Speaker 1: So the big question is this, how do investors like
Speaker 1: us get access to the ideas, information, and most importantly,
Speaker 1: the right people that give us the tools and information
Speaker 1: we need to make informed and educated decisions to have success.
Speaker 1: That is the question, and this podcast will give us
Speaker 1: the answers. This is Mark Moss, your host. Let's get
Speaker 1: this started. Welcome to another episode of the Market Disruptors podcast.
Speaker 1: You know, understanding the intricacies of the global financial markets
Speaker 1: is difficult, if not almost impossible for the average person.
Speaker 1: It takes a lot of specialty training, education and dedication
Speaker 1: to study these markets and understand how they work. And
Speaker 1: today we sit down with Nick Batia. He's a researcher
Speaker 1: with Tantra Labs. He's an adjunct professor at usc speaking
Speaker 1: and teaching about the bond market, the financial market, and
Speaker 1: he gives us some great insights. We're get into some
Speaker 1: conversations talking about his three of money, how it works
Speaker 1: different types of assets, from currencies, treasuries, oil, gold, et cetera.
Speaker 1: Of course cryptocurrencies bitcoin. We talked about what he saw
Speaker 1: in the traditional financial markets buying and selling treasuries that
Speaker 1: kind of caused him to want to jump over into bitcoin.
Speaker 1: Full time. We have a lot of good conversations about
Speaker 1: bitcoin itself, specifically, including how it's exactly where it needs
Speaker 1: to be today, how it's scaling, what the evolution of
Speaker 1: bitcoin looks like today, and where it's going over the
Speaker 1: next five and ten years. We both agree it's exactly
Speaker 1: where it needs to be, it's doing exactly what it
Speaker 1: needs to be doing, and it's on the course to
Speaker 1: set it up for a huge success in the future.
Speaker 1: It was a great conversation with Nick that I really enjoyed.
Speaker 1: So let's go ahead and just jump right into it. Everyone,
Speaker 1: Welcome to another episode of the Market Disruptors podcast. Today,
Speaker 1: I'm joined by Nick Botia. He has a he does
Speaker 1: research with Tantra Labs and open Nodes. He's also an
Speaker 1: adjunct professor at USC talking about finance and bond markets
Speaker 1: and stuff. So many things that we could talk about.
Speaker 1: We're trying to keep appointed. I'm excited for this interview.
Speaker 1: So Nick, welcome to the show. Thank you for having me.
Speaker 1: I appreciate it. Yeah. So, like I said, there's a
Speaker 1: lot of things we could talk about, but but I
Speaker 1: want to keep it on track. But before we dive
Speaker 1: into all that, why don't you just kind of give
Speaker 1: us a background of of kind of how you got here,
Speaker 1: on what you're working on right now. Sure. So I
Speaker 1: joined the bitcoin industry formally just a few months ago
Speaker 1: as a research strategist for open node payment processor that's
Speaker 1: enabled by the Lightning Network UM, as well as Tantile Labs.
Speaker 1: It is a hedge fund. They're both here in Los Angeles. UM.
Speaker 1: They're both extremely exciting opportunities UM, and I'm really happy
Speaker 1: to be part of both of them. Before that, I
Speaker 1: was part of the traditional finance industry. I was a
Speaker 1: bond trader trading US treasuries and other interest rate products
Speaker 1: for an asset manager UM for a few years, and
Speaker 1: worked at a hedge fund before that for a couple
Speaker 1: of years. UM. So I'm really just excited to have
Speaker 1: made the transition from the bond market to bitcoin. Yeah.
Speaker 1: So what a what a big jump to go from
Speaker 1: like traditional finance working with billions or trillions of dollars
Speaker 1: to go into like this small kind of brand new technology. Uh.
Speaker 1: What was that decision like to go from you know,
Speaker 1: the big traditional market to something that's like risky and
Speaker 1: unproven and small. Sure, well, it was a process that
Speaker 1: happened over a few years. First started with my interest
Speaker 1: in bitcoin and the dive down the all the bitcoin
Speaker 1: rabbit holes, um, and that you know process lasted a
Speaker 1: couple of years. Then I started writing about bitcoin last
Speaker 1: year and some of that work was embraced by the
Speaker 1: bitcoin community. They encouraged me to write more and I
Speaker 1: wanted to have conversations about some of the things that
Speaker 1: I was interested in, and all that snowball all into
Speaker 1: meeting real bitcoiners in person and starting to form relationships,
Speaker 1: going to events and uh, and then the gravity of
Speaker 1: bitcoin just kind of pulled me in. And in the end, UM,
Speaker 1: I made the you know decision that it was it
Speaker 1: was time. I love that the gravity of bitcoin pulls
Speaker 1: you in. Man, it's success all in, doesn't it. So
Speaker 1: when you were working for like a traditional manager institutional manager, UM,
Speaker 1: and you were trading treasuries, like I said, I mean,
Speaker 1: those are those are big markets, global markets, So you
Speaker 1: were looking at like the big kind of macro global
Speaker 1: picture when you were when you're doing those things, and UM,
Speaker 1: what what were you looking at? Um? What were there
Speaker 1: certain things that you were seeing that that we're kind
Speaker 1: of pushing asset prices around that kind of caused alarm
Speaker 1: for you. Well, you know, one of the things as
Speaker 1: a treasury trader that you really sink your teeth in
Speaker 1: is this bull market that treasuries have been in for
Speaker 1: uh three three plus decades in the United States, um
Speaker 1: SA the eighties when interest rates were at and so
Speaker 1: then you start to ask yourself, why have rates been
Speaker 1: trending lower for decades even though they can pop higher
Speaker 1: for a couple of years at a time. If you
Speaker 1: zoom out, what you see is just this persistent demand
Speaker 1: for US treasuries. So I started to ask myself what
Speaker 1: are the things that cause this persistent demand? And those
Speaker 1: were the things that I ended up focusing on. And uh,
Speaker 1: you know, some of those things are just the unlimited
Speaker 1: demand for safety and liquidity um of of safe, relatively
Speaker 1: safe assets versus all the other risky assets out there.
Speaker 1: Let's let's unpack that just a little bit. So um,
Speaker 1: for those that aren't aren't kind of tuned in, what
Speaker 1: are treasuries? Real quickly? I mean, how how does that?
Speaker 1: How does that work? Right? So, treasuries are obligations from
Speaker 1: the US government, So they are it's a it's a
Speaker 1: debt instrument, and and the buyer the bond is lending
Speaker 1: money to the US government, and over time, the US
Speaker 1: government pays back that that lender with interest payments and
Speaker 1: then eventually the principle at the end, the reason why
Speaker 1: treasuries are held as this quote unquote risk free asset,
Speaker 1: even though we know that the government could default, um,
Speaker 1: the fact of the matter is that they haven't, and
Speaker 1: that precedent the US government's credit worthiness has positioned treasury
Speaker 1: bonds as the quote unquote risk free asset of the
Speaker 1: entire financial system. Right, and so because of that, because
Speaker 1: the dollars the reserve currency of the world, and the
Speaker 1: United States has kind of been the underpinnion of the
Speaker 1: financial system. That's why their bond, where their treasury is
Speaker 1: the most risk free asset, and they have the track
Speaker 1: record I guess as well, not defaulting, that's right. And
Speaker 1: uh and uh part of part of that is that
Speaker 1: the dollar isn't backed by gold anymore, so you know,
Speaker 1: the people look for, uh an asset that is a
Speaker 1: safe haven away from the dollar. Um, they look to
Speaker 1: US treasuries because the dollar is not backed by anything
Speaker 1: but the treasury or the bond is backed by the government.
Speaker 1: The credit of the government. That's right. Well, see, the
Speaker 1: thing is that the dollar is backed by the Federal reserve, right. Um,
Speaker 1: that's if you have a cash note, those are federal
Speaker 1: reserve notes. Um. Dollars that are in a bank are
Speaker 1: liabilities of that bank, their dollar deposits, and so those
Speaker 1: dollar deposits aren't backed by anything but that bank. And
Speaker 1: that's really why people seek the safe haven of treasuries
Speaker 1: in the financial system. It's kind of the default thing
Speaker 1: that you own instead of bank deposits because you don't
Speaker 1: want to have to trust that bank. You'd rather trust
Speaker 1: the government. Right. And so we're talking like on the
Speaker 1: billion scale, the trillion scale, so like other sovereigns, right,
Speaker 1: other governments and things like that. Yeah, and you said,
Speaker 1: over the last thirty years, we've had this massive demand
Speaker 1: growth for that for those treasuries as interest rates have
Speaker 1: gone down. Um. Is that is that because other governments
Speaker 1: are kind of falling left and right, in the US
Speaker 1: just continues to get stronger and stronger. Well, it's a
Speaker 1: combination of several things. Um, inflation rates in general have
Speaker 1: been low in the Western world for a long time,
Speaker 1: and UM growth expectations as well. UM. And so you know,
Speaker 1: interest rates are kind of that combination of growth and
Speaker 1: inflation expectations of the future, and so as those two
Speaker 1: things have trended down, so have interest rates. Now, I
Speaker 1: mean currently, right now we're seeing the kind of this
Speaker 1: race to the bottom where all these other governments are
Speaker 1: starting to try to devalue their currency to kind of
Speaker 1: play that game. And so that's only making the US
Speaker 1: dollar stronger or the treasury is even stronger and more demand. Well, um,
Speaker 1: it's it's it's interesting because the US dollar is the
Speaker 1: center of the financial system and for that reason, um,
Speaker 1: as goes the US goes the rest of the world,
Speaker 1: and so I actually like to think more in terms
Speaker 1: of the rest of the world trying to devalue their
Speaker 1: currency is simply just a reaction to what's going on
Speaker 1: in the dollar system. Right. Okay, Now you talked about
Speaker 1: we talked about treasuries, but when you were looking at
Speaker 1: the macro markets, I mean, did you look at treasuries,
Speaker 1: which are you know, credit essentially of the government. But
Speaker 1: you kind of referenced before you also looking at gold
Speaker 1: and oil equities? How they all related together. Um, gold
Speaker 1: and oil obviously our commodities, those are real world assets.
Speaker 1: That's that's real wealth, right versus treasuries just being credit.
Speaker 1: How do you see those moving together or or what
Speaker 1: do you see there when you look at those together? Yeah,
Speaker 1: so the best thing you can try to do is
Speaker 1: UM just under stand which wants to watch. Trying to
Speaker 1: predict which causes the other to move or how they
Speaker 1: all react in you know, in relation to each other
Speaker 1: is really almost an impossible task. And unless you um
Speaker 1: you know, you have the quantitative tools, which actually there
Speaker 1: are a few hedge funds out there that you know,
Speaker 1: have dedicated hundreds of millions of dollars into the infrastructure
Speaker 1: to analyzing this data. So tracking it, being able to
Speaker 1: try to predict it is not something that I did.
Speaker 1: The only thing that I was trying to do is
Speaker 1: look at what was moving and why it was moving
Speaker 1: and and try to understand, you know, some of the
Speaker 1: relationships between asset classes, equity, fixed income, currencies and commodities.
Speaker 1: I guess what I was asking is UM. So. I
Speaker 1: just recently did a video on YouTube where I talked
Speaker 1: about UM the doubt of gold ratio and we I
Speaker 1: was basically talking about, you know, which a lot of
Speaker 1: people are kind of in tune with, but like gold
Speaker 1: being real wealth or real value. It's priced in dollars,
Speaker 1: and it looks like gold is getting more expensive. It
Speaker 1: looks like houses are getting more expensive. Looks like all
Speaker 1: these things are getting more expensive. But really the dollar
Speaker 1: is going down in value. And you when you look
Speaker 1: at um, when you look at home, the medium home
Speaker 1: price in the United States fifty years ago was twenty
Speaker 1: seven thousand. Today it's two. But when you price it
Speaker 1: in gold, it's kind of priced the same amount of
Speaker 1: ounces per gold or whatever. So that's I guess that's
Speaker 1: what I was curious about. So over the last you know,
Speaker 1: since nine seventy one or whatever, as that money supply
Speaker 1: has been exploding, I would imagine we've probably seen similar things,
Speaker 1: like in the treasury bond market. Um. Yeah, they definitely
Speaker 1: the the cost of living and especially the cost of
Speaker 1: things that have been subsidized by government programs. UM like
Speaker 1: the mortgage market and uh, the student loan market and
Speaker 1: the healthcare market. These three things have massive government subsidies
Speaker 1: here in the United States. UM. And it just leads
Speaker 1: to higher and higher prices bubbles, that's right, anywhere they
Speaker 1: want to put money because it creates artificial demand, right,
Speaker 1: And so you create artificial demand and it produces bubbles. Now,
Speaker 1: you wrote a paper recently called the Triumvirate, which was
Speaker 1: which was really cool as well received in the community.
Speaker 1: I know, I got a lot of a lot of
Speaker 1: publicity and and there was some really good stuff in there.
Speaker 1: And you talked about a little bit about the history
Speaker 1: of money, um, gold and then dollars built on top
Speaker 1: of gold. Um. But really there was a point where
Speaker 1: the euro dollar was created. It kind of change the
Speaker 1: whole system. Um before really we even lost the gold standard.
Speaker 1: What was that difference? Maybe real quickly as you walk
Speaker 1: through that sure, so um, what you did, what basically
Speaker 1: happened was in Europe after World War two, UM and
Speaker 1: the breton Wood system was started, where the dollar was
Speaker 1: the reserve currency. Banks in Europe needed a way to
Speaker 1: settle balances between each other, so they came up with
Speaker 1: this system of a dollar liability and uh that wasn't
Speaker 1: connected to the federal reserve regulated onshore US dollar system.
Speaker 1: But what were they using before that? Just dollars? That's well,
Speaker 1: they were using the balances between the between um between
Speaker 1: the two banks. And so those balances, whether they were
Speaker 1: denominated in the currency Europe or in gold um. They
Speaker 1: weren't able to facilitate the economic activity that was required
Speaker 1: of them in dollars because they just couldn't have the
Speaker 1: access to that many dollars with their own in currency,
Speaker 1: the euro dollar to help facilitate that trade. That's right.
Speaker 1: So they still had dollars, right, and those dollars um
Speaker 1: were actual notes, and but that only limits them to
Speaker 1: facilitate the amount of dollars that they had. So if
Speaker 1: they wanted to grow their business, they have to come
Speaker 1: up with something else. So they came up with this
Speaker 1: tool called the euro dollar to actually facilitate payment beyond
Speaker 1: the actual dollars that they had, right and so um
Speaker 1: that was a big turning point. You think in like
Speaker 1: the the the change in our money from golden dollars
Speaker 1: to then kind of the system that we have today. Well,
Speaker 1: what happened was the supply of these euro dollars started
Speaker 1: to increase and then they started to mix in with
Speaker 1: regular on shore dollars. So the Federal Reserve admitted sometime
Speaker 1: by the nineteen eighties that they had lost track of
Speaker 1: the money supply and they went from targeting money supply
Speaker 1: in their monetary policy to the price of money, which
Speaker 1: was you know, the federal refunds rate. They started targeting
Speaker 1: interest rates instead of the money supply because they actually
Speaker 1: didn't they lost track of it completely. And they they
Speaker 1: they have ad did this, uh, you know, slowly, but
Speaker 1: surely you know since the nineteen eighties, and um, in
Speaker 1: some papers that I was reading in preparation for this article.
Speaker 1: Sure they used to track it. They used to say,
Speaker 1: like because it was backed by gold, and they'd say,
Speaker 1: like how many times more than gold? And then they
Speaker 1: at tracked it for quite a while and then they
Speaker 1: just gave up and said, I forget it. Right, Um,
Speaker 1: you made a point that that in the paper, you
Speaker 1: made a point that at that point, Um, the dollars
Speaker 1: were no longer that risk free trade, and that's kind
Speaker 1: of what started pushing everybody into the treasuries. That's right, shift,
Speaker 1: that's right. So once the Fed you know, admits that
Speaker 1: they've kind of lost track of the supply of the dollar, um,
Speaker 1: the whole system realizes that the dollar is just a
Speaker 1: banking liability and not really an asset that's worth holding
Speaker 1: onto for any long duration of time. And so that's
Speaker 1: what causes the demand for US treasuries because you can
Speaker 1: think just think of it as the dollar substitute, and
Speaker 1: if the dollar is a banking line of liability, then
Speaker 1: you just substitute it with the government's liability. And that
Speaker 1: is basically what happened in the capital markets where um
Speaker 1: cash doesn't actually sit in cash, it sits in treasuries,
Speaker 1: T bills, et cetera, because that's a safe way to
Speaker 1: store dollars. It's interesting, you know. I saw just recently,
Speaker 1: in the last couple of weeks, I think I saw
Speaker 1: a survey and it said something like maybe up to
Speaker 1: thirty percent of people still think the dollar is backed
Speaker 1: by gold. And really there was kind of the sly
Speaker 1: switcher rue bait and switch whatever, where the dollar still
Speaker 1: looks the same, right, they changed it at the top
Speaker 1: that some of the text a little bit, but for
Speaker 1: the most part of the dollars the same, so the
Speaker 1: most people think it's still the same. Um. I thought
Speaker 1: it was interesting is that people thought it was still
Speaker 1: backed by gold. I wonder how many people never even
Speaker 1: knew it was even backed by gold, though that's probably
Speaker 1: a pretty high number. Yeah, I mean, it's it's it's funny.
Speaker 1: I um, you know, I didn't start trying to understand
Speaker 1: what the dollar was until I started studying economics, uh
Speaker 1: in in college. So you know, I think that it's
Speaker 1: just not on most people's radar. The dollar is their
Speaker 1: store value, it's their medium of exchange, and it's their
Speaker 1: unit of account. The dollar works, um. And so because
Speaker 1: of that, uh, people tend to not notice. But if
Speaker 1: you zoom out like you were saying, and you look
Speaker 1: over a multidecade time horizon, that's when you start that's
Speaker 1: when you start to notice that maybe this isn't the
Speaker 1: best way to store value. Yeah, that's such a good
Speaker 1: point that you made. Just like in the last week,
Speaker 1: another tweet that that kind of went around the world
Speaker 1: was that I think it was Larry Cernac posted or
Speaker 1: something and said that you know, the dollar by design
Speaker 1: is supposed to inflate by two annually, and even though
Speaker 1: it steals money from people or value from people, they're
Speaker 1: not supposed to be storing their wealth in in dollars, right,
Speaker 1: And he said they should be buying treasuries. Um. But
Speaker 1: as the point you just made, which I agree with, yeah,
Speaker 1: I was, person has no idea. They just think that
Speaker 1: they store their money in dollars, right, Yes, And that's
Speaker 1: why we also see that most of the stock market
Speaker 1: is owned by UM. You know, I think it's ten
Speaker 1: or fifteen percent of the American population, So you know,
Speaker 1: most people don't own financial assets in general. Yeah, what's
Speaker 1: interesting when you go through history, and again bitcoin drags
Speaker 1: you into all these different little rabbit holes as we
Speaker 1: call them. But when you go through history, you can
Speaker 1: see how UM, you know, in the mid I don't know,
Speaker 1: fourteen fifteen century, the whole world got onto the standardized
Speaker 1: gold system where all the coins had the same size
Speaker 1: and weight, and how it just blew up free trade
Speaker 1: and allowed everyone to start specializing. And then the world
Speaker 1: had several hundred years of massive prosperity UM during that period,
Speaker 1: and UM people were able to specialize, store their value
Speaker 1: and have it retain its purchasing power. But today, let's
Speaker 1: even if you're the best brain surgeon in the world,
Speaker 1: you should be able to be a good brain surgeon
Speaker 1: and park your money, have its store its value. But
Speaker 1: you can't, and so now everyone's forced to be an investor.
Speaker 1: And then it's created this whole financial system that would
Speaker 1: wouldn't even be necessary if we could just store our value.
Speaker 1: That's right, that's what happens. And when you're in a
Speaker 1: credit based or debt based money system is that it
Speaker 1: has to gradually inflate to stay alive. And it caused
Speaker 1: yet it causes everybody to have to be an investor.
Speaker 1: What's interesting, And you have the traational finance background, and
Speaker 1: it seems like a lot of people still because maybe
Speaker 1: the way that's predominantly taught is that we have to
Speaker 1: have this inflationary system, which I think is the point
Speaker 1: that he was trying to make on that tweet, because
Speaker 1: we need this system to inflate. And I sent a
Speaker 1: follow up tweet out and I said, would you rather
Speaker 1: your money I'm more in the future or less in
Speaker 1: the future. And everybody, of course wants more money or
Speaker 1: to buy more in the future. Um, but they want
Speaker 1: us to believe we need our money to inflate. But
Speaker 1: really it's the debt, right. Do you want to pay
Speaker 1: less for your debt in the future or pay less
Speaker 1: or pay more for your debt? Right? Yes? And I'm
Speaker 1: glad you brought that up because it's one of the
Speaker 1: things that I'm going to be spending a lot of
Speaker 1: time on over the next several months is coming up
Speaker 1: with an answer to your question about UM, how do
Speaker 1: we answer the criticism that we need to have this
Speaker 1: moderate early, moderately inflationary system UM, and that you know,
Speaker 1: the deflationary system of bitcoin is bad. So I'm I'm
Speaker 1: gonna be spending a lot of time researching, writing, trying
Speaker 1: to come up with ideas, asking some smart people there.
Speaker 1: There have been great pieces written about bitcoins, specifically with
Speaker 1: this UM, but also in terms of the gold system
Speaker 1: that we used to have UM. So I'm looking to
Speaker 1: research and summarize some of that stuff. I think. I mean,
Speaker 1: I think an inflationary currency only we're only helps, is
Speaker 1: only good in a credit based system. UM. In a
Speaker 1: non credit based system, you want a deflationary currency, of course.
Speaker 1: And and they want to say, well, people want to
Speaker 1: feel like their true wages are going up, UM, But
Speaker 1: I don't know. I think even though yeah, our wages
Speaker 1: went from four dollars and our eight dollars an hour,
Speaker 1: we know that they buy less today. So I don't
Speaker 1: that's not a great argument. What's that It's not a
Speaker 1: great argument to say that people, you know, want to
Speaker 1: feel like the numbers are going up, so that's why
Speaker 1: we have an inflationary system. No, it's not a good
Speaker 1: argument at all, you know, so it only helps the
Speaker 1: people with the credit. Now. You also made a point
Speaker 1: in that Triumgrant article that really the banks broke um
Speaker 1: the dollar in two thousand seven, and and now we're
Speaker 1: in a system of permanent disrepair? You said, yes, And
Speaker 1: so why is that? What happened there? Well? So the
Speaker 1: system of euro dollar interbank liabilities UM was kind of
Speaker 1: uh free reign system, strike of the pen um, not
Speaker 1: with a lot of limits, and not with really any
Speaker 1: worry uh what would go wrong? Um? And then when
Speaker 1: it did go wrong in two thousand and seven and
Speaker 1: they realized that you can't just leverage up six two
Speaker 1: one and survive um. That at that from that point forward,
Speaker 1: the banks trust of each other really just started to unwind.
Speaker 1: And so the reason why I say that we're in
Speaker 1: permanent disrepair is because we keep from going through these
Speaker 1: periods where banks uh just stop lending to each other
Speaker 1: and we can see that the system is not the
Speaker 1: same as it used to be. Now you say that
Speaker 1: in two thousand seven, So that's that right before the
Speaker 1: great financial crash happened, Um, they realized they can't leve
Speaker 1: up fifty one. But did they really? Aren't they levered
Speaker 1: up that much? Today we're worse. Well, sure, So the
Speaker 1: way that the central bank backs the system um makes
Speaker 1: the banks comfortable with taking risk. They just know that
Speaker 1: the their fellow banks are not the ones that are
Speaker 1: going to that are going to step in and keep
Speaker 1: the system alive. It's the central bank. And so the
Speaker 1: FED came in in two thousand and eight and two
Speaker 1: thousand and nine and two and ten and basically said
Speaker 1: we're going to provide all the liquidity that you'll ever need.
Speaker 1: And so, yeah, why would the banks go to each
Speaker 1: other anymore? Right? They wouldn't. When when doesn't that doesn't
Speaker 1: that almost make them more reckless knowing that hey, now
Speaker 1: we have this back stopping and we're always gonna get
Speaker 1: built out. Well, actually it's turned into something kind of
Speaker 1: scary where they are kind of reckless for most of
Speaker 1: the quarter and then as we go into quarter end
Speaker 1: they have to window dress, as we call it, um.
Speaker 1: They just have to make their balance sheets look good
Speaker 1: for all the regulators, and they start paring down a
Speaker 1: bunch of risks with each other, and so really bad
Speaker 1: things can happen on quarter ends or year ends as
Speaker 1: we saw last December, as we saw this September. Um,
Speaker 1: you you you have a system where you have kind
Speaker 1: of make believe risk for eighty days of eighty out
Speaker 1: of every ninety days, and then you have to reconcile
Speaker 1: to reality. It's not a great system, you know. I
Speaker 1: like to say that, like people like to say like
Speaker 1: knowledge is power, and I like to say that, really,
Speaker 1: only actionable knowledge is power. Otherwise I think ignorance is bliss.
Speaker 1: And a lot of times, like you've you peel, you
Speaker 1: peek behind the curtain, you see this stuff and then
Speaker 1: you can't unsee it. So I'm curious, um, you know,
Speaker 1: being that you were studying this in in in uh
Speaker 1: you know, becoming a professor and working for these institutional managers,
Speaker 1: did you then you made this shift into this brand
Speaker 1: new financial system technology, which is kind of scary. But
Speaker 1: was it almost like what you were seeing going on
Speaker 1: was so bad that you knew that system is doomed
Speaker 1: and you might as well jump onto the lifeboat. We
Speaker 1: had a chance. Yeah, not not doomed, uh necessarily, but
Speaker 1: um beyond actionable repair. Um not something that I could
Speaker 1: try to go out and fix. So let's work on
Speaker 1: something that we can build and we can change and um,
Speaker 1: you know, something something exciting. And it was basically yeah,
Speaker 1: kind of that black hole of this system is it's
Speaker 1: maybe it's not doomed tomorrow or even in the next
Speaker 1: ten years, but it's decaying and uh not something flexable. Yeah,
Speaker 1: you know, I want to you know, I want to
Speaker 1: have something that excites me, you know, with a long
Speaker 1: term I like how you say that because a lot
Speaker 1: of people in the bitcoin space we talked about it
Speaker 1: where it's an alternative system, so we can just opt
Speaker 1: out and so we don't have to wait for one
Speaker 1: to crash before the other takes off, and we can
Speaker 1: just kind of build this alternate system. And that's I
Speaker 1: guess that's what you are trying now to push. Yeah,
Speaker 1: it's definitely a parallel system. Um, you know, I don't.
Speaker 1: I mean, I it's hard to see, um, the United
Speaker 1: States relinquishing control that it has um in a short
Speaker 1: in a short time horizon. Uh you know, with the
Speaker 1: with the with the tool that they have in the dollar. Um.
Speaker 1: So yeah, we have to build a parallel system and
Speaker 1: make it as good and then better as the dollar system.
Speaker 1: Before you know, we can say, hey, you should you know,
Speaker 1: you should come over to the bitcoin world and that's
Speaker 1: just gonna take time. Yeah, I know. I think I
Speaker 1: always like to say people are expecting way too much,
Speaker 1: way too soon. I did a video where I talked
Speaker 1: about how the dollar and actually you know, the reserve
Speaker 1: currency has changed about every hundred years for the last
Speaker 1: five six years, and I made I just I just
Speaker 1: really broke down the change from Britain the sterling into
Speaker 1: the dollar and how really it was about a thirty
Speaker 1: to forty year process and today we're seeing the same
Speaker 1: thing happen. But it's going to happen over a thirty
Speaker 1: to four year process. It kind of happens with a whimper,
Speaker 1: not a bang, as as I said, UM, so kind
Speaker 1: of like what you're saying, we can start to build
Speaker 1: that alternate system. Now, well, we didn't get super deep
Speaker 1: into the existing system today. But in your article the
Speaker 1: Tranprit you talk about the trying the three pieces. I
Speaker 1: guess right that bitcoin can kind of build this alternative
Speaker 1: system you want to break down with those three r
Speaker 1: for us. Yeah. So what I'm basically referencing is that
Speaker 1: in the world of uncertainty, uh, people and investors want
Speaker 1: things that are safe and liquid. The reason that UM,
Speaker 1: even things that are even things that are relatively safe,
Speaker 1: can be extremely a liquid and uh, it defeats the
Speaker 1: purpose of the safety in the first place. And so
Speaker 1: to buy it right, right, right, And so the combination
Speaker 1: of safety and liquidity is what people are going to seek.
Speaker 1: And so what I see is and I reduced all
Speaker 1: government bonds to US treasuries because they're the dominant, but
Speaker 1: you could you could consider all UM global government bonds,
Speaker 1: you know, including those in Europe and Australia and Canada, etcetera.
Speaker 1: You know, a lot of government bonds that have really
Speaker 1: really strong track records. So these government bonds is one
Speaker 1: asset that people are going to and have flocked towards. UM.
Speaker 1: Gold is another. As we see, the long term price
Speaker 1: of gold has been in steady appreciation, you know, give
Speaker 1: or take. Uh, you know the interim volatility that we
Speaker 1: saw during quantity of easing and UM and then bitcoin.
Speaker 1: We all know what's happened to the bitcoin price since
Speaker 1: two thousand and nine when it did not have a
Speaker 1: price UM because it didn't you know, it just started
Speaker 1: to exist. So these three rethinks, uh, these three assets,
Speaker 1: these three asset classes I believe will be in massive
Speaker 1: demand over the next couple of decades and as bioins treasuries,
Speaker 1: gold and um uh, bitcoin and bitcoin, and that Bitcoin
Speaker 1: will start to take up more and more of that
Speaker 1: demand amongst those three assets. Right now, bitcoin um is
Speaker 1: still significantly less than one percent of the total market
Speaker 1: value of this trianvirt um. But in two thousands seven,
Speaker 1: during that interim bitcoin bubble, uh, bitcoin was over one
Speaker 1: percent of you know, the market for treasuries, gold and bitcoin.
Speaker 1: So that's pretty incredible. And as we see that go
Speaker 1: from one percent to five over the next several years, Um,
Speaker 1: that's you know, that's why I want us. I want
Speaker 1: US bitcoin ers to monitor where we are in relation
Speaker 1: to these other two assets. Uh. It's I'm curious because
Speaker 1: you talk about them as risk free assets. And I
Speaker 1: understand you made the case like treasuries or bonds are
Speaker 1: backed by the faith of the government. They've never failed,
Speaker 1: so it's pretty risk free. They're gonna pay you back.
Speaker 1: Maybe it won't be worth as much, but they're gonna
Speaker 1: pay you back. Right. Gold is is real wealth, real
Speaker 1: value the central banks or stock pond. That's risk free.
Speaker 1: But how do you call bitcoin or risk free asset
Speaker 1: today it's yeah, it's more a colloquial way to describe it. Um,
Speaker 1: nothing is risk free, like you said, the treasuries can
Speaker 1: um be worth zero of the US government defaults uh
Speaker 1: where they keep inflating them away right right? And then UM,
Speaker 1: you know technically your gold isn't risk free because um,
Speaker 1: you know it could be faked or um used sees exactly. Um,
Speaker 1: and your bitcoin isn't risk free because um, you know
Speaker 1: show to fifty six could break or you know, something
Speaker 1: could happen to bitcoin. So nothing in this world is
Speaker 1: risk free. However, Um, there is this echelon of safety
Speaker 1: and liquidity that gold has reached um through thousands of
Speaker 1: years of track record, and that treasuries have reached through
Speaker 1: um a hundred plus years of track record. The US
Speaker 1: government has had different forms of obligations since its inception, um,
Speaker 1: and bitcoin has eleven years of track record. So UM,
Speaker 1: let's see the let's see bitcoin where it is with
Speaker 1: twenty years of track record, where you know, versus where
Speaker 1: golden treasuries are after hundreds or thousands of years. Yeah. Now,
Speaker 1: currently it seems like the central banks are on a
Speaker 1: mass buying spree of gold. Last year, they accumulated more
Speaker 1: gold than anytime since nine since we got off the
Speaker 1: gold standard. Um So, the central banks are buying gold
Speaker 1: to hedge against their currencies, right to collapse and currencies.
Speaker 1: Um So, you think at some point maybe as bitcoin
Speaker 1: gets more trusted, the central banks are also buying because
Speaker 1: so so central banks are buying treasuries, they're buying the bonds,
Speaker 1: they're buying the gold. Two of those three you called,
Speaker 1: and then eventually they'll start to buy bitcoin. Absolutely, well,
Speaker 1: there's no I wouldn't have joined bitcoin if I didn't
Speaker 1: think that. The answer to that was yes. So I
Speaker 1: can't tell you when it's going to happen. Um I would.
Speaker 1: Uh if I were to make a prediction, I would
Speaker 1: say within a decade. But um, I think that it
Speaker 1: will happen. And so what we're doing is trying to
Speaker 1: build up this system to get to the point where they,
Speaker 1: you know, they're forced to buy bitcoin because it's the
Speaker 1: best risk adjusted investment that they can make. Yeah. Again,
Speaker 1: there's so many pieces with bitcoin that does make it
Speaker 1: so interesting, and one is the game theory that's been
Speaker 1: built into it, and and having that fixed cap adds
Speaker 1: to that. It's kind of like that game of musical chairs.
Speaker 1: And it's interesting the position the U S is in because,
Speaker 1: as you've made the case, the dollar is the reserve
Speaker 1: asset that you know, it's the it's the risk free trade,
Speaker 1: et cetera. And it's also the weapon that the United
Speaker 1: States employees, right with the being uh sanctions and whatnot.
Speaker 1: And so really the US is the country that has
Speaker 1: everything to lose, and so they're gonna have to fight
Speaker 1: against bitcoin the most, whereas other countries they don't care.
Speaker 1: They don't have a reserve asset, so they're going to
Speaker 1: be faster to adopt bitcoin. Uh. Do you see something
Speaker 1: like that kind of playing out that maybe changes the
Speaker 1: power structure. Yeah, the the US does have a lot
Speaker 1: to lose, um for sure, but a currency is a
Speaker 1: very powerful tool for government. So um, I you know,
Speaker 1: I think that they all are thinking in terms of um,
Speaker 1: you know, will we lose power if we lose the
Speaker 1: power of the currency. Um. Yeah, so not just the US,
Speaker 1: but sure as the reserve currency, the US does might
Speaker 1: have the most to lose. But I mean I really
Speaker 1: don't see the US fighting bitcoin. Um. I think that
Speaker 1: the I think bitcoin as freedom of speech freedom of expression,
Speaker 1: freedom to use software, UM, freedom to store your wealth,
Speaker 1: and whatever you want. I think that bitcoin is kind
Speaker 1: of does have a lot of American ideals, and I
Speaker 1: just don't see any real fight against, um, the legality
Speaker 1: of bitcoin here in the United States. I love your optimism,
Speaker 1: and I hope you're right. It is American. It was
Speaker 1: created here in America, right, I mean it is. It
Speaker 1: is American, it should be American, and like you said,
Speaker 1: it does align its help with the American ideals. But
Speaker 1: we also know that money is power, right Rothchild told us,
Speaker 1: I care not who makes the nations laws, Let me
Speaker 1: control the money. And so they can't give up the
Speaker 1: control of money. And so it's like this, like what
Speaker 1: are they gonna do? So I will see how that
Speaker 1: plays out. But one of the things that we do
Speaker 1: see is banks themselves fighting by you know, um, not
Speaker 1: allowing their customers to access bitcoin services. Buying bitcoin gets
Speaker 1: account shut down or uh exchange wires two exchanges are blocked.
Speaker 1: So the banks are going to fight UM that. I
Speaker 1: definitely believe the banks are gonna fight UM so UM,
Speaker 1: but the US government, UM, I hope not. I and
Speaker 1: I see some great trends we see Trace Mayor and
Speaker 1: Caitlyn Long doing absolutely awesome things in Wyoming. And we
Speaker 1: do see the conversation about bitcoin in d C progressing
Speaker 1: very nicely after the entire Libra incident um, where you know,
Speaker 1: Congress had to face the music and realize that this
Speaker 1: whole cryptocurrency thing is not going away. And I think
Speaker 1: that we heard insightful comments from people in Congress about bitcoin.
Speaker 1: So I'm optimistic. Yeah, great, well we'll run with that.
Speaker 1: And I the other thing that I like that you're
Speaker 1: talking about is really you're talking about this long range perspective,
Speaker 1: which I think is the most important thing. And I
Speaker 1: think everything I commented already that people expect too much
Speaker 1: too soon, and so you're talking about like in the
Speaker 1: next decade and really in the in the big picture,
Speaker 1: it's not that long, um, but you know you're talking
Speaker 1: about like this this big picture, and we can talk
Speaker 1: about like maybe the trajectory or or the evolution of
Speaker 1: bitcoin just in the last ten years alone. And um,
Speaker 1: I know something that you're working on, which is, you know,
Speaker 1: currently bitcoin has started as this uh you know, potentially
Speaker 1: for the white paper, is this this this cash, digital cash,
Speaker 1: but now it's moved to this store of value narrative
Speaker 1: because it's slow, because it takes time, it's expensive to
Speaker 1: transfer and whatnot. But just like the evolution of money,
Speaker 1: we're seeing bitcoin evolved as well. You want to talk
Speaker 1: about that, yeah, so you know what you're what we're
Speaker 1: referencing here is the advent of the lightning network, and
Speaker 1: the Lightning network has made bitcoin um go from just
Speaker 1: that store of value and moving asset to now that
Speaker 1: asset with a currency layer on top of it. And
Speaker 1: that currency layer is basically a standardized financial contract um,
Speaker 1: you know, between bitcoin users, and so it allows bitcoin
Speaker 1: to be used now at the speed of light um
Speaker 1: between users, and I think it's an incredibly important evolution
Speaker 1: of bitcoin um here you know today. So to give
Speaker 1: that just a little bit of context, So gold was
Speaker 1: used as money for five thousand years. To to settle
Speaker 1: in gold is very slow and expensive and clunky. If
Speaker 1: I had to send you gold across the ocean, for example,
Speaker 1: would take a long time and be expensive. And so
Speaker 1: the banks gave us paper certificates and those could be
Speaker 1: used easier. And so bitcoin maybe a little slow and clunky,
Speaker 1: I mean, and now I mean to be real, I mean,
Speaker 1: the chance for millions or billions of dollars in an
Speaker 1: hour is not that slow and clunky. But going to
Speaker 1: a layer to similar to like gold certificates, we have
Speaker 1: lightning which is now speeding that up. And so the
Speaker 1: evolution is kind of working just as it's intended to. Absolutely. Um,
Speaker 1: you know you had gold and then you had gold certificates. Um,
Speaker 1: we have dollars, and we have PayPal and Venmo and
Speaker 1: so payments happen. Payment stacks are built in layers. And
Speaker 1: the way to think about Lightning Network, if you've never
Speaker 1: heard of it before, is it's an app and to
Speaker 1: use the app, you just have to have real bitcoin
Speaker 1: and so um, once you have real bitcoin and you
Speaker 1: use Lightning, UM, bitcoin becomes instant. Yeah. Now, in the
Speaker 1: beginning when Lightning was first coming out, and maybe if
Speaker 1: people heard this where you have to open up a
Speaker 1: channel and you have to deposit money into that channel. UM,
Speaker 1: our services that are coming out now kind of taking
Speaker 1: away that need to do that. And now I can
Speaker 1: just download the app and just use Lightning directly. Uh
Speaker 1: So we as a lightning industry are on a great
Speaker 1: path forward. Um. Right now, there are a couple very
Speaker 1: easy to use wallets and UM. Open node is a
Speaker 1: very easy to use payment processor UM and so infrastructure
Speaker 1: is being built right now in the Lightning network. UM.
Speaker 1: I would say that we're still a little bit of
Speaker 1: time away from it being able to process UM all
Speaker 1: the transactions that go on in Bitcoin, for sure. UH.
Speaker 1: At open node, we see most of our transactions are
Speaker 1: done on the Lightning network, but most of the value
Speaker 1: is done on the regular Bitcoin blockchain. So we still
Speaker 1: see most of the value moving the regular way, but
Speaker 1: the frequency of the transactions it's happening on the Lightning network.
Speaker 1: So it's a really great UM, it's a really great progression.
Speaker 1: So UM real quickly, UM we're using Lightning. Then all
Speaker 1: those transactions are done off the main blockchain, which is
Speaker 1: why they happen fast. That's right. They don't settle to
Speaker 1: the main block chain unless one of the two parties
Speaker 1: decides to do so. So you don't have the burden
Speaker 1: of every transaction that you make confirming to the blockchain.
Speaker 1: You can just keep editing or do new ones all
Speaker 1: the time. UM and so as long as both parties
Speaker 1: don't have uh the desire to close the channel, you
Speaker 1: don't have to use the blockchain and not everything has
Speaker 1: to be censorship resistant immutable. My Starbucks coffee doesn't have
Speaker 1: to be saved for all time being censorship resistant, right well,
Speaker 1: and that and that's and that's also the point here
Speaker 1: about the Lightning network is that even though uh, you know,
Speaker 1: there's a lot of fear around opening channels and how
Speaker 1: do I do it and all that, um wallets are
Speaker 1: abstracting that away. Open note is abstracting that away. We're
Speaker 1: going to try to make it just really seamless so
Speaker 1: that you don't have to think about those things. And
Speaker 1: some of that might require a custodial solution. Um, you know,
Speaker 1: we don't think that it's wise to keep any of
Speaker 1: your bitcoin in the custod of an exchange or a
Speaker 1: third party unless it's intra money and you just have
Speaker 1: a plan to withdraw it or it's not that much money,
Speaker 1: so twenty hundred bucks or for our merchants, um, you know,
Speaker 1: they're accepting bitcoin and they're withdrawing their bitcoin within a
Speaker 1: couple of days and so, um, you know, it's just
Speaker 1: an infrastructure. Yeah, so yeah, I can already see how
Speaker 1: much it's progressed just in the last year or so,
Speaker 1: and it's and it's definitely exciting. So um, definitely something
Speaker 1: to keep an eye on. And that's where you see
Speaker 1: the evolution going. And and then that's why the banks
Speaker 1: are scared. Right. So in my understanding, there's like three
Speaker 1: functions of a bank. One is to store your money,
Speaker 1: which we don't need anymore. Bitcoin can do that too,
Speaker 1: is to settle the transactions, and three would be the
Speaker 1: lending market. So um, bitcoin kind of takes most of
Speaker 1: those functions away from them. Yeah, and uh, the lending
Speaker 1: of bitcoin is something that will be very important ecosystem
Speaker 1: to watch as bitcoin matures. The use of bitcoin as
Speaker 1: collateral in loans UM is part of that equation. So
Speaker 1: we look to see, you know, things that are happening,
Speaker 1: um in the regulatory sphere that you know, bitcoin is
Speaker 1: being accepted as this um safe collateral or a good
Speaker 1: collateral for loans. And so any legal precedent that establishes
Speaker 1: bitcoin as collateral is going to be huge for entities
Speaker 1: being able to operate as bitcoin banks. Yeah, I got it,
Speaker 1: all right, We're running out of time here, but I
Speaker 1: just curious to ask you, so, do you think now
Speaker 1: with lightning and making it really easy to send micro
Speaker 1: transactions for cheap and fast. I mean, do you do
Speaker 1: you think that's really gonna maybe be the piece to
Speaker 1: start to finally push this adoption or do you you think
Speaker 1: people are still gonna want to hold all their their bitcoin? Well,
Speaker 1: I think it's The use cases are definitely, um, you know,
Speaker 1: multiple fold for bitcoin. As we've talked about the need
Speaker 1: to houddle bitcoin and store well away from your currencies
Speaker 1: or or government bonds, even um won't won't won't go away,
Speaker 1: and it will only continue to get stronger. The need
Speaker 1: to use bitcoin for freedom of speech, transactions in sanctioned
Speaker 1: countries or things of that nature, will not go away.
Speaker 1: It's only going to grow. It's only going to grow.
Speaker 1: And so Lightning Network, UM it enables all these new
Speaker 1: business models. This concept of streaming money um micro transactions
Speaker 1: with a currency that we can rely on has never
Speaker 1: been done before. And so I'm really excited to see
Speaker 1: how Lightning Network adds to bitcoin. But I can't say
Speaker 1: that it's going to be the only thing or the
Speaker 1: most exciting thing. It's just it's just another piece of
Speaker 1: the puzzle. I love that perspective because you know, I
Speaker 1: look back over the last you know, five six years
Speaker 1: or whatever, I've been involved in the space, and I
Speaker 1: see how my thinking changes and evolved, right, and and uh,
Speaker 1: I started to think, like, maybe bitcoin doesn't need this
Speaker 1: mass adoption. I mean, if it goes, if it takes
Speaker 1: over the treasury more get the gold market, uh, the
Speaker 1: offshore banking markets. I mean those are hundreds of killions
Speaker 1: of dollars already, right, and you don't see anyone pushing
Speaker 1: bitcoin or gold as like mass adoption. But then you
Speaker 1: talk about the will we see censorship continue to grow?
Speaker 1: And of course we will. We just saw the other
Speaker 1: day PayPal blocked porn Hub, right, and and we're gonna
Speaker 1: only see that grow and grow. So um, yeah, maybe
Speaker 1: we we need it on both sides. Yeah, you know,
Speaker 1: I I like to think about about it, um from
Speaker 1: every different user. Um. You know, not everybody is going
Speaker 1: to use bitcoin in the same way. And I don't
Speaker 1: think we need mass adoption. We just need adoption one
Speaker 1: person at a time, one institution at a time that
Speaker 1: figures out they need bitcoin. That's how we get bitcoin
Speaker 1: of grow. Awesome, We're gonna end it right there. I
Speaker 1: love that. Um Nick, thanks so much for taking the
Speaker 1: time to talk. It was a great conversation. Um, you've
Speaker 1: been writing a lot of good stuff, like I said,
Speaker 1: so where can people find some of that stuff that
Speaker 1: you're writing and keep up with you? Right? So I'm
Speaker 1: on Twitter at time value of BTC. Um, that's where
Speaker 1: I linked to all my stuff. So I'm writing for
Speaker 1: Open Note on their blog, UM Contra Labs on their
Speaker 1: medium page UM as well. But I linked everything on
Speaker 1: my Twitter. Awesome, and we'll put it in the notes
Speaker 1: for everybody else. So Nick, thanks so much. All right,
Speaker 1: thanks for having me. I appreciate it. Hey, if you
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