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BTC224: Global Liquidity and Bitcoin w/ Matthew Mezinskis (Bitcoin Podcast)
01:02:08
Discussing Bitcoin’s role as an "escape hatch" from financial chaos, its valuation models, and the impact of global liquidity on its future in the digital economy.
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- [00:01]
Preston Pysh
You're listening to tip.
- [00:03]
Matthew Foreign
Hey everyone, welcome to this Wednesday's release.
- [00:05]
Matthew Mashinskas
Of the Bitcoin Fundamentals podcast. On today's show, I'm really excited to welcome back a super talented guest, Matthew Mashinskas, who's an expert on global liquidity.
- [00:14]
Matthew Foreign
Flows and the impact of broader market conditions.
- [00:17]
Matthew Mashinskas
During the show we talk about the enormous amount of tightening that has happened since the COVID wave of liquidity and what it might mean for the rest of this year.
- [00:24]
Matthew Foreign
So without further delay, here's my chat.
- [00:26]
Matthew Mashinskas
With Matthew Foreign.
- [00:30]
Preston Pysh
Celebrating 10 years. You are listening to Bitcoin Fundamentals by the Investors Podcast network Now for your host, Preston Pysh.
- [00:49]
Matthew Foreign
Hey everyone, welcome to the show.
- [00:50]
Matthew Mashinskas
I'm here back with Matthew and I'm pretty excited to have this conversation because I have some very genuine questions I want to ask you about what what's going on with the macro liquidity and just bitcoin landscape. So Matthew, welcome back to the show.
- [01:05]
Thank you Preston. Good to be back and always happy to talk bitcoin and money with you.
- [01:10]
So Matthew, this is where I want to start. I have this very generic and I think I showed this to you last time you were on. I have this very generic global M2 chart that helps me think through like whether liquidity is being added into the system or taken out of the system. But it's not anything near. And I'm bringing it up on the screen right now so you can see this, but this isn't anywhere as near well done as like what you do when you're looking at global liquidity. But when I'm looking at this, and this is kind of the view over the last 10 years for people that are on YouTube. It's just basically a chart that goes from the bottom left to the top right showing how the money supply, the fiat money supply just has to keep being added into the system and that it follows kind of within a trough. And when it starts going on the bottom rail, they have to add liquidity. When it's on the top rail they kind of ease off things. And this is kind of a zoomed in version since COVID of the same chart. But it looks like they basically have been trying to allow the liquidity to not be so aggressive since call it what was this maybe the summer of 2022, it's gone pretty sideways. Interestingly from this past summer in 2024, it looks like a lot of liquidity was added into the system. I don't know if that was election based to maybe juice the markets a bit but what I find interesting is we've come off of somewhat aggressively brought the liquidity back down globally since September or October when the election was finalizing and finishing up. The reason I bring this up is because in the bitcoin price action we've seen bitcoin really ramp the election happen. You have a pro crypto US President that he doesn't care like what it is meme coin to bitcoin, it doesn't matter for this administration, the price went crazy. But then it's been very stagnant since. And I see a corollary between how much liquidity has come out of the global economy since that election till now. And I guess my first question for you is do you think that that's a factor of why seen bitcoin be stagnant or is that a way oversimplification of all the different dynamics that make the price bid or contract?
- [03:29]
Great question. I have many charts as well that show a very similar story. The monetary based chart basically shows the same story. I could show you some charts in a second, but for the sake of our listeners as well, fine to just talk about it at the beginning. The big story obviously was Covid. So from COVID we had a monetary base that was like 20 trillion and then it went up to 30 trillion in scope of a couple years. Now it's come down to about 25 trillion. But there are a couple of things that are happening there. First of all, other currencies are getting weaker against the dollar. And I know that you've talked about that on your show. You've seen that especially with the strong pro business, we talk about politics another time, but pro business, pro bitcoin, low tax environment that you're going to see in the US or presumably going to see in the US just been massive amounts of massive flights to the dollar from many, many currencies. And that was even occurring before Trump was elected. But now it's just continuing. So that's a big factor. And then as far as the global liquidity, which is basically as many people use different terminology there, my global liquidity is the monetary base. It's the liability side of the central bank balance sheet. Like I said, it's about 25 and a half trillion at the moment. Not only is the dollar getting stronger relative to other currencies, but the central banks themselves all around the world are trying to tighten their belts still. And I presume they're going to do that even for the next quarter or so. Inflation is running wild around the world in a Lot of different places. You can check the news in many parts of the world and you'll see that it's not just war torn countries. It's, you know, have a lot of overhang still from all the money printing that they did during COVID So they're trying to work that out of the system. They're trying to raise interest rates globally. And you know, the United States balance sheet, even though they have cut, as we know the last couple months lately, the balance sheet is still declining overall with the Federal Reserve. And that is the case for most of the rest of the world as well. On my sort of blended average native figure, which is very complicated to calculate on a trailing twelve month basis, central banks have pulled in their balance sheets about 3% negative or negative 3% growth over the last year. Whereas last quarter, you did last quarter, that would be flat. But again, it even looks worse than that because those currencies, remember we have this basket, it's Wittgenstein's ruler. All those currencies are also getting weaker against the dollar. So it still is the same dollar milkshake thesis, or however you want to talk about it. The dollar still remains the best looking horse in the glue factory. But it is that flight to the dollar is increasing is from what I can see.
- [06:15]
So on my generic chart that I had up there before, it's showing that from a trend standpoint we're kind of grinding on this lower rail of when they typically stepped back in and added more liquidity. Do you think that we're kind of getting their ability to kind of press a little lower than where they. Nor is that because they added so much liquidity through Covid that there's a lot of excess liquidity still sloshing around. To your comment about inflation kind of happening all over the place. So that maybe that's kind of the counterbalance of like why they're able to contract so much more than what they have historically without having to add more?
- [06:53]
I think so. I think so. And I could share one now for the YouTube viewers.
- [06:57]
Yeah, I want to see your charts.
- [07:00]
Yeah. So what you'll see here, and unfortunately this one, I just don't know why I didn't get the last 3/4 updated. By the time this episode airs, we'll have that 25.5 trillion expressed. But what you see here is we got the monetary based on log scale. So it's exponential growth, straight line, you know, just a remarkable. Let me just take off the bounds. But a remarkable trend in itself. It's a 99% R squared. So wow. The monetary markets move in exponential. You know, the stock markets do, the gold markets, everything but bitcoin actually moves in exponential, which we can talk about. But you can see here, and this is as of September, I got a 27 trillion. This is down now to 25 and a half. Okay. I got other charts that will show the 25 and a half. But regardless, we got, we're going down. And now if I put the bounds on where you can see around this trend line, the lifetime over, under on the trend. If we go to the two and a half percentile and the 97 and a half percentile, we're very close to the lower bound. And if I take it out there, you can see there December 2024, the two and a half percent plus 24 trillion. All right, that would be like only two and a half percent of the observations will be below that number on per the Trend, we're at 25.5 trillion is the latest figure. So again, by the time this is aired, people will be able to see this on my website, that number. But it is a very strong trend and we are very much at the low end. And if you look back through history before the dot com boom and bust for Y2K, we were at historically low levels a little bit the Wall street crash here in the mid-80s. But other than that, the central banks usually pull this trend up. Right. This is not something that's fixed. It'll go up and down each month depending on if they're printing more or less. Usually this trend is being pulled up every month and it hasn't since, like you said about mid-2022, we've gone under that trend. So it's like major. If you looked at this thing now on just straight up linear scale, you'll see that Obviously we had that 30 big crash from mid 2022. Central banks have still been printing on balance, although now like I said, they're down about 3% negative. But it's a lot of this as well is dollar strength and other currency weakness. So I can show you here.
- [09:06]
So Matthew, on that point, when you're looking at, and I think the way that the market's been interpreting these first 30 days of the Trump administration, especially with all the Doge news, I don't think that that's helped the dollar get weaker relative to all these other currencies. It seems like they're, I mean they're keeping it at bay, but it just seems like you're going to have a dollar Breakout relative to all these other currencies. When you look at the DXY index, I'm curious how they, and I, and I say this because just two days ago, now they're saying they're going to send out $5,000 checks to all Americans for the savings that Doge has had, which you know, would counterbalance this narrative that the dollar is going to get stronger because they're going to be more fiscally responsible. They're austerity measures and everything else. I was always kind of rolling my eyes hearing this, made a couple videos, like why? But I'm curious your take on the US's current political talk versus what you think is going to happen in reality with the respect of the dollar and the liquidity that they're going to add into the global economy. Because the expectation is that dollar would just get too strong relative to everything else.
- [10:13]
Yeah. So just to address that last point, I think big picture, broad strokes, everything stays the same. That means roughly 12.6% per year compounded growth in the global money supply. 12.6%.
- [10:28]
So that it was 12, Matthew, that.
- [10:30]
Was 7% last quarter. Now it's 12.6. Because they've been, That's a very deeply, deeply sourced. A lot of numbers go into that weighted average for like the global money supply, the global central bank money supply. It was 12.7% actually, during COVID it was up to 13%. This a lifetime figure. This black line here on this chart, the solid black line, it was up to 13%, but now it's down to 12.6% per year compounded. But still at the end of the day, that is 1% a month. You know, and compounding is, you know, if you do 1% a month, you're actually closer to 13% a year, not 12% a year. So just these little things. But the bottom line is we're still very much in that ballpark, but we are indeed at the lower end of that bound. We're shrinking liquidity. They're trying to shrink liquidity, I should say. Right. The money masters, the central bankers. And globally right now it's down to 3% decrease natively. Actually, if you looked at every native currency, this is something that I try to affect. I try to net out all the dollar changes and just look at, okay, let's weight the euro changes in the euro, the yen, the yuan, all those different currencies. And it's decreasing, but it's not that much. And regardless, if you look at it in dollar terms is the only way we can Weight it and sort of globally see it. Yeah, it's on the lower bound. But to your point about the checks or any other sort of stimulus that might come here, I don't see how they can continue this for much longer now. The tightening, a lot of narratives.
- [11:57]
The tightening of the liquidity, you're saying.
- [11:59]
Of the tightening of liquidity. Yeah, yeah. There's still a lot of narratives right there. Still. I think those of us fiscally conservative type folks who believe that governments shouldn't overspend generally are looking at what is happening in Washington as favorable. There's, you know, again, politically, there's a lot of people want to argue about how they're doing it and so on and so forth. There are a lot of favorable things there. But as we know, the vast majority of the spending here in the US Budget is entitlements and it is the military. Yeah. As John John Williams, the old shadow stats economist, used to say, you could cut every single program of the United States except for entitlements and you would still be in deficit. That's just how it works. And you'd still be running cash flow negative every year. And that's generally, that's generally the case. I mean, it's just a massive proportion. Right. I mean, of the $10 trillion that we're spending now a year, you know, per year, you have two thirds or something like that as entitlements, plus military, at least. So that there's just. I see that continuing. We could try to take more of a, of a chainsaw approach, not a scalpel approach. It seems like Elon is trying to do that. But even amidst of all the blustering and the yelling in Washington, I think at the end of the day, central banks, the best tool that they have to ease problems in the market is just to print more and they'll try to use whatever excuse they can do there. And so, yes, it is true, we are at the lower end of that curve. Right. We're not at the two and a half percent. Right. That would be about $24 trillion. We're at 25 and a half trillion globally of central bank money. But I just don't see that continuing on much longer.
- [13:33]
You think by the end of the year, by the end of 2025, you're going to have, you know, a surge in liquidity.
- [13:39]
Yeah. It's hard to put exact timelines on this. But another thing I would say is, well, to answer your question, I don't know exactly by the end of the year, I don't know, but I would say that if you're looking towards what's happening in the fiscal government world to how that might affect, say your bitcoin portfolio, I would actually tell you that doesn't matter at all. Not at all. As much as people talk about purchasing power, like you look at a bitcoin price chart, this is the chart of people that are worried about their pricing power. And I'm not. I don't want to change the subject. We can keep it on here. But sort of as a big picture might give comfort to listeners who are hodling bitcoin. I don't actually see bitcoin focusing in on any of that. I see what happens in bitcoin is if you look at the price curve, you're looking at the curve of adoption, right? You've heard this, you've talked to many people about this. It's an adoption curve. It looks like that it's a power curve which we can talk about as well. But the, the growth is so incredible. It's so again, those power curves, they run at 96, 97% R squared. It's so resilient that I just don't see any direct short term connection with the fiscal environment of the monetary. The fiscal environment, I should say, or the monetary environment of the United States or Europe or Japan. It's just something that comes and goes month in and month out. So from that side, bitcoin gives you a tremendous amount of comfort. And so I would say that as far as stocks and bonds, yes, they're much more reactive to it.
- [15:04]
Gold as well.
- [15:05]
Gold is interesting. It's been having a gangbusters year last year and continuing on this year in the midst of a kind of tightening monetary environment. So that's kind of confusing to people. But again, if I showed you the growth rates of the gold chart, gold would be sort of. I can show you this actually. Gold would be sort of exponential straight line and bitcoin would just be flying away at this amazing power curve growth. So the point is bitcoin still looks like the most superior asset in the world by far. No matter what happens in these sort of short term, what's going to happen in midterms sort of type decisions. Bitcoin is vastly superior. Let's take a quick break and hear from today's sponsors.
- [15:47]
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- [19:02]
Matthew Mashinskas
IRA all right, back to the show.
- [19:05]
Matthew, I want to ask you about this 12.7 figure. So you hear Michael Saylor, you hear myself included and many other people, Lynn Alden constantly saying this 8% growth rate of M2. We seem to be way underestimated. And for me I'll just look at like the US M2 and I'll look at it over the past 10 years. I do a compound annual growth rate over that 10 year period and I'm coming up with a figure around 8 to call it 9%. How are you arriving at this 12%? And then I would, I'm curious if, if the number, this 8% number is more of a US centric growth rate of the money supply and the rest of the world is offsetting that by quite a bit for a net of this 12.6 or 12.7 that you're finding.
- [19:54]
Yeah, so for those that are looking on YouTube here, I got a, I got a 65 year chart of the monetary base. Got the numbers here on the left. Which monetary base started, you know, with not. I have a sample of 50 currencies. This is like 95% of GDP. It's, you're getting into like a couple billion, maybe 5 billion monetary base size per currency as I add. And it just gets too annoying to do it. So it really doesn't add much. The point is that diminishing returns are sort of extreme. But even back in the 70s if you look at this, you had like a 200 billion monetary base and then again that goes to 30 trillion by the peak of COVID early 2022. Debt now down to 25 trillion. So if you want to know how much of the basket basically is the US it was more, more than 20% back in the 70s and the 80s. But now with the growth of People's bank of China, which is a hugely communist inflated, distorted balance sheet, the growth of the European Union together as one currency block, which has happened for the last 20 years, and the amazing staying power of the Japanese yen, which is a very, it's a very strong currency relative to the size of the society, relative to the aging society, and actually holds its value. Those four currencies together, the big four, they are about 20% each of the basket. So just rough numbers. You're getting to 80% of the basket with those four currencies and none of them are outsized. It's kind of like global gdp actually. Global GDP over 100 trillion. The US is 20 to 25 trillion of that. It's actually almost the exact same ratio. So that's also interesting to note. I don't have my own global sample of M2. You could get that from the IMF, but I haven't sort of done the precise apples to apples with my currencies versus the imf. Because you don't want to double count and all that stuff. You know, take more currencies than in one basket versus the other. But in any event, and then if you add say India, Brazil, Switzerland, Australia, sort of these mid major currencies, Canada, you're getting already over 90%. Okay, those mid majors. And then the rest, the rest of the basket from there is the last 10%. So that's the size, that's the size of how this weighting is. That's the size of the, of the basket. And to answer your question about where you get this number, I'll show you here the 12 month change, right. If I were to, I have a huge spreadsheet literally of all the different currencies, of all their growth rates in each individual currency and then I weight that number by the dollar value of the monetary base in that. Yeah, yeah, but it's a very like, I'm not doing it over a period, I'm doing it like every month. If the dollar value changes, the weight will change. So it's, it's pretty detailed from that perspective. But anyway that number where you finally will settle on globally, worldwide long term is 12.6%. But obviously of course even that number, if you look at a trailing twelve month basis, you can be way over. Right. So here you can see in 2008, QE1 and 2 in particular stand out where you're getting 30, 35% per year. Same thing with QE2. And then of course, Covid. Covid, I think the, one of the peaks, let's see, 32.8% per year in February 2021, trailing 12 months. So that's, that gives you a picture of sort of the extremes. But you will see again, which is wild is from COVID They knew, they realized how much they overshot it all here. And you know, the overreaction kind of of a symbolism of what happened worldwide anyway with everything they've, they've really Tried to cut it back. There's been literally no money growth or flat money growth in a native trailing twelve month basis. And I don't go negative on this, you can see it in the tool tip. But really now in the last few months has been like the deepest negative, like negative 3% per year.
- [23:38]
Matthew Foreign
Wow.
- [23:38]
Matthew Mashinskas
As of December 2024. Yeah. And that's a native number. But you look, even if you do it in dollar terms, it's even more than that. But there's, you know, there's two different measurements here. I could do the dollar, the change in the dollar value or I can triangulate it first looking at the actual percentages and then weight those. It's different numbers. We don't have to go in the weeds of that. But the point is 12.6% is the number kind of looking at the native unit first. And actually the dollar growth as you can imagine is, is less. It's about 10 and a half percent. If you actually just look, I'll show you. If I go back here, say I just did a. The slope of this curve, we're going to put it up, right? So the slope of this curve here, that black line, as it's a straight line on log scale, it's clearly exponential growth. The slope of that curve is like somewhere closer to 11%. But here I'm actually starting with the dollar values and you would expect this to even be higher because like back here in the day, in 70s and the 80s, I have less currencies.
- [24:34]
Matthew Foreign
Mm.
- [24:35]
Matthew Mashinskas
So you would expect that with less currencies in this, this old one with. Or not old one, but this sort of very scientific one that the 12.6%. I'm looking at every currency and if there's one currency that just didn't exist back in the 70s or something that didn't exist now, I just don't count it like very, very with a fine tooth comb. But here I'm just kind of slapping on a trend line and you would expect that, okay, since I have more currencies later, this is going to grow higher. But it's actually less. Yeah. So what does that tell you? And it's about a percent and a half less. The delta is. So we're at 12.6%, something like it's close to 11%, that compound growth rate. And what that tells you is central banks other than the dollar still print a lot of money and they still can't keep up because they lose value in the currency versus the dollar, which is just another interesting thing in and of itself, the dollar remains, always has remained. I don't see anything that will change that. No matter what China or Russia says, it remains the best looking horse in the glue factory. No matter what. Any way you look at it. So anyway, probably parsed through the numbers a little bit too much there. But the point is, the growth of the money supply, any way you slice it, is somewhere between 11% compounded to 13% compounded per year. It's a massive number. It is true though. It is true. If we want to be very rigorous economically about it, we'd have to do ceteris paribus. It doesn't mean that that's what happens to prices. Right. So that's the supply of the money. If the demand for the money actually went up 13% per year, compounded, then prices would not move because we know that doesn't happen. Right, yeah, yeah. So that's why the demand for that money is not that high. And people want to go into gold or Bitcoin or stocks. So you know what the actual demand is. No one knows. It's hard to measure. Right. We could measure GDP growth or other things, but it's probably, you know, you could use population growth. Right, population growth, 2% per year. That's a global weighted figure. 2% per year compounded exponentially. Money supply grows 13% per year. That's a delta of 11. That's. That might be good enough to show you what you need to do. Yeah. To get ahead of inflation. Right. It's a very simple sort of way to look at it, but that's one way to look at it. World GDP grows a little bit faster than 2% per year, but it doesn't grow 13% per year.
- [26:44]
When I'm looking at this, the thing that really strikes me, if you go back to the other chart there, where it had the. Yes, this one. And I'm looking at the black bars there and you can see how over the last, since COVID really, they've been trying to normalize globally as best they could. What I find so fascinating is if you look at the equity markets, when it started coming off of that liquidity insertion of COVID you know, we had equity markets just rip. Absolutely rip.
- [27:13]
Matthew Foreign
They adjusted there slightly with the amount.
- [27:15]
Matthew Mashinskas
Of liquidity coming out, but now they're again at all time highs. And what I personally think it is, and I'm curious if you would agree with this, is we're finally seeing a rotation out of this long duration bond trade which worked for 40 years. And that would be my Argument as to why equities are ripping is despite the liquidity that's being sucked out of the markets globally. Just based on the chart that you're displaying here, I think that the story there is the market has discovered and figured out that that 40 year long bond trade is dead. Debt is a doornail and as they're selling out of that, they're moving into going long equities to try to preserve their buying power. I'm curious if you agree and if you don't kind of what your take on that would be of why how we can see this much liquidity being soaked out of the global economy for the last, call it two years but yet equity markets are ripping.
- [28:11]
No, I 100% agree. Nobody wants to be on that side of trade. If bond yields are going to, we're in a 10, 20 year bar of bonds and yields are just going to persistently go up. And no matter where you buy on that yield curve, you're going to look to have to sell that bond at a higher yield, I. E. Lower price. Two, three, four years after that no one wants to be a part of that trade. So that's going to be a huge challenge. It's a huge challenge for any bond investor. And for that reason equities continue to make sense. There's, I would still say though, the bonds are challenging, right? They're challenging in many ways to value and understand. And certainly when the central bank is becoming as big of a player in the economy as it has been now compared to before. I think I showed you this chart. I don't have it ready offhand, but the central bank is about 20% of the US bond market these days. So the Federal Reserve's balance sheet, whatever it is, at the exact moment 7 trillion, a little bit under. If you look at the actual Treasuries divided by the national debt, you're looking at somewhere around 20%, a little less of the US national debt. It's a huge player. People get scared of that. A hundred years ago The Central bank was 0% of the national debt just slowly grew over the last a hundred years and now it's up to 20%. So people aren't really quite sure I think how that's going to play out. That's why people look at gold, that's why people look at Bitcoin. If things don't look good geopolitically, it's just hard to be a bond, to have a lot of conviction as a bond investor, especially during these times. So that, yeah, I think you're spot on with the way that that tells the story there. But I will say as well with stocks, and this is why I like to look at these trend lines. I don't think I have it ready to pull up. But basically stocks, if you did the long term trend of The S&P 500, just like you do here of the monetary base, right? If you did S&P 500, so the last 80 years, something like this, since the 50s, here I show you global money. It's like 11%, right? Or 12% or 13%, depending on your exact measurement. S&P 500 over the long term is 7% without reinvesting your dividends, 9% if you reinvest those dividends, 7 and 9, and it's even higher in the last 10 years, as you know, it could be like 12%, 30%. So that's just, that's where people want to be, I think. I think that's the trend. I think people are scared to not be there. And if you know that the long term trend is 7% and if you reinvest those dividends, you get an extra 2%, it's just hard to fight that. Right? But then here's where this beauty of bitcoin, we bring in bitcoin and it's just this new asset, completely different. And we can measure the growth of that. The compound annual growth rate of the bitcoin curve, the power curve right now at the moment is 45%. So we're running at. Even if you looked at the power curve today, take the power curve next week, you measure the slope of that curve, it's about 45%, a little under 45% at the moment. And that's just massive. And then here's a really brain twisting question, Preston, I can ask you. So as the slope of this bitcoin power curve, let me pull it up actually, just to show you. I love this. Let me.
- [30:57]
Yeah, and that number is just totally berserk.
- [31:01]
It is, it is. So, so here we have now the bitcoin price. And I got the, I got the old power curve. Oh, I like here.
- [31:10]
Matthew Foreign
I like this chart.
- [31:12]
Matthew Mashinskas
Yeah, let's put it on log scale on the left here. So let's take the. So for power curve.
- [31:17]
So for people listening, he has a chart up that's showing the compound annual growth rate in discrete, you know, moments in time. And it's all plotted out and it's showing kind of like what is that average trend that he told you it's 45% earlier with a value of 96%.
- [31:35]
Yeah, exactly. So even not looking at the trend, anybody you can imagine, right, if you bought Bitcoin at $16 in July 2011, you helped. Today it's an 89% compound growth. That's just what it is. We can chart it out and what you do is actually you'll see that it's, it's higher in 2010, of course, when you're buying for under A$10 cents and it gets lower. But we do have this phenomenon, the theta, the time dilation that as you get very close things get a little bit wild and kind of want to ignore it. We can smooth this out. We can smooth this sort of crazy compound growth curve out by measuring what, let's measure the slope of the trend. So the trend is the black line here. Let's measure the slope of that. We're going to get an inverse nice looking black line. So here, the trend line, just for our listeners. Let's say you bought Bitcoin at 6 cents September 14, 2010. If you actually bought it at 6 cents, that's 168% return. But the trend line would be 20 cents. Just think about trends versus actual. So we bought at that trend. That's 146% compound growth held till today. Point is, you roll that out, you get till today and what you're going to see is we're right around. Yeah, we're under 45 now. We're at 43, over 43. Between 43 and 44% compound annual growth. And that's the slope of the power curve. That's the slope of the trend. And that's going to continue out. Even if you go all the way out to the end of the decade, you're still looking at 35%, $560,000 Bitcoin price according to the power curve by the end of the decade. But here's the question, Preston, when do you think that 35% compound annual growth rate per the trend will match the stock market of 7 and 9 or let's just say 10%. When do you think 35.
- [33:14]
Oh, that's an interesting.
- [33:15]
Goes down. Yeah. When do you think it will match 10 according to the growth of the power curve?
- [33:20]
A long time from now. You know, good response.
- [33:23]
That's a good. You're on. You're onto something. Some people say like maybe only 30 years.
- [33:27]
Oh yeah, no, I'm thinking like a hundred years. Based on the math. Based on the math.
- [33:31]
You're getting, you're getting there over 100 years. Actually it's gonna be like somewhere 20, 50, 20, excuse me, 2150. So. And now I hasten to say this is not saying I know anybody knows what the return of Bitcoin is going to be in dollar terms compounded a hundred years from now. I'm just saying that is the growth of the curve. And clearly if you look at a lot of other factors than bitcoin, if you look at the geopolitical world and if you even look at this magical number, which is 100 trillion USD, which obviously has been made famous in many circles, I think that something will probably happen much sooner in bitcoin, I think probably in the next 10 years, 20 years, 2 havings, 3 havings for other reasons we can discuss. But yes, I have no idea what's going to happen in a hundred years.
- [34:15]
Totally agree.
- [34:15]
Amazing to me. Yeah, it's, it's amazing to me that the strength of that curve is still so strong. People like look at this power curve and like, oh, it's not exciting. You know, it's just smooth growth. Who knows that the market's actually going to work that way? Well, if you actually talk to any financial analysts or hedge fund or pension fund and said, you know, can you consistently deliver 45% per year compounded, yes, you're going to have some huge maalox moments every four years with some drawdowns, but you know, it's unstoppable. There is no other trend, bond stocks, gold, that even comes close.
- [34:49]
I want to pull on this thread that you said that you're saying the math as we're looking at it here projects that if everything stayed on this power law, that it would take that long for it to get down to the same return profile as The S&P 500, I don't think that it's going to, I think we're going to see something more like, and some folks might laugh at this, but like the stock, the fomo. Have you ever seen this chart, the stock, the fomo, where it's kind of like real aggressive at the start, it's kind of doing like a 45% return profile right now and then it accelerates again.
- [35:20]
The S curve.
- [35:21]
Matthew Foreign
Like an S curve?
- [35:22]
Matthew Mashinskas
Yes, I think that that's a much more likely scenario as you have nation state adoption, you have corporate adoption and it starts to really kind of take hold and really to dominate fiat currencies as a settlement layer. Where that S curve really starts to pick up. I don't know, is it 5 years, 10 years, 15?
- [35:43]
Matthew Foreign
I have no idea.
- [35:44]
Matthew Mashinskas
But I suspect that's how this actually plays out, as opposed to it taking decades and decades. I'm curious and you agree, you seem.
- [35:52]
Yeah, I, I actually there's a lot of debate and you know, I know there's people in the power curve camp and the stock, the flow camp, or stock, the FOMO camp, whatever it might be. I happen to be in the power curve camp. This Giovanni from Italy was the first one to observe it. I guess I was the second one, according to all the evidence that I've seen. Not that I'm such a big deal to me, but I'm just saying that I've been following this trend since 2016. Sorry, it's 2018, I posted it. But since 2016, the trend has actually been pretty solid. And from everything that I see, I actually think that the power curve, based on Bitcoin's price and market cap fundamentals is the strongest trend that we have. And I think that it actually could continue on for a long time. And I don't necessarily see that fomo. I could be wrong. I could be wrong. I'll show you a couple of the charts. But there's a way to explain this without like using too many statistical, you know, terms and all this stuff. And I'm not a statistician, sort of a applied statistician, sort of numbers guy, but we just talked a bunch about exponential curves, right? We talked about the monetary base, talked about bond markets. Obviously is exponential. Any interest rate you hear is exponential. If it's quoted as an interest rate, that's an exponential market. The stock market, 7, 9% per year, population growth, GDP, these are all exponential things. It seems to me that if you look at networks, things where you have this relationship of, say, few large nodes with many people connecting or servers, you can use the word node, server, client, whatever, client, server. Or you have the situation where you have many small nodes with few connecting, which. That's a power law relationship. This sort of network effect type growth, it seems more likely to me to actually continue. So another example would be the growth. And there's a book, it's written by a guy named Jeffrey West. Giovanni's actually talked about this book as well, a lot. I like it's called scale. It's a very good book. But my understanding of the way that power curves grow, it's also the way that cities grow. So even though exponentially, the world, the world is growing exponentially, 1 to 2% per year, compounding consistently, cities actually grow different. Even though we're putting. It seems like Tons of people into cities every year. They don't just like fly into the sun, right? And it's not that the growth of them is slowing down, just the growth of them is occurring in this sort of structured, interesting network way where you have infrastructure that's just totally different then out outside, right? Not as many people need a car. People can live on top of each other. Utilities can be delivered in a certain way in a city that they couldn't be delivered in the countryside or in a suburb or so on and so forth. And that is actually if you research the growth of cities, they grow in this sort of power curve way. It started this gradual, gradual way that if you look at it on log scale, it's actually not a straight line, it's a decreasing line. And this is what you see with bitcoin. Let me show you now. So that's my attempt at least to try to not use fancy statistical terms to say why I think power could work for bitcoin. But here, let me put this. Now this is the bitcoin power trend versus the exponential trend. I got this on log scale. Need to take this off. Number one is the power trend. Number two is, is an exponential trend for bitcoin. They're the same trends. Like I'm using the same amount of data. It's all the all time data. Bitcoin as of when I pulled into the model, which should be today, February 20th, as of our recording, $97,000 Bitcoin, 97 and a half thousand dollars. Bitcoin is the price right on power trend. By the way. Power Trend is about $93,000. Bitcoin, okay, look at the exponential price. If bitcoin followed Exponential, it is $392,000, only 86% R squared. These are the exact same math is applied here. I'm just using the exponential formula for the exponential trend or a power formula for the power trend. Bitcoin just does not look exponential to me. If you take off the power, you have this, you're just looking at the exponential line now, straight line on log scale. It's how exponential growth works. Just doesn't, you know, you can see it just doesn't fit the price growth. You got way under it obviously in the 2010s and then even from this peak in 2013 through that crypto winter 2017, you don't even go under trend until finally 2022. Ironic date we already discussed and then we've been under trend since 2022. If Bitcoin followed an exponential curve, I think it would have a better R squared. I think it would have an R squared that's closer to a hundred or not, I should say. Power is not exactly 100, but it's 96%. It's pretty good. It doesn't have to be a hundred percent, by the way. Like gold is an exponential trend in the R squared might be 87%, I don't know. It's still exponential. But the best trend that fits it is exponential, if that makes any sense. And that's only an 87% R squared. That's the gold market. So bitcoin, I see what I see when I see with bitcoin, I don't see like the stock market. I don't see what Trump is going to say the next week. I don't see what the Fed is doing. I more see an adoption curve. People around the world plugging in, people learning about the lightning network people. It's embraced one small geopolitical trend that I'm living through here in Eastern Europe in the Baltics. It's pretty scary time for us right now with what's happening in Ukraine and uncertainty how that war is going to be resolved. The Baltics, we are next on chopping block for Eastern Europe. Like we're NATO countries since 2004. But people are wondering if NATO will even be honored at some point. That is actually a concern. I think the probability is still low, but it's a question mark. But I am thankful that I have bitcoin even living in Europe and living in Eastern Europe, that if I need to take my family and move like bitcoin and multi sig, I don't need to do anything. I don't need to send it anywhere. I can literally just move, have it in multiple jurisdictions, backed up, redundant. It's. I say this every time I get on a bitcoin pod as a guest, but it literally is a superpower to do bitcoin multistig. It's unbelievable. It's something like we've never seen. So I just don't look at bitcoin as sort of something that responds to the whims of the central bank. I look at it more as a network being adopted. A lot of people haven't figured out the glories of multistig or whatever. There's so many things that amazing features with taproot. I think it's going to take a long time. I think you can fomo into it, but even something like fomoing into Facebook or Amazon, yeah, there's huge growth and it's exponential growth, but it still takes a long time and it's usually not a strong growth rate. Right. These other markets we can talk about social networks, whatever the Winklevi, that, that whole story with them and Zuckerberg, that happened in 2003. Yeah. Zuckerberg is one of the richest people in the world now and Facebook's a hugely successful top 10 stock. But this is 20 years on. It's, there's a few unicorns. Bitcoin is, is in my view it's not going to be any, any more or less explosive, let's say. I think it's still going to be whether actually this is another point to say by the way, whether your exponential growth or whether your power growth is still going to take a long term. I just don't see it. To use my analogy, I don't see anything sort of exploding into the sun in the next few years. I think it's just take a long time. A lot of different people around the world have to come to grips with it and even when they do, are they really going to use multistig? Are they really going to plug into the Bitcoin network the right way? Are they just going to FOMO in on an ETF and then, I don't know, pay off their car payment or something, you know, for the average person. I'm not saying Matt, not trying to belittle anyone, but that's my view. Let's take a quick break and hear from today's sponsors.
- [42:58]
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- [46:28]
Matthew Mashinskas
All right, back to the show.
- [46:29]
Here's a question I got for you on the power Law. At what price would it start looking like that's being let's say we see a million dollar bitcoin in the coming two years. I know that that wouldn't violate or make the power law invalid, but it would start to suggest that maybe a price action Because I think the upper rail of this power law is around like 4 or 500,000. Is that correct? As far as like keeping it within the.
- [46:58]
Yeah, that's about right. It's a top end. Probably four or 500. Yeah, it's probably right. Very rare. Technically it could get up to 700,000 probably in some 99th percentile. Yeah, charts. But yeah, probably 400. 500,000 in my view would be a more accurate blow off.
- [47:14]
So if we would get to call it a million or a million five or something like that within two years, that would be an indicator that. Hold on because maybe, maybe there's. There's no model that can actually describe this. Was. Is that an accurate way to look at it or help us understand mathematically like what is inside or outside those limits and what would almost be like a flag that's raised as like hey, you might want to pay attention to this because something's different.
- [47:40]
Yeah, yeah. Or even within the next year. Right. So we're talking, if we're talking say realistically or in the top percentile bands, I'd say something like 300,000, 400,000 within the next year. And as everybody knows in Bitcoin land, 2025 is theoretically that's the December 2025, that's the end of the four year cycle, which has typically been a blow off top. I would certainly say we should look harder at other ways to talk about bitcoin. If it goes up above a million by the end of this year, that would be very interesting. And by the way, that's why it's awesome. Even the numbers we're talking about, like could you imagine if like we're just, you know, some of the things statisticians argue about here. We're talking about whether bitcoin might go up to three or four hundred thousand versus a million and if it's going to invalidate some model or not. So by the way, I would certainly not be disappointed if it did that. But yeah, just as an example here, right on trend for the exponential by the end of the year, for the exponential 773,000, that's by the end of this year. Whereas the power, as you see.
- [48:46]
Oh, that's interesting. Yeah, yeah.
- [48:48]
Same chart, end of 2025 for the power, only about 123,000.
- [48:52]
Oh, interesting.
- [48:53]
Yeah. To get to something like three sigma or 99 percentile. This is not how you do sigmas, but let's just very simply say if you multiply the bitcoin trend line by three, that's like the most rare thing that could happen. So that's already you're at, you know, 375,000, something like that. That's not what three sigma means, just to be clear. I'm not saying that, but there's no way, like it's extremely rare per the model to be 3x the trend by the end of this year. That's an extremely rare number. Whereas that number 3x the trend of the power trend, 375,000, that's like half of what an exponential trend would put us at. So, yeah, I do think actually we're going to get a probably a more definitive answer to this in the next two halvings, I think for sure then. I mean, that might sound too long to you, but to a lot of people. I still think we're gonna have to wait another halving to see exactly how this is playing out. But yeah, let's just say if bitcoin goes to a million by the end of this year, that would break most of the power law models. Power law idea of what bitcoin is. And I say that not as sort of embracing one model or the other. Just saying that. To me, what you see when you see bitcoin's price action is really not a reaction of any one politician. I do see it more as like a network. Network adoption. That's where I'm sort of the comfort of these models. I'm getting it. It's not. It doesn't have anything to do with externalities to bitcoin.
- [50:17]
Yeah. What are your thoughts on the having playing a role, moving forward? Because it seems like it was a very powerful force early on. There's a lot of people making arguments that were kind of beyond the having really having much of an impact. I know Willy Woo's been kind of saying that for qu while and there's. There's many others that I think agree with him. What are your thoughts on the impact of the having moving forward?
- [50:41]
I think that they're going to have a proportional effect on the bitcoin price, just as the price has tended to grow in power. What do I mean by that? Let me show. This is my website. I got a power curve on my website. If people want to see, they can play around with the bands and everything. And by the way, on my website, we can just see here, by the end of 2025, I got a 97.5 percentile per my. There's a lot of people who do different analysis. Mine says 455. 450,000. All right, so that's just again really in my opinion, pretty rare in the end 2025. Let me show these chart and I'll answer the question about how important I think havings are. What does a power law or a power curve mean? Power curve means proportional growth relative to the size of the network, but it does not mean constant growth. So everything we just talked about at the beginning of the show, base money, the fiat money supply grows at 11 to 13% per year. Compounded, that's a fixed number, constant number. We can run doubling times from that, like 10%, for example. The basic one does not double in 10 years, right? With compounding rule of 72, it doubles in 7.2 years. So that is the most simple way to talk about exponential growth is because of the compounding feature of exponential growth. We get something that will double faster than what it might seem like with the 10% example, an investment will not double in 10 years. Under 10% compound growth, it will double in 7.2 years. That's how you can figure out doubling time. And that's a constant thing. It doesn't matter which percentage you pick for something else, 9%, 15%. These doubling times are the same for each investment or thing in nature that's growing at that rate. And the percentages are the same, they're constant. With power, it's different. With power, you get that sloping curve on log scale, but you do get a fixed percent of whatever your x axis is. That's what power is. So if you see here on this chart, I have it on my website and people can see it's actually a familiar number, but it's unrelated. It's just a coincidence. It's about 12.7%. But again, this is not 12.7% per year. This is what this shows is what the power curve. If we measure the rate of growth of the power curve of Bitcoin, it's a declining growth rate. So remember, it was over 100% 10 years ago. Now it's 45%, a little bit under 45% per year. But what is fixed or what is proportional is the extra amount of days. If we can find a certain percentage based on the math, an extra amount of days in time that will always be the same for the price to double or pick a number, the price to go up 5, something like this. So I just for as an example, I picked up the doubling percentage and it happens to be about 12.7%, not 12.7% per year. It is for every increase in the amount of days of the Bitcoin Network, that is 12.7%. Bitcoin's price doubles. That's the trend. So you can see here when bitcoin is really young, 2010, there's only 640 days. 12.7% is just a new 72 days. You add 72 days on 6 40, you get to 7, 22. The trend just went from 25 cents to 50 cents. It only took 72 days. But now where we are in between this on my little chart here, it's again, you could pick any days, you could pick any days to run this. It would always be the same 12.7%. We're between here, this 2024, 2026 number. A 12.7% increase in the life of bitcoin as a network is 625 days. So for the model, you need it to double that trend line. You need to now have a lot more days. And that's just how, that's how this example of Bitcoin's power curve works. Because you can do power curve on the hash rate or on address growth or all these other things, but the simple interesting thing is the dollar price on time, dollar price versus days, and you get this proportional disproportional growth of bitcoin, the network. You know, for every 12 to 13% increase in time of the network, the adoption seems to double. I'm curious, that's my, that's my interpretation.
- [54:33]
Of the power curve on the hash rate. Are you able to do a power law on the hash rate or is it exponential?
- [54:39]
Yeah, yeah, it is a power law as well.
- [54:41]
Oh, interesting.
- [54:42]
Power on addresses. It's a power on addresses. It's power on hash rate things as well.
- [54:47]
Wow, that's interesting.
- [54:48]
Yeah. So with that in mind, if someone would ask me about the having which is, which is a declining exponential function, this is where bitcoin gets confusing, I think confuses a lot of people or at least again, I'm not saying I haven't figured out, but the math of it. If you look at the 50 bitcoins every four years, going out at 25, going out at 12 and a half, which is all part of the stock to flow, by the way, and also a lot of other models, that is a declining exponential curve. It's about 16% per year, I think is the declining. To cut the emission rate of bitcoins half in half every four years, you're cutting it at an exponential halving of 16% per year. So what you have with bitcoin is interesting. Unlike gold, where ounces of the ground come out at 1.8% per year. Silver is actually less, weirdly 1.5%. But stock market, all these things, whether you look at price, supply, demand, everything seems to be exponential. With Bitcoin you have a myriad of things. You have declining exponential on the emission. If you looked at the supply curve itself, that means Bitcoin's not market cap, it's logarithmic. And if you look at the supply curve in dollars, it's in power. You have three different curves in Bitcoin, whereas everything else in the world is exponential. In Bitcoin you have three different curves. I'm going to go deeper with that again. I'm not trying to confuse the picture, but there are a lot of ways to play with those numbers and that's why I think it's exciting. There's a lot of different. You got physicists now looking at this. You got a lot of people trying to understand this is a real living network before our eyes, like a monetary system. So it's incredible to put all these numbers. So that's a long winded way, Preston, of answering your question. I don't necessarily think one way or another about the having. I think that for every 12.7% increase in days in the life of bitcoin, I think the adoption doubles. I think the price doubles.
- [56:37]
Yeah. I mean if you're a math student and listening to this, you have to be just like a pig in mud with your curiosity should be taking you in a whole bunch of different directions to research further. But Matthew, unfortunately I have to end the conversation because I've actually got to run somewhere.
- [56:54]
But this, it's a good spot to edit.
- [56:56]
I think this is fascinating. I could talk to you all day. I love this. And you're, you're somebody in the space who deeply understands the mathematics in so many different directions. And I just love the models that you do with respect to liquidity. And it's just such a pleasure to talk to you every time. And so thank you so much for making time and coming on the show today and talking this. We definitely have to do it again in the future, but thanks so much.
- [57:21]
My pleasure, Preston. Thanks for having me on. Look forward to the next one.
- [57:24]
Yeah. And give people a quick handoff of where they can do more research or dig into some of the stuff that you've been talking about.
- [57:30]
Yep. My handle on all the socials, Noster included, is one base money, the number one base money. So you can find me there. Also my website is or capitalists IO or crypto voices dot com. That's the podcast.
- [57:42]
Matthew Foreign
Awesome.
- [57:42]
Matthew Mashinskas
Okay, we'll have links to all that in the Show Notes. Matthew, thank you so much and we'll see you guys next week.
- [57:47]
Take care.
- [57:48]
Preston Pysh
Thank you for listening to tip. Make sure to follow Bitcoin fundamentals on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses, go to theinvestorspodcast.com this show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.