WBD232 Audio Transcription

Bitcoin's Time is Now with Preston Pysh

Interview date: Friday 12th June 2020

Note: the following is a transcription of my interview withPreston Pysh from the Investors Podcast. 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 talk to Preston Pysh, author, engineer & the host of The Investor Podcast. We discuss the global macroeconomy, deflation vs inflation and why now Bitcoin is more important than ever.

“The thing that is creating this destruction, which is the decades-long of inflationary monetary policy, has actually sowed the seed of opportunity to counter it, and I think that counter is Bitcoin.”

— Preston Pysh

Interview Transcription 

Peter McCormack: Morning Preston, how are you man? Pretty early where you are.

Preston Pysh: Peter! How are you doing man? It's been a long time. I've never really had the opportunity to chat with you so I'm excited to do this.

Peter McCormack: I know. I see you all the time on Twitter dropping really, really interesting financial knowledge bombs. I've listened to your podcast in the past, I know you're there and I can't believe we haven't connected before. But I'm glad we're doing it, and I think we're doing it, probably at the perfect time, right?

Preston Pysh: We are doing it at the perfect time.

Peter McCormack: Perfect time! Everything is fucked up right now, and everything's going crazy. Look, I always want to learn from my guests and you're a traditional finance guy, but for people who don't know you, let's... I don't often do this, but I want the backstory on you, because it's going to direct some of my questions. Give me the Preston backstory.

Preston Pysh: So going way back, I've always been a math guy, just really love doing math! So I did aerospace engineering in my undergrad, I went to a military school and upon graduation, you get commission into the army. So I was like, "Well if I want to do something, I better do something that's fun." So I became an attack helicopter pilot after I graduated.

Peter McCormack: That's fucking cool!

Preston Pysh: Yeah, it was awesome! It was absolutely incredible?

Peter McCormack: Was it like Airwolf?

Preston Pysh: Yeah, minus all the corny scenes!

Peter McCormack: Oh man, that's cool.

Preston Pysh: But yeah, so it was really neat. But I wasn't doing any type of... Although my degree was in aero engineering, I didn't necessarily use that whenever I was flying in the army. You're not really doing any of those things. So for me to scratch the itch, I started really getting interested in investing, because I always felt like there was some type of mathematical way to determine the value of a company. So that led me to Warren Buffett and this whole Ben Graham approach to investing, where they're calculating the intrinsic values of businesses, and then if they think the value's $100 and it's trading at $50, well then they start loading up on it.

So I started really getting deep into this stuff, because I found it just fascinating and a really difficult puzzle that you're always trying to solve. It led to me writing a book about it, it led to me doing the podcast about doing valuations on businesses, and constantly doing those updates and talking about which companies look good in the market and whatnot, which then led to me really getting a fascination with macroeconomics and then studying some of the greats that made all their money in macro. I like Ray Dalio and some of those folks and here I am. So it's been kind of a cool journey!

Peter McCormack: And you get the Bitcoin thing! I've noticed amongst the finance dudes... My background isn't finance, my whole background has been creative, I'm from the world of advertising, right? My brain just thinks in colours and pictures. That's why doing this podcast, for me, has been really interesting, because so much of it is tech and economics, and they're both really difficult subjects for me and they don't come to me naturally. But I have noticed that in my time at Bitcoin, there's more of these finance dudes, like yourself, like Raoul Pal, Dan Tapiero, I always pronounce his name wrong.

But there's the finance guys who get Bitcoin and then there's finance guys who don't get Bitcoin, and it's kind of binary. What do you think's going on there? I've got my view, I just think some of them either haven't spent enough time looking at it, or they don't have the incentive. I have the incentive to get Bitcoin, because I'm not a rich dude. I don't have a lot of money. If Bitcoin works out, my pension's going to be great. So I have an incentive to learn about it. If you're worth billions and fucking billions, have you really got an incentive?

Preston Pysh: No and I think you highlight a great point there. I think the other thing that is a key distinction that I've noticed, at least in the finance realm, is the macro guys seem to be much more open to the idea of it than value investors, or momentum investors, or people that are really just looking at individual companies just from an equity standpoint, or even in the bond market. Because think about it, these guys in the bond market since '81 literally could have just fallen asleep since '81 and if they had a long-duration bond, they murdered it. They didn't even have to try.

So I think that's probably why you're seeing a lot of the macro guys come to it first because they're looking at the systematic piece to the global economy, and they're saying, "Hey, this is beyond broke. This is systematic, nuclear-reactor meltdown broke." So I think they're searching for, "Okay, well then, what are some options out there? How could this potentially work itself out?" I think that's why you're seeing guys like Dan and Raoul, and there's a lot of others. I just talked with Luke Roman and Grant Williams. Grant Williams is the other founder of Real Vision with Raoul, and they're both like, "Yeah, we don't really understand it," was their comment, "But do we think you should own it? Yeah, we think you should own it. We just think that you should listen to other people that know more about it."

So then, I guess whenever I hear things like that from two really smart dudes, really smart macro guys, I'm thinking to myself, "Well, what is it that they're not understanding?" I think it really gets into the technical side of the protocol, like the two-week difficulty adjustment, how does that harmonize with the four-year halving cycle? How are they working together?

All of those things, I think people just look at it and then you get into the encryption side of it, then they're saying, "Well, atomic swaps," and all this other stuff that you can see from afar on Twitter and they're using all these fancy names, and they're just like, "My God, I just don't understand all that. But if it is actually paying in money and there is a scarcity to it, well then there's probably something there," is pretty much I think how they're... They're not willing to step into it further than that.

Peter McCormack: Yeah, it's funny you should say that. I was talking to my son about it yesterday. He's 16, and he's just starting to show a little bit of interest in money because he's pretty good at saving his Christmas and birthday moneys. He puts a bit away here or there and he's got himself to the stage where he's got about £1,000 saved. He's got a little bit in his PayPal account and a bit of cash. He opened himself up a bank account, which I was really proud of him just for going through that process on his own and doing it, but he was like, "Dad, should I buy some Bitcoin?"

I said, "No, you don't need to do it at the moment, you stay in your liquid cash. To be honest, when I die, you get all my Bitcoin anyway, so don't worry about that for now, just focus on earning money." But he pushed me on this and he was like, "Dad, if you really believe in it, shouldn't I have some?" I was like, "Okay, fair enough." So he said, "Why is it?" He wanted to know why I cared about Bitcoin and I said, "Well you know what Connor, understanding money, understanding economics, is quite difficult. There's a lot to understand about the macro economy and the micro economy, how businesses work, really, really complex systems, these financial systems." I've also been doing this deep dive...

I don't know if you know, but I've been doing the background into Mnuchin, and whilst I've been looking into Mnuchin, I've been looking at all these different regulatory bodies and I just said, "It's really complex" and I said, "But the really cool thing about Bitcoin Connor, is there's only two things you really need to know. There's only going to be 21 million Bitcoin, and every four years, the amount that is released in the block reward, halves. That's it, that's all you need to know! That's it, that's Bitcoin and it's that simple."

He's like, "Why is that important?" And I said, "Because rather than having a few guys in a room trying to figure out how the economy should work for millions and millions of people, you've got one set of rules that everyone else has to adapt to and because of that, the incentive is on you to make it work for you, rather than a few people in a room trying to work for millions." That simple explanation worked for him, because he came back to me and he said, "Okay, I get it" and he was like, "Then life is about my choices." I was like, "You fucking nailed it" and he's 16!

Preston Pysh: Bam! You know, sometimes I find your best questions in this space don't come from adults, they actually come from the younger population that you're describing there, because they're always going on the first principles. They're asking the questions that get to the root of why it is important. If there's one thing that I would have added to what you're talking about, there's only 21 million coins, and the supply that's getting dropped in the market gets cut in half, the last thing that I would add is, not only does it cut it in half, but the protocol ensures that the people that are mining it stays profitable.

For a young kid that's probably not going to sink in real well, but I think for adults when they hear that, so many of them forget that the difficulty adjustment is what allows the four-year halving cycle to work because if you're a miner... I was talking to this stuff on Livera last night, and the example that I was saying was, imagine we were talking about gold miners, and tomorrow morning they wake up and they literally collect half as much gold as they collected the day before. Well the problem that they're going to run into is most are not going to be able to stay profitable at that point or profitable long enough until the price starts to run and realize that supply cut.

So imagine that same scenario, where the people that are mining it, and they're only getting half as much, but they're able to mine it at a speed that gets incrementally faster so that they actually start catching back up to the margins, thinking of it as a business, they're able to start capturing the margins that they were just very recently, even though the supply was cut in half. That's the part that I think so many people who are looking at it just don't even understand it, A, because they don't understand the solvency of businesses that are in this and when I say businesses that are in this, I'm talking about the miners. They are in this to capture margin, period.

The margins are not fat for a lot of them, unless they're getting electricity for free, which I don't think is the majority. So the fact that you have this two-week difficulty adjustment that's working in harmony with the four-year halving cycle, they're very far apart in time so they seem like they're not coordinated, but they are 100% coordinated, and they ensure that the miners stay profitable. People ask me all the time, they say, "Preston, what would be a signal for you that this thing is falling apart, and that it's a failed experiment?"

For me the thing that would signal that to me is if you see the miners start dropping out of this. That's sending a signal that they're not profitable any more, there's no money to be made and there's no capture. But we're seeing the exact opposite of that! When I'm looking at this incoming difficulty adjustment that's happening next week, I think it's coming in at +15% and all these miners are jumping into the market. We're only two epochs from the halving event and this thing's coming in at a +15%. It's insane!

Peter McCormack: Are you one of these people who believes in gold as well? Because one of the things I struggle with Bitcoiners is, and I always challenge them, I always throw shit out there that people don't like, but I'm not one of these people who says, "Oh, gold is just some yellow rock. It's some archaic..." I'm one of the people that believes that, yeah, there may be a transitionary period where eventually Bitcoin is the most important asset to hold, but I'm looking at the economy right now and I'm looking at this potential meltdown.

We've had a 20% drop in, I think it is, GDP in the UK in a month, in April and I'm thinking, "I need to protect myself here." I'm not thinking, "Put it all in Bitcoin." I'm one of those people who's thinking, "Right now, it would be sensible to hold gold and Bitcoin." Are you the same? Or are you like, "Fuck the gold!"

Preston Pysh: I'll put it this way. If Bitcoin didn't exist, I would be probably one of the biggest gold bugs in the world right now and I would own gold miners, I'd own all that stuff. But Bitcoin does exist and where I think gold is going to run into a problem is it's so slow to transact. So if I have a bunch of gold and I want to sell it, the speed at which I can offload that is... You're majoring at a miles per hour, and maybe days. You are majoring in days, you might even be majoring in months depending on which country you're in! So my concern is, throughout history, when you go through a currency crisis, it's all about how fast can you get into whatever the new currency is?

Or into some type of sound money, call it gold? That's what it all comes down to. So if you're having to sell stocks, wait for two or three days of clearance of transaction, then swapping that over into some other exchange, then buying gold and waiting for it to arrive at your house, only to look out your left window and see Bitcoin go meteoric, 150% in a few months, and say, "Oh crap, I got to get rid of this gold because I need to own that thing that looks like a rocket ship."

That's my concern with gold, is I think it's going to perform great relative to the stock market, I think it's going to perform exemplary relative to the bond market, I think it's going to probably outpace most commodities because they're not going to have the demand signal that they've had historically, at least in the short interim period when a lot of this is going down, but relative to Bitcoin, it's going to be a travesty. Dude, when I plot the value of gold in Bitcoin since 2012, it's down 99.96%. So how do I think it's going to perform...

Peter McCormack: Yeah no, I get that. But I think everything compared to Bitcoin in the early years has performed poorly and I think perhaps you're right, over the next 5, 10, 20 years, but I also think there's some risks with Bitcoin which makes it a little bit sensible to just keep gold on the radar. For example, we still don't know if Bitcoin becomes a threat, that someone like Mnuchin will come on hard on Bitcoin.

We don't know if the US government will be like, "Well we can't control this Bitcoin, this is a bit risky for us, we might have to regulate the shit out of it." That's the thing I think we don't know and I was just thinking, there's certain risk aspects with Bitcoin that might mean it makes sense just to hold a little bit. When people talk about a balanced portfolio, it makes sense to own a property, for me. My property will perform terribly compared to Bitcoin, but it makes sense to hold one.

Preston Pysh: Peter, I think you bring up amazing points and I completely agree with you that for anybody that's stepping into Bitcoin and saying, "This is going to be it no matter what, everything else is dead," that can be a extremely, extremely risky place to be. Going back to your argument about them confiscating, or how are they going to respond to it, or how are they going to regulate it, I think gold faces all those same problems. Historically you go back and you might even argue that their ability to enforce it is even stronger with gold than it is with Bitcoin, because boating accidents and all sorts of things that people can say. "I don't have my keys," or, "I lost it," or whatever.

With gold, if they have it in a safety deposit box or whatever, "Hey, this person purchased $10 million of gold. Let's go over their house and look for where maybe holes were dug in their backyard." I don't know, it's a really difficult question and when you're dealing with what we're about to experience in my humble opinion, there is no right answer to know how you should be positioned with 100% clarity, because there's no way to predict how policy and government actors are going to respond to the things that are playing out. I was talking with Jeff Booth, just in a private conversation, and I proposed an idea to him. I said, "Jeff, do you kind of feel like just taking the whole argument and flipping it on its head?" So these central bankers need something, they clearly know that the ship is sinking, and it's sinking in a major way.

When we look at the rioting and the fact that we've got people literally taking over cities here in the United States, anarchists taking over cities here in the US, if I'm a central banker, I'm very concerned. I'm thinking, "My God, are they coming for me next once they finally figure out the farce that's been in place for so long?" So maybe, and let's literally do a 180 on this, maybe they need Bitcoin. Maybe their opinion shifts to, "Hey, this is the only thing that can save the global economy, so we need to let this..." Maybe they start championing the idea. When I told Jeff that, he kind of smirked, he says, "I think that could totally happen, Preston. I think that could totally happen! But who knows?"

Peter McCormack: Well, I've always thought... I always assumed that some government somewhere must be loading up on Bitcoin, even a little bit. You'd be stupid not to, right? You'd be stupid not to be looking at Bitcoin and thinking, "We should load up a little bit." But any government that is secretly building that back up Bitcoin for the government, the day they announce that, the price goes parabolic. So I'm with you on that. I don't know, it just depends on... I don't know.

I think there's lots of risk factors. But listen, look, I agree with you generally speaking. Look, we spoke before we started, I always want to think of a good topic to hang a show to and I do believe now is Bitcoin's time. It's a really fucking weird time. I have to say, I don't know how many of my shows you've listened to, but my show has been an evolution of my own thinking with regards to everything. Three years ago I was Stockholm syndrome, believed in the state, didn't think of any other option, never heard of libertarianism, didn't know anything about Bitcoin apart from being something you could buy drugs on the internet with.

Every four years you vote, you go to work, you pay your tax, you live your life and that was my thing. Then discovering Bitcoin has upended everything and now we're at this time where people used to say, "Well, Bitcoin fixes this." I was like, "Shut the fuck up. What are you on about? It doesn't fix it." But actually, the more I look into things, the more I look into how the root of all problems seems to be with money and we're living through something I didn't think we'd ever live through.

I kind of thought the world had settled, wars were now proxy wars, never going to see a world war, they'll just be fought in proxy wars, we've got egregious states, but you know what? We get to go to work. we get to go on holiday, we get to live our lives, blah, blah, blah. Something like a currency crisis, what happened in Venezuela which I went to, or Zimbabwe and then someone did a Tweet-storm the other week and they were showing what was happening in the stock market and they were saying, "This is the start of a currency collapse. These are all the signs of a currency collapse." Then in preparation for the show, I went through your feed and you were saying, "We're living through a currency collapse." You believe that, right?

Preston Pysh: Absolutely! So here's the thing, if there's one hand off that I could tell people to watch, I'm a huge, huge fan of Ray Dalio. He influenced the way I think about the economy for years at this point. He has a video, and the video's called "How The Economic Machine Works." It's a 30-minute video and I'm telling you right now, if you went to college and you got a degree in economics, you will learn more on this 30-minute video than you probably learned throughout your entire degree. This is an absolute must-watch video, that Ray himself narrates and Ray's net worth is $16 billion. During the 2008, 2009 crisis, when the rest of the market was down -60%, Ray was up 9% in the green.

This dude knows what the hell he is doing. So he made this video and he's written a bunch of books. One of the really famous books for me is "Big Debt Crises", it explains all of this. So Ray has been talking about this for decades, which is a large credit cycle. Everyone's accustomed to business cycles the last 7 to 10 years. That's the big mistake that a lot of people are making in the market right now, is they think that this is just another business cycle, that we're getting ready to experience. Maybe we're seeing a top, but it's going to collapse like it always does or always has in previous decades. Well the thing that they're missing is, this business cycle that we're experiencing is just a little bump in a much larger business cycle that's an 80-year cycle and you can graphically see this 80-year cycle when you just zoom out and you look at interest rates.

If you would go to the 10-year treasury bond yield and you look at the last 80 years, the slope of it would look like this big, giant rise, like a mountain that you were climbing for the first 40 years and then you'd see the yields go straight down for the next 40 years. If you go back to 1981 and you look at the 10-year treasury, it was at 16%. Ever since that point in time, it has just progressively gone down, down, down, and now it's at 0%. When you hit the 0% rate, globally, collectively, you're in an endgame, because now you're actually in a position where people would rather go take their money out of the bank, put it underneath their bed or in a safety deposit box, because they're going to get a higher return than if they left it in the bank with negative yields.

So I would tell you, without getting into a lot of detail of these large credit cycles, watch Ray Dalio's video. It's called "How The Economic Machine Works" and it will literally blow your mind when you're watching this, and it's going to be this "a-ha" moment, where you're like, "I understand why these Bitcoiners are so crazy." But the big piece to this is, we're now at the endgame of this big, giant debt cycle, and that's when the currency's...

Peter McCormack: Oh yeah, sorry to interrupt you. It's funny you should say that, because I saw Raoul Pal, again, he Tweeted yesterday, Tweeted a chart, and he put, "Bond yields are about to sound the fire alarm for the insolvency phase at the end of the hope phase. Keep an eye on this." I was like, "Holy shit, this sounds terrible" and the chart he's got, what is it? 0.323%, so we're approaching zero.

Preston Pysh: Yeah, and here's another thing I think very few people understand. So Buffett, he's been saying this his whole, entire life, that the value of everything comes down to the interest rates. So think of the interest rates as gravity. You're accustomed to the gravity that we've been experiencing our whole life, there's no variance in it. But imagine if we wake up tomorrow and gravity was twice as strong. That would be like interest rates going up to a business.

So you'd be walking around the house... I have a friend that's an astronaut that I've known for years, and he said, "Once I came back from space and I was sitting there, once I got off the space craft, I felt like I was drugged on narcotics because it was so hard for me just to walk down the flight line. I felt nauseated and it was so hard!" Because he literally left zero gravity and he came back to 1G that he was pulling permanently here on Earth. I've been fortunate enough to fly some fighter jets, like an F-16. I've flown an F-16 and when I did that and I pulled six Gs, let me tell you, it felt like my guts were ready to explode! When a business goes through higher interest rates, that is what it's like to them. When they go through lower interest rates, it's the exact opposite.

So when the Fed and all these central bankers step in and they're lowering interest rates for 39 years straight, because it's been since 1981 that they've continued to lower interest rates, that's like them saying, "We're just going to keep putting this person further and further out into orbit and just make it as easy as pie for them to do business." So if you've experienced that for your entire existence as a business, the muscle memory of all these executives leading these companies, they don't even know what it's like for interest rates to go up.

They don't even think to plan for such a thing and now all of a sudden, you're about to see the currency break. Well guess what that's going to do? It's going to make that entire thing blow up. People are not prepared for it! They have no idea how are they possibly going to come back to Earth and start experiencing 1G after they've been in space for 40 years? It's nuts!

Peter McCormack: There's been currency collapses before, but I guess what's concerning, or what I'm trying to think about right now, is that we have a global economy now. Every market is interlinked, any of us a year ago could get on a plane and go anywhere in the world, pretty cheap as well. We're all connected on the internet, we're all connected by media via politics, we are one big, global community all going through this together at once.

When it happens specifically in one country, other countries can dive in and support that economy, the World Bank can put money in, I'm assuming. I'm not somebody who really understands stuff like that, but I've seen that. I've seen the European Central Bank help Greece and Cyprus when they went through their crisis, which did affect people, when their banks were looted by the government, but I can't get my head around how this happens at a global level.

Also, what I'm starting to think, I am assuming you're the same, I talk to Travis Kling a lot and he was ringing the alarm bells a good year and a half ago to me and he was aligning a lot of things. He was aligning what's going on with media, what's going on with politics and the move to extreme left and right. He would throw Epstein in there, or Weinstein and he was saying, "All this shit is all coming together like a melting pot" and it's almost like it's written in the stars that we had to have this COVID-19 situation and put everyone on lockdown to add the extra bit of tension, and now everything is...

I've got it here in my prepared questions. Actually, my first question for you, I didn't even read it, is like, "Everything is fucking fucked right now. What the hell's going on?" But everything's happening at one time. So I'm assuming you think this is all linked?

Preston Pysh: Absolutely completely agree with you. If I was going to define why, so when you have an inflationary monetary policy, what does that do from an incentive structure to the participants in that system? What it does is it incentivize productivity, and incentivizes investment and it incentivizes technological growth. That's what it does. It pulls productivity from the future into today, is what an inflationary monetary policy. Now when you say, "Okay, well then, who's been doing inflationary monetary policy and how long have they been doing it?"

And when you look at the fact that the entire globe was polarized by a very important event in history and that's Bretton Woods back in the 1940s, where the dollar got pegged to gold and then every other currency got pegged to the dollar, so there was all this dependency with the dollar being the crux of that dependency between gold and all the other currencies. So when the US comes off the gold standard in '71, because we were implementing an inflationary monetary policy, even though we were on a gold standard which was implemented through an adjustment of the money multiplier, we basically had, from the '40s up until the '70s and even into the '80s, an inflationary monetary policy, even though we were on a gold standard.

Then after we came off the gold standard, we continued to have an inflationary monetary policy up till today. You literally have 80 years of this policy where you're creating technological growth, you're incentivizing investment, you're incentivizing people to get the money out the door and most importantly, you're incentivizing pulling the future into today. So what does that do when you compound that? It's not linear, it's not linear at all. It's exponential when you do that for that many years, where you're compounding the... So Jeff Booth, who I'm a massive fan of, he talks about this in his book "The Price Of Tomorrow" and this is a great example.

He says, "If you're going to take a piece of paper," and he would fold it in half, "And you would do that 50 times, how thick would the piece of paper be?" And a lot of people will say, "Oh, it'd be maybe as high as my computer," or whatever. But people cannot think in exponentials, they think linearly. They can't understand what exponential impact this has. The piece of paper literally goes to the sun! From the surface of the Earth to the sun.

So what he's saying is, going back to this idea of pulling productivity to the left through an inflationary monetary policy for that many decades, we're now at fold 30 in folding this piece of paper, and the distance is now jumping from Venus to Mercury in the next fold, which is only a couple years, because early on, the folds are minuscule, but now after you've been doing this for 80 years, the folds are starting to get really, really massive.

So every day and every year that goes by, you are not just pulling a little bit of date from the future into today, you're pulling massive amounts of dates from the future into today and what that's doing is it's literally ripping up the fabric of reality apart for us, from an ability for the common person to keep up with the technological growth and the productivity that's being thrown into our economy that freaking can't handle it. That's what's happening.

Peter McCormack: Are there any good sides to it though? Is there any defence of this in that have we accelerated development of drugs or medical equipment? Have we accelerated technology because of an inflationary policy? Is there any defence of it?

Preston Pysh: It all depends on where you sit. If you're a billionaire and you've made tank loads of money, and you can afford all of these revolutionary things, boy, I'd tell you, it's been one hell of a ride. It's been a great thing, right? But if you're a person who's living in a tent in San Francisco and you have no idea how you got there, and I'm not saying that... Some of these people have not worked for anything and so they're in those positions. Other people, it becomes a blurred line, of how much of it is their fault versus how much of it is the system's fault? There's no right answer, and there's no definitive answer.

All you can say is, from a macro standpoint, those populations, which are prevalent not just in the US but all over the globe, because remember it was all tied to the dollar through Bretton Woods, that's why you're seeing social unrest everywhere at the same time, is because it all comes back to the money and the policies that were dependent on the money being all tied together. To answer your question, it depends on where you sit and I think the other important part to this is, any time you manipulate something, I don't care what it is, any time you manipulate something, there's going to be a cost that's paid for it.

Going back to my aero engineering days, when you do a lift calculation, when you're calculating the lift for an airfoil, any time there is lift that's produced, there's also drag that's produced. So then you have to do the math on how much drag is being produced for the lift, how much camber is in the airfoil, all that kind of stuff. So what I would tell somebody is, what's the price that's about to be paid for all these policies?

There is going to be a price paid for all this, especially if you step into a currency that becomes deflationary, because when you have a deflationary monetary policy, I don't know how anyone could deduce anything other than it's going to be the exact opposite of all the things that I just described, which is, you're going to slow down investment, you're going to start pulling things the opposite direction as opposed to pulling them from the future and it's going to slow everything down. To be quite honest with you, everything does need to be slowed down, or else we're going to cause so much social unrest between the classes of society that it's going to get a little scary.

Peter McCormack: Oh yeah! I've travelled... I don't know how much you know, but I travel quite a lot with what I do, with both my shows. Wherever I go, especially in the last year, I spend a bit of time in South America, I went to Chile, I was into Santiago during the riots there, I went to Bolivia, I've been to Venezuela and I'm watching the US now and there is a consistency in what the riots are about. I don't care what people say about domestic issues, it really always comes from inequality and opportunity.

It doesn't matter whether you believe in socialism, or you think socialism is the root of all evil, pretty much every country is on a spectrum of socialism. We have a conservative government here, but we have the NHS, which is a socialist policy. So there's always socialist policies here, there and everywhere, and people have some kind of expectation that they're part of a society, they're working, they're paying tax, they want education, they want healthcare and they expect something from their political leaders. I love what the an-caps talk about, I love what the libertarians talk about, but we don't live in that society right now and the unrest that I've seen in Santiago, Chile, is exactly the same as the unrest that I'm watching on the TV in the US right now.

I know the trigger, but actually, I think most of the reason people are rioting isn't to do with that. It is the unrest and the inequality, and they're fed up of the police state, and they're fed up of the government. They're just fed up of all the same bullshit. I Tweeted earlier, I guess this year is the great reset. Actually, before we go into that, I do want to ask you about something, because you talked about inflation and deflation there. One of your Tweets about a week ago stood out to me, where you had a bit of a rant, "I can't take this misuse of terminology any more, inflation, deflation." I've always been taught deflation's bad, that deflation is terrible for the economy. Do you agree? What's your opinion?

Preston Pysh: Yeah, deflation's terrible for the state.

Peter McCormack: Okay, that's right.

Preston Pysh: It depends on where you sit. So if you're a government bureaucrat, the last thing that you can take is deflation, because then that's basically tying your hands behind your back, and now you're not able to allocate capital into your district and all of those things.

So when you understand that point of view, you can understand why it's heavily taught or heavily influenced that it's taught that we should have inflationary monetary policy, is because if the interest rates are going down, you can keep allocating even more and more and more money, you can print more and more money, into your district. But from a citizen standpoint, if I work and I receive a dollar and the dollar's more valuable tomorrow, you definitely aren't going to hear complaining out of me at all! Or anybody else, for that matter.

Peter McCormack: It's probably because you save as well though, right? You're sensible. A lot of my friends are going to be absolutely screwed if we go into a deep recession, perhaps depression, because I would say 8 out of 10 friends, as a good estimate, probably have about a month or two months in reserve. They're not the kind of people to have a year, two years, three years. So it's a very scary scenario for them. Anyone who's saving, who saves money, it's good for them. Also, I've never bought into this idea, "Well during a deflationary period you're not going to buy something because you think it might be cheaper in the future."

I mean, perhaps on a house. Perhaps, if I was going to move house I might delay that because it's such a big purchase and if house prices drop 10%, great! I'm not going to not buy a TV because I think it might be $20 cheaper, or even $100 cheaper in a couple months. I don't think that happens.

Preston Pysh: People have been conditioned. When you study how your brain works, and you get into how your neurons get conditioned, just like if you're doing machine learning and you're conditioning a deep neural net to be able to identify cat pictures, your brain works in the exact same way, from an early age. That's why they say, the first six years of your life is so instrumental to a person's moral development, because their neurons are getting conditioned based on the actions of their parents and what they're observing of how their parents act. So it's an incredibly important period in your development.

So think about it from a collective standpoint across the United States, every single person's brain and neurons in their brain, have been conditioned that if they don't spend the dollar today, it's going to be worth less tomorrow. That conditioning has now happened for 80 years, and then it's been handed down from generation to generation. So undoing that conditioning, that neurological conditioning that money becomes more worthless over time, has created this incentive structure where, "Well God, why would I have any savings? Why would I hold onto that? 

The money's going to be more worthless tomorrow." Most people don't have a lot of extra money that they can put behind. They're just living paycheck to paycheck based on where we're at and how competitive... Because that's the other big piece to this, is when you incentivize that much investment, what you're really doing is you're incentivizing extreme competition and I would say we're at peak extreme competition after 80 years of inflationary monetary policy.

So it's extremely difficult for people to even find any margin on a personal level for them to sock away into savings and then if they do save, it's getting debased. So you got all those things that have conditioned people to act in the way that they're acting. But if you now have a currency that steps in and does the exact opposite of that, and it's deflationary, you're going to slowly unravel that conditioning, and you're actually going to polarize it in the opposite direction if it continues to be sustained over a long period of time. At least that's my belief.

Peter McCormack: Which Bitcoin does, right?

Preston Pysh: Which is what Bitcoin does.

Peter McCormack: Yeah and we'll be saying, "What Bitcoin did," in the future.

Preston Pysh: This is another thing I think to think about Peter, like you're saying with your friends. If we start going to a Bitcoin standard, and your friends work for a business that actually is profitable, in that it's adding value to society, well, they're going to start demanding payment for their labour in Bitcoin and as they're receiving that Bitcoin and it's going up in value, once you get to a full adoption phase, I don't think you're going to be seeing it going up in value at a breakneck pace. You might see it going up in value by 4% annually or 5% annually or whatever, I don't know. I have no idea what that's going to be but let's just say those are the numbers, people have an incentive to spend less. They really do.

Peter McCormack: Well a lot of my friends don't have an incentive to get in Bitcoin right now because they're not seeing... Inflation is that death by 1,000 cuts in a place like the UK and the US.

Preston Pysh: No doubt!

Peter McCormack: It's not like Argentina or Venezuela where people have been through hyperinflationary events. But we are potentially heading towards people seeing that and realizing that they have to consider the value of their money. It was quite funny this week, I've been doing some research into a project in Africa and I found out, I didn't know this, you might know this, but phone minutes are a store of value and a currency across Africa.

Preston Pysh: Yeah, that would make sense.

Peter McCormack: Yeah, it blew my mind, because they have a stable value compared to local currencies which inflate due to government corruption and just mismanagement of the economy in Africa. Yeah, the phone minutes have become a real store of value there and I guess that's what people have learned. They've learned that their money has no value. They've learned that the minutes have value and I guess what will happen...

Like I've learned Bitcoin has value and I guess some people are going to have to go through that process. How do you think this all plays out then? Because it is a crazy time right now. You think we're going through a currency collapse, the chart that somebody showed me was what happened in Venezuela where the stocks pumped as the currency collapsed.

Preston Pysh: In nominal terms.

Peter McCormack: You highlighted that. Yeah, in nominal terms. You shared a chart from Matt Odell where he was pricing, I think it was the S&P in gold, and then you'll see what's happening. I think the headline was, "Stocks aren't pumping, the dollar is." For someone like me who doesn't study the markets, what's going on here? How do you think this plays out? Is this an emergency right now or is this something over the next 5 to 10 years? What do you think it is?

Preston Pysh: I think the coming 2 years are going to be quite fascinating and I think a lot of it's going to come down to Bitcoin actually, just because of the timing of where we're at in the four-year cycle. I think you're going to see the price run and I think you're going to see headlines like... I could picture in 2021, Time Magazine's story of the year is one thing, and it's Bitcoin. I think that when you look at the countries that are going to realize the value of Bitcoin first, it's going to be the countries that are struggling the hardest today. They're the ones with the weakest currencies. Perfect example is Turkey. Look at Turkey's currency, it's a disaster.

When you look at the Turkish lira, relative to Bitcoin, you're already having a breakout, from a technical analysis kind of way and you're looking at the chart, and you're looking at that pattern, and you're saying, "My God, this thing is going to be epic." When you do that for every other currency that's struggling right now in the world, they're seeing something similar.

So the first countries I think to become major adopters just by the sheer look at the chart patterns, and the value proposition that it's already proposing to them, they're going to be the first ones that come on board and start demanding this. The last country that I think is going to realize its value proposition is really the strongest currencies in the world, which I will tell you is the dollar, which is dominating everything. The people in the US I think are going to have probably the hardest time seeing it because they're going to be the last ones that "see it".

You have some very smart people in the US that are absolutely going to see it, but I think from a chart pattern relative to the domestic currency, that's going to be one of the last places that you see that breakout. So it's going to happen slowly at first, and then all at once. I kind of think this incoming cycle, this next 70,000 blocks, are going to get quite interesting, really interesting.

Peter McCormack: Yeah, like a virus from country to country, it's going to spread.

Preston Pysh: Exactly! You couldn't have said it any better.

Peter McCormack: Yeah, interesting. Look, you mix in a lot of traditional finance circles, especially with the show you make and the people you talk to. Like I am amongst my friends, you're probably the Bitcoin guy amongst the circles you mix in, and you talk about Ray Dalio, and he talks about Bitcoin without saying Bitcoin I think sometimes. I read what he's saying and I'm like, "You're talking about Bitcoin." But it's not like he's a Bitcoin believer, but the way he talks, it's almost like he's talking about Bitcoin. What are the detractors saying, the people who just don't get it? What are their negatives? What are the arguments against it that you're seeing? What are the common things you're having to debate with them about it?

Preston Pysh: Well, so from Ray's point of view, I've heard him say, "Hey, it's got a lot of volatility to it." Which having studied Ray quite a bit, he doesn't look at it in a single lens like that. He's looking at the past return compared to the volatility. He's looking at the sharp ratio. So when I hear him say those kind of things, I'm looking at it like, "Okay, is that really what you're doing, or is that what we're saying here?”

I think for him, if I was going to say what is he missing, I don't think t if he doesn't own it, I think he doesn't understand what we were talking about earlier in the show, which is the four year being at harmony with the two-week difficulty adjustment. So many people miss that, I can't tell you...

If I talked to 100 people there might be 1 person that gets that. That link and that tether between those two pieces of the protocol are the essence of what's driving the adoption curve, and in my opinion, it's a time phased, time-fused Trojan horse adoption curve that is by design, so that it allows entrenchment into the existing financial rails. But going back to your question, what are they missing? Let me tell you from Warren Buffett's perspective.

Warren's just looking at equities, and he's of the opinion, well if the currency today is the dollar, the currency tomorrow is gold, the currency the next day is Bitcoin or it's sea shells or whatever, he doesn't care, because his opinion is that the businesses that he owns, the equities that he owns, are going to adopt whatever that currency is and the thing that he's focused on is the enduring competitive advantage of the assets that sit on his balance sheet. If there's impairment on those assets, then he has concerns.

So that's how he's looking at it. He's saying, "I don't understand the whole currency thing. I think it's something that's outside of my ability to have any type of reasonable projection of what's probable in the future, but I do understand equities so I'm going to continue to own those, and I'm going to focus on making sure that the assets aren't impaired through competitors." I think that's his big focus.

So people like to beat him up, and I think through the years, I think he's been somewhat quite reserved about how he expresses his opinion on Bitcoin. Charlie Munger has not, he's come out and said it's rat poison and people who own it are idiots. But you know, Charlie's 94/95 years old, so if I'm 94/95, I'm probably saying things that are more disparaging than that.

Peter McCormack: Hey, if I'm 94 or 95, I'm amazed I got there!

Preston Pysh: "You're all idiots."

Peter McCormack: Yeah, I don't see me getting to the 90s. What's the incentive to change? What's the incentive to change at 94 or 95?

Preston Pysh: Going back to what I was saying earlier about the conditioning of your brain, these guys, the first 40, 50 years of their life, they've really come up with the model in their brain. Their brain is functioning on what the model is for them. So stepping in at age 90, when you have conditioned your brain to think that the dollar's never going to be uprooted, this is how you do investing, you're asking for something that you're never going to receive, out of a person who, that's just not their wheelhouse. That's not who they are. They've only got a couple years left man.

Peter McCormack: So one of the interesting things about talking about this with you Preston, is it feels like with you, which gives me confidence, I always like it when a finance person talks like this, but you talk like there's an inevitability with Bitcoin taking over as a dominant currency.

Preston Pysh: So I'm a huge optimist, and it might not come through on my Twitter profile because I bash central banks all day long, but at the heart, I am a super optimistic person, very optimistic person. So when I look at what's happening in the world, I can see how people can view it as being a very scary time and a very concerning and confusing and terrible time. When I look at how can that, from an optimist standpoint, be cured, and how can that be fixed, I really only come up with one solution, because if we go back to another gold standard, let's say we go back and do another Bretton Woods, in my opinion, nothing is solved.

Absolutely nothing is solved because like I said earlier in the show, they were implementing an inflationary monetary policy under the gold standard. Whether people want to believe that or not, it doesn't matter, because they were. So if we go back to the drawing board with all these nations and we cook up another, with the SDR being backed by gold, and then everybody's pegging their money to the SDR, or any of that crap, we are going to have more of the same of what we've experienced here in the last couple years, it's not going away.

So the optimist in me is saying, "Bitcoin will force a deflationary policy on the world, which will then help alleviate the stress between social classes." I don't see that relief coming in any other way other than Bitcoin today. So maybe it's me being just an optimist of seeing a solution and hoping that that becomes the solution. But when I look at all the risks of how it could be stopped and the fact that it's decentralized and the fact that the nation states that have been a victim of this inflationary dollar dominance policy are going to be the ones that demand it and demand the enforcement of the protocol, to me it seems like it is a little inevitable.

Peter McCormack: Well, so to build on from that then, you've obviously studied Bitcoin a lot. What do you think of the blind spots we have, or the areas that people don't really consider too much? Because you've got some very hardcore Bitcoiners, and this is where I battle with some of them, especially the real anarchist types, because I think we sometimes need a little bit more practical reality, a little bit more understanding the incentives of normal people. Most people aren't privacy conscious an-caps who hate the state.

Maybe people have got Stockholm syndrome, and maybe over time they will change, but some of the things I look at and some of the things I think about, is that I just think having full privacy with Bitcoin, it's really hard to do and I just think some people can't be bothered. I think a lot of people won't be bothered to run a node. A lot of the things like privacy and nodes need to just be abstract, in a way. I just think people need to use it without thinking about stuff like that. I think some people don't want to be their own bank. My dad definitely does not want to be his own bank.

He definitely does not want to work his own money, he definitely wants somebody to do it for him. He wants to not worry about that! I think perhaps some of the ideas about working with regulators is a better idea than fighting them. I also think this idea that Bitcoin can... I think Bitcoin as a whole can help alleviate inequalities within social classes like you've said, but right now, I don't think that Bitcoin is a solution for a poor person on an individual level because if they buy Bitcoin at the wrong time, they could just lose money. I saw that when I was in Venezuela.

There's an absolute risk to someone even dropping 10% of value in a week. That's the difference between maybe having a meal every day and having a meal on five days. So I think there's a whole bunch of blind spots that aren't talked about enough, or debated enough. There's just this, I don't know, this belief that's a little bit in fantasy land sometimes. I get in trouble talking about this, but what about you?

Preston Pysh: I really like these points, because I agree with you on pretty much all of them. But here's where I would tell you that I think Bitcoin can still solve all these things even though all those things are true.

Peter McCormack: Yeah, I agree though.

Preston Pysh: Yeah, so when you think about what Bitcoin's solving, all it's doing is it's stepping in and holding central banks accountable. It's forcing them to not debase their currency in order to universally tax everybody at will and as much as they want without them having any type of voice in that. So when you have this peg that steps in and forces them, because that's the problem with gold, is it can be so easily manipulated that it's this mirage of a peg when it's really not. This, on the other hand, there is no getting around it, especially if an individual can take possession of it and run their own node and do all those things that the hardcore people are going to continue to do, central banks cannot get around that.

So if the central banks now start being held accountable, if, let's just take the US as an example, if the Fed wants to go out there and they want to continue to debase the dollar at the pace that they've been debasing it, and another country does not want to do that, they actually want to start becoming fiscally responsible because they know that there's this other peg out there that forces them to be accountable, or can force them to be accountable and some countries are going to have leadership that look at the world this way, what's going to end up happening in the long game is the countries that don't force themselves to be fiscally responsible by obeying this peg, their buying power as a nation is going to get obliterated and their ability to defend themselves is going to get obliterated.

All of those things that go along with being, on an individual level, irresponsible, but now applied at the nation level, is going to happen with something like Bitcoin, because at the root and at the foundational layer, you now have something that's actually pegging everything. So does it matter whether my dad can go out there and run a full node and take possession of his keys, and "Oh, I lost my keys, there goes my entire net worth!" No, I don't think those things have to happen for Bitcoin to be successful in the long run in what it's doing. I think that in the future, 5, 10 years from now, you're going to have developers that are finding ways to make all those things way more accessible for the individual. But today they're definitely not relative to the capacity of some people in order to do these kind of things.

Peter McCormack: When you sit back and think about it, if you're right and I'm right about the things that I hope, and we do end up with this Bitcoin-based economy, when you think about whether Satoshi was a single person or two or three people... I think it's a single person, but even if it is two or three people, what they've created and the impact they've had is really quite fucking incredible! And got nearly everything right from the outset.

Preston Pysh: Yeah, I think that you're definitely dealing with some sort of savant, but on a level that it's not just in one field of study, it's pretty much in all fields of study, which makes you think, well, then there had to have been more than one person, because no one person could possibly have this much foresight and this much expertise in this many areas because even from a branding and marketing standpoint, the fact that Satoshi only made it 21 million coins but had 10 to the -8th units to the right of the decimal, from a branding, marketing standpoint, is...

You could argue it's a $500 billion to $1 trillion marketing strategy with the amount of buzz that it creates when the price goes over $200,000, and it goes over $100,000. Can you imagine, if you were going to put a price tag on the marketing that that's going to create?

Peter McCormack: Well Dan Held talks about it and he talks about the four-year halving creating this viral loop.

Preston Pysh: Yeah, there's just so many pieces to it and that's just one teeny, tiny little facet that, in my opinion, is just totally overlooked but is sheer brilliance when you dig down into the deeper layers of that one tiny, little piece of Bitcoin. I think the fact that, in my opinion, Moore's Law was built into the incentive structure, because people that are stepping into the market with new rigs are able to capture four times as many coins as people four years before them.

So you don't have this first mover advantage for new entrants that are mining, which then drives profitability, and drives the continue hash rate pump which helps protect the bidding of the price after halving event, all these things, dude! It's beyond comprehension for us mere mortals. It's just mind blowing.

Peter McCormack: It blows my mind and I consider myself just quite a simple character, who's not an economist, he's not a technical person, but it still blows my mind that... It's like something out of a movie that's been created here, that can change the world, and this mysterious character, we still don't know who it is and we still might not find out who it is, who has managed to have such an impact. You talked about Time, this could be Time Person of the Year.

Preston Pysh: Well going back to, I think, one of the big themes we've been talking about during the show, which is this idea of what does inflationary monetary policy create? It pulls productivity, it pulls technology, to the left of where it would originally have occurred if there was no manipulation in the currency at all. So maybe Bitcoin is something from 50 years from now that would have, if we didn't have all these policies, and we weren't pulling productivity to the left, this is something that would have been discovered 50 years from now. But we're experiencing it right now because of those policies.

What's fascinating is, the policies have, when you look at a yin yang, and you look at the black and the white and then there's the dot, that's the seed of opportunity to invert, to take the thing in the exact opposite direction. That seed of opportunity is in any type of action. So if you go into martial arts, any time somebody conducts an attack on you, there's a seed of opportunity in that attack for you to counter it and to throw them to the floor.

So I guess for me, when I'm looking at all of this, it's just so fascinating, because the thing that is creating this destruction which is the decades-long of inflationary monetary policy, has actually sowed the seed of opportunity to counter it, and I think that counter is Bitcoin and that technology was pulled, cleared way out. I think it would have existed way out to the right, but because of all this incentive to produce and build these amazing technologies, it's been pulled into today, and here it is and boy, it's going to be exciting to see what happens here in the coming year.

Peter McCormack: I know man! What a time to be alive. Look, we're very similar age, couple of years between us, and I cannot think of a year like this year, I cannot remember a year where so much happened. There's events, like there's moments in time like when 9/11 happened and I remember just watching the news going, "What the fuck!" Or when, specifically the second Gulf War, I remember watching that and thinking, "Jesus." But right now, so many things right now in this year are happening, all at the same time.

I'm assuming, as I get old and I become a grandfather at some point, it's one of those things that you're going to talk about. "Look, in 2020 all this crazy shit happened. We had these lockdowns because of this virus that spread round the world, and then currencies collapsed and governments were collapsing, and there were uprisings." I imagine this year... I don't know, you think it might, a lot of stuff happen over the next couple of years, but I've got a feeling 2020 is going to be a year...

In some ways it's funny as well, the fact that it is 2020, if you were going to write something in the future, the year 2020, you'd write a song about the year 2020. It's got that name to it, right? But I think it's going to be one of those years that in the history books, we look back and say, "What a fucking crazy year. Everything changed."

Preston Pysh: The Mayans must have had a rounding error in their calculations from 2012 or whatever it was! But Peter, I would say this, and maybe this is the optimist in me coming out. Typically when you have... I know from participating in financial markets for decades, when I have the most pain, it's almost immediately followed by a significant jump or bounce, or reversion to the mean. So I agree with you, 2020 is like no year I'd ever seen and by a lot. So maybe 2021 is going to be the mean reversion of that, we'll see.

Peter McCormack: All right, man. Well look, we can carry on, but sometimes you get to that point where you feel like there's a natural conclusion. Although, look, I'd love to do this again and I'd love to do it in person. I come to the States a lot, so we should! But I feel like that's a good rounding point for this show. You've obviously got a cool show of your own. Tell people how to follow what you're doing, how to find you etc.

Preston Pysh: Hit me up on Twitter, because I really enjoy interacting with people. It's just my first and last name, @PrestonPysh, all smooshed together. I have a podcast, it goes by the handle We Study Billionaires. Really the premise of the show is we just try to find anybody who's a self-made billionaire, who made a bunch of money in the markets, study what books they've read and to try to pick apart their approach. 

If you're a macro guy, you're a momentum person, value investor, whatever, we just try to study all those different people to understand their investing approach and we enjoy doing the show. I really appreciate you having me on Peter, I thoroughly enjoyed this conversation with you.

Peter McCormack: Yeah I loved it man. It's been one I've wanted to do for a while. I've seen you in the background, thinking, "I've got to get Preston on at some point." But I'd never had the chance to meet you, but I'm really glad we did this. It was a great show. I wish you the best and I'm sure we're going to do this again in the future.

Preston Pysh: You as well sir!

Peter McCormack: All right man, we'll look back in a year. Take care Preston!