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- [00:07]
Host
You've had a dynamic where money's become freer than free. If you talk about a Fed just gone nuts. All, all the central banks going nuts.
- [00:16]
James
So it's all acting like safe haven. I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins. In the world of fiat currencies, Bitcoin is the victor.
- [00:29]
Host
I mean, that's part of the bull case for bitcoin.
- [00:32]
James
If you're not paying attention, you probably should be. Probably should be. Probably should be.
- [00:37]
Host
James, Check. They've got our boy in the street and they're. They're murdering him in the street. Bitcoin is at $66,500 right now.
- [00:45]
James
66 to 50 based on my block clock made of 250. It'll be 2k by the end of this thing.
- [00:51]
Host
You know, it's been a fun ride.
- [00:53]
James
It was cool. We learned a lot, we made some friends. And that's the thing. The yield is the friends you made along the way.
- [00:59]
Host
Yeah, well, the yield could also be the, the cash you get from bitcoin sold from Micro Strategies balance sheet to, to cover the yield that. That's been promised to you via strategy, isn't it?
- [01:11]
James
Yeah, yeah. 32. 32 Bitcoin. I mean, the sell side, you just can't handle it. Who's buying this 32 Bitcoin?
- [01:19]
Host
Right?
- [01:20]
James
Ah,
- [01:22]
Host
it's. We were discussing it right before we hit record, but it's funny, I got three are you okay texts today. It's like, yes, I'm fine. Been through this before, but it is weird. I know you've. You did some. Some content with Michael Sullivan about sentiment, analysis, sentiment. And Matt o' Dell and I were discussing this last Thursday on Rabbit Hole. Recap. For me personally, it hasn't been this bad since the summer of 2015, when people legitimately thought bitcoin was going to die.
- [01:50]
James
And I mean, I wasn't around 2015, but just based on my studies, that is the bear. That's like the most horrendous of all the bears. Anybody who thinks you've been through hard time, you haven't been through a hard time. That the length of it, like, it was a year of down and then a year of nothing and bitcoin was dead. Your biggest exchanges got like just a whole different animal. Every bear market gets progressively less brutal. There's also a side to it. We were saying before he record that like, you, you develop some. You develop a thicker skin. Right? You and I, we've been through a couple of these drawdowns before, so I. I forget where I heard this, but just the idea of resilience, right? Mental resilience in a. Anything really. But as an investor, mental resilience is how quickly you can bounce back. Like you get the initial shock wave and go, oh man, what's this red candle? But then you go, okay, back to clear thinking. What does this actually mean? Does it change? My thesis is it has anything actually materially. And the answer is no, nothing has materially changed at all. Bitcoin's the same sailor's been talking about having to sell some portion of their bitcoin. I wrote a piece on this yesterday, just sharing my thoughts. At the end of the day, what I think is like the sale of 32 Bitcoin, let's face it, they don't need the two and a half million bucks. Maybe he needs more AI tokens for his slop image generation. But my general view is that they don't. Like, they don't need the money. They're selling it to slay the sacred cow, right? They've been saying, don't sell your bitcoin for years and years and years. And that just is not for the business model they've built. They can't do that. They have to sell the bitcoin at some point in time. And more importantly, what they're really doing is saying to their creditors, whether prefs or debt holders, don't worry, there's six months of cash in the bank. But Also, we've got 34 years worth of bitcoin. They're making that like, no, no, guys, we're serious. 34 years. And in my piece I was saying, like, these guys, you got to remember with strategy, they have a fiduciary duty to their stakeholders. Bonds first, press second, equity third. You know who's not on that cap table? Bitcoin and bitcoiners. Like, I'm sorry, guys, like, bitcoin is not on the strategy cap table. They have no fiduciary duty to look after us. Now, of course, there's like a secondary effect where they don't want to nuke the market to zero. So my view is that what they're doing is they're slaying the sacred cow. Because there is going to be very serious money out there. And to be fair, perfectly fair, rightfully so. Who's been concerned saying, hey, there's this 840,000 Bitcoin hoard that this dude might have to liquidate in a distressed manner. And the sale of 32 bitcoin. I don't know what the 32 number is. I'm sure there's some symbolism behind it, but the sale of a very small, trivial, token amount is just the firm basically saying to their creditors, don't worry, your dividends are here, we're going to pay for them. And the other one is, it's kind of waylaying a lot of the fears that he's going to get himself into hot water. They may have to sell bitcoin before they get to hot water, but they're not going to get to a point where they're just distressed. And it's like, now we're in liquidation, they'll be peeling stuff off. Like, in theory, they could sell one point, whatever, 1.7 billion worth of Bitcoin, which is one week of ETF outflows. And most of that is basis trade anyway. All these angles we can go down. Can the bitcoin market handle a $2 billion sale? Yes, it's been doing that religiously for the last however many months. So can you take 2 billion off? Yeah, sure. Price takes a hit, but then it's got a year Runway. So that's my big picture view. First and foremost, strategy is not, does not have bitcoin and bitcoin is on the cap table. Right. So that's just reality. And the other one is that like, at the end of the day, if they buy themselves a year, Runway, problem solved. You know what I mean? So that's, that's my view, is it's a signaling mechanism to say, yes, the dividends are going to get paid. Yes, we're going to liquidate long before you, Mr. Market, take us out to the woodshed. And in my view, it's actually a de risking event. You know, you get the short term stuff where algorithms just pick up the headlines like, oh, strategy sells, therefore run, sell, algorithm 101. But at the end of the day, when all the dust settles, I do actually think there's a bit of a de risking event, because now we have clarity. Markets absolutely hate uncertainty. And that's been like this uncertain overhang. It's still going to have a degree of an overhang, but certainly once, if you rationally think about the problem, a decent chunk of that overhang has actually been taken away in terms of the uncertainty component, which I think overall we'll look back and say that's a good thing.
- [06:02]
Host
Yeah. And to the people saying that this is causing the current stress of the price, I find it hard to believe. Again, 32 Bitcoin, not enough to move the market. And to your point, I think just slaying the sacred cow doesn't mean they're going to drop all 840,000, whatever bitcoin they have now, tomorrow.
- [06:23]
James
And by the way, if they are going to drop 840,000 bitcoin, do it at a lower price for me, if you wouldn't mind, that'd be wonderful, please. And honestly, like, you know, I'm in this world where I'm. I have mixed feelings about the whole strategy, slash, digital credit thing. I mean, I hate the term digital credit. I just think it's nonsense, but.
- [06:39]
Host
Doesn't make any sense.
- [06:40]
James
No, I'm really not a fan of it. So, like, I would rather, honestly, if I could like construct the world that I would love that I can't because you have to just live in the world in front of you. I'd rather this stuff wasn't there. But at the same time I also understand that, you know, you can't change how the market operates. Australia just happened to do what he did. This is where we are. This is how the market played out. Is he going to kill bitcoin? No. Is it going to be part of the story moving forward? Of course, absolutely. So, you know, it's one of those interesting dynamics where you just kind of have to accept the world that it is. Right. You can't shape the world that you want. But I also don't think that. I don't think they're going to get themselves in a hot water because they're really sending a signal, say, don't worry guys, we'll be paying down stuff and clearing any, you know, any thorns long before we hit them.
- [07:21]
Host
Yeah. And it's funny because I'm looking at the show notes and we recorded last in the beginning of February, right after the Capitol. I think it was during, I think the night that we were recording.
- [07:33]
James
Yeah, that was the price. Pain capitulation. Make the make the distinction because I suspect that this is the time Pain one and all the people who've just been like, oh my God, I can't do this anymore, I can't. It's that end of 2015 type thing. It's like I've been down here for six months. It's. It's over, it's done.
- [07:50]
Host
Yeah, we were so we, I think literally while we're recording, I think we wicked down to like 58k and then went back up published it hit 63k. Here we are, 66, headed towards 65 right now 66, 393 pumping a little bit during this recording. We've been up towards 80 since then. Just looking at year to date we got up to 82. Now back down to the level as we were when we recorded in early February. Time pain, is that what you think?
- [08:20]
James
I have a word for this chop solidation. And that was my, that was my call back when we had that time pain capitulation. My view was and still is the downside momentum has crescendoed I think in February. Right now that, you know, right now we're having a waterfall sell off decline, right? And by the way, taking out the low is actually better because you generate just maximum fear, right? And it's funny actually because like for me as an analyst, no matter what happens, there's going to be people throwing tomatoes at me because like I've been saying and I stay and buy it. For a probability standpoint, 60k is like really low type stuff. 55 is. I'll talk about it in terms of Q's quantiles like percent of all days. 55k is Q5, meaning 5% of all days have been further below that. I use a whole mean reversion index. I got a whole bunch of different, different tools in there. If you go back and look at all the previous bears, they've all like the bottom wick was a Q5, Q4, Q5, Q6, something like that. The ones that are deeper is 2011 when Bitcoin is $2, right? Which let's, let's face it, that's not really a comparative market cap. That 32 bitcoin in value would have bought the whole day market cap back then. So like in terms of the price paying capitulation, I think that the downside momentum crescendoed doesn't mean you don't have more downside. It just means that the downside, like if you think about 2022 as an example, that was the only bear market where the time paying capitulation which came with FTX actually undercut and went lower than the ORIG low. But from a technical standpoint you get a nice weekly bullish divergence on like RSI and things like that. There's a bunch of. You've just lost that downside momentum and that's, that remains my base case. I still believe that bottoming between the true market mean at 78k and the realized price of 55, that's the zone of interest. The lower down you go, the deeper into deep value you are. I just keep it really simple. Deep Value is anything below Q20, right below the bottom fifth of the market cycle. If you look at any statistics and say, hey, you got an 80% win rate, you roll that game all day, right? You don't even ask any questions. You say, yes, I'm going to dollar cost average. The whole bottom below 70k is Q20. So welcome back to Deep Value. And I, I'm not even going to dig it up. I, I do find it interesting all the folks who quote, tweet themselves and be like, look how smart I am and look how right I was at this point in time. I got to tweet somewhere someone else can go and find it because I'm not going to do it. There's a tweet where I was saying, like, you know, if we pull back down to that level, if maybe when, think about what you're going to do and that's, that's all that people should be doing. Don't worry about what some dudes predicting the price is going to do, because none of us know. But the right thing to do is to just find high value, right? Look for the probabilities, put them in your favor, make the decision for what you're going to do ahead of time and just stay humble and stack sets. When the time comes, too many people are going to get too cute with it. And I'm actually running a study right now which will probably publish later in the week, where I try to model out like, what is the perfect DCA versus lump sum strategy In a current bear market setup, if you do a lump sum and you're waiting for that Q5 event, you might get plus or minus like 5 or 10% of a better entry. With all the stress it takes to like try and buy the bottom wick. But if you just start DCA in the bottom fifth, you get like plus or minus 5%, the exact same cost basis. It just doesn't matter. So too many people are going to fantasize we're buying the bottom wick. Just look for high probability Deep value. Anything below 70k is just happy days.
- [11:53]
Host
But, but I was told it's over. It's not happy days. It's over. AI is taking all the money.
- [11:58]
James
Quantum's going to kill us again. That, that'll show up again too, right? We, we'll have Quantum things showing up in the next, next couple of weeks.
- [12:05]
Host
Yeah, it's, it's, it's funny how this all rhymes. What is the onchain data saying? I mean, you mentioned the, the Realized price or the short term realized price of 55k?
- [12:17]
James
55, yeah. Oh, 54 for the realized price yet.
- [12:21]
Host
Yeah. How's that, how's that evolved since we last? We last.
- [12:24]
James
It's basically flat. Yeah. So the, the, when I'm looking at those mean reversion models, there's some models that I call fast and some are slow. The realized price is like the 200 week moving average, like an aircraft carrier. These things take a lot to move them. Right. They just, they're very, very stable, which means they're good anchors because they don't move over long periods of time. Over the course of several months. Yes. But the realized price has more or less been 54k for a long time. Certainly since February. It's basically gone nowhere since then. What I was looking at it this morning. What I like to look at during these types of events is what are people doing? So there's two buckets of metrics that we look at in the on chain world. There's what I call unrealized metrics. Things like mvrv. Show me how in profit people are unrealized. Profit or loss, that's incentives. How are people feeling? Right. And right now, similar to Michael Sullivan's work, people feel terrible. Their cost basis is down, they're underwater supply, you know, coins in loss. People feel terrible because their portfolio is red. The other side of the coin is what are they doing with that information? And there's signal there, particularly when you break it into cohorts. So what are the people who have coins under 60k where they bought under 60k? What are they doing right now? Absolutely nothing. The amount of realized profit being locked in I looked at before 138,2 million a day, which sounds like a big number that is as low as it was during the period after FTX. Like after FTX had happened. In dollar terms mind you, the price is whatever it is 15 up to 60k. So we're 4 times higher, more than. And the amount of dollar profit being locked in by people who are in the money is as low as it was in the weeks after ftx. So that's how much. That's what the old money's doing. The old money is doing absolutely nothing. So take that as one packet of information and then the other packet of information. What about the people who aren't so young who bought much higher while this, whether they're currently locking in the second largest loss spike that we're seeing of the cycle, 750 million. So approaching a billion. Right. Three quarters of a billion. It'll be a billion by the time I run the data this afternoon. So we're now getting to half the amount of loss that getting locked in is what we saw in February, which is about 2 billion. Same in November. So the folks who bought recently and are terrified are capitulating massive losses. The people who've been in this market for a long time and are really in the money are doing absolutely nothing. That's what their spending behavior is doing. So I kind of flip that around, say, well, for me personally, where am I? I'm the, the former. The guy with the coins that are in the money for the most part. What am I doing? Been buying like a madman the last 24 hours, right. My DCA has been humming since November, just chugging away daily. DCA. Once we broke down below the true market mean in February, switch it onto double and just let the thing hum. So, yeah, I think it's really interesting just watching these kind of disparities. Every man his dog's got a chart. I've got a ton of charts. No one knows what the future holds, but, like the sentiment picture. And Sullivan's done work on this too. The OGs are far more optimistic and their moods are far less volatile than what he calls like the plebs or the retail. The new folks who've come in and just here for like, number go up. So there's a divergence there between people who are a bit more seasoned and have taken a punch a few times and folks who. This may be their first rodeo. When you compare those two, you get just these, these interesting divergences are just everywhere. And I love when you see it across Michael's work, across what's going on in the on chain world, you start to see all these like packets of, ah, this is a consistent, this is now a very consistent story across the, the whole market.
- [16:04]
Host
And it's, it's funny too, like comparing where we are today again. We were, we were falling through this level in February when we last met. And for some reason I don't feel like I don't nearly have that, like, pit in my stomach, like, oh, man, this, this, this one hurts. Like, this one's like, all right, we're back to where we were.
- [16:22]
James
Yep.
- [16:22]
Host
Three months ago.
- [16:23]
James
Yep. No. And that's, that's, that's part of that resilience thing, right? You've seen this movie before, in my view. Like, I can feel it. That February one felt like the shock wave. There's also part of it where, like, you Kind of get used to the fact they've been shopping around the 60k range. 60, 70, whatever. Now if we go down to, I don't know, 50, let's get into 55, which is the bottom of where my, my like range of probabilities is. We're going to 55, 54. You are going to have so much fear. That is like if you are not looking at this as like, okay, it's, it's. I think the downside is over bull begin. At that point in time, you're kidding yourself because it just generates so much fear. Every remaining tentative white knuckling bull just goes n, it's over. I have to get out of this thing. They capitulate and what, There's a pain. Everyone's been there when you've sold the bottom. A bottom could be local, could be global, doesn't matter. You sold an asset and then like you did it. Not forced selling, sometimes it's for selling, but like you did because you were scared the next three months you can't buy. You just like there's something in you. It's like, no, it can't, it can't. I know it's higher but like it has to come lower. And you just. Everyone's been there, you've felt it and it, there's this denial phase and what happens is the bear beats people into submission. Every rally fails and the deeper it gets into the bear, the more confident the bears get. Michael's also done work on this where he shows how confident people are and I like that. I loved his confidence metric because confidence is a non directional tool. I got a bunch of non directional tools as well and I like my personal favorite metrics are non directional tools. Because I then have to go, okay, so people are feeling really confident right now. Let me go and find other stuff to contextualize what they're confident about. So it's like the opening question and then it gives me a whole bunch of other things to then I've got to then answer the question of what are they confident about? They were confident at the bull market peak and they're confident like they were really tentative through November, February, but then March hits Iran, war oil's up, world's falling apart. Bitcoin's got to go to zero at 65k and suddenly everyone's angry and confident and the bearish sentiment starts coming out. Every man and his dog's got a bear flag pointing to 45k. Got the same chart and you just get this like, ah, now they're really confident on the other side of the equation. And what happens is people. It's recency bias. The reason people lever up at a bull market top is because they've looked at the last two and a half years of green candles and gone, mate. This thing's never going to stop. And then journalists will only ever write a bearish headline when bitcoin's down near the bottom. Because now it feels safe to jump in the pool. It doesn't feel safe to be out on the limb at 125 and be like, I think bitcoin's a Ponzi and it's going to zero. You just look like an idiot. But you don't look like as much of an idiot when everybody else has jumped in the pool. And that's why the IMF bottom ticks. Because they only feel safe enough to put out a paper they spend six years writing with all their PhDs. They only feel safe enough to publish it when bitcoin's down at the bottom and it feels like it's never going to come back. That's all the same sentiment. Confident at the exact wrong time.
- [19:34]
Host
That's funny. I mentioned the texts I got today and these are from two of them are from people who should know better. They've been in it. They know. One of them was like, hey, you're not worried about this, right? I'm pretty sure you're not. And I was like, yeah, I'm fine stacking, increasing the stack. But there is, I'm sure you've noticed it, but there is this narrative floating around that AI sucking out all the sales from the winds of bitcoin, sucking out the wind from the sails of Bitcoin. And liquidity is just simply going towards that. And it's going to be hard for bitcoin to recover until that liquidity sort of finds a pressure release valve via IPOs for SpaceX, anthropic OpenAI, whatever it may be, or Bitcoin finds a reason to be bullish for. I think it's important. A lot of what I spent I recorded with Chris Martinson today and we didn't talk about it on air, but off air he was asking me, he's like, are you wearing it? I'm like, no, it's just getting back to the basics of like, all right, does this peer to peer distributed cash system still enable peer to peer transactions that are censorship resistant? Is it backed by proof of work? Is there 21 million? It's like, yes, yes, yes. Okay, we're good.
- [20:43]
James
Yep. And are they going to debase the currency when this is all said and done? Absolutely. So you just put all these things together? No, totally. You go back to fundamentals and the system keeps humming. There's no question that the AI trade is just like a big, you can feel it. It's like a vacuum that's just sucking up absolutely everything. Now there's some parts of it that have a lot of merit. There's bottlenecks left, right and center. You know, you can argue that there may not be certain bubbles, but then once you get these IPOs go live. I mean, I've read a bunch of pieces on the SpaceX IPO. And I mean guys, it's, the numbers are so far off making sense. Like, and I'm no equity analyst, I'm not going to pretend to be an equity analyst. I couldn't tell you left from right. But I like can smell test things and I've kind of seen this stuff enough. I'm like, the numbers are just out of control. It makes no sense. So. And they're changing rules for the S and P to stuff this thing in because like they don't have the buyers for it. So everything's going to get sold. But let's go back to the bitcoin piece. Let's imagine, right, that we have this IPO moment, you know, go back through history. Generally speaking, there's like a hero ipo and that's like the genesis point of the, the beginning of the end of the bubble. Because like suddenly the euphoria just goes. And in this scenario, where is bitcoin going to be? It's going to be the most under owned, forgotten asset of all time. You know, like people say, oh, but when the bubble finally cracks, bitcoin's going to get taken down to zero. It's like, dude, no one's going to own it. He's going to sell it at that point in time. Like that's what the time pain process does. It removes anybody who's sitting there going, like, for me, I'm not rotating my bitcoin profits into AI. Sure. Would it be a good, good decision? Yes. But there's also like, I, I don't buy bitcoin for the swing trades. You know, I buy it for. And when I, whenever I do buy, it's that long term investment, right? I buy for the, it's my longest duration asset. I've got play money that I stick in all sorts of stuff. But for my long term duration, I don't trade my gold. I Don't trade my bitcoin. They're my long term savings. So at some point in time, we've got a massive alligator jaws, they close. And everyone always assumes they're going to close by bitcoin going down and stocks going down as well. It's like, no, they're going to close because bitcoin's forgotten. And then suddenly it's going to be the only thing in the room that's moving. And what happens to all the fast money? So the market is cyclical. We're going through this rotation. And I would actually say something I've observed and I kind of had this idea as a theme, I do think this idea of capital rotation, it feels like something that. I know it's always been a factor, but even if you think about it from like the, the microcosm of the bitcoin crypto world, it used to be like a rising tide lifts all boats. And that used to be the same for the stock market too. A rising tide would lift all boats. But now we've been in this like, oh, this sector is getting crushed, but these ones are doing well. AI is doing well, but this sector is getting crushed. It's a lot more of like a stock pickers market. And I do think that's more, more or less going to stay the same. But it kind of feels like, how do I describe this in terms of like the energy of the market? It feels like the Ponzification of everything. Like real late stage fiat stuff where everyone has become the fast money. Like everyone is the fast money now. The system incentivizes people to chase the hottest thing all the time and forever. And that's why you're almost getting this like, almost like a resonance rather than being this like stable pool of capital. It's invested in everything. Then a ball of hot money, the ball is the majority. And then there's like less and less of that fundamental capital because there's career risk. Oh, why didn't you own all these AI names? Then everyone just piles in. So, yeah, it's an interesting dynamic, but I can't imagine that bitcoin is going to be a heavily owned, heavily forced sale asset when it's all said and done, because we're in the process of flushing them out as we speak. That is what this process is. Time, pain. There's gonna be no one left who, like everyone who's in the trench at the end of this process is gonna be people like you and I. And who do I want to be in the trenches with at the asset of a bear market, you know, good stuff.
- [24:45]
Host
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- [27:59]
James
And at a smaller microcosm, gold's pulling back. Gold's been down from its high. Is it over for gold, too? Is like precious metals out of favor? It's like, no, markets just go through these cycles. Bitcoin hit a peak, it's got to work off the steam. Gold went through a peak, it's got to work off the steam. Eventually, all these things have to peak because nothing goes up in a straight line or a parabolic line. In some cases, nothing goes up in a parabolic line forever and everything comes to an end. And that's why, at the end of the day, I think I've mentioned this on your. I think it would have been last time I was on. There's really two worlds here. Bitcoin is genuinely dead, which is its own conversation at a fundamental level. If that. If you do not believe that is true, which I don't, then at some point the bottom gets put in and all you're trying to do is find the most opportune Period of time. And I mean, most of investing is doing nothing. Most of succeeding in these markets is just doing absolutely nothing, being patient, waiting for the right opportunity, putting the odds in your favor, and then doing absolutely nothing. And it's actually very hard to do. Right, because people want to go and chase the next thing. And once they're invested somewhere else, they don't want to rotate their capital. And like, it's a whole thing. And that's why I think, like, for most people, having a basket of, like, these are assets that I just accumulate at this pattern. Here's my simple rule set. And this, this is my, like, capital that I rotate in and out of stuff and kind of play the, you know, play the hot money game. So just understanding your buckets is super helpful. Knowing what asset you own and why, like, what's the actual reason for it? My gold is a very specific purpose. It is different to the purpose of my bitcoin, which is different to the purpose of my hot ball of money. So just having those different buckets, I think not a lot of people do it. They just think, oh, I'm 100% invested in Bitcoin because I believe. And it's like, yes, but now you're going to feel this anxiety and pain because you have no other capital. Just play around with this stuff, you know what I mean? And don't get if you're 100% geared to one asset. Ideologically, I get it, but it's not probably the healthiest mindset because in many ways it clouds your judgment because you only look at one thing, right. You're so anchored to one thing, but having a bit more of a spread gives you a bit of a feel around what's going on. Yeah.
- [30:08]
Host
And it's actually been refreshing. Not like on the AI stocks, not that I've been covering or allocating to them, but it has been refreshing. Like picking up a new hobby, if you will, and thinking about something different than Bitcoin. 24 7, 365. And that's not the same. Not still very focused on bitcoin, but it's just like you get to focus on other things. And I think the first six months of this year too, it's been really interesting because it's using the AI tools to figure out how to increase cash flow at my business, which is like, okay, if you're going to be ideologically pure and allocate to one asset in particular, it's like, okay, how do you de risk or how do you deleverage your emotions to the assets, like, oh, you increase cash flow where you're not really worried about your savings as much.
- [30:59]
James
Yep, yeah, yeah. And I'm like, I won't go into all details, but there's a tax change policy here in Australia, the new budget and all the rest of it. And it took me like 10 minutes but to get the bones of the analysis. But the ability to just like punch in a problem and say, look, here's the setup, here's go and find the old rules, go and find the new rules. Build a program. I want to test the sensitivity of this scenario, this scenario, this scenario and its ability to just like build up the bones of the analysis. Like it's amazing. And you can do that for anything. Right? There's times when I got to reconcile two spreadsheets in my accounting. I'm like, hey, can you go and just reconcile these two? Work out where the different, oh, here's the error. There's something over here that isn't being carried forward or whatever. All these things are fascinating. I mean it's an amazing tool, but I've certainly noticed, I'm sure you've come across the same. I can totally understand the logic of if you're a skilled operator and whatever it is that you do, it's going to be massively advantageous for you. If you're just punching in slop queries, you're going to get slop out. You, you have to kind of know what you're doing and the, the process of actually like putting the time into writing a brief, making sure that the whole system understands, like what exactly is it that you want to do? Here's the area, like you've got to be really explicit with. Here's where I need you to help make a decision versus here's the decision that I want you to make. Because if you give it a suggestion, if your idea is wrong and you don't ask it to fact check it or find a better solution for you, because it can find better solutions for you. But if you just say, hey, do this, this and this and like, you know, use this method and blah, blah, blah, if you use this method is incorrect, it's going to build you a model that has your slop in there. So just that whole process I find fascinating. The more time you spend with it. If you're in like a single project, you're working on the first like 10 prompts, amazing stuff. Once you get to like the 20th prompt, errors start showing up. It starts like forgetting context and like things start to break down. But like, yeah, I find it fascinating. You can see where it's going, but you still have to babysit it and you still have to be a skilled operator. I do worry about graduates in all fields, though. I think that's a real, like, that's a scary prospect because it kind of makes sense to hire a. Not gray hair, but near, near gray hair in terms of skill. Hire a more senior person who can then handle, you know, these AI agents. But if you're coming on the tools and trying to learn the job much, much harder because you don't have that skilled operator. And there's also a thing I remember from my engineering days, this concept of what happens if we hire a bunch of people and we train them and then they leave the company? And the perfect was a beautiful counter answer is, what happens if we hire them and we don't train them and they stay? But now you've got to flip that around because what's going to happen is a bunch of companies who cut costs and don't hire graduates, someone else will go, well, no, we actually need to grow our workforce. But people aren't that loyal. So yes, they may give them a good start, but after five, six years, people get bored of any job and then they want to move. So what happens is you could actually not be the one training these people, saving and making a bunch more money because you're, you know, using a couple of gray hairs and some AI tools. And then you can go and hire the new folks who've been trained elsewhere. Now they'll be scarce and they'll be expensive. Just a simple supply and demand problem. But that whole concept of like worms, if we don't train them and they stay, falls apart.
- [34:23]
Host
Yeah, well, that, I mean, that's why it's important to not only train people, but I'm not sure if you caught Jack Dorsey's conversation with the Sequoia partners, but I think I was happy to hear his perspective on that. Which is like the whole concept of companies changing with AI, where you have this company's basically becoming an intelligence layer that has all the context of your business, your different product lines, your customers, your revenue, your cost, all that stuff. And it sits in the intelligence layer. And then the job of an employee is just to work around the edges and ping that intelligence layer to basically do their job correctly and better them, they would have been able to do before. And what I've honed in on is something I've been focusing on internally here at TFTC. To your point about the 20th prompt being very, very shitty. It's like we've been building this memory system in the back end, this persistent memory system that has the full context of our business. So it has like every transcript, every newsletter, every ad deal, blah, blah, blah. Like, and it just sits in this intelligence layer that we can ping and it has all the context of the business over time. And it's building that context as we add more information to it.
- [35:44]
James
It's the TFTC skill. Right. That's the idea. You're basically building like your business bespoke skill.
- [35:51]
Host
Yeah. But it comes down to there's knowledge graphs that you can run. So we use OpenCloud, we run a knowledge. A couple knowledge graphs on the server, and these basically just track everything. There's a James check page in our knowledge graph that has every transcript or every podcast you and I have ever recorded. I hope you don't mind, but every newsletter, a paid subscriber, I'll feed it to the LLM to help make sure that we're facilitating a good conversation. Whenever you come on the show, it's got your newsletters throughout time and how your perspectives have changed. And it doesn't have to go search that basically from zero anytime I prompt it because it has it in the knowledge graph, it pings the knowledge graph.
- [36:37]
James
It's amazing how you can build the. And having that context means that you do have that back history and you can. It's almost like you're building your own brain, more or less your own AI brain that you can then ping and say, hey, find this invoice for me. Right. How do we build this client? How do we do the contract language here? No, that's awesome. It makes a lot of sense.
- [36:55]
Host
Yeah. But the point being is if you know how to do it, it's going to be incredibly beneficial to your business. It has been for us. And then bringing back to the broader point, it makes sense to me why some of the attention has been focused towards AI and away from Bitcoin. Because this stuff is fascinating. But again, it goes back to what you just mentioned. I think people would be remiss to overlook Bitcoin right now because if you look at the fundamental backdrops of the job disruption that's on the way, what's that going to do for the fiscal side of the books with all these governments? You look at what's going on in the Middle east with the Schrader Hormuz, there are certainly going to be some price inflation pressures that emerge towards the back half of this year. As the supply chain disruption really begins to hit the market, that's going to be price inflationary. And then you're going to have the potential perfect storm of prices rising while a lot of people are getting laid off. And what is the Fed, what is the treasury going to do? What are central banks and other governments around the world going to do? And I think the big print, for
- [38:04]
James
lack of a better bill, comes due eventually. That's just the nature of the beast. And all this stuff accelerates it. It accelerates the approach to it. And what is kind of interesting at the moment, I mean, you mentioned the debasement trade before. I found it kind of interesting that the, I think it was JP Morgan released. Like the debasement trade is like a thing now. You and I and gold bugs and everyone be talking about the debasement trade for years. Right? 2019, I think things really started to accelerate in terms of that dynamic. Lynn Alden's talked about this with the, the repo rate spike and all those things. That's where it started to become evident that there were cracks. Right. Covid then came and dropped all that stimulus in the system, kind of push things further ahead. But the cracks were well and truly in the process and continue to be in the process of widening with this AI Capex boom. It has been a private market stimulus. It's buying materials, it's building things, it's hiring labor, building data centers, buying copper, like mines, the whole lot, power generation, the grid, all of these services, materials. It's a private sector stimulus. In many ways it kind of looks like growing our way out of the debt. But the problem is that like all of these things have a timeline. There's a timeline that this can go on for. And just like the dot com bubble, they build a ton of fiber optic cable that is tremendously valuable, but it took years and years and years to break even on. Right? Decades. So it's going to be something very similar. Like there is no world where we don't have a bubble like that because it's how markets and people and capital operates. So there's going to be this point in time where like we get this concentrated burst of stimulus could go for many years, but it doesn't actually fix. It doesn't grow out of the debt because the debt is so unbelievably large and is growing because the government's involved in all of this as well, borrowing money to spend and build stuff up. It's been funny again. I'll come back to the Australian setup. You know they're putting through all these budget changes and there's this very sad state of affairs video of our finance minister. And you know, the guy's grilling her and saying, so you saved 150 billion. You said you saved 150 billion in the, in the budget. Is that net or gross? Oh, I don't, I don't have that number. So give it. If you saved, you say to the public, you saved 150 billion. Most people in the public would say, okay, you've got an extra 150 billion, but it looks to me like you've spent it back into the budget. Like there's, it's been spent and more elsewhere. So do you have spare money at the end of this budget or do you have more? Oh yeah, we saved 150 billion. No, you're not answering the damn question. And this is the thing. They've already gone and spent 250 billion. They saved 150, but they've gone and spent 250 billion somewhere else. So none of that is fixed by any of this. And there's another layer to this whole thing which Nick Barter and I have been talking about. The, the impacts of both AI, the shortages you mentioned earlier from the straight. All of these things are not going to ripple through economies equally. If you're in a developed nation like the us, China even I would argue Australia probably going to be fine because we can just outbid other countries. A lot of this stuff is going to impact poorer countries. The global south is going to impact them considerably more. So a lot of the, like the, the K shaped global economy is probably going to widen as well, which is a sad state of affairs. But that's, it's very much in this regime of like global power competitions. And man, I mean we are living through genuine, genuine history and trying to handicap all this stuff and predict how it plays out is impossible. But you know that it's changing and you know that within that change, the one thing that isn't changing is the governments are. No, they're just, they're no more fiscally responsible than they've ever been. Many ways they're worse because they're spending wartime budgets in a time when, I mean, sorry, you can argue it's kind of wartime, it's a Cold War type thing, but you know that, that, that problem doesn't get fixed. So is it going to be more fair at the end of the day? Absolutely.
- [42:02]
Host
So freaks, this rip is brought to you by good friends at Crowd Health. I've been a happy crowd health member for almost five years now. My wife and I have had two children while we've been on crowd health and I actually just got the last bill for our third child funded. It was $6,157. Crowd health negotiated down to $2,309 and we only paid $500. The rest was crowdfunded by the Crowd Health Network. If you're sick of health insurance premiums and having to pay deductibles and getting ripped off at the hospital, join Crowd health. It's an alternative way to pay for your healthcare. It's not health insurance, it's crowdfunded healthcare. As you can tell, they negotiate prices for you. You pay in cash. It's much cheaper. Overall, we're much happier. They have incredible Perks. Go to JoinCrowdHealth.com TFTC to sign up five years on CrowdHealth not looking back. Join CrowdHealth.com TFTC use the promo code TFTC. Once you set up your account, you're going to get 99 DOL a month for your subscription for the first three months. All right, freaks, you know me. You know I don't take sponsor money from products I wouldn't use myself. So listen up. The Aven Bitcoin Visa card is one of the most interesting things I've seen in the bitcoin lending space in a long time. Here's the deal. You can get a line of credit up to a million dollars backed by your bitcoin without selling a single sat. No gains, no annual fees, no minimum draws. And your bitcoin is custodied by Bitgo, which is one of the most trusted names in digital asset security. Even never lends it out. There's no rehypothecation. You stay in control. And guess what? You can lock in a fixed rate for up to 10 years. That's 10 times longer than most lenders out there. Or go interest only for up to five years. Rates start at 7.99% APR. For a product that lets you keep your stack and still access liquidity, it's hard to beat. I mean, the duration in the rates is the best I've seen in the market to date. You also get 2% unlimited cash back every time you use the card. Spend fiat. Keep your Bitcoin the whole game. If you've been stacking for years and need liquidity without triggering the taxable event, this is worth a serious Look. Go to aven.com/bitcoin. That's AVN.com bitcoin check it out. On top of that you have, it's here in the States you have this long end of the yield curve relatively elevated. You've got the interest expense on the debts about to surpass Social Security payments and you're going to have to roll over a ton of debt. You're going to have to go into more debt. Looks like 70s era echo inflation may be on the table and yeah, it's not looking great. And to your point about the emerging economies, I actually had a conversation with somebody last Friday off the record over a lunch and he made a really astute observation with AI specifically like all the AI infrastructure is being built either in the States or to some extent in China. And obviously US equities markets are way more open than China. And so what you're seeing is like a capital flow from Europe emerging economies into the US equities markets. And so it's like we're sucking capital not only away from bitcoin in other assets, but literally from other countries. And then to your point, they're opportunity cost of using that capital to invest in their local economies versus US equities markets is real and will manifest in potentially a negative way and exacerbate that global case shape that you just described.
- [45:27]
James
Yeah, it's very interesting because it would have been April last year, April 2025. I did a big report right around the tariff tantrum where I was trying to help my clients understand what my general view was in terms of how the rest of the world perceives the US actions with all the tariffs. And my read at the time, and I still think remains valid, my read at the time was we're probably actually going to see a net outflow from the US and we did over the course of 2025, most other stock markets outperformed the US market. But then as we came into late 2025, the AI trade just suddenly became, I mean it was, it was humming and starting to grow, but it just exploded. And then you started to see like South Korea, I mean the Korean stock market's going ballistic. Japanese, all these companies that are involved from a memory or you know, whatever it is, all these bottlenecks that are occurring, they started to explode. You start to see copper prices, right? Miners start performing very well as well. So you start to see this dispersion as the trade really heats up in the back half of 2025. And now the US is sucking that money back in. So you kind of get to this interesting position where back in 2025 my view was you probably going to see over the course of the next couple of decades you're going to see like the Europeans and the Japanese say actually you Mr. Japanese Pension Fund or you missed a European pension fund. You've actually got to invest your money here. It's almost like soft capital controls where they increase the regulation on the amount of local government debt that certain entities have to hold. So that I think is likely to continue because it's trying to fight this free market force of the market, putting money in the US which is very much in Brent Johnson's view of this dollar milkshake. The US is the market where these things happen and it just sucks all the juice out of other countries and they've got to fight often via regulation to keep that capital. So yeah, fascinating stuff, man. We're really watching. It is sovereign games of game of risk, right? Sovereign game of risk.
- [47:26]
Host
Yeah. And then like if we do build all the data center infrastructure here or the dominant or a dominant percentage of the overwhelming or the overall data set infrastructure that exists globally like then like we're selling that, we're exporting that compute too. It's like a new commodity that you're exporting.
- [47:46]
James
Absolutely.
- [47:47]
Host
People don't own it in other countries. It's crazy.
- [47:49]
James
Again, to your point and you can turn off the inverted commons intelligence of other people, which is why it's an actually and this is the thing, it's an existential national security grade thing and that's why it's going to suck in so much capital and why it is because like there's no. This doesn't happen. It's going to happen right now. It's going to get overbuilt. There's no question about that. Is going to have a bubble. You know these IPOs just history would say is probably the beginning of the end of that process. Can get pretty lunatic by the end of it. But it is most likely that the governments are going to back this. The Chinese can't not be competitive in this field. The Americans can't not be competitive. And then at a company level Google has to invest because they have to be competitive with you know, all the other businesses that are trying to build this stuff. So all the individual players also have to be dominant because once you lose your dominance it's. It's game over. So it's this game where they just, they must a must type event rather than a want.
- [48:53]
Host
Yeah. Zuckerberg said it last last year. He's like, I don't care if we spend a trillion dollars. Like we we blow up like the. The opportunity cost of not trying is. Is too high.
- [49:04]
James
Crazy, right?
- [49:05]
Host
Yeah. It's fascinating times. But switching gears back towards our little cottage industry here in the world of bitcoin and broader crypto. It has been interesting, the dislocation of broader crypto from not only bitcoin but I think you mentioned earlier there's going to be pockets of things. Ecash had a little moment there with all the shills came out. It seems like hyper liquid is having a moment itself. It's sort of dislocated from bitcoin and broader crypto. And then you have capitulation in eth world with the bankless guys dumping all their Ethan.
- [49:41]
James
Finally coming around to John Pfeffer's view that he wrote in 2017, it's gas. Gas is not very valuable. Yeah, brutal. It is a brutal thing. But yeah, I appreciated David's. He wrote that piece on Twitter. That's crazy. There's a bunch of bitcoiners who are like, oh man, I can't believe you're an eighth shield. It's like, no, dude, I'm looking at a guy who had his whole. Turns out if the bitcoin thesis was wrong, it takes a lot of balls and a lot of compute power to come to the realization to say, oh, the Ether's money thesis did play out and it was really lackluster. He did a very self reflective. I finally recognized the problem. That takes balls, man. You may not agree with everything he says. I don't agree with everything he says. But at the thrust of it he has come around to the John Pfeffer view, which is that gas is gas and gas is not very valuable and you had your time in the sun and you priced in all the future growth. And then it's kind of that when you price in all the future growth, there's no future growth. So you know, you kind of run out of steam. So, you know, credit to him for, for writing that piece because that would have been hard, right? Selling it all would have been quite difficult.
- [50:51]
Host
Agree, agree. It's just, it is. I think I engaged in a little bit of shouting for it and shame on me for doing it. But it is funny, like we've been screaming for like a decade, like a. This is the ultimate outcome. It is a big, big boy thing to, to come out and say, hey, acknowledge I was wrong, changing my mind and going to publicly do that. But I think just to the point brought that up because like what do you think happens with broader crypto moving forward do you think this.
- [51:22]
James
I think it's in a world of trouble. I think it's in a real world of trouble. Like we're talking about stock pickers market. I think that is on steroids. I just think it's an extinction. I think we finally got to the crypto extinction level event where the garbage just gets culled and eventually there's just no bias for any of it. Now I'm sure we can probably trace this thing back. And like if you go back to 10-10-25, right, there was a deleveraging event which kind of kicked everything off. There's bodies there that we probably. I don't think we've really found out what happened properly in terms of who got wiped out, but market makers and all the rest of it. But some of these tokens quite like quite literally went to zero on that day. The price went to zero. And that's because there were no natural bidders. And that's the thing. Bitcoin doesn't go to zero because it has natural bidders, right? We can see it all the time. You can see in terms of the amount of sell side that gets absorbed, the amount of buy side that comes in. So you know, bitcoin has a natural buyer of real people, real entities, real companies who actually want to own it. On the flip side, that is just not true for the crypto world by and large. So really like it's a painful recognition that the thing you built is perpetual swaps and stablecoins. That's the product market fit been developed, right? That, that is ultimately the product market fit. That's a very narrow band. It's really not like for the hundreds of billions of dollars of VC and all the speculation, everything else, you made dollars digital and you built a casino. It's just a really painful recognition. And like that there's a point where the market just goes, it's just not coming back. And I think, I do think we've hit that extinction level event. So I think it'll be very interesting. I think there'll be a lot of people, I mean at the end of the day I would say that it's overall it's a net negative in terms of. It's like ftx. There are people who got burned by FTX who will simply never buy this asset class ever again. And I think people who've been in crypto for 5, 6, 7 years and have gone through the process that you and I have gone through with bitcoin, like my conviction of bitcoin doesn't change. It's, you know, I learn more and I understand it more and I analyze it more. But like my core view that bitcoin is going to be a very important part of the future of the monetary system is unchanged. But imagine if you lost that. Imagine if like it was just really, really apparent, really clear as day that it was just never coming back. There's a lot of people who are going through that right now and I just don't think they are ever going to own this stuff ever again. I think they just drop off the map. They might, as David did, buy some bitcoin because like I get it, like I still get the premise but to just like pull out of the entire other X million tokens and be like it's just over. I mean that's, it's just going to be a true extinction level event. There's still folks who think there's going to be like revenue but like I look at the whole defi world and like I can see a world where defi was a cool idea. I can construct a world where that would have been quite interesting. The problem is it relied on shitcoins and speculation. So that's a part of it. But like you can imagine. Let's just, for example, just imagine the bitcoin happened, there was some breakthrough, were able to do a lot of this stuff. Maybe bitcoin is using it all the time. The problem is the attack surface. And if you think we were talking about AI before, if you think about how much attack surface there is as the AI models get better and spot loopholes that no human would have ever thought about. I just think the risk for the whole crypto world, any defi system has moved from return on capital to return of capital. Case in point, something called kelpdao but hacked by the North Koreans and it basically created so much bad debt in aave, which is the biggest lending protocol blue chip, so to speak. And suddenly they drained half the treasury of every founder and defi project that all came. It was all very wholesome. Rainbows and unicorns come together. We're going to patch it over. Don't worry, you'll be made whole. North Korea's going to do it again and they're going to hack something else called like bread Dow or something. And it's just going to be like eventually you just can't have your money in it. And I think that any serious capital is looking at that. And I certainly told my clients, look, just be if you have defi positions, if people do Just go through the process of thinking about your exit. You know, like, I'll leave it to you what you want to do, but like understanding that the. The risk is now a zero, not a 2, 3, 4% yield. It's like you might get just a haircut straight off the bat. And I just think that the bear case for the whole ecosystem, it's always been there, but now it's like front and center. Really, really hard to argue in the affirmative. It's a really, really bad state of affairs.
- [56:14]
Host
Yeah, yeah, it's not looking great because the kelp dial wasn't the only. Wasn't there like two or three that. That got drained over the last couple months?
- [56:23]
James
Oh, you know, there's. I mean, there's a lot arboretum or what happened to arborm is there's all these weird wacky names. There's all this stuff getting like. I saw a chart basically saying that like, we're all time high of like monthly hacks. And I do find it quite interesting because, like, just to touch on the quantum thing, not to disparage the quantum thing, I still, I'm. I've said my view. I still believe we should be developing the solution because the risk is existential, even if the probability and the Fugazian stuff is all, I think, still real. However, think about all the hundreds of billions of dollars that have gone into the whole crypto. Well, there's like a big treasure chest. It could be nicked. And then like there's these, these folks building these weird and wacky quantum machines that may or may not work. Spending tens of billions of dollars for an uncertain outcome. And like a lot of them pitching now that stealing Satoshi's coins will be there. Like, that's their revenue maximizer. They're by the way, telling bitcoiners that this is our revenue pool to which like, just imagine a world. Whilst I don't support freezing coins, just imagine that tomorrow we all go safia. We'll freeze them. Why didn't they just do what the North Koreans didn't use AI and just hack someone? Because, like, if the business case for Quantum is theft and crime, just do crime. Just use AI and just steal shit from the defi ecosystem. What are you doing building these complex machines? I don't know. I find that like parallel humorous at a minimum. Right? Doesn't I know a disparate. I think quantum we should still take seriously. But I do find it kind of funny that like, bro, just go and hack any. Go and hack Kelpdao. You'll make a ton more money and it will cost you 50 bucks in tokens. What are you spending $10 billion on a bridge in all these pipes and weird quantum particles and shit? Like, it just doesn't make any sense.
- [58:14]
Host
Yeah, it is comical. And again, it highlights the design principles that the bitcoin project has taken over the years. It was like, hey, let's keep the attack surface as small as possible. Let's make sure this is relatively simple, dumb and straightforward of a protocol so that people understand how it works and if bugs arise, how to fix them pretty trivially. And I think it's to your point being validated in real time that this design approach to a distributed monetary network is very wise on Satoshi's behalf and those who have picked up the mantle of keeping the protocol going since he left. And it is, I do feel a bit for the crypto. Crypto people or it's like there's a lot of people. RH put in more than a decade of work, prime years and I mean a long arc of history will be recognized. Like even the bad ideas are necessary to, to, to try in a, in a free market that's actually functional. And I mean, I don't want to come off like a prick here, but I think to your point, it's becoming clear that these are not going to work out long term. And it will be interesting to see the sentiment backlash that bitcoin gets in terms of a scorned ex girlfriend. Just saying. David, obviously recognize like, hey, there's something with bitcoin here. I'm going to acknowledge that. But how many others are going to say, no, it's all fake? If my thing was fake, bitcoin is too.
- [59:46]
James
Yeah. And it's tricky because Ethereum's got this whole roadmap to quantum proof the protocol. It's like, yeah, but ECDSA is just like hard coded throughout all of your smart contracts. Like the user experience of saying, hey guys, how do you email them? Can't tell them like, hey guys, can you move out of like the v5 protocol, move into the v6? And then liquidity pools have got to shift around and you just think about all the places that. And then all you need is one of them. And let's face it, the whole my, my core view for the quantum debate is this is gonna be really hard and really risky. Really, really risky stuff. New crypto cryptography is not. You don't take that lightly. That's, that's there is a bigger risk in my opinion of us Rushing it and putting the wrong system in place than a quantum computer showing up tomorrow. Considerably more risk in that angle. It's hard. There's a small pool of people in the world who can do it, right? We're talking about, you know, very, very small collective of people who actually have the cryptography, the quantum skill are able to sense check this stuff, understand the existing system, know how swapping this out like that's not small, small potatoes. And you think about all these little protocols that have zero chance of finding one of those people and then trying to fit in with. It's just like the downstream effects. If quantum is real, it's just game over for that whole system. You may fix the protocol, but you that like the base chain but you're not going to fix all the smart contracts. The users are going to get wiped. Then you've got the North Koreans who are also stealing stuff. You got AI hackers, crime, crime, crime, crime, crime. Like it's just, it's, it's really big attack surface. And yeah, I mean look, you know, Bitcoin's not strictly out of the woods. I still think it's going to be very, I mean I do believe that it has been so heavily reviewed and scrutinized by some of the, I mean literally every hacker on the planet has been looking at the bitcoin code and saying how do I get into this thing? Right? It's been happening forever. So it has to be the one of the most reviewed pieces of software in the world. So it'll be amazing if AI finds holes, may slop and pretend it finds holes. We'll see. But I think that the attack service on Bitcoin is considerably smaller and certainly it's just the only place in this world, it's the only place I can feel safe with. So yeah, it's however one more thing I want to float. I had an idea the other day. Gold bugs love to point at Quantum as like Bitcoin's existential zero day risk. If SpaceX is successful in any way, shape or form or any of these space companies successful or if UFOs are a real thing, right, we're going through this whole disclosure. I have no edge in understanding the disclosures and aliens. But I just thought this was an interesting thought experiment. If it turns out that aliens are real or we start space faring, gold's a zero because there's a whole universe of gold out there that eventually comes, comes to earth. So it's kind of the same argument just flipped around. But like in Theory, we can actually solve the quantum thing. Once you're up in space, you can't solve the gold supply problem. That's an infinite problem.
- [62:54]
Host
Yeah. And I think. I mean, we don't even need to go to space. I think Grubels was highlighting this, I think in April this year. Just a reminder that there's more progress creating gold out of thin air than there is for quantum computers. Factoring past the number 15, they're literally solving some alchemy problems in China, I believe, where they can turn some raw materials into gold using some sort of system. So it's like you don't even need to get.
- [63:23]
James
It sounds like the same. Remember that there's like a superconductor at some point where a room temperature superconductor and the whole world was lit on fire. And then it's like. Oh, no. It turns out it was like one of those.
- [63:37]
Host
Yeah, it is. It is fascinating. You mentioned stable coins earlier. Maybe we can end on that. What is your thesis there? Are they susceptible to the potential security risks that exist on these competing protocols? That a lot of the stable coin.
- [63:52]
James
That's an interesting one. Well, they're, they're a target because they're money, right. There are money of. Of forms and lots of people use them. The issue with them is they can be frozen. Now, they can't necessarily be frozen straight away. And you know, if you've. If you've got a bunch of tether, there's a possibility of. And we saw this with. From memory. I'm fairly sure Some of these KelpDow hackers swapped it into eth, which to be very fair, can't be stolen and frozen. So they kind of understood. But they also had a bunch of their tether stolen. They had a bunch of it on an L2 which got frozen. So like there's gates all over the place. You can't exactly deposit it to Binance and get away with it. Coinbase, they're probably going to block you. So I think stablecoins, it's interesting because I wouldn't want to be. I mean, sorry, I shouldn't say that because being tether is a crazy, crazy lucrative business. But the amount of like having to surveil, that's just going to get out of control. Right. The amount they're going to have to surveil stuff and freeze things and requests from governments and all that kind of thing, that's going to be a whole, a whole headache. But I do think that the stablecoin thesis, and that's why in my post when I was replying with, with David from Bankless, my post was based saying Ethereum, the blockchain is very successful. And I actually just don't understand how anyone can argue otherwise. I could say the same for Tron. I could say the same for Solana. Why? Because they have literally dollarized parts of the world. Venezuela, you know, there's parts all over the world that predominantly use tether as their money, right? You go to Turkey, you can easily spend tether. So it's, it's one of those things where it has dollarized parts of the world which quite frankly has been like a desire for the bitcoin idea for a long time to provide a money. Stablecoins have done that. So undeniably those rails have been successful. There's no value capture potential for the underlying asset for the eth and the sol and the, you know, there's, there's no value capture for the token, but the rails have quite literally dollarized and it doesn't matter what rails it's on. So I also think that just genius clarity act, both of those are a very clear signal that the US sees this is actually good for dollar hegemony. So going back to that national security idea of AI, I think that stablecoins proliferating is hugely beneficial to the US and they're going to push for it. I think it's, they're going to support it as far as they can because it makes all the sense in the world. And what I think is so interesting about the stablecoin story, it was chosen by the free market people chose tether, right? In these countries, they, they didn't. But in fact their government would rather they didn't have it. They chose it because it was better than their local savings. And truly that's part of my thesis for bitcoin as well because we're fortunate, you and I, to live in, you know, western nations, the U.S. and Australia. Our currency isn't great, but it's also not terrible. Not the lira, it's not the bola bar. So the quantum leap, use a pun, the quantum leap from a, from the lira to, or the bolivar to the dollar, US dollar. It's about the same magnitude as us going from the Aussie dollar to bitcoin or to gold, right? Going, you're going up into a sounder money, right? Sound, soundness is a scale in many ways. Now there's obviously a large portion of fiat currency that is unsound from a absolute value, but there are far more unsound monies. And this is what the Ethereum folks never understood with their ultrasound money theme. The rate of issuance isn't the problem. The number, the absolute value of the issuance is not the factor. It's the ability for some dude to turn up overnight and say your dollars are worth half as much, they're worth twice as much. I want more, you get less. It's the change, it's the human governance layer that makes it unsound. And if you think about any of these currencies that get devalued overnight, in fact I use this analogy, it's again, it's different but it's, it's, it's close enough. The Australian government, I won't bore people with the details but with their budget they effectively change from a 50% capital gains discount after one year to being, it's now indexed. So if you think about that indexation of CPI is like 3%. So now your long term capital gains discount goes from 50% to 3%. Right. Per year. They've effectively devalued our savings. Right, They've made it just, they came out with a budget that kind of came out of nowhere. And suddenly if you're an Australian, your savings after 2027 are going to be taxed at practically double the, double the rate they've devalued your savings. And that was a human governance decision. Same when they devalue the Egyptian pound or they devalue the Turkish lira. The human governance angle is the problem. And over time the US dollar is just going to absorb and consume all of these smaller currencies. The US dollar is going to, that's why I'm very much on board with Brent Johnson's dollar milkshake theory. I think the dollar just absorbs all these smaller currencies. The people of that nation choose it, their government hates it. And that's why the weaker fiat currencies will collapse into the dollar. The dollar dollar rises more and more places but ultimately does that change the soundness of the US dollar? No. So the more people that move on to the US dollar, the more people eventually realize that hey, you know what, yes, it's stronger than what I had, but now this is my baseline. Hey, turns out this is also shit. What do I do now? I've got to keep going up and up the stack. So there's just this perpetual flow of people moving up towards. I actually need a sounder savings asset. So yeah, I mean this is the kind of the long term view that I see. But I don't think the dollar is going anywhere. I think it's going to eat all the other fiat currencies first. And I do think stablecoins are a big part of that.
- [69:42]
Host
Yeah. As Parker Lewis said. And gradually, then suddenly it's the credibility of your monetary policy which is what you're to get. Like yes, you can have ultrasound money, but it's actually ultimately not ultrasound because you've changed it four or five times along the way and settled on this for memetic purposes.
- [69:58]
James
And no bat and speaker emojis are going to change that.
- [70:02]
Host
Yeah, no, it was a good college try though. It was good effort
- [70:10]
James
as we'd call it.
- [70:11]
Host
Yeah, I completely agree. I think everything's going to fail into the dollar. And then ultimately what is the credibility of the dollar's monetary policy? Not very good for reasons discussed earlier. And many bitcoiners will get frustrated and say like, oh, we shouldn't be pumping stablecoins. And I think, want to be clear, I don't think you or I are saying like go use stablecoins tomorrow particularly. I mean we're fortunate, the individuals in our shoes and our economies, we don't have to. And you would be just very stupid not to recognize that there is demand for these things. I mean it's objective as you undeniable.
- [70:50]
James
Yep.
- [70:50]
Host
Already pointed out. And I think you should also be objective about the state of bitcoin as a fully mature monetary system that covers savings and payments. And the payment side, while it's made massive strides in the last decade, is still probably not where it needs to be for mass adoption. And that's one thing that's incredibly encouraging to me or has been at least for the last year, first six months of this year, particularly with the onset of these AI tools, while the attention has been drawn into other markets and other parts of the economy, the second layers that are being built on Bitcoin are getting more mature at a faster pace. And that infrastructure that will be necessary to enable that jump from stablecoins to Bitcoin is getting to a point where it can actually facilitate that. Not tomorrow, but it's working towards that, that sort of ultimate state where it can do that.
- [71:53]
James
Yeah. And I think it's also important for people to recognize we've been in a bear market for six, seven months.
- [71:59]
Host
Right?
- [72:00]
James
Six, seven months. Right. You know, if, even if you're a four year cycle theory dude or less, it, you know, it's 12 months is the typical bear market duration. So guys, we're in the last chapter of it. So there's a lot of folks who are looking at this equation and being like, this bear market feels like it's never going to end. Bitcoin's just dead. It's over, it's been started. There's quite literally no data point in bitcoin history that suggests that this doesn't resolve violently to the upside. What's going to happen is a lot of people are going to miss it because they're going to get too cute. They're going to try and be too cute. Time the absolute bottom. And like, again, run the studies to my best estimate. Just dollar cost averaging through the bottom 20% of the cycle. Anything below 70k gives you a better entry price. As good an entry price as trying to lump sum the bottom. Tick stop. Like, don't lose hair gray. Grow gray hair over it. And by the way, I've said this before. The feeling that you have right now watching AI Moon and the feeling you had back in January watching Silver Moon and choose whatever it is that has been Peter Schiff's life for 17 years. It's why he is the way he is, right? It's six months, seven months gonna be all right. Bitcoin's gonna bottom. You just gotta be there for it. Not, I mean, like, don't get too cute with it. Don't try and time. The bottom I spent going back to Michael Sullivan's work. I spent a bit of time a couple of weeks back where I liked a couple of bullish posts. And the algorithm on Twitter immediately showed me the most moon boy ridiculous nonsense and the most doomerish. And like, some dudes predicting 6k charts with like a legitimate arrow on their price chart being like, this is like my ta. And I was like, oh, my God. So then I did the other thing the next day and the reason I cottoned onto this is I mentioned the Australian tax thing. I mentioned I put a bunch of posts out. My feed just immediately changed entirely. I stopped seeing anybody who wasn't Australian. Like, it was so instantaneous. Like, how sensitive are these algorithms? So then I started liking some bearish posts and next thing you know, I've got again, the most ridiculous moon math because they're the ones I'm going to engage with like, you're an idiot. You're so wrong. And then just like chart after chart after chart of the same bear flag with the same arrow all pointing to 45k again, might happen. Not my base case, in fact, very far from my base case. But, like, be very, very careful with how sensitive these algorithms are, like on X particularly. And to be fair, that's the only social media platform I use, aside from substack. It is so sensitive that the world you are seeing is absolutely crafted by your mood, and your mood crafts that scene, which then crafts the scene for your mood. This is what Michael's doing. He's analyzing how people get pulled into these ditches. Right. Of just utter doom. And people who've been around for a while, you develop that resilience, you be, you know, a bit more optimistic, because I know how this resolves. I've seen this movie so many times. It looks the same, the patterns are the same. Right. All these dynamics are very familiar. It doesn't feel like February, right? February felt like a true fear capitulation moment. This is apathy. This is apathetic. No one cares. So all these fears about, oh, the stock market's gonna blow up and then it's gonna take bitcoin down. It's like, dude, there's gonna be no one who owns it when that happens. There's no sellers. Like, there's almost no sellers now. Like, once we get to that point in time, like, it's just so. Yeah, I think, folks, don't get too cute. Just. Honestly, my advice for this cycle is just buy the bottom fifth. The bottom fifth of the cycle. My, like, just round numbers. The bottom fifth is below 70k. Below 60k is the bottom tenth. So you're talking about a 90% chance of it being, like, in the money and down to 55, 54K. That's the bottom fifth, 5%. The lower you go, the better it is. Don't ever think it. Just stay humble. Stacks at. Get through the other side. It's going to be fine.
- [76:11]
Host
I signed that message, tweeted it out earlier today. This is the summer stack. Tune out the noise, hone your craft and just stay humble and stack sense.
- [76:19]
James
Just remember how it felt at 80k when you're like, damn, I wish I bought more in the 60s. 66, 6:50. Right now. What are you doing?
- [76:26]
Host
Yeah, it may run away from you between now and when this is actually posted next Monday, but we shall see. James, it's always a pleasure. Stick around. Stick around. After we record, I want to show you something because I think you'll get a kick out of this.
- [76:41]
James
Good idea. Thanks, mate. Good to be here.
- [76:44]
Host
All right. Peace, love freaks. Thank you for listening to this episode of tftc. If you've made it this far, I imagine you got some value out of the episode. If so please share it far and wide with your friends and family. We're looking to get the word out there. Also, wherever you're listening, whether that's YouTube, Apple, Spotify, make sure you like and subscribe to the show. And if you can, leave a rating on the podcasting platforms, that goes a long way. Last but not least, if you want to get these episodes a day early and ad free, make sure you download the Fountain podcasting app. You can go to Fountain FM to find that $5 a month gets you every episode a day early ad free helps. The show gives you incredible value, so please consider subscribing via Fountain as well. Thank you for your time and until next time.