← Tom Bilyeu's Impact Theory
Tom Bilyeu's Impact Theory
Middle Class Is Wiped Out! - Arthur Hayes’ Warning On Money, Bitcoin, War, China & Economic Collapse PT 1
01:16:04
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- [00:01]
Arthur
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- [00:09]
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Arthur
Bitcoin is worthless if you do nothing with it. If no one trades another Bitcoin ever again, it falls to zero.
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Interviewer
Hold on. That's a very big statement.
- [00:54]
Arthur
There's chaos in the universe. It's always increasing. Everyone's going to go to war at some point, so everyone's beefing up a defense.
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Interviewer
The incentives you create by allowing the government to steal is so wrong that we're going to create an entirely new system.
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Arthur
You've accomplished nothing. We have not done what Bitcoin is there to do, and therefore we will be rewarded with zero.
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Interviewer
Do you think that we are in a truly once in a lifetime moment that people should stop, pay attention, figure out what their crypto strategy is?
- [01:26]
Arthur
Absolutely. We are at the culmination of the post World War II period. We've had four generations since then, so all the people who fought in the war pretty much dead. So we've lost that knowledge, that reticence to ever do something stupid and terrible like a total world war ever again. Now we have people around the world who are celebrating these leaders who are bombing indiscriminate civilians because it's, it, you know, solves their particular issue, whatever that is, because we don't have this institutional knowledge. Everyone else is dead who would participate in World War II. So. And we also have a, a situation where, you know, the United States did very well out of World War II and created a whole global system that, to preserve their hegemony. And now that's coming undone. And, you know, when top dog is getting challenged by the dogs at the bottom, there's always conflict. And so we're at that point in time, we have no institutional memory of how bad war is. And we have a preeminent power that's being challenged by others who was going to resort to violence to preserve their position. I think we are at this situation that has happened in the past many times. Empires have come and gone. But now we have, for the first time in human history, a an ability to save in a currency. Bitcoin and the cryptocurrency situation in general, that is globally owned by everyone. And so the people own a new type of money. It's people around the world can still sell their fiat whatever and buy bitcoin. It's not blocked or banned in most places yet. And so you're able to move wealth between this analog system that we've had for thousands of years and to a new way of socially creating financial wealth, the financial system, a new type of money. This sort of, this sort of situation is never going to happen again because we have all these fiat assets that are being depreciated and everyone knows it's happening. And now we have this little small door called bitcoin and people are starting to go through the small door. And that's why the bitcoin price is up, I don't know, 50% or 60% this year already. As now we have the institutional investors saying, yeah, I understand this game is rigged. I helped rig the game. Now I have a product where I can get out of this mess that I created. Get me the fuck out of government bonds. I want some of this bitcoin too. So now everyone's competing to get in this little door, and that's why the price is going up. So this is a once in a lifetime opportunity. We have a system reset and we have a way to preserve wealth from the old system and bring it into the new system. And that's what crypto is, all right, that's powerful.
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Interviewer
So if we think of crypto as the arc that we can all get on before the rain comes, the catch is that you've got all kinds of different cryptocurrencies, all kinds of different theses about which one we should be getting into. What's your take? How do you break down the world of crypto?
- [04:24]
Arthur
So bitcoin is the reserve currency, if you will, of crypto. It's the ultrasound money. It's, it's crypto money. It's, and it's proven that's, that's what it cares about. The community of bitcoin cares about security and the immutability of the bitcoin blockchain, and it wants to make it the soundest crypto money. So if you're thinking about, okay, I don't know anything else about crypto, but I kind of believe in this whole inflation and changing global relations story, then just buy bitcoin, right? It's got the largest market cap. It's very conservative with the types of things that are added to the the network. Because. Because everyone wants to make sure that Bitcoin is always the hardest money. So the experimentation is much lower on Bitcoin than other other networks. Next you go to, well, okay, can we build a new financial system within crypto that's decentralized finance? DeFi and Ethereum, in my worldview, is the best decentralized computer that has been built thus far. And so if you think, okay, I think we need a new financial system that's based on these crypto crypto assets, that's decentralized, that's transparent, blah, blah, blah, then Ethereum is where it's at. Then once you get past those two things, I'd say most other things within crypto are either some sort of application that rides on top of Ethereum, or a decentralized, like computer, another blockchain trying to disrupt either being the best money or the best decentralized computer. And then you sort of have to get into the weeds on understanding what it is these protocols are trying to do. So for those who just want to like, close their eyes and buy something that's crypto safe, not saying that's, you know, there's no risk here. I would say Bitcoin and Ethereum are where you should start your journey. And once you say, okay, maybe there's some things I think these protocols could do better, or I've been hearing some things about these exciting new, very smart people building something, then you start going down the rabbit hole of of other coins that do other things and obviously have more risk because they're experimenting more.
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Interviewer
What do you advise people around volatility? I think one of the things that draws people to crypto specifically is the volatility. I'm actually very curious to see what happens to cultural energy around crypto once it's the tried and true thing.
- [06:55]
Arthur
Volatility is your friend. The reason why you're even thinking about crypto is because the price went up a lot and you heard about it. So you want volatility. The entire tradfi traditional government apparatus is trying to do something unnatural, which is remove volatility from the system. Entropy is always increasing. It is unnatural to try to suppress volatility. Think about it like your lawn, if you have one at your house, right? Entropy says the grass keeps growing because that's what the grass does. What do you try to do? You spend energy to cut the grass because you want it to look a certain way. A certain non volatile pleasant way, but it's unnatural. If you don't have the energy to cut the grass, the grass grows. And the grass will grow long after you're gone, because you can only do this so long. And that's the same thing governments and central banks and banking systems are doing. They're trying to squash volatility. We don't want volatility. And they're trying to convince you that it's safe. But there is no such thing as safe. There's chaos in the universe. It's always increasing. They're doing the unnatural thing by trying to remove it. And then at certain points they can't do it anymore. And then there's an explosion somewhere, whether it's a war, whether it's a financial crisis. So embrace the volatility. This is the nature of the universe. And that's why bitcoin and crypto is a good thing. Because there is none of this manipulation. It goes up, it goes down, but it's a true reflection of what the universe is. So I think volatility is a good thing. Obviously that means if you use leverage, be very judicious about it. If you're leveraged, if leverage trading is your thing, that better be your full time job. Like you better eat, breathe and sleep the thing that you're trading, because that's the only way that you're going to survive thinking that you're going to get home from work, put on some highly leveraged crypto trade and just trade for a few hours and then go to sleep. You will lose all your money.
- [08:49]
Interviewer
Okay, volatility as a good thing. Do you think that crypto will lose some of its, its potency, its cultural energy when the volatility begins dying down or will like in a given cycle. The way that this traditionally goes is you've got bitcoin, which has massive volatility but is less volatile than some of the what people lovingly call shitcoins. So people tend to go down the curve. So they'll start with bitcoin, they'll ride that up, as that begins to stabilize and chop sideways, then they're gonna go to the next volatile, if that crashes or whatever, they go to the next, to the next, to the next, constantly chasing volatility. Will that forever be people will just keep introducing new and highly volatile things, or will it become more like gold where it's, it's a far more stable entity?
- [09:41]
Arthur
Well, bitcoin, as you know, law of large numbers, the larger it gets, the less volatile to become and as you mentioned, right. For people who are saying I want to make big gains in a short period of time, bitcoin might not do it for them. They say, well, I need the next new, new, new thing. And so they start trading whatever the new shiny bauble is that's being sold out there in, in cryptol. There's nothing wrong with that. Just recognize what you're trying to do. If you're saying I want to save in a ultrasound money, then yes, the volatility is not a good or bad thing for bitcoin. It's it will go down over time as the asset class gets bigger. If you're saying, I need the volatility, I'm a professional trader, this is what I'm here for, then there will always be a new thing to trade. Because the great thing about crypto is it's this, the only free market left where humans are expressing themselves and whatever it is we think is valuable. There's no manipulating force with, you know, an unlimited bag of fiat currency that's telling us what is a good and a bad investment. And so there will always be volatile things within the crypto ecosystem so long as there's human beings trading it. And then I guess we'll have machines too soon, these AI operators in the ecosystem.
- [10:50]
Interviewer
It's really interesting. So I want to get to the essence of what crypto is. I want to get to the essence of what markets are, why people play them. So I really want to be the contribution that I make to, I mean, anything that I do, quite frankly, is helping people get to the essence of it. To think from first principles to build a thesis. Even though ultimately I think that only the simple spreads. I do want people to be able to understand the nature of this. Do you see markets as gambling? Like, are they gambling at their very nature?
- [11:28]
Arthur
I'd move it even more fundamental. We are gamblers, everyone, all the time, constantly, because we don't know what the future holds. So let's take an example, and I wrote this in a previous essay. So imagine you're going, there's a building. You walk into the building. You can either take the stairs or take an elevator. So the stair, taking the stairs, using your own feet, walking up is safer than the mechanical thing, which is an elevator. But walking up the stairs takes more energy than riding up the elevator. So what do you do? Well, your brain, you know, whether you're conscious of it or not, is constantly evaluating the probability that if I do one of these things, will there, will there be harm that comes to me. And is the probability of that harm outweighed by the gain, whether it's time or energy, by using one or the other modes of transportation? And so you're gambling. You don't know what? Do you know if this elevator is going to break down and fall 30 flights in an instant? No. But you believe that there has been a credible engineer that's designed this piece of technology, that there's a government building codes that govern how it's been installed and how it's been maintained. So the risk of me taking this elevator, even though I don't know if it's going to fail when I get on it, is very, very low. Therefore, I will take the elevator because it's faster and less energy spent than walking up the stairs to the top of the building. Right. So we gamble all day, every day, because the future is unknown. So for people to say that, oh, markets are bad because it's gambling. No, your whole life is a gambler. You do not know what's going to happen one moment to the next. You are constantly assigning a probability to the future. And that's what the market is. The market is for a particular thing. What does the crowd say? The probability of the future of this company building this product, making this money or this asset being worth whatever it's worth in the future. What does the crowd think? That's what the market is telling us. And the market gives us great signals as to what the crowd actually thinks because we're putting our money on the line. And what is money? Money is just energy and our time in an abstracted form. That's why money is the most important thing in any society. Because if you degrade the value of money, you degrade someone's time and their effort and their energy. And it's, you know, it's an affront to human dignity if you degrade the value of the money that they earn by doing work to, you know, earn a living, pay for food, blah, blah, blah. Right. So markets are gambling, but your entire existence is a gamble as well. So I don't think there's a problem with that.
- [14:10]
Interviewer
Okay, this is really interesting, and it goes back to what I was talking about with the ability to save. From where I'm sitting, feels like it should be a human. Right. So, okay, let me just go back and recap what you said. Money is energy and time in an abstracted form. So you go to work and some you do a thing that the world says that they value, which is why somebody's willing to pay you for that, because they're able to create a thing that they sell to somebody. So you spend energy and time creating a thing that people want to buy. Now what that allows you to do is proof of work. So you have this unit of money that you've exchanged for your labor. Now when you are putting that into a system where they can socialize losses. So this is. It drives me crazy how complicated this all is. But let me just walk everybody through what ends up happening in the current Keynesian economic model that we have, which I'll give a brief summation of Keynesian economics. If you see that I've gone wrong in any way, please jump in. Keynesian economics is basically, hey, the market, left to its natural devices, is going to swing wildly. There are going to be massive upsides, there are going to be massive downsides. And if you get to one of the moments where the economy is not able to progress forward, part of the reason it may not be progressing forward, and this was the break from the classical model, is that people are just poor. And so if you stimulate money into the system now, you can get the economy moving again. And so you flatten the curves both on the upside and the downside. So you're squeezing the volatility. By going back to your mowing the lawn analogy, you're injecting energy into the system. The government is putting this new money, which they're making up out of thin air into the system in order to get people feeling like they have money again. It is very much a man made manipulation of the system. But this is essentially what we've been doing since the Great Depression. So Keynes comes up with this idea in the Great Depression and he realizes, hey, wait a second, there are people willing to work. There are factories here that are not at capacity. There are even people willing to buy, and if they just had money, then the economy would start moving again. So, hey, make up money. Okay, sounds amazing until you put it together with what you just said and the fact that this is socializing losses. So, all right, something bad happens. 1929, we have an economic collapse. People got into a bubble. We just got into a bad situation for a whole host of reasons I won't go into right now. But anyway, bad thing happens. The government then says, oh, I'm going to print more money, which is now taking that loss and spreading it across everybody. That's what happens when you're printing money, because there's no new goods put into the system that anybody wants. There's no new labor that has gone into the system. There's only the artifact, what should be the artifact of somebody's time and energy, but it's not. It's just made up. And so that ends up diluting across everybody. So you have individual losses with that are spread across everybody to the benefit of only people that hold assets. So now you get this massive bifurcation. So I'm very worried about the hollowing of the middle class. And going back to what exactly creates this, as far as I can tell, is this. It is this moment right here where you are socializing losses across everybody. So the poor, the middle class, and the wealthy are all going to have their buying power reduced, but only people that have assets are going to get wealthier. And so what's crazy is, if you look at the moment that we're living in right now, you have a growth in the upper class. So if you break lower, middle, upper, you have growth in the upper, and you have growth in the lower, and only the middle class is going down. Now, at first I was like, well, that's kind of exciting. You actually have more people going into the upper class than you have going into lower, lower class. Amazing, right? But as you hollow that out, you get just literal division and warfare within a country. All of that makes sense based on what you just said, which is that money is your time and energy in an abstract form, and it is an affront to human dignity when you begin messing with that system.
- [18:51]
Arthur
Yes.
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Interviewer
Now, laying all that out, this is why I am really unnerved by the moment that we're living in now. And we'll. I'll try to tie this all back to crypto as the potential arc that we're all going to get on as the. The rain continues to fall. But just today, one of my employees came up to me and was like, I'm finally seeing the data that backs up what I feel, which is I just cannot get. She didn't say American dream, but that was the punchline. I can't afford to buy a house. I see other people making huge amounts of money, and I'm not. I'm not able to get ahead. And on paper, it seem like I'm making enough money, but I just don't feel like I'm getting anywhere. And so she isn't positive about the moment that she's in, nor is she optimistic about the future, because there. There are these cues that people look to. Buying nice things, having a nice car, having a nice house, feeling like you can afford children, feeling like when you retire, it's Going to be travel and fancy restaurants, and it isn't going to be me working until I'm 85 and, you know, super unhappy. And so when you take that, you take the anger, you take the frustration, you take the gamestop of it all. Again, people yoloing in, people, I don't want to say following sort of culty ideas, but like an idea will gain momentum and they just get on board with that momentum versus doing what you said. Get your spending under control, figure out your risk appetite, deploy that into an asset class that you believe matches your risk appetite and is going to go somewhere. Okay, so there's been a demoralization of people. They don't understand what it is. But it's not to be too harsh, but it's, it's Keynesian economics. It's the manipulation of the currency, it's the massive inflation to deal with debt. Okay, if all of that is true, then it certainly explains this great migration from tradfi over into crypto. Does all of that feel right? Or do you feel like I'm being unfair to the current economic situation, to Keynesian economics? Maybe I don't understand it.
- [21:31]
Arthur
I mean, the only rickle that I would say is that if the government is able to borrow money and build things of real economic value, like okay, in the 1950s, Eisenhower did the, in the United States, President, U.S. president Eisenhower did the Highway act, right? And the U.S. built however many millions of kilometers of roads which lowered the cost of transportation. You know, had all this. You basically had the explosion of mass market stuff because you could ship things from coast to coast, blah, blah, blah. In China, you had billing of hydroelectric dams. Okay, there was some environmental costs, but it brought electricity to the countryside. And so these are only projects that governments can, can do because they have the ability to tax and spend on an aggregate level. So I see the only caveat is if you're able as a government to build these types of things that have a rate of return greater than the debt, the implicit debt costs that you're hoisting on the economy, then those are good things to do. The problem is that there's a finite amount of projects like that. The society that you're building these things in can only accept so much of this infrastructure spending. The problem is that governments don't know when to stop. They don't know. They think everything's going to be like the highway act of the 1950s in the United States or building Free Gorges Dam in China versus where it is today, which is the bullying they're building a lot of stuff that has no value because it'll never earn back its, its return.
- [23:11]
Interviewer
What are we building today?
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Arthur
Well, I mean, I'm saying we as a global society. I don't know what politicians in the US are building in China or anywhere. I'm just making a sort of a, a blanket statement of people I don't know. Isn't Biden doing, was it the Inflation Reduction act or some sort of act that they're building stuff and all these government subsidies to build things, whether it's electrification of the grid or whatever. Right. There's industrial policies for governments around the world saying we need to build whatever it is we think is valuable as a government. Sometimes that's rooted in market signals. Other time it's just, hey, I want to give a, a backhander to my boy in my, in my district. That's the problem. There is a good, there is good that can be done doing that, but politicians abuse it. And we're at the abusive stage of, you know, the initial gains of building some of these pieces of public infrastructure. Now we're just doing stupid shit.
- [24:07]
Interviewer
Ray Dalio talks a lot about debt cycles and the inevitability of how this just loops over and over. Is all of this inevitable? And do you think that the migration to cryptocurrency will be complete and we'll never be back in a system like this again, or do you think these systems will coexist?
- [24:30]
Arthur
So it's definitely not an inevitable. The great example is what's happened down in Argentina. So the policy of Argentina is, if you've never been, it's a beautiful country. I fucking love it down there. I've been skiing there and, you know, to the, the falls and all kind of stuff. It's got a massive coastline, it's got arable land, great food, great wine, space for people to live. And yet it's mired in poverty and inflation because of political choices of Keynesian taken to, you know, another level. The Peronist sort of political culture down there. And the people, after, I don't know, 50 or 60 years of this shit, are finally fed up. Let's try something different. And you have President Melee down there who basically campaigned on a promise of I'm going to cut down government services, close a bunch of ministries, we're going to balance the budget. And he's already balanced the budget, I think, within the first quarter or two of him being there. So we'll see how the economy reacts. So the people do have an option. They can reject what the elites are telling them, oh, there's only one way to do this, which is print money and do Casin Economics. No, there's another way which is you earn them, you propose taxes, we the people agree to pay these taxes and you, the government, do what we told you to do. Build roads, build schools, health care, police force, blah blah, blah, and don't do anything else. And that's other bullshit that, that you got, that the government has tacked on to their responsibilities and created all these deficits. So there is another option, but it requires people to understand, you know, where the situation there is. There isn't just one way to do things, there's another way to do things. There's a way to run the government like you run your household. You make a hundred dollars a month, you're only able to spend a hundred dollars, that's it.
- [26:19]
Interviewer
No, nobody runs our household like that. Though. There's something about the, the culture that we're in right now. Because if you look at debt, the government operates on a debt. Businesses are all in debt, individuals are all in debt. We were at 0% interest rates for so long, money seemed free. People just like just took on debt,
- [26:38]
Arthur
Debt, debt, debt, debt.
- [26:40]
Interviewer
And so it really requires a cultural shift more than anything. And I worry that what we're seeing in Argentina is that, oh yeah, there is a point at which it is so brutally painful that people would rather austerity than continuing to suffer the way they've been suffering. But are we anywhere near that point? Or maybe a better question, can we make the change without needing that amount of suffering?
- [27:10]
Arthur
No, because the loss is there, the debt has been taken, there's been unproductive activity. And this is the global thing, right? Global debt to GDP is I think 360% per the world bank or something like that. And it's been accelerating over the past two decades, right? So there is an implicit deadweight loss in the system. The question is, who bears a loss? Now that's what every government is tackling. What does every government do? They push that loss down onto the people themselves via an inflation tax. But the loss has to be paid. It's not like the Argentinian situation is without losses, people are going to lose money in austerity, right? The question is, who loses the money? So if it's, I don't like austerity because deflation destroys the banking system. Well, in a capitalist society, what happens when a bank goes bankrupt? The unsecured creditors take over the bank. So put the fucking CEOs of Citibank and JP Morgan and Goldman Sachs and Morgan Stanley on the fucking street after 2008 and give the bank to the depositors. That's how bankruptcy law should work. It didn't work in that situation. They would rather save the managers of the banks than allow the people who are unsecured creditors of the bank take it over and run it how they think it should be run. So I think there is. We have, we being a lot of capitalistic systems and you know, even in China they have these sorts of bankruptcy sort of laws. It's just that nobody wants to use them because it's going to disenfranchise the elites. We have all the tools available to us. We've thought about these things. We're just unwilling to use them because of who bears the pain. So that's the situation. But I think when more people realize the reason why crypto exists, it's crypto is valuable because we're unwilling to take these losses. If all of a sudden the United States and China and Europe and Japan said we're going to run balanced budgets, we're going to cut out 75% of all these government services, I would be thinking hard about whether I want to be long crypto at that point. And maybe I should be doing something else because the societal mindset has changed to something more responsible. And maybe we're not going to see these massive price gains in crypto because the fiat to basement part of the equation has ceased. If you work in university maintenance, Grainger considers you an MVP because your playbook ensures your arena is always ready for tip off. And Grainger is your trusted partner, offering the products you need all in one place, from H VAC and plumbing supplies to lighting and more. And all delivered with plenty of time left on the clock. So your team always gets the win. Call 1-800-GRAINGER visit grainger.com or just stop by Grainger for the ones who get it done.
- [29:54]
Grainger Announcer
When you manage procurement for multiple facilities, every order matters. But when it's for a hospital system, they matter even more. Grainger gets it and knows there's no time for managing multiple suppliers and no room for shipping delays. That's why Grainger offers millions of products in fast, dependable delivery so you can keep your facility stocked, safe and running smoothly. Call 1-800-GRAINGER Click grainger.com or just stop by Granger for the ones who get it done.
- [30:24]
Interviewer
Okay, so if that's the scenario that would cause you to rethink crypto, if all of those governments were, hey, we're going to be like Argentina. We're going to get our stuff together, we're going to run a balanced budget. How would you respond to that in terms of your investment strategy?
- [30:42]
Arthur
There's obviously going to be some short term, a lot of short term pain and then you have to see what is bitcoin or crypto worth really fast.
- [30:51]
Interviewer
Will you explain why? Why will there be short term pain? What happens in austerity when we're not printing like right now the US government is so in debt that surely if they were to just balance the budget immediately without printing any more money that holders of government treasuries bonds, poof, they would be gone.
- [31:15]
Arthur
Yeah. Who owns the bonds? Rich people and banks. So that's who suffers if. Who's making all these. You know, the U.S. treasury spends about a trillion dollars on an annualized basis in interest payments. Who is getting these interest payments? All the I saw at the ski resort who now get five and a half percent on their cash. And I great, I own these trophy bonds getting five and a half percent. I've got a good capital base. I'm going to go enjoy the world. Right. It's all the rich people who own these financial assets. They're now worth a lot less in a deflationary environment. The primary one being government bonds. Who now the government's on my balance of budget and guess what, all that debt we're just going to gone. I mean you can do it that jubilee, it's happened in the past. Study the Roman Empire and you know, Greek Solon and certain people like it's a feature of the society where a leader comes and says this is not a good idea for the rich to be rentiers on the entire productive capacity of society. Let's destroy that asset that they have and re equalize system. We forget that this happens, but it has happened in the past. And so if we did something akin to a debt jubilee, who loses? Rich people. And then at some point, if the government does float another bond with a more balanced budget, they oh, that might be a good investment at a very high rate of return. Is that better than owning something that has made its gains in fiat terms? I'm not saying that the bitcoin network is not valuable. I separate bitcoin in a technology plus liquidity. But if you remove the liquidity piece, what's the technology worth? I don't know. It's worth a lot for sure. But removing that liquidity piece from the equation for crypto probably means that it corrects quite substantially and you'd want to own other types of assets. Now that you know we have, society has decided that we're going to run our public affairs in a different manner.
- [33:03]
Interviewer
All right, really fast. When you say liquidity, are you talking trading volume? Just the amount of back and forth credit money. Credit, fiat money in. So sorry, you said bitcoin is the technology plus liquidity. So you mean if nobody is manipulating fiat in printing. Printing. Printing, then you take a fundamentally different calculation on the value of bitcoin.
- [33:28]
Arthur
Correct.
- [33:29]
Interviewer
Interesting. Liquidity is one of those words that I've long been like, okay, I think I know what people mean by this, but clearly not. So when you say liquidity, you mean printing.
- [33:39]
Arthur
Yes, I mean how much credit money has been created by the government and the banking system. And obviously the more fiat that's around, scarce assets, finite assets like bitcoin go up in fiat terms. But that's just a denominator issue. It's not anything. The value of Bitcoin itself as a network of peer to peer decentralized electronic money, again, that has a value. What is that value? I think it's very valuable. Is it, I don't know, what's a bitcoin market now? Like 2 trillion or whatever it is. Is it that to remove all the money printing, when we said, you know, US dollar, the yen, the yuan, the euro is now sort of very stable currencies, not going to go up or down much in terms of their supply. Do I want to own crypto anymore? Maybe not at this price. Maybe there's something else I'd rather own. Maybe I want to own a power plant in a new productive country where the people feel happy and engaged and want to do productive things. Maybe I want to own something different. So that's, that's just the mental, you know, construct that I'm operating on it because the system will change. We, as you said, there is this anger we have global conflict sprouting up around the world. We are not going to be in this Keynesian system in the next 40 or 50 years. There will be a different system. I don't know what it is. It could be that the people all wake up and they say, this is not for me. We're going to create a more equitable system or they create something even more up than the one we're in today. I don't know. But we're just going to change.
- [35:05]
Interviewer
Okay, a couple questions. One, did Argentina default on their debts?
- [35:09]
Arthur
They have defaulted multiple times on, on their peso dollar. Like you could probably write a Whole university thesis on the history of Argentinian monetary policy.
- [35:22]
Interviewer
I mean, specifically since Melee took office. Is that part of his strategy? Like, hey, debt jubilee?
- [35:26]
Arthur
I'm not sure.
- [35:26]
Interviewer
Okay, I'd be very curious to know that. So, okay, one possible way for this to end is you have an Argentinian solution. The country wakes up, they realize, hey, I'm not willing to suffer like this anymore. It's a bunch of rich assholes that are controlling the place. We have all these programs to take care of people, but we don't actually have the money. And so we've inflated our currency into meaninglessness. This is dumb. So let's elect somebody. Let's take our lumps. Austerity measures. The system's not really working anyway, so I imagine to some extent that probably even the wealthy feel like they're on such unstable ground, they've probably long ago fled to dollars or something like that. Anyway, if they have the wherewithal to do it, we elect this guy. He comes in, literally, with a chainsaw for people that haven't seen the footage. It is hilarious. And he just cuts, cuts, cuts, removing entire portions of the government, entire departments. Okay, so that's one way to do it. The other way to do it is war. Why does this. Why does the debt inflation through money printing. Why does that lead to this changing dynamic between countries? What I can't mentally track. I get it, I've seen it. I know the data. But I don't understand why that happens.
- [36:50]
Arthur
So when you're printing money, you're inducing economic activity that's unnatural. So you're producing stuff that you can't sell. So what is. You know, what are most wars about? It's. I have all this excess production. I have people that need to work because that's how I stay in power. Because they have a job and money and whatever they have, they're producing all this stuff. I need someone to sell it to. So if you want to think back to sort of World War I, World War II, you had the major colonial powers, Each had their own home market. US has, you know, Central and South America. Britain had the Commonwealth, French had the West Indies and sort of parts of Africa. And Germany was like, hey, I'm a. I'm a white imperial power. I deserve it. I deserve some colonies too. Rather than going into Africa, my colony should be Russia. You read what Hitler wrote. He's writing about taking the Russian land and creating space for the Russian people, for the. For the German people. That's why he did the dumb thing of attacking Russia. During the winter, didn't learn his lesson from Napoleon. The Japanese wanted their column. They thought they were a powerful colonizer as well. And China, specifically Manchuria, would be their sphere of colonial production and their market would be Southeast Asia. And as you know, the western allied powers challenged that assertion that Germany and Japan could have these colonial spheres of trading influence because they also had overproduction as well. Remember coming out of the Great Depression, what there was a problem. Too much production, nowhere to put it, deflation of assets. Everybody produced too much shit. They needed to sell it somewhere. So that was a genesis of all these, of the world wars. Now what do we have today? China has exhausted its ability to build roads, pump a property bubble. Now they're saying we need to manufacture more stuff. Well, so does America. They need to manufacture more stuff. So does Europe. They need to manufacture more stuff. Why is Europe all pissed off at China right now? Because China's the largest auto exporter in the world, surpassing Germany and Japan. And like, oh, there goes one of the one industry where we were kicking ass, which was high end luxury cars and your German and French vehicles. China's beating us at this, like, hand over, hand over foot. So everybody's producing stuff because they're, they're just printing money, say, go to work, make stuff. And then it's like, okay, where do we sell it? Oh, we need to sell our goods in China. China need to sell their goods in America. Well, nobody wants to open up their turf to others because they need to sell stuff, not to buy others. And so that's why when you print this money and you have all this uneconomic activity happening, the drive to sell your goods in other markets is what go is what prepares the road to war. Oh, you're not going to let me sell this particular type of product in, you know, this country? Well, fuck you. We're going to war and I'm going to make sure that you can't sell your stuff into, into my turf. And that is what we're gearing up towards as all the major economic blocks are like, okay, we need to keep people in their jobs. So we're going to print the money, they're going to make stuff. And now where do we sell it?
- [40:02]
Interviewer
That is very fascinating. It certainly is not the only reason that we go to war. But that is a very good explanation for how, when the war's basic cause is economic or when, when the debt begins to get out of hand, why this ends up marching us towards war. That makes a lot of sense. Do you see A way to unwind this. So once it's. Is it austerity or war? Are those really the two options? Or do you see us being able to really, in, in this moment, use Bitcoin as the arc that allows us to avoid either of those catastrophic floods?
- [40:46]
Arthur
Crypto is a way for you to sidestep some of the negative impacts of austerity. And austerity is not uniformly distributed in terms of its pain. Right. The people who have the most pain are those who have the most assets because the cash flows are depreciated. Under Australia, there's no more government printing press that's making these things go up in value. So if you, you know, did the thing that you're told to do, get on the hamster wheel, work your ass off, and you were able to, through hard work, build up a fiat nest egg, and you recognize that this situation is untenable in terms of, you know, a very small size of the population getting very, very wealthy while everyone else is suffering, then it, it behooves you to get out of those fiat assets. Now, previously there wasn't really an easy way to do that, but now we have crypto. So now if you have fiat assets that are, you know, you're saving vehicles or even just a little bit of fiat money that you're able to save, you can now sidestep. You can all. You can vote for austerity to rebuild your, your society into a more equitable situation, but at the same time preserve the little bit of wealth that you've been able to accumulate in the fiat system by porting it over to crypto. And then, you know, once things have reset, then reevaluating. Okay, well, maybe I am okay with owning a government bond that yields 10%. If the economy is growing at 5%, that's a great return for me. I don't need to have this crypto thing. Maybe it's too volatile for me. Maybe I lost a little bit of money trading some particular coin. I just want to own some sort of bond in a government that I believe in and respect. Cool. Now, you know, you're getting paid to take that risk versus now you're not getting paid appropriately to take that risk.
- [42:28]
Interviewer
This is a really interesting moment that we live in there. So history doesn't repeat. It rhymes. When you look back, I think Ray Dalio has done such a good job of breaking this down. How the, the debt cycle loops and how going back 500 years, you see the rise and fall of empires that they roughly last 150ish years that the sequence of events is such that you have a debt jubilee. I mean I guess it doesn't start with a debt jubilee, but every cycle will repeat with that. And cause you said you use that as a way to reset to get a more equitable situation, but the reality is it's only gonna be equitable for a while. Because once you're dealing in a world where people clip coins, which is the OG way of inflating money or the current way, which is you literally just, you have the Fed buy assets from the government, you're inflating the money supply, you're reducing what you reduce its purchasing power, that it is inevitable if you allow that, that people will get themselves out of trouble. Because if people are in pain, they're going to freak out, they're going to lash out at the government, they're going to say I want you to protect me. Which it's predictable. So you know that people are going to do that. So you print money so that you can get reelected. So as long as people have to get reelected and one of the ways to get reelected is to print money, people are going to do that. And so you end up back in this cycle. The fascinating thing is that it only comes down to any one person's individual lifetime. That's all they know and that's all they really care about. And so if you can push this off 150 years, it you really don't care, and it begins to loop. However, we are living through a technological revolution right now that I think is causing a rapid divergence between the generations which caused them to have very different world views. And so you have this, I'll call it a bifurcation, but I really think it's more of a shattering. But just for simplicity's sake, I'll say a bifurcation between people who believe in the traditional system because they know it, they're used to it, it's the devil you know. And then people that believe in. And the way I think about it is, will tomorrow be more digital than today? If yes, why would I ever think that money wouldn't become digitized? And so it just for me, as somebody who breaks on the digital side, when I looked at crypto, I was like, oh yeah, that it makes sense to me. That isn't a fake asset or whatever people call it. Magic Internet money, it's all of money is simply a narrative. We all simply decide to agree that oh, gold has value because it's scarce. The paper money has value because the Government says that it does. Crypto has money because there's Bitcoin, there's only 21 million of it, and that's it. And so we all agree that, that that's the thing. And so I will be very interested to see as, as we march towards adopting cryptocurrency, if we really can take that as this off ramp, that will avoid us ending up in a hot war. I just, I don't know that governments will allow it to happen. What do you think about that? How stern slash violent do you think the government's response is going to be? Will they control it through ETFs and so same as it ever was, or will they say we're not going to allow this and find a way to put capital controls on it?
- [46:26]
Arthur
The smart governments will do the ETF route, which is allow the traditional tradfi people to give you a crypto derivative like a bitcoin etf. That's the smart way to do it because it's the nonviolent way to do it. And people think that they've escaped this financial apocalypse, but not really. They've only just given their money to blackrock and the time in which they actually want to use bitcoin for what it's there for, which is decentralized money, moving it around 247 between whoever they feel like they'll be told, no, if you want to get out of the etf, you must sell it back for a fiat and then do with your money what you please, right? You don't own bitcoin. People think they do. That's the best way to do it. The worst way to do it is to go out and ban it. Because when you ban something as a government, especially in a digital age where people have information at their, at their fingertips, then they go, oh, well, maybe there's something here. Why is the government telling me I can't do it? Maybe I should read a little bit more about this. And then they just, then they decide, oh, the government's telling me I shouldn't do it because it's not in their interest, then I'm going to do it anyways. Because you've banned it, you've given it airtime, you've proven the point that all everyone is that everyone on the crypto ecosystem has been saying for many years, which is the government doesn't have your best interests at heart. That's why you're there banning your economic freedom. And then you create the demand for the thing and people will get it anyways, right? So if you think about, you know, the common narrative of like very, you know, authoritarian governments in the west, like, oh, China just does whatever they feel like. No, bitcoin's not even banned in China. China bans a lot of things. Have not banned bitcoin. There are not. It's hard to trade it onshore in China, but it is not banned. Did ban it because, no, bitcoin is not banned. You can own bitcoin to Chinese person. They've shut down.
- [48:15]
Interviewer
You can't mine it.
- [48:18]
Arthur
You can't mine it. And as a exchange, the large exchanges no longer offer a bitcoin renminbi trading pair. But you can still trade at OTC and you can still own it because, you know, Chinese government's smart. They know if I ban something then Chinese people will find it valuable because the government's told me I can't do it. Now that is why, if, you know, the government and the elites want to stay in sort of this financial position, the ETF is the best thing that they can do because people believe that they've achieved financial freedom when they actually have just handed over fees to the same people who have been fucking them for the past 80 years anyways. So that is the smart thing to do. But ultimately I think that that attitude is very defeatist. If you do believe that a government is a representative body of the will of the people and you just default to saying that it can never change because the elites in charge want it to stay that way, well then nothing will ever change. And that's, you know, that's a lot. That's a big detriment, you know, deriding argument that a lot of people give, whether they're a boomer or somebody who's much younger as, oh, bitcoin's really good, I understand, like decentralized money, sound money, you know, inflation resistant, blah, blah, blah, great. But oh, but the elites won't let let it happen. So I'm not going to own bitcoin because the people in power are threatened and they're not going to let it survive. Well, fuck that. Buy some bitcoin. Tell your friend to buy some bitcoin. Shut up from the rooftops. Create a movement, be part of it, try to change things. So I think that's a very defeatist attitude. And if that's the attitude that everyone wants to have, then you deserve to be a fucking debt serve.
- [49:55]
Interviewer
What do you really think? Come on, Arthur, say something strong. Come on, man, stop with this wishy washy bullshit. Yeah, that's. That's very on point. I think I maybe have a little more empathy for here. Here's what I really think. I think nuanced ideas are extremely difficult. I think the government is extremely powerful. Staring down the barrel of the government and deciding that you're going to stand up to them, I just do not fault the average person for not being willing to do that. So I have deep empathy for people who either a, don't understand it, don't want to spend their time wrapping their head around it, or if they do believe as. As I quite frankly do that at some point. And honestly, the ETFs maybe give me a little bit of comfort because I'm like, okay, that that gives them a way. That and other centralized exchanges like Coinbase give them a way to, to grab it, to. To do a thing with it, right? To feel like they have control. And then people that are sort of, hey, I would at least like to hedge my bets. You know, when you think about the Second Amendment, not to get into this debate, but when you think about the idea behind that was, hey, the government may go tyrannical at some point and you may need to be able to defend yourself that I think people lose sight of that and they think that, oh, a gun is, you know, for a home invasion or whatever. Sure, that too. Yes. But like the original intention was the government may turn on you and you need to be able to protect yourself. And that America anyway was set up with, with that in mind. Like we're putting all these balances of power because governments tend towards tyranny. And so you need a way to protect. So anyway, that having Bitcoin is a bit like the, the financial equivalent of the second Amendment. I have the right to maintain my own money. I have the right to control it. I don't have to. I can keep it in a centralized system because good Lord, it is so easy to lose your crypto if you are not very careful clicking on an errant link, forgetting your seed phrase. I mean, just woof. It does make me tense on that side as well. But at least I know that I have the right. It's interesting and I thank you for letting me think through this stuff in real time. But that is why I find myself so drawn to. This is. Okay, we have a broken system that is an affront to human dignity. Using your words because of the way that it can be inflated. I think that people, I think the memes law says that you should just be able to tell somebody, save your money, and you're going to Be fine. I know that we don't necessarily agree on that, but that feels really true to me that that should just be a right that, that no one should be able to take your money and spread it across everybody else. I have a feeling that's going to be one of the more controversial things that I say today. Just trying to predict the comments, but. So you start putting that together and you give me the second amendment of financials and now I can take custody of my own money. I don't think it's unseasonable. I think maybe I'm against the bitcoin tied on that. I think the government can wrench attack you with cruise. Oh yeah.
- [53:13]
Arthur
The hammer attack is the low tech is the hammer attack. Hammer knee, private key. Okay, so here you go. I've never heard that before.
- [53:23]
Interviewer
That's good that, that memes law right there. That one will spread. Hammer knee. Give me your key. Yeah, facts. So what do you think about the ETFs, like, is that a move? You're like, oh man, this is amazing. Or do you think because a lot of people are like, hey, blackrock could end up owning so much of bitcoin that it becomes a problem?
- [53:45]
Arthur
So I think that bitcoin is decentralized, peer to peer. Anyone should be able to own it. And if we've constructed the game theory and the economic incentives in the right way, we should have created a system that should be able to prevent sort of one centralized entity passively destroying the system. We're going to find out if BlackRock owns, I don't know, 20, 30% of the float of bitcoin. And there's changes that need to be made and you need to have the community buy in. Could their passivity obstruct that process? I don't know. We're going to have to find out about that. But the beautiful thing about bitcoin, which is different than gold, is that bitcoin must move to have value. Because the miners who spend energy to improve of work, to upheat the system and process transactions must have transactions to process so that they earn fees to pay for the electricity and the energy that they're expending versus gold. Gold is just a piece of. It's a thing just be. If the gold sits in a vault for the next 10,000 years, it's still, it's still gold. If bitcoin, if no one trades a bit, another bitcoin ever again, it falls to zero. So if we do get a centralizing force in bitcoin that essentially Hoovers up all the supply and doesn't do anything with it, then it goes to zero. That's beautiful. We have the out already. Bitcoin is worthless if you do nothing with it. If we do nothing with the tenants of peer to peer decentralized money, you've essentially just gone around in a circle and done nothing. And so I think that when people start to realize that we must do things for the ecosystem, we must use this currency, we must try to create a farm to table Bitcoin powered economy so that the currency moves in a circle around, you know, humans and maybe AIs in the future, then we've done something. We've created the movement that creates the value for Bitcoin. If all we've done is stuffed it in our wallet or stuffed it in our retirement account in on a blackrock etf, we've accomplished nothing. We have not done what Bitcoin is there to do. And therefore we will be rewarded with a fucking zero. And so I think that's absolutely beautiful. And that is, and then we can rebuild the system again. It's just, it's a common delusion that we created this computer game called Bitcoin and now it has economic value. We can do it again and try to make, rectify the mistakes that we made in the first iteration.
- [56:11]
Interviewer
So do you think that Bitcoin has a fatal flaw?
- [56:14]
Arthur
No, I don't think it has a fatal flaw. I think that it's a resetting system that will respond to, you know, if the, the external environment doesn't create movement, if the currency isn't moving, if it's not being used, then it should be worth nothing.
- [56:30]
Interviewer
Interesting. Tell me why that's a good thing.
- [56:35]
Arthur
Because if again if we go back to the, the rentier like just a person sitting on a government bond and doing all with their life, not improving the human condition at all, but they get to enjoy the fruits of everyone else's labor by doing nothing. Is that a sustainable situation? Because that is what the fiat currency system is. Accumulate a bunch of assets, sit on your ass, do nothing. And because you're rich, you're going to be fine. Or you can accumulate a lot of Bitcoin, but you better do something with it. You better invest in companies or spend your Bitcoin on services to prove that this is a currency system that should be used or do something to increase the value of this system. Otherwise what you've spent all your effort doing is going to amount to nothing. You don't just get to sit on your ass Just because you're rich at the extreme. Obviously we're not at that point right now. This is a very, you know, down the line type of thinking taken to the extreme. But I think that bitcoin in its design solves this issue of the rentier situation where you have a bunch of very lazy rich people who are rich because they're rich and they don't do anything else to keep them rich.
- [57:49]
Interviewer
Okay, that feels weird to me. So I've heard. I'm assuming when you say rentiers you're talking about what people commonly refer to as rent seekers, which was a concept. I never.
- [58:01]
Arthur
No, no. I mean maybe it's. Maybe it's more of like the. It's like a pre French revolutionary. Like essentially you had rentiers, which was the French government bond and it paid, I don't know, 3 or 4% coupon, whatever it was. Right. And so you basically had all the nobles, did fuck all. They owned all these government bonds that paid all this interest. And the government says tax the fuck out of all the serfs and everyone working on farmland. And so then everyone else got to build their nice chateaus and sit on their ass. Right. That's what I mean by rentier. It's somebody who just earns interest. They do nothing. Great life if you, if you're able to have it, but you're not producing any sort of productive value for the economy. And obviously that was a corrosive factor that led to part of the reason that led to the French Revolution. That's what I mean when I say rentier. It's. I've got a lot of capital, I just own a security that pays me some interest. But I'm not doing anything else to contribute to society. I'm not making money essentially move similar to bitcoin. If it's all just sits in an etf, it's not moving, it's not doing anything. What have we really created? Okay, just another financial asset that's held in a portfolio. That's not why it was valuable in the first place. It was valuable in the first place because we created a new way to move value throughout a human economy. So it must move, it must do something to be valuable to prove that it's a peer to peer decentralized monetary system. If it's just sitting in a portfolio, then just own something else. Why own Bitcoin? You're not owning it for what it's there to do.
- [59:29]
Interviewer
So this sounds like a contradiction of the narrative around Bitcoin being digital gold. Because what you What I hear you describing is Ethereum, no Ethereum.
- [59:43]
Arthur
So I'll separate Bitcoin as money. It's a monetary system. You're able to move monetary values around. Ethereum is a decentralized computer. Now, Ethereum and Bitcoin could have, I think, competed on moneyness if not for the 2016 DAO hack situation. So for those of you who don't know what happened, there were. There's a company called Slocket Stephen Tool, and he wanted to basically do a big raise of money for his I an IoT protocol called Slock It. So he said, why don't I create the first decentralized VC firm where everybody could put in Ethereum into this fund. And then people would get these governance tokens, the dao, decentralized autonomous organization, the DAO token, and they could vote on projects. Guess what the first project was Slock it, his company. And so the DAO as this innovative way to crowdfund raise, I think at the time, US$150 million worth of ETH. Now, unfortunately, the acumen of the engineers, and maybe some people say there was some foul play involved, I don't know, created a situation where somebody was able to execute the smart contract in a way that wasn't anticipated and they were able to siphon off money from the, the Dow Treasury. And so you had this situation where the Ethereum network, this is, I don't know what percent of the network this was. It is massive. This is back in 2016, Ethereum had only launched a year, a little bit over a year prior in 2015. So Vitalik and all of the big stakeholders in Ethereum had a problem. If we ascribe to the moneyness, that blockchain, what happens on the blockchain, nothing can change. It's immutable. We should never change it because we want to be sound, a sound cryptographic piece of money. That means that the DAO hack should be left alone. And okay, too bad that people lost, you know, all their money on this project, which was a big percentage of the network at the time. We're going to be money. Money says you can't ever change. Just like Bitcoin immutable. There is no changing. We send Bitcoin to the wrong place. Sorry, that's it. The community in Vitalik and some of the other people thought, no, we want to be the decentralized computer. And to afford this vision of being a decentralized computer, we need it to be usable. We need to have this network continue and therefore we're Going to advocate for a hard fork that rolls back the network to a time before the DAO hack was created. Fix this issue so that everybody gets to keep their money. Right? And this is what happened. They chose let's be a better decentralized computer and get more users on board and give them a redo versus being the hardest money ever known, which is Bitcoin. And obviously the community voted in favor of this because there was two currencies created, Ethereum under the symbol eth and Ethereum Classic under the symbol etc. Look at the price of the two. Ethereum is. I don't know, what is it now? 4,000, whatever it is, etc maybe is a few hundred bucks if that. I don't even know if it still exists. So the community voted. We don't want money. We've got Bitcoin. Bitcoin's money. We want a decentralized computer. Be the best decentralized computer you can ever be, Ethereum. And that's what they've done. So I this and I know lots of people in crypto will disagree with me on this, but that is how my mind works on the difference between Bitcoin and Ethereum and predicated on this pivotal event in 2016, then, if I'm
- [63:21]
Interviewer
understanding you correctly, Bitcoin, you believe anybody holding Bitcoin, if they want to really make this a thing, they're going to have to build on that network and be able to buy a cup of coffee with Bitcoin or do something.
- [63:33]
Arthur
Maybe it's not a cup of coffee, maybe it's I'm going to settle sovereign nations, trade flows, whatever. It just needs to be used for something. It just can't just sit in an address and do nothing for the next thousands of years. No, obviously you can do that right now because it's only 15 years old. We're talking about a very long tail situation, not something that's going to happen anytime soon. It's more of a philosophical discussion of what you think bitcoin should be doing in the next hundred or two hundred years.
- [64:01]
Interviewer
Yeah, you said earlier that we could reset the system and solve the flaws that we built into it. So I'm having a heart because when you describe that, that sounds like a flaw to me. As somebody who really likes the idea of Bitcoin as digital gold, I have admittedly had in the distant recesses of my mind that question of, well, what happens when the last block reward is given? And that's it. All, all 21 million Bitcoin are now out there and I know that that's, you know, decades away, but that was sort of in the back of my mind. Now it feels like a flaw to me that you would need, like, hey, I need somebody to do something with gold to make sure that we can keep it as gold. Like, I want gold to just be the thing that we all agree has properties. I don't buy Peter Schiff's argument that the thing that makes gold valuable is its utility in jewelry and whatever. I think that the reason that people like it for jewelry is that they believe it's a quote unquote, precious metal. And if they didn't believe it was because I can make something look like gold. But if you then believe it isn't actually gold, then you're bumming out. So the only thing that really makes that cool is that it's rare and that we all agree. Oh, it's a rare thing that we all agree has utility. Okay, cool. So that's going to be the thing that so many cultures over time have gravitated to and said, this is the thing that stores money better than seashells, as an example, or glass beads. Whatever. It's just super hard to fake in a way that, like, diamonds are easy to fake. At least now gold is very hard to fake. Gold is scarce.
- [65:43]
Arthur
Cool.
- [65:43]
Interviewer
We're going to use gold. Okay, Bitcoin, to me, that narrative, like, I'm here for that, but when I think about, oh, hey, TikTok, y' all better find a reason for this to exist. Otherwise, the. The miners now miners, but in the future, they won't be miners. They. They need to have a way to generate funds to pay for the electricity, as you said, to secure the network. That feels like a ticking time bomb.
- [66:12]
Arthur
Well, it's. It's very important, subtle, fundamental difference between bitcoin and gold. Gold is a financial asset. It's not a monetary network. Bitcoin is a monetary network plus the financial asset. So what is the monetary network of gold? People walking. So what did I do before I had any way. How do I transport my gold somewhere else? I got off my ass, I picked up my gold coin, I walked over there and I did something with it. The monetary network is me, a human being, eating, getting calories, doing something. Right. Or I set it in a horse and carriage, or now I have a Brinks truck, Right? That's the monetary network of gold, and the asset is gold. They're two different things. Whereas bitcoin is a network and a monetary asset in the same thing. Bitcoin has value because it was created through this monetary network. If the monetary network doesn't have activity, it's not worth anything. Therefore, just like Bitcoin, the monetary network must do something or it has no value. And therefore the currency, its native currency, has no value either. That doesn't do anything. So that's what people get mixed up when they think about gold versus Bitcoin. Yes, it's a very simple analogy, digital gold. But when you actually think about what is gold and what is Bitcoin on a very first principles basis, they're different in a very fundamental and subtle way.
- [67:34]
Interviewer
Yep, that, that is clear. Man, it is crazy how no matter how much I learn about all this stuff, I. As the island of my knowledge grows, so grows the shore of my ignorance. It is, it's, it's unbelievable. So is Sailor out of his mind? Is he playing a.
- [67:54]
Arthur
He is a genius.
- [67:56]
Interviewer
Okay, tell me more. So if there's, if there's the looming, like we have to find something to do with this, he is betting everything on the fact that we will figure out something. Because that, that man is looming. Lev Ridged.
- [68:09]
Arthur
So guess what? So Sailor is doing very smart trade, which is he's borrowing money in a depreciating asset at a low rate because he has a corporate entity that's able to access this market. So if you're a, you know, a listed company in the US or elsewhere, you're able to access the corporate bond market and you're able to borrow at a very, very attractive rate. So he's able to borrow US dollars. We know that US dollars, the quantity of them will increase in the future. What does he take this depreciating asset and does with it? He buys Bitcoin. So he short dollar long Bitcoin short, the thing that's going to increase infinitely long, the thing that only can have a certain amount. So from a corporate finance perspective, it's a expected value, positive trade because the asset, his funding currency is going to inflate. The thing he's buying is going to have a finite amount. And so, you know, I don't know what he pays on his debt, like 2 or 3%. He has a, he has a other, you know, software business on top. So the, the interest costs of his debt is either partially or in full covered by the income he earns from his software business. So he basically has created a, almost a free option, an option with a very, very low carry on the future value of Bitcoin. So what does he do? Prior to the etf, he had two Value drivers for his company. Anyone who wanted to buy bitcoin from a traditional tradfi basis couldn't because they didn't have a vehicle to do it. But anyone in tradfi could buy a listed US security, which is what MicroStrategy is. So if his company is just a bitcoin option play and you want to buy bitcoin, you buy MicroStrategy and you don't give a fuck what he does because it's. He's the only game in town for this strategy. Okay, now it's a bit different with, with the etf, but the ETF now powers a second leg of his strategy, which is Bitcoin number go up. Okay, well, if there's only so much bitcoin that's freely tradable because a lot of it's held in wallets or lost or hasn't been buying yet, whatever, and now you have this juggernaut blackrock Fidelity and all these people who are buying, I don't know how many billions they've bought a bitcoin in the last eight weeks or so. That makes the fiat number of what bitcoin is worth go up. And he is a, he's a corporation. He cares about his fiat value because that is what his reporting currency is now. So before he got the value of I'm going to get inflows into my company because they want to own a bitcoin proxy but can now they have another bitcoin proxy called an etf. I get number go up on the other side and this option becomes very, very valuable. And so again, genius.
- [71:06]
Interviewer
Okay, let's look at it from a slightly different angle for a second. So time horizons matter a lot. So maybe this won't matter at all because he's got enough time to figure that out. The narrative last cycle on bitcoin was digital gold. The narrative this cycle or the meme, I should say the meme this cycle is never sell. Now hearing what you're saying, that does not make sense to me at all. So it becomes a keep an eye on whether this actually becomes a functioning network for something other than just storing wealth, that if you see that it's not going anywhere positive, then you better get the hell out while the getting is good. That, and that is a far less compelling argument. So the only thing, and because again, I like to try to predict the comments to see, to see my own argument from the outside, which is why I do that seeing that argument from the outside. People are going to say that's ridiculous. Of Course we will come up with something. You 15 years in, do you think that there's anything meaningful other than bitcoin as a, as a awesome narrative, as a, as it being a store of wealth? Is there anything lightning, network or otherwise?
- [72:28]
Arthur
So if you're not familiar with ordinals,
- [72:30]
Interviewer
they are NFTs on Bitcoin.
- [72:32]
Arthur
NFTs on Bitcoin, but not really we, that we can get into the reason why people really, really interested in that. But this, yeah, if the meme is simple. NFTs on Bitcoin. So what are we doing? We're bringing human culture And I think NFTs as a data construct bring human culture to crypto. So we're going to bring human culture to the biggest and most valuable crypto of them all. Bitcoin and ordinals have already proven that they've generated massive amounts of transaction fees for the miners as people are inscribing them and trading them with each other. And this is only going to increase. So I think we have found one killer transaction generating method which is let's bring culture to bitcoin. People like to trade these things. Now you can trade an ordinal on bitcoin versus you know, a punk on Ethereum or whatever. Right. So theory have proven that we have, we have done something. Someone's come up with some innovative ways to use the taproot technology to inscribe these ordinals and create this demand for culture on bitcoin and that's generating massive amounts of transaction fees that are going to miners to keep them fed. So again we've, we've done something in the short term but I would push back on this notion of like in markets I operate in sort of like two to three year cycles and so obviously what goes up comes down. It's not that bitcoin's not going to experience another 75, 90% fall from whatever the all time high is this cycle. But right now the narrative is never sell. Do you want to go short against that narrative? Absolutely not. Don't. If you, if you don't believe in the narrative, just don't enter at all. But do not go short because you're going to get blown the up as somebody just found out shorting micro strategy stock on some sort of like an arbitrage trade between micro strategy and Bitcoin because the implied bitcoin price of micro strategy is higher than what the spot price of bitcoin is. And so people did went long bitcoin short Michael, and the premium is keeping is gapping and forcing people out of their positions. So Sailor is a meme God. Right now he's got the whole.
- [74:41]
Interviewer
I'm one of his memes. I'm, I'm well aware.
- [74:44]
Arthur
Yeah.
- [74:45]
Interviewer
How many chairs am I sitting on?
- [74:46]
Arthur
Yes. Oh, he's got, he's got the, the narrative, do not short him. If you don't believe in what he's saying and you think it's complete bullshit, just don't own the stock, don't short the stock, don't do anything with it, but don't go short.
- [75:00]
Interviewer
Very interesting. Yeah. Look, I, needless to say, am a huge believer in bitcoin. It is a very. I like to know what is true. That's, that is always my guiding force. If ordinals actually solve the problem, we'll see. Because I think there's now going to be a. I mean, maybe just multiple communities will spring up. But right now you've got NFTs, I would assume from a trading volume position is just absolutely orders of magnitude larger than ordinals. I don't know that. So maybe I'm wrong and the problem's already solved. That's my gut instinct. Is that true?
- [75:37]
Arthur
I don't know. I would assume that trading volume on like ERC 20 NFTs is definitely higher than ordinals. There's not even major wallets yet that support it, obviously. I mean, I've invested in one, but yeah, it's, it's a nascent space, but we've proven that there is demand for block space that isn't. Just let me just move some bitcoin between my Coinbase and Binance account. Right. So I think that that's, that's the thing that I want to see. Not that we've solved the problem of how do we keep the miners incentivized the transaction fees to keep their machines on in 2140 when the, the bitcoin block reward ends? It's okay. We all know this problem is coming. There are different communities spreading up, creating intrinsic demand for block space on the bitcoin blockchain. If we can do with ordinals, what will be the next thing that the community comes up with? I don't know. But to say that you're going to not participate in this bull market because of something that's going to happen in 2140. Okay, fine, but then, yeah, sit it out. But that's probably, if you're thinking about it from an investment or trading perspective, that's probably not the right way to look at things.
- [76:45]
Interviewer
What is the right way. So, yeah, we'll just ask that. What is the right way?
- [76:50]
Arthur
If you're somebody who is very, you know, into markets and you like to manage your money and this is something that you enjoy doing, which obviously this is what I do for a living. Momentum trades, especially in such a meme culture like crypto, where there's no manipulation from outside tradified forces. The trend is your friend until it ain't. We're not at that point yet where it ain't. So you follow the trend and I think it usually it becomes obvious. Obvious to you in sort of absurd moments of why the. The trend is probably time to fade. The trend. Like, there are very multiple opportunities for people to get off the train in 2021 and early 2022. Some people did, a lot of people didn't. But you just have to understand what you're doing and understand that nothing goes up forever. Nothing goes up in a straight line. There are ups and downs, and at a certain point, then there will be a correction. But be ready, be ready for it.