← Coin Stories with Natalie Brunell
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A
Bitcoin is an egalitarian asset because it treats everyone the same way. No matter what race you are, religion, no matter shape of your body or your profession, or your level of education, you access the Bitcoin network on the exact same terms as everyone else accesses the bitcoin network. Doesn't matter how much you have, how little you have.
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B
Hey, everyone. Welcome back to the show. Joining me this week in New York is Andrew Hones. He's the founder and CEO of Newmarket Capital and Battery Finance. I've been wanting to interview you for quite some time. So, Andrew, welcome to the studio. Thanks for joining me.
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A
Thank you.
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B
It's great to see you. Markets are a little crazy right now.
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A
We picked a good day.
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B
Wow. Maybe let's just start zooming out. I would love to get your bitcoin journey and what you think about what's happening right now. Because we're in it to win it, right?
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A
Yeah. Well, I mean, everything is becoming so much more technological over the course of the next decades. And so bitcoin is really a tool for the future. But sometimes you have to look into the future to see that.
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B
Yes, yes. So how did you get into bitcoin?
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A
Well, I mean, I had been studying it for a while, but probably the biggest moment was when we had spun out from. I had started an investment business at a firm called Mariner and it wasn't feasible to invest in digital assets there, not at the time. But when we spun out and formed New Market, which was back in 2020, that became possible. That's really when I began looking at Bitcoin a lot more seriously. And it coincided with the liquidity supernova from the COVID and a lot of themes which have really played out over the course of the ensuing years about inflation, monetary debasement, investors seeking hard assets. They've evolved a lot along the lines that we foresaw.
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B
Your experience is so deep in the traditional finance world. So can you talk a little bit more about that and why you were open minded to this when so many people within that industry, even right now, they look at bitcoin and they see it as fringe and they knock it down and they believe the misconceptions and they're still not embracing it the way that you, you might expect.
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A
I like to be open minded in general. I've always been interested in innovation and new ideas and technology. But one thing that really led me to be very open to bitcoin was seeing the repeated bailouts for the course of my career, which basically started 2000. There have been a series of crises, whether it be 9, 11, or of course the global financial crisis, the European sovereign debt crisis, Covid, those are sort of the big ones. But there have been plenty along the way. Evergrande, Silicon Valley Bank, Turkish Lira crisis, many others. And any one of them on its own could have metastasized into a much worse credit crisis. But what we really have seen over 25 years now is that at the first hint of some difficulty, there are measures to address it. Liquefication coming from the central banks or QE or BTFP or TARP, or you create an acronym and there's more money. It has the effect of kicking the can papering over which results in people getting repaid, but in dollars that are worth much less. After Covid, that was a very big version of that. At that point I began really taking a look at some older books that I found about inflation and history of money and developed a really strong view that for the next, I mean really for the next 15 years from here on out, I think that we're going to see a lot of monetary expansion, a lot of asset value inflation. And Bitcoin of course is going to absorb a tremendous amount of that energy because it's finite, secure, weightless, fungible, divisible. But it's also technological, which means it has many use cases that add to its utility and, and add to its value proposition beyond just the fact that it's a finite store of value. So tying it all together as credit investors, where we're focused on generating current income, the price of generating a lot of people need income. You need income if you're a pension because you have beneficiaries. You need income if you're an insurer, because you have to pay policies and claims and generate profits. If you're an endowment and foundation, you need income for your charitable purpose. If you're a family, you just need income for everything that is life. So you can't invest without income, it's not feasible. But the price of investing in income generating credit, it can't be that your principal erodes to zero on a real basis. And so that's what motivated us to begin to think about, well, what if we create credit structures first and foremost that produce that income. But integrate bitcoin, this finite capital, excellent hard money, also technological utility, integrate it to participate in its appreciation over the course of some years and it gives us the ability to be a little bit, how can I say, Not as wrapped by the day to day volatility of the market because with Bitcoin. When in doubt, zoom out.
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B
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A
I think that virtually all of the world's central banks, large central banks, have participated in this Fiat experiment since 1971. And the smaller ones, some of them we've seen really debilitating inflation in a lot of currencies like the Vietnamese dong or Nigerian naira. But even if you look at currencies that are better supported in unitary terms, they've inflated incredibly. Even you look at the Japanese yen or the Korean yuan compared to where they were pre1971 versus the dollar on an exchange rate, it's very different today. And the dollar has also onboarded a lot of inflation. I think Canada quintupled the balance sheet of its central bank during COVID The People's bank of China had significant increases. Everyone did, across the board. It's not just the US Thing, it's more of a fiat thing, in my opinion. Of course, the dollar does play an extremely important role as primary currency for many commercial transactions, many financial transactions, and a lot of trade. And yeah, I mean, you're starting to see some limitations maybe around the. Around the interest rates and the cost of credit. But there are big imperatives to bring down that cost of credit because otherwise the deficit on the federal debt, I think the interest expense would be so high that the deficit would just become almost impossible to bear. My expectation for where we are right now is that one way or another, we're going to see significantly lower interest rates on the U.S. treasuries, at least for the coming few years. And we'll probably see substantial weakness in the US dollar, which will make US exports more attractive and support domestic industry. Significant amount of that monetary strength is going to go to scarce assets. Gold, silver, we're seeing also in other precious metals, platinum, palladium. It's been uneven. We're not seeing it yet in bitcoin, but we will. I mean, the bitcoin silver ratio right now is like at the first percentile. I think that it's not just inflation that motivates our interest in Bitcoin. It's also really this view on technology. And we can talk about this a little bit, but when you start to get into robotics, when you start to get into automation, AI to me it's pretty clear that over the course of the Next, let's say 10, 20 years, autonomous agents are going to seek payment for their services and they'll wish to be paid in a machine readable digital currency. They're not going to and one that's not in the control of humans. They're not going to want to be paid in something that can be debased and they're not going to like R2D2, open up their compartment and you put in some gold and then it closes around the gold. So I think we're going to see a lot of forces that drive adoption for bitcoin over the course of the coming decades that are going to be really interesting.
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B
So it seems like you're feeling very bullish despite the fact that we've underperformed. You're looking at all the strong fundamentals and you see this as more of maybe a consolidation period before the next breakout where we go much higher.
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Generally, yes, But I've never been a trader. That's not my attitude toward the market. I'm an investor and the main thing is to give yourself tools to be able to express views over a timeframe that matches your investment thesis. So in the case of what we're doing with our integrations of Bitcoin and credit, it's exactly that. It's a solution for both the bitcoin and for the credit. For the credit, the challenge is what we talked about. If you make investments and you ultimately get repaid par, there's a big chance, a very big likelihood that, that the real value of getting par back is going to be significantly lower due to inflation. On the bitcoin side, there's no income and there's this enormous volatility. And as positive as an outlook can be, what happens day to day is very hard to say because it's the most liquid market in the world, open 247 trading all over the world, it absorbs all of the all human emotion. It's the point of that spear market emotion to pair together bitcoin and credit. Credit gives you the cadence of credit, which is something that is unfolding over the course of quarters, often years. You can build medium to long duration credit structures easily 6, 8, 10 years, in some instances even longer. Pairing that with a measured amount of bitcoin, it really introduces a benefit on both sides of the equation.
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B
So let's talk a little bit more about that combination of credit and bitcoin. It's what you're doing with battery. You went viral with your CNBC interview where you announced the multifamily building in Philadelphia that's partially backed by bitcoin can you explain what you're doing? And do you expect us to see more buildings, commercial properties, residential homes, being backed a little bit by bitcoin?
- [15:17]
A
I think we'll see a lot of it in the coming years for sure. The main gating factor is for large credit investors, pensions, insurance companies, sovereign wealth funds, to take on board Bitcoin as a tool that can improve credit returns. They've taken on board many tools to improve credit returns over time. You know, you can think of many things that have been hedges. You could also think of leverage, other structuring techniques. So Bitcoin is only the latest in a series of approaches to structured credit, at least in our view, where you can introduce a new building block to create more robust financial structures. But the motivations for it are really high, both for borrowers frankly, as well as for lenders. Because if you're a borrower, let's say, and I'll use commercial real estate as an example, but to your point, it does absolutely apply to small business lending or agriculture lending, or even residential mortgage finance. That's a very interesting application of this structure. We could talk about it. But if you have, let's say a $10 million commercial real estate assets got good tenants, it's producing dependable rent roll, you can underwrite that over time. And a bank has made a loan to it, maybe some years ago, they started out, let's say it was a $7 million loan. And now over time it's amortized down to, I don't know, six and a half million. So the borrower is going for refinancing, they can go and they could refinance it in the, in the conventional bank market. Although there are just all of the normal challenges associated with that from a market point of view. Sometimes the banks are more interested, less interested. There are harder markets and softer markets, but also prepayment penalties. Once you have the loan, you might have to have it for a certain period of time where you're not allowed to repay the loan, so you're locked out from repayment or you have to pay a premium or perhaps an amortization schedule that requires a lot of the cash flow to go and pay down the loan over time so it's not back ended. It's more happening over time. What we do, we look at that situation, we say, well, what if we were to make a 7.5 million or an $8 million refinancing the use of proceeds, of course, first would be to repay the existing indebtedness. So we would have a first mortgage on the building, but then with the remainder, instead of cash out, it's bitcoin. In, in this example, a million or a million and a half buys bitcoin that serves as additional collateral for the loan. So now the loan is supported by two assets in the financial package. There's the physical asset, the building, and then there's the bitcoin. It's really powerful because if something goes wrong with the loan, for whatever reason, of course that's not what any lender hopes for. But if something like that were to happen, just like a traditional lender, we could collect against the physical asset. But a physical asset, it's idiosyncratic. It's a specific asset, and it's not divisible. You can't just easily sell off a portion of the building. You have to sell the whole building. And you have to find someone who wants to operate and is prepared to own and finance and manage that particular asset. That's why usually it takes 12 to 24 months for a bank to work out a complex recovery process. It's not just overnight. We have that collateral. We have that same exact security, but we also have supplemental collateral in the form of the bitcoin. Bitcoin has two things going for it. Number one, it's very easy to collect against because it is fungible, liquid, verifiable, transparent, all of the things that bitcoin is divisible. You don't have to collect against all of it. You could collect against some of it. So it's easier mechanically to collect against from a collateral point of view. The other thing it has going forward is that over time, it has tended to appreciate very powerfully. If you start with a million or a million and a half dollars worth of bitcoin in this structure, chances are over the course of two years, four years, six years, that will have appreciated considerably, and the loan to value will therefore be coming down. And so the cushion, let's say that you have being driven from the bitcoin component of the collateral is really very powerful and very helpful from a downside mitigation perspective. And then on the other side, assuming something does not go wrong with the property, which is of course what we're underwriting too, and what we're aiming for and expecting when the loan is eventually repaid, we share in the upside of the bitcoin with the borrowers, and that presents a very powerful return stream for both the borrower and for the lender. The borrower gets to redenominate some of their equity out of fiat and into bitcoin on projects that they know and like that's extremely useful. And we get to introduce some bitcoin asymmetry into the credit returns, which is also extremely interesting. And that gives us actually flexibility, I would say, on some of the other terms that conventional lenders can't compromise on, like prepayment penalty, like the interest rate, like the amortization structure. So it's a very dynamic, like I said, it's a very dynamic building block for credit.
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B
So this is essentially what you did with that multifamily deal in Philadelphia. How much of it is denominated in bitcoin?
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In the case of that, about 20 bitcoin are in that structure. It was a $12.5 million loan. And yeah.
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Do you have a lot like it? Is there like a portfolio of buildings that you're creating?
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Essentially we're developing that for sure. We've gotten a huge amount of interest from borrowers for these structures. And it's coming from two different areas. The first, Well, I mean, it's coming actually from a lot of different areas, but let's say two main flavors. The first flavor are asset owners that are either curious or committed to putting more bitcoin in their lives. And they have this equity in projects and the projects are important to them. They maybe have had them for a while, multifamily or office buildings, logistics, self storage. And they realize, oh, here's a financing tool and a financing partner that can help us redenominate some of the equity that we have out of the US Dollars and into bitcoin. That's a really powerful way for them to strengthen and energize the assets that they already have that are fundamental to their activities. The other cohort or another cohort are people that have a lot of bitcoin and they want income, so they want to use that bitcoin to buy assets that can produce income. But it's tricky with the current financing tools that are available because even if you have a lot of bitcoin, it doesn't produce any income. If you want to buy, let's say an income producing asset, you go to a bank, you say, I want to buy this multifamily or I want to buy this asset. Or maybe it's just a passion project, you want to make a development in where you live, in your hometown, or it's something that you believe in. Actually, a lot of bitcoiners have come to us with some very inspiring dreams of what they would like to how bitcoiners would like to rebuild the world. And that's a very inspiring topic, one that we could talk a lot about. I've got ASIC heated buildings that are in the portfolio with all kinds of bitcoin integrations. But the thing is that if you want to use your bitcoin to finance that kind of long term investment, the only way to do it is to put it into a mark to market structure, which also, because of the limited amount of capital that's flowed into the space, usually has pretty high interest rates, high single digit, low double digit interest rates, plus the tension of the market price. And with such a volatile asset as bitcoin, it's really hard to finance a very long term investment with a structure like that. And so what we're saying is, we're saying, and the alternative of course would be to sell the bitcoin, but then you have to in many jurisdictions pay capital gains tax. And beyond that you also lose the opportunity cost of the bitcoin going forward if you've sold it. So you've taken your bitcoin and now you've frozen it into equity, into this real estate asset. That's not ideal. So what we're saying is, we're saying, well actually, time out. Here's a better solution. If you bring bitcoin into a structure, we can provide more significant amount of dollar financing to acquire the physical asset. And the combination of the existing bitcoin and the physical collateral. We of course structure the loan to value in a way that makes sense in that regard and size the loan according to the cash flow coverage, et cetera. So the vision is really to unlock a very substantial amount of pent up ambition, let's say, that is spread across the bitcoin community.
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B
I did an episode last year about bitcoin backed mortgages and it went crazy with views and downloads. There seems to be a lot of demand for this type of product, even though we're not really seeing it on the market. But do you think that it's one of the ways bitcoin in general or something related to bitcoin, with mortgages that will bring down the cost of housing in a way that doesn't blow up the whole market.
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A
It doesn't surprise me that there's a lot of demand because I mean, there are so many elements of life that require time. And buying a house is a commitment that takes time. You can expect to. I mean, of course some people are fortunate enough to be in the position, but for the vast majority of people, you cannot possibly expect that they could buy a house outright from savings. You have to make a down payment and work overtime. And not only that, but you have to of course have the resources to maintain it. With any physical asset there are depreciation components that are embedded in it. But that's where you start to see 10 year mortgages. 15, 20 in the United States, even 30 year mortgages. That's a really powerful tool.
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B
Maybe 50 soon.
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A
Maybe 50 soon we'll see business loans, they often also have a term to them, five years, seven years. The bitcoin can serve as a really powerful equity in those kinds of arrangements. And of course nobody wants to lose their bitcoin in a structure like that. So I think that there would be a very strong desire for borrowers to stay current in those loans. I think that they'll actually be extremely well performing as a cohort of credit because the incentives are aligned very well. But it doesn't surprise me that you got all of this interest in the mortgage, in the mortgage episode that you did because it's really, it's about okay, how can I take these habits that I built for saving, for investing, low time preference, really sort of cracking the code of debasement and quantity of money and seeing through all of that, which is not easy. It's not easy to see through that and people that have already gone a far way down on a very profound journey. But once you get there, you say how do I take all of that knowledge and now project forward for five years or seven years in the case of a business investment, 10 years or 15 years in the case of a residential or some other kind of not residential, an income producing real estate or maybe 20 or 30 years in the case of residential real estate. How can I project that further? So that's the pent up demand that's driving a lot of the interest in the credit products.
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B
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- [28:30]
A
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- [28:37]
B
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A
Well, I think that, I think that there are some hard realities that are going to become a part of all of this. One of which is that homes are not a great store of value from a monetary good point of view. Bitcoin is like a pac man and it's eating every other store of value as it encounters it. So if you previously thought that it was a good idea to store value in Pokemon cards or baseball cards, Bitcoin chomped it. If you thought it was a good idea to store value in wine, Bitcoin chomped it. Art chomp, silver chomp, gold chomp. Some of them are in the future. Some of them haven't happened quite yet, but they're happening. Bitcoin is chomping them because why? Because it's way better. It's fungible. All bitcoin is the same. It's divisible. You can easily divide it into 100 million units right now per bitcoin. It's universal. Bitcoin is the same in Germany as it is in Ghana. It is transparent, it is weightless. It has all of these technological utilities. It's finite, 21 million. Already 95% of it exists. Wine. If you tried to store value in wine, it's very complex. You actually have to. You can't do it in an individual bottle because there's no resale value. So you have to have the case and then you have to store the case in a cold room and you have to prove that it was stored in a cold room. Then who are you going to sell it to? You can't just go online and sell it easily. You have to take it to market, which often involves an auction. And by the time you go through it, it's actually not really a marketable asset at all. And it's the same thing that goes basically for so many things. Collectibles, art, cars, cars. And cars, you have to maintain, you have to keep them running. And the cost of maintaining them may very well exceed the potential appreciation, except for the extravagant end of the market. And then what are you doing? You're putting all this money in cars anyway. Cars. Are there even going to be roads in 30 years? Because driverless cars, it's so compelling, the technology even already, let alone 30 years from now, or flying cars or teleportation, who knows? Humans are very creative. So putting your money. I know that there's this transportation museum that I like to go to and they actually have this section for horse drawn carriages. But nobody's ever in there because it's like, why do I want to look at these things from 130 years ago? Maybe Will cars be like that? To a certain extent, yes. So bitcoin is chomping all of this monetary premium and unfortunately, one of the ones along the way is a house. But a House is way more useful than, you know, the Pokemon cards. No offense to anyone who loves Pikachu, but the thing is that you can live in it. It's a home, it's a hearth, it provides a center for a family, it provides refuge, it contains memories, it does way more than just hold monetary value. But with the availability of a fixed 30 year mortgage, fixed rate, 30 year mortgage, it's become, in many instances, the largest single investment that families have. And so anytime that there's a policy that affects the housing market, it's all tied up in that. I think that the idea of adding some bitcoin to residential mortgages and is extremely interesting because. If you add a small amount of bitcoin to a home, and by the way, most people stay in their homes for seven, most people move. I think the average right now is every seven years. But if you're going to buy a home, it might even be longer, you might even be in it for 10, 12, 15, some people for the entire term, 30 years. If you put a little bit of bitcoin, you put one bitcoin or half a bitcoin into a house right now, that's $50,000, half a bitcoin, roughly a little bit less in dollar terms today, and a $500,000 house, and you roll forward 10, 20 years, that half a bitcoin is poised to be worth much, much more than the house. And that can serve as a really profound battery. That's why we call the company Battery. It can serve as a really profound store of monetary energy that can enable the individual to much more easily afford to repair or upgrade the home, or even thinking beyond the home, invest in a business or pay for a critical operation, or pay for tuition for school or whatever the need is. And like I said, from a lender's point of view, it's better too, because if you share in the upside of the bitcoin, you're not just getting repaid the interest and depreciated currency, you're getting repaid the interest, you're getting back the principal. But then you have this contingent share in the upside of an asset that's poised to appreciate very powerfully.
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B
Can you share a little bit about the size of just sort of credit at large? And do you think that bitcoin will take a significant chunk of it, including with products that we're seeing put out by companies like strategy with these perpetual preferreds?
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A
I think that strategy is an incredibly innovative company and also strive and what they're doing with SATA strategy with Their suite of perpetual preferreds are pushing the boundaries of how people think about credit. However, they don't really meld with conventional conceptions of credit in the sense that there's no income to support the current payments on the securities. It's more that the bitcoin appreciation is going to be so robust that if you, to use Michael's words, step it down and distribute to somebody else a stream of, let's say this is going to be 10% or 11% per year, but that's all it's going to be. You've stepped down the bitcoin volatility, you're paying this out on a more consistent basis. And over time, bitcoin doing what it's doing, it will afford that and then some. And so it'll be accretive to the common shareholders. And the people that have this claim on the preferred instrument will get paid a set amount in a clear way. But that's not how rating agencies look at credit. And that's not how most credit investors think about credit. They say, what is the business that is generating income? Where are the rent rolls? Where are the things that I'm selling? What is my profit margin, whatever the business is, and how much does it cover the interest expense? What's my debt service coverage ratio? I think that even if you were to recreate the strategy model, for example, with a company that was building a massive hoard of gold and was saying, okay, we have this big pile of gold and we're going to issue senior certificates in the gold and you guys are going to get 10% per year, but you're not going to get any more. We're going to get everything above it. The rating agencies and credit investors would still struggle with that because there's no income that is able to be underwritten. I think that it's an extremely novel structure. It's an extremely innovative structure that they've developed, but one that challenges so many of the fundamental ideas behind the idea of credit that you can support it with a steady income stream. Where we come at it is to meet credit investors more along the lines of where they are, which is to combine tactical amounts of bitcoin, size it based on the maturity profile of the financing that is in discussion, and combine it with an income producing asset. Could be commercial real estate, could be a project finance asset, could even be a corporation, could be a farm, produce enough income that a fair interest rate can be charged on the overall loan. With the right kind of debt service coverage ratio, depending on the industry, maybe 1.3, 1.5 times. It depends a lot on the specific objectives. But deliver an interest rate that is fair for all parties, a fixed interest rate. Provide them with the flexibility to navigate the loan in terms of prepayment, penalty, amortization, other elements, and then share together with the borrower in the performance of the bitcoin over time. I think that what strategy has done is extremely interesting from a capital markets point of view. What we're focused on is bringing the power of bitcoin to the primary borrowers and saying, how can we build with this tool in a way that makes credit investing more attractive for the conventional credit and a way that makes borrowing more attractive for people that are seeking longer term financing packages?
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B
Why do you think there are some in the bitcoin community that are against the idea of credit on bitcoin? That they think it kind of replicates the fiat world and that it leads ultimately to issues?
- [41:08]
A
Well, I mean, almost everything in humanity leads ultimately to issues. So, I mean, I'm not trying to be glib about it, but you start in one place and the solution is perfect as an antidote. And over time, it becomes more things to more people and you become more distant from when it was started. And innovation is sometimes positive, but then again, there are sometimes abuses that come along with it and you just kind of take that all on board. So I think that there's a certain degree of, I don't know what is the right word but purity test that some people bring to the discussion. And I am trying to be pragmatic in this moment, which is that people really need better savings tools. And. You don't have to look far at all to see that there are screaming indicators of ongoing hard asset debasement. You look at the price of silver, you look at the price of gold. I'm involved with a nonprofit organization and I was recently analyzing the performance of the organization and its revenues have grown at 6% over the course of the last five years. In US dollar terms. However, I'm concerned because I know that a dollar is not what it was even just five years ago. Actually, just yesterday, I was doing a little analysis, taking a look at what would the revenues of the organization have been year after year in gold, silver and bitcoin. What it showed was that in silver terms, the organization was generating 61% less silver than it did just five years ago in Bitcoin. It was 34% in gold. I think it was what, like maybe 47, something like that. And that really frames it. That really frames it. Because otherwise you get lost in this, in what Don Paarlberg, who is an author who, I wonder how many copies of his book I may have sold. But he published it in 1993 called A History and Analysis of Inflation, which is a really nice thin volume. It's not too much of a commitment, and it's very interesting. It goes over 15 inflations, including ancient Rome, John Lawrence, Spanish colonization of the New World, many in the 20th century. But he refers to the money illusion, which is this propensity to think of things in the unit, the common unit, like the dollar. And you say, oh, Well, I made $10 an hour. Now I'm making $14 an hour. That's a 40% increase. But you're not translating that automatically to gold or to silver or nowadays to bitcoin. And that's what you have to see through. So I think that when you consider that it just brings to life that bitcoin. I mean, you've used the phrase, I've heard you use it several times, a lifeboat. It's a really exceptional tool. And if you're going to be super dogmatic about it and you say, well, you can't use the bitcoin if you're going to use it in this way or that way, or you don't have the purity, the right values. That's not the way I see it. The way that I see it is that bitcoin is an egalitarian asset because it treats everyone the same way, whether you are, no matter what race you are, religion, no matter what shape of your body or your profession or your level of education. You access the bitcoin network on the exact same terms as everyone else accesses. The bitcoin network doesn't matter how much you have, how little you have. And that's profound because that means that someone in Malawi is saving in the same unit as somebody in Michigan or Maine. And what can you say that of? Nothing, really. That's the only asset that you can say that of. Because even gold, if somebody in Malawi, they don't have gold, but even if they did have gold, I mean, of course someone does, but very few. They mostly are saving in sheet metal, livestock, and paper currency. But if they happen to have some silver or some gold, chances are it's going to be a Krugerrand. Whereas what the person might have here would be an American eagle or a maple leaf from Canada. There's not even fungibility among those units, and they have different marketability. But bitcoin addresses that in a really profound way. So I think it's important to be expansive in our mental models of how Bitcoin can be used to reimagine a variety of human interactions, not just financial either.
- [46:40]
B
No, you make some really profound points. In fact, I saw a post recently that when you change the measuring stick to something like gold, it really puts minimum wage into perspective. They showed that in the early 1970s, federal minimum wage was like A$60, but it could purchase more gold per ounce than today, which is like, I think 750. Still at the federal level, in order to just be at the equivalent of what gold is worth, we should have a $225 federal minimum wage, which also kind of goes to, like, no wonder we have such populism and frustrations. And, you know, we got to hike the minimum wage and we got to help the average worker because they've had their unit destroyed and they've had no say in it. So I kind of understand the frustrations, even though they're pointed in the wrong, I think, channels, especially politically. And we need to go deeper to the root cause, which is financial, ultimately. Right.
- [47:34]
A
Cross current to that is Jeff Booth's work, which is really interesting. And I know that you've interviewed him, including recently, but he's. He's a very, very strong thinker as well. And his point around deflation, technology deflating is true. It's accurate. I think that what you're seeing if you look, because if you read the Wall Street Journal sometimes they'll put in this graph of year over year price changes in many different categories. And what's going up? Well, I mean, it varies, obviously, from time to time, but health care prices are going up. Education prices are going up. Gold, silver, scarce goods. What's been going down? Televisions. Televisions are down like 91% or something like that over a meaningful period of time. I mean, it used to be television was extremely expensive. You ever watch old episodes of the Price is Right from the Bob Barker era? You know, how costly televisions used to be and how thrilled the contestants were when they got to bid on those televisions. That's a fun exercise, by the way, to go back and watch old prices, right, because they're all available on YouTube. And it really gives you a sense of the evolution of consumer sentiment and even the kinds of prizes that they were offering, they were different. If you go back to the 70s, the 80s, and you follow through to today, but in electronics, the prices have been going down, down, down, and the electronics have become more and more dazzling. Now you can be Completely swept up. I'll date myself and say Candy Crush, but whatever the kids are doing these days, Clash Royale. You can be completely swept up in Clash Royale. And actually the marginal cost of it is zero. And it can keep you entertained for a very long time and connect you with your friends, albeit digitally. And that's a really nice substitute to paying a couple hundred dollars for a concert ticket and whatever the travel cost and the other logistics and the parking, if it's in your hometown, or the airfare or train fare, if it's not, to go to a concert with your friends and it's only three hours. Of course, it's a lifelong memory, but it's that scarce good where you really see the inflation. Sporting events, concerts, things that are not dematerialized so readily into electronic format. And where you do have that dematerialized version, you can watch it online. But it's not the same, but it's very good, and it's getting better, and it'll be better still with holograms and everything that's coming down the pike. And. And so what I'm trying to express, Natalie, is that the inflation would be a populist nightmare if everything uniformly was becoming more expensive and people were earning less in gold terms and gold was uniformly distributed across all of the things that you needed in order to survive. But the gold is not uniformly distributed from a pricing point of view. There are many, many things that have become more affordable. Those things provide comfort, and they provide and distract us and distraction. And that has served to, let's say, slow down or obfuscate the awareness of the inflation question. But more and more people are awakening to this question, and it is becoming a major political theme. It is poised to continue to do so, especially over the course of the next two years. It'll be an enormous focus for the race for the White House in 2028. It will also be an enormous focus as Social Security edges closer and closer to insolvency, which is expected 2034. The unfunded liabilities of the United States are very high. And it's not just the U.S. like I said earlier, it's many, many countries. And then you have the demography, which is upside down. You know, the only continent that is really very young is Africa. And you look at the. If you look at the pyramid of the generations there, you have way more young people than you have older people. But if you look at it in many other places, it's actually the opposite. And when Taylor Swift announces that she's pregnant, there will definitely be a baby boom in the United States, which will be something that we can all look forward to. But. Or Sydney Sweeney. But yeah.
- [52:28]
B
Well, before we wrap up, I want to touch back on something that you said because you framed bitcoin as egalitarian, which I have done as well. And if you do look at the metrics and you look at the distribution of coins opposite to fiat, it is becoming more and more distributed over time. It's going to more hands and again, you can never change that supply. You can't manipulate it. Whereas fiat tends to concentrate over time and lead to more and more wealth concentration. But there are a lot of people who don't view it that way. And I think that right now there are so many misconceptions out there about bitcoin and one of the biggest pushbacks is that oh, now the institutions are in, it's going to be co opted, corporatized within these behind the walls of gatekeepers and it's not going to be the peer to peer network that Satoshi designed it to be. What do you say to those folks who are concerned about the future of bitcoin and worry that it won't be the freedom technology that it was promised to be and that it will sit more in the banks or reserves of institutions and that's the way that it will kind of be a store of value, but sort of certified and greenlighted by the powers that be.
- [53:39]
A
Well, I guess I would respond to that maybe with two considerations. The first is that if you want to preserve the authenticity of bitcoin's capabilities, freedom, money and everything that that means, learn about it, learn how to take custody of the asset, learn how to transact in it, learn about the structure, learn about the network. It's a very rich subject, a very rich topic. And it's also a topic that you can read your own passions into. So if your passion might happen to be music, there is a very vibrant community bitcoin music. If your passion might happen to be H Vac, there's a very. And some people love that there's a very passionate community around using the heat byproduct of bitcoin mining to reconceptualize the energy stack for industrial and commercial and residential purposes. If your passion is fashion, then there's a vibrant community that's thinking about bitcoin fashion. So you don't just have to dive into the code. There are many different ways to access bitcoin. You've interviewed many different people that are coming at it from so Many different angles. You know better than anyone that it's a multifaceted gemstone to use an anachronistic store of value. It's really a multifaceted stone that shines brilliantly from a lot of different refracted angles. The first thing I would say, if you're worried about preserving the authenticity of the Freedom money, think about what that freedom means to you. Learn about that asset and engage with it and talk about it. Talk about it in your life with your friends, with your peers, with your colleague, your professional network. The second consideration is that I have observed personally quite a lot of people that have in one degree or another, been changed by Bitcoin, influenced by its incentive structure. The 1031 team, which is an incredible group in terms of investing in many pioneering bitcoin only companies, they call their funds the low time preference funds. And 1031's idea is lower your time preference, take a longer outlook. And that's one of the institutional incentives that exists within Bitcoin because it's so volatile in the short run. But as you lower your time preference, you begin to see its value accumulate. And then you ask yourself, do I really want this payday candy bar or would I rather have a payday in the future that is not a candy bar? That is the result of the bitcoin appreciating. People make that decision and they choose better for their own health. There's obviously a very strong theme within the bitcoin space about nutrition and exercise and fitness, putting family first. I mean, really powerful incentive structures. I have seen those incentive structures work their magic on individuals, on families, on small businesses, medium sized businesses, large businesses. You look at Saylor, he's a genius. And Microstrategy is completely changed by the incentive structure of Bitcoin. Vivek Ramaswamy's company Strive, with Matt Cole at the helm, is completely changed by the incentive structure of bitcoin. Semler Scientific was completely changed. And as time rolls on, many companies will be changed. Procter and Gamble will soon be changed by this. Banks will soon be changed by this. Insurance companies will soon be changed by this. If you want to think about it in a pessimistic way, you might say it's going to diminish the purity of the bitcoin. If you want to think about it in an optimistic way, what you might say, and this is the way that I think about it, I think it's more along the lines of what will happen is that Bitcoin's incentive structures will help point these larger institutions toward a lower time preference help point them toward the corporate equivalent of better nutrition or whatever the case may be. I'm really hopeful as the bitcoin adoption grows, and certainly the United States federal government and the leadership that President Trump has shown, but also certain members of Congress like Nick Begich of Alaska and of course, Cynthia Lummis, and organizations like the Bitcoin Policy Institute are reframing this as an opportunity for the United States, I think, to bring a huge amount of power as we start our second 250 years. Right. We're just wrapping up now. 250 years. And in many ways, I think it feels like a new dawn is emerging in the United States. And it's powered by a big emphasis on industries of the future, what are sometimes technically called these critical technology areas. Space, artificial intelligence, automation, robotics, advanced materials, advanced medical processes, and imagine powering all of those companies with bitcoin. Now. We're talking about a renaissance. We're talking about a technological renaissance, an industrial renaissance, a human renaissance. I think that there's a tremendous amount to look forward to. I would lean in and think about what bitcoin can do for you and what you can do for bitcoin.
- [60:16]
B
That is a wonderful place to leave this conversation. So hopeful, so powerful. Thank you so much, Andrew. I just want to give a little anecdote that I first heard Andrew speak at a Jefferson City, Missouri conference. I was in the audience. I'm still a nerd. I listened to all these panels and I just was so impressed by the way you could articulate yourself. And I think I mentioned to you then, like, you should be out speaking on behalf of bitcoiners some more. So I'm glad to see you out. Now that CNBC interview, I'm so glad that it's reached as many people as it did because what you're doing with battery is so innovative. So thank you so much for taking the time to join me. I really appreciate it.
- [60:51]
A
Thank you. Grateful to be on your show. Natalie, thank you.
- [60:53]
B
Thank you so much for checking out this episode of Coin Stories. Make sure you're subscribed to the show so you don't miss any new episodes. If you can turn on those notifications and leave us a positive review, they really help the show grow organically with new listeners. We have a free weekly newsletter. You can sign up@thenewsblock.substack.com this show is for educational and entertainment purposes only. Nothing should constitute as financial investment advice, and you should always do your own research. I'm always open to feedback and guest suggestions, so please feel free to reach my team@infoalkingbitcoin.com I'll see you next time.