WBD227 Audio Transcription

Debunking Goldman Sachs Bitcoin Thesis with Bill Barhydt

Interview date: Thursday 28th May 2020

Note: the following is a transcription of my interview with Bill Barhydt from Abra. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In this interview, I am joined by Bill Barhydt, the CEO and Founder of Abra. We discuss and debunk Goldman Sachs' arguments against Bitcoin as well as the reasons behind their lazy research.

“It’s their financial incentive, for their client base to not want to put 10% of their assets in Bitcoin.”

— Bill Barhydt

Interview Transcription

Peter McCormack: Bill, good to see you again!

Bill Barhydt: You to Peter. How are you doing bud?

Peter McCormack: Yeah, really good. Life is good, everything's good at the moment. Well life's good in a strange world at the moment. Lots of strange things going on, obviously! This pandemic is weird, what's happening right now up in Minnesota is really weird, Trump's executive order that's coming out today is weird. Everything's a bit weird and outside of that, life's good. It's really hard to enjoy it because I'm kind of worrying for other people at the moment.

Bill Barhydt: Yeah, I mean look, we're a software business, and obviously people who aren't, like retail, it's tough and I count my blessings and lucky stars that I've got a team that's all doing well and healthy and family that's well and healthy. I know a lot of people have it a lot worse and so I pray and pull for them that we're all going to basically look back on this and it'll be history in a couple years and not reality.

Peter McCormack:Yeah I'm with you. Also, I'm hoping this is some reset and some chance to reset right now. There's a lot of things that I think needed a reset. I think education needs a reset, I think healthcare needs a reset, I think money, we're in money and we think money needs a reset and I think this is maybe a bit of an inflection point. But I'm hoping a lot of things can get reset.

When people say, "I can't wait to get back to normal," it's like, "I don't want to get back to that. I don't want to get back to a lot of the bullshit of before." So I hope we can come through this with some things a bit different.

Bill Barhydt: Yeah, you don't want the catalyst to be a global pandemic, but we do have structural issues on our planet and the way we do things that are antiquated. You mentioned education, that's antiquated, banking is antiquated, the money printing is out of control, so yes, I agree. I wish it wouldn't take a global pandemic to maybe catalyse some of these issues into change, but so be it, this is where we're at, and let's see if we can come out better as a society on the other end.

Peter McCormack: Yeah, I put out a show yesterday on my other show Defiance, about technology, "The Good, The Bad, and The Orwellian". In that, I brought out a quote by Rama Manuel, who was Obama's chief of staff, where he said, "Never let a good crisis go to waste." A lot of people use that negatively with regards to the government, that they won't let a good crisis go to waste, as happened with the Patriot Act.

But at the same time, I think also for us as people, we can also not let a good crisis go to waste. I don't know about you lifestyle wise, but in 12 weeks, I haven't had to put... You call it gas, we call it petrol, I haven't had to put petrol in my car, I'm barely driving it! My bike's been fixed, I'm cycling everywhere. I'm running every day. I've got a peloton as well, so when the kids are here I can exercise.

We're cooking nearly every meal, we're spending lots of time... There's so much good stuff that's come out of it, and I don't want to go back to the old ways. I also just think this is a chance to not let a good crisis go to waste. This is a chance to shine a lens on some government stuff and try us as people to change some things. That's what I'm hoping!

Bill Barhydt: Yeah I think it's very well said. I genuinely hope that people who are struggling right now, that we are able to help them in a way that just doesn't cause society to dig a whole deeper for society, that we can actually help them in a way that moves everyone forward. I do worry about that. I think the way the shutdown was handled in the US and the UK was very poor, a lot of people are dying that didn't have to die.

But as you said, for the people who have it better off, I think they're able to at least see this situation as an opportunity to maybe change some of our ways, drive less, more time with family, focus on what's important, express a little bit of gratitude for the employment and the fact that my family is healthy, things that matter! Like you said, if anything, it should help make it clear to all of us what matters and what doesn't matter.

Peter McCormack: Yeah, well we're here today to talk about Goldman Sachs, because I think they baited us all this week.

Bill Barhydt: You think?!

Peter McCormack: I think so! Because it came out of the headline of what the call was going to be about.

Bill Barhydt: I was being facetious. They had this report which was all about macroeconomics, and almost like an afterthought, they had this little Bitcoin section at the end, which was clearly a loaded click-bait smoking gun, but on the other hand, it's very clear that the one or two analysts that did this are very anti Bitcoin. But the primary impetus for their report was to talk about recovery and macroeconomics and the fact that the stock market is looking rosy based on the fact that we've printed insane amounts of money with a lot of cash already in the sidelines.

Peter McCormack: Well, despite what they did, I actually still take it as bullish for Bitcoin and I'll tell you why. I obviously have read your report and your write up on it, and I think you did a great job breaking it down into rather than going point by point, you actually broke it down into four categories. I think you missed one as well.

Bill Barhydt: Okay, what's that?

Peter McCormack: I think the thing that you missed, maybe you didn't, but I would add into it is that it wasn't also balanced and impartial, because they didn't make any attempt to talk about some of the good things about Bitcoin. It wasn't like, "Here's the good, here's the bad. This is our perception, it's mainly bad." It was, "Here's all the reasons to stay away from Bitcoin." I almost summarized it as the reason is that Bitcoin doesn't fit in with their view on economics.

Bitcoin doesn't fit in with their... Not just them, they're part of the system. They're part of what I call the money game and they're part of the corruption, which allows them to print money and inflate the value of the things that they own and their buddies own. So I think it was just not even in any way impartial because there are a lot of things they could have talked up and said, "Look, here's some good stuff, here's some bad stuff."

Bill Barhydt: Yep, that's right. By the way, I don't think this is Goldman and I actually spoke off the record with a friend of mine, who's very senior there, and referred to a very specific person who is anti-crypto within Goldman that I believe wrote the majority of those slides. So I doubt there's a groundswell within Goldman where they have a big, strong, anti-bias against Bitcoin. I think most people within Goldman are probably interested in what's going on to some degree, and I know first-hand from speaking with friends that do wealth management that they get people inbound who are in interested in Bitcoin, and they can't service them, which is part of the issue.

They're financially disincentivized to deal with it because when a client comes to them and says, "I want to invest in Bitcoin," they say, "We can't help you." They'll say, "Go to Abra or go to Coinbase, or do whatever you have to do to buy it, but we can't help." If you look at the quotes that I included from Mises' famous work, it basically makes the point that an inflationary model is at someone's expense, right? Generally what happens is it's the Goldman clients, the rich that are getting richer in an inflationary model, at everyone else's expense, it's the 1%.

It was intuitively obvious to a subset of the population, which is why we had that anti-Wall Street movement post Lehman, where people were protesting in parks near Wall Street. I think this is becoming a circular discussion where it just seems to happen now every few years, where the government has to print insane amounts of money via whatever means, QE1, QE75, whatever the hell it is, to basically deal with this issue. Like I said, it's very obvious that it's the uber rich who are effectively able to reap the vast majority of the benefits of this money printing without end.

Peter McCormack: Well it's the privatized profit, socialized losses.

Bill Barhydt: Yeah, that's exactly right.

Peter McCormack: And it's a Goldman guy now as treasury secretary.

Bill Barhydt: Which we had under Bush as well, that was Goldman driven.

Peter McCormack: Yeah, the funny thing is, it really stinks, right? Maybe it's just me, maybe it's only because I've been in Bitcoin for a couple of years, maybe it's always been obvious, but I just feel like they're doing this right under our noses now. We're seeing it being done! I think before it was a little more insidious and secret. I feel like they're almost doing all these things in front of us and just saying, "We're getting away with it and we're going to continue getting away with it." I don't understand it Bill. I'm like, "How is this happening?"

Bill Barhydt: I'm not a big conspiracy theorist guy, I tend to try to be practical, common sense, usually the most logical explanation is the most likely to be true. I'm that kind of a guy in general. I think that there's logical explanations mostly based around financial incentives for how people behave. Goldman is incentivized to behave a certain way. They're incentivized to support an inflationary system that, like you said, maximizes opportunities for the wealthy and business, and socialized the downside via government borrowing.

A deflationary asset like Bitcoin is orthogonal to the very idea of socializing losses and managing occurrence, it's just completely outside of their incentive system. So when you look at is from that perspective, you can understand why they might say that, "Hey, this is not a good bet, because we don't want people to believe that they need to hedge against the system, because the system is fine. The system is set up so that if we need to print more and inflate the currency and manage the money supply, there's always somebody there as a backstop that's going to be able to do that for us.

So therefore, why do we need a hedge? There is no hedge." But they more or less said the same thing about gold. They're almost incentivized right now to make the same point about gold about Bitcoin, they just made the point in different ways, where they specifically looked and compared what happened with Bitcoin to Tulips and all this other nonsense, which is completely ridiculous, because I don't really consider Tulips an asset class. So we've never had a truly new asset class in 1,000 years as far as I can tell and Bitcoin represents that.

Now oil maybe was a new asset in the sense that it wasn't used in the way it was used post 1940, but still, it was there before. Whereas Bitcoin simple didn't exist 20 years ago, and it's worth $100 billion plus now. That's something that I think for a traditional Keynesian economist is very difficult to put into context versus what they're incentivize to do, which is maintain the status quo.

Peter McCormack: Well this is where, when I was going through the slides I was like, "There's just such obvious bullshit in here." A couple of things that really stood out on the first slide, I mean, when they said it's not an asset, it's like, how can you claim it's not an asset to begin with?

Bill Barhydt: Sure!

Peter McCormack: But that's your bias on the table. Then it says, "Do not show evidence of hedging inflation." Well what timeframe? Are you picking a very short timeframe here? Because anyone who's bought over I think, three years ago, almost certainly has hedged inflation, so that's bullshit. Then they start talking about volatility and the price of Bitcoin fell 30% in one day, but what did we see happen with oil this year?

Bill Barhydt: Or stocks! Go back to '87 or '98, pick your poison. So I agree, they cherry picked information there without actually giving everyone a whole picture, which is unfortunate because even if you wanted to make the point that they're making, which I wouldn't, you could do it in a way that's not biased. That actually presents to your earlier point, a whole picture, a holistic view of where this could fit in, "Here are the risks, here's the upside, here's the downside." The reality is, is they don't talk about...

They did mention hedge funds and volatility, but that's not really an asymmetric return opportunity discussion, that's a make money whether the market goes up or down and let the hedge fund guys deal with that, when the reality is is if you're really looking at what's going on, there's still a massive untapped asymmetric opportunity here for Bitcoin. For them not to even mention that in any way is disingenuous, it's dishonest and it doesn't actually gel with any reality that I've researched or seen. Their comments about scarcity... Sorry, I'm going to segue into something else, but their comments about scarcity were just pure bullshit.

To say that just because we created the coin and used the word Bitcoin in it, that it somehow affects the scarcity of Bitcoin? Well that's just pure nonsense. MIT college grads are forking Bitcoin all the time, we just don't know about it. They're having fun forking it! I think I used the terms Billcoin 1, Billcoin 2, Billcoin 3 to leave out the word Bitcoin. That doesn't affect Bitcoin's scarcity, because I just forgot to call it Bitcoin something.

So it just shows a complete lack of understanding, or they assume that the readers of their report have a complete lack of understanding. So by basically making an argument that they probably couldn't holistically understand, they would simply assume that Goldman knows better, which is very dangerous.

Peter McCormack: Yeah, well that was the thing when I was going through it. I was like, do they just not know what they're doing? Have they got the wrong elements on this? Who's taken a look at it and come to some kind of naïve conclusions? Which happens when you're new to Bitcoin, there's a lot to get your head around. I really like the point that you told people to go and read the document by Matt...

Bill Barhydt: Matt from Paradigm?

Peter McCormack: Yeah!

Bill Barhydt: Fantastic!

Peter McCormack: Because what Matt does really well in there, I don't know if he intends to, but he shows the complexity of how many things you have to get your head around quite early on. It's a lot! My understanding of Bitcoin I think is still rudimentary, three, four years in.

There's economics, there's game theory, there's technology, there's a lot of things to get your head around, so I couldn't figure out Bill, I was like, is this just somebody who's just out of his depth, doesn't really understand it, has gone for some cheap talking points, or have they started out from day one saying, "We need here to discredit Bitcoin and just put people off"?

Bill Barhydt: I think it's two things.

Peter McCormack: I think it's the latter.

Bill Barhydt: Well I actually think it's two things. I think it's Goldman Sachs version of click bait. I think Goldman has learned, like everyone else, that you can sensationalize a headline with Bitcoin and get a lot more attention than you would otherwise get. Two, it's their financial incentive for their client base to not be wanting to put 10% of their assets in Bitcoin, because they can't service those clients. So when you put those two together, it's a perfect storm for exactly what they did, which is to basically say, "We're going to talk about the recovery, which is going to look like a V," which they're financially incentivized for that to happen, whether you think it's going to happen or not.

I hope I'm wrong, but I don't think it's going to happen. They're also financially incentivized to basically say, "When it's happening, don't put your money in Bitcoin for these reasons", whether these reasons are true or not. That's what we got. I actually think it was probably one or two people inside of Goldman. Now when they send out the report, it doesn't say "Written by this person" to my knowledge. I don't remember the slides off hand. It says, "This is a report from Goldman Sachs, this group," and so it's representative therefore of Goldman Sachs' beliefs.

Now I actually don't believe that. I think it's representative of a couple of these very specific analysts and I actually believe I know the name of the primary person, but because I don't have proof, I'm not going to say it. But I think it more or less comes down to this one person, and I think it's a she, and she just doesn't like Bitcoin for whatever reason, which is fine. There's lots of people that don't like Bitcoin, but they also don't write about it and put the Goldman Sachs header on it.

So at that point if you do that and you're in my way, you either get out of the way or I'm going to run you over, which is what I chose to do in this case. But anyway, long response to your comment, I think that's what's going on. I think they understand like everyone else there's a certain amount of clickbait to be had in the Bitcoin space, for better or worse, often for worse, and they combined that with what they were going to do anyway, which is their economic outlook for post recovery.

Peter McCormack: But we had this with JP Morgan, they were the same a couple of years ago with Jamie Dimon writing it off. Look what we've seen this year! Their incentives have changed now and they're now doing business with Bitcoin companies and they're providing banking services.

Bill Barhydt: Sure!

Peter McCormack: So I guess at some point, either Goldman... There'll be a push or a pull, right? They'll be pushed or pulled into being involved in Bitcoin, but I still think it isn't an inevitability for them. I think it's an inevitability for anyone.

Bill Barhydt: I don't know. Look, I think that I consider Goldman Sachs to be a trailing indicator when it comes to technology. I went through this in the early 90s when I was first getting into commercialization of the internet, Netscape and other places. The internet analysts around the time of the Netscape IPO or beforehand were very bearish on the technology, "It's porn and gambling", sound familiar? Here we are all over again, and I consider them still to be a trailing indicator.

So in that regard, it doesn't really mean much to me personally, except that it has an undue influence on people that don't have that perspective, that don't understand exponential technologies, because the analysts are telling them that they don't understand it, like the same people that say Tesla's stock price is bullshit.

Those are the people that don't understand exponential growth in battery supply chain and electric cars etc, it's the same people that don't understand that we've never had a fundamental change in the way money works. Software is either world, except for money. Well guess what? Now it's finally happening for money and they don't want to accept that. So they're always going to be a trailing indicator, as far as I'm concerned.

Peter McCormack: Yeah, I think that's a good way of putting it. Well this is a chance to debunk it all. Let's go through it, because like I say, you've got four key areas, and I think it's important we cover each one at a time. The first one is that they just do not understand or want to acknowledge what a deflation asset is or what eventually happens. I think what's very interesting is what you put in there, because you did talk about the Ludwig von Mises, how he lays out the fundamental truths of monetary expansion and I'm going to quote the quote that you put in just so people can hear it, because this actually made me rethink something.

Bill Barhydt: It might bring a tear to my eye, but go for it. I don't want to get emotional now, it's kind of early in the morning!

Peter McCormack: Well, I'll tell you why it was interesting for me, because I was always like, inflation is just a natural part of the economy. Then I came into Bitcoin, I understand a bit about Bitcoin, and then started to realize, actually, if you're a saver and you're prudent, deflation is actually good for you. So I started to think, "Should we be positive about deflation?" But the quote here itself, "Economics recommends neither inflationary nor deflationary policy.

It does not urge the governments to tamper with the market's choice of a medium of exchange and establishes only the following truths", which are listed. People can see them, they should read your article, but the point being is that it's neither, and it's just that the market should be left to itself. I think it was a really good thing that you identified this, but we still have kind of inflation Stockholm syndrome.

Bill Barhydt: Sure, because we don't know... Well we have all been, in the West, pretty much globally now, even in communist China, indoctrinated into this idea that money is a government created asset, which at one point was backed by gold, but doesn't matter, it's a government created asset, where government, via some voodoo magic that they understand, and we're not really privy to understanding because we're not smart enough, controls the supply of that asset. Again, indoctrinated into the idea that that's the way it's supposed to be, and that's what's good for us. Well, who the fuck decided that?

So all he's saying, in a much more eloquent way than I'm ever capable of saying, "No, we made that up." It doesn't have to be that way! You can decide to keep it that way if that's what everybody wants, so be it, you get what you get. If you do it the other way, which is to say there is no government money, there's just, let's say, gold coins, which is what we had in Roman times I believe, then you have what you have as well. But either way, we made it up. What he's saying is is that maybe deflationary policy is better because you're actually not inflating somebody's wealth or inflating the treasury at the expense of the ignorant, which I think the problem with that point is it's the very people that are getting hurt that are the least likely to truly get it.

That's the problem I think ultimately with inflationary economics, nobody gets it until it's too late. Ask a 75 year old person in Argentina if they get it and why. They may not be able to use the terminology of von Mises, but they intuitively understand what we're talking about because they've seen their currency fail, like, what? Three times in their lifetime?

Peter McCormack: Yeah, at least!

Bill Barhydt: Right, at least!

Peter McCormack: It's happening again right now.

Bill Barhydt: It's happening again, exactly. Americans have basically gotten a free ride on this idea that the military industrial complex has preserved our role as a global reserve currency, but that's failing in front of our eyes, we just don't want to accept it. It's going to be ugly when it's done failing, and that scared the hell out of me. I don't necessarily want it to fail. I want my children to live in a happy, healthy place, but right now, I don't see how it doesn't and that scared me.

Peter McCormack: Well I think it's because a lot of us haven't experienced hyperinflation or mass inflation. We've always tended to experience this 1% or 2%. Actually, this is the bit that made me laugh. I don't know if this stood out to you, but on the very first slide about sovereign currencies, they dropped in there that a store of value is an asset that can be saved, stored, and exchanged in the future for a predictable or stable value, E.G, with 2% annual inflation, a nominal dollar today will be worth 82 cents in 10 years.

So they're actually saying right in front of your face that this is a store of value, but you're going to lose, what's that? 18% of it! There's no argument whether it's good or bad, it's just like this is going to happen to you, you're going to lose 18% of your wealth over 10 years.

Bill Barhydt: Well it's just ridiculous. Put hyperinflation aside for a second, normal inflation is death by a million cuts because the only reason, in my opinion, why there isn't rioting in the streets around how inflation works is is that as your money gets eroded in value to zero, most people die. Now think about what's going to happen in the next 50 to 100 years, pandemic aside. Lifespans are going to increase dramatically, we're approaching a singularity moment via computing power and we don't know what's going to happen when computers are able to basically figure out problems at a rate that's way faster than a human ever could. I think lifespans could go to 125, 150.

Now what happens when money starts getting eroded at 1.5-2% a year in value, but for a much longer timeframe for the average person? It's going to become much more acute that the value of what you have in dollar terms is going to go to zero. So I don't think that the dollar system is tenable when you have people living in a much longer lifespan, I really don't. I don't think it's tenable even without that! I think it becomes much more acute that it's happening.

The only difference is when it's hyperinflation, you can see it happening in front of your very eyes. Like going down a rollercoaster, as opposed to puttering along the highway in LA. But live 150 years and then I think people are going to say, "This doesn't work for me anymore, because what am I'm saving for?"

Peter McCormack: Yep, well I do also think some people haven't joined the dots. Well I know they haven't, because I think we're really exposed to this by being in the world of Bitcoin, but if you're not, a lot of people don't really think about money in great detail. I know because I've talked to friends about it. You ask what inflation is, it's like, "Well it's the cost of things going up." But they don't always join the dots, as that means that any savings you have are losing value.

Bill Barhydt: Right!

Peter McCormack: I don't think people actually realize that or if you're not getting above inflation pay rise, you're losing money every year. Some people don't actually join those dots.

Bill Barhydt: That's absolutely right.

Peter McCormack: I made the point, "Look, inflation is just another tax. It's a hidden tax, but it is another tax." Somebody came back and said, "No, it isn't."

Bill Barhydt: I came up in the fixed income economics world when I was at Goldman, and we always learned about the time value of money. In hindsight, I was basically fed a complete bullshit story. The time value of money, I was taught about it like a law of mathematics, almost, like this is the way it is. In hindsight, that's not the way it is, that's the way you made it up. But I wasn't taught it that way, I wasn't taught to believe... You basically apply a discount factor to the value of money to get a net price in value over time, because you erode its value. It doesn't have to be that way!

So I do believe that there's always a time value of money, but the time value of money doesn't have to erode over time. That's something that, like I said, that we arbitrarily made up. I think Bitcoin, to me, is brilliant not only in its technology, in that it solves the double spend problem, but that it's opening people's eyes to Austrian thinking of what a deflationary asset could be. The brilliant people that wrote about deflationary assets, before we actually had one, just blows my mind! Now we're seeing that playbook play out the way they predicted, which also blows my mind.

Peter McCormack: Yeah, that's one of the great things about Bitcoin. Actually, it's been really interesting with my children, I don't know how much your children have picked up some of this stuff by osmosis in the background, but my son certainly has. He asks really interesting questions about stuff like this. One of the great things for me, one of the best things that's come out of this experience, it's not the fact that I discovered a better form of money, it's not that, it's that I opened my eyes to understanding about economics, understanding the role of government and really corruption within government.

It's the red pill moment! I just did an interview with Daniel Buchner and I said, "I haven't really been red pilled, I've almost had an intravenous drip of the red pill." I'm just slowly over time getting more, but I like the world it opens you up. It's like this educational program you go to, and this rabbit hole of new ideas that you have to think about, almost like... I didn't vote in the last election because I realized I didn't want to be part of that any more, because it's just part of the same game.

Bill Barhydt: Interesting!

Peter McCormack: Yeah, there wasn't a candidate worth voting for, and now one of the books I've got downstairs which I started reading, which it's all against democracy. I've grown up with the belief that democracy is the best thing and democracy is better than a dictatorship, but is there something beyond democracy that's better? Maybe there isn't, maybe I won't find it, but the fact is that Bitcoin has taken me on this journey to start thinking about these things.

Bill Barhydt: Yeah, I don't know, it's tough. Look, I'm not an anarchist, I believe in the right sized government. I believe absolute power will corrupt absolutely and I believe absolute power unchecked will simply feed on itself into a positive feedback loop, and I think we do have, in my government in the US here, checks and balances that, thank God, have saved us from people who have tyrannical tendencies. But on the other hand, it's getting out of control.

Peter McCormack: It is.

Bill Barhydt: Financial regulation in our country is a mess. There is upwards of 100 regulatory bodies in myriad financial services in the United States and nobody can keep track of it. It's a regulatory racket! You've got lawyers at one agency that basically leave and go work at private practice and it becomes like a circular racket where basically they all get to eat at the expense of the average consumer who perceives no value from any of it. It's a shame!

Peter McCormack: Yeah, I was just going to say, and I think that the ultimate signal of this is the Treasury Secretary, Steve Mnuchin. I'm doing my own research into him a lot at the moment. He was head of mortgage services at Goldman Sachs and he was one of the architects of the 2008 financial crisis, as Goldman Sachs then shorted the market.

Bill Barhydt: Yep, that's right.

Peter McCormack: Then he leaves Goldman Sachs and sets up a bank and the banks ends up becoming a foreclosure machine, because financially they're incentivized to foreclose on people. So the people who he took the homes from, the people who lost their homes to the crisis that he was an architect from, he then helped foreclose on them, and now he's Treasury Secretary, somebody who's meant to represent the people, whilst flying around on private jets and his wife wears very expensive jewellery and designer clothes, saying that people should be able to live on $100 a week!

It's beyond gross. Point 2, back to debunking Goldman Sachs. Point 2 is that they didn't want to acknowledge or understand the true nature of Bitcoin's scarcity, the belief that if you can create another fork or coin, that you've created more Bitcoin, which is such a basic mistake.

Bill Barhydt: This was probably the dumbest point that I came across. I had to read it a few times, because I just couldn't believe what I was reading, that they would really say that Bitcoin is not scarce because you can create an infinite number of forks. To a certain degree, I'm not even sure what to say, because it's just like, "Oh my God, you just really just don't understand!" I also think to some degree they do understand, because otherwise they're just really dumb.

I think that they have readers who aren't exposed to Bitcoin as much as they are, who won't understand the nuance of what they're saying, and will simple believe them, because it further entrenches their point that they shouldn't be buying Bitcoin, which helps them, since they can't offer them to buy Bitcoin. So it's obvious to anyone who's studied Bitcoin that a hard fork of Bitcoin just doesn't matter, it's just more software right? The fact that Bitcoin... Bitcoin is a matrix, it's like being inside a matrix. If you choose to copy the matrix into another computer, that's your problem, that's your deal, go do it. MIT grads do it all the time for fun on the weekend.

That's how they roll. It has nothing to do with the Bitcoin matrix! If you choose to live inside the Bitcoin matrix, it is provably scarce today. Yes, there are ways to change the scarcity if people decide that Bitcoin should have 42 million Bitcoin instead of 21, it is possible to fork Bitcoin to do that. As we saw with the 2X debate a couple of years ago, that is highly unlikely to happen.

So it is, in its current state, provably scarce. If somebody or a group of people on the network were to create a version of Bitcoin that became the Bitcoin that made it un-scarce, its value would plummet. That's fine, that's probably the way it should be! They did not in any way recognize that. They said the opposite of that, which just blew my mind.

Peter McCormack: Yeah, we all know that Roger and whoever forked Bitcoin Cash, and then we have the fork of Bitcoin SV. But we all know the fatal flaws that Bitcoin SV is highly centralized and is essentially led by a couple of crooks.

Bill Barhydt: That's fine, I don't really care. We could all have our opinions on it. That doesn't matter to me, it really doesn't. I had this discussion with Saifedean on another podcast where we talked about the spectrum of decentralization, and it's almost impossible to create a new decentralized currency because Satoshi was able to do it in a way where nobody knew what he was doing in the very earliest days, which is fine, I get that. But it doesn't really matter, they could all be crooks. Let's assume 100% of people forking Bitcoin are crooks, or let's assume 100% of them are unbelievably honest people.

Either way, my point is still the same. The scarcity of Bitcoin remains untouched, unscathed, provably correct in today's form, regardless of what everyone else does with their bullshit fork. It just doesn't matter! Actually, point 3, the segue for you is more or less a continuation of point 2, which is to say they don't understand the nature of how it works, or are purposefully ignoring what a hard fork actually means. They said, I'll just read it to you, "Individual currencies have limited supplies. Crypto as a whole is not a scarce resource." Then they listed hard forks to prove their point.

What the fuck?! Again, if I go out and fork Bitcoin and create Billcoin 1, Billcoin 2, Billcoin 3, that does not affect the scarcity of Bitcoin at all! I cannot even believe, like I said, that they wrote that. The only conclusion I can come up with is is that they don't want people to understand the true nature of Bitcoin's scarcity in its 21 million form and the fact that as [Inaudible] approaches 21 million out to infinity because they're financially incentivized for people not to understand that.

Peter McCormack: Well scarcity is a thing people have to get their head around as well. Prior to Bitcoin, I'd never considered gold as a scarce asset, which is why it had value. I thought gold had value because people wore it as jewelry. That was just my assumption! It's jewellery and it's expensive.

I was kind of interested, I'd never really gone into the whole scarcity and I'd certainly never looked at a stock to flow model before. I think scarcity is a tough thing to get your head around, but I think it's almost a thing that if people understood first, it would be easier to convert people into Bitcoin.

Bill Barhydt: Maybe. I came up through fixed income, we didn't focus on stock to flow, it was all about interest rate movements. So I think for me, I get that gold is scarce and that Bitcoin is potentially infinitely more scarce over time, which the idea that you could have an infinite stock to flow ratio is a very hard thing for a lot of people to get their mind around. Stock to flow is a very simple concept. How much do I have? How much do I increase it by at any given time?

That's my stock to flow. If I'm increasing it by zero over time, in theory my stock to flow should go to infinity, which should speak volumes for the value of that asset over time. But that's orthogonal. To every idea we've been taught about economics and money and school and assets, it goes back to point one about why do we have an inflationary asset versus a deflationary asset.

To von Mises' point, well, we made it up! We chose to make it up in a way that hurts the masses versus the Treasury. Anyway, this whole point about forks was so infuriating to me. Not so much that they got it wrong, I think it was purposefully misleading to their own benefit.

Peter McCormack: All right, let's get to the last point. They associated Bitcoin with scams and Ponzi schemes without acknowledging the internet's own sordid past and beginnings and parallels to Bitcoin's own potential market maturation. That's a really important point, because porn is always innovated with tech.

Bill Barhydt: Absolutely! If you look at online video, internet, .com sites, even credit card processing, to my knowledge, the first major credit card usage online was porn. I'm not saying I love it, I'm just saying it is. So it's simply been diluted over time with everything else we use the internet for, learning at home, Zoom, whatever, Netflix, whatever the hell people are doing, which is fine. I also don't have a problem with people wanting to use porn. Go do it, I don't care. My point is is that all these sordid things are there for a reason, and they're there because a lot of people use them, whatever I like it or not.

I don't really have a problem with online gambling. I don't do it, I'm not interested in it, but if people are, have at it, I couldn't care less! Anyway it's silly, but it also reinforces what I said earlier to me, which is that this is exactly how tech analysts looked at the internet back when Netscape went public, and in my mind, as a result, remain a trailing indicator for where this is going. So if you want leading advice as to where this stuff is going, you're not going to go to Goldman Sachs. There's people like Cathy Woods, for example, who I just adore. She talks about exponential technology, she follows Bitcoin, she follows in her UTF work Tesla and Videa, companies that grow exponentially, where she's a leading indicator.

In the Wall Street world, there are leading indicators out there, and Goldman is not one of them. So to put a positive spin on this, there are places you can go that aren't just our self-reinforcing, let's call it Bitcoin bubble, that will tell the truth about where things are going with their own financial incentives, as opposed to the opposite, which is what Goldman is giving us.

Peter McCormack: Well this was a big, scary slide, right? Let's be really scary. They talked about PlusToken, but PlusToken isn't a fault of Bitcoin.

Bill Barhydt: It just doesn't matter.

Peter McCormack: But the two things that really pissed me off, this really got to me where I got angry, the first one was money laundering. The banks themselves haven't been involved in money laundering themselves!

Bill Barhydt: Not only that, but the biggest money launderers in the world are US banks. I've had this conversation with US regulators, the OCC, I've literally said that to executives at the OCC and they look at me like I've got three heads, like, "Who the fuck is this guy, and how could he possibly say that to my face?" I said, "Well get your heads out of your ass. Everybody knows it. I'm not saying it's good or bad, I'm just saying it is what it is," so the idea that you would associate Bitcoin with money laundering as Goldman is just a complete joke.

Peter McCormack: Yeah, also I come back to this point often, but I actually think if I was going to commit a crime right now and I had to move money around, I think Bitcoin would be one of the last things I would choose.

Bill Barhydt: Oh, absolutely! Look at the FBI, they love Bitcoin. They love Bitcoin because it creates more traceability in a bare instrument than traditional cash. But the equivalent with cash would be taking the serial number of every dollar bill, putting it in an Excel spreadsheet, and making sure that everybody told everybody else the serial number of the money they were using. That's more or less what happens with Bitcoin.

But I had to say that, because I don't want to give them the idea, but that's more or less what Bitcoin does. I'm not saying it's good or bad, it just is. That makes it highly traceable if you know what you're doing. Now I'm not suggesting that I like all these services that go out and trace what's happening with wallets, I wish they would just leave everyone alone, but they're there. It's proven that its traceable. So to say that it's useful for money laundering is just crazy.

Peter McCormack: And the last thing they did, this is a personal one, it's a tougher one to explain to people, but the dark net market thing annoyed me. I'll tell you why it annoyed me. Firstly, it was my introduction into Bitcoin, both times, actually. First time as somebody who wanted to go to the Silk Road to get some things, but the second time, obviously, I've talked about getting something for my mother.

Now I understand there's some horrible dark markets out there selling vile, horrible things, but there are dark markets out there, I think the name dark market and the dark net market is actually also misleading, it should be called a liberty market. If you wanted to buy, I don't know, drugs, I think it's a liberty market, because it's allowing you to do something you want to do.

Bill Barhydt: Right! The worst named law in US history is the Patriot Act. There's nothing patriotic about it. So why don't we just call them patriot markets?!

Peter McCormack: But that one annoyed me, but then the whole slide, I'm like, "This one here is just here to scare the shit out of people." Look, this whole thing, it was a bait. I got baited and I was like, "Amazing, Goldman are going to be talking about Bitcoin, finally they accept it and finally they understand it." Then out it comes and I was like, "Fucking fuck those guys."

Bill Barhydt: Right! I did a TED Talk on Bitcoin, I think it was 2012, it was very early.

Peter McCormack: Did you?

Bill Barhydt: Yeah, it was the first one.

Peter McCormack: I didn't know that.

Bill Barhydt: Yeah, it was trading at about $2. It's online somewhere, but it's a...

Peter McCormack: I'm going to find it!

Bill Barhydt: Yeah, it's not a very good recording. But it's out there. I had never used Silk Road, and I had never even used Tor at the time. It was really hard to install and I have a degree in computer science, I'm a pretty smart guy! This took me a really long time to do. You got to be motivated for this shit. It was my first introduction to the dark net. I actually had Bitcoin already, but I hadn't actually used the dark web.

So it was fascinating. Part of what was fascinating to me was how hard it was to do. It wasn't easy! But to your point, there is hundreds of thousands of people doing this every day, and there's a reason why, because they feel that they have the right to do this and they don't want governments telling them that they can't. Look, I believe that people doing child pornography online should go to jail. I believe that.

Peter McCormack: I agree.

Bill Barhydt: I know there's a lot of anarchists out there in the Bitcoin world that don't believe that. I think they're fucked up in the head, but that's what I believe. But I think there's a lot of things that happen on the dark web that people should simply be allowed to do because they're not hurting anyone except maybe themselves. But I don't need the government to tell me if I can or can't hurt myself.

That's the difference in how I look at it versus I think a lot of the other anarchists who think it should be a free for all. But yeah, so to your point, I think dark web is probably a misnamed virtual place on the internet.

Peter McCormack: I think we can conclude this by saying, "Fuck you Goldman, just fuck off!"

Bill Barhydt: Yeah, I don't know. I'm in the Goldman alumni group, I don't know if I'm going to get thrown out after this, but it's okay. My guess is if I choose to give them my money, which I don't right now, maybe they'll still take it.

Peter McCormack: Yeah, you're one of us. But look, you've been around this Bitcoin thing for a lot longer than I have, you've fought in the trenches and been through the mill more than most people, how do you feel about where we are right now? It feels like there's a lot of weird shit going on in the world. We talked about that early on, and it's almost like we're very lucky to have Bitcoin alongside all this weirdness going on. How do you take it all in now, having been in it for so long?

Bill Barhydt: It's so early. We've never had a new asset class, like I said, in any of our lifetimes. I love the updated cross asset stock to flow article that Plan B published, which talks about... He has this idea of clusters. I have the link and the graph, the key graph in the article I published yesterday, and he basically equated those clusters to use cases.

Cluster one was proof of concept, where there was probably a couple hundred people that really cared, payments, which was really dark web was the second cluster. We're in this third cluster now, which is e-gold, by definition, when it's being hoarded, it's being hoarded by a relatively small number of people.

Peter McCormack: I thought we were in cluster four?

Bill Barhydt: I don't think we're really in cluster four yet. I think we're transitioning into it, if I understand correctly. I'm not sure, I may have that a little bit wrong. But I think the point about e-gold was if you look at volumes post 2017, trading volumes were very muted and the price was driven by the fact that there simply weren't a lot of sellers, period. Are there buyers, yes or no. But there aren't a lot of sellers because most people are holding. Even today, that's the case. If you look at the volumes right now on the changes, they're not huge by any standard.

It's just that the sellers are pretty low and we'll see any given day how many buyers there are. If it really moves into that financial assets cluster like he or she's predicting, I think... Look, all models are wrong, just some are more useful than others. I fundamentally believe that. His model is wrong, I just don't know how wrong. If it turns out to be useful, look out! We're in for a hell of a ride, but it's the best model I've seen, which makes it super interesting to me. So yeah, in that regard, I think Bitcoin's got a very interesting five years ahead, very interesting.

Peter McCormack: What's cluster five?

Bill Barhydt: Oh God!

Peter McCormack: That's what I've been thinking about that.

Bill Barhydt: Reserve currency? If it's reserve currency, look out.

Peter McCormack: Yeah, I know. It only has to take one state to do it as well.

Bill Barhydt: Yeah, I don't know that it has the... Well, I guess layer two and layer three would deal with its ability to move around in large quantities to make it a reserve currency. In its current form, it wouldn't work as a reserve currency because you just can't move enough of it across enough entities in real time. But if it evolves in that way, I can certainly see it happening.

Peter McCormack: Yeah, perhaps maybe on Liquid.

Bill Barhydt: Maybe. I think even that's very early. I don't think we fully have realized the banking equivalent stack for what layers two, three and four would have to look like to make it a... What do they call it? A global reserve currency. But I think a lot of smart people, people smarter than me, are thinking about that, and that's great. That's going to take another 10 years.

Peter McCormack: What do you think are the most important things now? Where's your focus in terms of the next five years for Bitcoin?

Bill Barhydt: Well at Abra, my focus is making it super easy for the average person to buy, hold, trade, invest in Bitcoin using their bank account, using other stablecoins, whatever they want, anywhere in the world. We have customers in 100 countries, new products from us this year and people are able to generate interest in their Bitcoin and people can borrow against it. We're doing institutional lending now, people that want to make high yield on their Bitcoin, kind of creating our own banking stack for Bitcoin, but in a very safe, secure, methodical way, and we've been at it for five years.

So our million plus wallets are growing at a steady rate and to us it's a very long marathon. We're committed to being a key player in that ecosystem and continuing to innovate and drive value for people and hopefully getting closer and closer as we go to the average consumer, because it still tends to be more of an initiated person as opposed to an average consumer. I think that at the end of this next five year cycle, we'll be much closer to the average consumer. Whether they know they're getting Bitcoin or not, we'll see, but I think that's where we'll be.

Peter McCormack: How are you enjoying getting into the podcast game?

Bill Barhydt: Look, we do it for Abra. You go way deeper! But I enjoy it in the context of we have a lot of loyal users. We get feedback from them on what they're interested in, and we focus and go very deep on that. We don't really do anything else. So in that regard, I'm happy to do it.

Peter McCormack: Are you enjoying it?

Bill Barhydt: I do! One, because it's generally topics that I'm interested in, and it breaks up the average day for me as a CEO in dealing with all the stuff that a CEO has to deal with, whether it's people's personal issues or the company's revenue or product planning, it's a good mix for me. We only do one every couple of weeks, and so sometimes we cluster them and then release them on stage way, so it's not like you, where you're probably doing multiple a day sometimes.

I just don't have the time for that. So that actually makes it even more enjoyable because we get to pick and choose the things that are probably most enjoyable to our more focused audience, whereas you have a much broader audience, right?

Peter McCormack: Yeah, of course. I guess your whole team's remote right now?

Bill Barhydt: Of course. We've been remote for almost three months.

Peter McCormack: Do you think you might stay that way?

Bill Barhydt: I would love to, but I'm not speaking for the whole company. I don't know, it's a good question.

Peter McCormack: It was one of those reset opportunities, right?

Bill Barhydt: Yeah, I'll tell you where it gets tough. You and I have teenagers, I have employees with infants. They have it tough! Being there in the house full-time with an infant with the outside help that you had paid before being unable to help and still maintain a full-time job, that's not easy. So I think those people would be glad to have an office right now.

Peter McCormack: Yeah, even with a 10 year old and a 16 year old, there are multiple times in the day I'm having to stop my work, go downstairs, say, "Can you stop fighting?" Or, "Can I help with the homework?"

Bill Barhydt: Or, "Stop screaming at the video game," in my case.

Peter McCormack: Well there's that, and what do you want for lunch? Then also just I have to take them out. We have to go out and do something every day. So my 8 hour day is becoming a stretched kind of 15, 16 hour day. But look, this has mainly been good, so I don't really want to whinge about it, but I did this other show, and I spoke to Sam Lesson.

Bill Barhydt: He's great.

Peter McCormack: Yeah, he's really, really great, really interesting guy. But he was saying a lot of people aren't going to want to go back to the office. It might not completely go. It might be people go for one day a week or two days a week because they want the interaction, but companies aren't going to need these huge leases anymore, which might change the whole geography of cities.

Bill Barhydt: Yeah, it's interesting that you use him as an example, because we've spoken in the past, and he's got a beautiful house right smack in the middle of San Francisco. That's an example of a place that's become a disaster as far as I'm concerned. This may be the beginning of the end for the current model of San Francisco, where all these big unicorns just don't want to be there anymore because their employees are like, "Fuck this, I can't afford it."

There's homeless everywhere, and drugs in the streets, this used to be paradise, and it's become hell on Earth for a lot of people, which makes no sense, and it doesn't have to be that way. Not to pick on San Francisco, there's a bunch of places that I think are facing this.

Peter McCormack: Yeah, but San Francisco is particularly unique.

Bill Barhydt: Oh, it's unbelievable.

Peter McCormack: I've noticed it going over there for... I first went there, how old was my son? I was 30, 11 years ago and it was great. I had such a good time and it was beautiful! Every year I go once or twice, and it's just got worse and worse. The last time I discovered the Tenderloin and I feel dreadfully sorry for anyone who's homeless and with a drug problem. I've got nothing against it. But not only did I run through the Tenderloin, I was like, "Well what the hell is this?"

But also, just outside shops on main streets I saw people, like I saw one guy who was just off his face shouting at the street. There was no one there, he just didn't know what he was doing. That's just not something you can cope with. It needs some support infrastructure around it. I don't know, I just feel very sad about what's happened to San Francisco.

Bill Barhydt: I do too. I moved here, I think it was 1990 when I was working at NASA and going to Stanford. I couldn't believe it. I had never been west of the Mississippi in my life, and I got to California and San Francisco and I was like, "Oh my God, it's paradise!" It was right after the earthquake where there was significant damage, that B Street area by the Palace of Fine Arts was all destroyed, but it was still beautiful. Now I walk around the south part, like Soma, Tenderloin, even Hayes Valley now, which even two years ago Hayes Valley was fantastic, overrun.

There's this, I hate to say this, but there's this liberal, progressive lack of tough love. Over the last 10, 15 years, the kind of progressive liberal mentality has basically played off the tech company boom, which wasn't San Francisco based years ago, it was more in the Peninsula. It was supported by suburbia and when it moved to the city, the progressive liberal mentality basically couldn't handle the tech boom, and there was no tough love that it takes to manage a city. Like Giuliani in the mid nineties or early nineties in New York, he may have become a nut in the last few years in many ways, but they changed the city.

If you want to live in a city where everybody's on top of each other, you have to play by a different set of rules than when you're in an environment like I am here, where everybody is spread out. Don't live in a city and agree to live on top of a million other people if you're not willing to play by stricter rules. It makes no sense! But yet San Francisco has this live and let live policy that makes more sense for Montana than it does for the Tenderloin. Until the liberals in that city change that mindset and agree that they need more tough love to manage their city, it is going to continue to get worse, not better.

Peter McCormack: Yeah, it is such a shame. You're right about New York, the first time I went to New York, you didn't really go to Brooklyn. I mean you could, but you certainly wouldn't go at night.

Bill Barhydt: Yeah, that's right.

Peter McCormack: The last couple times I've been to New York, I actually prefer to stay in Brooklyn now.

Bill Barhydt: Well my family's from The Bronx and I would go into The Bronx as a kid to visit my grandparents, and in the late seventies it was horrible. That whole Bronx is burning, it was a real thing. I remember when we had the rolling black outs and the riots and looting, and it slowly got better, and it really culminated under Giuliani's policies where the city got the tough love that it finally needed.

A lot of liberals said, "Hey, this is unfair, it's unjust, you're treating homeless horribly." The reality is they weren't. There were programs in place to help the homeless and it's possible to have both. You can have tough love and you can care and basically do what's right by people who are less fortunate without basically creating this cesspool of nonsense that has basically pervaded San Francisco.

Peter McCormack: Yeah, well, listen, I hope it changes, because I love San Francisco and I love California.

Bill Barhydt: Same!

Peter McCormack: I'm not going to stop going there, but I don't know, I just don't get as excited anymore. I'm like, "Where am I going to stay?" I actually even considered last time staying over the bridge just for something different, because I like it over there. I think if I lived there, that's where I'd probably live. Well anyway, look, Bill, this is great, I'm going to get this out tomorrow. We're going to debunk Goldman Sachs, fuck those guys and good to see you!

Bill Barhydt: Yeah, you too!

Peter McCormack: Sorry we're not doing it in person, but I'm sure at some point when the planes are going, I'll be back over and we'll go for a steak.

Bill Barhydt: Yeah, always great to see you. I'm looking forward to watching you next week on Ryan's conference. I'll be watching.

Peter McCormack: Yeah Monday, right? I should be getting my shit together with that, so great! Well listen, look, have a great weekend and I will see you soon.

Bill Barhydt: Thanks Peter!