WBD341 Audio Transcription
The Bitcoin Supercycle Revisited with Dan Held
Interview date: Wednesday 28th April
Note: the following is a transcription of my interview with Dan Held. 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 Dan Held, the Growth Lead at Kraken. We discuss his supercycle thesis, the macro elements that make this cycle different and why traditional investors are waking up to bitcoin.
“The TL;DR of the supercycle theory: what happens when the world wakes up to Bitcoin?”
— Dan Held
Interview Transcription
Peter McCormack: Dan, morning, how are you, man?
Dan Held: Doing well, man, it's been a long time.
Peter McCormack: Has it? It feels like it's been like a few weeks.
Dan Held: That's crypto years, I mean a month is like a year and, you know -- well what has happened in the last -- in the last month, I mean there's probably been like at least a couple of dozen narratives that have come and gone.
Peter McCormack: Yeah, fair enough. I didn't think of it like crypto years. Yeah, I've aged a lot since we've last spoken. Right, good to have you back, good to have you now as a regular guest, we're going to do some good shit together, but for this first one I want to get you back. I wanted to revisit the supercycle stuff with you.
So, it's funny, since I texted you, since we'd made that show, I keep seeing it popup everywhere, "supercycle this", "supercycle that". It's the whole narrative has now been embedded into the consciousness of people, like it keeps coming up. I kept thinking, did you come up with this yourself or was this something you saw elsewhere? I kind of want to land that first.
Dan Held: Yeah, so I'm not a huge fan of putting my flag in the ground and being like, "I found this first". I'm pretty sure a lot of people have talked about a bigger cycle. I think I might have been the first one to say supercycle, though. So, I actually brought this up, a lot of people think that I came up with the supercycle theory in December, which was when I revisited it in my, The Held Report Newsletter, but I actually wrote about this back in 2019.
Peter McCormack: Right.
Dan Held: You can actually search this on Twitter, so if you search "Supercycle Dan Held" you'll find it back in 2019. It was predicated on the theory on some of the insight that Ray Dalio has around long-term and short-term debt cycles. So, essentially there's these mini-cycles and you've got bigger macro-cycles and when those waves converge, that could yield very strange environments for the economy, very strange environment for the markets. And with Bitcoin we've got a micro-cycle which is the four‑year halving cycle, combined with a macro-cycle of COVID
In 2019 when we looked at 2020 and 2021, we were due for a typical recession, which is our typical macro-cycle, and we didn't see that happen. What we saw is something even bigger than that which was a one out of a hundred-year pandemic or once in a hundred-year pandemic, and that I think kind of doubly reinforced this supercycle was a legitimate kind of real theory because we had had that moment in the macro environment that was so crazy and so different that it truly kind of yielded a proper footing for a supercycle to begin.
Peter McCormack: It's so funny you should say that, I should show you my notes after this, because I've got here, I've got, "What is the supercycle" and I've got -- because I only watched it the other day, I've got, "Reminds of the Ray Dalio 'How the economic machine works'", because I'd seen it before about a year ago. It's one of those things I should probably watch every few months; and I'll put it in the show notes for anyone listening, but I've got it that it reminds me of that. And I've put, "The long-term debt cycle is lining up with the Bitcoin halving cycle", so, I'd kind of observed something similar.
Before we get back into this, I don't know if everyone -- well everyone wouldn't have heard the previous show we made, I'll put that in the show notes as well; people should go and hear that. I did just want to set up beforehand though, I just want to be really careful, I want to explore the supercycle with you, but I also want to be clear like this is a theory. People should not hang their hats on this as some kind of certainty because it's just a theory, it might not happen, it might fail, we might have another drawdown like previous years.
It reminds me of that whole -- do you remember the whole meme from the last cycle, the $33K by July and people were holding out for that and in January we dumped, and we went into a bear market. I was sucked into that, so I just want to like set that up, that it's important to say that.
Dan Held: Yeah, I think that's a great caveat before we begin, this is not a prediction, this is merely describing that there are multiple outcomes to a bull run; this is one possible outcome. The reason why we're talking about it today and that people are latched onto the theory, some folks thought that I came up with this right in the middle of the bull run, no I came up with this in the bear market, which meant that I felt this way a long time ahead of this whole bull run, before sentiment shifted.
That's where I'm describing a very bullish outcome that no one else at that time was even considering, even remotely considering, so that's where again this is just describing how an outcome might look like there. I am not saying that this is likely or that this is going to happen.
Peter McCormack: But it could, but we're reserving it in case it does happen, just in case.
Dan Held: Yeah, I think it's possible.
Peter McCormack: Yeah.
Dan Held: And most people back in 2019 considered me to be a lunatic, I mean they're like, "There's no way this is possible at all", and I'm like, "Well, it's possible", and they're like, "No, it's not even possible", so I think that's a level step in terms of how close we might be to this potentially happening.
Peter McCormack: I released a show with Pete Rizzo yesterday, it was called The Last Days of Satoshi, and during the interview we talked about it and he's just like, "No, there's no supercycle, no supercycle's happening, we're going to see the same draw down we've seen in every other bear market". And I was like, "Hmm, again I'm not too sure", I couldn't say that with any certainty either, so I just think it's important to set that up. I just want to warn people because I know what'll happen, some people are like -- they'll get to like February and if there isn't they'll be like, "Where's my supercycle? I've lost loads of money it's all your fault and leveraged my house". "Go fuck yourself".
Dan Held: Totally, well I've been mentioning the supercycle since Bitcoin was less than $10,000 so I think you're up in the green no matter where you got in during this cycle. But yeah, I think that a lot of people view it with scepticism initially, you know they're like, "This is a crazy theory", but for us to believe that it would be a normal cycle is similarly, I would say, a little bit wild.
For us to believe it will be a typical cycle that means that we need to ignore all qualitative information that we're seeing, that the world had a pandemic, that governments printed $25 trillion, a dollar equivalent value. We have to ignore all of this and be like, "Yeah, it'll just be the same as the other ones". We'll dive into that a little bit later, but you know I find that equally hard to believe that nothing would change with this cycle.
Yeah, maybe the supercycle's wrong, but it certainly isn't wrong in regards to it's going to be different. I mean I don't know how it could be the same, given how much is different about the markets.
Peter McCormack: Okay, all right, so let's just get into a few things first. As a reminder we did the show before, some people won't have listened to it, I'll be surprised actually, that's one of my top shows ever, but if they haven't listened just as a reminder what is a supercycle in your mind? I know you talked about the Ray Dalio video, but what itself is a supercycle; what are we looking out for here?
Dan Held: Yeah, so I would define a supercycle as a cycle that either has a more intense bull run or a very weak bear market. So essentially, we could see Bitcoin, if the very hyper bullish scenario, we would see Bitcoin go past what everyone is predicting, like a $100,000, a $300,000 final price in this bull run. Everyone's saying that, right.
Peter McCormack: Yeah.
Dan Held: When everyone says something I'm like, "It's typically not going to do that". If we're all predicting it to do this one thing, it might not do that. So, a hyper bullish scenario, supercycle scenario, would have Bitcoin hit like $1 million in this bull run, which seems just crazy, right. It just seems really out there and that's why I'm describing it as a potential scenario because I think there is a potential for it to happen. So it could a hit $1 million or something like that, so kind of blow past all of the commonly agreed upon.
If you like look at the average peak analysis, it's like $100,000 to $300,000 so this blows past that number to some degree. Then you've got the other, which is the --
Peter McCormack: Yeah, but, Dan, then the funny thing is about that $1 million thing right, we don't expect it to happen; but if it did happen you wouldn't be hugely surprisedm you'd be like, "Well, it's Bitcoin, right? Okay, it did it".
Dan Held: Yeah, I mean Bitcoin has these crazy asymmetric moves. People are like, "Oh it's totally logical Bitcoin could go to $100,000 or $300,000", and I'm like, "Well, $300,000 and just 3X more is a million". That sort of movement for Bitcoin isn't out the realm of possibility. So, yeah, I think that people are like, "Okay, it's going to fall between this range", but yeah it could blow past the commonly accepted range of highs and go past that. And then conversely, the bear market might be a much less cold winter and we can delve into the reasons of those, but that would be the price movement that I would define as a supercycle.
Or what we could see is, "What if the price goes up and we print $100,000 or $300,000 and it goes flat? Like what if it goes flat for a couple of years?" People are like, "Oh for sure there'll be a bear market". I'm like, "I don't know, what if it's a very mild winter". Everyone predicts, "It has to have the same 80% drop from the last bull runs". I'm like, "Maybe, but there's a lot of things that are different with this cycle".
Peter McCormack: Yeah, so I guess what you're saying is if we went into a bear market but say we printed $300,000 at a top and say if we bounce somewhere between like maybe $200,000, $220,000 and $300,000 like in that kind of range, like that 30%, you would still consider that a supercycle, because we haven't hit that kind of 80% drawdown situation.
Dan Held: Yeah, I would say the supercycle is an either/or scenario or both, where we have a more intense bull run than expected or a less cold winter.
Peter McCormack: Yeah, because you're not going to get both, if you print $1 million, you're probably going to see quite significant drop back down.
Dan Held: If we print $1 million and then it goes horizonal for the next couple of years that'd be crazy.
Peter McCormack: Yeah.
Dan Held: I mean it's certainly possible, but that sort of price movement would be -- I would estimate, there should be a pretty intense drawndown from that sort of intensity.
Peter McCormack: Yeah, it depends how many dip buyers there are and who the dip buyers are, it depends what new entrants we have in the market. Okay, so I guess then that the timeframe you're looking at is if we have a more intense bull run it's between here and the end of the bull run, which could be, let's give it a broad range of between November and February-ish; that's like a good catch-all for all scenarios. And then the drawdown probably over between now and say, you're looking probably mid-2024 is when we tend to see … ?
Dan Held: Yeah, I mean these -- let's see what is the average post high?
Peter McCormack: It's like two, two-and-a-half-year bear market.
Dan Held: Yeah, so sometime in 2023, 2024 we see the low printed, sometime between late 2021 and 2023 we kind of see this theory validated or invalidated.
Peter McCormack: Right, okay. So, let's do the flip, I won't answer for you, you tell me what the invalidation signals are.
Dan Held: I would say an invalidation signal would be we hit that predicted range $100,000 to $300,000 so it hits that, and we draw down 80% like every other cycle. I would say that would be kind of defined as like the model has been rejected; this supercycle did not occur.
Peter McCormack: Yeah.
Dan Held: Or we might, you know people -- I don't want to be bearish and I'm not bearish but we could see us not even hit $100,000; that's also possible, you know. I don't think it's plausible but it's certainly, out of a spectrum of all potential outcomes, it's a possible one. That would also be a rejection of the supercycle obviously.
Peter McCormack: What about this scenario? What about we don't hit $100,000 or we tap $100,000 but we go into next year into 2022 and we see again some continual gradual growth; that kind of scenario?
Dan Held: That's a good question, I mean that would fit the definition of a very light or moderate bear market. Yeah, I mean that's kind of interesting as well, like what if the -- like if we don't hit $100,000 but we hit $80,000 and it goes sideways. That would certainly be interesting and go sideways until the next four-year cycle, you know, I guess that would fit the definition of a minor bear market.
Peter McCormack: Yeah, because what I keep wondering is like, you've probably thought about this, but everyone is sharing the charts now and they're laying the charts from previous years on top of each other. Everyone's kind of got this same expectation of what's going to happen. I don't remember the similar in 2017; I just don't remember that. Maybe it was, maybe I was a newb whatever, but I just don't remember the charts being laid on top of each other, because I guess it was only two previous cycles.
The first one was very early Bitcoin, so it was coming into a third one; now it's kind of history has repeated itself twice, this third time, looks like it's repeating itself; I just feel like who's going to front run who, you know when they're looking to sell. If historically we've had around $300,000 and then by about December, are people going to be front running others to sell out the market, maybe looking to exit? That's one of the things that just keeps crossing my mind.
Dan Held: Well, that's what funny about the markets is that there's this reflexivity towards it. That's the classic Keynesian beauty contest, is we're all repricing the market because of what we perceive everyone else to be repricing the market at. And that's what's so funny about this, right; everyone's pricing the market in that $100,000 to $300,000 range and I'm like, "What if that happens and then it starts to get repriced at $500,000, $800,000 and then repriced again?"
Then new narratives will be crafted as the bull run intensifies, there will be new companies that get into Bitcoin, there'll be all these events that happen. And we look at the environment now and we're like, "This feels implausible, but what happens when the narrative starts to move in the direction of your investment thesis, as it starts to reinforce that your investment thesis was correct?", which makes people hodl harder, and so there's that reflexivity in the price as it gets closer to the event of like a supercycle.
What happens if Bitcoin blows past $300,000, do you think anyone's going to sell? Maybe, but then all of a sudden, the supercycle chatter becomes -- and it's super, like really intense as the reflexivity of folks wanting the narrative that fits what the price is doing, starts to kick in.
We see this happen conversely like Bitcoin dropped a few days ago, all the bears come out and they're like, "Oh it's the end of Bitcoin. Sell all your Bitcoin, we were right", and then quickly the market rebounds and then, boom, all the bears disappear. So, kind of a similar vein of that, as the bull market intensifies the bullish narratives intensify which creates a reflexivity of folks believing that these more previously implausible outcomes -- I mean again, the supercycle came out in 2019; this was not a bullish year for Bitcoin, this was very bearish.
I want to make sure that the distinction is called out a couple of times because a lot of people think I came up with it in the middle of a bull run, which is easy to do because that reflexivity, everyone's like, "Oh we're all bullish, this totally makes sense", no; I was hyper bullish in the middle of a bear.
Peter McCormack: Right, all right, so let's talk about Tesla.
Dan Held: Let's talk about it.
Peter McCormack: I've got an interesting theory, about what happened over the last week or two about what we heard about them selling off. What was it, was it $272 million of profit, but they sold off around $400 million of Bitcoin? I can't remember.
Dan Held: Approximately something like that.
Peter McCormack: Yeah, something like that, whatever. El Presidente, Mr Dave Portnoy, gave Elon Musk a bit of stick and Elon Musk came back and said, "No, we were testing liquidity". And a few people quickly mocked him, including myself, with regards to this kind of statement, but I was thinking about this actually. If you're Elon Musk and you've invested $1.5 billion, I can't remember the price, but let's just say you're up a couple of billion dollars. I think Elon Musk cares more about his business than Bitcoin. I think he cares more about his end goal, with regards to all his companies, than Bitcoin.
What if Elon Musk is spending a lot of time or people within his team are spending a lot of time studying Bitcoin, what if they're studying previous market cycles, what if they're saying, "Look, we could get to the end of this year and this cycle could end and we could be sat on X number of dollars in Bitcoin, we should be thinking about we want to exit our position". Whether it's part or their whole position, I don't know.
I don't think Elon Musk particularly cares. I could be wrong, you know, I'm answering for him, but I don't think he really cares about how much Bitcoin he owns for the long term. I think he cares about how much runway he has for his businesses. So, what if that is a liquidity test because they are looking towards the end of the year and they think, "Well, look, Q2 we sell another stack, Q3 we sell another stack and maybe we exit all or part of our position". I could be completely wrong, but what if that's what they're thinking?
Dan Held: Yeah, let's address a couple of things here. I find it a little bit annoying in the Bitcoin community where I'm like, "Look, I am the most hardcore hodler out there", I've been hodling eight fucking years, my last name is Held. I've gone through a lot of shit, right, like I've gone through a couple of these cycles, it's a lot of mental fortitude, a lot of belief. I don't necessarily shame people for not having the exact same belief I do. I'm like, "Look, a lot of bitcoiners went and bought a car the first time it mooned" or like a Peter McCormack. You know, they go buy lambos!
Look, I find it very funny that bitcoiners believe in freedom money that you can go do whatever you want with it, but as soon as you do something they don't like with it, then they get mad about it, so, you know.
Peter McCormack: We're grouping all bitcoiners, you were saying "bitcoiners" here and that's all of them, but let's say certain bitcoiners.
Dan Held: Sure, sure, there's a certain element --
Peter McCormack: Because you're a bitcoiner, you don't do that.
Dan Held: Yeah, I'm a bitcoiner and I'm like, look, I think the narrative of saving, which Pierre Rochard has done, is a great narrative. People should look at saving versus consuming; you'll find more happiness in saving for now, it's an altruistic thing, it's good for the economy. I think that is a beautiful narrative and I very much welcome and embrace that. But at the same time, we don't want to get down to you know the environmental FUD-type folks where they criticise us for how we use electricity.
You know, you can't criticise a bitcoiner in terms of how they want to spend their Bitcoin, some people want to buy a ranch, some people want to buy an apartment, some people never want to sell, which is -- I'm kind of in that boat, but I certainly wouldn't prescribe this upon anyone. I know that people have different relationship circumstances and whatnot, so when we look at Tesla, Tesla's the same thing.
They are pretty bullish Bitcoin, I mean it's incredible to see the comments that they've said about Bitcoin, but at the same time they're a business, they have certain business realities that they have to face, and they can't be a hardcore hodler like myself or others. And I would very much welcome them to be as hardcore hodlers as possible and it sounds like Elon feels that way. Elon publicly stated yesterday that El Presidente, elstoolpresidente --
Peter McCormack: Yeah, Dave Portnoy.
Dan Held: Yeah Dave Portnoy, you know he told him like, "I haven't sold any of my Bitcoin", now that -- we didn't previously have information that he himself, like Elon himself had Bitcoin, so that was actually a big revelation.
Peter McCormack: We don't know what he has. He did admit once he had 0.25 of a Bitcoin, didn't he?
Dan Held: Yeah, a few years ago, right, he's like, "All I have is a buddy sent me like point something", so this was Elon like -- he didn't have to tweet out and correct Dave Portnoy, he decided to, and he was extremely bullish. He's like, "I haven't sold anything", which definitely reflects, "The core ethos is we're bullish", but this is his business as you mentioned in that earlier part of this conversation. Tesla is a business; it is Elon's baby, same as SpaceX.
I think SpaceX for sure trumps any feelings that Elon has about money. SpaceX for him is about humanity surviving beyond this rock and he's probably willing to sacrifice anything for that; so, of course, totally understand that. And the same with Tesla, I mean Tesla is over a ten-year-old company, right. He ploughed all of his money into Tesla and Spacex; he even joked he had to borrow money to pay rent because he put all of his PayPal money into both companies.
So, Elon is an incredible individual and what he's done is -- I mean he's taken on the mobile 100-year-old industry and the military industrial complex with rockets, and he did this and he won; he's beat them both. So, yeah, for Bitcoin I think it's a means to an end, but on a personal level it sounds like he's incredibly bullish.
So, yes, would we have expected Tesla to eventually sell Bitcoin at some point, sure, I think so. I do believe his narrative of testing liquidity though. I think for some of his board, and some of the finance team they might have been like, "This is bullshit, like Bitcoin is -- it's a very hyper volatile market, it's not liquid, we want --", there might be a requirement and I'm not in corporate finance so this could be me just extrapolating what I think might have occurred, but they could have been like, "Cool, well we want to see you go test the market in a few months and go sell a substantial chunk and see if we can go find a counterparty for this. Is it truly a cash equivalent?"
They found that it is, it's truly a cash equivalent and there's been a lot of folks on Twitter, and I think like Hasu mentioned this, and I've thought about this as well where it's like Bitcoin, if it succeeds, will be the most liquid asset in the world in the next two to ten years to where it'll have the most number of counterparties to enter and exit a position.
Peter McCormack: If, Dan? If? I think it's succeeded. Like when do we say that? When do we say, "Look, is this not a success now?"
Dan Held: I know it's weird to say, right.
Peter McCormack: Yeah.
Dan Held: Like in the early days, bitcoiners used to say, "It's either going to zero or it's going to be a lot", and now --
Peter McCormack: It's never going to zero, dude.
Dan Held: It's not going to zero, that's for sure; we don't even have to say that, but we had to say that before because we sounded like crazy people if we were just super bullish. No, I certainly view it as a more likely scenario than not, and hence why I've staked pretty much my entire net worth on it.
Peter McCormack: Me too, brother, me too. Well, very close. So, okay but I just want to talk a bit more about that Tesla thing. So, one of the potential scenarios is there are plenty of other companies who've got Bitcoin on their balance sheet. Like I don't think Saylor does, I don't think Saylor sells a penny, I just don't think he does. I think he is the pied piper of Bitcoin right now and he has the most diamond hands there are, and I admire what he's doing so much, but I just don't think he sells any.
But I do think there are other people who might be looking towards the end of the bull market, looking to take some cash off the table and then if we do have a cycle end, there could be a lot of Bitcoin out there, very high price ready to sell. It's just the potential, so I see that as a potential if there is a trigger.
I think the biggest risk is too fast and too high a run-up. I think steady growth is much better. I would be really happy, I don't know about you, Dan, I'd be really happy if Bitcoin just went up like $5,000 a month, just continually, consistently, happy days for me there.
Dan Held: There's certainly some anxiety for bitcoiners during a bull run. It's actually kind of funny, I actually have -- like during the bull run it doesn't feel real, whereas during the bear, you're kind of hardened and sharpened by the cold winter where you know it's -- you're the rebellious few that still believe. But in the bull run you're like, "Wait a second, this is nuts", and Dogecoins popping off and things are just going crazy right like, things are just kind of going nuts and you're like, "This doesn't even feel real", and then you're worried about like all sorts of structural issues.
You know, I think I used to be worried about stuff like that, like, "Oh what happens if we move up too fast or are we ready for this?". It's the market, it's going to do what it's going do and we just have to like lock in and just ride it. You know, there's nothing we can really control about it.
Peter McCormack: Just ride that shit out.
Dan Held: Yeah, I think that -- look, for every buyer there's a seller and for every seller there's a buyer; this hasn't changed throughout Bitcoin's history or any market's history since the dawn of humankind. So, I find it a little bit unrealistic that we would enter a scenario where a lot of people have bought into Bitcoin, the price has gone up, and then all of a sudden, all potential buyers dry up. This hasn't happened in previous cycles.
If there are a bunch of companies coming in, there must be a bunch of companies coming in after them. To think that all companies would simultaneously all decide to sell and that no one would be a bidder, especially since they've been thinking about this decision for a while, they've seen the price climb up, and now they're waiting for the dip. Companies might do this as well, right. There's always this mental threshold of like -- let's put it this way; if Bitcoin is at $10 you would buy as much of it as you could, you would literally -- you would sell everything.
Peter McCormack: Dude, literally everything. Sell my children.
Dan Held: Yeah, then we'd go up another level, right. Well, if it's $100 you would do the same, and $1,000 and then each person has their own price preference. So, once Bitcoin starts to print really high you know values of $100 to $1 million a Bitcoin, so $100,000, $2 million a Bitcoin, there will be bidders that start to -- buy the dip bid continues to climb as well. It's not like the buy the dip bid stays at $50,000 or stays at $60,000. No, the buy the dip big increases as the price increases and so there's all these hidden floors of hodlers willing to buy at these certain levels, and those levels grow stronger the lower the price goes, and that's essentially what defines the floor of a bear market, is the aggregate belief of how low can it go.
Yeah, I find it very find hard to believe that in this bull run, that all of -- and during the bear market there will be an increased, versus the previous bear markets, there would be even more sellers than buyers in previous cycles. Now, of course, that's how a market goes into a bear market territory, so there are more sellers than buyers, but to believe that there would be an increased incidence of more sellers than occur in these bear markets, so it would be a more intense bear, I find that implausible because I don't know why folks would do that.
Peter McCormack: Well, I don't know if you've seen it, yet, I don't know if you've been checking your phone during the night, have you seen the rumour for this week?
Dan Held: What's the rumour?
Peter McCormack: Facebook have got their earnings call tomorrow. That's the rumour.
Dan Held: We could probably look at call option pricing and see if it's been reflected in the markets; see if some traders have been taking a position there.
Peter McCormack: That's the rumour; that's the rumour; is it Facebook? I don't know, man, okay.
Dan Held: Let's put it this way, if it is Facebook, you're going to take this clip and put it on Twitter.
Peter McCormack: Dude, you know, the rumour's already up on Twitter so I can't claim it. So, all right let's talk about -- let's go back to the supercycle. Let's talk about the reasons of why it may happen, and I've written down a few, there's a few things that have happened recently. We've obviously had a quite significant shift in sentiment from well-known and respected investors: Paul Tudor Jones quite early on, Stanley Druckenmiller, Ray Dalio recently, was it at some event he was saying people should have 20% of their net worth in Bitcoin; there was Guggenheim, Susquehanna, like there's a lot of investors coming in. But we also have corporate FOMO, we have banking FOMO and there's a lot of movement there.
I don't know if you've seen that thing that went round on Twitter for example with the banks, it was like, "Their old narrative and their new narrative".
Dan Held: Documenting Bitcoin.
Peter McCormack: Yeah.
Dan Held: Documenting Bitcoin put that together, I thought that was -- I actually shared that with my dad because I was like -- because it's so funny right, it's just such bullshit where a couple of years before they're just FUDing the shit out of Bitcoin and then a couple of years later they're like, "Oh yeah, we're totally onboard", I mean it's a complete double speak, you know; it's complete nonsense.
Yeah, I mean there's certain checkmarks that indicate that we are in a supercycle. I would say institutional buy-in and corporate buy-in is a gigantic check mark. I hypothesised that Bitcoin is Gold 2.0 back in 2012 and that's why I've been hodling this whole time. The entire world, including central banks, investment banks, hedge funds, all the institutions, they now believe Bitcoin is Gold 2.0. That's an incredible moment.
These aren't a bunch of young folks at the company; these are 65-year-old dudes, 70-year-old dudes saying this and for them to say this Bitcoin is now begin globally recognised as a Gold 2.0, that's a giant check mark. That's a giant check mark for the supercycle theory, because now we have a new market participant; the institutions. The institutions aren't just important, this is what a lot of bitcoiners don't realise. They're not just important because of how much money they have, and how big they are in terms of how much capital that they manage and that being deployed into Bitcoin; it's reflexive.
Institutions buying Bitcoin, retail buys Bitcoin because institutions have bought Bitcoin, because they still trust institutions. Remember most people out there aren't bitcoiners, they haven't been orange pilled, they still trust these legacy institutions. When these legacy institutions buy Bitcoin, then they go, "Okay, now I'm going to buy it".
So that's where a supercycle really comes into effect, is institutions buy it, retail goes, "I should buy it because of institutions buying it" and that's a huge amount of capital flowing into Bitcoin. Whereas before, it was just a tiny, tiny retail market. So, I think that alone is one of the big check marks for the supercycle theory and that's where I think a lot of people just discount institutions or they're like, "Oh Bitcoin's going corporate". I'm like, "No, this was always Bitcoin's trajectory. If you're going to become a world reserve currency, did you think we're all going to do it in our basements?" Yes, in the beginning we did, but eventually it goes out and institutions adopt it and get into it.
I think the one element that is like a double check mark for me, because the institutions; cool. That Gold 2.0 narrative has been bought in at the widest level possible, that creates reflexivity with retail traders; but to see corporates come in, that was a surprise to me. I actually didn't think that was going to happen and that wasn't really even a consideration or me. That to me is like a double check mark of like, "Holy shit". I think Ark invested in an analysis where they said, "If 10% of all US corporate treasuries were put into Bitcoin, Bitcoin's price would be $400,000 a Bitcoin". That's where these numbers get -- go ahead.
Peter McCormack: No, no, I'm just saying, "Holy moly".
Dan Held: Exactly, like that's where these numbers get really crazy, where you're like, "Wait a second, how much corporate cash is there?" Then you're like, "Whoa, there's trillions in corporate cash and what if they start to treat Bitcoin as Gold 2.0?" So, there's other participants that we haven't even really thought about and we haven't even had a central bank say they're buying Bitcoin yet or a Bitcoin ETF. There's all of these bullish narratives that are sort of under the surface and I've talked with Nathanial Whittemore about this, which he kind of introduced me to narratives I think in a really deep way in the crypto world.
I think that when we look at -- there's like the surface of narratives that we can see today and there's also all these unseen narratives to where, when we look at the future narrative path of Bitcoin, there's a bunch of crazy bullish narratives that would totally change the game if a central bank buys Bitcoin. $10 billion-plus allocation to an institution or Apple or Google or something, right, but like there's all these super bullish narratives that we just haven't seen yet, and folks aren't really -- I don't think they're pricing that inaccurately of like, what happens?
The TLDR of the supercycle theory, what happens when the world wakes up to Bitcoin? It's not going to go in the typical path where these were basically retail pumps right, which is tiny, tiny, tiny, tiny; but what happens when the whole world at once comes into Bitcoin? I think that's ultimately what the supercycle represents is like, this could be the moment where we have the education, we have the pipes ready, we have the macro backdrop, we have the micro backdrop, all of those are perfectly aligned for the potential for it to happen. Will it happen? I don't know, but it certainly looks like a possible outcome.
Peter McCormack: All right, let's work through those massive potential signals for change. Let's talk about ETFs, because I covered this recently with Steve McClurg and Jeff, I've forgotten his surname now, but I covered that recently with those guys. What they were saying is basically, ETFs open up a whole wall of liquidity coming in from pension funds, university endowments, people who can't go out and just easily buy the underlying asset, but they can buy ETFs easily.
I wasn't fully aware or didn't fully understand how ETFs work, so anyone who is or doesn't, is the same, they should go back and listen to that episode, but talk to me about that. Talk to me why that is a strong signal?
Dan Held: Yeah, I mean we've seen this reflected in the GBTC arbitrage or the lack of arbitrage now. With GBTC that's one of the only instruments you can buy to put Bitcoin in your portfolio, in your traditional brokerage portfolio. So, if you're just a regular old retail trader or you're an institution or you've got a 401(k) IRA, mainly for IRAs, but I guess your company for the 401(k) programme could let you allocate to GBTC.
GBTC and an EFT represent ways to access Bitcoin from your traditional brokerage account, sort of like a bridge from the Bitcoin world to the regular financial world. Right now, that bridge isn't really connected with investment accounts, you essentially have a spot, so you can go buy Bitcoin at Kraken, Coinbase, Gemini etc; but then it's not really connected with your traditional brokerage, so you're kind of creating like a new brokerage account.
Some have like a mix like Robinhood, for example, which I don't recommend people use, because Robinhood you can't withdraw your coins; but those bridges with the traditional financial world and those traditional brokerages haven't been really solidified yet. Also, you can't like, for example, most brokerages have 100% margin on GBTC, which means you can't borrow against it, which is kind of silly.
So, there's all sorts of like -- GBTC is kind of treated as like a very strange asset and so an ETF would be a much more liquid, much more widely perceived as this is an instrument I want to own and so that would be, I think, a really big -- and also validation, that the SCC has christened it, right. Again, institutions buying Bitcoin legitimises it for retail or at least a big portion of retail that still believe in governments and law and everything else. They're not all crypto anarchists or they're not all Bitcoin libertarians like we are; a lot of folks need that validation.
So, an ETF I think is a good validation plus the right financial instrument to unlock all that capital that's sitting in brokerage accounts.
Peter McCormack: Okay, talk to me about central banks buying Bitcoin, because this feels like, I don't know, it feels like that that would be a massive trigger, but I feel like we're someway off that. I don't know, I just -- that's a massive step for a central bank to consider buying Bitcoin because, I mean it's positive in so many ways for Bitcoin, but it's negative in so many ways for their own currency.
Dan Held: Yeah, I don't think it would be a major central bank. When I say "central bank", I don't think that's going to be the Fed, I don't think that's going to be ECB, I don't think that's going to be any sort of central bank, a major central bank. It would be more of like an individual country that's not exactly that big.
There could also be an angle of Russia or China doing it as a geopolitical manoeuvre. What's interesting about this is that it doesn't actually require central bank to buy Bitcoin, all that people need to do is think that a bank bought Bitcoin. There's no way to defeat the narrative once it's been propagated and if the narrative is widely believed by market participants, then essentially it has already occurred, even if it hasn't.
You know, that's where I think we see in the hyper bullish part of the bull run, there's going to be rumours like this that circulate; just it's inevitable, right. Just like the rumours -- you know what's funny is the Tesla rumour actually came out in December. I heard through my network about Tesla buying Bitcoin, which was kind of wild.
Rumours like that will propagate, whether they're true or not, but certainly a central bank buying Bitcoin rumour will propagate at the peak of this bull run. Whether or not it's real is somewhat immaterial because if the other central banks believe that a central bank is buying it, then there's this reflexivity of, "Well, I need to get ahead of this and if I buy it ahead of someone else, if I could front run their trade…".
So, is there a possibility that central banks buying Bitcoin is a narrative and that it will be widely believed? Absolutely, and given that that is going to happen, then that will kickstart central banks buying Bitcoin. It's kind of a weird thinking through it of that, like essentially just because it's out there and being thought about makes it happen, because market participants are trying to constantly reprice ahead of other individuals and central banks will go, "Well, if they're doing it, then I should maybe do it".
Like for example, if there is a leak like the Fed was buying Bitcoin, other central banks would be like, "Well, shit! We don't know if they are or not, but now we have to think about if they did; and if they did, then what should we do?" Then you go down the rabbit hole.
Peter McCormack: Yeah, so I've covered this a few times before and I've got a few points on this and anyone listening, apologies if I'm repeating myself, but when MicroStrategy originally bought a few hundred million dollars of Bitcoin, and we were at about $11,000 a lot of people thought they were crazy. I was even like, "Who the fuck is this guy? What's he doing? That's cool, but seems a bit crazy", like it just did and now everybody wishes they were the MicroStrategy of Bitcoin, because they were the first to do it in a big way.
In some ways, there is an incentive to be the first central bank, the MicroStrategy of central banks, to be that first one in. But the difference is, I totally see Michael Saylor's strategy of encouraging others to consider it in the same way. You know financially he's incentivised, perhaps philosophically is, but definitely financially he is incentivised to tell others; but with a central bank, I don't know if they're financially incentivised to come and announce to the market in the same way, because essentially if they believe that they need Bitcoin, why would they ever want to push the price up? They would just want to constantly accumulate as they can.
Dan Held: Yeah, that's where we wouldn't see them disclose it until they had a substantial position.
Peter McCormack: Yeah.
Dan Held: They're not going to disclose that to the market because as soon as they do it's going to pump and they'll probably call options as well at the same time and try to adduce all the return they can out of it, I mean. But that's where what's interesting is that like China and Russia know that they will never be a world reserve currency; no one trusts them. Look, I'm not exactly like a bleeding heart, like, "Oh America's perfect", we've got a bunch of flaws too. Let's put it this way; in a global economy no one trusts China, and no one trusts Russia at all, zero. Like they might have aspirations of being like China, especially China being a world reserve currency, that isn't going to happen, there's no fucking way; the world does not trust them.
So, what is their next best alternative because they don't like the United States, they don't like Europe, what's their next best alternative? You buy Bitcoin and you're like, "Well, it's a simple gain theory of going, well if I can't be the world reserve currency and people are losing faith in the existing one and there's this thing called Bitcoin, well then I might as well hop on the bandwagon sooner than later and just jump on board".
I think that's the most likely scenario, is like China or Russia I think buying Bitcoin and them going, "Look this is our way to get an edge over America, where America is still believing in this dollar world". By the way, I hope the United States leads the forefront and leads the charge into central banks buying Bitcoin, like I don't wish this upon America, I don't wish this upon any of these Western developed countries; I don't want this circumstance to happen. But just given the kind of arrogance of the dollar system, I find it hard for them to come to this conclusion faster than it would be for others who have to exist out of the dollar system or who exist as, you know, essentially, they're stuck with the dollar system; they're going to come to this realisation before folks who have totally bought into the dollar do.
Peter McCormack: It's not going to be the morons in my government, fucking hostile environment they've created for Bitcoin in the UK. God, do you know what Dan, I see more --
Dan Held: Are you guys allowed to have like cutting knives to like cut your vegetables with or you have to ask the government for that?
Peter McCormack: No, we're allowed to have cutting knives and we're okay with that. Although look, I mean that's a whole another conversation. Actually, I want a gun when I'm in America and I don't want a gun when I'm in the UK, but we are opening up. I'm not sure if we're legally allowed to hug people yet. I hugged someone a few days ago, but I don't even know if I broke the law; I think we might need a permission slip for hugs. I need to find that out, but I definitely need to get out of this place; it's going to shit.
Dan Held: How do you get -- you guys are fined if you leave the UK right?
Peter McCormack: Depends. You're allowed to leave, because I've been figuring this out, you're allowed to leave for work reasons, and you have to have a solid work reason. Mine fits the bill, I'm allowed to leave. But what was happening, influencers were leaving and going to Dubai, and taking photos of themselves in Dubai and coming back; they don't get away with that. But if you've got a solid reason like the piece of business you need to do can't be done from the UK, you can leave. I think it's going to change soon anyway; I mean we've vaccinated half the country, but I mean whatever, we're going off on a tangent, we can talk about this another time, but it's become more and more evident that we have to leave.
I do want to go back to this. One of the weird scenarios about central banks adopting Bitcoin, and I'm just trying to think of an example country. Imagine it was Turkey or Nigeria, they say, "Actually, do you know, what we need to do this". The fastest way they can accumulate Bitcoin is they can print their own currency, and it's a speculative attack on their own currency. So they will end up destroying the value of the citizens' savings by inflating their own currency to go out on the market and buy Bitcoin. It becomes a weird scenario where they potentially have to look at the trade-offs for holding Bitcoin.
Dan Held: Yeah, I think that's where people are like, "$1 million a Bitcoin; that seems crazy". I'm like, "I don't think we've even approached -- I don't even think $1 million a Bitcoin is crazy, eventually". By the way, I'm talking in today's dollars too, I'm not talking about in a future inflated dollar state where tons of dollars have been printed, even more so; think about current purchasing value of a million.
Yeah, what happens when tens of trillions of dollars from these governments, what if they start to buy with -- they start to print and buy?
Peter McCormack: Shit's going to get weird man.
Dan Held: It's not like a linear relationship, like a $1 trillion doesn't come into Bitcoin and Bitcoin moves up $1 trillion. $1 trillion comes into Bitcoin, and Bitcoin moves up to $20 trillion. That's where I do believe that some of these super bullish long-term estimates for Bitcoin, like Hal Finney's original estimate that Bitcoin might be worth $10 million a Bitcoin. I think in the long term that's not too crazy to think about if all the central banks FOMO in, if Bitcoin truly becomes a world reserve currency.
That's like very long term, a very bullish scenario, but we're in this current cycle. What happens if we see a couple of central banks do that and we see the narrative propagate; it doesn't mean it's true or not, but the narrative propagate that a major central bank bought it? Again, you can't kill the rumour, there's no way to kill it. Even if you show your reserve balances, no one will believe you. No one will believe the central bank, there's no trust in central banks.
They've also done really shady things during 2008, and during COVID where actually, in the United States, there's a Freedom of Information Act disclosure that they forced with the Fed to disclose certain kind of like shadow banking that they set up for these institutions during the 2008 Financial Crisis, so you can't stop the rumour.
That's what's so wild about this, is it's kind of like a virus and it's all the virus of like everyone thinking about, "Well, does this other counterparty believe in Bitcoin too?" That's what I think is so wild about this, is there's no real way to stop it. There's no way to -- and will this narrative propagate, and will it sink in and become a realisation? Will the market price this in? I think so and that's where it's sort of a self-fulfilling prophecy of the market goes higher on that rumour, other central banks think, "Maybe I should buy it because this central bank did". Then they buy it and then the central bank that was rumoured to do it, goes, "Oh shit, all the other central banks are buying it", and that's how it all flows.
Peter McCormack: Things could get a bit weird though. It could get really difficult in terms of pricing things, if multiple speculative attacks are happening. I don't know if I'm being hyperbolic imagining this scenario could happen, but we are seeing some weird kind of inflation and shrinkflation things happening; a lot of people talking about the price of lumber.
I mean I don't know what this means but somebody tweeted earlier $7 for a two-by-four, apparently that's very expensive; I don't know because I don't buy lumber, but we could see all kinds of weird pricing all over the place. I do get mildly concerned about that kind of scenario, the impact that will have on people and that kind of repricing event.
Dan Held: Yeah, I mean I certainly -- you know it's kind of funny, there's some moments of thinking like, "It would be nice if we could all trust each other and then we wouldn't need systems like this". It'd be nice if that world existed but that's not the reality that we live in. That's just human nature and that's not a bad or good thing; it just is what it is.
What these market events, I don't view it as negative or positive, a depression or a recession is not a bad thing. It just is what it is, I mean this is just -- the universe doesn't care if the markets went down or up, it's just how things are priced. It's pricing, it's about the information and value flowing through the system and simply, these are ways that humans describe certain environments where there's been a mal-allocation of risk and reward and that turns into a bear market or a recession.
So for me, I don't really -- I'm not particularly worried about Bitcoin leading to an environment where there's a lot of repricing, there's a lot of volatility due to Bitcoin shaking the world up. It's not Bitcoin's fault, the world was already that way, Bitcoin just kind of made it happen and that's where I think Bitcoin will be blamed in the future for like a recession and people will be like, "Oh it was Bitcoin's fault", when in reality it was all these central banks' fault and all these governments' faults. Bitcoin just came in and it was the antidote and then people go, "I want the antidote to this bad central banking policy", they bought it and that caused people to exist the existing system which causes those prices to go down and Bitcoin's price to go up.
Peter McCormack: I saw a really good tweet earlier today, I think it's today or yesterday, where somebody said, "If Bitcoin didn't have a price, 99% of the people complaining about it wouldn't".
Dan Held: Yeah, look, I mean most of the people who don't like Bitcoin just dislike it because they're on the wrong side of the trade. Do they really care about energy? No, of course not, because if they were at all a shred of intellectual honesty, they would evaluate the existing financial system and then they would compare Bitcoin to it and go, "Both systems use a lot of energy".
That's where you realise it's not really about these FUD arguments that are like legitimate or not, they just don't like Bitcoin, and they're coming up with a myriad of narratives to try to FUD Bitcoin, quantum computing, energy FUD, governments banning it FUD; it's basically they're on the wrong side of the trade and they're just coming up with narratives to make themselves feel better.
Peter McCormack: There's some real good momentum behind countering the energy FUD, there's a really good, interesting narrative; Nic Carter obviously we know has been doing some great work. There's the work that's been happening, is it Square have been doing some research work? There's a lot of good work going on to counter that now. People don't want to accept it but it's certainly happening.
Dan Held: Yeah, certainly I think Nic Carter and I have both worked on anti-energy FUD narratives. Nic Carter, I think, has carried the torch now in terms of he's really out there. He's got so much energy to go fight it, all puns intended! I think he's our champion. He's our champion to fight energy FUD. And the energy FUD narrative, the counternarrative has gotten really strong. I worked on proof of work as efficient back in 2018, and that was sort of like the gold standard for energy FUD fighting and there's been iterations on that. I think Nic's iteration, and the modern iteration, is the most compressed narrative possible and also the best.
It's essentially your numbers, like you come and FUD Bitcoin, first of all your metrics are wrong, how you think about it's wrong, which indicates that you have great intellectual dishonesty; and then we go further and we're like, "Wait a second, so why don't you compare this to the existing financial system? Why don't you criticise the existing financial system?" And if they don't do that, they're dishonest, there's no other way to slice it. If you don't criticise the existing financial system's energy consumption, you are completely dishonest.
So, you can just easily pick apart the argument where you're like, "Well, how about the existing financial system, or how about your Xbox usage?" You know, like you can't --
Peter McCormack: If you haven't done the work…
Dan Held: Yeah, and this is when I came up with electricity police back in 2019, you know, you don't fight FUD by providing logical arguments that refute directly the FUD. You have to go to the core root of the idea and the core root is that Bitcoin isn't doing anything useful. That's why these critics don't like it, they don't like Bitcoin and they think any energy usage is terrible for the economy.
So, what you do is you attack that, you go right at it and you go, "Well, did you audit the existing financial system? No? That's completely dishonest then". Or you're like, "Wait a second, so why is Bitcoin's energy consumption bad but Xbox electricity consumption's good?" Of course, there's no counter for that.
So, you've then undermined the core argument that they have which is that they essentially believe that they have the right to monitor, police, audit and basically, they believe that they're allowed to police everyone's electricity usage for every usage of electricity, which is absurd. I always like to counter, "It would be great if we started with an audit of your existing energy usage; I'd love to know your browsing behaviour, what TV shows you watch. Let's start with that, if you want to look at us critically let's look at you first. What car do you drive? Do you take airline flights, or do you take a boat? How many cars do you own? What size house do you have?"
You go down this rabbit hole, I mean I'm not going to go justify my square footage to you, I'm going to buy my fucking house.
Peter McCormack: Do you what, Marty Bent called me out on this once and he was right, he was fucking right. I was having a good old whinge about global warming stuff, because I do, I used to do that, and he was like, "Yeah, but didn't you take 92 flights last year?" and I was like getting a bit trig and I was like, "Fuck you were right". Like, who am I to judge when I'm a fucking hypocrite?
Dan Held: Ultimately that's what it's about, right. Did you sit in first class? Who cares? I mean you can't go down the rabbit hole, even someone's like, "Oh well did you eat a steak versus vegetables? One used more or less electricity". Who gives a shit? Like, who wants to live in a world like that where we have to -- and by the way, we live in a world of energy, per the laws of thermodynamics, the entire universe is just energy. Energy consumption is inherent to living, and then if we go down that path, inherently energy consumption is around living a high standard of living. You can live in the middle of the nowhere, wash your clothes by hand, have no dishwasher, no electricity into your -- do you use a lot of energy? no. But you live like a fucking animal.
Peter McCormack: You're going to smell like shit.
Dan Held: Yeah, you live like an animal and the whole reason why we like to take an airplane is because we got a lot faster than walking. But then if you walked it all, you'd probably use more energy than the flight, because you'd have to consume calories to keep walking and that's energy. So, I think that that's such a kind of bizarre thinking that energy consumption is this terrible thing and well, let's audit Bitcoin first.
Peter McCormack: Yeah, all right, man. Well listen, just conscious of time, I know it's really early for you there, it's afternoon for me here. You've got another article coming out, an update -- by the way I've been loving your content recently, actually ever since you started writing people should -- I'll put a link in the show notes so people can go and check your shit out, but what's coming up in this article? I mean it's why we're talking, because I wanted the early exclusive.
Dan Held: Yeah so, I write a weekly newsletter called The Held Report. It's my intimate thoughts about Bitcoin, once a week. I cover things like proof of work versus proof of stake, energy FUD, all these sorts of topics. This week's topic is touching on what we talked about earlier, what are the signals that we're in a supercycle? What are some metrics? What are some numbers? What are some qualitative reasons why we should be in one? It's revisiting my supercycle theory from 2019.
Peter McCormack: All right, cool, well I will definitely check that out, my man. Hopefully, I am going to see you in around four weeks, four and a half weeks? We're going to get some whiskey in.
Dan Held: Yeah, Bitcoin Miami, man, it's going to be fun. I think everyone's going, I think it's going to be a little bit of a crazy time. I think it's going to be a lot of fun though; I think a lot of bitcoiners have been missing each other. We usually go hang out at conferences, so I've been missing our whiskeys and beers.
Peter McCormack: Yeah, man, well we will do it hopefully in about four and a half weeks, as long as I have no travel hiccups, man. Honestly, I'm going to tell you about the shit I'm having to go through to get there. I'd really took for granted how easy travel was before, the absolute hoops I've got to jump through to get there. I'll tell you about it when I see you, man, but listen, look, love you dude, love everything you're doing. I'll stick a link in the show notes and, yeah, hopefully we'll have a beer in about four weeks.
Dan Held: Sounds good man, first beer's on me.
