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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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 debt, but the problem is they still have a really unstable economy because it’s built around oil where we would have the same thing. You could wipe out all these things that people perceived to be the problem, but it wouldn’t rearrange our economy.
Our economy still is the same. You look at the zombie corporations in Japan. Even if you could wipe out their debt, zombie corporations are still there. So would anything really change if you just do a couple accounting tricks? Not really. So what bitcoin does or what any hard money system does is it starts from the ground up and everything that you build on top of this infrastructure, on top of this foundation is solid, it’s secure, it’s sustainable. I mean I know that’s a buzzword now with everyone in the green community and whatnot. But for me, something that’s sustainable, number one is something that is profitable. I know it’s a bizarre concept in today’s stock market.
It’s profitable, but also it doesn’t require massive amounts and ever expanding amounts of debt in money printing and fiat currency. That’s sustainable. So again, my main point is that whether it’s Bitcoin Standard, whether it’s gold, anything that fixes these currency units and provides us with natural deflation, a free market economy where entrepreneurs are always producing more efficient goods and services at lower and lower prices, that’s where we want to be. And I think looking at this through an optimistic lens hopefully I think we could get there. I know we could get there as human beings because we’ve done it many, many times before we’re very resilient and I think that’s how we kind of come out the other side.
Yeah. And I really think it’s shaping up to be bitcoin. That’s the solution. Bitcoin really is the… Because you identify the problem exactly in terms of the problem of not having a hard money and how government captures that and bitcoin just routes around the way government is able to capture it. And this is why I think… I’m not one of the people who puts a high probability on there being the violent crackdown on bitcoin because I think it’s just… The natural technological limitations of physical gold naturally led to government having the ability to abuse its authority over gold and then having that ability led to all these institutions that were built around it.
When new technology is created, it creates its own reality and the world adjusts to it. So people deal with it from a self-interest perspective, and that’s eventually what bitcoin does. That’s the cycle of skepticism. You start off thinking, of course, this can’t work, of course, it’s going to fail. Then it continues to work and then you’re starting to appreciate why it continues to not fail. Then eventually you understand that there’s value related there and that it’s relevant to you and you could use it yourself.
Yeah. I think that every day that goes by, as we see more adoption with bitcoin, the better probability you have that that’s the default mechanism. So many people say, “Oh, we’ll never go on a bitcoin center. We’ll never go on a gold standard again. It will never ever happen. Governments will never choose to go on XYZ standard.” But what they’re not understanding is it might not be government’s choice.
You might not have an alternative.
Yeah. The Roman empire didn’t choose to go out of business.
Exactly, right. So if you get this gradual adoption, the more time goes on, the more bitcoin isn’t a new thing. It’s not a bizarre thing. You don’t have these grandmothers like, “Bit what? Bit who? What’s going on here?” I think it’s very interesting and I’m not sure the specific countries in Africa, but I know many of them, the people aren’t even using cash. They’re just trading their their cellphone minutes back and forth on their cellphone or whatever little… I forgot the name of the little unit of exchange, but it just goes back and forth on their cellphone.
Although it might not be bitcoin directly, the bottom line is it’s a currency that’s completely digital that’s going back and forth that people are already starting to adopt. And of course the millennials are doing it. Even on your twitter feed, I know someone was making fun of both of us calling us boomers like, “Oh, I’m not watching that one. You got two boomers on there.” Right? But my point is obviously, it’s being more and more adopted by the younger generation. So as those kids get older, it’s not so bizarre to them and that benefits bitcoin even more, I think.
You get to that point where governments don’t have a choice because of a total loss of confidence in fiat current.
Yeah. All right. So I’m going to sneak in two questions here because you guys are going for 45 minutes on one question, which I love. It’s great. I’m going to sneak two in here.
Making your job easy, huh?
Yeah, exactly. And I want to check in, we’re about 15 minutes away or so from end time.
I forgot where we’re at.
So I want to know if you guys can go a little longer than we had planned or if you have a hard cut off?
I’m fine. Go ahead and let me look at my calendar here. Are people-
You check it out. All right. So here’s the questions. To follow up on the question about transitions. So we have some chatter in the YouTube chat about central bank digital currencies like a fed coin, right?
So Saif, what do you think about the prospects of a fed coin and the competition that it might bring against bitcoin?
I think ultimately we might get some forms of more digitization. I think there will be things like that, but ultimately it’s not a digital currency. It’s still any national currency. And it’s orthogonal to bitcoin, it’s irrelevant to bitcoin or I shouldn’t say irrelevant, it’s different from bitcoin because it doesn’t do anything that bitcoin does. In particular, there are two things that are distinguishing bitcoin from current national currencies, which is that bitcoin’s monetary policy is algorithmic, it’s not discretionary. Nobody wakes up in the morning and decides what to do with bitcoin’s monetary policy.
Also, the bitcoin payment finalizations, clearance, and settlement is also algorithmic and cryptographic and programmable rather than discretionary. So nobody can freeze your bitcoin account, nobody can confiscate it. So those are the two main functions of central banks. That’s why central banks are there to decide who can pay and who can’t pay on one hand and secondly to decide what’s going to happen with the monetary policy.
So the notion that central banks would invent a digital currency or introduce a digital currency that takes away those two things, I think is a non-starter. They’re not getting themselves out of business. They’re not going to introduce a currency who supplies algorithmic or whose payment clearance is totally cryptographic. They’re still going to want what programs call god mode. They’re still going to want the ability to say, “No, you can’t send them money.” And they’re still going to want to set the money supply.
All they’re doing is that they’re just making it more digitalized and therefore hopefully making it, just as George was saying getting bitcoin acceptance into people’s minds. So we thank them for the free PR.
Basically like a last gasp like rebranding of the dollar basically.
I think bitcoin could get us there a lot faster. And going back to what we’re talking about of the collapse of confidence in fiat currency itself. So I don’t want to get too wonky on everyone here, but if we create, let’s call it a fed coin and I actually talked to Ron Paul about this the other day. Basically what would have to happen is everyone would have to have a bank account with the fed with bank reserves just like the primary dealer banks and the banks under the fed’s umbrella because the fed right now can’t really create broad money directly as of right now. I think that may change, but right now they just create base money.
And I don’t want to bore anyone with details, but that’s why quantitative easing, they could take it up to 10 trillion, 20 trillion and it wouldn’t necessarily affect consumer prices because the transfer mechanism there is A, the debt monetization with the government. If they’re not doing that, then it has to be lent out into new money by the commercial banking system. And those bank reserves, they’re not lending those out directly. Those only just backstop additional loans and increase the capacity of their balance sheet, okay?
So that’s the way it works right now, but I’m thinking that maybe very soon here and we saw this how cumbersome it was to get out these stimulus checks that the fed because, they’re thinking okay, we’re going to take on more power. We want more control over the currency and how money is spent and we want to know where you’re spending every single dollar. We want more and more control over that whether it’s the fed, the government just the central planners, let’s call them. They want to micromanage everything. So they take that. They set up this fed coin and say, “What you have to do is download this app on your phone and every single month, we’ll send you these stimulus checks or UBI,” whatever you want to call it of let’s say $2,000.
Then you can go right to Starbucks and use that on your phone. Okay. Well, everyone is going to… In my opinion, most people will adopt that because it’s free money and then you are on this fed coin system, if we look at the work of Dr. Lacey Hunt who’s one of my favorite economists, he’s someone that’s really in the deflationary camp, but he says that once you change the Federal Reserve Act to allow the federal reserve to change what he calls their liabilities into actual currency units, into broad money, increase M2 money supply directly, that’s where he goes from being a deflationist to someone who sees us being on the path to hyper inflation.
Those are his words, not mine. And if you don’t know who Lacy Hunt is, not a tin foil hat guy. He goes all the way back to the Milton Friedman days. He is an OG. He is legit. You can look him up, google him for sure. So that’s how he sees this. So my point is that by creating this fed coin, what they’re doing is they’re getting us on the path to hyperinflation. And the faster we get to hyperinflation, obviously, that’s by definition a loss of confidence in fiat currency. That’s when as a society, as a global society, we start looking for an alternative, whatever it is.
So you see my point? I think they’re going to a fed coin. Obviously, it’s not a cryptocurrency, it’s just a more digital currency that gives them more control, but I think inadvertently if they do that, they put us right on the path that will lead to their own destruction.
All right. So here’s the second question I was going to ask then because I didn’t get it in. That was my mistake. All right. So we’re talking about how bitcoin might global, talking about hyperinflation, hyperbitcoinization. We’ve talked about the path that might be taken to get to a bitcoin future. So yeah, I wanted to go back to that idea, but ask a more specific question. What country do you guys think will be the first to publicly disclose that they have bought some bitcoin for their own treasury if they’re sovereign treasury.
Again, remembering that at the top we talked about how we have macro investors, big investors buying in. We have companies now buying in. It seems like the last kind of stone to fall is a sovereign nation. Obviously, the game theory says that because it’s an asymmetric bet, you could make an asymmetric bet on the future of your country’s power and really rise and increase your country’s power on the global stage significantly by accumulating bitcoin now. So what do you guys think? Saif, you want to start?
I think Venezuela.
Because what’s their downside? I mean obviously, the guy running the show there is a complete nut, but if you got someone that actually had some sense, then why not start going on what’s called a Bitcoin Standard. Because if you look at hyperinflations throughout history, the way you particularly get rid of that like with Zimbabwe as an example. You say, “Okay. Just automatically overnight, we’re not using this Zimbabwe thing anymore. We’re using the dollar.” It’s just a change of confidence.
I employ a lot of them in Colombia, so believe me, they’re no fans of what’s going on there to say the least. I mean, viscerally it makes them sick when I even talk about it on my videos. So they’re going to have this complete loss in anything that the government comes out that even resembles a fiat currency which just puts them right back in the same position. So why not just say, “Okay. We’re on a bitcoin standard. We are no longer going to control…” I mean, the only other thing they could do is like dollarize something like that. But I don’t think Venezuela would do that because they want nothing to do with the US government. Although Ecuador did it, but I think that’s kind of what have you got to lose? There’s no downside. The only thing you have is upside so why not?
We know that Venezuela is using bitcoin. We know that Venezuela that some government department, I think for passport renewal, they were charging people in bitcoin because they can’t get their money from the regular banking system because they’re bankrupt and they were charging bitcoin. But I think it’s not so much about charging and holding it or using it, it’s about holding it for the long term. That’s the really interesting thing.
With a government like Venezuela, it doesn’t matter how much bitcoin they buy and sell and spend. I mean, it doesn’t matter how much bitcoin they get in, they’re going to continue to spend it and so they won’t really benefit from holding and appreciating in the long run. It’s really hard to say. I mean, it’s 200 governments or something in the world. It’s really hard to say which one of them is going to take the plunge on it.
If I were to make a wild guess, I’d say Switzerland just because they were the ones who had the gold standard for the longest time and they went off the gold standard the most recently. So perhaps, they might be the ones that are most perceptive to it.
Yeah. I’d like to dive into talking a little bit about the market narratives in bitcoin and we’ve seen the narrative change quite a bit. It seems like the prevailing narrative now is probably digital gold in terms of like the widespread view of bitcoin. So Saif, how do you see bitcoin narratives evolving as adoption happens and works its way up the S curve?
I mean, I think the main evolution is going to be the one that we mentioned earlier from asymmetric bet on this happening in over long-term into it becoming more and more of just a boring monetary asset that everybody holds and that’s ultimately it. I think we’ve seen a lot of narratives come and go and we’re going to continue to see a lot of narratives come and go that missed the point. But it may just be that hard money is really… It’s just going to be the narrative that is dominant.
Yeah. What I’d be curious to know and I’m sure you guys have your finger on the pulse of this more than I do is what is the probability of the tech around bitcoin advancing to the point where it could legitimately be a medium of exchange? Because correct me if I’m wrong right now, it’s rather cumbersome. The amount of transactions that happen on a daily basis would just completely overwhelm the system and it would be slow or the amount of electrical needs what not. But I’m assuming there’s tons of people that are trying to figure out workarounds for that.
Yeah, there are. The thing that I argue in my book is… And that’s why the title of my book is The Bitcoin Standard is that you can’t really compare bitcoin transactions with credit card payments. Bitcoin transactions are final settlement transactions so you have to compare them with settlement payments across international borders. That’s the advantage. If I send you a bitcoin transaction and you’re in the same room, it costs let’s say five cents and it takes a few minutes or a couple of hours to confirm.
But if I send that same transaction across the world to China, that’s also going to cost the same thing. So the transactions that are going to be used in… I mean bitcoin is going to be used, in my opinion more as a settlement layer rather than for individual payments. I don’t think individuals are going to be using bitcoin to pay for their coffee, the bitcoin tune. And scaling limitations, and I show some numbers in my book, bitcoin does, what is it, half a million transactions a day or something like that and Visa does I think something like 2 billion.
Even if we improve bitcoin in all kinds of way, there are limitations because it’s decentralized that mean that it will always be different from Visa. But you can’t compare Visa payments to bitcoin payments because Visa payments are credit payments. Visa payment is my credit card goes to your machine and in your shop and then my bank tells your bank that they’re going to settle with them and then they sort it out and it takes several weeks for it to finally settle. But a bitcoin transaction is final.
Once you’ve gotten six, 10 confirmations, whatever, it’s going to take a few hours. Once you’ve gotten a few of these confirmations, then you’ve gotten to the point where the transaction is completely secure. Well, completely is obviously a big word, but it’s secure and it’s irreversible. So in this regard we need to think of the bitcoin chain base layer as being similar to physical gold or physical money and that it’s going to be moved around. Central banks will exchange gold and they will exchange physical cash with each other and banks will move physical cash around, but ultimately the majority of transactions will be done digitally without the physical underlying asset having to move.
I think bitcoin is going to scale with that like there will be second layer solutions that are settled with the second layer bitcoin. It’s the second on the first layer, settled on the first layer of bitcoin chain.
How do you see the extension of credit, if we’re on a bitcoin standard because obviously, you’re not lending… or how does that… Let me just…
My feeling… Well, I wouldn’t say feeling. I think the way that I think about it is that in that kind of situation where we have hard money and what would happen is that banking would have two functions. Deposits where you pay people in order to store your money for you and have it available for you and use it to settle payment around the world. And I think this is a very valuable service that your money is at once safe from theft and also a click of a button away from being sent to China.
So you pay people for offering you that service, so deposit banking and then there’s equity banking in my mind or equity investment. I don’t see the possibility of… I don’t think credit really makes sense in this world, but I don’t think that’s necessarily a bad thing. I don’t see why it wouldn’t be a problem. I think deposit banking and equity are all that anybody needs. If you want your money to just remain safe or if you want your money to be there, then you pay people to store it.
Now, if you want your money to earn a return, they can’t just store it for you, they have to put it out, which means that there’s going to be a risk involved, which means that it’s going to be invested. And in a world in which nobody has a money printer and central banks can’t bail out banks, I don’t see how you can give depositors guarantees on their investment. If lenders are not offered the guarantee on the downside because the central bank can’t bail them out, I don’t see why they would want to lend with a fixed interest rate rather than just taking equity, which has unlimited upside.
Right. So if I’m hearing you correctly, we’re not looking at a fractional reserve system there?
I don’t think it would work. I think bitcoin fixes the glitch in gold that makes fractional reserve banking work, because gold requires banks and places so much value in bank’s ability to clear money that it almost allows them to print money because they almost have like a monopoly network on banks. So bitcoin, by making settlements so cheap and open to anybody an open source and not monopolistic, anybody can set up their own bitcoin node and settle payments for people all over the world. I think by making it into an open market, it makes it very hard for banks to engage in things like fractional reserve banking or maturity transformation. That’s also something I get into in detail in the fiat standard.
Yeah. I just wonder how that would work with the growth of the economy needing a growth of the money supply or if it just comes through deflation like you’re talking about.
Maybe we get five, 10% deflation a year.
Yeah, right because that in essence would increase the amount of… I want to call them units of measurement available. Let’s just say that we had one bitcoin or had one dollar. A lot of people say, well, then the economy could never grow. But it could if you just divided the dollar into small amounts. Such as pennies, right?
And then everyone that was saving those quarters or in this case bitcoin, they would just get richer and richer and richer just by holding it. So anyway, it’s just kind of a thing that I’ve tried to think through there. I appreciate your feedback.
Yeah. It’s an absolutely amazing idea when you think about it that anybody can have their wealth, hold its value and appreciate over time, and that’s available for anybody anywhere. Then if you want to take on extra risk. Once you’ve established an amount of saving that can protect you from say a rainy day or losing your job or whatever, and then you’re able to take risk, then you’re able to put investments in. You’ll only invest and take risk once you find something that’s extremely compelling as an investment. I think in that world, we’d only get resources diverted toward really valuable investments that produce value in the long-term.
100%. We go back to what I said with a sustainable business because your hurdle is so much higher. I mean, think what your hurdle rate is when you’re getting a business loan that costs 3% fixed rate over 30 years compared to if your hurdle rate was 10%. I mean, how much stronger would the cash flows of those businesses need to be? So, yeah.
Okay. Yeah, absolutely.
We had Jeff Booth on a couple of episodes ago with Lyn Alden. In his book, The Price of Tomorrow, he talks a lot about the deflationary forces that technology brings. We’ve actually like with the fiat standard been overcoming or suppressing the deflationary forces of technology.
Yeah, I’d agree.
I think the risk of deflation causing some problems or making… I don’t believe in the hoarding effect anyway or bringing the economy to a standstill anyway. But with the deflationary effects of technology then there’s like no risk at all. I think we’re going to see really quick deflation especially with the hard money economy. Okay, guys. Time is up there. I want to respect you guys’ time and we’ll wrap it up. Any closing words?
No. This has been a fascinating conversation. I appreciate you both for your time and expressing your views. I’ve learned a lot.
Likewise. Thank you. I really enjoyed this as well. I want to pick your brain about references on a couple of things that you mentioned, the 7% return in the 1890s. If you can give me references-
I was just using the 4% combined with 3% deflation to get the 7% real.
I’m looking for sources on this and a couple of other things. I’ll probably email you about them.
Okay. I think you’ve got my email, don’t you?
I’ll make sure, Saif has it.
All right. Thanks so much guys. And again, you know can find Saifedean’s work at saifedean.com. That’s S‑A-I-F-E-D-E-A‑N and George Gammon at youtube.com/georgegammon. It’s been a fantastic episode, guys. Of course, you can start stacking some bitcoin. I know you want to now. You can go stack some bitcoin regularly and steadily with automatic recurring buys at swanbitcoin.com. Thanks everyone for being here today.
Thank you so much, Brady. Take care. Bye-bye.
Thanks so much again to Saif and George for joining us today. You can find Saif on Twitter at @saifedean. That’s at S‑A-I-F-E-D-E-A‑N and George @GeorgeGammon. I am @CitizenBitcoin. On behalf of the Swan team, thanks so much for joining us. We hope you enjoyed this episode of the Swan Signal podcast. It’s fun to join us live on the YouTube broadcast at youtube.com/swansignal. So head over there, subscribe, and turn on the notification. We have a lot of fun in the live chat and we often are able to work in some questions for listeners.
Swan Signal is a production of Swan Bitcoin at swanbitcoin.com, the best way to accumulate bitcoin with automatic recurring buys. Follow us on twitter @SwanBitcoin and subscribe to the podcast at swansignalpodcast.com.
Episode 8 –Andy Edstrom and Ansel Linder
Episode 9 –Rockstar Developer and Jeremy Rubin
Episode 10 – Bitcoin TINA and CK Snarks
Episode 11– Gigi and Knut Svanholm
Episode 12 –Adam Back and Preston Pysh
Episode 13 –Alex Gladstein and Matt Odell
Episode 14 –Robert Breedlove and Tuur Demeester
Episode 15 –Isaiah Jackson and Max Keiser
Episode 16 –Gigi and Udi Wertheimer
Episode 17 –Aleks Svetski and Jimmy Song
Episode 18 –Stephan Livera and Marty Bent
Episode 19 –Mark Moss and Ben Prentice
Episode 20 –Samson Mow and Parker Lewis
Episode 21–Lyn Alden and Jeff Booth
Episode 22– Robert Breedlove and Cory Klippsten
Saifedean’s Personal Website
Saifedean on Twitter
The Bitcoin Standard– Saifedean’s book
George Gammon on Twitter
George Gammon on Youtube
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11 Nov 2020
5 min read
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