WBD581 Audio Transcription

Bitcoin is the Answer with Preston Pysh

Release date: Wednesday 16th November

Note: the following is a transcription of my interview with Preston Pysh. 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.

Preston Pysh is a co-founder of The Investor Podcast Network. In this interview, we discuss the ongoing trauma following FTX’s unprecedented fall from grace, the implications for Bitcoin, and the ever-worsening macro situation where central banks are losing the battle to protect society from excessive government spending.

“When you look at prices as they’re trying to destroy demand, the thing that people aren’t talking about is are they destroying supply faster; and if they are, prices aren’t coming down, they might actually keep going up.”

— Preston Pysh

Interview Transcription

Peter McCormack: Preston, how are you, man?    

Preston Pysh: Hey, how you are doing? 

Peter McCormack: Good to see you.  Did you enjoy the conference?

Preston Pysh: I loved this conference; it was so just chill and cool.

Peter McCormack: They killed it, man.

Preston Pysh: It was so LA.

Peter McCormack: Yeah.

Preston Pysh: It was really neat; the basketball was…

Peter McCormack: Did you have a go?

Preston Pysh: Oh my god!

Peter McCormack: Did you see the video of Cory?

Preston Pysh: Yeah, Cory's out there; evidently, he's a three-point monster, it was legit.

Peter McCormack: Have you seen this video?

Danny Knowles: Yeah, I saw it on Twitter.

Peter McCormack: Oh my god!

Preston Pysh: It was unreal.

Peter McCormack: Well, I think they killed it; I like those smaller ones.  It was good to catch up with some people, and yeah, whilst the world burned down, or the crypto world burned down…

Preston Pysh: Yeah, in the face of everything that was happening, you sure as hell wouldn't have been able to tell from the conference, yeah.

Peter McCormack: No, I don't even know what the price is, but it's been a weird week.

Preston Pysh: Yeah, very weird.

Peter McCormack: How do you take it all in?

Preston Pysh: I see it as a cleansing; it sure hasn't changed my opinions on anything.  I'm a little shocked at the size of the scam that was being played on everyone, and when you're dealing with private equity, not a publicly traded company where you can kind of peer into the books, it's a little hard to know what you were dealing with it.  But like anybody else, when you see athletes running around, like prominent athletics, we're not talking small athletes, like Tom Brady and the such, right --

Peter McCormack: The GOAT?

Preston Pysh: Yeah, and stadiums, actually the stadiums were probably the best cue you had that maybe you should be more concerned than not because the whole stadium naming thing, to me, is --

Peter McCormack: Well, I took that though as they must be very well funded or doing particularly well.

Preston Pysh: Yeah, well, I see that as you see a lot of different companies that will name a stadium and they're desperate for marketing, but maybe not the best product underneath of it sometimes; you see that a lot with stadium names and then the company goes bankrupt within years after that.

Danny Knowles: Here you go, "The Stadium Naming Curse".

Preston Pysh: There you go, exactly.

Danny Knowles: There are so many of these companies that have sponsored stadiums then gone bust.

Peter McCormack: Oh, really?

Preston Pysh: Oh yeah.  So, the stadium name isn't a good example, but when you had these really big names of people --

Peter McCormack: The National Car Rental Stadium; what an exciting name!

Preston Pysh: It's crazy.

Peter McCormack: Wow!

Preston Pysh: But in general, my point is more like I didn't see FTX blowing up in literally seconds, and when you can't peer into the numbers and you can't actually see what's being done, it's kind of hard to be able to see something like that coming.  Now, you've got to wonder who was auditing these books?  He had no board members.

Peter McCormack: Well, the Sequoia guy on the board, they said the only photo of him is from the back of him, in front of the computer; you sent me that video, Danny, or was that my brother who sent me that?  My brother sent me this video; let me send you it.

Preston Pysh: When you think about the governance of FTX, which is super important for people that are trying to piece things together at the end of this, you have to say, "Who are the adults at the table that were working with them and advising them?"  I think what you have, when you really pull back and look at and analyse what happened, when you have a company that's demonstrating a growth rate, a hyperbolic growth rate, VCs, venture capital money, all this fiat that sits inside of the VC space that's trying to gain a piece of that equity, they just don't even care.  What's driving their investment thesis is they're just looking at the numbers of users.

Peter McCormack: "Let's write cheques".

Preston Pysh: That's right, and they're just like, "Yeah, I don't care who's on your board, I don't care about any of that stuff, I just see the user counts going up, so just them more money", and then you're talking multiples, so their last round was whatever, their next round's going to higher, and so then you get these situations where they do that, and that's not even talking about the fraud that was happening in FTX; that's a whole other story.

Peter McCormack: Can you look up how much they raised?

Danny Knowles: Yeah.

Peter McCormack: One of the things I don't understand is firstly, how do you think you're going to get away with it, and secondly, why haven't you thought this through?  When you look at Bernie Madoff, he got 150 years in prison; he was never coming out.  Multiple people committed suicide, including his son, lives were devastated, funds were devastated, kids didn't have operations based on the money that was lost; there was bone marrow transplant operations that didn't happen.  But in your head, it's like, even if you're getting in a situation you're facing the consequence of maybe going to jail for decades, Sam could go to jail for decades.

Preston Pysh: Oh yeah, I hope he does.

Peter McCormack: Yeah, and that's like his whole -- was he put in a position he shouldn't have been in?

Preston Pysh: Well, it wasn't that he was put in a position, he created this monster.

Peter McCormack: Yeah.

Preston Pysh: He created this monster from the ground up.  There's a really important quote that I always remember from Buffett and I'm not going to get it exactly right, but it goes something like, "When you have a person of superior intelligence and you match that with somebody's who's casual with the truth or unethical, you have the most dangerous person you can possibly create in that scenario"; I think that's what you had with Sam. 

He was extremely intelligent, and intelligent from a trading prop desk kind of way, which was Alameda, and when you have that and you combine it with this person who is very casual with the truth and very comfortable in a grey space, and in this case just outright scammer, he didn't care, he's taking customer funds to then go trade them and try to earn it back, that's insane.

Peter McCormack: Yeah, but why?

Preston Pysh: Ego.

Peter McCormack: Well, how bad were Alameda at trading as well?!

Preston Pysh: Oh yeah, like how bad would you have to be?  Yeah.

Peter McCormack: They had a good reputation beforehand, didn't they?

Preston Pysh: Yeah.

Peter McCormack: That was the same with Three Arrows.

Danny Knowles: Exactly, yeah.

Peter McCormack: Did you find out how much they…?

Danny Knowles: I think it was just short of $2 billion, like $1.7 billion I think.

Peter McCormack: Do you know how much of that was Sequoia?

Danny Knowles: It was a lot.  I don't know; let me have a look.

Peter McCormack: What are the consequences for them?

Preston Pysh: The thing for me that speaks to the ego is there was this chat log of when he took a Sequoia meeting and he was literally playing video games while he was taking the Sequoia meeting.

Peter McCormack: I kind of like that; it's insane!

Preston Pysh: For me, it's a respect thing, you have such a monstrous ego that you don't even have respect for this company that's about to literally give you billions of dollars to fund, because you're not cash flow positive; that's why he's taking money, it's because he's not producing free cash flows of his own.

Peter McCormack: Do you think it's ego or do you think that it may be because he's on the spectrum; is he autistic?

Preston Pysh: I don't know what it is, but for me, I personally would never in a million years go --

Peter McCormack: Of course you wouldn't.

Preston Pysh: Think about it, all those employees that he has that work for FTX and all those customer funds, all that stuff, it all depends on him going and raising more money because he's not profitable.  So, he has to secure the funding, and this idiot is literally there playing a Dungeons and Dragons game during the call.  Now, this is where you've got to double-down on the insanity of it; the people in the Sequoia log, he's there playing video games, and this is where he's intelligent in that he knew what they needed to hear, and what they needed to hear was there's more runway for growth, is all you've got to convince them of.  So, he's there saying, "Oh yeah, I see my app, the FTX app, where you can go do this, you can go buy a banana with it", and the chat log goes crazy, "I love this guy; this guy's so smart". 

So, then I'm thinking, I'm just imagining what was taking place, this was over Zoom, right; I can just imagine the 25-year-old Ivy League Sequoia people, 25- to 35-year-old Sequoia people that are on the call that are typing these things, I imagine them with two screens; they’ve got Sam on one of them and then on the other screen, they're searching Twitter or they're watching some other thing, they're just doing multitasking.  And he says one thing and one person in the chat log says they love him, and they're like, "Okay, well, let me respond to this like we're taking it".

So, you have this dichotomy of just separation, they're not all in the same room, they're not fully engaged, and you're talking about billions of dollars and millions of people that are being impacted by this; it's insane.

Peter McCormack: Yeah, I do wonder what the impact will be now because Mt. Gox was a --

Preston Pysh: This was Mt. Gox times like 100, right, or 1,000 or whatever.

Peter McCormack: Well, yeah, but off the back of that, I know Coinbase are not a particularly popular exchange with bitcoiners, I know Kraken and Gemini aren't because they're not Bitcoin only, I know Binance aren't for various reasons, but at least we understand with those exchanges that they are running tight ships, tight operations.

Preston Pysh: Well, they're publicly traded, well Coinbase is.

Peter McCormack: Coinbase is, and I think Kraken eventually will be, and I'm sure Gemini will be at some point, but at the same time you do understand these are people running proper businesses now.

Preston Pysh: Yeah.

Peter McCormack: They've been operational for multiple years, they're profitable businesses, and this is somebody who's come in recklessly and damaged the industry, damaged individuals, damaged businesses, damaged people's holdings in Bitcoin; there are some dark consequences for this.  I know people hate regulations, and I know people hate the likes of Coinbase being so friendly with regulators, but at the same time, they're building proper businesses within the infrastructure.  So, for me, I've got a little bit more respect now for the likes of Coinbase, Kraken and Gemini for what they've done.

Preston Pysh: I'm hesitant to really have an opinion because I just don't know any of their books, I don't know the people well enough to really comment.  But I can tell you this was an absolute cesspool and if you would have asked me, as it started getting closer, it became way more obvious.  A couple of days before this happened, I tweeted out, like, "Hey, is Sam basically the next Enron?" and sure enough, he was.

Peter McCormack: Yeah, the speed was unbelievable.

Preston Pysh: The speed was unbelievable, which gets straight to the vapourware, which is proof-of-stake shitcoins, and how much they can be levered to create billions of dollars out of thin air; a billion-dollar hole on the balance sheet can deflate literally in hours, billions.  People just can't wrap their head around -- I think we're so psychologically detached from how much $8 billion is because we talk about these numbers and we talk about billionaires, but if you were going to break that out, I don't know what that would be, but I would guess that would be like 100 people working 10,000 years straight, or some crazy number; people can do the maths, but it would be something like that.

Peter McCormack: Do you think it reflects where we are in the kind of economic cycle as well in that we've got to this kind of end point where everything's blowing up, it's like, "Let's throw money at companies", these companies keep growing quick and blowing up; do you think it's just a reflection of where we are?

Preston Pysh: Yes.

Peter McCormack: It's almost like not only is it cleansing for the, let's say broad crypto industry, but we're going through a cleansing in the economy anyway.

Preston Pysh: Yeah, absolutely.

Danny Knowles: To make $1 billion at a minimum wage, you'd have to work for 69,000 years.

Peter McCormack: 69,000 years?

Danny Knowles: That's to $1 billion, and he's lost $10 billion plus.

Preston Pysh: Yeah, so if you spread it with 100 people, it would take just -- people need to frame things in terms of actual proof-of-work labour that a person would have to perform, and this clown literally just, almost like a Thanos kind of thing, he snaps his finger and he just like -- think about that, the hours, the churn, the actual physical human labour that that represents, and this dude, he's there playing video games to bring on billions of dollars; it's frustrating.

Peter McCormack: We've worked the last four or five years to just build this, and our revenues obviously are nowhere near that, but we work so hard, and we conserve our capital, and consider what happens next year if the market is sideways; what if we don't have enough sponsors; let's put some money by and make sure we can survive; what's our runway, maybe it's a year?  We're not looking to borrow anyone's money, we're not looking to print a token, we work hard and try and protect ourselves, and like you say, he has just eviscerated so much productivity.

Preston Pysh: Yeah.  Well, if there are some things to look at that are positives that are coming out of it, is look at all the people that have been screaming, "Not your keys, not your coins", they're Mt. Goxers, right, or they were around back in that day, and they saw first-hand the devastation that it created.  Well, you just created a whole lot more of those people to inform everyone as we move forward on the timeline here how vitally important that is to be able to hunker down in your own private custody wallet.

Let me tell you, I've slept pretty well this last week, there's a reason why; it's because I know nobody can take the coins that I've got, and there are people learning that really hard lesson, and there were people in the space that were trying to warn everybody to get a hold of your stuff, so those are positives.  On the policy side, I had a conversation with Jason Brett recently.

Peter McCormack: Who's that?

Preston Pysh: He's a lobbyist that works on the Hill and up in DC and he was saying that Sam was really trying to jam through this new bill, I think the bill is, what is it called, the DCCP?

Danny Knowles: Yeah.

Preston Pysh: He was aggressively trying to push this new bill through, and it was all in benefit of an FTX exchange, the way that it was being worded, and you had the Gillibrand-Lummis Bill that was preceding it that seemed like that was going to be the direction that the policy was going to take, which is definitely not perfect, but comparing the two, it's way better than this one that was going to be jammed through. 

When I talked to Jason just a couple of days before all this happened, and we recorded a show that was released, people can check it out to kind of see how frustrated I was in the interview of like, "How has this guy able to influence policy so aggressively?"  Well, he was able to do it because he was literally stealing customers' funds and going and trading it and creating fake money out of FTT tokens by levering them and building them under the balance sheet of Alameda, and then taking all of that and then going and influencing people on the Hill to jam through a policy that's not advantageous for the community; it was advantageous for his parasitic behaviour.

Danny Knowles: I think he was like the sixth biggest donator to the Democrat Party as well, fifth or sixth.

Peter McCormack: I'm sure I saw numbers which were tens of millions or hundreds --

Preston Pysh: There were tens of millions with the intent of them being nine-figure donations, like high nine-figure donations, like almost nearly $1 billion was the intention, but what he actually gave was way less.  I am as apolitical as they come, and if he was making donations to one party or the other, I'm going to say, "Hey, that's not right, especially when you're taking customer funds out of FTX and scamming people".

Peter McCormack: Here you go, "Sam Bankman-Fried donated $40 million in the Midterms".

Preston Pysh: But you can find articles where he was intent on donating $900 million.

Danny Knowles: Crazy!

Peter McCormack: How can you be worth $32 billion and then zero weeks later?  I mean, I know how, because it was all fake.

Preston Pysh: It was all vapourware.

Peter McCormack: Yeah, all vapourware, but how is somebody not on top of this?  But yeah, back to my previous point, is this just a reflection of everything really?

Preston Pysh: It is, it is absolutely a reflection of -- and you know what else is a reflection, if we were to go back in time and you look at the monkey jpegs and you look at the insanity in the bidding of millions of dollars for things that you could literally go onto a computer, you're talking about 8-bit video game characters that, "This one's green; this one's blue; this one's purple", but those are $1 million, that was the signal of your top; this is what a bottom starts to look like.

Peter McCormack: Right.

Preston Pysh: Now, how long does this go?  I don't know, it really depends on how much the central bankers allow it to continue to persist, but they have got to get the inflation prints lower.

Peter McCormack: Where are we at pricewise?  There seems to be magnet around $20,000 though.

Danny Knowles: Around $17,000, like $16,800.

Peter McCormack: Again, we've swallowed a lot of bad news to still have Bitcoin at $16,800.

Preston Pysh: Yeah. 

Peter McCormack: LUNA, Celsius, this; it's essentially three or four Mt. Gox in the space of six months.

Preston Pysh: This is extremely healthy stuff as far as I'm concerned.

Peter McCormack: Yeah.

Preston Pysh: All of those activities, could you imagine building on top of those?  If we weren’t going through this tightening right now, and let's say they were releasing the floodgates again, you're just going to have more of these types of activities that can kind of get built on top of this.  You want to talk about a real meltdown, that would be really concerning.  And from an engineering standpoint, you start to wonder, and the policy standpoint, if the policies start getting built, I don't know what would have happened from a policy standpoint if this guy was able to really influence key policymakers and jam some of this stuff through; that's not a world I want to live in.

Peter McCormack: Well, I agree with you, I think the cleansing is good, it's what comes out of it.  I clash with people on the borrowing and lending side of things because it's not your keys, not your Bitcoin, but I also think there is going to be a market for financial services for borrowing and lending; I think the rates will need to be higher.

Preston Pysh: I think it's going to be peer-to-peer.

Peter McCormack: Yeah.

Preston Pysh: Hodl Hodl is a great example of, "Hey, why haven't they blown up?"  Well, there's a reason, it's because they're literally going peer-to-peer, to another person, overcollateralised.  So, if that loan-to-value starts dropping down, there are protocols that force that loan to be closed down.  When you start putting it into a black box and you have people like Scam Bankman-Fraud here --

Peter McCormack: No, it's even better, it's Scam Bankrupt-Fraud!  Well, I was looking at it the other day, I was thinking, "Hold no, are we being trolled here?!"

Preston Pysh: We're totally in a simulation, yeah.

Peter McCormack: Yeah, like how can his name be pretty much, if you squint, Scam Bankrupt-Fraud, and he's done this, it's like, "Come on!"

Preston Pysh: But to your point on the borrowing and lending, I think in the future, the only thing that I can see that would make any of that digestible is if you're going peer-to-peer.  It's because when you start consolidating, and almost like a consolidated debt obligation from like the 2008 Crisis, when you're pulling all this stuff together, there's systemic risk that gets built into that that is disastrous.  Just look at everything blowing up right now, it's crazy.

Peter McCormack: Yeah, I hope that’s the end of it.  All right, man, so that's a big intro to talk about macro with you.

Preston Pysh: Yeah.

Peter McCormack: Me and Danny were talking about it beforehand, I can't tell if everything's calmed down or I've just been distracted by everything that's happened with FTX this week, but it feels like inflation is starting to drop, the levels are starting to drop.  I know the UK economy is heading for a recession, but it feels like the massive headlines regarding the economy, regarding inflation, it feels like things are starting to calm down a little bit, but I've not been pay attention; what's going on, man?

Preston Pysh: So, your CPI is coming down a little bit, but you have to remember prices are still going up.

Peter McCormack: Yeah.

Preston Pysh: Prices are still going up, it's the rate at which they're going up, and that's really important for people to understand that difference.  So, the speed at which they're going up is slowing, but I don't think they're aggressively -- I would call that deceleration.  The deceleration's not really all that much.  So, if we were driving in a car and I jam on the brakes, that's aggressive deceleration; if I'm just lightly tapping on the brakes and we were going 70 mph and now we're going 65 mph and 63 mph and all of a sudden maybe we're going faster again, I would describe it more in the latter sense than the former.

Peter McCormack: Is that all natural though in that there's a lag?

Preston Pysh: Well, what's concerning is, if we're going 150 mph and the speed limit on the road is 40 mph, and you're decelerating to 140 mph, you're putting a lot of risk out there as to really potentially breaking something really bad, and I would describe what we're seeing right now as that.

Peter McCormack: Right, okay.  So, what do you think they should be doing; do you think they should be massively hiking rates?

Preston Pysh: So, here's the thing, there's nothing I could tell you that they could be doing better because the situation is so dire.  If you put me in the seat at any one of these central banks, I don't know that I could really do policy different.  This is a huge foot stomp for me; I love banging up central bankers with the best of them, but if you're really going to get at the inherent problem, you have to go upstream of that.  And when you go upstream of that, it's fiscal appropriators that are the actual problem.

Peter McCormack: What's a fiscal appropriator?

Preston Pysh: So, the people that are spending the money.  So, you have tax revenues, let's say you bring in $1 trillion, and so that's what you can work with, and so they might slice up that $1 trillion and say, "All right, well, we've got $500 billion that's going to military spending, we have $200 billion that's going to whatever", and so they're the ones that are spending.  The spending is far exceeding what's coming through the door.  In fact, it's starting to get so bad that just the interest expense alone, not even into productive things that you're spending, the interest expense alone is starting to come up to numbers that are like the size of the military spending, which is insane.

So, when you talk about a central banker, the central banker is the one who's adjusting the money supply to try to work with what's being spent, the fiscal appropriators.  So, they're the ones that are making all these decisions to…  Let me give you a good example, just in a typical household, maybe a husband and wife goes out and they decide to buy all this excess, like way outside of whatever both of their paycheques can support; but if they were able to control the currency, they would say, "Oh yeah, we spent a bunch of money but let's just add more currency into the system and then we can spend even more"; that ability to adjust the currency is the central bankers that are trying to offset the really poor decision-making of living in excess and spending way outside of their means.

Peter McCormack: So, the UK Government right now, I can't remember if they've done a budget, I think they've got a mini budget coming, but they've talked about two things: they're going to raise taxes and they're going to be reducing spending, so more austerity. 

Preston Pysh: I've got some comments on that.

Peter McCormack: Yeah, please do; tell me.

Preston Pysh: Well, so think about it, so Truss came in --

Peter McCormack: 44 days!

Preston Pysh: Immediately out of the gate, got really loose and like, "Hey, we're going to get out and we're going to do all these other things and we're going to spend again, right?"  And as soon as she did that, the gilt market as everybody knows was like, "Well then, if you're going to spend that much, we know that's going to turn into debasement, and because of that, all these bond yields need to blow, the bond market needs to sell off", because that's representing that they couldn't pay for it; it's just a big maths equation.

So, the whole bond market starts blowing up because she's going to go out and spend like crazy.  So, then they were like, "Okay, well…", and you see this in the bond yield curve for the gilt market, you can see all of this literally play out right on that chart, across all durations.  You should see it; it is a like a whipsaw.  So everyone was like, they had to come in, they had to do QE, they had to backstop it.

Peter McCormack: £66 billion was it?

Preston Pysh: I think you're right, yeah.  So, they do QE, they backstop it, and I think the central bank looked over at the fiscal appropriators and are like, "All right, crazies, you're forcing us to do something that we don't want to do.  We've already got sky-high double-digit inflation; what in the world is this policy?  You have to reserve course", and they did, they reversed course.  When you look at the bond yield curve, you'll see it get bid, aggressively get bid.  But here's the thing, Pete, so they're saying that they're going to be more fiscally appropriate but they're not going to be; it's just a narrative, it's a story. 

If I was going to describe to you what I think they're doing is, think of it like a race where you have ten people doing a 100-metre sprint down the track, and one of those people is running the slowest, and there's this monster that's going after them, so they're just like, "If we just say we're not going so slow, then we get up there, we'll get faster in the race", which is what they're doing; they're catching up so that they're not going to be gobbled up by the monster.  But there's no intention for them to actually complete this race; they're all going to get gobbled up by the monster. 

It's just a story; they're not actually going to be more fiscally appropriate.  They've just got to look like they're not going to get gobbled up for long enough so that they can all collectively debase together once again to just keep the scheme going that seems to never end.

Danny Knowles: Who's the first mover in that do you think?

Preston Pysh: When you say "first mover…?"

Danny Knowles: Like who's going to be the first one to break and start debasing again?

Preston Pysh: I don't know, but that's the big question.  They've duped everybody thinking that they're going to be fiscally appropriate now.  Because it's all talk, they don't have to realise any of that because the math on this is all in this big giant model of the next ten years that is then going back into the debt markets to be repriced.  So, as they talk and they're saying, "We're going to be more appropriate; we're not going to spend at will", the models then change, and when you're this far down the rabbit hole of lies, the curve in these models is just tremendous for one little thing that they say that they're going to change.  So, they say that, you get into this situation where, who can lie the best? 

Danny Knowles: Sam Bankman-Fried!

Preston Pysh: And who are they up against; I think that'll be the next one.  So, they're up against Japan, they're up against the US, it's the EU, and the UK; it's not ten, it's really kind of four of them just trying to convince the world that the treasury market is not insolvent.

Danny Knowles: They're okay.

Preston Pysh: So, the UK was the one that was about to be gobbled up in the lie, and so who's next?  Maybe the US, maybe Japan, I don't know.  Now, you've got a little bit of a relief rally this week with the deceleration of inflation, but what happens when the next print, when it's the exact same number? 

Peter McCormack: What is the prediction though?

Preston Pysh: I have no idea.

Danny Knowles: I think it's too early to have the prediction for next month.

Preston Pysh: Yeah.

Peter McCormack: What is it, 7.7%?

Danny Knowles: Yeah.

Peter McCormack: Right.  The UK's still over 10%.

Danny Knowles: Is it still over 10%?  I don't know.

Peter McCormack: Yeah.

Preston Pysh: One of the things that I think is a really important idea that's almost never discussed is, when you look at the last 40 years and you look at how interest rates have come down, everybody's familiar with the charts that show how all these interest rates on all these net consuming nation states have been going down like that, one of the things that I think is lost is, as central banks step in and they continue to do these business cycles and they reflate, and especially as of recently, through QE and those types of activities, what's lost is you have the consolidation of enterprise; you have the larger companies step in and they gobble up the smaller companies.

The way I would describe this is you lack biodiversity of business.  So, if you walked into a forest, you would see all sorts of different species of plants, animals, that's a healthy forest; it can withstand any type of disruption that would happen in that forest, could fix itself and heal itself because you have so much biodiversity in the forest.

When you think of business and you think of competition in a naturally free and open market with a sound money inside of it, you have a lot of biodiversity inside of the economy, but through manipulation, you're actually removing that biodiversity of commerce between businesses.  When you do that, what happens at the end of that, as you do this for 40 years from basically 1981 down, when you look at business today, just look around.  It's like you go into a food store, it looks like there are millions of different products, but you could probably trace every one of those products back to about ten companies.

Danny Knowles: Yeah, Nestlé and Coca-Cola and…

Preston Pysh: And it's probably all corn syrup, and that's a whole other topic.

Peter McCormack: Well, I've actually noticed a big change in the supermarkets in the UK over the last two years.  We've got Emma with us here; I wonder if she's noticed the same in that less and less of the space in the supermarkets are now dedicated to food products and more of it is being dedicated to other things you might need in the home.

So, historically, you'll go and get your food and maybe your toilet rolls and your toiletries and a few things, but now the main shelves in the supermarket I go to, it's a Sainsbury's, it's a huge building, and there were two massive rows of shelves; one side was all food and bread and vegetables, and the other side, there was frozen stuff.  Now, I've noticed when you go around, there are just less and less ranges of products; they're becoming like department stores.

Preston Pysh: Yeah.

Danny Knowles: It's kind of like the Kmart model.

Peter McCormack: Yeah, have you noticed that?

Preston Pysh: But it's just an example of many, no matter where you look, we're talking about food and how it's becoming consolidated and you're not having a diversity of businesses that own the product lines, and this is happening everywhere; literally anywhere you look throughout anywhere in the economy, you're going to find this, this consolidation of enterprise.  Now, why is that important?  It's important because as you look at supply chains breaking down, let's say that I'm building a complex part or let's just say I'm building a really complex robot for whatever business, and this is a $10 million robot that I'm building, and then I'm going to build them at scale.  When you look at all the pieces and parts that go into that, I have to tap into a supply chain.  Maybe I have a sub that builds part A, an then I have another sub that's builds part B, and then that sub has ten different companies underneath of it for its supplies, and there are subcomponents that are built before this robot comes. 

It'll be like an iPhone or whatever, and I think an iPhone's a bad example because Apple's such a powerful company, but go and look at the car industry or wherever, find a complex end item that's being constructed, and then you go down that supply chain and you look at their ability to access pieces and parts.  If we went back 40 years, they might be able to reach out to 20 different vendors, and then 20 years ago, they might have been able to reach out to 10 different vendors, now they might be able to reach out to 3 different vendors for 1 tiny component of this thing that we're building.

Now, let's say it's down to three that you can access, and now one of those companies goes bankrupt that you used to get the parts from, and now there are only two left, what is that doing to the price; what is it doing to the reliability of receiving the part?  So, when we talk about the supply chains are jacked, a lot of people I think want to just look at it and be like, "Oh yeah, COVID and supply chains are bad", but what they're failing to see if there's been a systemic decay of supply chain destruction that's been happening for 40 years.

Peter McCormack: Why; what's the cause of that?

Preston Pysh: Because of policies that are being made.  So, if you would go into a forest and you would say, "Why does this forest not have a lot of biodiversity in it?" my answer, without even knowing, would just be there has to be some type of intervention that's happening in the forest, some human has to be going in there, or some animal or whatever, there has to be manipulation in there that's causing -- it's not free and open and naturally occurring.

So, when we look at our global economy and the coordination that's happening amongst all of these central banks, they are destroying the biodiversity of business itself, which is destroying the supply chains, which is causing the prices to go higher and just-in-time supply chains to break down; that's driving the costs to go up, which is exploding your bond market because it's priced for near perfection at 0% interest rates, because they were used to literally these models that got parts and pieces there always right on time.

So, you're seeing the unravelling of that, and the debt markets aren't priced for it; the equity markets aren't priced for it; the commodity markets aren't priced for it.  So, you're having a realisation of that, and that trend is -- and it comes to this really simple thing, supply and demand.

So, the Fed is trying to suck demand out of the economy through this model that has caused all these issues in these biodiversity competition issues in society that's breaking the supply chains.  But when you look at prices, as they're trying to destroy demand, the thing that people aren't talking about is, are they destroying supply faster, and if they are, prices aren't coming down, they might actually keep coming up because it's just a simple supply and demand calculation. 

So, everybody's talking about, "Oh, the Fed's going to do demand destruction.  That’s going to cause this to correct itself and then we're going to do QE again and all this", but what they're failing to discuss is the reality of real economic activities.  They don't see it because they've worked in finance their whole life, they're not building products, they're not actually project managers delivering real quality things that society actually demands; that’s the thing that frustrates me because people don't talk about it at all.

Peter McCormack: How does this get fixed then; can it be fixed?

Preston Pysh: Forest fires solve the…!  It's going to naturally work itself out, and I think it's Bitcoin that steps in and supplies because what causes this?  So, we talked about fiscal appropriators --

Peter McCormack: Shall I give you a good example about how Bitcoin fixes something like this?

Preston Pysh: Yeah, go ahead.

Peter McCormack: So, obviously, we've come to the conference, we've brought, what, six boxes of merchandise to sell, and there are three or four ways people could pay us; they could give us cash, which is kind of annoying because we're in the UK and we'd have to, you know, but we accept it; they could pay us with Bitcoin, obviously; they can pay us on their card; or they could use something like PayPal.  Those are the four main choices. 

So, we've come over and bought a Square app, a Square device, as a reader, and we've got here and we've registered it and it says, "Seven days until this account is approved", so it means we couldn't use a card reader at the event.  And I was thinking to myself, "Why does this take seven days?" and I was thinking, "I don't think it's because of Square; I think it's because of all the regulatory things they have to go through to check whether we're legitimate", all those kinds of things that stops us. 

But it doesn't stop us doing business, and actually I think, for Emma, one of the amazing things is she's not totally in the Bitcoin space, she works with us on team but she isn't there day-to-day, and I'll tell you a funny story about that in a second, but the easiest thing is for people to pay us in Bitcoin, but not only is it the easiest, it's actually now the fastest thing.  So, we could come here and immediately accept money, get paid, we have the Bitcoin, it's not even an IOU because it's a bearer instrument, and the payments over the Lightning Network are so quick.  Did we have any failed payments?

Danny Knowles: I don't think so.

Peter McCormack: How many Bitcoin payments did we do?

Emma: The majority were in them.

Peter McCormack: Yeah.

Preston Pysh: Wow!

Peter McCormack: So actually it is the point, it's like even though price volatility is not helpful to us, we want to know when we get a £1 note, it's a £1 note, right; actually, when everyone was turning up, it's like we want to get paid in Bitcoin just because it's the easiest.  That's not me being a bitcoiner who just wants to get Bitcoin because it's cool, it's actually, no, this is the easiest, we have the Bitcoin.  When we go back to the UK, we haven't got to do the currency conversion, we haven't got to carry cash over, we haven't got to wait to get -- because you don't also get paid for 24 hours with a card; it just naturally was the best thing.  Bitcoin has solved friction in the system that was created through either poor companies or regulation.

Let just tell you the funny part of this, so Emma's not even in Bitcoin, when we first started accepting Bitcoin in the club, she actually figured the thing out on OpenNode and taught me how to do it!  So, that is just one example where Bitcoin fixed a problem, a business problem whereby, if we hadn't had Bitcoin, I don't know what we would have done.

Preston Pysh: Yeah.  Well, what I'm describing, as far as how does it resolve itself, if we would go back to the forest, how would you reverse the trend of the forest doing it?  You have you stop manipulating it.  That's what Bitcoin does; it forces free and open cost of capital, and that's how we've got to this point is, if the central banks step in and they backstop and too big to fail, go back to 2008, all the banks that were bailed out, you're not allowing a free and open market to happen, you're not allowing a free and open cost of capital to happen, and if you're manipulating the cost of capital, you're manipulating the price of literally everything.

So, without a free and open market, you cannot expect supply chains to optimise themselves in the most efficient manner possible if you don't have a free and open cost of capital; it's really that simple.  So, Bitcoin steps in, it does that in a very decentralised way.  It doesn't do it in an immediate way because it takes for the market to realise what it's actually supplying, and the price volatility scares people away because all their expenses are denominated in the fiat currency.  So, that adjudication is going to take time, but it is going to supply the natural response.

I've said this to people in maybe other interviews or whatever, but if you went to a pond and you poured some toxic sludge in there, you'll find that because there's no other manipulation or intervention in that pond, the pond's going to naturally try to heal itself by this orange goop that kind of grows around it; it tries to handle it and it'll naturally try to solve the problem of that intervention and that alien material that's not part of the natural environment.  So what Bitcoin is, is it's that manifestation of it's trying to naturally step in and heal all of this mutilation that's happening from manipulation.

Peter McCormack: So, interestingly for us, on the Bitcoin side of things, it's probably around 10% to 20%, I wouldn't know the exact number, of our total transactions on the football club are things paid for in Bitcoin.  Because it's 10% to 20% and our margins are higher than that, we can just use Bitcoin now without even worrying about price volatility; we couldn't if it was 100%.

Preston Pysh: Yeah.

Peter McCormack: It was 100%, we would naturally always have to sell at least 80% to cover our costs and not worry about price volatility, but we can do that now and everything we get in Bitcoin we just leave that in a separate wallet, in a float that just sits there.  And what I'm imagining is, over time, it's going to easier for us to go to, say, 30%, and then 40%, and we will naturally transition to that because I think not only will the Bitcoin we're holding go up in value that gives us a buffer, but also I think over time the volatility of Bitcoin will drop, it naturally will drop, so we will naturally transition.  What I can't see is, it's easy for us, where is the first massive market that does something like this?  Will there be, I don't know, people settling oil in Bitcoin; where do we break off some big chunks?

Preston Pysh: You have the developed nations that are going to use Bitcoin for savings technology, so any type of free cashflows that a company makes, they can sweep them into Bitcoin to try to preserve their buying power.

Peter McCormack: Yeah.

Preston Pysh: It will preserve their buying power if they hold it long enough, in my opinion, and that's how I've been functioning with my business for a very long time.  I think, in the developing nations, you have a different situation because they're unbanked and because they have these just wrought currencies, they're going to start using it as a transactional layer, especially because now, like you were describing, Lightning has just built out and it's phenomenal.  So, they're going to use it in that way because they're getting a store of value that's way better than their existing currency, plus they can use it as a transactional layer.

I also think that the energy piece to this, I think that you're going to find that you're going to have investors that are going to start looking at cheap energy in some of these developing nation states and are going to say, "I can go out here and get energy for 2 cents per kWh.  I can mine out there and stay in the green even with a difficulty adjustment because I'm getting the electricity so cheap".  They're going to go out and they're going to make these investments into these areas, they're going to stand up these mining facilities, they're now going to have energy that was untapped, was not being utilised at all because there's an economic incentive to make investment there that shows that you're in the green from the beginning, and Lyn talked a little bit about this at the conference yesterday, which I thought was a brilliant comment of hers.

So, now you get this energy hub that's now being stood up in these emerging economies and then you're getting other things that are going to manifest themselves because they now have access to energy itself through the miners that are being stood up in those locations, and they're using it as a transactional layer; I think that's where you really get this grassroots, from the bottom-up-type movement inside of Bitcoin.  And you're kind of approaching it from both directions: the developing world is using it purely as a savings technology because they have so much debt that's denominated in fiat, and that's going to take time to transition; and then on the emerging economies areas, it's going to be a lot of these really unique, just amazing ways that they're tapping into it and figuring out a way to use it.

Peter McCormack: I find the whole thing fascinating, and I was really blown away by not having -- a couple of years ago, when I was using the Lightning Network, anything over $50, maybe one in three would fail, one in four would fail, like I say, we didn't have a single Lightning payment fail.

Preston Pysh: That's amazing, yeah.

Peter McCormack: Some of the payments were over $200, $300, and to me, that's amazing, and like I say, it's another one where I'm like, "This just makes our life easier".

Preston Pysh: Yeah.

Peter McCormack: When we're abroad and we've got a merch stand, I just want everyone to pay in Bitcoin because every part of that makes our life easier.  All right, so anyway, sorry, back to the macro stuff.  Okay, so everything's kind of fucked!  You say something could break or we're waiting for something to break.  Do you not see a scenario whereby everything's going to calm down a bit, we're going to end up a little bit like Japan, a slow, gradual death over years?

Preston Pysh: No, I think that was the function of them just kind of arriving at this end state way sooner than everybody else.  They're a different scenario, or least they were a very long time because they were net producers, they weren't net consumers, where everybody else is a net consumer.  So, you're able to do things differently, and that comparison is hard to make to the US, the UK, the EU.

Let me pull on that for just a second, and I know I talk about this a lot on my show but I think this a really, really important talking point for people to understand.  When I look at the world, and if I had to simply explain the chaos that's ensuing right now, I would describe it as simply as this; you have net producers, people who are giving, they're going out there working and they're providing products and services into the global economy and what's coming out of their borders is more than what they're taking in, and you've got half of the world like that.

Then, you have the other half of the world that are net consumers, they're consuming more than they bring in.  The ones that are consuming more than what they bring in, they're all your highly indebted nation states with unbacked fiat currencies that insist on making payments to the net producers, the ones that are providing more than what they consume. 

All these net consumers are saying, "Yeah, we're not talking those paper promises anymore, but if you want to pay us in our currency, you can.  We don't want it because we know you're going to mutilate it, and if you give me a dollar today, it's going to be worth 90 cents tomorrow, so you can keep that garbage.  If you want to pay us in our currency, you want to pay us in gold or you want to pay us in Bitcoin, we'll take that but we're not taking your lies.  You give me a dollar today but it's worth 90 cents tomorrow; that's a lie.  We're not going to accept your lies anymore".

Peter McCormack: Is this actually happening?

Preston Pysh: I would argue this is what Russia, Ukraine, what all of it is all about.  Think about it, if you were a person going out and you're extracting natural resources out of the ground, using your muscle in order to actually do this type of work, and you're supplying it into a market that is a net consumer -- think of it like this, Pete, if we just had a generic business and I'm buying stuff from you and then you're buying stuff from me but I'm buying way more from you than vice versa, like you're providing me an apple, or any type of product, so something really simple, you're providing me a ton of those, and what I'm paying you in are lies that get more worthless by the hour. 

Eventually you come to me and you say, "Well, here's the deal, dude, you can pay me back in pears because I'm providing you with apples because these paper slips, they're no good and they're getting worse by the day".  And I say, "No, Pete, you're going to keep giving me the apples and I'm going to keep giving you these paper promises", and you're like, "Well, no, I think I'm going to punch you in the face instead". 

Peter McCormack: I am, I'm going to fucking punch you!

Preston Pysh: And that's what you have happening.

Peter McCormack: And that's why we have war.

Preston Pysh: This is very important; I'm not trying to justify any actions, especially physical violence, let me tell you, I'm not trying to promote any of that --

Peter McCormack: You're telling us why it's happening.

Preston Pysh: What I'm trying to describe is the quandary that the world is in; you have people who are trying to provide molecules, like real physical things, and the payment, the people who are receiving these in excess of what they're producing themselves, are trying to pay back with digital fake promises in cyberspace that they can control and manipulate how many of these digital units exist to represent the value of those molecules, those physical molecules that are being received.  That's what the whole thing's about in the world right now.

Peter McCormack: But this is a good thing if people start saying, "I'm not going to be paid in that, I want to be paid in our currency or Bitcoin"; isn't that going to create better money?

Preston Pysh: Absolutely.

Peter McCormack: Yeah.

Preston Pysh: And why is it that they're willing accept this digital unit that's actually backed with encrypted energy that actually has real work, the work that people that are providing the physical molecules are doing?  People, they have to take a step back and ask yourself, "Why are they willing to accept Bitcoin or their local currency or gold?  It's the only thing that they'll accept.  Why won't the EU make payments in those things?  Why are they saying, 'No, we refuse, you have to accept our euros', or, 'You have to accept our dollars'.  Why are they so insistent on it?"  It's because they fully intend on paying them with worthless paper.

Peter McCormack: So, you just believe that we're going to have this transition now to Bitcoin, and we're really talking like years and decades, but as more people just realise it's a better currency, like I have so I'm doing it, you're doing it to some extent, like there's this gradual kind of scope creep of Bitcoin's role in all of this?

Preston Pysh: Yeah, it's bringing to the forefront this idea that if people want to make payment with a digital unit, how do you tether that digital unit to physical reality, because right now it's not tethered to physical reality, the dollar, the euro, the yen, it's not.  They hold all the keys, they can go in and they can Sam Bankman-Fried the number of units, they can add as many as they want, they can claw back the units, how do you do that?  Well, it's Bitcoin, it's we are going to tether digital units to physical reality through a mining encryption so that it's secure, so that nobody can step in and do it, and it resolves this massive issue that's taking place in the world.

One final thing that really kind of pulls into this is environmental.  Why do you think all the banks and central banks are going out and saying, "We don't just need to be doing monetary policy, we now need to be good stewards of the environment"; why are they saying that?  Because when you have a system where the digital units can be just made up and expanded at crazy levels, what you do is you set up an ecosystem of overconsumption.

Peter McCormack: Yeah.

Preston Pysh: If you're constantly being debased out of your money, you're incentivised to go out and consume as much as possible.

Peter McCormack: Absolutely.

Preston Pysh: You have to.  So, it literally all fits together when you look at it through this framework because you can see that people, this whole system, incentivises overconsumption.  You can't expect the free and open market, which in my opinion doesn't exist today, to properly arrange itself in an efficient and optimised manner for correct resource consumption, efficient resource consumption, when the cost of capital is totally manipulated.  But with this, it starts solving those problems naturally, just like the forest is healing itself.

Peter McCormack: All right.  So, I'm obviously with you on this this whole way, and I believe you and agree with you, but what I wonder then is like how do we communicate this to more people?  Saylor was saying the same, it's like he doesn't understand why people aren't seeing what we're seeing.  How do we communicate this or is it one of those things where you cannot force, this is just going naturally happen, we're going to have these cycles and these waves of adoption, and each time, we're going to shoot up a bit more, we're going have a 10X increase in people, then we're going come back down; is this just in the design?

Preston Pysh: I wonder if society could handle it happening faster.

Peter McCormack: Possibly not because think how much capital destruction it would be.

Preston Pysh: Yeah.  As much as I want everybody to understand Bitcoin because I think it's salvation in a world that's really hurting, I also look at it and I say, "Could the world handle this transition faster, and what would that look like?"  A lot of people are talking about the central banks raising rates and being too aggressive and it's just going to obliterate and bankrupt so many businesses and it's going to have these cascading destruction of supply chains and things like that, and so I would use that kind of as a template, people saying, "That's not the way to do it, you need it to be more gradual", or whatever. 

I don't know what the right answer is, but I guess that's what I would ask back, it's like, "Well, if we do educate and we do aggressively figure out a way that we could just pull a matrix and download this knowledge into everybody's brain, would that be the most optimal outcome?"  I don't know; maybe it would be, maybe it won't be, I don't know.

Peter McCormack: Yeah, I don't think so because I don't think we can handle a repricing that quickly.  I remember when I was Columbia, I met a guy from Venezuela, and he said almost his entire net worth was destroyed overnight, he lost everything, and that's one individual in one country telling me his story, but we know that happened across Venezuela; everybody just lost everything, all their savings, the value of everything, we know that's happened in Argentina.  For that to happen globally where a lot of people have been used to a life whereby they've had certain wealth and that gets destroyed overnight, what to happens to their properties, what happens to their jobs, I don't think it would be a good thing for it to be fast.

Preston Pysh: Yeah.

Peter McCormack: Controlled transition I think is the optimal scenario.

Preston Pysh: Yeah.  This is an interesting example with FTX, it's like look at the pace and the speed that that happened and how so many people were like, "Not your keys, not your coin".  Yeah, whatever, like, "You idiots; you boomers!"  That's what these people were looking at us like we're just, "How can you literally just take Bitcoin and put it on a hardware wallet and sit there with no yield, you dummy?"  Well, who's the dummy now; who's the dummy now who didn't play in those games?

So the speed, it gets back to the speed, right.  People have to be educated on what this thing is.  I look at Bitcoin almost like an infinity stone, it's very hard to be able to hold on to that thing without it turning you inside out because it's so powerful, it really is; the technology is so powerful that you have to really guard against getting cute with it.

Peter McCormack: All right, man.  Well, listen, I'm with you on all of this.  I think your coffee's ready for you now as well.

Preston Pysh: I'm ready for my coffee!

Peter McCormack: Preston, always good to talk to you.  Wasn't what I thought we were going to talk about but it was even better.  You make me even more bullish on Bitcoin, which is great.  Yeah, appreciate you coming on, brother.

Preston Pysh: Thanks, Pete.  Always an honour to come on, and I love our chats.

Peter McCormack: Yeah, me too, man.  Okay, and by the way, the Monopoly one, that sent waves through Bitcoin, Twitter and YouTube; people loved that, didn't they?

Danny Knowles: Absolutely loved it, yeah.

Peter McCormack: That was a very popular show.

Preston Pysh: Awesome, good. 

Peter McCormack: So, yeah, we're going to need another, maybe we need a Scrabble or we need a Game of Life; we need another one.

Danny Knowles: Have a Boggle analogy.

Peter McCormack: A Boggle analogy.

Danny Knowles: There's a good mining Boggle analogy.

Peter McCormack: Is there?

Danny Knowles: Yeah.  You're going to ask me to say it and I can't remember it, but there is; I'll find it and put it in the show notes.

Peter McCormack: Great story, Danny, great story.  All right, man, take care, dude.

Preston Pysh: Thanks.