Fear of the Fed: Is Bitcoin Threatened by Policy?
with Lyn Alden and Joseph Wang
In this episode of Magic Internet Money, host Brad Mills invites two previous guests back onto the show. Lyn Alden, an investment strategist with a focus on macroeconomics and Joseph Wang, the CIO of Monetary Macro, return to the show to discuss macroeconomics and Bitcoin with Brad.
Brad delivers a recap of his previous discussions with the pair of experts recalling problems with proof-of-stake systems resembling fiat money. Joseph ended the previous podcast with questions about the possibility of state intervention which could disrupt Bitcoin, but Brad didn’t have enough time to cover the topic on the show. Brad’s intent with this meeting of macro experts is to bring this discussion to light.
Peer-to-Peer Technologies
Brad kicks off the discussion where he left off with Joseph, about censorship resistance and how Bitcoin protects against censorship. Joseph brings his traditional finance experience into the discussion and offers a perspective of healthy scepticism, given his knowledge of the banking system and more generally, the financial sector as it is traditionally known.
Joseph’s first concern is the case of the New York Fed testing CBDCs and in the event that a CBDC ends up being a better use-case than Bitcoin, that could present a threat to Bitcoin. Lyn brings up an important consideration here, which is jurisdiction. This episode revolves around the United States and Canada, but there are other jurisdictions like Europe and China which present different threats to the Bitcoin space.
Lyn brings up some case law from the 1990’s, where a US court tried to ban peer-to-peer encryption. This particular case resulted in a loss from the US government and peer-to-peer encryption was protected due to it being an expression of speech. While the original case presented peer-to-peer encryption as an inherently villainous thing, peer-to-peer encryption is now a critical component to contemporary banking.
Lyn sees a balance between two things when it comes to policy about Bitcoin which are the need for the technology and jurisdiction to quote Lyn; “...part of it also depends on need… Most people (In the United States) don’t feel a pressing need to get into Bitcoin”. Lyn makes the comparison to Argentina, where Bitcoin is more widely considered.
The peer-to-peer nature of Bitcoin is what makes it censorship resistant across jurisdictions, but in order for Bitcoin to take off at a larger scale, individuals first need to see a need to hold Bitcoin in the first place. In countries with a strong currency, individuals may not have that need.
What is the Value of Wall Street?
The podcast continues and Brad discusses his trip down the rabbit hole about what money really is and how he felt like he was “living in a big ponzi scam”. Brad asks, “what is the value that Wall Street brings to the world?” For Brad, Wall Street affiliated financial markets feel like casinos. In more simple terms, Wall Street does not produce value, it extracts it and this extraction contributes heavily to wealth inequality.
For Brad, Bitcoin is a path away for individuals to protect the value they’ve created and save in a form of money that won't be debased. Brad mentions his previous affiliation with Austrian economics and libertarianism and his venture away from a libertarian position towards a position without a political label.
Brad’s position is that Bitcoin has two critical components which make it worth investing in. Bitcoin competes against a centralised system which constantly debases the money supply by offering a decentralised alternative choice to that system.
Secondly, Bitcoin has an amount of censorship resistance as a peer-to-peer network, as previously discussed. Bitcoin’s ability to evade interventions from other institutions is the critical point of its use case.
Lyn mentions some data which supports Brad’s position about censorship resistance. Bitcoin has higher instances of use in countries which Lyn describes as “authoritarian” and also have weaker currencies than the US dollar. Lyn remarks “I think it kind of starts in the periphery and moves inward.” Mentioning the fact that the chain analysis crypto adoption index shows that of the top 20 countries adopting cryptocurrency of all kinds, 18 of them are developing countries, with the other two being the US and UK.
Bitcoin and Fiscal Policy
Joseph asks Brad if his concern is monetary policy, which involves a discussion about inflation. Brad and Joseph debate about whether or not the disinflationary nature of Bitcoin would make it a bad global currency.
Brad mentions cases of Bitcoin forum discussions from 10 or more years ago where Satoshi and other early adopters were discussing how to start Bitcoin banks with a fractional reserve. With this potential, Brad is of the opinion that if Bitcoin were to become a reserve currency, it may resemble eurodollars.
Time Stamps
00:00:20 - Introduction and Recapping Guest Appearances
00:14:00 - Show start
00:19:10 - Bitcoin and the Advance of Peer-to-Peer Technologies, how does peer-to-peer encourage censorship resistance?
00:28:15 - Where is Bitcoin strongest? A discussion about Bitcoin in countries with strong currencies and Bitcoin in emerging markets
00:41:43 - How is Bitcoin threatened by taxation? If it is at all.
00:49:10 - The use-case of privacy coins. Are they worth it? Or are you asking to be audited by holding them?
01:01:24 - What is the Value of Wall Street? Brad’s opposition to the hegemonic financial system
01:09:30 - Bitcoin and Crypto more generally have the potential for credit and lending, but how do they compare?
01:14:25 - If monetary policy goes a certain way, ETH could flip Bitcoin as the top cryptocurrency
01:21:15 - Last Words and Closing Remarks
Links to Mentions in the Show
Central Bank Digital Currencies (CBDC)
Wikileaks being deplatformed in 2010
Find Joseph Wang
Find Lyn Alden
Find Brad Mills
Transcript
[00:00:00] Brad Mills: Believe something structurally shift magic internet money. The market has changed from, from, from speculators to allocators. Magic Internet Mind sent me down the rabbit hole looking into welcome to the Magic Internet Money podcast. This episode is the second round with both Lynn Alden and Joseph Wang.
[00:00:25] Lynn Alden was previously on the podcast with Checkmate and Dylan Clair, where we were discussing the macro outlook back in the summer of 2022. And all of the risk that was still left in the crypto system and um, you know, even the risk of Bitcoin dropping further. And we turned out to be accurate with that podcast.
[00:00:45] If you go back and listen to it, uh, I think the Bitcoin price was still above 30, $40,000. And we were both, we were all three of us really telling people to. Expect to see a lot of Ethereum narrative FOMO for the flipping to be happening around the merge. And if people don't follow Ethereum, good for you.
[00:01:04] You don't need to. But you may have heard about the merge. It was being marketed all over the place. Everybody was talking about it because they're very good at marketing. But I was calling out the, uh, the switch to proof of stake as more of a downgrade, not an upgrade. And so it was checkmate and, um, you know, Dylan and, and Lynn both also came on to discuss the, the problem with the Ethereum system moving to proof of stake, which makes it more centralized, makes it more, you know, more like the fiat system.
[00:01:36] It's actually more like the rich get richer with no work. That's the whole fiat system that we live on, on right now. It's the reason why wealth inequality is so bad in the world. Because of the cancel on effect, which is that people that sit closest to the, uh, money printer or to the, to the, the banking system that creates money, debt money, debt based money from lending or just magically prints it up from Congress.
[00:02:06] Um, the people that, that are closest to that orbit, they get to have, uh, more, more access to the benefits of that money, the freshly printed money because it hasn't yet been devalued as, as it makes it out into the real economy. And they get preferential information that they can trade on. And, um, you know, they get access to free easy money where most of the rest of the world gets high interest loans.
[00:02:33] Where if you're a wealthy billionaire, you can finance the acquisition of Twitter or, you know, some other thing that make us hundreds of millions or even billions of dollars. For extremely low interest rate, approaching 0% real interest rate, where if you're just a regular person like us where you have to go to the bank, or even if you don't have good credit, you, you're kind of trapped in this hamster wheel of, uh, Debt based on being preyed upon by banks.
[00:03:02] As soon as you're old enough to sign a, sign your name on a credit card signature, take student loan debt and get a car loan and all this stuff. Well, a lot of people, unfortunately, they, they work for minimum wage or basically minimum wage, and they're in this debt treadmill and they get interest rates that are basically usy.
[00:03:21] Level of interest, it's like 18%, 20%. And when you factor in things like overdraft interest and you know, late payments and all this stuff, it's sometimes can go as high as 30% interest rate or, or just borrow rate to just exist, which is horrible. So, so like that is the current system that we live in. And Bitcoin was created with proof of work, which is kind of like how the rest of, like, how we developed proof of work.
[00:03:46] Like you have to work for something and you get rewarded for your work and your effort. And that's what Bitcoin is. It's proof of work. It's actually not a bad system. That's what these Ethereum people and the, the rest of crypto or most of the rest of crypto trying to say that proof of work is wasteful and it burns energy and that, and for some reason that's bad, that it uses energy and it's a more fair system if you're in proof of steak because all you, you don't have to do any work, you just have to.
[00:04:16] Have your, your coins and then you get more of them. So that is, um, you know what the last episode was that we discussed? I think we were we're proven correct Because if you look at the information on the Ethereum validators, now a months after the switch to proof of stake, you can see that over 70% of the Ethereum validators, basically the miners are signaling that they're censoring or that they're go, they're totally willing to censor transactions because they're getting paid to just go all with the flow.
[00:04:51] and because most of the blocks are being built by regulated densities that are like exchanges, like Coinbase and Lido, uh, which is like a delegated system where you, if you, you don't have the technical know-how to run your own validator node, you just give your Ethereum to Lido and they do it for you and they take a cut and they give you percentage of the eth inflation.
[00:05:14] Obviously they don't want to go to jail, so they're gonna signal OFAC compliance and totally be willing to censor and take bribes. And that is pretty much the majority of Ethereum right now. It's controlled by a small, kind of like a cartel of nerdy Silicon Valley type Wall Street people that like to present themselves as if they're cipher punks, but they're really just getting kind of like pulling the levers all the time, just like the central bankers do.
[00:05:41] But because they do it with like the flag of empathy and inclusion, they're able to fool a lot of people. But what if we transition to a system that's based off of Ethereum, proof of stake? We would be in an even worse position than we are in with the central banks currently continually pulling the levers.
[00:06:01] Creating wealth inequality and getting rewarded for basically hurting people and, um, manipulating the free market constantly. So, proof of Stake, it is existing already. It's the fiat money system, it's central banking. And so that, that was a good episode and I think we were correct in both of our cri our criticisms of the Ethereum downgrade to proof of stake, but also the price action in, uh, Ethereum and Alt coins.
[00:06:27] But not just that, I mean, I, I was predicting that the price of ETH was gonna pump, and it did, and I predicted it was gonna be to sell the news event and that if it hit around 2000, you should dump it because it's to sell the news event. And I was right there. It later dropped down like below a thousand.
[00:06:43] I think it was a good episode. I'm very happy that Lynn Alden came on the show and Dylan and check. Um, I'm a big fan of Lynn Alden. She writes amazing pieces. She's, she's kind of was well known more as a, as a macro analyst. She writes very thoughtful, detailed analysis of like the history of money and, and, uh, markets and gold.
[00:07:03] And she started paying more attention to Bitcoin I think a couple of years ago, or three years ago. And she started including Bitcoin in her own personal, uh, portfolio. And then she kind of fell down the Bitcoin rabbit hole and, uh, has been like one of the best voices for spreading Bitcoin information.
[00:07:21] So I'm very happy to have gotten to know her a little bit and big, huge fan of her. So, Thanks, thanks to Lynn for coming back on the show, um, because I had another episode with Joseph Wang. He's the author of Central Banking 1 0 1 and Central Banking 1 0 1 is a really good kind of intro to intermediate book.
[00:07:42] That's a, it's a short book, but it describes how the banking system works and how the Federal Reserve works. And there's a lot of misconceptions out there that I, I admit that like if you probably listened to some of my episodes from three years ago, I probably was saying things that was not correct about how the Federal Reserve worked.
[00:07:58] Um, there's a lot of things I learned as, you know, an early Bitcoin in like 2011 or so. I was influenced a lot by Libertarians, Austrian economics, gold bugs. And some of the things that are propagated out there in those circles is not quite accurate. Like the fractional reserve banking system, for instance, where, you know, the money multiplier effect, you may have heard about that before, where if you put a $10,000 deposit in your bank account, then that allows the bank to like keep 10% as reserves and just create, uh, $90,000 and lend that out.
[00:08:30] And that, you know, eventually there's a, there's like a 10 x money multiplier on real cash that's deposited into the banking system. And while that's bad enough, it's actually worse than that. That fractional reserve system doesn't really exist anymore and really it's a zero reserve system. And banks just have, they have no constraints based on reserves, really.
[00:08:53] It's other factors that constrain their lending and money creation. Um, like liquidity coverage ratio, L C R. And other factors, but it's basically a zero reserve banking system. Canada has operated in, in this zero reserve paradigm for decades now. This money multiplier thing doesn't really exist. It's not, it's not real.
[00:09:13] It's worse than that. . So Joseph Wang is a great guest. He's an expert in, in the banking system along with Francis Coppola, who I've had on the show before as well, which I, who I learned a lot from. I think it's important to really understand, if you're gonna be trying to explain and teach about money and really di dive into it, you should go to people that are outside of your circle.
[00:09:33] So that's why I started trying to reach out to people that aren't just Bitcoiners but that are experts in gold
[00:09:40] as
[00:09:40] Brad Mills: money or experts in constitutional money or experts in the banking system in in other countries and stuff. So that's why I enjoy doing podcasts with folks like Joseph Wang and I was really appreciative that he came on cuz he was actually responding to me quite a bit.
[00:09:54] As I was reading his book. I was asking him questions on Twitter and he was responding to me. So I was like, wow, this guy's awesome. He used to work at the Federal Reserve as a trader on, I think on the F omc, the Federal Open Market committee, or, or maybe it was, I can't remember which, where he worked, but he worked at the Federal Reserve.
[00:10:09] He was a trader and he has firsthand insight into how. Trades get executed, like what the software is, just actually how it works. And while he may not know everything about, you know, the, the, the decisions and like the behind closed doors, things, he, he knows a lot and I was very gracious to have him, uh, be responding to me on Twitter, answering my dumb questions.
[00:10:33] And then he'd agreed to come on the podcast and we had a great podcast last time. So this podcast is actually Joseph on the, on the end of the last podcast. He was curious about like, certain arguments around Bitcoin, like can the government stop it? And we ran out of time on the last one. So I said, Hey, do you want me to just send you a couple articles and stuff?
[00:10:52] You can kind of read about how we can get these questions answered for you now. Cuz he was open-minded to learning him more about Bitcoin. And so then I reached out to Lynn, like, this was about six months after he came on the show. I saw a tweet thread from him actually. He was talking about the price of Bitcoin.
[00:11:07] He said, I'm not, I don't own any Bitcoin, but. It looks like Bitcoin has been ranging here around the $20,000 range for a while, so it might might be a good place to, to take an entry. It looks like it's found some support and it's probably bottomed out and that kind of reminded me, oh crap, I was supposed to reach back out to Joseph and get him, uh, some information and talk to him about these questions about Bitcoin because I think having advocates or just, well, educating people, having conversations that aren't Bitcoins, um, but that do have influence like Joseph Wang and others having conversations with them and kind of like engaging them thoughtfully in their criticisms and not like roasting them on Twitter like a lot of us do.
[00:11:45] It's a visceral thing is like an emotional reaction when someone's saying something you think might sound dumb. About your topic of expertise and your, you know, like you're emotionally just responding? I can, I think it can turn a lot of people off, unfortunately. So what I try to do as best as I can is have good thoughtful engagement with folks like that and really kind of meet them where they are and, um, answer their questions and not think like, oh, well I have to defend my position, but really just explain it from my perspective and discuss with them.
[00:12:16] And so that's worked in the past. So I was happy to have, uh, Joseph kind of say, yeah, l let's do the podcast. Let's have a second podcast. And then I said, do you want to talk to anybody else? Is it like, you know, would you want me to see if Lynn will come on? And he's like, sure, I'll have a conversation with Lynn.
[00:12:31] So then I reached out to back out to Lynn and she said, yeah, happy to do that. So this is the, uh, the conversation that we had with Joseph Wang kind. His skeptical kind of concerns about maybe some of the things around Bitcoin that a lot of people have. So this podcast was recorded probably, I think two, three, maybe even four months ago.
[00:12:52] I think it was before FTX collapsed that we report. We, we recorded this podcast or maybe right around then. So apologize for taking so long to get this out. But I'm trying to clear through some of the backlog here. And if you are enjoying my podcast, I would really appreciate if you could go to, uh, rate.
[00:13:12] podcast.com/bitcoin. And if you enjoy the episodes, go there. And if you have a suggestion for a show for me to do, if you want me to talk to somebody or whatever, uh, just send me a DM on Twitter at Brad Mills. Can. I have so many unread dms, I'm gonna try to get through them. But, um, or you can come find me on Clubhouse because myself and a few, uh, well probably a hundred other, uh, kind of Bitcoiners like myself, were always kind of hanging out on the, uh, cafe Bitcoin or Master Bitcoin Today space.
[00:13:43] The club on, on Clubhouse. So come find me on, on, uh, clubhouse, same handle at Brad Mills can. And, uh, yeah. With that, I hope you enjoy this podcast with Joseph Wang and Lynn Aldi.
[00:14:01] So last time, Joseph, you came on the podcast and we talked a lot about the mechanics of central banking, how money works, and we briefly touched on Bitcoin at the end of the show. You know, I, I really love your, your work and I love listening to you on podcasts. Whenever I hear you're on a podcast that I listen to, I I make sure to plug it in.
[00:14:20] And one of the things I had heard, you were skeptical of Bitcoin, not from any sort of perspective of like, oh, that's a scam or that's a Ponzi scheme, or anything like that. It was like more of like a concern that the governments will try to stop Bitcoin or governments won't allow, uh, like a Bitcoin to succeed in, in a world where they can control so many of the, and have so much control over.
[00:14:43] So I, I wanted to have this conversation with, with Lynn and myself so we could kind of just go through all the healthy skepticism that you have around Bitcoin and maybe answer some of your questions and hopefully let you see how sometimes some of the, the concerns a lot of macro folks have about Bitcoin, maybe it's not quite as big of a, a threat as they think it is.
[00:15:03] Sounds great.
[00:15:03] Joseph Wang: That's, I I think a lot of people shared my concerns and so I think it'd be a good way for everyone to learn more about how, um, how the Bitcoin community perceives these issues. I guess the first one is, is kind of obvious. I mean one, one recent, recently, for example, what we see is that the New York Fed appears to be beta testing CBD CS with a consortium of US-based banks.
[00:15:26] Now, I don't know if they're going to go through with this. It's going to ultimately gonna be a political decision, but let's just say that one day there is going to be a US C B D C and there will be a Euro C, B D C and so forth. How do you think. , the government handles these competitions, they wouldn't let I know the State of California issue their own currency.
[00:15:45] Right. Would you think that the government would allow Bitcoin and other Altcoins to exist if they had their own C B D C?
[00:15:53] Lyn Alden: I mean, I think it depends on jurisdiction, right? I think that US, Europe and China, for example, are different jurisdictions, different rules set, different law sets. And so in the United States, you know it, it's funny, in the nineties there was this big, uh, kind of legal battle about the inventor, certain types of encryption, you know, wanted to put it out there.
[00:16:10] Uh, the US tried to, you know, sanction that from happening. And so we published in a book and it's kind of like, well now it's speech, right? And so it was this whole, and you could like put it on like a, like a t-shirt, and it became a thing. And it's actually one of those things where the US government lost, I mean, they essentially did not want peer-to-peer encryption to be a thing.
[00:16:26] Uh, it became a thing and it also became a, a, you know, at the time it was phrased as like, I mean, who would want peer-to-peer encryption? Only bad people. Whereas of course now it's a key part of securely paying for the credit card online. And so that's actually a precedent that shows that it can be pretty challenging to go hard against open source code.
[00:16:45] And this, the ability to, it's essentially speech, right? And so there's, there's obviously nuances around that. And so I think the United States is in a different position to some extent. , even Europe. But then of course places like China. And there's also, I think part of it also depends on need, right? So for example, in the United States, we have, among the more stable currencies, among the more, uh, robust payment systems, most people don't feel like pressing need to get into Bitcoin or stable coins.
[00:17:13] Whereas if you talk to someone in Argentina, stablecoin and Bitcoin are just super obvious for them to wanna hold. They don't wanna hold dollars in the bank. They'd rather hold an offshore entity and basically have those, have those tokens and they'd rather have Bitcoin. And so I think it really comes down to, you know, if we get to a point where CBD Cs are launched and they do start say censoring things, I think that's a whole nother vector, a whole nother kind of reasoning argument.
[00:17:36] Why some people might want Bitcoin, right? And so right now, kinda the big argument is, you know, look, you can self custody it, it's supply growth rate is similar to gold and it's gonna keep shrinking while, you know, via currency, XYZ is gonna keep inflating in supply and over the, over the very long arc of time you'd expect it to appreciate.
[00:17:53] That's kind of the main argument. But I think that that can shift more towards an anti censorship role, which is one of its original purposes, if that becomes more prevalent. And the last example I would point out is that, for example, in Nigeria is they have one of the highest Bitcoin and crypto adoptions in the world.
[00:18:09] I say crypto just because sometimes those, those ways of measuring it, like uh, chain analysis will do like the crypto adoption index. They don't necessarily break it out by um, coin type. Uh, but certainly Bitcoin is a very big percentage of that. So Nigeria has one of the. Bitcoin crypto adoptions in the world, and they've actually severed it from their banking system.
[00:18:28] So they've not banned it, but they have made it so that banks can't say, send money to crypto exchanges. So they, the on-ramps are essentially cut off and yet bite that. It still has very high adoption and as partially that combination of people recognize the need more because you have higher inflation.
[00:18:44] There was a wave of bank accounts being frozen for protestors and things like that. So there is, there's more of an awareness there of why they'd wanna hold, say, Bitcoin or stablecoin and things like. I've talked to a number of people there to kind of, you know, hear their story and it shows that if there's a will, there's a way, basically people will trade peer-to-peer if they perceive the problem as being significant enough to do so, which is obviously depends on jurisdiction to the extent of censorship, the extent of inflation, that kind of thing.
[00:19:10] Brad Mills: From first principles, you should look at Bitcoin as a technology and it's kind of confusing cuz it's BTC is the asset, the, the, the coin if you want to think about it like that. But Bitcoin, the network is a technology and um, it's more akin to like bit torrent where it's illegal currently to file, you know, share files.
[00:19:34] If it's copyrighted material, you can't pirate movies and there was a whole battle around that. But the difference between the Napster versus bit to. Story is that Napster was centralized and Bit Torrent was decentralized. So when there's millions of people actually running the software, even though the government and the record labels and Hollywood tried to stop people from piloting, they didn't, they actually just drove people more to Pirate because more people started downloading the software and running the software and enforcement of those rules becomes really impossible when millions of people are, are running the software, unless you do like censorship at the internet level.
[00:20:17] And even that you can get around with certain like VPNs and different, uh, peer-to-peer protocol, you know, tech messaging, protocol technology, things like that. So, but anyways, bit Torrent was unable to be shut down by the government. What they had to do in the end was just compete with Bit Torrent and make Netflix, you know, like they created a way to make a better product that people would cause people to want to.
[00:20:44] Stop going through the hassle of using as alternative technology to get this benefit and use Netflix. And so Netflix was kind of, you could think of, I guess as a C B D C, if they actually make a C B D C that's got properties that make it better than Bitcoin, then maybe that's a threat to Bitcoin and maybe people will use Bitcoin less.
[00:21:03] But that's the only reason that I could think that Bitcoin adoption will be hurt by a CBD C is if they actually try to compete with the properties of Bitcoin, with their CBD C. But based on everything that I've heard them saying, it's kind of looking like it'll end up being more like surveillance and capital controls and, and things like that.
[00:21:21] Joseph Wang: I've heard that there's been a lot of advancements in, in the speed of Bitcoin transactions and so forth. Is that continued to be the case? I mean, I think early on on when people were talking about paying with Bitcoin, they, they were complaining about one, the transaction fees and two, every time you had to buy something, it took a while.
[00:21:38] But I also heard someone say that they've really changed that a lot, so it's not a problem anymore.
[00:21:43] Lyn Alden: Is that true? Yeah, so it's basically, they're probably referring to the Lightning Network. And so kind of like how the US financial system is, is stacked. And of course, you know this better than anyone else.
[00:21:52] You know, you have say fed wire and then you have faster payment systems that run on top of that and get it settled, you know, between banks, gross settlement, Bitcoin's kind of developing that direction where in the beginning, you know, your Bitcoin, it's got 10 minute block times on average. Sometimes blocks are shorter, sometimes are longer.
[00:22:07] If you're doing larger transactions you might wanna wait for a number of blocks. And so it's pretty inefficient in-person payment tech, it's, it's good for like, you know, online payments where speed's not a big deal or a settlement where it settles faster than existing, say banking settlements do. Cause you can settle in a half hour with a a billion dollar transaction, for example.
[00:22:26] So it's efficient as a settlement network, but not as like a pay for coffee network. And what Lightning does, it was the groundwork for that was laid back in 2015. It, it was able to go live after the 2017 segment update. . And so the, the kinda, the early implementations and, and usable network really started to come out in, in 2018 and I would say they kind of hit critical mass in say late 2020, early 2021, where you kind of need more liquidity for that network to work.
[00:22:50] And so the past couple years, that started to work pretty well. And so if you're doing small payments with Bitcoin, the type you might actually wanna do in person and, you know, up to $50 or a hundred dollars or, or in many cases, $200, those will settle us as fast as a credit card transaction. Now, basically within seconds.
[00:23:06] So
[00:23:07] Joseph Wang: let's say that Bitcoin is the, the network improved so that it becomes more usable. And let's say that the network is resilient, like the Torrance seems suggested that it can't easily be censored. What role do you two envision Bitcoin playing in, in the financial system? Will it be another asset like gold or silver, or do you envision it actually becoming more of a currency that people would actually use in their transactions in day-to-day?
[00:23:35] Lyn Alden: The short answer is, I don't know yet. I think it's gonna take time. I think we have to kind of look, you can envision far out in the future of different possibilities. Um, but I think when you start to kind of just describe how you think things will look multiple steps in advance, you're kind of getting ahead of yourself.
[00:23:48] It's like, like first Bitcoin's gotta stay over a few trillion dollars before you talk about anything past that, right? So it's like first get half as big as gold, then get as big as gold. We'll see what happens from there. I think it starts out as an alternative asset. That's kind of where it's been for the past, what, 14 years now?
[00:24:03] Almost this alternative that people can. And some of the pros and cons versus gold. I mean, obviously gold can work offline. Gold's got the long history. The advantage of something like Bitcoin is that, you know, you can have Bitcoin, you can memorize 12 words, or you can go anywhere in the world and you could reconstruct your ability to access your Bitcoin as long as you either wrote those words down or memorize them or have a little memory stick with them, or, you know, whatever the security needs mandate.
[00:24:28] It's almost like money in a decentralized cloud, right? That you can then bring around to do, which is I think, a pretty novel introduction. And another way that I phrased it is that, you know, prior to Bitcoin, there wasn't really a way to send peer-to-peer money long distances, right? Obviously cash and person or any sort of other kind of, uh, exchange goods could work in person, but if you wanted to send money internationally or even across the large country, you had to go through the banking system to do it, and therefore you could get told no.
[00:24:53] You, there's various ways to limit that or control that other than just stuffing some envelope, like money in an envelope or something, which you can do in tiny amounts. Not really supposed to, but anyway. Bitcoin basically comes along and says, well, here's a way to do peer-to-peer transfers. And then especially when you start adding things like the lighting down work.
[00:25:09] And then there are, there's kind of layers around it. So there's also, for example, cash app where it's custodial. You know, you can send up to someone else's like cash app account, like instantly. And of course that's only using their internal ledger, right? But then it also connects to the lighting network and to the broader Bitcoin network.
[00:25:27] And so you have this kind of like area where you can have super fast transactions in there and you're not actually fully using the Bitcoin base layer even though they're holding Bitcoin on your behalf. Or it's an open network that you can then connect to other ecosystems that, that say do connect to the lighting network.
[00:25:42] And so I, I kind of envision it like that where if more people choose to use it, I think there's kind of a full stack, you know, for the base layer up to the middle layers and up to the certain, in some context custodial layers where people very much could use it as a transaction medium. And I think it kind of starts in more of the periphery countries, you know, like I mentioned Argentina before, but I mean there are dozens of countries in the world, probably probably a hundred countries in the world where they just don't have a very good currency.
[00:26:07] I think one can back up and question, does the world need like 180 currencies? So where whatever the number is right now, it's a very large number. and most of them are not saleable outside of their own small little area. They're, they're basically their, their local monopoly. Bitcoin's becoming one where, and I was actually talking to George Sian about this on, on Twitter.
[00:26:25] We were kinda having a discussion that if you travel internationally, there's only a handful of monies that are pretty saleable, right? If you bring physical dollars, you can get someone to take them off your hands pretty easily. If you have some gold kruegger ins or gold eagles, you know, you could, you can get someone to take 'em off your hands pretty easily, depending on where you are.
[00:26:42] If you have Euros, you know, Swiss Frank, you know, there are a number of assets that they're pretty saleable. They're pretty easy to either buy something with or at least find someone that you can exchange pretty readily without, you know, a nightmare. Whereas, for example, if I have. , and I literally do, I have Egyptian pounds right in this door here and I'm in New Jersey, and I don't even know where I would start trying to exchange them for something.
[00:27:02] The local banks wouldn't do it. I'd have to, I'd have to find a specific way to convert that. It'd be, it'd be kind of a mess. And Bitcoin, especially in urban centers worldwide, is becoming one of those more saleable goods internationally where. in any one country, it's not a very dense network, right? So you can't, you can't necessarily pay for a lot of things in Bitcoin as you, as you can in your local currency.
[00:27:23] But it's becoming one of those international assets where if you go to many places in the world, it's one of the more saleable goods when you include, you know, ATMs that you could convert to local currency, various ways that you could find a buyer. There's multiple vendors that will just accept it outright.
[00:27:38] And so it's kind of becoming one of those international assets that I think is increasingly usable as kind of a international medium. And it's kind of like, it's everyone's kind of backup option. I mean, one of the first use cases for it, even before the Silk Road, was when WikiLeaks got de platformed. I mean this was, I think back in 2010, WikiLeaks got de platformed from PayPal and other payment providers and people turn to using Bitcoin, right?
[00:28:01] And so it's kind of like some of the layers recently make it as efficient as credit cards. Some people just like the UX now. Uh, but even aside from that, it's kind of always there as people's like backup option or one of their tools that they can use. I think that's a
[00:28:15] Joseph Wang: really good point that Bitcoin is actually better than some of the emerging marketing currencies.
[00:28:19] I mean, I know that just by traveling through the world, that sometimes you could actually see proper bitcoin ksks or things like that. In, in major cities you never see a kiosk that where you could exchange Egyptian pounds or, uh, I don't know, like say Argentine pesos for dollars. But you could do that for, um, Bitcoin.
[00:28:36] So. But let's say that you are actually someone who has money and, and you want to keep some of it in Bitcoin. It seems to me that one of the biggest problems for Bitcoin, but it, and it's also both a problem and a benefit, is it's tremendous volatility. Now, if I want to diversify my assets into Bitcoin, it's very volatile and one day I could be very well off and a few months later I can beat much less well off.
[00:29:02] Now that's not very good.
[00:29:04] Brad Mills: Too soon Joseph , .
[00:29:08] Joseph Wang: Maybe one day I'll become very well off again. so that that's a problem for a lot of people who are, I guess in the, in the larger, in the more institutional space. But on the other hand, it's also a feature for many people because being, having it volatile, it makes it possible for a lot of people to make a lot of fiats in a very short amount of time.
[00:29:28] And I think that's been very helpful for its adoption. Now, how do you, to go make that balance going forward? I mean, would you, when do you think that one day Bitcoin will become less volatile? And if it doesn't, I mean, at, at one point does that hinder its adoption rather than help? Because eventually you're going to need more institutional investors.
[00:29:45] You can have people just hobbling it or, I don't know, yoing it all the time. That's, that's not where most of the money in the world.
[00:29:53] Lyn Alden: So I'll, I'll jump in maybe Brad, as as a different answer. But, um, and this is sometimes where I, I see things a little bit differently than other Bitcoiners, like, and it's not just institutional, it's also people in emerging markets, right?
[00:30:03] If you don't have a big buffer between your income and your expenses, you'd be careful holding volatile assets. And so that's one reason I've been more favorable on stablecoin, you know, alongside Bitcoin. Kind of like almost, you can almost view them like checking account versus savings account. If you need stable value for the next 12 months.
[00:30:21] Stable coins are interesting in certain jurisdictions. And if you wanna hold something longer term, that's where bitcoin's interesting. Basically, I would view it as like doing fundamental analysis on the network. So you're looking at network effects and you're also looking at say, currency fundamentals.
[00:30:34] What is the expected supply growth of the asset? What are the properties? What's happening with the UX over time? Is this something that I'm willing to hold? And for me, it just comes down to position sizing, right? So obviously there are some people that are well known for just being all in. Whereas I don't view any kind of technology as something that, you know, most people would wanna go all into.
[00:30:51] And so it becomes a non-zero number, which I think can vary based on how long someone's been researching it, what they think about it, you know, they can dial that number up to a, a thing that that makes sense for them. I do think over time it'll get less volatile because I think part of it's volatility is its newness and that people are still trying to figure out the details of how it works.
[00:31:09] They still don't know the difference between say, Bitcoin and, and other digital assets. And then two, any sort of volatile asset attracts leverage, unfortunately, where if they think it can go up 10 x and like, why I can buy this on, on debt and go up a hundred x. . And then of course they get liquidated and racked and then that, that adds to downward volatility.
[00:31:26] So basically as prices fall, then there's like four sellers that are like even exacerbating it. And then there's other things. There's no like wash sale. So people, if they're down, they can like sell and further lock in like tax losses and stuff like that. So there's kind of multiple incentives once they're already followed, like fell to then even like, kind of make it worse, whether it's leverage or, or other things like that.
[00:31:48] And I think part of that comes just through wider adoption, right? If, if, you know, if a thousand people hold an asset and one of 'em is like a millionaire, you know that millionaire can move that price of that asset probably pretty substantially by that one person choosing to sell it. Or one entity, one corporate entity for example.
[00:32:03] But if that as it's held by a million people or a billion people, it's much more widely distributed, it's much more liquid. And so it's much harder for any sort of group of entities to do it. And then as it gets kind of, and again, this is supposing it successful, if it were to reach a pretty wide.
[00:32:19] Ownership globally, where like, you know, a substantial number of people own a non-zero amount of it and they find it useful. And again, we have to think about an international context where many people do have troubled currencies. Um, but as more people hold it, it's kind of like a lot of the gains are now behind it and then there's less reason to leverage it, right?
[00:32:37] So people don't make these huge levered long bets on gold very often. That's not a huge part of that market. And so you don't see as much volatility in the gold space as you do in the Bitcoin space, in part because it's much more widely held alternative asset. And so I kind of see it sort of going along that approach where it becomes more gold like in the long
[00:32:54] Brad Mills: run.
[00:32:55] Joseph two points. One on the stable coins and one on the volatility. I've been in Bitcoin since 2011. Then I, I bought my first Bitcoin at, at $10 and I was mining it with my gaming computer. I still have it over there on the corner cuz one day I, I might, uh, try to hire somebody to see if there's some Bitcoins on there that I forgot about or something.
[00:33:14] there could be, I, I looked at it myself. I didn't find any, but maybe there is. I don't, I'd probably not, but you never know. But I was like that type of person that bought Bitcoin as a savings technology. Back in 2011, I was a, an entrepreneur in the Facebook game business. I was making Facebook games and I had some extra money coming in.
[00:33:36] I was listening to people like Peter Schiff and uh, Robert Kiosaki. Different folks that were trying to educate me about the way that the money system is just continually debased over time. So I started looking at gold and silver as a way to treat like a portion of my savings as like a long-term retirement bet that I'm gonna protect my wealth in gold and silver.
[00:33:58] I found my way to Bitcoin through somebody who was also talking about this digital form of gold, this Bitcoin that has properties modeled after gold, but, Digital scarcity. And if we're going into a digital future, then it would make sense that there's a digital form of gold that has provable, scarcity, decentralization, censorship resistance like Lynn was talking about with WikiLeaks.
[00:34:18] And so I bought some Bitcoin. I didn't go all in on Bitcoin or anything, but as the cycles progressed, I mean I lost Bitcoin along the way. I lo I sold half my Bitcoin at $30 because I wasn't a trader, I wasn't a risk manager. I was just, I guess I'm supposed to do this. Like, you know, I made some money on this trade, you know, , I was right about Bitcoin and I sold half of it.
[00:34:38] And then I lost a bunch in exchange that went down in Mount Gox in 2014 or so after it had risen like a hundred x I took on counterparty risk and I, there's volatility that wipes a lot of us early people out because like Lynn was saying, you use leverage or you don't know about counterparty risk. And in the early days of Bitcoin, especially like a lot of us learned lessons of don't trust verify, which is like, don't trust what the insiders say.
[00:35:02] Don't. , you know, Bitcoin was invented for a reason. For you to be able to sovereignly control your own wealth, for you to actually run the node, hold your own keys. There's no need for you really. If you're just an individual and you're, say, gonna put 5% of your net worth in Bitcoin, there's no need for you to really trust an exchange or a, a crypto bank or something like that with your money.
[00:35:23] As we've seen with FTX and some of these other, uh, Wildcat Bank sort of crypto casinos blow up over the last six months. Bitcoiners like myself and, and probably Lynn and others that have learned the lessons of the past of don't keep your money on these exchanges, don't use high leverage practice, proper position sizing and risk management.
[00:35:43] We have been advising everybody. Pretty conservative. Maybe Michael Sailor, uh, got a little over over his skis with the advice to like, take on too much debt, but he's a noob, so we'll forgive him for that, I guess. But most of us have a consistent message of. 5%, maybe, you know, like 5% of your net worth as a savings in Bitcoin and hold it for the long term over 10 years or more.
[00:36:06] Because if Bitcoin does what we think it's gonna do in terms of a digital gold or a digital properties store value, that can, can potentially become a global reserve asset in the next decade or two, or three or four. Then it's gonna be up in the 10 to 20 trillion market cap range, competing with gold and property and US bonds and things as a form of a digital reserve asset for countries that are cut out of swift and countries that are cut out of the US hegemonic sort of equation.
[00:36:36] So you will see sovereigns and pensions and hedge funds and countries even at some point, I mean, not you will see, but if you see that where we think Bitcoin could go to in 10, 20 years, that 5% of your net worth will become a hundred percent of your net worth. So, for most of us in the early days. I mean, that's what happened.
[00:36:56] Even though we lost Bitcoin and we were kind of like the pioneers going to the, through the Oregon trail to try to get to the prairie and stake our claim of land, like we got attacked by gang green and squirrels and whatever, and we fell off the wagon, lost a leg. I mean, I'm still limping around, but like Bitcoin became at one point like nearly a hundred percent of my net worth just because of how volatile it is.
[00:37:17] So Michael Sailor had this, I don't watch everything he does or anything like that, but it's hard to, you know, miss his, his, uh, highlight reels. So he had this saying that was, you can have volatility or you can have vitality through volatility or, Stagnation through stability, and that really resonated with me because holding Bitcoin for, for 12 years now, or 11 years now, it's been a tough ride.
[00:37:41] I feel like I've lived a whole person's investment life. I feel like I'm a 70 year old man that's been dollar cost averaging into the s and p 500 since like 1930. And like I've seen every single crash, like I felt like I lived through black Monday and Black Thursday and the.com crash and because I've been holding Bitcoin through these crazy, volatile movements.
[00:38:02] But I'm very convicted on where I think this is gonna eventually go. So it does have an effect on you for sure. I mean, I've got a lot of white in my beard now, probably prematurely because Paul's Bitcoin volatility, but I think it's been worth it. What's ended up becoming a life-changing thing for me to, to recognize the value of this and then find, you know, as Bitcoin grows, you get more thought leaders and more influencers and educators like Lynn and Preston pitch and folks like that who are macro thinkers and they're not just like gold bug anarchists, you know, libertarians that are saying like, go all in on Bitcoin and everything else is a scam.
[00:38:42] I mean, they're giving rational, reasonable advice for people to like protect their wealth in different ways and take some risk off the table and practice position sizing. And so I think Bitcoin volatility actually for the average person, if you start with say, a 5% allocation and you don't think about it like a trade, you think about it like a long-term retire.
[00:39:04] Hedge or, or, or diversification and ignore all the rest of the crypto stuff and don't try to become a VC or a trader or anything like that. Just literally save in Bitcoin for 10, 20 years. The volatility won't affect you as much if you can manage to disconnect yourself from the trading. Sort of like, oh, I gotta trade this thing.
[00:39:23] Because it will. I mean it should, if it's gonna do what we think it will do, it should have another, I don't know, what are we at now? 16,000. It should have another 50 x or something in it over, you know, by the time it becomes a global reserve asset, one of many or a few global reserve assets. And if it goes to zero, then you know that that 5% of your net worth that you allocated to Bitcoin in a dollar cost average strategy is not gonna actually negatively affect you that much.
[00:39:51] And it's gonna suck. If you lose 5% of your net worth, it's not gonna change your life. But that 5%, if it does what we think it's gonna do, , it will materially affect your, your life and change it for the better. So that's the advice that I give. And I know a lot of Bitcoiners give some bitcoiners, get a little bit ahead of themselves and like it's a, it's actually a minority of people that say like, you gotta go all in Bitcoin.
[00:40:12] Everything is a complete scam except Bitcoin. I mean, myself, I used to think that 10 years ago when I first got into Bitcoin, I was like, oh, everything's a scam. The stock market's a scam. Everything's a Ponzi scheme. I gotta buy golden, golden Bitcoin . But as you get older and you kind of like learn more about the way the system works, I think you become more conservative.
[00:40:30] And it's almost like a sin in some Bitcoin circles to, to like sell Bitcoin. But obviously if you can analyze that, the macro trend right now is that risk assets are gonna get crushed. It's. Prudent and conservative behavior to like hedge some of that risk away and sell some Bitcoin and still keep your long-term position if you're like heavily in Bitcoin.
[00:40:52] But most people, 99% or so of the people in the world have no allocation to Bitcoin. So the, you know, the advice that like somebody like myself who's majority of my net worth still is in Bitcoin is different than somebody who I would, you know, like yourself who maybe or somebody from any circle that's looking into allocating to Bitcoin.
[00:41:12] It's a, it's more like there's a difference between the risk of holding the majority of your net worth in Bitcoin versus the risk of potentially gaining the benefits of what's gonna happen over the next 10, 20 years. So yeah, it doesn't make sense to tell people don't buy Bitcoin now, even though there's a risk that Bitcoin could drop 50% from here because of macro and because of the trend that Lin was describing.
[00:41:33] I think it's actually still really good advice to tell people to, to keep allocating to Bitcoin and keep buying Bitcoin and these prices are actually good. for somebody who doesn't have already a lot of Bitcoin . Does that make sense?
[00:41:45] Joseph Wang: Yeah. I guess I'll just come clean and say, guys, I don't have any Bitcoin now.
[00:41:51] Now, wait, keep listening.
[00:41:53] Brad Mills: Broadcast over .
[00:41:55] Joseph Wang: So when, when I file taxes, one of the things that you see is that, do you trade Bitcoin? And if you do, you know, the IRS is hiring like 80,000 people, new agents. I I, I get the sense that they're going to come down hard on anyone who owns Bitcoin and I don't think anyone wants the hassle of being audited because they own crypto currencies or things like that.
[00:42:16] And so that's, that's kind of a huge, I think, disincentive for people, for myself and I imagine some others as. . But more broadly to this point though, I think of the cryptocurrency space as a hedge against the fiat space, which I think some people in the cryptocurrency space share. But if you have to report everything and everything is dependent upon the, as ascent of the fiat currency authorities, doesn't that kind of dampen the allure lot?
[00:42:42] And so when I think about cryptocurrencies, it seems like just as Bitcoin is a technology and technologies are always changing, so there will be new technologies to replace it that are better at it. Uh, one of the things that that come to mind is, is like these real true privacy coins like Monero, and I'm sure there'll be others like it, who can survive, say investigations or autism, things like that simply because you can't see it at all.
[00:43:05] Now, do you see these altcoins becoming more popular? I mean, Bitcoin is technology and technologies get old, right? We don't use the computers that we used 10 years. , do you think that there will be competitors that emerge and become more prominent than Bitcoin? I mean, we have Ether, which is the second largest, and I don't know as much about that at all.
[00:43:21] It's more of a platform it seems, but Bitcoin has this huge first mover advantage where it has a name recognition, a lot of people holding it, but eventually it won't have the best technology, and there may be more technology that's more resistant to things like censorship and so forth. And if that happens though, isn't that gonna affect the value of Bitcoin
[00:43:38] Brad Mills: a lot?
[00:43:39] Well, there's, there's two, there's two questions there. I'm curious, Lynn, before you go on to the Alco question, the tax question, I don't have this, I'm in Canada, so I, I haven't heard that before for people, so I'm wondering like, what's your thoughts there? Is that really a disincentive, do you think, for people to buy Bitcoin because they see that?
[00:43:58] you know, that box you have to check. Do you, have you traded Bitcoin? I mean, I think it's a good point.
[00:44:02] Lyn Alden: I, I do think that they do wanna know who owns it and that if they find out someone was trading it and not paying taxes on it, you know, now they can go back and say, Hey, you checked no, but you have it so you lied on your tax form.
[00:44:13] They're basically pulling more people into that transparency net. So I do think that's a risk, but again, I think of it in terms of a global asset, right? And so it's like, for example, you pointed out in Canada you don't have that issue currently in the United States, you, you are increasingly having that issue, but then it also comes down to.
[00:44:29] if you keep your taxes streamlined, you know you can survive an audit. It, it's definitely an incentive to, I would recommend that Bitcoiners be pretty buttoned up in terms of their tax situation so that they can survive that sort of pushback. I think it's certainly not gonna be easy. I think in the long run, I think there are a number of people in the Bitcoin space if they have expected and and are continue to expect pushbacks from the government or certain governments.
[00:44:50] There have been some governments that say, try to ban it and then walk it back. Like India kind of flip flopped on what they wanna do with Bitcoin over the past few years because they kind of realize that they can't ban Bitcoin, they can ban themselves from the Bitcoin network. And even then it only works partially, right?
[00:45:05] So for example, China's one of the more draconian countries in the world. They ban Bitcoin mining. There's still Bitcoin mining there, right? And it's let alone Bitcoin holders and developers and things like that. It's pretty remarkable how it's pretty sticky in a lot of these countries that are even pretty draconian, let alone I think what the United States, uh, is legally capable of doing.
[00:45:24] To the coin question, that is something I, that was actually my first ever risk. Like for, for example, I've been analyzing Bitcoin for a long, much longer time than I've owned it. Part of what kept turning me off, I was like, well, why can't you know, Ethereum take market share? Why can't, uh, x, y, Z token take market share?
[00:45:41] If they're gonna make a million of these things anyway, why can't, why don't they all just get diluted? So it's something that I had to research quite a bit just until I concluded that I think Bitcoin is the long term winner here, and it's more so than just branding and first move advantage. Although that does matter.
[00:45:56] It's also about the specific design itself. So what most altcoins do is they sacrifice some degree of decentralization in order to achieve some other purpose, right? So for example, part of the way Bitcoin's kind of designed is to be as small, as tight as possible so that everybody can run a node, right?
[00:46:12] So you can run a node on a laptop, for example, whereas it's harder to run, say, an Ethereum node, so harder to sync it, more bandwidth. You can't run it on tour in the same way you can with Bitcoin. And then when you scale up from there into something like say Solana, it's virtually impossible for a normal person to run a node.
[00:46:28] You need basically a data center to run a node. And so there's a lot of. Kind of trade offs that a lot of these other coins make in terms of achieving either bigger throughput on the base layer, more expressivity like smart contracts, right in the base layer, and including things like privacy, right in the base layer.
[00:46:43] Whereas say for example in in Bitcoin, the approach instead is to do privacy on higher layers. Lightning is a little bit more private than the base layer, for example, and there's still, and there's technologies to make it more private over time. There are now things like fedi mins that might come and, and help further enhance the privacy of the network.
[00:47:00] When we look at, say, the evolution of technology over time, while it is true that say, uh, an old TV or an old computer gets old very quickly, we don't use it anymore. When we look at like network protocols, they tend to stay around for a very long time. So, for example, ethernet is like, you know, 40, 50 years old.
[00:47:15] T C P I P, you know, was invented by DARPA decades ago. We still use the same kind of underlying technology for the internet. USB's been around for over 25 years now. It's on, its, you know, it's USB 3.0 With these technologies, you kind of do these backward compatible updates over time so that you. USB's not getting outcompeted to buy some new thing instead of it's getting outcompeted by another u sb, a faster u sb.
[00:47:39] And so even though Bitcoin one of its properties that it is very, very hard to change, it is capable of doing backwards compatible updates. And so for example, the 2017 segment update is what allowed lightning to work. Uh, late last year, actually, almost exactly a year ago. It did the tap root update, which was another kind of, it's like a small refinement that added some efficiencies and a little bit of privacy benefits to the network.
[00:48:01] And it's, again, it's a backwards compatible update. And so the design cons, like overall design space, I would say in order to make a digital currency that is small and tighten up for a person to run a node is, is just kind of a limited design space. And I think Bitcoin's kind of capable of maintaining.
[00:48:19] Allocation or that position. Even a pretty highly competitive market, it's kind of like combination of network effects. First mover advantage, if you copy it, you're already at a disadvantage because you have less security. It's like if I try to take Wikipedia, like I, I, I use this example sometimes I could take Wikipedia that you can just download all of it and I could host it on my website.
[00:48:38] And then the question is, would I get anywhere near the traffic or usage of the real Wikipedia? And of course the answer is no. Because even though I can copy Wikipedia, I can't copy all the links that point to the real Wikipedia. I can't copy like the army of volunteers they have on the real Wikipedia.
[00:48:52] So mine would quickly be like a empty, less updated version and so it would just fall away. And I think that's mostly what we see in, in the kind of the alt coin space. I think it's natural that people are gonna experiment and see what's gonna stick, if anything. But I don't really see much of a risk for Bitcoin itself being dislocated at the main thing it's trying to do, which is basically be decentralized money.
[00:49:13] Brad Mills: and that was a really great point, Lynn, and, um, specifically talking about privacy coins, Manero, Zcash, things like that. While they do have these interesting privacy benefits, like shielded transactions and Zcash confidential transactions and things like that, there's a little bit of a logical fallacy that Altcoin promoters use when they talk about this, because you've gotta think that the government is going to be adversarial towards cryptocurrencies and that Bitcoin is a pseudonym cryptocurrency, so that you don't quite have as much privacy as you would have with using something like Zcash or Manara.
[00:49:49] Then in that world where there's a lot of scrutiny, you, you actually are most likely gonna cause yourself more problems by choosing a coin that's specifically designed for privacy maximal. because you're basically opting into an audit at that point. Like you're basically saying, yeah, I'm doing this because I'm choosing privacy over the investment thesis.
[00:50:11] And that's not necessarily like a smart choice for if you game theory that out, then they will see, okay, well we're gonna just go after everybody that's choosing Zcash and Man Arrow. Because I think it was like 2% of all the transactions on Zcash are Zcash are shielded. So if somebody's using Zcash shielded transactions, it's like they're opting in for that specific feature, which will make them even more suspicious of like, why are you using that?
[00:50:36] and also manero, like the, the way that it works, it's technically not scalable like Bitcoin is because it's, if that was the coin that was adopted by by market participants that are trying to look, do transactions with the size of the blockchain would grow so big. Like Lynn said, it sacrifices decentralization for certain other features like privacy.
[00:50:55] And I think though I'm not like against Zcash or Manero or anything like that, I just think for two reasons, it's not a good choice. First. For that reason I just described, you're actually like opting into the, uh, the rubber glove treatment if you're choosing these over Bitcoin, which is a pseudonym.
[00:51:10] Cryptocurrency not completely anonymous, not completely transparent. It's like a goldilock zone. And the second is, , you can use these things as tools. It doesn't stop them from being used. If you really want to protect your privacy, there's ways to use Bitcoin with coin joins or pay to endpoint, like merchant pool coin pooling.
[00:51:28] If you're really trying to use these tools, there is ways to use them to retain your privacy. And still, you know, you don't, it's a touchy subject for people cuz they're like, oh, don't talk about that because then you're, you're giving money laundering advice or something like that. But a lot of us just believe that like, you know, you, you deserve privacy and there's ways to use Bitcoin where you can retain your privacy.
[00:51:48] And like the perfect example of why it's completely reasonable to advise people to like think about their privacy is executive order 61 0 2. That happened in the 1930s with F D R, basically saying it was illegal to own gold. I, I learned recently, probably a year ago, that it was only about 50% of Americans that complied with executive order 61 0 2.
[00:52:12] And it was mostly all the folks that had their gold at the banks or with trusts and stuff. If you had your gold in a vault in the bank, there's nothing you can do because when that happened, they just had to seize everything. If you had your gold at home and you're safe or buried in the backyard or whatever, you could just wait that out and you didn't have to comply or you could even still keep using it.
[00:52:32] So back then when that happened, it was more of a, I believe like it was more of a, a political incentive to stop Americans from redeeming their dollars for gold. Like they didn't want to actually see a run on the gold reserves cuz they were printing money and it was backed by gold at the time. So that was like a more of a political game theory move for them to stop ownership of gold.
[00:52:53] Right now, I don't think there's a risk of a 61 0 2 style attack on Bitcoin or any cryptocurrency. Because there's not the same pressures. Like you can't redeem your dollar bills for Bitcoin . So, so I just think it's unlikely to see the government really turn against it that much. I think more so what you're gonna see is they just wanna enforce the banking laws.
[00:53:12] They wanna enforce A M L K Y C, they want to have the travel rule applied. They don't wanna see money laundering, they don't wanna see Russia be able to evade sanctions using cryptocurrencies. So the, for sure they want to enforce sanctions and, and things like that. But they were more so taking action against specific things like tornado cash on Ethereum, which was a way for hackers and money launderers and even, you know, normal people that just wanted privacy on Ethereum.
[00:53:40] But majority of the usage of tornado cash was to wash money through the Ethereum system and be able to, Escape with, with their igo gains out the other end. So they sanctioned that. The, the treasury put an OFAC sanction on that protocol. And the, one of the main companies that develops Ethereum is Consensus.
[00:54:02] Consensus is owned by Joe, Joe Lubin. He's one of the co-founders of Ethereum. UBS Bank and JP Morgan and other banks have invested in consensus and consensus controls Meta Mask, which is the main wallet that people use to interact with Ethereum. And in Fira, which is the, what Lynn was saying, the node software, basically on the Bitcoin system, we maximize run your own node as a, as a, a piece of advice.
[00:54:27] Like that's decentralization. The ability for you to run your own node and have that resilience against government clamp down is what's core to Bitcoin's ethos. But on Ethereum, that's not really something that they talk about very much. And it's actually not even possible for most people technically to run their own node.
[00:54:45] You have to kind of be specialized and. So therefore most of the transactions go through the nodes that consensus runs. And it's, it was this company called Infra, which does like cloud nodes, but then Consensus just bought infra. And so now they own meta mask and infra and 99% of all Ethereum transactions go through meta mask and, and Ina.
[00:55:08] So, so they enforced the OFAC sanctions. That company basically restricted access to the tornado cash protocol. Once OFAC sanctions were applied to it, even
[00:55:18] Lyn Alden: if you were not American, they basically extended the reach of US sanctions because they even applied it to people that I think are not, are not American, and they other wouldn't otherwise be subject to those sanctions.
[00:55:27] So we're
[00:55:27] Brad Mills: already kind of seeing this play out. For anybody that's really paying close attention, it, it's, it's pretty obvious that systems like Ethereum are in compliance with surveillance goals and A M L K Y C goals, and most of it's propped up by US based VCs. And they have like publicly identifiable founders that can be pressured and hauled into Congress and sent to prison.
[00:55:50] So they've all printed tons of money over the last year in this bubble, and none of them want to actually do the, you know, the cipher. Protest against privacy intrusions. So then they're not gonna actually like go to jail to stand up for privacy or decentralization. They've made so much money that they, they're just gonna comply.
[00:56:07] We already see it all over Ethereum. Defi compliance is just baked in right now. So, I mean, I, it's a little bit of a, kind of like a longer deep dive into that. We, I won't go further . I think I'm a little too far.
[00:56:19] Lyn Alden: I think Joseph passed really good questions. For example, it's the same questions I ask and it's the same questions that I still ask.
[00:56:24] I mean, I, I think it's important to continue to ask questions about the network to constantly assess risks to the network. And so I think those are the right questions to ask. And when it comes to privacy coins, it's, you know, I, I'm more sympathetic to those coins that I am to many other coins in the ecosystem.
[00:56:37] I think. I think some of them are well intentioned and they're, you know, they're trying to stick to kind of the cipher punk. But as Brad pointed out, there are scalability issues with privacy. There's also, and as you pointed out, there's kind of a game theory challenge where privacy coins have a tougher time getting listed on exchanges than other coins of their size because it's kind of just viewed as like a sketchy coin.
[00:56:57] Ironically, I think it's actually there. There's some of the least bad coins out there. I think that cuz there's actually a demand for that, but they're kind of more associated with criminality for that reason. If something's privacy first, people kind of assume that it's criminality first. Even though I, I wouldn't, I don't think that's fair, but it just, it's the reality of things.
[00:57:15] And so I think that you're basically sacrificing scalability. Sometimes you have auditability as well, so it's harder, for example, to audit the supply of manero and assured that there's no sort of inflation bug or anything compared to what you can do in Bitcoin. You know, if you're a small user that wants to hold it for two hours, maybe you don't care.
[00:57:31] But if you're an institution like I, there are insurance companies like say Mass Mutual, that will put a hundred million in a Bitcoin, which is tiny compared to their like, you know, trillion dollar balance sheet. But they'll put. Scale into Bitcoin, the fact that it's like the most audible of the cryptocurrencies is important to them, right?
[00:57:47] That there's basically, that there's much less of a chance of an undetected inflation bug or something like that compared to some of these other more private coins.
[00:57:55] Joseph Wang: Did you make some great points? A lot to think about then I can tell you two have spent a lot of time thinking about this problem and I've studied it extensively.
[00:58:03] That's all very helpful for me, and I'm sure the audience as well. But I also think one other thing about this though is that this has been framed as an investment so far, and in any investment thesis you have to know when you're wrong and when you have to get out. So I noticed that many people who in this space are, are very passionate for this and that's can be very good, but also very dangerous because you then, you don't actually see when you're wrong and when you have to get out.
[00:58:31] Now this is gonna be a hard question. What would you have to see that would change your mind about Bitcoin?
[00:58:37] Lyn Alden: So I would say one would be some sort of, I think, destructive change, right? If one of these updates went in a direction that I thought was particularly bad or that somehow broke the protocol and then maybe you have like some sort of chain split and then it just kind of, the community gets split and sort of crippled and something never affects or disrupted.
[00:58:54] That would be, I think, pretty bad. I think it's one of those things where Pandora's Box has been opened. So this is a technology now that is always has the potential to exist. And it can even change forms. So for example, if something were to happen to Bitcoin, the existing U T X O set, basically the, the existing set of all coins and you know, the ad, basically the addresses that people control could technically be even hard forked or change into another system.
[00:59:16] You could take that approach and if you had critical, massive users that, for example, needed to make that change for some reason, there's a way that that U T X O set that ledger can move forward in another wrapper. So there are, I can imagine, I like to imagine tail risks of, you know, Bitcoin has had. Some bugs in the past.
[00:59:32] I mean, one of the funny stats is that it's actually as, as higher uptime than Fedwire since 2013, you know, fed. But, and so if you go, if you go back to inception, I mean, Bitcoin had one inflation bug, I think it was 2010. So Soel fixed it. Uh, and then there was a, uh, 2013 unintended chain split. They rolled that back and fixed that.
[00:59:50] There was also a, a pretty critical inflation bug that went undetected in, I think it was 2018. And so that was not exploited, but could have been. And so there, there have been a history of occasional problems that if they were to be exploited or not fixed quickly enough, could cause a more damaging thing to the community, right?
[01:00:08] So I, I can imagine things happening to Bitcoin that caused it to have a multi-year setback, for example. Or they can, you know, dampen how much it could reach. I think it'd be pretty hard for me to just not be interested in the technology anymore, or not wanna hold any, or not want to continue to explore the ecosystem.
[01:00:25] Pandora's box is open there, but there are, I can imagine scenarios where the network is crippled enough or stagnant enough or damaged enough that I can no longer necessarily recommend it as a, a meaningful investment that basically some of the worst tail risks or some of the worst outcomes have materialized.
[01:00:42] That's the timeline that we entered and it's unfortunate in that regard. So most of mine would be essentially technical in nature that something technically happened in the network. Uh, because as long as it continues to operate as intended, I don't see why not wanna hold a non-zero amount in it. But it's also, there's also like adoption metrics you can look at like how many on chain addresses are there.
[01:01:03] If you start to see kind of a stagnation in people buying into it, then you can kind of just say, okay, we don't know if this thing's gonna grow anymore. Maybe it reached total adjustable market earlier than we thought. And you know, I might still wanna hold some, but then I might no longer recommend the amount that I recommended before, or
[01:01:20] Brad Mills: things like that.
[01:01:21] I think as well for me, I, I kind of look at it from two different personalities. There's me as the financial activist kind of person who dove down the rabbit hole of what money really is and how the banking system works. And I felt like I was living in a big Ponzi scam and it made me be like, question, what's the value that Wall Street brings to the world?
[01:01:42] What's the value in these financial markets? That, that pretty much to me feel like casinos that drive the wealth inequality in the world to where it is now such a crazy like, misrepresentation of, of like people to wealth that it, it feels, it feels like Bitcoin is one of the solutions for the average person to be able to think clearly.
[01:02:05] They're protecting their savings and just save, simply save in a form of money that won't be debased. And for me, as like a financial activist sort of person coming from the, you know, Austrian economics interests and the sound money rabbit hole, the only thing that would like shake my confidence in Bitcoin as a generational.
[01:02:27] Savings opportunity for most Gen Zs and millennials is a change in the monetary policy, because that's the biggest network effect that for folks like me that, I mean, I, I'm probably not a libertarian like now, but I, at one point in my life, I rebounded from being a complete liberal Democrat to like libertarian, like almost card carrying like Ron Paul supporter to like now somewhere else.
[01:02:51] I don't, I'm still figuring it out, but like the one thing that stayed constant for me, this whole political sort of like journey I've been on over the last 11, 12 years, 15 years, whatever, is the fact that the money system is not designed in a way to reward saving, and it's not designed in a way that is fair for the average.
[01:03:10] Not to say that we need socialism to like redistribute wealth, but just that the fact that you should be able to work a normal job, save in your money, and then live a dignified life and be able to afford things like a home and not be constantly stressed about money and, and the way that the current system is designed, it is constantly debasing your savings.
[01:03:31] And so Bitcoin to me and to a lot of folks, they came to Bitcoin because this system represents a fix to the problem of a broken money. And it's gonna take a long time for that to happen, but the long term credible scarcity of Bitcoin and the longer that Bitcoin operates without having someone or any entity be able to, I.
[01:03:51] The monetary policy of Bitcoin, that's the most important thing for us because the problem is that they changed the parameters of the money and that they manipulate the levers of the money. That's what a lot of us believe. So on the financial activist side, so it's part censorship resistance, the thing that you were concerned about, Joseph, like government's not gonna allow it.
[01:04:12] They're gonna try to censor it. They're gonna compete with CBDs. We believe Bitcoin competes very well there. And also it's the, the whole design of the monetary policy of Bitcoin being a completely decentralized digital asset that has no centralized third party that can change it. If that ever happened, I, it would definitely shake my confidence in Bitcoin being able to solve that problem for the world, because once it happens one time, it invalidates the thesis that Bitcoin is hard money.
[01:04:39] So that, that's the main thing. As an investment though, like as an investor, I would probably still allocate some of my net worth to Bitcoin, even if that changed, I would just not be as passionately evangelizing it, you know what I mean? So like, but still I'm a realist and I recognize there's value in this asset.
[01:04:56] So even though it like would kind of dishearten me and cause me to not be as excited about talking about it and and spreading the word, I'd still wanna own some, because like Lynn said, it is a Pandora's box and, um, I think it's just here to stay and it makes sense to have a percentage of your net worth in it.
[01:05:15] Maybe I would sell a bunch and just keep 5%
[01:05:17] Lyn Alden: or something. Yeah. I think it's, I think encrypted peer-to-peer money is just a, a big thing. Right. And I think that right now, I mean, Bitcoin has something like 95% of the proof of work market share of coins. I, I think it's by far the best shot that this space has towards giving that at least a, a, an option for separation of state and money.
[01:05:38] And again, we don't have to think, we don't have to think about the US first. We can think about, you know, the 180 currencies out there. People in all these different markets that have these inflationary issues, they have, you know, half the world lives under authoritarianism, you know, kind of pick your problem.
[01:05:51] I think it kind of starts in the periphery and moves inward. And if you look at the chain analysis crypto adoption index, I think they recently updated it out of the top 20 countries. So by different ways of measuring the percentage of people that are into crypto. And if they don't really, again, they don't really separate Bitcoin and crypto out, they just call it the.
[01:06:06] Crypto adoption index, but 18 of those 20 are developing countries and the other two are the United States. And then I believe the United Kingdom. And I think on the, on the last year when they did it, the US was the only developed country on the list. The other 19 were developing. And I think there's signal in that because I, I think it's, it's, it actually makes sense that if you have crappy currencies, you're more likely to explore non-state currencies or, or stablecoin that are extra state.
[01:06:31] They're, they're outside of your state, at least the hub, the hub that centralizes it. I think the technology's here to stay, like Brad said, basically something with the monetary policy, something like I said before, like a critical bug that the network is just unable to kind of recover. It's, it's never affecting enthusiasm about could derail, uh, and present risks for, you know, the adoption of this particular asset.
[01:06:52] Joseph Wang: So it sounds like, so Brad, you're concerned about the monetary policy and so, which is to say base member of the currency in other ways to say, That is inflation. And Lynn, you've done some really excellent work on showing that there's some concerns about inflation going forward, both from energy and your recent piece on let's say fiscal spiral.
[01:07:11] Too much government spending. And so if you have a world where, let's say the currency is being deviced, another way to say that again is inflation and something like Bitcoin, something that's a bit harder asset like that, or at least can't be easily, um, debased, as they say, would be an extractive investment going forward.
[01:07:28] I mean, now that I think that makes sense to me. You know, when you have inflation, the value of everything goes higher. So if you have something like a private asset sense, the reason it would go higher as well. And if the technology is there and is resistant, then that, that could make.
[01:07:43] Brad Mills: Yeah. And, and, and also like some people criticize that because Bitcoin is disinflationary, it won't succeed as a global form of money in the future because there's not enough of it or the inflation schedule's too low that it won't allow for capital allocation and efficiency and credit creation and things like that.
[01:08:01] And I think like as we go forward with Bitcoin becoming more and more adopted as a reserve asset and um, a form of money for some people that there will be forms of credit creation in the Bitcoin system. It won't be that the supply of Bitcoin gets inflated as long as the monetary policy stays 21 million and doesn't change like the having.
[01:08:25] it doesn't get changed, like nobody's able to interfere with the monetary principles or policy of Bitcoin. They used to talk about this like 10, 12 years ago on the Bitcoin talk forms, like how Finny and, and Satoshi and others early folks talked about how you could see Bitcoin scale out via Bitcoin banks, where some people would choose to start Bitcoin banks with fractional reserve with like a reasonable fractional reserve.
[01:08:47] And then consumers would just choose whatever risk they want. Like do they, do you want to use a bank that has a fractional reserve Bitcoin or do you wanna use a bank that's fully reserved? Or do you just wanna hold your own Bitcoin and use, use Bitcoin? So I think most likely what we're gonna see is a combination of stablecoin creation using Bitcoin as collateral, which is kind of a form of credit creation.
[01:09:09] If you have a censorship resistant blockchain, native, smart, contract based stablecoin system that's uncensorable and is truly decentralized where you say collateralized. 10 Bitcoin to generate a hundred thousand dollars backed units. That is a form of credit creation and, and if people accept that, it's almost like a digital form of Euro dollars.
[01:09:33] I
[01:09:33] Joseph Wang: mean, when you are moving, I mean Bitcoin as an investment vehicle, as a, you know, like a digital gold or something like that. That's one thing, but when you're moving into the Bitcoin as a part of the banking system or having its own bank, that's a whole nother ballgame in, in my view. Then you have to have concerns about things like deposit insurance or Linda Velazquez Resort, things like that.
[01:09:51] Or you could just end up, otherwise you would end up like something like ftx. Now they were basically kind of like cryptocurrency bank in a sense that kind of took someone else's money and just did whatever they wanted with it. There's a real trust issue there. Then you're basically claiming back full scale to the fiat banking.
[01:10:08] Brad Mills: Uh, I think it's inevitable, honestly. I think like, the more I think about it, the more I think that it is inevitable that you can't stop people from trying to do credit creation. The only thing you can try to do is build it in a conservative way that won't cause systemic collapse. Like it happens right now.
[01:10:22] Like Tether Tether basically does credit creation with U S D T. What they do is they will create U S D T back with Bitcoin. So Celsius, for example, took a $1 billion U S D T loan from Tether backed by 2 billion worth of Bitcoin. So Tether had 2 billion, 90,000 Bitcoin. They gave a billion dollars of U S D T to Celsius.
[01:10:46] Celsius went and then invested it and kind of did a whole bunch of risky things with it. But that is conservative. Like they were able to successfully liquidate Celsius when the price dropped of Bitcoin. They were able to successfully liquidate and eliminate that debt. And like the U S D T just vaporized, it, it, it went back into the.
[01:11:04] Us dts Treasury and they deleted it. But, so that's what a conservative sort of form of credit creation and stablecoin system can look like. But what they did in crypto was Terrana and Terra Luna was, it grew to 18 billion of basically vapor tokens. So 18 billion of credit creation. That just blew up because nothing was backing it.
[01:11:28] There was barely anything backing Terra Luna. And it was just purely an algorithmic peg that was based on ponz Nomics and there was nothing backing it of value. And then when people tried to pull out of it, it, the whole thing imploded. So like for sure, I think there's a lot of risks in trying to build fractional reserve on top of these crypto systems.
[01:11:47] And the way that they ended up doing it in defi and crypto for the most part is the complete wrong way and it causes massive losses and people have lost their savings and it's hurt everybody. So, so they rebuilt everything that was like toxic and wrong with. With Wall Street that got regulated away in Wall Street and they did it on blockchains and it, the same thing happened.
[01:12:09] So I think if we do it on Bitcoin, they'll, it'll be more of a conservative, rational
[01:12:13] Lyn Alden: way. And I think, I mean, this has already been proven out to some degree. For example, there's Unchained Capital. They've been around for years now, and one of their main services is that you can deposit Bitcoin and you can get a dollar loan collateralized by that Bitcoin that will be liquidated if it falls too low.
[01:12:28] And what they do is they use a multisignature set up so that they hold one key. Basically a multi signature setup is for people that don't know. Let's say you do a two or three setup where it takes two out of the three keys to move that Bitcoin. It also means that if you have one of the keys, you can like identify that Bitcoin on chain, you know, it's still there and it's not being re hypothecated.
[01:12:48] And so what they'll do is they'll, you deposit Bitcoin, unchain gives you one key, unchained holds a key, and then a third key goes to like a, an independent entity that you know is now rules based. And what that does is that allows you to borrow against your Bitcoin in a way that is, one, it's, it's more risk controlled.
[01:13:06] And then two, there's proof, essential proof of non-AP application. Right. And that, you know, basically that it's, you're far less likely to have an XT FTX like event with that set up than with say, ftx, right? So I think, I think the industry's going to move towards, you know, more proper controls. Right. And I think that, you know, there are a number of, say fully reserved custodians could be Cash app if you're, if you're using it more actively, it could be like something like NI Dig or Fidelity if you're using like institutional grade, large scale custodians.
[01:13:33] So I think it's going in that. Kind of general direction, but there's always going to be some degree of counterparty risk if someone chooses to use that on that level. I was actually gonna ask a question to Brad and, and play devil's advocate because it's something I've been analyzing and it, it also, it ties into both the disinflation and the Altcoin competition thing.
[01:13:50] So for example, right now, one of the memes in the space is Ethereum and ultrasound money, that they've changed their monetary policy a number of times and now they actually have less inflation, uh, than Bitcoin, at least less issuance. Uh, some people don't like to call Bitcoin's thing inflation because it's already fully, if you, if you follow, dilute Bitcoin, it's not really inflation, but in practice it is.
[01:14:09] So coin issuance. And so how do you think this plays out in the coming years? How are the, um, market share is gonna compete when you have one that's more centralized but is using that centralization to lower its issuance, potentially even to deflationary territory versus Bitcoin, which is kind of more taking its time before it becomes a zero inflationary asset.
[01:14:29] Brad Mills: Yeah, this is something I look into a lot. I mean, I spend most of my time actually thinking about this situation, about the ACOs, defi Ethereum, more so than I do about like learning about Bitcoin, cuz I've been in Bitcoin so long. And I think the real risk of Ethereum, flipping Bitcoin and becoming the, you know, dominant cryptocurrency is, is Federal Reserve.
[01:14:52] And regulation because if the regulators just continue to take a step back and they don't actually come in and stop these fraudulent Ponzi scams from causing huge wealth creation and then wealth destruction, they just keep refilling their coffers to be able to pump price of Ethereum like most of the VCs and a A 16 Z and the Paradigm and these venture funds and stuff, Coinbase, they're all pretty much aligned to the idea that Ethereum is where they're, where they can make most of their money and the Ethereum ecosystem and Defi.
[01:15:24] And so they've made billions and billions of dollars this last bubble because the Federal Reserves easy money policies and you know, Zipp and ev, all that stuff, if it caused just massive bubbles to form and risk assets. And I think. One of the strategies that central banks or banks in general venture capitalists, sometimes nefarious, sometimes not, you know, if you were to think that there's this, uh, fear of Bitcoin in, say the central bank world, if they fear Bitcoin, they know they've realized they can't stop it.
[01:15:56] Um, so what can they do is they can compete with it and they can, like the Netflix example, they can try to build the Netflix, they can try to elevate the Netflix over the bit. Torrent and Ethereum is like the Netflix of, of this example. Because if they, if they can elevate through venture capital, wall Street banks, you know, et cetera, just like elevate the cap, the network effects of Ethereum, then that can compete with btc.
[01:16:21] Like EAT can compete with btc because we know that like in a, in the world we live in, the best choice is not always the thing that wins out. , unfortunately, like, you know, there's better ways to have privacy on the internet, but instead we all use Facebook and Instagram and Twitter and Google, so we know that, uh, the Silicon Valley and Wall Street can, can amplify something and build something up to where it's actually not the best answer to the problem.
[01:16:48] Where Bitcoin BTC is the best answer to the problem. But if you remove the, the amplification of Ethereum by Mike Novogratz and real vision and all these, you know, people that are focused on making money, cuz there's more opportunity to make money on, on these alt coins like creating premin and dumping alt coins on the market.
[01:17:07] If you remove that and you just start to look at the monetary policy, then it's obvious to anybody that's paying close attention that Bitcoin's monetary policy is superior. And the fact that they were able to change the monetary policy of Ethereum multiple times. shows that it's not decentralized and it's not resistance to censorship, and it actually invalidates it as a sound money, and I think so as long as in this really constrictive environment with.
[01:17:35] No quantitative easing and risk assets are, are kind of being crushed. That actually helps us breathe and take a look and analyze what actually happened, what's going on, what makes these things valuable, and it slows the whole pace of everything down so that. A lot of the investment interests came in into Ethereum through this ultrasound money meme, the e I P 1 5 59 thing, where they purposefully tried to make the stock to flow ratio of Ethereum better than Bitcoins stock to flow ratio.
[01:18:05] And a lot of us Bitcoiners didn't really believe that stock to flow ratio was an important thing at all. It was just kind of like a meme. But a lot of institutional investors came into Bitcoin through the stock to flow ratio, the Plan Bs talk to flow ratio, and then, you know, had people that are like influencing thousands of register or RIAs and money managers pushing the idea that the stock to flow ratio was what was exciting about Bitcoin.
[01:18:27] That's why you should allocate to it. So then Ethereum said, well, we're gonna make our stock to flow ratio better than Bitcoins, and now this is ultrasound money. And that actually fooled quite a few institutional investors and high net. Individuals that don't really deeply look at an analysis of what's the difference between Bitcoin and Ethereum in terms of the currencies.
[01:18:46] So I do think that it was a more of a threat last year. I'm glad that the risk is being flushed outta the system and all this speculative stuff is being kind of like destroyed. And there's a lot of nonsense that happened in this market in the last year and a half, two years, and it's actually good for us.
[01:19:02] I, I think there was a risk that ETH was gonna flip Bitcoin last year going into the merge. If the Federal Reserve, if say if the Russia sanctions hadn't happened in January and the Federal Reserve hadn't started, do you know, signaling or tightening and things like that to crush inflation, then I think maybe we'd be in a situation right now where East would've flipped Bitcoin already because the network, like the momentum was so strong that they had, they've done so well at marketing that, uh, driving.
[01:19:29] In institutions. You even had the Bank of America write a report last year saying that, you know, if you're a pension fund with a hundred billion dollars, that you know the yield on bonds is so low, you're getting nothing from it that you should deposit your funds and curve and farm 2% yield and defi . So I mean, when you got that level of institutional Kool-Aid drinking in terms of like putting significant capital into these defi systems to make money on Ponzi schemes, you know, something's broken with the signal and there's a lot of noise out there.
[01:20:00] So actually the Federal Reserve kind of saved rationality in crypto markets, and that's why I'm kind of bullish actually, that people will realize Ethereum is actually more like digital aluminum than digital gold. And we can be in a world where Ethereum, the network has a lot of transaction value and maybe all derivatives in the world, maybe quadrillions of notional derivative value is getting.
[01:20:23] Done over defile layers on Ethereum, but the eth asset itself can be like digital aluminum and Bitcoin is digital gold. So even in the best case scenario, in a world where we don't have asset bubbles being inflated by easy money policy and 0% interest rates, Bitcoin shines and like it becomes obvious that it's the better asset.
[01:20:44] So yeah. Uh, the worst thing for this altcoin thing competing with Bitcoin is federal reserve policy. I think, I dunno what you think about that, Lynn. I think
[01:20:54] Lyn Alden: that's a fair argument. It kind of comes down to between how tight something is versus how decentralized it is, right? So for example, Binance is a deflationary currency, but we all know it's, it's centralized Ethereums on that spectrum as well.
[01:21:07] Whereas Bitcoin, where you're optimizing for above all is that decentralization. And so I think it just becomes a matter of making sure people are aware of the differences in his protocols. Um, but I, I mean, I'll, I'll point to Joseph to see if he has any last words or last questions or.
[01:21:21] Joseph Wang: No, I, I really appreciate your, this discussion is very helpful in understanding Bitcoin and some of the techno technological innovations behind it, and I can totally buy that Bitcoin as an asset class, something that could hold, I don't know about hold value, but is worth something going forward.
[01:21:37] But Bitcoin becoming a banking system that I think is just. Completely different and has shown time and time again to not work very well. I mean, we've done this in the fiat system for centuries. You know, if you have a bank, then you have centralized node and there are issues about trust. What, what are people doing with the money?
[01:21:54] Are they issuing? What are they issuing? So that's when things like deposit insurance come into play, that's when things like lender Las last resort coming into play. So it's an experiment that's been conducted throughout time across countries. So I don't think that's gonna work, but,
[01:22:08] Brad Mills: uh, as an asset, that'll be part three.
[01:22:12] Joseph Wang: But guys, you've, you've already seen tremendous implosions of stable coins, which are basically banks and ftx, which is kind of acting like the bank, right? They were basically issuing their own tokens and taking in money from other people. So we don't necess really see that in the fiat system anymore.
[01:22:27] Right. And that's
[01:22:28] Brad Mills: kind of important. Joseph, before we end this lake, how long do you think we have left to be in the vice here in terms of monetary policy? Like how, how much longer of tightening?
[01:22:37] Joseph Wang: I don't view monetary policy as being a major contributor to basing money and things like that. I, I really think it's mostly fiscal policy.
[01:22:45] I mean, I think of deficit spending as printing money and what the Federal Reserve does, I don't actually think of it. I mean, it is printing money, but in a sense, but then you're really also using that money you print to buy other money like assets. So I think the Federal Reserve is unfairly blamed for things like inflation and currency placement.
[01:23:04] I place more of the blame on our fiscal authorities. If you're asking when I think the Fed will stop tightening. They seem committed to. Staying higher for longer. Um, and that will change if they have enough political pressure to to change course. At the moment, it seems like there's some dissent within the F lmc.
[01:23:23] Let's see how that builds going forward. It's not going to be a decision based on data. I think it'll be a decision based on politics, although, Data does have some effect on that. I don't know. Lynn, do you, do you have any views on that?
[01:23:35] Lyn Alden: I agree with you and I also, uh, specifically agree that fiscal is, is the major force.
[01:23:39] That was a big theme that I focused on over the past two, three years. Uh, it's just is the idea that, you know, when people saw massive QE happening, they were like, uh, you know, people said this before. They said, you know, 2008 was gonna be inflationary. And my whole theme was like, no, no, this is different.
[01:23:55] This is actually fiscal combined with monetary, you know, monetary is just enabling the fiscal. It's a very different story. And so that's still there. I mean, it takes a breather sometimes, but the, there's still kinda these structural deficits built in going forward. And so I think it's gonna be a long-term story and I continue to watch the treasury market functionality to see how, to what extent they can continue to tighten.
[01:24:15] We just saw, uh, manufacturing PMI came in, um, and it's, it's below 50 now, so it's, it's contraction. And so I think we'll, we'll see. As we go into 2023, how long they can stay tight while avoiding recession. You know, we've inverted yield curve, treasury market liquidity issues. You know, PMI is kind of heading down to 50 or sub 50 depending on which one you're looking at.
[01:24:36] Consumer sentiment's really low. There are some counter cycl cyclical things. I mean, Atlanta fed GDP is looking pretty good for quarter four. Copper to gold ratio suggesting some degree of buoyancy probably cuz of the weaker dollar or at least the, the dollar that it came off. Some of it's, it's it's high strength level gave a little bit of a breather, I think, to global markets.
[01:24:55] So I, I actually think it's, it's a really tough question for the next six months. It's, it's, there are moments of time that are very clear to me and there are other moments of time that are very unclear and I think the next six months continues to be one that is very, ,
[01:25:07] Brad Mills: so it's good. Good for, uh, dollar cost averaging.
[01:25:09] Joseph, if you'll have low prices for a while, . .
[01:25:13] Lyn Alden: Yeah, it looks that way. I know a, uh, a well-known Bitcoin skeptic that told me if he's, like, if Bitcoin drops with a thousand, he'd buy like
[01:25:20] Brad Mills: a bunch of, oh my God. He was like, well, it's, I'd be, I'd be backing up the, uh, the wheelbarrow i'd I'd back up the Skidoo there.
[01:25:26] Joseph Wang: Strong at a
[01:25:27] Brad Mills: thousand dollars guys. . Yeah, . All right. Well, thanks very much guys for joining. Joseph, thanks for your, your intellectual curiosity on Bitcoin. Sorry it took me so long to, to organize this, but I'm glad you're, I'm glad you're asking these questions and willing to have conversations. Thanks
[01:25:43] Joseph Wang: so much for having me on the show.
[01:25:44] It's pleasure to speak with
[01:25:45] Brad Mills: you too. Thanks, Lynn. Happy to talk with you again. All right. Dunno, you don't need to go so fast.