{ "episodeId": "SLP605", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "andy_edstrom": { "name": "Andy Edstrom", "role": "guest", "tag": "ANDY" } }, "segments": [ { "speaker": "stephan", "time": "00:11", "start": 11.21, "text": "Hi everyone, welcome back to Stephan Livera podcast. This show brought to you by Bold, the best place to buy, save, and store your Bitcoin over at getbold.io, that's for American listeners. Now rejoining me today on the show is Andy Edstrom. Andy is the author of Why Buy Bitcoin. He's also an advisor over at Onramp. Bitcoin and also a podcast host of scarce assets. Andy, welcome back to the show." }, { "speaker": "andy_edstrom", "time": "00:37", "start": 36.59, "text": "Stefan, it's a pleasure to see you. Thanks for having me on." }, { "speaker": "stephan", "time": "00:41", "start": 40.63, "text": "So it's been a while since our last, at least recorded chat. Now, we've spoken about your book, obviously, and of course, about why people should be wary of leverage. But of course, it'd be good to, you know, get some updated thoughts on these things. Of course, here we are in September twenty twenty-four. It's been a while. I remember when I first met you, I think it was Bitcoin twenty-nineteen at the conference, actually. So, it's been a few years. but let's, let's just kind That, you know, 2019 compared to today in Bitcoin." }, { "speaker": "andy_edstrom", "time": "01:14", "start": 74.34, "text": "Yeah, wow. And what a phenomenal conference that was. I was at that point writing the book, and I think I was around halfway through the draft. And it was only a couple thousand people, I think, and I met all these great Bitcoiners who would go on to do great things, especially, yourself included. but yeah, a lot of water under the bridge. And, you know, definitely the story has changed a bit. Definitely the asset class and the participation levels and just the level of conversation on the world stage. I mean, what a, what a difference When you've got presidential candidates, multiple presidential candidates talking about Bitcoin, talking at the later version, you know, the later incarnation of the, of that same conference it's, it is a different world. You mentioned talking about debt and talking about leverage. I think our last episode was May of twenty twenty-one, and as you said, the theme was \"Careful with leverage in Bitcoin,\" and I think that episode came out literally days before Bitcoin dumped twenty percent, I'm talking about in dollar price, and then another thirty percent off that base. So Fifty, or off the original base, so suffice to say that soon after we were warning people against using leverage, Bitcoin fell by about half. And, so I hope that, we saved your listeners, some of your listeners, some pain with respect to avoiding leverage. By the way, if memory serves, I think maybe price right before that episode was around fifty-eight K. So shout out to the fifty-eight K gang," }, { "speaker": "stephan", "time": "03:01", "start": 180.71, "text": "fifty-eight K" }, { "speaker": "andy_edstrom", "time": "03:01", "start": 181.31, "text": "gang." }, { "speaker": "stephan", "time": "03:02", "start": 181.61, "text": "Fifty-eight" }, { "speaker": "andy_edstrom", "time": "03:02", "start": 182.23, "text": "K gang. Exactly. so yeah, a lot of, a lot of, Water under the bridge since then. It's five years now since the publication of Why Buy Bitcoin? Interestingly, with respect to where we are in terms of price, we're kind of right on track with the framework that I presented in the book. I'm sure we can get into that if it's of interest to you. But yeah, it seems like we're still in a bull market, that's my expectation, despite the fact that price has kind of gone nowhere for Six or seven months or so. And, yeah, I'm still quite bullish for Bitcoin in the long term. I'm bullish in the medium term, and then in the short term, I always say, \"Who knows? We have no idea.\" But my sense is that we're still in a bull market today, and that there are likely gains to come in the price of Bitcoin. And meanwhile, adoption is growing, politicians are talking about it, and a lot of good stuff is happening." }, { "speaker": "stephan", "time": "04:07", "start": 247.08, "text": "So I guess while we're here, it might be a good spot to just chat on your thoughts on price modeling. So it seems to come up every, you know, every few years. Now, of course, you know, I've, you know, covered a few of these models on my own show, I guess last cycle a lot of people were excited about stock to flow, now obviously a lot of people aren't so excited about that, depending on, you know, your interpretation of, you know, how to look at these things and, I guess how much weight you're putting into these things. I think for me, from my perspective, I've always said, you know, don't trade based on these things and just, you know, here it is, out of curiosity. Now we are seeing a lot of people talking about the power law model and, maybe that Any thoughts on these models, how to think about them, and where, you know, where they can be useful or where they're not useful?" }, { "speaker": "andy_edstrom", "time": "05:01", "start": 301.43, "text": "Yeah, so I think I'll zoom out to finance in general. You know, that's where I came from, the dark and dirty world of tradfi, fiatland, and boy, we love us some models over there in finance land and, in fiat world. And there are, history is Littered with models that are constructed to predict asset prices, and most of them fail there's this notion with respect to hedge funds, other investors, other traders looking at historical data Especially with respect to price, this is called, some call it back testing with respect to building a model, based on such historical data. And they back test a mo-- they create a model, they back test it, it fits the data historically, and they say, \"Great, we're gonna use this to trade in the future.\" Ie, we're gonna use it as a predictive tool for what the price of the asset will be in the future, and surprise, surprise, most of those models fail. And, you know, without getting too far into statistics There are several reasons such models can fail. One is they might just not be based in logic. Two is it may just have been luck and randomness. Three is this notion called data mining, which is if you search through enough data, you're gonna find patterns, you're gonna think-find things that look like patterns that aren't actually based in the real drivers of an asset price in the future, and ultimately they fail to predict asset price. So when I think about- Do I wanna give credence to some model that's gonna attempt to predict the price of an asset in the future? I ask a few questions. the first is, yes, does it fit the data historically? Okay, that's great, that's like bare minimum, but not sufficient The second is, is there a logic to why the future price movements might conform to the historical price movements? And then third is, okay, great, you've got a, you've got a historical model and you've got logic. Now, specify it, state it publicly Start the clock and see how it does over time. So, great, come up with a model, let a few years go by, figure out whether the model is working. Now, in my experience in Bitcoin land, most of the models that have come to the surface, they may have a, you know, they may have some logic For why they might predict price in future or might, or what they have predicted price in future. That's good. also they fit the data, at least Loosely, let's say very loosely, perhaps that's because Bitcoin's purchasing price is so volatile, over time, at least in the short term. But what they don't usually do is specify the model and then watch some time go by and see the model work. Most of these models have failed to work, in fact, some in spectacular fashion. So those are kind of the requirements that I impose. By the way, when I think about the potential value In dollar terms or in purchasing power terms for Bitcoin in the future, I don't use such a model. What I use is the same framework I put forth in Why Buy Bitcoin five years ago, which is Here are the asset classes that I expect Bitcoin to take a bite out of, and here's a guess as to what percent they will take from those asset classes over what period of time, and therefore, you know, what does the price look like years into the future? So that's the way I look at it. I'm very skeptical of these financial models, that have been proposed thus far in Bitcoin. The ones I've seen have been Inaccurate, well, factually inaccurate after the fact. Some of them have even been statistically, invalid already when they were specified. And as far as power, law, I don't have a current opinion. I think it's great that someone specified a model and let's watch and see if it works." }, { "speaker": "stephan", "time": "09:34", "start": 573.95, "text": "Great, yeah. And as you said, the concern could be that the correlation could be spurious, right? Like it could be that you think it's predicting something, but actually it's not, right? Like that's kind of one, one, concern. I know, that's something that some of the guys doing these models, they've, as an example, tried to say, \"Look, let me just make the model using data only up until this point, and then does it predict out of sample?\" But then even there, there's still, you know, criticisms back and I'm not gonna get into the weeds of the specific criticisms, 'cause I, you know, I wouldn't be able to do them justice. but I think this mo-- this approach you spoke about of kind of Bitcoin, you know, from a fundamental analysis, is it gonna suck a bit out of, let's say, gold, a bit of equity, a bit of bonds, a bit of, you know, a little bit of everything. and to be fair, you know, there's nothing new under the sun. Like, I'm pretty sure, I recall Trace Mayer coming out" }, { "speaker": "stephan", "time": "10:34", "start": 633.63, "text": "Thought leading, in those days were kind of putting out rough sketches of what it could be, even in those days. And so, yeah." }, { "speaker": "andy_edstrom", "time": "10:42", "start": 642.02, "text": "That's right. Even Hal," }, { "speaker": "stephan", "time": "10:44", "start": 643.82, "text": "I think at one point" }, { "speaker": "andy_edstrom", "time": "10:45", "start": 644.94, "text": "wrote" }, { "speaker": "stephan", "time": "10:45", "start": 645.32, "text": "about-- Right. Had his ten million Bitcoin prediction. Yeah. That's it, the Hal," }, { "speaker": "andy_edstrom", "time": "10:50", "start": 649.5, "text": "the Hal prediction. That was pretty early," }, { "speaker": "stephan", "time": "10:51", "start": 651.1, "text": "I, I, I reckon. Yeah, I think that I, I can't recall if that was like a week after the, Genesis block or maybe like a year later, but it was kind of like within one or two, within a year or so of Bitcoin being out, he was, he was kind of coming up with this idea of, okay, what if it makes this, you know, this kind of thing? I, yeah, so I guess then, okay, I wanna unders- I wanna" }, { "speaker": "andy_edstrom", "time": "11:15", "start": 674.98, "text": "interject one concept too, and I wanna underscore this for people either who are new to Bitcoin or who have been loyally listening to your excellent pod for years and years, okay, which is I think that it's probably reasonable to think about scenarios and what Bitcoin could be worth in purchasing power terms In the future. but already there, there could be a wide variance of alternatives, right? let's say we don't think it dies, although it's not a zero percent chance that it dies. let's say it demonetizes gold, and that's as far as it goes. that would still mean substantially higher purchase price than today, but it wouldn't be Bitcoin reaching its full potential. Let's say Bitcoin does reach its full potential That results in a much higher, price in terms of purchasing power. And so we don't know what scenario we'll attain. And then complicate it further by trying to put a timeline on it, right? That's what a lot of these models have done. They've said, \"Oh, you know, around every halving cycle, every four years, or based on, yeah, what the stock to flow ratio is on a given date, we know it'll, what it'll be based on, when the halving happens, so let's get specific about the timing.\" I think that's basically hubris. I mean, the notion that we can be right About both the scale of what Bitcoin becomes and the timing of that, seems pretty outlandish to me. I'd like to Meet the guy, you know, who's from the future. I doubt that even Satoshi, if he, she, or they are still alive, could accurately predict How and when Bitcoin's purchasing power is gonna develop over time. And so, yeah, it's, I think smarter to prepare for all possible scenarios, be ready for rapid accumulation of value, rapid, you know, widespread adoption, but also be ready for it to take longer than we all think it could or hope it might." }, { "speaker": "stephan", "time": "13:44", "start": 824.18, "text": "You raise an interesting question around timing, right? Now, the typical thing everybody hears is don't time the market, it's timing the market, right? Like that's the normal kind of, let's say, conservative, financial advice or planning concept that most of us would have heard, and this might have been applied in, let's say, Booglehead forums or things like this where people are talking about, oh, you know, look at these index ETFs, if you just bought the index and you did it for forty years and so on, at the end you had enough to retire on that would be kind of the, the typical message, right? Now, at the same time though, people who are Bitcoin hodlers, we're not gonna live forever, and there's still an element of- You know, yes, you don't try to, you know, day trade in and out of things, but it has had these huge moves up and down. What, what's the realistic way to approach this, right? Is it sort of like, okay, it's gone through this big rise, now's the time to, let's say, take a little bit off and let's say, buy a house for your family or, you know, this kind of thing. Like, how do you, like, yes, you're not trying to time the market in the sense of like actively trading in and Once every few years, is that-- does that count as time in the market or what do you-- how do you think about that?" }, { "speaker": "andy_edstrom", "time": "15:01", "start": 900.99, "text": "I like that concept of time in the market, and I like the question. It's a very individual question, as you know. It's, it depends on every individual's facts and circumstances. I think that there is my, my own confidence or hubris with respect to predicting price is tempered by all the bruises and the beatings I've taken along the way with respect to trying to time when Bitcoin price goes up or down, and there are many like me who thought they could outsmart the market, so to speak. and time their entries and exits in that regard. Oh, by the way, if you're gonna do that, not only do you have to be right on the timing, but you also have to beat capital gains taxes. So you gotta be really right if you live in a capital gains tax jurisdiction, which unfortunately I do. Yeah." }, { "speaker": "stephan", "time": "16:02", "start": 961.76, "text": "Yeah, I mean, but to be fair, the, the, let's say the person who's pro mark time in the market, or at least kind of loosely doing it, they might say, \"Look, look, Andy, you don't have to get it perfect. You don't have to time the pico top and the pico bottom. If you kinda got in the range, and theoretically, this is what they would say, they would say, \"Well, you could theoretically take off a little chunk there and, you know, buy back at the bottom, in" }, { "speaker": "andy_edstrom", "time": "16:27", "start": 986.93, "text": "the range besides dollar cost averaging, which allows you to buy a larger number of coins when they're cheaper and a fewer number when they're expensive I have sold bull markets before. I have sold bull markets with non-taxable assets, right? With IRA money. That is for me logically the better pool of assets to do it with if you're gonna, if you're going to, With respect to taxes, although the flip side of that is, if you're really looking at as retirement money, well, then you shouldn't care so much about, about volatility, and also it's probably not gonna help you buy that house or buy that car because it's retirement money and you're not allowed to use it for those purposes. But I will tell you, Stefan, just personally, I have not sold taxable coins, at least not at any size That I can remember. And so, I guess, you know, there's no better advice than telling people what you're doing yourself, understanding that everyone's personal situation is different I think it's tough to sell the top. I do think that Bitcoiners are people too, and as they say, you can't eat Bitcoin. So, you know, if you are, let's say, irresponsibly long or you have a lot of coins and you have- Ambitions for life, you wanna do a few things, maybe you have plans for a family, maybe your long-suffering spouse, does need to get some reward on this very long journey, as we, as we move along through cycle after cycle of Bitcoin. And so, is it completely reasonable to look for the signs of a bull market, to look for the- Signs of excess, of froth, and then try to time your sells for those kinds of circumstances and signals. Yeah, I do think that's reasonable, with the caveat, the reminder that how many of us, myself included, thought we would see six-figure Bitcoin, hundred k Bitcoin in the last cycle, and we never really got the telltale blow off top. I define such a blow off top as roughly doubling the price within a period of a couple months. Every prior cycle had such a blow off top, and we didn't get it in the last one, so the patterns- That work-- this gets back to your question about modeling, by the way, the patterns that have worked in the past that seemed to be predictive in history don't always carry through to the future cycles. So, yeah, I mean, good luck. You can, you can, as you see signs of froth, it might not be a bad idea to part with a few coins if you have Plans for those coins, but, I don't think I can time the top, to be honest with you." }, { "speaker": "stephan", "time": "19:36", "start": 1175.99, "text": "Yeah, and I think it's also the, the dilemma for every hodler is, look, even if you take a small fraction of your coins off, let's say you think it's really toppy or frothy right now, you, you have to, if you're gonna do that, you've gotta basically do it with the mindset of, look, I'm gonna spend these coins, let's say you, you know, you, you need to pay for a medical bill or You know, a life event, you're getting married, you, you know, this kind of thing. But the point is, you should do it under the mindset of, I may never get these coins back, right? Like, I'm gonna spend these coins if it's, if, you know, let's say it's something really important in your life, maybe it's like, I'm gonna take off a fraction and buy a house for the family or buy a car for the family, but I know when I spend these coins, I'm probably not gonna get them back, because look, Like five hundred K, and then you're like, \"Oh no, I could have-- I missed all those gains, right? \" So that's it. The path" }, { "speaker": "andy_edstrom", "time": "20:35", "start": 1235.47, "text": "of, the path of Bitcoin is painful, and you also have to ask a question, you know, how-- Do I wanna live like some of these heroes of the pa-- of Bitcoin in the past? Like, do I wanna take the American Hodel route and have to drive a" }, { "speaker": "stephan", "time": "20:47", "start": 1247.0, "text": "moped and whatever, yeah," }, { "speaker": "andy_edstrom", "time": "20:49", "start": 1248.68, "text": "drive the crappy moped? Or Isaiah Jackson, right? Live in my car, right? Because I don't wanna sell" }, { "speaker": "andy_edstrom", "time": "21:00", "start": 1259.75, "text": "I'm past that stage of life. I got three kids, and a mortgage, so sorry, I'm just in a different position." }, { "speaker": "stephan", "time": "21:08", "start": 1267.57, "text": "Yeah, of course. I mean, and I think, online people get, you know, sort of signal about who's the most hardcore, who can like live under the bridge and memorize your 12-word seed and, you know, et cetera. but in, in reality, yeah, we've got-- most of us have, you know, wives and kids, to pay for and, Of course, that, you know, it's good if you're still working and you're still earning, you know, and so that way you can spend out of your earnings and obviously huddle your stack and keep, keep on, keep playing the long game with that stack. but I guess that also brings up the other question of things like leverage and loans and yield and all of these questions. Of course, you know, many people have gotten wrecked on these things in cycles gone past with the likes of, you know, BlockFi, Celsius, FTX, you name it How are you thinking about some of these things now? Like, could it be, that, you know, if let's say some of these large banks-- there's rumors running now that some large banks in the US and elsewhere, as in fiat banks, are offering Bitcoin custody, and they may start offering things like, you know, collateralized Bitcoin loans. Of course, these exist now, even with things like Lendin' and, I think HoddleHoddle, Lend, Unchained Capital, not for individuals, but for so I guess my question to you, Andy, is how has the market for leverage and loans evolved, you know, since, let's say, three years ago?" }, { "speaker": "andy_edstrom", "time": "22:40", "start": 1359.59, "text": "Yeah, great question. And I'll just zoom out a little bit And let's make the assumption, if you're-- you have all these loyal listeners, they get Bitcoin, and they probably, maybe even remember a point in their lives where, where it really, it-- they really absorbed it, they really came to terms with the fact that Bitcoin is the thing. it is the one crypto asset that is truly decentralized, or far more decentralized than the rest. it has this magical- origin story where the founder disappeared that helps decentralization, where it was fairly mined from day one, which helps with decentralization Where it's proof of work based, which also helps with decentralization, and the block size wars were fought such that, such that the culture of Bitcoin proved that it wouldn't do anything rash With respect to changing the code, and in particular with respect to making it difficult to run a node on a small device as opposed to having to run a data center in your house, right? If you wanna, if you wanna run a node. Okay. So somebody's figured this out that Bitcoin is the thing. And, the obvious question is, how do I get more? And, and I'm limited by my capital base, the liquid capital that I had to invest in Bitcoin. It is what it is. And gosh, I wish I had more. And yes, I will Accumulate more fiat probably over time as I have income from my job, but wouldn't it be great to buy some more coins right now? How do I go about doing that? How do I borrow? And when we spoke, what, three and a half years ago, the predominant model was margin based lending where The coins are the collateral, and, and yes, you can borrow to borrow more, borrow more coins, or you can post coins to take fiat dollars out. But if the fiat price of Bitcoin falls, you get rucked, you get liquidated. And so I think I said at the time that I was waiting for a solution which was-- which involved some Credit analysis, some, due diligence on the part of the lender to say, hey, is this borrower a good credit or not? You know, do they have steady income? Do they have maybe a decent credit score or do they have a history of paying back their debts? Basic credit, credit analysis. That was three and a half years ago, and I'm still waiting. So, I think it was in January, I took a very hard look at buying a property Which had special advantages for me, and it was a rare opportunity 'cause it came up for sale, and so I was thinking, okay, I don't wanna sell any coins But maybe I'd be willing to post them as collateral and borrow against them. And without naming the particular counterparty, it was one of the major custodians, major lenders in the space that still remain. By the way, there aren't actually that many. And even still, it was margin debt that could be liquidated at any time, and it was ten percent or eleven percent rate, something like that. And oh, if I was willing to expe-except maybe like one percentage point higher rate, then they would give me like a one year term. But otherwise, it was, no, you gotta post collateral real time if there's a downturn. Oh, and by the way, the lender- Basically reserved the right to walk away from the loan at more or less any time with like twenty-four or forty-eight hours notice. Suffice to say, I didn't do it. I was not comfortable with those terms, and that was probably among the best deals in the market earlier this year. So will we get to the banks offering? Better deals and structures that make sense for individuals, yes, I'm confident that in the future there will be credit quality term Debt against Bitcoin. but I haven't seen it just yet. I'm optimistic about the banks, I'm o- optimistic about participation I'm optimistic about many more companies doing a lot more with respect to Bitcoin-based lending, but I also am a little surprised that we haven't seen it already, and so I'm unwilling to put any kind of a timeline on when this market's gonna develop, how it's gonna develop, and, yeah, so I'm, I'm, I'm sitting impatiently waiting. By the way, I'll say that, I think I mentioned earlier, I think we're still in a bull market for Bitcoin. I was hoping that we would see this solution by the end of the current bear market. I kinda don't think we" }, { "speaker": "stephan", "time": "27:45", "start": 1665.11, "text": "will. Back to the show in a moment. This show brought to you by CoinKites dot com, the creators of the best Bitcoin hardware security devices, such as the Coldcard Mark IV and the new Coldcard Q. Now, we use Bitcoin hardware security devices to keep our keys offline, our private keys offline. 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They're also offering zero fees on your first ten thousand dollars of Bitcoin buys and twenty-five dollars of free Bitcoin when you buy a hundred dollars of Bitcoin or more. Try Bold today and upgrade your stacking experience over at getbold dot io. And now, back to the show. Right, yeah, so maybe they've been a bit late, and who knows, I mean, maybe the FTX collapse was just so bad that it just kind of-- And, you know what else? I mean, Most of staff around Silvergate getting shut down and, you know, this, these kinds of things coming out now, maybe absent, you know, the warfare by the state, we might have seen more of this. And even, you know, I'm aware, I went docs just in case, you know, these projects failed and things, 'cause I, I've vaguely heard of ideas people talking about, oh, you could have a mortgage, but like have the property and the Bitcoin as co-- joint collateral so that you could have kind of a combined si-si-situation there, To your point, I think it, it's interesting to talk about what makes more attractive loan terms or what makes unattractive loan terms, right? So obviously, if it's kind of mark-to-market, you know, then that's not really so good. If it's high, if it's, you're paying a higher cost of debt, right? If you're paying like eleven percent, twelve percent, fifteen percent, it's not really great. the, these kind of elements that for now are very disadvantageous, disadvantageous compared to, let's say, a typical home loan. But in fairness, a typical fiat home loan is government subsidized, right? That's why it's so cheap, that's why it's so institutionally favored, let's say, that people are getting these kinds of huge amounts of credit comparatively just off their, let's say, their income, their W-2 income as an example in, in America, just your standard job income, that, you know, people are getting these massive- Massive loans, of relatively small percentages, right, with high ratios. So as an example, in America, you might be putting down what ten or twenty percent of the loan. I know here in the UAE, it's typically a quarter, so maybe twenty-five percent, but just as an example, it varies. I've heard of people putting down as low as three percent or five percent. So when you think about how much leverage that is, right? If you're only putting down five percent, that's like twenty x, you're getting like twenty x leverage on that house, on Now, obviously there's certain conditions, you know, it's not getting liquidated and so on, not like a lot, not like, you know, BitMEX or Binance or whatever, but these loan terms and conditions, they really matter. And so obviously if you're think-- if people are thinking, \"Oh, you know, you should be like Michael Saylor or someone,\" remember, Michael Saylor has advanta-- advantages that you, the everyday person, don't have, right? Because he's getting access to really cheap- Capital, really cheap debt and really cheap equity. now of course, to be fair, he's paid the price to get there, right? Like I'm sure they paid multi, multi million dollars of armies of accountants and lawyers to go public and all these things. But, you know, so it's not an attack or an insult on Michael Saylor or the other people, but it's just understanding the system, right? The system gives cheap cost of capital and good terms to people who are in that position, and everyday people and smaller businesses don't get those kinds of terms. Terms or that kind of, rate. That's exact," }, { "speaker": "andy_edstrom", "time": "33:02", "start": 1981.88, "text": "that's exactly right. if only the plebs got the best deals in terms of credit. What kind of, what kind of credit do most plebs get? they get credit card debt. that's what? Eighteen percent?" }, { "speaker": "stephan", "time": "33:14", "start": 1994.23, "text": "Exactly, over twenty" }, { "speaker": "andy_edstrom", "time": "33:16", "start": 1995.69, "text": "percent interest rate now. if you're, yeah, fortunate enough to be able to afford a home and get a nice fat mortgage, as you say, it's probably the biggest government subsidy Certainly in America, perhaps in the world, that literally the central banks just take down this paper. Oh, and you have the agencies that guarantee it so that the banks basically don't face any potential losses if they, if they hold it. I mean, it is a, it is a tremendous, a tremendous subsidy. I will say that one thing that does surprise me is-- and I'm not saying this is in big size, it's not huge, but I have in the past and still do have personal lines of credit with interest rates Below ten percent, which are completely unsecured. And so I have to ask myself, why is it that I can get an unsecured credit line at under a double digit percentage rate? But, the percentage rate on a collateralized loan with Bitcoin as collateral with this pristine asset that, yes, happens to have some volatility in its dollar price, why does that cost more to borrow against? And partly it's because, well, I was seeking a larger size loan, I'll grant that. But, yeah, it's, I don't know if this delta between Bitcoin-based borrowing and fiat borrowing will remain so extreme in the long run. I do think that there will be, for the foreseeable future, a big difference in between the two. Honestly, I hope that some difference remains over time, because if that difference doesn't remain, it probably means that we've gone through hyperbitcoinization, in an, in a, let's say In, in a disorderly way. Said differently, I look forward to a Bitcoin-based future, although I'm not sure we're quite ready yet with respect to People's understanding of it, with respect to governments, understanding of it and their willingness and ability to accom-accommodate it, and then also with respect to just the usability and the expansion, and adoption of Layer Two's, it's still early, early days. Great stuff being built, but, I guess I'm okay with the, with a significant difference in the lending cost between Bitcoin land and See it land, but, on the other hand, yes, I would like to see some basic things like non-ruggable, debt, non-margin debt, term debt, and, and credit analysis into borrowers if they're willing to do that" }, { "speaker": "stephan", "time": "36:02", "start": 2161.62, "text": "Yeah, and I think it's probably fair to say there's steps to this process. So probably the first step for most large, let's call them fiat banks They will probably start with offering, okay, buy and sell Bitcoin, and cust-- we'll custody your Bitcoin. And then maybe a little bit after that, and you know, it could happen this cycle, right? Like if we-- what we mean, this cycle, let's say over the next year and a half, let's say something like that, it could happen that maybe some large fiat banks start to go, \"Hey, yeah, we've been offering custody, and now what's the natural next product to offer? Loans, right?\" So they're gonna-- they may start doing that. And, I wanna, you know, we've been talking, we've been trying to m- be prudent about it, but just to remind listeners, please be prudent, don't, don't be, irresponsible, with your finances. Be very, cautious about these leverage and all these things. We're just kind of academically discussing, what is the likely pathway of the industry and what does that look like, in terms of where things are going." }, { "speaker": "andy_edstrom", "time": "37:06", "start": 2226.22, "text": "If only we knew, if only we could tell the future, either with respect to price and therefore how much leverage to use, if any, or with respect to how this is gonna play out. I mean, there's gotta be a lot of Bitcoiners out there sitting, they're, they're a cycle in or two cycles in, they're sitting on substantial gains, they're facing the possibility of, paying capital gains tax as they try to part with some coins, as the bull market matures. And they're wishing and hoping that the credit solution will be there to pull out some dollars to go buy the house. And I'll be honest with you, I just, I don't know if we're gonna get there in time. We might be two cycles away, Stefan." }, { "speaker": "stephan", "time": "37:48", "start": 2268.14, "text": "Yeah, yeah. I mean, you're right, it may not happen in the next year and a half, so maybe we're talking the next cycle or the, the one after that, realistically. So, we don't know for sure, and I think that's, that's the real uncertainty of" }, { "speaker": "stephan", "time": "38:06", "start": 2285.9, "text": "As well as things like retirement planning, and I would say in the last few years, the whole FIRE, financial independence sort of, thing became a lot more popular. I think part of that was maybe that was a zero interest rate phenomenon, right? Because NGU in the normal fiat markets, right, the stock markets and the, all these markets, because there's so much NGU, there's maybe a lot more people who were thinking about FIRE, even like absent Bitcoin, right? Like just thinking, \"Oh, how much can I take my four percent per year or whatever?\" And so I Clients too, and then so they're thinking, okay, how do you retire on it? Do you just spend down? Do you just, you know, these kinds of conversations? And I think they'll, they'll, they'll come over the next, you know, cycle or two. Let" }, { "speaker": "andy_edstrom", "time": "38:49", "start": 2328.87, "text": "me, let me tell you about conversations I have with my clients, right? So I have wealth management clients, I manage their assets, a lot of them are retirement age, normal retirement age. Some of them are thinking about early retirement, like you're talking about, but many are You know, in their sixties, sometimes even their seventies, which is what I think most normal people consider to be average retirement age. And I always admonish them that medical technology is an amazing thing, and you might live longer than you think you're gonna live. That's one. Two is, you know, yeah, investment returns in most assets have been pretty good for a number of decades. That was a world in which Pax Americana ruled. you know, basically it was, it was peaceful for the most part, capitalism got to flower, globalization flowered. Oh, that was very deflationary, by the way, which meant that you didn't have to worry so much about inflation. And that era's probably over. I gave a presentation to- board of a foundation that we manage the assets for yesterday, and I've gotten a lot of mileage out of this slide I put together a few years ago, which talks about the drivers of inflation. And, you know, it's great to have earned- I don't know, let's say you were in stocks, let's say you were even in tech stocks specifically over a period of years and you were earning double digit annual infla- rates of return That's great if you got the asset selection right. By the way, even better if you got the Bitcoin asset selection right, although very, very few people did that, and especially not, you know, normal average investors near retirement, and especially not, very many institutions. But suffice to say that Getting double digit returns gets you really far when inflation is like zero to two percent. And by the way, let's take the CPI numbers as given by government, which we shouldn't, we should be very skeptical of those. Let's just take them as given. yeah, we've come through this period where Globalization is in retreat, that's inflationary. Government policy, industrial policy, right? Spending hundreds of billions of dollars on helping reroute supply chains and bringing chip fabs, you know, home and, basically trying to build stuff at home that we used to, or used to get built in China, much cheaper, for various reasons. That's all in reverse. We got demographics still. This is where my view, I think differs with some. I've always held this-- Speaking, speaking of the fire, story, you know, I've al-always held this, heard this trope of, \"Oh, after retirement, I'm gonna spend less.\" And, no, you're not. You're probably gonna spend more. and so, you know, the boomers generation retiring, at minimum, they're gonna spend more on healthcare because of the way the healthcare industry is structured, at least in this country. Super expensive, yeah. Yeah, yeah. And so, so they're gonna be spending more. That's inflationary. Oh, by the way, they-- every person that retires is one less person in the labor market working. And so- That's a reduction in labor, that's inflationary. So the one, you know, the one hope or prayer, I guess, for sustained lower inflation is technology. Technology is kind of every- Everywhere and always disinflationary or deflationary, I think people are putting a lot of eggs in the AI and" }, { "speaker": "stephan", "time": "42:25", "start": 2544.69, "text": "robotics basket. Yeah," }, { "speaker": "andy_edstrom", "time": "42:27", "start": 2546.67, "text": "exactly. They're, they're, they're very optimistic about How much of a difference this technology is gonna have. And by the way, I, you know, I do think that AI and robotics are gonna make a big difference in the long run, but the long run is, still a few years out at least, and we gotta, we got a lot to get through between, between now and then. So, yeah, suffice to say that Real rates of return, that's the nominal rates of return in investment assets minus inflation, are could be pretty skinny, and in fact they have been very skinny Outside of Bitcoin, technology stocks, gold, gold at least is showing signs of life recently. we could talk about that for all the loyal Austrians that I know are, are in your audience. Yeah. But anyway, I mean, as you said, I" }, { "speaker": "stephan", "time": "43:17", "start": 2597.45, "text": "mean, it's, it's, it's slim pickings out there, unless you were in, let's say, the Magnificent Seven, obviously, if you're in Bitcoin, and recently gold what a hit twenty-six hundred or so, something like this, I think as a market is what sixteen trillion, so in that range," }, { "speaker": "stephan", "time": "43:32", "start": 2612.1, "text": "0.2 trillion, so it's, you know, it's, but I think it's also fair to say historically what we have seen is sort of gold moves first and then Bitcoin moves after, but much more, at least historically that has been true. Of course, we don't know, we don't know for sure if that's gonna happen again. I think it's likely, but, I'm curious what you, see. I know you were talking about this recently as well. You're talking about gold as the magenta line, but actually Bitcoin" }, { "speaker": "andy_edstrom", "time": "44:02", "start": 2642.1, "text": "Like that image, gold being the old, stodgy prior technology and Bitcoin being the blitzkrieg, you know, tear, tearing right through it in the long run. I also think that in the next number of years, we probably see gold accrue ten trillion dollars of extra value, so maybe it goes from fifteen trillion today to twenty-five trillion, and I think we also see Bitcoin accrue ten trillion dollars of value, right? So maybe at ten x's. And, and so what time--" }, { "speaker": "stephan", "time": "44:37", "start": 2676.88, "text": "so what timeline are you talking there? Are you talking like ten, fifteen years there or like- Yeah, well," }, { "speaker": "andy_edstrom", "time": "44:41", "start": 2681.28, "text": "okay. So that's a great question. So let me return to, speaking of models and valuation, let's return to good old Y by Bitcoin, which did have a valuation target, when I published it five years ago. So at the time, Bitcoin price was around eight K, around eight thousand, roughly, eight, eight to nine K. And the price target I put in the book was a ten-year target And it was four hundred K. So figure fifty x, right? Four hundred divided by eight, roughly fifty times your money, so to speak, over a decade. Well, we're halfway there, time-wise. It's been five years, just celebrated the five-year anniversary. And as it turns out, coincidentally, we're about halfway there in terms of the return, because if you say that it was gonna make-- you figured it was gonna make fifty x over a decade, and if it goes exponentially, roughly speaking, then, what's the square root of your fifty x? It's roughly the square root of, forty-nine, which is seven. seven, right? So you could have expe-expected maybe to make seven x in the first five years and then another seven x in the next five years. And seven x on eight K or so is roughly fifty-six K. I mean, now we're in the sixty-ish range So we're kind of on track. was that blind luck? Quite possibly, but, you know, I'll take it. And so, yeah, I think five-- So I think looking forward another five years, I'll stick with my original outlook, which is that you're talking about multi-hundred thousand dollar Bitcoin Five years from now, and so, yeah, that alone would be not quite a ten x, it wouldn't be one trillion to ten trillion, I'm using round numbers here, but, but you know, it'd be kind of in the ballpark, sort of order of magnitude" }, { "speaker": "stephan", "time": "46:41", "start": 2801.14, "text": "Yeah, gotcha." }, { "speaker": "andy_edstrom", "time": "46:43", "start": 2802.6, "text": "Yeah, okay. And by the way, w-when I think about, you know, when I think about hard money assets, this isn't popular among a lot of big pointers, you know? What, gold's go- gold's gonna go up? That's obsolete technology. What, what are we talking about? And, yeah, I just, I don't think gold's days are over just yet. I still think there's gonna be demand from foreign central banks. I think there's still gonna be demand from even normie financial advisors. I mean, I can For many of my clients, I have a hard money asset allocation that's in the double digit percentages of the overall portfolio. So what's a hard money asset? Well, it's gold and it's other monetary metals and it's Bitcoin. And, needless to say, Bitcoin has been eating share like the Pac-Man that it is of that hard money asset category, and it's arguably been eating some share from other assets in my clients' portfolios, you know, arguably e-equities and fixed income, or you could say another way to look at it is Hard money assets, which used to be gold, are taking a bite out of, stocks and bonds, and then Bitcoin is right up behind, taking a bite out of, out of gold. So there's a few different ways to illustrate that Change in market share among major asset classes, at least for my clients, but that's kind of how I'm thinking about it. And one interesting thing, as you, as you know from long painful experience with hard money assets Financial advisors have basically never bought this stuff for their clients. I mean, it has been the cult of equities plus fixed income, you know, sixty forty, what have you, for as long as I've been on this earth, and, You know, it, it's still early days for hard money assets, which means ironically, perhaps it may even be early days for gold, at least among financial advisors. And so if it's early days for gold among, financial advisors and managed wealth, well then it's really early days for Bitcoin." }, { "speaker": "stephan", "time": "48:52", "start": 2932.12, "text": "Yeah, I think that's part of the humility we all have to have that obviously a bunch of us, we're all hardcore coiners, and we think, you know, Bitcoin is the next money of the world, but it, it takes a lot of time and even- Today, there's a lot of central banks buying gold, and so, you know, we gotta acknowledge that reality, but at the same time, you have this kind of new neo banking and neo-- new entities like Tether, as an example, is out here sort of buying Bitcoin and buying government treasuries and things like this. So, you know, it, it, it can-- things can change, pretty quickly over that next five years, as an example. and so I think part of that is, obviously the situation around government debt, I think we- We've got to chat about that too, right? So, you know, last I saw the stat, I think government debt is what, thirty-five trillion at least, US government debt, thirty-five trillion, and really, it's-- we're starting to get to the point where it's, it's really, you know, accelerating quite quickly, to the tune of what is it, two or three trillion a year, something ridiculous, and, you know, people are throwing these numbers around and stats like this factoid that the interest payments are even greater than the payment for the military right" }, { "speaker": "stephan", "time": "50:04", "start": 3004.38, "text": "The thing, and I actually I, I recall one of our past episodes and a section in your book was talking about what is the likely way this all falls down, right? Because on one hand, yes, the government could- Say, \"Hey, we're gonna go bankrupt,\" like that would be the honest pathway, but the less likely pathway. The more likely pathway is of course that they continue running the printers and trying to sort of inflate their way out. I'm curious, have you got any updated thoughts on that, nowadays with, you know, thirty-five trillion in government debt?" }, { "speaker": "andy_edstrom", "time": "50:35", "start": 3034.67, "text": "Yeah, so, the thesis seems to be playing out, unfortunately. I do, I, I think the deficit is almost two trillion this year, that's just for the, for the US government. And the framework that I presented, which I still stick by, is, okay, if there's too much debt, like, how's it gonna play out and what's gonna happen? first of all, I'm gonna say the dollars days are probably not numbered. I was shocked by The rabbits that were pulled out of the hat by the powers that be, you know, the Federal Reserve, Congress in COVID. I mean, it was amazing to see what actions they hatched To keep the train on the rails financially. And so I had some humility about, wow, you know, what, what other amazing new short-term solutions could they come up with in future crises? And there will be future crises. So I don't know about the timing, but nevertheless, as you just pointed out, the numbers are pretty staggering and it seems extremely unlikely that this debt can be dealt with, just basically by living within our means. And, you know, the, the menu of bad options that I always present is, how do you deal with too much debt? Well, you can have austerity and live within your means. Nobody wants to do that. No politician elected on a four-year cycle can deliver that You could have mass defaults, just like we did in the Great Depression. it's unlikely that the politicians will allow for that if they can avoid it, 'cause, they'll get voted out of office. You could have a jubilee, like in biblical times, you can have debt cancellation. They tried to do this, by the way, with, with student debt recently. It seems to have not worked for obvious reasons, which is if you cancel property rights or contract rights essentially, then you got bigger problems Problems on your hands. You can get redistribution, right? Like you can soak the rich to some degree, but frankly, I don't think there's enough wealth in the world to, to pay down the liabilities in a significant way. And there is a limit to what tax rate you can impose on the rich because they'll just leave or they'll hide their assets or they'll, they'll find clever ways basically to, to show less income. you can get financial repression. I think we're gonna see more of this. I mean, I think that, I think that the powers that be will find clever ways of stuffing government debt into whatever pockets of demand they can possibly find. Maybe they force pensions to buy, government securities. They've already, you know, this is one of the most clever things I think that's been done by the current Treasury under Janet Yellen, which is reduce the amount of long-dated bonds that are issued and just to- To short term paper, that is more cash like, you know, that can be levered more, and there are a lot more people in the world, individuals, you know, foreign governments, companies, who are willing to hold, you know, one month to three month treasury paper 'cause they say to themselves, \"Ah, it's probably pretty unlikely that I get a default in that short period of time. Oh, and by the way, I can post that short term piece of paper as collateral and borrow against it further and, and sort of pyramid more, more debt on top of Of it. so they've done a good job, really, of, of reducing the, the amount of long dated debt, but I expect we'll see, more of that sorta activity in the future. And then of course, the easiest solution is just letting inflation run hot, and the Fed is putting on a brave face for now. It's going great for 'em, you know, hats off. They were late to raise rates when they thought inflation was transitory, then they jacked up rates at the fastest rate since the 1980s, right? Over five hundred basis points over five percentage points of increases in a short period of time a couple years ago, and currently it seems that inflation is in retreat But my best guess is that on average for the next decade or so, they let inflation run somewhat hot and that turns out to likely be, the best way to reduce the real burden of all the debt out there. And by the way, you know, if CPI is whatever three percent, my guess is that the real, actual, legitimate level of inflation is probably a few percentage points higher. And, you know, if you can deflate the real value of the debt by, you know, a mid-single digit percentage over a period of years, that could work out pretty good. I think that's what they're hoping I think that's what they're trying for. They're gonna try to not let inflation get out of control. Will they succeed? Stay tuned." }, { "speaker": "stephan", "time": "55:26", "start": 3325.99, "text": "This show brought to you by mempool.space, the world's leading Bitcoin visualizer, and now they've got an accelerator program. So if you have a transaction that you sent at a fee that was too low to get confirmed, now you can fix this at, with the mempool accelerator. The way it works, you can go and search your transaction, scroll down, click accelerator, and you don't need an account. You can pay with Lightning, and then Now in the process of being accelerated, and then after a few minutes, it's confirmed. And so this is a great way to help you out if you are stuck, and this can happen where maybe your wallet doesn't have RBF or CPFP, or it might help you in situations where it's impractical to go and re-sign. So for example, multi-sig with keys in different locations. And thirdly, even in some Lightning scenarios, perhaps a forced close, you might not be able to use RBF, and so in this case, the mempool accelerator can help you out. So keep space slash accelerator. This show also brought to you by Nomad Capitalist. Nomad Capitalist is a leading provider in terms of offshore tax and lifestyle strategy planning and implementation. They can help you go overseas and legally lower your taxes. As many of you know, I grew up in Australia, but I left. I was sick of it in terms of the taxes and the COVID tyranny and all these other things. And so that's why I left, and now I live in Dubai. But that's not necessarily the place for you. You have to think exactly what work For you, for your family, for your business, and Nomad Capitalists have worked across dozens of different countries. They've helped people get passports, residences, bank accounts, and all kinds of other things. And importantly, it's not just about choosing one place, it may be multiple places, and it may be also about making the pieces fit together in terms of how your business fits with your family and you as an individual. Nomad Capitalists have helped many, many people in terms of going overseas, and if you're interested, go to nomadcapitalist dot com slash apply. This is applicable for people with a net worth above one million US dollars. That's nomadcapitalist dot com slash apply. And now back to the show. Yeah, I think that's the, I think that's a good summary of where things are at, that, they're going to try to print more. The question is, will- Cost of living and just costs in general explode out, or will they find a way to sort of, sort of try to make it look manageable, but at the same time, there's a real human cost, right? There are a lot of, let's say, young people who can't afford to buy a house. There's people who feel like they just can't really make ends meet, or there's people who feel like, \"What's the point working? They're just gonna go, go on welfare because they're not gonna earn that much anyway.\" So you're kind of getting this kind of drop" }, { "speaker": "stephan", "time": "58:05", "start": 3484.97, "text": "And so, yeah, we're getting these issues, at the same time that we're having this kind of birth problem as well, that the, you know, the birth rates are kind of dropping. so, yeah, there's a lot of problems and Yeah, it's gonna be a bit of a, a real, there's gonna be a real divide in terms of haves and have-nots. And obviously, if you're hodling Bitcoin, you, I, you know, I think you're gonna be on the have side of that equation, but, it's not going to be socially, a very harmonious environment, I, I think, over the next, you know, few years to come." }, { "speaker": "andy_edstrom", "time": "58:38", "start": 3518.47, "text": "There's, there's a phrase that I use with my client Stefan, and the phrase is two words, it's \"wild Expect more wild times. We've already had some pretty wild times in the last few years, whether it was the global financial crisis, or it was COVID, or it was, you know, the recent assassination attempt, you know, even in the US, you know, foreign countries make, make our situation look relatively tame over here. But, yeah, there's no question that, that wealth inequality and the haves and the have-nots and just the diff-different directions That parts of the populace are likely to go, could be dramatic. And look, I'm optimistic for the future, in the long run. also history tells us that when you get to extreme levels of debt and you get to huge differences in, in wealth among the populace, oftentimes that relevels itself Via conflict and war. I'm trying to remember the exact, quote from Will Durant, who's this pro-prolific writer of history. he talks about how I'm gonna get this, I'm gonna get this wrong, but either, either the, the rich find a way to redistribute wealth or the poor find a way to redistribute poverty, and, the way to redistribute poverty is, via conflict. So I hope it doesn't go that way, but, you know, I'm, I have been thinking more lately about alternative scenarios and mobility and, you know, where else one might be prepared to, to move and, and- In short periods of time. Even, even I think Robert Kiyosaki, right, Rich Dad Poor Dad, he's been talking lately about, you gotta be able to relocate within like three days. Yeah, yeah. I think he," }, { "speaker": "stephan", "time": "01:00:32", "start": 3632.22, "text": "I think I heard him say that. of course, I'm a fan of flag theory, and, you know, I've been talking about this kind of idea for a while. you know, that's something people, I think, you know, it's worthwhile looking into if you, you know, if you can afford it. And of course Depending on, you know, where you can go, whether that's inside America to another state or even to other countries, are there other places that, you know, maybe you can find a better cost of living or maybe lower taxes or at least it's a plan B somewhere that you could go if, you know, things were going bad, So yeah, those are a few things. Different" }, { "speaker": "andy_edstrom", "time": "01:01:10", "start": 3670.31, "text": "jurisdiction, maybe different, politics or population. You know, I live in a blue state, I'd love to own property in a red state. I'd love for that property to be rural rather than, you know, rather than here in the city. And, yeah, these are, these are things worth thinking about." }, { "speaker": "stephan", "time": "01:01:29", "start": 3689.96, "text": "Yeah, and I think the other aspect of it is, yes, some property markets are really overvalued, but you could also look at it like, look, there are other places in the world that where there are cheaper property markets, right? Because they haven't had such a crazy bubble like the famous, you know, Hong Kong and Vancouver and, you know, some of these other famous property bubbles. So I think, you know, you can use that to your advantage also. one other question I wanted to get your thoughts on around the question of yield, right? So I, A lot of people were chatting about, Saftein and Michael Saylor's recent episode, and there was some back and forth there in terms of what do things look like in a Bitcoin standard. And I think Saftein's view was kind of more like, \"No, there's not gonna be yield because our time preference is gonna come down so much and it's kind of currently government subsidized,\" whereas I think Michael's view was a little more like, \"No, there will probably still be fiat and Bitcoin, and there will probably be yield, and, you know, you can sort of borrow Now, do you think, you know, do you, do you see it as yield will still exist, but it just won't be, you know, risk free or where" }, { "speaker": "andy_edstrom", "time": "01:02:39", "start": 3759.94, "text": "are you at? So first, let me caveat that I asked Michael about Bitcoin yield when I interviewed him earlier this week. That episode'll come out next month. But that's Bitcoin yield, which is a concept that MicroStrategy has introduced for accounting purposes as a, as a, a key performance indicator, actually for investment purposes, and that's, that's Bitcoin per share, you know, basically that, that he's accumulating at MicroStrategy. I think you're talking about a different thing, right? Which is-- or are you talking about a different thing, which is earning a rate of return by lending out Bitcoin?" }, { "speaker": "stephan", "time": "01:03:20", "start": 3800.02, "text": "Yes. yeah. So I think- Yeah, I think you're right. They're related, but they're different concepts in that way, because I would say, MicroStrategy, what he-- what Michael is calling, you know, Bitcoin yield, there is kind of like using, you know, MicroStrategy's leverage or ability to do the ATM offerings, they've been able to buy more Bitcoin such that they've got more Bitcoin per share, and so he's calling that Bitcoin yield, but I think- The question of will there be yield in the sense of, you know, a market for loanable funds? Yes. You know, will there" }, { "speaker": "andy_edstrom", "time": "01:03:51", "start": 3831.81, "text": "be a credit market? That's really the question. Yeah. Okay. Will there be a credit market under a Bitcoin standard? Let's say that Bitcoin reaches its potential, let's say it kills all other fiat Maybe I shouldn't use such violent terms. Let's say that rational people, you know, exercise their own judgment and through human action decide to use Bitcoin rather than fiat currencies or other hard, harder monies. will debt be dead? Will there be no credit? I doubt it. do I think Safedine is correct that the amount of credit in the system as a percent of the overall economy, like, you know, credit to GDP ratio, will that be much lower? Yeah, probably, almost certainly. and, you know, the reasons for that, I think, are Probably kind of obvious. but will it get to zero? That I kind of doubt. Anything, by the way, absolutist that, that Bitcoiners say about the world, I appreciate their enthusiasm and their, and their zealotry, but-- And sometimes I'm the white, I'm the wet blanket. But it's actually kind of easy to be the wet blanket because, because the extreme case is so extreme that you say, \"Well, how about actually it's just not quite that extreme?\" So my, my guess is that, yes, my guess is that in the future under Bitcoin standard, there will still be chairs, for example, Stefan. Chairs will exist. Cancel," }, { "speaker": "stephan", "time": "01:05:25", "start": 3925.44, "text": "cancel, get off this podcast right now." }, { "speaker": "andy_edstrom", "time": "01:05:28", "start": 3928.25, "text": "Not, not all the chairs will be sold. Some people will, will continue to use chairs. I will probably still use a chair. Yeah. but yeah, I do think that on a hard money standard Obviously, and by the way, hard money standard crucially with very low settlement time, and this is something that I think Lin Alton does a good job or has done a good job articulating and popularizing, which is When you can move that asset in ten minutes, you can call BS and you can test the leverage level in any counterparty. So I, I look, I acknowledge that as real as any levered counterparty that's over at SKS That allows people to take Bitcoin out of that entity on a moment's notice, you know, it's gonna get liquidated, and so you could have these sort of rolling, rolling liquidations happening over time and enforcing discipline and keeping the amount of debt in the system much lower than it is today And yet, will there be people who are willing to borrow in Bitcoin terms, probably under term debt? Maybe part of the answer is the difference we were discussing before, which is term debt versus margin debt Or the margin debt can be liquidated on, on immediate short notice. I think we'll have a market for term debt. I think you'll have A situation where, you know, in the fiat system, always one of the major problems with banks is their liability side was liquid, people could yank their deposits. That's what we saw with the recent, bank failures I don't know, years ago, half ago," }, { "speaker": "stephan", "time": "01:07:11", "start": 4031.94, "text": "yeah. Yeah." }, { "speaker": "andy_edstrom", "time": "01:07:13", "start": 4033.6, "text": "but the asset side was less liquid. I do think that in the future, you can have a world which is basically term debt on the liability side and term debt on the asset side. By the way Other than Bitcoin, what is perhaps the fastest growing asset class in the world of the last decade or so. It's this stuff called private credit. Alright, yeah. And basically what it is is the banks have retrenched, they're not underwriting loans to do leveraged buyouts and to lend to Corporate customers that maybe have high debt, basically junk credits, we would call them, and so they've-- the, the banks have been pulling back from this business, and what you have is you have Funds that are structured where they call capital from investors, they underwrite, say, five-year loans to the borrowers, and then the investors don't get to get their money out until those loans mature. What a radical concept! What a radical concept to have the assets and the liabilities in the lending business essentially match each other, rather than having the mismatch we described. Interesting. So I think, yeah, I think the future looks more like that. It looks more like, it looks more like short term asset liability matching and long term asset liability matching, such that there's much lower risk of financial entities like banks blowing up. But yeah, I do still think there will be credit. I do think that there will be people who are willing to, to lend and borrow, even under a bit-a Bitcoin standard in the wonderful magical world where Bitcoin reaches its potential." }, { "speaker": "stephan", "time": "01:09:07", "start": 4147.07, "text": "Right, yeah. So I think I agree with you, maybe I'll explain it slightly differently, but, I think, yeah, I think for me, it's not as much-- I mean, yeah, of course, it's great that people can instantly settle and use Lightning to instantly do a bank run. I mean, that's great. But, you know what? We've already reached a point where even, you know, as you said, in a year or a year or two ago with that SVB, Silvergate, et cetera, people were doing bank runs on like a" }, { "speaker": "stephan", "time": "01:09:36", "start": 4176.71, "text": "People being able to do a bank run helps keep the system, let's say, full reserve. So I think for me, the key, the key distinction is, are we operating in a fiat fractional reserve system or are we operating in a full reserve system? And you can have credit, and this is a common misnomer, which is that you-- People think you can't have credit in a full reserve system because, like, somehow they think Rothbard was crazy and didn't like credit. No, it's that he was saying you should have separation of deposit banking and loan banking. And so if you" }, { "speaker": "stephan", "time": "01:10:06", "start": 4206.97, "text": "to the deposit side. So the deposit side should be fully, hundred percent accessible, available, and the loan side, when you put your money into that loan, as an example, you g-- you are giving up accessibility to that or availability. The problem from a, you know, Austrian sort of analyzing full reserve perspective is that there's a double availability problem created in the system today. But we're swimming in this water, right? We all-- we've, that's the only system we've grown up in, that's the only system we know because it's government backed. It's backed- By the central bank, it's backed by legal tender laws, it's backed by all these government interventions of implicit, explicit bailouts, et cetera. So I think, you know, blend all that down together, and I think, yeah, we are gonna have a market for credit. It's just a question of what is the interest rate gonna be, what kind of risk premium, are people gonna charge in a full reserve Strict cap, supply cap world of twenty-one million coins, you know, and so that's just to underscore," }, { "speaker": "andy_edstrom", "time": "01:11:01", "start": 4261.53, "text": "yeah, just to underscore your point by the way about the existing fiat system. Not only is it government backed, but it's literal-- the alternative is literally prohibited, right? 'Cause you're talking about, you're talking about a narrow bank, you're talking about a pure custody institution where you put your deposits and the deposits sit there and they're available to you, and, you know, it's-- Right. Caitlin Long, for example, has been, has been trying to And the government is, you know, the Fed has basically stopped them. Now it'll be interesting to see how the lawsuit, you know, how the, how, how the lawsuit goes. I am sort of cautiously optimistic that, maybe we'll see some wins there, but yeah, the notion of a narrow bank where you just custody your money, it's as old as time. It's how the, it's how the goldsmiths did it back in the day, right? How the fractional reserve may have started. It was placing your gold Gold with the goldsmith, and he just kept it there safe for you, except for one day he woke up and realized, \"Ah, wait, but I can start lending against, against it.\" Yeah, but the" }, { "speaker": "stephan", "time": "01:12:04", "start": 4324.53, "text": "difference would be, and yeah, the, that narrowbank was an interesting concept from what five or ten years ago, and they, they got blocked as well, and Custodia got blocked from, you know, Caitlin Long's effort at a similar kind of thing, although I think some people argue on exactly de- exact details, but I think I would make this point though that" }, { "speaker": "stephan", "time": "01:12:26", "start": 4346.37, "text": "You're effectively, you know, trying to fight, you're trying to box with one arm tied behind your back, because even if you don't wanna take on leverage, all your competitors and all these other people are accessing cheap credit To be able to beat you in the market, and they're able-- because of the-- because they're getting this cheap credit, fiat fractional reserve cheap credit, they can bid away resources, they can hire the best talent, they can hire the-- you know, they can buy the best land or whatever, they can buy the best resources and outcompete you. So it's just- We're, we're just in this systemic issue today, and that for me is part of what I see Bitcoin as fixing, right? So for me, it's not that I think Bitcoin, you know, I mean, it's great, be your own bank if you can, but for me, the issue isn't banking per se, it's central banking and government control of money. So I think we, we fix that, and hopefully a lot of those other issues, you know, go away over time or at least they're mitigated, even if they're not fully solved. But," }, { "speaker": "andy_edstrom", "time": "01:13:24", "start": 4404.8, "text": "Yeah, look, I mean, I think one of the beauties of Bitcoin and the hope and dream that you just laid out is that just having the two exist alongside each other imposes some discipline. And, and moreover, having some ability to move assets from one system to the other, you know, i-is, I think key to, to realizing the, the potential and the dream you describe. I think I'm reminded of conversation I had with Ovek Roy. from Free Op, also a senior advisor to Bitcoin Policy Institute, his belief is that for the next ten years, twenty years, one of the really, the most crucial Considerations and things that people in Bitcoin need to focus on is making sure that the on-ramps and off-ramps are, are open and remain open, and obviously crucially, you know, the, the on-ramps to Bitcoin. So I think that as we move toward future where Bitcoin plays a bigger and bigger role in the day to day, people have more and more of their assets saved in it, you know, maybe they're transacting more frequently, Bitcoin's just sort of marching along its path to adoption. people, yeah, should, should really pay special attention to, to government policy, with respect to maintaining those, those linkages and maintain-- and Bitcoiners maintaining their optionality and their right really to, to move assets between both of those systems, 'cause that's probably gonna be pretty crucial, for the future of Bitcoin." }, { "speaker": "stephan", "time": "01:15:02", "start": 4502.69, "text": "Excellent. Well, yeah, lots of things we spoke about tonight, but, yeah, should you time the market, leverage, and, you know, the collapse of the fiat Ponzi, and Bitcoin versus gold, and price modeling. great to chat, and for listeners, links will be in the show notes. Andy, thanks for joining me today. Thank you, Stefan." } ] }