The math behind cryptocurrencies.
Alex Saunders of Nuggets News shares his thoughts on what to expect from central banks on the road ahead from dropping rates, implementing quantitative easing and the applying modern monetary theory. Explaining why this is important to understand when investing in hedge assets like Gold and Bitcoin.
Alex Saunders is one of Australia’s leading blockchain educators and founder of Nuggets News.
Filmed at the Gold and Alternative Investments Conference 2019, Saturday, October 26, 2019.
Transcript00:00how we’re going guys that’s working so00:01hands up who owns gold and hands up who00:06owns Bitcoin it’s bit more even than I00:09thought so yeah I’m definitely a big fan00:11of both and today I’m going to try and00:13give you a rundown of bitcoins history00:15and how it’s been affected by monetary00:17policy where I think that is going as we00:20head into the future and Bitcoin is very00:23hard to understand so I’m going to tie00:25together all these concepts as best I00:27can for you in under half an hour and00:29just a bit of an intro I run Nuggets00:32news I’ve been in cryptocurrency since00:342012 I was actually a pharmacist by00:37trade and I’ll talk about how my story00:40came about so these days where00:43Australia’s leading provider of free and00:45premium education with a focus on00:48Bitcoin other cryptocurrencies as well00:50as the importance of gold and protecting00:53your wealth a bit of well-rounded00:55financial education so Bitcoin often01:00gets called you know digital gold01:01internet money and I think these terms01:03maybe oversimplify it and don’t do it01:06justice so I’m going to talk about all01:07the different things that it is bringing01:09together and why it is so important so01:12another focus of my talk today is you01:13know what have we learned from the GFC01:15it’s ten years on now and Bitcoin01:18actually came about from the GFC my01:23journey begins around that time when I’d01:25been studying pharmacy but investing it01:27always been my passion and when the GFC01:30unfolded like a lot of you I’m sure you01:32want to know what happened and there’s01:33some fantastic documentaries out there01:35and you learn about how you know the01:37banks effectively caused all this01:39trouble and then got bailed out and01:41satoshi the creator of Bitcoin embedded01:44this message about the the bailouts for01:47the banks in the Genesis block of01:49Bitcoin so it’s very much one of the01:51messages that he was trying to portray01:53about bitcoins mission going forward so01:56since the the GFC I guess the message01:59from central banks and their02:01relationship with government has always02:02been around you know trust us02:04we’ve got these levers of printing money02:06and interest rates and we can steer the02:08economy and they really ramped up their02:11production of of money as most02:13in this room probably know to encourage02:15banks to lend out and get the economy02:17going that I’m gonna talk about how that02:19hasn’t really unfolded and what we saw02:21around this time was people becoming02:25aware of these issues and push back02:27against what was happening so Occupy02:29Wall Street was pretty prominent at the02:31time he kind of died down a little bit02:33but this was when Bitcoin was starting02:35to get a little bit of traction now like02:38a lot of people when you learn about02:39what he’s going on in the monetary02:40system you know I’m preaching to the02:42converted here at a gold conference and02:44I know personally I wanted to go out and02:45buy some some gold and silver and one of02:48the first bars I bought it wasn’t a02:50common I commonly made bar and I was02:52sort of thinking you know how I know02:53that this is legit so I guess that’s02:54probably one of the the aspects of02:57Bitcoin and auditing and even gold that02:59I believe blockchain can help Gold’s03:01case as well but I’m very much an03:02advocate of gold and silver and I still03:05own those today another thing that a lot03:08of gold bugs will tell you is the price03:10manipulation so depending on what degree03:12you believe in that I certainly I can03:14understand the case for you know these03:16futures markets and ETFs and03:18rehypothecation and what what is the03:20real gold underlying that and it’s03:23something that I hope doesn’t creep into03:24the Bitcoin world too much because we03:27don’t want that money that once exposure03:29to that asset being pushed into these03:31things that aren’t backed by real03:32Bitcoin or by real gold so you see a lot03:37of these different slides around03:39bitcoins properties and you know it’s03:42it’s all looking pretty good according03:43to that but I’m certainly not here to03:45tell you that Bitcoin is a replacement03:46for gold at all there’s some things that03:48it does are better and some things that03:50it doesn’t do better that track record03:52and the history of gold obviously is03:53very hard to compete with but it’s all03:55the properties of Bitcoin that give it’s03:58you know good credence to be a good04:00money the future money the next04:02evolution of money so for the first time04:06ever we had a way so I guess stick it to04:09central banks and governments and say04:10well you know if you’re going to try and04:12manipulate gold and ETFs and I know most04:15people instrument robably fans of04:16holding the real thing for the first04:17time ever we’ve got a way to hold your04:21assets outside the system and become04:22your own bank and this was a famous04:24photo that you probably saw with someone04:26to buy Bitcoin behind janet yellen air04:29so what is Bitcoin what are the04:32properties that make it a good money04:34well the first things you learn is about04:36this finite supplier and how the04:38inflation rate halves every four years04:40so you can see there on the curve we’re04:43at a very important point well in May04:45next year we step down from 4% inflation04:47to 2% and then again four years later04:50down to 1% and at that time Bitcoin04:53becomes more scarce than that inflation04:55that all central banks are targeting of04:57two and three percent the new production04:59of gold is about one or two percent so05:01Bitcoin will become you know more scarce05:03in terms of the new coins created and05:05that’s very attractive in a world where05:07money printing is running right another05:10thing that you’ll love about Bitcoin05:12once you learn about is this05:13decentralized nature so what does that05:15mean well anyone can download the05:17Bitcoin blockchain running on their05:19computer help support the network you05:21can download a wallet and you become05:23part of the network you can send Bitcoin05:25to anyone else there’s no one company05:27that can be targeted or shut down05:29there’s there’s nodes computers all over05:31the world that run this network and it’s05:33literally impossible to stop unless you05:35plan on showing down the entire Internet05:38so around 2013 we saw the Cypress05:42bailing so heads up who knows the story05:44there so this is the first time that05:47we’d seen governments and banks say well05:49we’re not we’re not going to bail the05:50banks out and give them money you’re05:51gonna have to bail your customers in to05:53shore up your reserves and they got what05:56they call a haircut where the customers05:57lost a percentage of all money in their05:59accounts and we saw a lot of protests at06:01the time the ATMs shut the bank shut in06:04Cyprus and Bitcoin ran from a hundred06:06dollars to over a thousand dollars as06:08people in Cyprus saw that as the best06:10way to protect their wealth and have06:12access to their money so this was the06:14first I guess bubble and Bitcoin does06:16follow these these cycles these mini06:18bubbles where we have a very scarce06:20asset it’s thinly traded so when06:22everyone tries to borrow we get these06:23big run ups in price and that leads to06:25euphoria and speculation and then we06:27have these these crashes and like06:29anything it overshoots to the downside06:31and we have panic so I’ve been through06:32seven of these cycles now since 2012 and06:35you know every time people who say whoo06:38bitcoins dead he’d ends up going up a06:39thousand06:40sent the following year throughout this06:43time and despite this volatility if you06:45look at all the network stats for06:46Bitcoin and we can pull a lot of data06:48from that because the blockchain is06:50transparent and anyone can see what’s06:51going on the growth in the network was06:54very constant so bitcoins price06:56unfortunately isn’t just going to06:58steadily increase and you know REITs07:01these large market caps in the trillions07:03where I believe it’s going we’re going07:04to have those cycles despite the actual07:07growth underlying it being very very07:09consistent so most of you’ve probably07:12seen this slide about the u.s. debt07:14clock it’s probably going up a few07:15billion since I took this screenshot07:17yesterday and it’s these are the reasons07:20why bitcoin is so important because of07:23that finite nature that low inflation07:25rate that I spoke about there’s also an07:27Australian debt clock if you want to07:29google that and you can see how quickly07:31these liabilities and promises the07:34government is saying they’re gonna pay07:35us all are unfolding so I’ll put my07:38pharmacists hat back on07:40and once data like to tell people is07:41that for the first time in history07:42there’s more adult diapers than baby07:44diapers we’ve got a generation of baby07:47boomers every day 10,000 baby boomers07:49retire in the US and they’ve been07:51promised these pensions and this07:52Medicare and as you saw in the previous07:54slide that’s hundreds of trillions of07:56dollars the US and other countries are07:58promising at a time when they’re running08:00huge deficits there’s no way that this08:02can be funded and every dollar of debt08:04represents something that needs to be08:06paid out in the future so we know that08:08the money supply is going to have to08:09increase into the hundreds of trillions08:10of dollars and that is going to be very08:13inflationary in all countries around the08:15world at the same time we’ve got a08:18generation of young people such as08:20myself that have grown up with the08:21internet and devices and every time a08:23new technology comes along the adoption08:26rate speeds up so smart phones and08:28Facebook took over the world you know in08:30a number of years only a couple of years08:32compared to previous technologies and08:34communication things spread like08:36wildfire these days and when I see those08:39charts of the Bitcoin and people saying08:40it’s dead it’s a bubble all of those08:42little bumps on the road when you zoom08:44out just another adoption curve in my08:46mind and we’re gonna head to a 80 or 9008:48percent penetration and that doesn’t08:50mean the Bitcoin becomes a world08:51currency or anything like that it just08:53means that08:54every person he’s going to use it to08:55some degree whether it’s just on08:56holidays you know to some degree I08:59believe Bitcoin is going to be used by09:00lots of different people in different09:02capacities now when people tell me that09:05no one spends Bitcoin no one uses it a09:07little company in Australia called09:08living room with Satoshi you have09:10allowed you to pay any bill in Australia09:12since 2014 pay your credit card off pay09:15someone else to their bank account pay09:17your dentist over be pay you can pay any09:19bill in Australia for five years so09:20people are using this every day and we09:23have more and more merchants that are09:25accepting Bitcoin directly so there’s09:27websites and and cards where I can use09:29to pay for things with my Bitcoin do my09:31shopping every week but now we go a step09:33further where the merchants and cafes we09:36rolled out Brisbane Airport last year09:37every shop there now accepts Bitcoin so09:39the merchants are now accepting it09:41directly as well as those other09:42intermediary services now some people09:45say that Bitcoin isn’t the best method09:47of payment it can get a bit expensive in09:48the networks a bit slow and that’s why09:50we’re working on things like the09:51Lightning Network as you see here so09:53that’s a layer that sits on top of the09:55Bitcoin network it’s not perfect like09:57the internet in the early days we’re09:59ironing out all the bugs and we’re10:00making this thing work better and better10:01over time but as long as you can find a10:04route to another person just like we10:06used with the internet you know it finds10:08a route to that website you want to use10:09you don’t even have to know what’s going10:11on your computer on the back end this is10:12what’s happening in the world of Bitcoin10:14and payments now those cycles that I10:17spoke about this chart huge is just10:19showing you the market cap of Bitcoin as10:20it as it grows compared to the realized10:22market cap so what that means is we can10:25look at the last time a Bitcoin moved10:26you know in a wallet when someone bought10:28it and if they bought it a hundred10:30dollars and then the price runs up to10:31$1,000 we can see that the actual market10:34cap is now a long way away from what10:36they last realized the price of their10:37Bitcoin app so people take profits when10:40that moves too far away and it reverts10:42back to the mean and we bottomed out10:44again last year in 2019 at around three10:46thousand dollars and the little orange10:48line you can see at the top there is is10:50that realize market cap so it basically10:52means where everyone’s had a chance to10:54sell now if they want to take profits10:55and whatnot and so the actual true value10:57that’s been realized at the Bitcoin10:59network is at all-time highs and11:00consistently increasing now people say11:03Bitcoin it’s not a good story value it’s11:05too volatile well it11:07we’re in a bear market we’ve been in a11:08bear market for almost two years and11:10it’s still been profitable for 9011:11percent of bitcoins life to buy Bitcoin11:13you’re still in profit and I believe11:15we’re gonna pass those all-time highs in11:17the next 12 or 24 months and that will11:19go back to a hundred percent of the time11:21becomes been a good store of value now a11:23lot of people to the Gold’s of a good11:25story value if you bought it over $1,90011:27and then it falls to a thousand well you11:29bought silver at fifteen and falls to11:30fifteen dollars but those same arguments11:32we can use for Bitcoin zoom-out look at11:34the longer-term chart over time it’s11:36consistently been a better story value11:38than every currency on the planet so11:41what happens when you’ve got an asset11:42that’s the best performing asset and11:43then planet every year buy one for ten11:45years or there’s a lot of copycats come11:47out and other coins so one of the11:49arguments often hears about Bitcoin11:50Forks someone can copy the network hands11:53up who’s heard of Bitcoin cash it’s a11:55it’s a fork of the Bitcoin network so a11:58community can say well we think Bitcoin12:00will be better if we have this feature12:01and they can split away and it’s up to12:03you then to convince everyone why your12:05coin is better so there’s over a hundred12:07Forks 99.9% of them are crap they have12:10zero value but it’s allowed people to12:13try and experiment with something12:14different now they pretty much extends12:16for all cryptocurrencies there’s over12:18ten thousand out there today the term12:20cryptocurrency probably doesn’t do it12:21justice because most of them aren’t12:23trying to be currencies these days12:24there’s just a lot of projects and12:26businesses in the real world that are12:28using a blockchain technology so we need12:30to start referring to these things as12:31digital assets they’re not trying to be12:33currencies and I think that confuses a12:35lot of people so Bitcoin cash has been12:37the most successful hard fork and that’s12:39only captured around two or three12:40percent of the network so Bitcoin12:42continues to get stronger and stronger12:44we call it anti fragile throw out any12:46attack he won on it or any copycat coin12:48and it continues to gain market share12:50and any feature that actually works12:52really well Bitcoin can update and12:55absorb that feature so now we see12:59everyone wanting to get into this space13:00the payment space banks have had it13:02pretty good for a fair while now so13:04Apple pay launch email card13:05recently Facebook came out with the13:07Libra cryptocurrency13:09now all these coming up with payment13:12coins stable coins JPMorgan have13:15launched their own coin so it’s very13:16different to what Bitcoin are trying to13:18do it’s not finite they can13:20as many of those stable coins as they13:22want and that’s just absorbing value and13:25it’s pegged to fiat currency that has13:27all the issues that I’ve been talking13:28about it’s no good being pegged to13:29something that’s going to be inflated13:31away over time and we’ve already seen13:33big regulatory pushback MasterCard Visa13:36PayPal they’ve all pulled out of this13:38labor project and Mark Zuckerberg was in13:40front of Congress getting and grilling13:42again yesterday one of the things that13:44actually said in that Congress hearing13:46was we can’t call the CEO of Bitcoin in13:49here they’re actually admitting that13:51there’s nothing they can really do about13:52it because it is truly decentralized so13:55for ten years now you know the big banks13:57have seen these huge profits the execs13:59get these huge bonuses and yet here we14:01are at the moment last night the Fed14:03prints another hundred billion dollars14:05and lend it out to banks because they14:06they’re crying poor we haven’t got14:08enough money to show up our books that14:09have been paying themselves these14:10enormous bonuses no one’s gone to jail14:13nothing’s been fixed since the GFC and14:15this is at a time when asset prices are14:18at record highs so the sp500 property14:21prices bonds you name it this has been14:23one of the periods of you know enormous14:27growth and your banks are still crying14:28for you know help us out print us some14:31more money now now people aren’t buying14:34this anymore14:34and it’s very very clear even the14:36Federal Reserve in their notes are14:38admitting that what they did didn’t work14:40it ended up with asset inflation and14:42it’s caused inequality so the top one14:44percent you know they’ve gained enormous14:46wealth the bottom 90% you know we see14:48this in Australia as well there’s no14:49wage growth it’s just getting harder and14:51harder for that average person to afford14:53to live and they report inflation at two14:55or three percent but if you look at a14:57lot of the work that’s been done by you14:58know alternate economist it’s far closer15:01to 7 or 9 percent when you see your pack15:03of the Tim Tams getting smaller15:04your bottle of coke getting smaller and15:06the price stays the same there’s ways15:08that they hide inflation from us so as I15:12said this period should be very15:13prosperous for banks they’ve got it very15:15good they get to create that money and15:17you know they should be really booming15:19but yet we see Deutsche Bank in these15:21European banks are on their knees we saw15:23a study come out this week that half the15:25world’s banks wouldn’t survive a15:26downturn now with markets at record15:29highs and we know that this is one of15:31the longest periods of expansion in15:33history15:34every day a recession is drawing near15:36it’s just a natural part of the business15:37cycle so they’re admitting that when15:39that hits half our banks aren’t going to15:41survive so at the moment they’re giving15:42them a hundred billion dollars a day I15:44very much think that the new QE15:46quantitative easing is going to be to15:47the tune of trillions of dollars to have15:50to say the bank’s now because they don’t15:52have those reserves and they’re so weak15:54we’re hoping to see them take measures15:56to force people to keep their money in15:57them and in the legislation we’re seeing15:59Balian laws being written in in16:01countries like Australia just like we16:03saw in Cyprus so this week ANZ16:05updated their terms where they can16:06freeze your account they can stop you16:08getting money out and they can close16:10your account altogether if it would mean16:11that they would suffer financial loss16:13we’re also seeing the the cash war in16:17Australia at the moment they’re trying16:18to ban those $10,000 payments they’re16:20already talking about dropping that to16:21five or two thousand dollars and where16:23this is all heading is negative interest16:25rates in all these countries around the16:26world that abandon cash the IMF wrote a16:28paper that said look negative interest16:31rates don’t work if cash exists because16:33people can pull money out and if we we16:34want to enforce negative interest rates16:36we need to keep people in banks so we16:37need to ban cash so whether it’s you16:40know banks or the well bond market this16:42is a virus that’s spreading and I think16:44people are asleep at the wheel because16:46we’ve had it pretty good in Australia16:47and and in the US but as soon as those16:50rates go negative in our country and in16:52the US it’s a big big wake-up call to16:54everyone that what what is going on16:57interest rates for the past 20-30 years16:58have been trending down people thought17:00they couldn’t go past zero and yet17:02they’re you know negative one percent or17:03greater in some of these countries now17:05that should be traditionally seen as17:07strong in Europe so the amount of17:09negative yielding debt in the world it17:11recently passed seventeen trillion17:12dollars you know how how easy is it to17:15park some money in gold or Bitcoin or17:17something that doesn’t have a negative17:19yield people are rushing into negativeyielding bonds because they think thatcentral banks are going to print moneyout of thin air and buy those bonds offthem so everyone’s on the one side of17:28the boat and that what worries me with17:29this this bond bubble now at the same17:32time everyone’s playing happy faces here17:34where there’s never been greater17:36mistrust of banks and policymakers so17:39Commissioner Haynes said that trust has17:41been lost to all the corporations and17:43institutions and banks in Australia and17:45I very much agree17:48now for the first time ever we’re seeing17:49widespread civil unrest people say oh17:52you know it’s it’s just Argentina or17:54then it’s just Venezuela then it’s just17:56symbolic17:57this week it’s Chile Hong Kong you know17:59it’s coming to a city near you where18:01people and governments are saying well18:03what we gonna do here let’s just raise18:05taxes and people are saying no we’re not18:07going to stand for that anymore and and18:09everywhere Bitcoin is becoming part of18:11this social movement now at the same18:13time we’re seeing central bankers MarkCarney from the Bank of Englandliterally saying that you know it isn’tfair that the US dollar has this worldreserve currency they get way too muchan advantage here so this isn’t Russia18:25and China throwing this anymore this is18:26their best friend saying that you’ve had18:28it too good for too long now the u.s.18:30being a world reserve currency means18:32that all these other regional currencies18:34have their debt denominated in u.s.18:35dollars and as their currencies fall and18:37u.s. dollar gets stronger they owe more18:39and more money back in terms of their18:41local currency so when seeing the US18:43dollar strengthened at a time when he’s18:45really hurting everyone else and so18:47there’s questions around how long it can18:49remain the reserve currency and make18:51mark carney they’re calling for a newreserve currency a digital currency toreplace the dollar we’re also seeingcalls for the u.s. we know that chinaare launching their own cryptocurrency19:02we’ve seen venezuela launch theirs so19:05whether or not the US does it you know I19:07don’t really care it’s gonna be a case19:09of you know trust us again this is a new19:11currency the only difference is they’re19:13going to be able to monitor literally19:14everything you do on a blockchain versus19:17what they do already with the banks and19:18they’re going to print those hundreds of19:20trillions of dollars of digital US19:22dollars it’s nothing like Bitcoin that19:24has a set amount and Bitcoin just19:26becomes more and more scarce relative to19:29all these other currencies that banks19:31and governments and the Facebook’s of19:33the world want to create so at this time19:36when all our currencies are going19:38digital everyone uses their online19:39banking less people use cash everyone19:42does the pay past these days so money is19:44already digital but people still think19:46about it as as notes or people don’t19:48realize it’s not backbite by gold19:50anymore so we’re seeing penetrations of19:53smart phones you know 90 percent or19:55greater even in emerging markets even if19:57they don’t have a smartphone they’ve got19:59a basic phone these days and you don’t20:00need a good20:01their connection to the Bitcoin payments20:02you need a very basic mobile connection20:04is all you all you need to be able to20:06participate in this network and become20:08your own bank20:09so throughout these Asian countries you20:11know Hong Kong was another recent20:12example where they’ve had issues with20:14the ATMs and whatnot these people are20:16extremely familiar with digital payments20:18and scanning and shops with their QR20:20codes and Bitcoin is just the next step20:22in that evolution of money so the20:25greatest opportunity in lies in these20:27emerging market economies where there’s20:29billions of people so too often people20:31say are the government will never let20:32Bitcoin overtake you know things in20:34Australia or the u.s. it doesn’t matter20:36Bitcoin has already been used widely in20:38Venezuela and all these other countries20:39where there’s billions more people than20:42in Australia the u.s. all these these20:44Western countries that are unbanked so20:46just like they didn’t get phone lines20:47and they started using mobile phones20:49they’re not going to get banks they’re20:51just going to start using digital20:52currencies on their phones so the value20:55of the Bitcoin network comes from the20:57number of connections and that’s why we20:58see just like Facebook grow that any21:00good technology it grows exponentially21:02and the value comes from the number of21:04connections in the network that’s known21:06as Metcalfe’s law so as more and more21:08people use Bitcoin it means more people21:10can send it to each other you know my21:12business that I started we’ve got a21:13number of services from say nine dollars21:16a month to $50 a month our customers are21:18all over the globe how someone in Russia21:20meant to send me nine dollars a month21:21for my newsletter it’s not possible21:23without Bitcoin and digital currency so21:25my business and hundreds of others are21:27examples of what’s possible we’ve crypto21:29currencies without the banking system so21:33this is a screenshot of a blockchain21:35Explorer so just like you can search21:37something in Google with on the Bitcoin21:39blockchain you can search for21:40transactions now this is a good and bad21:42thing if you know anyone’s address you21:44can send anyone else on the network21:46money there’s no no I can sense of that21:48transaction or freeze your account and21:49in terms of crime just last week this21:53helped regulators catch the bad guys21:55this is their best friend they could21:57follow the bitcoins where they’ve paid21:58them to when they cash them out and they22:01catch these crooks so to say that22:02bitcoins bad because you get to use for22:04crime you know that it’s just simply not22:06true it’s a regulators best friend now22:09one of the big debates we are going to22:11have is once Bitcoin starts to implement22:13more privacy so it’s important for be22:15this is not to be able to see every22:16transaction that they do so whether the22:18privacy upgrades come on the main22:20Bitcoin chain or second layers that’s22:23going to be a big debate as we move22:24forward about giving Bitcoin more22:26privacy at the same time we’re going to22:29get rid of those long strings of letters22:30and numbers that you just saw that are22:32confusing you’re going to be able to22:33send your cryptocurrency to Nuggets news22:36Bitcoin or Alex Saunders crypto so human22:39readable names and addresses just like22:41you do in your phonebook click of a22:42button send money to anyone in the world22:44another argument often hear is that22:46bitcoins wasteful bitcoin uses you know22:49more energy than a small country these22:51days but what they won’t tell you in the22:52mainstream is that the vast majority of22:54that is spare capacity at reactors that22:57would already be gone waste or renewable22:59energy so pick coin is the fastest23:01growing renewable energy industry on the23:03planet people are actually going out and23:05and building renewable energy plants23:07because they can start to mine Bitcoin23:09and pay it off you know this is uses23:11expanding our renewable footprint at a23:13time when governments are being slow to23:15act now part of bitcoins one of the23:19features that keeps it so secure it’s23:21the most secure computer network on23:23earth so when you hear about hacks there23:25are people that left their password in23:27there in their email account well they23:28left their you know being logged in at23:30work Bitcoin network has never been23:32hacked because it is so secure all these23:34computers all 10,000 that I showed you23:36at the start on that world map they’re23:38all securing the network so unless you23:40can hack every one of those at once you23:42can’t hack the Bitcoin blockchain so23:44this feature of how much energy it uses23:46secures it if governments tried to23:48attack it with every supercomputer and23:50on earth it wouldn’t even put a dent in23:53Bitcoin there’s so many more computers23:54globally that are securing the network23:57all that money that has been invested by23:59those miners to buy those computers that24:02is all very important in terms of the24:04infrastructure of the Bitcoin network so24:06if I said to you I was here yesterday24:08for the panel discussion I think24:11yesterday I said what would it be worth24:12if Microsoft or Apple came out and said24:15hey guys we build a network that can’t24:17be hacked it’s got no down time that24:19would be worth hundreds of billions of24:21dollars so that is what the Bitcoin24:22network is it’s not just this payment24:24system or this store of value it’s the24:26most secure computer network in the24:28world and that24:29while we see someone like Microsoft say24:31geez this is better than anything we’ve24:32got let’s just our building our products24:34on top of the Bitcoin blockchain so24:37these household names like Microsoft24:38Vanek or one of the biggest providers in24:40the world of investment ETFs these are24:43the household names now that people are24:45realizing that oh this isn’t about this24:47isn’t a bubble they’re telling their24:48clients the investment case for Bitcoin24:50now a lot of people are tech savvy they24:53can’t figure out the hardware wallets24:55which is like a little USB stick where24:57you store your bitcoins yourself and has24:58your password on the device so it can’t25:00be hacked but not everyone wants to do25:02that you know we’ve done education25:04around all that sort of stuff if you’re25:05interested but some people they don’t25:06want to hold their own shares they just25:08want someone else to do it for him so25:09we’ve seen reputable companies like25:11Lloyds of London and bit go they’re25:14offering insurance and custody and25:16that’s why we’ve seen influx of high net25:18worth clients over the past 12 months25:20and in Australia our biggest growing25:22demographic is baby boomers so we did25:24one on one education we have a premium25:27community we’re but the number of over25:2965 now and they they’ve been through25:31cycles and crashes they see the25:33importance of gold and they’re starting25:34to understand the importance of Bitcoin25:37at the same time we’ve seen the futures25:39market take off as I said for I’m not a25:41big fan of that maybe it makes me quite25:43a bit more legitimate but I don’t like25:44those type of assets that are backed by25:46real Bitcoin but we’ve seen things like25:48option markets and even decentralized25:50option markets so it’s not one company25:52now anyone can create a market and a25:55theorem it’s the world’s second largest25:57cryptocurrency I’m also very bullish on25:59because the world of decentralized26:01finance is just exploding so instead of26:03paying $20 to calm sector trade shares26:05you’re gonna pay one cent and you’re26:07gonna buy them off someone else that’s a26:08shareholder and what blockchain does is26:10cut out the middleman of all these26:12services that are you know rent-seeking26:14and just taking their little clip each26:15time and it makes everything26:17peer-to-peer so tying this all together26:21we’ve seen the Federal Reserve start to26:23create billions of dollars each night to26:25help these banks and the old trustus you26:27know everything will be fine we’re gonna26:28normalize everything I think that’s why26:30we’ve seen gold correct over the past26:32few years as people thought oh it’s all26:34gonna go back to normal 3% growth 5% in26:36a bonding my retirement account26:38I don’t need gold or Bitcoin and now26:40that story is not being bought anymore26:41it’s qe426:43you know they can’t stop printing this26:44money in the debt based system that 20026:47trillion dollar figure that I’ve spoken26:48about we have to continue to grow and26:50create debt if we’re going to pay all26:52these people so once again we’re seeing26:54a lot of tension whether it’s between26:56you know the US Fed who don’t want to26:58drop rates and Donald Trump saying let’s26:59get rates to zero or negative everything27:01will be growing even more for the first27:03time throughout history we’re seeing27:04real tension between governments and27:06central banks who are saying trust us27:09we’ll fix everything without two levers27:11and now they’re saying I think we’re out27:13of tools here government it’s up to you27:15you need to spend more we’ve done all we27:16can do pass the buck27:17so who’s going to be left holding the27:19back here we know governments are no27:21good at running those economies and it’s27:22up to them to try an ear trick or the27:24central bankers to try something even27:26more crazy and I think actually people’s27:28QE where they enough to hand out money27:30to people because it’s not going to be27:32politically acceptable to put money and27:33give it to the banks and then we run a27:35danger of inflation but people aren’t27:37going to let it fly printing money and27:38giving it to the banks so you guys know27:40the story every fiat currency throughout27:42history has been eroded away over time27:44this is just last year in terms of27:46inflation in in ten countries there for27:48example and with more and more people27:50that Tim Draper’s of the world27:51respectable investors Jack Dorsey the27:54founder of Twitter saying that there’s27:56you know we’re in this Internet age just27:58like the internet opened up the way we27:59transfer information across the world28:01everyone said oh you can’t do that the28:03bad guys were taught for each other28:04Bitcoin allows anyone to transfer value28:06to each other and then a theorem again28:08further expands what we can do28:10peer-to-peer so there’s going to be some28:13sort of world currency on the internet28:15and Bitcoin has the track record so the28:17biggest opportunity that I see is these28:20currencies there’s over 200 currencies28:22globally the top five that are the world28:24reserve currencies of the world sure28:26that they’re fairly strong and whether28:28the US you know you loses its purchasing28:30power with all that debt that’s another28:32story but who on earth is going to hold28:34these hundred Southeast Asian currencies28:36and when the government’s are saying28:38trust us with the currency wars heating28:40up it’s a race to debase their28:41currencies as economies weakened they28:43all try to get the value of their dollar28:45down to help their exports it’s28:46literally a race to the bottom and we’ve28:48seen Donald Trump tweet about this28:49so these currencies have all got market28:51caps in the hundreds of billions or28:53trillions of dollars with that little28:54blip down the bottom there called28:56Bitcoin when28:57in a country with a smartphone can28:58choose to park their wealth in something29:00that’s fixed and scarce29:01or Park their wealth in this this29:03currency that they’ve seen Harper29:04inflate away constantly throughout29:06history I think the choice is pretty29:07clear so we’re seeing this in Argentine29:10record volumes Chile you know the list29:13is very long the number of people that29:15are now choosing Bitcoin instead of29:16something else29:17so the having next May is very important29:19as I spoke about and then again four29:21years later and where to Bitcoin derives29:24its a lot of its value from similar to29:25gold on this chart which you see the29:27yellow block up the top right corner is29:29the scarcity of gold that is something29:31that makes it valuable29:32now if gold goes to $5,000 an ounce29:35maybe people are going to mine it maybe29:36the inflation of gold goes to three or29:38four percent silver we see there as well29:40gets a lot of its value because of its29:42scarcity but Bitcoin as we see it29:45trending up that chart over time as it29:47becomes more and more scarce it29:49increases in value and bitcoin is going29:52to surpass gold in terms of what we call29:53stock to flow the amount of new supply29:55coming into circulation compared to29:57what’s already exists and I think the29:59bitcoins going to surpass the market cap30:01of gold within five years so tying it30:04all together when you look at everything30:06else told you today it’s a payment30:07system the smartest minds in the world30:10are working on the cutting edges of30:11technology it’s a store of value it’s a30:14medium of exchange it’s the world’s most30:15secure computing network what’s all that30:17worth in a world where we’ve got a30:19hundred billion dollar market cap30:20compared to the hundreds of trillions of30:23dollars that exists in currency markets30:24stock markets these technology companies30:28I think it’s an absolute no-brainer to30:30park a little bit of your wealth in30:32Bitcoin and if you want any more30:33information on anything we do come and30:35see me or head to Nuggets news.com30:37today.you thank you30:39[Applause]30:45[Music]
- Vanguard Group is testing a blockchain-powered platform that would allow asset managers to trade currencies without using major banks as intermediaries, Bloomberg reported Thursday.
- The currency market handles $6 trillion each day, and is currently dominated by firms like JPMorgan Chase and Citi.
- Vanguard’s platform would skirt the banks’ fees through peer-to-peer trading, and has already handled a few trades, a source told Bloomberg.
- Visit the Markets Insider homepage for more stories.
Vanguard Group is testing a blockchain-powered platform for asset managers to trade currencies, Bloomberg reported Thursday.
An entry into the sector from Vanguard could bring long-sought change to the bank-dominated currency market. The investing giant already disrupted the finance world by introducing low-cost index funds to the masses.
Asset managers currently rely on banks as intermediaries for currency trades, even after buy-side companies began matching trades on electronic services in the 2000s. The system being tested by Vanguard would sidestep the traditional players and their fees, Bloomberg reported.
The investing giant’s service has been working for two months and has already handled some trades, a source told Bloomberg. The platform uses the same blockchain technology behind bitcoin to match trades, and could cut trade expenses if enough users join the service.
“In theory, it sounds great because you can reduce your costs if you can match directly with someone else who has a countervailing interest,” Campbell Adams, a former Deutsche Bank senior currency trader and the founder of ParFX, told Bloomberg. However, such a platform “will require a critical mass of users” if it wants to bring a discount advantage to the massive sector, he added.
The investment advisor has previously hinted at efforts to compete in peer-to-peer trading. Andy Maack, Vanguard’s global head of foreign exchange trading, told The Trade there’s a “tremendous amount of interest in the potential for disintermediation.”
Peer-to-peer trade matching “is pretty intriguing, especially for the foreign exchange markets which only really started to seriously explore this topic in recent months,” he added in the September interview.
The company didn’t comment further on plans for the platform, but noted its interest in currency hedging and lowering “the cost of investing for all investors.”
“Vanguard is currently piloting a project focused on improving the efficiency and reducing risk of FX hedging,” Vanguard spokesperson Carolyn Wegemann said in a statement to Business Insider. “Given the project is still in the pilot stage, we can’t comment further.”
Vanguard has more than $5 trillion in worldwide assets and is the world’s largest provider of mutual funds. It also provides exchange-traded funds that track major stock indexes.
If the cryptocurrency is going to be used as widely as dollars, its fans must abandon the dream of deflationary digital gold.
Bitcoin is back, sort of. The original cryptocurrency hasn’t regained the lofty highs of its bubble peak in late 2017, but it has climbed back up to about $10,000:
Predictions that Bitcoin would collapse have not borne fruit. Despite its bubbles and crashes, the cryptocurrency is now a semi-permanent feature of the global financial landscape.
What it is not, however, is a generally accepted currency. Although many retailers now accept Bitcoin, the overwhelming majority of day-to-day payments are done in regular old fiat currency. The mere fact that the dollar price of Bitcoin remains an important metric indicates that Bitcoin’s central value is as a speculative asset, rather than its usefulness as a medium of exchange.
It’s fairly obvious why. Because of Bitcoin’s price volatility, people don’t want to hang onto it for very long. No one wants to get their paycheck only to find that it has halved in value by the time it comes to buy groceries. Also, optimists who think Bitcoin’s value will continue to go up on average over time will be reluctant to part with it in exchange for something ephemeral like a pizza; better to hang onto the BTC and buy pizza with depreciating dollars instead. (Disclosure: I still own a small amount of Bitcoin.)
In fact, these two reasons are just different sides of the same coin: Basic finance theory says that in a reasonably efficient market, high expected returns come at the expense of high volatility. An asset like Bitcoin, or the U.S. dollar, can be a good investment or can be good for buying stuff, but unless the economy is deeply dysfunctional, it can’t be both.
Some economists, however, are thinking about how this situation might change, and whether Bitcoin — or some alternative cryptocurrency — might actually replace fiat money as the standard means of payment. This has big policy implications, because if it did become real money, cryptocurrency could interfere with central banks’ ability to manage the economy and the price level. It also matters for crypto investors’ wallets.
One possibility is that nothing needs to be done, and eventually Bitcoin will settle into a new low-volatility equilibrium, making it more suitable as a means of payment. Economists Michael Choi and Guillaume Rocheteau have made a model in which this happens. The problem is that the model sees Bitcoin competing with other commodity-like forms of money, such as gold or other cryptocurrencies. Their result relies on the idea that liquid assets will always be in short supply. In reality, Bitcoin is competing against fiat currencies that can be produced more or less costlessly.
A more plausible prediction comes from economists Jonathan Chiu and Thorsten Koeppl. Like other economists who have theorized about Bitcoin, they view cryptocurrency’s fundamental challenge as that of preventing double-spending — in other words, verifying electronically that someone really has the money when they make a payment. This issue of digital trust, after all, is the problem Bitcoin was designed to solve.
Chiu and Koeppl suggest that to become useful as a form of money, a cryptocurrency should be inflationary. The people who verify Bitcoin transactions, called miners, are now compensated for their usage of computing power by being awarded new Bitcoins, but the rewards are decreasing over time. One of the basic ideas of Bitcoin, which stems partly from the hard-money beliefs of its creators, is that the cryptocurrency should be deflationary — that its supply should be limited, and its value should increase over time due to increasing scarcity. This means that eventually, miners will have to be rewarded with transaction fees instead of new Bitcoins.
Chiu and Koeppl say this is a bad idea. Transaction fees, they note, are levied on a small population — that is, whoever is doing the transaction. To make it worth the miners’ while, the fees must be very high, which discourages people from transacting in Bitcoin. If miners are instead paid with inflation, the cost gets spread out among everyone who owns Bitcoin. Also, transaction fees make a double-spending attack more potentially lucrative, because creating a fake transaction would also save money on the fee. Thus, they recommend sticking with the inflation method of payment, and letting cryptocurrency depreciate over time like the U.S. dollar does.
This could be exactly what cryptocurrency needs in order to turn into real money. Negative expected returns — essentially, a low and stable inflation target — would make Bitcoin less attractive as a long-term investment. Instead of hoarding it, people would be fine getting rid of it in exchange for pizza. The currency’s value might then stabilize, as speculation decreased.
Abandoning the dream of deflationary digital gold might be hard for Bitcoin’s adherents to accept. But other cryptocurrencies, such as ZCash, Monero, Dash or Facebook Inc.’s Libra might step in to fill the gap. Of course, they would still have to overcome the technical problem of being able to handle large transaction volumes as cheaply and easily as a credit card company, but Chiu and Koeppl are confident that this is possible.
So ironically, cryptocurrency might only become a currency if it acts more like the U.S. dollar, with a low but predictable inflation target.
32:29great irony is that the real ideologicaledge of the whole Bitcoin movement waswas guys like you know James DaleDavidson and REE smog and they therewere sovereign individual these areboomers and all the Xers that followedthem these are all libertarians theybelieve radically in the idea of nogovernment you know and we’re just youknow the with no need for trust I meantalk about an ideal Society for most GenXers no trust necessary so so anywaywe’re gonna do a world with that trustand and that was really it was it wasactually I think an ideological edge toa lot of people’s interest in Bitcoin itwas sort of the kind of world sociallypolitically that they really wantedand unfortunately ideology as you knowand you’ve often spoken about that inyour programs ideology always warps yourmarket driven judgment right big timeyou don’t want to start with ideology ifyou’re marketing an ideology and you’regood at it you might make a lot of moneyin a short period of time but thatdoesn’t mean that your views on it orgoing to be non cyclical and or crashingand that’s that’s that’s what you knowsadly is happening a lot of purveyors or34:47and speaking about money and again thisis sort of very deep sort ofintellectual history there kind of twotheories about the origin of moneyone is the barter theory you know westarted out bothering Bob Barton justtreating goods for goods and then youknow then gold and other things and soon so it’s basically that’s the kind ofthe libertarian theory so the Canadianguy from like the Hudson’s Bay Companylike yeah you know forever that piece ofpaper but then there’s a whole nothertheory which also has a long kind ofintellectual pedigree which is more thepurview of sociologists and that isgovernment the money was really creationof governments and there’s a lot to sayfor that because in fact that’s howmoney wasreally introduce now it’s the governmentpeople right that whole theory thatwhole that whole intellectual pedigreekind of feeds into modern monetarytheory and that is its government thatcreates money I mean forget this wholeidea that it all comes from gold andthere’s some intrinsic value no god it’sa system of Social Credit and Society itmakes a collective decision to create itthey can do it as they wish allgovernment all currency has always beenfiat currency and this whole idea thatonly recently we’ve had fiat currency soanyway that’s the idea behind monetarytheory you don’t have to worry about howmuch you issue because you can issue anyamount you want so long as the economyis it is running at full employment andso long as you keep inflation to youknow down to a reasonable degree now Ialways say that the argument frommonetary theory post GFC is a lot betterthan it was right because no matter howlow we get interest rates we had troublegetting to full employment and inflationnever seemed to show up on our radarscreen so I think this is the reason whymodern monetary theory is so big if thereason it’s going to be practicallyimportant is not now when we’re you knowunemployment is down at 3% and althoughit’s gonna be a big issue come the nextrecession right that’s when it’s gonnahit right and we haven’t even talkedabout that when is the nest recession isthat gonna be perfectly time for thenext election or not right that’s goingto be fascinating there are many moreDemocrats believe in this mmt thencertainly like you said libertarians buttheir but their chances of introducingthat are going to be hugely improved atthe right political juncture with theeconomy on the right conditions yeahwait until the economy is flat on itsback with our unemployment rate up at 1037:19percent and 11 percent whatever it is37:21suddenly the Fed is sitting there37:24flatlining at SERP right not knowing37:26what more they come on yeah hundred37:29mandatory thirty would be back plus huge37:33fiscal spending and you know the two37:35kind of merged together right modern37:36monetary theory and huge37:38of fiscal deficits you’ve been greater37:40than we have now so long as you got the37:42economy back working again37:44what’s the matter we did it with in37:46World War two we did it during the New37:48Deal mm-hmm the green New Deal37:50come on you got bad you got a New Deal37:52and the green New Deal37:53actually we’re getting some questions on37:54that why there’s actually question on37:57climate change if it figures into your37:59outlook does it you know on climate38:02change I’m more of a I have a matt the38:06ridley you know the guy the the british38:10intellectual who who wrote a a number of38:13great books on on genetics and and38:16evolution and so I’ve been equine38:17deterrent because he he actually covered38:19climate change for many many years but38:21he coined the term Luke warming he said38:24he’s a lukewarm ER which means that he38:27thinks it he thinks that rising carbon38:29dioxide levels are responsible for a38:31little bit of warming but not not a lot38:34and not nearly the kind of alarmist38:37picture that people think I’m kind of38:39more of a lukewarm ER what interesting38:42thing warmer sounds like Luke Skywalker38:43it’s like an appeal to people because it38:46sounds like it makes some sense how’s it38:49look warmer yeah a little bit more of a38:51hot because you can’t you know we like38:52it you can’t be like a total like38:54Treehugger or you know you did you got a38:57it sounds like a little bit more neutral38:59yeah kind of sounds disgusting39:02anyway alright great thinking on the39:05economic Turan economic direction39:08long-term Neil Central Bank policy will39:10likely continue to counter the39:12demographic gravity and fall failure39:14will likely manifest in market and39:16monetary crises so slow with chaotic big39:19bumps ahead question mark sounds like39:21more of a comment but a lot of people39:23believe that I got into this with with39:25with Lakai a39:27lot of people believe that no worries39:29more cowbell markets could never go down39:31again no I clearly don’t believe that39:34and and actually I think around October39:36to December you were brown right you’re39:39on this side of the you know this side39:40of the earth on the right side of the39:42grass yeah the markets went down yes39:47this is memories are so short it’s39:50almost like people watch the market day39:52they completely forget what happens you39:54could have lot if you’re along the39:55Russell 2000 which is a pretty broad39:56index of US stocks and now 27 percent39:59from August the 30th to December the40:0124th what could go wrong that’s that’s40:04called a bear market yeah yeah I mean40:06it’s a rash so but I think what what40:10they’re referring to is the idea could40:12could the economy go down yeah and and40:15and not only do I think it will i40:17actually this is all a part with a lot40:20of people i think it’s a good thing I40:21actually do I think that is when we40:24correct institutions and we rebuild40:26institutions I think the idea that you40:29would have an economy just constantly40:30dribble along you know is actually not40:34good for us40:34well there’s many periods of40:36Reconstruction and and not only that but40:38the whole point about market crashes40:41depends which side you’re on if you’re40:43young and you’re being an invest you get40:45to buy into the American dream40:47at a discount there are always two sides40:49to a transaction and I do believe you40:51know when I’ve I see the media following40:53Wall Street all the time and every time40:55markets will go down a treeless type40:56price but whenever the prices go down40:57it’s like a terrible tragedy yeah for41:00all the older people that owned41:01everything but the next generation is41:04coming on right it’s their opportunity41:05there are always two sides to a41:07transaction and and for life to go on we41:12have to think about what’s coming on41:13after us well what you have seen is the41:15opposite like by virtue of not having a41:17recession this is the longest u.s.41:18economic expansion in US history41:20Republicans and Democrats when it comes41:22to monetary policy have gravitated to41:24the same thing there’s no difference you41:26know there’s no difference between41:28Donald Trump wanting more cowbell and41:30Barack Obama wanted more cowbell there’s41:32no difference between this the federal41:34reserve members how they go about their41:37day job that it’s all one in the same41:40thing totally but when the economy goes41:45down again and when we’re back at that41:47you know that zero bound then all this41:50other stuff comes back onto the table41:51and and I don’t believe by the way that41:54you know people talk about inflation the41:58governments can very easily engineer42:00inflation if there were enough I believe42:02Japan was very near that point a couple42:04of years ago and and the way they would42:06have done it was simply to say any42:08worker or anyone with a payroll you put42:12your stuff in a bank and we just we’re42:13gonna index it out by a percent a month42:15or something like I mean thank you guys42:17but but no in other words you can42:20engineer it if you if you have the42:23incentive to do so a Jubilee what are42:25the advantages of that well suddenly now42:27your monetary policy has teeth once you42:31get inflation going again then holding42:33that interest rate low right actually42:36gives traction to your monetary policy42:39and and we are gonna see that if this42:44next time puts us in that same situation42:46we were gonna see a lot of the stuff42:47that was only discussed before yeah and42:49and the inflation to be clear comes from42:51the deflation because the deflation is42:53what causes the inflation so I mean you42:55come from a very asymmetric point42:56there’s big opportunity politically in42:58that and you save the world according to43:00yourself let’s see here43:05there’s a lot of political questions and43:07I want to go there what what would be43:11here this is an interesting one given43:13you join the term Millennials what what43:16would be your biggest long-term bet as a43:18millennial investor given stagnation and43:21slowing growth if it comes to fruition43:27as a millennial so I assume they’re just43:30meaning if you’re Milan you’re looking43:32like what’s the best way to play your43:33outlook good answer I mean I you know43:49other than all the standard answers43:51about you know diversifying your assets43:53and being geographically diversified43:55obviously at a time of crisis you43:57certainly want to be geographically43:59diversified I mean I often get asked44:01which areas of the we you know you’re44:03the demographer which areas of the world44:05I should be you know invested in from44:07that point44:07view and you can see that I mean if you44:09just look at any of my you know 2044:12charts on the subject you can look at44:14you can look at areas which are44:16reasonably decent in terms of you know44:22security legal structure corruption and44:25all that and yet have high population44:27growth so if you’re really looking for44:29that wave you know you’re looking at the44:31at the Malaysia’s and Indonesia’s the44:33Philippines and so on there there is44:35there is again looking at quadrants44:37there is an area there where you can44:40find economies for the long run that are44:43probably going to you know they still44:44have a lot of catch-up to do in terms of44:46productivity they’re still gonna have a44:47proactivity you know dividend over the44:50so if you’re looking long term but be44:53diversified because you know how any one44:55of those countries is gonna go but there44:57are ease of the world where you where44:59you where you certainly particularly if45:01you know if your millennial you probably45:02have a target date fund you know out45:04there I don’t know45:05that’s tough hundred forty five or those45:07four old wall products like those are45:09like you can’t do it within that product45:10so I’m saying if you can take some money45:12out of that product yeah you you’d want45:15to diversify what is it one way to45:17things like Josephine’s for up Neil’s45:19four quadrant map with the countries45:21quickly if you can what I think you’re45:23saying – if I put it within the context45:26of my process is if we go to a slowdown45:29like one that’s beyond stagnating to45:31slow down in the US and then you have45:33political change and you have MMT the45:37dollar is going to get castrated in that45:39environment and those countries that are45:41in quod one that you just showed are45:44gonna have in dollars don’t forget that45:46eeehm does very well when when when the45:49US government is burning its currency at45:51the stake so you know that is you know45:53that is the units the rebalancing of45:56global power so rebalancing of45:57incentives it’s a rebalancing of growth45:59expectations to where you actually have46:01the population growth going okay so46:04that’s maybe another way to think about46:06yeah I I agree with that and it it46:09really depends a little bit on the46:11nature of the crisis I mean obviously at46:13the at the worst of the crisis the46:14dollar was strong because that was sort46:17of the the safe haven currency but as46:19things begin to sort out46:21the dollar may still be strong relative46:23– you’re absolutely right with regard to46:25the EMS but we have I mean if if we46:27follow our sector we you know not only46:29do I do this kind of long term general46:31stuff we actually have particular46:33industries we like and I’ll just mention46:35two of them here because we’ve written46:36about them yeah very particular46:39industries which we’re very bullish on46:41from from a demographic standpoint one46:44is pet care there are a lot of46:47interesting ways you know everyone’s46:49owning pets and boomers and Xers have46:51completely reimagined how we treat our46:53animals right I mean you know everything46:55about them is is you know the food and46:57you know it’s organic it’s every the46:59amount of money we spend on my father47:02treats my his two dogs better than I was47:05ever treated today they know if dogs47:07have now have parents and grandparents47:09and you know they weekend yeah but but47:17another is a huge change there and in47:21particularly assertive although I’m not47:24big social media generally they’ve got47:26the kind of Google Facebook duopoly I’m47:28not very positive on I think that you47:34know online dating is an incredible47:37growth opportunity and we had a piece47:38recently on that because you know47:40virtually everyone is waiting a lot47:42longer to get married older people are47:45getting divorced and that’s an entire47:48area where there’s been very little47:49market penetration in your long the47:51screening process I mean that’s that’s47:52pretty much the other one is cannabis47:55we’ve done a extensive amount of work47:56there you could see that the well we47:58have lifting we home security that does48:01that silly but but it’s it’s not48:03shocking to see Shane Laidlaw as hockey48:07sticking charts on cannabis consumption48:09relative to alcohol consumption yeah and48:11it is he calls it hit paper high or48:14whatever he calls it you know hit for I48:16yeah because it’s a lower it cost less48:18here’s a here’s another question this is48:21this is this is definitely this could48:23take you a whole day to answer this do48:25you need capitalism and favourable48:26demographics for GDP growth48:32well obviously not especially out the48:34GDP growth number you can have it all48:36the time48:37you need you need some form of48:39capitalism just to have any kind of48:40efficiency in your economy so that’s48:42kind of a loaded question I think the48:44more interesting question is do you need48:45democracy and I think that’s becoming a48:48bigger issue I’ve written about that youknow our Millennials giving up ondemocracy I think that’s actually aninteresting global question now we knowfrom a lot of surveys that Millennialsare less interested in democracy thanolder generations and you look at notonly is it true and the UK and in theUnited States but it’s true around theworld now if you look at particularlyEast Asian countries you know with thesenew charismatic leaders in a NarendraModi and India appealing to the theHindu mainstream you look at you knowBurma they’re the Buddhist mainstreamand you know uncle she is appealing inChina to the great Han you know to allof these leaders in Shinzo Ivy appealingtraditional right you and then you go tothis this this madman is in charge ofthe Philippines now you know RodrigoDuterte dirty-dirty duterte as they callit but my point is is that you havethese charismatic authoritarian leaderswho are appealing to the mainstream oftheir countries don’t give a damn aboutwho’s on the fringes right who is votingmost for them younger voters and that isfascinating to me because earlier in thepost-war era the authoritarian leadersmainly were voted for him only about theolder voters younger people didn’t wantthem and that’s changing around and Ipeople often asked me this question whendo we know when the world is going fromhost word of pre war you know when whenare we going from a post-war mood to apre well it’s kind of hard to tell untilyou have the next big crisis right butone key is is that in a in a post-warera it’s the the generation that justcreated the new era they were just wentthrough the crisis so they reallyidentify with the institution‘s theybuild and generally younger people tendto want more freedom they want lessorder they want less rules that wellwrite less conformity and all that buteventually as time goes by rightthose younger leaders are in power andgenerally have a pretty less a fair youknow libertarian world it’s youngerpeople who want more order morecertainty more route you soon I’m goingwith this that is a sign you’re in apre-war little pre-crisis does that lineup with the fourth term absolutely yeahthat’s that’s well that you know I don’tsay pre-war because that kind ofpredisposes about kind of crisis but I Isay pre-crisis pre-crisis yeah for thoseof you that haven’t read the fourthturning that I’m biased because I thinkthat’s your favorite book I think that’smy favorite book I think that wouldprobably be a consensus though is it notyour favorite people’s favorite book51:20that you write it’s it’s either that or51:22the original one we did generations51:24generation shoes yeah that was kind of51:27the first big book I guess we’ve had51:29this question and maybe a good one to51:31wrap up on here because people are51:33constantly asking where do you think51:35Trump the Trump administration fits51:37within your framework of what is the51:39fourth turning I you know Trump and I51:43thought that the two most interesting51:46fascinating and path breakingdevelopments in 2016 were Bernie Sandersand Donald Trump because there’s arecurring edge on both the left and theright of this whole new kind of populismand authoritarianism right the threechairs on the left every bit as much ofpossibilities of thorough tourism on theright and you know Bernie Bernie Sandersis a guy who believes in top-downgovernment just you know government andbaking big decisions creating winnersand losers and you always have to admirethe guy I mean when was the last time wehad leaders just say this is how it’sgonna besingle-payer you know and andMillennials actually gravitate towardthat yeah you know the paradox of choicewhy have so many choices is somethingsmall one choice but it works reallywell right at least and you find thisnow becoming a very dominant view on the52:36left so I think just like Jeremy Corbyn52:39now sort of the you know the elder sort52:40of great champion in the UK of the left52:42of the millennial left and you have52:45Bernie Sanders here but I think that52:47thatthat Donald Trump is the kind of theexponent of the leader the first one whoreally galvanized this new populism butif I had to bet I would say that whenthose final populism finally takes shapein America it’s gonna be a littleafternoon on the right so this is thisis why the you know 2020 election loomsreally large and when you look at youknow futures markets and remember againI come back to this the economy is now53:19at three point something percent53:21unemployment and already you have53:23futures markets predicting right that53:26that Democrats are going to come in and53:28sweep in 2020 wait and until the economy53:32is yeah a little more negative you take53:34that outlook and maybe last question on53:36this if you take that out looking again53:37we’re not I’m not trying to be political53:39I’m not a Republican or Democrat I’m53:40Canadian I’ve said that all the time53:41because it’s it’s it’s of course true53:43but if you look at them if you take that53:46let’s say the economy’s long we have53:47quad three four three quarters in a row53:49that’s my outlook and if that’s the path53:51and and what you just said is still the53:53truth you know what kind of a candidate53:56and what generation could or should they53:58be from within your lens would come out54:01of the Democratic Democratic Party as54:03the as the as a front-runner well this54:06is the big moment for Generation X right54:09you got a lot of candidates in yeah Gen54:12Xers you know you have you have you know54:17Camilla Harris and Bader O’Rourke and54:19you know you know what’s-his-name from54:21New Jersey you know they’re all my age54:23so you’ve Pro cannabis to New Jersey guy54:27yeah but interestingly enough you have a54:33millennial candidate running you know54:35this guy Pete Bennett reach out of South54:37Bend Indiana he’s 37 years old and just54:42to show you and I actually had a piece54:44on that recently I think he came out54:46yesterday but an amazing stat l just54:48leave people this one amazing statistic54:51and that is as as proof of how54:54absolutely disinterested Generation X54:57has been in politics you know they’re54:59way behind the age curve it actually55:01in Congress you know taking the house55:02taking the Senate taking us governor’s55:04at their current age you know boomers55:07had already we’re into the third55:08president and already at pluralities in55:11both the house in the Senate Gen Xers55:13have been so slow55:14you know Gen X is in both parties tend55:16toward the libertarian edge of their55:18party right55:19but as proof positive of how55:21disinterested Gen Xers are in politics55:24we look back and found we looked at all55:26of the contenders for the primaries in55:28the every presidential election since55:33198655:34and for the past almost 30 years55:37the youngest contender in either party55:41was a Boomer all the way up through all55:45the way up through 2012 there were no55:48gen extra candidates actually contending55:51for the presidency obviously in 2016 you55:54had a lot of them the two younger ones55:55were Marco Rubio and that guy from55:57Louisiana you know the governor from55:59louisiana agenda button bobby Jindal56:03they were born in 1975 and interesting56:07Lena 2020 we have a millennial contender56:10so only one year only one president of56:13presidential election was a gen Xer the56:16youngest contender and it’s already56:19moving on to Millennials and this is56:21what anyone who’s read the fourth56:22turning or my books knows we bill and I56:25used to always make the point that56:27Millennials are destined to make an56:29early and strong entrance into politics56:33as a generation and basically filling56:35the vacuum that Gen Xers have left56:38behind even to some extent so they could56:39circumvent Gen X presidential candidates56:42altogether and you know most references56:43and most Gen Xers always knew it was56:45cutting in the cards you know by Stan56:491975 yeah I have a genuine I do not hate56:54but I genuinely don’t like any56:57politician like that I don’t like their56:59parties I don’t like either party and57:01the ones that ran to your point57:03Gen X Rubio like those are like wet57:07Kleenex they feel like that’s not a57:09leader that’s not like you know you57:11don’t memorize your lines and57:12you know so I think that you’re right I57:14mean if you certainly if you take57:15somebody like me I’m just like disgusted57:17by politics and politicians so maybe57:19there is somebody there to inspire57:21somebody because I’d love to change my57:22mind we do we do talk in our ratings57:24about dominant and recessive generations57:26so between the GI generation which57:30fought in World War two you know the57:31so-called greatest generation right of57:33that was in the white house for a long57:36time from John Kennedy you know born in57:38the century all the way up through you57:40know George Bush Senior and then we had57:43a Boomer that completely bypassed the57:46Silent Generation yeah anyone who57:48remembers the Great Depression and World57:50War two as children but were you know57:53not old enough to serve that an entire57:57generation nearly twenty years was57:59completely bypassed for the White House58:01and look what’s coming up they say we we58:04do this we have dominant generations we58:07have recessive generations that’s uh I58:10don’t know if that’s a good or a bad way58:12to end today’s discussion but for us Gen58:15Xers we’re just going to go back into58:16our a political holes and we’re gonna58:18keep you data dependent as we tried to58:20keep you across by the way durations58:22today don’t forget we’re trying to talk58:23about a multi duration framework so58:25whether it’s short term intermediate58:26term or Neil House super long term there58:29are so many different things for us58:30human beings to attempt to contextualize58:32it at the end of the day we don’t know58:34what the real answers are gonna be but58:36we can probability wait how we go along58:38the way in terms of positioning58:40ourselves and being in better spots oops58:42would have been if we were ignorant of a58:44lot of these data’s and economic facts58:50[Music]58:59[Music]
Seven or eight years ago, I was on a commuter flight, sitting in an aisle seat. Two rows ahead of me, across the aisle on my right, a guy was arguing with his wife/girlfriend. It wasn’t a ferocious argument, but any sort of personal disagreement is noticeable in these circumstances, and it had been simmering since I noticed them boarding the plane.
There were two other things I noticed when they sat down. The wife/girlfriend had the husband/boyfriend’s name – Randy – tattooed on the back of her neck, and Randy had the letters T – R – U – S – T tattooed on the fingers of his left hand. I remember smiling to myself when I saw this. Obviously these two were from a very different background than me, but I really appreciated the public display of commitment they had made by getting these tattoos. I remember thinking to myself that I bet their relationship was a strong one, even though the disagreement seemed to simmer throughout the flight.
The plane landed and we all stood up. And then I saw the letters tattooed on Randy’s right hand.
N – O – O – N – E
All of a sudden, I was pretty sure this guy’s name wasn’t Randy. All of a sudden, I was pretty sure this relationship wasn’t likely to last.
I feel like I have TRUST NO ONE tattooed on my hands today, and if you’ve been working in finance for more than 10 years, I bet you feel exactly the same way.
Used to work for Bear? I know you feel this way.
Used to work for Lehman? I know you feel this way.
Used to work for Citi? I know you feel this way.
Used to work for Merrill? I know you feel this way.
Used to work for Deutsche Bank? I know you feel this way.
Yeah, we’ve all got these tattoos today. We have them as a reminder, as a figurative reminder (or literal in the case of “Randy”), that we really really really shouldn’t trust anyone AGAIN.
Because we need a reminder. Because we want to trust again.
Jimmy Dell is the con man in the 1997 David Mamet movie, played by Steve Martin in his finest dramatic role. In lines like above and below, Jimmy builds a personal trust with the mark by calling his attention to the lack of trust in business relationships. Effective consultants do this a lot, speaking of confidence games.
Jimmy Dell: Always do business as if the person you’re doing business with is trying to screw you, because he probably is. And if he’s not, you can be pleasantly surprised.
That’s the thing about the Spanish Prisoner con. It doesn’t work on saints. It doesn’t work on people who forgive and forget, who turn the other cheek and have an unending reservoir of faith in their fellow humans. It also doesn’t work on sociopaths. It doesn’t work on people who truly trust no one, who can lie to themselves and others without consequence or remorse.
The Spanish Prisoner con works best on smart and accomplished people who think they have TRUST NO ONE figuratively tattooed on their hands, who think they’re too clever to be fooled again, but end up only being too clever by half.
The Spanish Prisoner con works best on coyotes.
Too Clever By Half
Who is a coyote? A coyote is a clever puzzle-solver who really has the best of intentions. Who really wants to be successful for the right reasons. Who really wants to accomplish something of meaning in the world. Who is smart and aware and nobody’s fool. Who has been beaten up professionally a bit and has a healthy skepticism about the business and political world.
And who is just a little bit on the make.
The defining characteristic of the Spanish Prisoner con is that the mark believes he is doing well while doing good. The mark believes that he is doing the right thing, that he’s the good guy in this story. And if the liberated Prisoner is financially grateful, or if the Prisoner’s sister is grateful in her own way if you know what I mean and I think you do … well, that seems only fair, right?
Now the Spanish Prisoner doesn’t have to be an actual person that needs rescuing. That’s a con for the rubes. The Spanish Prisoner is what Alfred Hitchcock called a MacGuffin – anything that serves as an Object of Desire for the mark, anything that motivates the mark and furthers the narrative arc of the con.
In fact, the most effective MacGuffins are rarely simple signifiers of wealth like an rich Spanish dude. No, the most compelling Spanish Prisoners are Big Ideas like social justice or making America great again or resisting the Man. That’s what gets a coyote’s juices going. Especially if there’s also a pot of gold associated with being on the right side of that Big Idea.
The most successful con operators are the Nudging State and the Nudging Oligarchy. Why? Well, partially because you’ve gotta have some heft to credibly commit to rescuing a Big Idea from the clutches of whatever Big Baddie has it now. But mostly because running the con for money is just thinking waaaay too small.
The Nudging State and the Nudging Oligarchy don’t need your money. They already have it!
The con here is to gain your trust – again – so that you willingly hand over your autonomy of mind. So that you accept without thought or reflection the naturalness of your current relationship to the State and the Oligarchy.
You’d never fall for this con if it were part of a straightforward commercial arrangement like a job or a purchase. Please! You’re much too savvy for that. You have TRUST NO ONE tattooed on your hands, remember?
But for the chance to help rescue a Big Idea …
But for the chance to make a few bucks or enjoy yourself a bit more as part of doing the right thing …
There’s not a coyote in the world that can resist that bait. And that’s why once you start looking for the Spanish Prisoner con, you will see it everywhere.
Libra, the cryptocoin promoted by Facebook, is a Spanish Prisoner con.
What’s the Big Idea? Why it’s banking the unbanked. It’s facilitating cross-border remittances. It’s bringing the benefits of crypto to the global masses. ALL OF THIS IS TRUE. So far as it goes.
And if it facilitates e-commerce along the way? if it’s possible to make a few bucks or enjoy some greater conveniences as part of Facebook and its partners executing on this Big Idea? Well, what’s wrong with that?
What’s wrong is that this is how Bitcoin dies.
This is how a censorship-embracing coin replaces a censorship-resistant coin. This is how the State and the Oligarchy co-opt crypto. Not with the heel of a jackboot. But with the glamour of convenience and narrative.
And in a few years it will all seem so natural to you.
Using government-approved electronic money will be the water in which you and your children swim. You will not be able to imagine a world where a censorship-embracing coin is not everywhere.
Libra was designed to co-opt Bitcoin.
Libra was designed to allow government oversight over your economic transactions.
Libra was designed to provide a transparent regulatory window and control mechanism over your money.
Libra was designed for Caesar.
A year from now, the narrative story arc regarding “criminal activity” through cash transaction networks AND censorship-resistant transaction networks like Bitcoin will be louder, not softer. In three years, it will be deafening.
Libra and its e-commerce convenience, together with its Big Idea skin of helping The Poors … that’s the carrot.
The “Boo, terrorists!“ narrative … that’s the stick.
Will Bitcoin itself be outlawed? Maybe. But I really doubt it. It’s too useful as a societal steam valve, now that we’ve got Libra and (soon) other Oligarchy-sponsored and State-supported cryptos in circulation.
What does Bitcoin become in a world where state-approved e-money is in wide circulation?
It becomes an act of effete rebellion, like a non-threatening tattoo on your upper arm that you can cover up with a shirt if you like.
Bitcoin becomes a signifier of Resistance rather than a tool of Resistance.
Owning Bitcoin will make you a Bad Boy! or a Bad Girl! … a safe malcontent that the Nudging State and Nudging Oligarchy are delighted to preserve.
What’s my message to the true-believers who continue to see Bitcoin as a tool for Resistance?
For the next fifty years, you get to play the role of the grumpy old man yelling at clouds.
You know, the role that gold true-believers got to play for the past fifty years.
It’s a miserable way to live.
It’s a miserable way to live for two reasons.
First, and most crucially, this role that the Nudging State is laying out for you is steeped in negative energy. You will find yourself rooting for catastrophe. You will find yourself hoping for decline and collapse. You will find yourself conflating justice with loss and comeuppance. You will take on sadness and schadenfreude as your resting psychic state. Trust me when I say that I know of which I speak. Negative energy is deadly. That is not a figurative statement. It will literally kill you.
Second, you’ll be infested by raccoons, which will be tolerated if not encouraged by regulators, in exactly the same way they are tolerated if not encouraged by regulators in gold-world. Sure, you’ll have the occasional show trial of egregiously aggressive security frauds and Crypto-Funded Criminals ™, but the run of the mill hucksters and con men will walk with impunity.
Because this is what ALWAYS happens.
The money quote from Too Clever By Half:
And that brings me to what is personally the most frustrating aspect of all this. The inevitable result of financial innovation gone awry, which it ALWAYS does, is that it ALWAYS ends up empowering the State. And not just empowering the State, but empowering the State in a specific way, where it becomes harder and harder to be a non-domesticated, clever coyote, even as the non-clever, criminal raccoons flourish.
That’s not an accident. The State doesn’t really care about the raccoons, precisely because they’re NOT clever. The State — particularly the Nudging State — cares very much about co-opting an Idea That Changes Things, whether it changes things in a modest way or massively. It cares very much about coyote population control.
It’s all about coyote population control. It always is.
Is there a way out of this for Bitcoin? No. Co-option by the State and Oligarchy was the Doom of Bitcoin from the beginning.
I mean … I say “Doom” like it’s going to be hurled into the fires of Mordor, but that’s not it at all. There will still be true-believers and raccoons alike generating tradable narratives. You’ll still be able to make money by trading Bitcoin on these narratives (and altcoins, too, I’d expect, although I have no idea how you generate a compelling altcoin narrative these days).
It’s not like Bitcoin is going to go away.
But Bitcoin is going to be permanently diminished in its social importance by the adoption of Libra and other Oligarchy-sponsored and State-embracing crypto currencies. Bitcoin will never again mean what it used to mean.
You know … just like gold was permanently diminished in its social importance by the adoption of Oligarchy-sponsored and State-embracing fiat currencies. Just like gold will never again mean what it used to mean.
I wrote this note six years ago. It was the first Epsilon Theory note to get widespread recognition. You’ll see hints – more than hints, actually – of all the big ET themes over the past few years, particularly The Three-Body Problem.
How Gold Lost Its Luster, How the All-Weather Fund Got Wet, and Other Just-So Stories
The core of this note is a quote by Bob Prince, Bridgewater’s co-CIO and an actual prince of a guy. I just think he’s wrong when he says this:
The relationships of asset performance to growth and inflation are reliable – indeed, timeless and universal – and knowable, rooted in the durations and sources of variability of the assets’ cash flows.
I think Bob Prince is wrong in exactly the same way that JP “Jupiter” Morgan was wrong when he said this:
Gold is money. Everything else is credit.
If you get nothing else from Epsilon Theory, get this:
There are no timeless and universal relationships between asset performance and ANYTHING.
The only determinant of price for a non-cash-flowing thing is Narrative. Actually, the only determinant of price for a cash-flowing thing is Narrative, too, but we can save that argument for another day. And what I am saying about these non-cash-flowing things is this:
The introduction of Libra changes the Bitcoin narrative in exactly the same way that the introduction of fiat currency changed the gold narrative. And by change I mean crush.
That makes me sad. That makes me angry. I am convinced that it is part and parcel of a Spanish Prisoner con game. But I refuse to give into the negative energy of that realization AND I refuse to give up on the Big Ideas that I believe in.
So what do I do?
I con the con man.
I know what Mark and Sheryl and all the other Davos-going Team Elite sociopaths are about.
I see what they are offering me and I TAKE it. Without hesitation. Without remorse. I take it just as they are trying to take from me … in full sociopathic bloom.
And what do I give them in return?
Do I care about banking the unbanked and cross-border remittances? Yes, I do. Very much. So I will TAKE the protocols and the KYC procedures and everything else Libra offers, and I will USE all of that to further the social justice goals that I maintain. And they will get NOTHING from me in return. I will keep my autonomy of mind. I do NOT forget what they are trying to steal from me. I do not ALLOW them to steal that from me.
I refuse to give them my trust.
And I will look for every opportunity to destroy their Little Kingdom.
Do I really have TRUST NO ONE tattooed on my hands? No.
I trust lots of people. I trust my pack.
But Mark and Sheryl and Christine and Jay and Donald and Barack are not in my pack. And they never will be.
Trust no one? No.
I just don’t trust THEM.
Other large traders were even more bearish. “Other reportables”—a loose category of firms that don’t necessarily manage money for outside investors—held more than three times as many short positions in bitcoin futures as long ones, the CFTC report shows.
So who is the optimist? The report shows it is mostly small investors taking the other side of the trade. Among traders with fewer than 25 bitcoin contracts, a category that likely captures many individuals placing bets in bitcoin, long wagers outnumbered short bets by 4 to 1.