Latest / What Bitcoin Did / The Bitcoin Bull Market Hasn’t Started Yet | Eric Yakes

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The Bitcoin Bull Market Hasn’t Started Yet | Eric Yakes · What Bitcoin Did

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around the world there's a bunch of conversations being had in boardrooms there's a bunch of
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conversations being had at federal agencies there's conversations that are being had at
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you know summits amongst different you know institutions and different government organizations
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everybody's trying to come up with what are we doing with bitcoin bitcoin is a reserve asset
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by governments is something that is like completely untapped right now.
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And there's so much money that sits behind all of this.
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If we just have small percentages of sovereign wealth around the globe start to flow into it,
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then that would drastically impact the marginal demand for it.
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Bitcoin is always and everywhere some major headline announcement away from this happening
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and a massive run up in price.
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I don't think it's over.
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I think that it's going to resume.
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I'm expecting Bitcoin to hit all time highs in the first half of next year.
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We're happy.
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Vibes are good.
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This is Epoch.
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That's the start of the podcast.
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Okay.
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Eric Yakes.
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Okay.
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This is my show now for everybody listening.
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A year in.
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Danny and I recorded already and he didn't turn the camera on.
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No, the cameras were great.
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Okay.
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He didn't turn the audio on.
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The audio was great.
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Now we're re-recording the podcast.
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Honestly, the show just wasn't quite good enough,
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so I had to get you back.
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He keeps saying that to put me down.
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It's a toxic character trait.
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You know I have plenty of toxic character traits.
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How you doing, man?
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Good, good.
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Vibing in Abu Dhabi?
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Yeah, man, I am vibing.
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I was just on the boat, and the boat was a nice boat.
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I saw the boat. I've not been on it.
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Yeah, you're leaving after this, right?
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Yep.
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No boats.
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No boat bikes for me.
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I don't want to lose any keys.
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Yeah, I mean, it's been cool.
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It's been a, it's a very different vibe.
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We've been from basically hanging out
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with the poorest communities in Africa last week
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to hanging out with ultra wealthy,
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Dubai vibe, chic vibes.
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And I'm loving it.
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And we were at a party last night
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and you overheard a chic who's going to buy $100 billion.
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That's right.
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I did tweet it.
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It was a picture of me with the sheiks.
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And I didn't think they understood anything I said, but.
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We're having fun.
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There you go.
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So you're about to do a panel straight after this show on why this time is different.
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Yes.
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Is this time actually different, Eric?
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Okay.
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So I think like, yeah, so like the question is like, what's going to happen with price?
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And I think when people think about cycles, I think about all these models.
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I think about where it's going in the near term.
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It's kind of like a macro piece.
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there's a sector specific piece, like how people are perceiving tech or digital assets or Bitcoin.
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And I think like the best way to frame this is to like, take a step back and just say like,
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how do prices work? And it's pretty simple. A price is where marginal supply meets marginal
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demand. And then there's all these different factors that come into play that determine what
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the marginal supply and marginal demand is. Now for Bitcoin, it's nice because marginal supply is
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fixed. So we don't even have to worry about that side. We know that it's going to be something like
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this, um, or sorry, like the supply issuance is fixed. So then like marginal supply is really
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just like based on how seller perception is coming into the market. Um, marginal demand is where a
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lot of people are, you know, speculating on things, but there's so many different variables that can
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like impact how many new, you know, buyers are coming to this market and how many new
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sellers are coming to this market. And like, I think the reality is just that when people in
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Bitcoin cling to these models to try to like produce some sort of certainty of where that's
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going in the future. And we have these four year cycles, we have, you know, these power law models,
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or we had the stock to flow model. And we try to come up with all these different correlations
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that could have existed in the past and to basically say, here's how it might be working
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in the future. The reality to me is just that price is determined by these underlying fundamentals
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that make these outcomes happen. The BlackRock announcing the ETF years ago,
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that was something that happened because of boots on the ground, people advocating for Bitcoin,
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companies building things that enable this all to happen, people talking to regulators.
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You know, there's all these things happening in the background that make this one big announcement
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that totally changes the market in the way that people perceive the asset.
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So like when I think about price, all I'm thinking about is what are the fundamental things happening behind the scene
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and how could that impact the price in the near term?
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And what we know is that when we look at the price of Bitcoin historically, there's only a few days,
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you know, very small subset of days where you get the vast majority of the run ups in price.
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And that comes from all of like, it's like, you know, it's like an iceberg that's under the water.
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There's all these things that are accumulating and eventually like the top comes out and you can
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see just the top and like, that's when there's public knowledge of everything happening in the
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background. So that's how I'm thinking about all of this, right? Like I'm thinking about what are
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the fundamentals that are driving this? And that's something that makes me be very bullish on Bitcoin.
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And we can get into a lot of those reasons later on. And that's kind of all related to like different types of Bitcoin adoption and discussions that are being had in the background.
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I think when it comes to this model question, the reason that we're like crashing over the past few months is one, there's the macro environment, you know, like a really high level.
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It's just that we have this perception right now where inflation has been rising over the past few months.
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And the market's being perceived as saying like, OK, so Federal Reserve was, you know, people wanted it to shift towards easing.
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And we have had a few things happen that's like putting it like right in the middle between easing and tightening.
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And but if inflation continues to rise, then we may not live in this world of easing that everybody's expecting.
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We're close to like 3% right now. It could spike up a little bit more. And that's kind of the primary concern, I think, that sparked the catalyst in the market. So everybody's like, OK, well, AI demand is causing energy prices to spike. And it's creating an outsized demand for energy assets. And over the next six months, we could see there being a shortage of enough capital deployment to fulfill those energy needs. And then that could spike the cost of energy.
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And then that would spike inflation and that that could put central banks in a precarious position.
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So that is like that.
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I think like things like that are kind of the core drivers of how the market's perceiving it.
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And then I think there was a crash with that.
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And then I think there's, you know, obviously like leverage coming out of the system.
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And then I think that there's just this people have a hard time with the actual perception of what's going on.
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Because there's all these people that are like, well, we always, you know, they expected four year cycles.
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They expected this to just like continue for some reason.
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And now they're like, uh-oh, well, if we've broken this pattern,
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does that mean it goes down?
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And there's kind of like this existential crisis,
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I think some of the buyers in the market are having right now
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of like what the true reality is.
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And then a year from now, it's going to be very obvious
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there is like Luke Groman, who I have like a ton of respect for, I think he's amazing,
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but he in his recent newsletter was basically telling people to sell Bitcoin. And he, I'm pretty
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sure, I did read it, but I can't exactly remember, but I'm pretty sure he mentioned the cycles.
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and then it becomes like a self-fulfilling prophecy
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and like if people are selling
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because they expect a four-year cycle
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can they create a four-year cycle?
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But I would even go one step further
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being like did the cycles even ever really exist?
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Because I guess really have to go from like 2013 onwards.
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So there's the 2013 peak, 2017 peak, 2020 peak
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or 2021 peak.
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Like they also line up with business models
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and liquidity flows.
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Like do you think liquidity is the bigger driver here
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rather than the halving cycle.
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Yeah, yeah.
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Like liquidity in the market is like, you know,
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the most correlated aspect that we can look at over time.
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What I'm expecting is that there's going to be an environment
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in the not too distant future
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where liquidity is not on Bitcoin's side
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and we're still getting a run up in price.
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What would cause that?
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All these fundamental drivers
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that I'm kind of talking about in the background.
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Like I think that right now around the world,
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there's a bunch of conversations being had in boardrooms.
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There's a bunch of conversations being had at federal agencies.
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There's conversations that are being had at summits amongst different institutions and different government organizations.
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Everybody's trying to come up with, what are we doing with Bitcoin?
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And just like how this happened with institutions like BlackRock coming in, that's happening with a bunch of other people behind the scenes.
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So Bitcoin is always and everywhere some major headline announcement away from this happening.
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and a massive run-up in price.
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And that's the question I have in my mind is,
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who's the next major organization
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that's going to make an announcement
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that they're supporting it, right?
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We had Czech Central Bank is buying Bitcoin.
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That's happening.
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And we'll have other governments
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that continue to come into this.
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And there could be a future where we have
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some major announcement of the usage
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under the BRICS nations,
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or it just actually comes up to the surface
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that there is some sort of usage happening by them.
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Bitcoin as a reserve asset by governments
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is something that is completely untapped right now.
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And there's so much money that sits behind all of this.
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If we just have small percentages of sovereign wealth
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around the globe start to flow into it,
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then that would drastically impact the marginal demand for it.
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Do you believe in this idea of a nation-state arms race for Bitcoin?
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in the sense of like, I imagine China
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are stacking some Bitcoin somehow.
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Like I think mining is still happening in China.
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I think that's pretty obvious.
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Like is that nation state mining?
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Are they stacking Bitcoin?
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Like is Russia stacking Bitcoin?
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We don't like, I don't know the answer to that question,
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but as soon as that came out, if it was happening,
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do you believe that that would cause like the US
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to be like, holy shit,
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well, we can't have less Bitcoin than China?
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Like I think so, but I think at a certain point,
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like Bitcoin needs to be. So before we can get to that type of an arms race,
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Bitcoin needs to get to a certain level of maturity. So if we were to like, think about
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I'm a nation state, I want to buy reserve assets. You know, what am I looking for and why?
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And there's all these, there's different characteristics, right? There is like,
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you want an asset that is something that is like highly liquid, something that has some stability
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and value, still retaining some value. And then ideally something that you have more control over
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and something that might even be like counter cyclical during town times.
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There's these different characteristics that they're looking for. And like the main shift
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over the past decade has been nation states are shifting towards a commodity in the reserve
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because trust is eroding amongst the world. We're starting to fracture into this multipolar
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geopolitical system, and we're having this shift towards commodities.
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So that's one good thing, is that marginal demand from nation state allocation towards
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commodities, that's good for Bitcoin.
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As that increases, Bitcoin's going to be classified in that bucket because it has a lot of properties
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that fall into that bucket I think that what holds Bitcoin back right now is if we were to like directly compare it with gold if we were to say like okay if I own gold like gold done
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incredibly well, having a nation state reserve in gold has done very well for you this year.
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And, and that's something that's, you know, reasonably retained value over time. And then
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what gold has as a major advantage over Bitcoin is that the depth of liquidity in its capital
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markets is much larger. So if you're a country and you want to have, you know, 500 billion dollars
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of exposure to a particular commodity and you need to go liquidate some amount of that, you know,
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say you need to go liquidate 200 billion dollars at some point, doing that in Bitcoin, that's 10%
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of the market today. And that's going to move the price very significantly. So it doesn't have that
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depth of liquidity just yet. Now, as Bitcoin grows and it becomes larger, then it's going to get to
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that point. And that's a major inflection point for Bitcoin. And that's one of the most bullish
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things about Bitcoin is that it gets better as it gets larger. And that's why some people kind
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of confuse it with a Ponzi scheme because of a network effect is really what they're talking
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about. But that's what's holding Bitcoin back in all these considerations. And then so let's say
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Bitcoin gets to like, you know, a $10 trillion market cap. Now we're talking about a very
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significant, it already is a significant global asset, but now we're talking about something
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that's like close to the top of the leaderboard. And, um, and that's something that you can move
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a lot of money around with. Then Bitcoin has the advantage of being the only asset that you can
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send permissionlessly in the world, um, and have like final physical settlement of the asset,
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That's something you can guarantee another nation that we can do that within minutes for you.
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I mean, that advantage, that's something that just like nothing else compares for anything where you can get some sort of like relatively seamless settlement with.
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That's something where you're trusting another nation state.
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So to not trust another nation state, which ideally you want to do with your reserves, which is why people are shifting to commodities.
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Bitcoin's the epitome of that.
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And then being able to store it yourself, being able to own it yourself.
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It's like, where's all these gold reserves that these countries own?
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There's a lot of different versions of it, but a lot of them own an interest in a reserve held by another country.
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So you might have the economic exposure, but push comes to shove and you end up getting some enemies.
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Things can go wrong.
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I mean, that happened to Venezuela like, I don't know, seven, eight years ago.
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They asked for their gold back from England and they just said no.
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Right, right.
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Yeah.
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But like Bitcoin has become insanely liquid.
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Like it's really impressive.
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Yeah.
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But even when the guy a few months ago tried to sell 80,000 Bitcoin, which was like $9
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billion or whatever at the time, it still dropped like 10% or something.
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Right.
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Which is far improved from where it was a few years ago.
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But like if you're talking about settling $500 billion, then we're just not in the ballpark
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yet.
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So that's just literally a factor of price.
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We just need price to go up.
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Yeah, I mean, we need broader liquidity of the asset.
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So price goes up, it's like the calculus goes,
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it's a bigger market.
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But that comes down to a lot of practical realities.
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It's like, OK, so I'm a country, I'm Russia,
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and I actually do want to exchange it for dollars.
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Like, who am I going to exchange it with?
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More distribution of the actual liquidity on-ramps and off-ramps into Bitcoin, that's a practical reality.
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They need to know that there is some form of exchange with either another country or another partner that can provide them liquidity or whatever other asset they're looking for.
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There's a lot of ways you need to actually be able to execute that effectively that should grow as well, too.
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But yeah, growing in price and not being able to just move the market, that's important as well.
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So we need price to go up to increase liquidity.
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I was talking to Safedine before, and he was saying price is the only thing that matters.
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He's like, that's the scoreboard of us winning.
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But where does the demand come from to move Bitcoin?
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Because it's such a big asset now.
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And I know the demand is marginal, but where do you think the big money is going to come from?
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Yeah, I think that the largest market that's really untapped right now is just that I see
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you know relatively near-term demand from is the commodity allocation with the nation state
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sovereign wealth like i think that if we just look like we put this in our annual report last
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year if you just look at the gold market and the size of that um we put together a market sizing
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around it's just like you know percentage points of that is you know multiples of what would what
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came from like the bitcoin uh etf demand and and like when you think about those types of
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of allocations, that could move the market drastically.
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And not even on top of that, to your point about what safety was saying, that's the scoreboard.
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So that does start moving other countries into this prisoner's dilemma of Bitcoin adoption
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that we've been talking about.
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Are we even past the point of retail making any real difference to the price of Bitcoin?
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Is it getting to the point where it's too big an asset for normal people like you and
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I to change anything?
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I think it's just like, what is an institution, right?
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Like an institution is somewhat just like an aggregation of like retail.
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And like, um, so like the way that I kind of look at it is that, you know, a lot of these
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organizations are like, so often they're like, uh, indirect paths of retail.
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And so that means like the decision makers are different because the decision making authority
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over the capital has been delegated to them.
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but the uh like functionally it is still like often driven by perceptions of retail
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i think what like people really mean when they're talking about retail investors now
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is i think we have plenty of retail investors in the market i think that we are obviously getting
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more flows driven by institutions but of the retail investors in the market i think that like
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the mix of them is shifting. I think that a ton of the retail, like when people talk about retail,
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what do they mean? They mean like the people from 2017 cycle that were like bidding up and gambling
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shit. And like, and that's, that's a very different investor profile. Cause what have
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they done? They've done what they want to do. Bitcoin's not nearly as much of a gambling asset.
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Like it's still a very high return asset, but it's not being perceived like that by them anymore.
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They're not thinking like I can forex my Bitcoin this year, you know, and like that is causing them
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to shift into other things that they want to go through.
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Well, we've seen that this year.
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This is one of the strangest things that I would never have predicted would have happened
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so early, is that it's almost as if Bitcoin's now not volatile enough for some people.
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And instead, they're chasing AI stocks or treasury companies or even gold, which is
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the weirdest one.
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I would never have thought gold would have more retail FOMO than Bitcoin in 2025.
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Yeah, yeah.
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There's friends that I have who are that classification person, and they're talking about trading
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leverage futures on gold.
21:06
Yeah.
21:06
Which is a great top signal.
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But do you think like, so gold has had an insane run this year.
21:11
Yeah.
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Do you think we will see that spill over into Bitcoin as that cools off?
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Or do you think gold is just going to keep ripping because like China, central bank are buying a ton of it?
21:21
Yeah, like spilling over into Bitcoin.
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I, you know, I think that that buyer behavior is generally speaking more long term.
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But some of those people, yes.
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Like to the point that we're talking about, like, I don't know how much of the flows that ultimately is.
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It could be a pretty large percentage.
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But I like I think that what we're going to see, you know, shifting over to Bitcoin is it's less like I think Bitcoin some like leading or lagging indicator.
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It's more that I think that there's just like this existential crisis in the market that's happened amongst some of the Bitcoin buyers were.
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And then that's that's like we're at the worst of that.
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Like that's shifting out.
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I think the retail investors who are like here for like very quick number go up like that investor profile has shifted a lot.
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And now we have a lot more people that are just coming in to Bitcoin because they think over the next three to four years they can, you know, triple or quadruple their money.
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You know, there's a lot more investors like that that are entering the market.
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I think that we had a lot of leverage flushed out.
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and even before this decline,
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leverage I think was like relatively low to prior cycles.
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We put out this banking report through EPOC
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and I put a chart in there just kind of like comparing
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proportions of leverage to market capitalizations
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of assets in the system.
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And like if you look at what happened in like broader crypto
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during the prior cycles for leverage expansion
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and like where we're at with Bitcoin today,
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it's significantly lower, like less than,
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I think it was close to like 40% of that amount.
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And I was kind of expecting more of that to come in.
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But I think with this crash, like even more of that got flushed out.
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And we're like below general like leverage of like, you know, broader securities markets.
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So I think a lot more of that could start stepping back in, particularly when banks start lending a lot more, which I expect to happen over the next year.
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So it's like leverage can be expanding a lot more of that could be retail driven.
23:15
And I think that, you know, yeah, with like a lot of those factors combined, it's healthy is kind of how I'm looking at this.
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There's a lot of just like very healthy characteristics that have come in.
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And the funniest part is like nobody knows why we're having this crash.
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That's like the funniest part of this.
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So it's like you literally can't even come up with a good reason for why it's happening.
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So buy the shit out of it.
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Like, what are you doing?
23:46
It's that easy.
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So one of the reasons why I don't think,
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maybe cycles never existed,
23:53
but I don't think we're at the peak of this cycle
23:55
is one thing that Checkmate always says is
23:58
the bull market author is the bear that follows.
24:01
And we've not really had, we've had no euphoria.
24:04
It's like only just a bull market.
24:05
We've not really had a crazy run up at all.
24:08
So to think we then get a drop down to like 50K Bitcoin,
24:11
I just can't see how that happens.
24:12
And if that doesn't happen, I can see we have a period of sideways,
24:17
but I don't think this is over, man.
24:19
Yeah, I don't think it's over.
24:21
I think that it's going to resume.
24:22
I'm expecting Bitcoin to hit all-time highs in the first half of next year.
24:25
Should we have a bet?
24:26
Yeah, well, okay, we already had a bet.
24:29
Okay, we'll tell the bet.
24:30
But it doesn't count, because if it's not recorded on a podcast,
24:33
then a bet doesn't count.
24:34
Correct.
24:36
I'm offering worse terms now.
24:39
That's fine. You gave me really good terms.
24:41
Okay, okay, we'll do a million sats.
24:42
that Bitcoin will be $150K by June.
24:48
Oh, that is worse terms.
24:49
First of June.
24:50
You pushed that back a little bit.
24:54
$150K by June.
24:55
So we've got six and a half, seven months to go.
24:58
Can I just take the under on that?
25:01
That it's less than?
25:03
Yeah.
25:03
You take over.
25:04
I'll take under.
25:07
Okay.
25:07
By June, Bitcoin will be above.
25:11
Well, no.
25:12
Okay, so if it crosses 150K before then
25:16
and dips back down, I still want my money.
25:18
Done.
25:19
Okay.
25:20
I can't reach across this table,
25:21
but we'll shake on that.
25:24
All right.
25:24
This is the most silly wide table I've ever seen.
25:30
So I want to get one of your macro takes
25:32
because you've given me some of the best macro takes
25:34
I've had over the last few years.
25:36
And no one knows you as the macro guy.
25:38
Yeah, I can macro.
25:39
But so we're coming to this end of the QT cycle.
25:42
going into QE. I spoke to Lynn Olden about this a couple of weeks ago. And she was saying
25:47
what she expects to see is QE more in line with GDP growth. So if GDP is at 4%, she thinks
25:53
it'll be like a 4% QE. Maybe not called QE, but 4% increase in the money supply.
26:00
Then there's the other cohort of Bitcoiners who expect us to go through some kind of crisis
26:04
period in the big print. Where do you fall between those two extreme scenarios?
26:09
I'm probably pretty moderate with how I think about things.
26:16
I think I would agree with Lynn that we would get easing that tries to be aligned with that type of a metric,
26:23
because theoretically, we wouldn't expect, and this is not considering certain shocks that can happen within the system at any point in time.
26:30
We all remember, what was the terminology we were using in 2020?
26:37
Transitory. Transitory inflation.
26:39
like we all remember that period and and who knows what could happen in the next year who
26:45
knows what could happen um you know if we were to get into like a significant um contentious
26:53
scenario with another country and there's a lot of pressures like that geopolitically around the
26:58
world um so i i think that i i generally agree that like that's the goal and i expect that to
27:04
happen and that like, you know, we're not going to see like the big print anytime soon, but we,
27:09
we are getting to that point where it's like, we are between a hard place and a rock.
27:14
I just think that the runway could last within the next five to 10 years before we see some sort
27:19
of like major fiscal crisis emerge from, you know, just like on the run printing that gets out of
27:26
control. Like, honestly, I, I think I, what I learned, like, so I used to spend a lot of time
27:34
following more short-term macro. Now for the nature of the, our business as a venture capital
27:39
fund, like, um, there was actually, there was a partner at a private equity fund that, uh, I
27:45
remember we were in the room with when I was like, you know, just a young budding analyst. And, um,
27:50
and I remember when one of the advisors in the room was asking them like what they expected,
27:55
we're looking at like this telecommunications type company for an acquisition.
27:59
And somebody asked him, they're just like, well, you know, they asked him like his macro perspective
28:03
and how that's going to impact, you know, some of the aspects of this acquisition.
28:07
And he like quickly responded. I remember just like, that's not the business we're in.
28:11
And like, that's kind of how we look at it as a venture firm. Like, yeah, like Bitcoin's price
28:14
fluctuations impact things that we do It not something we can control And we believe in the long potential of Bitcoin and the direction it going So like on five time horizons
28:26
we feel very confident Bitcoin will be higher. And because of that, it's like, I stopped spending
28:32
a lot of time focusing on these like short-term characteristics within macro. But what I did get
28:37
a lot more interested in that I think is very illuminating is like the geopolitical side of
28:42
things. And what was really helpful for me to understand geopolitics better was Marco Papic's
28:49
book, Geopolitical Alpha, because it gives a framework for people who haven't spent a lot of
28:54
time thinking about this, particularly for investors on how do you think about geopolitical
29:00
impacts of things? So like, I think that that is something if like you're trying to anticipate
29:06
what's structurally going to shift within an economic system over time, well, macros largely
29:12
a bunch of systems that are impacted by governments. So those are the shocks. Those are the big things
29:17
that impact this. And those shocks are basically coming from trying to anticipate geopolitical
29:23
situations. So that book was great because like, I think what you'll see, like, I remember after I
29:30
read that book, I started seeing it everywhere in the news with headlines where, or on podcasts,
29:36
like you'll hear, like you'll hear people talking a little bit like, well, you know, there's always
29:41
these like at a rudimentary level, like there's these lines of reasoning people will have and
29:44
they'll say like, well, China wants this, therefore that this is what they will do.
29:49
You know, China wants world power. China wants, you know, more commodity exporting. China doesn't
29:56
want tariffs. And it's a very simplistic, myopic form of reasoning because the reality is, is he's
30:04
like, you don't really like every, like that's obvious. Everybody knows that people want things,
30:09
You know, there's a lot of things that I want. The question is, is asking where, what are people
30:13
constrained by? And then if you can understand what they're constrained by, you can understand
30:17
and predict their behavior much better. And that was like very illuminating because it kind of
30:22
helps you sift through a lot of like the, you know, sensationalist headlines, I think that come
30:27
out about what's happening with governments and really focus on like, okay, well, you know,
30:31
they're constrained by their exposure to us debt. And there's all these other economic variables that
30:36
can be impacted and that people are going to play nice for a long period of time. And it makes you
30:41
much less like sensationalist and a lot more like, okay, there's kind of like these gradual shifts
30:45
that are happening. Like we are seeing significant shifts and, uh, Eastern Western divide. Those are
30:53
going to probably continue. Um, we're going to see a lot more intra bricks trade occurring. And like,
31:00
you know, we've seen that increase, I think about threefold over the past decade. And, and like,
31:05
these are all good long-term structural trends that we can kind of anticipate. And that's what
31:09
gets me kind of excited about like some of the sovereign wealth characteristics, because all
31:12
of these things are blowing in favor of Bitcoin. Um, but anyways, like that, those are kind of the
31:17
things that I get, I get more interested in as opposed to what the fed's going to do in the next
31:23
six months. Um, we kind of know directionally over the next five to 10 years that they basically have
31:28
to keep pushing debt into the system that can come from a monetary standpoint that can come
31:33
from fiscal. Seems like they're getting to a hard place in Iraq and fiscal is going to continue to
31:38
be more dominant in this system. That might be a lot more inflationary. People think they might
31:43
have to run it hot. I see all those things unfolding over the next five years. Bitcoin's
31:49
going to go up in price. Like, you know, spend time with your kids, go hang out with your
31:53
girlfriend. You know, it's not something that you have to belabor and, you know, click refresh on
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34:28
yeah for sure and the interesting thing on the sovereign wealth funds that you brought up is
34:33
that started happening so i'm pretty sure norway has exposure to bitcoin on in their sovereign
34:37
wealth fund i think belgium came out and said belgium came out and said they had it oh interesting
34:42
And I see that as like nation states adopting Bitcoin is a hurdle.
34:47
I think sovereign wealth funds will move much more quickly.
34:49
I think, in fact, I think the, was it the Saudi sovereign wealth fund
34:52
that also have like $400 billion in Bitcoin?
34:55
Yeah, yeah, yeah.
34:55
They might be buying $100 billion more if what you heard last night was true.
35:01
But one of the other interesting things that's come out
35:03
as Bitcoin price has been dipping is some of the FUD
35:06
that's not been around for a long time has come back,
35:09
specifically Tether.
35:10
Like I remember when I was first getting into Bitcoin,
35:12
Bitfinex was always screaming on Twitter
35:14
that Tether was about to blow up.
35:16
I think he even sold his Bitcoin at like,
35:18
I don't know, $5,000 or something because of Tether.
35:22
Should we get into the Tether FUD?
35:24
Yeah, it's, when we wrote this banking report
35:28
back in the fall through the epoch,
35:29
you know, we were talking about Tether's reserves.
35:34
And I think it's, there's two sides of it.
35:38
One, there's just, this is new FUD, right?
35:42
And I think the general arguments on Axis,
35:47
Tether, to maintain a one-to-one peg,
35:50
is not fully reserved in dollar liquidity,
35:53
even though it's supposed to be all redeemable
35:55
for dollar liquidity.
35:56
Therefore, there's a risk of a run on the bank of Tether.
36:00
And it's like, okay, let's steel man this question.
36:04
I'm pulling up their exact reserves now.
36:06
Yeah, yeah, pull it up.
36:07
So like the reality is, is that Tether needs to meet redemptions.
36:12
And if it meets redemptions from the people who are capable of redeeming dollar liquidity from the dollar liquidity system, traditional assets like a wire, then it's going to be maintaining its peg over time.
36:27
And as long as it's doing that, things are fine.
36:30
So the question is like, well, how does that actually happen?
36:32
Like, you know, if you own Tether on your Coinbase account, you can't go redeem your Tether from Tether.
36:41
Coinbase has to do that.
36:42
And they do it in patches over time.
36:43
If there ever was like a run, and by run to be significant, like they have 80%, I think, of their reserves.
36:50
Is that right?
36:51
So I've got it here.
36:51
It's 77.23% of cash and cash equivalent.
36:54
Right.
36:55
Yeah, okay.
36:55
0.01% corporate bonds.
36:59
Seven and a bit precious metals, so gold.
37:01
5.4 Bitcoin, 2.14 other investments, whatever the fuck that is.
37:07
Other investments.
37:08
And 8% secured loans.
37:11
Tether, I want to be one of those other investments, by the way.
37:15
Put EPOC in those.
37:17
But yeah, I think that, so looking at that breakdown of numbers, 77% is in cash equivalents.
37:24
So that means that assuming you can't get enough liquidity out of any other assets,
37:29
And you can only get that from, you know, basically the government treasury bills that they have in there that are the most liquid asset you could have.
37:39
If they had 70% of the total amount of like the 200-ish billion in Tether market value that's currently outstanding get called, then that would have to come from the exchanges.
37:50
and if for the exchanges to want to do something to like blow up the liquidity of tether it would
37:55
obviously be a coordinated attempt because there is no need to have that much redemption in tether
38:01
it would have to be the exchanges want to get together and like destroy their most critical
38:05
partner that they use for you know maintaining balance on all these exchanges so like like it
38:11
just doesn't make any practical sense i kind of view it as akin to the idea of when people would
38:15
talk about, oh, well, like there's some theoretical value for being able to, you know, a 51% attack
38:24
Bitcoin as a network. And you say like, okay, there is some theoretical amount, whatever it is
38:29
today is vastly higher than like the numbers I remember from back in 2021. But it's like so high
38:33
that you're like, okay, to even get enough money back then it was like 80 billion. I don't know
38:37
what hash rate is compared to that now, but it's probably it's hundreds of billions probably.
38:41
And if we think about that, it's like, okay, well, sure.
38:45
Like somebody theoretically has hundreds of billions of dollars, but then like they have
38:48
to execute on that attack.
38:51
What does that mean?
38:52
We need to go get $100 billion worth of miners.
38:56
Okay, where are those going to come from?
38:57
Okay, so people who are selling you these miners, whose business is dependent upon the
39:01
price of Bitcoin, are going to sell you a bunch of miners all at the same time to some
39:04
like, you know, gray organization that they would obviously be aware of something is happening
39:08
in a coordinated fashion and would destroy their underlying business model if they were to do that.
39:13
So, you know, they're probably just going to say, fuck you, or at least they're going to catch on to
39:17
it and the network can react. And to actually like go get the miners, find the energy assets
39:23
to deploy these things all on, get them up and running and do it in a time to where not everybody
39:27
would be aware in the entire supply chain that you just had to walk through. Like that's just
39:33
not a reasonable scenario. This isn't something that would actually happen and you can't execute
39:37
it. So like, that's kind of how I look at some of this with tether too. It's like, you know,
39:42
you can say these things theoretically, if there was some sort of massive bank run like that,
39:47
and then they're still in a very good fiscal position. Um, but the actual execution on some
39:54
sort of like tether run like that is just not even like a feasible concept to me. Um, and, and,
40:00
and that's kind of like the main thing. And I think that people would be like, you know,
40:03
their arguments like, well, you know, we're much better capitalized than any of the banks.
40:06
and uh and that's true but the banks have a central bank backing them that can always print
40:10
liquidity for them so it is different but nonetheless they're uh they're an incredibly
40:15
sound financial institution so for like a really good example of this is when silvergate during the
40:24
last crisis back in 2022 with the fall of ftx and everything um silvergate bank survived like a
40:30
massive run i think it was you know i'm not sure but i think it was like the 70s ish percent of
40:35
capital or something like that. And, and they survived it. And the bank was like reserved
40:40
because that bank was aware, like we're serving this industry super volatile and it's volatile.
40:45
So that was like probably the best reserved bank in the world. You could have been at the point in
40:50
time, like no bank is capable of surviving runs like that. And they actually did survive that
40:55
bank run. And then they were just left with saying like, okay, well size of our bank is shrunk now
40:59
and we have to lay off some employees, but like all of the customers got their deposits back on a
41:04
bank run like that. And not because the government stepped in and gave them the deposit back. They
41:08
got them back from the bank, right from the bank. Exactly. Yeah. Like they, they did things right.
41:14
And, um, I think a really good comparison for this is like, so, so like that's silver gate,
41:20
they survived that. And like tether has a very similar, like reserve balance is what they were
41:24
doing. Um, and, and then I think if you look at like, if we think about how free banking systems
41:30
existed in private markets, you know, like in Scotland during the, you know, 18th and 19th
41:36
centuries, when they actually had like this free fractional reserve banking system that was, you
41:42
know, naturally emergent by market demand. Those banks had certain reserve ratios that we know the
41:49
numbers on. And like, generally speaking at the market's maturity, functioning fractional reserve
41:55
banks were reserving somewhere in like the 20 to 30% reserve. And that was like good for the
42:00
market. And every now and then you would have some sort of bankrupt bank and bankruptcy doesn't mean
42:05
the customers lose their deposits. Bankruptcy means you get bought by a competitor and the
42:08
customers keep their deposits. Um, but you know, there were scenarios like that, that were happening
42:14
in this system. And, um, and I think that that's a good benchmark to think about with tether. It's
42:19
just like okay so if like that was the reserve range and then we sitting here with 80 cash equivalents Oh and they have gold 7 gold which is super liquid 7 gold which is a very liquid asset which goes up in value Oh and they have Bitcoin which is also something that does
42:37
well. Oh, and they're over reserved by a certain percentage. I think it's about the amount of
42:42
Bitcoin that they have. Like there's a million risks in the world to be concerned about. And
42:47
like, this isn't one of them. Yeah. You know, and they've also like, since the 2016, 2017 days,
42:52
they've massively changed the way they handle their reserves.
42:55
Like corporate bonds were a much larger part of it a few years ago.
42:59
And they've obviously gone almost entirely to cash, cash equivalent treacheries.
43:03
What I don't necessarily understand is like,
43:06
they're one of the most profitable companies in the world,
43:08
probably the most profitable like per headcount.
43:11
Why would you not just go 100% cash and cash equivalents
43:16
and then sweep profits into Bitcoin?
43:18
Like just to dispel this kind of like idea that this is a problem,
43:22
even if it's not? Because they're thinking long term. What happens if we do run into a crisis and
43:31
80% of your reserves are in a debt that people don't want? Like, I think that that's something
43:37
they're trying to hedge against. I think it's I think it's hedging risk on both sides. And like
43:41
having a balance and something like this gives you gives you that type of a benefit for the reason
43:45
we're buying Bitcoin for the reason gold investors are buying gold. So like, it makes sense to have
43:50
some of this. Like we don't know what could happen in the next five years. And we're going to have
43:54
like, that's their concentration risk is the treasury debt. The other thing that I think is
43:58
quite funny about this is people talk about the tether flood as like something that could crash
44:02
the price of Bitcoin. Like, first of all, I don't think there's an issue there, but let's just say
44:06
hypothetically there was, if you're sat and you've got a load of tether and you think tether's going
44:11
down, what are you going to do? You're going to buy Bitcoin. Right. Like, cause that's your
44:15
So like, weirdly if Tether did go down,
44:18
which I don't think it's going to,
44:20
I think Bitcoin pumps.
44:21
Totally. I couldn't agree more with that.
44:23
Yeah. That's exactly what it is.
44:25
But maybe that's a very short term pump. I don't know.
44:28
All right, let's move on to our next piece of FUD. Quantum.
44:32
Ooh, okay.
44:33
You've been doing a bit of a deep dive on this.
44:35
Like kind of, not really.
44:37
I just, when I was writing my book,
44:40
I, you know, I did some reading into just like,
44:44
some reading into just like how cryptography worked. And I kind of explained some of that in
44:48
the book. And I think that it's, it's helpful context to really get a bit of what's going on
44:54
here to understand quantum computing. I think like the reality, like nobody knows, nobody's a quantum
45:01
expert. There isn't like a quantum expert. There's like guys working in quantum who are like trying
45:06
to, they're building amazing, complex things that like very few people in the world are capable of
45:09
understanding, but they're not even sure exactly where they're going yet. You know, and like you
45:14
You see that in any sort of early field.
45:16
It's just like, in hindsight, once we've built all the systems and we have the historical
45:20
track records to look at and we can understand things, it's much more obvious.
45:24
But in the near term, really intelligent people have a hard time understanding just where
45:29
things are going, and that's fine.
45:31
But that's a reality we're dealing with is there is just quite a bit of uncertainty around
45:38
what's happening with quantum.
45:40
everybody's trying to form an opinion on what where we should go with this and and i think like
45:46
to explain some of it that's helpful um like basically cryptography is secured by this other
45:55
type of math and it's it's called like a modulo calculation and it's basically like the the
46:01
current operators that you're familiar with like addition subtraction multiplication division
46:05
those operators are done differently under these modular calculations and in the best way of
46:11
describing it is it's similar to like a clock where you have something called an order and that order
46:17
is the maximum number in this universe of calculation so you'll say if our order is 12
46:23
that would be the maximum number of hours on a clock we cannot go higher than that once it hits
46:29
that number, we start back at zero and go to one, two, three, four. So in normal arithmetic,
46:35
if you say four times four equals 16, under this type of a calculation, it's four times four equals
46:41
four. And that's because you go all the way around the clock to 12, resets, and then you end up at
46:46
four o'clock. And so you end up with the remainder. And that's really important because you could have
46:52
a bunch of other answers and different types of numbers other than four times four that you could
46:57
multiply and can end up with the same answer of four. But you don't know, unless you have all the
47:03
numbers, how many times it goes around that clock. And that's where you can create the uncertainty.
47:08
So the only way that you could guess, if we were to say four times B equals four,
47:14
in normal arithmetic, you'd be able to say four divided by, or sorry, four times four equals 16,
47:23
sorry, then we'd say four divided by 16 equals four. We can find B. But in this, it's like,
47:28
we can't do that division. But computers can guess, and they can guess what B is,
47:33
and you can find a plug-in bag. Okay, so if it's four, does this work for what we're trying to
47:38
solve for? What you're trying to solve for is to find, is to decrypt something.
47:45
But when you get your order, that maximum number in the set, when that's a prime number,
47:52
and it's incredibly large, computers can't do that division. There's not enough guesses they can make.
47:58
And it's kind of like versions of this is kind of how Bitcoin mining works. We make it just easy
48:03
enough to actually guess your way into that problem. But it takes a hell of a lot of tries.
48:07
And it takes a lot of tries. So computers can't guess their way into these problems. And that's
48:14
what makes cryptography so secure. And then Bitcoin addresses are the encrypted version of a private
48:20
key through a process like this so to get your private key they would have to be able to do that
48:24
division by looking at your public bitcoin address doing the division and then finding a private key
48:29
so what quantum is basically doing and what people are scared of is these computers are going to be
48:33
able to guess their way into these problems because without doing the work yeah and like the the
48:38
theoretical concept is basically like the way that humans are able to understand everything is we put
48:44
a layer of language over the natural world we describe things with words we describe things
48:49
with numbers and and this layer of language is it helps us make things work it's always
48:56
all we've ever been able to do but it also limits us because um like one of my uh one of my favorite
49:04
quotes on like what the definition of art is is art describes the difference between what we can say
49:11
and what we mean and like there's this there's this large gap between those two things and people
49:17
People are just trying to describe an emotion or a thought process through some other medium
49:21
that they can't really put into words in the right way.
49:25
And that's kind of like that gap.
49:27
Like, that's the difference.
49:28
That's like a very limiting gap for us between what we can physically do.
49:33
And quantum is like trying to take that step.
49:38
It's trying to take that step into like, let's not apply our mathematical language to this.
49:42
let's try to like recreate physical environments from the way that they exist rather than our own
49:47
language for it and see if we can produce the outcomes we want through that. The complexity of
49:52
that, I can't comprehend, but they're making enough progress now to where there are shifts.
49:58
There are shifts in what people are, you know, thinking and expressing. And like Nick Carter put
50:04
out this great paper, they really like summarized a lot of the major shifts that are happening where
50:08
we're starting to see a lot more growth in qubits and logical qubits that's making these things more
50:14
efficient. And that's the idea. It's like if the if the logical qubits get high enough, guessing
50:19
power is better. And we have a lot more experts that are changing their forecasts and their
50:23
opinions on its viability over time. And we're kind of hitting a bit of inflection point where
50:28
people are kind of like, OK, like this is real. Now, the reality is, is the the time horizons that
50:33
we're starting to see is, you know, quantum could be a problem for Bitcoin within, say,
50:38
the next five years to the next hundred. Like it's a massive range. So that's what everybody's
50:43
debating is we still don't know. But I think it's like when you have a risk that does have
50:52
some sort of existential impact, then that's something you take immediate action to forego
50:58
or insure in some sort of way.
51:01
And we do that all the time in our day-to-day lives
51:04
with a lot of different things.
51:05
We want to protect ourselves.
51:07
We have locks on our doors
51:08
because terrible things can happen if people come inside.
51:12
And there's a lot of things that we're doing to prevent it.
51:14
And I think that's kind of the question today
51:16
is everybody's like, okay, quantum was this form of FUD.
51:21
And it was at that point in time back in like 2017.
51:25
But are we getting to a point
51:27
where we do need to have these conversations and we do need to be like, okay, this is on the horizon.
51:32
How many more, you know, upgrades to the Bitcoin protocol are we really going to get? Because it's
51:38
only getting larger and it's only getting more socially distributed. And maybe for our next
51:44
upgrade, we really do need to think hard about putting a quantum resistant form of signature
51:49
into the protocol. And when I was talking with like Hunter Beast one time, the way that he kind
51:54
of explained our options to us around that is like the trade-off is basically when you have a quantum
52:02
signature it's kind of like the old the quantum resistant signatures there's kind of like the
52:07
older cryptography that uh it's like much more proven and more lindy but that is very data
52:13
inefficient so yeah huge address address for so we could be filling up blocks and we could be
52:18
expanding, we're going to be expanding the chain at a much more rapid rate. And so that has its
52:25
second order effects that are well debated. And then we also have newer forms of quantum
52:31
resistance signatures. And those are much more efficient, but they're not as lindy. They haven't
52:40
been around as long. So that's where a lot of the debate really lies. It's like, okay, if we were to
52:46
do this, then what quantum signature do we use? And then I think what really makes it complex
52:51
is it would be like, okay, well, what might we have in the next five years? And if we were to
52:57
put one in now, are we going to be making a huge mistake? Because we're going to get a much better
53:00
quantum resistance signature in another five years. And if we did this preemptively, and had
53:04
we waited the whole decade or 15 years that we actually had before it's a problem, we might have
53:09
had, you know, a quantum resistance signature with much less impact of second order effects.
53:15
And to my understanding, these have to be hard forks.
53:19
So the thing, I don't think we should act now,
53:22
but we should start talking about it now.
53:23
I think these need to be serious conversations that are happening.
53:26
I know Hunter Beast has BIP 360 that he's working on.
53:30
But the solutions we have now, like huge signatures,
53:34
doesn't sound like a great option.
53:35
But if we have no other option, like if this thing in a year's time
53:38
is a real thing that we need to worry about,
53:40
then we're going to make a change.
53:41
That's not necessarily the huge issue.
53:43
I don't see that being contentious.
53:45
The thing that I can see being contentious is what we do with all the coins that don't move.
53:49
Like, if all the old address formats that are probably the most vulnerable to quantum attacks,
53:55
like if people are dead or if they've just forgotten about their keys, whatever,
53:58
like, there's going to be a debate of whether we should essentially freeze those funds
54:02
or if we let those be stolen by the quantum computer.
54:05
And, like, this is what one of the really important sort of philosophical conversations,
54:09
I think, to have as Bitcoiners is that do we break these people's property rights
54:14
and destroy one of the key value propositions of Bitcoin
54:17
just to stop a bad actor taking them.
54:19
And I don't think we do.
54:20
Even if all those coins get dumped on the market
54:21
and the Bitcoin price drops significantly,
54:24
I still think that's a better outcome
54:26
than freezing someone's funds
54:27
and breaking the property rights of Bitcoin.
54:29
Because long term,
54:30
if you're looking at the value proposition of Bitcoin
54:31
in 50, 100 years' time,
54:33
breaking property rights I think will be more detrimental
54:35
than a few million coins coming onto the market.
54:38
Totally.
54:40
It's going to be interesting, man.
54:41
It's going to be tricky, man.
54:42
Yeah, it's a crazy new world for Bitcoin.
54:46
Yeah.
54:46
So do you think this is like a three to five year problem?
54:50
Or do you think this is more likely to be a hundred year problem?
54:54
I'm putting my money on this being like something in the next decade.
54:59
I think like 10 years from now, we might be running into some issues with this.
55:03
Yeah, I think it's the kind of like, this isn't even like FUD at this point, I don't think.
55:07
I think it's something we should be having very serious conversations.
55:10
Yeah, something we should be talking about.
55:11
And it's just because the primary thing is that Bitcoin would be the bounty for people to go after in a lot of ways.
55:18
The canary in the coal mine.
55:20
Yeah, yeah.
55:20
So Bitcoin is definitely high on the radar for people that are discovering this.
55:26
But I mean, all non-quantum proof encryption is broken at that point.
55:32
Every bank account is probably broken, at least with the cryptography they use right now.
55:36
And I think probably the signal is when everyone starts quickly upgrading to using quantum proof encryption.
55:42
Like that's when we need to be acting quickly.
55:43
Exactly. Yeah.
55:45
It also depends probably on who's controlling the quantum computer.
55:48
Right.
55:49
Like if that's, you know, a government agency in the US, are they going to attack Bitcoin?
55:55
I'd be skeptical.
55:56
Yeah.
55:57
If it's some private individual who has control of a quantum computer, that's when we're at risk.
56:01
Right. Right.
56:03
It's going to be interesting, man.
56:05
It's going to be crazy, man.
56:06
Right, you've got to go on stage.
56:08
I've got to go hop on my panel,
56:10
but it's been good podcasting with you, bro.
56:12
It has been good.
56:13
We've had nearly two weeks together.
56:15
Yeah.
56:15
Just bro-ing down.
56:17
Yeah, yeah.
56:18
It has been a bro sesh of two weeks.
56:20
Well, I will see you soon, Eric.
56:22
Thank you, man.
56:22
All right, thanks, man.
56:35
Thank you.