.
33:49
It's not that easy, actually.
33:50
yeah and marty actually um published an article a while ago where he tried to um come up with a
33:57
framework assessing the uh the percentage of the monetary premium sitting in real estate meaning
34:02
the percentage of money that sits in real estate because people use it as a savings account
34:06
and it's actually difficult to do that one thing you can do you can measure um real estate prices
34:11
in gold or you can say okay how much was a house in the 1940s for example and the average price of
34:18
home in the late 1940s in the US, which was after the Second World War, when we already had certain
34:23
levels of inflation, was around $4,000. And if it would follow only the rate of inflation,
34:34
it would be around $80,000 now. But actually, the average price is $430,000. So that means like
34:42
like over 80% of the money of the value of a property can be attributed to the monetary
34:50
premium that is being parked in it.
34:52
And I can even go a step further.
34:54
So let's imagine we would have a deflationary currency like Bitcoin.
34:58
A house in the late 40s was worth or cost $4,000.
35:03
Now it should cost $400.
35:06
But it cost $400,000.
35:07
Yeah.
35:08
almost hard to under like to kind of grasp that like the the level or the negative effects on
35:16
inflation on the housing market because actually with the innovations that we have in building
35:21
culture and 3d printing everything should be cheaper yeah but because innovation is financed
35:27
through credit innovation translates into higher property prices it's like it doesn't make it right
35:33
that's crazy like if you really think about it it's like illogical but this is this is how this
35:37
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38:11
And the big question there is like, can governments afford for the housing market to crash like this?
38:17
Because in Australia, the housing market is everyone's savings account.
38:21
It's where they park all their money.
38:22
Like it's far bigger to the average Australian than like an equity market.
38:26
people aren't really investing in the australian stock exchange they're investing in real estate
38:29
so what happens if the financialization the the premium there gets wiped out it's an issue i don't
38:34
i don't think they want it to happen it's not going to happen uh it's a very good question
38:38
because um i also didn't answer the second part of your question sorry because you kind of asked me
38:43
you know um the demonetization of housing like how is it going to play out and i think it plays in
38:48
also to what you just asked because personally as a bitcoiner you know once you understand that
38:54
Bitcoin is this pristine unit of account.
38:57
You start to measure everything in Bitcoin right And a house might have cost like a few thousand Bitcoin let say 10 years ago And today it costs around four or five Bitcoin So the demonetization of real estate is happening right now as we speak And it happening very very fast because you need to
39:12
measure the value of real estate in Bitcoin and not in fiat currency. Yeah. But is that the
39:17
demonetization of housing or is that just the monetization of Bitcoin? Both. Okay. That's both.
39:22
So then the question is how, like if we have both is happening at the same time.
39:27
So the monetization of Bitcoin is happening alongside the demonetization of real estate.
39:34
And now the question is, is the money that flows into Bitcoin, is it new currency through productivity, new credit?
39:42
Or is it also because people sell their real estate and buy Bitcoin?
39:45
And I think that is happening.
39:47
So I had in Prague two years ago, somebody came up to me and he said,
39:52
you leon like yes and i said you know i really want to thank you my family owned around 700 units
39:59
so that's i think probably over a billion dollars we sold it all we went into bitcoin at like 30 40k
40:05
we went all in and like you changed basically the life of my family for like multiple generations
40:11
and i was like cool that's crazy that's crazy and but like you say it definitely is happening
40:17
but it's happening at such a small scale. I guess my question is like, when does this really ramp up?
40:25
Is this all the case of just education in terms of both the fiat system and Bitcoin?
40:29
Yeah, because I think both can happen at the same time. So these moves can happen at the same time.
40:34
So we can see individuals moving their money from real estate into Bitcoin. We can see younger
40:40
generations um generation alpha generation z that they prefer to buy bitcoin rather than investing
40:47
into real estate also because the areas of entry are lower but at the same time governments can
40:52
continue to debase the currency and real estate can continue to appreciate in fear terms i mean
40:59
this can both happen at the same time but why real estate keeps appreciating in fear terms
41:04
fiat keeps depreciating in uh in real terms this is just a nominal appreciation so this is something
41:10
that's just happening on the books so uh governments of course uh this goes for the
41:15
united states this is true for europe and it's true for china by the way the housing bubble in
41:20
china actually reached levels that are way more severe than than in the western western world in
41:27
china maybe you notice there are cities where nobody even lives but in china they they kind
41:31
of happily let the housing market crash right yeah they let it unwind because it's a communist system
41:37
and i don't really care you know what i mean i just let it unwind and it's like you deal with
41:40
it as the consumer because it's great for the greater good but it's not a good thing the thing
41:45
that i could see happening much more quickly is people who have second homes yeah stop looking at
41:51
that as an investment and that money maybe goes to things like bitcoin yeah um like in australia
41:55
again like i say the housing market's crazy i've got friends not not particularly wealthy who have
42:00
have two homes two mortgages like they are deeply in debt but they like it's just the assumed
42:05
knowledge that that's the right thing to do is like put money in housing and that second home
42:09
scenario is one where i can clearly see bitcoin taking over very quickly yeah yeah um what do you
42:15
think people should look at real estate as because because for me like i've said this before on the
42:19
show like we're looking to buy a house the next whenever whenever the time is right i don't see
42:23
that as an investment that's somewhere that me and my family are going to live bitcoin's my investment
42:27
like is that the mindset everyone needs to have
42:30
I think that's the smart mindset like people can think whatever they want I'm not going to tell
42:38
people what to do what to think but I do think like we as Bitcoiners culturally represent a
42:43
cultural shift and this shift can take over the mindset of the general population because it's
42:50
a trend just realizing that like if you really think about it right if you've bought a if you
42:54
bought real estate it it's just it takes time it's costly and buying bitcoin is so much easier
43:00
for me it's mentally even hard to understand i want to also talk about the difference by the way
43:05
between saving in real estate investing in real estate and real estate development just maybe
43:09
touching on it briefly but me for me personally it doesn't make any sense to save in real estate so
43:14
real estate to answer your question should become or will become a consumer good just like a car
43:18
or anything like that and i think that happens on a personal level at first
43:22
Then it's happening culturally.
43:25
And then over time, let's give it another two or three generations in 20 or 40 years.
43:33
Also governments will be forced to rethink the economic model because obviously a system that has never really worked now is kind of coming to its end point.
43:46
right and we see it with the global conflicts we can see it with the housing bubble that's popping
43:52
and so forth when when i said to you before like governments aren't going to want to let the housing
43:57
market fail it seems like there's a role that bitcoin can play in that in order to help the
44:03
housing market as well yes so the things that companies like horizon are doing where you can
44:07
use bitcoin as part of a mortgage um same with andrew hone's companies for mainly commercial at
44:12
the moment i think you'd be better explaining what they're actually doing but you want to explain
44:16
what they're doing and how what role that might play?
44:18
Sure. Great question. Very important. Because as real estate unwinds, as the currency is being
44:27
debased, you actually want to add Bitcoin and dual collateralize it with real estate. Because what you
44:35
do by adding Bitcoin as collateral, either to a mortgage or also commercially, you help the asset
44:43
class of real estate be exposed to less risk yeah because if we look at the risks of real estate the
44:49
risk of real estate is like first of all like hyperinflation imagine like the currency hyper
44:54
inflates whatever that means in whatever time frame the value of real estate will basically
44:59
go close to zero right so if that would be the case this is like the worst case scenario i don't
45:03
believe in a hyperinflation scenario but i'm just saying let's think the theory till its end so we
45:09
understand why practically bitcoin should be added to real estate adding uh bitcoin into real estate
45:14
loan protects real estate from the monetary premium flowing from real estate out into bitcoin and
45:20
number two the nominal value that has created has been created in real estate can be saved with
45:26
bitcoin so and what horizon uh is doing in uh and what what andrew is doing uh on a commercial scale
45:33
they basically if you own real estate uh you have the ability to refinance um this is something that
45:40
is being regularly done yeah so there's a 1031 exchange in the us where investors can roll over
45:45
um profits from from from real estate into bitcoin you can refinance real estate and then
45:53
put that money into a new deal but what you can also do now you can you can refinance your property
45:58
take that value and buy buy bitcoin with it so you kind of secure the value that you created so as a
46:03
As a developer, I think that's very interesting.
46:06
It's a way of hedging the demonetization of housing.
46:08
Exactly.
46:08
That's a way to hedge the demonetization of housing.
46:11
I think it's like the logical next step that needs to be done.
46:16
And if that does happen at a large scale, that's insane demand on Bitcoin.
46:21
Yeah.
46:21
How big did you say the global housing market is?
46:24
It's three to 500 trillion.
46:27
It's hard to say, but we have, there's different estimates,
46:31
but uh i'd say around 300 trillion sits in real estate and plus a lot of the value that sits also
46:38
in equities in the public market is also tied to real estate a lot of the companies have real
46:42
estate on a balance sheet then you have reads so it's hard to really say but it's like three
46:47
to five hundred trillion something like that and so and going back to your sort of analysis on what
46:51
the premium on top of the actual value is at 80 we're talking hundreds of two 250 trillion like
46:57
huge amounts of money yeah and why would that roll into bitcoin not equities or gold yeah um
47:05
good question because that's what people ask me you know they say like everything you talk about
47:09
we could do with gold no you can't because gold has literally failed the reason bitcoin exists
47:14
is because gold has failed and the reason why real estate is used as a store of value is because gold
47:20
has failed gold is too heavy and you can create claims on gold but that creates a like a problem
47:28
of trust can you trust these claims we have learned that you can't trust these claims that's why bitcoin
47:34
exists that's why we use bitcoin so i think that the equity market can also not fulfill this role
47:39
because equities are not money that's the difference between saving and investment so because our
47:45
financial system has been so broken saving and investing have actually kind of become the same
47:52
thing because if you save you or if you invest into real estate you actually want to save because you
47:59
understand that money is a bad store value so gold has failed as a technology that's why we have
48:04
bitcoin the equity market uh is an investment vehicle it's not a savings vehicle and we need
48:10
a savings vehicle and that savings vehicle is bitcoin and i think it just also if we talk about
48:16
the civilizational progress we need a digital money in order to move up the kardashiev scale
48:23
right i mean if we really want to use or make use of the energy that exists in our in our solar
48:29
system we need to have a monetary base that allows us to really create value and really be productive
48:35
because the issue with inflationary currencies is that any type of innovation is financed through
48:40
credit which translates into higher land prices which then creates higher living costs which
48:45
creates stress and if and it also creates and this stress means we don't have time to really think
48:51
about uh real innovation you know what i mean like this goes a bit deeper than just the housing market
48:57
but it's such a big topic because i think the financialization of housing is really holding
49:02
civilization back to go into the next stage of a next stage of its civilizational progress that's
49:10
really how i look at it and so this shift is maybe one of the most important uh shifts within the
49:18
hyper bitcoinization and with the emergence of bitcoin as this near perfect form of money
49:23
the shift from digital from physical into digital real estate i think is one of the the biggest
49:28
shifts yeah and is i mean this is a very long process right and it's naive to think that all
49:33
that money is gonna necessarily just go to bitcoin at least at first like i imagine there's plenty of
49:37
other places but it'll get some of it and that some of it is a huge amount of demand on bitcoin
49:43
and maybe that's then a self-fulfilling prophecy where just more and more becomes bitcoin
49:47
um i want to talk about the stuff that andrew hones is doing because it's very cool because
49:51
um for anyone that doesn't know he's like basically facilitating uh taking out a mortgage on a
49:57
property and if the property let's say it's commercial property it's worth 10 million dollars
50:01
he might give you a loan for 12 and 2 million of that goes into bitcoin on top of buying the property
50:05
how does that change the way that real estate investing actually works i think by the way i
50:12
haven't talked with andrew for a while but we used to bump into each other and discuss
50:16
i think at the beginning it was hard to understand for people how great this idea is like how
50:23
important it is like for most uh regulators it's changing on the us i mean with uh you have uh
50:29
regulation clarity that is emerging slowly where you can include bitcoin into uh mortgages and yeah
50:35
this is what is it pull tea came out and said um i i forget his name but yeah they're gonna start
50:40
looking like bitcoin as a exactly yeah exactly so that's important by the way bitcoin does need
50:45
regulation to succeed but in order for bitcoin to be adopted and to have an effect on a demonetization
50:51
of housing unfortunately there needs to regulatory clarity because otherwise products like that
50:56
cannot be launched and they cannot be used but um i think uh it just uh if you think about the
51:02
global financial system let's look at the emergence of bitcoin so i think this it's not a coincidence
51:07
that bitcoin emerged in 2009 at the peak of the housing bubble because i think the way that i look
51:12
at it always as a real estate developer i was like real estate is going to be replaced by bitcoin as
51:18
financial bedrock of the global financial system and in order for that to happen you need products
51:22
like the one you just talked about in order to take the value out of real estate and save it into
51:26
bitcoin because if you don't do that we might have a crash so also as a german if i look at inflation
51:31
i always look on first world war weimar republic second world war and the negative effects on
51:37
inflation if money loses value everything loses value including human lives so let's say bitcoin
51:45
would not exist i would be really worried i would look at the housing market and i would say once the
51:51
housing market comes i don't think it will pop but it will unwind in some way or another once the
51:57
housing market would unwind would have literally civil unrest because people would lose everything
52:01
they own because most of their wealth is in real estate so now we're going to have a lot of money
52:04
you could, of course, sell all your properties and buy Bitcoin, but that's not logical because
52:10
if you look at the average real estate deal, it's a capital structure. You have the investor,
52:17
the borrower, you have the bank, the lender, and you potentially also have various other people
52:23
with interest, including architects, tenants, and other forms of investors. So now you need to work
52:28
within that financial structure. And having these structured products, I think, helps pulling out
52:33
that monetary premium into Bitcoin and helping people to capture that monetary premium rather
52:38
than having that monetary premium be inflated away. So in order to capture that monetary premium
52:44
and create a reality where we won't have civil unrest, I think we need to have these Bitcoin
52:51
products that work as a balance towards the increasing debasement of currency debt in the
52:57
past. This is, by the way, not just true for the past 100 years. Inflation has always caused civil
53:04
unrest. As we Bitcoiners, we like to talk about Rome, but also the Byzantine Empire. When Mehmet
53:11
in 1453 took over Constantinople, there was also a debasement of currency that happened the 300
53:18
years before that. So we really can look at most of the big empires into the world. The moment
53:24
they collapsed, was mostly tied with the debasement of currency.
53:29
And this is what's happening today again.
53:30
But for the first time in history, we have an asset class that can be held and used without
53:37
any way of debasing.
53:42
Because I think it's very hard almost to comprehend from the human mind what the emergence of
53:49
an absolutely scarce digital store of value that cannot be debased arbitrarily has as an effect on
53:55
human civilization. It could potentially bring us into a reality where we become less dependent
54:01
on the government and centralized institutions because history is always, we move from centralization
54:07
into decentralization, right? It kind of always moves like that. So we moved now, I think the last
54:13
hundred years, we really saw like centralization taking hold, political institutions. You have the
54:19
European Union, you have the UN, also the way that the United States are run today. It's not like
54:24
150 years or 100 years ago. So now we have- The World Bank, the IMF. The World Bank, the IMF,
54:29
all of that, right? So Bitcoin really is part of this huge systematic shift and you need to make
54:34
it easy for people to capture the monetary premium that sits in other asset classes.
54:39
And I think these structured products obviously are part of that. The pendulum is shifting.
54:44
so this is obviously like i understand why you focus on real estate this is like your bread and
54:49
butter but this is going to affect everything right everything with a monetary premium has
54:53
the potential to be demonetized because of bitcoin like art pokemon cards whatever whatever the hell
54:58
it is i'm curious i really want to know what kind of time frame you put this over because like i
55:06
think if the world hype bitcoin is tomorrow great for bitcoin is bad for the world if this happens over a hundred year period i think that can be managed and good for everyone like how how long do you think this will take yeah i mean maybe a few hundred years it i be interested to see i think when we pass away
55:22
we probably will be um still expecting some of the shifts that we thought would emerge to emerge
55:30
to emerge because it takes time yeah it's almost and also um we also i'll be honest with you
55:37
So my theory on Bitcoin, we talked about my master thesis. When I read my master thesis now, 10 years later, I can already see that some of my thinking was flawed because I also applied what I learned about fiat money onto Bitcoin.
55:52
Give me an example.
55:53
Bitcoin being used as a medium of exchange on the internet. I looked at the HTTP protocol
56:00
and into Bitcoin. I was like, wow, the World Wide Web really needs a currency. I was like,
56:04
Bitcoin really fits into it. I made all these calculations on how much money will be saved
56:09
on the internet by just all e-commerce running on Bitcoin. And that never happened.
56:13
It's still true though.
56:14
It's still true. No, it's still true. But it was just the wrong way to look at it because
56:19
Because I looked at Bitcoin, thinking of Bitcoin to be this medium of exchange because I only
56:27
knew money to be a medium of exchange.
56:28
I grew up with fiat money and all I did with the money was either spend it on consumption
56:33
or invest it.
56:35
But all the monetary alternatives that we have today, real estate, collectibles, you
56:44
talked about the art market um also private equity and venture capital to some some extent
56:50
and these are actually all forms of money so everything that they do bitcoin can do just
56:54
better so maybe it also takes time for us as bitcoin monetizes it maybe also teaches us how
57:00
perfect money should behave because we only think how perfect money should behave yeah we don't know
57:05
we don't know we haven't lived it yeah i i do wonder if bitcoin is like an actual medium of
57:10
exchange on the internet might happen because of the agentic economy and i and i'm not naive
57:15
enough to think it would be just bitcoin in that sense it's really like money with a digital
57:19
signature like that that that still might come true could be casual or something like that no
57:25
i'm not sure sure i can this can all happen in parallel by the way it can happen in parallel
57:29
so you've got a section in here on corporate bitcoin treasury strategies how does that play
57:35
into the real estate market and you're in this big thesis yeah um some uh i finished a book
57:43
around a year ago already and then i said you actually i should add a chapter on corporate
57:48
bitcoin adoption because at the beginning i was very skeptical of everything that was happening
57:51
um because of me being someone coming from i guess a bit of more of an old school
57:58
mindset and how bitcoin like should be used or could be used and then i started kind of to
58:04
to really understand that the emergence of if Bitcoin is being adopted as a store of value,
58:11
it also needs to be adopted by companies and capital markets It obvious if you a company the goal of having a company is to make profits and profit should be measured in the most or the
58:25
best money there is. And since Bitcoin is the best money we have, the performance of a company
58:29
should actually be measured and in its ability to accumulate Bitcoin. Not only, I'm saying not only,
58:36
but I'm talking about finance companies, only finance companies. I'm not talking about companies
58:40
set out to innovate in certain industries or within a certain technological framework. I'm
58:48
talking about financial companies. So if we talk about a company like Strife, right, it's a finance
58:54
company. So what should a finance company do? It should create value for its shareholders. What is
59:01
the most valuable thing that exists? It's Bitcoin. So it's only logical that a financial company
59:07
that wants to provide value for its shareholders is going to accumulate Bitcoin.
59:13
So once I looked at it like that, I said, you know what?
59:17
The demonetization of housing is happening in multiple stages.
59:21
One of them being people preferring to save in Bitcoin rather than buying real estate.
59:26
Another one being people selling real estate to buy Bitcoin, refinancing real estate to buy Bitcoin
59:32
or making use of Bitcoin in some form or another to accumulate Bitcoin.
59:36
and the other form is i ask myself why do people own real estate and it's this first of all to save
59:45
and to participate in depreciation and to generate income right but there's a certain overhead with
59:51
with that so let's say i'm a i want to save for my pension and i own a few rental properties it
59:57
actually takes a lot of time to manage these i'm sure right but now if i own strike right
1:00:03
a perpetual preferred by strategy. I have less of a headache. I have a bit less appreciation to the
1:00:09
upside. But if I buy it in a bear market, there actually is a lot of appreciation potential,
1:00:15
plus I have income. So I think that the emergence of these perpetual preferreds play into the
1:00:23
demonetization of housing because they give investors the ability to create income and
1:00:32
participate in some form of value appreciation without investing into real estate so we can
1:00:37
already see that the speculative behavior that was really concentrated in the real estate market
1:00:43
is moving out of there not just into bitcoin but also into the capital markets with companies that
1:00:49
own bitcoin and then they use the money that they raise to buy bitcoin so i think this all plays
1:00:55
into the demonetization of how you still put your capital at risk but you get your income with zero
1:01:00
headache yeah yeah yeah it makes sense um okay last section you it says money coordination and
1:01:07
civilization this is the interesting thing like what what do you see as the civilizational shift
1:01:12
if all of this happens if bitcoin does demonetize all these markets i i think um when i look at the
1:01:21
history of of humanity i always look at we have these cycles we rise and we fall and these these these cycles can also be linked to debt cycles i mean there people like ray dieu that talk about it and other
1:01:35
people that talk about it right so this thought is it's not new but i think bitcoin adds a new
1:01:41
variable into that equation because in the past uh all forms of human civilizational progress
1:01:48
Let's take, for example, South America.
1:01:51
If we look now, for example, the language of the Maya was destroyed.
1:01:57
So when the Spanish went there, they just didn't allow people to speak the language.
1:02:02
When they did, they cut their tongues out, they burned most of the writing.
1:02:06
Or you had this library in Alexandria that was burned.
1:02:10
Or you also in Babylon, by the way, had a huge library.
1:02:14
And when the Mongols came there, they destroyed and burned everything.
1:02:19
So there was no way for humanity to store information and value over time.
1:02:29
It was built and destroyed, and we had to rediscover things.
1:02:32
And now we always, there's even an argument to be made, have we progressed or have we
1:02:39
actually not developed as humanity?
1:02:41
That's not an argument that I will kind of discuss today, but it's an interesting argument.
1:02:45
And the reason for that was, it was hard to save information and to save value.
1:02:50
Now with the internet, we can save and protect information.
1:02:54
And with Bitcoin, we can save and protect value.
1:02:57
So that gives a complete different framework for civilizational progress.
1:03:02
And I think that in itself, and real estate, by the way, as the biggest store value is
1:03:07
so important in that shift because the demonetization of real estate and the positive
1:03:15
secondary order effects that that can have on civilization are part of the shift
1:03:22
i think it's fascinating man i i obviously i only got this book in my hands this morning you're doing
1:03:26
the launch tonight at pubkey yeah um i want to read it and i think we should do do another show
1:03:31
because i'm sure i'll have more questions is there anything that i've missed that you you really want
1:03:35
to touch on um i don't think so to be honest um no okay i think uh this has been very cool i'm
1:03:43
actually i'm really looking forward to reading this book i've got a long flight coming up so
1:03:47
there you go um but appreciate you coming on the show man we've been talking about doing this for a
1:03:50
long time yeah thank you thank you so much actually you know what before we close out tell everyone
1:03:55
where they can get the book where they can follow you oh yeah do you do your shilling sure no i should
1:03:59
so the book is available with bitcoin magazine you can also order it on amazon
1:04:04
and you can find my stuff on leon vancom.com i also have a newsletter leon vancom.substack.com
1:04:10
where i publish once a month but on my website you find all the links awesome thank you so much man
1:04:15
thank you man that was great
1:04:29
Thank you.