{ "episodeId": "SLP86", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "planb": { "name": "PlanB", "role": "guest", "tag": "PLANB" } }, "segments": [ { "speaker": "stephan", "time": "00:09", "start": 9.07, "text": "Welcome to the Stephan Livera podcast focused on Bitcoin and Austrian economics. Learn the economics and technology of Bitcoin. Today I've got a really special guest. I know this has been a very highly anticipated episode with Plan B. But before that, a quick word on behalf of my sponsors. Firstly, Kraken. Kraken are the best Bitcoin exchange. Over my years in Bitcoin Bitcoin, I've been really impressed with the way they operate. They have really consistently offered a very strong focus on security. They have consistently acted ethically in the space under Jesse Powell's leadership. They are one of the longest standing Bitcoin exchanges. They're consistently rated the best. They've got a really high quality platform. They have-- they offer some of the best liquidity possible in the industry. They've got high trading volume and low fees. Kraken have twenty four seven support. It's extremely quick to go through and set up it, whether you're an individual or whether you are on the institutional or business solution side, they offer the highest available APR rate limits, there's a Kraken OTC desk, they offer five fiat currencies, and they also offer margin and futures trading. To learn more and sign up, go to the Kraken link in the show notes. Next, look into Unchained Capital, they're a Bitcoin financial services company offering a really cool two of three key multi-signature vault product, so you can use Trezor or Ledger, you still maintain control with your two hardware wallet keys, and you reduce the single point of failure risk. This vault product is a available both for individuals and also for institutions. Don't forget, if you create an Unchained Vault, you also get three free months of access to SafetyNetMuse's Bitcoin Standard Research Bulletin. Unchained also offers Bitcoin collateralized loans, so you can get USD liquidity without selling your bitcoins, meaning you don't trigger a capital gains event, so that can be more tax efficient as well. Remember, while that loan is outstanding, the bitcoins are stored in collaborative custody with Unchained Capital. So if you're interested to learn more and sign up, go to the Unchained Capital link in the So with the episode today with Plan B, he first appeared on episode sixty seven, and this episode was one of the most downloaded episodes, and I recommend you listen to that one first before listening to this one if you haven't already. And in this episode, we essentially talk about some further discussion on his stock to flow modeling. We explore this question of whether people now are trying to frontrun the coming Bitcoin halving, and we also discuss a few other questions around how many- Many cycles could we anticipate this working for, as well as a few other ideas that Plan B is working on, onto the interview. Plan B, welcome back to the show," }, { "speaker": "planb", "time": "02:40", "start": 160.05, "text": "mate! Thank you very much, Stefan. I'm, I'm glad to be here and, and, and great to be on the show again." }, { "speaker": "stephan", "time": "02:47", "start": 167.43, "text": "Plan B, we had an incredible response to our first episode together. I mean, you built your following dramatically, you had a lot of positive feedback. Let's talk a little bit about that." }, { "speaker": "planb", "time": "03:00", "start": 180.26, "text": "Yeah, man, it's, it, it has been crazy, actually, it still is, and I'm not, not very much, used to it 'cause I'm, a-as most of your listeners probably know, I'm, an investor in traditional finance. my employer is an institutional investor with a multi-billion dollar, balance sheet. And, yeah, I, I wasn't so much, used to, to Twitter and, and, and Medium articles, but since, the Medium article is out Since your, your podcast, the response has been great and overwhelming, basically. It's, it's, yeah, help from people, feedback, useful comments, but also things like job offers, business proposals, and, well, I guess the article was on, on, A lot of, podcasts and mentioned in, in other articles, even on radio and TV in, in the Netherlands. yeah, there's also much people working on, on stock to flow, right now. For example, there's a, a Turkish translation of the, article, a German one in the making, two websites with, live stock to flow, charts available, and even a, a trading view indicator out there. So it's, yeah, it, it- It, it has been great, and, and currently I'm working with, with two quant teams on further refining and improving and testing the models. So, Yeah, you, e-expect at least two more articles, summer next month." }, { "speaker": "stephan", "time": "04:37", "start": 277.42, "text": "Fantastic. I- It's just excellent to see that, you know, you're getting a really positive response on your modeling work because it really was just something new, and I think it, m- who knows, it may be the way that many people now start to look at this as a standard method of analyzing, and potentially, I mean, there are many implications as well. So imagine A miner, a Bitcoin mining company, has to speculate through the cycle, and they may in turn use some of this modeling to drive their own decisions." }, { "speaker": "planb", "time": "05:11", "start": 310.88, "text": "Exactly. Yeah. It's, it's, the price and especially the, expectation of price is, it's, it's of course very difficult, but, but for miners, it's, it's very, important to do that and to make their, as an entrepreneur, their, their investment, decisions upon. So, so yeah, I got a lot of re- Response from miners as well. Actually, I talked to, to a lot of them. you know, but what's also very funny is that, coming from a traditional finance, background, I noticed that maybe a lot of traditional finance, might not be in or even interested in Bitcoin, but that quant teams certainly are. Oh man, they-- I talked to so many quants. I guess about ten percent of my followers at the moment is a quant somewhere at a bank or even a central bank or a hedge fund And boy, they-- do they understand Bitcoin, and, and many have skin in the game too, so that makes me very, very optimistic." }, { "speaker": "stephan", "time": "06:08", "start": 367.83, "text": "Look, let's, let's dive into some of the feedback a little bit now. one point that came up was around, oh, can you apply the stock to flow, analysis or modeling to altcoins? but I suppose the question would be, are altcoins unforgeably costly?" }, { "speaker": "planb", "time": "06:27", "start": 386.64, "text": "Right, yeah, that's the most, frequently asked question, that I got. can you make a socket flow model for Litecoin or, or, or B-Cash or Ethereum? So let's, let's dive a little, a little bit deeper there. the, the thing with, with, with, with stock to flow analysis indeed is the, it's based on unforgeable costliness. So, maybe, maybe go one step back for, for first time listeners. stock to flow is, stock or the reserve, reserves of something like Bitcoin, seventeen million, almost eighteen million, in stock, and the, and that's divided By flow, so stock to flow, and flow is the production, and that's about, point seven million bitcoins per year at the moment, and if you divide those two, you get, you get the number twenty-five, and twenty-five is the stock to flow number, For, for Bitcoin. And it's not just a, a number. I mean, I, I called it scarcity, a, a measure, a quantitative measure of scarcity in the article, but, but really the key of stock to flow is the inability of production to inflate the stock if the stock is large enough and the production is capped or restricted somehow, then the production and the producers are unable to inflate the stock, and we know, what, what kind of problems you get when, when, certain individuals or companies or, or, or governments can inflate stock. Look at, look at Zimbabwe, for example, where Mugabe can print and did print as many Zimbabwe dollars as he wanted, and with, yeah. Disastrous effects for the economy, and the same with Maduro in Venezuela, and, and you could say the same from, the dollar and the euro at the moment as well with quantitative easing. They're printing I, I, I'm not allowed to say printing, but creating, electronic dollars and, and, and, and euros and yens to bail out banks and, and whole economies. The inability of production to inflate the stock, that's what, what stock to flow really is about to, to prevent, things that we see in the fiat co-currencies and Zimbabwe, Venezuela, and currently in quantitative easing. So, if, if we apply that to, crypto, if you like, then the thing like decentralization becomes very important. If one person, one company or a country can dis- Decide to change the monetary policy, it's not decentralized, that then, the producer, this person or, or, or government or company can, it, it will be able to, to make more, more coins and inflate the stock. for example, take, take Ripple, the, CEO of Ripple can, can pre mine another, hundred billion, Ripples if, if he wanted that. And, and if you look at Ethereum as well, then- That was, there wasn't no, no cap on the, on the supply of Ethereum, and now they're, they're, they changed that, so, so they're changing the money supply, it's not, not, not what it was or what it will be the money supply, but the fact that they can change it is, well, that, that's the thing I would be worried about as an investor. And, that's totally different in Bitcoin. Bitcoin, you have this truly peer-to-peer network with many nodes, and, you can verify You're not dependent on a third party like a bank or a company or a data center to tell you how much the money supply is. yeah, and, and it's, it's, y-y-you can't change the money supply or, or change that, that, that magic twenty-one million, coins number. And if you do, you're basically, hard forking, away from, from Bitcoin. And, yeah, I, I guess nobody will follow you, like a bit like, like Like Bitcoin Cash, did with the big blocks. Yeah, I mean, you can do it, but, but don't expect people to follow you. and maybe a last thing to mention is that, that, on, on the theoretical side of, of, stock to flow on, on altcoins, it-- money has to be hard to produce, expensive, like gold. So there's lots of gold in the oceans, and, and I even read this article about the asteroid, the golden asteroid recently. it would be very expensive to mine that, that gold in the ocean or asteroids, and that, that prevents it from happening, I guess, and the same for Bitcoin. it has a hash-based, proof of work with a very high hash rate, so it's, it's-- it costs a lot of electricity to mine Bitcoins, and that's totally different for a lot of altcoins, of, of course. So, for example, Ripple again has no proof of work, or Bitcoin Cash, has almost no hash rate. So- No security. Again, that would make me a little bit nervous as an investor and, people who'd like to know more about this, it was Nick Zabo who, Who invented the term and, and, and described the unforgeable costliness, in great length. So make sure you read that all. on top of this theoretical argument of unforgeable costliness, I decided, a, a bit against my w-will, but because the, there was so much demand to, to model, altcoins with the stock to flow, just to see if practically it would be possible to do it. and, that's in fact one of the streams of research I'm, I'm working on right now with, a team of quants, and, and I can tell you a little bit already what's, What's, what the result is, and I, I twit, I tweeted a, a little bit about that as well. they all have very low R-squares, so the models don't really fit very well. For example, Litecoin, which is very interesting because the halving is, is very soon, Litecoin has an R-squared of thirty-two percent. That's, versus, Bitcoin ninety-five percent, thirty-two is really low. It, it, it basically says there is no relationship there. Same with, Ethereum, around fifty percent R-squared. coins like, DCR, D-Dkrat, I don't know how you pronounce it properly, but, zero percent R-squared. So The theoretical argument of unforgeable costliness, already, makes you expect that it isn't possible, but if you actually do the work and, and, and make the stock to flow models, the outcomes are, are not very good. So we'll, we'll publish, An article about this in, in, in a couple of weeks. And, yeah, I'm, I'm, I'm very, interested in what the response will be." }, { "speaker": "stephan", "time": "13:50", "start": 830.39, "text": "Excellent. I think it's, it's really as many of us would have anticipated that basically the shitcoins aren't unforgeably costly, as, you know, Nick Szabo, Nick Szabo would say. And, it really, it brings to mind this idea, and I think Saf didn't has touched on this as well, but if any of the listeners have read Julie and Simon, the ultimate Julian talks about how really any resource that we have wanted in the world, if people dedicated enough human ingenuity, they could go and make more of it. But as Saftein points out, and other Bitcoiners point out, that that's the-- that's exactly why Bitcoin is so interesting and so exceptional, b- precisely because of the difficulty adjustment making it more Basically meaning, making it so that you can't just go and make more. so yeah, it's a very, interesting, point there. So I think the other thing that everyone is trying to now- Understand is can the stock to flow multiple be used as some sort of Bitcoin peak and Bitcoin bottom price indicator? And the other interesting consideration is how it might change the game, because if some traders and speculators are anticipating that other speculators are trading based on stock to flow modeling, you might have well changed the game here." }, { "speaker": "planb", "time": "15:11", "start": 910.57, "text": "Yeah, yeah, yeah, yeah. I, I don't know, of course, but, but, it's an interesting point. The, the- Dr. Flow, multiple, before we dive into that, let, let me say that, the R squared that I'm, that I mentioned in the article and that, I mentioned, just in the, in the podcast, it's, it's not understood, by everybody. So, so maybe I should talk a little bit about that. The R squared is a goodness of fit measure, so it, it tells you how good the model, fits the data. And an R squared of, say, below fifty or sixty percent isn't very good, it's bad. It basically says there, there's not a fit. and a hundred percent R squared, means that you have a perfect fit, a perfect model, and you almost never see that Because, you know, it's a model, it's not the reality. There's always some noise that, disturbs it. but so, so, so the ninety-five percent of the stock to flow model is really, really good. And, yeah, it, it shows that the, the relationship between stock to flow and value, well, the, the chance that that is caused by, by anything, anything other than stock to flow is close to zero. And a lot, a lot of people reject the stock to flow model because it doesn't take into account, things like demand or, or, or, forks and hacks and economic news and all that. But what would it add? It, it would only add like five percent, the missing five percent. We already have ninety-five percent good model. so in my opinion, all those other factors, even demand, as, as important as it is, all those other factors are noise and stock to flow is the real signal that we keep, we have to keep focused on. but still, and then we go to the structure flow multiple, still it is interesting to see where the model is wrong. So, basically the model error And stock to flow, that is the real Bitcoin price divided by the model price, and sometimes the, the model, the, the real price is, is higher than the model price, sometimes it's lower. now ideally in statistics, the error, should be white noise, like a random, no pattern thing, but if we look at the stock to flow multiple, the error basically of the stock to flow model Then you see clear patterns and, we c- we can, we can see what causes the lag, or the, the error, and, and one thing is the, the lag reaction to the halving. so, so when a halving, was there, after the halving, the price shoots up, so the, the, the model price goes, goes up A factor ten, but the price, of course, doesn't. So it, it lags behind, can be a couple of months, can be, can be a year, but that's what we saw the last two, two times. And, and the other thing where the error is, is not, not, it, it's on the other side, on the upside. If markets are in a bull, market and the, the all-time highs when people get really greedy, fear of missing out, the, the total madness is there, Flow model in 2011 it was thirteen x, in 2013 it was ten x, and, recently in 2017, the real price overshot, three x. And Yeah, it's, it's, it's really interesting to see that pattern, 'cause if you know that those two things, lagging the halving and, and, all-time highs, are what causes the error, it gives you even more, confidence in the model. and indeed, you could try to use it as a top and bottom indicator, like the multi-uh, the Mayer, multiple where, Trace Mayer, He, he looks at the difference between the two hundred day moving average and the real price, and then you see those spikes, when the price is really high above the two hundred day, moving average, and you see the, the, the dips when it's a good buy moment, so to speak. But yeah, if, if you do that with the stock to flow multiple, I put the charts out there. It, yeah, it turns out to be a very good, stock to bottom or, or, or top and bottom indicator, maybe even better than, the M&A multiple, 'cause the thing I- Don't like about the M&A multiple. as useful as it is though, but it's the, the fact that, for example, in two thousand thirteen, there were, there, there were two, peaks in the M&A multiple. So you would have sold too early probably at the first, peak when Bitcoin was a hundred, dollars. And if you look at the stock to flow multiple, it only shows one peak in two thousand thirteen. So there's, yeah, I think it's a little bit more Accurate, but, well, I think the most important thing for myself of the stock flow, multiple is that Every single year since two thousand ten, or nine actually, every single year Bitcoin was and below and above the Suck the Floor model, so a multiple of above one and below one in every single year. And that's, yeah, sort of a-- that shows sort of a reversal to the model, and, and, and, yeah, I think it means that you can't use the model as a sort of compass that it always, returns to" }, { "speaker": "stephan", "time": "21:00", "start": 1260.35, "text": "So are you referring there that that's like reversion to the mean?" }, { "speaker": "planb", "time": "21:04", "start": 1263.94, "text": "yeah, where mean then is the, stock to flow model in this case. Yeah, that's, that's, that's-- And I also think that's when the, you know, it's, it, it's a model, and I, I wrote it in the, in the article. I think it's a hypothesis. it can be wrong, and, and I, I really should, should say that. It, it's, it's based on historic data. It" }, { "speaker": "planb", "time": "21:27", "start": 1287.42, "text": "Very well, backtest us of, of course, but it's still it's, it's the big test is the future, the next halving. And, I think I can say that If we don't go above the fifty, K, the fifty thousand, dollars that the model predicts after the halving, then, the model, it- Will break down. I don't expect it, I expect it to go there 'cause it, it did so every single year, but that's, that's the big test." }, { "speaker": "stephan", "time": "22:03", "start": 1322.75, "text": "Interesting. And the other point there is that as the years have gone on, the Number at the top, right, the multiple has come down a little bit, correct? So as you're saying, in two thousand and eleven it was something like thirteen, and then, you know, in two thousand and seventeen it sort of went maybe three and a bit times. So who's to say whether the next time, if we do have another big, big bull run, whether the next one will be at like, say, three X or even two X, like just a bit less? But because I could sort of see an argument both ways there, right? Because some people might say, \"Well And people might actually start putting serious sums of money into it." }, { "speaker": "planb", "time": "22:42", "start": 1362.37, "text": "Yeah, yeah, I've been, getting my, wrapping my, my head around this one. I, a lot of questions about it as well. I don't know, frankly, yeah, there is a pattern, it goes down, thirty-neg, ten x, three x, maybe it's two x next time. But then again, it's a, it's a very, yeah, it's a power law distribution, so it's, it's a very nonlinear market. You get big moves That are not outliers, they're, they're really structural, in this kind of distribution. So I wouldn't also not be expected if we see another ten x, move again. So, yeah, right. that should be a warning as well, 'cause you can, you can use the multiple as a, as a timer, timer of, of bottoms and, and, and tops, but you can be very wrong with it as well. So be, be very careful, to, to use it with actual-" }, { "speaker": "stephan", "time": "23:41", "start": 1421.28, "text": "I think that's a good piece of advice for the listeners. Next point, and I think this is really just the, this is the question, as we record this now in early July, first of July, and the price now, as we record this, is a little bit below eleven thousand USD, the question then is, are we front running the halving model?" }, { "speaker": "planb", "time": "24:03", "start": 1442.91, "text": "Yeah, yeah. I, I, started using that term, front running, and it's, it's, it certainly looks like it, but, but, i-i-again, if we, if we look at the theoretical argument, in this case, the efficient market hypothesis, it should be priced in, of course. So everybody knows the halving is there, it's public information, and, yeah, i-if it has an effect, the most The, the best way of reasoning would be it's priced in right now. On the other hand, if we look at the stock to flow model, we know that now, that the price after the halving should be around fifty thousand dollars. So the current price, and especially the price, at the time of the, the article that was fourth, a little under four thousand dollars. It's like, like way off and way below that number. So if people believe in the model, like I do, but, but I know there's more, but if, if people believe in it, it, it doesn't have to be everybody, but if, if a handful or a couple of handfuls of, of big investors believe in the money, in, in the model and put money, on it and start buying, then of course it could be that, the halving is front run this time, and I, I should add that that wasn't the case last two times, right? In two thousand and twelve, we saw, I think it was a hundred x directly after the, after the November, two thousand twelve halving. It was certainly not, not priced in, and I can imagine because it was the first one, and there was a lot of talk about the death spiral and how miners their, their, their reward is, is halved as well, how they would stop mining, and that would lead to a death spiral. So there was a lot of fear it was a bad thing, the halving." }, { "speaker": "planb", "time": "26:12", "start": 1571.72, "text": "and, and then if we look at two thousand sixteens, we had one halving before, people had learned, but on the other hand, the price lagged the, the, the June two thousand sixteen halving, enormously. Like, like, like a year or something, i-it took the price to, to catch up with the theoretical stock to flow, value. And, yeah, maybe that was because, because it was also the time that, that the altcoins, became popular, Ethereum, of course, and that might- Have taken some of the, the money away, so, so yeah, what, what happens in two thousand twenty, the, the, the, if you look historically, the big, bull run will be after the halving, so somewhere in two thousand twenty ones, you could say. but, but now you have this, this, this stock to flow model, and if you believe in it, if you believe, Bitcoin will be, above fifty thousand, dollars, why should you wait? Why, why should you wait till that happens, or till you're in the mill-- till, till it's twenty thousand, thirty? It's a, it's a psychological thing, and, so, yeah, I- I don't know. I, I think it's very remarkable that we, that we have seen this, this almost a three X since, the publication and the podcast, we did. I certainly don't want to attribute that to The, stock to flow, model, a hundred percent. I mean, there, there is, there is all sorts of other things like the internal quantitative easing that was, that was, started and the trade war with, with China and the coming recession with the inverted yield curves, all good things for, for Bitcoin. So, so it could be that as well. but it certainly is interesting to see this big rise, this three X rise already, since the bottom. Some, towards the, the, the, the fifty thousand, model price." }, { "speaker": "stephan", "time": "28:22", "start": 1701.88, "text": "So, you know, we're not saying, it was your work that did it, Plan B, but, you know, we are three X higher, so, you know, w-who knows, right? Yeah," }, { "speaker": "planb", "time": "28:30", "start": 1710.45, "text": "yeah, yeah. And, and if you think, if you, you think about the next halvings as well, how far, i-if there's frontrunning, how far could it go? s-say you believe I put this, this table out, somewhere in the, in the tweet. So, it, it's very rough numbers, of course. I'd like to argue orders of magnitudes and not, not, not, very precise numbers, but, so the model predicts fifty thousand after twenty twenty halving, but four hundred thousand after twenty twenty four halving, and even three million after the twenty twenty eight halving. And, you know, if, if that becomes sort of- Sort of truth, yeah. It, it, it needs people to believe in it, but, and, and it needs to be fundamentally true. We don't know that. Again, it's, it's, it's, it's an hypothesis, and the proof is in the, in the, in the pudding. But if that were true And, and you would frontrun it, then you wouldn't only frontrun the twenty twenty halving. I have a lot of discussions about, about this with the people that are even more bullish than I am, that, that I am underestimating, the, the, the future price. So that's very funny, 'cause usually I'm, I'm, I'm overestimating if you, if you compare it to the, logarithmic regressions out there, my, my model price are a lot higher. But there are people who Are even more bullish. They say, \"Okay, it's, it's, it's, it's going to front run every halving.\" And in a way, that's true. I mean, if you-- If there's only ten percent of the people that believe the three million number in two thousand twenty-eight, then the theoretical price would be ten percent of three million is three hundred K right now, which of course it isn't, but it's, it's very, it's, it's mind-boggling, thing, this front running. But, I, yeah, it's, it's just also a bit of a warning that, look, the, the market was lagging the halvings last two times, but it's not necessarily the same this time. It could be frontrunning it, 'cause a lot of people learn about the halving, we have the stock-to-flow model, and, well very interesting. We shall, we shall see." }, { "speaker": "stephan", "time": "30:51", "start": 1850.96, "text": "Yeah, it's fascinating stuff. And this table that you've got, so you're seeing, so just to the listeners, y-y-it's showing the year, the halving, and then the model predicted price. So as you said, fifty thousand, four hundred thousand, and then three point two million for the twenty twenty-eight, halving. Now To the extent that stock-to-flow modeling works, so again, caveat, this isn't economic law, it's some sort of modeling, but to the extent that the modeling works Do you have any reflections on how many cycles we could anticipate this working for?" }, { "speaker": "planb", "time": "31:27", "start": 1887.23, "text": "Yeah, that, that's also a discussion on, on Twitter, lots of questions about exactly this, this, this, infinite value, if you wish. You know that, if you, if you follow the table, we could go all the way to twenty-one forty when the flow is zero, when there's no more new bitcoins, only fees, and, The, the, the theoretical value out of the stock to flow model would be infinite. So how can that be? And basically, I think this is a very theoretical argument. and I'm a very practical guy, so, if I look at the next three halvings alone, so we're now at, at, at, say, a hundred, two hundred Billion dollar, market. Every halving, this, this market grows ten x. So after twenty twenty, we go to one trillion, after twenty four, we go to ten trillion, and after twenty eight, so the third halving, we go to a hundred trillion US dollars, hence my name, my, my Twitter handle, I think that, that we don't have to wait till, till twenty-one forty before the model breaks or b-before something breaks. I think we'll, we'll be there sooner than we think. I think we'll be there, well, maybe twenty-four, somewhere between twenty-four and twenty, twenty-eight, because a ten to hundred trillion dollar Bitcoin market, that's enormous if you compare it to, to the US dollar, for example. It has a monetary base of, of three trillion, and I think an M2 of about twelve or fourteen trillion. So then that means that somewhere between twenty twenty-four and twenty twenty-eight, Bitcoin is bigger than the US dollar. It basically means, the U-U.S. dollar will, will die and, and we'll be, measuring things in, in Bitcoin. And, yeah. Very bullish. Yeah, yeah. Well, yeah. And, and, you know, the model it measures- Bitcoin in dollars, and it, it measures, gold and silver, et cetera, in dollars. But if Bitcoin is bigger than the, than the dollar, then we measure things in, in Bitcoin, it will be the, unit of account and, Yeah, we maybe we measure the dollar in bitcoins then, i-instead of bitcoin in dollars, it, it, it really is, is exactly that. I have this, this other chart that I get a lot of discussion about that one, it, it was one of my first chart that I ever put out there, and it's, it, it, compares the price of Bitcoin of the last ten years with Weimar Germany, the hyperinflation, where the German mark, the paper mark, grows like a trillion times the, the original- Original value, it, they keep adding zeros, and it's like, like Zimbabwe and Venezuela. but if you look at how closely the Bitcoin price tracks this, this, or the dollar price, if you will, the dollar Bitcoin price tracks this, this German, mark price, it's, it's amazing, and it gives you an historical example of what might happen. It's a, again, it's what might happen, it's not an expectation, but it's a possible scenario. Scenario, maybe with not too much, probability, but it certainly looks like it, it gives you an, a view about how hyperbitcoinization, so that's, that's how we call this, this, This, moment in time when, when Bitcoin, starts to overtake the dollar and everything is priced in Bitcoin, that's how it could look like. And, yeah, maybe, think about how beautiful that might be. That's, that's, yeah, i-it today we build our economies on, on, on the dollar and the euro and the yen, and central banks are, are, are producing that, that, th-those coins like, like crazy, especially right now with, quantitative easing. So it's a bit like We're building an economy like an architect building a house with, a meter that is changing or, or, an inch that is changing every day. Imagine how that, how that house would look like. And that's our economy at the moment. If we have Bitcoin and nobody can, can touch the supply, it will be a metric, as stable as a meter or an inch or, or a temperature measure like the, Fahrenheit. And imagine what, what kind of- Of, economy and, and society we can build on that. It, it will bring us the next, renaissance. I, I really believe that, and that's, that's, that's basically why I'm, I'm in the space, Working on Bitcoin. Fantastic." }, { "speaker": "stephan", "time": "36:15", "start": 2174.86, "text": "Yeah, look, I think I'm, very much agreed about the renaissance idea. I think many Bitcoin bulls are aligned with you on that point, although I would say we have to be careful about considering it as a set meter, because yes, you know, the amount of bitcoins is only twenty-one million and so on. I think from the Austrian school, they would think of this like there can be no such thing as neutral money, you know, and so they would think of it like, well, your desire to even hold a cash balance can vary, and that in turn can also vary, the value or the purchasing power, the real purchasing power of the bitcoins or in sats as we probably will be denominating. but I think on the whole, it will be a much more, In a much more, you know, free market world that we would be living in. And I think, I really like the point you're making around how the US dollar is changing too, because it's difficult then to model, because over time, the US dollar is coming down in value as well. So how much of that is kind of, maybe it's a bit silly to think of it this way, but it's like, how much of that is Bitcoin go-- going up versus how much of that is just the US dollar going down?" }, { "speaker": "planb", "time": "37:22", "start": 2242.3, "text": "Yeah, ab- absolutely. That's a very good" }, { "speaker": "planb", "time": "37:28", "start": 2248.38, "text": "The hyperinflation in Germany around, nineteen twenty-three, I read a lot about this period. living in Holland next to Germany, I just, maybe, something that, that, that, that, that is very, Alive and, and actual, but so I read a lot, and there's, there's one book, it's called When Money Dies. It's, it's written by Ferguson, if, if people like to read it, it's, it's really good read, and it talks about this period, from, a diary perspective of people actually living in this period. And it's exactly this point that you make, Stephan, that those people in Germany thought that, not that their, their own coin was going down, that the Ger- the German- And the markers going down, they thought that the, pound and the, the, the French franc at that time, they all went up, and because they were after the, the first, World War, repaying all their debts and, they thought the whole world was advancing, and, and going up, and they were, well, stable. But that's what the other, the, the-- But it was the other way around, of course. They were printing money, their currency was going to, to, to zero, And, and but they didn't, it didn't feel like that, and it could be, it could be, the same now that, that, that we think, the stock market is going up and all the housing prices are going up and, and, well, inflation isn't, isn't, isn't not there yet, but you certainly see it in, in all the assets. We can call it asset inflation maybe, this time around, but, but we are thinking, oh, those things go up, where in fact it could be that our- Currency is, going to zero." }, { "speaker": "stephan", "time": "39:18", "start": 2357.67, "text": "very interesting. And Plan B, I'm very interested as well to discuss, so you were posting some charts showing this idea of Bitcoin's path plus commodities on a pathway to thirty trillion. So can you outline what's going on there?" }, { "speaker": "planb", "time": "39:33", "start": 2372.88, "text": "Yes. ac-actually, that, that's one of the most interesting, questions and critiques I got on the, on the model, on the stock to flow model. In, in overall, I, I got really less critique and comments than I expected and, and maybe hoped for, so maybe, maybe that means the model is good or maybe people, don't mention it or don't wanna mention it, but, but there was one critique that is very, very, important and, and, I, urge e-everyone using this model to really take this serious as well, especially if you invest on the model. and this critique is Okay, you have a correlation of ninety-five percent R squared, but correlation isn't causation. How do you know it's not a spurious regression? And in econometric terms, you could say, the variables, stock to flow and market value, are non-stationary. they both go up. So stock to flow, of course, only goes up, and value- At least last, last ten years, it only goes up. And if you regress those, if you, if you model the one with the other, then, yeah, of course, you get a, a very nice correlation and a very high ninety-five percent, R squared. But you could also do that with the global beer consumption, right? It, that goes up as well. So that-- I bet you there will be a very nice correlation be-- between the, the, rising global beer consumption and the rising Bitcoin price. but that correlation will be totally spurious and, and not hold for the future, per, per se. so, so how can you tell it's not a spurious regression? Now, I have, a lot of, quants commenting on this, modeling on this, you know, I put all the data and the models out in GitHub, so they're, they're using those, and, we're with an international quant team at the moment making this re- First and, and, and, and looking if it's spurious regressions and, and doing all the formal tests, to see if it's, if it's okay or not. But even then, it's always a thing to, you, you don't know hundred percent sure. So, that was the reason I decided to look at totally unrelated commodity markets. They have nothing, to do with Bitcoin, and, they use the-- especially the gold market, they use stock-to-flow measure, it, it's actually I learned the stock to flow measure from, from the, commodity markets and from, Sevde in, Musser's book, the, the, the Bitcoin Standard, must read. so I thought that would be a very nice market to look at. So I looked at gold, I looked at silver, diamonds, platina, platinum, and, and palladium, totally different markets. All different, stock to flows and all different values. And, and when I, made the model, a stock to flow model on those different markets, I was, I was shocked really to find an R squared of ninety-nine point five percent. So basically a hundred percent. It blew my mind. And, and of course, it's, it's, it's only five data points, right? It's, it's not much. But, that's the same with, Kepler and his, his, third law with the planets orbiting the Earth and, and distance to the Earth. They have a power law. He had only like five planets, a, a, and a ninety-nine point five percent correlation. But it's, yeah. So, so I, I really take this serious that the stock to flow measure is also working on Unrelated markets from Bitcoin, gold, silver, palladium, platinum, and, and diamonds, and gives this high R squared. Those markets aren't serially, correlated, they're-- it's, it's stationary, so there's no problems that, that we have with, with looking at Bitcoin, and, it gives me extra confidence, in, in the model. And what's, what's even more interesting is that both models, and, and that's also the, the chart, what the chart is showing, both models point towards one point where a stock, an asset with a stock to flow of a hundred, and a, and a value of, a market value of thirty trillion euros dollars, will be, so Bitcoin is growing towards that point when, when it reaches stock to flow of a hundred, and the market, the total, commodities market, points to, an asset like that as well. So I find that really remarkable. well, we, we have to see, if it really happens because we have never seen, an asset with a stock to flow of a hundred before. So we also don't know How it should be valued and, it's also interesting to see that, that, we don't have a model for Bitcoin for valuation. Well, stock to flow model is, is, is an, an approach, but we also don't have a formal model for gold valuation It's really interesting, yeah, that there is no cash flow, there is nothing to model. So how, how is gold valued? It, it, it really is without a fundamental model. And, there, there was one other thing I, discovered during this exercise, in the, into the commodity markets, and that was that, silver was," }, { "speaker": "planb", "time": "45:21", "start": 2720.72, "text": "silver stock was dis-disappearing fast, and, and in fact, that I had the wrong silver data in my, my first article one of my followers, mentioned it. He said, \"Okay, the silver stock is, way less than, than you report.\" So I, I researched it, and, and the data I had in the article before was from Wikipedia, and it turned out to be, including below ground silver, so it was way too high. so in the end, I, I, I now have a better silver source, data source. It's the Silver Institute with way lower- Are lower stock and way lower stock to flow as well. So stock to flow of silver isn't twenty-two that you see reported at, at several, locations, by the way, but it's three, only three That, that's a shocker. That basically means that the monetary value of silver has disappeared, in the last hundred years. And that's, yeah, that's one of the things, that silver finding, but also the, stock to flow model for, for all the other commodities, that's one of the things that got great interest from the gold community and the, the commodity community. It's, it's, it's really a different community than the Bitcoin community. by the way, I, I talk a lot with, Willam Middelkoop, I, I, I guess you, you would, you would say Middelkoop in, in English. He is a well-known Dutch, commodities expert and investor, and he, he, he teaches me a lot about, about gold and silver and, and the community there, 'cause I'm not in the, In the commodities, community. So he has a fund and, and r-written a lot of books and learned really, a lot about it. and one of the very hopeful things I see is that the gold and the Bitcoin community are growing, towards each other, a little bit. So there is A part of the gold community, I think Pe-Peter Schiff, Schiff is in that, that is really against Bitcoin, but there's also a part in the, in the gold and silver community that really sees gold and e-gold, Bitcoin as a hot combi, for the future. so, so also companies like, I like the In Gold We Trust report from, Incrementum. Yeah, yeah, it's Incrementum, it's, it's a team from, Lichtenstein and you're- Europe and, I, I, I read it for years, but they're now for the first time having a par-paragraph in there, Bitcoin and gold as a very nice, combination, for having in a fund. So that's really something to watch. I think we'll, we'll see more of that. It's a logical thing, especially with the, stock to flow, model showing You know, gold is a physical, asset and, and Bitcoin is a digital asset, both high stock to flow, high value. Yeah, it's, it's very interesting. So, yeah, again, maybe to wrap it, this, this one up, the stock to flow model on, on commodities gives me extra confidence in the stock to flow model, on Bitcoin. Because it doesn't have this spurious regression problems and, yeah, and both, point towards a thirty trillion dollar market, which is Yeah, it, it's, it's almost unbelievable at this price point." }, { "speaker": "stephan", "time": "48:54", "start": 2933.66, "text": "Very interesting. And I guess just to summarize for the listeners as well, so looking at your table, Plan B, the stock to flow ratio predicted for Bitcoin is at the twenty twenty halving, it'll be a ratio of fifty, and at twenty twenty four, it'll be a hundred, and then at twenty twenty eight, it'll be incredibly two hundred. So really, once we get beyond gold, it's just uncharted waters, correct? Like we've never seen anything that scarce." }, { "speaker": "planb", "time": "49:19", "start": 2958.84, "text": "Absolutely, uncharted waters was, yeah, it, for sure, and, and very interesting to, to live in these times." }, { "speaker": "stephan", "time": "49:26", "start": 2966.04, "text": "Excellent. Alright, so I, I also wanted to touch on, some of Tuo Demister's comments. Now, I actually had the chance to meet Tuo Demister at, Bitcoin San Francisco twenty nineteen, and now he, had some, comments around the, halving and how potentially it might not be as convincing from his point of view. So maybe I'll just quickly summarize some of his Already touched on, but you can just sort of go through your discussion on that as well. So firstly, he was talking about, well, how do we define the stock in Bitcoin? How do we know how many coins have been lost because the estimates vary between one to four million? Our point two was, Bitcoin's production is trending towards zero, does that mean its value should trend to infinity? And Plan B, I think you've already touched on that. Number three, the stock-to-flow estimates for gold and silver are a little bit debatable, I think you might have touched on that as well" }, { "speaker": "stephan", "time": "50:18", "start": 3018.28, "text": "Low production value somehow create, production rate somehow create value. And the question he asks is, if he created a new coin with an even lower emission rate than Bitcoin, could it the-theoretically have an even more, you know, even higher value? So plan B, do you have any thoughts on some of Tour's comments there?" }, { "speaker": "planb", "time": "50:37", "start": 3037.27, "text": "Yeah, first of all, it's, it's great to get feedback, and especially from guys like, like Tour, who are in the space, for, almost from the beginning. So, and, and that's also why I Everything on, on Twitter and GitHub to get the feedback to learn. so yeah, I appreciate this, this, for, concerns very much and, and let's go through them, yeah, the lost coins, that, that is a, a question that's asked more. How does that impact the, the stock? It does, of course. and how does that impact the stock-to-flow model and maybe your prediction? So I did the analysis, I implemented four different ways of adjusting for lost coins. The original way was to just ignore the first million, coins, the so-called Satoshi coins. We don't know, of course, if those were Satoshi coins, but, but that's, that's the narrative and Well, those coins haven't moved, so, so let's, let's," }, { "speaker": "planb", "time": "51:42", "start": 3101.57, "text": "do as if they are lost. so that's one, one approach. Then I did the, no adjustment approach, so in- leave those one million, in there. I did a gradual loss scenario, so where, so there's about four million lost coins right now, two thousand, nineteen. So that's about, what is it, thirty-something percent. what if every year there is, thirty percent, Of coins, lost and, and, make that gradually over time. And I combined the two in a fourth, scenario. So fir-first one million lost, and then a lower percentage lost every year. And then look what that did with the stock to flow analysis. Basically, there was no impact. So it, it, it changed the parameters of course a little bit, but the outcome was the same and the R squared was Basically the same, all above, ninety-two, ninety, ninety-five in, in that area. So I think lost coins isn't so much a problem, but I do understand the question very much. I think we can, we can, safely, sleep on that, on that concern." }, { "speaker": "stephan", "time": "53:01", "start": 3180.78, "text": "Sure. So, yeah, let's go on to the second one." }, { "speaker": "planb", "time": "53:04", "start": 3184.14, "text": "The, the second one was, okay, gold and silver, numbers are debatable. Well, that's true. I mean, my silver numbers were wrong, so, I, I adjusted those and, but, but let's debate it. So he, he didn't really, mention why they were debatable or, or showed me his, too, he didn't show me his numbers, but I'd like to learn. So if there's somebody out there that has better numbers, better sources, I also asked that in the, in the, in the tweets, please, share them with us and, and make this more robust. but on the other hand, gold and silver sources that I have at the moment, so the Incrementum report and the Silver Institute data and, and, same with palladium and, and platinum, I think it's, it's, it's not-- those numbers aren't very much debated in, in commodity cycles, circles. so we could double-check it, but, yeah, I don't know. It's, it's, I think those are pretty, pretty okay, but I'd like to hear more about why Tour thinks, they, they, they could be wrong or, or if he has different numbers. Let's, let's indeed debate this. one, one thing to add is The gold and silver numbers aren't the model itself, so they're basically apart from the Bitcoin stock to flow model, they're just, an extra Check on whether it's a, a, a spurious re-regression or not. So they, even if those numbers were totally wrong and the whole stock to flow model on gold and silver, silver is not there and et cetera. That, that says nothing about the Bitcoin stock to flow, model. It just stands there as it is. It's made from data. So, so, yeah, I, I think we could, put that to sleep as well." }, { "speaker": "stephan", "time": "55:05", "start": 3304.82, "text": "Alright, yeah, no, I, I think there's nothing else I can think of on that. and, I think, so you already touched on the second one, which is about, is, you know, Bitcoin, you know, does the value trend to infinity? And I think basically it's similar to the hyperinflation point we're talking about. so let's go on to the fourth one, which is around if, you know, if, if someone were to hypothetically create a new coin with a lower emission rate than BTC, then why wouldn" }, { "speaker": "planb", "time": "55:34", "start": 3334.42, "text": "I think that question the most and, that concern, and, I actually have, have thought of this as well. What, what if we create a better Bitcoin, next Bitcoin with even, scarcer, or stricter money supply or, or, or no money supply at all? how, how would that go? But then, then of course, you, you run into a lot of other, problems, because this, this new coin should at, at least- be as expensive to mine and as decentralized as, as Bitcoin at the moment is. So, a coin without a proof of work wouldn't work. a, a pre-mine go isn't, pre-mine coin like, like Ripple is a no-go, 'cause who gets the coins? How is it distributed?" }, { "speaker": "planb", "time": "56:28", "start": 3387.55, "text": "a, a, a coin without the peer-to-peer network that, that, Bitcoin has at the moment would not be- Decentralized and would have a central party, me or Ture or whoever makes this coin, deciding over, over the supply and then hash rate. So you need, you need the security and, and the miners, you, you need to attract miners, to make, ASICs, hardware and, and, and, spend all the electricity costs to, to, yeah, to, to, to make this, this high, high hash rate. So basically, you need to do Everything right in a new coin like Bitcoin did, all the network effects that Trace Mayer talks about, all the seven network effects need to be there. You need to have miners, speculators, investors and, and developers, and even if you could pull, pull all that off with a, a lower, supply, then A slow introduction of coins, so not a pre-mine, that-- because that's a, a no-go, but a slow creation takes time, and Bitcoin has already a ten years head start. So maybe theoretically it could be done, but in practice, I think there will never be a next and better Bitcoin, in, in my opinion." }, { "speaker": "stephan", "time": "57:48", "start": 3467.93, "text": "Yeah, I don't think I could have said it better. Essentially, I, I'm with you there. I think it's An interesting thought experiment, but I think in practice, it just wouldn't be achievable for those reasons, right? You wouldn't have the next, you know, the so-called next Bitcoin having the same level of decentralization, the same level of, spreading out of the supply as well, right? Enough people now sort of hold Bitcoin that they wouldn't necessarily all just jump over to the quote-unquote next Bitcoin. And I think that, correct me if I'm wrong, but I think there may have been one or two of the fork, fork coins or alt coins Who tried to do something like this, and then they failed, probably for these reasons that we are discussing. but it's an interesting question, even if, I think the answer in the end is still no, it can't be done. Plan B, I'm also interested to talk about another graph which you showed, and it's talking about this idea of, well, you were talking a little bit about random walk down Wall Street, and in this graph, you show a very interesting allocation, because in this chart, you show one percent Bitcoin and ninety-nine percent cash. Versus actually just, you know, holding other things like US, US T bonds, ten year, or gold, or the S&P 500. Can you just outline for the listeners what's going on there?" }, { "speaker": "planb", "time": "59:08", "start": 3548.15, "text": "Yes. the, the, the Random Walk Down Wall Street title is of course, from, from the famous book, Random Walk Down Wall Street, from, Malkiel. it talks about volatility, risk, return, efficient market. It's, it's really You must read, I, I highly recommend it. And I use this, this chart to show that Bitcoin is a really strange thing if you look at it from a financial point of view, and especially the high volatility, thing, 'cause if you- Read about Bitcoin in the mainstream media, mainly, but also in Bitcoin cycles, there's a lot of talk about the high volatility, the high risk that, oh yeah, Bitcoin goes, minus eighty percent and, and, and basically it, it does that every couple of years, right? It's, it, it has done it three times before, minus eighty percent. So that's a lot of risk for most inva-- too much risk, in fact, for most investors. And the reason they're not Looking any further. however, risk isn't necessarily bad thing. It can-- it is the source of income as well. If you don't have risk, so no risk, no return is, is what we, Say as, investors, and also the other way around, if you have a, if you see something with high return, there should be high risk, a high, a loss, percentage. So, In the end, it's all about not only volatility and risk, but also return. You have to look at risk-return, and that's what this chart is showing. It shows risk on the x-axis and return on the i-uh, the y-axis. It's a classic, thing, and it shows the typical, investments like stocks, indeed. Stocks have a-- if you look at the last fifty years, on average, without dividends, have a, an average return, it's a geometric return, by the way, of eight 8%, and, and some worse, some very bad years like 2008 or 2001, where, stocks have a drawdown, of, a really bad loss of forty percent. So stocks drop forty percent one, once in a while, but you get eight percent return. gold is a little less risky, it, it can go down thirty percent in a year, so that's less than, than stocks, but it, it will earn Give you less return as well. It has a seven and a half percent return and even less risk and return is, treasury bonds, 'cause treasury bonds, yeah, right now the interest is, is really low, but on average last fifty years, it, it'll give you six percent return and only eight percent, max annual, loss. And if you plot, so, so The, the nice thing is all those investment, classic investments, they, they, they're on a line, a straight line. I, I put this in this chart, and the numbers can be a little bit different, but it's a general idea, it, they're on a straight line, so you can earn more return But you need to, take more risk. That's what, what this is basically saying. You can't go to stocks, but then, you need to, be, willing to accept a forty percent, loss, 'cause that can happen. Now If you put Bitcoin in there, it's, it's really crazy. It's, first of all, it's not on the line. So it's, it's, it's above the, the, the line from stocks and gold and, and US Treasury bonds It, it shows a," }, { "speaker": "planb", "time": "01:02:59", "start": 3779.19, "text": "a very, oh, oh, I'm sorry, I, I take one step back. if we put Bitcoin on this chart, it would be off the charts, right? It would be very high volatility, twice the volatility of, of stocks, eighty percent, maximum loss in a year. And, return would also be off the charts, 'cause it wouldn't be six, seven, eight percent, it would be on average last ten years, it would be two hundred percent. So, What I did in this chart was, okay, you can, reduce, if something is very volatile, has a lot of risk, you can reduce the exposure to that investment. You can size your, downsize your investment. And I down-downsized it all the way to one percent. So one percent Bitcoin and ninety-nine percent cash, basically doing nothing, earning zero return, zero risk. So it's ninety-nine percent doing nothing. Only one percent of your investment in Bitcoin, and if you put that in the chart, it, it still is off the chart. It's above the line. It's, it's, so the maximum loss if you only put one percent of your money in is of course one percent. that's the risk. but the return is still eight point three percent over last, ten years. So it's, it's, it's no guarantee it will be the same the, the, the next ten years, but last ten years it was eight point three Three percent. So you get more return and less risk than stocks. and that, that's the whole thing I wanted to show in this, in this chart. Basically two things. One, high volatility isn't a problem. You can size your investment, just reduce your investment and you have lower risk, and you'll see with Bitcoin that it still has a very high return. if you-- there's a technical term for this, it's called the Sharpe ratio Ceo, where they divide return by the risk, basically or, or, or officially the risk is measured as a standard deviation, but I like to use the drawdown, so that's even bigger risk, it's the maximum risk in a year, not the standard deviation. but what you see with all the traditional investments like stocks is that the risk, so the maximum loss, is higher than the return. So for stocks, the return was eight 80% a risk, 40% if you divide 8 by 40, and you get the Sharpe ratio, and it's lower than one. With Bitcoin, it's the other way around. The return is 200%, the risk is 80%, so- The Sharpe ratio of this asset seems to be larger than one, and that is, yeah, that, that" }, { "speaker": "stephan", "time": "01:05:50", "start": 3950.85, "text": "is phenomenal, right?" }, { "speaker": "planb", "time": "01:05:52", "start": 3952.23, "text": "Yes, phenomenal, right? Exactly, and, there's all sorts of, technical things, mathematical things you can do with distributions like, like, like Bitcoin's distribution, and, maybe it's too, too technical for now, but, but I'll just like to mention, the barbell strategy, of, Nicholas Taleb. especially in environments, where there are fat tails in extremeism, in, in his words, l-like Bitcoin, right? Fat tails, maybe there's a power law distribution here, that's, that's what I think. Especially in those environments, it makes sense to, to have a barbell strategy, and that means to have a, not like an average spreaded portfolio, but to have some very, Volatile, risky, investments and some very low, risk investments. So basically my one percent Bitcoin and ninety-nine percent cash, portfolio would be an extreme bubble, investment. And those are, those work very good in, in, in fat tail, en-environments. and that's what, what this, this chart shows. I, I think it's very, very encouraging. It needs a lot more work, but it's, yeah. I, I know there's a lot of traction in the financial community. If I, if I show these charts, the jaws drop, drop and, and discussion is guaranteed." }, { "speaker": "stephan", "time": "01:07:23", "start": 4043.25, "text": "Fantastic. And it's really a reflection that maybe we really do live in extremistan. And, just to clarify as well, with that one percent, is that annual rebalancing? So let's say your Bitcoin went up, would you now sell and rebalance into cash?" }, { "speaker": "planb", "time": "01:07:39", "start": 4059.64, "text": "Yes. yeah, I forgot to say that. Yeah, it's, it's, yearly rebalancing. And that, yearly rebalance at the end of year, December close, price." }, { "speaker": "stephan", "time": "01:07:51", "start": 4071.49, "text": "Excellent. And so then really the big question is, what happens when the rest of the world wake up to that strategy?" }, { "speaker": "planb", "time": "01:07:59", "start": 4079.54, "text": "Yeah, in fact, I think it can be the basis, for a very nice, arbitrage strategy between the fiat and the Bitcoin, world. I'm, I'm working day and night on that. I think I'm very close, especially in this negative interest, environment. It's, it's It's crazy, but, but yeah, you can do very nice mathematical things with this, and, and in the end, I think this will lead to, To, to something that, that will be amazing or, or hard to ignore, maybe one thing that, I, I can point out, out already, and that's the futures market, If you look at the futures market right now, and there's of course, the CME, it's the big, big futures market in, in Chicago, but soon there will be backed, physically settled, futures in New York, which is, which is great. but if we look at the futures market right now, it's in Contango, it's, it's-- and that means that the future price of Bitcoin is higher than the spot price, the current price of, of Bitcoin. And it's about the last couple of months, it it, it varies of course, but it was about one percent on average, higher the next month. So the, the-- we're in July now, the August, Bitcoin price would be, future price would be one percent higher than the spot price. That, that makes possible, a cash and carry strategy where you buy a Bitcoin, and sell it the same time. You buy it and you sell it, future sell it for one percent more, and that means that you have a guaranteed one percent return on your investment in a month. So you could do that twelve months in a row and make A little, a little over twelve percent per year, which is really, really good, especially if it's-- because it's, it's risk free basically. You can't earn more, but you also can't lo-earn, earn, earn less, because you have the, the asset and you futures sell it, so there's no risk involved. Twelve percent at the current, future market conditions, which is amazing from a institutional investor point of view." }, { "speaker": "stephan", "time": "01:10:23", "start": 4223.04, "text": "Excellent. So really it's just they would be taking only the, I guess, the custodial risk or kind of delivery risk from the, CME, and that's not very high risk, is it?" }, { "speaker": "planb", "time": "01:10:33", "start": 4233.19, "text": "Yeah, yeah, right, right, and, and, and, with Bact, it will be, it will be physically settled. So it's, it, it will be great to see when they launch, it's the twenty-two, twenty-second of July, I think, when they launch what, what those, prices will look like and what the CME prices will, will do, 'cause, the good thing about a physically settled, futures market next to a, a cash settled futures market like the CME is that, that Anymore, they can't play tricks. If, if, one market is, for example, the cash market is manipulated, you can easily arbitrage that away with the, the physical, settled, market. So the, the price on those markets shouldn't vary very much, and it will be very, very interesting to see what those are, and if the market, the natural- Bitcoin futures market would be a contango market, then, this, this, this would open a, a door to, to very nice risk returns for the ones that, That are forward-thinking and, and able to, to implement those strategies." }, { "speaker": "stephan", "time": "01:11:47", "start": 4307.14, "text": "So actually, I'm curious then, do you have any views on which specific investors could actually undertake such a strategy or whether maybe their policies or their governance might restrain them from undertaking such a strategy? I mean, a quick example, maybe pensions or endowment funds or family office, would these sort of, institutional kind of investment vehicles Might they have certain restraints placed upon what they can invest in and how they can undertake that strategy?" }, { "speaker": "planb", "time": "01:12:18", "start": 4338.57, "text": "Yeah, that's a very good question and, and, and also one that I struggle with, every day as, as an institutional investor. so I talk about Bitcoin, in our company, of course, but I guess it will be very difficult for a big insurance company or a big bank, to put Bitcoin on their balance sheet because of regulation and, and, central bank regulation, I think the discussion has to be started, and, and especially in Holland, the, the central bank is very liberal, as in they're open to discussions about blockchain and Bitcoin and, and their I think that, but in the end, it, th-th-those companies are investing the money of pensioners, of, of, savers, so, so they should, they should have really good risk management and, and capital management and, and low-risk investment, strategies. So Bitcoin isn't the first thing that comes in mind, and that, that, that would be very- Difficult to, to put capital charges in the sense of, Basel, or, or solvency or, against. So, so those aren't in my mind the logical first adapters, first invest big institutional investors in, in Bitcoin. On the other hand, funds that are investing for the risk of, the, fundholder, the, the participation holders. especially hedge funds, above a certain, investment that aren't regulated, those are, in a, in a, in a much better position to add Bitcoin to their, balance sheet, and, I'm especially looking at, for example, commodity funds, funds. So, so that's why I'm so" }, { "speaker": "planb", "time": "01:14:19", "start": 4459.76, "text": "so happy to be, learning about the commodities, market right now and, and, and making some contacts there, 'cause, 'cause those funds would be Could easily rotate a little bit out of gold or silver or whatever, and a little bit into, Bitcoin, and s- yeah, still be within their mandate and, and, it would be a logical fit. Also, I see, I, I talk to a lot of people, get a lot of, response, and I see a lot of family offices. So, either billionaires, rich families, high net worth individuals, they can do, of course It's their money, they can do with it, what they want, and they see it as a, well, an interesting Bitcoin as an, as an interesting new, investment, but also as a hedge vehicle. So what if this whole negative interest rate, printing of money, quantitative easing thing isn't, going according to plan and, and we have some- Well, hyperinflation or even Bitcoinization kind of scenario, what if I just bought like point one or two percent of my portfolio into, into Bitcoin and, and even more, and I see that, I see that as a very, yeah, possible scenario for the future." }, { "speaker": "stephan", "time": "01:15:51", "start": 4551.35, "text": "Excellent. It reminds me of, I mean, we've been, we've been talking about frontrunning the Bitcoin halving, but maybe certain institutions will be better able- to maneuver themselves and position themselves to actually, you know, use this information and buy some Bitcoin." }, { "speaker": "planb", "time": "01:16:06", "start": 4566.8, "text": "Yeah. yeah, absolutely. And, and of course, I'm working, it would be my dream to, to be a bridge, between the Bitcoin and the, and the institutional investor world. As a matter of fact, I, I think I'm perfectly," }, { "speaker": "planb", "time": "01:16:21", "start": 4581.84, "text": "situated for that with my background and the position I have at the moment. but I, I-- again, I think it's a long way. And, and, but, but if I learned one thing is that, from, from the last month and all the comments and, and talks I had, is that the institutional investors, the, the pensions and the, and the banks might not be in, or, or, or in, in, in Bitcoin or invested in Bitcoin, but their quant teams certainly are. They- They, they are, not all, but, but let's say twenty-five, fifty percent, they heard of Bitcoin, they have Bitcoin, or they, they, they work on Bitcoin, but they are very, very interested. And those are institutional investors as well, so they will influence, maybe it's a generational thing as well, but it's, it's very encouraging to see, quants from all over the world, all sorts of banks, even central banks, Personally, taking an interest in this and, and making investments in this." }, { "speaker": "stephan", "time": "01:17:25", "start": 4645.44, "text": "Well, it's, truly a very bullish setup. Actually, at, Bitcoin 2019, Brendan Bernstein made a comment saying something, I can't remember the exact words, but I think he was saying, \"You know, if you put me in a room and asked me to design the perfect bullish setup for Bitcoin, I couldn't imagine or design a better one than what we have right now.\"" }, { "speaker": "planb", "time": "01:17:45", "start": 4665.32, "text": "He's right, he's right. Well, we're, we're at a sort of, some, something of a perfect storm right now with a, recession, around the corner. yield curves are inverting everywhere, are going negative, the recession might already have started. so that's, that's a very nice test case for Bitcoin if it will be, yeah, and negatively an uncorrelated asset, because we haven't, have the opportunity to test it till now. Bitcoin was made in the last big recession, right? Two thousand eight, it was, it was the reason it was made. but we haven't had a big, real big recession until, well, maybe now or, or next year. So that's one. And the quantitative easing, of course, is a big, unknown. And then, yeah, Bitcoin is growing like, like a- Crazy and adapted by more and more, investors. So yeah, I, I totally agree with, Brandon." }, { "speaker": "stephan", "time": "01:18:43", "start": 4723.78, "text": "Excellent. Well, look, I think that's pretty much all we, had to cover for today. So Plan B, before we let you go, just make sure you tell the listeners where can they find you and what, what are you looking for in terms of feedback." }, { "speaker": "planb", "time": "01:18:56", "start": 4736.06, "text": "Okay, so I'm, at Twitter. My Twitter account is, at one hundred trillion US dollars. if you don't have read the article on Medium please, please do so, 'cause it has a lot of the background, of the model and, it might, might answer a lot of your questions. Also, if you haven't heard the first podcast where we, discussed the model into, detail, please, please, listen to that one and, make sure you look out for the next Medium articles, 'cause, we're writing two, one about the altcoins And the stock to flow, and one about the spurious regression, stationary, or non-stationary variables, more, econometric paper. and I'm always open to suggestions, my DM is open, comments are, are welcome, and if you are a quant, working at a big firm, have some ideas, please, reach out, and that would be great." }, { "speaker": "stephan", "time": "01:20:02", "start": 4802.41, "text": "Alright, well, look, that's, that's been a fantastic episode. I really enjoyed that discussion, Plan B, so- Once again, thank you for joining me today." }, { "speaker": "planb", "time": "01:20:10", "start": 4810.46, "text": "Thank you very much, Stephan." }, { "speaker": "stephan", "time": "01:20:12", "start": 4812.68, "text": "I hope you guys enjoyed that chat with Plan B, and just a quick reminder to check out my sponsors, they are who make this possible, so go and check out Kraken and Unchained Capital. Lastly, just an announcement about a new Australian Bitcoin education venture I'm launching with my co-founder Katarn. It's Ministry of Nodes. We believe there's a need for more guidance and handholding for Australian Bitcoiners who wanna learn how to run a Bitcoin full node and also just basic digital security, hygiene, and privacy practices. So we're setting up a website and a web store, and we will be also looking to run workshops, starting in Sydney, but also around Australia. So make sure you check out the web store and the Twitter account. We will be posting up material there with some guides and articles, but also targeted to an Australian audience, so make sure you check that out. That's it from me, thanks guys, and I'll speak to you soon." } ] }