This week Saifedean Ammous, legendary author of The Bitcoin Standard, and George Gammon, Rebel Capitalist, joined Swan Signal live to discuss gold, central banking, the devaluation of currencies and how Bitcoin is going to suck value out of every store of value. George and Saifedean connected well and needed nearly no prompting for a lively discussion hosted by Brady Swenson, Swan Bitcoin Head of Education.
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0:00 Introduction
1:59 Microstrategy holds Bitcoin on balance sheet
8:32 Bitcoin vs Gold
15:01 Bitcoin vs Real Estate
21:07 Inflation’s consequences
29:00 Nation-state responses to Bitcoin
41:01 Historical transitions between currencies
55:28 Fed Coin as competition
1:02:02 Which country will adopt Bitcoin first?
1:05:43 How will Bitcoin narratives change?
1:15:57 Closing thoughts
Brady Swenson:
Welcome to the Swan Signal podcast, a production of Swan Bitcoin. The best way to accumulate bitcoin with automatic recurring buys at swanbitcoin.com. Swan Signal pairs great guests for compelling discussions and this week we have author and educator, Saifedean Ammous and George Gammon, host of The Rebel Capitalist Show. Pairing up great guests is a unique format in the bitcoin content space and has produced some incredible content so far. In my opinion, Swan Signal absolutely deserves a spot in your rotation. So subscribe today if you’re not already. Glad you found your way here. Hope you enjoy.
Hello and welcome back to Swan Signal live, a production of Swan Bitcoin. Swan Signal is a weekly show that pairs up great guests for compelling discussions about bitcoin and economics. I’m your host, Brady Swenson, head of education at Swan. But before we dive in, a quick word about the service we provide here at Swan. We’ve built the best way to accumulate bitcoin with automatic recurring buys. It’s a very simple setup. One, you just connect your bank account to auto fund USD.
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Today, I have some big news for you all. We are launching our Daily Buys beta. We’ve had a huge demand to add Daily Buys to our weekly, bi-monthly, and monthly purchase frequencies. So we’re about to roll that out. You can sign up at swanbitcoin.com. Just add your email address, click get started to be added to the beta list or you can DM us on twitter @SwanBitcoin.
We have about 400 out of our thousand Daily Buys beta slots filled up, so get in there. All right. I’m really excited to welcome our guest to the show today. First, we have the inimitable, Saifedean Ammous with us today. He’s author of a staple of the bitcoin canon, of course the Bitcoin Standard and he’s an economics educator researcher. You can find Saif’s work at saifedean.com. Saif, welcome to the show, man.
Saifedean Ammous:
Thank you very much for having me. It’s always fun to join you, Brady.
All right. And we have finance and wealth management YouTuber, host of The Rebel Capitalist show and investor, George Gammon with us today as well. You can subscribe to George’s channel at youtube.com/georgegammon. Gammon is G‑A-M-M-O‑N. Welcome, George. How’s it going today?
George Gammon:
Doing very well. Thank you very much. I appreciate you having me on the show.
I really appreciate your time. Okay. Let’s dive in and get started with the big news from yesterday that bitcoin Twitter is a buzz about the news that MicroStrategy announced that they made a $250 million bitcoin purchase. BlackRock, the largest asset manager in the world and Vanguard, the largest provider of mutual funds in the world, both hold a significant stake in MicroStrategy. The two of them together hold over 25%.
So it seems likely that they had prior notice of this buy and if so, that means that these two financial behemoths just essentially approved a massive bitcoin buy. The MicroStrategy stock price is up around 15% on the news. So that means I’m sure that other CEOs are taking notice. We’ve also seen in the past few months big macro investors are publicly announcing their bitcoin positions. Paul Tudor Jones, Raoul Pal, Lyn Alden who we had on the show recently.
For instance, Raoul Pal recently tweeted that bitcoin is the future and is wildly underpriced. So George, let’s start with you on this one. What do you think of these developments and their implications for bitcoin?
Well, I’d have to go with Lyn Alden. She’s my partner in Rebel Capitalist Pro. So anything she says, I’m definitely going to go along with because she is definitely one of the smartest people I have ever met in my life without exception. But I think the best information I can give you is just some insider information right here from St. Barts and I came here maybe three weeks ago because I wanted to find a place in the world where I could just go to the gym or I could go to the beach where things were as close to normal as you could find.
And if your viewers or your listeners have never been to St. Barts, it’s right in the Caribbean. It’s basically like Monaco. So there’s 9,000 people on this little island and it’s extremely affluent. I mean 90% of the people here are in finance. They’re hedge fund managers, they’re investment bankers, they’re straight from Wall Street. This is the group that you were basically just mentioning. And I’ve gone to several social gatherings, let’s say. And you’re having drinks with the guys just saying, “What do you do?” I’m not going to mention any names, but a lot of the people that I’ve met here, you’d recognize from CNBC, you’d recognize from Bloomberg.
I would say pretty much every single one of them that I spoke with after a few drinks, we ended up talking about bitcoin. So you can take that for what it’s worth and I don’t really know what’s going on as far as the news. I don’t know what’s going on with this company or BlackRock, but I do know that every hedge fund manager I’m talking to here in St. Barts after a couple drinks. That’s where the conversation goes.
Great. Tell them about my book.
Yeah. It’s a great place to start for sure. It’s widely recommended. Saif, what are the implications here for bitcoin. I’ve got a follow-up after this, but I’d like to hear just your initial thoughts.
I think it’s quite significant because a lot of people have spent the last few years discussing bitcoin from the perspective of payments and retail adoption, and the idea was when am I going to be able to pay for my coffee or for my McDonald’s with bitcoin? The point that I made in my book in the Bitcoin Standard is that bitcoin is not competing with Visa, with Mastercards, with all these payment methods. Bitcoin is not an alternative to these things. It doesn’t compete with them. It’s orthogonal to them. You can install all of those things on top of bitcoin.
Bitcoin is competing with the actual assets that are being traded on these networks. It’s competing with the currencies, with national currencies and with gold as a form of money and as a store of value. I think this development bears it out and of course it’s absolutely massive. It’s $250 million of bitcoin, which is not chump change. I mean, it’s a large company that makes about a half a billion dollars of revenue a year.
It’s a company that has a significant cash balance and it has reached the conclusion that the best thing for us to do with the significant part of our cash balance is to hold some bitcoin. Somebody dug up there, I think it was the investor letter from a few weeks or a few months ago where they had discussed… I’m not sure if it was a conference call or the letter, but they discussed their cash position and they said, “Our outlook on our cash position is becoming negative now because of all the developments of the last three months with the coronavirus lockdowns and so on. They have a negative outlook on their cash position and now we see that they’ve acted upon that and they’ve replaced part of their holdings of US dollar cash with bitcoin and I think a lot of people are going to see the benefit of this.
I think really this is how bitcoin adoption happens. Bitcoin is going to become part of people’s cash balances and if it continues to work, if it continues to operate and it continues to appreciate, it’s going to become an increasingly significant part of other people’s cash balances particularly as other currencies continue to lose value more and more over time. So the phenomenon I described in my book is that in the long run, value accrues to the hardest money. I think Microsystems recognizing that, I think is I find it to be very exciting because it’ll be interesting to see what happens when more companies really do that.
I mean, if we look at bitcoin’s average performance over the last 10 years, I think it’s gone up. Last time I ran the numbers, it was maybe 500 or 400% per year on average. So if bitcoin has an average year for bitcoin next year, every company is going to pay attention because this move is likely to end up being more profitable than anything else the company has done. I think that just shows the value proposition for investing in an alternative to central banks. The market is telling the world, invest in this central bank alternative that works well.
Go ahead, George.
I’m sorry. I don’t know the format here, but just to dovetail on that thought, I think going back to the people that I’m speaking with who are the professionals, short term, I think it’s more of a speculation, and I don’t really see gold as competing with bitcoin or silver just because I see them as two completely separate asset classes. I would never buy bitcoin for the reasons I buy gold and vice versa because gold to me is just an insurance policy. It’s not a way to get rich, it’s a way to stay rich. And with bitcoin, it’s a fantastic asymmetric speculation.
So I just see them as two completely separate things. Now, that said, I think long term what you were saying with your book is really interesting because you’re talking about how in the long run everything goes into hard currencies or hard money like we’ve seen in the past with gold. When you were saying that, it reminded me of Gresham’s law. Brady, if your viewers aren’t familiar with Gresham’s law, it’s basically the bad money chases out good money.
So let’s use an example of Ancient Rome or some society where they used physical gold coins and when they get over indebted, what happens is the president or king or whomever says, “Okay. We’ll just solve this problem by making these new coins and we’ll just paint them gold. But really, they’re nickel or they’re copper or something like that. They’re trying to pull the wool over your eyes and they issue more and more of this currency, we’ll call it. But everyone knows it’s fake. So the more they issue these currencies, the more the real gold coins come out of circulation because smart people see the value, they see the intrinsic value and they start hoarding all of the real money. It’s Gresham’s law. Over the long-term, I’m not saying it’s happening today, but it could happen with bitcoin. It’s a very interesting concept.
Yeah, but I think the nickel coins are nowhere to be found today, but gold coins are still around today. So I think Gresham’s law talks about which coins will be used for legal, commercial transactions in the country. And the answer is clearly in Venezuela today, everybody wants to spend their Bolivars if they can, but nobody wants to take them. So officially, yes, the bolivar has driven out the US dollars because it is the worst money many, many times over. But in reality, the bolivar continues to drop further and further and further. And any actual real wealth that exists in Venezuela is stored in the US dollar or in bitcoin or in gold.
It’s misinterpreted by Keynesians to suggest that, “Oh, if it’s an easy money, then it’s just going to win out over the harder money.” Well, no, it’s going to win out because people are just going to get rid of it, but eventually it’s not going to be money very quickly because it’s going to just lose its value quickly and eventually the harder money will remain.
Yeah, I think that’s my point.
Yeah. I think this is effectively what’s happening with bitcoin and you’re right that it is in this asymmetric bet now, but it’s an asymmetric bet where the positive upside outcome is that it becomes something like gold. It stops being an asymmetric bet. It becomes just the predominant monetary asset. We’re at least 100X away from there or maybe 50X away from there or a thousand X away from there. God knows how much more bull run we have to get there. But bitcoin keeps going up. It eats everything else. I’m not saying it will happen, but it hasn’t looked like it’s been stoppable over the last 10 years. So we’ll see.
I’m sure you guys have done the math. I’d be curious to know how much the price of bitcoin would have to go up in order for it to be equivalent to the market value of gold or the market cap of gold.
It’s at about the price of one gold bar like the 12 1⁄2 kilogram, 400 ounce bar. So basically one bitcoin would be worth about 400 ounces of gold.
Yeah. The math I’d like to do is figure out how much gold is in the world right now?
I think it’s about 180, 170,000 tons.
Yeah. How much is that in dollar terms and then figure out how much bitcoin would have to go up to equal that amount?
I think it’s about $10 trillion at this point if I’m running-
Gold is about $10 trillion, yeah because it’s about 180,000 tons and then 1 kilogram is I think around $60,000 or something. I think you multiply these, you end up with around 10 trillion. It’s in that ballpark. So bitcoin is around 200 billion so far.
Yeah. I think that’s your upside.
Exactly. 2% of gold.
That’s not the upside actually. That’s just one way station on one base camp on the real launch because that’s just gold. Right now in a world in which all kinds of other monetary assets are used because gold is not allowed to be in a free market. If we could have a free market of money, I believe gold would win and everybody would be using more of the instruments back for gold.
In that case, probably gold would be worth a lot more than what it is today because we would have all these national currencies. So there’s also that. So gold and then there’s the national currencies. And then there’s the question of how much of the store value market in the world. How much of the financial markets in the world and the art market, and the real estate market is actually just store of value demand that could better be replicated by just going into bitcoin.
How many people are just buying houses and real estate investments not because they want to own houses, but because they want to store their wealth. So you think that could lead to potentially more stuff for bitcoin to eat as it rises.
Another fantastic point. I do a lot of business in South America, and I’ve been doing so since, call it 2014. And for the Americans or people in more developed economies, they might not get this. But in South America, I mean I’m going to call it almost 100% of the population stores their wealth in real estate. That’s just what you do. I mean, when I was in Ecuador, even the poor people in the fishing villages, if they earned an extra even hundred thousand dollars, what they do is they just build another 10 or 20 square feet on their house and they just keep building, and building, and building, and building.
And the same thing in Medellin, Colombia where I’ve been doing real estate since 2015. I would say and I had the numbers for this, but almost like 90% of the apartments that are owned there are owned just outright. There’s no mortgage on them, because people really don’t have savings accounts there. Their currency hasn’t been a store of value at all. It’s lost a lot more than the dollar a lot faster. So for them, their house, their apartment, their property, their FINCA, it’s a store of value. It’s their savings account. So I think you just hit the nail on the head there, very interesting point.
Yeah. I think in my book, I argue basically bitcoin is the most advanced technology for saving that we’ve ever invented because it’s strictly scarce. Gold was the most advanced because gold by nature of its chemistry can never increase it more than 1 or 2% per year, but bitcoin is even more advanced because in a few years, it’s going to go below gold’s growth rate and eventually drops to zero. So it’s the one thing, one liquid asset that we have in the world that is strictly scarce. There’s never going to be more than 21 million. That’s it.
When you think about it this way, there’s no better thing in which if you want to store value in the future, this offers, in my mind, the explanation for why we’ve seen so much gains in bitcoin and I think as long as this continues, the case is arguably very strong that this is quite useful as a store of value simply because nobody can make more of it. We’ve had 10 years, 11 years of this thing running and nobody managed to find a way of making one bitcoin more than what should be made in the schedule by this block height. And I think that’s an astonishing invention really.
Just thinking about it, it’s almost… Robert Breedlove on Twitter compares this to the invention of zero. It’s a mental construct. Once we’ve invented… It changes the way that we can do math just by thinking of zero and in a sense inventing this first strictly scarce asset just changes the way that we deal with scarcity and with storing value and with saving for the future. It’s an astonishing idea.
I would even take it a step further and that I don’t even think it’s a fixed number of bitcoin. I think it’s a decreasing number. These human beings are always going to lose them. That may be a crude way of looking at it, but there might be more than one billion, but sure next year, there’s going to be maybe 20.5 and as the years go on, you lose more, and more, and more of them. So it’s a scarce asset as is that becomes more and more scarce just because us, clumsy human beings are just going to lose our thumb drive or who knows what we’ll do.
We call those donations, George.
It’s philanthropy. Deflationary philanthropy.
So Saif, I want to circle back to this idea of monetary premiums in other assets especially real estate. So how much do you think that the monetary premiums in these actually hard assets drives wealth inequality or inequality of access to these assets that are needed?
I think it’s quite significant because it makes the market for people who are looking for homes. It’s not just young people who are looking to leave their parents home and start their own family and have their own home. On top of that, you have people who already have a house, but are looking for a savings account that can’t be confiscated through capital controls and inflation by their government. The people in Latin America instead of putting money in a bank account or a stock market or something, some advanced technology for saving like bitcoin, they end up having to buy a new apartment.
So you see this all over the world so many apartments are empty or are owned by people that are renting them out. It’s increased demand. Most people have no business speculating in the real estate business. This should be something that is provided by professionals who have expertise in this business. If you’re a doctor, you’re not providing any value to the real estate business by investing in real estate properties. In a healthy financial system, what you’re looking for in terms of savings, you would keep in a decent saving vehicle like gold or bitcoin.
Then what you’re looking to invest, you’d invest in things in which you have, some kind of specific edge that allows you to understand probably your own business. You’d open your own clinic, your own practice or some business that you have some expertise with. But I think this notion that everybody needs to be a real estate speculator just so that they can retire is in my mind massive inefficiency in the housing market. I think we’d have cheaper houses available for people if it was just the people who… If the people bidding for houses were only the people who were looking for houses to live in, to buy. And if credit for housing wasn’t so easy to get, houses would be far cheaper.
I mean, I think that’s a huge point that I hope everyone just understands and I would take it and say all financial assets. Let’s take it back to 1930 and if you look at a chart of inflation from 1930 to today, you see that every single year, it’s just pretty much going up. We’ve got a few years it just goes down a fraction. It might stay the same, but it’s just up, up, up, up. Take it prior to 1930 and you see that inflation and deflation was more like a heartbeat. It would go up, it would go down, it go up, it would go down and most of the time it stayed pretty consistent.
If you look at the 1800s as an example, the late 1800s, we had about 3% deflation per year. So the price of goods and services were going down. Now most people especially Keynesians would have a heart attack and say, “Oh my gosh, that must have been the most horrible time in history.” But it wasn’t. We had nominal GDP growth and we had nominal wages increase. We also had about 4% nominal rates. So you could put your money in a bank back then and you could get a 7% real return. So you didn’t need to speculate on real estate or in the stock market or in bonds.
But now that we have a two or 3% per year inflation, I would argue that it’s higher going back to 1980. You don’t have a choice. The average Joe and Jane, whether they know it consciously or subconsciously, they realize that if they keep their money in the bank, they’re never going to be able to retire. The way that you get ahead is you buy a home or you take and you put as much money as you possibly can in your 401k to go in the stock market and then maybe, just maybe you’ll have enough money to retire.
But if you think about it, that’s because we have lived in a state of inflation where those currency units are losing value every single day. If they were gaining in value every single day, it’s the complete opposite. I would go so far as to say it would not only alleviate the misallocation of resources through just pure speculation of the overall economy, but it would make society so much better because people… Just as an example, a McDonald’s worker. Let’s say they’re making $1,500 a month. Their expenses are $1,500 a month.
If you take and run that math over 20 years at 3% deflation and a 1% raise in their nominal wages, at the end of the 20 years, they’re making $1,800 a month doing the same job flipping burgers. If they don’t get a raise, if they don’t get a promotion. And you say, “George, that’s only a 300 raise over 20 years.” Right, but their expenses have gone from $1,500 down to $800.
So now they have a thousand dollar delta right there and they have a thousand dollars every single month of disposable income. They’ve gotten richer just
19 Mar 2021
12 min read
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