David Collum (00:12:26):
In 15 minutes.

Preston Pysh (00:12:27):
That’s right. Or for whatever duration they’re trying to time the market. So they’re just speculating. So you could make the argument, the entire bond market is a speculative place these days.

Greg Foss (00:12:39):
So this is the cool thing you guys are hitting on. There’s actually no such thing as capital gains in bonds. Everyone says I own bonds because I’m going to be the world’s greatest trader and I’m going to buy it at 1.75 and sell it down to 1.25. And the reality is it never happens because all you’re doing is cashing out a coupon on your trading prowess. The greatest thing that you just mentioned Dave from a former bond trader is that you said you wouldn’t buy it at 3%, and it’s currently trading at 2% in the third year. That hundred basis points in the 30 year is worth 20 bond points. Isn’t that remarkable? 20 bond points because of duration and convexity. And so what I love about the analysis that you just laid out is that you would buy it down 20%. and let’s go to an extreme and say if the 10 years at three and a half, and let’s just say the five years, therefore at 5%, that’s 300 basis points.

Greg Foss (00:13:40):
It doesn’t even compute. You’ve lost 50% of your value in a longterm treasury that’s supposed to be risk-free. People haven’t lived this for their entire lives. Because when I started trading, US 10 year rates were at 14% and they went down to 1% and below. So bonds are a misunderstood contract by most money managers in today’s day and age.

David Collum (00:14:05):
We’re not boomers. You’re not a boomer.

Greg Foss (00:14:08):
That’s correct. And the crazy thing is, even Ray Dalio, who’s so brilliant on this and made so much money on a risk parity trade and risk parity hedging. He understands the bond math, he’s just not calling out people on the bond math. He understands it for the ludicrous nature that it is. Used to be when equity sold off, bonds would get bid because interest rates would go down. But we’ve reached our floor in interest rates and that correlation doesn’t work anymore.

Greg Foss (00:14:40):
Ray needs another non-correlated asset. I wonder what that could be? Let’s just sit back. And one more thing. You’re so right Dave because what you have not even brought into the analysis is, you lend the US treasury a hundred bucks today for 10 years. It’s almost certain you’re going to get your hundred bucks back in 10 years. Not a hundred percent probability, very high probability. The purchasing power of that a hundred dollars that you lent them today is going to be like $65 in today’s dollars.

Preston Pysh (00:15:12):
If you’re lucky.

Greg Foss (00:15:14):
That is why you need to hedge yourself against the certainty of fiat contract debasing. Best thing I could advise anybody out there, do your math, understand that you should have a lower exposure to bonds than you’ve ever had in your career over the last 30 years. It’s pure mathematics.

Preston Pysh (00:15:34):
So David, you had mentioned Lacy. So I listened to the interview that Lacy did with Grant. He’s obviously brilliant. Smartest guy in the space for decades. If I was going to say the thing that I think he’s missing, and I obviously want to hear you counter this. I don’t think that he’s accounting for there being an alternative to fiat currencies globally. His model is based on there only being fiat currencies moving forward. My model is based on this idea that that’s going about to be disrupted. And because of that, we see the solution. We see the pricing mechanism of fixed income particularly, and equities, because I could go down how that would then fall out into equities, as being grossly mispriced. But the fundamental linchpin of all this is this idea that the model that we’re accustomed to over the last 30 to 40 years, ever since 71 when you come off the gold standard, that model on how we understand this homeostasis between fiat currencies is about to be disrupted.

Preston Pysh (00:16:43):
And as long as it’s only fiat currencies, and as long as uh-oh, the Euro’s printing faster than the dollar, therefore the dollar is bidding. Oh no, now the fed is printing faster than the Euro. So that whole model gets flipped upside down if there’s this alien type technology that enters itself in and starts to say no, I’m sound money, I can’t be debased. I’m immediately spendable up to any amount. If you want a really high transaction, let’s say you want to send a hundred million dollar somewhere, that might take 10 to 30 minutes at $5 of an expense. If you want to immediately clear like in El Salvador and you want to transact in dollars and receive in dollars but use the backbone of Bitcoin. That nobody even understands how that’s happening, at least from the user’s perspective, it immediately clears at a hundred dollar value. That’s happening today, like right now. And so I’m looking at it from that lens.

David Collum (00:17:49):
I don’t have a problem with that view. What I learned as a chemist is that when you push a system away from equilibrium, way far away from equilibrium, the return trip tends to be violent, destructive, gives off a lot of heat. So in a chemistry community, you blow up your lab, avalanches, you destroy villages, earthquakes, you clip California off into the ocean. Any system that return equilibrium, which has got a huge potential energy is going to do destructive things. What’s also true is they tend to get very shock sensitive. There was a great metaphor, analogy, aphorism, whatever you call it by Richard Russell years ago, when someone said, “Why can’t the system go on forever?” And his response was, “Go into your kid’s room and start stacking blocks.” He says, “Just keep stacking. And what you discover is, anyone who’s ever done, this is the higher the stack, the more shock sensitive.”

David Collum (00:18:43):
So pretty soon, Russian bond defaults can tip over the system as we saw in the late nineties, for example. So when a system gets shock sensitive, and I think we can all agree that the system is heading for shock sensitivity of a higher order. I’m not convinced we need a revolutionary technology to trigger the badness. You guys may have the solution to how to avoid that. We’re about 99.9% on the same page in terms of what we have to not get hurt by. One things I learned in 2020, and I think the bond market is a sign of inflation. I once told a prominent hedge fund manager many years ago that the bond interest rates were low because of inflation. He totally blew me off. And now he writes about that. And it’s just that the money started chasing bonds. So the hot money went after bonds that you say there’s no capital gains, but they certainly get bit up. The money started chasing the bonds and you could leverage up and you could buy corporate bonds and you could sort of make something on the spread and everything worked fine.

David Collum (00:19:49):
By the way, I’m not as enamored with Ray Dalio as some people. Dalio’s system works fine as long as you’re pumping money all over the system. But his risk parity model I think is kind of hokey. I think it’s a way to justify inordinate leverage in the bond market that he shouldn’t be doing. If you want to call it risk parity, if you really want to send the bond market to the level of risk of the equity market, I think you’re asking for a mushroom cloud at some point, and I think they’ve created that. We’ve got a 40 year bond market that’s been nothing but good news for 40 years, but now we’ve reached the end of the row. Now, 60/40 portfolios, you get precisely zero on your 40 almost, unless you want to go to Argentina to get a bond or something. And so your 60/40 is guaranteed to at best tie. At best break even on inflation on the 40. And the 60 is probably 130%, 140% over valued. And so we can agree that the conventional alternatives just suck.

Preston Pysh (00:20:49):
I completely agree with everything, especially Ray Dalio risk parity stuff. We’re levering into the bonds like, that’s nuts right now. Are they continuing to kill it because the trend for the last 40 years is still the yields going down?

Greg Foss (00:21:03):
It hasn’t over the last few years of his portfolio been somewhat-

David Collum (00:21:07):
I think that’s right.

Greg Foss (00:21:07):
But here’s the other thing, guys, it’s only mathematics, right? Look, you can lever in a downward trending interest rate environment because in his volatility model, bonds had lower vol. If you measure risk by volatility, which isn’t always the best way to measure risk, then his model sold. And that’s the key, right? It was simple to understand and simple to model when he was showing it to pension allocators who bought into that model. He admits that it’s no longer there. He said himself, “I’d rather own a Bitcoin than a bond.” I don’t know what else to say?

David Collum (00:21:46):
He supports both. He is on record for both. Dalio does this macro analysis. I hope he’s not listening. He does this macro analysis that seems pedestrian to me. I mean, I listen to it and I go, “Oh.” I don’t go, “What a wizard.” It seems like he’s just skim coating some basic principles. And I think that he grew his entire empire under this optimized situation that was set up by interest rates starting at 16%.

Preston Pysh (00:22:15):
Amen to that. Yeah, you’re exactly right.

David Collum (00:22:17):
And it’s sort of like Peter Lynch became a rockstar by entering equities in about ’76 and getting out in around 2000.

Greg Foss (00:22:26):
And sending his kids to the mall and telling him what is selling in the mall so that he could figure out-

David Collum (00:22:30):
Yeah, Cinnabon. Cinnabon.

Greg Foss (00:22:34):
You’re so correct Dave, I’ve never been more proud of a chemistry professor in my life because you understand the bond market, which is like, you’re in the 99th percentile. Even the fund allocators don’t understand bond markets. It’s that simple-

David Collum (00:22:48):
Prices up rates down. Isn’t that [crosstalk 00:22:51]?

Greg Foss (00:22:50):
Not only that. How about this? If something is a straight line down from top left to bottom right with no volatility. It’s a straight line. Does that mean there’s no risk? No, but that’s how everyone measures risk. It’s why-

Greg Foss (00:23:03):
… there’s no risk? No. But that’s how everyone measures risk, is by the volatility. My Lord, people have lost their frigging minds, in terms of how to measure risk.

Preston Pysh (00:23:11):
It goes back to what you were saying earlier about pumping all the energy into something. For 40 years, they’ve done nothing but pump all this energy straight into the fixed income market, through bidding the prices to the moon and the yields down to nothing. And here we are, in the US, nominally the 1.36 but you go to other parts on the planet, pretty much anywhere else on the planet and these things are so compressed and so much energy has been stuffed into them. I mean, it’s unimaginable. And it blows my mind that you don’t hear anybody talking about that systematic risk, when you watch any type of financial media or news or anything.

Greg Foss (00:23:55):
They don’t get it because no one studies the bond market Preston, you know that. Equities are the thing that sells mainstream media TV, equities are the things that grow to the moon, equities are excitement and bonds are for mathematicians but here’s the reality. Every single fiat is debasing, that’s 100% certain, it’s just a relative value game, it’s how fast your ice cube is melting. And if you can play beggar-thy-neighbor, a game where the Euro is weak compared to the US dollar, that increases exports because foreign exports and trade balances are what balances your current account. At the end of the day, it’s a short-term game but the long game, the long horizon, is it’s 100% certain that every single fiat currency is debasing because that’s mathematics. And the relative level of debasing, well, that’s just the game that they play but they’re all the basing at different rates but they’re going lower because of the math of the total debt to total GDP debt spiral.

David Collum (00:25:08):
They’re also not including the fact that we’re going to have a tough time repeating China’s influence on the last 40 years. So, China’s influence has been hugely deflationary and so, we went from Maoist China, where these guys were basically half starving to death and growing rice, walking around barefoot, to generating everything the world consumes and doing so remarkably cheaply. One could argue, strategically, knowing that they’re happy to not make a fortune because they will become a dominant superpower by just patiently selling us stuff for 40 years. These games, this is like squeezing juice out of an orange, at some point, no amount of pressure gets more. I think we could have a crack up in the bond market without… the pundits will come up with an explanation but again, back to the idea, it’s an emergent system, it could just be because the wrong vibration.

Greg Foss (00:26:02):
It’s highly likely, to 99 percentile, in my opinion, that that’s where it comes from. When you’re in a debt spiral, debt doesn’t mature, it needs to roll over. And when you have a failed bond auction, that’s when people look around and say, wait a minute, maybe I’m the guy holding this hot potato. Maybe I’m the fool at the table. And everyone pulls back- [crosstalk 00:26:26]

David Collum (00:26:26):
And maybe I have 100 billion in leverage, I got to get- [crosstalk 00:26:29]

Greg Foss (00:26:29):
Oh, listen, and then what do they do, Dave? This is what happens, because the system is so leveraged, you get a tap on the shoulder from your margin clerk and you’re like, hey Foss, we’re getting redeemed, we’re getting redeemed, we need to deliver cash to our clients tomorrow. And I don’t care what you sell, sell something because I need cash in three days to settle this straight and that’s the worst situation you’ve ever been in there in your life because you’re like, I thought my portfolio was hedged but the only thing I can really sell is the stuff that I’m long because I thought I was right about it. But I can’t sell the stuff that I’m short, I can’t buy it in. So, this is the crazy part of how a leveraged system works. And unless you’ve ever sat in that chair and actually manage risk on a real life basis, where your margin clerk says, Foss sir, You’re done.

Greg Foss (00:27:22):
You’ve had a great year but God darn it, our clients are redeeming us because the world is unraveling and sometimes we get redeemed. You know what the worst part is? You get redeemed when you’re doing really well because your clients actually want to cash out of the stuff they’re doing well in. And so, you get penalized by the whole system because you’re doing well. And all of a sudden, this leverage unwind hits contagion levels and it always, always, always starts in the credit markets and the equity guys still have the glue bag on and they’re still sniffing that Kramer of opium, that, oh, don’t sell on a Tuesday because Tuesdays are really bad days to sell. Stop it, Jim Kramer, you are giving such bad advice and you have no idea how credit markets work. It is so, so scary when I sit back, having managed risk for 30 years, listening to pundits that actually have no idea how capital markets work.

Preston Pysh (00:28:20):
David, here’s my question for you. I think we pretty much see the world through a very similar lens here, all three of us. I think the thing that we maybe don’t… I don’t even know if we disagree but, I guess, it goes back to my original comment with Lacey is, I guess, what blossoms out of this meltdown? Because everything that we’re seeing leads to this event, we arrive at the event, it’s a total catastrophe for anybody who is lending money. If you’re lending out dollars and you’re going to get paid in dollars in the future, it’s going to be one sorry store of value for you, to get the repayment in 30 years back, at what you were lending out.

Preston Pysh (00:29:01):
So, when we’re talking about the size of this market, it’s hundreds of trillions of dollars. Total impairment, if a new system is then stood up on the other side of this event horizon, whatever that system is. Greg and I obviously have our bias as to what we think that is but for you and you’re looking at this, what is that thing that’s going to be re-stood up? Is it going to be the IMF getting everybody in the room and going back on a Bretton Woods kind of scenario, where everyone’s just going to trust central bankers and the gold that they have and then, ride some currency on top of that? I don’t want to say my opinion but I think you can tell by the way I’m framing it what my opinion is. Let’s hear what you think.

David Collum (00:29:45):
First and foremost, 2020 was eye opening for me because I thought central banks, as naughty as they look, if you follow my Twitter feed, I don’t think a day goes by that I don’t tag the federal reserve with some insulting tweet about what a bunch of idiots they are. Although, I would say it in this backhanded way, where I always say things like, no matter how aggressively I changed them, you keep meeting my expectations. I like phrases like that. They’re full of ambiguity but GameStop will soar and I’ll thank the Fed and say, this could never happen without your help. And what makes investing so difficult now is that, what 2020 taught me was that, the sense that many of us, I think, had that there was some sort of guard rail out there is now gone. So, as much as they dumped a ton of money in an ’08, ’09, which by the way, for the record, I called it in writing in 2002. I wrote about a five page email to a friend of mine at Goldman.

David Collum (00:30:47):
And I said, the banking system is going to go down and I explained how it was going to go down. And I got absolutely everything right, with one exception of that, JP Morgan’s derivatives book was going to bring it down and I was wrong about that. And people say, oh, that’s too early and I go, when you make that kind of a call, you be five years early, you’re still dead right. When you call the collapse… you want to call a hiccup in the equity market, you got to be on time. When you say the entire banking system’s going to go down the tubes, you can be early. So, what makes this so hard is that, you’re somehow battling an investment strategy where you have to hedge against what could be an awful inflation or a horrific deflation. And because you guys can’t rule out the possibility that we get this collapse of debt and that represents a massive deflationary collapse. And then, all of a sudden, the things that you can own and wrap your arms around become really important.

David Collum (00:31:40):
And then the question that you guys have strong opinions on, and I can’t refute, is you think Bitcoin will still be standing. I think gold will still be standing. I think some kinds of real estate will still be standing but I think meme stocks are gone, tech stocks are gone. I did an analysis last year, the fangs, the valuations on the fangs are completely insane. You absolutely positively have to tell this miraculous story to put the valuations on these big tech stocks because Amazon is Sears Roebuck, that’s all it is. It’s faster and bigger but it’s just Sears Roebuck. Facebook is a billboard company, except for the fact that I think they get a lot of money from the Pentagon and sources like that.

David Collum (00:32:25):
I never looked at Netflix, I thought that it was 60,000 movies, I could just pick one and watch any movie I wanted, it’s like 100 upper tier channels on your setup box, it’s nothing. And I quickly ran out of movies that I wanted to watch, I couldn’t even watch old classics, I couldn’t find them. Here’s a little map for you, Netflix could cut to 1% of its current value, 1% and it would still be an overvalued company that loses money. How do you value a company but no matter what price it is, it’s overvalued?

Preston Pysh (00:32:56):
You’re naming the ones that obviously have just insane market caps.

David Collum (00:32:59):
Well, this is a huge part of the market cap though.

Preston Pysh (00:33:01):
It’s a significant portion of the S&P.

David Collum (00:33:05):
All the games, it’s all the games for the last 10 years, are all bedded in about 10 of these stocks. So, they go down, we’ve got a problem.

Preston Pysh (00:33:14):
I think you got to look at the entire equity market as being equally as nuts, if you normalize rates. So, when I think about discount rates on equities, I’m thinking, well, what’s the 10 year treasury? Well, we just all talked about, when we started the show, that Stan thinks it’s 3.5, we think it’s higher than that. And so, let’s just take a number, let’s just say it’s 7% after it normalizes. And then, you stick historically about 200 basis points of a premium on top of that for a discount rate in the equity markets, now we’re talking about a 9% discount rate for equities, public equities. Today, where I think we’re about a 100 basis points above the 10 year treasury at 1.5, so we’re at a 2.5 current valuation. So, if we move from a 2. 5 to a 9% valuation in the equity market, everything- [crosstalk 00:34:03]

David Collum (00:34:03):
That’s a problem.

Preston Pysh (00:34:04):
Everything melts down and we’re not talking 30% meltdown, we’re talking 78%- [crosstalk 00:34:13]

David Collum (00:34:13):
Massive.

Preston Pysh (00:34:14):
Yeah, massive markdown, if we go to those kinds of discount rates. So, I hear you, I agree with you. I think the whole market’s looking at it and saying, well, their top line just keeps on going to the moon, so I guess that’s the thing I need to own and it’s insane. But so are the value picks, the “value picks” that are trading at a 3% discount rate, when we all think that the real rates are way, way higher.

Greg Foss (00:34:42):
You’re nailing it, you guys both nailed it. Remember though, that the valuation of a perpetuity is one over R minus G, okay? All equity guys play with is this, the G component. If you have a big enough G, you can rationalize any discount rates.

Preston Pysh (00:35:01):
This is so true.

Greg Foss (00:35:02):
It’s true. So, it’s one over R minus G is the valuation of a perpetuity. A play with the discount rate, oh, I’m telling you Dave collum, that Netflix is growing at 12% and that you can put a 15% R on that and still discount it at one over three, which is a 33 times multiple. I want to take it one step further. Don’t even look at equities guys, they’re a derivative of the credit markets, if the credit markets aren’t working properly, equities get destroyed time and time again. You need to look at the credit markets for early warning systems in capital markets as a whole. And all of this is true. You said Sears Roebuck, so Amazon is a Sears Roebuck, Sears Roebuck used to be a Dow 30 stock and it’s bankrupt. Kodak used to be in the Dow 30, it’s bankrupt. It founded digital photography but decided, according to their board, that there was no future in digital. Now Apple rules the digital photography landscape.

Greg Foss (00:36:03):
Point be told, equities regularly go out of business, credit will be the early warning system of that and that’s why you need to look to the equity markets, that you will see the stresses in the credit markets. So, Dave, I mean, we have maybe 15 or 20 minutes left, let’s get right to the crux of the matter. You love gold, we are on the same page, 100% because of fiat Ponzi, all that Preston and I would love to do, would be to convince you that there’s no way that you can be 100% certain that Bitcoin doesn’t have value. And all I would like to do is convince you to move a portion of your store value and it shouldn’t come out your gold portfolio, it perhaps should come up out of other store of value portfolios like equity, certainly like bonds, that you need to own a portion of your portfolio in Bitcoin because if you are not long Bitcoin, you’re exposed to an incredible short position on what could be the best performance asset of this century.

Greg Foss (00:37:05):
And that’s all I’m saying because having traded risk for 30 years, I don’t believe I’ve ever seen a better asymmetric return opportunity in mine life than Bitcoin. And it’s not because I’m 100% certain, it’s only because I play the probabilities, that it can go to a price that could blow the doors off of any other return asset out there. And I think that’s what Preston and I are saying, we’re on the same page, you said it, 99.9%. I’m not sure if you own an allocation to Bitcoin yet but I would love to convince you that if you own zero, you’re actually taking more risks than if you own 2 two to 3% of your portfolio in Bitcoin. Because if it goes to where it could go, you had 99% of your investment theory correct but you didn’t act on the best performing horse in the race, in our opinion. And I don’t want to talk for Preston but in my opinion, it could be the best performing.

Preston Pysh (00:38:01):
My question, David, is just, what are some of your reservations? Because there’s people listening to this that have a very similar opinion as you and they look at Bitcoin and they’re concerned about it. So, if you have some questions or things that you think just don’t add up or that you think are confusing or whatever, please.

David Collum (00:38:19):
First and foremost, serious investors pass on a lot of opportunities. I’ve had people telling me this and it sounds really good and I go, I’m still going to pass on it. And so, the ability to pass on opportunities, that’s a critical ingredient of investing. So, it doesn’t trouble me to pass on an opportunity, sometimes it hurts. What are my reservations? Well, whenever I do a Bitcoin podcast, I do a shocking number for a guy who doesn’t know his rear end from his hands about Bitcoin, reservations are multifold. One is, for example, and you guys can address these various things. One is, I still think you’re going to have to do battle with the sovereign states. And my political views are such that, I think that we’re seeing a massive rise in authoritarianism. And so, while Bitcoin, in my opinion, has made great progress towards your goal, I also see the forces of evil amassing.

David Collum (00:39:16):
And forces of evil, it’s clouds over Mordor or whatever metaphor you want to use. I see more and more evidence every day that the state capital S will do everything to squash their opponent like a bug. And so, then the question comes down to, does Bitcoin survive that? I know there’s various arguments about where it’s distributed, I get all those arguments. But the fact of the matter is, Bitcoin does have a problem, if the collective Western world says, we’re going to squash these guys. Is not to say you’re going to lose but it is to say that you’re going to be in the battle of the bastards, Game of Thrones style. It’s going to be brawl.

Preston Pysh (00:39:55):
What do you think about the Dalio’s and the Stan Druckenmiller who are starting to take positions in this, other politicians starting to take positions in it and now they have a vested interest in its success?

David Collum (00:40:08):
Good question. Superficially, it seems like great news. But what I see in these guys is, I see weak hands. I see different big Bitcoin hodlers, I see guys like you who look like you’ll survive anything, you’re going down with the Titanic. It could be a disaster, you guys are going to be waving Bitcoin flags from the bottom of the ocean. Paul Tudor Jones apparently told Druckenmiller that, he said, look, 85% of the hodlers didn’t sell during that sell off and that caught Druckenmiller’s attention. So, that’s the story there. But what I know is that, there are a bunch of guys out there with humongous sums of money, humongous amounts of leverage and will buy anything, anything that’s going up in price. And if Bitcoin ceases to be fun for these crazies, who I think are reckless, they’re way worse than the hodlers, these guys will head for the hills.

David Collum (00:41:05):
Not only if it stops going up. They need returns or they’re out. And I don’t know, I personally don’t know how much they’re influencing the market and what a wholesale sell off by hedge funds with attention spans of gnats would do. Would it destroy Bitcoin? I don’t know. It would certainly knock it down some serious notches. I’m equally annoyed when I go on Twitter and people are boasting about Bitcoin cut in half and I go, if you’ve been following Bitcoin, that’s all in a day’s work. You guys have put up with so many bumps and smashes and blacked eyes, you guys are Conor McGregor’s of the investing world. So, when Bitcoin going down 60, 70, 80%, then we’ll find out who’s got chutzpah but a factor of 50%, that is… Here’s the definition of a correction. A correction is when you not only correct price significantly but that price change corrects investors attitudes.

David Collum (00:42:05):
Now let’s go to equities for a moment. Was the March, 2020, sell off a correction? The answer’s not even close. What attitudes got changed? Two months later they were back even, so no attitude. The attitude that would change couldn’t possibly change, the message is, just hang on, just buy more, do whatever you got to do. Was ’08, ’09, a correction? I would argue no, because the federal reserve came in and saved the day and investors, again, investors attitudes are, we’re bulletproof if we’re just patiently. So, by that model, you have to go but you go back to ’87, no, not even close, ’87 was the worst example of a correction. The shot across the bow that showed people, you just weather the storm, period, no matter what. Brainless investing. So, the last correction was ’67 to ’81, that one ripped the souls out of equity investors. The last correction in the bond market was so many decades ago that no one can remember, we’ve talked about that for the first 20 minutes.

David Collum (00:43:06):
Everyone thinks bonds just can’t go down in price and someday that will turn out to be so wrong and so painful. So, the equity investors haven’t seen pain since the late 70s, the bond investors haven’t seen paints as the early 80s. Gold investors are constantly started going up and down like a yo-yo, so they know pain, they know some pain, they can get pretty demoralized. And hodlers are going to have to learn to get demoralized and not sell, so that worries me. Then, me at a personal level, there’s still too many wild west stories about individuals getting pounded by some exchange and the guy’s taking off to Timbuktu with the money. And I know that drives you guys nuts but they’re still out there, because it’s such a wild west, those stories are going to keep surfacing. But I would just call you guys up or call Marty [inaudible 00:44:00] and say, how do I do this safely? And that wouldn’t stop me.

David Collum (00:44:03):
The second thing is, I hit the weak hands. I think the big monies weak hands, that’s key. Right now, I think those guys who are in big, could go out big, fast. The sovereign state. Then there’s little questions like the tether story, if you guys could explain the tether story. I, for example, look at the tether store and it looks like a compellingly problematic thing but I personally, I’m sure if I spent hours on Google, I could answer it but I can’t tell how big a problem a tether collapse would be for the cryptos. I don’t feel any better because some guy who’s got laser eyes coming out of his Twitter feed tells me, I know that you guys are having fun, I was going to put silver dollars on my eyes.

David Collum (00:44:45):
I know you guys are just having fun but the fact of the matter is, someone can assure me that if tether goes down, the tubes will be okay and I’m going to go, well, I think at some point we’re probably going to find out but it’s from what I’m hearing. Might be my buying opportunity. If I’m thinking about Bitcoin, tether goes down the tubes, by the way, I started buying energy again in the fall when they took Exxon out of the Dow. And then, I figured out the Dow at 2% energy, and I go… I’ve been thinking very hard about what’s going to fuel the world and it’s not going to be wind turbines, it’s not going to be biomass, it’s not going to be solar panels. I’ve been paying a lot of attention to how to play energy for the next 20 or 30 years. This Dow, this 30 year treasury model. If I’m in a coma for 30 and I wake up, will energy do well? I’m trying to find the ones that I’d say, they will do well.

Preston Pysh (00:45:37):
The large Dalio type entities entering the space. The thing that I think about, as far as the really large holders of Bitcoin, they’re people that were actually involved prior to 2015 and just have massive returns. And so, that group they’re not selling, if anything, it’s become- [crosstalk 00:45:57].

David Collum (00:45:57):
Rock solid. I get that.

Preston Pysh (00:45:59):
If you’re going to step into the market today, I mean the Winklevoss twins are a great example…

Preston Pysh (00:46:03):
… you’re going to step into the market today. I mean, the Winklevoss twins are a great example of people who have a billion plus position in Bitcoin. And for somebody to come along today and take a position in Bitcoin. And think that they’re going to move it around in a negative way. It’s going to really take a lot. And it’s probably going to have to be with borrowed coins. If they’re going to try to not move the market price by owning [crosstalk 00:46:27]-

David Collum (00:46:27):
Let me make a counter to that. I would argue that Bitcoin, in some sense, could trade like a new issue, like an IPO. Where the float’s really small.

Preston Pysh (00:46:37):
Exactly!

David Collum (00:46:38):
So the 85% who are solid holders, that’s like a lockout period. Except for, it’s not a lockout. But those guys are not selling.

Preston Pysh (00:46:45):
Exactly!

David Collum (00:46:46):
I get that. But the price is determined at the margin. And it’s got a pretty small float up there. Is that right Greg, or no? Why don’t you guys tell me?

Preston Pysh (00:46:54):
I think that, I forget what the number was that Michael Sailor told me. His first buy was a couple 100 million dollars. And he inserted that into the market without even moving the price. And he did it in, what I want to say was a week without-

David Collum (00:47:09):
Right.

Preston Pysh (00:47:09):
… moving the market price. So I think that the liquidity in the space is actually fairly significant in order to… I mean, his last buy he did, I think was half a billion. And he put it into the market. And I don’t even think you saw the price… I think price-

Greg Foss (00:47:23):
Price.

Preston Pysh (00:47:23):
… was actually going down-

Greg Foss (00:47:25):
Preston.

Preston Pysh (00:47:25):
… while he inserted half a billion.

Greg Foss (00:47:28):
Yeah, the whole market though, it reached our trillion dollar market cap. You need to understand how large that is, in terms of financial assets out there.

Preston Pysh (00:47:34):
Yeah.

Greg Foss (00:47:35):
It would have been the top eight companies, in the total global market caps of equities anywhere. Not enterprise value, but equity. Dave, I love what you’re saying. And I’m not going to offend you. What I want to do is-

David Collum (00:47:47):
You can’t offend me.

Greg Foss (00:47:49):
How about this? Do you have a Bitcoin wallet then? Have you gone to the first principle?

David Collum (00:47:52):
No, I got nothing.

Greg Foss (00:47:53):
Okay. Do me a favor. And if you don’t have a Bitcoin wallet in your possession, by the end of August. I am driving over the border, and I’m coming down to Cornell. And I’m putting a Bitcoin wallet on your phone. And then I’m going to drive back to Canada. And I’m going to send you value within 10 minutes. And you’re going to be like, “What!”

David Collum (00:48:14):
Why would I put one on, when you make that offer? So I’m going to wait until August and have you come down and do it?

Greg Foss (00:48:21):
Well, I’ll do that too. But listen, this is the coolest thing. I’ve sent value across the world that has settled in 10 minutes. I’ve sent money to New Zealand, indigenous tribes, that have settled in 10 minutes.

Preston Pysh (00:48:34):
Dave, I could have you download an app right now. You could hold up the QR code over this video chat-

Greg Foss (00:48:39):
Yes.

Preston Pysh (00:48:40):
… we are having right, I’ve done this on the show.

Greg Foss (00:48:41):
Yes.

Preston Pysh (00:48:41):
And I could scan it over this video chat that we’re having. And I could send it to you instantly. Bitcoin instantly.

Greg Foss (00:48:49):
It’s so beautiful guys. And here’s what I know as an engineer and conservation of energy principle, and all that. Dave, no disrespect. You are overthinking the risk. They are all relative risk factors. But in the reality, think of what’s happening. If I could convince you to put 3% of your portfolio into Bitcoin. And you’re worried about all this stuff tether. Can you imagine what would happen to the rest of your portfolio, to the other 97%?

Preston Pysh (00:49:19):
I think-

David Collum (00:49:20):
I can’t imagine, actually.

Greg Foss (00:49:21):
That’s what you need to, and this is like a hedge against all that. That’s all I’m saying.

Preston Pysh (00:49:27):
I think what, Greg’s the way he’s framing it is. He saying it’s an expected value problem. So he’s looking at what could be the payout. Let’s just make up whatever that number is. If 10 trillion sure. 50 trillion sure. Whatever that payout would be at the terminal value creation that the network could ever be used for it. Let’s just put that number out there. And then you’d look at the price that it’s at today. Where are we at Greg? About a half a trillion or somewhere around there?

Greg Foss (00:49:54):
600 billion. Let’s call it. Yeah.

Preston Pysh (00:49:56):
Yeah. So when we’re looking at that potential payoff of where that could go. And you’re thinking about it as an expected value problem. You’re then saying, “All right, I have to have some type of exposure, even if it’s 0.01% of my portfolio, based off of this potential upside versus downside.”

David Collum (00:50:17):
That I don’t agree with. And the reason I don’t agree with is because, I’m not interested in investment that’s not life-changing, in some ways. And sell, for example, it’s the equivalent of saying, “Well, you should at least get a $10,000 life insurance policy.” I go, “Why bother?” So the point is for me to go into Bitcoin, for me to go into it and care enough about it, and pay attention to it. And do what I got to do. It has to be, first of all, I push every single major decision I ever make through one filter. And the filter is if it goes very badly, will I forgive myself? Now 3%. I could forgive myself. But for example, I would put as high a probability on a massive run in silver, as I would on a Bitcoin run.

Preston Pysh (00:51:04):
So let’s pull the thread on that. So when you look at the market cap of silver today. And what it could appreciate into, let’s say that’s a part of the new currency solution, after we go through this [crosstalk 00:51:16]-

David Collum (00:51:15):
I’m not worried about it as a currency. I’m actually thinking about it as flat out a resource, it’s going to become hard to get.

Preston Pysh (00:51:22):
You think the demand for that is going to increase by that much? Because of the market cap is already fairly mature.

David Collum (00:51:29):
I think the demand is going to increase. I think the supply is just getting harder and harder. And there’s some super strong handedness in that world. There is silver being taken off the normal market, and put in the investment market. It looks to me like it is ultra strong hand sort of like your ultra hurdlers. And so I think the above ground silver supplies are getting tight. I think the investment world could push it to the point where all of a sudden they get the silver you need for your iPhones, and your computers, and your solar panels, and you name it. Silver is in every single electronic device, every last one. So if there’s a tightness in the silver market, they are going to bid it to where ever they got to bid it to.

Greg Foss (00:52:14):
Beautiful! Dave and only use gold because I know the approximate supply of gold is 2% per annum. But let’s play a game. If the price of gold doubled overnight. Just doubled for some reason. You think the supply would be capped at 2% per annum, or do you think that the market would figure out a way of getting you more than 2% per annum of gold, if the price double?

David Collum (00:52:34):
Gold is different than silver?

Greg Foss (00:52:36):
How so, sir?

David Collum (00:52:38):
Gold, there are mass in sovereign supplies. And gold is not consumed. The amount of Gold that’s in mine is still here. Silver is almost impossible to recycle, with the one exception that’s no longer relevant. And that’s photography. So when photography was a big consumer of silver-

Greg Foss (00:52:55):
Right.

David Collum (00:52:55):
… there are phenomenal recovery rates. But it was also being used in electronics. And so people overplay the photography story.

Greg Foss (00:53:04):
Can you own Bitcoin and silver?

David Collum (00:53:07):
I could [crosstalk 00:53:08]-

Greg Foss (00:53:07):
How about this. Look, so Preston wanted to play a continuous distribution. I’m going to play a binary distribution with you. Where I think that there’s a significant chance that Bitcoin achieves more than $2 million for Bitcoin in the lifespan of my children. Maybe not of me, but of my children, okay? With $2 million of Bitcoin, would you grant me a 10% chance that that could come true, if I gave you a 90% chance it was worth zero? And most people would. They’d say, “Yeah, Foss, you’re giving me a 90% chances were zero.”

David Collum (00:53:43):
Right!

Greg Foss (00:53:44):
If I give you a chance, it’s worth more than 2 million bucks over a period of time.

David Collum (00:53:48):
Yeah. I just don’t know how to put those numbers on it.

Greg Foss (00:53:52):
I will tell you how-

David Collum (00:53:52):
That’s the problem.

Greg Foss (00:53:53):
… very simply-

David Collum (00:53:53):
Okay, go for it.

Greg Foss (00:53:54):
… the total global assets in the world is $900 trillion, okay?

David Collum (00:53:58):
Right.

Greg Foss (00:53:58):
If Bitcoin becomes the reserve asset of the world, because energy is priced in Bitcoin. Which I think is a very-

David Collum (00:54:06):
Right.

Greg Foss (00:54:06):
… likely outcome.

David Collum (00:54:08):
Right.

Greg Foss (00:54:08):
Is it possible that of that 900 trillion of assets in the world, bitcoin captures 5% of 900 trillion? So 5% of 900 trillion-

David Collum (00:54:18):
Right.

Greg Foss (00:54:18):
… is 45 trillion. 45 trillion divided by 21 million is over 2 million bucks a Bitcoin.

David Collum (00:54:24):
Mm-hmm (affirmative).

Greg Foss (00:54:25):
So on a probability basis, if it can go to $2 million a Bitcoin. And I give you a 10% chance, that happens. If you give me-

David Collum (00:54:33):
Right.

Greg Foss (00:54:33):
… a 90% chance, the downside is zero. The expected value of that [crosstalk 00:54:38] binary outcome, is over $200,000 in today’s dollars of Bitcoin. And it’s trading at 30. You got to buy this sir. You have to buy it with your eyes closed. And then say, “I own 3% of this in my portfolio. And I’m not going to worry about that 3%. I’m going to focus on the other 97%.” It is the traditional, “I’ll play gold-

David Collum (00:54:59):
Right.

Greg Foss (00:54:59):
… I’ll play silver, I’ll play equities. I’ll play Netflix, I’ll play bonds.” But everyone overthinks it. That’s all I’m saying. Everybody overthinks it.

Preston Pysh (00:55:08):
Dave, correct me if I’m wrong. But the way he responded to the way I framed it. You were saying that for the position size that you suspect you would take, the amount of effort that you have to expand in order to research and understand, and get yourself comfortable with taking that small position size isn’t worth it.

David Collum (00:55:25):
Right.

Preston Pysh (00:55:25):
So it’s a sizing thing that’s limiting you today. So let’s say the price goes berserk, and we’re over $150,000. And you’re looking at this in the probability of it doing what Greg just described. Appears to be going higher. Is that something that you would entertain in the future, as far as taking it more seriously?

David Collum (00:55:45):
Probably not. So I looked at Bitcoin at 10. I looked at Bitcoin at 60. There is a certain inertia that sets in when it’s up at 60,000.

Greg Foss (00:55:56):
Still a rounding error at 60,000. Still a rounding error when it’s going to 2 million, sir.

David Collum (00:56:02):
The final thing I wanted to mention was, and I kept trying to think of what it was. Is that if you read any book on manias and panics. And I’m not saying this is a maniac, because I don’t know, right? This is a problem. But you read any book on manias and panics. And you write out a checklist. Bitcoin, you can check almost every box. So you got, the laser eyed crazies, right?

Greg Foss (00:56:24):
Yeah.

David Collum (00:56:24):
Which I don’t blame you guys for, but they’re out there. And you got the retail hurdlers saying, “Look, you can’t lose it. Can’t go down. If you don’t own Bitcoin, you’re an idiot.” I chat with hurdlers who would say, “Yeah, there’s serious risk here.” I get those guys. They do the math. You guys have done the math. There is an intangible quality, albeit with a good story about the blockchain. Albeit with a good story about just being distributed. I get all that.

David Collum (00:56:49):
But for example, you both have to recall how compelling the.com story was. And how the world was changing so profoundly. Everyone and this brother was buying dot.coms. And the same was true in 29. The same was true in Japan and 89. I’m not saying it’s a mania. But you get to check all the boxes for mania. That is a disturbing thing. I do understand qualitative [inaudible 00:57:19]. I’m not sure I understand quantitatively. But I understand qualitatively because, when I was looking at it at 10. It was just this goofy thing. I know I was like-

Greg Foss (00:57:30):
10 or 10,000 was it actually 10 [crosstalk 00:57:32] bucks?

David Collum (00:57:32):
10 bucks. People turned down Amazon at 12. I have people tell me, so I was buying gold between 270 and 290. Now it’s not the Zigger bagger that that Bitcoin is. But it was still a real good buy. And they say, “Well, of course you’re buying it then, it was so cheap.” And I got, “There was about five of us who thought it was cheap back then. And the rest of them thought it was stupid.” And so what I can tell you is when it was 10, it was ridiculous. When it was 60, it was still pseudo ridiculous. And it’s getting less ridiculous. And by the time it really looked un-ridiculous. It’s going to be fair priced. So it some sense, I agree that it’s getting less risky, in the sense that it’s becoming more normal, right? I’ll give you that.

Preston Pysh (00:58:19):
Okay.

David Collum (00:58:19):
When it was 10, it was absurdity.

Preston Pysh (00:58:23):
When you look at the network effect though, Dave. So here we are compared to the price when it was $10. And you’d look at the number of participants that were-

David Collum (00:58:30):
I get the network effect.

Preston Pysh (00:58:31):
… on the network, right? The amount of participants that we’re seeing that are joining the network, that are using it for utility. I really think one of the biggest things that I see people misunderstand today. Especially, with the El Salvador announcement. With it being legal tender down in El Salvador. Is Bitcoins being used, not for necessarily a store of value. You got all these people in the US they’re buying it, they’re holding it. Because they want the price to go higher. Down there, they’re using it as a backend rail for immediate clearance. So that if you were a vendor and I was coming to you and I said, “Hey, I want to pay you $10.” You’re saying, “Yes, I want to receive the $10.” And I send it to you. And you look in your wallet. And there’s $10 in your digital wallet. And I sent you $10 from my digital wallet. A person that would see that would say, “Well, that was a dollar to dollar transaction.” But it wasn’t. It was a dollar to Bitcoin lightning network, to dollar transaction [crosstalk 00:59:25].

David Collum (00:59:27):
At Salvador though, is it a dollar bill would buy you stuff too.

Preston Pysh (00:59:30):
This is what is happening [crosstalk 00:59:32] in El Salvador right now. Is a dollar to Bitcoin, to dollar transaction. Where the two users don’t even know that they’re using Bitcoin to immediately settle with each other. And they’re using it as a network infrastructure. And that utility, when I’m thinking about the price today, and you’re thinking about the utility. Just like you would use metal, like you were describing silver. Which I thought was an amazing point that you had there. Where the stock of silver is not like the stock of gold. Where it’s almost like a trading itself. Because of the utility that’s associated with using silver. In my opinion, you have the same thing happening in the Bitcoin space. Where in a digital space, you are actually creating utility for the rails, in order to transact and send payments, fee ought to fee ought with Bitcoin in between. Because you can capture immediate clearance. The world has never had that before. Immediate clearance through a transactional [crosstalk 01:00:34]-

David Collum (01:00:34):
So, one of your-

Preston Pysh (01:00:34):
… to transmit value.

David Collum (01:00:37):
One of your biggest competitors are our other cryptos.

Preston Pysh (01:00:39):
Mm-hmm (affirmative).

David Collum (01:00:41):
And I know you’ve got the jumpstart on Bitcoin. I get the network effect. By the way, I’ve been thinking a lot about networking effects. And I realized networking effects are the modern day monopoly. But for example, from an outsider looking in. I have no way to know whether Ethereum is going to blow Bitcoin right out of the game. I have no way of knowing.

Preston Pysh (01:01:02):
When we think about the network effects, of what I suspect is going to replace this fee ought, disaster that we talked about for the first 45 minutes of the conversation. I think you’re moving from something that was absolute centralization, to something that is absolute decentralization. So when we look at all these protocols. And there’s 1000s of them that are out there. For me, what it really comes down to is which one of these protocols is really, truly decentralized? When I look at Ethereum. That thing is growing at a terabyte a month, or a terabyte every two months. And I might be off a little bit on the rate at which that protocol is expanding. All the things, all those transactions, all the smart contracts. All the swoopty stuff that it’s trying to do on the base layer. Well guess what? That has tremendous amounts of memory associated with it.

Preston Pysh (01:02:03):
I run a full node, which is different than a mining rig. I don’t know how much you know about basically the infrastructure of it. So you’ve got mining and then you’ve got full nodes. The full node operators like myself, cost me, the electrical expense is so small. I don’t even know what it is. Because it’s so small. I run a full node. I run the consensus, just like Marty Ben has his full note. He runs his consensus of every transaction that ever takes place. We are the ones, people like Marty, myself and others that run full nodes. That are dictating and saying, this is the true code that represents Bitcoin. The reason we’re able to do that. And the reason why this is so important. And why the Bitcoin block space is so small, is because anybody can go on the Amazon. Buy a raspberry PI and start running this code at such a cheap cost, a 100, $200. You can use a laptop that you have just sitting there from five years ago. And you can run the Bitcoin full node software on it. This is what keeps Bitcoin decentralized.

Preston Pysh (01:03:06):
Back in 2017, we had minors that tried to change the code of Bitcoin, to change the incentive structure. To benefit them by making the block size larger. The full node operator said, “That’s not good for the mass participants. The majority of participants of the network.” The software got fork, you created this thing called Bitcoin Cash. It’s down like 95%, and maybe more than that against the real code that currently exists for Bitcoin. And what that represented back in 2017 is full node operators dictate this decentralized code base that is immutable, can’t be changed. And so if somebody else tries to do it in the future. The full node operators are going to stand up. And they’re not going to accept it. Because it’s in our best interest to not accepted.

David Collum (01:03:56):
How many are there?

Preston Pysh (01:03:58):
So the ones that we know that are on the network is in excess of 10,000 full node operators, decentralized all over the globe.

David Collum (01:04:07):
What would it take in terms of a, let’s use a modern term an insurrection amongst the full node operators to somehow screw the pooch in there? What would it take to mess with that?

Preston Pysh (01:04:19):
So when you go into a soft fork, these updates, so we just did a Taproot update. Which has not been fully integrated into the code base, but will be here shortly. That’s a soft fork. I can choose to run it, or I can choose not to run it. And the soft fork means that it’s interoperable with previous versions of the software. We need to go into a hard fork. Then anybody who forks off of that has to agree with the new code base. And then they got to somehow convince other participants that go on that version.

David Collum (01:04:54):
Can you imagine a scenario this causes chaos? Where it causes a bit of a mess?

Preston Pysh (01:05:01):
Well, so let’s say that it does, let’s just assume-

David Collum (01:05:06):
Okay.

Preston Pysh (01:05:06):
… that that could happen. The full node operators can revert back to the previous baseline of the code. And everyone should then using that. See that used to be my concern when I first came into this is like, what if there’s a bug in the code? And what it causes the whole system, the meltdown and crash. And then, the price goes to ‘zero.’

David Collum (01:05:27):
Right.

Preston Pysh (01:05:27):
But when you start to understand how the soft forks happen with the code base. And how the full node operators can agree that this is the code that we’re operating off of wool. And right now is a perfect example. Not everybody’s updated the Taproot, right? Like my full node, I have. So I’m ready-

David Collum (01:05:45):
Right.

Preston Pysh (01:05:45):
… to run that whenever it’s rolled out. But there’s people out there’s participants in the network that haven’t updated to that. And they continue to-

David Collum (01:05:53):
What’s the consequence?

Preston Pysh (01:05:54):
There’s no consequences, they just don’t get the benefits that are associated with the taproot upgrade for the node, in the consensus that they’re running all of the [crosstalk 01:06:02]-

David Collum (01:06:02):
What’s the benefits? Again. So it sounds like they’re running Windows 95, all of a sudden.

Preston Pysh (01:06:06):
Mm-hmm (affirmative).

David Collum (01:06:07):
And the question is, what’s the consequence?

Preston Pysh (01:06:11):
So let’s say I’m running a newer version of windows, than windows 95. There’s more capability that’s associated with the version that I’m running. But I can still send, and this is a really, there’re coders are going to probably cringe at some of these examples. But I can still send you an email to your Microsoft Outlook, and you’re still able to receive it. So that would be the transaction.

David Collum (01:06:34):
See, the windows analogy is a bad one.

Preston Pysh (01:06:36):
That’s right. It’s a very bad one.

David Collum (01:06:37):
Microsoft can screw up any software. I mean, yes, you have listeners who are not hurdlers. Are they all pretty much Hurdlers?

Preston Pysh (01:06:46):
No, I think so our show-

David Collum (01:06:48):
You pronounce it hurdler or hurdler?

Preston Pysh (01:06:49):
Hurdler.

David Collum (01:06:49):
I call it hurdler. See [crosstalk 01:06:51] to me, hurdler means you’re holding it.

Preston Pysh (01:06:53):
You’re pronunciation makes more sense. But I think most people in the community would call it a hurdler.

David Collum (01:06:58):
Well, I’m going to call you hurdler, just to annoy you. What book should I read? Give me a book. Give me a starter book.

Greg Foss (01:07:03):
Vijay.

Preston Pysh (01:07:04):
Yeah, V.J has a great book. Let me ask you this. What are you more interested in the technology side of it? Or are you more interested in?

David Collum (01:07:11):
Now, you’re trying to convince me. I need you to give me a book where I get to the end, I go, “Holy cow! I got to get me some Bitcoin.” What book? If you want to know why I think climate change is a hoax. I can give you a book.

Greg Foss (01:07:23):
Buddy, and I love it. Okay, here, I’m going to ask you to read my paper again. If you didn’t read it. But I put 40 pages of stuff down there, it’s my history. And I’ll say, Dave, I love you for doing the research. At least you’re willing to do the intellectual curiosity. To many of your compatriots don’t-

David Collum (01:07:43):
Stubbornly, ignorant.

Greg Foss (01:07:43):
No. But listen, the mark of a great risk manager is the ability to change direction. And realize they may have made a mistake. So let me flip the question on its ear. It seems like you have done enough research to buy Bitcoin at a price. You just don’t happen to think the current price properly reflects the potential reward.

David Collum (01:08:04):
It’s not the price. So I’ve done so many of these podcasts, now. The story has changed. And that’s not meant to be a criticism, because I think the purpose of Bitcoin has changed. So I think it started out as, you’re going to buy pizzas with it. And I think it’s turned into more of an asset class. So I don’t own treasuries to buy pizzas. And if I bought Bitcoin, it wouldn’t be so I could buy a pizza.

Greg Foss (01:08:30):
Fair enough.

David Collum (01:08:31):
So the original idea of Bitcoin is, I got to use it to buy pizzas. So as an asset class, then I can entertain why the heck it would be [crosstalk 01:08:43]-

Greg Foss (01:08:42):
Very simple. Dave, if I can point it out from 32 years of sitting in a risk chair. It is the perfect hedge to defeat certainty of debasing. It has no counterparty risk. It has 21 million fixed supply by math and code that cannot be overtaken, or 51%-

Greg Foss (01:09:03):
… cannot be overtaken or a 51% attack, everything that Preston was just referring to. It is the most perfect hard asset ever created by mankind, it’s portable, it’s transferable. You like gold but at the end of the day, what you hold gold for, in an Armageddon scenario, which I don’t want to occur but it could, you don’t want to be walking around with a gold bar, you don’t. You actually want to be walking around with a transferability of a- [crosstalk 01:09:31]

David Collum (01:09:31):
I get that part. But your pitch sounds disturbing gold-like, except for that part.

Greg Foss (01:09:36):
It is, it’s exactly. But this is just gold 2.0 and I’ll take it one size further. It’s not actually gold 2.0, it’s energy, it’s digital energy. This is the most perfect conservation of energy ever created by mankind and it has the best asymmetric return I’ve ever seen in a trade in my entire life. [crosstalk 01:09:55] Over to you Preston.

David Collum (01:09:56):
Laser beams just of your eyes, I can see the laser beam. I had this great idea, which I wish I had done when I was young and that is, buy some dirt cheap farmland and implant walnut trees.

Greg Foss (01:10:06):
This is all the same principle but it’s better because you can’t pick up your farmland and move. You can’t take those walls and go- [crosstalk 01:10:13].

David Collum (01:10:12):
You also can’t protect them against guys with chainsaws in the middle of the night.

Greg Foss (01:10:16):
Exactly. Kyle Bass has the same theory, except that he’s just missing it by a fraction, he’s too smart by a half.

David Collum (01:10:25):
Now, when you said it’s price, it’s not price though, so let’s go back to that point. It’s not price. Remember when I said, why I started dabbling in energy? Again, I owned energy from ’01 up to a little past where I should have and I did really well. And the reason I started dabbling in energy at the end of 2020 was because I saw certain signs that told me that this thing had very little downside left and a lot of upside. One of them was, the disbelief in alternative energies. Second was the low representation and the S&P being an all time record low, Exxon getting booted out of the Dow, these are all buy signals. Anyone that’s in Wall Street says, this is the buy signal.

Preston Pysh (01:11:05):
Dave, the biggest buy signal for me was when oil was -$45 a barrel.

David Collum (01:11:10):
Well, that was a problem. But that also show me that it’s an emergent system, that I shouldn’t trust at all and get the hell out and dodge and go to Montana. But I think what would get me to buy Bitcoin, more likely, would be a combination of price, which would come from what I still believe will be brawl, I think you guys haven’t yet squared off against the state.

Greg Foss (01:11:36):
But are you 100% certain that’s an actual outcome? What if that isn’t the outcome? [crosstalk 01:11:40]

David Collum (01:11:39):
No, I’m not, I’m not.

Preston Pysh (01:11:42):
I think we’re going through that right now, I think we’re going through it in a major way. So, China had half the mining processing power for the entire network. China banned it, 100% just stepped in banned Bitcoin. Forced all of those miners to turn off every one of their rigs and to get them out of the country. And they’re trying to- [crosstalk 01:12:06]

David Collum (01:12:06):
That’s, technically, is not bad news.

Preston Pysh (01:12:08):
So, for us, you’re right, this is good news.

David Collum (01:12:10):
You’re saying, banning mining. I think when the Western power says, it’s illegal… I think when the Western powers go at you, that’s when we’re going to be looking at the battlefield and say, okay, who won?

Greg Foss (01:12:22):
Let me play the optimist from Canada. There are smart people in politics that would realize, this is a chance to absolutely change the world. And right now it’s starting in Central America, we better learn Spanish if we don’t get our act together, okay, guys? Get a Western nation that’s in the G7 to embrace this and all of a sudden, you’ve totally changed of narrative of East versus West.

Preston Pysh (01:12:46):
The thing I would tell you, David, is I think that the game theory is maybe something that you’re discounting a little too much.

David Collum (01:12:53):
Yeah. Or I’m over counting.

Preston Pysh (01:12:56):
When I think of the game theory and how it’s played out, it starts out with the individual, that’s what we’ve seen, then it started moving to the corporations. A lot of people in the space had been predicting very early on that you’re going to see local governments start to do it, then you’re going to start to see state governments that are going to start doing these policies that are actually the opposite of banning and they’re actually going to try to start pulling it into their domestic regions. We’re seeing that play out right now, we’ve seen it… look at Miami, look at the person who’s the front runner in New York, look at what’s happening in Texas, look at what’s happening in Wyoming.

David Collum (01:13:28):
These are all locations that I don’t know what’s happening in all these locations. So, I know what happened in El Salvador.

Preston Pysh (01:13:36):
Now you’re having small nation states that are adopting it as legal tender. So, in order for Bitcoin to fail, in my opinion, you have to have all of them collectively ban it. If there’s even a couple nation states that allow it, I think that Bitcoin is going to continue to do quite well. I wanted to answer your question about the books. Two books that I think are really important reads, The Bitcoin Standard, in my opinion, is a great book, especially because it addresses things from a very economic lens. The other book that I would tell you, that a lot of people in the community don’t talk about but for me was really instrumental in my understanding, is this book right here, it’s called The Book of Satoshi by Phil Champagne. And what he did is, he went back through all of the forum posts when Satoshi was designing Bitcoin and these are all the things that he described.

Preston Pysh (01:14:33):
And a lot of your questions were questions that people were asking him or her, or whoever, 10 years ago, more than 10 years ago, in many cases, like how does the mining work? How does this work? And he or she goes through all of these questions in excruciating detail, describing the inner workings of what this person or entity created. And I’ve just found this book to be a gem of a resource, to really kind of understand the intentions behind what was created. You were also talking a little bit earlier about it being a store of value versus, there’s many different meanings as to what this thing is and what it was intended to be. What I would tell you is, the block times of 10 minute blocks posed this, initially when it was created, posed this issue of, I’m not going to go to a Starbucks and use this and then stand there for 10 to 20 minutes for the transaction to clear, as I’m waiting to leave the store, that will never amount to something that will compete with a currency. [crosstalk 01:15:43]

David Collum (01:15:43):
But that seems solvable, to me, anyway.

Preston Pysh (01:15:45):
And it is solvable and it’s already solved and it’s solved in a second layer. So, just like how the internet has the internet protocol at its base layer and then you have the TCP, Transmission Control Protocol, that rides on top of it, that breaks the data packets into smaller pieces- [crosstalk 01:16:00]

David Collum (01:15:59):
But I also have a credit card, that means I don’t have to have the money in my wallet. I presume that you could have intermediaries that act as the go-between that says, give them the coffee, we’ll cover it.

Preston Pysh (01:16:12):
And so, that’s what the layer two lightning network, which is already in place and already worked. So, the way I would describe it in a really easy understandable way is, on the base layer, on the base Bitcoin layer, it’s like Fedwire, it only takes 10 minutes to 20 minutes to clear, opposed to four to five hours to a day, when you use Fedwire to pay for your house. So, that’s on the base layer.

David Collum (01:16:35):
Right.

Preston Pysh (01:16:35):
Then on the second layer, which is the lightning network, this is like ACH, this is like your immediate clearing that takes place when you swipe your credit card with a store, only it is immediate. We know in the background, when you swipe your credit card, that there are these IOUs that then clear at a much slower pace but with the lightning network, it happens immediately.

David Collum (01:16:59):
Credit card companies basically are paid to take the short-term risk.

Preston Pysh (01:17:04):
What you’re finding is now… And so here, this goes to the game theory too. So, I want to say, it was nine months ago, there was some legal changes that, clearing houses can now use “cryptocurrencies,” Bitcoin lightning network, in order to use it for clearance rails. Well, why are they doing that? Well, they’re incentivized to use this because the first movers that are able to do this are dropping their expense structure, of this Rube Goldberg machine of clearing, down to nothing. So, now if I’m Visa and I’m using this in the backend rails, think about how much money I’m saving myself because I can get immediate clearance by using lightening channels. And so, there’s a company called Fold, they’ve got a visa card, so when I go out and buy something with my debit card, it’s just a visa debit card, I get Bitcoin, for every single transaction, as a reward, like an air mile. For every single transaction I conduct on a daily basis, today right now. And they’re using the lightning network.

David Collum (01:18:10):
So, who pays the money to Visa? Where does that money come from? Does that come from the vendor?

Preston Pysh (01:18:19):
It’s coming from the vendor today. Now, this company and when I say they’re using the lightning network, I probably need to be a little bit more clear with what I’m saying. So, they also have a rewards card system, so if I wanted to buy $100 gift card on Amazon, I can buy that $100 gift card with Bitcoin and then, they’re using those for some of the rewards that they’re then paying people that are using their Visa card and it’s kind of like this business model that kind of interconnects some of those things. But there’s people out there today, like myself, every single transaction that I conduct, I get Bitcoin rewards just like they’re air miles.

David Collum (01:18:55):
For Greg. If we have a correction, Collum style, an attitude adjusting correction, do you think Bitcoin follows that? Part way, gold certainly will.

Greg Foss (01:19:08):
Oh, 100%.

David Collum (01:19:09):
Do you think- [crosstalk 01:19:10]

Greg Foss (01:19:09):
Oh yes.

David Collum (01:19:10):
Okay.

Greg Foss (01:19:11):
It could be the buying opportunity of the century but I always go through life as saying, well, what if it doesn’t happen? And then you’re waiting for a pullback to 25,000 or 10,000, when in fact you think the upside is 2 million, you’re getting too fancy by a half. Here’s the real use model that I know, when Preston and I were in Miami, I met a bunch of kids from Guatemala that were starting a Bitcoin exchange in Guatemala, that want it to be based on the same concept they used in El Salvador. And we happened to be on stage about six hours before Jack Mallers got on stage and announced he had onboarded the country of El Salvador. And I’m talking about these young kids that are trying to do something in Guatemala because we think of things through the lens of privileged G7 country, in my case, and a privilege G1 country, in your case, about trying to time markets and everything.

Greg Foss (01:20:08):
When, if you took yourself to the other 180 fiat currencies in the world, that are not privileged like our own, they look at things through a much different lens. Argentina is a serial defaulter that’s defaulted three times in my lifetime. They think of things a whole lot differently [crosstalk 01:20:25]. These kids from Guatemala are going to change the world for Guatemala and it may not register in Canada and it certainly won’t register in the US, if it doesn’t register in Canada. But let me tell you, over time, they could be changing their entire susceptibility to fiat imperialism and that is a beautiful thing from my perspective. Look, I’ll just tell you, the world deserves to be given an equal chance and these kids are so smart, lots of them were schooled in the US and decided to go back to their home country to try and make a difference. And all of a sudden, they weren’t experts just in Guatemala. Guatemala is a three hour car drive from El Salvador, these guys are the most popular kids on the block right now, to try and help all the implementations that are taking place.

David Collum (01:21:15):
I’m the block, I get it, I’m the block. [crosstalk 01:21:16]

Greg Foss (01:21:16):[crosstalk 01:21:16] It’s so cool. All I would say is, a 57-year-old fart like I am, it gives me such confidence to see this in innovation and aspiration in the eyes of young kids and I know you’d feel the same way. So, I’m going to send you money on a Bitcoin wallet and you’re not allowed to keep it, you’re just going to transfer it to Guatemala. So, it’s going to go from Foss, to Collum, to Guatemala and you’re going to say, I should have probably kept this thing but I sent it to Guatemala just to pay it forward, to pay the beauty of this system forward, to people whose lives literally will change if you give them 500 bucks versus you and me who, if you checked your seat cushion right now, you wouldn’t just find 500 bucks, you’d find a lot more money than that in your couch at home, right Dave?

Greg Foss (01:22:00):
We are a very privileged country that doesn’t see things the same way as these and that’s what Bitcoin is for a lot of people. It’s hope and it’s truth and it’s math and code and that’s what I’ve lived my whole life on, is math and code.

David Collum (01:22:16):
I believe that you have to marry an investment. They always say, don’t marry an investment, I believe you have to marry an investment. You can trade anything but you have to marry an investment. And so, I guess, I’m looking for that marriable moment. Here’s a related story, it kind of conveys the epiphany I’m looking for personally, where a friend of mine named Steve Sinofsky, was Gates’ right hand man, he became president of Microsoft but he was a Cornell undergrad and I knew him then. And Gates had taken the internet too lightly and he was not taking it seriously at all and Sinofsky comes to Cornell for reunion and he emails Bill and says, Bill, all of Cornell is wired. And that, supposedly, is the moment that Gates said, holy cow, we’ve got to get there. And the moment may come, I have to do some more reading. Greg, you of all people, because I know you know the fixed income world, there’s a lot of hodlers out there. Notice I’m calling them hodlers now- [crosstalk 01:23:20]

Greg Foss (01:23:21):
There is progress. [crosstalk 01:23:22]

Preston Pysh (01:23:22):
Our mission is done. [crosstalk 01:23:24]

David Collum (01:23:24):
There’s a lot… Exactly. We can quit now. A lot of hodlers do not know history, they don’t know market history, they don’t know manias, panics, crashes, they don’t know any of that. Those guys are of no value to me in my quest to understand that stuff. So, Mark [inaudible 01:23:43] matters to me but he goes, him and Pomp [inaudible 01:23:47] and these guys go all glazed eyed, [inaudible 01:23:50] and I get nervous when I see them looking glassy-eyed and I don’t mean laser eye, glassy-eyed enthusiastic, I go, the enthusiasm level has got me spooked. I want these guys looking nervous, I want to see some fear. I put kids through college buying tobacco at exactly the right time. And I was nervous and I finally had that moment where I said, my God, here’s the final piece of the puzzle right here and I put it together and I bought more than I should have and I put kids through college with it.

Greg Foss (01:24:23):
You sound like way better trader that anybody on Wall Street, let alone- [crosstalk 01:24:27]

David Collum (01:24:27):
I still own it. I mean, I still own- [crosstalk 01:24:29]

Greg Foss (01:24:28):
Let alone a chemistry professor. So, all I’m going to say is, I’m going to help you sign off, Preston, because I think we’ve accomplished one thing. He’s doing more research.

David Collum (01:24:37):
Hodler.

Greg Foss (01:24:38):
He’s doing more research, which is all I could ask of anybody because I know people who are intellectually lazy, that we don’t have room for them but people that will research it and do the work that’s required and still discounted or say, it’s not for me. Hey, all I can say is, thank you for trying the research and hearing the arguments.

Preston Pysh (01:24:59):
Dave, I approach investing in a very similar way that you’re, kind of, describing, where if I don’t have the conviction in the trade, I just won’t put it on. Even if Greg’s throwing out the numbers. And for me, I just have to read, I just got to pick up a bunch of books, go to the best sources I can find. Really, for me, it’s books because I can have these conversations with people but I don’t know what their biases are, I don’t know if they’re only understanding 10% of the overall, slight picture or whatever. But if I read a couple of books, that are from notable authors, that are big names in the space, it has a huge impact on me to just build whatever conviction I might need for the trade.

Preston Pysh (01:25:38):
If I don’t have conviction in the trade, I’ve usually been burned by selling it at the wrong time and buying it at the wrong time. So, I just want to tell you, I appreciate the conversation and I appreciate you approaching it in such a… We’re going to have over 100,000 people that are going to listen to this conversation and that’s a massive amount of people that you’re just willing to put yourself out there for- [crosstalk 01:26:01]

David Collum (01:26:01):
But you guys are going to screw up my Twitter feed, more than you already have.

Preston Pysh (01:26:04):
No, not at all. [crosstalk 01:26:05]

David Collum (01:26:05):
You guys have already wiped it out with the laser crazies. The other problem, in my defense, is I cover too many topics. So, I write about college politics, I write about Las Vegas shootings, I write about fixed income and equities and all sorts of stuff and anything that moves me. And so, for a topic to fight its way into my field of view takes some serious efforts.

Preston Pysh (01:26:33):
All right guys. Well, this was a blast. I’m going to have links in the show notes to both of your Twitter feeds, we’ll also have some links to the books that were mentioned throughout the show, we’ll also have Greg’s article in there. And with that, thanks so much for coming on the show.

Greg Foss (01:26:49):
Thanks again, guys. Have a great night.

David Collum (01:26:51):
Yeah. Thank you. This was fun.

Greg Foss (01:26:52):
Thank you.

Preston Pysh (01:26:53):
Hey, so I hope everybody enjoyed this chat with Dave and Greg. One of the things that we kind of got sidetracked on during the conversation, that was never properly addressed, was Dave’s comment or question about Tether and stable coins in general. I think this is a super important topic that’s currently taking place right now, with respect to policy and regulatory guidance that’s coming out, as this is being released. Just recently, in this past week, I’ve listened to two different interviews with a person who I respect immensely, who I think is probably one of the most eloquent speakers in the space on this and that’s Ms. Caitlin Long. Recently, she did an interview on Stefan Lavera’s podcasts and also a podcast with Georgetown professor Dr. Chris Brummer. I’m going to have links to both of these interviews in the show notes and I hope you guys take the time to check these out because I think they’re definitely worth your time.

Preston Pysh (01:27:49):
And I think it goes into way more detail than we would ever cover in this conversation, that addresses this specific concern, this specific topic. And so, I just really encourage folks to check out those two interviews, which we’ll have links to in the show notes. If you guys enjoyed this conversation, be sure to follow or subscribe to the show on whatever podcast application you use, just search for, We Study Billionaires and the Bitcoin specific shows come out every Wednesday and I’d love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that and it’s something that helps others find the interview in the search algorithm. So, anything you can do to help out with a review, we would just greatly appreciate it. And with that, thanks for listening and I’ll catch you again next week.

Outro (01:28:40):
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