Latest / What Bitcoin Did / Bitcoin Will Never Have Another 80% Crash | Eric Yakes

Transcript

Bitcoin Will Never Have Another 80% Crash | Eric Yakes · What Bitcoin Did

• 0:00
  Everything structurally changed and now people are viewing this asset differently.
• 0:06
  The further up we saw this AI trade go and the further down we saw Bitcoin go,
• 0:10
  it's just like, oh, what a perfect, perfect opportunity to rotate out of the gains from that.
• 0:15
  Those three variables are kind of like setting the scene that I think changed like how Bitcoin
• 0:21
  gets adopted and by who. If Bitcoin is in 5 to 10 trillion market cap range, now we do start to
• 0:26
  into that world of like, okay, from a global standpoint, this is one of the most deepest,
• 0:31
  most liquid homogenous assets that kind of exist globally.
• 0:37
  There you go. Go on, do the gun show before we start.
• 0:39
  All right, right here, right here.
• 0:41
  Just that's not going to the show. This isn't a Breedlove podcast. That's not going in the show.
• 0:47
  I will end up in that genre at some point in my life.
• 0:51
  Well, you're going to be like a gym influencer.
• 0:55
  Yeah, I like nerdy stuff too much, but at some point in my life, I'll probably be posting
• 1:00
  pictures of myself shirtless and giving people health advice.
• 1:03
  You're going to have to get much better shape, man.
• 1:05
  I know.
• 1:07
  I'm almost on month two of a sober streak.
• 1:12
  We're dropping some pounds.
• 1:14
  2025, traveling with you that whole time, I was throwing it on.
• 1:19
  I was going to say, I've probably not seen you in about two months.
• 1:21
  Is that why?
• 1:22
  Yeah, that's probably why.
• 1:24
  yeah it's the reason i didn't come to new york well i will see you soon we'll break that streak
• 1:28
  um how's it going man good man it well it's like wow the past the past few weeks have been big we
• 1:38
  are we are back i i didn't budget for any of this i don't think anybody really did um and and there's
• 1:46
  just been a lot of major events like i think it was a good bear market but there's been some major
• 1:51
  events recently that I think, I think it's cool. I think we'll look kind of back on this period.
• 1:58
  And I think it's going to be like pretty historic in terms of an inflection point in Bitcoin.
• 2:05
  Why? What do you think has been sort of the key inflection point?
• 2:08
  So I think it's kind of like a few things.
• 2:13
  One, I guess like defer this back, like the Tether audit announcement. It's not really
• 2:18
  necessarily the fact that they received that, but that's a big moment in the industry.
• 2:24
  There's some debate around that. That's not really what I'll get into, but nonetheless,
• 2:28
  Big Four Firm is verifying the reserves of this stable coin that's like, what is it? I think,
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  they're a top 20 international owner of US treasuries, and they get this audit. They're
• 2:42
  operating independently internationally and um and they've been buying a ton of gold in bitcoin
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  and they have this like reserve position in gold and bitcoin so like i i think one them getting that
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  audit and like taking a step towards more legitimization in the eyes of the world that's big
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  um obviously the next big thing was the treasury announcement um over the past week and you know
• 3:07
  So whether you call it yield curve control, whether you call it like the Treasury's doing
• 3:11
  its own QE, there's like technical debates around how all these things work from like
• 3:16
  a definitional standpoint.
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  So like it doesn't really matter.
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  What matters is that like the Treasury is earmarking.
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  They are trying to control what the rate of interest on the long end of the curve ultimately
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  is.
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  And, you know, the market knows and is responding to that in a way that this is just going to
• 3:34
  lead to more debasement.
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  And then Bitcoin and gold rallied immediately.
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  So this rally and this change,
• 3:46
  there's two big things with that.
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  I think, number one,
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  this was something we talked about in the annual report.
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  This was part of our predictions.
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  One of the big things was the idea that the cycles are broken
• 4:00
  or they never existed or whatever you want to think about that.
• 4:04
  and this, you know, I think you and I are on a podcast last year,
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  you know, we're talking, like, I don't think it's ever going to fall below
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  a 50% drawdown again.
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  And we pretty much, if this is the bottom, then we hit that,
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  like pretty much on the dot.
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  I think it was like slightly below 50%.
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  But it was very close.
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  Yeah, very close to that number.
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  And that means that everything's structurally changed.
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  And that is the key insight, is the market is taking a meta-analysis
• 4:32
  of the price performance of Bitcoin over this period.
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  And now people are viewing this asset differently.
• 4:39
  And I think we can see that from the fact that, like,
• 4:42
  Michael Saylor didn't buy anything.
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  He was selling.
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  Yeah.
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  And not only that, but the ETF inflow
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  that came as a response to this,
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  which is, you know, showing that this is, like,
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  institutional and retail buying behavior.
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  That's huge.
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  It says, hey, Bitcoin's a countercyclical asset
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  on this debasement trade.
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  And that was a big thing that we were calling for in the annual report I think the specific prediction we made was that it be obvious in 2027 but 2026 in hindsight
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  will be the year that we view Bitcoin
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  as like decoupling from equities
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  and broader risk assets
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  and being viewed more as like a,
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  whether debasement trade
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  or a counter-cyclical hedge.
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  So this happening,
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  it doesn't mean it's persistent.
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  We have a lot of time
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  and that's why I said in hindsight,
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  I think we'll look at it as the period.
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  But I think this is the start of it.
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  Like that was very major.
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  You see the news headlines and the way people are talking about Bitcoin right now.
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  And it has a 54% bottom paired with that.
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  So what does that mean?
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  It's less volatile than it used to be when people are expecting 70% to 80% drawdowns out of the asset.
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  So structurally, it's like I'm an asset manager and I want to take a lot of my capital
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  and put it into a counter-cyclical hedge.
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  Like, it's no, everybody knows how this deficit game is going.
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  Everybody knows, you know, they want to be in hard assets like this.
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  That's what the gold rally was driven by last year.
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  And a lot of what we wrote about in the annual report
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  that came out in January at the beginning of this year
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  was a rotation of the gold market into Bitcoin.
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  And then I think the surprise we had was this AI trade emerging
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  that the way that it did, that kind of boomed,
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  and now it's crashing, and then here we are,
• 6:33
  and people are looking at some of the alternatives.
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  And Bitcoin has just been so compelling.
• 6:38
  I mean, I've been tweeting into the void over the past few months of like, this is like, the further up we saw this AI trade go and the further down we saw Bitcoin go, it's just like, oh, what a perfect, perfect opportunity to rotate out of the gains from that.
• 6:50
  um so i i think those three variables are kind of like setting the scene for a few trends which i
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  can get into um that i think change like how the how bitcoin gets adopted and by who over the next
• 7:06
  you know over the you know medium to long term i think one of the the interesting things like if
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  you if you look at this in hindsight i did a show with checkmate a couple of weeks ago
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  and we were talking about obviously bitcoin price and he was talking about this being sort of the
• 7:19
  capitulation phase. He thought it was coming to an end of the bear market. And one of the things
• 7:23
  he was looking at was like ETFs were capitulating. And they essentially have just been like,
• 7:27
  they've been the retail in this last few years. And the behavior hasn't really changed from when
• 7:32
  it was just people buying on Coinbase or wherever. And I think that's quite interesting. They've now
• 7:37
  FOMO'd back in as Bitcoin price is pumping, but nothing has really structurally changed. It doesn't
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  look like? I think that the big structural thing is, it is like the inherent idea that,
• 7:49
  oh, if this asset's worst case scenario is a 50% drawdown, I feel much more comfortable
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  recommending that to clients as an asset manager. I, as an individual, feel much more comfortable
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  taking a position in that. Like, that's the huge unlock that I think comes from this,
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  where asset managers start to just fundamentally view the asset differently.
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  And now the idea of like, oh, maybe it's a 0% to 1% to 2% allocation.
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  You know, if Bitcoin's worst case turned into like 30% drawdowns,
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  then the idea of a 10% to 20% allocation in portfolios from a lot of asset managers
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  is something that can be pretty acceptable.
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  And like that's one of the big things, I think, structurally,
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  that's changed from the price action.
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  But I think it's too soon to call that though,
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  because it works both ways, right?
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  If we'd have had,
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  if the bull market had have gone to,
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  you know, 250K,
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  we would have had way more
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  than a 50% pullback, most likely.
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  And so I think by saying
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  it's not going to go below,
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  you know, 50% or whatever in the future
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  means that the upsides
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  are probably capped as well.
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  Do you think that's right?
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  No, no.
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  I think like,
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  and this was another big thing
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  we wrote about in the end of the report.
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  Like, I think,
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  so the framework
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  that I view this question from,
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  Like, I think everybody is like looking at historical price and cycles and being like, oh, no, we're seeing diminishing returns in the asset.
• 9:16
  What drives demand fundamentally is is not necessarily that it's a component of it, because obviously the market's like taking a meta view of it.
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  But like if the market is all following that type of a narrative and like, oh, it has diminishing returns and hold it on and expect that.
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  these are the types of like herd mentality, narrative-based crowd behaviors that happen
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  in markets that are destined for a surprise. And the market gets surprised because something
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  fundamentally changed, something that actually was a demand driver fundamentally in the asset
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  changed. And I think that where that comes from, the framework I view it, is I view from the
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  adoption of Bitcoin. And what does that mean? It means people holding it for monetary functions.
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  And like, there's kind of three buckets for that, we all know, store value, medium of exchange,
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  and as a unit of account The way like the framework that we wrote about kind of like in our firm founding philosophy and is like three major S cycles for Bitcoin and I think we just in the first of it based on each function
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  So what is the huge unlock that allows Bitcoin to basically consume the store of value market?
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  And then versus years after that, once you are a strong store of value, what makes people actually start trading it like money is a medium of exchange.
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  And I think that those two markets are very different and they're different forms of adoption. And the difference between those markets is why stable coins have grown so much in recent years. And so I view what's happening right now is like, okay, so what is the ideal store value asset? And that's basically what Bitcoin was designed for. It's this asset that is the scarcest commodity in the world effectively.
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  it's something that is the only permissionless network in the world, like truly permissionless
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  network that you can move an asset across borders, you can move billions of dollars
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  within a matter of minutes to seconds, depending on the protocol you're using.
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  And you can't do that. And you don't have to ask anybody for permission to do that.
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  And you can't be shut off from doing that, or at least not a systemic level.
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  And that is something that I view is incredibly valuable. Every time there's a bear market,
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  you think about does that fact still exist and it does and that's why we know that things are going
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  to continue um and and so like what is it that has been limiting bitcoin from consuming the
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  store value market and it's like why is why have people not moved the monetary premium that exists
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  within gold today to bitcoin i think the primary reason is one gold is much more stable particularly
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  on the downside compared to Bitcoin.
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  And the reason for that is it's much larger.
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  It's just a larger asset.
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  And it has much deeper liquidity.
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  Like a country like Russia or China
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  can move hundreds of billions of dollars into gold
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  and then liquidate that position
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  or use it in trade with another country
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  and not move the market.
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  And that is what Bitcoin does not have.
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  So I think I mentioned this before on a podcast,
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  but like the analogy I use,
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  it's like Bitcoin,
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  I mean, its worst problem is that it's young.
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  Like, that's the problem.
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  It's a small scale asset.
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  It's better than gold and all of these other characteristics.
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  So it's like we're watching LeBron James when he was playing in high school.
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  Like, we know where this guy's going.
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  He's just in high school.
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  And that's what makes where Bitcoin's at so compelling right now.
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  So, like, these recent events, Bitcoin responding to this shift in a debasement trade, that tells me the market's, like, perception of it.
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  is actually starting to change.
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  And we'll see.
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  Like I've said, this takes time.
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  It's going to take a multi-year track record of Bitcoin acting like
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  moving on a debasement trade, acting as an inflation hedge,
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  or at least just moving counter-cyclical to equities and risk assets.
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  But once that track record is established,
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  then I think it's going to be very firmly set
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  that Bitcoin is a valuable option.
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  And then that's when I think the gold rotation really starts to happen.
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  That's when I think people are kind of like, okay, cool.
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  So this is like gold, but with better returns now.
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  And plenty of other advantages.
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  I can store it on a USB drive and control it completely myself if I so wished.
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  And I can move it across the world.
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  And I can split the keys of ownership of it across the world.
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  There's all these big ideas that start to emerge from a custodial standpoint,
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  from a payment network standpoint, where people are like, okay,
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  this is completely different than gold.
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  So that's the S-curve is basically like going after the store value market.
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  And I think where we're at right now, breaking this four-year cycle narrative
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  and showing people that this truly can be a debasement trade,
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  that's what leaves it to the next leg up.
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  Like if Bitcoin is in 5 to 10 trillion market cap range,
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  now we do start to get into that world of like, okay, from a global standpoint,
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  This is one of the most deepest, most liquid, you know, homogenous assets that kind of exist globally.
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  And we just need to get to that scale.
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  And it's changes in the narrative like what are happening right now and the perception of it that ultimately lead to that.
• 14:40
  If you hold Bitcoin long enough, there's going to come a time when you need some dollars.
• 14:43
  It might be a tax bill, a business expense, life getting in the way.
• 14:46
  But whatever it is, it might come at a time when you don't want to sell your Bitcoin.
• 14:50
  That's where Ledin comes in.
• 14:51
  Ledin lets you borrow against your Bitcoin instead with tiered rates that go as low as 9.25%
• 14:56
  so you don't have to sell your stack if you don't want to.
• 15:00
  Ledin have operated through every market cycle since 2018 and have originated over 11 billion
• 15:04
  dollars in loans but the important part for me is the way Ledin handles these loans.
• 15:08
  Your collateral is held in custody and never lent out to generate interest.
• 15:12
  And Ledin's more than just loans. Tether Gold is now live alongside your Bitcoin with instant
• 15:16
  trading across 10 pairs and later this year you'll be able to borrow against gold in the
• 15:20
  same way that you do with Bitcoin.
• 15:22
  Ledin really is an awesome company.
• 15:24
  I've used them multiple times.
• 15:25
  The applications have taken me less than 15 minutes
• 15:28
  and you have the dollars in your account within hours.
• 15:30
  If you want to check out Ledin,
• 15:32
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• 15:45
  Spot Bitcoin ETFs provide price exposure to Bitcoin, not direct ownership.
• 15:49
  You can't withdraw it, you can't self-custody it,
• 15:52
  and they charge you a management fee every year to hold it.
• 15:55
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• 15:57
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• 15:59
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• 16:05
  Bitcoin. It does that without selling on the open market and is designed to support a tax-efficient
• 16:10
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• 16:15
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• 16:21
  as 0% by just holding it in self-custody. This is designed in a way that maintains your cost basis
• 16:27
  and in a manner that supports the deferral of capital gains tax.
• 16:30
  So if you own a Bitcoin ETF, especially if it's GBTC,
• 16:33
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• 16:37
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• 16:39
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• 16:41
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• 16:45
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• 16:46
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• 16:48
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• 16:50
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• 16:53
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• 16:54
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• 16:57
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• 16:59
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• 17:00
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• 17:02
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• 17:05
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• 17:06
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• 17:08
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• 17:10
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• 17:11
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• 17:14
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• 17:16
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• 17:17
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• 17:19
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• 17:22
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• 17:28
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• 17:32
  I mean, I just need to show you something.
• 17:35
  Banger answer, by the way.
• 17:36
  I can't stop thinking of this, though.
• 17:38
  I'm just going to be laughing on my screen until I show you.
• 17:42
  What is it?
• 17:45
  Every time I'm looking at you, I'm just thinking of this.
• 17:47
  it does look like straight out of content with the black shirt
• 17:53
  yeah you've got your jerry curl going on you have to put this in keep this in
• 17:57
  i'm getting it i'm getting a haircut soon you really are rocking the like 90s jerry curl right
• 18:05
  now yeah no the hair there's out of control i'm getting a haircut soon uh sorry that was
• 18:09
  very unprofessional um how long do you think we have until bitcoin starts taking from that gold
• 18:16
  trade, like that rotation actually starts happening.
• 18:18
  With what is happening right now, so let's say that this type of a trade persists, let's say
• 18:23
  that the treasury continues to expand, you know, whatever sort of fiscal control that they can
• 18:31
  implement, they continue to, you know, they're going to have to continue increasing liquidity
• 18:35
  within the system. And, you know, as that expands and gold continues to move the way it does,
• 18:43
  if Bitcoin continues to do that,
• 18:45
  then I think it's like we see very small basis point percentages
• 18:48
  of the market in gold start to move.
• 18:51
  And they just feel like, okay, gold could go to 10,000.
• 18:55
  Gold could potentially go higher than that.
• 18:58
  But we could watch Bitcoin run from 80K up to 800K
• 19:03
  in that same period.
• 19:05
  And I think people are going to view the return potential
• 19:07
  and the riskiness of Bitcoin is valuable
• 19:11
  once they just get very comfortable with this downside.
• 19:14
  So that's not a direct answer.
• 19:16
  I don't know how to time it.
• 19:17
  But the direct way I could answer it is that
• 19:19
  if Bitcoin maintains a consistent track record of over a year,
• 19:25
  I think of counter-cyclical behavior,
• 19:27
  or at least it reacts positively to monetary or fiscal expansion,
• 19:37
  then I think that it will earn its place in the minds of people as a viable trade for that.
• 19:48
  This is essentially a bet that governments keep printing money, which is a pretty safe bet.
• 19:53
  And the thing that the Treasury are doing right now, I know that there's people that are saying
• 19:56
  this is not yield curve control, but it certainly looks like it. Do you think it is?
• 20:01
  I think the definition of yield curve control is something along the lines of, one, the Fed is implementing it, two, there's a set mandated policy of rates across a term structure that they're going to be adhering to.
• 20:19
  And in the same way that the inflation rate is a target policy rate, that the Fed announcing something like that would definitely make it yield curve control.
• 20:28
  Like, I think that, you know, similar to during the pandemic,
• 20:33
  when people were like, oh, no, this is QE,
• 20:35
  and other people were like, well, it's not QE.
• 20:36
  Like, QE, technically speaking,
• 20:39
  and these are just, like, technical nuances
• 20:40
  that don't really matter,
• 20:41
  but, like, QE was Bernanke trying to ultimately
• 20:45
  lower the long end of interest rates during the pandemic.
• 20:50
  the financial crisis.
• 20:52
  And it was really like most monetary policy up until that point
• 20:56
  was focused on shorter duration treasury assets.
• 21:06
  And then that's what changed under the Bernanke regime,
• 21:10
  was like, okay, we're going to go off to the long end now.
• 21:12
  And that was what kind of defined it as QE.
• 21:15
  So there were, I think one of the other things too on the fiscal side is like the Fed can expand its balance sheet when it conducts it. This is why it's kind of a Fed thing because they can create the money.
• 21:30
  the treasury can really only like transform the duration that they own so like where does the
• 21:38
  money come from if they're buying long-end bonds whether it's in the open market or from the fed
• 21:43
  the money comes from other debt that they issue right so like they have to go issue bills
• 21:51
  shorter maturity debt to buy these longer term bonds out of the market and then the argument
• 21:59
  would be, well, what about the Treasury General account that Bessent announced, whatever it was,
• 22:05
  a day or two ago, that they're going to be using of like a trillion dollars in it.
• 22:10
  And that account is primarily financed by the, you know, issuance of bills. So it's kind of like
• 22:18
  basically saying the same thing, despite it truly being like an actual cash reserve account right
• 22:22
  now. So like that, that's a little bit more of an argument for it, but it's not, you know,
• 22:27
  on the run new issuance type bills that are being used,
• 22:31
  but historically issued bills are being used
• 22:34
  because there's cash in that account.
• 22:35
  So I don't know.
• 22:37
  It doesn't really matter.
• 22:39
  What matters is-
• 22:39
  It sounds like semantics.
• 22:41
  Like if it's going to behave like Yilkow control,
• 22:43
  do you just treat it as that?
• 22:45
  It's just end game type shit.
• 22:47
  Like that's what they're doing.
• 22:49
  It's just like, okay, we're desperate.
• 22:50
  And here's what I'm surprised
• 22:52
  is it being talked about more.
• 22:53
  Like, I think that this is an argument for Fed independence more than anything, the way that Warsh has been behaving, the fact that, you know, the Treasury's had to step in with this type of behavior because the Fed actually isn't doing it.
• 23:09
  I'm surprised that's not being talked about as much because that's kind of like the key thing.
• 23:13
  That's like the most noticeable, unexpected thing to me from how this has gone.
• 23:19
  So, yeah, but yeah, it's just like semantics.
• 23:23
  that's happening.
• 23:24
  And the reality is,
• 23:25
  whether or not the Fed does something
• 23:27
  fiscal dominance,
• 23:28
  you know, nothing stops this trade,
• 23:30
  blah, blah, blah,
• 23:30
  is going to persist.
• 23:33
  And the only thing,
• 23:34
  and it was Druckenmiller
• 23:35
  in the Wall Street Journal article op-ed
• 23:37
  that he wrote today.
• 23:42
  You know, he was making the point that,
• 23:44
  well, pretty much the only option we have here
• 23:46
  is to cut deficit spending.
• 23:48
  So, because this isn't going to work.
• 23:50
  And that's kind of what we saw, right?
• 23:51
  Like, we'll see where it comes.
• 23:54
  We'll see what other, you know, the word toolkit is being used a lot more in headlines again.
• 23:59
  So toolkit means number go up usually when that's coming up in headlines.
• 24:04
  But, you know, they're talking about other tools in their toolkit that the Treasury now has.
• 24:09
  And we'll see what they do to ultimately get markets to react.
• 24:14
  But, you know, after the initial announcement, it doesn't seem like what is the current 10 and 2030 at right now.
• 24:24
  But it seemed like I think after the announcement, the market still kept selling off and they fully reverted.
• 24:31
  OK, so they're down a bit.
• 24:32
  OK, the market is starting to kind of yields are down a little bit.
• 24:36
  Um, but from the first announcement, it had reversed and it wasn't until they started,
• 24:41
  you know, expanding on the idea that, uh, uh, I guess markets have finally come down.
• 24:49
  So the question's like, how effective can they ultimately be?
• 24:52
  And the belief that they can tame some of this.
• 24:56
  So one of the things that I think is quite interesting about it, like whenever I speak
• 24:59
  to a Larry Lippard or someone who who's, you know, into the debt spiral type situation,
• 25:03
  And like Larry said to me before, yield curve control will come.
• 25:07
  They won't call it yield curve control.
• 25:09
  Like seems like a pretty good call.
• 25:11
  And the thing that I'm trying to understand now is, is this the start of just a bigger
• 25:16
  easing cycle?
• 25:17
  Like, is this just the first thing they're going to do?
• 25:19
  And is this going to continue for, you know, multiple months, years, however long?
• 25:23
  That's kind of a good segue into one of the areas that I am curious to see how much this
• 25:30
  starts to expand.
• 25:31
  And that's like how much the treasury starts pushing on stablecoin adoption.
• 25:37
  Like the framework that I use to think about all of this is you have an asset, you have demand for an asset for certain reasons.
• 25:45
  When you think about that with like dollars or treasuries, there's a market.
• 25:52
  There's a market for people who are demanding these bills and bonds, et cetera.
• 25:56
  And there a market for the currency ultimately the the expansion of that is tied between the two
• 26:07
  One backs the other.
• 26:08
  So the expansion of dollar dominance necessitates demand
• 26:15
  for more of the reserve, which is the debt.
• 26:18
  And so it's like, okay, what percentage of the global market
• 26:22
  of dollars exist or of dollar demand exists today
• 26:27
  and I haven't looked at the numbers recently,
• 26:29
  but we're kind of sitting in this realm of we're the most dominant,
• 26:32
  and the euro's kind of like the next most dominant,
• 26:38
  and then there's this much more long-tail group of currencies around the world.
• 26:42
  That's been declining.
• 26:45
  I was writing about this years ago.
• 26:47
  I think the first major highlight on that was the 2021
• 26:54
  2021 when we cut Russia off from SWIFT and people started to focus on this like fragmented system.
• 27:00
  And like we're seeing that more with what Besan's been announcing recently in terms of anybody who's
• 27:08
  doing work with Iran, the economic sanctions that they're going to be subject to it.
• 27:12
  So like that's all like the primary narratives at these points in time is that the global
• 27:17
  currency order is fracturing.
• 27:19
  people are trusting whether it's the US payment system,
• 27:23
  Swift, or whether it's the dollar currency itself.
• 27:27
  They're trusting the adoption,
• 27:29
  or they're trusting that less.
• 27:31
  And they're moving to alternatives.
• 27:32
  And that's primarily either other countries
• 27:35
  or commodity-based assets
• 27:37
  and looking to alternatives for payment networks.
• 27:41
  And Bitcoin's been a part of that story.
• 27:44
  So there's a fracturing of the system
• 27:46
  that's been going on across all of this.
• 27:48
  And looping that back to the question,
• 27:55
  the question's like,
• 27:56
  what surprises us on dollar demand
• 27:58
  is if there's some new vector of demand.
• 28:00
  And that is what makes stable coins so appealing.
• 28:04
  And that's where the interests I think
• 28:05
  are aligned with the treasury.
• 28:08
  Because they're like, okay,
• 28:09
  how do we get more people to own our debt?
• 28:11
  And it's like, current forecast,
• 28:13
  stable coins is a few hundred billion dollar market size.
• 28:16
  Current forecast that you see across most is like by 2030, not that far off, we are going to see a few trillion in market size around stable coins.
• 28:29
  And I think that's for like two primary reasons, countries and people that want access to a relatively less inflationary currency than they have domestically.
• 28:42
  And, you know, the hyperinflationary global south economies are like the primary adopters of that. And then there's also so like that's one source of demand. And then I think there's also another source of demand for actual payment settlement.
• 28:56
  And that's the piece that I think is very bullish for Bitcoin over the long term from stablecoin adoption is that being able to move value over a protocol based on digital signatures is just something that for any, you know, I think about it in terms of like, what are the businesses?
• 29:18
  What are the applications?
• 29:20
  What's the software that's ultimately using this around the world?
• 29:22
  if you know 30 to 40 percent of payment volume is done in stable coins in a decade
• 29:30
  then 30 to 4 percent of payment volumes is a button switch away from being done in you know
• 29:36
  bitcoin directly and so like getting the world to use digital signatures for payments
• 29:41
  is a big thing and i think that uh and i think that that's bullish to like get the infrastructure
• 29:47
  setups for like a Bitcoinized world. So those two things, if those expand, then the treasury
• 29:55
  is kind of like, okay, so every stablecoin issuer, if they grow into the trillions and let's say a
• 30:00
  decade from now, you know, the market grows to 10 trillion. It's like, you know, total public or
• 30:07
  total US debts at like 40 trillion. And I think in terms of like treasury, it's around like 30.
• 30:11
  so if we think about stablecoin providers being you know five to ten trillion in market size over
• 30:19
  the next decade like that's huge in terms of demand uh for treasury debt and so i think that
• 30:26
  like that this is one area that i'm curious to see how the treasury starts reacting to that
• 30:31
  um and how this ultimately is going to get pushed at a global level and um and yeah so like that
• 30:40
  That is what offsets the idea of people being like, okay, we're going to go into a debt spiral.
• 30:45
  What is that?
• 30:46
  People don't want to own the debt anymore.
• 30:47
  So it goes down in value, and that leads to debasement over time in the currency.
• 30:52
  The currency is the escape valve, and that leads to inflation, and economies can crumble from that.
• 31:00
  So the question is like, how do we increase the demand for a period of time so it doesn't happen?
• 31:04
  And this could be one vector or one of the areas that they start to pull on is like the inefficiencies of the international banking system in trying to capture the long tail of other people of other currencies and converting them to dollars I would guess that they start leaning into that
• 31:21
  pretty heavily over the next decade.
• 31:24
  And then I think there's a big story
• 31:25
  for Bitcoin adoption around that.
• 31:26
  At the start of the show,
• 31:27
  you talked about the three functions of money,
• 31:29
  store value, meaning of exchange, and unit of account.
• 31:32
  Do you think Bitcoin's failed
• 31:33
  if it doesn't eventually become all three?
• 31:35
  Like, I don't view it as binary.
• 31:37
  I view it as a spectrum.
• 31:38
  I think that, like, I wouldn't say it failed.
• 31:42
  At the end of the day, I think that if we have,
• 31:44
  let's say Bitcoin takes a market of gold.
• 31:47
  Did it achieve the full potential? We believe no.
• 31:52
  Do we have a permissionless store of value asset
• 31:55
  that we can ultimately move across borders
• 31:57
  and outside of the control of government? Yes.
• 32:00
  And we can do that in large quantities.
• 32:02
  What is, how does that impact the incentives of governments?
• 32:05
  How does that impact property rights?
• 32:07
  being protected by the individual, I think significantly.
• 32:11
  You know, much more than people storing their value in real estate.
• 32:13
  Much more than gold.
• 32:15
  So, like, that's a win.
• 32:17
  I think it's a win for freedom.
• 32:21
  But I do think that that vision pales in comparison
• 32:25
  to the idea of the world being on the first neutral monetary system
• 32:30
  in history at a global level.
• 32:32
  Like, historically, if we go back to primitive times
• 32:35
  when people used commodity-based monies,
• 32:37
  um, non-government commodity-based monies,
• 32:40
  you know, those were neutral.
• 32:43
  They were subject to, you know, some degree of, like,
• 32:45
  market influence in, like, the supply, um, and demand
• 32:49
  because they had utility other than being money.
• 32:51
  But generally speaking, and certainly relative
• 32:54
  to fiat currency, they were very, like, neutral systems,
• 32:57
  but they weren't global. They were neutral within their own,
• 32:59
  um, you know, and prior to precious metals,
• 33:03
  monies were largely confined to the geography
• 33:07
  and the economy that they were in.
• 33:08
  And precious metals started to cross borders
• 33:11
  and power structures.
• 33:14
  And a lot of people were using gold and silver generally.
• 33:18
  But we just really didn't have an integrated global economy.
• 33:22
  When I think about the Bitcoin maximalist-type framework,
• 33:28
  or not even that, but just a general,
• 33:30
  I don't want to call it Austrian,
• 33:32
  but whatever it is the viewpoint of like money converges towards one um it it's like true from
• 33:40
  like an idealized perspective like philosophically it's true like that's the optimal uh way that
• 33:46
  things go the reality is we've never seen that uh that's never existed and that's never existed
• 33:51
  because um did you not see that with gold though like pre-fiat currency yeah but gold was something
• 33:59
  that it wasn't global.
• 34:03
  There was also a bimetallic system
• 34:05
  because gold wasn't good at something
• 34:07
  and silver was a little bit better
• 34:09
  at some other things.
• 34:10
  And these weren't global systems.
• 34:13
  We're thinking about
• 34:14
  what they ultimately were
• 34:16
  in European economies
• 34:19
  at those points in time.
• 34:20
  And there was a whole other thing
• 34:21
  happening in the East
• 34:23
  during these periods.
• 34:24
  And I'm no expert on
• 34:25
  development of money within the Orient,
• 34:28
  but I think the timelines were actually very different
• 34:32
  for how some of the evolution was happening between these.
• 34:34
  But, like, it's, you know, it gets close.
• 34:39
  And I think that the reason that we started,
• 34:43
  but, like, the reason that those things didn't happen,
• 34:46
  or at least weren't,
• 34:49
  didn't grow to a global level and persist
• 34:53
  for a significant period of time
• 34:55
  is that we quickly started to see more,
• 34:57
  Well, I won't say that. They did persist for significant periods of time. But even if we assume like a biometallic system is like one, we, you know, ultimately had the evolution into paper systems because paper had superior properties to gold from like a payment standpoint and a bunch of other reasons. But that's another topic.
• 35:19
  So like, and then that got very fractured. And like, you know, generally speaking, I think across history, what I was writing about my book is what, like the primary reasons that we don't see like one money is because of one, information opacity, people just like not being aware of everybody else's money around the world.
• 35:36
  that's probably largely gone with the internet today
• 35:39
  like sovereign coercion amongst governments
• 35:43
  that's probably the number one reason we don't have one currency today
• 35:46
  and then just like monetary utility trade-offs
• 35:52
  so one money being better than another at some things
• 35:54
  and that's what like the bimetallic system between gold and silver ultimately was
• 35:58
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• 36:01
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• 36:08
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• 38:24
  But like, I think we'll get to a world that will be like very much like either Pareto rule,
• 38:29
  if not more exposure to one specific commodity. And I think that world of like Bitcoin being like
• 38:35
  the neutral first global neutral monetary system, you know, highly dominant where like
• 38:39
  90% of trade is being done with this neutral system.
• 38:42
  Um, that, that's something where it just changes the incentives and the power structures, uh, of any government. And, and that is what I think unlocks, you know, the memes of like the future where everything's perfect and the cars are flying and all this stuff.
• 39:03
  And I think having the neutral monetary system is that.
• 39:08
  I don't think we quite get that from a permissionless store of value,
• 39:13
  but it's a good step.
• 39:18
  So that's why we got to fight.
• 39:20
  I think that we have to build a lot more infrastructure.
• 39:23
  I think stable coins are doing a lot of that effort for us
• 39:25
  from an adoption standpoint of infrastructure.
• 39:28
  I think that there's a lot more.
• 39:28
  The way that we view this as a firm is...
• 39:33
  Bitcoin needs to be in everything.
• 39:36
  There's all these markets of different monies, of store values, of things,
• 39:41
  and everything needs to become Bitcoin compatible.
• 39:43
  It needs to be an arm's length from that.
• 39:45
  From us as a firm, when we think about do we want to invest in something
• 39:49
  that's in its own little Bitcoin world that nobody uses,
• 39:52
  it's like, no, the battle is being fought where capital is today
• 39:58
  and where people are storing their value.
• 40:01
  So things like, you know, the ETF is a great example of this. The ETF got a bunch of people who are in brokerage accounts to get direct access within these like tax advantage situations to Bitcoin. So boom, there's a bunch of capital that moved into it.
• 40:14
  thousands of other areas like that within the financial economy globally.
• 40:19
  We need more and more like software, financial products, banks.
• 40:27
  We need all these different financial institutions.
• 40:29
  It just Bitcoin needs to go everywhere.
• 40:31
  And it is.
• 40:31
  It's been growing significantly throughout all of that.
• 40:35
  But that's the stage we're in right now for adoption is like,
• 40:39
  let's like make the world Bitcoin compatible.
• 40:41
  and then we get to a world where now the capital can enter the system now the capital at least can
• 40:47
  get exposure um and then people can be like oh well what if we control this ourselves oh what if
• 40:52
  we're moving everything over lightning oh what if i actually want to like store my own keys as an
• 40:56
  institution i think all these things are very far out um but it all starts with going to where
• 41:04
  people are and meeting the uh the you know ultimately the consumer where they are so i
• 41:10
  I asked you to come on the show when you put a tweet out.
• 41:11
  I'm going to read it.
• 41:12
  You said, Treasury pushes stablecoin adoption.
• 41:15
  Stablecoins expand dollar dominance.
• 41:16
  Long tail of smaller currencies dollarize.
• 41:19
  Bitcoin expands a stablecoin reserve asset.
• 41:22
  Stablecoins Bitcoinize.
• 41:23
  Fiat currencies capitulate hyper-Bitcoinization.
• 41:27
  That's like your playbook.
• 41:29
  And-
• 41:29
  I was feeling it when I tweeted that.
• 41:31
  I mean, I like it.
• 41:32
  But the thing, so I want to believe
• 41:36
  in the hyper-Bitcoinization story,
• 41:38
  but I've always struggled to sort of see
• 41:39
  be the sort of the route that we take to get there.
• 41:44
  How likely do you think hyper-Bitcoinization is as a concept?
• 41:53
  From what I'm seeing,
• 42:01
  so I'll explain my thinking.
• 42:04
  I'm not worried about the incentives of Bitcoin adoption.
• 42:13
  I think that those exist.
• 42:15
  I think the worry comes down to, and what a lot of people focus on,
• 42:21
  is what stops or what constraints ultimately emerge in that process.
• 42:29
  So I just used the ETFs as an example.
• 42:32
  That's, I think at least amongst Bitcoiners, that is one of the concerns.
• 42:37
  The more and more that Bitcoin is ultimately custodied in a concentrated area, and the ETFs could be a vector for that, the more risk there is to the network being controllable, no longer decentralized.
• 42:58
  and and i think like that's i've never gotten i think a reasonable answer from anybody who's
• 43:06
  hypercritical that maybe you have like i i haven't gotten a reasonable answer on it
• 43:10
  but like i'm like okay what's the number like what's the percentage of bitcoin that needs to
• 43:16
  be in one custodian for the network to no longer work or you could ask it the other way like what's
• 43:22
  the percentage of bitcoin that needs to be in self-custody and then define what that means
• 43:27
  Like, self-custody is a gray area. It's a vague term.
• 43:32
  But what's that percentage?
• 43:35
  And I don't think anybody necessarily has a clear view.
• 43:38
  I think the way that I view it is,
• 43:41
  I wrote about this in my writing on free banking.
• 43:49
  And, like, super quick, free banks,
• 43:52
  there were systems where, that ultimately, like,
• 43:55
  the banks were acting, generally speaking,
• 43:57
  in the interests of consumers,
• 43:58
  and they were highly competitive.
• 44:00
  And these were systems where a central bank doesn't exist.
• 44:03
  It's just banks where like you,
• 44:05
  and they worked because you put the gold in,
• 44:08
  you don't wanna trade the gold,
• 44:09
  it's way easier to trade paper, you trust the bank with it,
• 44:12
  the bank gives you a receipt on their paper.
• 44:14
  And then a bunch of banks were all doing that,
• 44:16
  and they basically created their own private currencies
• 44:18
  that were all competing with one another.
• 44:21
  That competition amongst all of the banks
• 44:22
  to have a currency that was the most pristine
• 44:26
  was a really powerful incentive.
• 44:28
  And these banks ultimately serve the general public pretty well.
• 44:33
  Every time there was a bankruptcy of a bank
• 44:34
  from doing like a fractional reserve behavior,
• 44:37
  they got bought by a competitor
• 44:38
  and the customers very, very, very rarely over, you know,
• 44:41
  a period of like over a century lost any sort of money.
• 44:45
  It was only on like the equity holders of the bank.
• 44:47
  So the, like that view of banking is interesting.
• 44:52
  And it's just like, okay, well, why doesn't that exist?
• 44:53
  And it doesn't exist because governments
• 44:55
  would take control of those systems.
• 44:57
  It was very rare in history to see
• 44:59
  like a truly open free banking system.
• 45:01
  There were like two, basically.
• 45:04
  So it's like, okay, how do we manufacture
• 45:07
  that set of incentives?
• 45:08
  What's interesting is that at that period of time,
• 45:12
  it was like so much less practical
• 45:14
  to operate outside of those types of systems,
• 45:17
  to like say, oh, I'm gonna get my gold out
• 45:19
  and I'm just gonna trade gold with everybody.
• 45:20
  You could do it, but it was much less practical.
• 45:23
  It was hard to exit the system, basically.
• 45:26
  And that is an incentive that I think is really important.
• 45:32
  Having the ability to leave the system
• 45:35
  gives service providers that you are trusting
• 45:38
  within a system a very different set of constraints.
• 45:40
  Not that, oh, they may move to one of my competitors,
• 45:43
  it's like, oh, they may just not even use
• 45:45
  our entire system in the first place.
• 45:47
  Having an alternative way to opt out
• 45:49
  is a powerful incentive to those who are opting in.
• 45:52
  And that is what I think is really valuable
• 45:56
  about how Bitcoin works is,
• 45:58
  in a world of like trusted custodians,
• 46:00
  like Bitcoin far and away,
• 46:02
  the marginal cost of being able to self custody
• 46:04
  and participate in those economies
• 46:06
  is just like so much far less than anything else.
• 46:10
  Like try to exit the banking system today
• 46:12
  and operate in a modern economy.
• 46:15
  It wasn't possible unless you wanted to be
• 46:18
  like a drug dealer operating in cash.
• 46:20
  Um, and I mean, that was going to be my, my point when, when you said like, if I don't
• 46:25
  know if I've heard a good answer to that is, I don't think it's really about the percentage,
• 46:28
  although like, I don't really want to see any individual have or any individual institution
• 46:32
  have more than like, I don't know, 10% seems like a lot.
• 46:35
  I mean, if you asked me 10 years or five years ago, whatever 5% or 4% or whatever strategies
• 46:39
  that seems a lot.
• 46:40
  And it's not that I love to see that, but I think the only really important thing is
• 46:45
  the ability to self custody and move Bitcoin outside of like any controlled system That the only really important thing Exactly So like as long as you have that incentive and even if it a minority of the market that in self custody I think that makes a service providers act in your interest And it
• 46:59
  like, okay, well, what if the government tries to take control of one of those? And it's like,
• 47:02
  well, the remaining capital in the system is going to flow out. So it kind of puts the government
• 47:07
  into like a catch 22 in those situations. And like, that's, what's important is the marginal
• 47:12
  cost for an individual to operate in a self sovereign way is low enough. And I think it is,
• 47:17
  So that is not something I'm really worried about
• 47:24
  from an incentive standpoint.
• 47:27
  I think another thing too is, let's take a step back.
• 47:33
  This system is so infant for what we're planning.
• 47:36
  Anybody who's done their research on Bitcoin
• 47:38
  knows that the adoption for something like this
• 47:41
  is going to take decades to get to this
• 47:44
  neutral monetary system type vision.
• 47:46
  we're witnessing the monetization of a new commodity.
• 47:49
  That's gonna take a long time
• 47:50
  for people to understand and trust.
• 47:53
  And I think, like, I view it as its own economy.
• 47:57
  And if you study,
• 47:59
  it's like this new economy that's emerging.
• 48:02
  And if you study like economic development
• 48:04
  and how economies like grow
• 48:06
  from their instantiation to maturity,
• 48:10
  there's like a period where the concentration of wealth
• 48:14
  increases drastically and then starts to diminish over time.
• 48:17
  And I think it's measured by something,
• 48:19
  a Gini coefficient if you look those up,
• 48:21
  but it's a measure of wealth concentration in economies.
• 48:23
  And that's what I think is happening within Bitcoin as well,
• 48:26
  is we're going to see concentration during periods,
• 48:28
  but the reality is the bigger it gets,
• 48:30
  the harder it becomes for people to control it individually.
• 48:34
  And the more that people who are taking large positions,
• 48:37
  like the Michael Saylors of the world,
• 48:41
  the bigger it gets, the greater their incentive
• 48:43
  to distribute more of the wealth in it.
• 48:46
  Like, this is how economies grow.
• 48:49
  So that's another reason it's not necessarily
• 48:52
  something I'm worried about.
• 48:54
  And unless somebody has like a precise argument to make
• 48:57
  about a particular form of concentration in the near term,
• 49:00
  then it's not something that I'm like terribly concerned on
• 49:03
  because those incentives all kind of like line up to me.
• 49:07
  And we see that distribution.
• 49:08
  Every time Bitcoin price rips,
• 49:09
  OGs come out and start selling Bitcoin.
• 49:10
  Like the guy last year who sold 80,000 Bitcoin at the top,
• 49:13
  Like as hard as that is for the market to digest,
• 49:16
  like it still is a good thing.
• 49:17
  It moves Bitcoin into more hands.
• 49:18
  Taylor's selling Bitcoin.
• 49:20
  Like, you know, it's, yeah, it's just,
• 49:22
  you can't eat Bitcoin.
• 49:24
  So you don't have to worry about people hoarding it
• 49:26
  till the end of time and trying to undermine
• 49:28
  the validity of their own wealth in Satoshi's words.
• 49:32
  But I kind of sidetracked there.
• 49:33
  I want to know how likely you think it is.
• 49:35
  You said you weren't worried about the incentives,
• 49:37
  but how likely do you think it is?
• 49:39
  We kind of just described like,
• 49:41
  could Bitcoin be killed from some of this stuff?
• 49:45
  And that I view is very, very low likelihood.
• 49:48
  It's not really a question I look at as much as
• 49:50
  can Bitcoin grow into something less optimal
• 49:57
  than what it could be?
• 50:01
  And that means can Bitcoin grow into be something less
• 50:04
  than like, you know, a medium of exchange in your account?
• 50:08
  And I think people have talked about this
• 50:09
  a pretty decent amount of it just getting stuck at digital gold.
• 50:16
  I think that what a lot of that boils down to over the long run,
• 50:21
  to the point I was making earlier,
• 50:24
  if we consume the store value market,
• 50:27
  now it's like, okay, medium exchange is on the table.
• 50:30
  Now this thing's big enough to like,
• 50:31
  a lot of people are going to own it at that point.
• 50:34
  Your mom and your uncle and your grandma might all have it.
• 50:37
  And it's like, okay, cool.
• 50:38
  well, there's this other system.
• 50:40
  You can actually use this
• 50:40
  and you can just pay me directly in Bitcoin.
• 50:42
  And then it was like, whoa, oh my gosh, it was so fast.
• 50:46
  And like, there's like that world is, I think, a ways away.
• 50:49
  But the amount of infrastructure,
• 50:53
  and this goes to my point of like,
• 50:55
  everything needs to be made Bitcoin compatible.
• 50:59
  So like, that is another question.
• 51:02
  Like that's us as like being in venture capital
• 51:05
  are focusing on that.
• 51:06
  and that is a hard problem to solve.
• 51:11
  So in the world of venture capital
• 51:12
  or in the world of private capital focusing on this stuff,
• 51:16
  you don't hear about theses like ours.
• 51:19
  This is very niche.
• 51:22
  You're basically playing in fintech is what we do
• 51:25
  and we're investing in fintech companies
• 51:27
  and we're saying,
• 51:28
  how do we have an angle of Bitcoin adoption
• 51:30
  and how is that going to be a competitive advantage?
• 51:32
  and that world is focused on AI and stablecoins.
• 51:41
  So it's one, I think that's kind of like what VCs are doing
• 51:46
  is like we're kind of the boots on the ground
• 51:47
  like fighting the narrative in those realms
• 51:50
  basically saying like don't overlook Bitcoin
• 51:52
  because here's what you can go do.
• 51:54
  You can go compete on a bunch of stablecoin deals
• 51:56
  and that's where a ton of capital is going
• 51:58
  and there a bunch of people competing over the similar territory But what makes you different And I think what makes you different is like support stablecoins Stablecoins are valuable
• 52:10
  Your customers want them.
• 52:12
  But what if you have a Bitcoin angle
• 52:13
  that nobody else has?
• 52:15
  And, like, that's one of our key theses
• 52:16
  that we were writing about last year
• 52:18
  is, like, you know,
• 52:19
  ultimately, like, bank adoption
• 52:21
  and financial institutions
• 52:22
  that I think one of the largest growing areas
• 52:26
  within the economy
• 52:27
  is going to be Bitcoin collateralized lending.
• 52:29
  There's just a ton of bottlenecks within the like fintech world and banking infrastructure to that ultimately happening from a regulatory standpoint, from a technical standpoint, from just like an understanding standpoint.
• 52:45
  And so like that, that's kind of what we're working on is how we resolve that.
• 52:48
  And I think that like, sure, you could use stable coins and get more customers because you have your stable coin compatible.
• 52:54
  but if you're a bank
• 52:56
  and you
• 52:58
  like all
• 52:59
  the viability of a bank
• 53:01
  on their lending business
• 53:02
  is pretty much just
• 53:03
  what's their net interest margin
• 53:04
  how much do they make
• 53:05
  on their loans
• 53:05
  versus what's their cost of capital
• 53:07
  and the Bitcoin lending market
• 53:09
  is just like
• 53:10
  I think there's huge arbitrage
• 53:11
  within that
• 53:12
  because the collateral
• 53:13
  is mispriced
• 53:14
  like you go talk to these guys
• 53:15
  who are running community banks
• 53:16
  I mean they don't even know
• 53:17
  what a stablecoin is
• 53:18
  and like
• 53:19
  they're just like
• 53:20
  that's spooky
• 53:21
  and like not a lot of our clients
• 53:22
  want to do it
• 53:23
  but
• 53:23
  there's like mismatches that you see in the market everywhere. And it's just like, dude,
• 53:28
  if you guys just did Bitcoin loans and you can literally pull the collateral over a weekend
• 53:32
  and it's a multi-trillion dollar asset and you can keep the collateral in escrow,
• 53:39
  you can't do that with a house. You got to go foreclose on it. There's all these reasons that
• 53:43
  Bitcoin is just superior collateral to anything else. And you don't know the price of the house.
• 53:48
  Yeah. And you don't even know it's an illiquid asset. And the transaction costs are so high.
• 53:53
  Like, you know, the operating costs of, like, running a foreclosure business on that stuff is expensive.
• 54:00
  And it doesn't mean that these aren't valuable markets to be playing in.
• 54:03
  But, like, then the rates that you're getting are significantly less than what you would get on a Bitcoin loan.
• 54:09
  So it's like you could double your net interest margin as a bank from, like, having, like, a very heavy focus on lending against collateral like this.
• 54:17
  And mind you, like, a lot of this discussion isn't just in, like, the U.S.
• 54:20
  I think that because of regulatory environments, there's such a valuable opportunity for international regimes to be first movers in these areas.
• 54:32
  But so, you know, it's a lot of things like that where it's like, I think to the Bitcoiner, and if you read, you know, Ben Hunt's Epsilon Theory piece on like the Eye of Sauron and, you know, Bitcoin ultimately being co-opted by Wall Street.
• 54:47
  I don't think he's like wrong about that.
• 54:49
  I think we're going to see a ton of crap narratives and everything emerge.
• 54:53
  But to the conversation we're having earlier, I don't think that destroys Bitcoin.
• 54:56
  And I think there's a period of growth where it being implemented within the infrastructure
• 55:03
  is how it grows and ultimately creates the environment to get people out of that system
• 55:08
  and into a new system.
• 55:09
  But the reality is, if you understand the financial system, we don't have that new system yet.
• 55:15
  Like, there's so much that needs to be built for that to work.
• 55:18
  So there's nothing to bring them to other than, like, you know, self-custodying their Bitcoin.
• 55:24
  But guess what?
• 55:24
  Like, we need wealth management.
• 55:27
  We need financial products.
• 55:29
  You know, we need insurance.
• 55:31
  We need, and there's all these companies working on things like this right now,
• 55:34
  but we're still a decade away from all that happening.
• 55:38
  So, yeah, I don't know.
• 55:39
  I'm just kind of rambling about it.
• 55:40
  It'll take some time.
• 55:41
  I think that all needs to get built.
• 55:42
  And that is going to be a very, that's going to take a long time. There's people, we need a lot of intelligent entrepreneurs to be convinced of this thesis. Because entrepreneurs are ultimately like the top notch guys who are intelligent, hardworking, and, you know, love taking on a ton of risk.
• 56:06
  like those guys are going after ai and stable coins because valuations and uh capital are being
• 56:13
  attracted towards that so we need entrepreneurs that are highly capable it doesn't matter if you
• 56:19
  just love bitcoin like you have to be good at things so like um we we need that thesis to be
• 56:26
  more well understood that'll get easier over time but um this is why like price going up matters
• 56:31
  because that's what's going to attract those people and that's what's going to attract the
• 56:33
  investment yeah i want to go through the rest of this uh because we've gone through a lot here
• 56:39
  treasury pushes stable coin adoption was point number one you made we've talked about that that
• 56:42
  makes sense stable coins expand dollar dominance yeah long tail of smaller currencies dollar rise
• 56:46
  again makes total sense like if you're some tiny country and your population are moving towards
• 56:51
  stable coins like you don't even have a choice in the matter at some point um bitcoin expands as
• 56:57
  stable coin reserve asset why will that happen so like you know we we covered the discussion earlier
• 57:02
  and to just like quickly reiterate,
• 57:06
  you know, I think there's a strong chance
• 57:07
  the treasury starts to push heavily
• 57:09
  on international stable coin adoption
• 57:11
  to proliferate dollar dominance globally And so the question becomes like I think if you start start to think about okay well how that market going to develop
• 57:23
  With the Genius Act last year in the US,
• 57:26
  we got a pretty clear view
• 57:29
  of what's going to happen with stable coins in the US.
• 57:31
  And it's basically like Tether can't operate out here
• 57:35
  with their international stable coin
• 57:39
  if they were to ever pay interest
• 57:44
  and with how their current reserves set up works.
• 57:48
  So the Genius Act was basically like,
• 57:50
  you guys have to use US dollar
• 57:52
  or US government treasuries
• 57:55
  as your collateral short duration.
• 57:58
  And the term is a narrow bank.
• 58:00
  You're very narrowly defined by what you can do.
• 58:04
  You heard David Sachs talk about
• 58:05
  why they didn't allow interest, didn't you?
• 58:07
  i don't think so no so he he said on the all in podcast just after that bill went through that uh
• 58:14
  they can't do interest on stable coins because they basically just got so much pushback from
• 58:18
  smaller community banks that they sort of bowed to the banking lobby and just said no no interest
• 58:23
  because i guess the banks see the line on the wall uh overarching community banking i remember when
• 58:28
  that letter was sent their their organization sent something to uh the lobbyist groups and
• 58:32
  like look like you pass something like this like we're going to be out of business and i think when
• 58:36
  understand the community banking market like the community banks aren't the bad guys the community
• 58:42
  banks are very behind they don't know what the hell is going on in the world but like the the
• 58:48
  bad guys are the bulge bracket banks on wall street you know the major ones the jp morgans
• 58:52
  of the world all that um these are the guys that they're not just trying to bully you know bitcoin
• 58:59
  or the crypto world they're bullying all of their competitors as well they kind of created the
• 59:04
  a club at the top and they get to extract a lot of wealth
• 59:08
  and have influence over the system.
• 59:10
  Community banks are the guys who are just getting like screwed,
• 59:12
  who are serving rural communities.
• 59:14
  And those aren't the guys, we want to modernize those guys.
• 59:18
  Like we want those guys to ultimately win and be the early movers.
• 59:22
  They just can't help themselves from like what I've seen on some of that.
• 59:27
  And, but you know, putting that aside, like the,
• 59:32
  When we think about the banking system, right, and this question of paying interest, I think the consensus, conventional belief, I guess, treasuries come into our banking system, they pay a rate of interest.
• 59:49
  That ultimately turns into, all the way down the stream of intermediaries, a bank account that you get and you don't get any of the interest on it.
• 59:56
  So that float that they get from those treasury securities is basically consumed by the system itself because it's so inefficient.
• 1:00:07
  So any sort of system that ultimately passes like a direct yield of treasuries on a consumer, I think that, you know, those are attacked by banks because their model is own the government so that we can create an inefficient system that allows us to extract
• 1:00:26
  that margin for ourselves and not pass it along to the consumer.
• 1:00:31
  And, you know, like what stable coins are doing is they go direct to treasury bills.
• 1:00:37
  Technically speaking, you know, they go through brokerages or something, but like they,
• 1:00:41
  nonetheless, they get treasury bills in their reserves.
• 1:00:44
  And if they, you know, if it was legal in the U.S., very strong argument that stable
• 1:00:49
  coin issues could just directly be passing that on to consumers.
• 1:00:52
  The way it works is like in the US with Circle today,
• 1:00:57
  what they're doing and what the Clarity Act battle is primarily over
• 1:01:01
  is Circle doesn't matter.
• 1:01:03
  They're just kind of almost like an arm of Coinbase.
• 1:01:06
  What matters is distribution.
• 1:01:07
  Coinbase owns that within the US.
• 1:01:10
  So they have an agreement where like 60% of that float
• 1:01:14
  is going to Coinbase and then Coinbase is like passing some of that
• 1:01:19
  along to their customer base as like incentives.
• 1:01:21
  And the banks are like, that's you guys paying interest directly. And you're not allowed to do that because we need to protect our senior age within the system. And so like that, that's kind of the whole battle happening in the US. But nonetheless, like if we take a step back from like getting into like the granularities of the regulatory on all of it, the question's like, you know, the yield finds a way, right? Like people want to get access to it.
• 1:01:46
  And I think that the times this has happened before,
• 1:01:50
  like when money market accounts first started to emerge
• 1:01:53
  and there was a similar pushback from the bank lobby
• 1:01:56
  that this is, you know, this is gonna destroy the banking system,
• 1:01:58
  it's gonna draw deposits out into these money market accounts.
• 1:02:01
  The reality wasn't really the case with that,
• 1:02:03
  but like also money market accounts aren't money.
• 1:02:05
  Like you can't trade them peer to peer.
• 1:02:07
  You can do that with stable coins and that just changes the game
• 1:02:09
  because now it's like, like what's the...
• 1:02:12
  Here's kind of an interesting way to think about it.
• 1:02:16
  It gets confusing when you think about the monetary system,
• 1:02:20
  the difference between a US dollar
• 1:02:21
  and a treasury security, ultimately,
• 1:02:23
  because they're so tied together,
• 1:02:26
  because one backs the other.
• 1:02:27
  And it's just like, well, the question's like,
• 1:02:28
  why don't we just trade?
• 1:02:29
  treasury bills directly.
• 1:02:33
  And the reality is, is because they're not homogenous.
• 1:02:35
  They're not like for like, there's no fungibility across them.
• 1:02:38
  They have different maturities,
• 1:02:39
  they have different interest rates,
• 1:02:40
  they have different duration.
• 1:02:41
  Like there's all these different characteristics
• 1:02:43
  to where basically having a combination
• 1:02:45
  of all these things put into an account
• 1:02:47
  and then issuing a currency on top of that,
• 1:02:49
  it makes, it like blends them into a homogenous thing.
• 1:02:52
  And then that currency is trading in a global market.
• 1:02:54
  And so that's basically the value add, I think,
• 1:03:00
  of the transformation of debt into a currency.
• 1:03:03
  And stablecoins can do that really perfectly.
• 1:03:06
  So going back to the beginning of the question,
• 1:03:10
  I think what's really interesting about that is,
• 1:03:15
  right now we just have Tether competing globally,
• 1:03:18
  and they're so dominant, and you have Circle in the US
• 1:03:22
  because they're playing this regulatory arbitrage game.
• 1:03:24
  But Tether is like, what's cool about Tether is just like, you know, one, it's got the scale from the first mover advantage.
• 1:03:32
  It's much more liquid. It's more widely accepted. It's, you know, been used in a bunch of different exchanges, et cetera.
• 1:03:38
  Nothing that can't really be solved by a competitor over a long enough time horizon.
• 1:03:42
  What's cool about Tether, though, is their neutrality and the way that they've kind of avoided this, like, let's make a specific bet on a specific economy.
• 1:03:50
  to a degree at least with like their primary issuance.
• 1:03:55
  And that's cool because that like really makes them different.
• 1:03:59
  And because of that, Tether has, you know, whatever it is,
• 1:04:04
  somewhere in the range of like, I think 150, 200 billion AUM
• 1:04:11
  on the amount of like USDT outstanding.
• 1:04:14
  And they have like an excess amount of reserves on that.
• 1:04:18
  So they have technically like treasuries that are backing
• 1:04:19
  slightly more than that amount.
• 1:04:22
  And then they also have like 20 billion in gold and Bitcoin
• 1:04:25
  in excess of that, which is not small.
• 1:04:28
  That's like a pretty significant position.
• 1:04:30
  And they continue to like load up on it.
• 1:04:31
  They bought a bunch of gold this year.
• 1:04:35
  And so like what they're doing is like pretty based.
• 1:04:39
  Like I think when you think about it,
• 1:04:42
  like I'm working on some of this stuff as a writing,
• 1:04:44
  which if I can get it done in time,
• 1:04:46
  I'll try to do before we put this episode out.
• 1:04:48
  but um it's it's like there's like a you know like a lot of this audience is probably familiar
• 1:04:54
  with a carry trade um and and there's a bunch of different forms of it and the stable coin a stable
• 1:05:00
  coin is a carry trade effectively but it's so great because the it's like the only carry trade
• 1:05:08
  where on the leg where you're buying um your cost of capital and zero like tether has this zero cost
• 1:05:15
  a capital leg in their carry trade.
• 1:05:17
  And then they collect the float on everything else
• 1:05:21
  that they get in terms of securities on the back end.
• 1:05:24
  So the question becomes, we have this setup
• 1:05:29
  where there's kind of like this stablecoin carry trade happening.
• 1:05:32
  There's a long tail of stablecoins
• 1:05:34
  that are starting to enter the market.
• 1:05:37
  And the question is like, how does this grow over time?
• 1:05:40
  If the U.S. Treasury is pushing this dominance,
• 1:05:42
  how is it going to grow?
• 1:05:43
  Is it going to be a lot more fragmented?
• 1:05:45
  If you look at dollar mutual funds, those fragmented pretty significantly over time.
• 1:05:52
  So you could argue that we're going to start to see a lot more, but then it's like, how
• 1:05:54
  do these guys differentiate?
• 1:05:56
  I think one thing that's kind of thought about in the market is there's ancillary incentives
• 1:06:02
  where a lot of these stablecoins are basically trying to combine the idea of their own dollar
• 1:06:07
  payment in their company and a loyalty system.
• 1:06:11
  So there's like some angles like that, but I think the primary thing
• 1:06:16
  that they're going to differentiate off of is yield.
• 1:06:18
  They're going to say, okay, they're going to do what Circle's doing.
• 1:06:21
  Circle is just has to use Coinbase for distribution,
• 1:06:24
  but Circle passing along 60 of the flow that it gets on its reserves to ultimately get adoption by exchanges and get consumers to use it So we basically just kind of like recreating the banking system by having a distribution
• 1:06:38
  arm that cuts into that yield again to some degree.
• 1:06:43
  And I think at an international level, we're going to see a lot more direct rewards or
• 1:06:48
  direct yield that starts coming.
• 1:06:50
  And as we start to see that yield, then we're going to have some spectrum of stable coins
• 1:06:55
  where some are going to seem like we're just going to own
• 1:06:57
  maybe a Canary Bank. We're going to have
• 1:06:59
  only treasury securities or whatnot.
• 1:07:01
  We're going to pass that interest on
• 1:07:03
  directly. And then we're going to have
• 1:07:05
  a bunch of high-risk
• 1:07:07
  seeking type providers.
• 1:07:09
  They're going to be like, no, we're going to get very high return
• 1:07:11
  assets and we're going to double or triple
• 1:07:13
  the interest rate that you can get on something
• 1:07:15
  and see if we can sustain
• 1:07:17
  that through redemption. And that'll be like this
• 1:07:19
  potentially international
• 1:07:21
  free banking arm of stablecoins that emerges.
• 1:07:23
  So I think if we get fragmented, we're going to see incentives that are going to draw a system like that.
• 1:07:28
  The gut reaction to that is a lot of them are going to fail if they're trying to do that.
• 1:07:31
  But what I don't quite understand is stable coins, Bitcoin eyes.
• 1:07:35
  Like I understand.
• 1:07:36
  So obviously Tether have done Tether Gold and I understand why you need a stable coin version of that, like something backed by gold because it's like gold can't move on digital rails.
• 1:07:44
  But stable coins, Bitcoin eyes.
• 1:07:46
  Is that not just Bitcoin?
• 1:07:48
  I think not.
• 1:07:50
  So it's a spectrum, right?
• 1:07:51
  So the point I was making about how like a stable coin is blending treasury security issuance.
• 1:07:56
  So what about the stable coin that has 5% of its total reserves in Bitcoin?
• 1:08:01
  Which I think Tether used to have about that.
• 1:08:03
  Exactly.
• 1:08:03
  Yeah.
• 1:08:04
  And like these things will have in flow over time.
• 1:08:07
  But like if we think about our fractional reserve systems used to exist, like in free banking, like competitive markets where it was like, what was the amount of fractional reserve?
• 1:08:20
  reserve that you needed to ultimately meet dollar, or not dollar, the domestic currency's
• 1:08:26
  redemption. So in Scotland, that number came out between a range of 20% to 30% of the total amount
• 1:08:33
  of outstanding liabilities they had in receipts. So think about it from that perspective. What if
• 1:08:39
  there was a world where something like a tether had 20% to 30% dollar-denominated liquid assets,
• 1:08:44
  and the remaining 70% was Bitcoin? What could they do with that? Who's going to have an advantage
• 1:08:48
  like that. And maybe I think the irony of a system like that is fractional reserve can
• 1:08:53
  end up becoming something that's very good for Bitcoin. And-
• 1:08:57
  I've never liked the idea of like Bitcoin is hating on fractional reserve banking. Like,
• 1:09:01
  I understand that like the current fractional reserve banking system that we live under
• 1:09:05
  has so many flaws, but in a free banking system, if you're entering into an agreement where you
• 1:09:10
  understand that it's fractionally reserved and you like, I don't have any problem with that.
• 1:09:15
  I have no problem with free market incentives competing.
• 1:09:20
  I've always believed free banking.
• 1:09:22
  Free banking was something that was created by a natural free market.
• 1:09:26
  So if your opinion is different than that, then I don't know.
• 1:09:30
  You're an idiot.
• 1:09:30
  I don't really care.
• 1:09:32
  But I believe in free markets.
• 1:09:34
  I don't think that anybody is more intelligent from what those were ultimately born from.
• 1:09:38
  But yeah, the system that we have today is not that.
• 1:09:43
  It is not anything but.
• 1:09:44
  is it's the worst fiat system in the world.
• 1:09:46
  But like a world where we have free banking
• 1:09:48
  existing again or something within Bitcoin,
• 1:09:51
  if that's what the market demands,
• 1:09:52
  that's what the market demands.
• 1:09:53
  If the market demands fractional reserve
• 1:09:55
  and that this gets into the more like
• 1:09:57
  elasticity of money type arguments
• 1:09:59
  and this like vague theoretical economist crap.
• 1:10:02
  But like if you get into that stuff,
• 1:10:07
  there's I think the answer is literally like,
• 1:10:10
  what does the market create?
• 1:10:11
  I would argue that like though the market created in free banks, a fractional reserve system naturally, um, through a large percentage was of like some, some of the like inefficiencies in the system.
• 1:10:24
  Maybe it would have been higher if they weren't as efficient.
• 1:10:26
  Um and also if the system had a competing exit route um like a Bitcoin option then that would have changed the incentives of the system So like I think the way it would work in like a Bitcoin world could be very different but like yeah I agree
• 1:10:42
  If the market demands it, so be it.
• 1:10:44
  And as long as information is, you know, granted to people on how it's operating, then that's
• 1:10:49
  fine.
• 1:10:50
  So the stable coins, Bitcoin eyes part of this tweet could almost be replaced with return
• 1:10:55
  to free banking.
• 1:10:56
  Yeah.
• 1:10:57
  Yeah, I think that if people like,
• 1:11:00
  like, let's bring this back to the beginning.
• 1:11:03
  If the 50% bottom and how that changes
• 1:11:06
  the perception of the asset,
• 1:11:08
  and then that is something that can ultimately lead
• 1:11:10
  to a much greater scale,
• 1:11:11
  which creates more liquidity for the asset,
• 1:11:14
  and that makes it much more competitive
• 1:11:16
  with something like gold.
• 1:11:17
  Like, if we were to think about gold as a reserve asset
• 1:11:20
  in a lot of these,
• 1:11:22
  and like what Tether has been ultimately doing
• 1:11:24
  with their excess reserves,
• 1:11:25
  there's no reason that couldn't expand in their reserve system today.
• 1:11:33
  And I think that it is those little things that if stablecoins were left to their own devices
• 1:11:44
  and they didn't have to worry about regulatory arbitrage and compliance, etc.,
• 1:11:48
  that really what we're saying is treasuries need to compete with other forms of money.
• 1:11:55
  money in global dominance.
• 1:11:57
  And the reserves of something like this market is going to be the canary in the coal mine
• 1:12:02
  for where that's ultimately going.
• 1:12:03
  And if we know how money works, then we know that Bitcoin is going to be the most dominant
• 1:12:08
  reserve relative to treasuries within a market like that.
• 1:12:13
  And then we should expect it to see to gradually consume that market as it gets bigger and
• 1:12:17
  bigger and more liquid.
• 1:12:19
  That makes sense.
• 1:12:20
  So like essentially what that's saying is like that stable coins, Bitcoin eyes, free
• 1:12:24
  free banking comes back, the amount of Bitcoin held in reserves by these stable coins might start
• 1:12:29
  at 5%, but the free market trend you're expecting to go to eventually 100%, which is when you just
• 1:12:36
  hit Bitcoinization, fiat currencies cannot compete against that, and we all drive flying cars.
• 1:12:41
  Yeah, exactly. I just think if Bitcoin's valuable money, that this is a vector through which the
• 1:12:47
  adoption could ultimately happen significantly. And the funny part about it is this is a vector
• 1:12:52
  that the US government is probably going to be trying to expand significantly over the coming
• 1:12:55
  decade. And so I, it's just, I think it's like a perfect thing for us to be pushing for global
• 1:13:02
  adoption of Bitcoin through. Um, and, and yeah, and like, that's, that's huge. So like, if I were,
• 1:13:10
  if you were to ask me like, what, what is a better option for like spreading Bitcoin? Um,
• 1:13:17
  All the options we have to spread Bitcoin adoption today are things that are in independent regimes.
• 1:13:24
  And we don't have a lot of like, I guess, centralized forces that are pushing their adoption.
• 1:13:31
  And all of them are too premature to get Bitcoin to be used as money.
• 1:13:36
  This is like El Salvador mandating people have to accept Bitcoin as payment.
• 1:13:39
  Right.
• 1:13:40
  Because nobody wants to use it as payment today because it's terrible for that.
• 1:13:44
  like not it's terrible in terms of it's just going to move up and down in price and like
• 1:13:48
  they literally launched it um you know for certain merchants to use it and then it dropped like 70
• 1:13:54
  within like a year after that and like people hate it down there because of that like they're
• 1:13:59
  not expected to know this stuff and they don't they don't really give a shit and they don't have
• 1:14:02
  the luxury of losing capital like that either totally but this is like the free market mechanic
• 1:14:07
  that can move us to hyper-economization it allows it to gradually exist in a monetary form i like
• 1:14:12
  framework man yeah i i think that like it can gradually get to it allows it to be 10 of your
• 1:14:18
  exposure to 30 to whatever it becomes over time um and and the the incentives aligned to where if
• 1:14:24
  you believe the compound annual growth rate of bitcoin is going to be 30 40 50 whatever percent
• 1:14:31
  a year um then it going to be the number one way for you to add yield to the ultimate you know Stimcoin that you providing and competing in a market on So if yield starts to proliferate Bitcoin the best reserve asset to start adding that
• 1:14:46
  And I think we'll see more and more small degrees of it in the long tail of the market.
• 1:14:50
  And that could be the way Bitcoin really starts to expand over time.
• 1:14:54
  I love it, man.
• 1:14:55
  That's cool.
• 1:14:56
  I think that's my favorite framework I've heard for high Bitcoinization.
• 1:14:59
  uh that's because i'm your favorite guest fair um all right just to close out i want to know
• 1:15:07
  at the start of the year you did some predictions 2026 how many of them have hit what are you
• 1:15:12
  waiting on we have a lot of time left in this year is the first thing i want to say that sounds like
• 1:15:18
  hope so i don't even want to go through them yet do we have to do this yeah come on just tell me a
• 1:15:27
  few that have hit you don't have to we've got time the rest might hit still okay okay i i haven't i
• 1:15:32
  haven't given it a full scan let me let me pull that really quick um i mean you're never going
• 1:15:38
  to get them all right well i know that i i i guess gun to my head when we were writing these i was
• 1:15:44
  hoping for like 30 to 40 hit rate i think um the big one that we got so close on was the strike
• 1:15:51
  acquisition because that was a very precise call and see i think you can almost count that as a win
• 1:15:57
  because it was like it was going to happen and then it didn't.
• 1:15:59
  Oh, for sure.
• 1:16:00
  I mean, we were thinking about it.
• 1:16:03
  But that seemed to make a lot of sense to me.
• 1:16:06
  Okay, so Bitcoin's got to get to $150K this year.
• 1:16:08
  I've been definitely off on that.
• 1:16:10
  Year's not over.
• 1:16:11
  The year's not over.
• 1:16:13
  I think to what we're talking in our second prediction,
• 1:16:15
  Bitcoin begins its decoupling and equities in 2026,
• 1:16:17
  but it will only be evident in 2027 hindsight.
• 1:16:21
  I think we're starting that,
• 1:16:22
  but it's kind of like a bit of a cop-out prediction
• 1:16:24
  because we got to wait until 2027 to really like, no.
• 1:16:29
  This one we're probably just going to get cooked on
• 1:16:32
  because the AI trade screwed us.
• 1:16:34
  But Bitcoin rises 50% gold terms from a Bitcoin rotation trade.
• 1:16:38
  I think it's fallen 20% to 30% gold terms.
• 1:16:44
  AI was the thing that sucked most of that.
• 1:16:48
  Major asset manager adds a 2% allocation to their model portfolio.
• 1:16:52
  I need to double check, but I think we actually got that.
• 1:16:56
  But I'm not positive.
• 1:16:57
  I can't remember if that was a Morgan Stanley announcement or not.
• 1:17:03
  MetaPlanet achieves the highest MNAV.
• 1:17:05
  That's not happening.
• 1:17:06
  No, that didn't happen.
• 1:17:07
  Bitcoin receives conditional approval for a federal,
• 1:17:10
  a Bitcoin company receives conditional approval for a federal bank charter.
• 1:17:14
  Still time in the year.
• 1:17:16
  There's a lot of, I think, lines in the water, but may not get that.
• 1:17:22
  a stable coin uses bitcoin as a reserve asset to pay interest to its holders offshore
• 1:17:28
  that hasn't happened yet but that could happen this year um 21 capital acquires strike so close
• 1:17:36
  and there's a bunch of others from a regulatory front on clarity etc blah blah blah blah oh i
• 1:17:42
  think one way we definitely did get was uh oh bitcoin corn maintains dominance over alternative
• 1:17:48
  implementations. Definitely got that one.
• 1:17:51
  Happened.
• 1:17:55
  See, it sounds like a lot of those might not be wrong. They might just take a bit more time.
• 1:17:59
  That's right. Yeah. Our last one was Deepak Ventures begins raising its fun too.
• 1:18:02
  We're probably not going to do that this year. We'll probably do it at the beginning of next year.
• 1:18:06
  You've just got to launch it on like the 31st of December just to get that check mark.
• 1:18:10
  Right. Right. Yeah. We do have control over that one.
• 1:18:12
  Yeah. Yeah.
• 1:18:14
  um all right man i've got to get on a flight to hong kong but always love talking to you man
• 1:18:19
  thank you have a banger dude later speak to you soon