When you talk about encryption, it’s a one-direction function. Let me give you an example. If you type the word ‘the’, took those three characters, t-h-e, all lowercase, and put them through the SHA256 encryption algorithm, it’s going to always pop out on the right side of the equation; a hash. I’m sure many people have seen a cryptographic hash and it looks like 78arT like it has this big long string, and it pumps out the same length of the string as the output. Now, if you took the word ‘the’, with a capital T, and lowercase h and e, T-h-e, and you put it through the one-way function, it’s going to pump out a completely different hash. If you took an entire book, and you put it as an input to the SHA256 encryption, it’s going to pump out a hash that has the same number of characters as the word ‘the’. And if you ran that entire book, without any of those letters being different through the SHA256 encryption, it’s going to pop it out on the other side. Same thing.

When these miners are trying to solve the puzzle, the Bitcoin protocol says, “Here’s the hash,” but it’s not giving you the full hash. This gets into really complex mathematics, but it’s not giving you the full hash. It’s giving you a portion of the hash. It’s easier to solve than if you had to solve the entire hash. And it’s saying, “Solve this riddle.” The only way you can solve this riddle is by guessing the word or whatever makes up this hash: this one-way encryption output. And so all these processors are guessing, “Oh, I think it’s the word ‘the’. I think it’s the word ‘most.’ I think it’s the word…” I’m dumbing this down as far as how the computers are guessing. 

All these computers are guessing what the input is to that one-way encrypted output. Once a computer solves that, it takes all the transactions that have been requested during that period of time: from when the riddle was put out to the world to be solved. It takes all those transactions that went into the mempool, then basically conducts them through that proof of work that that miner just solved. Then you have a header and a tail inside that block that also has encryption that then gets tied to the very next block that goes.

Long story short, what these miners are doing is, just like if you’re mining gold, they are conducting work to prove that they solved the puzzle. They’re actually securing the transactions because if you wanted to try to go back and undo one of those transactions, you have to go back in time, then be able to solve the next puzzle in addition to the puzzle that you solved, where the original transaction happened. The miners cannot, from a mathematical sense, conduct that, and do it in a manner that is cost-efficient to them for all the work and the energy that they’re consuming to do it.

I don’t know if that did a good job of answering your question, but that’s the best way I can kind of describe something extremely technical.

Robert Leonard  05:54

So with that being so complex, I’m sure we were just touching on the surface. Are coins that don’t require mining better than coins that do require it like say, Bitcoin?

Preston Pysh  06:06

You’re going to get a whole range of opinions on this one, but what I would tell you is I believe that the only reason Bitcoin’s price continues to go up, especially during this first decade of the protocol, is because what you’re doing is this proof of work algorithm. What I just described before was proof of work. And what you’re really implying is a proof of stake mechanism, where the people that own all the units basically have a vested interest in the security of the protocol, so that the protocol doesn’t fail.

My opinion is how does gold have an intrinsic value? Well, it’s based on that cost that takes for them to pull it out of the ground. This is a really, really tricky conversation because it’s somewhat based on the cost of pulling it out of the ground, and then it’s somewhat based on the demand for people to hold it and the utility of it. So, when you’re talking about Bitcoin early on, if you were one of these miners, and let’s say you spent $100 worth of fiat to mine 100 bitcoins early on, you spent $100 of fiat to get $100 of Bitcoin. There’s no way you’re going to sell one of those bitcoins for less than $1. It doesn’t make any sense. So what you have very early on in the protocol is because of the proof of work, and the cost associated with mining it, you were able to stick a price tag to what one of the units were worth.

One of the other pieces of the protocol is that every four years, the protocol gives half as much reward for solving the riddle. Think of it like mining gold. If you were going to mine some gold, and today, we were able to mine 100 oz. of gold for $100, and then tomorrow, it got twice as hard to mine the same amount, what happens to the price that you’re willing to sell it for? Well, you’re only willing to sell it for double what you were doing because your production costs literally doubled to get the same amount.

That’s what the Bitcoin protocol has been doing for a decade now. Every four years, the amount of reward gets cut in half, and what you find is the miners are unwilling to sell it for a loss. And the miners that can’t mine it for a profit fall out of the system. They just say, “Hey, I’m not going to do this anymore,” and they stop competing. As that competition goes down, other people step in, and then the price, and so that’s what’s driving the adoption curve at the rate at which it’s going. When you plot it, and you get Metcalfe’s law out of the price, it all starts to make sense.

The other big thing is these big price swings. It has a 68% volatility on an annual basis. Why does it have a 68% volatility? Well, I would argue, one of the reasons that you have that is this symbiotic relationship between the four-year halving cycle and a two-week difficulty adjustment, which we haven’t even talked about, that’s also built into the protocol. This relationship between those two functions is what’s driving that intense volatility. I would tell you it’s by design so that you can get entrenchment into existing financial rails. So, there are so many things going on inside of this that it’s kind of mind-bending, to be quite honest with you.

Robert Leonard  09:36

I want to go into a conversation about how to value a Bitcoin next. But before we do that, just like you said, it is mind-bending. And I’m just wondering how in the world did someone even come up with this? How did they even create this? Where did it come from?

Preston Pysh  09:54

No one knows. I would tell you that some type of mathematical genius that understands game theory to the nth degree; that understands economics to the nth degree; that understands network effects to the nth degree; that understands branding and marketing to the nth degree. And, I mean, just the programming! You can hit so many different fields of technology inside of something that, from a distance, looks silly to the commoner. It’s just like magic internet money, right? That it’s hard to even wrap your head around how a person could possibly understand all those things, then to release it, and then to have the success that it’s had. It’s mind-bending again. It’s indescribable!

Robert Leonard  10:43

And they keep it all a secret.

Preston Pysh  10:45

Well, I think that that also goes to the intelligence of the person or the group of people that created it. I mean, look at Libra: the Facebook coin. They were dead on arrival. They were dragged straight up onto the hill. Over in Europe, they were crushed because everyone knew who was behind it. And so, I mean, you have to be that smart. You have to understand all these different things. And then, you also have to understand that you can’t be known.

Robert Leonard  11:15

It really is incredible. I would love to know who is behind it. I’m sure there are millions and millions and millions of people who want to know. Some people would pay a lot of money to know that. But yeah, they’ve got to be some of the smartest people that have ever walked the face of this earth.

Let’s talk about how you can calculate the value of this. Because with the stock, you can calculate the intrinsic value of the business, and then determine if the stock is undervalued, fairly valued, or even overvalued. It doesn’t necessarily seem like you could do that with Bitcoin or cryptocurrencies. So, inherently, doesn’t that mean it’s a speculation play? Not an investment? And how are you attempting to value things like this as a value investor?

Preston Pysh  11:52

This is a question that, when I was buying it back in 2015 or 2016, that period of time, a lot of people had. I don’t think that I had a really good answer for how I was valuing it back then other than “If this would catch on a global level, the market cap would have to be over $1 trillion.” And back then, I mean, it was a market cap of $5 billion. So right there, you were 100x easy on. The big question was like, “How long is that adoption going to take?” Now, I think we have a much better idea of the speed of the adoption rate because we’re seeing how the protocol is executing Metcalfe’s law through stock-to-flow. And there’s a lot of models today that didn’t exist five years ago, when I first started getting into this.

The way I would describe it to value investors, I’d say, is very similar to the way I was thinking about it back in 2015. I would tell you, “I think your market cap on the very low end, I’d say this is a super ultra-conservative number, in my opinion, is $2 trillion.” I think a mediocre market cap to probably high market cap might be around $30 trillion. There are people out there that will make arguments for it being even higher than that. But for simplicity’s sake, let’s just say, it’s between $2-30 trillion. That’s the market cap of how high this could go if it starts replacing fiat, which it seems that’s what’s happening right now.

Based on the price being where it is today, in the $180 billion range, that means that it’d be a 10x move if it went to $2 trillion, and it’d be around 164x move if it went to $30 trillion from where we’re at now. So then, you say, “Well, how long is it going to take to get there?” And I would say, a very conservative estimate is another 10 years to get to that level.

And so, if it takes 10 years to get to that level, you can go back, you can basically do an annual adjusted rate of return to get that 10x and 164x move, and you’re between 30-76% annual return at the current price. That’s how I do an IRR. If it’s a stock, I figure out “What is the internal rate of return that I’m going to get based on the price of where it’s at now and the future cash flows that I expect to receive in the future?” Then I figure out what percent does that give me today, and that’s my IRR. So I guess I’m doing some form of an IRR, but with a currency that I think has a huge adoption rate on the horizon.

Robert Leonard  14:29

So if someone doesn’t have say, $10,000 to buy one whole bitcoin, can they still buy a fraction of it or a decimal of it like you mentioned, and still earn those same returns?

Preston Pysh  14:41

Exactly. So if you have $100, and that’s all you can afford; $100 fiat, backed by nothing. People will say it’s backed by the military. Well, it might be, but the monetary baseline’s backed by nothing. It’s going to keep expanding. Yeah, you can take that $100 and you can go by 0.00x bitcoin, and it’ll perform the same as if you own 1 BTC, 10 BTC, or 100 BTC.

Robert Leonard  15:05

With all of this talk about valuing Bitcoin and other cryptocurrencies, as well as its potential return, how can this even be considered a currency? That’s one of the hardest parts for me to wrap my head around on from the very beginning a few years ago, when I first started learning about it and reading about it a little bit. Today, it’s still the hardest thing for me to wrap my head around on. I can understand how someone could think of it as an investment like you’ve talked about, but I have so far had a tough time understanding how it can be considered a currency. 

People can freely spend the US dollar because it’s relatively stable, whereas with Bitcoin, if it’s going to be achieving the returns that you just mentioned, why would anyone spend it like a normal currency? Why would they give up those potential future returns for a simple product or service? I’m sure you’ve heard the story about the guy that bought pizza with it in its early days, so just, I guess, why for those things?

Preston Pysh  15:54

A fun note about the pizza: With 10,000 BTC he purchased the pizza. It was the first transaction. Today, you can purchase a Gulfstream G650 and a $30 million mansion with the same 10,000 BTC. So if you want to talk about hyperinflation relative to owning Bitcoin, there’s a perfect example. You went from pizza to Gulfstream G650 and $30 million mansions. So it’s all “What is your numeraire that you’re using in order to gauge the central banking printing that’s happening?”

More to your point on the volatility in the utility of the currency and why so many people are having a hard time understanding. I don’t know if you saw this, Robert, but I got in a Twitter war with Mark Cuban. It was a pretty engaged conversation. I’ll try to dig up the thread, so we can put it in the show notes if people want to check out the discussion. The back and forth. Mark, in my very humble opinion, Mark’s a billionaire, right? So, he’s got all the credibility in the world. I’m nobody. And so, people listening to this, you can gauge this however you want, but I think Mark is missing a very key component of this.

Mark is skeptical of [Bitcoin] because he went to his Mavs stadium down in Dallas, Texas, and he allowed people to purchase seats into the stadium with Bitcoin. I think in a year or after a really long time, since he implemented people being able to pay with Bitcoin, he said he had $600-700 worth of transactions of people buying tickets with Bitcoin to come into the stadium. His argument is, “Well, if no one’s using it, then it’s worthless. You can’t convince me that Bitcoin is going to become a thing if nobody’s using it. They’re not going to the game and paying with it.” He’s like, “People have to pay with it for it to work, right?” Like, that’s Mark’s argument.

I told Mark, “You’re going to change your opinion on Bitcoin, and this is when you’re going to change it,” I said, “When the price hits $1 trillion in the market cap, and you’re still collecting $600 worth of payments at your games, that’s when you’re going to change your opinion.” That’s 5x higher than we’re at right now, and I don’t suspect that he is ever going to have people paying at his games for Bitcoin. The reason why is because Bitcoin’s not solving a transactional problem. Bitcoin is solving a monetary baseline at a sovereign level problem.

My opinion is these countries are still going to continue to have their own domestic currencies. They’re going to tokenize the dollar. They’re already talking about doing that. You’re seeing other countries that are tokenizing. It doesn’t even matter because you have people like Adam Back that have already tokenized the dollar on Liquid, and Tether’s already tokenized the dollar. So, you’re still going to have that because people are always going to pay their taxes in that domestic currency. But you’re not going to have an incentive for anybody to go out there, and spend something that goes up 400% annually. And guess what? That doesn’t mean they’re still not going to buy it and hold it if it goes up 400% annually. 

I have Bitcoin. The last thing I would do is go to a Mavs game and spend my Bitcoin to go into the stadium and watch the game. I’m going to spend my fiat to do that. The stuff that’s devaluing against Bitcoin at 400% a year. I think that’s the thing where a lot of people miss; the utility is that this is not going to be like the fiat that devalues like crazy that we’re accustomed to, as far as holding.

Now, when you get into the volatility piece of it, I can totally understand why people don’t want to put a substantial portion of their savings into Bitcoin because the volatility is so high. But guess what? Do you know how you manage that risk? You manage that risk through sizing. I don’t have to make Bitcoin 20% of my portfolio. I can make it 1% of my portfolio. 

Here’s a fun fact: If you held Bitcoin for any four year period of time…and the reason I’m using four years is because that’s the halving cycle. You have to understand how the protocol functions from an engineering standpoint to know how to look at it, right? So you could pick any four-year period of time, any chunk of four years. If you had 1% exposure to Bitcoin, and the rest was in cash; $1 in Bitcoin and $99 in cash, you would have matched the performance of the S&P 500, which is not a 400% return over the last 10 years. 1% exposure, right? Let’s say the volatility is 68%, and you had 1% exposure, you don’t even notice it because it’s such a small exposure. But when it goes up 400%, and then the next year, it goes up another…I mean, heck, man! I had one year where it went like 2,000% or 3,000% in a year. It’s insane! So, you adjust your exposure size to account for the volatility in your risk. This is just basic investing stuff.

Robert Leonard  20:44

I wonder if Mark Cuban has held on to those $600 or $700 worth of Bitcoin that he has sold?

Preston Pysh  20:50

I think I remember seeing somewhere in the exchange where he didn’t, and I guess the company that they were using to accept the transactions was immediately converting it into fiat.

Robert Leonard  21:02

So with all that volatility, should someone wait for a “dip” to buy their 1%?

Preston Pysh  21:11

Oh, boy! That’s a super hard question because of the volatility. Having owned it for five years, I can tell you, it is one of the hardest things to get that timing. For people that are really interested in this, I would argue that I’ve had a lot of success on the timing of owning Bitcoin; when to sell it; when to buy it. What I’ve used is the Mayer Multiple, which is something that Trace Mayer and I co-created. It basically takes the 200-day moving average, and it looks at the price. It basically divides those two, so you get the units of dollars out of there, and you just have a straight ratio to understand what’s a high price, what’s a normal price, and what’s a low price.

Let me give you an example. If you take the price at $200, the 200-day moving average is 100. That would be a Mayer Multiple of 2.0, and that would be a pretty normal price to buy Bitcoin. You’re not getting a great deal. You’re not getting a bad deal. It’s just kind of where it’s normally at. It’s a little hot, not hot. $1,400 I think is the average for the price that it trades. Recently, I bought some. The price went down to $6,500, I was able to execute a limit order. That was a Mayor Multiple of about 0.68, which happens 5% or 7% of the time based on when you plot the stats of that. If you do a distribution plot, it’s like 5% or 6% of the time.

If you go to mayermultiple.com, it’s a domain that I own, and it goes into the math behind that. It shows the stats, the distribution plot, a histogram, and all sorts of fun stuff. The other thing that I would tell you to look at is really pay close attention to Plan B’s work on the stock-to-flow to understand what the price is. More importantly, understand where you’re at in the four-year cycle.

So my personal opinion, right now, is you’re probably at one of the most opportune times to enter a Bitcoin position because I expect to have extremely good price action in the coming two years. If you would have asked me that two years ago…in fact, pull up my Twitter feed from December 2017, and you’ll see me saying owning Bitcoin right now is extremely dangerous and probably not a good idea. I had about a whole month of tweets when the price was $18,000 to $20,000. Go to December 2017, and look at some of my comments. You will see that back then, I was saying this was very risky to be buying it then, because I understood where it was at in the four-year cycle.

So understand where you’re at in the four-year cycle before you buy it. Because there’s going to be people that are listening to this conversation two years from now. The price will be $100,000 or more. They’ll be buying it, and they’re going to maybe be on a very bumpy road ahead if the cycle continues to perform the way that it has in the past. I caution people listening two years from now because if the bond market explodes, which is a potential based on the central banking actions, you might see Bitcoin fully become a global currency at that point. It could go to $1 million for all we know.

So it’s really hard to make comments about that far in the future based on where we’re at and everything that’s happening.

Robert Leonard  24:21

What role do non-professional or unsophisticated investors play in the price of Bitcoin, in terms of their rationality, right? So when you talked about the run-up to $18,000 to $20,000, I had people in my life that are friends, family, and acquaintances that knew I was into finance, investing, and things like that, and they were all texting me and telling me that they were running out buying Bitcoin. And so, what’s the role of people that don’t understand it to the degree that you do? How did they either help or hurt the way that you see your models working?

Preston Pysh  24:56

I would argue that when you look at the stock-to-flow, and from a technical standpoint, price should go to $100,000. Where they come into play is on the emotional side, so they’re going to blow the price way through $100,000 on the way up. But they’re also the same ones that are going to blow it down through $100,000 after it goes through its correction. And then, by the end of the four-year cycle, it’s going to come back to its appropriate price of $100,000. If I was going to spitball it, yeah, I tell you December of 2021ish. Somewhere around that timeframe, plus or minus 60 to 90 days, is probably where you’re going to see that peak of speculators that don’t know much; that are chasing the price action, they are going to drive the price to probably $200,000 to $250,000 at that point, by December 2021. 

Those same people that buy at those extreme prices are the same ones that unravel it coming back down. Back down through $100,000, and that’s when you really want to buy it because the price during that cycle is all at $100,000 based on stock-to-flow. They just basically make it go more extreme on both sides: on the buying and on the selling. That’s all they do.

Robert Leonard  26:06

So how about government regulation? This is a component that we haven’t even mentioned yet. We’ve assumed that it can just continue to operate without government intervention, but what if the government does try to step in?

Preston Pysh  26:18

We’ve already seen this happen back in 2017. The Chinese government came out, and said, “You can own Bitcoin. You cannot buy it on an exchange.” They banned the exchanges, and the impact in the short term was the price went down, but the impact in the long term was nothing. That’s the tricky part for our government. In order for it to get shut down, every single government has to decide to shut it down; every single government. I would argue that you have a very strong incentive for countries that are not from the US, which is everybody but us, to have something other than dollar dominance, because think about it. Dollar dominance has provided the US an extremely powerful position in the world, and it’s been that way since Bretton Woods.

Let me say, Germany. Right now, Germany is building so much legal framework around the protection of Bitcoin, because I think they understand where this is all going. I think they understand the value of trying to attract as much of that business into their country; to attract as much Bitcoin into their country when it becomes a new global currency. They have one of the best legal frameworks on the planet right now to promote Bitcoin businesses into their country. I think that’s going to set a precedence for many other countries to do something very similar.

So the fact that you already have a country the size of Germany doing something like that, if you go ahead and ban it, you can do that, but I think what you’re going to do is you’re just going to lose your place in line, and now you’re at the back of the line. In the long term, that’s going to be a huge disadvantage for the countries that do it. I would argue China’s a perfect example of something that was done in haste and done in fear. It’s going to be a huge consequence to them long term if they’re not doing something behind the scenes to put as many of these things into their treasury as possible.

Robert Leonard  28:13

So how would a ban work? Say the US government decides to ban Bitcoin? Can people in the US still obtain it in some way? Or is it…? How would that work?

Preston Pysh  28:24

Absolutely, they can! They can VPN out. Through encryption, they can VPN outside of the country. Now, you have to have an exchange in some other country, which, boy, there’s going to be a black market for that real fast. You could VPN to that exchange. You could collect the coins, and then you could run your own full node up through the Blockstream satellite. There are satellites in space right now that are broadcasting the blockchain, whether people believe that; understand that. You can take a satellite to your house. You can connect to the Blockstream satellite that’s orbiting Earth, run your own full node, and conduct transactions. You don’t have to go through an Internet Service Provider hub. They’d have no idea what your IP address is or anything.

Robert Leonard  29:03

So it sounds like it’d be very difficult to even ban on a wide scale, even if they wanted to.

Preston Pysh  29:09

Absolutely! This is for the same reason you can’t ban BitTorrent to this day. It still exists. Bram Cohen, who created BitTorrent, he is a hardcore Bitcoiner.

Robert Leonard  29:21

Let’s talk about some of the misconceptions about Bitcoin. What is a misconception surrounding Bitcoin or just cryptocurrencies, in general, that you think a lot of people have? Why is that?

Preston Pysh  29:33

I really think a lot of people have a misconception as to what it’s trying to solve. First of all, I think a lot of people are thinking that it’s for a transactional basis. You have a guy, Roger Ver, who I can’t even tell you how much money he lost! And that was one of the forks that we were talking about earlier with Bitcoin Cash. The guy was hell-bent on the idea that this is for transactions of buying coffee. In my humble opinion, he made the most fatal mistake of all, which was trying to make this something that it was not trying to solve whatsoever. This is trying to solve a global peg to global money because there’s an issue where fiat has run amok, you’re driving interest rates to nothing, and you’re about to have an explosion in the bond market.

Robert Leonard  30:12

Do you think that that misconception exists because it’s much easier for the general population to understand and wrap their head around it being a transactional currency rather than it being a peg?

Preston Pysh  30:25

Think about it. Mark Cuban. Billionaire. Mavs owner. He’s as smart as they come when it comes to business. He’s making that same mistake. He’s making the Roger Ver argument. It’s crazy to me! I mean, when I was having the back and forth with him. I’m literally laughing out loud like, “This dude does not get it. This is blowing my mind that somebody, who made all this money in tech doesn’t get this.” So, I mean, how are your mom and dad going to get it? I mean, come on, give me a break.

Robert Leonard  30:54

So I’d say it’s pretty clear that you’re bullish on Bitcoin, but what would someone on the other side of the argument say? What are the bearish saying about Bitcoin? What are some of the major risks or cons to just cryptocurrencies, in general, and maybe more specifically, Bitcoin?

Preston Pysh  31:09

I think a lot of people are going to make the argument about the government banning it. They’re always going to go back to that. You’re going to have people making arguments as to “There are a million of the coins. How do you know Bitcoin’s going to win?” There are a lot of arguments that just keep coming up. It’s funny because I just look at it, like, “Oh my God! We used to hash that out back in 2015 a million times. The fact that you’re bringing this up in 2020 is just kind of funny in a way.” But those are some of the big ones that I can think of just off the top of my head.

Robert Leonard  31:43

Admittedly, those are the two things that I think of initially from someone who doesn’t know a lot about the technology or Bitcoin in general. I’m not pro or con for it. I don’t know enough to have an educated opinion on it, but just from my knowledge, those are the two things that I think about a lot, and things that I’ve heard from people who are skeptical about it as well.

Preston Pysh  32:03

The one other thing that I think is huge is the Cuban argument, which is, “Well, no one’s using it. It’s going to be slower than me just pulling $1 out of my pocket and paying, or swiping my credit card. Why doesn’t that work?” You’re going to hear that argument all day, as well.

Robert Leonard  32:18

Yeah. I think it comes back to the complexity versus simplicity-type dynamic, where it’s too complex to understand why that’s not necessarily the case, and it’s simpler to just say that that’s why it won’t work.

Preston Pysh  32:30

But this is what people have to think about. Back when you had Bretton Woods, did you see people going to stores and paying with gold? Did you see any of that stuff? No, you didn’t. But that was the root of the entire underlying layer one of the entire financial system globally. It was the balance of payments of the amount of gold that central banks had in their coffers. So if we had a deficit with Germany or vice versa and it needed to be adjudicated in gold, well, it took place in gold. Those balances of payments occurred at that central banking fundamental layer level. All that’s happening right now is that, but it’s happening digitally.

Robert Leonard  33:07

So how does this entire conversation relate back to millennials and their investing? What actionable advice do you have for a new investor who’s just getting started on their investing journey that’s listening to the show today? Should they be allocating a portion of their portfolio to cryptocurrencies? Or are they better off just sticking with the tried and true assets like ETFs and stocks?

Preston Pysh  33:27

I think you’re absolutely nuts if you don’t have some exposure to this, my personal opinion. I would highly encourage millennials to get smart on the four-year cycle. Understand where you’re at in that four-year cycle for Bitcoin. Be very hesitant to add to your position, when you’re at the top of that cycle, which I’m saying is probably somewhere around like December of 2021 for the next cycle. Be careful about adding to your position during those times. And when you’re in the bottom or you’re in a very advantageous part of the cycle, you should probably have a much larger percentage inside your portfolio. So like right now, I think is a very advantageous time to be a buyer. This is when I would probably take a larger percentage on your portfolio.

Robert Leonard  34:10

So it’s still an advantageous time even though it’s been up 43%, since January 1, 2020? We’re only on February 13th today as we’re recording this.

Preston Pysh  34:21

Yeah, I think so. My expectation for the end of the year and the year closeout is a price of $20,000. Why I’m saying that number has a lot of reasons behind it. I’m not just pulling a number out of thin air. That’s my metric. In fact, I posted that on Twitter probably three or four days ago as to what I think is a byline and where I expect it to end by the end of the year. But my estimated price by the end of this year 2020 is going to be around $20,000, which means you could go 100% gain from here.

Robert Leonard  34:51

I’m no technical analysis trader by any means, but with the last peak ending around $20,000, is there resistance at that $20,000 number if we do get there again?

Preston Pysh  35:03

There absolutely is. If and when, in my opinion, it penetrates the $20,000, that’s when you start getting your crazy moves to the upside. Yeah, I suspect that you’re going to go from $20,000 to $200,000 in a year. So after you would hit the $20,000, call it, next December, I think, by the following December, you’re going to have literally gone from $20,000 to $200,000.

Robert Leonard  35:30

One of the things I wanted to talk about as well is how this is portrayed on social media. Let’s take Instagram for example. I hear this conversation that you and I are having. This all makes sense. It makes me bullish on Bitcoin. I came into this conversation not knowing much, but now through what we’ve learned and what I’ve learned through you, I feel like it’s a much more legitimate asset that I can be bullish on. But then I think there’s a lot of people that are going to see on Instagram are going to get fraud messages all the time. I get hundreds of them probably a day, saying that they can make you rich with Bitcoin overnight. So how is that going to play into Bitcoin and the legitimacy of it?

Preston Pysh  36:06

You’re endowed with senses that are innate to your protection. That’s how you’re wired. Your genetic DNA that wires that into your brain. From your past experiences, you’ve been conditioned to be aware of scams. When a person hears me say, “Oh, I think it’s going to be $20,000 by December, and then it’s going to be $200,000 the year after that,” their senses are saying, “That is a total flippin’ scam. 100%!” That means you have good senses. So what you have to do is you have to say, “All right, well, how are they coming to that opinion? What’s behind that opinion? What’s driving it?” You have to ask yourself a lot of hard questions, and you have to do an extreme amount of work to understand what’s behind that. Whether it’s true or not.

I would argue the strongest reason why Bitcoin’s going to be successful is that so many people do not believe this is possible, and they don’t invest. Dude, I can’t even tell you how many hours I’ve invested into trying to understand this. I can’t even put a number to it. But that’s because I was extremely skeptical. But I think what drove me to research it is I understood the fundamental global problem that was happening, and I was searching for how in the world is this going to be resolved because right now, it appears like there’s no solution to this. Lo and behold, I started reading up on Bitcoin. I said,” Oh, my God! I think this could potentially be the solution.” Then, I dug more and I dug more and dug more.

So I kind of came to it from a completely different vantage point of your typical person, who comes to it as total speculation to make a quick buck. That’s how a lot of people come to this, and that’s why so many people are skeptical of it. You’re skeptical of something is when you don’t understand it. That’s when you’re skeptical of it. Because you’re saying, “That’s too good to be true! That person looks like a scammer. They sound like a scammer. And they’re promising things that there’s no way is possible.” Scam level of analysis complete. They’re done.

I would challenge the heck out of everybody to question everything I just said, and to treat me as if I am a scammer because that’s how you’re going to arrive at the truth. If you don’t arrive at the truth as to how this thing works, you will not have the conviction to hold it through wild swings and wild rides. I mean, that’s just a fact from stock investing. If you don’t have conviction behind your trade, you will not hold it, and you will sell when it goes down.

If a person goes out there and buys Bitcoin… You had said that you purchased it and then you turned around and sold it. Why did you do that? Well, because you knew you didn’t understand it. And everybody else who’s listening to this is going to do the exact same thing. If they buy it, it goes down 20% in a day, which can happen. They’ll sell the position because, inherently, at their core level, they have no idea what’s actually happening. So when you see these people on Instagram saying, “I’m going to make you rich. Just buy this token and this crypto coin,” well, you’re chasing a narrative that you heard where your neighbor made $1,000 or $10,000, and you’re trying to replicate it based on speculation and hope, opposed to truth and understanding.

So, I don’t know if I answered your question well, but I would tell you being skeptical is a good thing. And doing your homework as to how it works is insanely important to not be shaken out of your position if you do decide to take a position. Follow the right resource. Don’t follow some yayhoo, who’s a nobody; who has no experience in financial markets; doesn’t even know what a bond is or know what a stock is. If that person’s telling you what to buy, well, I guess I’m going to say it bluntly. You’re being dumb, right? You’re being dumb. So, do your research on who the person is. Look at what authority they have, how they got that authority, and technically, why they’re making the arguments that they’re making.

Robert Leonard  40:11

I’m wondering if a similar tactic that I like to use in the stock market can work with Bitcoin, specifically for people listening to the show, who haven’t studied it like I haven’t. So when there’s a stock, now that there are no commissions on trading, I do this even more. But if there’s a company on my radar, and I’m interested in it, it’s hard for me to find the time to actually analyze that company and determine if I want to buy a position. So, now, I’d buy one or two shares just to get it in my portfolio. I have skin in the game, and now, something psychologically tells me that I need to go take the time and research that company because I have money on the line. 

And it really works. It really does. And so, I wonder if somebody listening to the show today that’s interested, but skeptical should maybe buy $10,000, or maybe buy 10% of a coin, or even 5%, and just kind of get some skin in the game, so that you are then invested in it, and then you go and learn about it more, so you feel comfortable. Either sell your position because you decided you don’t believe in the thesis, or you believe in it after you studied it, and you buy more. 

Preston Pysh  41:11

I think that’s a great way to do it.

Robert Leonard  41:13

If someone listening to the show today is completely new to cryptocurrencies, Bitcoin, and just blockchain in general, like I am, but they want to learn more about these topics, what resources would you recommend they check out? Any specific books for a new investor? I know we’ve mentioned a bunch of different resources so far, and those will definitely go in the show notes, but any specific books or other resources?

Preston Pysh  41:35

I think it’s really important who you follow, and who you pay attention to. So you want to pay attention to the engineers that have actually written the code for this stuff and the people that have participated in it, so people like Adam Back is somebody you want to follow on Twitter. Somebody like Nick Szabo is somebody you want to follow on Twitter. There are three podcasts that I would recommend. One is Stephan Livera. He has a podcast. We’ll have it in the show notes. You have another podcast called, Noded, and another one by Trace Mayer that I would highly recommend. I think those three people are total forces in this field for podcasts to listen to.

The first book that I read back in 2015 was called, The Age of Cryptocurrency. I thought that was an extremely good book. It was written by Wall Street Journal authors, and there are a couple of other books that I’d recommend. One is called, The Bitcoin Standard. This is written by Saifedean Ammous. That’s an incredible, incredible book that I think is vital for people to read. There’s another book called, The Book of Satoshi, and what it does is it takes all the e-mails and everything that Satoshi ever wrote, and they put it into a book. I would highly recommend that you check that out. 

There is a website called the Nakamoto Institute that’s run by Michael Goldstein and Pierre Rashard. That’s an incredible resource. I would highly encourage people to read the Bitcoin white paper, which is Satoshi’s very first document that he published that talks about Bitcoin in general. I took a course from Yale University that is completely free. I think it’s on Coursera. That was, oh my god, 65 to 70 hours long that gets into the details of how Bitcoin, from a technical standpoint, works. I would highly recommend that.

There’s a guy named Jameson Lopp that has an incredible list of resources that will be way better than everything that I just listed for you that goes into all these details of things. He is an original tributor to the source code as far as updates and things like that to the protocol. So he’s a huge source that you would want to follow on Twitter, as well.

All of those things, we will get you links in the show notes, too. And that will get you moving in the right direction. But pay very close attention to the source of people that you follow in this industry because there are so many coins out there and so many scammers that are trying to leverage “Blockchain”, and all these buzzwords. But follow the right people, read the right resources, and I think you’ll be in a good spot.

Robert Leonard  44:10

As Preston mentioned, I’ll definitely put all of the different resources we’ve talked about throughout the show in the show notes, so you guys could go check it out in case you missed any if you couldn’t write it down. So you can definitely go to the show notes and check it out. They will all be there.

Preston, thanks so much for coming on the show today and talking all about cryptocurrencies and Bitcoin with me and the audience. I know I learned a ton from our conversation, and so I’m sure the audience will too.

Preston Pysh  44:34

Hey, man! This was a blast. I had so much fun, I lost my voice!

Robert Leonard  44:38

So that’s it, guys. That’s the end of the two-part series about Bitcoin, blockchain, and other cryptocurrencies. I hope you all enjoyed the conversation as much as I did. I had to listen to it a few times but I learned a ton, and I can’t wait to dive into all of the different resources that Preston mentioned throughout the show. You can find all of those resources linked below in the show notes of your favorite podcast player or at theinvestorspodcast.com, and clicking on the Millennial Investing show.

If you know anyone that wants to learn more about Bitcoin, blockchain, or cryptocurrencies, please share this completely free two-part series with them.

And I’d love to hear what you thought about this two-part structure. Connect with me on Instagram with my username: @robertattip, and let me know what you thought. Did you like how the episodes were split in two? Would you have preferred one much longer episode? Or do you like the shorter content? Do you even like learning about the topics Preston and I talked about? I truly do love hearing your feedback and connecting with you, guys. I respond to every single comment and DM that I get, so be sure to reach out.

That’s all I had for this week’s episode of Millennial Investing. I’ll see you again next week!

Outro  45:52

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