← The "What is Money?" Show
The "What is Money?" Show
Why Bitcoin Makes the Federal Reserve Obsolete w/ Anthony Pompliano
01:48:51
What if fiat currency isn't a flawed system — but a pyramid scheme by design? In this conversation, Robert Breedlove sits down with Anthony Pompliano — entrepreneur, investor, founder of Professional Capital Management, and one of the most widely followed voices in Bitcoin and finance — to build the most rigorous first-principles case for Bitcoin from the ground up. Starting with the nature of trade, scarcity, and how money emerges organically in any society, the conversation moves through Ray Dalio's three critiques of Bitcoin and why each one collapses under scrutiny, the discovery of absolute scarcity as a one-time event equivalent to finding zero, how central banking broke the truthfulness of price signals, and why Bitcoin is the most credible monetary policy in human history outcompeting the least trustworthy ones. Skin in the game, path dependence, the difficulty adjustment, the business cycle as a consequence of centrally planned money — it's all here. This conversation ...
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- [00:00]
Jameson Lopp
Ancient Roman architects were required by law to stand beneath their monolithic arches when the scaffolding was removed, often with their families. This deadly disincentive to malperformance worked wonders, as some of the oldest arches constructed in this way are still standing at over 2000 years of age. So what if central bankers were subjected to the devastation they inflict on economies? Should their decision making not work out, perhaps the world would still be on a gold standard and the dire need for bitcoin today would be drastically lessen. Without skin in the game, your interests are inherently conflicted and you suffer from an agency problem anytime you're managing other people's money, and this includes central bankers. And this is why most asset allocators prefer to invest in hedge fund managers that have a substantial amount of their own net worth tied up in their funds, because that is skin in the game. And it's also why central planning always causes moral hazard, because the overlords are not exposed to the depravity they inflict on their people. Fiat currency is a pyramid scheme with central banks at the top who hold the only real money today, which is gold, that generate profits by making loans to successive layers of banks below them, with each layer profiting from the loans it makes to the subsequent layers of banks below them.
- [01:08]
Anthony Pompliano
So the people at the top make the most, the people under them make the second most, the people under them make the third most, etc.
- [01:14]
Jameson Lopp
And the people using the currency at the bottom of the scheme get stuck holding the bag, so to speak.
- [01:18]
Anthony Pompliano
And those are the everyday citizens in
- [01:20]
Jameson Lopp
the bottom 50%, everyone using fiat currency. It's a leverage based business that requires steadily more debt accumulation to remain functional. And it inevitably breaks down when the debt load becomes unserviceable, which I would argue is happening world today.
- [01:43]
Anthony Pompliano
I have found the second person that makes an incredible argument and he happens to be sitting here with me. So thanks so much for coming to New York and doing this.
- [01:52]
Jameson Lopp
Thanks Pomp. Appreciate you having me.
- [01:54]
Anthony Pompliano
Are you ready?
- [01:55]
Jameson Lopp
I'm ready.
- [01:56]
Anthony Pompliano
Now, before we get started and get into your background, there are few people who come in here prepared. There is nobody who has ever come in here with, what do you got? 28 pages of notes. And as I read this, I think I learned more than I've learned in the last six months. So we got a lot to get through. What'd you do before bitcoin?
- [02:19]
Jameson Lopp
So I was an accountant by trade. Actually I have my master's degree in accounting and finance. I spent four years as a certified public Accountant. I then branched out on the entrepreneurial path as a CFO for a number of early stage companies, a few tech companies, and then I actually began investing in crypto personally in 2014, but more heavily in 16. And actually didn't realize what Bitcoin was when I first saw it and was drawn in more so by Ethereum and I the concept of smart contracts. And so I started making heavy investments into the space late 16, early 17. Where my money went, my mind followed. And then as I studied the space more and more closely, I became more and more of a bitcoin maximalist or rationalist.
- [03:05]
Anthony Pompliano
And what was the thing that pulled you in with Ethereum at first? What caught your eye?
- [03:09]
Jameson Lopp
You know, it was the, the light bulb moment was the realization that the entire finance industry is a smart contract with human beings on top of it. And a lot of that stands to be automated, I think, going forward.
- [03:24]
Anthony Pompliano
All right, let's get into kind of this ultimate argument for Bitcoin, because I think the way that you think through the asset, you come at it from a very first principles based thought process. Right. And one of those first ideas is like, what is trade? And how we think of unit of account. So, so maybe let's start there and we can kind of work our way into why Bitcoin actually matters.
- [03:48]
Sponsor/Advertisement Voice
Perfect.
- [03:49]
Jameson Lopp
So, yeah, I think it's easiest to start from the beginning and the realization that everything we say, do or make starts out as an idea. Like literally everything we touch think about is an idea before it's anything. Right. And the purpose of the world economy is to generate and share useful ideas through trade. As we trade, our ideas become better, giving everything we say, do or make more specialized qualities. An easy way to think about this is considering how like, our transportation technologies have gone from wagons to automobiles, to airplanes, things like that. And so in trade, everything is valued at some ratio of everything else. Meaning that, you know, this car might be worth 132 chairs, or this house might be worth 11 cars. And money is the medium that through which we more easily calculate these exchange ratios.
- [04:39]
Anthony Pompliano
It's basically a base unit or a common unit of account that we can always go back into when we go to trade.
- [04:45]
Jameson Lopp
Absolutely. Like a universal measurement system, like the second or the meter or anything else. Right. So like any other tool, the purpose of money is to save us time. And generating time savings itself is the purpose of all tools. So for instance, we can dig more holes per hour using a shovel than we can with our bare hands. And in this sense, money is just a Tool that helps us negotiate and execute trades more quickly. So it's a medium through which economic actors communicate their preferences, which drives human action. And what this means is by choosing to buy a car or sell your house, the economy responds dynamically by producing more cars and less houses, essentially. So contrary to popular misconception, money is not a government creation, which I think most people are under that illusion.
- [05:35]
Anthony Pompliano
Okay, you're going to have to explain that one.
- [05:36]
Jameson Lopp
Absolutely. So the simplest way to think about this is that money arises naturally in any trading society. It is simply the most tradable thing. So as people seek to satisfy their wants through trade, they steadily seek to trade their things for more tradable things to get closer to the thing they ultimately want.
- [05:57]
Anthony Pompliano
Right.
- [05:58]
Jameson Lopp
So as this dynamic unfolds, something necessarily becomes most tradable or more tradable than everything else, whether it's salt, cattle or gold. And this most exchangeable thing is money. As societies advance, historically they coalesced around precious metals as money due to their superior monetary traits of durability, divisibility, portability, recognizability, and most importantly, scarcity. So gold, which is the most scarce monetary metal, came to dominate the world as its supply is the most inflation resistant or inelastic. Governments co opted gold and over time they built a pyramid scheme on top of gold called fiat currency.
- [06:41]
Anthony Pompliano
All right, so let's stop for a second here where when you talk about these five superior monetary traits, durability, divisibility, portability, recognizability and scarcity. Just give us a quick one second on each one of those. What do those actually mean?
- [06:56]
Jameson Lopp
Absolutely. So durability means it persists across time, so you know, it won't physically deteriorate. Which metal is really good at? Divisibility means it can be broken down and recombined into various amounts, so you can easily calculate and trade things. Also which gold is good at in the form of coins. Portability means it can be transported across space. So you're moving value across space. Recognizability means it can be assayed or verified by someone that's trading. So you can actually tell that it's actually gold or cash. And then scarcity is just limited supply, which makes value. Yes. So scarcity is of primary importance because anyone that can compromise that supply will do so to steal the value stored therein, which we do with fiat currency today for sure.
- [07:42]
Anthony Pompliano
And so when you say that gold was co opted by governments, what does that mean?
- [07:47]
Jameson Lopp
So when I say it's co opted and I call Fiat currency. A pyramid scheme. It'll help to define a pyramid scheme. So a pyramid scheme is essentially a business structure in which those in higher tiers steal value from those in lower tiers. So fiat currency is a pyramid scheme with central banks at the top who hold the only real money today, which is gold, that generate profits by making loans to successive layers of banks below them, with each layer profiting from the loans it makes to the subsequent layers of banks below them.
- [08:19]
Anthony Pompliano
So the people at the top make the most, the people under them make the second most, the people under them make the third most, etc.
- [08:24]
Jameson Lopp
And the people using the currency at the bottom of the scheme get stuck holding the bag, so to speak.
- [08:29]
Anthony Pompliano
And those are the everyday citizens in the bottom 50%.
- [08:32]
Jameson Lopp
Everyone using fiat currency. Exactly. Yeah. So it's a leverage based business that requires steadily more debt accumulation to remain functional over time, and it inevitably breaks down when the debt load becomes unserviceable, which I would argue is happening in the world today. So when governments commandeered the market for money, it became unfree or centrally planned. So we moved away from a free market, which we call capitalism, to a centrally planned market, which is something more akin to socialism. So in this sense, free markets are natural organizing principles that encourage us to find better ways of doing things by making bets with one another, so as we can prove others wrong in the marketplace by finding and selling better ways of doing things. The productivity gains diffuse into society through trade. These gains come in the form of better ways of saying, doing and making things. Said differently, productivity gains come from more specialized ideas which come from trade. So in this sense, free markets are idea meritocracies, which we're going to talk more about here in a minute. Free markets are essentially unhampered trade networks that encourage the cultivation and diffusion of the best ideas within society. All regulations and limitations on free market dynamics reduce their efficacy. The ultimate expression of regulation is a monopoly in which the free market, in which all free market competition is suppressed through coercion or violence. In the world today, the market for money is not a free market. It is forcibly dominated by banking cartels.
- [10:05]
Anthony Pompliano
These are two things here. The first, the free market dynamics, is literally laws that prevent people from creating other fiat currencies, etc. And then the banking cartels, kind of in air quotes, is both the government banking or Federal Reserve central banks, but also the financial organizations as well that have some hand in kind of how all this works.
- [10:29]
Jameson Lopp
Absolutely. I think, to put it kindly, they're all in bed together and the defining characteristic would be that they do not allow free market experimentation to compete with fiat currency. So the market is unable to adapt or learn or evolve at all because it's centrally planned and controlled. Okay, so in that sense, fiat currency pyramid schemes are monopolies, which, as we Learned in Economics 101, come at a very heavy cost to society. Monopolies increase prices, they decrease innovation, and they reduce trade. So whereas free markets make mankind become more productive, which is an economic benefit, monopolies or unfree markets make mankind become less productive, which is anti economic. So with all this sort of background in mind on money and markets, we are here today to talk about one of the greatest capitalists in history, Mr. Ray Dalio.
- [11:24]
Anthony Pompliano
All right, before we get into Dalio, one of the things that you and I have connected on and I think really kind of drove us to want to do this was Ray has written a number of really great pieces that basically highlights the entire Bitcoin argument minus the conclusion of Bitcoin is the answer.
- [11:49]
Jameson Lopp
Yes, a lot of pro Bitcoin pieces without ever saying Bitcoin.
- [11:53]
Anthony Pompliano
So let's start with Ray and then we'll kind of get into the arguments, etc. But just so for people at home, that's essentially one of the main reasons why we wanted to do this was because he's right there on the edge.
- [12:05]
Jameson Lopp
He's there and he's long gold, which if you understand gold and you really understand the valuation fundamentals, then you should understand Bitcoin and its valuation fundamentals ultimately. So Ray is the most successful hedge fund manager in history. And that's not hyperbole, that's fact. He started Bridgewater, his firm, from his apartment, which today is valued at, I think about $160 billion. He incepted a cultural paradigm at his hedge fund called the Idea Meritocracy. In the idea meritocratic culture, candid reviews of colleagues are encouraged. So in his book, he wrote a book called Principles. He even shares a memo that a subordinate shared with the entire firm at Bridgewater, grading Ray a D for his performance in a meeting. So the idea is that everyone can review everyone candidly, even up to and including the CEO. So this cultural style promotes the propagation of truth and minimizes office politics. And in this spirit, I decided to write an open letter to Ray Dalio regarding Bitcoin to review his assessment of Bitcoin. So I started this essay by giving Ray an F for his assessment of Bitcoin for three reasons. And he laid out basically three critiques of Bitcoin and I went through them in turn. So first Ray says that he is sold on blockchain technology but not bitcoin, despite bitcoin being the only market proven use case today for blockchain. I argue that blockchain today is a mostly unproven buzzword. You know, there are some potential use cases for it perhaps, but none of them are market proven. Whereas bitcoin is more. It is being market proven in real time and it is the hardest monetary technology in history. So I don't think you can be long blockchain and short bitcoin. It just makes no sense.
- [13:59]
Anthony Pompliano
It's kind of like saying, hey, I like the Internet, but the largest Internet company. I'm not into that one.
- [14:03]
Jameson Lopp
100%. Yeah, I like the Internet, but not HTTP or some analogy like that. But. So that was the first critique. Secondly, and this one's a bit longer, but I think this is really important and a lot of people struggle to get this one. Ray says that bitcoin could be disrupted by another cryptocurrency, citing iPhone disrupting BlackBerry as a comparative example. Now this is extremely unlikely because Bitcoin is a path dependent, one time invention. Its critical breakthrough is the discovery of absolute scarcity, a monetary property never before and never again achievable by mankind. That's a mouthful.
- [14:43]
Anthony Pompliano
So this is probably one of the most important things for those that either are just learning about Bitcoin or are trying to understand why bitcoin is different than everything else. So really explain what exactly you mean here.
- [14:55]
Jameson Lopp
Absolutely. So for instance. Well, so for path dependence, we'll start with that. Path dependence entails that the sequence of events matters as much as the events themselves. For instance, you get a dramatically different result if you shower, then dry yourself off versus if you dry yourself off and then shower.
- [15:14]
Anthony Pompliano
Pretty clear example.
- [15:15]
Jameson Lopp
Yeah, pretty clear. Right. So as a thought experiment, if a new Bitcoin was launched today, it would have extremely weak chain security early on, as its minor network and hash rate would have to develop from scratch. And today, in a world where awareness of Bitcoin is more prevalent, this new Bitcoin with comparatively weak chain security would inevitably be attacked by incumbents. Whether these were incumbent projects seeking to defend their head start, international banking cartels, or even nation states. Path dependence protects Bitcoin from disruption as the organic sequence of events which led to its release and assimilation into the marketplace cannot be replicated
- [15:58]
Anthony Pompliano
further.
- [15:59]
Jameson Lopp
Bitcoin's money supply is absolutely scarce. A totally unique and one time discovery for money. Consider that if this new Bitcoin was released with an absolutely scarce money supply that its holders would be incentivized to hold the money with the greatest liquidity, network effects and chain security. This would cause them to dump new Bitcoin for the original. Even if this new Bitcoin featured a diminishing money supply, so negative scarcity, if you will. Or in other words, a deflationary monetary policy, how would its rate and mechanism of money supply decay be determined? As market participants jockeyed for position to maximize their economic benefit of the deflationary monetary policy, chain forks would ensue. That would diminish the liquidity and chain security for new Bitcoin, causing everyone to eventually pile back into original Bitcoin. So essentially, Bitcoin's terminal money supply growth rate of absolute zero is the ultimate monetary shelling point. And shelling point is a game theoretic focal point that people tend to choose by default in an adversarial game like money.
- [17:07]
Anthony Pompliano
All right, so the ultimate monetary shelling point and the terminal money supply growth rate of absolute zero. First, let's start with the terminal money supply growth rate. What is that?
- [17:19]
Jameson Lopp
Absolutely. So Bitcoin is issued on a perfectly predictable supply curve that terminates in the mid 22nd century. So no more Bitcoin will ever be issued into existence after that.
- [17:32]
Anthony Pompliano
And this is the thought process of starts at 50 bitcoin every block, as a reward, you get cut in half to 25, 12 and a half, 6.25 and you go all the way down. And eventually you literally can't split in half anymore.
- [17:44]
Jameson Lopp
Absolutely. And it goes to zero. It's basically exponential decay that approaches zero. So I think today, before the May having, we're at like 1800 bitcoin produced per day. To give you an idea how quickly this contracts, by the year 2100, I think we're below one. I sent a tweet about that, but it just contracts very quickly. So mankind, you know, our biggest weakness is our inability to understand exponential growth or decay. So this is, it's a really big deal. Okay, so back to game theory and the shelling point piece. In game theory, a game is just any situation where there can be winners or losers. A strategy is just a decision making process. And a shelling point is the default strategy for games in which players cannot fully trust one another, like money. So the absolute scarcity of Bitcoin in this sense is a really big deal. And I like to compare it to the discovery actually of the number 0. The discovery of 0 was special as it represents absolute nothingness. Its role as a placeholder, gives our numerical system its power to scale and cycle through other numbers, giving them different meanings depending on its location. Consider the difference between 20 and 20 million. Each 0 represents another order of magnitude of the integer.
- [19:06]
Sponsor/Advertisement Voice
2.
- [19:08]
Jameson Lopp
Similarly, the discovery of absolute scarce money is special. Gold became money because of the monetary metals. It had the most inelastic or relatively scarce money supply. This meant that no matter how much time was allocated towards gold production, its supply increased the least.
- [19:25]
Anthony Pompliano
Meaning that no matter how hard or how many resources people threw at it to get more gold, it was still the hardest to get.
- [19:32]
Jameson Lopp
Exactly. So it's kind of like this game theoretic backstop, and that's what makes it become money. And that's why people express things in that value, because it's the most predictable supply.
- [19:41]
Anthony Pompliano
Okay, keep going with gold and then we'll compare it to bitcoin.
- [19:44]
Jameson Lopp
Absolutely. So since its supply increased the most slowly and predictably, gold was favored for pricing things and became the dominant money on the free market. The absolute scarcity of Bitcoin makes it the ultimate pricing mechanism for the ceaseless changes in human productivity, enabling societies to more effectively communicate their preferences through trade, store their wealth securely, and cooperate, and compete at scale.
- [20:08]
Anthony Pompliano
So when it comes to gold, there's two components that you just described. One is the difficulty at which to produce it. The second is the predictability of the incoming supply. Right. Or the new supply.
- [20:21]
Jameson Lopp
Yep, correct.
- [20:23]
Anthony Pompliano
Both of those things are pretty proven over thousands of years. It's really hard to make or get. And we've got a pretty good idea of how much we're digging up out of the ground every year, finding, etc. When it comes to bitcoin, it is harder to get bitcoin than it is to get gold in terms of the production. And also it is verifiably true what that supply is at all times, with an incredible amount of accuracy.
- [20:54]
Jameson Lopp
Absolutely.
- [20:55]
Anthony Pompliano
Which is basically taking all of the properties of gold that we have put value on and now putting them in a much more scientific, provable, provable mathematic type mentality or mechanism. And so it's actually improving on those mechanisms of gold or aspects of gold for Bitcoin.
- [21:16]
Jameson Lopp
That's exactly correct. And so if you think if we could somehow miraculously press pause on everyone's job today and tell everyone to go mine gold, we could produce a lot more gold. Right. We could get a lot more above ground a lot more quickly. You could not do that with Bitcoin. Bitcoin has this ingenious invention Called the difficulty adjustment. That's basically like an ever receding horizon. The more you chase it, the further it runs away. So we know with essentially perfect mathematical certainty exactly how many Bitcoin will be issued between now and the last bitcoin being mined in the mid 22nd century. Again, that's a property we've never had with any asset, commodity or whatsoever.
- [21:56]
Anthony Pompliano
And I think the part that is really important in that is this difficulty adjusting adjustment works both directions. So if we put more resources towards mining. Right. If you and I are partners and we want to produce bitcoin, the more that we put overall, it becomes harder for everyone on the network to get their share that they previously had because of that difficulty adjustment.
- [22:19]
Jameson Lopp
That's correct.
- [22:19]
Anthony Pompliano
But also if we shut down our operations, it can get easier as well.
- [22:24]
Jameson Lopp
Absolutely.
- [22:24]
Anthony Pompliano
And so the ability to increase or decrease a difficulty based on the production investment, we've just never seen that before.
- [22:33]
Jameson Lopp
No, never seen it. It's like dynamic demand adjustment. And you know, with gold, the marginal revenue of the market price tends to converge with the marginal cost of production. So as we see kind of bitcoin hash rate grow, which is how much operational and capital expenditure is being allocated towards its production, we can use that as a proxy for where we think the value will go. So I think the hash rate today is 13 times what it was at the December 2017 peak. So that's kind of, we look at it as kind of a leading indicator in that positive feedback loop that is Bitcoin, for sure.
- [23:03]
Anthony Pompliano
So let's go back to the number zero.
- [23:05]
Jameson Lopp
Absolutely. So in the same way that the number zero enables our numeric system to scale and more easily perform calculation, so too does money give an economy an ability to socially scale and more easily perform economic calculation. And social scalability is one of those terms from that essentially means the more we can do with less effort or without thinking about it, the more productive we are as a society. So back to money. Simply, scarcity is essential to the utility of money. And a zero growth terminal money supply represents perfect scarcity, which makes Bitcoin a perfect monetary technology. From this perspective, both the discovery of zero and absolute scarcity are ideas or tools that enable society to scale by saving us time in calculation and trade. So that was a long run. So I'll try to summarize it a little bit. Since the invention of Bitcoin represents the discovery of absolute scarcity or absolute irreproducibility, which occurred due to a particular sequence of idiosyncratic events. Its emergence into the World cannot itself be reproduced. Absolute scarcity is a one time discovery, just like the heliocentric model of the solar system or any other major scientific paradigm shift.
- [24:30]
Anthony Pompliano
All right, so there's a lot of people who do not believe in Bitcoin or do not see the value. And what they would basically say is there's a lot of big words. But you made a claim that absolute scarcity is a one time discovery. Can it be replicated but it's just the first time it's discovered there's value? Or is it absolute scarcity can only happen one time.
- [24:57]
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- [25:13]
Jameson Lopp
Year.
- [25:14]
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- [25:37]
Jameson Lopp
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- [25:38]
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- [25:58]
Jameson Lopp
I think as a monetary property, it can only be discovered once because money is valued based on its liquidity and network effects. So if you try to reproduce Bitcoin 2.0 with absolute scarcity today, the value of that just gets collapsed into Bitcoin because it already has such a huge lead in terms of liquidity and network effects. And I don't see how you can disrupt that.
- [26:20]
Anthony Pompliano
Okay, a fair launch.
- [26:23]
Jameson Lopp
Yeah. So in short, like a fair launch via a proof of work system is no longer possible due to path dependence. Yet another reason why COIN cannot be replicated or disrupted by another crypto asset using this consensus mechanism. So at this point it seems like absolute scarcity for money is truly a one time discovery that cannot be disrupted any more than the number zero can be disrupted. A true bitcoin killer would necessitate an entirely new consensus and distribution model. And nothing to date has been conceived that could fulfill this requirement. So in the same way that there's only ever Been one analog gold, it looks like there's only ever going to be one digital gold. So that was a long critique of Ray's second critique.
- [27:07]
Anthony Pompliano
So part of this is the properties that make gold valuable have been supercharged or put on steroids when it comes to Bitcoin. They're more provable, they're more mathematically factual, if you will. And the argument you're making is that although we can identify what those properties are and we can assign value to them, they cannot be replicated for a variety of different reasons. And some of that is the actual feature itself cannot be replicated. And then some of it is the features position in a sequential list of events cannot be replicated. And depending on either one of those, when you combine them, you cannot reproduce Bitcoin in the form that it is and kind of the value that it is.
- [27:54]
Jameson Lopp
Yeah, yeah, I guess since it's game theoretic, you can't replay the game, so to speak, of money.
- [28:01]
Anthony Pompliano
Right?
- [28:02]
Jameson Lopp
You can't just. No one can decree gold is no longer valuable. The free market determines that it has value. The free market has determined that Bitcoin has value. And these as money, the more liquidity and more network effects it has, the more value it has. So they coalesce to a single money. So that's why we have one gold. And for all, all indications today are Bitcoin is the one digital gold, so to speak.
- [28:28]
Anthony Pompliano
Okay, third, third point that Ray had.
- [28:31]
Jameson Lopp
Yeah. So Ray's third critique of Bitcoin is he says that price stable central bank or corporate issued cryptocurrencies like Libra are a better alternative than Bitcoin as it is too unstable to be used as a medium of exchange. So in one sense it's true, because central banks are already announcing their attempts at this. However, the one thing they will never do is give up control of monetary policy. Which means that this is the means, by the way, monetary policy control through which they enrich themselves. And this goes by a lot of names, the Cantillon effect, confiscation via inflation, the shadow tax, or even taxation without representation. So since Bitcoin has an absolutely scarce money supply, which is a monetary policy akin to absolutely zero, it will continue to appreciate on an exchange ratio basis against fiat currencies, which are inevitably printed into worthlessness over time. Exchange ratio volatility against fiat currency is a normal consequence of price discovery for an emergent asset like Bitcoin. So a good kind of example for this is to consider Amazon, which crashed 94% from $85 to $5 in 1999, before growing over 33,000% since in its ascent to market dominance today. And Amazon accomplished this historic feat by gaining control of the digital market for distribution networks. The space which Amazon conquered is driven by scarcity in the form of finite distribution channels. And it is subject to winner take all dynamics due to network effects and economies of scale. Similarly, the market for money is driven by scarcity and subject to winner take all dynamics, as we saw with gold. So in fact, bitcoin is monetizing along the same path as gold today in that it's being used first as a store of value. Then once it has accrued enough value to incentivize people to spend it, it will become more widely adopted as a medium of exchange. And when it finally is used widely enough, it will become the primary denominator of prices worldwide, making it a unit of account. So this is like the same evolutionary path that gold followed we see bitcoin following today.
- [30:41]
Anthony Pompliano
Okay, so there's two pieces here that I want to cover. So first is Amazon. You described this 94% drawdown that it had. Also, many people don't know that every single year since it's been public, it's drawn down double digit percentage at least once. And I think the average intra year drawdown is like over 30%.
- [31:01]
Jameson Lopp
Yep.
- [31:02]
Anthony Pompliano
Right. And so when you start to look at it, it's just that all equates to it. It's a highly volatile stock. Yes, but volatility works both ways. You need volatility to go up, you also need volatility to go down. And so if you're going to have the best performing stock or stock that goes from non existent to the dominant one in the world, you have to have that volatility. Right. But nothing's going to go from zero to hero, if you will, without actually having the volatility in between.
- [31:27]
Jameson Lopp
Of course, you know, the world is dominated by non linearities. And when you're looking at a binary bet like Amazon that was either bust or you know, originally it was just an online bookstore, we didn't see that it was going to evolve into all this, but it dominated that space. Right. And bitcoin is sort of the same. It's like it's either worth nothing or it's a global reserve asset. So this volatility is the market trying to discover what it is. Is it zero or is it hero, so to speak?
- [31:52]
Anthony Pompliano
For sure. And then the second thing you talk here about is this idea that bitcoin's monetizing. Along the same path as gold. So gold essentially nobody used. Then people started to use it as, hey, this is valuable. Do you want to actually barter or use it? Then it became a more valuable asset over time as more and more people say, hey, well I want some of that. And then at some point, once it had this quote unquote stable value. Right. Because people knew this is what it is worth, people then started to use it as an actual currency. And then eventually prices of the assets, people sort of say, hey, well, I will trade you my, you know, my camel for two gold coins.
- [32:30]
Jameson Lopp
Absolutely.
- [32:31]
Anthony Pompliano
And bitcoin's doing the same thing.
- [32:32]
Jameson Lopp
Absolutely. And we think, you know, our unit of account today is dollars, largely. Dollars used to be gold. Right. Dollars were redeemable for gold.
- [32:39]
Anthony Pompliano
So paper claim on gold.
- [32:40]
Jameson Lopp
Yeah, we were thinking in gold. Even though we think we're thinking in dollars today, which are no longer pegged to gold, which we'll get to, we were actually thinking in gold for that very reason. So that covers like my 3 responses to raise 33 critiques of his assessment of bitcoin. Then after reading his book Principles, I realized that bitcoin positively embodied many of the principles Ray lays out in his book. So I decided to write my essay, which is titled an open letter to Ray Dalio regarding Bitcoin, to share my findings. Which brings us to the first principle.
- [33:13]
Anthony Pompliano
All right, so you saw what Ray said, you responded to Ray, then you read the book and you said, wait a minute, it's even more of a reason why he should actually be paying attention to this. And you wrote about kind of breaking down bitcoin in the framework of the principles in which he is sharing with the world.
- [33:32]
Jameson Lopp
Absolutely. So his explaining it to him through his own worldview, if you will.
- [33:37]
Anthony Pompliano
All right, let's start with the first principle, which is this idea meritocracy.
- [33:40]
Jameson Lopp
Yeah. So the pinnacle of Ray's worldview is the idea meritocracy, which Ray describes as, quote, idea meritocratic decision making is better than traditional autocratic or democratic decision making in almost all cases. So an idea meritocracy is a cultural paradigm. It's a free market for ideas, a way of subjecting ideas to a simulated form of natural selection. It's a kind of Darwinism for ideas, if you will. An idea is an open environment for the proliferation and combination of the most meritorious ideas, free from man made impediments such as ego, policy and hierarchy. So again, team members at Bridgewater review one another's work, meeting contributions and attitude in real time. Using a suite of custom made management tools which are software based tools used to gather real time feedback and idea meritocracy is intended to be aligned with reason and imperfect. Impervious to politics is kind of the gist of it. And you know, I think we see this in the world that the more objectively measurable and traceable the outcome of a job, the less political it is by nature as competence is the primary determinant of who gets that job. So an example here would be like consider how professional athletes are paid for points they put on the board or other stats which are objective metrics. Whereas a politician is paid based on his charisma or cunning where. Which is clearly very subjective. So jumping back to our original thesis that everything starts out as an idea, since everything we say, do or make starts out as an idea. The idea meritocracy is a free market. It's the same thing.
- [35:21]
Anthony Pompliano
And this is really, people who work in a corporate job will understand this really well is if I have an idea, the actual idea by itself doesn't matter who brought it up, when they brought it up, how they brought it up, any of this stuff, just the idea, the actual merits of the idea. The best ideas can withstand attacks from every direction.
- [35:41]
Jameson Lopp
Absolutely.
- [35:42]
Anthony Pompliano
They can withstand the attack of who brought it up, why, how, where everything. What we tend to see in organizations and even larger in the world is not idea meritocracy. We tend to see hierarchies, we tend to see the I'm the boss, it's my idea, do it my way, even if it's not the best idea. And so I think that the technology world has done much better job of kind of encouraging some of these meritocracies. And some of that is because to your point, you know, when I was at Facebook, one of the phrases that they would use is code wins arguments. We can sit here all day long and debate things. No, like let's go build it, it works or it doesn't. Right. And so that was a form of a meritocracy in the sense of like, if you build it and it works, then like what are we arguing about? Like it works.
- [36:30]
Jameson Lopp
Right.
- [36:31]
Anthony Pompliano
And so I think that's what we're seeing kind of a very big division in the world of the people who previously weren't exposed to nor wanted idea meritocracies are doubling and tripling down on the prevention of them.
- [36:45]
Jameson Lopp
Absolutely.
- [36:45]
Sponsor/Advertisement Voice
Yeah.
- [36:46]
Anthony Pompliano
The people who like this world and believe in the value of the idea of meritocracies, they're doing everything they possibly can to double and triple down on the protection of them.
- [36:55]
Jameson Lopp
Yeah.
- [36:55]
Anthony Pompliano
And so you get this very diversive diverse world or division in the world. But it comes back to the idea of either you buy ideas have merit on their own or they don't, or you buy into who says it, when, where, how, etc is almost more important than the ideas of which people share.
- [37:13]
Jameson Lopp
Absolutely. You know, I think that the division you speak of is sort of between dominance and competence. Right. Where dominance being. It goes because I said so, because my desk is bigger than yours. Whereas competence is like this thing works in the real world and according to the market test or it doesn't. Right. And I think if you just think about that, it's clear which of the two out competes the other. Right. Of course this, the, the domination thing is just not sustainable. Like people that are dominated are resentful. Right. They're going to always find a way to kind of stab you on the back or not work as hard or whatever. Whereas competence hierarchies, if you will, reward ingenuity and innovation, things of that sort. So I agree, I think the world is going that way. So getting back to kind of like what markets are in that respect. Markets are necessary to disseminate knowledge because knowledge has a localized dimension to. To it. Meaning every person is most familiar with the prevailing economic circumstances specific to their place in space, time and industry. Free markets are the best assimilators and disseminators of these localized pools of knowledge within an economy. And a free market can be thought of in this sense as a kind of nexus where many minds become one through the mechanism of price. And that's. Actually, and in this sense, free market capitalism is directed by the collective decisions of all economic actors, whereas centrally planned socialism is directed by the decisions of a handful of bureaucrats. Kind of like what we're talking about here. So you know, free markets reward competition, planned markets or reward dominance effectively. And in that sense, socialism is a top down unnatural despotic organization. And you can kind of think of the traditional org chart as you brought up. Whereas capitalism is bottom up, natural democratic, which is much more like the idea meritocratic organization that Ray founded.
- [39:25]
Anthony Pompliano
And one thing just to comment here because I've been fortunate enough to spend enough time 3D type world and also the Silicon Valley technology world world, many of the largest organizations in the world today from the technology sector, although they appear from the external to be very top down traditional org charts, when you get inside of them, they are incredible meritocracies. They are much more flat organizations than you would traditionally see in large organizations. So I think that outside of something like, you know, bitcoin versus gold versus fiat currencies, etc, we see other applications of this in our world today. And the people who are winning in those competitions are the people who tend to have much more meritocracies in their organization.
- [40:15]
Jameson Lopp
Absolutely.
- [40:16]
Anthony Pompliano
And therefore it would be natural for us to see that seep into other aspects of our lives and continue to be the superior way or the superior framework to apply.
- [40:27]
Jameson Lopp
I agree completely. And I guess sort of the backdrop to that is digital technology enables us to exchange things so much more fluidly that it dissolves these dominance hierarchies and rewards competence again. And another, like Ray is a big fan of Steve Jobs, and I remember Steve Jobs, I'm kind of paraphrasing, but he said, at Apple we don't have committees or board meetings. We just figure out the best way to do things and that's why we're the best.
- [40:51]
Anthony Pompliano
That's a shame. Shocking strategy. All right, the elephant in the room.
- [40:57]
Jameson Lopp
Yeah. So the elephant in the room then is why, in light of the overwhelming evidence favoring a free market economic system, do we still tolerate central planning in the largest market of all, the market for money? So to understand the differences in free and unfree markets, a set of formulas will help us go a little further. And Ray gives us the following formula for the idea of meritocracy, which equals radical truth plus radical transparency plus believability weighted decision making.
- [41:32]
Anthony Pompliano
So the formula that he uses is radical truth added to radical transparency added to believability. Weighted decision making equals this idea of meritocracy. The three inputs, radical truth, radical transparency and believability weighted decision. Decision making.
- [41:49]
Jameson Lopp
Yes. And again, since idea meritocracies are free and free markets are the same thing, we can translate this to a free markets version, if you will. And this is my sort of translation. So I say free markets equal truthful price signals, which we're going to talk more about here in a second. Plus transparent and reliable rule of law, private property rights and hard plus skin in the game, weighted decision making.
- [42:17]
Anthony Pompliano
Okay, so your three inputs are truthful price signals, transparent and reliable rule of law, private property rights and hard money. And then the third is skin in the game, weighted decision making.
- [42:34]
Jameson Lopp
That's exactly right.
- [42:35]
Anthony Pompliano
Okay.
- [42:36]
Jameson Lopp
And there's a lot of terms in there you may not be familiar with, but we will go into them.
- [42:40]
Anthony Pompliano
Let's go.
- [42:41]
Jameson Lopp
So with these formulas in mind, let's dive into each of their elements and consider Their relationships with markets, money and Bitcoin. The first formulaic element of Ray's idea of meritocracy is the principle of radical truth, which Ray describes as, quote, truth. Or more precisely, an accurate understanding of reality is the essential foundation for any good outcome.
- [43:05]
Anthony Pompliano
I love that.
- [43:06]
Jameson Lopp
It's great, right?
- [43:07]
Anthony Pompliano
Like, forget bitcoin, forget anything, just truth. Or more precisely, an accurate understanding of reality is the essential foundation for any good outcome. When you sit and think about that, duh.
- [43:20]
Jameson Lopp
Yeah, Truth will set you free, Right?
- [43:22]
Anthony Pompliano
Right. Well, just like if you don't have an accurate understanding of reality, how the hell can you do anything to make decisions, you know, evaluate none of that stuff. So of course it is true. But the fact that he has to clearly state it, to kind of put that in people's minds is actually a little scary in the world.
- [43:40]
Jameson Lopp
Yeah, I agree. It's funny. It's like we're constantly trying to redraw our map of reality. And if you're not paying attention to the redrawing process, reality is going to run you over.
- [43:49]
Anthony Pompliano
Right, absolutely. All right, so this is his principle of radical truth.
- [43:53]
Jameson Lopp
Yes. So this is the idea that gaining a clear perception of reality is paramount to facing it head on and dealing with it. So in markets, it's commonly said that price is truth, meaning that all known market realities are expressed in any particular asset's price at any given moment. You may remember from Economics 101 that the market price is the intersection of supply, which is an objective quality, and demand, which is an intersubjective or opinion based quality. So put another way, prices are like data packets that convey information about scarcity, which is objective, and value, which is intersubjective. Each entrepreneur's decision to buy or sell is influenced by prevailing prices and in turn communicates back into the market the state of economic conditions relevant to him, which again in turn influences the same decision making of all other entrepreneurs within his market. This is intersubjective value. And all of those decisions are based on actual availability of time, resources, and know how. This is objective scarcity.
- [44:58]
Anthony Pompliano
So really what you're describing here is the most important concept when it comes to Bitcoin, supply and demand. And that supply and demand leads to all sorts of things like price, discovery, etc. But understanding fundamentally what is supply and demand, if you don't have that belief that understanding, et cetera, you're going to really struggle to understand Bitcoin.
- [45:19]
Jameson Lopp
Absolutely. So again, back to truth, which is price. It exists at the intersection between objective reality and our Subjective interpretations of it, essentially.
- [45:29]
Anthony Pompliano
And the objective reality, for example, when it comes to Bitcoin, is 1800 Bitcoin are going to get created today out of the 21 million that will ever be available.
- [45:38]
Jameson Lopp
That's correct.
- [45:39]
Anthony Pompliano
That is provable with math. No one can deny that.
- [45:44]
Jameson Lopp
Yes.
- [45:44]
Anthony Pompliano
The subjective element is how many people want those 21 million Bitcoin.
- [45:50]
Jameson Lopp
That's right.
- [45:50]
Anthony Pompliano
And that's where when those two things intersect kind of truth versus perceived truth, that's where you get price discovery.
- [45:57]
Jameson Lopp
Yes. And they feed back into one another. Right. So after the May 2020 halving, in a couple of months, it's going to constrict by half to 900 Bitcoin per day. And the bitcoin feedback loop theory, at least, is that as you constrict scarcity and money, it actually drives demand for that money in addition to the other benefits bitcoin provides, like inflation resistance, confiscation resistance, et cetera. So getting back to price signals, price basically representing truth in the marketplace. Central banks broke the truthfulness of money by centralizing gold and issuing depository receipts, which are basically dollars that were redeemable for gold in excess of their gold reserves. So if they had 10 tons of gold, they issued 100 tons worth of dollars redeemable for gold. So they're just making promises in excess of what they had.
- [46:48]
Anthony Pompliano
And the thought process here was if I give out 10 times the number of IOUs to what I actually have, mathematically, I'm going to take the risk that not everyone is going to come ask me for the gold at the same time.
- [47:06]
Jameson Lopp
That's exactly right. Yeah.
- [47:08]
Anthony Pompliano
Which 99.9% of the time is and was true.
- [47:13]
Jameson Lopp
Yep.
- [47:14]
Anthony Pompliano
There have been very specific cases, though, these quote unquote, bank runs.
- [47:18]
Jameson Lopp
Yep.
- [47:18]
Anthony Pompliano
Where people panic.
- [47:20]
Jameson Lopp
Yeah.
- [47:20]
Anthony Pompliano
And they say, whoa, timeout. I want my gold. Right. You ever seen what is the. The viral video. No, the viral video from Mobile, Alabama, where they said leprechauns are in the tree to play it one day. But there's basically these guys and there's a folklore in the neighborhood that there's a leprechaun. And it cuts away at the end to a guy, he goes, I want the gold. Where the gold at? I'm gonna get me a backhoe and dig up that tree. I want my gold. And so it's similar here. Right. People say, I want my gold. But if you've promised more IOUs than you have, you obviously can't pay everybody.
- [47:56]
Jameson Lopp
Absolutely. Yeah.
- [47:57]
Anthony Pompliano
That's the truth. That's the Breaking of the truthfulness is described it.
- [48:00]
Jameson Lopp
Yes. And when the trust breaks down, things go more free market again, right? People want the gold, they don't want your promises, they want hard money.
- [48:08]
Anthony Pompliano
Joe, we gotta, we gotta get that clip, man. I want the gold. Where the gold at? All right.
- [48:13]
Jameson Lopp
So when central banks did this, they severed the skin in the game of money and gave central banks a mechanism for perpetually privatizing profits from money production, which is called seniorage, socializing government losses through inflation. So skin in the game, it's a really important concept from my favorite author, Nassim Nicholas Taleb. And that guy, if you haven't read his books, he's unbelievable. Read them all twice. I draw on his wisdom a lot in my thinking, my writing. But so skin in the game is a concept based on symmetry. It's a balance of incentives and disincentives that is necessary for most success systems to function properly. So with central banking it has essentially no disincentives in the fiat currency system as there is a near zero cost of money production. Central bankers are incentivized to print money into worthlessness, acquiring scarce assets with these self annihilating currencies on their gradual then sudden way to zero. So again if you go back to gold, that the marginal cost of production tends to converge with its market price. The marginal cost of production of fiat currency is zero for all intents and purposes. It's no like, it's intuitive where the values end up, they converge to zero because of market dynamics.
- [49:33]
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- [50:42]
Anthony Pompliano
important to this point, which I don't hear talked a lot about, is there is a convergence of two components. One is theoretical and one is reality or historical reality. The theoretical is what you just described. Well, if it caused zero to produce, then how could it have value? Right. And kind of, you can pull a lot of intellectual Olympics to unpack what that exactly means. But we also know that every fiat currency in the world historically, and also every currency other than the modern day currencies that have been created, that were still living in their kind of average life cycles, have all failed because of debasement or the devaluing of these currencies. Because ultimately, no matter how valuable it starts, if you devalue or debase it away over time, will you trend towards zero?
- [51:36]
Jameson Lopp
Yes.
- [51:37]
Anthony Pompliano
Right. And then there's all kinds of implications of that. But we just, we have the theoretical frameworks of which simple things like supply and demand, et cetera, all apply. And as long as we believe that the solid concepts there, there's a theoretical argument, but we also have the historical track record and the failures of that model of inflationary or devaluing of a currency that just leads to zero at some point.
- [52:01]
Jameson Lopp
Absolutely.
- [52:02]
Anthony Pompliano
And it's the best we've ever had. Like it's the best of the worst ideas.
- [52:06]
Jameson Lopp
Yes. And fiat currency is not a new thing really. Like started, I think, seventh century China was the first one. Every one of them have ended in hyperinflation. This is not like it happens sometimes. Every time it happens. And the only, you know, the best performing one today is the British pound, 317 years old. It's lost 99 and a half percent of its value. Right. And as you said, we're living through its kind of normal life cycle. They all trend towards zero. That's just, it's an empirical fact. So in this sense, as a wise man once said, inflation is the surest way to fertilize the rich man's field with the sweat of the poor man's brow.
- [52:48]
Anthony Pompliano
Wow. Yeah, I never heard that one before. Inflation is the surest way to fertilize the rich man's field with the sweat of the poor poor man's brow. Essentially saying, the rich get richer, the poor get poorer.
- [53:00]
Jameson Lopp
Yeah. And they're doing it by backstabbing them. Right. You're surreptitiously taxing them by printing more money and people not understanding how the system works. Just think, well, prices go up every year and that's just the natural way of things. And it's really kind of insidious in that sense. So inflation of the money supply, this is very important for capitalism, is it's a violation of private property rights as it reallocates wealth away from its original owners, who are the citizens, into the hands of those closest to the governors of the monetary system, who are typically the politically favored few. Inflation also distorts the price signals propagated by fiat currency, which causes entrepreneurs to overborrow, misallocate capital and misprice risk. And this is very pathological to an economy, really. And so if you think of inflation, it's kind of like, I say, like it's like a computer virus almost that corrupts these data packets on value and scarcity that we call price signals. And for the same reason, same economic principles and reasons, that price fixing led to the starvation of millions in Soviet Russia. Fixing the price of money, which is the interest rate, causes these recurrent economic calamities, what we today call the business cycle. And we think again is normal. But it's not. It's a consequence of centrally planned money.
- [54:19]
Anthony Pompliano
And a key piece of this is not only that it happens, but the lack of information and transparency and education of those that are at the bottom of that pyramid scheme that you described who don't understand it's happening and don't have the information necessary to, to measure what is happening. Right. I always go back to this idea of tell me how much money was printed today.
- [54:43]
Jameson Lopp
Exactly.
- [54:44]
Anthony Pompliano
You can, now there's ways to triangulate, right? There's always some smart ass who says, you know, I can tell you what the bank asset balance sheet, okay, I get it, but how many people understand that the dollar in their wallet actually is worth less money today than it was last year?
- [55:03]
Jameson Lopp
Yeah.
- [55:04]
Anthony Pompliano
If you go out on the street, I'm willing to bet 50 plus percent of the 330 million Americans have no clue. That concept is so foreign to them, they have no clue.
- [55:15]
Jameson Lopp
Right.
- [55:16]
Anthony Pompliano
And so what ends up happening is there's an education advantage or an information advantage that some portion of the population has over others. But even those that know this happens, they don't know how bad it is.
- [55:26]
Jameson Lopp
Yes, right.
- [55:27]
Anthony Pompliano
And I think that's where you start to unpack some of this and realize, wait a minute, how, what is the solution?
- [55:32]
Jameson Lopp
Yeah, yeah. I another thing, interesting aspect of that is, you know, again, we know anyone, everyone knows how much bitcoin was produced today and every day, forever. How many people, these army of macro economists and analysts and CNBC people that pore over the details of central bank meetings, their body language, their wardrobes, trying to figure out what they're going to do next. Like it's such a total drain of human ingenuity and, and capability. It's just, it's really silly I think when you see it that way.
- [56:04]
Anthony Pompliano
I'm trying to quickly look up and I may not be able to find it quick enough. I believe it is the Federal Reserve's GDP forecast. Shout out to, to Mark Yusuka, he's the one who, who told me this one. I think that they have now made something like 220. Right. So somewhere around that number of forecasts, what percentage of the time have they been right?
- [56:31]
Jameson Lopp
Sub 5% 00%. Yeah.
- [56:34]
Anthony Pompliano
They've gone zero for 220 or whatever.
- [56:38]
Jameson Lopp
Yeah.
- [56:38]
Anthony Pompliano
Now again, I believe that to be correct. People will fact check me online, but if I remember the information correctly, it's zero. If it's not zero, it's a very, very small number. Right?
- [56:49]
Jameson Lopp
For sure.
- [56:49]
Anthony Pompliano
Less than 5%. And so when that happens you have this centrally planned model, but the people who are doing the planning aren't accurately forecasting what is going to happen 100% because it's impossible. It's kind of hard to make decisions. Exactly. It's just hard to make decisions in that environment.
- [57:09]
Jameson Lopp
It's impossible. An economy is a complex adaptive system like the weather. Right. You cannot control or manage an economy any more than you can manage the weather, frankly.
- [57:20]
Anthony Pompliano
Well, we got, we got a president who thinks he's gonna, he's gonna nuke hurricanes. Yeah, go ahead. All right. We won't go there. Go ahead.
- [57:26]
Jameson Lopp
That's how you know, out of control things have gotten.
- [57:28]
Anthony Pompliano
Right.
- [57:29]
Jameson Lopp
So as with all well functioning markets, the price of money must emerge through and constantly reorient itself against the natural interactions of supply and demand. Attempts to centrally plan this market only distort truth in the form of distorted price signals and trigger over borrowing recessions and cause the boom and bust business cycle. So another way to look at fiat currency price signal distortion is with Wittenstein's ruler. And this is another thing I got from Taleb. This is really interesting to think about. Unless you have confidence in a ruler's reliability, if you use a ruler to measure a table, you may also be using the table to measure the ruler.
- [58:08]
Anthony Pompliano
God, that's good.
- [58:09]
Jameson Lopp
The less you trust the ruler's reliability, the more information you are getting about the ruler ruler and less about the table. Right. So said differently, the more you can trust the constancy of a unit of Measurement, the more signal it gives you and the less.
- [58:24]
Anthony Pompliano
That is so good. I've never heard that before. That is so good.
- [58:27]
Jameson Lopp
So back to Bitcoin. With an absolutely fixed supply, Bitcoin will restore the clarity of these economic price signals that are so critical to proper capital allocation, risk assessment, and entrepreneurial coordination across space, spacetime. So kind of simply free market money, like gold, was a universal system of measurement.
- [58:47]
Anthony Pompliano
Everyone could trust it.
- [58:49]
Jameson Lopp
Everyone could trust it, and it was constant and reliable anywhere in the world. Right. So other universal units of measurement like seconds, meters or kilograms, they're all immutable in value to maximize the coordination of human action. Upon these foundations of standardized measurement, the machinery of global commerce is constructed. Builders of skyscrapers, electronics and all other goods rely on the constancy of these measurements of these measurement units when sourcing materials and coordinating labor efforts from around the world. The immutable money supply of bitcoin means that once it is used widely enough to function as a unit of account, that its price signals will carry more truth than any other money in history. Bitcoin is a monetary channel free from the noise of unexpected supply fluctuations, which necessarily means it carries the clearest signals. In this way, Bitcoin is the perfect conveyor of the data packets on value and scarcity known as price signals. So I like to say the analogy I share is, I say money is like economic water. And when it comes to price signals, fiat currency is inscrutably murky, it's got lots of noise. You can't tell whether a price change is real or it's in fault inflation driven. Right. Bitcoin is the opposite. It is crystal clear. It is pure signal and has absolutely zero unexpected inflation forever. So an economy run on a bitcoin standard would have fewer and less extreme booms and bust. And the bitcoin standard, by the way, is a book that everyone needs to read.
- [60:20]
Anthony Pompliano
Safe. Dean, give us, give us our cut of book sales. No, for real. The bitcoin standard is fantastic book. Safe. Dean wrote it and you should definitely read it.
- [60:29]
Jameson Lopp
Absolutely. So, yeah, Bitcoin is basically the most truthful money that's ever existed.
- [60:35]
Anthony Pompliano
So I just wrote down this question, but now's a good time to ask it. If you hold the assumption that bitcoin is going to be the most provable true unit of measurement. Right. It like seconds, meters, etc. Will not change. It has that consistency. Why do so many intelligent people fear truth? Meaning there's a lot of really, really smart people who have done various levels of work on bitcoin most of them kind of surface level drive by knowledge is what I call it. And they yet do not believe that it has value or do not believe that it will be valuable in the future. How do we kind of figure out that contrast between. These are very smart, intelligent people who actually seek truth in most aspects of their life, especially their investing or entrepreneurial careers. Yet when it comes to something that is provably true, there's a disconnect.
- [61:35]
Jameson Lopp
Yeah, you're really digging into the seismic ness, if that's even a word of this shift. Like it truly is a once and for 500 year kind of paradigm shift. Which I know when you and I think melt dim talked about the transition to double entry bookkeeping and Bitcoin being this transition to triple entry bookkeeping. I think it's really hard for people to comprehend the magnitude of black swans like this. And black swans don't necessarily doesn't mean something's negative per se. It's just something that's very hard to predict that has a huge impact.
- [62:12]
Anthony Pompliano
Yeah, the Internet's a black swan event. If you're pre Internet looking and saying, wait, through this computer network, what does that mean?
- [62:19]
Jameson Lopp
Yes, and that is the best analogy for Bitcoin. Bitcoin really kind of is the Internet in a lot of ways. It's just where the Internet is this open source, free market set of protocols for moving information. Bitcoin is the same thing for moving value. So as far as smart people not grasping it, I really think, because Bitcoin takes a lot of hours to dig into and have the light bulb moment, I think a lot of people just haven't done the work. And that number I think varies between people. But it's high, right? It's between 1 and 2, 300 hours probably of just studying Bitcoin and all this multi, multidisciplinary domain to really grasp the significance of it.
- [62:58]
Anthony Pompliano
All right, the next principle, principle of radical transparency.
- [63:03]
Jameson Lopp
Yes. So the critical principle of radical transparency Ray describes as by radical transparency, I mean giving most everyone the ability to see most everything. So in free market capitalism we have three cornerstones which we mentioned earlier. We have rule of law, which gives us a means of nonviolent dispute resolution. We have private property rights, which gives us respect for the relationships between people and assets. And we have hard money, which gives us a free market, selected money and an accurate conveyor of price signals. So with strong and reliable rules in place, entrepreneurs are then free to play the game, so to speak, accumulating capital for themselves and diffusing any innovations gleaned in the process into the whole of society through trade. So an analogy here is like if you imagine a poker player sitting at a table and if the hand rankings changed every few hands at the whims of the casino, without sound rules on which to build a strategy, no player would remain engaged for long and they would quickly exit the game. So we have kind of a similar problem today with centrally planned money. The problem with the perceived safety of the US dollar is the opacity of the rules which govern its existence. Including how many dollars are there in existence, as you asked earlier, how many will be issued in the years to come? Who gets to decide? What are their criteria for deciding? And most importantly, who stands to profit from their production? Right. So even though the US dollar today is really just an SQL database maintained at the Federal Reserve, they could choose to open its records to audit. They refuse right to counterbalance its opacity. And we touched a little bit on this earlier. There's an army of macro economists, analysts and market commentators poor poring over every detail of the statements issued by central bankers, including not only their words, but their tone, delivery and even their wardrobes.
- [64:58]
Anthony Pompliano
It's incredible.
- [64:58]
Jameson Lopp
It's unbelievable.
- [65:00]
Anthony Pompliano
Did they say dovish?
- [65:02]
Jameson Lopp
Yes. Was her tie yellow? It's unbelievable. So to understand how absurd this is, imagine if a semi governmental agency was put in charge of setting prices for automobiles. Ask any free market capitalist if this seems like a good idea and he will sell spew vitriol at you for even suggesting such a socialistic method of managing prices for automobiles. Any true capitalist will tell you that only the market should determine prices at the intersection of supply and demand. But then very smoothly point out to them that the Fed sets the pricing of the US dollar, which is the interest rate, which is the United States most valuable export market, and does so based on undisclosed criteria, including closed door discussions. Indeed, fiat currency is antithetical to free market capitalism. It is monetary socialism.
- [65:53]
Anthony Pompliano
Explain very quickly the interest rate and how that is the pricing of the US dollar and this idea that it's the most valuable export market.
- [66:02]
Jameson Lopp
Yeah, so essentially with money you have the supply of loanable funds, if you will, which would be the money supply. You have demand for loans. And wherever supply and demand crosses is the price, which is the interest rate. And that's just the interest rate you see on loans. But the Fed sets this price like as if the Fed came out and said all cars are $20,000 or all 25,000. And as we know from, you know, studying Soviet Russia and whatever. Every time you try to interfere with free market dynamics, you create surpluses or shortages. It just causes damage to the economy. The market has to clear at the price price the market clears at.
- [66:37]
Anthony Pompliano
And this is where you see the current president, President Trump, absolutely railing on the Federal Reserve publicly via tweets, et cetera, saying, hey, other economies are doing X or yes, we're not, they have an advantage, we don't, etc. Some of that is he doesn't have control. Right. Or his, you know, kind of executive branch doesn't have control to the opacity of the rules and criteria, et cetera, but also the optimization for different things. Right. One of the. One of the things that I forget, I really wish I could remember who said this, because I thought it was just incredibly clear in the way that they described it. They said, central bank's job is not to manage money. The central bank's job is to manage economies of which money is a tool to do. And I thought that it was very interesting because again, take the president, take an entrepreneur, take an investor, take the Federal Reserve. All four of those people exist in one single economy. They all may be optimizing for different things and therefore want different things. In a free market, the market is the ultimate referee.
- [67:41]
Jameson Lopp
Yes.
- [67:42]
Anthony Pompliano
In this world, that's not the case.
- [67:44]
Jameson Lopp
Absolutely. Yeah.
- [67:45]
Sponsor/Advertisement Voice
It's.
- [67:46]
Jameson Lopp
You know, the Federal Reserve and central banking in general is intended to be politically agnostic. Right. The President's supposed to have no say in it, but you can just see, you put people in charge of something, it becomes political, politicized, it's inevitable. And Trump's just taking it to the ultimate extreme where he's tweeting directly at these guys. This tweet the other day, who's the worst enemy for the U.S. you know, the Chinese president or Jerome Powell?
- [68:08]
Anthony Pompliano
Oh, did he say that?
- [68:08]
Jameson Lopp
Something like that. What the world are we living in?
- [68:12]
Anthony Pompliano
So it's hard, man.
- [68:13]
Jameson Lopp
It's crazy. It's truly crazy. So I can say that in markets, sunlight is the best disinfectant. When everyone can see the criteria and process behind a dispense decision, they are more likely to deem it trustworthy. With Bitcoin, the algorithm which sets its money supply is totally transparent, meaning people can universally agree that the system is fair and unbiased. As an open source monetary protocol, Bitcoin is essentially the principle of radical transparency and perpetual action. And bankers hate this because bitcoin basically automates the functions of a central bank, which are maintaining money supplies or monetary policy, reaching consensus as to account balances and facilitating international value flows. This transparency in money also gives us the restoration of strong property rights and money. Few people realize that monetary inflation is a direct violation of property rights. Crazily, this is a legally enforced injustice. Right? We're talking about the cornerstone of capitalism that's legally enforced, that we're breaking. It's legalized. Counterfeiting is what inflation is. Printing money is like amending the list of who owns what, since money can be used to obtain anything in the market and a corruption of the private property rights intrinsic to capitalism itself. So Bitcoin as an answer to this is an uninflatable, confiscation resistant, free market based money. This provides its users with stronger property rights than inflatable, confiscatable and deauthorizable fiat currencies. So in this sense, Bitcoin is the purely transparent alternative to the opacity of central banking. It is a beacon of light out competing an industry purposefully shrouded in darkness. Once properly understood, Bitcoin's superior visibility inescapably enhances its believability.
- [70:05]
Anthony Pompliano
Explain that. So Bitcoin's superior visibility inescapably enhances its believability.
- [70:14]
Jameson Lopp
It is an immutable, unbreakable rule set. Whereas the rules in fiat currency and central banking are shifting all the time based on political agendas and twists and turns.
- [70:25]
Anthony Pompliano
Bitcoin is the ultimate meritocracy because it can withstand any attack.
- [70:29]
Jameson Lopp
Exactly.
- [70:30]
Anthony Pompliano
Whereas the existing system is based on who says it, when they say it, where they say it, how they say
- [70:37]
Jameson Lopp
it, subject to political capture.
- [70:38]
Anthony Pompliano
I think it's not the merit of the idea that wins.
- [70:41]
Jameson Lopp
Exactly, exactly.
- [70:42]
Anthony Pompliano
Right.
- [70:44]
Jameson Lopp
So as, and once you see that, you know, again, once you have that light bulb moment with Bitcoin, you can't unsee it. Like, I think clearly you've seen it. It's, it is, it's, it's an epiphany. I don't know what else to call it really. And as you've said, Ray, quote, having nothing to hide relieves stress and builds trust, unquote. Transparency and reliability are the essence of Bitcoin's utility as money. So how do you not believe in bitcoin? Right? And it's truly unique in that its supply is absolutely predictable and absolutely scarce. So in this sense, Bitcoin is the most credible monetary policy in human history, out competing the least trustworthy monetary policies in human history.
- [71:27]
Anthony Pompliano
So I recently have started to talk about this much more publicly, which, which is going back to your point earlier. About why can't a new Bitcoin get created. Everyone always thinks and talks about this from a technology standpoint. Well, fiats are all going to get digitized. Right. You know, other people can create digital currencies. True. On a technology competition, kind of horizontal playing field, everything is going to be digital, whether it is Bitcoin, whether it is a fiat currency, a new digital currency, etc. But that's not where the competition ends up. Right. It's like saying, hey, there used to be Internet companies versus non Internet companies, now they're all Internet companies. Right. The competition is at the monetary policy level. And what you said here is Bitcoin is the most credible monetary policy in history, out competing the least trustworthy monetary policies in history.
- [72:16]
Jameson Lopp
Yes.
- [72:18]
Anthony Pompliano
From a monetary policy competition standpoint, this is a landslide.
- [72:23]
Jameson Lopp
Yeah.
- [72:24]
Anthony Pompliano
In terms of which one is more transparent, which one is more believable and which one is more predictable.
- [72:30]
Jameson Lopp
Yeah.
- [72:31]
Anthony Pompliano
If those three things end up being important, I think we know who the winner ends up being. If those three things for some reason end up not being important, then other currencies have a choice. I think you and I are in the camp of those three things are pretty damn important.
- [72:45]
Jameson Lopp
A quick study of history would tell you have been and in theory always would be important. Right. So long as people seek to store their wealth across time. So as long as human self interest is a thing, the scarcest money wins. Right. That's what gold is. And now that's what Bitcoin is. So Bitcoin's rapidly gaining a track record superior to central banks across all dimensions. Reliability, predictability, auditability, cost effectiveness and resistance to censorship or manipulation. It is thereby further eroding the believability of central bankers, which is in shorter supply with every dollar printed. Which brings us to the third formulaic element of Ray's idea meritocracy, the principle of believability weighted decision making.
- [73:33]
Anthony Pompliano
I don't even know what that is.
- [73:35]
Jameson Lopp
Yeah, this is a. This one's a mouthful. So Ray describes it as, quote, when you're responsible for a decision, compare, compare the believability weighted decision making of the crowd to what you believe, unquote.
- [73:48]
Anthony Pompliano
So the believability weighted decision making. Okay, yeah.
- [73:53]
Jameson Lopp
So if we look at fiat currency in terms of believability, the best performing central bank fiat currency in history, as we mentioned earlier, was The British pound as lost 99.5% of its value in 317 years. And when it comes to maintaining purchasing power across time, gold has a believable track record. Whereas fiat currencies could barely be less believable an ounce of gold. This is a popular one. An ounce of gold is roughly equal to the value of fine man suit for over a century, whereas the cost of the same suit in dollars has skyrocketed. Further, the implementation of fiat currency offers limited to no assurances to its users that their wealth will be protected from confiscation, censorship, inflation or counterfeit. And even if you believe in central banking flat out, and you just committed to it, you would still be really hard pressed to defend the believability of central bankers themselves. Not only for their missed forecasts as you alluded to earlier, but a number of other things. So, as Ray says, think about people's believability, which is a function of their capabilities and their willingness to see what they think, keep their track records in mind. In terms of capabilities, central bankers have arrogated themselves virtually unlimited latitude to manipulate the supply and price of fiat currency in pursuit of politically determined ends. They have exercised these privileges based on largely undisclosed criteria and are notorious for their veiled communication styles. In other words, central bankers seem quite unwilling to say what they think think and their decision making criteria are shrouded in falsehood. And in regards to track records, central bankers likely hold the world record for the most abysmal performance in history. They've caused multiple waves of currency devaluation and unemployment during their reign over money over about the past century. And since reputation must be earned through honesty, it is unsurprising that central banks have struggled in this respect as their business model is built on deception.
- [75:53]
Anthony Pompliano
So one thing that I'm going to say here, which I think is an important thing and I've thought a lot about earlier you were talking about, central bankers seem quite unwilling to say what they think. Some of that is because it is personally valuable or from a central banking standpoint, it's valuable for them not to say what they think. Right. The other part is the words they use are important because people nitpick over every single word. So it's almost like you have this self fulfilling prophecy of I'm going to be careful what I say because that's what's good for central banks, for dollar dominance, etc. And then, oh, by the way, now you're going to be super nitpicky. So then I really can't say what I mean. And you know, it kind of just reinforces itself over and over and over again. And somebody once said to me they were like, Jerome Powell's got the Hardest job in the world. Because literally if he says one wrong word, all kinds of chaos can ensue.
- [76:50]
Jameson Lopp
He can't win. He can't win.
- [76:52]
Anthony Pompliano
And so I'm actually of the belief that the job is near impossible. Right. It's incredibly difficult. Predicting gdp, all this stuff is just super, super difficult. And so the individual people are really just trying to do their job, right?
- [77:07]
Jameson Lopp
Yes.
- [77:08]
Anthony Pompliano
Now from a systematic macro standpoint, huge issues, it's no one single person who is responsible for that. Right. It's over time, it's a lot of people, different organizations, et cetera. But separating the people from the structure I think is really important. And it's very similar to like a lot of people go to work and just wanna do their job. I think most of them actually think they're doing what they're supposed to be doing. I think you and I are talking about the macro system here, which is very, very flawed over a long period of time.
- [77:34]
Jameson Lopp
Absolutely. I mean the system for by virtually every measurement does not work. And the job is impossible because trying to hold back free market dynamics is like trying to hold back the tide.
- [77:47]
Anthony Pompliano
Right.
- [77:47]
Jameson Lopp
These things, they play out, they're natural organizing principles, they're intrinsic to nature. You can't fight mother nature. So I think we're just, you know, we saw Soviet Russia collapse when they tried to centrally plan everything in the economy. We out competed them because we gave free market reign to everything except money. But now we're just going to see central control over money fall for sure for the same reasons. So another way to look at the believability of money is by setting facts versus opinions. Opinions are like soft money and that they can easily be diluted and distorted, which is very clear in politics, for instance. Facts though are like hard money in that they are rooted in scientific realities. In the case of gold, these are chemistry and physical rarity. And in the case of Bitcoin these are mathematics and thermodynamics. So said simply, do we believe the largest market in the world is best governed by opinion or fact?
- [78:43]
Anthony Pompliano
And again, this goes back to my question. Why do so many intelligent people fear facts? Fear truth? Yeah, keep going.
- [78:50]
Jameson Lopp
Yeah, it's crazy. So in this respect I'd say buying Bitcoin is like buying a put option on central banker malfeasance or going long facts and short opinions, which is kind of like your long bitcoin short. The bankers I guess said differently.
- [79:06]
Anthony Pompliano
Long facts and short opinions is probably a more popular way to sell long bitcoin short to bankers.
- [79:14]
Jameson Lopp
So the reason Central bankers cannot be believed is because they lack central skin in the game. Taleb sums up skin in the game nicely by saying, quote, don't tell me what you think, just show me what's in your portfolio, unquote. And regardless of what they say or think, central bankers have been stuffing their portfolios with gold lately. And that is the indication of gold as dominant free market money. So money, which is the largest and most critical market in the world, simply cannot evolve without practitioners who are subjected to real world consequences and trade offs in real time. Since central bankers don't face the consequences of their decisions, they suffer from the agency problem, which is a conflict of interest inherent to any organization where one party is expected to act in another party's best interest, but is not exposed to the proper balance of incentives and disincentives to do so. So said simply, if you lack skin in the game, then you lack believability. Right.
- [80:15]
Anthony Pompliano
And just real quick, I just quickly googled central bank gold buying. So central banks accumulated over 668 tons in gold purchases this year, which is more than 2018's record numbers. So 18 set a record, 19 surpassed it. In fact, the key drivers in gold demand this year stemmed from central bank purchases, most of which were bought 390 tons during the first two quarters of 2019. And so the central bank gold purchases in 2019 surpassed last year's 50 year high.
- [80:52]
Jameson Lopp
Exactly.
- [80:52]
Anthony Pompliano
And so for the last 50 years, central banks have never held more gold or bought more gold. Going back to your believability, that all came from Bitcoin.com and we, you know,
- [81:02]
Jameson Lopp
the corollary is we've never printed this much money. Right. So they're literally hedging against one another's counterparty risk holding each other's currency, which
- [81:10]
Anthony Pompliano
again going back to individuals versus the macro system, if you're an individual sitting in that seat, you know you're printing a lot of money. And also there's a hedge out there. The rational thing is to buy a bunch of gold while you print.
- [81:19]
Jameson Lopp
Absolutely right.
- [81:20]
Anthony Pompliano
So they're doing what is rational from their seat.
- [81:22]
Jameson Lopp
Yes.
- [81:23]
Anthony Pompliano
What we're talking about here is the more macro structure is flawed and that's why they're having to do what they're doing.
- [81:27]
Jameson Lopp
And I would say
- [81:30]
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- [82:40]
Jameson Lopp
to make good economic decisions. You could completely ignore everything they say and just watch that pattern alone. So Skin in the Game explains why ancient Roman architects were required by law to stand beneath their monolithic arches when the scaffolding was removed, often with their families.
- [83:00]
Anthony Pompliano
I love that.
- [83:01]
Jameson Lopp
So this deadly disincentive to malperformance worked wonders as some of the oldest arches constructed in this way are still standing at over 2000 years of age. So what if central bankers were subjected to the devastation they inflict on economies? Should their decision making not work out, perhaps the world would still be on a gold standard and the dire need for Bitcoin today would be drastically lessened. So without skin in the game, your interests are inherently conflicted and you suffer from an agency problem anytime you're managing other people's money. And this includes central bankers. And this is why most asset allocators prefer to invest in hedge fund managers that have a substantial amounts of their own net worth tied up in their funds. Because that is skin in the game. Right. And it's also why central planning always causes moral hazard, because the overlords are not exposed to the depravity they inflict on their people.
- [83:51]
Anthony Pompliano
So an important piece here is part of inflation that rarely gets talked about is that inflation actually causes wealth inequality.
- [84:03]
Sponsor/Advertisement Voice
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- [84:04]
Anthony Pompliano
And the reason this occurs is that as we print more money, the currency itself, so dollars become less and less valuable. Right? Just inflation is devaluing the dollar. But the wealthy, the elite, the rich, the top really 25 to 50% of individuals, they don't keep 100% of their wealth in the currency. They keep it in real assets. And so if the currency is being devalued Away, the asset prices actually rise.
- [84:36]
Jameson Lopp
Yes.
- [84:37]
Anthony Pompliano
So what we get is we get this very specific separation in a population. So take the United States, for example. At least the bottom 50%, if not more, cannot afford a 4 to $500 emergency payment. So what that means is they live their life paycheck to paycheck with near 100%, if not 100% of their wealth in cash. And every year that is being worth less and less. This is the feeling of, I can't get ahead, I can't get ahead, I can't get ahead. So inflation is eating away at their wealth. The remainder of the population, whether that's 30, 40, you know, 50%, they take a portion, usually a majority portion of their wealth, and they do not leave it in cash. They buy stocks, they buy real estate, they buy all kinds of different assets, art all stuff. As the dollar is devalued away, you then get asset price rising. So you're getting the quote unquote poor, or the people in cash are getting poorer and the quote unquote wealthy, those within real assets are actually getting richer. The rich get richer, the poor get poorer. And this is exactly what you're talking about here is not only is this centrally planned, planned model, they don't have quote unquote skin in the game from a. Well, if you make bad decisions, but on top of that, their own personal wealth is protected from this inflation and devaluation because they actually own real assets. They don't hold cash.
- [86:07]
Jameson Lopp
That's right.
- [86:09]
Anthony Pompliano
That is why we're getting the wealth inequality gap that we have. And if we can remove that structural issue, all of a sudden we have a much more fair, equal world.
- [86:21]
Jameson Lopp
Yes.
- [86:22]
Anthony Pompliano
There's a lot of people who don't want to see that happen.
- [86:24]
Jameson Lopp
Absolutely. I think one of the biggest consequences of that is you see real estate prices soaring.
- [86:32]
Sponsor/Advertisement Voice
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- [86:32]
Anthony Pompliano
It always goes up, doesn't it?
- [86:33]
Jameson Lopp
This is residential, this is corporate real estate. It's everything. And this has a really perverse effect because I would argue that people sort of near the top or in the middle put a lot of their wealth in their house. Right. And because they're trying to protect it from inflation. Right. It's their nest egg. It's their savings tool. This has a perverse consequence, though, of causing the market prices of homes to go to create a bubble and actually drives homelessness. So consequences. If you look at the money supply increase from 2008 to today and the increase in the homeless population in this country, they're very highly correlated. And I would argue that that's why. Right. You're pricing people out of homes.
- [87:14]
Anthony Pompliano
And if you overlay that same chart with wealth inequality charts, somehow it looks very similar.
- [87:20]
Jameson Lopp
And the S&P 500. Right. Looks very similar.
- [87:24]
Anthony Pompliano
And part of this too is I. What I find, especially when it comes to bitcoin, you know, you and I talk to a lot of different types of people. We're all kind of trying to figure it out. When I get behind closed doors with intelligent people in the finance industry, they all know this happens. It's not fun to talk about. It's not in favor to talk about. It's not. It doesn't make it easier to go to sleep at night, et cetera. But it is important to talk about.
- [87:49]
Jameson Lopp
Absolutely.
- [87:50]
Anthony Pompliano
And the more that we talk about it, the more awareness there is towards it. And I think that awareness drives the desire to fix it. Right. And so if people don't talk about it, I don't care how uncomfortable it is, you can't fix that problem. And it goes back to the idea of transparency and truth.
- [88:07]
Jameson Lopp
Absolutely. Again, everything starts out as an idea. Right.
- [88:10]
Anthony Pompliano
Shocking. And it's almost like Dalio's onto something. Yeah.
- [88:14]
Jameson Lopp
And I forget who said it, but someone said there's nothing in the world that can stop an idea whose time has come. It's true. And it feels like bitcoin's time has come.
- [88:23]
Anthony Pompliano
We're going to get into that.
- [88:24]
Jameson Lopp
All right, so talking about skin of the game, central banks have none, essentially. And on the other hand, all market participants in bitcoin have skin in the game. The node operators are incentivized to maintain the rules. Miners are incentivized to sanctify the bitcoin ledger efficiently. Developers expend their time supporting an open source project. Bitcoin holders expend real resources to acquire their bitcoin. All of these bitcoin market participants are just like the ancient Roman architects standing beneath their newly unscaffolded arches. They all have skin in the game. That's what makes the system work.
- [89:01]
Anthony Pompliano
There's a lot of bitcoiners who just got super excited when you described them as Roman architects standing beneath the really unscaffold arches. All right, go ahead.
- [89:09]
Jameson Lopp
So to pull it all back together, going back to Ray's formula that we outlined or that Ray gives us for the idea meritocracy and its free market equivalent, we have the idea. Meritocracy equals radical truth plus radical transparency plus believability weighted decision making, which is equivalent to the free market format of free markets. Equal truthful price signals, transparent and reliable rule of law, private property rights and hard money plus skin in the game, weighted decision making. Based on what we have learned so far, we can translate these equations once again into central banking and Bitcoin versions where we have central banking equals untruthful price signals because they broke the honesty of money. There's still transparent and reliable rule of law because central banking doesn't really affect the rule of law so much. But they have marginalized private property rights because they confiscate people's wealth via inflation. And they have soft money. Right. It is not free market determined and it's use as a mechanism of control. And they have the agency problem, weighted decision making. They don't have skin in the game, so they have an agency problem instead.
- [90:23]
Anthony Pompliano
So central banking equals untruthful price signals plus transparent reliable rule of law, marginalized private property rights and soft money plus agency problem, weighted decision making.
- [90:33]
Jameson Lopp
Yes.
- [90:34]
Anthony Pompliano
How's that compared to Bitcoin?
- [90:35]
Jameson Lopp
And so Bitcoin on the other hand has absolutely truthful price signals. This is something that is even. It's even more scarce than gold, right? Gold is relatively scarce. Bitcoin is absolutely scarce, which makes it the perfect medium to move price signals through, essentially. It also has transparent and reliable rule of law. It has private property rights which are restored in Bitcoin because it's uninflatable. You can't steal people's Bitcoin via inflation or confiscation. And it is an absolutely hard money, meaning that it's free market determined and it can't be inflated at all. Plus it has skin in the game weighted decision making as we just covered with its market participants. So in this sense, Clearly Bitcoin is 100% consistent with the equation for free markets, whereas central banking is almost entirely inconsistent. Since this free market equation is equivalent to the idea meritocratic equation, we may deduce Bitcoin is completely consistent with Ray's formulation of the idea meritocracy and central banking is not. So if we go all the way back to the beginning to raise original assessment of Bitcoin, assuming Ray's principles are stated forthrightly, how can he possibly be a non believer in Bitcoin? Bitcoin is both an idea meritocracy and a free market. As you said Ray, quote. When someone says I believe X and ask them what data are you looking at? What reasoning are you using to draw your conclusion? Unquote. So let me ask you Ray, after Bitcoin's impeccable performance for over a decade. It's had over 99.98% uptime. It's never been hacked. It's evolved into the most secure computing network in the world. It's storing around 200 billion in market value depending on the day. And it has cleared over $1 trillion USD value of transactions in total. What data and reasoning are you using to draw your conclusion about Bitcoin, Ray? My guess is that like many smart people, you have disregarded Bitcoin at the outset in accordance with one of your favorite principles. I implore you to keep an open mind about Bitcoin and perhaps you'll come to see it as an embodiment of open minded, open mindedness itself.
- [92:49]
Anthony Pompliano
So let's stop there. We've probably got another 15 or 20 minutes and I want to talk about a couple of things. The first is I'm not going to compare Ray Dalio and Warren Buffett. They're two very separate types of people, I think, very separate thought processes, et cetera. I'm in the camp when it comes to Warren Buffett of let's not ask the person who openly states, hey, I'm not a technologist, I don't really understand the technology, technology stuff. I'm usually a little bit later than most. They're probably not the best person to happen.
- [93:22]
Jameson Lopp
Half his portfolio is banks, of course, right?
- [93:25]
Anthony Pompliano
The whole thing, that's, you know, I think most people understand that. They listen to me. Ray's different. Is it important for Ray to believe in Bitcoin for Ray to publicly come out and state that he sees value in it? Or is he in the camp with many others where it doesn't really matter. Bitcoin doesn't care.
- [93:45]
Jameson Lopp
I would say it doesn't matter what any of us individually think at all. It's up to the market to decide. Right? Market select the market is the referee. That's right. Market's a referee. Market is selecting bitcoin currently. But I do think because of the violation of civil liberties that central banking represents, that it would be encouraging to see a thought leader, someone of race, stature and the space to come out and speak positively about Bitcoin. I think that would just be a good humanitarian effort, if you will. But it doesn't matter. The market will decide the king.
- [94:22]
Anthony Pompliano
You've done a fantastic job of laying out what I'll call the structural reasons of not only one, why the existing system has flaws and likely those flaws can be accelerated or exasperated to ultimate failure. You've also laid out this argument for why structurally Bitcoin is a solution, if not the solution, and how it can very quickly continue to double and triple down on its benefits and ultimately kind of have this ascension or rise in the world, where do we go? Right? And what I mean by that is can Bitcoin become the next global reserve currency? Can Bitcoin be used as a unit of account? Will it just. How do you think about where we sit today in 2020 and kind of what happens over the next 10 to 20 years?
- [95:24]
Jameson Lopp
So there's an excellent book that's very popular called the Sovereign Individual. This book was written in the mid-90s, I believe, and was very prescient in the sense that it predicted. It predicted anonymous cyber cash, that is Bitcoin. It predicted the digitization of securities, which I think is next. And the thesis of this book is that society comes to reflect the technology on which it is built. So when the industrial giant, huge industrial complexes, basically to move the earth and build the buildings and all the things, so we developed around that a gigantic nation state. And the argument is that now that society is being facilitated by the microprocessor and digital technology, that will actually shrink the role of government and we'll see a dramatic decentralization of government over the coming years. And so I think we're moving into a world where the role of government and the nation state in our lives as kind of this oppressive institution is going to be declining gradually and then suddenly at some point. And it's really hard to see past that. This thing, you know, the nation state model is so fundamental to our identity, right? We all, I'm an American, I'm this, I'm that. But at the end of the day, we're all just people on the planet. So I think it's as much of a cultural epiphany as it is a financial innovation, as it is almost a religious change. It's really profound as that occurs.
- [97:01]
Anthony Pompliano
Governments, central banks, others kind of those in power, they're not going to just say, oh, show's over, shut the lights, close the curtain, let's go home. Let's, let's, let's go take our bow first. And then we're going to go home, right? We're seeing some steps that we've seen before, right? So in past recessionary periods, the two things that we've seen happen are on average, we see interest rate cuts of about 500 basis points or more. And then we see quantitative easing, right? The printing of more capital, the interest rate cuts. We've seen a little bit happening, obviously, where we sit today, we don't have 500 basis points to cut. So there's the likelihood we're going to zero or if not negative. There are some areas in the world where we've gone negative already. Two is the printing of cash in the United States. You know, there's a whole bunch of controversy, should we do it now, should it happen later, whatever. But one of the things that recently came out is Hong Kong. So they're dealing with two specific issues right now. They've got the protest, kind of the anti Beijing or anti China conversation. A lot of what was very peaceful and at times has become violent and then gone back peaceful and kind of bouncing back and forth protest. And then they've got the coronavirus, kind of this, you know, virology related thing that really, to me, the coronavirus is less about the virus is going to go kill millions of people and it's more about creating fear, which leads to economic slowdown.
- [98:29]
Jameson Lopp
Yep.
- [98:29]
Anthony Pompliano
Right. And so if you get protests, which obviously shut down cities, etcetera, you get economic slowdown, you kind of exasperate that with the virus. So down. They've introduced a 15 billion dollar economic stimulus plan recently. And as part of that plan they are going to give 10,000 Hong Kong dollars, which is the equivalent of about 1200 bucks US to seven plus million citizens helicopter money. So we're seeing it in action. It used to be we would print the money and go buy assets to inject the money into the financial system. I saw multiple articles from what many would consider legitimate, truthful mainstream media organizations. Some would say that's an oxymoron, some would not. But these are well respected publications and things that I read on a daily basis and phrases like giveaway.
- [99:24]
Jameson Lopp
Yeah.
- [99:25]
Anthony Pompliano
Were being used. And as I sat there and I thought about this, it's so crazy, all I could say to myself was, you don't give away something that has value, right? Yeah, I've never done that in my life. Because even philanthropic, etc. You get back, whether it's moral rewards, you get back intellectual rewards.
- [99:51]
Jameson Lopp
Right.
- [99:51]
Anthony Pompliano
You get back kind of, you're in a better mood. Like there's always some, I give something, I get something in return. Helicopter money is coming.
- [100:03]
Jameson Lopp
Yes, it is.
- [100:04]
Anthony Pompliano
And the reason I want to talk to you about this is Ray Dalio has pretty much said we've got modern monetary theory which is essentially helicopter money. Whether you think it's good or not, it is on the horizon and we're kind of speeding towards that.
- [100:22]
Jameson Lopp
Yes.
- [100:23]
Anthony Pompliano
What does that world look like.
- [100:27]
Jameson Lopp
So I guess a couple of things, and I believe the figures are by the year 2022, the US government will be generating tax revenue below its interest expense debt. So if you can imagine trying to. If you made.
- [100:45]
Anthony Pompliano
So we're like unit economic negative.
- [100:47]
Jameson Lopp
If you made $100,000 a year, but you paid $120,000 a year of interest on your credit cards, you can only imagine what direction you're going.
- [100:56]
Anthony Pompliano
Like as far as a widening loss,
- [100:58]
Jameson Lopp
you're going to bankruptcy. Like it's, it's mathematically certain.
- [101:02]
Anthony Pompliano
When is that going to happen?
- [101:03]
Jameson Lopp
I think it's 2022. When.
- [101:05]
Anthony Pompliano
Oh, this is like two years.
- [101:06]
Jameson Lopp
A couple of years, yeah. And that's.
- [101:10]
Anthony Pompliano
So let's say people are bad at math and happens in 2025.
- [101:13]
Jameson Lopp
Yeah. So you've got it going that direction. And then I would say that. And that's all the while tearing society apart at the center. Right. Driving this wealth disparity. So you have this buildup of populism, this potential of social revolt. You know, people are in the streets, they're mad. We've seen this all over the world. You really saw it after 2008, the occupation, Occupy Wall street movement. And it's almost like the fiscal and monetary policy tools just get more and more creative to try and fight those fires. And I think helicopter money is probably just the last expression of that. Just really trying to give people money to make ends meet. But at the same time, you're driving hyperinflation of said money in the, in the near term by printing that much money. Right.
- [102:01]
Anthony Pompliano
So is it better to give it to the people rather than to buy assets?
- [102:06]
Jameson Lopp
I guess in the short run, perhaps. But at the end of the day, when you're printing this much money, value flows to scarcity. Right. So we're talking about real estate businesses, gold, and you know, the scarcest liquid asset in human history, Absolutely scarce, Bitcoin. So I think you just have to watch the actions of central banks. Again, they're buying gold and then protect yourself with owning real things, not storing your value in currency. But in any case, it's ugly. The end is ugly. Right. It's literally tearing apart the trust fabric, the whole society together. And it's painful for everyone.
- [102:50]
Anthony Pompliano
What's your biggest fear over the next decade when it comes to the relationship between bitcoin, central planned money and I'll just call it the economy in general, the financial system
- [103:05]
Jameson Lopp
biggest fear? You know, I guess a lot of this has to do with how quickly it happens. There's Actually, if hyper Bitcoinization, which is a term where Bitcoin becomes the dominant one world reserve money a lot of people use, if that happened today, I actually think it would increase the wealth disparity a lot.
- [103:27]
Anthony Pompliano
Why?
- [103:27]
Jameson Lopp
Because Bitcoin's not widely penetrated in the world, right? Less than 1% of the world hold it. So if it happened Today, you'd have 1% all of a sudden holding the most valuable asset in the world and 99% excluded. So I think if hyper Bitcoinization happens too fast in the short run, it could maybe exacerbate the, the problems. Now in the long run, it's clearly better for all the reasons we outlined today. But the transition, it's just hard to predict the timing of. And you know, transitions are inherently bloody. So I guess concerning.
- [104:01]
Anthony Pompliano
One of my last questions for you is we talked a lot about this centrally planned money and economies. Is it bad? Like having essentially planned economy and money to some degree instills order. The free market can create chaos, it can create volatility, price discovery, all this stuff. Is it all bad or is it just macro level, long term, not good? How do you think about that?
- [104:33]
Jameson Lopp
Taleb would say you can suppress the volatility inherent to nature in the short, short run, which central banks are designed to do, right? Price stability, target unemployment, etc. But all you're doing ultimately is delaying the nonlinear outcomes of this volatility into the future and making it worse. You're amplifying it. So I think anytime you try to impose a regulation or central planning body on a free market system, it may be better in that medium term that the system operates and functions well, as it has for some time now. But the ending gets worse and worse. So if we're keeping the ends in mind. No, the free market is the ideal organizing principle for humanity.
- [105:16]
Anthony Pompliano
What's the best book you've ever read?
- [105:18]
Jameson Lopp
Holy shit. You're gonna ask me that? You know, a long time ago, I read a book called the Dao of Way off the Beaten Path. But for me, when I was a kid, I was a very scientifically minded kid and didn't have much of a respect for the spiritual domain. But this book bridged the two for me. It drew, I think the subtitle of the book is the Parallels between Ancient Eastern Mysticism and Quantum Physics. And that book is incredible. It's written 25, 30 years ago, but it just made me a more whole person, I guess.
- [105:58]
Anthony Pompliano
What's the story behind the tattoo?
- [106:01]
Jameson Lopp
I have a bitcoin tattoo on the inside of my right arm and I got this.
- [106:06]
Anthony Pompliano
It is the bitcoin symbol with the circle.
- [106:08]
Jameson Lopp
It is the bitcoin symbol.
- [106:10]
Anthony Pompliano
Oh, he just flexed. He flexed. Watch out.
- [106:12]
Jameson Lopp
Get the police. He just flexed.
- [106:14]
Anthony Pompliano
He literally just flexed his bicep.
- [106:19]
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- [108:28]
Jameson Lopp
Thanks for watching. If you enjoyed this episode, click here to find more just like it and here to find our most recent episode. Also, make sure to like this video to help shine light on the corruption
- [108:39]
Sponsor/Advertisement Voice
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