{ "episodeId": "SLP181", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "preston_pysh": { "name": "Preston Pysh", "role": "guest", "tag": "PRESTON" }, "guest_2": { "name": "Guest 2", "role": "guest", "tag": "GUEST" } }, "segments": [ { "speaker": "stephan", "time": "00:09", "start": 8.51, "text": "Hi, you're listening to the Stephan Livera podcast, a show about Bitcoin and Austrian economics. Today for episode one hundred and eighty-one, my guest is Preston Pysh, co-founder of the Investors Podcast Network. But first, a special message." }, { "speaker": "preston_pysh", "time": "00:25", "start": 24.54, "text": "This is legendary, world renowned economist, Lord John Maynard Keynes. I have time traveled here to seek redemption." }, { "speaker": "preston_pysh", "time": "01:33", "start": 93.31, "text": "And his wonderful guests, huzzah!" }, { "speaker": "stephan", "time": "01:36", "start": 96.07, "text": "Thanks, Lord John. If you're in the US, you can stack along with John, just visit swanbitcoin dot com slash livera to get started, and as a bonus, Swan will drop ten dollars of Bitcoin into your account. This episode also brought to you by Unchained Capital, a Bitcoin financial services company. Have you set up your vault yet? Unchained are making it easy for you with a nice and simple web interface. You can use Trezor or Ledger, you can buy one of each even, and set up a two of three Unchained will be the third key or the co-signer in that scenario, and that's a good way for you to split up your keys and keep your Bitcoin secure for the long term. Also, Unchained offer collateralized loans, so friends don't let friends sell Bitcoin, you can put up some Bitcoin and get USD. That Bitcoin is stored in a dedicated multisig address and it's never rehypothecated. Unchained also have open source projects such as Hermit with Shamir's Secret Sharing and Caravan, a stateless multisig coordinator. They've also got incredible content on Check them out at UnchainedDashCapital dot com. Here's my interview with Preston. Preston, welcome back to the show, man. Glad to chat with you again." }, { "speaker": "guest_2", "time": "02:42", "start": 161.76, "text": "Great to be back, Stephane. Great to be here." }, { "speaker": "stephan", "time": "02:44", "start": 164.22, "text": "Preston, it's been really crazy recently. I mean, I guess we should first talk about what happened recently. So we've obviously over the last few weeks, you know, May 11th or 12th, I can't remember off the top of my head, we had the halving happen. And so that has sort of changed the dynamic as well" }, { "speaker": "stephan", "time": "03:03", "start": 183.47, "text": "A little bit more. They were sort of thinking the price would be a bit lower than what it is now, and perhaps the price has risen up, and that has changed a little bit of the dynamic around the miners and how many coins they have available and how much equipment they're on. So I, I, I think it might be good for you to start off there, just on your thoughts on the halving and the dynamics there with the miners and the price dynamic, over these last few weeks." }, { "speaker": "guest_2", "time": "03:28", "start": 207.64, "text": "Yeah, you know, the, the thing that I think a lot of people forget about when you go through the halving event, they think that it's just gonna be kind of this immediate thing where you start to see the price run, but I think they forget that a lot of the miners are sitting on a treasury of bitcoins on their balance sheet, that were put there at a, at a flow rate that was twice as much as what it is post having, and it takes time to attrit that, that treasury of Bitcoin that are sitting on their balance sheet, 'cause that's how they receive their payments, and then their, their bills are in fiat, so, it takes some time to chew through that. Now, what I think's interesting about this more recent, having that we just experienced was prior to the having, we had this massive derivatives meltdown on the global economy, Made the price of, of Bitcoin shoot down to like four thousand bucks. It had an aggressive recovery following that, but I think, the miners were already, fighting for anything that they could capture at that point near the end of the previous four-year cycle. So, when that price hit and it was way down, way lower than I think any of them were expecting, I think it sucked a lot of the, the bitcoins off their balance sheets, and I think that, that might have been why we saw Even though, I mean, those, those first, that first epoch and then, the first half there that took place a- after the havening, 'cause the havening happens right there in the middle of the, of one of the epochs, I mean, they were struggling, you could see it, they were falling way behind on the timing, in, in their ability to solve the blocks. And so even though they were struggling, I think the, the reason you still saw the price go up, which is what I wasn't expecting at all, I was expecting us to see, a bit of a correction there in the price because of all the difficulty that was being experienced by the miners, but you didn't see that, and that was quite interesting. And then today, you saw some interesting stuff again happen from a macro standpoint where the market was down extremely hard, you saw a lot of people, especially if, if you had derivative exposure, that they had to swap in the fiat in order to take care of a lot of that, that kind of stuff, and again, it, it played out a little bit in the Bitcoin market, or at least that's my assumption is that you saw some people having to liquidate some of their Bitcoin positions in order to make good for their other positioning in the market." }, { "speaker": "stephan", "time": "05:51", "start": 351.49, "text": "Right, and another interesting element to layer on there is, you see, we see some discussion around, say, Cash App or Grayscale, and people say, \"Oh, look how many coins these guys are buying, they're buying up all the supply.\" But is that the most relevant thing to consider? So let's consider the overall number of bitcoins that exist today. It's something like eighteen point three million in that range, Isn't that surely a more important, indicator? And it, it's not necessarily that every hodler is hard or strong hand hodler. There'll be a lot of those people who, as the price rises, they might sell some. And so you, we, we have to consider that as well as the mining coins, right?" }, { "speaker": "guest_2", "time": "06:34", "start": 393.84, "text": "Totally agree with you. I think that when you get near the end of the four-year cycle, I think that your price floor is most likely being set by a lot of the how the miners are selling and putting that new supply onto the market. But you're exactly right, if somebody comes along and let's say they come on hard times and they need to sell some of their coins in order to cough up some, some, fiat to pay their, their bills that are denominated in fiat, well, you can have hodlers selling their, their coins. There's, there's really no way to be able to quantify Exactly. but my suspicion is that kind of at the end of the four-year cycle, at the start of the new four-year cycle, I think a lot of the price floor is kind of being set by those miners, or at least that's my assumption, which could be completely wrong, but that's, that's how I'm-" }, { "speaker": "stephan", "time": "07:27", "start": 447.22, "text": "Right, be-because it could be that, so the story is that the stronger or more efficient miners kind of win at the expense of the weaker miners, and that eff- effectively, and this is kind of the story from, say, Matt Desouza, right, from Blockware, where he would say something like The more efficient miners are able to do it for a lower cost, and therefore they can hold on to more of the bitcoins, restricting more of the new incoming supply, meaning there's less available to be bought, and that is the kind of driver for the price." }, { "speaker": "guest_2", "time": "07:58", "start": 478.11, "text": "I, I'm of the firm opinion that Moore's Law is a integral part to the incentive structure. So, you know, if, if these guys are buying and girls are out there buying brand new rigs, well, guess what? That thing's going four times the speed of somebody who bought one four years ago. years ago. So, if you're able to run four times faster than your competitor, that has a huge impact on your, on the margins that you're capturing for your electrical expense. Now, if you're getting electricity for free or any of those other variables, which are real variables, that has to be accounted for. But if we're talking about the whole, Network as a whole, I'm telling you, that's, that has a big impact net, if you're looking at it from a network, standpoint. So, the fact that new entrants can step in and capture more, and I think that's something that's really interesting about Bitcoin, compared to a lot of other coins and, and when you look at the incentive structure, it's almost always when you do something like this that the, the first mover, the first person there, has all the advantage. But what I find a little fascinating about Bitcoin is, if you buy a new hardware rig and you step into the market to mine, especially at a time like this where we're at in the four-year cycle, you have the advantage. You have the advantage over the person who's had the hardware for four years. Now, you might not have the intellect of how to, manage Your risks as a miner throughout that four-year period, in that experience set, but as far as from a pure hardware competing standpoint, dude, you're set up." }, { "speaker": "stephan", "time": "09:37", "start": 576.66, "text": "Awesome. and look, I, I would love to chat about an interesting theme that you've been hitting, you've been hammering this theme recently of what's your unit of account, right? Bitcoin as numeraire, right? Because we are seeing this kind of crazy, like obviously today was a little bit of a, obviously a down on the stock market, but up until today, we've seen just this crazy rally, and people are thinking, \"Oh, wow, stocks are back,\" but we're measuring this, what are we measuring it in?" }, { "speaker": "guest_2", "time": "10:06", "start": 605.84, "text": "So I was ready for this question tonight. So I'm gonna, I'm gonna read a top line revenue of a company for you, okay? And I'm gonna start in, in twenty twelve, and I'm gonna just read out the top line. This is the, all the money that the business comes in for people that might not have an accounting background, that's your top line. so if we were talking, and this isn't the company that I'm talking about, but let's just say we were talking about Coke, for every can of Coke, if the can of Coke was a dollar Top line is the dollar, and then all your expenses, the sugar, the tin, the, all that kind of stuff, your distribution, let's just say that's ninety cents, and you, you have ten, ten cents remaining, that's your bottom line. The ten cents is your bottom line. So as I'm going through this, that will help frame this for people that don't have the accounting background. So I'm reading the top line of a company here. A company that everybody knows, and, I'm gonna read off these numbers starting in, in 2012, and here's how they go. Seven point nine billion, the next year, four point two billion. Quite a, quite a drop, right? The year after that, eighty million. The year after that, got a little bit better, two hundred and ninety million. The year after that, it got worse. 220 million. The year after that, 120 million. The year after that, 10 million. The year after that, 40 million. This is the top line of Google. Okay? Doesn't seem like it makes any sense whatsoever. People hearing that are just like, \"Yeah, right. He's lying, right?\" But what I did is, and, and if I was gonna read-- So I was reading the, the top line of Google, denominated in Bitcoin since 2012 till now. Okay? Now let me, let me read it to you in fiat terms, right? So this is the top line of Google in fiat terms. Forty-six billion, fifty-five billion, sixty-six, sixty-six billion, seventy-four billion, ninety billion, one hundred ten billion, one hundred thirty-six billion, one hundred sixty-one billion, right? So that's what everyone sees in the market. But if you start looking at things with, with a slightly different lens And you start looking at it denominated. If I go back in time, so like that first one that I was denominated in Bitcoin in two thousand twelve, I took forty-six billion dollars, and the price of Bitcoin back then was five dollars and seventy-seven cents, and I denominated the, the number that I first announced into Bitcoin using that five dollars and seventy-seven cent price. And so when you look at that, if you were gonna graph it, okay, if I was just gonna do a real simple x y axis graph The top line is going straight down, right? It's going straight down. Now, let's do this from a financial valuation standpoint, which is, dude, that's my bread and butter, that's what I really like to talk about. You think I like to talk about Bitcoin, dude? I really like to talk about financial valuations. So you s- you then take, let's just take the free cash flows, which I could have done, but I didn't, but if I go in there and I was looking at the free cash flows, it's gonna be very similar to the top line as far as it going down if I denominate it in Bitcoin. So when you're doing a, a free cash flow analysis and trying to determine the value of a business, what you're doing is you're interpolating what you think those free cash flows are gonna look like in the future. And one of the best ways to do that, and there's no way to prove that that's gonna happen, because you're really looking at how the company can, can sustain its enduring competitive advantage into the future based on the competitors that are in the market, based on the assets that sit on their balance sheet and how competitive those assets will remain into the future, you're trying to interpolate what you think the projection of those fu-future free cash flows are gonna look like. Well, when I go back and I denominate things in Bitcoin, and the free cash flows are going down And I'm using those future free cash flows going down because my expectation is that these companies aren't gonna start using Bitcoin as their unit of account today. The free cash flows keep going down, so now I have to discount those back to today, those future free cash flows back to the present today to come up with a valuation on what the business is worth today. Well, when you start doing that math Things start looking a little crazy, like nowhere near the valuations that you're seeing in the open market, because everyone's doing those valuations right now, but guess what they're using? They're using fiat, and, boy, it, it turns into a completely different world when you start looking at things through, through this type of lens." }, { "speaker": "stephan", "time": "14:48", "start": 888.46, "text": "Right. It's, it's that we're going through this massive globally, you know, changing, global level change over time, and it's, you know, some could say it's slow, but some could say this is actually quite a quick change, and because people are stuck in perhaps an older mindset or they're, they're sort of thinking, \"Okay, discount cash flows, what's my...\" My discount rate, and they're, they're, they're assuming that the underlying, you know, unit of account is stable through that time or perhaps it's low inflation, and it's not gonna be that much, but, but depending on what you count it as, it's a huge, huge difference." }, { "speaker": "guest_2", "time": "15:24", "start": 924.35, "text": "And this goes to like one of my biggest gripes with academia, because, so, if you go into academia, they're gonna be like, \"Well, so what's our risk-free rate, right? What's the risk-free rate?\" Well, God, you tell me, man, because based on the way that they're manipulating the bond market, which is where your risk-free rate is coming from It's a, it's a total disaster. There is no cost of capital that anyone can possibly use. It's like a unicorn. it's not even real at this point. And so for me personally, anytime I do valuations for businesses, I'm always using an internal rate of return, I'm not doing these, you know, the valuations that, that they want you to use in business school, because for me When somebody says the value of Google is one hundred and ten dollars a share, my immediate response to that person is, \"At what discount rate? \" Right? 'Cause I can come up, I can, I can come up with any valuation I want for a company. I can say Google's worth a thousand dollars, I can come up with five dollars a share, right? If I adjust the discount rate to whatever I want it to be. So that's the irony for me is you got all these yahoos out there in, in Wall Street that are saying, \"Oh, well, the discount rate is two percent on the-- it's less than that if you're using the ten-year Treasury, right? You're at like eighty basis points, which is a total flippin' joke.\" So the lower that you push those discount rates, the higher the, the asset price goes if you're doing that. So when people are saying, \"Oh, the valuation is this,\" well, I know that they're just cooking the, the discount rate down to nothing. Right? So that's why I'm a big fan of the internal rate of return, the IRR calculation is because when you think about the variables that go into those equations, the Academia acts like the price isn't given to you, but it is, it freaking is. Like, I can pull up the ticker for any company And the price is right there, it's a given. Like when you're solving any type of math problem in, in any type of math class, you have givens and you have unknown variables. Like the price is flippin' given to you, you know what it is, you know what you can go on the open market and buy it for right now. So why in the world would you treat that as an unknown in the equation? And I'm going off on a tangent that's far off the topic where we probably need to be talking, but you got me on a pet peeve. So" }, { "speaker": "stephan", "time": "17:57", "start": 1076.99, "text": "no, I, I, I, I enjoy this stuff. I mean, for, for listeners who perhaps aren't as familiar with kind of, you know, the stuff you'll learn at fina-- like university in finance, and so the internal rate of return is essentially you're trying to calculate what is the rate of return that would kind of set the value to zero Typically the way people might think about it is they might have, say, a hurdle rate, and they wanna be able to beat this given rate. But the, it, the problem, I think it just, it even comes back to our theme, which is, what's your numeraire? What is your unit of account? And, as you, correctly point out, that if you measure the S&P in Bitcoin terms, you are down massively over the last few years. And, yeah. And I think" }, { "speaker": "guest_2", "time": "18:39", "start": 1119.46, "text": "eighty plus percent." }, { "speaker": "stephan", "time": "18:41", "start": 1120.78, "text": "Yeah, I, I think recently you, And so this is, early, second of June, S&P was, down eighty-nine percent in Bitcoin terms. Now, in four" }, { "speaker": "guest_2", "time": "18:51", "start": 1131.15, "text": "years." }, { "speaker": "stephan", "time": "18:52", "start": 1131.83, "text": "Yeah. Right. now, I guess the only point that maybe, again, putting my skeptic's hat on, like I'm obviously, in the same view, but somebody might look at a Bitcoin proponent and say, \"Well, aren't you guys just cherry-picking the twenty seventeen run-up? Like, isn't that just cherry-picking? You're just choosing kind of a nice data point, data period." }, { "speaker": "guest_2", "time": "19:13", "start": 1153.17, "text": "So my comeback to that is pick any four year period of time, because the protocol has a four year halving cycle built into it. So if you're plucking dates, like I think it's unfair if a person would use a date between now and the next seventy thousand blocks, right? Because that is, that is a very aggressive bull market, in Bitcoin. So that's just as unfair as somebody saying, \"Go back to December of twenty seventeen until the, you know, a year and a half after that, another seventy thousand blocks.\" That. So what I would tell somebody is if you really wanna try to understand how much this thing's eaten away at fiat, grab any four year period of time since inception, whatever that range is that you wanna pluck, pick a, pick one date out of the, out of the air between inception of Bitcoin till now, and then go four years beyond that, and that's your, I think that's your true gauge as to how much it's de- debasing fiat." }, { "speaker": "stephan", "time": "20:10", "start": 1210.15, "text": "Yeah, yeah, I think that's, that's a great way to put it because it's kind of like you can cherry-pick either way, right? So you could pick, as you mentioned, so going from December 2017 at twenty thousand down to, I think the bottom was like, I don't know, three or four thousand in, December 2018-ish, right? But then also from then upwards is also a huge change as well." }, { "speaker": "guest_2", "time": "20:32", "start": 1231.75, "text": "Yeah." }, { "speaker": "stephan", "time": "20:33", "start": 1233.07, "text": "So you've got, you've got to be fair about it, and I think four years is probably a fair way to put it, which, as you rightly say, we've got an audience question here, so we might just pull this one up on screen. So Eddie's asking, \"How does all of this work with growth stocks or unprofitable public companies? Are they all doomed?\"" }, { "speaker": "guest_2", "time": "20:52", "start": 1251.59, "text": "you know, I'm, I'm much more of a value guy or a momentum guy. So when people say growth, it typically fits into my momentum bucket. and so when I'm looking at growth companies in Bitcoin terms, it's pretty easy to do it because I'm just looking at-- for, for me to conduct a momentum, position I'm really looking at the statistical volatility range of, of that specific security, currency, commodity, bond, whatever, it doesn't matter. I'm looking at the historical price action and what kind of volatility it has on a long-term basis, and then all I'm doing is looking at when it breaks outside of that for like a two standard deviation move. And whenever I see that happen, it's, I g- you know, it's, it's an algorithm that I've written myself as to how I conduct momentum investing, so that's how I look at growth picks. If it's not value based, if it's not based on the fundamentals of the income statement and the, in the balance sheet, that's how I'm doing it. So can I do this by denominating all the previous price points into Bitcoin? You better darn well believe I can." }, { "speaker": "guest_2", "time": "22:03", "start": 1322.69, "text": "That's awesome. And am I? You better darn well believe I am." }, { "speaker": "stephan", "time": "22:08", "start": 1327.92, "text": "Yeah, yeah. and also, I think something that is starting to jar for a lot of people, it's, it's a jarring contradiction is- The wor- the real world, we're seeing massive unemployment, we're seeing all these problems, and yet the stock market, just recently, it's like rallying back up. How, how can that be?" }, { "speaker": "guest_2", "time": "22:29", "start": 1348.68, "text": "Yeah, that made a lot believe, and I'm not trying to say this as, To stroke my ego or anything, I totally don't. But back in, and this was interesting because our momentum trigger, went green at a time when I was just like, \"What?\" Right? 'Cause we had the big, I mean, shock and, and shortly after, the momentum trigger on our, on all of our indicators, the Nasdaq popped first, the S&P f-quickly followed, and when I start seeing all those indices that are tracking a lot of different companies all start popping green, I was like, \"Yo, this thing's coming straight back up.\" And, you know, I, I post a couple charts on Twitter and I put a range fan, I, I, you know, I, I put where it was at before and then I put a range fan there that was just like a sideways V and I said, \"Hey, I know this sounds crazy, but I really think this is what we're dealing with moving forward, which is just this crazy volatility in equities. Because at the end of the day, it all comes down to how many units is-- are the central banks pumping into this, into the system?\" And, You know, it's always been interesting because I've always thought of the markets as being much more mathematical than emotional. I think there's definitely an emotional aspect to it, and I think there's this reflexivity to it, but I really think that it's very math-based, and I think it, it comes down to, hey, if I just somehow come up with another- Three trillion and pop it into the market, what impact do you think that's gonna have? It'd be like you and me playing a game of Monopoly, right? And let's just say there's a hundred thousand dollars in the game And then, whoever's working the banker position comes up and says, \"Alright, I understand there's a hundred thousand dollars between you guys playing this game, but now I'm gonna drop five hundred thousand into the game. What in the world do you think's gonna happen? We're gonna start bidding the prices of different, the, the different assets on the board, you know, instead of park plays being four hundred, I'll start saying, 'Hey, I'll buy that from you for fifteen hundred,' right? Like, all those things start popping out. And so that's, dude, that's what" }, { "speaker": "stephan", "time": "24:50", "start": 1489.58, "text": "And also there has been a little bit of scorn or derision heaped on, let's say, the Robinhood traders, right? Like that's the kind of, \"Oh, those are the amateur kind of traders.\" And sure, there's obviously there's some gambling going on, right? People are treating it like, \"Oh, it's all just penny stock world\" and so on. But, I think it may be really that that's un- misunderstanding the root cause, wouldn't you say, that, many of these people are sort of being driven into this kind of investing because their underlying money is just losing value over time, wouldn't you say?" }, { "speaker": "guest_2", "time": "25:23", "start": 1522.75, "text": "Quick buck, man. I mean, it's just, it's just total speculation. And, if there's one thing we've learned about the, the population these days, they've got a short-term focus. And so when their, when their buddy said, \"I just made a thousand bucks on Robinhood,\" well, then their buddy signs up and they drop a hundred bucks in there and they try to start doing the same thing. So it's sheep-like, psychology at, at its best." }, { "speaker": "stephan", "time": "25:52", "start": 1552.15, "text": "Yeah. Yeah. I, I'm also interested to discuss, some, there was some recent back and forth, with yourself and with Mark Cuban, right? And so I think these were some, it was interesting to watch those arguments play out, right? So you were talking about, obviously, the prob- some of the problems of which w-what's your unit of account, right? Now, Mark Cuban's sort of response was saying essentially, \"I'm just gonna- I'm gonna, quote, he was saying, he's basically saying, \"Oh, look, Preston, you got a lot right up until the Bitcoin part, but under an all Bitcoin system, how does the inflation of Bitcoin from supply and demand impact those without assets, and if you're trying to acquire Bitcoin?\" and so-" }, { "speaker": "guest_2", "time": "26:31", "start": 1590.6, "text": "And then Satoshi jumped off the top rope and slammed him." }, { "speaker": "stephan", "time": "26:35", "start": 1595.27, "text": "That's right. I mean, because I guess in Mark's mind, it's like he thinks, \"Oh, actually, if the economy is growing, the money supply has to grow with it, potentially, right?\" Now, how would you, respond to that?" }, { "speaker": "guest_2", "time": "26:48", "start": 1607.86, "text": "I don't even need to respond to it. but if I had to, I mean, it comes down to this, if people start receiving salaries in Bitcoin and it's going up in value I mean, the problem he's describing is flippin' laughable. You know, I said this on another podcast, so if people hear the, the one that I did yesterday and this one, they're gonna hear it twice, but I, I wanna put this out there. So To understand his position, you gotta understand, well, where he's at right now. He owns, he, he has a couple operational businesses. You know, everyone has-- these, these billionaires, they got non-operational subsidiaries, then they have operational subsidiaries. His big revenue drivers Are a couple key things. His NBA team, they're not playing. He's got a data analytics company that provides information to sporting events They're not having any sporting events. He owns, a movie theater business, which is huge. No one's going to see movies. Like, no, no one's going to the movie theater to see movies. So he's got a major top line kind of issue. He's got a major bottom line kind of issue, which means he has free cash flow issues. And when you're looking at something and people are saying, \"Oh my God, this thing's gonna take off,\" well, how do you get exposure to that when you don't have any free cash flows? The only way to do it is you gotta start selling things on your balance sheet. And so I would argue he is balance sheet rich And cash flow statement poor. And, that wouldn't be something that I would wanna be, you know, as, as I'm there kind of talking to him and saying, \"Hey, good luck with your top line this year, this and that,\" you know, like that's not helping him. Wanna, listen or so I, you know, I probably need to take a different approach, but, I, w-when I look at- His standpoint and his concern, I mean, I think he's scared about this. I think that's why he keeps engaging with us, because I think he can see that we have very strong arguments that he hasn't been able to shoot down, and if I was him, I'd be scared to death that this, that maybe we're right. because if you're sitting on a lot of assets that you then have to sell at a price as you might not wanna sell them for, because maybe they're very illiquid, and when you're talking about operational subsidiaries, typically they are very illiquid, and there's only a few people that are willing to buy something like that. So, not a good position to be in when you-- when there's potentially a big opportunity that's gonna look like a rocket ship, coming forward. Now, whether those are You know, whether that's what he's actually seeing or not, that's what I'm seeing when I see his point of view is all of those things. So some stuff to think about, Mark." }, { "speaker": "stephan", "time": "29:47", "start": 1786.8, "text": "Right, and he's thinking in a very fiat-denominated mindset. So I think that's, that's, that's the fundamental error in his thinking. I guess we, as kind of Bitcoin people, would say, \"Well, look, you gotta, you gotta, you have to consider this other view.\" we're very biased, yeah. You know, we" }, { "speaker": "guest_2", "time": "30:01", "start": 1801.33, "text": "have a bias. Yeah. And, he sees it a different way, and he has a bias. He has a fiat bias. He thinks that the system that he made all his money under is the right system. And, you know, if we were in his shoes, we'd probably think the exact same thing. But you gotta challenge, you gotta kill your, your previous thoughts. That's one of Charlie Munger's big thing, like, what, what can you do today to kill some of those preconceived notions that you have from the past? I think he's right." }, { "speaker": "stephan", "time": "30:29", "start": 1828.8, "text": "Right. the other big argument that people bring up is the whole correlation or de-correlation argument, right? Now, depending on what time period you assess this over, people have said, so typically if you're looking on a longer time basis, Bitcoin has been de-correlated from the stock market, but over certain shorter time periods, I think people can point and say, \"Oh, look, you guys were first saying Bitcoin was de-correlated, but now look, over this short period, I saw it was correlated. What do you say now, Bitcoin people? What's your view on Correlation aspect." }, { "speaker": "guest_2", "time": "31:00", "start": 1860.16, "text": "I think there's, I think there's something to it on the days like we saw today where the market was down extremely hard. we saw that back in the March timeframe. and I think for, for me, all it tells me is how How reliant everything is on the dollar today. because when you see the market move like that, the-- this is people having to get into cash. They have to come up with fiat because they're getting margin called, they're getting all these kind of things, and they have to come up with fiat because all those, all those instruments are denominated in fiat. So they've got to come up with fiat in order to adjudicate the, the margin calls and, and- I mean, just think about all the people on Robinhood that were buying calls with no fee on, on all this stuff that they're following Dave from Barstool Radio, and they're just buying call options on it, right? So like, all those liquidations, and I mean, those guys are the small fish in, in, in a massive pond of, of Wall Streeters that are allocating billions, but, That's how I see it. I see it as being the dollar is polarizing that. I think when you look at Bitcoin, I think it's, it's more reflected on all the other," }, { "speaker": "guest_2", "time": "32:19", "start": 1938.9, "text": "When, when you look at the people that own Bitcoin, people don't just own Bitcoin. There's some people out there that do, but especially people on Wall Street, I mean, it might be, it might be one position of twenty or thirty that's in their portfolio. So if they start taking some heat in some other areas, well, they gotta sell the ones that are their winners in order to come up with the cash in order to adjudicate that. So there's Bitcoin, right? So when you look at the sell-off in those short periods of time where you're having a fee- Fiat crunch, and that's what this whole thing, this whole incoming debacle that we're experiencing is because, my God, they, they, they can't control the dollar. They've gotta print more dollars. All this dollar-denominated debt that's around the globe is like a major, major issue for the Fed that they've gotta print more, and it's like a black hole that they keep shoveling more and more fiat into. I, I had a person once explain it to me like this, and I like this analogy. Analogy, imagine making a fire, like that's kinda small, and you're adding some wood to it. But then you have, like, let's make it bigger, let's make it warmer, so you make it bigger. Well, when you do that, you have to supply it with not just a little bit more wood, you gotta supply it with a lot more wood. Now think about it being coming a bonfire and it's massive. Now you're like literally chopping down an entire forest to keep this thing going, and the sustainment of what it requires to keep the fire going at Going requires this ever-growing because it's based on area and it's not linear, it's exponential, and that's exactly what you have going on right now with the dollar. The, the fact that it's-- and, I mean, they just printed at levels that are- Unfathomable. Unfathomable. Relative to all the other central banks, I mean, they just printed like there was no tomorrow. And although the value of the dollar went down over the last couple weeks, I would argue that for how much they printed, and the dollar only went down that much is mind-blowing, mind-blowing. It's now all these other countries are gonna try to keep up because, I mean, this is a, this is a tragedy of the commons type situation where it's competitive devaluation of fiat currency amongst nations in order to engineer growth inside of their domestic country. This is nuts." }, { "speaker": "stephan", "time": "34:41", "start": 2080.59, "text": "It is insane, and we see just, it just becomes more and more breathtaking, the levels, the, the audacity, the ostentatious displays of, you know, kind of money printing and, whatever it takes, right? Now, I, I guess the other point I'm really curious to know what you think. Now, I love the point you were saying they can't control the dollar, because that to me is also ticking off this idea as well of the euro dollar, which you're, I'm sure you're familiar with, right? and so people like Alhambra Capital has spoken about this kind of concept that, the central banks really, they, they don't necessarily even have the full visibility over the full picture because people can rehypothecate US dollars outside of that specific, US system. And so what's your view on that impact of the Eurodollar system onto US dollar inflation?" }, { "speaker": "guest_2", "time": "35:34", "start": 2133.54, "text": "You know, I, I don't know enough about it to give you," }, { "speaker": "guest_2", "time": "35:39", "start": 2139.45, "text": "insightful information, to be quite honest with you. but I, I will say this, there's tons of dollar-denominated debt, and so what kind of made a lot of this arise through the years is once we came off a gold standard Countries like Japan, China, you name it, were all like, \"Well, if we devalue our currency, we can suck dollars into this country like a vacuum, right?\" It's, it's just a, it's It's just like pressure, you know, when you study fluid dynamics, the pressure that you get on an airfoil or whatever, it just sucks the fiat right straight into their country whenever they debase their currency. And so where does that money go? Well, that money ends up on the, balance sheet of the government. And so then the government's like, \"Well, how do we get rid of this?\" Well, then they start issuing dollar-denominated debt. And so that's where this- This do loop of dollars just getting spread all over the world, it's a network of-- it was, it's a total network effect, right? Because they could take advantage of the fact that it wasn't pegged. Well, you can keep that game rolling for a very long period of time as long as you have positive interest rates, but once you start getting interest rates down to zero, and you're still playing these games Like, dude, you get to an end game, and that's where we're at, is-- and you're not at complete zero. I don't even know that you'll get to complete zero nominally, but in real terms-" }, { "speaker": "stephan", "time": "37:12", "start": 2231.92, "text": "Already negative. Yeah, my God," }, { "speaker": "guest_2", "time": "37:14", "start": 2233.56, "text": "especially if you're using Austrian economic type inflationary metrics, my God, you're like, \"Yeah, I mean, it's like laughable to think that you're...\" P- in any type of positive in, in real terms, it's, it's laughable. Yeah." }, { "speaker": "stephan", "time": "37:33", "start": 2252.62, "text": "Yeah. a-and when we talk about, you know, Bitcoin versus fiat money, I think it's also, i-interesting to understand that, okay, so most of the world considers, well, the US dollar is the world reserve currency currently, right? Now, it's arguably also true that in some sense, the US has bag holders, not just in the US, but all around the world, and so that in some- Some sense gives them more of an ability to inflate a little further, just because contracts and things are denominated in US dollars. And so, I guess the point I'm trying to understand your view there is How do you compare, say, so we were speaking earlier about how if you denominate the S&P into Bitcoin, it's down a lot, is it but the thing to remember though is that you-- the US dollar is almost like the, the least bad of a bad bunch, right? So the, all the other fiat currencies, maybe they're just inflating even more. So what's your view on that? And is it sort of-- does it, in the short or medium term, help the US dollar at least relative to other fiat monies?" }, { "speaker": "guest_2", "time": "38:39", "start": 2319.03, "text": "No, I think what happens is, is, is you have this competitive devaluation that's happening. Like when you go back and you look, I'd have to pull up the chart, but like, I wanna say from twenty fifteen through like twenty eighteen, if you looked at how the, the ECB was printing In relative terms to all the other central banks, it was ungodly, like they were on fire, and that's why you saw the stock market over in Europe do so well during that period of time. Prior to that is when the US was, you know, debasing heavily, and so it's this rat race of devaluation. So where, what you're really getting at is, well, if everyone's doing it, and there's-- and it's really kind of this," }, { "speaker": "guest_2", "time": "39:26", "start": 2365.86, "text": "no one ever really outpaces the other person. Well, then is it a bad thing? And I would tell you, it's a very bad thing, and here's why. You, you are the price that's being paid through quantitative easing, because that's the only thing that they've been doing. They haven't been doing UBI up until just recently around the world. And so as all these central banks were conducting quantitative easing, what they're really doing with those policies is they're just ripping the heart out of the middle class of every single country around the world. Which is polarizing the politics, which is polarizing pretty much everything between rich and poor. And you're making the rich Really tiny, but with a whole lot of magnitude, and you're making the poor really large with a teeny tiny amount of magnitude. And, and when I say magnitude, I mean buying power. And so what you're doing is you're setting up this scenario of just total conflict. And the further that you push on a string, and that's a Ray Dalio term, the more that you push on a string through these policies The more that you make that even more fierce between those two polarization of, of, communities between rich and poor. So I think it's very" }, { "speaker": "stephan", "time": "40:45", "start": 2445.16, "text": "concerning. Right, it's politically very concerning, and we're seeing, you know, a lot of discussion around things like UBI, and, you know, I think maybe this is another area as well to discuss. So when the central bank, prints money, or at least, raises its monetary base, that doesn't necessarily always flow out into the everyday, you know, people like you and me. Sometimes that just flows into financial assets. So do you see that there may be more of a populist uproar and more of a, an argument that, hey You know, you're printing to bail out these big companies, why don't you bail me out, Joe Sixpack? What's your view there?" }, { "speaker": "guest_2", "time": "41:22", "start": 2481.98, "text": "I mean, you're already seeing it. You're-- I mean, that's what Antifa, in my opinion, when you look at Antifa, and they're an anti-capitalist, movement among other things. that's exactly what they're saying. That's, and they're so angry they're saying, \"Well, you know what? If I can't have any of this, I'm just gonna burn everything down. I'm gonna create anarchy.\" That's, that's how-- and I'm not saying that I agree with that, I'm just telling you that that's their movement. and the-- in my opinion, those are complete results of an inflationary monetary policy that's existed for decades, and then whenever we did get to an end game, they started doing quantitative easing and pumping all the money into the hands of the few. That's what's created this. And so if we look at how they could have handled it over the last ten years, if they wouldn't have just done quantitative easing and they would have done UBI, you would have-- you would have got to the same point, you would have got to the same breaking point, but it would have just taken more time. It would-- you would have been able to do it maybe for fifteen years or twenty years or whatever, but- What's, what's interesting now is because they've decided to only use quantitative easing exclusively for ten years, and they're now down to zero percent interest rates all over the globe, especially if you look at it in real terms, they can't turn that off They, you know, people might think, \"Oh, well, they can just stop doing quantitative easing, we'll just do UBI now, and we'll make these people stop being so aggressive.\" You can't do that, and the reason you can't do it is because you have this fiscal spending habit that is accelerating out of control. And by fiscal spending, like all the congressional representatives for whatever country are allocating and obligating tax dollars at a pace that far outstrips the, the receipts that they're receiving. And because of that, they can't afford interest rates to go up. So if you can't afford for interest rates to go up, you have to ke- keep doing QE, because you can't allow the bond market to sell off. You have to step in and have a backstop on the b- on the bond market that says, \"All right, we're gonna peg the rates at fifty basis points, and if anybody steps in and tries to sell it beyond that, well, we'll step in and buy it. Period. No matter what. Regardless of-- and they're already doing it in the junk bond market, which is nuts. They're stepping in and saying, Not afford interest rates to go up, so we're just gonna buy it. Here's the cash. So now let me put this in a, a really easy to understand example for people. Let's pull out the monopoly game again. So, you and I are playing Monopoly, and we have a banker. Okay? And let's say the banker wants to insert more cash into the game because, let's say, you're falling behind, Stefan, and I'm, I'm winning, right? Let's just reverse that because that just sounds like I've got an ego. You're winning and I'm losing." }, { "speaker": "stephan", "time": "44:22", "start": 2661.94, "text": "No, no, I, it's fine either way, yeah." }, { "speaker": "guest_2", "time": "44:24", "start": 2664.32, "text": "You're winning and I'm losing, okay? And, So this central, the person who's playing the banker in the game says, \"Alright, I'm gonna add some liquidity here so that Preston doesn't throw up his hands and quit the game. So here's how I'm gonna do it.\" Stefan, do you have Park Place? Do you have some different assets that you can sell me? This is the banker talking, right? Because I'm gonna insert a thousand dollars into the game, but you gotta sell me some of these assets that you've got, and I'll give you some straight cash. Baby, you're gonna get the cash, right? So you sell it, 'cause you have no choice, it's the government, and you sell those assets, the, the liquidity now comes onto your balance sheet, you're holding it. I got none of that. I got none of that action. And now what are you gonna do with your money? You're gonna look over at my board, and you're gonna look at the only assets, the pieces that I have on the game, and you're gonna say, \"Hey, Preston, I wanna buy those from you.\" And because there's less assets on the board, there's-- the assets are even scarcer than they were before, the price is gonna get bid, right? And I'm gonna give that to you, and then I'm gonna get a little bit of the action of the cash, but it's only gonna hold up for a little bit because as I go around the board, you're just gonna keep sucking it away from me because I literally have no assets 'cause you keep buying 'em all from me. Yeah. That's quantitative easing." }, { "speaker": "stephan", "time": "45:45", "start": 2745.25, "text": "Yeah. So it's like this Pac-Man effect, right? They just keep, Pac-Maning it up and they accumulate all these assets, and then the government legal system kind of helps facilitate this kind of transfer of claim over real property and real, you know, profitable businesses or some not so profitable, but still, yeah. So" }, { "speaker": "guest_2", "time": "46:03", "start": 2763.24, "text": "let's run the UBI example through the monopoly game, okay? So UBI, the bank steps in, they're like, \"Alright, we're just gonna give everybody a cool hundred bucks or two hundred bucks. Or whatever, you get it, I get it, right? So if you do this enough, like, I just don't even have an incentive to play the game. I'm just like, well, I'm just gonna sit here and they're just gonna keep giving me more money. Right? Especially if I'm a lower skilled, and, and how it really equates into the economy is if you have a lower skilled labor and the UBI checks that I'm getting are exceeding what I was making through my labor before, what incentive do I possibly have to actually go back to work? I don't. And so both of those options aren't options you want to insert into a game that is quote-unquote free and open, because you create these incentive structures for the participants to start doing weird things that, that don't contribute to productivity in the end. And that's what you want in a free and open market is that everyone's working towards this common objective of free and open market, or, I'm sorry, being productive members of society. So when you start messing with the money You break these incentive structures and you get all these warped and weird things that start playing out, and if you do it for decades, you really start to see some just wicked, terrible things." }, { "speaker": "stephan", "time": "47:25", "start": 2845.43, "text": "Absolutely. so, I mean, we're talking about bonds, I wanna just highlight a question here. So thank you, Kyle, for the super chat. And the question is, how long, do you expect bond yields to stay at these low levels? Will it take a CPI reading above three percent? And is the end game when bond yields rise?" }, { "speaker": "guest_2", "time": "47:45", "start": 2864.54, "text": "So, yeah, they're, they're gonna keep these rates at next to nothing 'cause they have to based on the fiscal comment earlier, right? And they're gonna keep 'em there until something breaks, is my opinion. And I could be wrong. That's just Preston Pysh's opinion, and there's-- I mean, you can find an academic in any institution that will disagree with me." }, { "speaker": "guest_2", "time": "48:09", "start": 2888.75, "text": "You like that. but my opinion is And these things aren't going anywhere, and what you're gonna see is you're gonna see them break, and they're gonna break in a very aggressive way, almost like how a dam explodes and the water comes out of it. That's how I think they're gonna break." }, { "speaker": "stephan", "time": "48:26", "start": 2905.64, "text": "Speaking of breaking, I think it's time to talk a little bit about the stock to flow model and the stock to flow cross asset model. so I think guys like you and me are seen as, you know, we're enthusiastic about it, and, you know, we're talking about this idea of four-year cycles. So where are you currently sitting at in terms of your thought on these models? There has been some discussion about whether they are spurious or whether the co-integration, doesn't exist. Or can't be proven or just maybe it, it, it, it can't be proven yet, perhaps or hasn't been proven yet. where are you sitting at this point on, things like stock to flow and stock to flow cross-asset model?" }, { "speaker": "guest_2", "time": "49:06", "start": 2945.86, "text": "I mean, the only thing that I saw that proved co-integration wrong was a person who assumed that, that the four-year halving cycle wouldn't happen, that the protocol wouldn't have in the future. And if that's a true statement, then you don't have co-integration. So for me, like, I, I immediately look at that statement or that theory, and I say, \"Okay, so then what probability are you putting on another halving cycle to happen?\" Because as a person who participates in markets and don't have some academic paper to sell somebody so that I can get a doctorate or whatever G-Wiz degree, I look Look at that as being so unprobable that it's laughable. I could literally laugh at that because it's that ridiculous. but that's me. Other people might have a different opinion on the probabilities of that. So as far as I'm concerned, co-integration exists. I've not found anything that can argue it the other way. So if co-integration exists and you have an R squared value of ninety-five percent, that gets really interesting, especially when I can back it up with A really clean narrative as to why price is driven higher because you have a having, you're having the supply, but you're also supplementing the people that are mining it through a difficulty adjustment, and those two things are literally You know, like this, they're, they're together. It's like peanut butter and jelly. Like when people talk about the four year halving, if they're not talking about the two week difficulty adjustment with it, well, they're, they're only talking about half of what's going on here. It'd be like if we were talking about physical mining of gold, and all of a sudden every single gold miner in the world mined half as much the next day. And I said, \"You know what? I, I know you're not profitable because you're only mining half as much as you were before, but all of the people that worked for you just got like...\" Twice as good." }, { "speaker": "guest_2", "time": "51:17", "start": 3077.47, "text": "Right? That's the thing that people aren't thinking about, and they're not, they're not adding those two things together to understand why the price goes up. They, they still-- The difficulty inj- adjustment ensures that the, that some of the miners, not all of them, some of the miners remain profitable, and if they remain profitable, that means they're gonna bid the price. Because they're not gonna sell as much." }, { "speaker": "stephan", "time": "51:42", "start": 3101.65, "text": "Yeah. and I think, so then it, it's a question then of, if you like the stock to flow model and you think, \"Yeah, this is something I wanna, look at,\" then the question becomes, \"What are some ways that you might think about trying to, invest based on it?\" Right? You might be trying to invest when the price is low, you might be, potentially, there might be some people who wanna try to play that cycle. And so some people are thinking, \"Okay, I might try Above a certain price. I, you know, so the analogy Plan B has used is something like taking chips off the table. another strategy may be, as you were mentioning, selling put options or selling, yeah, so sell-selling put options. What are your thoughts on that idea of, whether-- how a person might apply some of those ideas?" }, { "speaker": "guest_2", "time": "52:29", "start": 3149.17, "text": "You know, I'm a little hesitant to comment on it, and here's, here's the reason why." }, { "speaker": "guest_2", "time": "52:35", "start": 3155.36, "text": "I, I, I like to read a lot of books on how my brain works. I think it's very important for people understand what kind of cognitive biases can pop out of some of the things that you say and that you say multiple times. I, do I think a put option could work? Of course. To protect, like, let's, in the scenario that you're describing, let me just illustrate it for people. So what we're talking about is, it's the fall of twenty twenty-one, the stock-to-flow, model is absolutely correct, the price runs over two hundred thousand, and Now you're at that critical point where you're at block height of seven hundred thousand, and the model's saying that it's gonna come back into a little bit of a reality, and you're gonna maybe lose half of your position if you continue to hold long. So what do you do? And I guess the reason I'm a little hesitant to answer that is because I don't want to condition myself to say that I'm doing anything right now. I'm gonna, I'm gonna see where I'm at at that point in time and make an informed decision based on the circumstances. Could I put a put option on there when the price is at two hundred thousand and basically write it as, or, or buy it as an insurance policy? Of course. Is the, is the price gonna be forty percent of my underlying to do something like that? Probably. And that's, that's probably why Plan B said I'm gonna sell some of my position is because he doesn't wanna cough up forty percent of how big his net worth is gonna be at that point in Bitcoin in order to buy a contract that would protect that. That's a huge Premium to pay for something that would maybe lose that amount, right? And that's, that's the challenge is, is you don't know what those are gonna be priced at. You don't even know if you're gonna be there. You don't understand the macro backdrop of this central bank was literally just lit on fire by protesters, which could have happened. I don't know any of that stuff. And so when we get to, when we get near that, if that's how everything shakes out and how it's all looking, we'll, we'll readdress that when we get a little closer to it." }, { "speaker": "stephan", "time": "54:43", "start": 3283.35, "text": "Sure, sure, totally fair point. and I think it's also, you've got to think about a whole range of things, right? Like what's, what's the tax cost gonna be of doing that, and what, what, what are some potential things that might be occurring at that time? And I think we've all-- you do also have to consider this concept of, how many more cycles are there, right? Is it, is it, is there, is there such a thing here as an escape velocity for Bitcoin?" }, { "speaker": "guest_2", "time": "55:12", "start": 3311.97, "text": "Yeah, I kinda think that there is, but I'm not convinced of it. You know, I'm open to the idea that this thing just keeps running these, these four-year cycles and dips and stuff. I, I mean, that could happen. I kinda suspect though that, especially with what we're seeing, the unrest that we're seeing right now. I mean, in Seattle, we literally have, total anarchy. They've taken over the city hall, and they've got like zones that are set up like a military operation, like you're seeing in Afghanistan or Iraq or something, like going on in, in Seattle right now. So when I say things like, \"Well, maybe, in, in a year and a half from now that they're burning down central banks in various parts of the world,\" like, I know that sounds really extreme to some people that might be listening to it, but based on what I've seen in the last couple weeks, it-- nothing would surprise me at this point." }, { "speaker": "guest_2", "time": "56:09", "start": 3369.03, "text": "Where was I going with the quote? You had a very- I was just," }, { "speaker": "stephan", "time": "56:12", "start": 3371.61, "text": "I was just asking about, like, yeah, just generally that idea of escape velocity, what would it look like, you know?" }, { "speaker": "guest_2", "time": "56:17", "start": 3376.78, "text": "Yeah, so whenever I'm looking at this incoming cycle Like, and I, I tell people, back in twenty seventeen, when the price was spiking, you know, we had the MARE multiple at two and a half, almost three standard deviations, and, I made the bold call, right, back in December twenty seventeen, to say, \"Hey, I'm gonna take some chips off the table,\" and I played it, and I was very lucky. That I was able to remove my position and then get back in, especially at the prices that I was able to get back in. I think a lot of that was luck because the stock, yeah, the stock-to-flow model wasn't out yet, but I'd looked at whenever the price had gone two and a half, three standard deviations that previously, and there weren't too many data points, but previously it had taken more than a year to even come close to starting a recovery. So I just suspected that we were gonna have something similar. Luckily, I was right. Which involved a lot of luck. This time around, we have a completely different backdrop than we had in 2017, in December of 2017. Back then, we didn't have the bond market blowing up. And, blowing up meaning like today, like the Fed's a buyer at pretty much anything, for the bond market, like they can't allow rates to go up. At all. And not just the US Fed, I'm talking every central banker in the world. They can't allow rates to go up. So if that's true, and then you start to see municipalities fail, and you start to see every single company- You see unemployment in excess of twenty percent. If all those things are still playing out by next fall, twenty, fall of twenty-one, bit worse? I don't know how this thing couldn't go all the way, right? Like to me, if you're seeing something that's blowing through a hundred thousand and- And you already got the, the, Robinhood, you know, traders going, \"What do you think they're gonna do if they start seeing Bitcoin run like that? It's gonna be insane!\" So, if I had to side with one way or the other, whether it is gonna achieve escape velocity or it's not, it's gonna come back down and go through another four year cycle? Dude, my, my bet is that it would go all the way, that it's gonna achieve escape velocity, but who knows? It really depends on where we're at in a year from now. When we see that backdrop, and I think that's gonna be a really key point, to the backdrop, because, you know, Plan B's saying, \"Hey, I'm gonna take some chips off the table,\" but if all those things are playing out, there ain't no way he's taking chips off the table. He's way too smart to be taking chips off the table with all those things. What are you gonna, what are you gonna put it in? The fiat that's causing all the issues? I mean, come on!" }, { "speaker": "stephan", "time": "59:14", "start": 3554.31, "text": "Exactly. so what, what about the view of, let's say, somebody who's thinking they're a property investor and they, you know, they wanna take some real property, at that time? What would you, how would you kind of assess that from like, again, an investor's mindset?" }, { "speaker": "guest_2", "time": "59:30", "start": 3570.14, "text": "I think that would be a conservative play. I think that who's ever doing that, they have to have an understanding of how properties work and the free cash flows that they kick off and the demand for the type of property that they're gonna own. There's a lot of variables Go into that. And so like, if you don't have that skill set, you-- boy, you could, you could get yourself in a world of hurt. So I would challenge people that you need to-- if you do wanna do some of those things, and say, \"I'm locking-- man, I just made five million dollars, I just made ten million bucks, or whatever, right? I'm gonna lock this in. I'm gonna go buy a building, and there's no way that that can ever-- if I own that building, there's no way I could ever lose that, that It's gonna be a smart decision for a lot of people to do things like that, but they've gotta understand what they're getting themselves into, they gotta understand how to manage things like that, they gotta understand how to value things like that, especially in a time when the measuring sticks a little strange and you feel like you're in Alice in Wonderland. So a lot of things to consider and, And if this thing runs, it might run for a while, it might run more than people even understand, right? I mean, if this becomes global money and people are- You know, going into the liquid network in order to conduct day-to-day purchases, and then they have their, their other-- I mean, all those things can happen." }, { "speaker": "stephan", "time": "01:00:54", "start": 3654.03, "text": "Yeah. Yeah, and I think- I'm also really interested to discuss this concept of investing in a Bitcoinized world, right? So this is something you've spoken about, and I think naturally you're thinking in that term, in that, in those terms, in terms of free cash flows, right? So it's kind of like we're, we're, we're moving from one measuring stick to another, and For now, most people see it like the best risk-adjusted return they could get is Bitcoin, but what, what sort of scenario, what would it take for you to, to then- shift out of that and start going into more of a traditional investing mindset and looking more for like free cash flows and trying to earn money denominated in Bitcoin." }, { "speaker": "guest_2", "time": "01:01:37", "start": 3697.37, "text": "Yeah, and I mean, I'm excited for that to happen, but I think it's important for people to understand that I don't suspect this is happening anytime soon. I think this is definitely down the road more, but when it, when it gets there, boy, I'm gonna be so excited because I'm gonna be able to do all the things that, that, in my opinion are, are my forte. Which, which is the valuation of businesses. so some things that, that would have to happen. First of all, the, the company would have to have some type of allocation on their balance sheet to own Bitcoin just like you'd own any type of marketable security today. So like when I say marketable security, that's just a fancy way in accounting terms for like Berkshire Hathaway, people are like, \"Oh, Berkshire Hathaway owns Coca-Cola.\" You're right. They own a non-operational subs-- they own it as a non-operational subsidiary, as stock on their balance sheet that's listed as a marketable security under the current assets on the balance sheet. so if I see a company that starts saying, \"We're gonna own Bitcoin in the same manner that we own non-operational securities,\" that, to me, that's, that's an interesting point. The other thing that I'd have to see is, i- I mean, it'd have to be some type of meaningful amount, because if the company's doing- One percent" }, { "speaker": "guest_2", "time": "01:03:07", "start": 3787.56, "text": "allocation of their free cash flows into Bitcoin as a marketable security on their balance sheet. Dude, there's no way that's gonna outpace the underlying currency, at least from my projections in the next three years. There's just no way. so it'd have to be some type of meaningful amount. If you see a company that would go crazy and, and say, \"Hey, I'm gonna denominate my entire unit of account for all free cash flows into Bitcoin,\" and that's the key point is if a company So, you know, like when a company makes a hundred bucks on their top line and their bottom line's ten bucks, ten percent margin from their top line. Let's just do some real generic. We're not getting into amortization or depreciation or anything like that. We're just gonna say that that $10 is free cash flow, just generically. If that company is taking that ten bucks and they're denominating all of that straight into Bitcoin, that might catch my interest. You're gonna need, you're gonna need something like that to outpace the currency. And I view it as a currency, I'm calling it a currency, even though from, for tax purposes, it's treated like a marketable security. So, that would pique my interest a lot, especially if the company had a history of free cash flows and they had assets sitting on their balance sheet that had an enduring competitive advantage in the marketplace, that would really pique my interest. another thing that I would look for with this is going back to, I was t-talking about how I conduct momentum investing. I'd be, I'd be watching the price action and I'd be looking at a breakout in, in Bitcoin-denominated terms for the price a statistical change in, in the price action from a momentum standpoint." }, { "speaker": "stephan", "time": "01:04:54", "start": 3894.41, "text": "Yeah, very, very fascinating, and I think, i-it is worthwhile calling out, as you said, it's, it's a long-term thing. This, you know, this isn't-- we're not talking like next year, this kind of thing. But I, I just think it's, it's interesting just to think about what it would look like, and because we're, we're going through this big transition period. And so I guess- Talking about then, let's say some of the Bitcoin companies today, they-- some of them will think about things in terms of Bitcoin terms, right? Just as like a, more like a comparative, right? So they might just sort of say, \"Okay, am I making money in Bitcoin terms, or am I only making money in fiat terms?\" And in fairness, it's hard to make money in Bitcoin terms today, like it's just-- it's like, it's very, very, it's like extremely difficult. So do you have any thoughts on, how you would-- Value companies in this transition period, w-would you look at companies that are, you know, trying to hold a Bitcoin, as you said, as a market in that transition period, or is this more like something like you would only look at that, that's kind of, you know, fifteen years, twenty years away?" }, { "speaker": "guest_2", "time": "01:05:58", "start": 3958.47, "text": "So if we're talking hurdle rates and IRRs and things like that, they're gonna have a hard time outpacing it. Super hard time. Now am I-- are they gonna be on my radar? Am I gonna be watching them? Hell yeah, man, I'm gonna be watching it. I'm gonna be watching the decisions of the executive leadership, I'm gonna be seeing how they're talking about it in their quarterly calls, and then, You know, it, it's gonna be interesting to track, but as far as if I show up a little late to the game of swapping over into equities for my allocation because they're now denominated all their free cash flows into Bitcoin, and things like that I don't mind being a little late to the game and missing out on a little bit of upside, but, you better believe I'm thinking about those kind of things." }, { "speaker": "stephan", "time": "01:06:48", "start": 4008.93, "text": "Yeah, that's really fascinating stuff to think about, and I, I think, it's, it's, a-and maybe some of this comes back to what we were talking about earlier with, you know, people like Mark Cuban and so on, the people who are balance sheet rich but cash flow poor, because, fundamentally, if, if the world really is changing its numeraire, His, his thinking in the, in, in that right context." }, { "speaker": "guest_2", "time": "01:07:14", "start": 4034.49, "text": "And, and Buffett talks about this in his shareholder letters, I wanna say, oh man, I'm gonna mess it up, but it, it was in the early '80s, I wanna say maybe 1983 shareholder letters, he talks about maybe it was eighty, eighty-one. I can't remember. I, I know that when we think about inflation, back in eighty-one, it was the worst. You had your ten-year like sixteen point something percent back then. He wrote about this idea of companies that have a lot of tangible assets on their balance sheets really struggling in an inflationary environment, and the reason why is because for them to replace, let's just take, if you were a farmer Farmers have tons of tangible assets. They've got tractors, they got this, they got every-- intangible assets, like, nothing. So, If the farmer needs to go out and buy a new tractor, and inflation is rip roaring high, like that depreciation on that vehicle is very difficult for them to recuperate and buy the new tractor whenever the old one dies. When you're dealing with a company that has a lot of intangible assets on their balance sheet, you, you can adjust the prices almost immediately, like, I mean What we're doing right now is an intangible asset that you can run advertising on and whatever, and you can adjust the prices of those advertisers in the future and things like that. So, people that own businesses or business owners, shareholders, who have- Companies with really rich balance sheets that are heavily, intangible as-that have a heavy amount of intangible assets relative to tangible assets, I think are gonna have a much easier time dealing with what's about to happen Just because you're gonna get into a really unique environment with respect to inflation or, I mean, we could go down that rat race of terminology, but Yeah, yeah. I'm, I'm tired of talking about it." }, { "speaker": "stephan", "time": "01:09:18", "start": 4158.04, "text": "Yeah, yeah, no." }, { "speaker": "guest_2", "time": "01:09:19", "start": 4159.56, "text": "Go ahead, Stefan. Yeah, sorry." }, { "speaker": "stephan", "time": "01:09:20", "start": 4160.78, "text": "Oh, well, I think to me, I think we can draw lessons from history as well, right? So reading books like, The End of Money by Adam Ferguson is a good one, talking about the way people were viewed when they were trying to store their wealth outside of the traditional or, or the local fiat money. I wonder, in your mind, I know you're quite well-read as well, I mean, you've got this whole, row of books yeah, incredible, series of books there. Are there any things that you can see as parallels from, you know, when humanity or certain parts of the world were changing over from one money to another?" }, { "speaker": "guest_2", "time": "01:10:04", "start": 4204.81, "text": "I mean, when I've-- the, the most drastic scenario for me is 1920s Germany. It's just mind-boggling, what they went through in the pictures and things like that. I think what's, what's interesting about today versus back then is People have read about that in history, everyone's seen those pictures, but that wasn't a time when money was not digital. Today, money's digital, I don't care what anyone says, like when you can take a credit card and you can swipe it, or you can go online and pay bills and all that stuff, it's completely digital. So what-- this is the question I would pose to somebody. What would a Weimar nineteen twenties Germany hyperinflation type event look like if it happened in the modern era? You're not gonna see the money on the streets. So what would it look like? How would they hide the printing? My opinion is they've been hiding the printing for, for ten years strong with QE In an extreme way, and it's really obvious if you understand how bonds work, because the yields on the bonds have just kept going down globally. And guess what causes that? When you buy and you bid the price. So there's, there's, there's your printing. But when you only have a handful of people in the world that work on Wall Street and they trade billion-dollar bond tranches that see that the price just keeps going up and they get a fat bonus every year, a, they're not gonna complain about it, and b, there's only a few of 'em, so like, who are they telling that, that it's- Not their talent, and that it's just the Fed bidding the price. Nobody. So, that's how I would challenge it. And I don't know that I answered your question exactly, but I think it relates back to that, that specific point in time really rings a bell in my head, and I often ask myself, \"Well, what would that look like in the modern era?\"" }, { "speaker": "stephan", "time": "01:12:04", "start": 4324.25, "text": "Yeah, no, and I think, I think it was a great, answer because we have to just think about who ha-- it's like looking back to who benefits, right? So it's not necessarily like, \"Oh, there's a deep dark conspiracy,\" but it's just more like the people in that system, they wanna benefit themselves, and they're just gonna rationally take the certain actions that benefit them, and if they can find some way to throw off the cost into the future, or they can find some way to throw off the cost in a hidden way, they'll rather do that" }, { "speaker": "stephan", "time": "01:12:33", "start": 4353.85, "text": "Everyone right now. And so I think that's probably, you know, the, I guess, the underlying, concept to try and, understand. And I think, I think we've really, we've really nailed that this episode. So, yeah, I guess if you've just got any, you know, closing thoughts in terms of, considering Bitcoin as the numeraire or any other, pieces that you'd like to leave as a parting, advice?" }, { "speaker": "guest_2", "time": "01:12:59", "start": 4379.56, "text": "You know, I'd say People who listen to maybe this discussion are thinking, \"Oh my god, I gotta, I gotta do all these different things.\" I tell you the exact opposite. I tell you, just keep it really simple." }, { "speaker": "guest_2", "time": "01:13:14", "start": 4394.65, "text": "Charlie Munger has a quote I really like, and I know Charlie Munger isn't the most popular guy in the Bitcoin community, but, but he has a quote. He says, \"Don't just do something, stand there.\" And that's what I tell people to do, is just buy your coins, don't trade them, don't pay short term capital gains tax because you think you can out trade it. Meanwhile, you're running the risk of a major player, major whale stepping in and bidding the price thirty percent in a freaking day, right? Like, you aren't smarter than, than the market price action on this. So don't try to be. Just buy it, just hold it. Don't try to be too cute. you know, we, we were on Twitter today, there was a bunch of people talking derivatives, I was one of 'em talking about doing long calls and just, just forget all that crap. Like, if this stock-to-flow model is right, you don't need any of that stuff. You just gotta keep it simple and don't just do something, just stand there with your bitcoins." }, { "speaker": "stephan", "time": "01:14:19", "start": 4459.03, "text": "I love it. I think that's a fantastic way to finish. listeners, make sure you follow Preston online. His handle is at Preston Pysh on Twitter. and Preston, where, where can they find you?" }, { "speaker": "guest_2", "time": "01:14:29", "start": 4469.82, "text": "yeah, just on Twitter. I really en-enjoy engaging with people on Twitter, so my handle's right there. You can see my name, that's how it is on Twitter. also, I have a podcast. we go by We Study Billionaires or The Investors Podcast. You can type that in, type my name in, and you should A lot of things other than Bitcoin, so if you, if you do have an interest in some of the valuation and stuff, well, you'll, you'll get that itch definitely scratched. But Stefan, I love coming on your show. I love your show. I think you do an amazing job. You ask incredible questions, dude. Please, I would love to come back on your show. I really enjoy your show." }, { "speaker": "stephan", "time": "01:15:10", "start": 4510.96, "text": "Of course, man. I, I really enjoyed, chatting. It's always a pleasure to chat with you, Preston. So, thank you. Listeners, you can find all my stuff online at stephanlivera dot com or at stephanlivera, but, I think that's pretty much gonna do it for us. So, thank you for joining me, Preston." }, { "speaker": "guest_2", "time": "01:15:26", "start": 4526.63, "text": "Great to be here." }, { "speaker": "stephan", "time": "01:15:27", "start": 4527.79, "text": "See you guys in the citadels." } ] }