(00:02:48):

The TLDR of that article was, we are living through the conclusion of an 80 year long term debt cycle. We’re living through the conclusion of a 250 year empire cycle as the US is being challenged by Russia and China and countries all around the world. We’re also living through the end of a 250 year revolutionary cycle, 90 year fourth turning. We’re living through obviously the sovereign individual thesis, so we’re kind of entering this digital age. And then obviously all of these cycles are kind of unwinding simultaneously today in the 2020s. And I believe that these cycles are all going to be the catalyst for probably igniting a Bitcoin adoption curve that’s going to actually surprise a lot of people. That’s kind of my zoomed out approach. That’s kind of why I believe the world is so chaotic and transforming so rapidly today in the 2020s because what we are living through is something that we’ve never seen before in human history. That’s where I like to start. I like to kind of zoom out and take a look at the bigger picture.

Preston Pysh (00:03:43):

Talk to us a little bit about this 250 year empire cycle. This isn’t something I’ve ever really kind of covered on the show. I know Mark talks about it a little bit, but I don’t know if we talked about it on the show. I don’t think that we did.

Luke Mikic (00:03:55):

Yeah, so Mark’s been a great teacher of mine over the years. I’ve been lucky enough to work for him for about four months or so now, which is a little bit of a dream come true for myself. I’ve learned a lot from Mark and the 250 Empire Cycle essentially comes from Ray Dalio’s books. He’s written a number of great books, but I think the most recent book he released was titled The Changing World Order. I think it was November 2021 he popped that one out and Dalio just essentially looked back at the past 500 years of human history and he looked at the rise and decline of 10 of these great empires. So obviously you got the Ottoman Empire, the Chinese Empire, the Spanish Empire, the Empire, and obviously the US Empire today. And he noticed a similarity between all of these empire cycles and he just kind of noted that they go through these 250 year cycles where the rising Empire would rise, it would go through a period of economic growth, economic prosperity, and then obviously it would take over the reign from the previous Global Empire.

(00:04:54):

So the US has kind of been on this ascending trajectory for the past 250 years, which kind of began back in the 1770s with the kind of Declaration of Independence. That’s kind of where I think the rise began for the US and the US kind of in my eyes definitively overtook the British Empire in the early 19 hundreds when we took the global reserve currency off the Brits and now Dalio’s kind of putting forward the proposition that hey, the US Empire is in a period of decline. We’re about to see the challenger, the rise in Chinese empire as he calls it. I’m not sure if that fully answered the question or not, but that’s kind of where that 250 year empire cycle idea comes from, Dalio.

Preston Pysh (00:05:37):

I disagree with Ray on the China part. I think that they’ve got some definite some control issues and I just don’t know if they’re going to be able to, and maybe it’s my own bias. I’ve never spent any time on the ground in China. A lot of the stuff that I get, it’s kind of hard to know how much of it has a media bias or whatever when you’re pulling it from online. I’m curious what you think on that.

Luke Mikic (00:05:59):

I’m wildly bearish on China. Mark and I have done a number of videos on this. They’re suffering a water crisis, an energy crisis, demographic crisis, an economic crisis that a lot of people just don’t talk about. They just talk about the good things of China. And I definitely agree your synopsis, it’s very hard to get accurate data coming out of China. But from all reports, like their property markets down 60, 70, 80% over the last 12 months, stock market’s in a shambles, they’re more indebted than the US. I’m very, very bearish on China.

Preston Pysh (00:06:30):

I’m such a huge fan of Ray’s model and how he kind of models things out. And you’re talking about his recent book. I know on the long term debt cycle, it has shaped my thinking from a macro and just even a micro level so much and I have so much respect for him. I think he’s just dead wrong about China. But in this first article that you wrote, you talk about the comparison of the 1930s and forties to what we’re going through right now. Talk to people a little bit about what you’re seeing in that comparison.

Luke Mikic (00:07:01):

So the 1930s and forties was the last time that we kind of lived through the conclusion of an 80 year long term debt cycle. And we also lived through the conclusion of the 90 year fourth turning cycle. So obviously the thirties and forties was a period of chaos. We lived through the 1930s Great Depression, obviously the tail end, World War I and World War II in the forties. And then obviously you saw the rise of Mussolini and Hitler and all sorts of dictators in there as well. When these kind of wealth inequality or wealth concentration’s probably a better word, when wealth concentrations are at these extremes, you normally see a lot of political upheaval and turmoil. But I’m kind of more interested in the economic comparisons to the thirties and forties. Lyn Alden’s written some phenomenal papers on the 80 year long term debt cycle and a lot of my framework’s been influenced by her work.

(00:07:52):

She just essentially says in these 80 year long term debt cycles, once governments become too indebted and they’re over leveraged, you go through a period of deleveraging. And the big question is, how is the government going to deleverage itself? It either comes through a deflationary deleveraging or an inflationary deleveraging. And Lyn just kind of points out that in the 1930s and forties, you kind of have two periods to this deleveraging. The first period is kind of the 1930s and you saw a private sector of deleveraging, and then in the 1940s, the second decade of that deleveraging, that’s when you kind of see the inflationary period of your deleveraging, and obviously in the forties what you saw was the US run pretty much 10 years of yield curve control. They pinned interest rates pretty much near zero. And I think inflation averaged something like eight to 10% over that decade.

(00:08:46):

It was very volatile. So it spiked up to 18%, spiked back down to zero, back up to 12. But for that decade, when you were operating on yield curve control, you essentially saw negative real yields of about eight to 10%. And what you saw was the US government debt to GDP got shrank from 120% to under 60% in a period of 10 to 15 years. So I kind of … well, Lyn makes the comparison first and she says, Okay, that decade of 2008 to 2020, that is a picture perfect kind of microcosm of the 1930s Great Depression. You see a banking crisis, you see private sector deleveraging. And now 2020, that’s kind of when we’ve crossed this Rubicon and we’ve entered the second stage of the 80 year long-term debt cycle deleveraging.

(00:09:34):

And I kind of believe we’re going to see a very similar period of time to what we saw in the 1940s where you see yield curve control implemented and deeply negative yields for the rest of the 2020s. But it’s not going to be a straight line. I think it’s going to be very volatile, but that’s kind of like the big picture comparison I’m making to the 2020s, to the 1930s and forties.

Preston Pysh (00:09:59):

When I look at where we’re at right now compared to back then, I see all the similarities. But if there was one thing that I would say is very different is I think we’ve just had this polarization of coordination amongst every global participant, all of Europe, Japan together. When I look at the debt markets of all these really massive interconnected economies, they seem to be literally at the same breaking point simultaneously together all at once. And I just don’t know that that was necessarily the case back in the thirties and forties, and I definitely don’t think it had the magnitude that’s been basically pumped into it.

(00:10:43):

Like, this 80 year cycle, I would argue that what led up to the thirties and forties scenario wasn’t 80 previous years of global coordination that if we’re talking about it like an energy system, it seems like there’s just been pure energy, coordinated energy on a global scale pumped into this thing for 80 years and now it’s exploding right in our faces. And it just seems like the bang is going to be … and I’m not trying to sensationalize this, I’m just looking at the comparison, I’m looking at the numbers and I’m looking at the magnitude of how much has been pumped into this over the last 80 years compared to that previous point in time. And it just seems way bigger now. Would you agree with that?

Luke Mikic (00:11:23):

That’s exactly how I’m seeing it. We are living in this … we’ve seen hundreds of episodes of hyperinflation or government defaults before in history, but we’ve never seen a globally interconnected unbacked fiat currency collapse before in human history. And I think that’s what we’re going to see in the 2020s. And I try not to sensationalize things either but I think it’s going to be enormous. I think the 2020s is honestly going to be one of the most consequential decades in human history because I don’t know how all of this plays out. And something else that’s different to the forties is we are now living in a globally interconnected kind of digital world where we can see these bank runs in the Lebanon happening, we can see the Canadian truckers getting their bank accounts frozen on the other side of the world.

(00:12:10):

In these prior examples of hyperinflation, they were isolated within borders and the propaganda machine was actually able to subdue the masses into believing what they were seeing wasn’t actually happening. But today with social media, anyone can get on Twitter, which is a relatively uncensored social media platform, and they could see what’s pretty close to the truth happening all around the world. Buckle in, should be a very interesting few years

Preston Pysh (00:12:38):

And it’s the knowledge plus the ability to encrypt it. So a lot of my opinions on China that we were just previously talking about where I’m just like, I’m just not buying it, come from some of these accounts that I follow on Twitter that I know these videos are … there’s no way they’re circulating inside of China. There’s just no way. And they’re hitting our accounts because people are able to encrypt the videos and send them out of the country. And the knowledge is still being passed in near immediate kind of terms whether these governments like it or not. And there’s no way to contain it. Right? You were saying the sovereign individual earlier. I mean that’s it.

Luke Mikic (00:13:14):

Yeah. The technology’s significantly empowering to the individual and I think we’re probably going to get into it a little bit later, but Bitcoin fits right in the middle of that. Bitcoin combined with the internet. I think it’s going to do a very similar thing to what the printing press did 500 years ago. It’s the same way the printing press separated church and the state, Bitcoin combined with the internet, combined with a lot of these other asymmetric technologies we have today in the 21st centuries, I hope going to separate money from state for the first time in 5,000 years.

Preston Pysh (00:13:46):

Yeah. The implications are just … I don’t even think we can begin to have an appreciation for the implications after something like that. All right. In this first article, I’m still kind of picking through some of the ideas that you talk about here. One of the main topics was just exponential printing. What are you meaning by there? Are you talking about just how the fiat system, there’s just no way that they can mathematically stop with where they’re at right now? Is that what you’re getting at?

Luke Mikic (00:14:14):

Yeah, I think once you get to this second stage of a long term debt cycle, it needs ever expanding amounts of credit and bank reserves to be quote unquote printed into the system to keep the thing afloat. I think that’s what we’re kind of watching manifest itself all around the world today. I can think a lot of people hyper focus on the US and saying, look, look, the US is raising rates. There’s nothing wrong with the financial system. The US isn’t going through any sort of deflationary depression, but they’re not looking at the rest of the world. Lebanon’s blowing up its currency, Argentina’s blowing up its currency and having to resort to printing. And even the largest and quote unquote safest central banks and fiat currencies around the world are all capitulating on their hawkish attempts to normalize monetary policy. We saw that last week with the Bank of England and the Bank of Japan still doing what the Bank of Japan does best.

(00:15:06):

And obviously I think the Reserve Bank of Australia kind of capitulated this week. They were supposed to raise rates maybe half a percentage point and they said, we can only raise it 0.25. I can’t remember the exact figures, but what we’re watching is central banks all around the world capitulate at normalizing monetary policy and they’re having to resort to turning the money printers back on. And I just think once you get to these kind of debt levels, you kind of don’t have an option. I think Hershman Capital put out an amazing report in 2020 and they just said, Hey look, we’ve looked at the past 220 years of human history and we’ve found that there’s been 52 sovereign nations who have hit debt to GDP levels of 130% since the year 1800 and 51 out of 52 of those countries have defaulted on that debt within those countries hitting that 130% marker 15 years, within them hitting the 130%, they default on that debt within 15 years.

(00:16:03):

And the most politically palatable way for a government with a magic money printer to default on their debt is typically through inflating away the debt. So they just simply print money, devalue the money and pay back their enormous debt with the devalued dollars. So that’s kind of where I think we are today.

(00:16:23):

I recently did an interview with James Lavish this week, and he was kind of looking at Japan, Germany, France, all of the G7 countries, and he kind of showed that the average debt to GDP ratios of those countries is like 130%. So the largest countries in the world are at that Rubicon, they’re at the 130% debt to GDP. And I kind of think they have no other option, but to inflate away the debt. And that’s the case I was making in that article in 2021, I think was the article I was talking about, the long term debt cycle. Inflation just popped up and everybody was on team transitory. And I said, No, no, no, no, no, this is the beginning of a very inflationary decade. Governments not only need inflation, but they want inflation to inflate away the debt. It’s their balance sheet on the line, they need this, they want this. And what you’re going to see is a decade of inflation.

Preston Pysh (00:17:15):

And I think it just goes back to the point that you previously made, which is, it’s so much harder now with the flow of information and the access to go straight past the gatekeepers of the media outlets that governments had at their disposal 80 years ago or before that your typical person just couldn’t know or understand these things that are happening and how grossly they’re being debased. So you talk about this tipping point, is 130 kind of that magic number? And I know Japan is far in excess of that number, but they have been for a long time, talk to us about some of those attributes.

Luke Mikic (00:17:57):

Yeah. So Japan is the one country out of the 52 countries that hasn’t defaulted on their debt yet. So they’re the one country since the year 1800 who’ve hit that 130%. And they’ve just molded their way all the way through. And I think their government debt to GDP is something ridiculous like 260 or 270% today, but they own 70% of the stock market. I don’t know, I can’t remember how much of the JGB market that they own, but it’s a ridiculous amount. But in most other cases around the world, once you hit that 130% debt to GDP ratio, you are looking at a government default within 15 years. So that obviously varies from country to country. I think Argentine has defaulted eight times in the past hundred years. And then you’ve got other countries like Japan who are yet to default, but I think they’re very close to actually defaulting.

(00:18:45):

You did a really good episode a while back with James Lavish and he broke down the Japan situation in depth. So I’d encourage the listener to go and listen to that one if they want to get brought up to speed on the Japan situation. But I think most central banks around the world are going to try to play the Japanese playbook and just introduce your curve control. But I think once you see other developed nations around the world printing out of the wazoo and implementing YCC like Japan, I think that’s just a recipe for currency crisis. And in today’s digital age and age of interconnected social media, I think people are going to find the sore value that they desperately need and that they didn’t have in the 1930s and the forties a lot easier because obviously 6102 in the thirties and forties, it was illegal to hold gold. You pretty much, you had to hold the melty fiat currency that lost 50 to 60 to 70 to 80% of its value in a decade.

(00:19:40):

Today the people have an escape valve as Christine Lagarde calls it, Bitcoin is the escape hatch and the people are going to try and use it. And I think just all roads lead to Bitcoin in the end of it.

Preston Pysh (00:19:52):

Talk to us, so you’ve written about currency wars in general. Talk to us about some of the broader thoughts, help educate people on a framework maybe on how to think about currencies and how they interact with each other that kind of simplifies it for them. And then give us some of your thoughts on the currency wars that are taking place.

Luke Mikic (00:20:11):

Yes, I’m a dollar milkshake theory Maximalist, brilliant thesis put out by Brent Johnson. I just think that’s what we’re watching manifest itself all around the world today. The U.S. Dollar is pretty much the only asset that’s positive this year and it’s decimating currencies of every large sovereign nation around the world. I think the Euro’s at a 25 year low measured against the dollar. British pound, like a 38 year low measured against the dollar. Japanese yen is also at a 20 something year low measured against the dollar. And what you’re watching is the United States aggressively raise interest rates and that’s causing an enormous dollar short squeeze that manifests itself all around the world because for better or for worse, the U.S. Dollar is still the … what do they call it? Cleanest dirty shirt in the hamper basket. I think that’s what they call it. But the US is essentially still the global reserve currency, still conducts something like 60 to 70% global trade.

(00:21:07):

So when you have fears of a global depression or a global recession rising around the world, people run to what’s considered to be the risk off asset. Today, that’s still the U.S. Dollar and just the fact that the US is raising interest rates aggressively while the rest of the world is capitulating on raising interest rates, that means capital is fleeing even more aggressively to the US than it otherwise would in times of a recession. I think that’s a really interesting dynamic to keep an eye on because the US is bankrupting its largest friendly countries, countries that we’re supposed to be allies with such as Japan and Europe. We’re supposed to be on good terms with them, but we are literally bankrupting their financial system by raising interest rates as aggressively as we are. I think the Fed just came out, was it yesterday? I mean raised by another 75 basis points and you’re watching the United Nations get on their knees and beg that the Federal Reserve stop raising rates.

(00:22:05):

I was looking at an article recently, there was someone in the finance ministry in Europe, begging the US to stop raising interest rates. So I think that’s a really interesting dynamic to have a look at. And whenever we’re kind of talking about currency wars, we have to kind of mention the dollar milkshake theory put out by Brent. And then obviously you have another dynamic. I can go on all sorts of tangents Preston, so feel free to-

Preston Pysh (00:22:25):

No, you know what, explain Brent’s thesis. I think most people in this space know it, but we have a lot of listeners that have maybe never even heard of it. Just explain it real simply for folks.

Luke Mikic (00:22:35):

Dollar milkshake theory just essentially says the world runs on U.S. Dollars and it has been the global reserve currency for the past nearly a hundred years now. And essentially as this euro dollar market has proliferated around the world, it’s not just the United States that has a lot of U.S. Dollar denominated debt. The rest of the world has U.S. Dollar denominated debts, Turkish corporations or let’s say corporations in Europe, everywhere, all around the world, everybody has U.S. Dollar debt. All the dollar milkshake thesis kind of put out by Brent says, is the next time we have a global slowdown, we’re going to get into this sovereign currency crisis. And Brent believes that the United States is going to be the last currency to run into significant issues, all because they hold the global reserve currency.

(00:23:28):

And Brent kind of says, as these countries get into issues with paying back their U.S. Dollar debt, they’re going to have to resort to devaluing and printing their local currency in order to get their hands on the short supply of the U.S. Dollars that’s circulating around the world to pay back their USD denominated debt. So whenever the Dixie or the U.S. Dollar Index rises in strength, all of a sudden these countries such as Turkey, Argentina, Peru, these countries that have U.S. Dollar debt, their debt becomes more and more expensive to pay the higher the dollar index rises. So it’s kind of like a feedback loop. And Turkey all of a sudden has to print even more local Turkish lira in order to go into the foreign exchange market and swap that lira to get U.S. Dollars to actually pay back the USD debt.

(00:24:19):

So that’s the other kind of interesting part of the United States interest rate rises that comes into the equation because the faster they raise interest rates, the faster they’re bankrupting the rest of the world and the bigger a recession they’re causing. And this just causes an even shorter supply of dollars to be circulating around the world. And these countries and these corporations have enormous U.S. Dollar debt. That was a little bit of a long tangent, but I suppose the TL;DR of the dollar milkshake theory is we’re heading into a sovereign currency crisis. You’re going to watch dominoes fall all around the world and Brent just believes the United States is going to be the last currency left standing in a wave of global sovereign debt bubble bursting.

Preston Pysh (00:25:04):

You have a article that’s titled The U.S. Will Weaponize The Dollar By Backing It With Bitcoin. And you start off this article with the Bitcoin milkshake theory. Explain this to us.

Luke Mikic (00:25:16):

The bitcoin milkshake theory, I couldn’t help myself, I had to steal that one from Brent. I hope he forgives me for it. I couldn’t think of a better name to add dessert for the thesis, but it essentially rides on the coattails of the dollar milkshake theory. A lot of people believe, let’s move forward on the hypothetical assumption that the dollar milkshake theory plays out and we do watch a global sovereign debt crisis and countries around the world have their local fiat currencies hyper-inflate and we move into a global depression or a massive global recession. Everybody’s first instinct is, okay, this is bad for Bitcoin. I actually don’t think that’s the case. I think that as countries around the world have their local currencies hyper-inflated and decimated into pieces, I believe that a lot of these countries are going to be forced to dollarize. And I think that’s what the large majority of countries will do.

(00:26:09):

But I think some of these countries will actually accept and adopt a Bitcoin standard. And I think the countries that adopt the Bitcoin standard, they actually won’t be able to use Bitcoin as a unit of account because it’s still going to be far too volatile. Today, only one to 5% of the world has adopted some Bitcoin and the price of Bitcoin is still very volatile. So the case I’m kind of making with the Bitcoin milkshake is, these countries that adopt a Bitcoin standard, they’re not only going to adopt Bitcoin, they’re also going to be forced to adopt something to use as a stable pricing mechanism. So I think that’s going to be probably the U.S. Dollar. So I kind of see as the US continues to raise interest rates, I believe that the U.S. Dollar milkshake theory is going to play out and you’re going to be … maybe it’s 12 months down the line, maybe it’s five years down the line, but I think you’re going to be left with the majority of the world dollarized and a kind of consequence of that…

(00:27:05):

And so as these countries adopt Bitcoin and the U.S. Dollar, what I think is really, really interesting is they’re going to also be adopting stablecoins like USDC and Tether and stablecoins like this. And what’s really, really an interesting dynamic that’s been playing out recently is all of these U.S. Dollar stablecoins, they’ve all been backing themselves with the US government debt. You obviously got Tether, they’ve been known for years and years to be very risky as they hold a majority of their reserves in a risky commercial paper. But over the past six months, Tether’s kind of gone through this phase shift and they’ve been selling their commercial paper and buying more US government debt and obviously USDC, the other largest stable coin to 100% backed by US government debt. And BlackRock just recently ran like a $450 million fundraising round in USDC, which enabled BlackRock to be the primary asset reserve manager of the USDC Stablecoin. So I think that’s also an interesting thing to keep an eye on for the listeners.

(00:28:09):

But essentially as countries adopt Bitcoin, I think they’re also going to adopt U.S. Dollars and whatever country that adopts Bitcoin, you also see a higher rate of adoption of these U.S. Dollar stablecoins because they’re easy to use over the weekends. And if these USD stablecoins, 80 to 90 to a hundred percent backed by US government debt, what you’re watching is a massive demand for US government debt emerge itself around the world as Bitcoin monetizes. And I kind of think this is potentially a solution for the US to get itself out of the unwinding of the petrodollar system. So everybody’s watching China slow down its US debt purchasers over the past 10 years, Russia has completely de-dollarized. The BRICS nations are trying to de-dollarize themself and have even recently announced, Hey look, we are going to create a new reserve currency. We don’t want to use the U.S. Dollar petrodollar system anymore. And obviously Japan’s having a resort to sell treasuries.

(00:29:09):

So everybody’s selling treasuries and the US government needs a new buyer of treasuries. And I think as Bitcoin monetizes, the demand for stablecoins rises. And that means if these stablecoins are backed by US government debt, that means Uncle Sam could find a buyer of US government debt, which is … so that’s kind of the bitcoin milkshake theory in a nutshell.

Preston Pysh (00:29:32):

Well, and for the stablecoin operators, they don’t want US debt with a lot of duration if you’re dealing with crazy inflation prints because the longer the duration, the more that it’s impacted on the market value of it. When we look at what you’re talking about, it really does make a lot of sense that these stablecoins are going to need to buy up some type of short duration bonds that are performing better than cash through a short duration maturity. Wow, that is something else. Let me ask you this. The US doesn’t seem to be super excited about a central bank digital currency like you’re seeing over in Europe and some of the other places. Do you think that that’s because they understand this dynamic and they also understand how many offshore dollars there are to feed this monster of global economy to kind of feed this dollar milkshake theory?

Luke Mikic (00:30:32):

This kind of part of the thesis, I was inspired by Tom Luongo, I also recently had him on my podcast this week, but in late 2021 my mental framework was okay, what we’re watching is global central banks are coordinated, they’re all going to keep interest rates low, let inflation run hot and they’re going to inflate away the debt. That was my mental framework in late 2021. And then I was a little bit confused as we went through 2022 because they kind of looked to be some signs that the US was kind of diverging from a lot of these global, we’ll call them global policies like climate change. So I noticed the US Fed wasn’t very interested in climate change like Christine Lagarde was. I also noticed obviously the CBDC divergence. There’s some factions within the US that are really not keen on CBDCs, whereas Europe is like heading … they want full speed, they’re going straight towards-

Preston Pysh (00:31:27):

They were.

Luke Mikic (00:31:28):

Yeah.

Preston Pysh (00:31:28):

We’ll see if they keep that up here in another year from now.

Luke Mikic (00:31:32):

Yeah, well that’s the other thing. I don’t trust our competent leaders in the central banks to be able to pull off the technical capability in order to actually roll out a CBDC. But I read a really good article from Tom Luongo and he kind of made the case that the United States is now no longer friends with Europe and they’re now kind of acting in their own best interests because Jerome Powell and the Federal Reserve just essentially does not want to go along with the CBDC future. So the case that Tom’s kind of making is, okay, the reason that the Fed’s raising rates aggressively is because they’re trying to drain the offshore euro dollar market. And he kind of pointed out a very interesting coincidence in June 2021, if anyone wanted to actually pull up the chart of the U.S. Dollar and the Euro, you’ll be able to see that June 2021 was when the actual bottom of the U.S. Dollar and the Euro pair happened.

(00:32:24):

And a lot of people were like, why is that? And the US didn’t actually start raising rates until early 2022 and they didn’t even start talking about tapering until November 2021. And it’s very interesting that Jerome Powell and Christine Lagarde, they were having this little conference call at this annual green central banking meeting, I think they call it like the Green Swan Central Banking Conference. And there was this little bit of a back and forward. But Tom in his article points out a very interesting squabble between Christine Lagarde and Jerome Powell, where Jerome Powell says, you know what, no, we have a dual mandate in the United States, it’s stable prices and we are not going to go along with this central banking for climate change agenda. We’re not going to bail out the rest of the world and print money for the rest of the world in attempts to quote unquote save the planet.

(00:33:17):

And Christine Lagarde was not very impressed. She was infuriated, she was visibly not happy with Powell’s comments. And then just days after that squabble at that annual meeting, Jerome Powell raised the interest rates on the reverse repo window by five basis points. And what happened over the next couple of months was $2 trillion flowed into the reverse repo window and the Euro just essentially got decimated against the U.S. Dollar because people were sending money out of the euro dollar market, they were sending it to the reverse repo window at the Fed to get those extra five bases points. And it’s essentially, it was like a self tightening or self qt. And this kind of began in June 2021.

(00:34:00):

And also since then we’ve seen Jerome Powell kind of reaffirm his stance that he’s just not interested in this global green central banking agenda that’s been pushed out of Europe. And Tom kind of makes the case that a lot of these large banks in the United States such as JP Morgan, they’re the largest shareholders of the Federal Reserve and maybe sometime in 2021 they came to the realization, Oh hang on a minute, this whole great reset agenda, this is going to put us out of business if-

Preston Pysh (00:34:27):

Out of business. Exactly.

Luke Mikic (00:34:29):

Yeah. CBDCs are terrible for commercial banks. And they might have said, Hey Jerome, this is the plan. We don’t want this. We want you to actually look after the interests of the United States and the US banking system. We don’t want to go along with this green central banking policy and just hand the global reserve currency over to China or Europe all in the name of CBDC. So it could a little bit of-

Preston Pysh (00:34:54):

It seems like Larry Fink is probably the biggest ESGier on Wall Street and then I would say Jamie Dimon seems to be the polar opposite and you’re seeing some of this in their testimony, but you’re exactly right, if they go along with this, it does not end well for them, at all.

Luke Mikic (00:35:14):

Not at all. Not at all. Yeah, it’s a very interesting dynamic. It’s something I’m watching very closely. Jamie Dimon recently came out and he was bashing on this kind of green agenda and how it’s hurting the US and you’re watching pension funds all across the United States pull hundreds of millions of dollars out of BlackRock.

Preston Pysh (00:35:31):

Yeah. Tell people about this because this is fascinating and I mean these are very big numbers that you’re talking about.

Luke Mikic (00:35:37):

I honestly haven’t even looked into this as deeply as I should. I just saw there was a few counties that were pulling out.

Preston Pysh (00:35:43):

It was billions. I mean some of these pension funds are multi, multi-billion dollar pension funds and they’re sick of being stuffed into an ESG fund that is drastically underperforming just basic market indexes and to the point where they’re raising legal battles with some of the larger banks. I think BlackRock was the one that was targeted. Crazy.

Luke Mikic (00:36:07):

It just makes no sense. You’ve got oil and gas companies mandated to investing solar and wind projects, it makes no sense. And it’s about time people actually started voting with their money and pulling their money out of BlackRock and their pensions managed by BlackRock and saying, Look, you need to actually look out for shareholder interests, shareholder value, and not invest in this flawed and failed green agenda.

Preston Pysh (00:36:33):

They sure aren’t engineers, I know that.

Luke Mikic (00:36:36):

That’s a good way to put it.

Preston Pysh (00:36:38):

Then you have this other … this is another section and the U.S. Dollar will be weaponized backing it with Bitcoin where you say, here comes an open revolt, a reeling Europe lashes out at the Fed and for bringing us to a world of recession. So this gets to exactly what you were talking about there with that green Swan event in 2021. When do you think that the rest of Europe is going to come to their senses on this? Because I think most in the US are seeing it and they’re saying, we don’t want any part of this. This is insanity. But I don’t know that Europe’s there and it almost seems like they’re about to be paid a very up close and personal situation this winter and maybe even in the next winter of the result of some of these decisions.

Luke Mikic (00:37:24):

God, I think Italy is there. Their recent prime minister’s talking some sense. So that’s reassuring, but she seems to be switched on to what’s actually going on with reality around the world. But you make a really good point, Europe needs to … you would think that maybe Germany in particular, they would start to really say, hang on a minute, you are selling our bonds to bail out the PIIGS nations, Portugal, Italy, Greece and Spain. And this new tool that Christine Lagarde calls the anti fragmentation tool? You’d have to think Germany wouldn’t really go along with that for many more months or years, especially when they’re watching an energy crisis manifest itself all around Germany.

(00:38:04):

So I think Europe’s the epicenter of this energy crisis. Like in 2021, well before everything kicked off in Ukraine in February, they were already going for an energy crisis. We all saw the charts of natural gas and fertilizer up by 500, 600, 700% in 2021. And that’s all the result from Europe being aggressively transitioned away from reliable forms of energy like oil and gas and nuclear. And they tried to transition many of these powerhouse countries in Europe to operating solely on wind and solar. And obviously when there’s no wind and there’s no sun, your power grid’s left awfully susceptible. That’s kind of why you saw the energy crisis pop up in Europe first in 2021. And I think it’s only been exacerbated by many of the geopolitical events that have gone on in 2022. God, I think countries like Germany would try to opt out of the Europe sooner rather than later.

Preston Pysh (00:39:00):

It just seems like there’s no way that there could be this much stupidity built into the decision making, the strategic reliance on Russian energy to the level that it was and all these policies. I just don’t understand how they could have possibly gotten this far for so many years to be that reliant on Russia without thinking that there’s … I don’t know. And I guess the question I’m trying to get to is how does that happen? Are there Russian individuals that were influencing some of these key people on purpose in order to sway them in these ways that are very qualitative in a feel good kind of way that totally neglects quantitative analysis? Or do you think it was just not paying attention? What are your thoughts on how you get to something like this?

Luke Mikic (00:39:53):

I think it could be a combination of many things, purely incompetence. I could go down a few different rabbit holes here talking about the World Economic Forum and Klaus Schwab, but I think the whole Davos crew, they’re centered obviously in Switzerland and Europe and I think those European countries, they probably get a lot of the strongest influence from this whole Davos agenda of trying to turn the world into this green utopia and transition us away from oil and gas. I’m not sure how much influence Russia has in the cabinets of, I suppose governments in Europe. I’m not sure what to read into that.

(00:40:29):

I mean Donald Trump called it years before anyone, and I think it was 2016 or 2017 in a video. He said, Look, Europe’s reliance on Russian oil and gas, this is never going to end well for them. I think, what is it, 50 or 60% of oil and gas in 2021 flowed that Europe got, it all came from Russia. So they kind of left themselves out to dry there with some of the policy decisions they’ve made over the previous few years. I’m not really sure what to read into the whole geopolitical aspect of any of that.

Preston Pysh (00:40:59):

Yeah, it’s a sad situation. Let’s talk about Bitcoin adoption curve. You have an article that is so thorough on this particular topic. Again, I’m going to have links in the show notes so people can check this out. But walk us through some of this framework that you use. I mean you have exponential technology in a digital asset network effects. You have a J curve, there’s this one called the big fish who will trigger escape velocity. I’m curious to hear a little bit about that. The second S-curve. There’s just so many different points that you have in here. Walk us through some of them.

Luke Mikic (00:41:34):

I essentially … bitcoin’s an emergent technology and emergent technologies get adopted in exponential waves and these kind of exponential adoption waves, if you were to plot them on a chart, it just looks like an S-curve. I looked at the average of say I think it was three or four different technologies. I think it was the personal computer, the internet, maybe the smartphone from memory. And on average it takes a transformative technology 10 years to go from zero to 10% adoption and then it takes an additional 10 years to go from 10% to like 90% adoption, so mainstreaming. And all that kind of S-curve says is okay, after a new transformative, disruptive technology’s been around for somewhere around 10 years on average and it kind of hits an inflection point, a critical mass is reached, a technology has reached sufficient network effects and the rest of the world, the other 90% of people who haven’t adopted that technology will FOMO into that technology. And that’s kind of where you get the steep part of that S in terms of its adoption.

(00:42:40):

I was just kind of making the case, Hey look, Bitcoin is also a transformative technology. Money is a technology. I think it’s going to go through a similar wave of adoption. Bitcoin is 14 years old now. Most estimates say it’s somewhere between 1, 5, 6, 7%. I think in the 2020s we’re going to watch Bitcoin go from somewhere around 5% adoption to 90% adoption. And I think all the catalysts are there to send Bitcoin on an adoption wave, an adoption curve that I think a lot of people simply aren’t ready for. So that’s kind of the framework I looked at in that article. There’s many catalysts that I think will actually make Bitcoin’s adoption curve even more wild than most people expect because that’s obviously, bitcoin… We’ve never seen a technology before be adopted that has a monetary value attached to it. So for every incremental one or 2% adoption in Bitcoin, you see that directly translated to the monetary price of Bitcoin going up. So I think that’s something we’ve never seen before in history.

(00:43:42):

Normally when a technology goes from 10 to 20% adoption, the everyday norm, we won’t really notice that difference. Maybe one or two of their extra friends might be using that technology, but if bitcoin goes from 10 to 20% adoption, the price of the thing doubles. So that’s the equivalent of watching Bitcoin go from $600,000 to $1.2 million. I think there’s lots of things different with Bitcoin that are very different to other technologies that I think are going to make it adopted in an even more violent and exponential manner.

(00:44:13):

We could obviously talk about the supply suffocation as well going on with Bitcoin because I think you’re just going to get into a situation in the not too distant future where all of these Michael Saylor like entities or nation states or sovereign wealth funds just simply gobble up all of the available Bitcoin for sale that sit in on exchanges. And like Michael Saylor says, he’s not selling the thing for a hundred years. I think there’s lots of different rabbit holes we could go down in terms of the Bitcoin adoption curve. But I’ll pause there for a minute. I raised a few different points.

Preston Pysh (00:44:47):

No, it’s fascinating because I think people are so … they’re so used to looking at the price chart and equating that with what’s happening. And when you look at the tech and you look at what’s happening on the engineering side, it’s such an explosion of talent and building that’s taking place in so many different directions and the nodes and you just look at the infrastructure that’s being stood up around. I think if some people could walk into a mining facility down in Texas, one of these really large mining facilities, they’d be like, what in the world is happening here? It’s so large and so substantial, the infrastructure that it’s totally lost on market participants that are just looking at the price action and saying, oh it’s down 50%, that thing’s dead.

Luke Mikic (00:45:35):

Another really big thing. I couldn’t agree more. I think people looking at the price chart of Bitcoin over the past 18 months are confused. The Normies are saying, okay, bitcoin’s down to 70%, it’s dead, it’s not advancing. But like you say, the network effects of Bitcoin have only advanced over the past 18 months. Another big reason why I think the 2020s is going to be this big kind of inflection point in terms of Bitcoin adoption is because Bitcoin is fundamentally a different asset. For the first 10 or 12 years of Bitcoin’s life before 2020, none of the big money around the world paid any attention to Bitcoin. It was a joke. It was a speculative token. 99.99% of the trading volume was all dominated by retail. And I think when the money printers got turned on in 2020, I think that awoke a lot of the biggest and the smartest money managers all around the world.

(00:46:26):

I think nation states are now watching Bitcoin. I think sovereign wealth funds are watching Bitcoin. You’re watching public corporations like MicroStrategy stack Bitcoin as a treasury reserve asset. You’ve got all the largest money managers, Paul Tudor Jones, Bill Miller, Stanley Druckenmiller, they’re all watching Bitcoin. So I think 2020, it’s kind of like there’s lots of indicators there that are also kind of confirming, okay, Bitcoin, the asset is actually transforming and we have a different type of asset allocator in the Bitcoin space. So I kind of think people who were looking at the past 12 years of Bitcoin price performance and saying, Okay, this is how Bitcoin’s going to perform in the next 12 years. I think they’re going to be left wildly shocked because instead of the market being dominated by 99% of retail participants, I think moving forward the market’s going to be dominated by the largest money managers all around the world.

(00:47:22):

And I know a lot of people don’t like on-chain, but there’s one chart that I really like with on-chain data and it shows the available amount of bitcoins available for sale on exchanges. For the first 12 years of Bitcoin’s life, coins were sent to exchanges, the balance or the amount of bitcoins on exchange only grew and it peaked at 3.1 million coins in March of 2020 when those money printers got turned on. And when I think the rest of the world were awakened to the fact that, hang on a minute, the monetary system is broken, we need a solution for this. And since March of 2020, what you’ve watched is 800,000 Bitcoin leave the exchanges. And with the beautiful thing about on-chain data is you can see where those coins are going to and they’re going to the wallets of entities who don’t have a history of selling their Bitcoin.

(00:48:14):

In the past 24 months what you’ve watched is 35% of the available Bitcoin being absolutely evaporated from exchanges and put into the wallets of, we don’t know who they are, but they’re people who aren’t selling their Bitcoin. And I also think that’s very interesting that in the past 24 months you’ve watched really volatile Bitcoin price action. So we ran up from 3K to 65, back to 30, back up to 70, back down to where I was 17,000. And all throughout that time, you’ve watched people with very strong conviction just take the Bitcoin off the exchanges and put it into their wallet. So I do love to speculate and if I had to speculate, I think that is a large and the smart money accumulating bitcoin, whether that be corporations, nations, states, sovereign wealth funds, I don’t know who, but if you run that extrapolation forward, and if you watch seven or 800,000 coins leave the exchanges every two years, I think it’s 2027 or 2028, there’s all of a sudden no Bitcoin on exchanges for sale.

(00:49:18):

I think that’s going to be really, really interesting. And I think people trading paper Bitcoin on exchanges could be left in a little bit of a rude shock in the coming years.

Preston Pysh (00:49:28):

I think that point that you just made is so profound that when I talk to people that are not in this space, that’s the one thing that they do not understand. They do not understand how much of a psychopath the typical HODLer really is. And when I say psychopath, this is because I forget who was calling … some media company was trying to brand this community as psychopaths and everybody in the community just doubled down and embraced it. But what they fail to realize is that psychopathic conviction that Bitcoiners have, they’re not selling, they’ve been buying, they don’t care how volatile the price gets, they’re going to continue to buy and they’re going to continue to put it away and never drop it back into the market as best they can. And like you said, on-chain data is showing you the conviction that these coins are being clawed off the market. They’re going into some of the strongest hands that are never putting them back on the market ever to be seen again. What did you say it’s down to, like two point, what?

Luke Mikic (00:50:33):

I think it’s 2.3 million coins.

Preston Pysh (00:50:35):

Out of the 21 million coins, only 2.3 million are available on exchange for purchase.

Luke Mikic (00:50:41):

If my maths is correct, it’s a little bit late here, it’s nine o’clock so my maths brain might not be working. But is that 23 Michael Saylors? He has a hundred thousand-ish coins and if there’s 2.3 million coins on exchanges, that means if another 23 Michael Saylors stepped into the space and said, Hey, I want a hundred thousand coins. I don’t want Giga Chad, Michael Saylor to become the world’s richest man. So if I want Michael Saylor to not overtake me in terms of wealth on a Bitcoin standard, I need to accumulate a stack of Bitcoin to an equivalent size of Michael Saylor. So what’s going to happen if Microsoft or-

Preston Pysh (00:51:19):

It’s not going to happen though.

Luke Mikic (00:51:21):

Yeah.

Preston Pysh (00:51:22):

It’s not going to happen though. They’ll bid the price so far that they’re never going to be able to really catch up with them, especially if you have a little bit of a feeding frenzy happening amongst a couple of them. It’s the thing that so few talk about is just the amount of coins that are left, the amount of people who have absurd conviction, psychopathic conviction, and they’re not putting them back on the market. And I think even if the price would run aggressively, I think there’s a lot of people that are very comfortable in their lifestyle and don’t have to put them back on the market, they don’t need some fancy lifestyle. And it’s a little bit more than just making money for a lot of people in this space. I think you can probably attest to that, Luke.

Luke Mikic (00:52:00):

Exactly. And the biggest pushback I get when I bring up that on-chain data and the coins leaving exchanges is but Luke, when Bitcoin hits a million dollars, lots of people are going to sell their Bitcoin and yes they are. I agree with that. There’s going to be a lot of people who maybe take some off the table when Bitcoin hits 500,000 or a million dollars. But the argument I make is, okay, as the plebs take some profits and they buy some SHIP coins like real estate with their Bitcoin, what’s going to happen is I think the buyer on the other side of that seller is someone like a Michael Saylor or someone like a sovereign wealth fund who is just going to indiscriminately allocate to Bitcoin. Doesn’t matter what price it is, as it gets to 500,000 or as it gets to a million dollars coin, they say, Okay, we just need a 1% allocation to this asset, doesn’t matter what price it is, buy me a billion dollars of Bitcoin.

(00:52:51):

And I think as the price goes up, yes you’re going to get sellers, yes, people are going to send Bitcoin to an exchange to sell it, but I think the buyer who’s going to step in on the other side of that is going to have a lot more capital. For example, Apple or Microsoft, what do they have? $200 billion of melting fiat currency sitting on their balance sheet? They need to start putting that to work, but they can’t today when bitcoin’s at 300 or $400 billion asset class. But when that’s … I don’t know, 500 billion or say 5, $10 trillion asset class, that’s when they’ll actually start allocating to Bitcoin.

Preston Pysh (00:53:24):

Any other comments on the supercycle or the adoption curve that you think are really important?

Luke Mikic (00:53:30):

I think prepare yourselves. I think a lot of people just simply aren’t ready for a hyper-decolonized world or the path we’re going to take to get there. So I think in my eyes, Bitcoin’s a very binary bet. Bitcoin even becomes the next money of the world or Bitcoin fails. And if Bitcoin becomes the next money of the world, you can run some relatively conservative maths and you’re looking at least a 10 or a $20 million price tag per Bitcoin. In that article, I ran some maths and I said, Okay, there’s $900 trillion of wealth in the world, if you’re obviously ignoring the derivative’s market. I didn’t even look at the one quadrillion dollars of derivatives. Let’s say there’s $300 trillion of real estate, there’s hundreds of trillions of bonds, there’s a hundred or so trillion of fiat. I took what I thought was a conservative estimate and I said, Okay, let’s assume 30% of that flows into Bitcoin on a Bitcoin standard.

(00:54:20):

I ran the numbers and I kind of found that the price of a Bitcoin would be $65 million a coin on a Bitcoin standard. If 30% of the world’s wealth and store value wealth flowed into Bitcoin, you are looking at a $65 million Bitcoin, and that’s obviously in today’s dollars. So that’s not taking into account hyper-inflated dollars, that’s a $65 million Bitcoin in today’s dollars, and if a Malibu beach house is costing $10 million a pop in California, I think a Bitcoin is going to buy six and a half Malibu beach houses in the future. That’s the kind of purchasing power equivalent that I think Bitcoin could have on a Bitcoin standard.

Preston Pysh (00:54:59):

How about on the low side?

Luke Mikic (00:55:01):

The low side, I even think that’s bearish. To be honest. So that maths takes into account that for every $1 that flows into Bitcoin, it has a 3x multiplier effect. So if you try buy $1 Bitcoin, it pushes up the market cap 3x, and that’s simply because not all the available Bitcoin actually available for sale. There’s only 3 to 4 million coins that actually circulate on exchanges and circulate on and off exchanges on a regular basis. I actually think that multipliers are going to rise the closer we get to a Bitcoin standard. So I think a larger and a larger portion of the 21 million coins are going to end up in the hands of nation, state, sovereign wealth funds and Michael Saylor like types who will simply not sell their Bitcoin for a hundred years. So I think instead of that multiplier being 3x, that’s actually an average over the past five years of Bitcoin price data.

(00:55:56):

Lily Wu has a chart on his website and he shows that for every $1 that flows in, it has a 2.6x multiplier. I think in the future that’s only going to rise, so I think it could be 5, 10 or 15x multiplier as the available amount of Bitcoin that actually circulate in the circular economy gets smaller and smaller. So I think $65 million of coin is my conservative estimate.

Preston Pysh (00:56:19):

That’s so much higher than anything I’ve really heard from folks. I’ve heard five to 10 pretty standard amongst people that study the space a lot, but I also have never even considered the multiplier, and I understand exactly what you’re talking about because it’s not a linear type situation because as they become really scarce there at the end, everybody’s just, any fiat they’ve got, they’re throwing at the new currency in order to bid it. That’s an interesting piece there.

Luke Mikic (00:56:48):

Let’s be conservative for a minute.

Preston Pysh (00:56:49):

Yeah.

Luke Mikic (00:56:49):

I also ran some conservative maths and in another article I wrote, I said, Okay, let’s be conservative and let’s say you think the price of Bitcoin is only going to be $5 million a coin on a Bitcoin standard. Well then I kind of laid out the case, Well, okay, when we’re on a Bitcoin standard, the GDP is still going to grow and if GDP … I ran some bullish numbers on a Bitcoin standard, I think GDP is going to grow by 10% per year, but you can run whatever compound annual growth rate you want, but all of a sudden if you think GDP is growing by 10% a year and you say, Okay, 5% of the world’s wealth is being stored in the world’s store of value, which I think is going to be Bitcoin. That means like Michael Saylor says, Bitcoin is going to be going up forever, Bitcoin is going to be accruing and growing at 5% per year into perpetuity for a very long time.

(00:57:44):

So even if you have conservative numbers like a $1 million Bitcoin or a $2 million Bitcoin, then I would encourage the listener to also go and have a look at the compound annual growth rate of say global GDP and just run the numbers. If you think GDP is going to grow by 3% or 4% per year, you kind of figure out how much of that is going to be stored into the best savings account that we’ve seen in human history, and all of a sudden you’re looking at some pretty bullish Bitcoin numbers, even when you started a relatively low base at 1 or $2 million a coin.

Preston Pysh (00:58:14):

I often think about, I have one of these a hundred trillion dollar notes from Zimbabwe as one of my bookmarks. It’s actually … there you go. In one of my Ray Dalio books over there, and I try to think about that. So the purchasing power of that, if you would’ve gone back to Zimbabwe prior to that event and you would’ve said, All right, what would be the purchasing power of this $5 note before it turned into … and I know that these aren’t the actual numbers, but I’m trying to use it as an example. You get to a point where the old currency is so broke that it makes as little sense as I think Bitcoin makes for people as they’re trying to think about its value in the future. It’s all inverted as you’re looking back at the old currency and you’re saying like, a million dollars, that was a lot of money and that buys this now. Those numbers don’t even make sense.

(00:59:06):

And I know that you had said that in purchasing power today or in buying power today, you were saying that you think it’s those numbers. I’d have to think about that more, but you have it all laid out here in your article, so I would highly encourage people to go read, if anything. Hopefully I’m wrong and you’re right. And hopefully people can go there and check out your article and kind of read up on the methodology that you got. Luke, any other comments or things that you want to cover before we wrap things up?

Luke Mikic (00:59:34):

I think we’ve just about crushed it. We’ve touched on all sorts of different topics and I’ve gone down all sorts of different rabbit holes in this one. I think we’ve got it all Preston. Thank you so much for having me.

Preston Pysh (00:59:44):

Yeah, give people a handoff where they can find you, your Twitter feed and your podcast, and anything else you want to highlight.

Luke Mikic (00:59:50):

Yes, I’m all over Twitter. My handle’s just LukeMikic21. I write lots of articles for Amber, so they’re a Bitcoin only company based in Australia, what used to be my home country. I write lots of articles for Amber. They also help produce and edit my podcast, so it’s just Bitcoin Made Simple. I have YouTube channel podcasts, do lots of educational videos on YouTube and I’m always talking smack on Twitter, so you can find me there.

Preston Pysh (01:00:16):

Awesome. Luke, what a pleasure, and thanks for your time tonight.

Luke Mikic (01:00:20):

Thank you so much for having me. It was an absolute pleasure.

Preston Pysh (01:00:22):

If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener.

(01:00:36):

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Outro (01:00:55):

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