WBD257 Audio Transcription

Bitcoin Has Entered Phase 5 with PlanB, Jeff Booth & Preston Pysh

Interview date: Wednesday 2nd September 2020

Note: the following is a transcription of my interview with Jeff Booth, Preston Pysh and PlanB. 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 Bitcoin quant analyst & creator of the stock to flow model, Plan₿, author of The Price of Tomorrow Jeff Booth & author, engineer & the host of The Investor Podcast, Preston Pysh. We discuss how Bitcoin S2F is entering phase 5.

“Once you have seen, you cannot unsee. Once you get it, there is no way back.”

— PlanB

Interview Transcription

Peter McCormack: All right, it's late here, good evening from the UK. How are you Jeff, PlanB, Preston? How are you all?

Jeff Booth: Fantastic thanks!

Plan₿: I'm fine, thanks for having me.

Preston Pysh: Pumped man, ready to do this.

Peter McCormack: Yeah, let's do this. I think the time is right, I think after a long, bear market, we're all kind of getting a bit excited about what's going to happen. There's a lot of interesting things in the news, all tracking to the great work by PlanB here. Listen, look, I've got a lot I want to go through. 

This is kind of a crazy time as well. We've had this pandemic, we've got an election coming, we've got BLM protests and crazy things happening with money. I've got a feeling we're going to be looking back at 2020 as a year in the history books and go, "What the fuck happened there?" Jeff, how do you take this year? We'll start with you.

Jeff Booth: I think it was all predictable and COVID accelerated everything else. I loved a quote I saw on Twitter that hindsight in 2020 were from our future selves coming back to now to say "What was happening?" I think it explains what's happening right now, why couldn't we see it?

Peter McCormack: That is brilliant. What about you Preston? How are you taking this year in?

Preston Pysh: A play on with Jeff just said. There's a reason that Bill & Ted's Excellent Adventure has come out with its third instalment I guess! Everyone's coming back to tell ourselves here exactly what Jeff just said.

Peter McCormack: We've got Tenet as well. The film where people are moving between time forward and backwards. Have you seen Tenet? Have any of you seen that yet?

Jeff Booth: I haven't seen it yet.

Peter McCormack: That's insane. What about you PlanB? How do you take this all in man? From your secret hideout.

Plan₿: Yeah, sorry about that. I have to be anonymous again! I think it's a weird year already. It will be, for me, a make a break year even with the stock to flow model. If it's not going up, the numbers, then I don't know what happens.

Peter McCormack: All right, well listen look, the first thing I'm going to go to Preston. Talk to us about what's going on in the stock markets. You're a financial man, we've got Apple now at $2 trillion valuation, we've got the FAANG at over $7 trillion I think, we've got stock splits, we've got a stock market going crazy, whilst we're in what feels like entering a recession. Certainly some of the unemployment figures and the GDP figures looking pretty negative. What's going on here dude?

Preston Pysh: I would describe it as " Does the thing you own have counterparty risk?" That is what really is kind of at the heart of what's happening. When you're looking at stocks, in my opinion it's started to be treated as sound money. Even though we know that the companies can debase or create more equity, they can debase their equity, they're not incentivized to do that unless they think they're severely overvalued, then maybe they can step into the market and capture some liquidity and take advantage of that. 

You have to have opportunity to stuff that liquidity into, so I think that what you're seeing is market participants just scrambling for something that can serve as a store of value. Most people can't wrap their heads around anything related to the Bitcoin. If I dare use the word "crypto", people are not wrapping their heads around that. It's something that's extremely difficult to understand, especially if you dabble on the surface of it. 

The surface level arguments come out like, "Oh, well anyone can create an altcoin," and "There's nothing that backs it", all that kind of stuff are the surface level arguments that people will latch onto that don't do a lot of the hard work to try to understand it. Where are they going to go? They're going to go to where they can capture some store of value and that they have no counterparty risk. You're seeing a major separation in the bond market and in my opinion, you're seeing everybody ploughing in the businesses that have an enduring competitive advantage, in a depressionary scenario. When you look at Amazon, I would say that that fits the bill quite nicely. 

When you look at Apple, I'd tell you that fits the bill quite nicely. You look at a lot of these companies that have an enormous network effect, have a lot of competitive advantage tied to intangible assets that sit on their balance sheet, the companies that have a lot of inventory, a lot of those things, that's difficult to manage in an environment like this, where the printing is just eating everything alive. It's totally nuts.

Peter McCormack: Competitive printing now, right?

Preston Pysh: Yeah.

Peter McCormack: I saw you tweet about that.

Preston Pysh: Yeah, it started off as co-ordinated printing. If you go back and you look at the rise in the central bankers balance sheets over the last 10 years with QE and everything, it was very co-ordinated. When the U.S would stop, you'd see the European Union pick up right where they left off and vice versa. 

It was being passed around the circle. But now it seems that, what was a co-ordinated effort's turning into a competitive effort. I think that that competitive landscape is only going to increase significantly in the coming year to three years.

Peter McCormack: It must be interesting, Jeff, for you to be looking at this, especially as somebody who is a proponent for a deflationary environment. To see this rampant printing of money and also with Jerome Powell's comments recently.

Jeff Booth: Yeah, I think if you say a proponent of a deflationary environment, what I would say more important is that's a fact that is going to be with us forever. What's happened, if technology is deflationary, then robbing deflation from society means unnaturally, changing asset prices, changing everything else. It's actually robbing some people and giving it to others. That means the collapse of free markets, and it means a rise of socialism. People, I think, mistakenly say "Jeff's a proponent of deflation", I'm a proponent of free markets. 

Technology has changed the rules and the technology is moving so fast that the rule change is so hard to see for people. They're playing a different game, that game used to work, you know this, from the book, it predicts all of these events and it predicts money printing has to go up exponentially, to match what's happening exponentially with technology, wanting to drive prices down. It predicts it's going to move into competitive devaluations because governments are trapped in a bubble that they created. 

They can't see that by doing what they're doing, they're actually adding more disinflationary pressure, to the point where they're going to change the rules of banking and try to do helicopter money because socialism will demand it. It just ruins the entire free market of pricing. What Preston just said is all of that hot money is not going into productive assets, it's going into stores of value, anything that can escape what's coming and you don't really have a market anymore. 

You have a gamble and all of the people on this Zoom call know what's going to happen. When I wrote the book I was really hopeful that governments would come together and not do what they're doing. But the time was really important. What I can see right now is that's super unlikely. It's getting worse and worse and worse. The predictable rise of socialism rise of everything else will come as well. That is super bullish for Bitcoin because there has to be a new peg to money. People aren't asking "What is money?"

Peter McCormack: It's interesting you bring up the socialism point as well. One of you guys tweeted it out, I saw it in as part of my preparation. Is it a quarter of all U.S personal income is now coming from the government? Did I read that correctly?

Jeff Booth: Correct.

Peter McCormack: Whoa!

Preston Pysh: Yeah, it's crazy.

Peter McCormack: It just makes me think of everything I read about what happened in Venezuela and the rise of Chavez how many jobs were supported by the state. How many of the jobs were actually working for the state, which ultimately collapsed. I was surprised to see that with the U.S. Sorry PlanB.

Plan₿: Yeah, what I think is actually happening here, and Jeff explains it very well in his book, is the creative destruction that's normally happening with new technology. Creative destruction being a Schumpeter term, the famous economist, where new technology comes and it destructs the old technology but it's also creative because it creates new jobs and new opportunities. 

What's happening right now is that with all the money and all the quantitative easing, that flows into stuff that is not productive. In that way, the creative destruction that is essential to happen, isn't happening. It's killed by government and yes that's not a capitalist thing. In fact, you're stopping free markets from doing their thing. I think that's what investors like me, institutional investors, with a lot of money to manage, have big troubles with, it also means there's no return, hence all the low inflation rates and zero inflation rates and even negative inflation rates. That will be a huge, huge problem for all investors, but institutional investors in particular.

Preston Pysh: The thing that I find so surprising about all of it, is the seed of opportunity or the seed of solution to the problem, to this massive problem of just indescribable magnitude. The seed of change is sewn into the thing that's causing the destruction. This is a technology bomb that's been created through decades of incentives built into printing, into inflationary monetary policy, that's created this massive technology bomb that's eating the world. 

Well, that technology bomb is actually because of it and because we have so much growth in technology, it's actually sewing the seed of the solution, which is Bitcoin. It's a technological thing that is so advanced, it's going to potentially step in and solve the root of the problem, which is to force the deflation, to take place, the price deflation to take place and for the debt market to reach what we all know it should be, which is way higher yields than what are being manipulated by constant printing and buying in the fixed income market.

Peter McCormack: You're talking about Bitcoin like it's an immune system response from the people.

Preston Pysh: Yeah, that's a great way to describe it.

Peter McCormack: Jeff, you want to say something there?

Jeff Booth: Yeah, building on both of those points, if you think about the existing system. The existing system is trying to hold prices up at whatever costs. Take one of those asset prices that it's holding up and tie it to what PlanB was talking about, Schumpeter's creative destruction. Governments come in and artificially hold say commercial real estate high. It shouldn't be priced where it is today or real estate shouldn't be high as price because it's all a function of this monetary easing. 

The rents on those assets are obviously higher as well because the biggest money is consolidated into them. It's where you can make yield so you charge higher rents, then it forces entrepreneurs not to be able to recreate new businesses because they can't get into those rents, it forces a population to not be able to pay for those rents, then government who created the problem in the first place, by not letting free markets happen. The government actually gets changed to a socialist government to protect the very people that were hurt by the policies in the first place. They don't have money to pay for the rising rents. Nobody's asking, "Where does this money come from?" 

If you had an entire government and you could print and you didn't have to trade with the world, maybe you could get away with doing it and fool your population forever. As soon as you play game theory in an interconnected world, it just leads to competitive devaluation as Preston said. The seed that we're talking about it, Bitcoin is a different system. It is at one point going to, I suspect, follow PlanB's model. It is already following PlanB's model, but I suspect it's going to break out like crazy, when people understand what's really happening. 

It blows my mind that educated, smart people can say, " How could Bitcoin ever be a store of value or currency?" While at the same time believing unilaterally, in a currency that they know is being manipulated. It blows my mind, it's incongruent.

Peter McCormack: Well it always looks to me, and I've said this a few times, it feels like the biggest problem, well, one of the biggest problems that drives this is actually election cycles, in that the incentive is not to deal with the problem now. The incentive is to leave the problem to the next election cycle. For example, Donald Trump has incentivized to keep the stock market high, to say, "Look what I've done, I've returned jobs, the stock market's higher than it ever was." There is no real truth in the fact what it actually means. There's no incentive that the structure of election cycles actually kills any desire to look at this.

Plan₿: It's funny, that Powell from the Fed, in his latest speech didn't really explain why they were driving inflation rates higher, why they want to do that. I see a lot of people asking that question on Twitter as well. Why do we want higher interest rates? That leads to the hyperinflation and that's bad. Why not deflation? Why is deflation bad as well? If you look at what Powell said, he didn't say the classical argument.

If you study economics or finance you hear, "Okay, inflation is bad" or "Inflation is good because it stimulates consumption", right? If prices go down, you postpone your decision to consume, the economy would come to a stop. We need high inflation because people need to buy and consume and that's good for the economy. That's not what Powell said. Powell said, "We have to increase, we have to have a positive inflation because otherwise the interest would go low as well. We wouldn't have room to decrease the interest rates, to stimulate the economy and to create more jobs, we would lose power. 

The central banks would lose power, we need at least 2% as a wiggle room to do our thing." What they don't talk about, I think that's the key point, is the debt. We need the inflation to wipe out the debt. If you have deflation like we have in Europe and like Japan has, for much longer than that, if you have deflation, your debt in real terms grows bigger and bigger. They need inflation very much to wipe out the debt. It's really big problem the debt, because the debt is what keeps the whole zombie economy alive.

Peter McCormack: Well there's no reward for prudence. I don't know about you guys, but I historically was never very good at saving. I lived pretty casual and spent my money. Ever since I got into Bitcoin, I've been pretty good. I think I could survive a solid year of unemployment without any concerns because I've learned to save. 

Actually that prudence is not rewarded by a government policy because they target inflation. They want to punish my prudence and it rewards the spenders and it rewards those who actually aren't prudent, rewards those who are perhaps taking out loans and spending money they shouldn't. Now I've become perfectly aware of that.

Preston Pysh: Just to go on your incentive structure that you're talking about with elected officials. I'm not saying this would solve all of it, but if you start having term limits in Congress here, at least in the U.S, now you remove some of that incentive structure. That's based on them getting re-elected and voting the person to their district. 

The point that I wanted to make is just really simple on what PlanB was saying. Imagine you have a husband that's just going out and spending, he's buying new trucks, he's buying all these fancy things, way beyond his means. Then the wife is saying "We just need higher interest payments right now." That's effectively what Powell's speech was. On one hand, you've got fiscal spending that is trending out of control at a pace that's unprecedented, that's the spending, that's the husband. Then you got the monetary policy saying, "We need higher rates right now. We need to be paying." I mean it's just maddening.

Jeff Booth: If you think about this, and again, go back to the root. The root is technology is deflationary. The root is if you allowed a free market society to work under that, you would have broad based abundance, it wouldn't consolidate. As jobs came out of the market, people would work less saving time and prices would fall along that axiom. Nothing that central governments can do. I'm going to say it again, nothing will stop that from being true. 

All of the printing just warps capitalism and predictably rises to socialism and predictably rises to where we are right now in this cycle and predictably will break. Very rarely a business does what it needs to do against a massive technological sea change. Sears goes bankrupt because they don't see what's happening with Amazon. It happens all of the time in industry. The industry's creative destruction. The people in the system don't see it, there's a change and a new system takes over, although that system is grasping for air. Whatever it can do to keep the system alive, interest rate policy, printing the money is all of those things on the last leg of an old system. 

Trying to keep the system alive to exactly PlanB and Preston's point, that they have to. If they let deflation happen right now and the real cost of debt goes up, all the banks fail and we have a depression that is so brutal. Now they're saying "I cannot allow that to happen under my watch. I cannot allow deflation to happen because it creates a deflationary spiral. Everything gets repriced before you have spring again and it renews." In that world, if they let that happen, currencies would hold.

What's the alternative to that? Because that seems like a pretty big "Under my watch I'm going to make that happen." The alternative is, I'm going to print at all costs and try to kick the can down the road. The problem is because it's exponential and exponentially deflationary, the printing has to go exponentially the other way. We've had $185 trillion before COVID of new debt creation in the last 20 years. Out of $250 trillion global debt, $185 trillion of it has come in the last 20 years, to drive global GDP by $46 trillion. You can see it's like pushing on a string. The more you're printing, the less M2 velocity. 

It's not getting to the market, all of that printing is going into store of assets because they know what's coming and is getting worse and worse. The policy itself is making it worse and worse and worse and worse. They're trapped and they don't have a way out. This is all super bullish to people ejecting from that system and finding a new system, which Bitcoin is.

Peter McCormack: We've got people ejected for that system. I'm going to come to MicroStrategy in a minute, because that was like a real "whoa" moment for me this year, I'm going to come to that. Preston, I've got another question for you though. Actually I've got two questions. We all see what's coming or we think we do. It feels like the community of people who see this coming, they were talking about this still feels like it's very small. 

There seems to be a lot of well respected, I say that with my tongue in my cheek, but well respected economists who support this inflationary environment. Stephanie Kelton and talked about MMT and was a little bit taken back by how she was trying to explain it to me. I couldn't seem to get a head around the idea that even though MMT can work in the short time, it's a very unfair system. 

But why are there so few people understanding this environment we're in and especially people who are leading decisions. Sorry, I've got two questions for you, it's a bigger one and have you, within your work, made any attempt of mapping out how this plays out, because if we are on the last legs, when does this snap, how does this snap? Have we got some huge crash coming that is going to be perhaps even a bigger event than we've seen in 2020?

Preston Pysh: To your first one, why so few people? PlanB wrote an awesome article talking about phase transitions. When you get into physics and you talk about how a phase transition happens, we can talk about how ice turns into liquid and then liquid turns into gas. Well, if you're a liquid molecule and you've always been within that temperature range of a liquid molecule, all you know is, that's what you look like. 

Then that's what I would describe as our current financial system. If you're working on Wall Street and you've been playing the Wall Street game for 30 years, you think you're a liquid molecule. Now what happens is and what's so fascinating with a phase transition is to make the jump to a gas, from a liquid to a gas, there has to be a ton of energy, that's packed into it. During that period of time as that transitions happening, more energy, more energy, but it still looks like a liquid, it hasn't made the jump to its new state of what it looks like. Then all at once, it's just boom! 

Now all of a sudden it's a gas molecule and it's bouncing around the room and it looks nothing like the liquid molecule like it used to be. Even though it's the same exact thing, it looks completely different. I think that's the only way I can describe what's happening right now is everybody in the world that's alive, has never seen anything other than what we've seen, which is an inflationary monetary policy for our entire lives. For them to understand an equity based monetary system that you know is deflationary, if people are losing their coins, that does not make sense to anybody walking the planet today. I think that's the why.

So I think that's the why. Then I think another piece of it is a lot of people will latch onto those surface level arguments and never dig beneath the surface to really understand what in the world's happening. But to your second point, which is mapping out how it potentially plays out, I really think PlanB's model is valid. I think it's valid because I'm of the opinion that miners are setting the floor of those jumps, those orbital jumps that... I don't know how everyone wants to describe that, but I guess that's how I'm describing it, right? I think that the miners are looking at it...

 I think it's being driven there by a production cost and there's arguments against that, there's arguments for it, but I believe that's happening. So when I'm mapping out how this plays out, I think the fact that it's been around for 10 years and the potential for it to go to a $100,000, I think is going to melt brains on Wall Street when it breaks through its previous all time high. So when I expect that to happen, is start of 2021, Christmas time or whatever. I expect the price based on his model to start showing new all time highs and I think it's going to... 

People are going to be looking at their MMT policy of negative interest rates and a bond market that's a $100 trillion with no real yield to it. They're going to be looking at their gold, which is drastically underperforming this thing and that just doesn't seem to go away. That has a clearance of transaction time measured in weeks or months relative to something that clears near instantaneously and I think there's going to be a lot of people that then are saying, "Well I understood those surface level arguments, but now I'm going to dig a little deeper." 

Especially as I see the Paul Tudor Jones of the world taking positions in this. I see a company that just took a $250 million position. Oh my God, there's Apple now taking a position and putting it on their balance sheet. That's all entrenchment, that's all narratives that were not in place up until now and I kind of suspect that the coming year is going to just blow out the bond market. I think it's just going to be a total... It's going to be really hard for the governments to keep the lid on the yield being so low.

Plan₿: Every institutional investor, every global big investor is at the moment making scenarios of how this plays out and it's very interesting. In fact, I would urge people who are interested in that to follow those scenarios, because they're very public. Some of the bigger companies publish those scenarios, but one of the scenarios and it's my job as well, this is what I do for a living next to Bitcoin, so one of the scenarios is of course, a very dark scenario.

Jeff writes about this in his book, because the trend is obviously socialists, the trend is obviously going to revolutions like we see in France, Lebanon, the United States, South America, it's everywhere, you can feel it. It will lead to war, the Third World War. So that's a very dark scenario and you have to hedge or be prepared for that as an investor. So those scenarios are on the table. 

What are the winners and losers in that that scenario and other scenarios, and I think that brings a dimension that is not frequently talked about by us in the Twitter space, is that next to that is even worse than Jeff describes with the deflationary trends, because there is a second deflationary trend that is going to happen for sure and it's the demographic trends. So you have an aging population in the world and it started in Japan.

 In the '90s where people get older and older, the baby boom is over, Japan has a 230% debt to GDP ratio. That's worse than the United States with 130%, that's worse than the worst countries in Europe, Italy and Greece, about 130%, but also Japan has below 1% interest rates since 1996. So Japan is really peaking into our future, because Europe will be next, Germany first and U.S will be after that. What that means is that older people spend less, they don't consume, right? 

After your first job, if you can save a little, you buy a house, you get kids, you spent like crazy and then the kids go away, you buy a nice car, a plane, a boat, in Preston's case, a plane of course, but then you're older and you don't spend that much. So you can map out and there's guys who did that, there's beautiful books about it. 

So those scenarios, the demographic trend and the deflation that will certainly come from there is also playing into this game and it's sort of the solution of some of the dangers that Jeff is talking about, because we need technology, because there will be not much workers anymore and everybody is from old age. So who's going to do the work? We need robots, we need technology and that will solve a lot of our problems that come from deflation, from aging population, I'm sorry.

Peter McCormack: Preston has promised me a flight in his plane.

Preston Pysh: That's a guarantee.

Peter McCormack: Yeah, all right! Jeff, so you wanted to jump in there?

Jeff Booth: Yeah, I think PlanB makes just some really great points there. A deflationary world because technology needs a deflationary currency, that is just as simple as that. The existing rules are not inflated, they're exactly the opposite, so you cannot... So the existing rules, if you keep them the opposite against technological deflation, the uprisings wars, everything else are a predictable consequence and this has happened in history before. So one of the things Stephanie Kelton massively misses in MMT... 

By the way, I understand a 100% why it's politically popular to be able to do that, because you can tell a population, "Don't worry we'll give you money." We're going to give you a whole bunch of money without telling them, "Hey, we picked your pockets first to make asset prices really high so we could expand government, so we could give you more money without understanding where that all comes from." But I do understand why it's super politically popular, and how much we're going to give you is... 

But what she misses and I pointed this out in a Twitter going a little back forth, where she says, "Well the UK has been doing it for 300 years and they still have a currency." What she misses is there were a number of wars to reset currency along the way and if you want wars to reset currencies, because these things are perfectly predictable, you have revolution and war and the winners of the wars reset the new rules. So that's what the world will look like if we keep on this inflationary path against gravity. It's insane! We're actually making that happen to humanity. 

When technology would allow us to work less, if you just allow... If you follow the rules of capitalism, it would allow our time to be the most valuable, because prices would keep falling and keep falling and we would free our time instead of trying to work all our lives to try to put money somewhere where we can retire in the last little bit of our life with protection. But again, this is... I understand why the rise of socialism, I understand why Kelton looks popular right now because it seems like a quick fix with no cost. But the cost is war.

Preston Pysh: I guess I have a more optimistic point of view and I would really like for PlanB and Jeff to shoot holes through this, if you disagree. I think this is the first time you've had this scenario where a new monetary policy globally can be supplied prior to it ever coming to a shot or a fight between anybody and I don't think that's ever been the case throughout history. That's been an opportunity that could have happened. So let's walk the dog. 

So let's say the price starts blowing out in Bitcoin in the coming year, and you see these people that are yielding nothing securities, and particularly in the fixed income market, they start swapping over. The first movers, the Michael Saylors of the world make out like bandits. He basically captures 83 years worth of net income onto his balance sheet in one year because of his decision. He now has the ability to buy up his competitors upstream, downstream, right? And you see this massive change in the redistribution of wealth, but not through a military conflict. 

That opportunity for that to even happen has never been the case ever throughout history. So I just think that if I was going to talk about this array of potential outcomes coming in the future, clearly everything that they've described is in that array of outcomes. I also believe that there might be a more peaceful... I don't think that transition is going to be fun for most participants. 

The majority of participants, it's going to be a very painful transition, because you're going to see people who literally become extraordinarily wealthy in short order and you're going to see people that are extremely wealthy that lose a significant portion of that buying power relative to what they had in short order. But maybe it's not this armed conflict between nations, because this is something that is stretching across the whole globe. I don't know, that would be my case for how it could be less painful, I guess.

Plan₿: Yeah, I'm also very optimistic by the way. If you look at a book like "The Sovereign Individual", it describes actually this process where nation States are less important and these sovereign individuals, rich individuals across the globe, get it and shape the new phase, if you will. We've seen it in history before, right? We've seen the Roman empire, debase its currencies and the Romans had it very well. They had 1% tax rate, they had property rights protection, they had trades, the sea protection, they had it very well. 

But somehow someone decided to debase their currency and it went pretty fast, in 50 years it was gone and it started... And you can see that with Bitcoin and the U.S dollar today, but it started with the soldiers refusing to take the denarii as a loan. They just said, "Well we'd like to fight, but please give us gold. No gold, no fighting.

So keep your denari and deflate them, whatever you like." And you see that in Bitcoin as well. The very expensive apartments in New York and London right now. Say 30, 40, 50 million apartments, a lot of Dubai as well. More and more of those apartments are being bought with Bitcoin, they're settled in Bitcoin. Why? If you sell it in U.S Dollars, it gets frozen, questions get asked, you have no apartment, you have no money. So in certain transactions you already see people demanding Bitcoin and refusing the dollar and more and more people will do that, and I think it could be quiet peaceful transformation.

Jeff Booth: Yeah, and building on that, I re-quoted Naval's quote and he said, "There's only two ways to coordinate human societies at scale, free markets or physical power." So what Bitcoin is, is it's free markets and it'll force deflationary outcomes. Any other kind of existing system is what they're trying to do is consolidate more power and so it's predictable. So I actually do believe in Preston, you want to shoot holes in it, I think it depends at what speed this happens and I think it depends on the on roads to Bitcoin, and the off ramps to Bitcoin and next steps on what governments do to drive it into broad adoption and pegged to it. 

I think what I believe is some governments just because of game theory will make it their reserve and just like MicroStrategy, the ones that do will have a huge winning advantage because they'll take... You can imagine if sovereign individual or whatever, you can imagine it incentives different governments to attract some of the Bitcoin holders as well through policy, just like monetary policy today is designed to attract kind of the best and brightest for capital into different regions. 

So I use an example, I could get a golden visa in Portugal for my family for $250,000 of an investment and so wealthy people are making these choices all over, and they always have been. Where is the best spot to be? You can see as Bitcoin starts to emerge and everything else, governments that do that and attract more of that wealth, have more ability to provide services for those people to.

Peter McCormack: Yeah, I guess Preston that's the biggest question is, within your scenario is the state response and as Jeff rightly says, there might be different responses. Some will debase currencies, some will create new currencies, some may wish to hold onto power through kind of what we're seeing right now in places like Belarus. 

As Jeff said, there may be a country, maybe a more forward thinking state the thinks "Actually, we should be doing what MicroStrategy is doing here" and that will be very interesting scenario to see how that plays out. But I guess, what we would all imagine is that it will be very obvious where this is a success and where this is a failure. We will see it play out of real time.

Preston Pysh: Well I think that the next step is really kind of companies. The big buying piece is going to be the companies and let's not forget most of the companies that have a majority shareholder that would understand this and make those big bold moves are mostly in the private market, not in the public market. So some of this might already be taken place, but you're not going to know. 

So when it starts really hitting the publicly traded companies, I would tell you, they're second in this order of adoption, the private companies are first. Then you're going to see the public companies, then you're going to see the state actors. I think that's kind of the order, and I would argue right now, you're probably having private companies that are taking these types of activities.

Peter McCormack: We're talking about phase five and six, interesting. PlanB, we talked about this in the last show, when we talked about your new cross asset model for stock to flow, we talked about what was stage five going to be and I kind of said, well perhaps it's nation state. It didn't cross my mind to think about companies until what happened with MicroStrategy. Now we've got... Well I know of four, we have MicroStrategy, Snapper HQ, there was that restaurant and I'm going to throw one other one in because my little podcast business, it's actually now 60%. 

My reserves are in Bitcoin, not as much as MicroStrategy, but it's still six figures. I still hold a six figure reserve, which is now 60% in Bitcoin and I did that and made that move based on the fact that I'm worried about the cash reserves I'm holding. I am very worried and listen, since I did a big move, I did another big move last week, I'm mildly down, but I'm still more worried about the cash that I'm holding.

Plan₿: Yes, I remember we talked it in the last podcast, and quite frankly I missed it completely, the whole MicroStrategy thing. I was thinking banks, pension funds, maybe countries, but never, ever did it occur to me that listed companies would do that as well. Of course they have the same problem with all that cash in their balance sheet, especially in Europe where it's negative interest, it's just going away. 

So, yeah and if there are listed companies, I noticed that a lot of people didn't see the importance of what MicroStrategy did, but because it's a listed company, it means that people can put Bitcoin exposure in their pension funds. They could just call their broker and they can't say, "Well get me some Bitcoin in my pension fund", but they can say, "Well get me these and these and these companies because yeah, I want to have those in my pension scheme" and in that way you could see a MicroStrategy as an ETF.

Peter McCormack: I'll tell you something funny quickly, a little funny story. I don't know how many of you have got your DMs open, but mine are open and you know what it's like, you get just these nonsense DMs come in all the time and on the day of the MicroStrategy thing, I got this DM come in and he'd just pinned me an article. I was like whatever, I didn't pay much attention to it. 

Then a couple of hours later, I saw the MicroStrategy story break and I was like, "Oh, that's interesting." So I read it and I was like, "I should try and interview them." So I went and Googled who the CEO is and it came out Michael Saylor. I was like, right, I'll find his Twitter and I went to his Twitter, clicked on DM and it was him! He'd sent me the article.

Preston Pysh: That's awesome!

Peter McCormack: Yeah, then I had to apologize to him, but I don't think there's anything that's happened in my entire time in this Bitcoin world that's made me more bullish than what he did. I mean firstly, the bollocks on the guy to do it, it's unbelievable! They took a position, he took a quarter of a billion dollar position, and bought up 0.1% of Bitcoin.

Preston Pysh: But you've got to think of this Peter, he also owns another company that has a market cap of $3 billion. So when you frame it that way, I mean that company could... I'm not implying this is what he's trying to do, but that company could literally go bankrupt, and the guy's still got a company that's worth $3 billion.

Peter McCormack: Of course.

Jeff Booth: I think that's actually super important to understand the risk/reward. I'm on two auditing committees that are having this conversation right now about how much treasury do they look in investigating and it's the same thing for people. That's why you're putting money into Bitcoin. 

I think it would be irresponsible for anybody not to have some right now, because you know what's happening to currencies and it's completely irresponsible. So if it's irresponsible for people, then it's probably irresponsible for companies to not at least hedge what's happening.

Preston Pysh: And on top of that, the company is still going to make its $30 million a year, bottom line net income, really kind of regardless whether the Bitcoin performs or not.

Peter McCormack: Still, I mean it's a massive move!

Preston Pysh: It's massive, but I'm looking at it from a risk standpoint. So he still has his company, he still has the underlying assets that are pumping out the $30 million a year and he's rich. Even if the business in the Bitcoin blows up to zero, then he owns a $3 billion company. I guess my point is he is not unique in the grand scheme of things, he's just another dude out there, and let me tell you there's a lot of people like him, a lot more people in this world that like him than people are less.

Jeff Booth: Because think about the policy where essentially the government has said, you're going to have a negative yields in your cash. You have all this cash and every company is saying, "Where am I going to put this cash? Why stock buy backs?" Why does the government have to keep saving these companies, is because you're incentivizing them to do the thing you don't want them to do. There's no growth in the market, it's all coming down.

You're incentivizing them to buy back their stock, to push up their stock price, to do over because the cash is... The government is saying, "We're making your cash worthless", so if you sit on cash, you're making that trade... Having that much cash in the bank, you're going to underperform other people who are doing stock buybacks and everything else. You cannot sit on that cash. There's an implied, "I'm going to make it worthless." So where am I going to put it? It naturally leads to where are the exit valves that I can put this, that can save its value.

Preston Pysh: PlanB, how is this playing out with your model right now? I've seen you posting your red dots, how is this all playing out right now?

Plan₿: So far it tracks pretty well. Of course it's early in the race, but we're four months after the halving and it's about to get very interesting. I'm very glad those red dots and those months were up, up, up because otherwise I would have to explain a lot. But yeah, well personally I'm sort of merry with the model, I have no doubt. I have the same vision fundamentally, regardless of the model that this is the solution, the hedge against all this crazy debasement and quantitative easing. I've seen nothing else. 

Also the other thing that... Well, the thing we talk about with MicroStrategy, and let me add there's another thing I didn't see coming, which is very interesting. I think all the big financial institutions of course are making funds, Fidelity, Grayscale, and trying to push that. But what we're also seeing now is pull. So it's very easy, but I got three calls this week from within my company, people saying, "Those clients? Those are big companies, listed companies are our clients and they want Bitcoin?" 

But yeah, well there's nobody who knows what is Bitcoin? How do you do that, blah, blah, blah, so we now are seeing pull from clients, from people that go to Fidelity and all the big players and ask for Bitcoin in their pension fund.

Preston Pysh: Insane man.

Jeff Booth: So can I ask PlanB a question because it's from... So here's just a radical thought that could break your model and just love your thoughts. If governments didn't print and you had a massive depression and in other words, deflation was going to happen anyways, it was forced onto the market, then that model probably wouldn't hold in that event. Is that right?

Plan₿: That's a very good question. I don't know. I'm quite certain that the printing, the quantitative easing helps a lot right now, you can almost feel it. That money flows like water, it flows into Bitcoin. 

So if there were no printing, I still think the stock to flow path, so the fact that Bitcoin is taking its natural place within gold, silver, diamonds, real estate, that all serve as a store value and are one of the few assets that have a high stock to flow value, that have somehow an improbable history or something that made people hold that asset and consider it as a store of value because that doesn't happen overnight. 

So I think that even if they didn't print, then Bitcoin has so much advantages over gold, for example, easy verifiable, easy portable, that it would grow towards... Maybe less fast, but it would grow towards that spot where it belongs.

Jeff Booth: Interesting, thanks.

Preston Pysh: So one of the things that I cling to when I think about his stock to flow model and how the price is going towards production cost effectively, I go to this quote, this Satoshi Nakamoto quote from 2010 and it says, "the price of any commodity tends to gravitate towards the production cost. If the price is below costs, then production slows down. If the price is above costs, profit can be made by generating and selling more. At the same time, the increased production would increase the difficulty pushing the cost of generating towards the price." 

So I think that if your scenario plays out that you just described Jeff, I would look at it, well what's the cost of energy? How has the price of energy adjusted based on the loss of fiat units that are in the system? What is that cost of production? Then you could look at what impact that would have to where the price of Bitcoin would move. Now, as far as buying power goes opposed to price, so you were talking price, but let's talk buying power. Does the price go to $100,000? Probably not. It goes to some other level, but as far as buying power goes compared to everything else, that still went up the same as if it was a $100,000.

Jeff Booth: That's actually the point I was trying to make. From a fundamental... So if you play the scenarios through, you're going to have government intervention, you're going to have... Then it's going to stop because they think, "Okay we solved it" and then it's going to get worse. So in the next number of years, the next number of months, you're going to have policy responses that are stop, go, stop, go, and everything else and what that portends into the model or Bitcoin, means it's going to be up and down and everything else. 

There's going to be some variability into that, a longer path, but a longer path to real value going up. The real value of that going up, not the nominal price and whatever currency you're talking about into overall purchasing power, or Bitcoin going up, but...

Plan₿: Maybe...

Jeff Booth: Go ahead.

Plan₿: Maybe Jeff, it's interesting that the stock to flow model holds, even if you express the Bitcoin and gold instead of dollars.

Jeff Booth: Yes.

Plan₿: So it's the same coefficient as well, so the 4.1, and yeah, it still holds, so that gives me a lot comfort that this is more fundamental than just a quantitative easing debasement and printing thing.

Preston Pysh: Where I think your model fails is if for whatever reason there would be some other competitive coin that the market would see that protects their security better than Bitcoin and that could somehow step in and surpass the network effect that's already in place. So why do I like Bitcoin? I like the fact that it gives me so much security per transaction size, per clearance time, that's why I think Bitcoin wins here and Nic Carter has an amazing article that addresses this topic. 

I think the name of it is, "It's all about the security of clearance payment, stupid", it's something like that. I'm sure Peter can have it in the show notes or whatever. As long as the market continues to view Bitcoin through that value proposition, which in my opinion is better than any other currency that exists on the world today, I think your model continues to be valid. 

But I think if something else can step in there and do that... So how am I monitoring whether that value proposition is continuing to be upheld? Well for me, I'm looking at the hashing rate and the fact that you have more and more miners continuing to bring more hashing power onto the Bitcoin protocol opposed to everything else, is proof to me that the market is valuing that work that's being performed. That's the proof for me that the stock to flow model will continue to be valid.

Plan₿: Yeah, I think that's correct. In fact, people mention it as the second largest risk to Bitcoin after government banning and regulation, which I don't think is a big risk, but we talked about that. So I think you're right, but I think it's also a small risk. It's just a theoretical possibility that such a coin will be made, but capturing...

Preston Pysh: In a decentralized way, because it really is all about decentralization.

Plan₿: But getting older, now we're at facts. So the miners, the nodes, the exchanges, the future, the derivatives markets, everything, I think Bitcoin has a 10-year head start that will be so unbelievably difficult.

Peter McCormack: It's one shot man, I think it's one shot. I think it's Bitcoin that has the shot. I can't see something else. I love Dan Held's article on Bitcoin's immaculate conception. There's so much built into that, that I just can't see this happening again.

Plan₿: I totally agree.

Peter McCormack: I think we have one shot. It's Bitcoin, it's now, its time is now. I can't see something else coming in. But Plan B, look, based on the model, the model can fail, but we could still trend upwards, right? It doesn't have to follow the exact model. It can fail, we might not hit the exact markers, but that doesn't mean Bitcoin itself fails.

Plan₿: It's true, absolutely true. Let me say it again, the model can fail. It's a model, so it doesn't...

Peter McCormack: It's a theory, yeah.

Plan₿: Yeah, it's a theory. It's more to describe something and it's quantitative. That helps, but it is a model, it can fail. But yeah, Bitcoin will not fail, I don't believe that.

Jeff Booth: Plan B, that's actually why I asked the question the way I asked it, because if you said all the governments today or all central banks today stopped printing, your red dot would likely be lower. But in my mind, it wouldn't invalidate the model nor Bitcoin, first the model, because the response after that is they would have to print more. 

But if somebody is just following your red dot and not aware of some of the other things that are going on, you could easily say, today, why did that go down? You see it on Twitter, you see all of the people looking at this every day and they're not looking at the time horizon on what this thing really looks like.

Plan₿: Yeah, I totally agree. I must say, I think from my own 130,000 followers, I'd think only 10% or 20% really knows how to interpret the model. It's misinterpreted quite often and it's like you say, especially the time series variant.

Jeff Booth: Exactly!

Peter McCormack: They're not going to stop printing, but that does put me in this ... I don't know if any of you question this weird moral, ethical position whereby I personally benefit from government fuckery if the Bitcoin model proves true, but I don't want to see chaos and carnage and I wrestle with that sometimes. Sometimes I see the price and I get a bit excited, then I'm like, "Holy shit! But this might mean bad outcomes for many people." Do either of you or any of you wrestle with that yourselves?

Preston Pysh: The bad outcome is based on prior decisions that have been made.

Peter McCormack: Of course.

Preston Pysh: So I look at it just from that context. I look at it, well, I can't undo the past that's happened. The result of what we're about to experience is based on decades of those decisions that were made, that were most likely based on self-interest over the greater good of the group or the people that were being represented. 

So I don't look at it as I'm doing something that's purposefully unravelling a system that used to exist. I look at it as I'm protecting my family from bad decisions that were made in trying to navigate the future as best as I possibly can.

Jeff Booth: When I wrote the book, I was actually hopeful and I remember when the book came out in January, so I wrote it over the year before that and I was hopeful that those bad decisions would stop and you can get people to come together and create a transition period to the new. I unfortunately am less hopeful now because we're exponentially making the problem worse. 

The one difference I would say with Preston is I don't think it's bad people, self-interested people as much as it's people caught in a system, not being able to understand what's the feedback mechanics of that system and being trapped, and now not knowing what to do. 

So just keep doing the same thing you've always done. I use the example of many podcasts, it's like Blockbuster putting candy aisles under their stores when Netflix is emerging. It's so clearly the same, like that's going to protect them, but they don't know what to do. If you use that analogy to what governments are doing, that's what it looks like.

Peter McCormack: Can one country do it any way? One of the things, you may understand this better than me, Jeff and Preston and Plan B, but can one country alone fight this?

Plan₿: No.

Peter McCormack: Or are we in a position where it's like a game of chicken? Because if one does it, they are ultimately... It's like the competitive money printing you talked about Preston. Is it because we are one global economy now, they all have to fight this together and they have to compete on this? Because if one doesn't, ultimately they're missing out on this situation? I'm sorry, I'm not wording my question very well, but I think you know what I mean.

Jeff Booth: On the rewrite of the rules, right after World War II, Bretton Woods started two years before the victors, before the rewrite of the rules, Keynes proposed at bancor, that was a fixed exchange unit that governments could agree on that would provide fixed exchange rates and because US won the war, the most powerful at the time, it became US dollar tied to gold, not bancor.

Those rules subsequently were changed in 1971 and now we have every currency printing their own currency competitive devaluations and any country that said, "I'm going to allow deflation to happen", also then becomes uncompetitive and their labour becomes uncompetitive across the world. 

So no, it can't happen with just one country. In fact, that's actually why these rules get rewritten after wars, and always what emerges out of the ashes is a new rule set that ends up happening, and why I think what Preston was saying before about potential, a hopeful potential is Bitcoin allows us to transition without the wars, because governments also have a game theory incentive to move on to Bitcoin earlier.

Plan₿: I also think that we have to get rid of the nation-state thinking slowly, because if you look at that map of the world that's right there in my place, because I have no other picture there, it's weird that the world is split into those straight countries and if you sum up all the people with Bitcoin, all the people with houses, all the people with the billionaires, with companies and they live everywhere, they're very mobile, they're bigger than most countries.

So the US, if you look from the US perspective, not much people bigger than that, but all the other countries, there's a lot of countries that are already smaller than the monetary base of Bitcoin, almost all. I think that the collective of sovereign individuals, if you will, will be bigger than that of nation-states in phase five or phase six.

Peter McCormack: Another thing, PlanB, you put out a tweet, it was about 10 days ago, where you mapped the S&P500 against the Bitcoin chart.

Plan₿: Yes.

Peter McCormack: What were you trying to point out here? I couldn't figure out whether this was good or bad news, because one of the things we have seen is there's a certain synchronicity between the stock market and Bitcoin recently. If the market dumps, Bitcoin dumps. I was expecting at some point for them to desync from each other. What a bad term, desync.

Plan₿: It was certainly one of my more controversial tweets because people thought, "Well how is that with the stock flow? Is it still valid? What if the stock market crashes?" Because everybody thinks the stock market crashes, or will crash, because it's already very high. I don't think that's the case, by the way. What I wanted to do, and it's a pure statistical thing, is put numbers to the thought that quantitative easing is pushing everything up; real estate, stocks, Bitcoin, gold and you see everything going up. 

So I just mapped it, I did the analysis and there is a power law and there is co-integration and it's to non-deterministic variables. As you know, there was a lot of discussion about deterministic variable, stock to flow in the co-integration discussion. So S&P500, Bitcoin correlated and co-integrated over 10 years and one other thing that triggered me to do that as well, next to quantitative easing was if you look at the big down movements in Bitcoin in 2018, beginning and the end, and right now with the corona, the stock market and Bitcoin moved together in those three periods and that was a big disappointment for a lot of people, because a lot of people thought it was a safe haven asset, which it is not. 

That's a good thing because you can better have a non-correlated asset than a safe haven asset, because if everything goes well, then Bitcoin goes down. But anyway, I find it very interesting that the reason, the causality, why did Bitcoin go down in the beginning of 2018, the end of 2018 and now with corona, was that some Bitcoin thing or was that a macroeconomic thing? I think my statistical model proves that as well, that it is a macroeconomic thing and all those three events had to do with debasement, quantitative easing, the fat tapering and the China war. So I'm pretty sure they are co-integrated and correlated.

Preston Pysh: Peter, I want to piggyback on that comment and I would challenge PlanB on whether it was binary, macro or a Bitcoin thing. I would argue that it's probably a little bit of a hybrid because there probably was a little bit of an overshoot beyond the level there and then you combine it with whatever macro factors you could have it as being some type of hybrid. 

But I would simplify why I think that you're seeing what he put out there through statistical evidence as there's just more units being added into the system collectively. So if you're seeing more units being added into the system and the units I'm talking about is obviously fiat dollars and euros and whatever, if you're adding more units into the system and you're talking about securities that do not have counterparty risk, and you're having a world that's starting to treat these securities that don't have counterparty risk as being a store of value, you should see co-integration between Bitcoin and those securities that don't have counterparty risk.

Plan₿: Yes.

Preston Pysh: Now the magnitude at which you see the co-integration is the part that we're all here talking about, because we think the magnitude on Bitcoin is going to be significantly higher than the magnitude of the co-integration on equities and stocks and the main reason why is because their market cap is mature. 

Everybody knows about it, everybody is participating in what that valuation of it is and the market cap of a currency that's trying to become a global store of value on a global level has not even come close to reaching its market cap. So I think that chart makes total sense to me. It just does. I like it.

Jeff Booth: If you build on what Preston is saying, just go through the assets where the money is going and say, what is the risk return profile of each of those assets for where that money is going? So playing on what Preston talked about with stock prices today and some of the technology companies, which are a good store of value versus a lot of other companies, but at this price, the asymmetric bet on it is really hard to get your head around it. 

Let's go into a different asset, let's go into housing. We know for sure that governments have to tax housing differently, and we know for sure on this path that there's going to be more and more social unrest and your housing, you can't move it, so there's a whole bunch of risk in some of those asset classes versus something like Bitcoin.

Plan₿: Let me add to that. Those are very good points, and we see it in history as well. If a company goes into hyperinflation, the path towards killing their currency always and always, you see people looking for alternatives; alternative money, alternative store of values and always, it's housing bonds, stocks and all the other stuff. So in Venezuela and Zimbabwe, and even in Iran, all the stock markets...

Preston Pysh: Man, I'm sorry to interrupt you, but bonds of other countries, not their own organic bonds, right?

Plan₿: Well, yeah. But in Zimbabwe you saw in the first phase of the hyperinflation that even the bonds or the companies, so then you at least have the companies.

Preston Pysh: Right.

Plan₿: Even if the currency goes to shit, you have the company. So people make those decisions very deliberately and I think in tech stocks, you see that as well. You know that Tesla and Google under the... Well there is value in those, so I think it's just people looking for a way out, for an alternative.

Jeff Booth: Play that forward and this is actually really bullish for Bitcoin, but also why you should hold a tiny bit or why I think it's crazy not to hold it. In the past, most populations, most civilians, even though they could see what was coming, you could see it. So in the Weimar Republic, you could see what was coming. You could see the social unrest building, you could see what was going to happen and you could see the response by governments to try to stop it, and you could see all of this happening. 

You can see it in Venezuela, people could see it coming. For years, they can see it coming and getting more snores. Why don't they move? Why they don't move is all of their wealth is in that same currency and their housing is there, their stocks are there and everything else and they can't move it very easily. So they're stuck and they long for a better time. 

So they're fighting against the same thing and they're saying it won't get worse. So they stay all in their country and then they're trapped as you get punished by the hyperinflation on the other side. With Bitcoin, you can move it anywhere. You can remember 10 words and move it. So it is a release valve to everything that's happening all over the world that will likely drive that network effect faster and faster and faster through what's happening.

Plan₿: That's very true and that's actually a discussion I'm having right now. When am I going to move out of Holland? Well, we have a 50% tax rate and the discussion in Holland, and a lot of people are having this discussion with there is a point when people move out. They go to Singapore, they go to Malta, they go to all the right places and it was similar to the Second World War, of course, where some people left Holland and they went to the US, to New York and so that's basically the discussion. When do you go? Most of the people are too late.

Peter McCormack: Katie is working on that. Do you know Katie?

Plan₿: Yeah, I do.

Peter McCormack: I saw a thing, I think it was Marty Bent, who shared that out in his email that she's working on a business now that's to help people with getting the passports to other countries, to move to other countries.

Plan₿: Great name by the way!

Peter McCormack: But I agree, it's on my mind. Look, I'm not Bitcoin rich, but I'm certainly in a position where I think I want to move for different reasons, not just the tax rate. I think in the UK, we've got an impending tax increase coming to pay for this COVID situation and I think it's going to be unavoidable. 

But I get this personal feeling, or maybe this Bitcoin has done it for it, I just want to live in a smaller country or an island, or somewhere which is a little bit more independent from the rest of this crazy world, these big nations. But she's got an active business now to help people consider this.

Plan₿: The name of her business is Plan B Passports, isn't it? Yeah, I like that name!

Peter McCormack: She stole that from you, but it is an interesting point.

Plan₿: I stole the name as well.

Peter McCormack: Well yeah, of course. But it's competitive geography, I guess was one of the ideas, one of the things that I always like about the United States, that we're seeing a migration of people, perhaps out of California and we see a migration into Texas because of tax rates, right?

Plan₿: True.

Peter McCormack: That is a benefit, and also for politics. But internationally, I think we're going to see a lot more of this. I'd love to move. It's a little bit harder for me, but that is something you're definitely thinking about then?

Plan₿: Yeah, and talking about with other people, because everybody is thinking it. It's not just the tax, it's not just the money, it's the way of living. Well, the dark scenario that Jeff has described, you know where this ends. This is the socialist path, this is the way to war. So yeah, we're seeing this over and over again.

Peter McCormack: We need a New Zealand bunker! Listen, just a few more questions to go. So we see in this natural path, Preston, and how do you think this plays out for Bitcoin? Is Bitcoin just an asset? Is it just a hedge against inflation? Is it just hard money or do you see a reality of getting to a Bitcoin standard where it is? 

We have it similar to Bretton Woods, we have a similar situation where we actually have an agreement on a standard? Or do you think this is just something that will naturally play out? It won't be formally agreed, but people will be like, "Well, I want to hold Bitcoin because that's the best form of money," and that will become the standard?

Preston Pysh: I don't see tax laws around the world changing anytime soon and they're set up to treat it as if it's a security or an asset. So if the price goes up, you have this tax burden on a currency and so what I see playing out is the incentive structure is it's eventually going to polarize governments to want to attract as much of this into their country as possible and that's when you're going to see the transition. So at what point does that happen? I don't know. 

But I think what we were talking about earlier, which is you're going to see private companies start slapping it on their balance sheet in a major way, then you're going to start to see publicly traded companies do it at a much smaller scale, but then they're going to start taking bigger positions and then a significant portion of their balance sheet is going to have this on it. 

Then you're going to see countries start to want to have some of it in their treasury and then you're going to see countries that are going to start saying, "Hey, you come into our country, there's no tax on any type of Bitcoin that you're holding" and then that's going to be the next competitive step that's going to make it a standard across the world, in my opinion.

Peter McCormack: What about you Jeff?

Jeff Booth: Yeah, I completely agree with that. Well if you think about why inflation, inflation is just a hidden tax, but it's a hidden tax that's punitive on the population and most are unable to pay it, because to pay for services, taxes would have to be so much higher. So if you devalue your currency through inflation, people don't see that you're picking their pocket. So governments have gotten so bloated in providing this and actually, like I said, creating the problem that then they're sowing their own seeds to create more and that is saying the people that are asking us if you're going to celebrate and give them more matches. 

That's where we're going right now. So socialism is just an extension of that push up asset prices and it consolidates more control. As you consolidate more control, you get worse, and the worst political leaders that are just looking up for control. Essentially, what'll happen in the US, you'll get constitutional change because of that as you try to take more control by the state, that's the existing path. So Bitcoin is a beautiful outcome against that path, as it forces prudence. 

So let's just use an example and build onto what Preston just said. If a government was clean with me and said, "We want to attract you here and here's how we're going to charge your taxes, and we're going to provide these services, and some of those services are going to make sure that you don't have a whole population without anything. But whatever the services look like, you're going to have great education, school, everything else, but here's your tax rate.

But we're not going to trick you and pick your pocket through inflation and here's a tax rate that you need to pay," whether you pay it on the things you buy, like housing or other things, or do you pay it, but some way to do that, that was fair and equitable and then other governments around the world were competing for my dollars, by doing that, there would be a competition for talent, just like there is today. 

But it would drive it under fair rules and what I really like about that is if you look at where technology is taking this, is that those fair rules make sure that the abundance from technology are distributed broadly, it forces that. It forces that to happen. So Bitcoin forces a Bitcoin standard, which I believe will go to forces the technology abundance to be broadly shared.

Preston Pysh: What about the employees that are going to demand payment?

Jeff Booth: That's what I'm getting at there. So today, if you do anything opposite from deflation, you're concentrating power. All of that money is driving into networks. In fact, you're concentrating power, whether it's in companies, countries, everything else and people's mind is exactly opposite to they're actually asking through more socialism, through more government intervention to concentrate power more. 

They don't know it, but that's what they're doing. They're doing it in a response to, "I can't feed my family because prices are too high." But they're still doing it. They're concentrating power further, which changes constitutions, which changes everything else and you get a whole bunch of dictators. That's the path. The opposite path on Bitcoin forces... So competition will drive down price over and over and over again, ultimately until a lot of things are close to free. 

If I'm an entrepreneur, well, there is money in something and you'll race in to fill that void and it brings it down further and further. Stopping that from happening is hurting society really big time. Bitcoin is so beautiful that it actually can solve that. I'm not saying it's not going to be ugly on the way through, but it does provide a forcing function to make sure the abundance from technology is broadly shared.

Preston Pysh: Peter, this is the neatest part about Bitcoin. So you have a business and you're able to stack more Bitcoin every month, but the reason you can do that is because you're actually profitable. The money that you pay out is less in all your expenses and it's less than what you bring in, so you are able to stack Bitcoins. How many companies on the planet right now are not profitable? And I'll tell you, the number is way higher than people think. What would you say it is, Jeff?

Jeff Booth: There are so many zombie companies who are making it even worse.

Preston Pysh: There are so many zombies.

Jeff Booth: Exactly and it's all government.

Preston Pysh: It has to be even higher than 50%. More than 50% of businesses that you look at do not make money. All you've got to do is just crack open the net income statement and look at that and over a five-year period, I'm telling you, 50% of companies don't make money. If you don't make money, you cannot stack Bitcoins on your balance sheet. Period.

You're definitely not paying your... Well, you might be able to pay employees for a short period of time, but eventually, this all comes to a head when these companies, they can't stack Bitcoins, and guess what, if you're measuring your results in fiat, they're going down, relative to these companies that can stack them. 

That is such a drastic change from what we've seen over the last 10 to 20 years, where all of these companies are being propped up by fiat printing. It's going to be crazy! Then when you talk about price deflation, think about all these businesses that would fail and all the stuff they've got to sell. If you've got an influx of sellers in the market, what does that do to the price of everything? It makes it collapse.

Peter McCormack: Feeling pretty bullish again. Every time I do an ep... I did one recently with the guys from WTF Happened In 1971 and also with Guy Swann. Honestly, straight after that episode, that was when I went and bought a bunch more Bitcoin personally, and a bunch more through the business. I hadn't actually bought Bitcoin in over a year, I earned it. 

Yeah, as Andreas says, "I would bill in Bitcoin and leave a certain amount in Bitcoin." I actually went out and I was looking at my cash reserves and I was like, "Screw this now. I'm in that position now." I don't expect any of you to say the same, but outside of my property, so forget my house I own, 95% of my personal money is in Bitcoin. I'm scared to keep cash.

Preston Pysh: Of your retained earnings? But as far as assets go, if you would value your assets Peter, and you would put a market cap on your assets, you've created that are going to continue to give you free cash flows, if you capitalize that out, then you're now making reasonable decisions. So people on the outside, they would hear you say that and be like, "Well, he's completely unreasonable." 

Well maybe he's not, maybe he's 100% reasonable, because he's valuing these revenue stream assets that he has, that aren't being capitalized like any other business would be. Then when you compare the percentage of Bitcoin that you have allocated through retained earnings, well, now all of a sudden, you're not 100% in Bitcoin. You have a business model that's kicking off free cash flows and you're making sound decisions to protect your value.

Peter McCormack: But it's also personal. I have enough in savings to protect myself, but also, I'm in a position where I don't need to spend the money, so I don't care about the volatility. It can go up, it can go down. At the point, I need that money, which we're talking multi years. Perhaps, I don't know, where my big spends come in, my daughter and my son might get married at some point, they might need a house, but we're talking a decade away. 

I've always said it would be a decade before I sell any Bitcoin anywhere and I'm like, "Do I want to hold this cash for a decade?" If don't want to hold it for a decade, why do I even want to hold it for a month? But then also where my business so I think I'm at about 60% now. I went for 50%, but I think I'm at about 60% now, and I'm cool with that and that's... But this is what these interviews and these conversations, and MicroStrategy was a huge kicker for me.

Preston Pysh: But, Peter, you're doing the exact same thing as MicroStrategy. You're just private and you're public. You're doing the exact same thing as MicroStrategy, on a personal level.

Jeff Booth: I think it's important just to build on this. So you have a whole bunch of people listening to this podcast and every single person's position will be different. If you're looking at this as a protection of wealth, you should put a certain percentage of your overall portfolio in this, whether you're a business or whatever and the more that you've gone down the rabbit hole and understand what things look like, you might increase that percentage. 

If you're looking at it as, "I am doing this to make the most money," a higher risk, higher return type of profile, you might put all of your money into it, but you also have to be... So concentration of risk produces enormous returns if you're right and lucky. That's what an entrepreneur does, they go all in to one thing and if they're right, on the backside, they win the cash, they can cash out and they diversify their assets.

Peter McCormack: Let me throw another thing in there just quickly before you jump in, Preston. I'll tell you another thing that happened with the MicroStrategy position, which I don't know if any of you thought about, but one of the other reasons I've always been scared of putting too much into Bitcoin is that I still worry about the potential ban. Would it ever be banned? 

China banned it, and I think a company like MicroStrategy... I would say, the more companies that do that, it decreases the chances of it being banned, because you could see the reaction from these companies saying, "Hold on, you can't ban this asset" and I see companies investing in Bitcoin, putting their treasuries in Bitcoin, as forming a moat around them.

Jeff Booth: This plays into PlanB's model. All of these things keep on making the network effects stronger and stronger and take it to the next ride up and drive more people into it, because there's more trust in the system, and the people that are making that bed early, seeing where this is going, have more return from that bet.

Peter McCormack: Okay, Preston, you had your hand up?

Preston Pysh: Go on.

Plan₿: Yeah, banning is, Peter, the one risk that you mentioned is the number one risk that most people mentioned, right? I had a poll up last week, 20,000 votes, 50% banning. I don't think it can happen anymore because you have regulated exchanges, futures exchanges with not small volumes, you have listed companies like MicroStrategy now, you have pension funds, police pension funds, Morgan Creek Capital has police pension fund in there and if you ban it now, you will get sued. It's not possible anymore.

Peter McCormack: Well yeah, and also was it a Grayscale? They've got $5 billion I think, in the Bitcoin fund and you got about $1 billion in some of those shit coins. Fidelity wanted to launch their fund. Don't they have trillions under management at Fidelity? Raoul Pal's going big right now, isn't he? It's just in every fucking direction.

Plan₿: Caitlin Long is doing Wyoming, crazy stuff with the law. So you can't see the U.S. as one country. The States have very, very big powers, too.

Preston Pysh: One of the things you get when you talk about this phase transition model, where it happens, where the next level is achieved all at once, is this entrenchment, how can policy makers step out there and ban something that's moving at a breakneck speed because these phase transitions are programmed into the protocol. 

You saw this in 2017, when the price was really taking off and it was passing through $10,000 and making the run at $20,000. You actually saw people at the press conference, in the White House, starting to bring the topic of Bitcoin up, and that's right when it cooled off and it levelled out, or it stopped, the price started coming back down, and then what does everybody do? They forget about it and it goes away. 

All the speculators step out of the market, it cools off until the next halving occurs and then you're going through the next phase transition, and it's going to happen so abruptly that the entrenchment that occurred through those three years, or whatever it was between then and now, took place. The engineering took place, all the stuff that's built around at the second layers, you got this Liquid network that's now taken the arbitrage away on the 10 minute block size, all that kind of stuff. 

That was all built from that point in time where it almost popped the circuit breaker and now you're getting ready to go through the next phase transition, and I think there's too much entrenchment at this point.

Jeff Booth: To watch what Preston's happening in reverse, if you look back in history to see this happen, look at all of the people and all of the talking about Amazon, not understanding a network effect, not understanding what they were doing, they're looking at when Amazon was $7 and what we thought would happen and that a bunch of those people chased it all the way up to $40,500 and still say, "Well, why isn't this worth as much as...? 

Why is it worth so much?" So the same thing is going to happen here. You're going to have a whole bunch of people saying, in the next wave, that it can't happen, that it's going to collapse, it'll cool off, and then it'll go up again.

Peter McCormack: I did put a tweet out, it must've been a year and a half ago or something and it was when Bitcoin crashes from, I think I put something like $100,000 to $50,000 or it would've have failed, Bitcoin will have died. It's like these cycles keep repeating them, but one interesting thing, I didn't see your poll PlanB, but I'm interested in the threats. It's funny, even though I completely disagree with Saifedean on everything to do with modern art, he did say one thing that I massively agree with him on, where he said, " The biggest threat to Bitcoin is good government policy."

Plan₿: Yeah, it's true. But it's funny, I do that poll every quarter, every two months, three months, and it's always different risks. Before the halving, it was the halving and the miner capitulation and the death spiral, and then it's futures, and when there's a big hack, then it's hacking and every time is something else. So there's a big recency bias on all those risks, which tells you one thing: people are overestimating the risks.

Peter McCormack: Yeah and underestimating the risks of their fiat currency.

Plan₿: Yeah and that's a good thing to know as an investor, by the way. That's why I do the polls.

Peter McCormack: What do you think the real risks are? Because I see there are risks, but I don't know, man. I feel less worried about the risks that people say to me, like when people talk about the government banning, I just think the moat has been built, that's not going to happen. I just don't see too many risks anymore and perhaps that's the wrong attitude to have, but I don't see it.

Plan₿: I have maybe a weird perspective on risk, but I see it as something essential and good. Without the risk, we wouldn't go high. Everybody would be a millionaire if Bitcoin goes up every day, and it has to go down, you have to have real believers that the real, strong shareholders, if you will, if you look at from a company perspective, you don't want the quick buck, fast in-and-out types. 

You want the strong shareholders that share your vision and can stomach the volatility. So yeah, without the volatility, you wouldn't also have option premiums that are attractive, 40% per year right now that attracts a whole different group of investors. You need the volatility and the risk so let's embrace it.

Peter McCormack: Got a couple of questions I'm going to throw in from the tweet I put out. It seems people are excited about the show. PlanB, someone wants you to explain the red dot.

Plan₿: Serious question?

Peter McCormack: Here's the question, it's like, "What does a red dot mean?"

Plan₿: A red dot is just another month on the chart, at month end, a closing price, and it's red because it says it on the chart as well, there's a colour scale. Red means the number of months until the next halving, and that's about 40, I think now, and it will go to zero, of course, the next halving in 2024. So it will go from red to orange, to yellow, green, blue. 

So it doesn't have predictive value or something. It's just red because it's the number of months until the next halving. But the predictive part, of course, is in the modelling behind it, and that if you look at the months after the halving, so the red dots and the orange dots and the yellow dots, that is where it's supposed to go up, where it's supposed to go to this next phase, is phase five, which we obviously are not yet, because it's very slow. 

It's on the right path, but it's very slow. We're very impatient, but we haven't seen anything yet. I think the fireworks start when we pass $20,000 or something and then the next day we're at $40,000 or $50,000 which feels very normal then, but right now we're...

Peter McCormack: Well, there's another interesting point, actually, I think it was Travis Kling I was talking to, he said, "Look, there are some companies who cannot invest until Bitcoin is over $50,000, because of the size of the market"

Plan₿: Yeah, true. It's not liquid.

Peter McCormack: It's not liquid. Okay, also, somebody's asking, "When $288k?" Are you still $288k? Because I read the Fidelity article and they are analyzing the path to 1 million Bitcoin and obviously we had a very good article come out last week from the Winklevoss twins, looking at a price prediction of $500,000. We're seeing some pretty... Let's be honest, these numbers are insane. Are we still on track for that?

Plan₿: I'm on $288,000 as an average value. So, yeah, $100,000 would be very nice too, but if you just followed them off, if you just follow the data and I don't mean the time series model, so we're not looking at Bitcoin only, we're looking at gold, silver, diamonds, real estate, all that stuff, it's $288,000. 

Again, that's an average value, so it could overshoot like three times, like it did last phases. I don't want to mention the number, I try to be conservative all the time, but well, let's say a 2x or 3x from that $288,000 and then it crashes again, of course, to let's say, $100,000 or something, under $50,000

Peter McCormack: Yeah, some pretty firm hands holding through a $100,000. There can be some people out there just holding a Bitcoin and that would be life changing money for them.

Plan₿: Yeah, I cannot give investment advice, but if the thing that you hoped for happens, it's no shame in taking some chips off the table. If you hope for a 10x and it happens, and that would be $100,000, by all means, take a handful of Bitcoins off the table and buy something because that was what you hoped, but don't sell it all. You have to stick to your plan, but don't forget to treat yourself as well.

Peter McCormack: All right, okay listen, I'm going to go with a final question for all of you and it's kind of a broad question. What I'm going to say is, "I want your predictions." You don't have to give me price predictions, your predictions of what you think is going to happen, but you can pick the time period. You're going to say, "Over the next year, x or the next five years, x," but just give me your predictions on what you think is going to happen. We'll go with you first, Jeff.

Jeff Booth: That's a big question.

Peter McCormack: I know it was a big question, but I can say, "Jeff, what do you think is going to happen over the next year?" And you'll be like, "Well, I'm thinking on a three year timeframe." In my head, I've got a 10 year timeframe. Everybody I speak to that, and they asks me about Bitcoin, and my friends are like, "Oh, it's too expensive" or "Am I too late?" Or "What should I do?" I'm like, and I just say, "Buy some, keep buying, but have a 10 year horizon." That's it, it's a 10 year horizon.

Jeff Booth: So I would say the same thing. I'm not selling, I don't need to so I'm continuing to buy through this and I would encourage everybody to buy through this and continue to buy through this because if you look at... Preston made a really great point before, understanding down to the bottom and back up on what Bitcoin looks like, and there's not a lot of people who've done that work. 

We know a lot of people, but broadly speaking, there's not a lot of people who've done that work. Broadly speaking, there's not a lot of people that have even questioned our monetary policy and what's happened in the world that has changed now, that has to, everything's going to look upside down and because they haven't, they're stuck on rewind, over and over and over, and believing things that they're being told, or they were taught in school that simply aren't true anymore and this is what I wrote about in my book. So why it was easy to see what was going to happen?

A lot of people talk about the book and how it predicted all of these events and predicted the next ones, but this is really easy to see what's going to happen if you understand it at a first principles level. So if that's going to happen, then I suspect governments are going to continue to try to print their way out of this. 

I suspect that's going to have a rise in socialism and breaking of essentially the contract with people and so you're going to have polarization of society and uprisings and everything else so all through that, and I predict that Bitcoin is going to do really well in that environment until it'll feel all of a sudden that it goes through the stratosphere and people with that will kind of get to Preston's point before, be able to have a good conversation and how societal people are wired because governments will want to attract those people.

Peter McCormack: All right, man. Preston, you're up.

Preston Pysh: So 10 years, sure. I'm more optimistic as far as... Is optimistic the right word to use? I think it's going to happen. This big move's going to happen sooner rather than later. I think that this incoming cycle is going to blow back hair on all market participants, particularly ones in the fixed income market, and I think that... Like PlanB's model, right? I've heard people make the complaint that if you keep following the model, one Bitcoin's going to be worth $100 million and this and that and like, "Well, how could that ever work?" 

And I'm thinking, "Do you not understand that we're talking about buying power?" That's the thing you got to really kind of focus on, is not the nominal number of what this means, it's more about the buying power that it's going to represent. So I just don't know how the economy is going to be able to watch something take off at this pace, with everything that's happening in the backdrop and ignore it for another cycle. I'm suspect of that. Could it happen? 

Of course, but my base case is that this is going to achieve its, "escape velocity," and PlanB's model's going to be invalid, but it's going to be invalid to the upside, is my base case for the coming cycle. Now is that 55% and 45% says, "We go to another cycle," probably something like that. I would tell you that I think it's more likely, but by how much more likely? By a hair, 51%? I think it's more likely. What the implications of that means for all the participants, I'm hopeful that it actually might be a relief valve and that it might actually be a sense of relief for the majority of people that...

I mean the middle class is gutted for the most part, across the globe, it's not just anything in particular that's United States based. So if the middle class has been gutted and most of your participants are at the bottom of this architecture in our economy anymore, maybe this change actually is somewhat of a breath of fresh air that you can see a shift in the tide that is advantageous for a majority, opposed to a few and I kind of suspect that that's going to be the base case as well, is imagine just being an employee and now all of a sudden, you're saying, "Hey, I want to receive payment in something like this," and the value of it keeps going up. 

That's never been experienced for... Since anybody that's been alive, they've never experienced anything like that. So is that going to be advantageous for the participants? It is, but for the ones that don't have skilled labour in a depression-like scenario, it's going to be a very challenging time, and I think it's going to lead to a lot of price deflation, because people were going to be selling everything that they can in order to come up with this new form of currency that's deflationary and just keeps going up in value.

Peter McCormack: All right, you're up PlanB.

Plan₿: Yeah, my prediction is in line with what Jeff and Preston already said. I read Jeff's book twice and both times I thought I could have written that book. Not that well, but there's nothing I disagree with and if I hear Preston talk, I hear myself talk, so it's boring, but it's in the same line. The easy predictions are, because that's already been told by the Federal Reserve that they keep printing. 

Quantitative easing keeps adding zeros, trillions, the interest rates will keep low, it will be low and even a negative for the United States soon, next year, I guess. So the next five years, low to negative. Everything that cannot be printed will go up in dollar value. So real estate, gold, Bitcoin, shares, I don't expect a crash in stocks because it will be like Zimbabwe, Venezuela, Lebanon, Iran, and all those other countries where they keep adding zeros, same thing. 

What I will keep looking at, and I'm not sure about, but I will make a prediction anyway, is markers for change, things that will change because if you make a prediction for five years out, if you look at 2015 and we'd have to predict 2020, you would be totally wrong, what with Corona. So I can predict there will be a black swan, there will be a trigger event somewhere, I guess next year, if my model is anything in the right direction, that will trigger a lot of people to consider Bitcoin, and that trigger might be legal, regulatory, some country, it might be more companies like MicroStrategy. 

But one thing is for sure, the army that we are building, the army of hodlers, that will grow one by one by one, and once you have seen, you cannot unsee. So once you get it, there's no way back, and there's no shit coin, there's no government, there's nothing that will convince you again that the Earth is flat. So it will go on and on and on, and there will be a trigger point, some non-linear thing, which I cannot predict, that will set it on fire.

Peter McCormack: Wow, feelling bullish! All right, Jeff, how do people find your work and find your book?

Jeff Booth: The book's called 'The Price Of Tomorrow: Why Deflation is Key to an Abundant Future" and on Twitter, just @JeffBooth.

Peter McCormack: Fantastic book, I've read it. Preston, yourself, how do people find you?

Preston Pysh: I'm also on Twitter, @PrestonPysh, and I have a podcast called We Study Billionaires.

Peter McCormack: Which is up near the top of the charts on every chart I go to in finance. PlanB, I say this, and everyone knows you PlanB, but come on, how do they find you, dude?

Plan₿: On Twitter as well, @100trillionUSD, and my DMs are open so please reach out.

Peter McCormack: Damn, you must get some weird shit in there! Listen, we overrun by 22 minutes, amazing show. I knew this was going to be a banger when I reached out to the three of you, so thank you all so much for coming on. It's going to be an interesting ride over this next, I think, 18 months, for sure. I'm sure we'll all speak again. By the way Preston, that little one-pager that you did, that was awesome.

Preston Pysh: What's that? I didn't hear what you said.

Peter McCormack: The little one-page you did to give to all your...

Preston Pysh: Oh, thanks man, thank you!

Peter McCormack: No worries! That was freaking awesome so well done on that. All right, guys thank you all for coming on, I appreciate you all. If I can ever do anything in return, I'm here and let's see how this plays out, yeah.

Plan₿: Thank you!

Preston Pysh: Thank you guys.

Jeff Booth: Thanks!