Latest / TFTC: A Bitcoin Podcast / #641: Why Bitcoin Collateral Beats Private Credit Markets with Phil Lojacono

Transcript

#641: Why Bitcoin Collateral Beats Private Credit Markets with Phil Lojacono · TFTC: A Bitcoin Podcast

0:00
You've had a dynamic where money has become freer than free.
0:10
You talk about a Fed just gone nuts.
0:13
All the central banks going nuts.
0:16
So it's all acting like safe haven.
0:18
I believe that in a world where central bankers are tripping over themselves to devalue their currency,
0:24
Bitcoin wins.
0:25
In the world of fiat currencies, Bitcoin is the victor.
0:28
I mean, that's part of the bull case for Bitcoin.
0:31
If you're not paying attention, you probably should be.
0:37
Bill, it's all over.
0:38
The price of Bitcoin has crashed to $117,943.
0:43
Yeah, amazing, right?
0:45
Again, it's all over.
0:48
I literally just read a tweet from like a ThreatFi guy who actually came up with that
0:53
because Bitcoin crashed by another four or whatever percent.
0:56
and and he claimed that bitcoin still doesn't keep his promises yeah it's ridiculous but
1:05
okay it's down from uh the high price of 123 000 but uh it's been a week it's been a fun week
1:12
and i think the timing of this interview is very timely number one it's it's swiss week
1:19
here on tftc unintentionally we we recorded with pascal wakley yesterday we've got you on today
1:26
and we're going to get the Swiss perspective on Bitcoin.
1:31
But your personal perspective, I think,
1:33
considering what's going on with the price action today
1:35
is particularly pertinent because of the big themes
1:41
that have been talked about in Bitcoin this year,
1:43
which is institutional adoption.
1:45
And more importantly, traditional finance,
1:47
really beginning to give Bitcoin a light mark of approval.
1:52
And you sit at the intersection of Bitcoin
1:54
in the traditional financial sector over in Europe.
1:59
And we were talking about it before we hit record,
2:01
but really interested to get the inside scoop
2:04
on how these traditional banks and financial institutions react
2:10
when the price of Bitcoin runs up like it did this week.
2:13
Yeah, I mean, it was quite interesting already last year.
2:17
I mean, when you had a lot of critiques in 2022 or even earlier,
2:24
But they said, well, there's no substance, no nothing.
2:26
But then all of a sudden, the biggest asset managers of this world came up with ETFs and everything was approved by the most powerful economy in the world.
2:37
So obviously, that changed quite a bit already last year.
2:41
I mean, it was very difficult for somebody to claim that Bitcoin is a Ponzi scheme and there's nothing behind.
2:49
and all these claims when the most powerful entities in the world are actively supporting it.
2:57
So I think the story changed already last year.
3:02
Also, the price developed nicely last year.
3:04
I mean, fair enough.
3:05
But then you clearly saw the success of all the ETFs.
3:09
And then you saw the success of MicroStrategy.
3:12
And now, in the more recent weeks, all these Bitcoin treasury companies.
3:17
So, I mean, the critiques, they are a bit in shambles, let's put it that way.
3:24
It's very hard to say something fundamentally wrong, which was the case before all the ETFs launched.
3:34
So, and now, obviously, if the price rips, that's the same probably in every industry.
3:42
That's not Bitcoin specific.
3:43
Everybody is suddenly it's in the media again. And then and then people say, I mean, now we also had the latest the latest point, which which was brought up quite a bit was that, OK, Bitcoin price only develops nicely in a low interest rate environment.
4:00
Now, that's clearly also wrong. So, I mean, we suddenly push through all the points that were wrongfully brought up.
4:08
And what you can see in the ThreatFi world is basically a bit of both.
4:13
You have, in the meanwhile, you have quite a few who are interested and are actually invested as well.
4:19
But then you still have this very strong Bitcoin derangement syndrome.
4:25
So you can, as I mentioned just before, I mean, now the price went up in USD terms to 122K and then it dropped slightly.
4:37
And then you see these people coming out of the woods again, claiming that it doesn't work, which is obviously stupid.
4:43
But yeah, I mean, there is a very good dynamic in the market.
4:47
There's a lot of interest from banks, from asset managers, wealth managers.
4:52
I would also expect that a lot of the wealth managers especially they have to answer quite some difficult questions by their clients because I mean I had just in two or three years ago I had so many conversations about that and then they claimed well Bitcoin is still not proven it doesn't work blah blah blah and now it's again the best performing asset by far.
5:19
So obviously, as a client, you start to ask questions.
5:24
And now these questions are asked within the industry, which is great.
5:27
So there's a good dynamic and I'm looking forward to what comes next.
5:32
Yeah, I guess it probably makes sense to take a step back and to educate the audience about what you're doing at Berglund and how you came to start this.
5:41
I was actually listening to a podcast.
5:46
I don't know if it was in German or Swiss.
5:50
I was translating it, but you were talking about how you decided to start this company, how you view becoming a founder.
6:00
And it's not really going to market with an idea.
6:02
It's really understanding your customer base and then building the solution that they're looking for, which is what you're doing right now.
6:09
Yes, absolutely.
6:09
Well, maybe I can give you a quick background.
6:12
So I founded my first company about 12 years ago.
6:16
It was a peer-to-peer lending platform in traditional lending,
6:20
so working capital lending for SMEs.
6:23
I led that company for six years, and we were active in Switzerland
6:26
and in Germany.
6:28
And we basically, well, we did a bunch of the mistakes
6:31
that a lot of startups do.
6:33
So we invested too much.
6:35
We had too high costs on a too, well, very limited base.
6:41
Let's put it that way.
6:42
We didn't really hit product market fit before we scaled the cost, which was a mistake.
6:48
And then I saw a lot of the financing issues, like the lending issues in the traditional world.
6:56
Nevertheless, I led the company for six years.
6:58
We sold it in 2020, shortly before the COVID lockdown.
7:03
And then I became CEO of another of a joint venture between a large bank and an insurance.
7:09
But always wanted to go back into entrepreneurship, first of all, but then also focus on Bitcoin full time.
7:17
I mean, the Bitcoin space are interested in it since about 10 years, I would say.
7:22
and basically wrote the whole ICO wave with a bunch of stupid crypto decisions
7:29
and then really started to dig into it from 2018 onwards.
7:34
And therefore, it was very clear to me that I want to focus full time on Bitcoin.
7:39
And then I thought, OK, so I'm involved in one or two or three other startups
7:44
and I see the same mistake everywhere, like the same mistake I did as well,
7:48
That we got too much money too early on.
7:53
We invested it in the wrong things.
7:54
We built a product that turned out that the market doesn't really need and doesn't want it as much as we believe they wanted.
8:05
And so I thought, OK, let's do that differently this time.
8:08
I just start by myself.
8:10
I will finance it myself.
8:12
No external capital.
8:13
And I will try to really find a way on what the market really needs.
8:18
So that's why I decided in the beginning of last year, I will just start with education and consulting.
8:25
And the other thing that was clear to me was that I want to build a B2B business.
8:30
But that was just a personal choice because I feel like I'm better in long-term relationship building rather than large-scale growth strategies.
8:41
So that was basically very simple how I started and then said, OK, I'm reaching out to my network and within European banks and asset managers and financial institutions.
8:54
And it helped definitely that I had a network from my previous startup, but I also wrote a Bitcoin newsletter since five years and therefore had a bit of a reach within the German speaking Europe.
9:10
and that clearly helped me to get into a few banks and pension funds, etc.
9:17
And then it ranged from simple workshops about what is Bitcoin, how does it work, what self-custody, da-da-da.
9:25
All these things, very basic, but then also to some strategic projects.
9:29
Especially one was with the bank where I said, well, look, there is clearly a big need within the Bitcoin industry,
9:37
which is that Bitcoiners do not want to sell, but they need liquidity in one way or the other.
9:44
So clearly there is demand for that.
9:46
And you guys at the bank, you have access to the cheapest capital.
9:50
So fiat capital, that is.
9:52
So and then therefore they should go into Bitcoin-backed lending.
9:56
And they say, well, I understand that or they understand it.
9:59
That makes a lot of sense, but it takes a while until we get there.
10:02
It takes like two to three years until we can actually push it through all our compliance and risk departments.
10:11
And in parallel, I had a workshop with a pension fund.
10:14
And there we really had to start on round zero, basically, because they are still nowhere.
10:21
Pension funds are, in my opinion, still way, way behind.
10:26
And there was a lot of skepticism, a lot of questions still.
10:30
And then at one point I said, OK, let's do it differently.
10:34
Let's leave the term Bitcoin aside.
10:37
I'll tell you, I'll give you the opportunity to invest in Swiss franc, euro, USD.
10:43
You get Swiss franc, euro, USD back.
10:47
It's credit.
10:48
You earn about 6% to 8% on the Swiss franc, about 8% to 10% on the euro, about 10% to 14% even on the USD.
10:56
The collateral is always available 24-7, tradable.
11:00
It's highly liquid.
11:02
And the credits are always over collateralized.
11:04
So how does that sound?
11:06
And then they were like, oh, that sounds more interesting.
11:08
That's more our home turf.
11:10
So that was then basically those two situations led to the fact that I said, okay, so then let's build that ourselves.
11:18
That was then when I found the co-founder.
11:22
So we are now two, still relatively small, but decided to focus on that asset management solutions.
11:30
with the overall goal to basically fuel the Bitcoin economy.
11:35
And the first product is just Bitcoin-backed lending,
11:38
where we want to allow institutional and qualified investors
11:43
to invest through the different platforms like Debitify, like Firefish,
11:48
but also through regulated custodians like BitGo, Signum,
11:52
and all the banks that we have,
11:54
because they have another challenge with capital requirements.
11:58
So we want to build that solution to allow institutional investors to invest in these products.
12:06
That's what we do.
12:08
Yeah, I think there's many sort of points to touch on there.
12:12
I mean, the first of which jumps out to me is somebody who's been following the space, leveraging these products, pun intended, and investing in companies offering Bitcoin collateralized lending solutions.
12:26
is that it seems like the most mispriced credit instrument in the world
12:30
in the sense that you described the collateral sits in a wallet
12:36
if the custody arrangement's done the right way.
12:39
It's not rehypothecated.
12:40
It's extremely liquid.
12:42
And the risk of a liquidity provider losing their principles
12:47
is extremely low when you consider those factors.
12:51
And you mentioned the interest rates that exist,
12:53
They're, at least here in the United States, way higher than traditional sort of lending products, even though I would consider the risk to be significantly lower.
13:05
And then on top of that, you have this sort of environment over the last, let's call it five to 10 years, where the rush to private credit and search for yield has been a big trend, particularly here in the United States.
13:18
And I imagine globally, and I think these Bitcoin collateralized lending solutions provide an incredible risk adjusted profile for investors looking to get exposure to credit markets, private credit markets specifically.
13:35
It's I mean, I couldn't agree more.
13:37
It's insane, to be honest.
13:38
I still can't get my head around the actual costs.
13:43
But the thing is, the market dynamics are right now, they are as such that there's not enough fiat capital.
13:50
So that's what defines the rates at the moment.
13:53
There's still not enough, not enough interest.
13:55
And that's also why we exist, because we want to change that.
13:59
It's a lot of work.
14:00
But I mean, I fully agree on just a risk reward perspective.
14:05
I couldn't find anything that comes even close.
14:09
It's really remarkable.
14:12
And especially if you look into the area that you just mentioned with all the private debt funds and alternative credit funds.
14:19
I mean, there is so much money lying around there.
14:23
And they are chasing returns of, let's say, 10% on the USD.
14:29
But I mean, they take considerable risk there.
14:33
And growth companies, pre-IPO companies or whatever.
14:38
But there's a lot of risk in there.
14:40
While with Bitcoin back lending, I mean, you have a collateral, highly liquid, tradable 24-7.
14:47
All the loans are over collateralized.
14:49
They are not rehypothecated.
14:51
It's really quite something.
14:54
But I mean, on the positive side, especially speaking as a Bitcoiner now, I mean, I personally think the product that we are focusing right now on
15:05
has an end date.
15:09
I mean, there is, especially now also in Switzerland, I mean, our leading rate,
15:17
interest rate is 0 right now from our national bank So the banks are looking into ways on how they can lend money And we are working with banks also with one that I hopefully can announce pretty soon which will provide liquidity for Bitcoin lending
15:38
And then we are talking about way lower rates.
15:41
Like then we are talking about 3% to 3.5% on the Swiss franc.
15:45
And that's going to happen.
15:47
So it just takes time.
15:49
It's unfortunately not as fast.
15:52
And then, yeah, speaking as a Bitcoiner, I would love it to be faster and to be more efficient so that the whole economy can grow faster.
16:01
I mean, there's a lot of value for a product like that.
16:04
Yeah, and based off our last conversation from last month, you made me aware of something that I was completely unaware of, which was the relationship that Swiss regulators have with interest rates and how high they're willing to go.
16:21
Yeah, it's quite interesting at the moment, especially when you look at it, the National Bank decreased the interest rates to 0%, as I mentioned.
16:35
And so for banks now, they have an issue because their main business is, how do you say that? It's like interest rates differences.
16:46
Yeah. So they need to find ways to allocate the capital. And so that will have a very positive effect. But then I don't know if that's also what you were talking about. Our regulator gives or limits the banks on Bitcoin backed lending and crypto lending, if you want to say so, with regards to that they still consider it as uncollateralized lending.
17:16
And so that comes with very strict capital requirements.
17:21
So that means that the bank, especially, let's say, younger banks with more like a crypto Bitcoin focus, they have a problem because their balance sheet is not as strong.
17:33
And so because they would need to underlie all these loans with tier one capital, tier one capital is essentially in simpler terms, it's just equity capital.
17:43
It's the most expensive capital for a bank.
17:47
And so that means they are quite limited still.
17:51
But the margins that they can generate right now especially are still attractive for that.
17:59
And I think those are two important factors.
18:03
We have the regulation, which will change.
18:06
And then we have the interest rate pressure, which is already there.
18:09
So you have banks that are looking into and say, OK, so we do have a couple of hundred millions that we can allocate to that, to Bitcoin-backed lending.
18:18
And then we would need to find a solution that is outside of our balance sheet.
18:23
And that's where we still come in.
18:25
And then at one point, the regulation will also change.
18:29
I'm 100% sure about that.
18:31
And then it's basically the banking model, the traditional banks who provide capital for Bitcoin back lending, which is OK.
18:42
And isn't there an upper limit to the interest rate banks in charge as well?
18:48
It depends.
18:49
So in Switzerland, it's like to private individuals, there are like consumer credit limits that's at 9.9%.
18:56
So they are not allowed to go higher.
18:59
But for SMEs and companies, that limit is not in place.
19:05
Yeah, I'm just trying to get a well-rounded perspective on just the path to lowering the cost of capital for these Bitcoin-backed lending products.
19:18
I think you said it perfectly, which is just the lack of liquidity that exists for these products specifically right now.
19:26
that there's relatively little euros, francs, dollars competing for these loans
19:34
that are able to charge a higher rate.
19:35
And bringing this back to the juxtaposition of Bitcoin collateralized lending
19:40
versus the private debt markets that have exploded in recent years
19:44
that are taking what I would deem to be an insane risk,
19:48
is when is that tipping point of banks and credit funds recognizing the relatively low risk provided by these collateralized Bitcoin products that floods the capital into the space?
20:04
I mean, there are very likely there are multiple pieces of puzzle that fall into place, I would say, at the very moment.
20:11
I mean, you see the Bitcoin treasury companies outperforming pretty much every other stock.
20:17
and obviously private debt funds are also looking at the stock markets.
20:24
So and then they see, well, there is clearly value in that weird coin.
20:31
And so then they will realize, okay, so there is something that is way more transparent
20:37
that is the same price all over the world and this is highly liquid.
20:42
So that makes a lot of sense.
20:43
And at the moment, and I would give it like 12 months, maybe max, they can still generate excessive returns, I would say, as compared to anything else that they would invest.
20:55
Yeah.
20:56
And how do you see the evolution of Bitcoin collateralized lending?
21:01
Because obviously, to date, it's been pretty vanilla.
21:06
You put Bitcoin up in a wallet, typically over collateralized.
21:10
LTV is around 50%, depending on.
21:13
The individual lender that you're interacting with and you get cash back.
21:21
But there's been the emergence of, as you mentioned, micro strategy like convertible bonds.
21:28
There are different type of Bitcoin collateralized debt instrument to an extent.
21:32
And we've seen over here in the United States, the emergence of companies like Battery Finance are doing dual collateralized sort of grade A credit in commercial real estate.
21:45
Do you think Bitcoin, the meme of Bitcoin is super collateral, sort of getting injected into every nook and cranny of debt markets has legs?
21:56
This is something that I've been talking about on this show for probably the better part of a year and a half now is I think this is the cycle of Bitcoin is super collateral, really shining and beginning to expand beyond the vanilla, put up Bitcoin as collateral, get dollars back and get more.
22:16
I don't want to say exotic, but get into more more complex structure credit products.
22:23
Yeah, 100%.
22:24
I mean, that's clearly happening.
22:26
And as usual, the U.S. is probably about two or three years ahead of Europe.
22:32
But I mean, that's basically the reason why we then said, OK, we start with just plain vanilla Bitcoin-backed lending.
22:40
Because it's the easiest to explain.
22:42
And how we believe we can crack the knot of getting fiat capital into the Bitcoin economy in the easiest way.
22:50
But that's just the first step.
22:51
I mean, then clearly, I mean, injecting it into real estate like battery does is great.
22:59
I mean, that has a lot of potential.
23:02
We talked to a few real estate developers over here as well.
23:05
And I mean, they are struggling with that as well.
23:08
I mean, on mortgages, the rates that you pay for debt, etc. are phenomenal.
23:13
But then the bigger problem is for commercial real estate or bigger real estate projects when they have to calculate over the next 20, 30, 40 years.
23:23
And then it's more on the on the CapEx side of things when suddenly all renovations cost 20, 30, 40 percent more because fiat just devalues all the time.
23:35
And that's that's very hard to to calculate in advance.
23:39
So what they say is that, okay, so let's run the amortization part.
23:44
We put a bit in Bitcoin and we basically benefit from the acceleration of the price.
23:52
And hence, we can make sure that our properties, they keep the value over time.
23:58
And so that's also an easy to understand product.
24:02
But then also, I would say, especially here in Switzerland, we have this, I don't know if it's a speciality, but it's quite interesting.
24:10
So if you buy an apartment in a bigger building, then you own, it's called Stockwerk Eigentum.
24:16
You basically own part of a floor, right?
24:19
You own the apartment.
24:20
But what you do is you pay in constantly every year, you pay in a so-called amortization fund.
24:26
And what you can see there, which is also in the ThreatFi world, quite spectacular, I must say, it just lies around.
24:35
It's just on an account. It doesn't work.
24:38
And so suddenly you have, in the meanwhile, we have multiple hundred billions of dollars sitting in these funds.
24:47
And they do nothing. They don't work.
24:49
And it's so easy to actually get them to plan.
24:55
For instance, I talked to a couple of friends of mine recently, and they bought a vacation home up in the mountains, and that is in one of these buildings.
25:06
And then there were just about 250,000 Swiss francs lying around.
25:12
And they already know that in 2030, there will be a bigger renovation project.
25:18
And it will cost roughly at current prices about 400,000.
25:23
realistically it will be 450 or something and they just calculate it as such that they just
25:30
need to save until there and so bitcoin would be the ideal uh the ideal asset to save that part
25:39
that that capital um to to actually get this renovations done um and so so i fully agree with
25:47
I mean, this is just one example that's where Bitcoin will come into place and make sure that we can actually revolutionize the financial financial industry, the traditional financial industry.
25:59
Well, on that note, it's a perfect toss up to what I wanted to talk about next is, I mean, you're partnered with Debitify, Firefish, BitGo, all three of which, correct me if I'm wrong, do leverage some sort of multi-sig escrow for the Bitcoin when it's used as collateral.
26:18
And so I think that's been a big topic of discussion here in the United States is the centralization of custodian risk with a lot of the ETFs flooding their Bitcoin to Coinbase.
26:29
And I've long been an advocate of if the banking system and traditional finance is going to step into Bitcoin in earnest, that we really need to take a step back and think about the optimal sort of custody and how to custody the collateral when it's being used in the system.
26:48
And I think multi-institution, multi-sig makes the most sense to me because you really create an incentive structure that really disincentivizes against rehypothecation and concentrated third-party risk.
27:05
Yeah, definitely.
27:06
Definitely. I mean, I started with Berglin and basically had the ideologue Bitcoin image in mind and thought, OK, so it's going to be multi-sig above all.
27:21
And this is where we focus on and we still do.
27:24
I think it is a good way, but it also comes with limitations.
27:29
And so now looking at the exact processes of all the platform, I mean, sometimes it's hard to argue why a regulated custodian isn't safer, so to say.
27:46
Because then you have, I mean, when you look at processes of regulated banks, we have two in Switzerland who are fully focused on Bitcoin or unfortunately crypto as a whole.
27:58
And I mean, when you look at their risk policies, at their risk processes, then sometimes it's hard to argue why this should be less secure than the multi-sec setups of some startups, so to say.
28:14
And so there is still a way to go, I would say. And then I also think the right way to tackle it is multi-institution, but professional institutions, not some random one single or one key holder or so somewhere.
28:34
But yes, I mean, this is also going to be built up, I would say.
28:38
And I don't know how it is in the US.
28:40
I mean, you clearly have a few players who are already working on that.
28:45
I think in Europe, this is something that we have to tackle over the next two years or so.
28:51
Yeah, I think the dream scenario here in the United States is Fidelity, who's been in Bitcoin for over a decade now at this point in a century-old.
29:04
institution here in the United States really stepping out on the ledge. And I think an entity
29:10
like Fidelity needs to be the one to push multi-institution, multi-sig to get that seal of
29:17
approval from not only regulators, but traditional financial players who really respect the prestige
29:24
and the century-long track record of Fidelity. I think somebody like them stepping out and saying,
29:30
all right, we're going to be a key agent in a quorum of a multi-institution, multi-sig
29:35
would be a massive step forward.
29:37
Yeah, that would be amazing.
29:39
I mean, something like that would really change the way people look at custody is also on
29:46
the institutional level.
29:47
Because I mean, so far when we talk to more institutional type of clients, I mean, either
29:55
either corporate corporations who are looking for a for a loan then the multi-sig setup doesn't work
30:02
it's always it's always a regulated custodian and and if so if a player like fidelity or i mean the
30:11
equivalent in europe it doesn't really matter um could come up with something i mean even even
30:17
better would be some sort of like a global uh global consortium of uh multiple institutions
30:23
That would be great because then we can really scale it to the institutional level as well.
30:31
So shifting gears towards Europe's specific perspective on Bitcoin.
30:37
I mean, you've mentioned it a couple of times.
30:39
Seems like European regulators are two to three years behind what's happening here in the United States.
30:46
Obviously you have the micro regulations that have gone live this year in Europe and there are many people that are worried about the state of the broader Eurozone economy
30:58
What are your thoughts about Europe as it pertains to Bitcoin regulation?
31:06
And can the success of Bitcoin be a catalyst to force more free market operations within Europe?
31:14
Yeah, I mean, Europe as a whole is a difficult topic at the moment, I would say, not only
31:21
financial regulation-wise, but also general macroeconomic-wise. It's quite challenging.
31:28
I mean, the European Union, their primary strength is regulation, which is a bad thing in the first
31:38
place. I mean, luckily, I'm based in Switzerland, so we are not in the European Union, and it's also
31:43
one of the main reasons why we are doing much better than every country surrounding us.
31:51
So this is also my personal primary motive these days. I just try to do everything I can to
31:57
so that we are not getting too close to this regulatory monster that surrounds us.
32:04
Right now it is, I mean, but also in Switzerland, I mean, you've seen an interesting development.
32:09
We pushed forward quite good in 2017, 2018 under a different financial minister, but then kind of slapped in, so to say, and then a lot of countries bypassed us.
32:30
And hopefully we can change that again.
32:32
I mean, now our regulator is a bit scared given the downfall of Credit Suisse two years ago.
32:40
So they really try to avoid any risk.
32:43
But this will hopefully change.
32:44
I mean, we're pushing on all fronts that they are a bit less risk averse, especially on the Bitcoin scene.
32:53
There's clearly a lot of interest right now from the industry.
32:56
So I'm positive that we can change at least the Swiss regulator's perspective over the next few months.
33:07
On Europe as a whole, I mean, it's really difficult for me to understand how these processes work.
33:15
I mean, it's heavily centralized.
33:16
Europe gets more and more centralized and the problems that they are dealing with these days are much broader than just financial problems, right?
33:28
It's especially energy is a big issue in Europe.
33:31
I mean, the whole industry or Germany, one of the powerhouses of Europe in the past, is just strangled by insane energy prices and ludicrous policies around that.
33:49
So, I mean, this is, in my opinion, probably even more important than the regulation around Bitcoin for them.
33:55
And I really hope they can change the direction there.
33:58
Other than that, I mean, can Bitcoin be a catalyst for sovereignty?
34:07
For sure.
34:09
Will it be a catalyst for growing economy?
34:12
I hope so.
34:13
But I mean, you cannot get like institutions or corporations if they are not allowed to
34:17
do that.
34:17
You won't get them to do that.
34:19
Right.
34:19
It's different on the individual level.
34:21
But for corporates, it's tricky.
34:23
So, but so far, unfortunately, it still looks like in Europe, the pain is not big enough so that the politicians really change.
34:35
So we will see, I hope.
34:37
But I'm quite skeptical on the European Union and the way they handle pretty much everything.
34:44
What is going to be the catalyst?
34:46
Do you imagine it like Bitcoin has another very successful cycle throughout the rest of this year, potentially into next year?
34:56
And you see a lot of the activity happening here in the United States, Southeast Asia, other parts of the world where people are really embracing it and leveraging the sort of monetization and adoption of Bitcoin to their benefit.
35:09
and sort of people sitting in corporations in Europe looking out at the world,
35:15
basically embracing this technology and succeeding massively because of that
35:20
and pushing back against the regulator saying,
35:23
look what's happening around us, we're completely missing out on this.
35:26
Is that what it's going to take?
35:27
Yeah, most probably.
35:29
But usually it has to start with quite a bit policy change
35:34
and then the politicians will force the regulator to act.
35:40
And I mean, there we can see some effects.
35:44
So one example is in Norway, they started with an insane wealth tax,
35:50
just another socialist experiment that failed massively.
35:55
So they installed this wealth tax.
35:58
And as a result, a lot of the Norwegian billionaires,
36:02
they move to Switzerland, which is great for us when it's terrible for the country.
36:07
And also, obviously, the net result is that they lost tax revenues at a significant scale.
36:14
And you see that in many different places now as well.
36:17
And in Germany, they also tried to increase taxes again or increase debt, which will cause
36:25
inflation that they already saw.
36:28
I mean, the euro had so heavy inflation over the last few years already.
36:34
So and I think there needs to be like people see start to realize that more and more.
36:40
They realize, hey, we are like we're being cheated on here.
36:45
So that doesn't work.
36:46
Like suddenly suddenly we have 10 percent and higher inflation and things are not getting any better while our country has record tax revenues.
36:56
but the infrastructure is bad.
36:59
So a lot of these things come together
37:01
and then they see in parallel,
37:03
Bitcoin appreciates a lot.
37:05
And then you see the Arab countries
37:10
and a lot of Asian countries
37:11
and the US, especially under the new administration,
37:15
really pushes forward on the Bitcoin side.
37:18
And clearly they see these successful examples.
37:22
And I think this will help.
37:24
And then hopefully that's going to be the catalyst.
37:27
In the end, I personally believe it's always going to be price action in one way or the other.
37:33
I need to spice your conversations.
37:38
Do you think discussions about whether or not the European Union, the economic agreement between some European states is a failure after 30 years?
37:50
I think the European Union is a massive failure.
37:54
It's on pretty much all fronts.
37:57
I mean, it's a centralizing experiment and it just doesn't work.
38:05
I mean, it consolidates power on unelected bureaucrats, which is pretty much the worst thing you can do.
38:13
Nevertheless, they still tried.
38:15
So and it clearly doesn't work.
38:17
Clearly.
38:18
I mean, like all the countries are struggling economically.
38:25
It doesn't like all the policies around immigration don't work.
38:31
They do not collaborate properly.
38:34
So, yeah, I think it's a matter of time.
38:37
Either, and that's going to be the big discussion or the big surprise, unfortunately,
38:44
It's either going to be that they will clearly push for like a United States of Europe, which could be an outcome because they're especially in the southern part of Europe.
38:58
There are still a lot of countries who are somewhat benefiting from it, at least on the outside.
39:04
They don't really, but they feel like they benefit from it.
39:09
Or the European Union will fall apart.
39:11
It's either or in the next three years, three to five years, I would say.
39:18
That's crazy.
39:19
I'm having flashbacks to reading Boomerang by Michael Lewis, where he sort of describes that dynamic between Northern Europe and Southern Europe, where you had Greece and Italy essentially being completely subsidized by the German economy in the early 2010s.
39:37
Yeah, absolutely.
39:39
But now you can see it in a different way almost.
39:44
I mean, Italy now, okay, it's not perfect, but it's one of the more stable countries.
39:50
And also economically, they're not doing that bad.
39:53
I mean, now suddenly, and that's always what happens in these centralized structures.
39:59
It's like there is an orientation downwards.
40:03
So Germany will go lower instead of everybody else goes up.
40:09
That's just how it is.
40:10
That's why socialism never works, right?
40:13
And it's just because of the distance from the government structure to the actual people is too big.
40:19
It doesn't make any sense.
40:21
And there's a lot of corruption in this whole process.
40:24
And yeah, so we will see.
40:27
But it's going to be interesting.
40:30
But I mean, people realize it more and more.
40:32
And you see it in elections all over the place.
40:35
There's still some forces trying to push against it, but I don't think it will be successful.
40:43
Yeah, the information, I say this a lot in the context of how politics here in the United States, particularly in D.C., at the federal government level, is completely disconnected.
40:57
And it's basically what you described from an information system perspective.
41:01
They're so far away from the raw input data.
41:05
It's like impossible for them to make rational decisions on behalf of people thousands of miles away.
41:10
Absolutely.
41:10
Absolutely.
41:11
They don't feel it.
41:12
And it's not, it's always, sometimes when I talk about these topics, it's like you start claiming like, yeah, they cannot do it.
41:21
But it's human.
41:22
It's human nature.
41:23
I mean, this is just how it is.
41:25
If it's not your money, then you spend it differently.
41:28
If you don't feel the consequences of your actions, then you act.
41:32
That's how it is.
41:34
That's natural.
41:35
That's, by the way, one of the key advantages of our political system in Switzerland, how I look at it at least.
41:42
Because we have this direct democracy and it's very fragmented.
41:47
It's a very small country, but fragmented in 26 cantons.
41:51
And everybody has a vote and can vote against pretty much every decision anybody takes.
41:57
So that's correct me if I'm wrong.
42:01
They compete on sort of tax preference to it.
42:03
Right.
42:03
Trying to.
42:04
Yes.
42:04
Well, tax preferences, education.
42:07
I mean, the overall system is quite similar to the to the U.S.
42:11
system.
42:12
It's a republic in the end.
42:14
But we changed our our constitution in 1848 based on the American Constitution.
42:21
One thing that we added is that our constitution is not like such a sacred document.
42:31
It's quite dynamic, actually.
42:34
So everybody can pretty much change it.
42:36
So you just need, compared to our size, obviously, that's like when you need 100,000 signatures,
42:43
and then it comes to a public vote.
42:45
So we can have referendums against pretty much every decision any politician takes.
42:51
And that's on the federal level, on the cantonal, which is your state level and on the municipality level as well.
42:58
And so that's why we have like 300 referendums every year.
43:02
But it keeps politicians in check.
43:05
And also, given the tax competition that we have, you can see the impact much, much faster, much closer.
43:13
And if you had a magic wand to fix the European Union problems, I know you're separated in Switzerland, but what would you do?
43:25
What is the optimal path to untangling the centralized control that the European Union has over member states?
43:36
Break it down to a free trade agreement and then split it apart.
43:41
just say
43:43
okay so there's going to be
43:45
free trade so economical freedom
43:47
so to say which is good
43:49
I mean people trade that's good
43:51
that helps but then
43:53
pretty much
43:55
pretty much get rid of the European
43:57
Union and build a Europe of
43:59
a thousand Liechtensteins or
44:01
a thousand Switzerland
44:03
so just go back to country
44:05
level
44:06
and compete
44:09
I mean, that's the thing, right? It's this weird image that some politicians have is that it's better when you centralize and everything bigger is better. That's not true. It's just way better if we build on a smaller scale and we compete against each other. We compete with ideas, with structures, with governance. And that really helps. And I mean, you can see it. It's just for me, that's also sometimes quite frustrating.
44:38
I mean, our relationship to the European Union comes back every five years, pretty much, and some sort of an election.
44:47
And we will have a very important election soon, which basically, because some people want to be much closer to the European Union and basically automatically take over regulation from Europe just to get access to the European market, which we already have, by the way.
45:04
But apparently that should be easier.
45:06
And now a lot of people are fighting against it.
45:10
And to me, this is just, I can't get my head around how people can just look at the simple facts, like on every economical KPI, we're doing better than the European Union.
45:25
And you can clearly see it.
45:27
I mean, 20 years ago, the European Union had the same GDP per capita as the U.S.
45:34
Now the US is, what, 40% higher or something.
45:38
And so on every KPI, it failed.
45:42
Nevertheless, there are still people who think it's a good idea to go for it.
45:47
Yeah.
45:49
It's mind-boggling to me watching from afar, particularly the energy,
45:53
like how Germany completely shot itself in the foot over the last 20 years
45:59
with this energy policy.
46:01
No, it's unbelievable.
46:03
It's really unbelievable.
46:04
And I mean, now they're being deindustrialized in real time.
46:12
And they had a super strong economy right Super strong industry And now all the companies are struggling And obviously that trickles down
46:22
If Volkswagen struggles, then thousands of smaller companies struggle as well.
46:30
And yeah, it's just the primary reason is energy prices.
46:35
And there seemed to be some sort of reluctance on the political elite, so to say,
46:40
to change their mind
46:42
because it was clearly a mistake.
46:45
It was such a big mistake.
46:46
I mean, you can now...
46:48
I mean, they got rid of their nuclear reactors, right?
46:52
Or they stopped it
46:53
because of Fukushima in Japan.
46:58
And now even Japan started building
47:01
new nuclear reactors again.
47:03
And Germany doesn't.
47:06
Yeah, it's a nightmare.
47:08
You had the instance in, I forget if it was 2022 or 2023, when after they decommissioned a couple of their nuclear power plants, they were forced to ship coal up the Rhine.
47:18
And then the Rhine ran dry and they couldn't get the coal to the power facilities.
47:22
So they had like power outages.
47:24
No, it's really, it's the stupidity of it all is mind boggling.
47:29
I mean, with that, I think transitioning this back to Bitcoin, I think you gave a keynote presentation in Prague last month.
47:39
It was titled Bitcoin, a political force reshaping global governance.
47:43
And I am a strong believer that Bitcoin can be a vehicle, a mechanism, a rallying cry that people rally around and basically leverage to effectuate the political change they want to see in the world.
48:03
And so I think you believe this, too, based off your keynote.
48:07
And I think just diving into some of the topics you covered there would be great.
48:11
Yeah, I mean, yeah, definitely.
48:13
I see it in a multi-dimensional.
48:16
I mean, the first part is clearly the buying power and the monetary things.
48:24
Obviously, that will have effect on politics in one way or the other.
48:29
Pretty soon, you saw it already in the US, clearly the last election was also influenced
48:37
by probably pretty strong donations coming from people
48:42
who made good money with Bitcoin, I would say.
48:46
And clearly that has some sort of an impact, probably.
48:49
But then it goes much further, right?
48:51
I mean, this is where I hope that with education,
48:55
we can also do our part.
48:58
I mean, the effects on weak currencies are just so bad
49:04
and everybody in Bitcoin knows it.
49:07
A lot of the people are not in Bitcoin, unfortunately, so they don't know it.
49:11
And I hope that was also part of my of my keynote.
49:15
It's I mean, Switzerland was the last country who got rid of the gold standard.
49:20
It was only by the end of the 90s.
49:22
So it was relatively recently.
49:25
And for some weird reason, I mean, it's not not the gold standard fixed in a way that every Swiss franc was backed by by gold.
49:34
That that wasn't the case.
49:35
but the national bank was required to have a certain percentage in gold when they printed money.
49:43
So that hindered them as well.
49:44
It was also diluted over 70 years, but not as bad.
49:49
And so that was the primary reason why the Swiss franc remains so strong.
49:55
And for some reason, international investors still believe that because every time when the dollar drops,
50:04
Swiss franc goes up.
50:06
And I really hope that given everything we see and given the success of Bitcoin, we can educate people as well that sound money makes a lot of sense for society.
50:22
And that people see that, that there is a reason why we have, in Switzerland, we have a much more dynamic industry as compared to every other country surrounding us.
50:32
And that's the primary reason was that these companies, they had to remain dynamic, innovative, lean.
50:40
They had to push things forward while in the country surrounding us, they had access to very cheap capital and they got lazy and therefore things didn't work.
50:52
And that's just one effect of weak currency.
50:57
So I hope that with the success of Bitcoin, we can educate society as a whole more about the hard money in general.
51:07
But then that's also what I realized.
51:10
It's that because about five years ago, I wrote a blog about what Bitcoin in Switzerland has in common.
51:20
And it's essentially what I just tried to explain before.
51:24
So Switzerland is very, very decentralized.
51:28
The people are on top and politicians are servants to the people.
51:33
And that works like that, that there's nobody who can decide about pretty much anything.
51:40
It's always the people who decide in one way or the other.
51:45
And that's quite comparable to the Bitcoin system.
51:49
That's basically the notes.
51:51
Notes are the masters, right?
51:53
So obviously, miners are very important, but in the end, they're servants.
52:01
And also, there's not some superpower who can just decide and change monetary policy, which is great.
52:09
So there are a lot of common factors.
52:13
And I also believe that's the reason, because we have direct democracy here.
52:18
So we can vote.
52:20
Every single individual has a vote about pretty much everything.
52:24
And that helps.
52:25
It pushes, like it makes us slow, but it makes us very stable.
52:30
And that rings a bell when you look at how Bitcoin works.
52:34
So slower is better than faster.
52:37
Politicians with less power is better than more power.
52:42
And yeah, and sometimes doing less is more.
52:45
And that's also how I look at it in the Bitcoin world.
52:52
Yeah.
52:54
And something I don't think is talked about enough,
52:58
like honing in on Switzerland too,
52:59
I'm sure you see me typing back here,
53:01
I was just doing some quick research and chat GPT,
53:05
but the Swiss National Bank has a considerable position in microstrategy,
53:10
which is a signal to me that they sort of know what they're doing to a certain extent,
53:18
that they're trying to get proxy exposure to this rapidly appreciating asset.
53:23
Yeah, this is an interesting debate.
53:25
I mean, we have two or three people who go to the General Assembly of the National Bank every year
53:31
and then basically have a short speech and they calculate how much money the Space National Bank lost
53:38
because they didn't invest in Bitcoin since a while.
53:41
And it's constantly the same thing.
53:43
And then I think their claim was a couple of years ago
53:45
was that instead of buying all these worthless government bonds
53:51
from countries surrounding us, you should buy like 5% in Bitcoin.
53:56
And then they go back every year and calculate and explain to them
54:00
how much money they lost so far.
54:03
So there is a bit of pressure around that,
54:05
that they should focus on it more.
54:09
So far, the National Bank always said,
54:12
well, they feel like it's not big enough yet,
54:16
but they are monitoring it.
54:18
When it comes to micro strategy,
54:20
I mean, this is also an interesting debate
54:22
because I also thought so in the beginning.
54:24
And then I saw an interesting presentation
54:27
by one of the, I think it was even the president
54:29
of the National Bank.
54:30
And they said, well, just in general,
54:33
they just need to push down the Swiss franc.
54:37
Otherwise, it appreciates too much against all other fiat currencies.
54:41
And therefore, they print Swiss franc and then they buy all sorts of assets in different other currencies.
54:50
And so speaking about micro strategy, they say they basically just buy whatever USD denominated asset they can get their hands on.
55:01
And it's less about the actual asset.
55:03
It's just that they want USD exposure.
55:06
So I was quite happy when I saw that the first time.
55:10
And then I was a bit like, man, OK, that's not as exciting as I thought it is.
55:17
I thought the Swiss National Bank was speculative attacking itself.
55:21
Probably.
55:22
I mean, the good thing, there are two points to that, right?
55:28
It's like the balance sheet of the Swiss National Bank is massive.
55:31
They printed a lot of Swiss francs recently over the last five years as well.
55:36
The good thing about Switzerland is it doesn't finance the state.
55:40
It just suddenly became basically a massive hedge fund.
55:45
And it's then almost some sort of a sovereign wealth fund just sitting with the national bank.
55:51
So the money doesn't trickle down in the economy and dilutes everything and creates all sorts of wrong incentives.
55:58
but it's also it's generally wrong that we that that the national bank has a big balance sheet in
56:05
the first place so yeah that'll be i've had discussions about this um with a couple of
56:14
friends in the past the fact that they own microstrategy and based off of our discussion
56:19
over the last hour like there's a lot of talk here in the united states of
56:23
putting Bitcoin in the treasury.
56:28
I think we're pretty,
56:30
at least this administration is ardent about,
56:33
we don't want it to sit at the Fed.
56:34
We'd rather sit at the treasury.
56:36
But if you think about
56:38
sort of this idea of free banking
56:42
and a lot of the ideas in the Bitcoin standard,
56:44
particularly towards the end,
56:45
we're safe.
56:46
It's like Bitcoin's greatest success
56:48
would be forcing central banks
56:50
to have sort of better monetary policy or stricter monetary policy to remove the opportunity
56:59
costs and the misallocation of capital.
57:02
And I don't know the answer to this, but I go back and forth.
57:05
Like, is it worthwhile or should we be pushing, it's probably the better framing, central
57:10
banks to hold Bitcoin as an asset on their balance sheet?
57:13
And if so, who's going to move first?
57:16
And based off of this conversation, I think Switzerland has proven to be sort of forward thinking when it comes to Bitcoin, even though it's had some some lulls since 2017.
57:30
But could you see the Swiss National Bank if these if this contingency of Bitcoiners going year in and year out and highlighting the losses for not allocating Bitcoin, actually making the decision to get some Bitcoin?
57:44
Yeah, I could see. I hope so, to be honest. I mean, this is another interesting topic because there's currently an initiative ongoing on people who want to force the National Bank to put Bitcoin on the balance sheet.
57:58
They have another year to collect these 100,000 signatures, and then it's going to be a vote in three to four years from now.
58:05
So it's a longer project.
58:08
And especially within the local Bitcoin community, that is heavily debated.
58:13
There are a lot of people who say, well, Bitcoin cannot be enforced on anyone or any institution, and they don't want the national bank to hold Bitcoin.
58:27
I see that argument.
58:32
In my opinion, in the end, it's also a bit of geopolitical competition.
58:38
So do I generally want to see the national banks to own Bitcoin?
58:45
I think there's no way around it.
58:47
So at one point, this will happen.
58:49
And then I would much rather see us gaining that buying power, that economical power over the next few years other than any other country in general.
59:05
Obviously, there are more friendly countries than others, but I think there's no way around it.
59:10
So I do think over the next, give it four years, there's a good chance that at least a small portion will be allocated in Bitcoin.
59:27
I don't hear you anymore.
59:30
Sorry, I was on mute there to mute out the background noise.
59:34
But what I was saying is, do you think we're reaching a critical tipping point in terms of adoption and event horizon, if you will, about Bitcoin?
59:45
Yeah, yeah, for sure.
59:47
I mean, now you can clearly see it with all these treasury companies coming out of the woods.
59:54
I mean, obviously, that's kind of the adoption curve comes from cypherpunks, software developers, and then individuals in general.
1:00:07
And then it goes up the curve and then it goes to more to companies, to institutions.
1:00:12
And then at one point, it will be countries.
1:00:16
And right now, we can clearly see the critical point in the private markets or with companies.
1:00:26
And there are so many companies now putting Bitcoin on their own treasury.
1:00:31
There are now a lot of strategies to accumulate as many Bitcoin as somewhat possible.
1:00:37
And clearly, that's a path towards more countries.
1:00:43
And let's see who's first from the actual, let's say, G20 or something countries.
1:00:51
But yeah, definitely.
1:00:52
I would bet a lot of money that that's going to happen over the next two years.
1:00:57
And let's see.
1:00:59
It's a brave new world.
1:01:01
And I appreciate you taking some time.
1:01:03
Hopefully, this is the first of many conversations because I think your perspective is incredibly valuable from Switzerland.
1:01:09
And as you can tell in the background, my father-in-law has decided to start mowing the lawn.
1:01:15
So we may have to wrap up here.
1:01:21
But where can anybody who's interested about what you're doing at Berglinda contact you and helping your efforts to get better Bitcoin collateralized products to market?
1:01:33
Yeah, you find me on X and on Noster.
1:01:36
always, always open for interesting conversations.
1:01:40
Always you also find
1:01:42
email address online. So feel free to reach out and let's discuss on what we can build together
1:01:47
for the Bitcoin economy. Very much looking forward to it. All right. We'll link to all that in the
1:01:53
show notes. Phil, sorry for the noise here at the end, but we'll do this another time. Peace and
1:01:59
love, freaks. Thank you very much. Bye-bye. Thank you.