{ "episodeId": "SLP267", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "joe_burnett_of_mimesis_capital": { "name": "Joe Burnett of Mimesis Capital", "role": "guest", "tag": "JOE" }, "guest_2": { "name": "Guest 2", "role": "guest", "tag": "GUEST" } }, "segments": [ { "speaker": "stephan", "time": "00:09", "start": 8.95, "text": "Hi, you're listening to Stephan Livera podcast, a show about Bitcoin. Today, for episode two hundred and sixty-seven, my guest is Joe Burnett, or you may have seen him on Twitter as three Capital, working with Mimesis Capital and writing on Bitcoin. So today, we're talking a little bit about how big the market for Bitcoin actually is. Maybe we have been underestimating it. So in this one, we also talk about valuing companies and equity in a post-hyperbitcoinization world and what people will do in terms of growth deflation and how's that gonna work. We also talk about contango, which is another popular topic in the Bitcoin Twitter sphere, so I'm sure you'll enjoy this one." }, { "speaker": "joe_burnett_of_mimesis_capital", "time": "00:55", "start": 54.86, "text": "Greetings, Stephan Livera fans. This is Dread here, and I have some big news to share. Swan Bitcoin's new private client services division is open for business. So last August, Michael Strategy's CEO, Michael Seiler, kicked off the trend of companies buying Bitcoin for their balance sheets. A flood of high-profile investors and companies have joined him, names like Paul Tudor Jones, BlackRock, Square, and Tesla. Swan Private exists to meet the massive international demand from thousands of companies, family offices, and high-net-worth investors from all around the globe. If you're thinking of buying between one hundred thousand and one hundred million US dollars worth of Bitcoin over the next year, visit swanbitcoin dot com slash private. That's swanbitcoin dot com slash private. Fill out onboarding form or email the CEO personally, cory at swanbitcoin dot com. That's C O R Y. At swanbitcoin dot com. Respect funds" }, { "speaker": "stephan", "time": "01:55", "start": 114.68, "text": "on one low. Lynd at hoddlehoddle is a non-custodial Bitcoin backed lending platform so you can lend and borrow globally and anonymously. If you have stablecoins like USDT, you can lend them and earn attractive returns. Hoddlehoddle's lending allows you to earn twenty-five percent APR on average, one of the highest returns on the market. Also, if you've got Bitcoin and you need liquidity, you can put them up as collateral so you can get some fiat. Stablecoin liquidity and without trusting your money to any single party, because with Lend at HodlHodl, your Bitcoin collateral is locked in a two-of-three escrow. Lend at HodlHodl is a Bitcoin DeFi allowing peer-to-peer lending, so you can set your own terms and put up offers depending on how long you want to borrow or lend and the interest rate. Go to lend dot hodlholdl dot com. If you're interested in Bitcoin mining, Compass is an online marketplace making it easier for you to mine Bitcoin and enhance the Bitcoin network's security. Compass help you buy an ASIC and secure hosting at facilities around the world that they have vetted for you. So, so for years we've all heard that mining is only profitable if you're investing tons of money, but now with Compass, you can tap into those economies of scale and get reasonably priced hardware and cheap industrial power rates. Check out episode two fifty nine with Whit Gibbs where we spoke about the process and where Compass offer the hardware and hosting bundle, eliminating the need for you to have advanced technical knowledge, and so you can Get started quickly. Visit compassmining dot io and start mining Bitcoin today. Onto the show. Joe, welcome to the show. Appreciate it. Joe, I've been following some of your work. I see, you're one of those, young Bitcoin zuma gun guys who's, been writing a lot of interesting pieces and, you know, wanted to get you on the show and chat a little bit." }, { "speaker": "guest_2", "time": "03:41", "start": 220.85, "text": "Yeah, no, it's great to be on the show. I'm a long time listener, I" }, { "speaker": "stephan", "time": "03:44", "start": 223.83, "text": "guess. Oh, that's great." }, { "speaker": "guest_2", "time": "03:51", "start": 231.02, "text": "Yeah, for sure. So I first, got into Bitcoin, I guess, you know, I guess I would say pretty late, like around twenty seventeen, summer twenty seventeen. And I remember following it on Reddit and thinking, \"I have no idea what this is.\" So it took me months before I even decided, you know, put any of my own personal funds into it. And eventually I was like, \"You know what? Might as well just throw a little bit of money into...\" At the time I had no idea what I was doing, so I, I put some money into some alt stocks, you know, since really young kid. And, and, you know, of course, at the end of the bull run, everything just went crazy and I made like ten x and obviously didn't sell at the top, but on some random coin and I was kind of hooked ever since. of course now, I'm, I'm definitely Bitcoin only, but, but, yeah, after, I saw that, like, you know, what, the potential of, like, you know, what this stuff is, and, and kind of just got hooked, I, I fell down the rabbit hole after that." }, { "speaker": "stephan", "time": "04:51", "start": 290.97, "text": "So Joe, I've seen you've been writing a little bit about how big the market for Bitcoin really could be, because there's different numbers that go around. What's your way of thinking about this question?" }, { "speaker": "guest_2", "time": "05:02", "start": 302.15, "text": "Yeah, so I guess first before- Or, you know, I, I start to like address what I think the, you know, potential market size of, of Bitcoin could be. I think it's important to like understand, you know, like what, what we're, what possible, markets we're comparing it to, and like why Bitcoin could, you know, tem- possibly replace, certain parts of, you know, the financial system. So Bitcoin is like, you know, the world's best monetary good, and it's this good because it's perfectly scarce, portable, durable, divisible, et And because of these, you know, unique properties, you know, individuals or corporations are incentivized to save Bitcoin, and in a way, like Bitcoin is, is like a game theoretic shelling point that individuals have been converging on. And so those that converge on Bitcoin first are economically rewarded, and, even at full adoption, Bitcoin is still the ultimate savings technology, 'cause everyone needs money. And so one, one way, that many people have thought about, comparing- Bitcoin to like traditional world or the analog world, it's comparing it to gold. You know, you hear Bitcoin is digital gold. And so gold's market cap is, is roughly around, ten trillion dollars, and Bitcoin just became the, the equivalent of, of physical gold, in the digital world, it would be half a million dollars, you know, per Bitcoin. And so that's just, in my opinion, one of the, like, the bearish, possible scenarios for Bitcoin, because I think comparing Bitcoin to gold would be a lot like comparing, you know, Alexander's, Alexander Graham Bell's, telephone to the iPhone. It's just, yes, it has the, basic functionality of, you know, the telephone, but there's just so much more, and the properties of the iPhone and the properties of Bitcoin are so much superior to the analog world that that's just the tip of the iceberg of what Bitcoin could possibly be worth." }, { "speaker": "stephan", "time": "06:58", "start": 418.03, "text": "Right, yeah, and so I think that's also a common, you know, even on prior shows I've discussed with Vijay around Different potential, cycle or valuation models and gold being one of the common ones. And then, I guess the idea is Bitcoin actually sucks up not just gold, but also some of the market for, you know, monies today and potentially some of the other stores of value that the world is using because the money today, fiat money, is broken and flawed, and that's why people can't use it to save." }, { "speaker": "guest_2", "time": "07:31", "start": 451.23, "text": "Yeah, absolutely. So as I said, like the gold- Gold, case for Bitcoin is, is, in my opinion, like one of the most bearish, low level cases. we could go a step further and say Bitcoin will eat, or replace gold plus, M2 money supply, which M2 money supply is basically money in your checking and your savings account, so fiat money, that we would think of today, and if you replace the total value of M2 and gold, then it would, we would already be sitting at roughly five million dollars per Bitcoin. And we could even, go potentially Decided to add all global debt into what Bitcoin could possibly, considering, you know, interest rates are basically at all time lows and people that, hold, you know, these hundreds of trillions of dollars worth of credit or debt, financial markets, they're, they're looking for, you know, a safe store of value and Bitcoin could potentially, replace debt. And so if you add in global debt to, the potential valuation of Bitcoin in addition to gold and M2, you could be sitting at seventeen million dollars." }, { "speaker": "stephan", "time": "08:37", "start": 517.1, "text": "Right. And so I think we have to distinguish it. Like one point that's important to make here is that all the money in the world, I mean, yes, fiat money is inflating and they're making more of it, but the money exists in someone's accounts, right? But really what we're talking about here is the relative valuations of those things changing, right? So if there's a certain amount of money in the, certain amount of fiat, you know, dollars circulating around out there, it's really sitting in people's accounts and it's just moving from People's accounts, but really what, what's going on here is people are changing their mental, you know, valuation of that US dollar or their faith in that US dollar or in, obviously, in other fiat monies also. So it's kind of just a, a change in the relative valuation of Bitcoin versus other fiat monies or, or versus fiat monies or versus some of these potential stores of value, things like historically gold and even, as you're saying, the bond, And bond market and the debt markets that are out there. And I guess this also plays into that whole theme, which often I've mentioned on the show and other people talk about, is this idea that we're shifting from a very debt-based economic system into a more equity-based one, where the incentive isn't to-- the fiat standard rewards people who take on a lot of debt and who can play that debt game well, the Bitcoin standard will be different." }, { "speaker": "guest_2", "time": "09:57", "start": 596.83, "text": "Yeah, absolutely. So like you said, the Bitcoin standard, it likely won't be, you know, based on debt. and in fact, We, we are I expect that the, the debt market in, in a Bitcoin world will be, very small, almost nothing, or at least very short term debt, nothing like, you know, thirty year bonds like, like we'd see or ten year treasuries or whatever. we, we just likely won't see, people willing to loan out their Bitcoin for, for that long because, Bitcoin will likely be still appreciating in value, you know, year after year due to, you know, just like the price of tomorrow, Deflation. And so, so, throwing, after like throwing out, you know, those, those like price, potential price targets, i-it's, it's very difficult to like estimate what, what a single Bitcoin, could be worth, because we, we really don't know the propensity to hold Bitcoin that, that individuals and corporations and like local govern- governments, may have. We also don't know how, how, how much people, will value, you know, Bitcoin's risk-free nature and, and no dilution risk. And so it's, it Like people that have significant amounts of wealth won't necessarily, you know, have all their wealth in, in stocks or have all their wealth in real estate. It's, it's more likely that they would have a large portion of their portfolio, in, in Bitcoin going forward." }, { "speaker": "stephan", "time": "11:19", "start": 679.17, "text": "Yeah, that, that's a really tough question because it will be like people have to figure out, okay, so assuming full adoption, people would then have to think about what kind of return, quote unquote return, really what we're talking about is the growth deflation rate or the The kind of the gentle, beneficial deflation that we would all be experiencing if we all lived under a Bitcoin hard money standard, and then also if people wanna get a return or at least an increase in their purchasing power above and beyond what that normal amount is, that's where they're gonna have to take some risk and put that into some kind of equities or into some kind of project, to try and actually generate return. So how are you thinking about that? And how are you sort of, I guess, theorizing about how that might come about?" }, { "speaker": "guest_2", "time": "12:04", "start": 723.5, "text": "Yeah, so it will be interesting It's interesting to see how, like, the equity and stock markets, develop over time, because we're, we've already kind of seen like some sort of, of Bitcoin lending market, like, developing, like, with things like BlockFi, where people are going out and earning either six percent or, I guess, if you have a large amount of Bitcoin, it's roughly about two percent, now, and obviously that's, you know, more debt based, not equity based, but we would, you know, we could expect, Bitcoin holders to, you know" }, { "speaker": "guest_2", "time": "12:35", "start": 755.08, "text": "They, they are willing to part ways, with their Bitcoin. And, you know, in, in like today's world, when people are pricing equities, many use like the US Treasury yield as like their risk-free rate, and, and, and that's kind of true because, you know, the government can always print more money if needed, or tax, you know, the population. But obviously the issue with that is that the dollars that you get back in ten, thirty years or five years, may not be worth much, but they are" }, { "speaker": "guest_2", "time": "13:05", "start": 784.98, "text": "These are stocks in today's world, you know, you attempt to like do a discounted cash flow model. So you predict, you know, your future cash flows that a company, would generate, and then you discount those cash flows back to, you know, the present value, value using a discount rate. And, you know, in today's world, this discount rate could be the ten-year treasury plus an equity risk premium. And the equity risk premium is simply the reward that you would expect, to be compensated for the extra risk you're taking. By investing in a company rather than like lending money to the government itself. Now, in a Bitcoin world, like we were talking about, an equity risk premium would be the excess return that investing in stocks, is, is expected to provide over, you know, a risk-free, real return of simply holding Bitcoin. Or this could also be based off, you know, like lightning pools, the potential, you know, risk-free, or at least non-custodial, non-counterparty, re- Risk free, that you can earn, you know, lending out, liquidity on the Lightning Network. But the, the equity risk premium in the Bitcoin world is, is definitely very difficult to predict, because it'll ultim-ultimately just come down to what Bitcoin holders are willing to, to part ways with their Bitcoin, because they will be the ones that, that basically determine the risk premiums that they are willing to accept for, you know, giving up their Bitcoin. And so a-anyone can, can give their best guess on, on what- What this will be, based off, you know, like the, the six percent that, as, many are earning off something like BlockFi, we would expect the equity risk premium to be slightly higher than the debt risk premium, 'cause equity is just simply more riskier than debt, and so it could be something like, anywhere from zero to thirty percent, maybe ten percent would be a, a good-" }, { "speaker": "stephan", "time": "14:55", "start": 894.71, "text": "Gotcha. Yeah. So, I guess walking that back just for listeners who aren't as savvy with finance and economics and, you know, finance classes and stuff Uni. The point with, the current modeling for a lot of equities is they do what's called discount cash flow. So for example, they take into account the time value of money and they put that, and typically they'll use, you know, the risk-free rate or some, some kind of rate there, and, that, plus, like, as you're saying, that premium. And if you, as an example, say the total of that is five percent or is ten percent, you might say, okay, I'm expecting a cash flow of a thousand dollars in By, you know, let's say you're, we're using the rate of five percent, you would, you know, put that one thousand dollars over one point o five, and then let's say you're getting, you know, one thousand one hundred dollars in two years time, and then you're dividing that by one point o five squared. And so the idea is you're doing this to try and account for the time value of money, because you could have been using that money to do something else. In this case, you could have been holding the ten year treasury, or you could, maybe you" }, { "speaker": "stephan", "time": "16:05", "start": 965.02, "text": "Try to use to figure out, are they actually making good use of the capital? But then, now that's the current world, right? And then translating that into the Bitcoin world is a little bit different because there is no, quote unquote, you know, government bond risk-free rate. We are now talking in Bitcoin terms, and Bitcoin has no, inflation beyond the twenty-one million, and so it's, I guess, it's an open question, and, we have to think about what do we think the, if you will, the growth deflation rate of the economy For me, right? So someone like, some of the Austrian economists, like, you know, Salerno or Hulsmann, who I've interviewed on the show, or Philip Bargas, who, who I've interviewed and talking about deflation and what would that sort of look like in this kind of deflationary environment, and so I guess if you had to kind of guess at least what, what, what do you think, these, these kind of numbers might be, in terms of the growth deflation rate or what kind of numbers are you thinking about there?" }, { "speaker": "guest_2", "time": "17:08", "start": 1028.06, "text": "Yeah, it's a great question, because it, inflation is always like a, a tricky topic when you talk about it on Twitter or w- or wherever, because everyone has different definitions, you know? Some people will say it's, it's the growth in, in the money supply itself, and then others will say, no, it's, it's a, like a CPI measure. I guess just for this, answering this question, we're obviously talking about, you know, technology deflation, so more of like CPI type," }, { "speaker": "guest_2", "time": "17:35", "start": 1055.36, "text": "When you're buying, you know, food, clothing, or whatever. And so based off the research that, we've done, w-w-we think it's, it's realistic to maybe expect a, a, an average like Bitcoin consumer price, inflation to fall somewhere between zero percent and then even negative ten percent, like the current system, that we have, you know, attempts to produce, you know, supposedly, two percent CPI inflation. And since the, you know, the Bitcoin monetary standard operates under a fixed supply, Bitcoin savers will be the ones rewarded with, you know, future productivity in addition to the entrepreneurs that are able to generate that future, advanced productivity. And in, in the savers, the Bitcoin savers will be rewarded through lower and lower prices. It's hard to know, what that, you know, how, how, how quickly prices would decline. Bitcoin world, but it, it is reasonable to expect prices to decline." }, { "speaker": "stephan", "time": "18:39", "start": 1118.89, "text": "Yeah, this is such an interesting topic and it's hard to estimate what that's going to be, but we can sort of have an intuition there that over time, prices are going to be falling and we will all be better for it as consumers, because the price of the goods we buy will be coming down over time. Now, the typical question that might come at this point, and I've, we've had this, question on the show before also, but just, you know, to sort of have it out What happens for entrepreneurs when prices are falling? How do they make it work when, they are operating in a deflationary or, you know, a growth deflation or technology deflation environment? Is it that their revenue is falling, but also their costs are falling too?" }, { "speaker": "guest_2", "time": "19:21", "start": 1160.74, "text": "Yeah, absolutely. And this is something that a lot of the, like, traditional Keynesians will, will definitely get stuck on, 'cause they'll, in addition to investment, they'll say, \"Oh, well, no one's gonna spend their Bitcoin when you...\" You can huddle it a-and spend it and buy something bigger or, or better next year. And we've, we've kind of like, debunked this myth, just with, you know, computers or iPhones itself. You know, computers are getting faster and faster, every year. you have like Moore's Law where, where the processors are getting faster and faster. In addition, you know, the iPhones are, are getting better and better every year, but that doesn't necessarily stop people from buying iPhones. Now, from the inve-investment perspective, it's, just because, y-you as a business might have to lower your price to remain competitive in the market, your costs are also going down. So, so your, the companies, the suppliers that you're buying your, your supplies from are, are declining as well. And so, yes, y-your revenue, your top, top line growth may be declining, but, but as long as you are remaining competitive in the market, the, the Bitcoin that you're earning year after year, will be more, more, more and more valuable." }, { "speaker": "stephan", "time": "20:33", "start": 1233.25, "text": "The funny thing is, for-- and then when we translate this now to an employer, oh, sorry, an employee's perspective, they may see, well, there's a few different scenarios, and I spoke about this also in my, one of my earlier episodes with Philip Burgers, so people can check that out, but at a high level, your salary as an employee, let's say, might stay the same and your purchasing power might rise, or even more kind of crazy to think about, is that your salary might be falling, but your purchasing power might be increasing even still." }, { "speaker": "guest_2", "time": "21:01", "start": 1261.35, "text": "Yeah, absolutely. Strange to think about and, and many people will, will have difficult time wrapping their heads around that idea. But yeah, I mean, I think, I think what would probably be reasonable to expect is, is throughout your career, your salary like might actually just remain the same because you yourself become, you know, more productive, you, you graduate from job A to job B, and you slowly move up the ranks. but yeah, it is something very, unique to think about and, and I, I don't really think it, it will create like any major- Issues. I think as long as, you know, your, your, your personal prices, continue, continue to decline, it's not a big deal that, that your income either remains the same or slightly declines." }, { "speaker": "stephan", "time": "21:44", "start": 1304.02, "text": "Yeah, yeah. And also, that-- there's also this question as well, one of your articles, you're talking about this idea of what store of value percentage is in equities, because, as we were saying, you know, the fiat money is broken, people can't save into it, and so they are reliant on trying to put some of their savings in- into the stock market. How are you thinking about trying to estimate that as a percentage and what, what kind of, numbers are we talking about here?" }, { "speaker": "guest_2", "time": "22:11", "start": 1330.93, "text": "Yeah, absolutely. So what we did, for our research was we basically created a very simple DCF model, which again is like about discounted cash flows, and we created a, basically a fictional company called Wyoming, Red Rib Eyes, and it would basically be like a small cap, consumer staples, a beef supplier that raised cattle and then sells the premium beef. To the US. And so we, we created a very simple ECF model based off, what, what, what this company would be like, in, you know, today's world where prices are increasing and, and as, and as far as prices, that's their cost and their, their, the price that they're charging for their goods. And so, and we, and, and we also assumed that, that, you know, the amount of ribeye that they were selling, was growing. And but in a Bitcoin world, it was kind of Price and, and their costs were actually decreasing. And so as you can imagine, that changes how, you know, revenue is gonna be, growing over time or, or not growing over time, and it also changes how, you know, their costs are gonna be growing over time. And in the article, I go like much more in depth on, on exactly how we created the model, but, in short, it basically reveals that, that with assuming a, you know, negative five percent, price deflation and Bitcoiners looking for a ten percent equity risk premium when valuing, this, this specific company, we estimated that, you know, the share price of Wyoming Red Ribeye, would actually, be worth roughly seventy-seven percent less than, than it would be valued in today's world. And so looking at that, we, we kind of like came to the conclusion that seventy-seven percent of maybe, you know, the entire equity market or the S&P five hundred, generally speaking, is, is not necessarily- Looking for, an investment or, or like trying to grow, they're really just looking for like a generic store of value. And so it's possible that a large portion of stock market or equity market could reallocate, to Bitcoin." }, { "speaker": "stephan", "time": "24:18", "start": 1458.3, "text": "Yeah. So then that puts up a new price in terms of what the potential, like, if you were to, like, hypothetically, if we were to just kind of add those numbers up, what kind of numbers does it give you in terms of Bitcoin price?" }, { "speaker": "guest_2", "time": "24:31", "start": 1470.65, "text": "Yeah. So going back to what we originally- I talked about where we had gold and into global debt, and now if we add, you know, fifty percent of stocks, and then we could also add about fifty percent of real estate because same with equities, people are using real estate to store wealth through time. if we-- and this is pretty much, you know, in today's world, Bitcoin sucking up pretty much as much value as it possibly can, it would be about twenty-six million per Bitcoin, which is definitely, many people would, would laugh or, or say that out there, but, but it kind of makes sense if, if people are, aren't, you know, invested in these, these equities that have, you know, massive, PE ratios or even, you know, PE ratios that don't exist because these companies don't even make money, people will, will move that, that, that capital, into, you know, something safe or that has, you know, no dilution risk and has no counterparty risk. That's Bitcoin." }, { "speaker": "stephan", "time": "25:27", "start": 1526.8, "text": "So important to note that that is twenty-six million in today's terms, Years time, twenty years time, you know, the actual nominal number might be different, but what we're talking about is kind of just loosely speaking, twenty-six million dollars in today's purchasing power is roughly what we're talking about, right?" }, { "speaker": "guest_2", "time": "25:45", "start": 1545.16, "text": "Yeah, absolutely. I think looking at specific price targets for Bitcoin, in nominal terms, it likely won't make too much sense in the future, just because, I mean, you can, you can go look at the price of Bitcoin and, you know, the Turkish lira. I'm sure if you, if you looked back five years, People there might laugh at you for saying what the price would be, but it, but it makes sense because nominally, in this, this fiat currency that's kind of, you know, just being debased, nonstop due to the extremely aggressive fiscal policy combined with endless quantitative easing in monetary policy, the nominal price simply just won't be, make too much sense." }, { "speaker": "stephan", "time": "26:26", "start": 1585.54, "text": "Back to the show after a word for the sponsors. Unchained Capital are building Bitcoin native financial services, and if you haven't already, make sure you check out my recent episode with Parker Lewis two six three, where we spoke about the products that they've got and also the loans that they offer also. So Unchained Capital can help you set up a multi-signature vault where you hold two keys and they hold one key. If you need help, they offer a concierge service where you can pay, they will teach you multi-signature, they will ship you- Some hardware wallets, they'll answer your questions and deposit a thousand dollars of Bitcoin in your vault. Use the code LIVERA for a discount on that, and make sure you check out their website. They've got all sorts of incredible content. I highly recommend reading through Parker Lewis' series, The Gradually Then Suddenly Series. You can find all of that at Unchained dot com. CoinKite dot com are the creators of my favorite Bitcoin hardware wallet, the Coldcard. The Coldcard has all sorts of features, like the ability to use it airgapped, so you literally never have to plug it into a computer if you don't want to. You can get a micro SD card, and you can plug your Coldcard into the wall, or you can get a cold power and power it that way, and then you can use it with wallets like Specter Desktop, or Sparrow, or Electrum, or BlueWallet and do airgapped transactions. The Coldcard also Also has all sorts of features and high security at such a relatively low price point. You can use it in a single signature wallet or as part of a multi-signature wallet also. So go and get yours at coinkite dot com and use the code livera to get a discount. And while we're talking about hardware wallets and securing your coins, have you thought about backups? Cyphersafe dot io are producing metal backup seed products like the Cipher Wheel. So it comes in a wheel shape, it's compact, it masks the words of your seed. As well, and you slide in some tiles, four tiles for each word, and that helps you keep the backup. Don't just rely on that piece of paper that comes with your hardware wallet, that isn't fireproof, waterproof, rustproof, petproof, and tamper evident. So make sure you or your loved ones have access to your bitcoins if an accident occurs. Go to ciphersafe.io and order your device now, use the code LIVERA for a discount. Back to the show. Yeah, exactly. And another point to consider is that the world we live in today has all of these various institutional arrangements that push people down a certain pathway. A quick example is the setup-- so in Australia, it's called superannuation. I know in the US, it's called 401k, and people have like their IRAs and so on. And basically, the setup is basically that people are pushed into storing all this money into the stock market because, again, coming back to that base problem we were saying-- You can't save with fiat money, so people are pushed into, you know, chasing for yield or chasing into, and that pushes a lot more money into the stock market or into the bond market or potentially even the property market that might not have otherwise gone there, because if we were living under a gold standard hypothetically or today, a Bitcoin standard, those people might not have taken it on themselves to invest so strongly into the equity market like they do today, because as a system, many countries around the world have kind of- Have pushed their employees and, you know, people into this track, and so we've, we've, it's like a path dependency thing. We've been pushed into this path, and the Bitcoin future may not necessarily be like that." }, { "speaker": "guest_2", "time": "29:50", "start": 1790.44, "text": "Yeah, exactly. Well, like, you know, Bitcoin, like I said, it's, it's the world's best monetary good, and, and the best monetary good is, is gonna preserve your purchasing power through time. It's gonna-- and that's what it does. It's a monetary good is, is, it allows you to send value or wealth through world, our, our money is just fundamentally broken and people have started to replace, you know, their savings with, their 401k, and which obviously just includes, you know, stocks, bonds, REITs, real estate, and all sorts of different, risky, assets that a- that actually have risk, and instead of your money which, which is supposed to be safe or ideally should be safe." }, { "speaker": "stephan", "time": "30:36", "start": 1836.41, "text": "Yeah, it's a great irony is- The great irony here Here is that if you go out and sell financial products, it's like, no, you need to be a registered financial advisor, you need to be licensed, blah, blah, blah, and they do all this stuff. But the irony is, they haven't done well at actually helping people save themselves from the problems. It's just this system has layered on and tacked on all these different interventions to deal with the problems brought about by the first few interventions, and now we're just living in this trash kind of, as, as my friend Pierre Rochard would say, it's the high velocity trash economy" }, { "speaker": "guest_2", "time": "31:09", "start": 1868.77, "text": "And to me, it will be interesting, interesting to see how like the financial advising space, progresses, because obviously, like you're saying, n-nowadays, they basically say, \"Well, diversify into pretty much everything. You buy stocks, and you buy real estate, and you buy bonds, and, and your stocks need to be U-uh, US equities, and they need to be like foreign equities, and they need all this different stuff, and, and at the end of the day, you're just kind of like putting all of your eggs in five hundred different baskets, Where it's going or what, what you're funding. And so it's gonna be really interesting to see, in the future if, if people even need a financial advisor. I, I kind of suspect that you, the average person that isn't, you know, ex-extremely wealthy, I guess, will just save Bitcoin because that makes it a lot easier. There's a lot less risk taking and you still, still earn the, the, the safe, real return that you'll be rewarded by just, you know, the deflationary, technology, Entrepreneurs will be basically giving you." }, { "speaker": "stephan", "time": "32:11", "start": 1930.59, "text": "Yeah, it's a really interesting way to think about it, because in a very-- obviously I'm speaking in a very loose sense, it's kind of like holding Bitcoin, it's like holding an index fund that tracks all of humanity's productivity growth. And so as, you know, the entrepreneurs all around there, all out there are working hard to try to accumulate capital and then put that into a business that can produce products or services even cheaper than, you know, some other entrepreneur or even better than some other entrepreneur, we as consumers all benefit from that And here's the other benefit, as employees, guess what? The, the capital that those entrepreneurs are accumulating and investing into that business, it makes us more productive as employees when we are an employ-- if we are an employee in that business. So it's just a massive benefit all around, and I think this is one of those things where people look at rich people and say, \"Oh, see, the rich people, they're holding us down,\" and but the reality is, how many yachts and things that Jeff Bezos has doesn't impact the ability of people like you or me to- to enjoy our lives, but the reality is the capital invested by, you know, these rich people and billionaires and so on is making our lives better, in, in the sense that we can buy products cheaper and it also in-increases the productivity of our labor, because as employees, we're able to use advanced machinery or computers and the internet and printers and whatever other technology that we need to actually do our jobs, that's, you know, for employees." }, { "speaker": "guest_2", "time": "33:36", "start": 2015.67, "text": "Yeah, absolutely. I think it kind of goes to the idea of the- Of the, the cancel on effect, where, you know, the, the people that are being rewarded, in, in today's society are already very wealthy, because quantitative, you know, purchases, bonds and lowers yields and that bumps up the asset prices of everything to, and, and that, and a defi- a debt-based monetary system like we have today that kind of keeps the economic machine, going. And I think, like you said, in, in a Bitcoin world, the technology and, and the growth that we see actually get allocated to, to the people and, and, and to, what, what, what actually helps everybody. And I think part of this, this like interesting dynamic is, is why we're seeing the rise of, of socialism and MMT, because people, you know, are, have kind of recognized that it's kind of rigged, that, that everyone, is kind of just a debt slave, and, and the people that get rewarded when stocks go up aren't, aren't the people that, you know, have a small amount of money in their 401k or Any money, or they're just in debt up to their eyes. The, the people that get rewarded are the people that are simply own tons of real estate or, or tons of stocks, and, and it's kind of a big swift, a switch that, that could happen, it's very interesting." }, { "speaker": "stephan", "time": "34:53", "start": 2092.98, "text": "So the change to an equity based economy, it might end up being that a typical family might, you know, store, you know, stacks at basically, and each person is earning money and they'll be stacking that away into, you know, hardware wallet, multi-sig, whatever, And, you know, there'll be a, a gamut of options, right? Some of those people will be using, like, you know, a hybrid sort of Unchained Capital style multisig sort of thing, or others might just be doing it fully self-sovereign on their own open-source wallets and things like that, and then they'll just be saving up to buy the things that they need, whether that's a house or the, you know, family car or whatever it is that they need, and as opposed to now where the model is more like, no, just go into These, you know, this massively bloated financial services industry who are all clipping the ticket on you at, you know, the registered advisors and blah, blah, blah, because you gotta be a super genius to be able to invest your money. Like, I think the, those, I guess high level, I'm thinking that's, you know, the long term vision of how I see it going, but how, how are you thinking about that kind of idea?" }, { "speaker": "guest_2", "time": "35:58", "start": 2158.04, "text": "So I think very similar to that, I, like I was talking about, I don't think people will necessarily have financial advisors anymore" }, { "speaker": "guest_2", "time": "36:09", "start": 2168.81, "text": "Bitcoin likely, hopefully, using their own, private keys, whether it's with, multi-sig solution like Unchained Capital or Specter Wallet, or just, you know, a single-sig wallet. And I, I, I don't think that the people, the average person, will be taking, you know, the risk of, of investing in different stocks. Like the average person, whether you're, you know, an engineer, a doctor, a lawyer, or, or just, you know, someone that works in a factory, you'll In that specific, you know, job, that specific task, you won't also have to be an expert stock picker, and even in today's world, like there aren't really that many expert stock pickers, so people are kind of just throwing money out at, you know, GameStop or any random meme stock that, that is, popular for the week and that's definitely not that great for society, and I think the world would be a much better place if people could just use, effective money that, that actually allows them to save for the future and then they can- Focus on more important things in life instead of random finance stuff that doesn't really matter." }, { "speaker": "stephan", "time": "37:15", "start": 2234.9, "text": "And so I guess in that model, in that vision, maybe high net worth individuals might still use some kind of family office for their own advanced level tax planning and estates and all that kind of thing, and maybe, you know, some mix of investing, but the average person out there and most people are just gonna be stacking Sats, and that will just be a return to just what we used to call saving, right? So I guess that's one way that, you know, we might hypothesize this plays out. also another thing I know you've been writing on is this whole Contango thing. So let's get into this. So, Joe, what is Contango?" }, { "speaker": "guest_2", "time": "37:51", "start": 2270.64, "text": "Yeah, so Contango is a really interesting thing in the Bitcoin. Contango is when the futures price of Bitcoin trades higher than the spot price. So, for example, I'm just gonna make up numbers right now, but the July futures contract could be trading at sixty-five thousand dollars and spot- Bitcoin could be trading at sixty thousand dollars. And so sometimes when this happens in more like traditional commodity markets, it's because there's like a cost of storage. So it could be with oil, it could trade a high-- the, the futures contract could trade higher than the spot price because no one wants to store the oil in the middle or however, or, or it could trade-- the futures price could also trade less than the spot price. But in the Bitcoin, futures market, it trades in contango, which means futures price is higher, than the spot price. Driving like premium, why is it? In my opinion, it's, it's because of, of people demanding to go leverage long, because obviously, over the last few months, if, if you've been leveraged long, it's been a pretty profitable trade, and if you've been short Bitcoin, that's been a very unprofitable trade. But there's two basic ways to get leverage long Bitcoin in futures market. So the first way would be using like the perpetual swap, which this is probably, if you've been on like BitMEX or Deribit or One way that, you know, the average person, would see it, and you basically can just buy, what's called a perpetuals futures contract, which actually charges a funding rate every eight hours. So this funding rate is typically paid, by the longs to the shorts because a lot of people want to leverage long Bitcoin. And I think last I looked at it, this funding rate, if you annualized it over like the past month, it would, it would have been like about thirty-five percent annualized. So you-- so if you're going leverage Using the per-perpetual swap, you'd be charged, you'd be paying the shorts, like thirty-five percent annually, roughly. And so another way to go levered long Bitcoin if you don't wanna pay that thirty-five percent that can change every eight hours, so, so if Bitcoin's going up a lot, that, annualized rate could be extremely high. You could also do, a four futures contract. So, for example, you could, you could leverage long the June futures contract, and right now that trades, I think at roughly, depending on the exchange," }, { "speaker": "guest_2", "time": "40:09", "start": 2408.75, "text": "You, were ta-more, inclined to take like a, levered long position that you had no intention of selling, anytime, soon, maybe like, or at least wait until June or July, then that's probably a better way to go about it because you're charged basically less for going long, the shorts are making less, if they, if they are, are shorting them, or there's just, there's just less of a premium. And so I guess a, a lot of people, have, have questioned like, why, Many, many funds are already doing this, where you buy Bitcoin and then you short the July futures contract, and you can actually capture that, that twenty-five percent annualized spread. And it's, it's, it's not risk-free, but, the only risk is mainly, exchange risk. Like does the exchange custody the coins correctly? And are they not gonna get hacked? And as long as you're willing to take that risk, you can earn, you know, twenty-five percent annualized, no matter what the price of Bitcoin does. And so a lot of Fascinating that, that this, basically simple arbitrage trade is, is sucking up a lot of coins off, off the market because to perform this trade on Kraken, Deribit, Bynance or wherever, you need to buy Bitcoin to do it. And so it's a, it's a very interesting dynamic where there's this very large, premium that, that people can arbitrage out, and, and it still hasn't disappeared yet, which is kind of fascinating." }, { "speaker": "stephan", "time": "41:33", "start": 2493.49, "text": "Yeah, right. That the person doing that trade, in some sense, they are capping the- Their upside, because if you, like, let's say you're a Bitcoiner trying to do this, do that trade, you are basically saying, \"I'm giving up the future upside above and beyond what that future contract is.\" so this kind of makes a little bit more sense for people who are USD-denominated, if you will. So if you're a US dollar person, if you're a fund who is trying to make US dollars, then this is a way to capture, to make that return, but yeah, certainly it's a very interesting phenomenon that we're seeing" }, { "speaker": "stephan", "time": "42:09", "start": 2528.83, "text": "People are, are realizing what Bitcoin is, they're trying to buy it, they're trying to go long, maybe we've got a lot of DeGen gamblers out there, who knows? And so fundamentally, it's just all these people running in to try and buy Bitcoin, and then it's creating this opportunity for the arbitragers to do that trade and try to get what, quote unquote, risk-free return. Obviously, you are taking some custodial risk, and you're kind of, you're, you're putting some trust into the platforms that are helping you do this, but Those platforms is sort of saying, okay, I'm comfortable taking that level of risk or maybe whatever. In their mind, they think, okay, it's a regulated platform, the government will help me if something goes wrong, blah, blah, blah, right?" }, { "speaker": "guest_2", "time": "42:49", "start": 2569.38, "text": "Yeah, exactly. And one of the things that's really interesting about it being a twenty-five percent plus annual return, annualized return right now, is looking at, you know, the current bond market that exists. So the, the, the rates that you can, you can earn on like a thirty-day treasury are pretty much zero. And so" }, { "speaker": "guest_2", "time": "43:09", "start": 2588.77, "text": "You can be earning that aren't, aren't entirely risk free, but, but very low risk, in my opinion, are, are, are very, interesting. Yeah. So it'll be interesting to see, you know, how, how this develops over time and, and if the, premium starts to compress. I think, I think a big part of why it exists, like you said, is because the people that feel comfortable, dealing on platforms like Binance and BitMEX and Deribit are people that are already into Bitcoin and they don't care about" }, { "speaker": "guest_2", "time": "43:39", "start": 2618.75, "text": "That Bitcoin, you know, has delivered in the past, many people think it will continue to deliver in the future. And so, so they're not willing to take the twenty-five percent return, but if you are, you know, like USD-denominated, a more traditional fund, or you simply have access to really, cheap capital from, you know, a credit line at a bank or whatever, it's a great way to, you know, capture that, that spread." }, { "speaker": "stephan", "time": "44:01", "start": 2640.97, "text": "And that also brings the question of, why hasn't this not been arbitrated out by" }, { "speaker": "stephan", "time": "44:09", "start": 2648.95, "text": "People, but or someone doing, maybe a Bitcoin person but doing it using their US dollar money, or some kind of USD fund coming in to try and arbitrage this away, or is it just fundamentally that, you know, the structural nature of Bitcoin is that there's all these people running in to buy it and that's why this opportunity exists?" }, { "speaker": "guest_2", "time": "44:27", "start": 2667.02, "text": "Yeah, no, it is really interesting how it hasn't been arbitrated out, but it's al-- it's also, it's, it's not a like a tiny market anymore. Like I think right now the total open interest on Bitcoin futures is So, so there is definitely, you know, billions of dollars performing the short side of this trade, because I, I highly doubt there's, you know, billions of dollars willing to just short Bitcoin, because that just wouldn't be a smart trade, and you probably would have been wrecked by now. But again, I, I think it comes down to, the people that are already in the space recognize like that Bitcoin is actually extremely valuable, to begin with, and so they don't feel comfortable, you know, trying to get the twenty-five percent return, because they think And I think the funds or people that, you know, are willing to perform like such, unique trades that you're not dealing necessarily with the Nasdaq or, or the New York Stock Exchange, you're dealing with, you know, Binance or, or Bitmex, they, they would rather probably just allocate a small portion of, of their capital to maybe Bitcoin instead of trying to do a very, like, unique, trade that, that they're definitely-- they probably necessarily don't understand, like, they don't understand the platforms, they don't really Bitcoin, and That risk or, or jump into something like this." }, { "speaker": "stephan", "time": "45:42", "start": 2741.85, "text": "So a lot of people have that discussion around, \"Oh, is Bitcoin priced in, right? Is the halving priced in?\" And I think the answer in one sense is that a lot of the world hasn't woken up to that yet, and that, yeah, there's a few hardcore Bitcoin people, but those Bitcoin people are probably already all in or as allocated as they can get, as they can reasonably be, and so it's just a matter of time until the rest of the world starts to wake up to that." }, { "speaker": "stephan", "time": "46:09", "start": 2768.89, "text": "In stocks and bonds and real estate, and again, coming back to what you were saying, it's relative valuation, right? Those stocks still exist, it's just that people in their mind have to change their relative valuation of stocks and bonds and real estate, put it into Bitcoin, and that's just this process over time of the world waking up to this, what's your view on that idea?" }, { "speaker": "guest_2", "time": "46:27", "start": 2786.8, "text": "Yeah, the-- I love like talking about the efficient market hypothesis, or hypothesis, and, and thinking about it because, you know, you would, you would think that, that if, Then we would, Bitcoin would either be worthless or there would be hyperbitcoinization. So it's, it's kind of funny how we're, we're somewhere in the middle. I think the EMH, our efficient market hypothesis, i-is typically like barely accurate, 'cause I think free markets are the best known way to price goods, services, and investments, and that's why, you know, capitalism works significantly better than communism. but I think for markets to be perfectly efficient, I, I think that's, that's somewhat kind of wrong. I think it's kind of wrong for, Just because, you know, information, is very accessible, doesn't mean, a majority of, of capital in the world has actually looked at the information. And then number two, is even if the, the, the individuals that have capital to allocate have looked at all the information, it doesn't necessarily mean you understand the implications and like the interactions between this information and the actual world. And so again, it just comes down to individuals making the best possible decisions that they can based off information that they've, digested. Invested and, and what they understand from that information. And I think what we've seen is, is over time, over the last decade, more and more individuals and corporations are, are learning what Bitcoin is. They're, they're learning that it's, you know, number go up technology, it's the world's best savings technology. I think what we're seeing is, is markets trending towards efficiency. I think that's part of the main reason that, that Bitcoin has been, you know, the best performing asset, even risk adjusted if you're looking at the Sharpe ratio. So Volatility, Bitcoin still, dominates, traditional markets, whether it's equities, bonds or whatever. And I think what we've seen is, is Bitcoin, continues to, to trend towards the, its most efficient price, and that's why we have these crazy parabolic repeated bull runs." }, { "speaker": "stephan", "time": "48:25", "start": 2904.9, "text": "An interesting idea. So for a long time, people saying, \"Oh, look, this GBTC, there's a massive premium,\" and now recently, that's been arbitrated closer, you know, down. And I wonder, could a similar thing happen here in the, Bitcoin, maybe it's a matter of time, and what would it look like if somebody were to-- or if people collectively, or enough people collectively were to go and eliminate that, by, you know, doing this trade?" }, { "speaker": "guest_2", "time": "48:50", "start": 2929.68, "text": "Yeah, absolutely. So, so back in, so, so throughout Bitcoin's history, like the futures market hasn't been super developed until recently, but in twenty seventeen, Bitcoin did trade in Contango, but then back in twenty eighteen, I think for most of the year, it traded, traded in backwardation, so that meant the futures price was actually That's because, more people wanted to be short Bitcoin while it was going down, than more people that wanted to be long. So it definitely can switch out of Contango, certainly possible. But I think as long as the market is generally bullish on Bitcoin, you know, for, you know, the foreseeable, you know, next few months or the next few quarters, we can expect it to still be around. And, and again, like, it will be interesting to see if enough capital, or individuals decide to, to allocate their capital to this trade, See what happens because to, to, to make this trade, you need to buy Bitcoin, and to use Bitcoin as collateral to, to, to short the futures contract. And so, like I said earlier, it's, it's kind of sucking up the, the supply of Bitcoin anyway. So I think, if you really take a deep dive into this trade and, and, and what it is right now, you kind of realize, oh, well, why should I make this trade when this trade is gonna drive up price of Bitcoin? Just the, you know, the fact that this Might as well just buy Bitcoin. And then you kind of get down the Bitcoin rabbit hole, and you, you know, you, you recognize it's, it's the world's best monetary good. So, so some people may, may discover this and may start the trade, and then they may just decide to hold Bitcoin instead. But yeah, again, if there is a, a significant downturn in price that's somewhat sustainable, maybe we get up to crazy high levels and markets gets overheated and, and people, the price just starts to decline, then it can, the trade can certainly go" }, { "speaker": "stephan", "time": "50:39", "start": 3038.91, "text": "Yeah, it could also be that maybe now rightly or wrongly, right? I'm, I'm not saying, you know, stock to flow is correct or stock to flow is wrong or whatever, 'cause I'm sure there'll be debates about that too, but rightly or wrongly, there might be a bunch of people who try to trade that model, and they might try to say, \"Oh, look, we've gone above the model, we're overshooting, now it's time to sell some,\" and that fact may also, contribute and become a bit like a self-fulfill" }, { "speaker": "stephan", "time": "51:09", "start": 3069.15, "text": "The price might just completely blast away and go even higher, so they could get in trouble there, but maybe that's another possibility there." }, { "speaker": "guest_2", "time": "51:16", "start": 3075.72, "text": "Yeah, no, it'll be really interesting to see, you know, what actually happens with, regarding the stock to flow model, because I definitely do think that, that people will, try to use it as like some sort of top indicator, especially this cycle. but the problem with this cycle, I would say, is we're like at a, at a point where there's basically unprecedented fiscal policy and unprecedented monetary policy, and so I think You know, top indicators may not be that helpful, especially this cycle. And so I think it will be interesting to see how, how many, you know, supposedly smart money, smart Bitcoin, does try to maybe exit or take some chips off the table if stock to flow model or other indicators begin to say we're overheating. and again, I don't, I don't, I wouldn't feel very comfortable, selling a significant amount of my position or my Bitcoin at all, but I'm sure that there probably will be a few people that, They're making a great decision. Problem is if they, if they come out with some crazy UBI, stimulus bill after that that gets funded, basically directly from the Fed buying treasuries or, you know, euros or however, however they wanna do it, the price could just keep shooting up. So it'll, it'll be super interesting to see how that develops over time." }, { "speaker": "stephan", "time": "52:26", "start": 3146.38, "text": "Great. What else are you looking at? are you able to maybe hint for any listeners, any other pieces of work that you're, you're working on or research or things that" }, { "speaker": "guest_2", "time": "52:35", "start": 3155.25, "text": "you Something, probably in the next couple weeks, just about the bond market and how basically bonds and Bitcoin are a two asymmetric trades, except Bitcoin is an asymmetric, asymmetric trade to the upside, and bonds are an asymmetric trade to the downside. But other than that, I'm, I'm just doing research at Mimesis Capital, which is, you know, a very Bitcoin focused family office based out of Taiwan, and, and like Michael Saylor, we, we believe that, you know, Bitcoin, i-is, you know, a massive wealth transfer It's a great opportunity. And so we've adopted, Bitcoin as our treasury reserve asset and, you know, just our investment benchmark. And so in addition to, to the research that we've been doing, I help do due diligence and just general research on Bitcoin startups, in the ecosystem. And so that's pretty much, what I've been doing. And, and if anyone has, you know, more research that they want me to do and, and take the time to write and share with the community, definitely, DM me on Twitter and, and reach" }, { "speaker": "guest_2", "time": "53:39", "start": 3218.83, "text": "Ideas." }, { "speaker": "stephan", "time": "53:40", "start": 3219.59, "text": "Excellent. Where can people find you and find Mimesis Capital?" }, { "speaker": "guest_2", "time": "53:43", "start": 3222.71, "text": "Yeah, so I am on Twitter, I'm III Capital, and III as in I I I. So you can definitely find me on Twitter, follow me, DM me, my DMs are open. And then as far as Mimesis Capital, you can find us online, mimesiscapital dot com, and you could also follow us on Twitter, it's also at mimesis capital, and that's also in my Twitter bio as well." }, { "speaker": "stephan", "time": "54:06", "start": 3245.67, "text": "Excellent. thanks for joining me today" }, { "speaker": "guest_2", "time": "54:09", "start": 3248.87, "text": "As well. Glad to, be on the other side of, of the, the headphones, I guess, this time." }, { "speaker": "stephan", "time": "54:14", "start": 3253.94, "text": "Our friends and family aren't bullish enough on Bitcoin, so make sure you share this episode with them. They can get the show notes and the transcript at stephanilivera dot com slash two six seven. Thanks, and I'll see you in the citadels." } ] }