WBD350 Audio Transcription

Bitcoin, A Fiduciary Duty with Nik Bhatia

Interview date: Wednesday 19th May

Note: the following is a transcription of my interview with Nik Bhatia. 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 by Author and Professor of Finance Nik Bhatia. We discuss his recent article ‘Asset Managers, Owning Bitcoin Is Now Your Fiduciary Duty’, currency debasement and how Bitcoin is the new monetary reality.

“If you are ignoring Bitcoin now, as a growth manager, you are ignoring that an alternative monetary reality has come into existence on this planet.”

— Nik Bhatia

Interview Transcription

Peter McCormack: Nik, man, good to see you again; sorry to keep delaying this interview.

Nik Bhatia: No worries, great to see you.

Peter McCormack: So firstly, tell me how the book is going?

Nik Bhatia: It's going great.  We're over 18,000 copies worldwide now, which is really, really exciting.  That includes some first-run orders from Korea and China.  Both of those foreign translation rights have been signed and first-runs have been ordered.  So, I'm really excited about the Chinese version.  I'm partnered with Social Sciences Academic Press, which is a publishing arm of the Chinese Government.  So, they are fully embracing the idea of Bitcoin as an investment, which is something I'd love to get into a little bit more today; not necessarily as money or as a competitor to their currency, but just as an investment.  And the book has just gotten great feedback around the world, so I'm just really excited about where it's going.

Peter McCormack: What's it meant for you, though?  I'm assuming since the book's been released, your DMs have been on fire, your email's on fire; I'm assuming a lot of people want to get in touch.  How's that affected your time and what you're doing and focussing on?

Nik Bhatia: It's changed everything for me, because up until when the book was published, I was still trying to find my way in the new Bitcoin career.  I worked for a couple of start-ups as you know, writing for them.  I wrote the book; I've been writing blog articles for a few years; but I left the bond industry for good in late 2019, so the book getting strong feedback and actually selling copies and bringing in some revenue has brought me private consulting and writing contract gigs.  But it's also encouraged me to become an author full time and so, that's what I've decided to do.

The second book is officially underway and I haven't told anybody about this yet, but --

Peter McCormack: Ooh, exclusive!

Nik Bhatia: This is an exclusive here!  The book is going to be focused on Bitcoin.  As you know, Layered Money was in large part a history book to give the backdrop for Bitcoin; but, the second book is going to be 100% on Bitcoin and looking to the future.

Peter McCormack: Amazing!  Well, look, congratulations on getting the book out; I know a lot of work went into it and I know it's been well received.  But I think the coolest thing out of this is you've got that thing that a few of us have been lucky to get, and I think it's a very lucky thing and fortunate place to be in life, where you get complete and 100% freedom and control over your time.  You get now to wake up, don't you, every day and just choose to do what the hell you want to do?

Nik Bhatia: That's absolutely right.  And working in the bond market here in the West Coast means a 5.30am start on the desk every day, which means an alarm well early into the 4.00am handle.  And that life, while it made me so much background and knowledge and experience, there's nothing like working for yourself and setting your own schedule and deciding how you want to allocate your time.

So, I have lots of contract work on my plate, which keeps me pretty busy, but I get to decide when and where I get to do it from, so it's great.

Peter McCormack: Yeah, it's pretty amazing.  I put out a tweet once; I talked about, "The two most important scarce properties in life are Bitcoin and time", and I don't know how old you are; I'm 42?

Nik Bhatia: I'm 33.

Peter McCormack: Oh, you're a baby.  I'm looking at like, shit, this is, career-wise, I'm in the final stretch now, the last 10 to 15 years.  As I said, I'm out here with Jack Mallers and he's 27, he's an entrepreneur and I'm thinking, "I'll never get to do that again!"  But I'm in that final stretch and just having that control over your time I think is probably the best thing you can have in life.  Your health's important, family's important; but just on a personal career thing, that control over time, dude.

Nik Bhatia: Yeah, it's awesome.  I worked on the road a couple of weeks ago and that was really awesome, just to be able to look at the ocean while riding, and little things like that; and being able to take a bunch of Fridays off this year, just because I need a little bit of time to reset, especially when thinking about the next book.  That's not something that can happen with a really crowded mind and a really busy mind, so I need that time and that freedom to do the research to get back into…

One of the ways that I do research is just read late into the night.  And if I have an early alarm with work to do in the morning, I can't have that freedom to do that.  So, I've started that already, that sort of pre-research phase right now.

Peter McCormack: Are you a reading guy or an audio book guy?

Nik Bhatia: A reader.  So, I will say that during my Bitcoin rabbit hole phase, which was 2016 to 2018, it was all podcasts for me.  So, that was the way that I learned about Bitcoin, because Bitcoin itself is right now, so there's no book that's going to bring you up to speed.  You have to be in the moment, living through the SegWit battle, all of that stuff; it was podcasts, just pod after pod after pod.

But for research and just overall big picture thinking, reader; and I've transitioned from physical books to the Kindle app now.

Peter McCormack: Yeah, I've toyed with the idea of the Kindle.  I'm an audiobook person, just because of a lack of time.  I tend to listen to a book while walking.  Most of my interviews tend to be evenings, because when I'm back in the UK and I'm interviewing people in the States, it's my evenings, and then I've got the kids; and if I try and read a book, when I try and go to bed and read a book, I get about three pages in and pass out!

So, I tend to do audiobooks now in the morning.  But the problem with an audiobook is, you hear something and you're like, that's a key moment.  Actually, it's the same with podcasts.  Did you listen to Breedlove with Fridman?

Nik Bhatia: No, I haven't gotten to --

Peter McCormack: Dude, you've got to.

Nik Bhatia: That was the four-hour marathon, right?

Peter McCormack: Yeah.  I think the last hour isn't as important, because that's a bit more about their own working styles, although they talk about notetaking in that.  But there were so many gems that Breedlove was coming out with, just like cannonball after cannonball of amazing, how do I put it?  Just specific things he was saying, I was thinking, "Shit, I need to note that down, I need to have that ready, because if somebody asks me a specific question, I can say, 'Well, Breedlove said this; this is what you need to hear'".  I've been trying to figure out a way of notetaking, but you don't really get to do that with audiobooks.  But I was told I really need to get onto a Kindle, because there's ways of highlighting things and referring back to your notes; I guess that's what you're doing?

Nik Bhatia: Well, my reading style is actually kind of seasonal.  When I was writing Layered Money, for the last several months I didn't read a single thing.  It was all writing; there was no reading involved.  That's why I mean by seasonal, where I don't read for a while, but then I pick up some books.  The Kindle allows me to cycle through three or four books at the same time.  I also can put my download research from my academic journal resources and then send those to my Kindle app, so I can have different things in the works.  And I like the style of reading where it's not about reading to completion necessarily, but it's just about reading to capture what you need to capture.

So, I'll read the same ten pages 50 times in a book, because it's what I need to capture; and then move on.  So, the Kindle allows me a lot of freedom with that and also, it allows me to read late into the night in bed.

Peter McCormack: Right.  Well, let's get into Bitcoin, man.  What a time; what a time; fucking wild right now!  I did an interview yesterday with David Bailey.  Are you coming to Miami?

Nik Bhatia: I'm not.

Peter McCormack: Oh!  I thought we'd have a beer.  All right, man, well listen, I did an interview with him in prep for that and we were talking about how wild it is right now.  I was saying I remember back in about 2017 when I first heard the term "hyperbitcoinisation" and I read the piece on it on the Nakamoto Institute.  I'm completely honest, I was like, "Yeah, bullshit!  Bitcoin's cool, it's this digital money, yeah, and it's great and we can move it around and we have all these great properties, but there's no chance that Bitcoin becomes this global reserve asset.  I admire the ambition", but I was like, "Yeah, bullshit!"

Obviously, like any person who has a doubting moment, over time you get proved wrong again and again.  And we're living in this moment where I just feel like we're teetering on the brink of an absolute explosion.  I don't feel like what's happened so far in the last year is the explosion.  It's amazing, but I feel like we're teetering on this moment now where it's a bit like a tipping point.  Everything is lining up, geopolitically, economically, infrastructure-wise, all the banks.

Did I read something about NYDIG are now helping all the banks to set up so their customers can buy and custody Bitcoin; and I just feel like we're teetering on this explosion.  How are you feeling, dude?

Nik Bhatia: Yeah, I feel the exact same way.  I do agree with you that the move that we've had so far is not the explosion.  It's bringing us back right up to speed and the explosion is yet to come.  It comes from adoption.  Every incremental person that comes into the network or comes into the denomination strengthens that case.  The supply is inelastic as we all know, so the amount of Bitcoin that is available, you know, the supply side relative to the demand explosion that we're experiencing; it's very exciting and it does feel like we are at the tipping point.

Something that I want to talk to you about and ask you about is, you're interviewing people every day; you're with Jack Mallers right now in El Salvador as he's building this behemoth Bitcoin infrastructure company; and you sat down with Cameron and Tyler; you're seeing how the world is becoming a Bitcoin world right in front of our eyes really, relative to two years ago where it still feels like the pure counterculture.  So, maybe I do really agree with this idea that Bitcoin still is the counterculture. 

When I'm out talking to normies and regular people and precoiners and nocoiners, I still get the sense that people have no idea that money is changing, or that Bitcoin is being introduced as a base technology, kind of like the internet was 20 years ago.  So, what are you seeing?  What is the most exciting thing to you out there?

Peter McCormack: That's a good question.  There are so many bits to delve into in that.  I feel like there are two worlds of Bitcoin: the inside world and the outside world.  And I feel like the people on the inside, we're looking out at everybody who are the nocoiners, those who don't see it yet, and we're like, "What the fuck; how do you not understand this?"  And all the nocoiners are on the outside looking in going, "What the hell is this about; this seems dumb?"

There becomes a time when it clicks.  It's a bit like, have you ever learned to code, to be a computer programmer?

Nik Bhatia: So, I'm not a coder, but my experience really is in XL.  So, I do think of myself as a coder within the XL programme, because I'm building tools that turn X into Y and a little bit of Visual Basic, which is the code in the back of XL.  But I failed all my coding classes in my Masters programme, so no, it's not my skillset.

Peter McCormack: Well, my coding career was very short.  Back when I was 20, so 22 years ago, I needed a website and wanted to build one.  So, I bought this book on HTML and I learnt it and HTML's very easy; it's just a markup language.  You know, say it's a bold tag; opening tag, closing tag and that's bold, so it's a very basic language to learn.  But the next step up was to learn JavaScript and I bought a JavaScript book and struggled with it. 

But what I did do, I was also building things in this thing called Flash; do you remember all the Flash crap that was on the internet?

Nik Bhatia: Yeah.

Peter McCormack: It has a language behind it called ActionScript and I struggled, I really struggled to understand coding; I really struggled to understand the way it worked.  But then just one day, it clicked; one day I was building a script to do something and the logic of how a script is executed in order for it to create the outcomes that you want.  And then, once I did that, it was like, "Oh, it's very easy".  I would learn to build objects, etc.  I mean, I can't remember it now, because I ended up thinking, "I don't want to be a coder"; but one day it clicked.

I think there's this thing with Bitcoin where when you're an outsider, I think you can have a number of perspectives.  You can look and go, "Is it just some weird digital money that doesn't mean anything because it's not backed by anything?"  You see all those kinds of stories; you can't make sense of it, because in your world, money is issued by government, "Online money; it can't mean anything".

Then, some people get dragged in for whatever reason and they go down the rabbit hole and suddenly it clicks, it just clicks and there's that moment.  So, I feel like there's that line, and we're one side of it and sometimes we don't understand each other.  So I sometimes feel bitcoiners aren't patient enough to try and help people on the outside coming in, with the perspectives they come in; and I also think people on the outside aren't patient enough to go in and learn.  So, there are these two worlds.

But I'll tell you what; coming down here to El Salvador has been a mind-blowing experience.  I came here 18 months ago.  I was at LABITCONF in Uruguay and I met Michael Peterson, who runs Bitcoin Beach, and he was like, "We've got this little Bitcoin project happening in El Salvador.  Could you come and see it?"  I said yeah, so I got a flight and came out to El Salvador and basically, someone had donated some Bitcoin and he'd set up this programme where, to keep kids out of gangs, he would give them jobs and pay them in Bitcoin.  Then he got the local shops to accept Bitcoin.  I think there was a hairdresser and a couple of stores.  That was kind of cool and I was like, "That's kind of interesting, but good luck; that's going to be a struggle". 

We've had a pandemic, this is my first time back; I've come back so I can get into the US, so I just thought I'd come and chill somewhere for two weeks and I've come back and it's entirely different.  They've essentially had micro-hyperbitcoinisation here in El Zonte.  Every single store pretty much accepts Bitcoin; everybody locally wants Bitcoin.  I went yesterday to see this specialist about my back.  I went to pay her and she said, "Oh, can you pay me in Bitcoin?" where everywhere we go, like the coffee shops, everyone accepts Bitcoin, everyone wants Bitcoin and everyone is using Bitcoin.

That for me was the moment that's like, this actually can happen; this actually can work; you can build an economy based purely on Bitcoin.  So this, to me, right now, what's happening here in El Zonte, this little tiny surf town in El Salvador, is the most important thing on my mind right now.  Honestly, it's blown my mind, Nik.

Nik Bhatia: That's absolutely incredible and it really speaks to the different use cases for Bitcoin, because in the United States, everyone's so focussed on the dollar price and is the dollar price going up or is it going down, and what's the cycle, and what's the target price in dollar terms.  But in different parts of the world, our currency sucks; we need a new one.  This is a path to the future.  And then bringing back China, they're looking at it and they're like, "That appears to be the greatest investment opportunity in the world".  They're not thinking of it as an alternative money and they're not really even thinking of it as, "Oh, the price is volatile, it's going to go up and down".  They're looking at, "Maybe that might be just the best long-term investment for us as a people".

So, everywhere that you look, there's a different use case, but the network effect of everybody knowing Bitcoin is just getting stronger and stronger as we move forward and it's really exciting.  And it's why I've chosen to just keep writing about Bitcoin, because there are so many questions that need to be answered.  Everyone gets caught up in the altcoin hype cycle every few years, but none of that is cognisant with this narrative that Bitcoin is a base technology for the next several decades.  It is and it's here to stay and the network effect of it is getting just so strong.

Peter McCormack: Well, the people down here in El Salvador, what's really interesting is that they've learnt why they want Bitcoin; it's just clicked for them.  They've learnt why they want it.  They've crossed the line to go, "When you pay me, please pay me in Bitcoin".  They don't want the dollar and they know Bitcoin's volatile and yes, we're in a bull market which has been great for a lot of them.  But at the same time, they want Bitcoin, they know they need Bitcoin.  They transfer some of it back to dollars, because some places they need dollars, but they want Bitcoin.

I find it so super interesting, but then I go back home and all my friends know I've got a podcast and not only do they know I've got a podcast, they know I've got a podcast that's been really successful this last year.  They know what the topic is.  Do any of them own Bitcoin?  No.  Do any of them care about it?  No, because I think they haven't been through enough pain yet with money.  They've lived through fairly insidious, slow debasement.  You don't really notice the debasement from month to month.  You get paid, you go down the pub, you pay your mortgage, etc.  That's pretty much what it is.  They've never had issues moving money around.

You come to a place like El Salvador; they have issues getting money, moving money.  The funny thing about El Zonte, there's no cashpoint here, but there is a Bitcoin cashpoint.

Nik Bhatia: Incredible.

Peter McCormack: I think where you have pain with money or difficulty or you learn about Bitcoin, it becomes easier.  I think generally speaking, you in the US, me in the UK, people in Europe, we've had it too easy; so essentially, the only people who've really benefitted from Bitcoin are those who've got in early enough, done the work.  I also say we're a bit lucky in some ways.  I feel lucky to have discovered Bitcoin; it's been lifechanging.  But I don't know how we get that explosion in places like the UK where everybody suddenly says, "Oh, shit, we need this".  I'm assuming it potentially comes with a massive increase of inflation soon.

We've got a massive debt issue in the UK, you have in the US, you perhaps see it then.  I don't know, man, what do you think?

Nik Bhatia: I don't agree with that.  I don't think that inflation gets out of control in the UK or the United States to the point where it drives people into realising Bitcoin is their saviour.  I don't agree with that narrative at all.  It's part of why I wrote Layered Money, because the book doesn't even have the word "inflation" or "deflation" in the entire book.  I don't feel that it's relevant to explaining the story of Bitcoin.

Debasement is, right, and debasement is another way to describe the word inflation, because inflation can be described as monetary inflation; but the price inflation aspect, which is what you're referring to and a lot of the narrative is around, as prices go up a lot, people will realise that the currency sucks and drive them into Bitcoin.  That is happening already in different parts of the world, like in Latin America and Africa. 

But I don't see that on the immediate horizon in the United States.  And it is part of why people in the United States, like you say, they haven't experienced the pain.  They'll be some of the last people to own Bitcoin and they might not ever even own Bitcoin, but rather they'll own a stock market portfolio that has a lot of exposure to Bitcoin, because the companies themselves have anchored themselves to Bitcoin, or are holding Bitcoin on their balance sheet as a treasury asset, or other things like that.

But other countries that are more familiar with either history or currency debasement are going to be quicker into investing in Bitcoin, or converting their savings into Bitcoin, like you're seeing in El Salvador.  So, the thing that drives the people in the West to it is the FOMO; it's the returns.  That's really what drives it.  It's not what drives people in El Salvador, which are going into it because it's the most real thing they can get their hands on monetarily speaking; it's monetary reality for them.

Peter McCormack: Yeah.  The interesting thing on the debasement, I really like what Breedlove was saying recently, that money printing or debasement is legalised counterfeiting.

Nik Bhatia: Of course it is, because if you think about the people that hold the unit of account, dollars or pounds, they're not agreeing to debase the currency, or to print the money, or to issue reserves, or to do QE; that's a decision that the central bank and the government makes.  So, the government is debasing the currency, they're counterfeiting the money, I guess, because nobody else is approving it but them.

But again, money printing doesn't drive the price of Bitcoin up.  The money printing and the actions of the central banks drive people to seek an alternative to that system and some of those people end up in Bitcoin, some of those people end up in other things.  If you think about a lot of American investors that are so focussed on the real estate component, they're making plenty of money right now; real estate prices are going up.  The people that want to own stocks instead of bonds, or anything that's a fixed deposit; those people are also seeking an alternative to the debasement.  So, if you're long stocks, or you're long real estate, that's also an expression.  It's an expression of your position against what the central banks are doing.

So, bitcoiners have that same position, but I hesitate to just correlate money printing inflation, Bitcoin price going up, because it's not really the case everywhere you look.  Not everybody that's buying Bitcoin is doing it because Money Printer Go Brrr.

Peter McCormack: Well, some claim they are.  I mean, I think it was Tesla who mentioned it when they purchased; they were worried about dollar debasement.  And, Stanley Druckenmiller, he mentioned it in their report; so, people are raising it.

Nik Bhatia: And of course it drove me into the -- the QE itself drove me into studying gold and that's how I found Bitcoin and it's why Bitcoin was so obvious to me at that point, because I studied what the Fed did.  So, I'm not saying that it doesn't; it drove me myself, the QE, the money printing, it drives people to find an alternative to the system and Bitcoin is that outlet.  But, if you look at the way that prices go up in certain aspects of the economy and stay put in other aspects of the economy, inflation is still at 1% in Europe, statistically speaking.  That's not enough statical inflation to drive people into, "I have to own Bitcoin, or else my currency's going to go away tomorrow".  To me -- go ahead.

Peter McCormack: I was going to say, it depends how you measure it.  The house price inflation we're seeing in the UK right now is way above 1%.

Nik Bhatia: And so is it here in the United States.  That's people trying to escape the unit as their denomination; they'd rather just own property.  And it actually brings me to something I've been thinking about.  As Bitcoin becomes more and more popular, it becomes more and more adopted and the price goes up, what are bitcoiners going to focus on at that point?  I think that they're going to be more focussed on other forms of property rights, because Bitcoin is the most magnificent advance in property rights in human history, right; that's why I'm I it.  It's part of why I think it underpins a lot of the reason that people own it.  It's this advance in property rights, that nobody can take it away from you; it's digital; and it's scarce in a very measurable way.

But bitcoiners are already talking about citadels; why?  Because they want to live in a place where their property is valued in the same way, or protected in the same way that Bitcoin protects them monetarily speaking.  So, I think we're going to transition into this, you know, Bitcoin is the model for property rights and just changing the way we think about that.

People that are seeking Bitcoin, again, because of the QE directly, I sympathise with them because it's part of my narrative too, but I think it's a little -- I think it misses a lot of the important narrative as well.

Peter McCormack: Okay, so listen, you said you've been writing, you wrote a new article, I've got it written here: Asset Managers Owning Bitcoin is now Your Fiduciary Duty.  There are certainly still asset managers out there who are in denial about Bitcoin or still don't believe in it.  Some of them are about 97 years old, which I think is quite funny.  I think it was Saylor who said, "You don't go to your great-grandfather for advice on technology"!  But you're saying it's a fiduciary duty, as in Bitcoin is a home run now; it is a proven asset class; it is a proven part of the system.  So, how do you actually articulate that it's a fiduciary duty though?

Nik Bhatia: I'll explain.  So, the managers that I've worked at in the past are fixed income managers and their mandates are their responsibilities to their investors.  Their fiduciary duty is to make sure that capital is returned and that income is sought.  So, for those types of managers, it's not their fiduciary duty to own Bitcoin; that's not what they promised their clients.  I just want to be a little bit more specific about that.

However, if you're an investment manager that has promised your clients growth, so let's say you invest in tech stocks and your mandate is to find stocks or equities or other investments that you think can have a very large growth opportunity, so venture capital funds fall into this mix as well.  If you're promising your clients growth, that's what you're promising them that you're going to go out and seek and for some reason you're ignoring Bitcoin, then you're ignoring your fiduciary duty to your clients because of something that has arrived; and that's really the point here.  If you're ignoring Bitcoin now as a growth manager, you are ignoring that a monetary reality, an alternative monetary reality has come into existence on this planet.

You have just told me about a town in El Salvador where 100%, or 90%-plus of the people are using Bitcoin as a currency, as a system, and where anybody that owns a portion of the S&P 500 has some exposure to Bitcoin on their balance sheet because of Tesla, and you're not at least paying attention to it, it is as if you were not paying attention to the internet 20 years ago.  It's a violation of your fiduciary duty.

Can you imagine being a growth manager 20 years ago with no exposure to the internet and you called it a bubble, but then you didn't own Amazon as it 20Xd over the next several years.  Amazon wasn't a bubble during the Tech Bubble in 2001, right; it was just a preview, because now Amazon is almost a $2 trillion company in market size.  So, calling it a bubble is no longer an excuse.  It actually shows that you're not doing any research whatsoever; and again, I'm not talking about a manager who has to go out and buy government bonds and make sure they return par and a couple of percent on top; that's not what we're talking about here.

But, if you're ignoring Bitcoin, then to me you're ignoring your fiduciary duty to those seeking growth-type returns.

Peter McCormack: Well, what's the violation; ignoring it or accepting it but dismissing -- if you accept Bitcoin, if you do the work, but you still dismiss it, are you still violating your fiduciary duty?  Are you saying there's no argument against Bitcoin now?

Nik Bhatia: Well let's say, if you haven't read at least one pro and one con and done the analysis yourself, then you've ignored your fiduciary duty because I'm saying that, if you are not analysing Bitcoin, then you are violating your fiduciary duty; that's the point here.  If you've made this conclusion that, "Okay, I've read a lot about Bitcoin.  I don't think that it's the right idea for my investors, for my clients, because of XYZ", that is doing your duty.  You've made the analysis and all that kind of stuff.  But it's not what I'm seeing.

I'm still seeing just recycled old narratives because you read a headline.  At least buy a book about it; at least read one book about Bitcoin at this point.  And if you haven't, then what are you doing?

Peter McCormack: Which book?

Nik Bhatia: It's called Layered Money!

Peter McCormack: It's called Layered Money; buy the fucking book!

Nik Bhatia: It's so obvious right now.  But, you know, that's why I cited one book in my book, which is Andreas Antonopoulos's Mastering Bitcoin, because at least try to understand what's happening here.  And the fact that it's also above $1 trillion, Pete, tells me that if you still haven't picked up a book about it, or at least tried to understand the bull case for it, then you've just got your head in the sand.

Peter McCormack: Yeah, and you say that volatility isn't a risk, but a drawdown's a risk.  And the reason I ask this is that, like I say, I feel like we're on the tipping point of some kind of explosive growth.  I expect us within the next, I don't know, let's be broad; let's say within the next three months to breach $100,000.  I think there's so much stuff happening.  But say at some point during the year, let's say towards November, Bitcoin's amazingly at something like $200,000 and your firm suddenly thinks, "Yes, we need to get into this", and puts a percentage of their treasury into Bitcoin, and then say we go through another 70%, 80% drawdown; where does that sit with their fiduciary duty?

Nik Bhatia: It's a great point.  And actually, when I give my presentations now, volatility is the only risk that I acknowledge; because if you, in your mandate, promise to have standard deviation of returns within a certain range, an allocation to Bitcoin can actually knock your expected deviation of returns outside of your promised number to your client.  And so, for that reason, Bitcoin can be skipped in portfolios, because that's what you have promised to your clients; they can't afford an 80% drawdown, even if it's in a 2% position, because it actually knocks all the returns that they were expecting off. 

So, I do completely agree with you that the volatility, it precludes a lot of investment and that's okay for those managers that are making that analysis.  But if you are blaming other things that are not the volatility, it means that you're just not doing your homework yet. 

Here's the other side of it too.  A lot of the investment world, and I do contracting work in this world too, is focussed on the green future, ESG, Environmental, Social and Governance aspects of companies; and also, countries too that they're investing in.  So, if this ESG wave is actually meant to include the diversity and inclusion wave that we see taking over the planet over the last couple of years, because of social unrest in different parts of the world, and you're not looking at the people in El Salvador that have empowerment now through Bitcoin, have freedom from their government's oppressive currency regime, or freedom from theft by inflation --

Peter McCormack: Well, El Salvador is an interesting one, because it's a dollarized country, so they're actually subject to the oppressive regime of the US.  They're not getting any stimulus cheques here.

Nik Bhatia: Well, in Zimbabwe, they use the dollar as well.  So, it still is an expression against what your government is doing, because the government can come in and introduce a currency in the future, but it doesn't mean that people will have to use it, because they have an alternative.

So, I do think that the empowerment component of Bitcoin plays directly into the diversity and inclusion theme, which is a direct part of the ESG theme that is sweeping the investment public as well.  So if you're just like, "Bitcoin is boiling the oceans, I'm not going to invest in it", but ignoring the empowerment…

This is also something that I'm reading now.  Every single one of these releases, like the Dalio employee that just went over to NYDIG, the CFO --

Peter McCormack: Yeah, I know, massive.

Nik Bhatia: -- they use the word "empowerment" in every press release now.  So, hello; the empowerment component of Bitcoin is front stage and centre.  So, you have to acknowledge that this is a force of good for many people in the world.

Peter McCormack: Dude, we all know that empowerment.  I was just going to jump in.  That empowerment, it's like that inner strength you get from knowing you have this asset that cannot be taken from you.  We had a thing that came out in the UK recently that we're going to have to declare out Bitcoin holdings to the government, where I'm like, "Fuck off!" and no, I'll leave the country; but when you talk about Bitcoin being the best form of property rights, when you realise that and you actually take custody and you hold it and you own it and you realise you can send it to anyone without any middleman, there is that empowerment it gives you as an individual.

Nik Bhatia: Oh, absolutely.  I always recall my first few Bitcoin transactions and they were, of course, sending it from one wallet to another wallet, so I was sending them to myself, so I wasn't engaging in the Bitcoin economy, or whatever.  It was just, "I'm toying with this wallet; I want to toy with that wallet; I want to try sending it test transactions".  It is incredibly empowering and it was a very new feeling at that time.  You're like, "Wow, this is truly a new form of money".  So, people that haven't actually used Bitcoin could ever understand that empowerment.

Peter McCormack: Well, that's like that first thing.  I hate that question, "What is Bitcoin?"  I just hate the question, because there are just so many ways you can attack the answer.  When people do ask me now, the first thing I say is, "Just get some.  Get a wallet; I'll send you some, I'll send you some sats, just watch this.  You hold your phone, I'll hold up my phone, I'm going to send you it", and then I explain to them, "That happened without any middleman.  There's no company in between that makes this happen.  This just happens on the Bitcoin Network", and I always think that's like a little bit of a lightbulb moment.

I did it with my assistant, right, and then you had the funny moment; I sent her $50 and then she came out and she goes, "It's now worth $60!"  So, it's like that second effect that you get from Bitcoin, but it is empowering.  Again, I refer back to my interview with David Bailey yesterday.  He's talking about Miami as, "We're all coming together".  This Bitcoin's so important now.  This is a force for good.  It is empowering like you said, but we all come at it with this similar attitude, this kind of "fuck you" attitude.  But it is empowering and that's a really interesting thing on the guy going over to NYDIG, because I didn't know he said that.

Nik Bhatia: It's in every single press release now.  The video game company that just recently announced a treasury position, they used the word empowerment.  This is actually now my problem with those that are still dismissing, or I'd like to say, the naysayer; the naysayer coming with really all of the FUD now.  It's just like, hello, there's an empowerment aspect here and you can't keep using the same recycled stuff.

A lot of it stemmed from a panel I was going to be on a couple of months ago and somebody told me, "You know that the other guy is going to be a Bitcoin naysayer", and I literally fell out of my chair with excitement, because I was like, "I can't wait to talk to a naysayer in April 2021".  It's like, what are you reading; what arguments are you still coming with; I'll give you three minutes for a volatility rant, but the other 57 minutes, you're in trouble!

So, he had some sort of conflict, so I didn't get to do any of that.  The guy that they plugged in worked at a distributed ledger company, so he was fully versed in the technology and he had Bitcoin stuff behind him on his desk, so he was a bitcoiner too, so it was a good talk.

Peter McCormack: Nik, I think these naysayers come from two positions; there are two general positions they come from now.  I think there are genuinely people that come from the position they missed out.  There are certain journalists who will write negative Bitcoin articles and they've been in Bitcoin for a long time and I feel like they missed out because they didn't get in. 

I think I've been very disappointed with the trajectory of, say, Nathaniel Popper's career, because the first thing I read was Digital Gold and I loved that book; loved, loved that book.  I see him get sucked into this woke journalism attacking Bitcoin companies, etc, and I just feel like sometimes, there's this negative internal feeling because it's like, "Shit, I could have bought this", and they didn't. 

Whereas you've got someone like Rizzo who's really become a much better journalist over time, really diving into Bitcoin.  The stuff he did on the last days of Satoshi was incredible.  But I think there's that; there are people who've just missed out.  Actually, I think there are three.  I think there are people where Bitcoin doesn't fit in their own model of economics, the Keynesian people, who regularly put out the same tripe on Twitter that they've always been putting out.  Is it Hankey, that guy who's always going on about -- and I just think they can't fit it into their model. 

I also think there's this other model of people, and I think it's a political angle.  I think the acceptance of when you accept Bitcoin for what it is, you have to accept that you lose the centralised aspect of government redistribution of income; and for some people, that's a real struggle because some people, even if they're not strong socialists, they still believe in that social safety net, and you don't get that with Bitcoin.  Bitcoin is a pure voluntary social safety net.

I've just contributed to the fund that Miles Suter's raising for down here in El Salvador for the surf team.  It becomes purely voluntary and I think that last one's a real struggle for people, because we essentially eradicate the centralisation of redistribution of income.

Nik Bhatia: I do agree with you and none of those categories of people prevent adoption, which is I think the most important thing here; you don't need to convert.  I don't love the whole sats narrative.  While sats are a unit within Bitcoin, and I use the word sats when I'm charging people for invoices or quoting an amount of Bitcoin now, I use the word "sats"; but trying to convert people by saying, "Oh, it's not about Bitcoin, but it's about sats" and convincing them of the unit bias, or convincing them that Bitcoin is actually an empowering technology, or convincing them that they shouldn't be beholden to their government debasing their currency; it's like, "Why do you need to convince everybody?" 

We've already gotten the adoption curve underway; people are spreading the word about Bitcoin naturally; it's being adopted and not everybody is going to hop onboard, but that won't prevent Bitcoin from changing the world in the same way that the internet did.  There were still people that didn't do a website for their company years and years after the internet had gone, or people that still weren't on email; but eventually, everybody has to use the technology that's being used by the world.  And I think ignoring Bitcoin is also ignoring geopolitics.

So, Bitcoin is macro now.  If you look at populism and geopolitics around the world, you have to put Bitcoin into your model; it just is a natural evolution of the way that the world is moving.  Now, you can't ignore it as some fringe technology, or some alternative money either; it is going to play a role in the way that governments evolve.

I always think back to a cousin of mine years ago asking me, he was like, "Wait, so if people can just send Bitcoin to each other peer-to-peer, doesn't that affect the way that governments will be able to collect taxes in the future?"  I'm like, "You've got it; bingo!  Bitcoin changes everything".  So, Bitcoin isn't changing tax collection today, but I guarantee you it's going to have a role in the future on how governments are trying to collect it.  When everyone's using Bitcoin, how are they going to tax; how are they going to spend in the same way that they do today?  We don't know.

Peter McCormack: Okay, there are a couple of things to dig into.  Let's do the sats thing first.  So, you're referring to this kind of, sats are the standard, trying to get exchanges to price things in sats, etc.  Is your concern there that it undoes some of the great work in building up what is the brand of Bitcoin?

Nik Bhatia: Not necessarily; it's my personal preference.  So, when I give Bitcoin 101 presentations, I try to ignore the price altogether and focus on the market cap.  I call it "the total market value" so that people know exactly what I'm talking about; the size of Bitcoin, because that's how you put it in context with gold, with the treasury market.  It's how you get to $10 trillion Bitcoin, $30 trillion Bitcoin, which translates into $500,000 price to $2 million price per Bitcoin.

But if I'm trying to ignore the price altogether and focus on the market value for context for my audience, what good does saying that 1,000 sats can be bought for this many dollars; it doesn't serve me any purpose to explain Bitcoin or to convince people that it's not too early in Bitcoin.  Telling somebody that, "Oh, you can buy this many sats for $1", is not going to convince them to buy Bitcoin, relative to saying, "Bitcoin is only $1 trillion, but there's $400 trillion of investable assets out there".  It just doesn't serve me any purpose. 

I used the word sats in my book; I explain that the satoshi is the smallest unit within the Bitcoin software; and sure, it's an important detail, but sats the standard, or getting people to think in sats so that $60,000 doesn't scare people, I don't agree with it.

Peter McCormack: Yeah.  So, the second point to then dig into, you asked me earlier about interviewing all these people, what's on my mind; also you mentioned earlier some people might not directly own Bitcoin, but will have maybe exposure via the stock market; and the you also talked about what will happen to currency when governments can't tax, etc. 

I'm not an anarchist, I've been very clear about that.  I definitely theoretically buy into the narrative; I'm just not there yet.  I guess if anything, I'm a supporter of small, limited government.  One of the things that's going through my mind is, do we eventually see currencies collapsing, or will we always see, say, a dollar next to the Bitcoin, and that's where I'm wondering what happens; because if Bitcoin does continue to grow and people keep wanting to exit the dollar, like they're essentially doing here in El Salvador, what does that actually mean?  Do we actually get to the point where Bitcoin is just a currency people are using?  What are the implications?  Can people actually get their hands on sats?

So, that's really on my mind.  I'm not articulating it very well, but I think you can probably understand the kind of headspace I'm in.

Nik Bhatia: Yeah, absolutely.  My outlook, Pete, and my opinion on that is that, unless we have world peace, you're going to have government currencies.  So, as long as there is competition between countries, there's going to be government currencies, because currency is a policy tool, it allows countries to do things, so I definitely see central bank digital currencies being introduced, replacing those old currency systems altogether over the next several years, and it functions side by side with Bitcoin.

Again, that's why I'm starting to think of Bitcoin more as an investment, not less as money.  It's still money and that's what it was invented as, as an alternative form of money; but it also just serves as an investment alongside government money for a lot of people, and I think that it will continue to do that over the long term so that the dollar won't go away. 

I do feel like we will have less currencies around the world in ten years than we do today as weaker currencies succumb to the dollar and Bitcoin and the Chinese renminbi, if they're in that sphere of the world where, like in El Salvador or Zimbabwe, they're using dollars; other countries in Latin America are doing the same thing and so, I do feel like currencies will die in countries that just have less stable regimes and less stable currency history.

Peter McCormack: It is a really interesting period of time to live through.  There is absolutely zero chance I could have predicted this five years ago.  I'm not in Bitcoin; I have no expectation of a new global currency to exist; and now we're living through it and watching it happen in real time.  And getting to sit on the front lines of it as it happens, it's really interesting.

I do worry sometimes about the implications of this, like what is the net outcome?  Does Bitcoin cause the world to become a little bit more unstable on the path to a Bitcoin standard?  It does weigh on my mind how this all plays out, how this may become a very unstable time, geopolitically, economically, what are the implications for people; it weighs on me, but I don't know how to look at it.

So, sometimes when the price goes up, I get very excited because I hold a bit of Bitcoin; but then other times I'm like, "Shit, what are the implications of this; what are the real implications of this?"  I think overall it's net positive, but I'm just not fully sure of my position yet.

Nik Bhatia: Yeah, it is tricky, but I do think that geopolitically we are in a very unstable world.  So, the Bitcoin price going up and coming into the ecosystem is in part a result of that instability and in Layered Money, I talk about how the dollar system fragility is what in part drives people into Bitcoin.  But geopolitical instability as well does drive people into Bitcoin.

So, how will the US and China engage over the next few years; or what's going to happen in the Middle East; or what's happening with religious wars?  All of that stuff is already going on and I don't think Bitcoin itself exacerbates any of those problems.

Peter McCormack: No, I didn't mean like that.  I just worry, generally speaking, about what's going to happen over the next few years, because if the governments can't tax and they can't redistribute income the way they have, there's this kind of gap between people being used to living in social programmes, or having a social safety net, and that may be disappearing; and how that transition happens.  It's not that I blame Bitcoin, it just weighs on my mind, because we do live in a world where most countries have some form of social safety net and those could eventually dissipate; and I just worry and it weighs on me what the transition is; what that means for people.

It's like even you talk to the libertarians, and I spoke to Scott Horton once and he said, "I don't want the big red button to switch off government; it needs to be a transitionary period".

Nik Bhatia: Yeah, with eight billion people on the planet, it's okay to worry; I worry about the same thing!  We both have kids; you worry about what's going to happen in the future.  But I've become more optimistic, as opposed to 20-year-old me, who has much more extreme views.  Now, I just see that there are so many people around the world that are driving the change for good that I believe that it's going to all work out and that Bitcoin will serve this purpose that transitions us into a more equitable future. 

It doesn't mean that it's going to be without government and I don't even know if it does have any larger effect on the government's ability to function in the future.  Governments might exist in the future the same way that they do today, in terms of their function, but the monetary system that underpins it has changed, so maybe takes away a little bit of their power.  But again, it's so far into the future, I don't know how it's going to play out. 

But I do think that Bitcoin serves this role as an equaliser, as it doesn't allow the bastardisation of money as much as we've seen over the last few hundred years.

Peter McCormack: All right.  Look, the last thing I wanted to raise with you before we finish is the Lightning Network.  I remember last time we spoke, I'm pretty sure I said to you, I pretty much dismissed the Lightning Network for a long time; just like, okay, I'm not really spending my Bitcoin, I don't really use my Bitcoin.  So very occasionally I send some over, I send it over the base layer; I have no need for the Lightning Network right now.

Coming out here, I absolutely see the need for the Lighting Network for people to be able to move money very, very quickly.  Like when you're going into a store and you are paying with Bitcoin, which people are doing, you absolutely fundamentally need the Lightning Network.  I know you've spent a lot of time looking at the Lighting Network.  How do you feel about it?  Do you see the use case now for it really starting to explode?

Nik Bhatia: Absolutely and the Lightning Network is an acceleration of the velocity of Bitcoin by participants already in the network.  And it's just so important to strengthen the network effects of Bitcoin itself.  Because, if you're a Bitcoin user and I'm a Bitcoin user, we should in theory never be doing on-chain stuff with each other.  On-chain should be reserved for the larger transactions and larger final settlement.

But in a Bitcoin economy and especially in the digital world, streaming money to each other is going to be the norm and you need Lightning Network to do that.  That's why, when I saw SegWit happen to Bitcoin, I was like, "This is a legitimate upgrade for Bitcoin", because it allows Bitcoin to be used instantly by participants that have already bought into the narrative.

So, yeah, Lightning Network is here to stay; it's growing; the technology is rapidly evolving.  It also is a capital markets framework for Bitcoin.  The team at Lightning Labs is building products that have the idea of capital leases, or Roasbeef is working on something that is going to build a zero-coupon yield curve on Bitcoin, which is a very technical sort of thing, but it really shows that Lightning Network brings all these additional characteristics and metrics to Bitcoin that make it so much more usable for people that are already in the network.

So, it's just like, if you were to say, "Why would we need Venmo when we have cash?" there are different functions for different software, and Lightning is basically a software that uses the Bitcoin software.  So, it's a very useful software that I'm extremely optimistic about.

Peter McCormack: Yeah, me too.  Well, Nik, it's always a pleasure to talk to you; love having you on the show, you know that.  If I can ever do anything to help you, you should let me know.  When you want to come and promote the next book, I'd love to read it first, but people should buy your book.  Tell them where they can get it.

Nik Bhatia: Yeah, you can find my book, it's called Layered Money, on Amazon Worldwide.  Just google it; it's everywhere now.  The audio book is also available, read by Guy Swann.

Peter McCormack: Ooh, he's so good.

Nik Bhatia: It's a great listen; he did a fantastic job.  I wrote the book absolutely convinced that I was going to ask Guy to read it, so the book's going great.  You can find it on layeredmoney.com; I have all the links there.  And you can find me on Twitter @timevalueofbtc.  Pete, I really appreciate you having me on and I hope that we can do this in person soon this year at some point.

Peter McCormack: Yeah.  Well, we did get to do our first ever interview in person.  I've missed doing in-person interviews; I really struggle remotely.  It's so much easier in person to have the dialogue going; I feel a lot more comfortable, so hopefully I'm going to get back to that at some point.  I'm thinking of getting myself a studio in Texas in Austin at some point and then I can go out there every couple of weeks and record a bunch of interviews, so fingers crossed that will happen as well.

But listen, look, appreciate you, dude, appreciate everything you're doing.  Everyone listening, go and buy Nik's book, come on; it's an amazing read and yeah, hopefully this year we'll get to hang out.

Nik Bhatia: Love it; take care, Pete.