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The Peter McCormack Show
The Threat of Fractional Reserve Bitcoin from Wall Street with Saifedean Ammous & Caitlin Long - WBD036
01:27:35
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- [00:01]
Safedin Amus
Welcome to the what Bitcoin Did Podcast.
- [00:06]
Peter McCormack
Hi there, how are you all? I hope you all are having a great week. Welcome to the what Bitcoin did podcast. Thank you for all the amazing feedback I've had on last week's show with Jake Jovinsky. I think you'll all agree. Well, anyone who listened to it, I think you'll agree he did a cracking job. It was great to have him on. And he's also recorded another podcast with Pomp. I recommend you check that one out too. It's also another amazing episode.
- [00:29]
Caitlin Long
This week.
- [00:29]
Peter McCormack
I've got another cool episode. I know I say this all the time, but this one is definitely one of the best I have got my first two guest interview with the author of the Bitcoin Standard, Safedin Amus and Wall street veteran Caitlin Long. Two of my absolute most favorite people in the world of crypto. Two people I've wanted to have on the podcast and getting them on together. It's obviously something very special. So before I talk about that though, I do have a message from my show sponsors. And please do listen to this, don't just skip forward. So I want to talk to you again about BlockFi who've been advertising on the podcast for a while now. They offer crypto backed loans. If you're holding on to crypto, you can put your bitcoin and ether to work without selling. BlockFi gives cryptocurrency owners access to cash through a lowest cost cryptocurrency to dollar borrowing. BlockFi have also created a special offer to my listeners. So if you sign up@blockfi.com whatbitcoindid you will get $25 in free crypto added to your collateral balance for loans under $10,000 or $50 in crypto for loans over $10,000. And applying only takes a couple of minutes. BlockFi is spelled B L O C K F I and it's blockfi.com whatbitcoindid okay, so let's move on to the interview. It's a cracker. I absolutely love this. Bit nervous doing it up front. You know, I'm up against two absolute heavyweights. An author, a Wall street veteran, two people who know so much about crypto and the economy. I had to do so much research.
- [01:54]
Caitlin Long
To try and pull together some kind.
- [01:56]
Peter McCormack
Of framework, but I think it came out great. I'm really pleased with this. And look, the reason I wanted to get them both on together is reference each other a lot. I've been following Caitlin for a while, been listening to a lot of her interviews. I've also been following Safe Dean for.
- [02:08]
Caitlin Long
A while, read his book, read his.
- [02:10]
Peter McCormack
Bulletin, and when Caitlin was on Marty Bent's show recently, she referenced Safedin and Safedin referenced Caitlin in his latest bulletin, which by the way, if you haven't subscribed for, you must do it. And I'll add that in the show notes, but I wanted them have them all together. They've done separate interviews, but I thought it would be really good to bring both of them together on the show as they share a lot of similar ideas on bitcoin. And I thought by having them together we could go into detail on some very important topics such as the state of the global economy and government balance sheets, what negative interest rates mean, why growing debt might be the perfect storm for bitcoin, and the implications of Wall street adopting bitcoin, which is something they've both talked about recently, especially with regards to the threat of fractional reserve bitcoins. So having them on together, I could put a whole bunch of topics to them and listen to their answers, let them debate it out. And I think it turned out pretty good. So I hope you enjoy this as ever, I'd love your feedback. Do get in touch. Do let me know what you think. Just a note, there is a few sound issues at the start, just the first couple of minutes. We had a problem with with a rogue set of headphones but we managed to fix this. So that's just at the start. Okay, before we move on to that.
- [03:12]
Caitlin Long
Please do support the show.
- [03:14]
Peter McCormack
And yes, a big thanks to my first patrons. I've got I think 12 now signed up, which is very, very cool. And please do consider this. Don't just skip past, go and check out my Patreon page which is@patreon.com whatbitcoindid anyone who does contribute to this, like the advertisers helping keep the show going because this is pretty much all I do now and I've got a bunch of options. The first one is just a basic $2 option that gets you access to the Patreon feed. You can come in and discuss things like previous shows. $5 will get you an early version of the show. So this week's show actually went out on Tuesday to patrons. So if you want to get the show early, you can sign up for that. You can be a WWBD maximalist. That's $25 and that allows you to help me prepare for shows. You can get involved in the framework creation which is really cool. And there are also a couple of advertising options. So yes, please don't just jump past, consider it because it is important for me and you can check it out at patreon.com whatbitcoindid and the other things you can do if you're a regular listener, you know what they are. You might have done them already, but.
- [04:12]
Caitlin Long
If you haven't, please do go and.
- [04:13]
Peter McCormack
Leave me a review on itunes. I might have a few negative ones from Ripple cultists this week as I've been teasing then. So I might need some of you to go out and give me a good review on iTunes. A five star would be great. Please follow me on social media. I'm otbitcoin did on everything on Medium, on Instagram, on Twitter and if you reach out to me I'll probably reply to you. And if you haven't seen it yet, every Friday I'm now doing a tweet storm of other podcasts I'm listening to just a summary of the best ones I find, so take some time to check that out as well. Okay, so onto the interview. I do hope you enjoy this.
- [04:43]
Caitlin Long
Please do feel free to reach out.
- [04:44]
Peter McCormack
Me if you have any questions, any thoughts on the interview. My email address is hellohatbitcoindid.com and I pretty much reply to anyone, so feel.
- [04:51]
Caitlin Long
Free to get in touch. It's afternoon here in London, so good afternoon. Safe Good afternoon Caitlin. I'm not sure what time it is there for you, but thank you both for coming on the show. Could you both just introduce yourself and then obviously let me know why bitcoin is so important for you before we start talking about more of the juicy subjects.
- [05:12]
Safedin Amus
Okay, well, I'm a university professor in the Lebanese American University in Beirut in Lebanon. I've been in this job for about nine years and I've been interested in Bitcoin for seven or eight years of those. I've been researching it from an economics perspective because I came at it from the perspective of an Austrian economist because that was what I was interested in studying for a while. And recently I published the Bitcoin Standard, which is basically the summation of all the Austrian ideas that I've worked on over the past few years.
- [05:48]
Marty Bent
And I'm Caitlin Long. I've been involved with bitcoin dating back to 2012. Wall street background left Morgan Stanley, where I had been running a business on the pension side, in 2016 spent 18 months at Symbiant, which is an enterprise blockchain company, and this year left that to work on passion projects in Wyoming, my home State, my native state. And we got five blockchain friendly bills passed in Wyoming and just finished a hackathon, headed back out there for another legislative task force meeting where we're going to be hopefully putting even more favorable blockchain legislation through the state of Wyoming.
- [06:28]
Caitlin Long
Great. And I think it's good to bring you both together in both your work. I've noticed you mention each other most recently in your bulletin, Safe. Dean, you mentioned Caitlin. I'm struggling to find where you might disagree on things. That was the thing. I think possibly the only area is that safe. Dean, with you, everything apart from bitcoin is a shitcoin. Whereas Caitlin, I think you're a maximalist, but because of the work you're doing, obviously with the Wyoming Blockchain Coalition, I guess you're exposed to other non bitcoin items.
- [07:01]
Marty Bent
Sure. Yes. I'll go first. I suspect that we don't disagree on a whole lot. In fact, actually, when we first connected, when I gave a speech to the Mises Circle in San Francisco about the future of money. And a big chunk of that speech, it was in April or May of this year, a big chunk of that speech was telling every Austrian that Seif's book needs to be in their library and explaining why. In fact, I remember saying, I don't even know how to pronounce his name. But my mentor in Austrian economics had sent it to me and said, this is the book that I wish I'd written. And when I read it, I fully agreed. And it doesn't need to be written because Safe did it.
- [07:40]
Caitlin Long
Okay. So I just want to set the picture just on a personal level from what my podcast is about. So two years ago, I was working in advertising, Standard Life, earning my money, putting it in the bank, saving a bit for my pension, and going on holiday once or twice a year with my children. And now, two years on, I found myself in this world of bitcoin where everything I know has been turned upside down. Everything I know about the government, money, economics, and if anything, there's a huge amount of fear. And I think obviously there's a great opportunity with bitcoin. It's becoming the work of your lives. But how do you think we raise awareness with. With what's happening with the global economy, with people like who I used to be?
- [08:21]
Safedin Amus
Okay, well, the way that I see it is these. These sort of things, these sort of questions I used to think about much more. Before bitcoin. Before bitcoin, you know, you used to have this compelling desire to tell people you know, this isn't how things should be. We could live, we could be living a much better, healthier life with a lot less conflict, war, destruction if we separated the monetary system from the government. And you know, you start alienating your friends because you never shut up about this. But you know, bitcoin for me is one beautiful thing about it, is that you don't have to tell the people anymore, you don't have to argue with people anymore. It's just economic reality that is imposing itself on people so that people who don't care about any of that stuff, who don't even think that separating money and government is a good thing, are still getting into Bitcoin because it's just much better as a store of value. And so I think, you know, it's beautiful to not be in a position where you need to keep arguing theoretically with people. I like the fact that bitcoin just imposes its economic reality and then people keep adopting it. And so I think it's going to teach people proper economics. Once they start really realizing the impact that it has on them in terms of how they lower their time preference, they start thinking more of the long run. And then when they start imagining or seeing how a new economy is being built online around Bitcoin and around Bitcoin based transactions, it's going to offer a much more compelling alternative to the current government dominated monetary and financial system. I think that it will just speak for itself, it won't need us to evangelize it.
- [10:08]
Caitlin Long
And I think people know something, but they're not sure what it is. Amongst my circle of friends, people have got no money, they've got no savings, they can't put anything towards their pension, they've got children going to university about to embark on an experience that's going to lead to a lot more debt for them, not knowing how their children are going to afford houses. And I get the feeling people know something's up, but they don't know what it is. What are your views on that, Caitlin?
- [10:33]
Marty Bent
Oh, I completely agree. I've been saying that for years as well. Back when I was working with corporate treasurers and CFOs, even they knew something was up. And one of the reasons why, when I laid out what was really an Austrian argument to them, of course a lot of them said, oh my gosh, that makes so much sense. And they loved it because it was so contrarian to what they were hearing from the standard line. And it was, interestingly, Morgan Stanley encouraged me to go do it because the Client feedback was so great, they did not actually try to shut me down, even though it was very, very critical of how money and credit are created in the economy. But once I laid out the Austrian view, it just, it makes sense. The light bulbs start going off for a lot of other people. I will say I was careful not to call it the Austrian view because that conjures up controversy. And if you lay out the substance without calling it Austrian, sometimes to people who are indoctrinated, maybemaybe that's too strong a word. But people who don't know anything other than the standard economic line, you know, they shut down. But the moment that you lay it out substantively, they get it and they realize, yeah, there really is something wrong. And it forces them to think through what might happen in how this is going to play out. Everybody knows, except for the people, probably even the people who come out and say this is sustainable, everybody realizes it's not. I think a lot of people just either have Stockholm syndrome and bought their own line of, of you know what, or alternatively, they really don't believe it, but they're just so stuck in the groupthink and to them the cost of getting out of that groupthink is just too great.
- [12:30]
Caitlin Long
And why do you think safe that Keynesian economics propaganda has survived so long? Is it purely a construct of a government need to print money?
- [12:38]
Safedin Amus
Yeah, it's the fact that government printing money makes it a sustainable cycle in that the government prints the money, finances the economic departments and then the economics department teach that government should bring more money. And so, you know, as long as they both scratch each other's backs, that thing can continue until, that is, satoshi shows up and then ends their sweet gig, just basically puts them out of business. You know, I mean, the thing is, it's very hard to make that into an academic debate when, you know, the precondition for participating in the debate is that you have to get effectively funded, published and hired by institutions that get paid from the government. So, you know, the notion of trying to argue the perspective of government doesn't need a role. It's not even, you don't even have to invoke some sort of conspiracy that keeps people out. It's just the nature of any government institution is that it won't be able to hire somebody who thinks it shouldn't exist. And so if you look at the debate that goes on within all government funded universities, it's going to just naturally sort of be biased towards that perspective because that's how you get hired in that university.
- [13:52]
Caitlin Long
Caitlin, I saw on the Marty Bent interview you talked about this government finance bubble and a couple of things stood out to me as somebody. I don't really understand economics that well, but you talked almost like you're talking about some huge mega crashes coming because the governments are running out of balance sheet capacity. And I interviewed Tio Dimista and he talked to me a lot about a bond crash. And then the last thing is you also talked about negative interest rates. And I was trying to understand negative interest rates in that I was thinking this just doesn't make any sense. But is that essentially a hedge against, is that almost like shorting money?
- [14:24]
Marty Bent
Yes. Somebody's paying you to borrow. Right. Which in a free market would never be the case. When interest rates are negative in a free market, they would never be negative because to save's point from earlier time, preference is always positive. Right. You'd always prefer to consume something today instead of having to wait until tomorrow, all else else equal. And so why would you ever pay somebody else to wait until tomorrow? You wouldn't in a free market. So negative interest rates are purely a construct of the artificiality of the system. Tor's absolutely right. There is going to be a major bond crash. The challenge though is this could be years, if not decades away or it could be tomorrow. The hard part is none of us knows. I look at it and say when interest rates turn negative, it's a sign that the balance sheet of the country is pretty much done right. Because to the extent that central banks can continue to lower interest rates toward that zero bound, then that suggests that the market says there's still some balance sheet in aggregate left in the country. Implicitly, what I think fiat currency value represents is that balance sheet. What I mean specifically by that is the amount of assets collectively owned in that economy that are not yet encumbered by debt. So if you think about a balance sheet, your assets, you're only solvent if you have positive equity. In other words, if your assets are greater than your liabilities and when interest rates are negative, it means that in aggregate the country's liabilities are probably greater than its assets. It just hasn't had that confidence, the crisis of confidence yet. But it's coming. And what's interesting, in the US I like to look at the 10 year treasury bond yield. There's been an incredible downward trend of lower lows and lower highs for 30 plus years. I think it was 1982 is where that trend began. And literally every single time interest rates start to go up and The Keynesians say the economy's turning, rates are going to go up, we're going to mean revert on interest rates every single time. We never hit that previous peak before the wheels start coming off. Because every time the Fed's tightening financial conditions start to get tighter across the economy and the malinvestment starts to become revealed. Right. So we have not yet broken that trend of lower lows and lower highs. Even though rates, the 10 year, I think as of today is hanging right around 3% might have broken through it last I looked. I think it had a breakthrough 315. If it breaks through $3.15 as of a quarter end, which would be September 30th, then we might have actually broken that previous trend that started since 1982. But I laugh every time the mainstream economists come out and say this is the time interest rates are finally going up. We all know they have to go up. I don't disagree with them. We all know they will go up because they're artificially low. But every time the Fed starts tightening and the wheels start coming off somewhere in the economy, you start that downward trend again. And I don't think that trend is broken yet. The reason I say that is because we're not at zero yet. And once we're at zero, that's when the balance sheet is done.
- [17:50]
Caitlin Long
Is this almost like a perfect storm building for Bitcoin?
- [17:53]
Marty Bent
Sure, absolutely. Yeah. I do think that Bitcoin will resume its counter trend price performance against fiat currencies. It's been pro cyclical with other financial assets in the last year as Wall street money has started to come into it. What we had actually is a leaking into Bitcoin of all of this paper money that's been created. That paper money goes to where assets are cheapest right now or at least a year ago. Bitcoin was one of those cheap assets and you started to see a lot of hedge fund money and high net worth individual money come in. And then you had the bitcoin futures contracts from the CME and cboe which by the way right at that time was the top of the price of bitcoin. Right. And ever since then you know, it's come down. But I think some of that easy money was leaking into Bitcoin's price in that, in that run up to the peak last December.
- [18:50]
Caitlin Long
And safe. Do you perversely enjoy this kind of market crash, this market narrative, because it is good for bitcoin, you understand the question is because you know everything that's happened in let's say, failing economies. What we've seen in Venezuela and recently mentioned in Palestine and Iran and Turkey, I'm not sure how widespread use is, but the narrative is, is that bitcoin is a lifeline. So do you perversely enjoy this?
- [19:13]
Safedin Amus
I have to say no, I don't. I'm not one of the people who, you know, we call them doom porn. People who just fantasize about, you know, economic collapse and how it's going to vindicate them. I don't think of it in that way. But also, you know, we have never seen bitcoin under a financial crisis. We've seen maybe, probably there is, there's definitely truth to the fact that its usage is increasing in Venezuela and Argentina, say, compared to countries where it. Compared to countries similar to them, where they wouldn't be experiencing those problems. However, we have no idea what a rich modern country going through a financial crisis would be like. In fact, there's a lot to suggest that bitcoin would likely crash during something like this. Because when these financial crises happen, what you get is a, what you get is a flight to liquidity. People can't afford to hold money that is in high return, high risk assets, which is what they do during the bubble when the interest rates are low. So now people are speculating, people take risks and so they put money in all sorts of crazy things, including things like Bitcoin and other digital currencies and so on. You can afford to do that when credit is easy because you know, you can borrow on your credit card at low interest rate, your house is at low interest rate and you're getting paid and you have a job. Now if there's a recession, interest rates might rise, so it's harder for you to borrow. And then you might lose your job or your pay is reduced, or your income is reduced. All of that leaves less of a margin for speculating on high risk things. And so people will liquidate things like bitcoin. But like we saw in 2007 and 2008, people liquidated highly risky debt assets and tried to go to dollars and gold in the financial crisis. So I think what's going to be really interesting about the next crisis is whether Bitcoin behaves as a speculative asset where people exit towards safer, more liquid assets like the dollar and gold, or if it's going to behave more like a safe haven asset itself, where people will be exiting other things, particularly, you know, the altcoins and particularly digital assets. You know, people will start exiting that for the relative safety and liquidity of bitcoin, which at the end of the day is at least nobody's liability and is much more secure than any of the other coins. And so, you know, it's more liquid and it's more secure. And so most likely, if there's a big crash in the market, people are going to start taking their money out of the digital currency space. But if they're going to keep anything, they're going to likely keep it in bitcoin. So the question now is whether we're going to be seeing a bigger flight out of bitcoin than a bigger flight into bitcoin. And I don't think it's settled one way or the other. And I think we might end up seeing bitcoin crashing very, very severely. It might drop below 100 bucks or something like that. It's not entirely out of the question. I'm not one of the people who thinks, you know, bitcoin can only go up. It could definitely crash, and we have no idea how it will behave in a recession.
- [22:22]
Marty Bent
Can I add something? Because I think maybe we actually found a couple of things we might, might slightly disagree on here, but very slightly. I actually think that the price aspect of bitcoin is the least interesting aspect of it right now because, you know, it's really, really being driven by speculators. But your point about it potentially dropping to 100, I do agree with that, but with a subtle change, which is that everything's going to drop in dollar terms or in fiat terms when we hit that balance sheet wall. The name of the game, I've always thought, is not your absolute return performance in your own wealth compounding, it's whether what you own falls less in value than your personal inflation rate. That's the real concept. To me, the absolute price of bitcoin versus the dollar is kind of irrelevant as long as bitcoin retains its store of value there. We would vehemently agree as long as bitcoin retains its store of value better than other assets. And it's one of many assets that I think will retain its store of value in that scenario. Better than other financial assets.
- [23:31]
Safedin Amus
Exactly. No, I mean, I think, yes, it's going to be hard to disagree on this because I think it might take a while and it might be another few financial crises for this to happen. But I think in the long run, what's going to make bitcoin continue to gain more of a monetary role is just that it's going to prove itself on the test of the market of this Cycle of crises back and speculative bubbles. In other words, as you were saying, dollars would leak into bitcoin because dollars are easy and money is being printed and people have low interest rate. But the difference is that, you know, with every other asset out there, once money leaks into it and dollars leak into it and people start speculating on it and the price rises, it's possible for the producers of that asset to make more of it. It's true for housing, it's true for stocks, it's true for any kind of asset, any metal. Or gold, sorry, oil. Well, gold is the one that resists this the most. And that's why it was money, because it's the hardest to make. But bitcoin is even hardest, is even harder than gold to make. And so even if we do witness a massive crash down to 100 bucks with this crisis, I do expect it to, you know, because of the fact that nobody can make more of it. You know, the recognition of bitcoin, the people who have heard about bitcoin are likely to just put it back on the map and then more and more people will buy it and then we're going to witness more and more of a rise in the price and that I think that resilience is going to illustrate to people how it is different from other kinds of monetary assets, that it could survive many, many crashes and still nobody can increase the supply. And so the scarcity of it continues to prove itself on the market.
- [25:12]
Caitlin Long
So it's almost important for people to have a diverse set of investments for whatever scenario may play out. Gold own your house. Bitcoin, obviously a whole bag of shitcoins, right? Safe.
- [25:25]
Safedin Amus
Of course, yes.
- [25:26]
Marty Bent
Well, we don't know, right? I think nobody really, really knows. And we don't know what the timing is. We don't know what the path is. There's an interesting book, Safe, and I talked about the first time we actually spoke to each other, which is called a book called When Money Dies by Peter Warburton, I believe, and he's a historian, not an economist, and he wrote the history of the German hyperinflation. And to me the most interesting lessons coming out of that currency collapse, how many head fakes there were as the currency was collapsing. We tend to look at hyperinflation graphs and the Venezuelan graph is now even more extreme than, than the German hyperinflation because the inflation's been higher in Venezuela. But in order to see them, you look at them on a log basis and what the log graphs obfuscate is just how Many head fakes there were where people were actually thinking that they were out of it because things had actually reversed and the currency appreciated. And really importantly, towards the end, you were seeing 20, 30% intraday moves in the currency value against the French franc and also in the German stock market. Think about that 20, 30% intraday moves now. The businesses were not fluctuating in value 20 or 30% in one day. It was the currency collapsing that was happening. But you really. That's a wonderful book for anyone who's interested in learning about what happens because the path to currency collapse is not a straight one. And the markets have a way of really kind of throwing curve balls at you, thinking that we're finally over, we finally hit the bottom and there's still unfortunately a lot more to come.
- [27:10]
Caitlin Long
And do you think a currency collapse is inevitable with the dollar?
- [27:13]
Marty Bent
Oh, I do. It's just a question of when. And again, it could be 20, 30 years from now because we still in the US have balance sheet left over. I don't think this dollar, we're really on a eurodollar standard is what we are right now globally. And I don't think that that's going to end anytime soon. But there's a lot of evidence that it's fraying at the edges for sure.
- [27:36]
Peter McCormack
But you've also said before that you.
- [27:38]
Caitlin Long
Think the Euro has less based on its balance sheet. Right.
- [27:43]
Marty Bent
When I say eurodollar, that's a financial market term that has nothing to do with the euro currency. The euro dollar standard basically means dollars issued outside of the United States. Basically, the dollar is the world's reserve currency. And all dollar trade has to settle through the Fed ultimately. But foreign banks who have the ability to settle through the Fed actually can issue dollars. And in fact, during the financial crisis we saw an awful lot of offshore dollars issued. That's what a Eurodollar is. It's basically offshore dollars issued through foreign banks in the financial system, all of which still settle through the Fed. But it's not just US Banks that create that, that dollar based credit. Foreign banks can do it too.
- [28:26]
Caitlin Long
I thought you said with Marty Bent though that you think Europe has less capacity on its balance sheet.
- [28:31]
Marty Bent
Yes, sorry, I didn't answer that specific question. Europe does. When I've done that math, there's a lot less. And by the way, you can see it in the evidence if you buy my theory that when interest rates are essentially at zero, the balance sheet is basically done. And if you happen to go to negative interest rates, it means that you're pretty close to that confidence of crisis of confidence moment. Look at Europe. Germany and the Netherlands and Belgium are carrying the rest of Europe right now. And there's a reason why you've got essentially zero interest rates in Europe. And it suggests that it's closer for the, for, you know, for the last three or four years, the 10 year treasury bond in the US has traded at much higher interest rates than the 10 year treasury bond in Spain or Italy. Does that make economic sense on the face of it? No, of course not, because we know that Italy and Spain have. If they weren't carried by northern Europe, they probably would have defaulted already.
- [29:30]
Caitlin Long
Do you group UK in with Europe there or is the UK separate, having kept its own currency and we're facing a Brexit. Are we a different case?
- [29:38]
Marty Bent
Yeah, the UK is a different case. And actually one of the things that I was hoping that the Brexit team would pursue when they were talking about, you know, when the bank of England a couple of years ago was very forward thinking in digital currencies, one of the things I was hoping that they would pursue was some sort of a bitcoin standard because that would have, in my opinion, solidified London as a global financial center. It does not appear that they're going to be pursuing that. It appears that that's all been put on the back burner. And I'm not surprised given that that the head of the bank of England is a classic Keynesian.
- [30:17]
Caitlin Long
Okay, well listen, one other thing I heard you talk about and you've talked about you would like Trump to deregulate the banking industry. What would the implication of that be and would that help the current situation?
- [30:27]
Marty Bent
Well, what I was specifically referring to in the interview with Marty Bent is the Anti Money Laundering and Bank Secrecy act rules. There are actually the Trump administration has deregulated a lot, except in the financial services industry. He's actually gone the other way. We've actually had significantly increased standards on Bank Secrecy act and anti money laundering. I think the Bank Secrecy act is unconstitutional, but it just hasn't been challenged yet. And specifically I wrote a piece from Forbes.com about the constitutionality of the Bank Secrecy act in the context of the Carpenter Supreme Court decision that came out regarding cell phone data that said, no, we do have a privacy interest in our cell phone data. The government just can't willy nilly collect that data. Well, actually the original cases that it was citing were cases from the 1970s pertaining to the Bank Secrecy act where all they were doing was collecting the name. I Think it was literally just the name of the account holder. Well, since the 70s, when the bank Secrecy act was deemed constitutional, now we actually have to have every piece of information about the account holder. We have to know the source of the account holder's money. We have to know the customer of the customers of the account holder. We have to know the beneficial owner of every asset that is owned in a legal entity instead of by a person. So we've gone so far. And the irony is that the conviction rate on the Bank Secrecy Act, I think there were some incredible statistics. I don't remember. It was something like 26 million. Bank Secrecy act suspicious activity reports are filed every year, and the conviction rate is.026% or something like that. I may not be remembering those numbers correctly. It's in the Forbes article. But think about the cost to the entire financial industry for having to collect all that information. Think about the privacy rights that are being impeded by that law, and then look at the cost benefit relative to the conviction rate. And I, unfortunately, was just made aware yesterday that Senator Grassley and Senator Feinstein, two people who are warring very publicly in the United States with each other right now, have joined together to propose a bill that would make all of the cryptocurrency industry subject to these same laws. So, you know, again, it's unfortunate, I suspect, that the Trump administration is going to sign that bill if that bill becomes law. But this is the sort of thing that is really putting the United States backwards and harming business across the board. I could not be a bigger critic of the Bank Secrecy Act. I also threw in one of my other interviews. I actually think it's discriminatory against women, and I'll tell you why. Because women tend to change their last names when they get married. And I just. My hairdresser literally had an account open under her maiden name for 30 years. And because of the new bank regulations, they don't recognize because the checks are all made to her in her married name, they don't recognize that she is the legitimate owner of that bank account. So she now has to have, you know, checks bouncing and deal with all the bureaucracy and the mess all simply caused by this crazy law that has gone way overboard. And frankly, as a woman who has changed her name, I really do think the Bank Secrecy act is disproportionately borne by women.
- [34:02]
Caitlin Long
It's funny when you say that, because it also makes me think how ridiculous the drugs war is. The prison system is. I interviewed Ross Ulbricht's mum, Lyn and did a lot of research on the prison system and nonviolent criminals being held in prison. It seems to be that there are an awful lot of laws which are pointless.
- [34:19]
Marty Bent
Well, it's the inexorable march to build up government power. And the saddest thing is so many people who buy into the fear mongering that this needs to be done. How many of us gave up our rights? We just obviously passed the anniversary of 911 again. And I was working on Wall Street, I used to work at 7 World Trade Center. That wasn't there that day but boy, that was the event in my life that has changed it more than anything. Precisely because of all of the privacy that we've had to give up and people willingly give it up out of fear and for what? A lot of people don't really think things through and they've been manipulated and it's very sad.
- [35:05]
Caitlin Long
So how important is privacy for you safety? Because you do talk about occasionally, but it's not like something this big for you. I don't see it come through a lot in your work.
- [35:13]
Safedin Amus
No, I have to say I'm not particularly concerned about Bitcoin's privacy and the privacy of bitcoin transactions because the way that I see it, blockchain structure, the way that it functions, the only way the Bitcoin functions is through everybody keeping track of everybody else's balances. And so, you know, the only way that I can verify that you paying me is not fraudulent, you're not double spending, is that I know all the balances of everybody. So you know, that's a terrible starting point for privacy because you already have all these addresses and then you know, there's never going to be a simple technical solution for this issue. This is what I like to keep emphasizing, that privacy is not some magic software upgrade that we are going to add to Bitcoin that's going to make it magical. It's just like privacy on the Internet or any kind of adversarial scenario where one person is trying to uncover who you are and you're trying to hide your tracks or the other way around, it's always going to be adversarial and it depends on how well you hide your tracks and how well they look, what tools they have. So number one, there's no panacea, there's no simple solution that's going to just make us have privacy as a default. It's always going to be very, very hard to stay private on something like Bitcoin because of the fact that it relies on transparency in all nodes and then linking identities to addresses is just always going to be complicated. But primarily, I think the real reason I care about it is that I think privacy is going to be a much easier thing to implement on second layer solutions on Bitcoin. Eventually once these become more and more useful, they'll be far more used and then it's much easier to implement second layer solutions. And I think the important thing, as a person who doesn't like the idea of government spying on people, for me, the way we solve that is not going to be through scaling blockchain transactions on chain so that everybody can make their own private dark market transaction without the government tracking them. I think we just. The only reliable way of solving it is just defunding government by breaking their money printer and then just making it so that whatever stupid bullshit they want to do, they need to raise taxes for it beforehand. So if they want to start spying on people, they can't just print money, spy on people, and then use the money they print to tell people that that's a good thing and then, and continue to just keep this system operating. The way to fight that is to defund governments that do this under the gold standard. Governments didn't do any of this stupid stuff. There was no war on drugs. There was no intelligence agencies going around. There weren't all these bureaucracies obsessed with what every single person was doing. You could buy whatever you wanted and you could. There was far more economic and personal freedom back then simply because if you were the kind of government that would waste the hard money that you have on these kind of counterproductive and destructive things to your citizens, you just didn't do well, you didn't survive and you lost your money and you went broke and you were likely taken over by other governments. So I think this is really the long run solution that I see from it. And that's why I'm not too keen or optimistic or even concerned with all these coins that pretend that, you know, they can add privacy as a default solution to their coins. I don't see that as a, as a fruitful avenue. I think it's just going to. We're just going to have to kill Leviathan, then we can have our privacy.
- [38:48]
Caitlin Long
Well, I'm actually going to be jumping around here a bit because a question I had for you later on, it's something I put on Twitter earlier, is that I wondered whether privacy might be potentially dangerous for Bitcoin in that the defense against fractional reserve bitcoins is the open ledger. But if the ledger was private, the only way you would find out if fractional reserve Bitcoin was being used would be a run on the bank itself. So I wondered if, I don't know if I'm getting lost here and I understand it right, but it feels like to me, therefore, privacy on the ledger is actually dangerous for Bitcoin.
- [39:20]
Safedin Amus
Precisely. This is the problem the zcash and Monero have specifically, which is that in order to do their privacy technology, you never really know what's going on with the supply. It might be possible for somebody to break the supply and increase the supply. It's not entirely clear with Bitcoin because of the transparency, that's far harder to accomplish. And so I care much more about the supply than I care about individual privacy. Because the way that I see it is that Bitcoin transactions are just going to be far too expensive over time. I mean, on chain transactions are just going to continue to become more and more expensive over time because block space is scarce. And I think the demand for hard money is very high. So the increasing demand for hard money as opposed to increasing demand for on chain transactions is going to naturally lead to scaling of Bitcoin happening on second layer solutions. Because people, you know, people don't need hard money, sorry, they don't need trustless digital cash transactions as much as they need hard money as a saving. And so I think the demand for that will be much higher. So people will prefer second layer trusted Bitcoin to first layer or second layer trusted shitcoin and government shitcoin as well. And so this is why I think, you know, that's how I see Bitcoin scaling primarily.
- [40:48]
Caitlin Long
Would you therefore be against any proposal to add privacy to Bitcoin?
- [40:53]
Safedin Amus
I mean, you know, it's, I wouldn't, I don't know, I wouldn't dismiss that because I need to look at what it says and what the proposal says in general. But you know, there are no. Technology is not, there are trade offs, there are no such, there's no magic button to press where we just add privacy. So the way that Monero and Zeek Cash do it is transactions become much bigger in size and so it's much harder to scale and you compromise on your certainty with the supply. So obviously in the case of introducing things like that to Bitcoin, that would not be worth it, but potentially there will be additions to happen there. But I think things like lightning make privacy much simpler to implement.
- [41:35]
Marty Bent
Right. And if the privacy is implemented at that level Then we don't compromise the transparency regarding supply. The challenge is that we have a lot of people doing things on a second layer already, right? The custodial exchanges, the coinbases of the world, the Bittrexes, the Bitmexes and Krakens, they're all pulling coins into what they've built as a web 2.0 basic second layer. And we have zero transparency into those. Zero. So we lose the certainty regarding supply. For all we know, there could be fractional reserve Bitcoin happening already, even before Wall street comes in. And in fact, actually, I would point to one specific example, which is the OKEx futures loss. There was a $400 million futures default in OKEx about a little over a month ago. OKEx just bailed in all their other customers who by definition had the $400 million gain, except the person with the loss defaulted. And so they basically bailed in all the other customers and made them give up the gain just to keep the exchange alive. That $400 million loss was a fractional reserve Bitcoin that was off the main base layer. You wouldn't have been able to detect that because these custodial exchanges are doing. They're a custodial exchange. They're keeping the bitcoins off the chain and only reporting to the chain what they want to. And we have zero visibility into street comes in. That's going to be compounded massively in scale. It's going to be the same issue, though. So that's why lightning network is so important, because you know that we're not changing the supply. If the second layer solution that you're.
- [43:18]
Caitlin Long
Transacting on is lightning and Wall street is coming. I've got a quote of yours here, Caitlin. Preventing the problems is easy, but preventing them will require a sea change to how Wall street does business.
- [43:29]
Marty Bent
Yeah, and they're not going to change how they do business. So I know intimately how they do business. And they create fractional reserve interest in financial securities. That's an integral part of their business. And they're going to do the same with Bitcoin. That's going to happen. There's probably not much we can do to stop it. But at the end of the day, if you own your own Bitcoins by owning your own private keys, you're going to be fine.
- [43:57]
Caitlin Long
Back to what Andreas always says, own your private keys.
- [44:01]
Peter McCormack
Next up, I talked to Caitlin and Safedine about the implications of Wall street adopting Bitcoin and the potential for a fractional reserve Bitcoin. But before I do, I Have a message from my show sponsors.
- [44:10]
Caitlin Long
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- [45:13]
Peter McCormack
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- [46:09]
Caitlin Long
Have to go down to the post.
- [46:10]
Peter McCormack
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- [46:33]
Caitlin Long
Let's talk about, about this a bit because before I'd never heard the term fiat two years ago and now I know fiat and now I know libertarianism and Austrian economics and all these new things I've read in Safe's book and other people's things. The two new terms I've had to come to, terms have had to come to understand is rehypothecation and commingling. And I still don't fully understand it. Can we, can we tackle each individually? Can we, can you please explain what rehypothecation is so I can explain to my 8 year old daughter when I.
- [47:00]
Peter McCormack
Collect her from school it's three card Monty.
- [47:03]
Marty Bent
If you've ever played three card Monty or a shell game with her, that's the way she would understand it. That you tell her that there's one ball but magically that you slip a second ball under the other shell and magically there are two balls. And so two people think they actually own it, but in fact there was really only supposed to be one. That's the easiest way to understand what rehypothecation does. The mechanics of how that happens are very subtle. And in fact, actually a group of five of us submitted a letter to the SEC commenting on Bitcoin ETFs and other fund products like Citigroups, doing a depository receipt, et cetera, et cetera, and basically cautioning that you Bitcoin is a really different animal and applying traditional clearing and settlement and regulatory rules to it are going to create some very interesting things. There are a couple of Bitcoin core developers who signed onto that letter and I put a very, what I hope is a very clear explanation of what happens in rehypothecation, why you end up with multiple parties believing legitimately that they own the same asset and it shows up on their brokerage statement as them owning the same asset. So they wouldn't have any reason or their auditors would not have any red flag to believe that the system has created more paper claims to assets than there are assets. But that's standard operating procedure. On Wall street. And it's coming to Bitcoin, unfortunately.
- [48:35]
Caitlin Long
Right. How is it solved then? How would you solve it, Caitlin?
- [48:39]
Marty Bent
Well, I think first of all, I said very emphatically that no taxpayer backed or Federal Reserve backed financial institutions should be leveraging Bitcoin. There is no lender of last resort. There's nobody who's going to bail them out. And if you choose to buy your Bitcoin that way, buyer beware. Because if there's a Bitcoin etf, physical Bitcoin etf, and there's a run on that fund, everybody's trying to get out the door. At the same time, you're going to see a massive divergence in the value of that fund relative to the underlying bitcoin. It could be staggering in size. And then if you have a leveraged financial institution who's got exposure to that, ouch. And taxpayers could be on the hook. It's just inappropriate for any leveraged financial institution to be playing in a leveraged version of any crypto asset that has scarcity in supply.
- [49:38]
Safedin Amus
Yeah. And I would say that's basically how it's going to be stopped. I think. I don't think it's going to get as big as Caitlin probably seems to suggest because I think it will probably die much earlier because I don't think it's just sustainable. And so if you remember, in my last research bulletin, I wrote for about 20 pages my interpretation for why I don't think fractional reserve banking would work on bitcoin. So I think it would be tried. But I think, well, first, to begin with, fractional reserve banking and rehypothecation are practically different ways of saying the same thing in financial terms. So in other words, you have obligations for things, you owe people things, but you don't have enough to meet your obligations for everybody at the same time if they all ask for them at the same time, but if they don't ask for them at the same time, you can coast along. I think with Bitcoin it's not going to be possible to, to pull off something like this for a very long time because the value of bitcoin is extremely volatile and so changes in it will make people's positions become extremely risky. And it's going to be primarily, I think it's a very long analysis and there are many factors that go into it. But the way that I see it is the reason that it won't survive on bitcoin for long is because of the absence of a lender of last resort. In other words, when we had fractional reserve banking with the gold standard, it was not stable. It kept on creating crises, and it led to having to abandon the gold standard by, first of all, implementing a central bank and then secondly getting rid of the gold standard and gold redeemability in order to keep the central bank able to support banks that were engaging in fractional reserve banking. So you can't really have a hard money and fractional reserve banking because the bank is effectively creating new money when it creates new debt obligations. And there might come a point where it would need that money. And the only way that you could keep that bank from going insolvent is if you have a lender of last resort that is able to increase the money supply and give it to them. So that didn't work with gold, although it did work with gold in a way because gold clearance was more centralized. And so, as I discussed in my newsletter, I think because the fact that transporting gold and moving it around is very expensive, it leads to the economies of scale of the process mean that the person who does the clearance or the banks who handle it just become extremely valuable. And so they are able to abuse that value because the consumers don't really have many other choices. But I think with Bitcoin, it's very different. There's no lender of last resort, and it's much harder for a lender of last resort to come and do what they did with gold, because the only reason that works with gold primarily is the fact that gold was massively confiscated, and that's because it was centralized. So I think it's the decentralized nature of bitcoin that's going to really protect it from something like this. In other words, if a bunch of banks using Bitcoin start doing something similar to fractional reserve banking, you know, we've already seen that happen. That's effectively what Mount Gox did. And the result was that the price crashed. The price came crashing down after the Mount Gox crash. Actually, it's not the price, it's the Mount Gox that crashed. That's the important thing about it. But I think we'll see things like that. I'll see them collapse. And if a Wall street bank is going to try it, I think it's going to get ugly. I mean, in particular, if an institution protected by the central bank wants to engage in something like this and then they're left exposed, the central bank is going to be in a very serious dilemma, because if you let it fail, it fails. And it might have systemic problems. But if you want to bail it out with bitcoins, well, you know. How does your bitcoin printing operation work? Obviously not very well. You can't really just print bitcoins on demand. You can print dollars and buy bitcoin, but you are then going to be buying essentially just adding dynamite to the fire of bitcoin, which already would be. Bitcoin would already have. If we had a fractional reserve banking collapse, then you had something like a liquidity flight towards bitcoin where people were dumping assets backed by bitcoin to get to bitcoin. So you would expect bitcoin's price to be rising. And at that time, for the central bank to step in and try and buy more bitcoin to meet those obligations is likely going to lead to the price appreciating a lot. So I think nobody's going to listen to my warnings. But it's going to get ugly if they try.
- [54:31]
Marty Bent
No, we do, we totally agree on this one. It is going to get ugly. But I think the question is how quickly it can go on for a while. And as you were just saying this, actually I was thinking one of the ways that the Fed and other central banks could get involved is if they actually allocated a portion of their reserves to Bitcoin in the first place. Because then they could basically do what they're doing with government bonds right now, which is set up a repo facility and repo that back out into the market so that the banks could actually get access to the bitcoin to deliver into their short obligations, which is exactly what they've done with government bonds. It used to be that reserve of central banks was exclusively gold. And then in the last 30, 40 years, increasingly everybody's just gone out and bought government bonds of their own. Government or other governments. We all know through the IMF analysis that the central banks, that the system is net short government bonds, right? There are more people who believe they own government bonds and whose brokerage statements show they own government bonds than there are government bonds. And the way the central banks can play that three card Monty game is that they actually are the biggest owner of government bonds and they'll just lend them out when markets get tight. So one of the ironies, as I was just thinking through what you were saying, is if you did actually have central banks come in and start buying bitcoin as a reserve asset, then they would have the ability to basically be a lender of last resort. But right now they don't have those and they Certainly can't print anymore, just like they can't print any more government bonds. The central banks are not the ones who create government bonds. I can't remember who it was who said that's the fly in the ointment of how the shadow banking system is working and the fact that we've basically moved away in the last 30 years from banks, traditional banks creating credit, to now the securities market creating credit. Instead of base money being the base money of the system, it's actually now government bonds. But the problem is central banks can't print more government bonds. They can only print more money. That's one of the reasons why I think they've gone out and bought a bunch of government bonds. And frankly, they could over time do the same with Bitcoin if they felt like they needed to.
- [56:48]
Safedin Amus
The difference is that government bonds settle in the money that central banks sprint. Bitcoin doesn't settle in anything. Bitcoin is settlement itself. So the tricky part about them buying reserves is that they allow banks to use to do fractional reserve banking and they have a hoard of Bitcoin, then they're just asking for trouble. Basically, that's like a honeypot for financial. For hedge funds and vulture capitalists to come and attack them effectively. Because once the banks start overleveraging their Bitcoin reserves, they are in a precarious position where it is possible for me to go and put in a big deposit in that bank and then wait for them to start lending it out and then go and ask for it. Now they can't give it to me because they're illiquid. And so then that if the bank didn't have a lender of last resort, I could put the bank out of business and I could speculate on it by shorting the stock of the bank before making that deposit. And I think this is. I discussed this scenario in the newsletter as well. This is how I see vigilante hedge funds destroying fractional reserve banking on Bitcoin. It's going to be a massive opportunity for people to make money from it. So now imagine if a central bank is going to want to back that up with Bitcoin. It's going to be an even bigger opportunity to profit off of the collapse of the bank and off of the collapse of the central bank effectively. Or at least it's running out of its Bitcoins because you can just keep milking them at a discount by redeeming the fractionally reserved assets issued by the banks backing up the bank so effectively if they want to use, if they want to buy Bitcoin to run a fraction, to back up a fractional reserve banking system, they're effectively going short on bitcoin. They have bigger obligations on Bitcoin than they have bitcoins. And good luck with that one.
- [58:53]
Marty Bent
Yeah, we agree on that. But they're going to try.
- [58:57]
Safedin Amus
Yeah, exactly.
- [58:58]
Caitlin Long
One of the things I found quite scary in doing my research for this, and I think you both talk about it, and it's something I wasn't truly aware of, was the shadow banking system I think is within your bulletin safe. You highlight that it was the shadow banking system that caused the 2008 collapse. What is going on here? Right, because it seems to me like this seems to be almost like the wild west of money printing.
- [59:22]
Safedin Amus
Yeah, I mean historically, I guess. Here's how to think about it. Banks were engaged in fractional reserve banking and that under the gold standard continued to collapse and make problems. So then they had to abandon the gold standard. And in order to have the central bank as a lender of last resort, to allow banks to do fractional reserve banking, the central bank had to institute pretty strict restrictions on banks in terms of how they lend and what they lend and whether they can create credit. And so banking, narrow banking, deposit banking has been pretty much neutered in terms of its ability to create money. It does create money, of course, but it's well under the control of the central bank, at least in the more advanced economies. It's usually under the control of the central banks. But then what happened after the 1970s and 80s and 90s is the shift towards the investment divisions of banks or the financial institutions that are not banks. What is called the shadow banks or not the deposit taking institutions that are guaranteed by the FDIC in the US or their equivalent worldwide. These institutions started engaging effectively in fractional reserve banking or maturity transformation or rehypothecation. So they were creating money, they were increasing the money supply. And over time narrow banking, deposit banking just became a boring service. That it's, it doesn't make anybody any money. Banks run it as a small part of their operations, but the real profit is in shuffling around hocus pocus financial obligations in the shadow banking system. And essentially what it is is you just keep working your financial magic over all of that thing and everybody keeps buying it from everybody else. We keep all pretending that it has value. And then suddenly if we all market to the value that we all pay for each other, we can meme that value into existence. And that's Essentially how this industry has worked for many years. It's effectively. We talk a lot about government inflation, but this is similar to it. In the same way that government can finance its operations, the banking sector can finance itself through the creation of money in the shadow bank banking system. But the crazy thing about it is there's no lender of last resort. There's no official central bank behind the shadow financial system telling these people, you know, you can create this much money and if you fall in a crisis, then we can bail you out. These terms, that's what the FDIC does for the banks and that's how banks are kept relatively safe and stable and money creation doesn't go out of hand. But in the shadow banking system, the thing is so enormous, it's so huge exchange, nobody has any sort of grasp on how big it is, except Caitlin, of course. But pretty much the money creation is just going on all the time. And 2008 was the first crisis and in order to stop it from destroying the dollar and everything, the central bank had to intervene as a lender of last resort with these financial institutions acting towards them like they would act towards regular balance.
- [62:35]
Caitlin Long
Do you want to add to that, Caitlin?
- [62:36]
Marty Bent
No, that's absolutely right, yeah. And I think when Saif and I first spoke, I was encouraging him as an academic to take on the old Mystery of Banking book from Rothbard, which is an amazing book, but it is a period piece. It's outdated at this point. I think Rothbard wrote it in 72, something like that, and it described how credit was created and fractional reserve banking worked in the system back then, but it doesn't work that way anymore and unfortunately Rothbard's gone. I think if Rothbard were alive today, he would have updated the scholarship to reflect the fact that the credit creation mechanisms have broadened out so much. And the traditional, you know, tracking M0 to see how many times it's multiplied into M2 is really not that relevant anymore because most of the credit, to Safe's point, is not created in the traditional banking system anymore.
- [63:36]
Caitlin Long
This is a problem that is being created by experts like you is I cannot keep up with the number of books that I have recommended. I've got two here. I've got my debt first 5,000 years. I've got sovereign individual. I still haven't finished Bitcoin standard. I think you need to ease up a little bit on the book recommendations because it's not going to be good for the trees. Okay, so Saif, look, I read your bulletin, by the way. Which.
- [63:58]
Safedin Amus
Which is.
- [63:58]
Caitlin Long
I'll just say it's fucking incredible. I signed up and I was expecting an email, maybe like 20 paragraphs. And I ended up spending half a day reading it and kind of digesting it. And I've been through it twice now. I think everyone should sign up to it. I think it's excellent. One of the things that grabbed me in there was trying to envisage how the revolution happens. And you talk about the benefit of countries such as China, Iran, Russia being able to bypass sanctions and use bitcoin to trade, trade with each other, but at the same time that would devalue their own currency. Have I interpreted that correctly?
- [64:33]
Safedin Amus
Well, sort of, yes. But I guess the bigger point goes back to what I was referring to earlier in terms of central banks and Treasuries. I think in my bulletin I also discussed the idea about whether it would make sense for central banks to buy Bitcoin. And the more I think about it, the more that I lean towards it not being really likely. I think it's not very likely that they would do it. And primarily it's that central banks are fully staffed with people that don't understand the value proposition of Bitcoin. And secondly, even if they did, they realize that essentially it's a threat to them. And so you can't really expect them to embrace it. And even the central banks that make a lot of noise about that, rejecting US hegemony and so on, you know, the us, the Chinese or the Russians might talk about how much they hate having to live in a world that is unfair because it's all based on the dollar and the US Gets to print the dollar. They might hate the dollar, but they hate. But they like having their own government shitcoin much more than they hate the dollar. And so the problem is that, you know, it's the same way that they've been making a lot of noise about shifting to gold and they have increased a little bit their reserves to gold, but they won't move towards a system where they clear payments between one another with gold or where they back their currencies with gold, because if they do something like that, that takes away their ability to create inflation. And if there's anything one government, a government wants, loves its inflation, its ability to finance itself with money printing. So they would be cutting off their oxygen supply of being able to print money to finance themselves. And I think that applies to any government. So I don't see it intellectually and in terms of the mental models that these people have, it's very far from registering. And even if it did register, even if they did think about it, it's extremely against their self interest. And so this is why the subtitle to my book is because the Bitcoin standard is the decentralized alternative to central banking. A lot of people have mistaken my book as a call for central banks should buy Bitcoin and use it. And I really don't think that is the case. I discuss it in the book and I leave the option open. I think it might happen and of course it still might happen. But the more that I think about it, the more I lean towards Bitcoin being an alternative to central banks rather than a tool that they can use. So instead of using central banks and their currencies for international clearance now, now we have another option which is Bitcoin which is decentralized, controlled by nobody. And it will function as a system for international clearance that is separate from an alternative to central banks. And I think the old finance and the central banks and the banks and the shadow banking system that is going to try and come towards Bitcoin, they're going to want to assimilate it. They're going to think that we're going to bring it into the traditional financial system. I think they're going to burn their fingers by trying to play that game. And I think the future for bitcoin financial services will likely emerge natively from Bitcoin, likely emerge from people who start from scratch building things around Bitcoin that work on Bitcoin the way that bitcoin works.
- [67:56]
Caitlin Long
So where does the revolution kind of start? Where's the tipping point? Is this a Trojan horse?
- [68:01]
Safedin Amus
In my mind it's already over. We've won, it's over. Just a matter of you adjusting your own frame of reference for it. So it's all in your head, man. It's about thinking about it. But I mean I'm kind of joking but the way that I see it is just that it's going to be different from the way that we view revolution and victory. I think that sort of 20th century terminology needs to go away. It's not going to be an election and it's not going to be some politician who's going to come into office and implement Bitcoin based world. It's going to emerge out of individuals acting. It's going to be something that emerges out of human action, not human design. And so people are just going to start using it more and more. If it continues to succeed, if it continues to not die. And if it continues to maintain its hardness, you would expect that more and more people will use it, more and more systems and financial markets will be built around it. And in fact, you know, I, I've been recently thinking that I'm going to be including this in my next research bulletin. I'm even not so sure that bitcoin necessarily needs to have a very big destructive crash of the traditional economy for it to succeed. Everybody has this sort of idea that the dollar is going to collapse and all those things. I was discussing this with Caitlin the other time. It might all end with a whimper and not a bang, if you think. We generally think about examples like the Weimar collapse or like hyperinflationary collapses. But I think the difference is that in those situations the monetary system collapses and people have nothing to move to. On the other hand, what's happening with Bitcoin is that it's not that the thing that people are using is collapsing and they're left with essentially an unworkable monetary and financial system. It's that they are leaving it behind and moving on to something else. And so when it crashes, it's going to crash after people have deserted it, more or less. So in a sense, I think that maybe the better analogy is to compare it to say when countries dollarize. So if you think about when Ecuador, when their currency crashed, when their currency was collapsing and then they moved to the dollar, yeah, it was nasty while the currency was collapsing. But then once they moved to the dollar, the economy stabilized and then products were back on the shelves and life got back to normal because that's it. Inflation was over. People could calculate, people could make economic decisions and trade. So as more and more people move on to a bitcoin based world, I think the benefits of hard money and the economic boom from having harder money that is going to just benefit everybody around the world who moves into this might make it just like an economic upgrade rather than an economic collapse. And it's not even clear that, you know, debt is going to be such a big problem because everybody owes everybody at this point and everybody's in debt. And so, you know, people just move on to bitcoin. Bitcoin appreciates, they pay off their debts. And you know, it's not like if it's not like anybody is going to be paying off their debts anyway. It can all be arranged easily.
- [71:15]
Marty Bent
When we talked previously, yeah, you made the good point about the British pound sterling losing its reserve currency status without a bang. I mean, obviously it was tied into the war history of Europe which was terrible during that period. But it ended with a whimper when it finally ended, not a bang and the dollar just took over. And that very well that is one scenario that could very well happen. On the revolution though I wanted to add, I think one of the things that will happen and is already happening in a small way is that businesses will start to use Bitcoin for transacting cross border value exchange. And I in May of 2014 started talking to corporate treasurers about Bitcoin. I was invited to speak to a mega cap corporate treasurers market and this is essentially the Fortune 20 and I won't disclose identities but that was one of the most amazing discussions because at that point nobody had been talking about it. And it was. There were a couple of corporate treasurers who dug in and started using it quietly. You won't see corporate America make announcements about it or corporate Europe or corporate Asia. They'll just do it because it's in their economic interest. They have an obligation to find the cheapest way to move money and in small value coming out of countries without really any developed banking system. Bitcoin has actually been that way. Now they're not using it to my knowledge in developed country cross border exchange because Bitcoin can't compete. The bid offer spreads are too wide. But it's going to be happening. I think one of the things safe said earlier that I agree with is Bitcoin is actually a high value payment network. People actually trading the actual on chain base layer Bitcoins that's going to be high value payments, not necessarily buying your cup of coffee which is going to end up in lightning network. But the more liquidity we get, we've consistently held above 5 billion of daily liquidity in dollar terms in the Bitcoin market. That's big enough that cross border payments. It's effectively the way a corporate treasurer is going to think about it. It's just another currency they're going to look at how do I route my payments so that it costs me the least. And not far from now Bitcoin will actually be one of the cheapest if it isn't already.
- [73:43]
Caitlin Long
Do you know the company Wire in San Francisco?
- [73:45]
Marty Bent
Wire?
- [73:46]
Caitlin Long
Yeah. W Y R E. So when I was there recently I met up with Michael Dunworth the CEO and they're using Bitcoin to do six hour bank account to bank account cross border deposits and mainly representing I think like trading companies who have to take money from one jurisdiction to another I think for settlement.
- [74:09]
Marty Bent
Abra has been doing that on a Retail basis as well. But yeah, I mean, I'm not talking about medium sized businesses, I'm Talking about Fortune 20 sized businesses in very small amounts. In one case, the treasurer said he wanted to start doing it in tiny amounts just to be able to show that they'd been doing it for a long time so that when the regulator came asking, he could prove that this is something that wasn't new. I thought that was very smart. That's how very smart corporate treasurers think. They see this and see what's coming. They just might not want to use it right now. And they certainly don't want to have their name associated with it yet. But that doesn't mean they haven't been using it. It's like when Fidelity came out and announced that it had been mining bitcoin, I think. When did they say that? At the consensus conference in the spring of 2016. And the CEO came out and said they've been mining bitcoin for a couple of years. That shocked everybody. You shouldn't be shocked when big companies come out and announce they've already been using bitcoin. They just weren't telling the world about it.
- [75:08]
Safedin Amus
I think it'll come from companies and businesses and individuals and not from governments and central banks. And I think time will show how this is going to emerge more organically than people expect.
- [75:22]
Caitlin Long
I think I've got other questions I would have liked to have covered, but I think we've come to a nice kind of natural conclusion. I've got a couple of off topic questions for both of you, but just before I do that, do you have any closing thoughts? Anything you're excited about, anything you find interesting that's coming up that we should be thinking about?
- [75:39]
Marty Bent
I'll throw one thing out. We are proposing a narrow bank in Wyoming that would be able. If it passes, it's a bill, it has to go through the legislative process. And if the law passes, it's still going to take six months. So realistically, the earliest that this narrow bank could open is the end of 2019. But it would serve the crypto industry. And because it's a state chartered bank, it's not subject to the same level of scrutiny under the Bank Secrecy Act. And I think it's going to help solve the crypto industry's bank account problem. It is also say, if you'll love this, it's going to have 100% reserve requirement.
- [76:18]
Safedin Amus
Yeah, I was really interested with that. And there was another story of another bank that did that and they weren't allowed to do it. The central bank stopped them from doing it because it's amazing. It's like the reductio ad absurdum of the monetary system where you just have a bank that can make an enormous profit. They would be enormously profitable if they just allowed the common peasant to access the central bank's deposit. And that's it, that's all they'll do. They'll just allow, they'll just arbitrage it away. And that's if you think about it, you know, all the other businesses, how many businesses do you know out there that are, you know, they perform a business? It could be consulting or it could be whatever it is, but it's just a mechanism for them to play that arbitrage game, get low interest rates and pass it on to their customers. You could think so much of modern business and so much of modern work in a modern fiat based economy is just bullshit. It's just make work exercises so that you could get low interest rate credit and then pass it on. And I can't wait for a bitcoin based economy or a hard money economy to happen in my lifetime so that we get a very thorough accounting of what jobs in the world, in the bullshit world in which we grew up, what were the bullshit jobs that won't survive into the future?
- [77:40]
Marty Bent
Well, and then the bank you're alluding to was the Connecticut bank that was just going to pass on the interest on excess reserves, which is right now 1.95%. It's a lot more than anybody could get from a classic bank deposit. They were just going to cut out all the middlemen. And interestingly, the Fed denied the application. And for two years they were going back and forth until finally this lawsuit was, was filed. The Fed doesn't have the right to deny it, but they denied it anyway. So because of that, our Wyoming bank is not really trying to arbitrage the interest on excess reserves. That's not what we're trying to do. We're just trying to create a money warehouse. 100% reserve money warehouse, classic. Like the gold warehouses, you have to pay fees for storage of your money, but you're not going to lose access to it. And the Fed would have to grant the master account under federal law. And we actually, because of the Connecticut situation, have put into the draft bill a requirement from Wyoming's Attorney general to sue the federal government if the Fed doesn't grant the master account within six months of application. So again, none of this is final yet. We've got to go through A legislative process. It may fail, but we're trying to do something really special. And I think it's going to help the industry. It's going to help the state of Wyoming. There are a lot of of industries that are not politically correct, that are very big in Wyoming. Tyler Lindholm likes to say we do coal, cattle, and crypto. Well, pretty much those three industries are not politically correct. And also, I would add, there's a fourth, which is the gun industry. And all of those industries have been targeted by the banking system. They're losing access to their bank accounts. And frankly, this is going to help. This concept isn't going to be crypto specific. It could be for. For the coal industry, where bank of the west just pulled out of banking just one day. They just announced, we're not going to bank coal companies anymore. So a bunch of Wyoming companies lost their bank accounts.
- [79:39]
Safedin Amus
Oh, really? I did not hear about that. Is it because of global warming?
- [79:43]
Marty Bent
Yep, exactly right. And Citi pulled out of banking, the gun industry. Right. So, I mean, this is what's happening to the crypto industry with regard to getting access to bank accounts for basic businesses, you know, for basic expenses like paying your vendors or paying payroll if you got to pay your employees in dollars. Still, this has been a major issue and it ties right into what we're talking about, about not having fractional reserve banking. This is going to be a true money warehouse that is not going to be making loans and it's available for businesses only because it's not going to be FDIC insured. It would be businesses only. And just again, to reiterate, it's not the law yet. We know we have a tough road. We know the banking industry and probably the federal agencies are not going to like this, but Wyoming is the kind of state where we don't shy away from fights like that. And so we're going for it.
- [80:37]
Caitlin Long
It's funny, I've been rejected by five UK banks for a bank account for my crypto business. I don't actually have a bank account right now for it. And I took my first advert for the podcast recently, and I'm part of the let's Talk Bitcoin network. And I had a payment into my account from BTC Media. The next time I logged into my account, I had a form I had to complete with, who is my employer and what do I earn?
- [81:02]
Marty Bent
Right. Yeah, yeah, well. And there was just a bank that lost access in Wyoming, a company, it's a trade association that lost access to their bank Account and the banking industry, it's not necessarily the banks. Again, it's the Bank Secrecy act and all the federal laws that are the issues. But because of the US's reach globally, they've basically put pressure on all of their global partners, which is why you're seeing it happen in the UK as well. It's the same thing. And it's this crazy bank Secrecy Act. It is harming commerce, not just in the crypto industry. But this is why I hope that this industry prepares itself to take on the constitutionality of the Bank Secrecy Act. I think that the constitutional challenge can and will come from this industry. I hope that some of the players of significant means will step up and support whoever actually wants to litigate that. Because it's time to test this and get this, get this heavy weight off the shoulders of commerce. The weaponization of the financial industry is unethical. And I think we're shooting ourselves in the foot in the United States. But again, maybe just to wrap it up, I haven't said this yet. Bitcoin is what makes me so optimistic. You don't see me so pessimistic in saying, oh, the sky's falling and things are going to crash and you should be spending your life thinking about building a bunker. I'm not saying that at all. Because we actually have a way to opt out of this crazy system, and that's bitcoin.
- [82:39]
Caitlin Long
That's a very, very cool way to end it. But I do have a couple of final questions for you both. Firstly, Caitlin, are you a carnivore yet?
- [82:48]
Marty Bent
Yes.
- [82:49]
Caitlin Long
Full carnivore.
- [82:50]
Marty Bent
Full. Yeah. I grew up on Wyoming beef. Yep.
- [82:53]
Caitlin Long
But are you like these guys, nothing but meat?
- [82:56]
Marty Bent
Oh, no. I eat vegetables too, but mostly I'm mostly a paleo diet. Yeah.
- [83:03]
Safedin Amus
Okay. That's a good start, Caitlin, but we need to work on.
- [83:06]
Marty Bent
Oh, no. Oh, I didn't realize. Full carnivore. Okay.
- [83:09]
Caitlin Long
Yeah, yeah. So I was a. I was a vegetarian up to about three weeks ago, and I'm now having ribeye for breakfast. I've been shamed into it by you and Pierre and Bistine, Caitlin. Also, who is going to win the Premier League this year?
- [83:25]
Marty Bent
Liverpool.
- [83:28]
Caitlin Long
How are you feeling about it, Saif? How do you think? Do you think we got it?
- [83:31]
Safedin Amus
I feel really great about it. I've never seen a better Liverpool team in my life. I started watching ever since they stopped winning. I've never seen anything this good. And it's quite an amazing team that Jurgen Klopp has pulled together. It could be Something really, really special, like we could win many trophies. I think it's going to be a team that will be remembered for many, many years from now.
- [83:52]
Caitlin Long
I think we deserve it. Caitlin, if you're ever in London, I'll take you to a Premier League game. And my final question is for you. Safe. I've got a question for you. So when I was in San Francisco, I was at the Museum of Modern Art, and my perspective on art has slightly changed. There was a. I've actually taken a photo. I'm going to send it to you. Was some plastic bottles hanging off some string. But my question for you is, is Rothko good art?
- [84:21]
Safedin Amus
No, it's not. I mean, I'm not an artist and I'm not an art critic. But, you know, I think I have one. I have one simple metric, which is if it can be recreated by somebody in 15 minutes, then, you know, it's not worth paying attention to. If it's easy to do, if it requires no skill, if it requires no time and you have to spin some story about how it represents something or the others, then it's just pretentious bullshit. Build something hard and then try and spin a story about it. But of course, you know, when you build something that's hard to build, you don't need to spin stories about it, you don't need to talk about it. Beautiful art just speaks for itself.
- [84:55]
Caitlin Long
Yes. Rothko is the one area I disagree with you because there's a Rothko room at the Art Museum in London which I've stood in and I've looked at it thinking about you, and I still disagree. So I'm going to disagree with you on Rothko.
- [85:07]
Safedin Amus
This has been absolutely disagreeable.
- [85:11]
Caitlin Long
Well, no, but I want to thank you both because you do so much. Thank you for coming on this and helping me with my podcast. Just can you let everyone know how to stay in touch with you and I will obviously share that out in the show notes.
- [85:22]
Safedin Amus
Well, for me, mainly I'm on Twitter, but I'm also active on several other podcasts all the time. But you can find my website also seifedeen.com or Twitter. My handle is also Seifedeen Seifedin. Just know the spelling of my name and you can pretty much find me on many different places.
- [85:44]
Marty Bent
And same for me aitlinlong on Twitter. Also, I'm pretty active on LinkedIn as well, and my website is Caitlin-Long.com also a contributor on Forbes.com periodically, but I always link everything back to Twitter and LinkedIn as well, as my own website.
- [86:05]
Peter McCormack
Okay. What did you make of that? Did you enjoy enjoy that? Did you enjoy that as much as I did? God, I was so nervous going into recording that. They are both proper heavyweights. The depth of knowledge they have on their subjects is pretty amazing. It's so out of my depth. I was working in advertising a couple of years ago. I didn't know anything about economics or bitcoin, so I was pretty nervous. But I think, I think it went well. I hope you enjoyed it and I would love your feedback. I would love you to tell me what you think. And also if you really enjoyed it, I'd love you to share out so other people can hear it too, because I think it's a really important episode. I also got to say big thank you to both Safedine and Caitlin for coming on. I really do appreciate them giving up their time.
- [86:41]
Caitlin Long
They're both obviously very, very busy.
- [86:43]
Peter McCormack
So thank you to both of you. Okay, so please do support the show very quickly. Become a Patreon if you want to. If you want to help support the show, you can do that on patreon.com whatbitcoindid. You can leave me a review on iTunes. A 5 star one would be super helpful if you think it deserves it. You can follow me on social media. I'm otbitcoindid everywhere. You can check out my website, which is www.whatbitcoindid.com, and you can share this show out with your friends and family. Any support you can give the show, it's hugely appreciated. And lastly, just a big thanks to my engineer, Jason Cameola. If you've got any audio engineering needs, please do get in touch with him. His details are in the show notes. And yeah, big thanks to him for what he does for me every week. Listen, I hope you all have a really great week and I look forward to catching up with you next week. I can. Okay, take care.