Could Bitcoin’s Price Reach $1,000,000? With Balaji Srinivasan and Cathie Wood

Foreign. [Music] The Four-Year Innovation Podcast. This show offers an intellectual discussion on technologically enabled disruption because investing in innovation starts with understanding it. To learn more, visit arc-invest.com. [Music] Arc Invest is a registered investment advisor focused on investing in disruptive innovation. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. It does not constitute either explicitly or implicitly any provision of services or products by Arc. All statements may regarding companies or securities are strictly beliefs and points of view held by Arc or podcast guests and are not endorsements or recommendations by Arc to buy, sell, or hold any security. Clients of Arc Investment Management may maintain positions in the securities discussed in this podcast. [Music] Hello everyone. My name is Yaseen Almandra. I lead crypto at ARC, and I'm super excited to introduce a conversation Kathy recently had with Balaji Srinivasan, an angel investor, the former CTO of Coinbase, and a longtime Bitcoin advocate about the implications of the current macro landscape on Bitcoin. As you might be aware, Balaji has been particularly outspoken about the impact the regional banking crisis will have on Fed policy, that the irresponsible money printing to come out of this crisis will lead to a rush to exit the system into assets like Bitcoin and basically end the dollar's reign as a global reserve currency. While the conclusions that Kathy and Balaji draw from the current macro landscape are much different, they were still able to converge on points of agreement about Bitcoin's value proposition, which makes this conversation particularly compelling. If you like crypto conversations like these, be sure to subscribe to our YouTube channel and our FYI podcast. Stay in the loop on our latest releases. Next week, for example, we'll be publishing our second edition of the crypto brainstorm, which will include guests like Lyn Alden, Jeremia Lair, Caitlin Long, and Michael Sonnenshine, so stay tuned for that. Hope you enjoy. Hi Balaji, how are you? Good. How are you, Kathy? Great. Well, for everyone tuning in, I'd like first to thank Balaji for agreeing to do this webinar or podcast with me. When we heard your price target for Bitcoin in the next 90 days—a million dollars—I said, what? And so Yaseen Almandra, who leads our crypto effort, and I were chatting about it, and you know, we are very positive on Bitcoin as well, but your forecast was in the context, apparently—and we'll get into this—of sort of the hyperinflation associated with fiat currencies. Our optimism is more a function of fears of deflation and counterparty risk, and both of those should accrue to Bitcoin's benefit. Bitcoin as an insurance policy, a flight to safety against confiscation of wealth. So I just thought it would be a fascinating conversation because you've thought very carefully and intensively about this, Balaji, and I just thought it would be instructive for both of us. Just like I did with Art Laffer a week or so ago, I felt like we got a lot out of it, and many people have told us that they got a lot out of it as well. So lots of really what we're doing here is seeking to find the truth: what actually is going to happen. So, just setting it up that way, I'd love to—I've read your threads, we've gone through your charts—maybe you can start, and if you wouldn't mind, I will interject along the way. But before we do that, I just wanted to set up for you how we could possibly be thinking about deflation here, given what's going on out there. I'll go very quickly through this, but the warning flags we have been observing for more than a year now are our signals like credit default swaps on banks and many other companies going up the last year now. The credit default swaps, for people who don't know, are insurance policies against the bankruptcy of corporations. They're actually bets on the bankruptcies. As they go up, the probability of bankruptcy typically is increasing for some reason or another. And so last spring, spring of '22, I was pointing to credit default swaps going up. What's this about? And then the yield curve inverted in July. The yield curve inversion has always led within 12 to 18 months to a recession. And so I was pointing to that. Commodity prices were falling. The oil price peaked at $130 in March of last year, I believe, and has been nearly cut in half. And I finally wrote a letter to the Fed—I don't know, a few—saw that, Balaji, but which basically said, wait a minute, you're hiking interest rates 75 basis points at a time and hiking interest rates faster than any other Fed in history, 20-fold within one year, it turns out. And here are these conflicting signals, and you're voting unanimously to raise the rates like this. And so I have been much more concerned about deflation, and I think the bank crisis has punctuated that because—and we can get into this later—the two big mistakes that banks have made was assuming that interest rates would stay very low for a long time because the Fed told them that during COVID. And so they invested in long-term government-backed securities, figuring out they'd be money good when they matured. So that was the first mistake. And then the second mistake was to assume that deposits would not leave the system. It wasn't just Silicon Valley Bank. Deposits are leaving the banking system because money market rates are so much more competitive than what people are getting in their bank accounts. So that, for the first time since the 1930s, we have a decline in M2 on a year-over-year basis started in December. It's intensifying. It looks like it'll be down 3% in March, and I believe this has all the hallmarks of a deflationary, potentially a deflationary bust. So first of all, I think we've both been reading each other's stuff from afar for a while. First of all, I actually agree on the medium to long-term thesis of technology-induced deflation, like the positive kind of deflation. I actually also agree that we're going to have a contraction that is normally associated with prices going down and so forth. In this case, I think that, you know, just like stagflation was a regime that previously was thought to not be possible to have—that combination of unemployment and high inflation at the same time, right? I'm just going to put up something on screen, which is, so you know, for example, in Argentina, there was a period where you had both the protracted closure of the entire banking system and tripling in the price of a dollar, right? So this is something where there's a huge economic contraction but also people wanted to leave that economy for a better foreign currency at the same time, right? So those are things where what you're looking at, the tripling of the dollar price, is the desire for exit, right, as opposed to having a strong thesis, right on, right? Go ahead. A flight to safety. A flight to safety, that's right. As opposed to having a strong, like when you're in very atypical times, you can't really have a strong thesis on what's going on within a system because things will go like this. You know, you're not going to have normal relationships. I mentioned this over here, basically print trillions while hiking rates. The Fed now has high rates like SF has low crime rates. It says it does, but it doesn't. Haha. Okay. And the reason is that, you know, like this is Bianca Research graph. There's a lot of other graphs like this where in one week they reversed, you know, the quantity of Tiding. People will argue about whether this is, you know, they'll say it's not QB because it's loans and the banks are getting these loans and they have to pay them back under this BTFP program. Those loans are an extremely gene—

disruptive innovation this podcast is for informational purposes only and should not be relied upon as a basis for investment decisions it does not constitute either explicitly or implicitly any provision of services or products by Arc all statements May

regarding companies so Securities are strictly beliefs and points of view held by Arc or podcast guests and are not endorsements or recommendations by Arc to buy sell or hold any security clients of Arc Investment Management May maintain positions in the Securities

discussed in this podcast [Music] hello everyone my name is yaseen almandra I lead crypto at ARC and I'm super excited to introduce a conversation Kathy recently had with Balaji srinivasan an angel investor the former CTO of coinbase and a long time

Bitcoin Advocate about the implications of the current macro landscape on bitcoin as you might be aware biology has been particularly outspoken about the impact the regional banking crisis will have on fed policy that the irresponsible money printing to come out

of this crisis will lead to a rush to exit the system into assets like Bitcoin and basically and the Dollar's reign as a global Reserve currency while the conclusions that caffeine biology draw from the current macro landscape are much different they were

still able to converge on points of agreement about bitcoin's value proposition which makes this conversation particularly compelling if you like crypto conversations like these be sure to subscribe to our YouTube channel and our FYI podcast stay in the

loop on our latest releases next week for example we'll be publishing our second edition of the crypto brainstorm which will include guests like Lynn Alden jeremia Lair Caitlin Long and Michael sun and shine so stay tuned for that hope you enjoy

hi biology um how are you good how are you Kathy great um well for everyone tuning in I'd uh I'd like first to thank apology for agreeing to do uh this uh this webinar or pop podcast uh with me uh when we

heard your um your price target for for Bitcoin in the next 90 days a million dollars I said what and so Yasin almandra who leads our crypto effort and I were chatting about it and um you know we

have uh we're very positive on bitcoin as well but your forecast was in the context apparently and and we'll get into this of sort of the hyper inflation associated with Fiat currencies and uh our optimism is more a function of fears

of deflation and counterparty risk and both of those should accrue to bitcoin's benefit Bitcoin as an insurance policy a flight to safety against confiscation of wealth uh so I just thought it would be a fascinating conversation um because you've thought very carefully

and intensively about this biology and uh I just thought it would be instructive for both of us and uh just like I did with art Laffer uh a week or so ago I I felt like we got a lot out of

it and um and many people have told us that they got a lot of it out of it as well so lots of really what we're doing here is seeking uh to find the truth what actually is going to happen

so so just setting it up that way I'd love to I've read your your threads we've taken we've gone through your charts maybe you can start and if you wouldn't mind I will interject along the way but before we do that I just wanted to

set up for you how we could possibly be thinking about deflation here given given what's going on out there and uh and I'll go very quickly through this but the warning flags we have been observing for more than a year now are

uh our signals like uh credit default swaps uh on Banks and many other companies going up the last year now uh the credit default swaps for people who who don't know are insurance policies against the bankruptcy of Corporations

they're actually bets on the bankruptcies as they go up the probability of uh bankruptcy uh typically is increasing for some reason or another and so last spring spring of 22 I was pointing to credit default swaps going up what's this about and

then the yield curve inverted in July the yield curve inversion has always LED within 12 to 18 months to a recession and so I was pointing to that commodity prices were falling the oil price peaked at 130 dollars in March of last year I

believe and has been nearly cut in half and I finally wrote a letter to the FED I don't know a few um saw that biology but which basically said wait a minute there you're hiking interest rates 75 basis points at a time

and hiking interest rates faster than any other fed in history 20-fold within one year it turns out and here are these conflicting signals and you're voting unanimously to raise the rates like this and so I have been much more concerned about deflation uh

and I think the bank crisis has punctuated that uh because and we can get into this later the two big mistakes that that banks have made was assuming that interest rates would stay very low for a long time because the FED told

them that during covid and so they invested in long-term government-backed Securities figuring out they'd be money good when they matured so that was the first mistake and then the second mistake was to assume that deposits would not leave the system it wasn't

just Silicon Valley Bank deposits are leaving the banking system because money market rates are so much more competitive competitive than what people are getting in their bank accounts so that for the first time since the 1930s we have a decline in M2

on a year-over-year basis started in December it's intensifying it looks like it'll be down three percent in March and I believe this has all the Hallmarks of um a deflationary a potentially a deflationary bust so first of all I think we've uh we've

both been reading each other stuff from afar from for a while um first of all I actually agree on the medium to long-term thesis of technological technology-induced deflation like the positive kind of deflation I actually also agree that we're going

to have a contraction that is normally associated with prices going down and so and so forth in this case I think that um you know just like you know stagflation was a regime that previously was thought to not be possible to have

that combination of unemployment and high inflation at the same time right I'm just going to put up something on screen which is uh so you know for example in Argentina there was a period where you had um both the protracted closure of the

entire banking system and tripling in the price of a dollar right so this is something where uh there's a huge economic contraction but also people wanted to leave that economy for a better foreign currency at the same time

right so those are things where what you're looking at the tripling the price dollar is the desire for exit right as opposed to having a strong thesis right on right go ahead a flight to safety a flight to safety that's right as

opposed to having um a strong like when you're in very atypical times you can't really have a strong thesis on what's going on within a system because things will go like this you know you're not going to have

normal relationships I I mentioned this over here um basically print trillions while hiking rates that the FED now has high rates like SF has low crime rates it says it does but it doesn't haha okay and uh and and the reason is that you

know like this is Bianca research graph there's a lot of other graphs like this where in one week the Reversed you know the quantity of Tiding people will argue about whether this is you know they'll say it's not QB because it's loans and

the the the banks are getting these loans and they have to pay them back under this btfp program those loans are an extremely generous in some in one sense extremely generous terms because they're at par they they do have an interest rate

associated with them but a lot of people are obviously taking them up on this and the potential result of this you know Arthur Hayes puts it at four something trillion just for this and obviously it's kind of going up like that and so

you have this weird then there's also the swap lines uh thing that they did internationally which is like btfp for other other countries for all the central banks so you have this weird thing where they are printing trillions and Hiking rates at the same

time right they say their hiking rates they're they're seeing Banks burst you know uh burst holes in the side as a function of this because they're you know either insolvent or these huge losses so then they're printing but

they're still hiking rates and so uh you know I think it's I think we're in this weird time of um traditional economic relationships are not you know not necessarily a guide as to what's going to happen and I don't have a strong thesis as

what's going to happen within the economy but I do think people will want to get out of this economy at least in part because Bitcoin is something you know in one sense you can think of there being to first or only three true

currency pairs in the world USD RMB RMB BTC and BTC USD because they're like three currency regimes right the Western system where it's a fed and all the central banks that are friends of fed the Eastern system the you know the

Chinese system which is now actually expanding you know as you've seen like it's not just China but it's China Russia it's China potentially Saudi Iran it's African countries even France and Brazil are doing deals and so on all of

a lot of the world is now starting to deals that are denominated in the Yuan those are big announcements are happening coming very fast and there's probably coordinated on some level in the sense of you just those are big

deals that take a long time to negotiate so having them all announce lickety-splips is important and then finally you have the BTC economy which is outside the control of both the USD system administrators and the r b system

administrators and I say that because you can think of the FED as a system administrator they're like you know they've got like a video game where they control it they can hit a button they can freeze your account uh of course not

directly not yet with the cbdc but they can indirectly freeze your account they can make numbers go up on the screen everything within Western Financial system um they can in in extremists do something like they did to the truckers

of Canada or or the Russians in terms of freezing assets but they can't mint a loaf of bread they can't control uh what's going on in the r b economy and at least not directly and they can't freeze Caesar inflate Bitcoin

the 21 million limit is outside their control so my thesis is more about the desire to exit this economy than it is about the System Dynamics within which I just find unpredictable and I'm you know uh and I don't have as strong at the sun

I think it's quite possible that some prices go to the floor and some go go up but it's a desire for exit that I'm thinking about okay Power Pack there and touching a lot of topics that that we

think about all the time you are correct we have never seen the FED raise rent raise raise interest rates in a crisis this has just never happened which tells me um that they're completely off base and one of the ways they're off base is they

have compartmentalized their responsibilities here they're basically saying oh well we have tools to to deal with financial instability uh with liquidity crises and such um but the fed's primary role right now is to fight inflation and uh so I think

this this compartmentalization confuses the fact that Financial instability is going to impact inflation and the way I think it is going to impact inflation uh is through a serious decline in the velocity of money now because of your forecast and I've been

thinking about this for a while but I wanted to do the arithmetic and sort of scenario test here I'm going to actually put up a slide so here is the velocity of money and what the way you get to a

hyperinflation is if the rate at which money turns over uh turns up now this velocity of money goes all the way back to 1960 here early 60s and it was going up during the 70s here in 19 and it actually went up in

the 90s which which I find curious and I'm going to go back and study that a little bit because that was a very disinflationary period but here you can see we peaked out in 1997 during uh the Tekken uh Telecom

bubble as people were worrying about the economy shutting down as we entered the New Millennium and computers not being able to to take it so there we started the decline and it has been a very long-term Decline and you can see when

we're in this is velocity during the Tekken Telecom bust and we come out and goes up for a while and then it resumes the decline in if you're in a disinflationary or a deflationary prone economy um here is 0809 and it continued down

because the fear coming out of 0809 this was going into it the fear coming out of 809 was just as intense and then here we are at covid and this has been the increase in velocity since now it hasn't

even gone I drew all these lines here but it hasn't even gone back to this downtrend here hasn't gotten back there yet and if we are correct velocity is going it is in the process of flattening out and we believe because of this

crisis is going to resume its decline uh now just to give you a sense um in the fourth quarter these numbers are firm although they revise all of these economic numbers and I'm sure we'll be in a recession when they revise it 10

years from now but anyway given what we have now we had uh in in the fourth quarter we had uh the year-over-year money supply really had flattened out it went to zero it had been as high as 27 percent in

February of 21 and has come all the way down to to basically flatten the fourth quarter but GDP on a year-over-year basis was up 7.3 percent uh which meant that velocity had to absorb that and it did it was up

7.1 percent year over year and 11.4 percent seasonally sequentially at an annual rate now in the first quarter and I I'm sorry if I'm getting too much in the weeds but this has to do with uh MV equals PQ and

it is it's a macro economic concept it's a an identity they have to equalize right I'm familiar right no I know you are but our audience uh I don't think will be as familiar okay so p p q is

price times quantity that's GDP that's the production of goods and services and include and the pricing of them so PQ and then it has to equal MV M on a year-over-year basis in the fourth quarter went flat and it looks

like in the first quarter it will be down 2.5 percent and it's uh seems to be accelerating to the downside so what does this mean the first quarter is pretty much put to bed so it looks like uh we know that we we know

that money it was is down 2.5 on a year-over-year basis but down 5.7 percent at an annual rate in the first quarter so from the fourth quarter to the first quarter and this is really before the crisis which

occurred at the second half of March now GDP is up 7.4 on a year-over-year basis so that means velocity had to accelerate or the rate of of growth in velocity to 9.9 percent on a year over year basis and

then a sequential basis it will be roughly roughly the same 11.6 at an annual rate but now we get into the second quarter that velocity you know just that trend line going down it's a it's a powerful force and it may

reassert itself here so if in the second in the second quarter money is down 3.5 percent now M2 85 percent of M2 is demand deposits and I don't and the demand deposits we get weekly and they are continued

continuing to leave the system for the money market funds some for crypto but they're leaving the banking system and so that's down 3.5 percent um and the estimates uh for GDP consensus estimates uh for GDP uh for the second quarter are four point

roughly 4.5 percent on a year-over-year basis which would be minus 2.8 percent on a year-over-year basis and the way you could get there is uh with money going down 3.5 is velocity just staying flat now I think velocity which uh when you

go through a crisis and the economy seizes up velocity goes down when I saw people lined up in front of Silicon Valley Bank the most uh the most technologically savvy people probably in the world lined up in front of a bank

taking their money out physically it reminded me of a It's a Wonderful Life I don't know if you've seen that movie but people waiting and get their money and they put some of their money under the mattress saying I don't know what's

going on but I need to rush to safety the equivalent was Bitcoin going from 19 000 up almost 50 percent you know in the same time period so you're absolutely right Balaji I agree with you completely there is a flight to safety but it is

also into treasury mutual funds which have left the banking system and therefore will not will not be able to contribute to the production of goods and services in the economy me so 4.5 percent on a year-over-year basis minus

2.8 percent sequentially quarter to quarter that we are we have then entered a hard landing and if you enter a hard Landing you might I think if I'm interpreting what you're saying what you're saying is okay the FED will just

throw money at this thing it'll get even more out of control and I would submit to you that the risk is you may be right you may be right but the risk is what's called a liquidity trap people holding

back even more you know not spending anything fear real fear and hopefully that's not going to happen but I think this crisis has raised the probability of it and I do not know why consumers and businesses will migrate back to the

banking system uh given the very low rates there yeah okay now we're talking so basically just as a preface one thing that I am I don't know for lack of a term you know rationally uncertain about are a lot of macroeconomic arguments because

you're dealing with huge Aggregates in times where technology was different people were different they're slow moving and so on and uh you know the for example let me show you something from um actually that just came out recently have you seen this

economic report of the president this thing that they just put out oh about digital assets on page uh well actually it's on a bunch of things but it is um it's like it is just from the federal government okay and the economic and

this graph over here okay shows here's inflation and then here's a giant stimulus and then inflation just goes vertical okay so there aren't that many great cause and effect relationships in economics I mean one of the like microeconomics you have cause and effect

right because you can do controlled experiments it's theory of the firm I can raise a price to this customer in on a web browser and I can have a lower price to sell our customer I can actually empirically measure supply and

demand with macro though doing experiments on large numbers of people is first hard to do ethically and second you know insofar as you have a really Ironclad conclusion you know the first law of macroeconomics is in my view

communism doesn't work right because you can do North Korea and South Korea you can see East Germany and West Germany you can see you know China and Hong Kong before the integration right at least the old China the maoist China and so

like there's it's very hard to do experiments in macroeconomics where you're actually partitioning a population you're subject them to two different policies and you're actually seeing what's happening much of what passes for macroeconomic theory in my view keynesianism is like sort of a soft

Soviet kind of thing where the Soviet it's a tons and tons of equations if I could just take you back to your chart before you leave it of course of course I want to point out something else that I think is uh equally

important um so yes you're right the stimulus they went crazy but look at what that uh uh Orange Line did has done for the last two years it actually was uh severe fiscal restraint on uh uh if you're

looking at this chart and it's extended so they were trying to undo some of the fiscal stimulus program oh yeah so that's fiscal drag in addition to monetary drag so it actually increases the risk I think uh that that you know where something uh

very negative is going to happen to the economy sure but basically I mean the way I kind of think about it is um I I you know I've I being um being sort of outside of tradfi entirely right uh

one of the things I kind of encountered on Twitter over the last few weeks is I realized that a lot of people um treat the FED as God okay or as a combination God and a referee right where on the one hand it's

um it's uh you know the position more powerful than the president we hang on every word don't fight the FED algorithms trigger on their twitch and so on on their hand oh you know like I don't really listen to their forward

projections oh you know you can't blame the fed you need to make your own book you know you do they basically think blaming the FED is like blaming the refs and maybe you can do it on one call or

once in a while in a game but if you do that all the time then you're a loser and uh you know you're you're basically just uh you're just dumb and you just need to play the game on the field right

and anybody who's within tradfi ends up doing that in some sense because they think of the FED as the sun around which the whole thing orbits but because we're in Bitcoin we're in cryptocurrency we have a totally different theory of who

that first mover is what is the Sun at the center of the crypto economic universe and one of the things I think about is um it's like you compare this graph while you're setting up there uh I agree

with you completely when I last year was pointing out hey fed what are you doing um I I got um I got a let's just put put it this way a lot of people um just basically said look you're

blaming your performance on the fed you know you know we got that pushback I wasn't talking about my performance I was talking about economic policy and some red flags that the Fed was ignoring and still is ignoring which is uh quite

worrisome yes so here's the thing is what I've sort of realized is you have to be completely outside the system and have a totally different theory of what should be uh like I'm not of the opinion of the FED of should have had

high rates the FED should have had low rates and so on basically if you look at this curve right this chaotic curve of up down up down is this really the solution to some equation R star or is

this some committee voting and doing political things and you know generally stimulating the economy since you know the mid 80s and printing money and just kind of going like like a pilot moving a joystick up and down because they're

like up down you know they're they're like steering a car by mail okay you know imagine you're steering a car you drop a postcard out the window and you wait a week before you get it back for your turn right that's of course you're

going to crash right and that's a Fed with this kind of you know group of this group of committee members that is like you know smells the incense and they decide to set the interest rate and low you know we have a new interest rate and

the entire economy gyrates to this where it's based on like real world looking things that they're seeing right and you compare this this incredible unpredictability the cyclicity this craziness you know where it's like this bipolar thing where it's down and then

up and then down and then up and down and up right to Bitcoin which is completely predictable in terms of issue and schedule it is a fixed policy where we can plan against it for you know years and uh it is is

being fixed for you know it's proven itself it wasn't you know uh 10 years ago but uh but it is now um it's certainly much it's certainly much more predictable than the FED as being over this time frame right so this

is a root and Branch what I'm trying to get at is rude and Branch critique which is I I'm not I mean do I think the FED is responsible for the economy yes do I think that they are arsonist and

firefighter as the saying goes absolutely do I think that it's crazy that some immigrant engineer at you know who has an account at svb is supposed to be responsible for ensuring the banks actually solved it but Jerome Powell is

responsible for nothing absolutely but do I think it is one person and just firing one person or tongue lashing them is the issue no I think it's a systemic problem the stomach problem is difference between this and this and uh you know what what's

going to happen is we're going to actually have in a sense a true election you know at the end of the Soviet Union they had glasnost and perestroika you're familiar with that right okay great right so so you're familiar

you know basically glasnos was more free speech and perestroika was more free markets and these things basically destabilize the Soviet Union because it wasn't built on Free Speech in free markets and eventually towards the end they actually had their first true

elections where you could vote against the central planners you could vote against the Communists and then people voted against it right and I actually think something very similar is happening where social media is American glasnost under Elan it's like actually

free speech and cryptocurrency is American perestroika and Bitcoin is actually free markets and now we're having the true election which is between USD and BTC where people are again voting against Central planning of a very different kind and that's actually the macro frame that

I that I have on this is that the level of instability the FED has been causing they're now in the state of like a plane going like this can I predict every single crazy gyration they're gonna make I cannot and ultimately predicting a lot

of the macro economy is on that can I know that there's going to be passengers who are hitting the eject button and like this pilot doesn't know what they're doing we're getting into the parachute the Bitcoin parachute we're

getting out of the plane yes I think there will be more all right I've got more but let me let me pause there yeah let's uh can you will do I'd like to respond to both of those charts since

I've lived I've lived through a good a lot of that that volatile period And I can tell the story I'll put it in chat so you can see it Josh should I put it on screen yeah on screen on screen so

that uh okay sure of course all right I started in the business in 1977. I was in college and so I experienced the last bit of that that that inflation into the double digits um I know yeah and uh well the same

place is not shown here but but I mean the rate the rate hike right yeah inflation was in the double digits and rate hikes went uh into the and there was even assert tax uh that they put on

at one point so we're over 20 over 20 at one point um and then volcker came in and focused on money and I remember standing this is how long ago this was at the teletype every Thursday at 4 15 or 4 30 whenever

the number came out we were waiting for the money supply number and if it wasn't low enough the market sold off and so forth anyway uh monetarism worked to get inflation down you know getting that money supply down and having that as the

sole Focus God bless him volcker took interest rates in one year from 10 to 20 percent uh and and that that was the beginning of the end of that uh nearly hyperinflationary period now to contrast with what what Powell is

doing today uh so volcker took interest rates up two-fold Powell has taken interest rates up 20-fold 20 volts and it's a difference between going from from here to here versus going from near zero up over here and it was also something where like the

economy was more I shouldn't say normal but it was like the state of it's like altitude right if your altitude is here you can take a certain set of Maneuvers if your altitude is close to the ground you cannot take the same set of

universes right like the state of exactly so and at the same time in uh in Let's see we got to 1981 and he had still had the screws on and you know it was singularly focused uh we got to an

inverted yield curve of more than one percent or 100 basis points and for those who don't know what a an inverted deal curve it is um it is when long term interest rates drop below short-term interest rates and

it's when the bond and that's where we are now uh the bond market is worrying about something and it's typically recession uh so uh now many people say oh yeah last time 1981 uh back to the difference here you know one percent on

a 15 uh interest rate well the long-term treasury yield back then was 15 this is the Fed funds rate so one percent on a 15 percent uh uh treasury treasury bond yield you can measure that one divided by 15. that's is roughly six and a half

percent one over five percent which is where we are right now is 25 and I finally figured out when I was in LA this last week right near uh the place I worked at 333 South Hope Street in Los Angeles I was

on the 50th floor of that building when we had an earthquake and I was in another earthquake the Northridge one when it was a 6.5 these are wicked numbers uh just awful 6.5 on the Richter scale is is a very

bad feeling 25 I don't think has ever happened and that's how serious I think this is and then just to your point about all the volatility I think that you know what what people who are in the economics

field would would turn back and say to you is well look at the price the price volatility of of Bitcoin you know so you understand what I'm saying they're saying how can this be digital gold when the price is so volatile even the gold

price is very volatile um in that context but in the Greenspan years just to finish this off since I I I lived this history during the green span years after after volcker um you can tell now that what he did you

know he was a follower of uh and Rand and what he did was use the gold price as his guide and he wanted a flat goal price and buy golly it was and to achieve that stable price level which is

what the FED is trying to do preserve purchasing power um the uh the FED funds rate was very volatile but I must say and he never told us he was doing this but if you look at the history that is what he was

doing and then after that I think uh I I think fed policy ran into a bureaucratic morass for the most part uh and and they were riding on the coattails of a policy that had started in the early 80s and

that greens Greenspan solidified and now now we need uh we need real uh people who have actually experienced markets uh and and respect Market signals so going to the other chart uh your chart sure I can't just jump in on

one thing just before we I'll come back to that chart is basically um I understand you're just being a quantitative guy like uh you're you're correct in terms of like 6.5 is one thing 20.5 the Richter scale is like a

log scale the the the exact formula here is would be a different formula it's like the modified duration formula for the change the value of bond response to a change in in interest rates um which you can calculate from first

principles if you if you just take two you know Bond you know the time series and you discount them and calculate it take the ratio but but the concept you're correct I think is that um this is a it's a change from a it's a

because people were primed for a low interest rate environment um if you take the 10-year it doesn't look exactly like this but uh it is uh so something where the the change from a very low interest rate environment to a

very high one that's very sudden meant that everybody got caught at the same time and wrecked in the same way I've got some charts and so on on that so so I think you're you're basically correct in you know even if you know like we can

look at the equation or whatever go ahead oh um if you go if we now go to the other chart uh the Bitcoin chart which I love now I remember uh art laugher uh collaborated with us on our first

Bitcoin paper in 2015 it's when we and when we first gained our our exposure to bitcoin at 250 and um when we were writing the paper you know do you know who art Laffer is uh yeah the Laffer Curve basically where

where you kind of it's funny because it's a completely obvious point that it's zero percent and 100 taxation the state gets no Revenue um and that there's at least one Optimum in between it's basically it's essentially like the

um uh the mean value theorem um but go ahead so um when we're writing the paper he said I have been waiting for this since we went off the gold exchange standard in 1971 a rules-based monetary system a

global rules-based monetary system and I love it but what he said is uh I love the rules of the rule but if you want if you want price stability you need a price rule not a quantity rule if you

want to store a value and and you want appreciation then a quantity rule is fine so from a monetary policy point of view and I've often wondered this I'd love to get your thoughts um let's say you are right and uh

Bitcoin you know takes off and you know we have the same price Target it's just ours is more like the timeline 2030 and yours is and I know you're saying it for a fact just to get people doing it's

directional that's right it's basically so so actually go ahead finish what you're saying yes so much like I described Greenspan and the gold effect he was on the gold standard but nobody knew he was managing money to Gold

um uh our art thinks that that we need that and he said but they'll get it right they'll get it right now remember and in terms of his credibility his mentor uh Ruth Robert Mundell who uh won a Nobel Prize for monetary uh economics

so he's not only a fiscal policy extra but expert but also a monetary policy expert and so what I have been wondering all of these years is let's say you're right I actually think we our research uh uh the building blocks of it you can

see him Big Ideas 2023 I don't know if you've seen it how we get to that one million plus by 2030.

um and I've been wondering let's say it takes off and it just goes parabolic and there's no incentive for anyone to let go of any of it you know it's just right why would you every time you do you lose

money and so you get into that mindset and then in a way it's from a monetary policy point of view in terms of managing the economy globally uh you you're you're off the rails you have to figure out a way to get to a price a

price Rule and so I have wondered I I think the answer is absolutely not because I have met with uh the core developers and I know how strongly they feel about um about the quantity rule here but can

you imagine any circumstance where you know Bitcoin actually loses its usefulness in a sense nobody wants to use it for anything they just want to hold it um and you know what happens then right if you're if you're trying to manage an

economy around Bitcoin so um what I actually think we're moving towards is potentially the redenomination of uh the the many Fiat currencies on digital gold like you know the return to the gold standard but it'll be the digital Gold

Plus gold standard um and you know like uh countries like El Salvador actually think of his first movers towards that and I think that'll be more obvious in the years to come um right and and uh you know it may be

you know I tweeted this but it's actually kind of already happening in this Century maybe it's North Americans that are moving to South America and or Latin America and maybe it's uh North America that has the currency crises of

south of Latin America right like one of this is part of by the way a a broader uh just just to show that's not like a one off here's a phenomenon that I have observed and I don't fully know you can

argue whether it's actually happening then if it's actually happening you can argue whether it's uh it's real or you know what's causing it but one of my macro mental models is that history is running in Reverse with 1950 being

roughly a mirror moment so 1950s like Peak centralization we have one telephone company and two superpowers and three TV stations you go forwards in time and uh the internet Frontier opens right backwards in time the American frontier closes you go forwards in time

China is a senior partner in the China Russian relationship backwards in time China's a junior partner and the Soviets are the senior partner okay you go forwards in time and here's just one example like you have an Indian origin

and Pakistani origin um politician debating the partition of Britain England versus you know like in a con Britain whereas in the bat in the past it was British origin men presiding over the partition of India and Pakistan and I actually have lots and lots of

examples like you know Ford's in time we have the Techno billionaires backwards of time the captain's Ministry Ford's in time Elan and Jack are winning against journalists backwards in time are Ida Tarbell beat you know Rockefeller today we have like a populist movement of

digital gold advocates in the past we had a populist movement against gold and so on and so forth there's many many kinds of flips and and so on like this and so one of those Theses would suggest actually maybe the North American Latin

American flipping right where already you have people who are going to Latin America and so on like El Salvador is actually improving in many ways this is off people's radar people laugh they'll say oh that's totally ludicrous kind of

already happening whereas people are going to Mexico going to South Latin America especially with remote the time zones and so on line up so you can work remote but you can limit it okay so essentially what has happened here's

here's my view on why we have a flight to safety basically as you were mentioning um all of these uh you know the many banks are missing billions hundreds of billions of dollars because people are draining them and putting them into

money market funds which um have the safety of effectively through through the custodian Bank being uh backstopped at the fed by by the reverse repo right so it's sort of like storing your money at the fed and getting interest on it

um and others are moving into big Banks and again for the safety right I think that's going to be a mistake if you're moving money entirely into big Banks and money market funds basically I feel like what's going to happen is that

makes it much easier to freeze and seize and uh Corral the assets Okay then if you had lots of small Banks but the overall concept is uh you know 500 billion into money market funds and major banks in SUV imploded there's

graphs of just like how what a record move and deposits this was what has happened is this is a consumer crisis unlike 2008.

so in 2008 the markdowns right they're happening between guys and skyscrapers you know sweating over a piece of paper between themselves and for the most part the person on the street with the exception of some things like WAMU you

know which was an exception but for the most part depositors were basically not affected your credit card continued working you didn't have like direct fear in that way you might fear to lose your job and not your life savings this is

completely different the collapse of svv meant that 40 000 Tech CEOs got the message that the U.S banking system is unsafe on if I can just interject there what I have found fascinating about this period is many people had their money in

deposit in deposits at a bank and this crisis actually has forced them to focus on what they're earning in the banks and versus what they could get into money market in money markets and so yes they've all become yield Farmers well

not only that and isn't that something so you see them in their minds in their minds what they're saying is I am going to lower my Risk by leaving the banking system and increase my return Now isn't that upside down that's not how the

world works and this I worry about from a bank deposit point of view and and the reason for this is lending and ultimately lending is going to shut down and uh and then you were right by starting out with a hell to maturity we

don't have to go through that that has been studied and I'm sure a lot of people know about it but what people have talked about available for sale you mark to the market right away for that you know quarterly so that hits earnings

held to maturity if you sell those you it hits Equity but what they're not talking about is the rest of the asset side of the balance sheet of these Regional Banks and it's realist yes exactly they're getting crushed on

everything yes commercial real estate 75 of real estate loans out there are if they're from a bank are done in the regional banking system and I would submit that uh that residential will be hit in another way because there has

been so much overbuilding with the capital markets now facilitating this of multi-family homes that we have now coming online the largest number of apartments in 40 years in 40 years so and so we were going back to the 70s

which was so when I look at that I said Okay that was real estate speculation that was inflationary but I do think that rents will now come down dramatically velocity is coming down and I again worry about GDP and economic

activity right so have you ever seen have you seen like a flock of pigeons and then like somebody you know they may throw bread or something and the whole thing just takes off at once all of them take off at once right you've seen that

I'm sure you have right that is my mental model for what has happened the combination of um fear by see because you know it's not just svb it's essentially like Tech Elites Financial Elites now the conventional wisdom is Cash is a risk

asset right Friedberg actually said that because all these people were very condescending and ridiculous around the time of SP they're like oh what you didn't have 10 bank accounts oh you didn't you didn't know your money wasn't safe at the bank passed the FDI sealant

well actually what you know the more sophisticated argument is you would have thought that all the regulation that you paid for would have given you a heads up about the literal insolvency of your bank when the bank and the bank

Regulators were clearly aware of that I mean you could dig into the footnotes over here and look I don't I feel like svb is not unique in this they a bunch of banks effectively got killed by the FED with these surprise hikes basically

here's you know Michael Greeno I don't agree on on bitcoin and so on but it but some evidence of deception by SUV management basically the way I think about is the Fed surprised the banks the banks oh my God what are we going to do

they decided to uh you know go and surprise the depositors basically anxious Banks Bankers wondering what they should do in reaction to large losses answer hide it right they go and hide it in um footnotes they hide their

literal insolvency okay in a footnote and uh you know they do things where like you know item six reserved they used to break out their whole maturity Securities point is if you go through a bunch of Bank 10 cues you can probably

find some evidence of quote deception where they disclose but they don't really disclose I mean you have on every website EU Regulators make these cookie pop-ups okay but on the bank website you're not told the bank is insolvent or

could be insolvent all right now what's happened is we've all gotten the message every single Tech CEO which is actually an influential sector of the economy amidst all the yelling and screaming has gotten the message that your funds

aren't safe in the bank you are not going to get a heads up from Bank Regulators if the bank is insolvent the bank is not going to tell you they're going to hide it in some statements it could be insolvent for

many reasons it could be insolvent because of you know them buying treasuries it could be insolvent in terms of a write down of their loan book it could be installing because of some opaque derivative saying that who the

heck even knows even at the bank if they're actually dead without without knowing they're dead it could be dead for many reasons you will not be told whether it's dead or alive it is Schrodinger's Bank okay where it exists

in this Quantum superposition you can go and look certainly at studies like this uh you know the Stanford study of uh you know Banks um or basically they they do think that lots of banks face the same risks and you can look at their model

and they think there's two trillion losses but once you start seeing numbers like two trillion in losses many banks uh when you see FDIC itself for example say most banks have unrealized losses right so so when I started there

I want to make I want to make sure that we we don't set off unnecessary fire alarms so can I just say set this up and say you are right this is an indictment not own you know it's the indictment of certainly but the

bank analysts where were the bank analysts they read the footnotes they know how to they know hole to Market they know all the rules of the game but just just so you so we understand Banks always have a mismatch in their

durations that's what makes it a bank so their assets are long-term their liabilities which are deposits are short-term they can leave any time and so the issue is that hell to maturity is part of of uh the asset base is money

good if they hold to maturity and they when they buy those uh look in in covid when they were getting gushers of deposits from the stimulus program the FED basically said okay the risk here is a depression and if you look at their

forecast through 2023 the end of this year they showed no increase whatsoever in interest rates okay so these Bank uh officials are making decisions saying okay then I will put my money in this government-backed uh mortgage security uh and I will and I'm planning to hold

it to maturity the problem was and they would have and Banks typically do Silicon Valley Bank allocated too much to hell to maturity uh that's that's one point but the more important point is they never if they never expected a

venture funding drought the likes of which we haven't seen in quite some time and they didn't expect a 20-fold increase in interest rates as you said you know it went vertical and the expectation was quite different so that you know each of those each of

those mistakes is understandable uh we've never had a 20-fold increase in interest rates in one year in fact I don't think we've had a 20-fold increase in interest rates ever right and we have not seen but but deposits leaving the

banking system like we see now uh since on a year-over-year basis since 1948 and we have not seen M2 decline it's down three-ish percent now we we have not seen it decline since the Great Depression in the 30s so it is

understandable they did not expect these black swans but these black swans occurred and and so I'm just trying to put in perspective you know I've watched the banking system all my life I've watched this mismatch all my life and uh

seen these two assumptions uh that they made interest rates wouldn't go up hugely you know certainly in the last uh 40 years and uh deposits wouldn't leave the system so those this is a very unusual time uh but I think when you

when you if you really want to blame someone you blame the fed you blame the FED sure I agree with that uh but but so I absolutely agree but more generally I think it's the regulator is terrible totally but so

here's the thing you're right that you know the fractional Reserve model presumes everybody doesn't come for their deposits at once with that said first I think the current situation is worse than typical fractional Reserve because uh you know even the assets that

are on hand supposedly to support the draws a marked Market basis was not enough the you know the because because of these unrealized losses and so on the second thing is it's not just it's it is the Fed but it's also fighting the

future fundamentally we're in the age of the digital bank run right the funds are there and then they're not because everybody can go and hit wire out at the same time my understanding is Dodd-Frank actually presumes that people are going

to come down physically for a bank run there's going to be physical friction when you're in this frictionless Digital World you may not be able to have fractional Reserve banking you may need full Reserve banking like what Caitlyn

has you know proposed with custodia but the narrow bank proposed years ago and the FED blocked people from doing full Reserve Banks right and the obvious model by the way is you have a full Reserve Bank and then you separate out

your risk Capital right so you are consciously only taking risk with some percentage right maybe you have 95 of your capital and it is just sitting there and you're not taking risk with it and five percent maybe you're trying for

some gain but this you know is safe and sound now you might have that effectively in Bitcoin under your mattress or uh you know some some other you know crypto that's that's local um or it's gold or it's something else

like that or it's a full custodial account where they're saying we're not monkeying with it we're not making loans on the back we're not doing all this crazy stuff your money will be there when it's there and then you do crazy

stuff with other five percent that will give you on a portfolio basis the same thing as an interest bearing account but allows you to dial your risk rather than being shoved into risk that you didn't want to take right yet the FED doesn't

offer that option and and the FED is not is basically it's not allowed people to modernize by having you know like obviously they fought crypto they fought full full Reserve Banks so the point is that what I'm trying to get at is

the all the assumptions of the U.S banking system that the FED controls interest rates the FED licenses things that they can freeze the money that um you know like uh you you're not going to have digital Bank runs that uh

everybody can buy the same assets at the same time all of those assumptions are breaking down at the same time including the ones that you mentioned where yes right and so so we have is not a bank crisis we have a central bank crisis

where fundamentally it is U.S banks as a whole where you know again you can look at all these things unrealized losses you can this is the point that I was making um earlier which was uh that here it is it's like most

um most banks have some amount of unrealized loss and security how big a deal is that who the heck knows the point is though that all like like a flock of pigeons the entire Market has been spooked right cash is now a a risk

asset people are you know moving to money market funds um people are you know moving into big Banks all this money is now liquid it's digital and it's moving around like a cloud and it's looking for the safest

thing and if some of that starts getting out of the system into Bitcoin that is hyper bitcoinization right or it is bitcoinization and then eventually hyper bitronization because it's it's looking for safety and once it realizes if it

realizes that actually within the system there isn't safety and it starts seeking an exit that's basically the thesis all this money is being rendered super liquid and digital and then what's going to happen is with something like fed now

they're going to try to impose Capital controls or or blocks on it getting out of the system so that's kind of my thesis as opposed to micro things about what's going to happen over here people don't think their money is safe in the

bank the assurances that people are getting are conflicting they're like you know oh on the one hand you're responsible for going through all of your bank's 10 cues and on the other hand yelling is saying sometimes that they're going to back all

deposits uh you know you're basically not ethic but you have fed dick right where all 18 trillion gets back the net effect of that is maximum certainty plus maximum liquidity yes I think uh and so here we're back to

the velocity question everything you have just said tells me velocity will go down and that the risks to the economy are to the downside here including inflation so here we're coming to the same as we started at the beginning

um I understand why Bitcoin went from 19 000 on March 13th uh the week after the weekend of uh signature and Silicon Valley Bank basically going into receivership it was a flight to safety 19 000 to 20 nearly twenty eight thousand that that

boy was uh that proof of concept right there decentralized transparent Audible auditable and so forth so we are on the same page here I worry that um that this economic downturn this uh deflation is a much bigger problem right

now and I do I do if you're going to say Well they're just going to throw money at it uh we just saw that the FED raised interest rates for the first time ever in the middle of a crisis and today and

this week uh they've been talking once again about the need to increase interest rates at the next meeting so I don't think they respect Market signals and this is a big problem they are not looking at Market signals they're

looking at massively lagging and unreliable indicators that are based on in a world the statistics came from the Industrial Age so they're they're not even looking at the right numbers pricing signals are the most important signals right now credit default swaps

interest rates yield curves right Bitcoin yes I agree with that but I I think you might have your uh hyper um inflation of Bitcoin and I think what we're coming to if you are you seem to be nodding when I say what I'm saying

about the banking system and the risks to the economy uh it's not going to be inflation in it it is not going to be inflation that that we're worrying about this year um it will be something else it may be

counterparty risk but I don't think it's going to be inflation in the prices of goods and services and many people will say uh the dollar the dollar is going to collapse well you know the dollar is measured you

if you're measuring it in terms of prices and goods and services right now it's going up if you're looking at Commodities right the dollar is appreciating if you're looking at it in terms of other currencies after a 25

run in a very short period of time it's come down but at the same same time it's come down in the last few months commodity prices have come down so what does that tell you well so here's the thing is um as so as

I said I don't have a given the gyrations in the economy that there are hiking rates while printing trillions I don't have a strong thesis on essentially the ratios of different variables within this economy that's being manipulated in crazy ways

um but I do want to show you something which is this is sort of Micro Data that is I want to say it's contrasting to your points on the velocity of money but at least it's something that you can

actually see from a very bottom-up standpoint so this is like the um you know assets and deposits are you know kind of moving together and Pilkington was looking at you know that ratio and and shocks to that ratio and

he's finding that this last week was um you know the the highest ever change in the asset deposit ratio and the other events were like uh you know Financial crises and and whatnot okay which I think is an interesting way of thinking

about this deposits going down right the the asset pays doesn't change that radically he's giving a different lens on this to show how exceptional this is right like you know is this a big deal or not that's right and so so essentially one

way I kind of think about this whole thing is um you know how many economists said Bitcoin couldn't exist Bitcoin violated the laws of Economics as they knew them all these noble Nobel laureates keynesians lined up to denounce Bitcoin

over the last 10 years right now don't laugh her not art laugher art laugher not our laugh for another let's say sure and and Milton Friedman and others I'm not saying every you know Milton Friedman predicted Bitcoin and so on

there are there are good economists but a large number of Keynesian economists denounced Bitcoin said it couldn't exist shouldn't exist yes right okay so their Theory does not account for the existence of Bitcoin it says that because something

gold like cannot exist now have you ever seen like an MRI machine and you know you're not supposed to have a piece of metal next to it like the operation of the MRI machine depends upon there being no metal nearby if there is a piece of

metal nearby that field it will fly around in very unpredictable ways and smash the whole thing to Pieces okay and in the same way the fact that a digital gold like thing now exists is something that they did not predict

could exist and this generation of keynesians has unlike the guys who set up the Federal Reserve at the beginning where they knew they had to defeat gold like you know the uh the so-called executive order 6102 right the early

generation of uh of keynesians right they actually you know had uh had guys with guns who went and basically said hey give me all your gold where you know private ownership of gold is is not allowed right I mean I remember the history I

wasn't there you remember the history that's right yeah neither of us were there right so the thing is that the people who set up this centralized system you know almost uh you know 100 years ago 90 years ago they are they

were aware that gold was a competitor to them and they took gold very seriously and they had to actually defeat gold right now this group of people truly doesn't take digital gold seriously digital gold is a V3 while physical gold

in my view has been defeated by the state and Fiat does actually improve on physical gold in some ways in the sense of its electronic and it's programmable and so on bitcoin and cryptocurrency were generally it's like a V3 which

which incorporates aspects of both V1 and V2 so Bitcoin has not yet being defeated by the state and the interaction of digital gold with this economy over here is like you know this MRI and there's this piece of you know

metal nearby that it does that its Theory does not account for and so when you have this huge cloud of assets right all of this money that's super liquid now because of the digital Bank runs because your your home is being set on

fire your bank account in your bank that you had for 40 years Silicon Valley Bank goes to zero because all the tech Elites were told that they're idiots for keeping their money in an American bank right just think about by the way what

that means I don't think people realize the extent to which that reverberated oversees every Indian founder that I know okay has been like oh my God the US banking system is not trustworthy okay what an insane update yeah I understand

and to make matters worse uh just to give you a sense of what investors in Banks are being told uh the president uh on that Monday March 13th got up and said the depositors uh your deposits are secure uh we want you to

know that and the people responsible for this are going to be fired any decision maker and any Equity or Bond investor is going to be who use these words wiped out what kind of message is that um but we we probably should wrap this

and I actually have a an interesting way of of doing that because um during my discussion with art Laffer last week we were talking about Bitcoin and he said we really need to add in terms of trying to figure out what's really going

on out there in terms of the money multiplier add Bitcoin to the monetary base and we'll get a better picture so he's already thinking in this way and um I was so happy that he said it uh you

know half of the solution is understanding a problem and understanding how we should try and uh frame things to understand what's really going on out there so this idea of adding Bitcoin which is a little over 500 billion uh to the

eight and a half uh trillion uh in the monetary base uh it was a start and you know a start of a conversation because we do have to deal with the world we're living in the one you're talking about

um I I think will evolve over time but it doesn't happen overnight you you might say the banking crisis is giving us that opportunity and I think it may it may happen faster than otherwise might have been the case uh but uh you

know I am going to continue paying attention to Market signals I see credit default swaps settling down a bit we haven't seen we haven't seen the Regional Bank index breakdown again but it hasn't v-shaped either so I think

that's a risk there that there's another episode uh so we're uh we're watching we're watching all of this very carefully and watching the stock market now the stock market is very sensitive to all of this and it is very

interesting for me to watch the stock market levitate through all of this and I think one of the reasons it is is it smells the end of rising rates it sees over whatever the fed's going to do right now to much much lower interest

rates because of this deflationary pull from monetary policy and uh Gone Wrong velocity falling and the the that's the bad deflation side of it but then you've got the good deflation side of it as you said and I always want to end on a very

hopeful note and The Good The Good the the very positive form of deflation we're going to see uh if if we're right is going to cause enormous growth in everything blockchain related in all that Innovation as well as you know the

other platforms you know the multi-ohomic sequencing robotics energy storage and artificial intelligence and they're all going to start converging and uh you know it's it's messy it's messy getting from here to there but I think again just the recognition of what

can go wrong with the banking system I think is going to cause more people to seek more insurance policies can I give a closing minute is that all right please okay yeah so basically first of all Kathy I um like you I'm I'm actually

not a Doomer at all I I would consider myself at at most a Doomer Optimist or a positive person in general I'd always try to have a constructive kind of thing you know one thing I just remarked on

you know again just seeing this this is something which I pay a lot of attention to because I never would have thought you know 30 years ago 20 years even 10 years ago that Indian Founders would think of Indian Banks as being more

trustworthy than American banks that is a massive World model update massive World model update that people are wiring money back home they're wiring money outside the American banking system because they don't feel like they can go and diligence everything 10q by

10q to find the where's Waldo of are they actually insolvent or not will my money be there right this is the same reason that people are moving money to Big Banks and money market funds and so on so I think we agreed that basically

in the flight to safety the people will choose Bitcoin whether you call that um contraction and people feeling a flight safety whether you think of it as inflation in the sense of the Bitcoin price going up um that is one number that they can't

fake in the system they can hike rates while printing trillions but they can't change the amount of Bitcoin and that hard denominator constrains them and it's visible to the whole system plus it's a global asset plus it's hard to

seize now one last thing I want to talk about like from a hope standpoint okay you mentioned that Florida might do state chartered Banks banking crypto right it's a rumor I there are certain a number of states The Dakotas and Florida

among them the states that are trying to attract capital and labor absolutely that's right so all these Regional banks are getting killed and so on and in a sense there's a real deviation of interest between state and local versus

the feds right and so what I think could happen is bitcoin.florida.gov bitcoin.texas.gov Bitcoin Dot mississippi.gov and bitcoin.montana.gov all of these states which you know Texas GOP has passed something where it has in its platform the right to buy sell Center receive

Bitcoin shall not be infringed the mayor of Miami takes a salary in Bitcoin Mississippi and Montana have Bitcoin mining protection bills Wyoming and Tennessee have Dow bills right so lots of these red and purple States Colorado accepts taxes in cryptocurrency New

Hampshire is pro-crypted currency right lots of these like let's say red and purplish kind of states are pro-freedom states are pro-crypter currency and if they reopen the gold window okay if you had bitcoin.flora go bitcoin.texas.gov where it's like basically a very simple

exchange it's like coinbase circuit 2013 you can buy sell send and receive Bitcoin you can place limit orders you've got a Fiat USD BTC order book that's it and it's set up for you to just take your Bitcoin off the exchange

within you know a few days like or right away ideally it's not meant to be something where you hold it there they just keep pinging you to take it off right and then what happens is the state just takes a cut of that so they're now

accumulating a digital goal position okay why is this important why do I think of this as a positive development well first is uh you know DeSantis and others have come out against the cbdc but what are they for they're anti-cbdc

which is digital serfdom they're for Bitcoin which is digital Freedom okay and so now you can be for something rather than simply against and you have essentially a Bitcoin backed local state government right where this is the move

against the feds and then the question is okay well the feds you know will the FED try or literal fed uh try to shut down fed wire and ech and other access to these uh these Banks well they cut

off Florida will they cut off Texas I think that's probably a bridge too far if they did do it it would show the potential Financial totalitarianism incipient in a cbdc if they didn't do it well the Fiat rails would be open the

reason I think something like this is going to happen is it's the next logical step after for example El Salvador adopting Bitcoin mayor's adopting Bitcoin because right now you have the government going and fighting coinbase and binance and that's government versus

company a company doesn't necessarily have enough hit points to fight a government but another government does you see in Pacific Rim you know to fight giant monsters you need a giant robots right so if you have a state like

Florida and Texas with a lot of hit points that is now you know that can't go easily bust that's got a lot of credibility and reputation and if you have a lot of red and purple states that share their order books their usdbc

order books that is now something which keeps the USD BTC window open allows exit from the system benefits local States because they can accumulate digital gold uh builds upon the existing shall not be infringed Dao language minor language Mayors accepting Bitcoin

El Salvador is a sovereign currency and finally can be internationalized because naiba Kelly held a meeting of I think like 44 uh small countries uh you know bankers and been planting seeds about you know what what it's like to

transition your country over to a partial Bitcoin standard so you also have this happening globally where small countries like you know Palau for example that a pro crypto could do this okay if that happens if the digital gold

window is reopened after Nixon closed the gold window in 1971. at the same time by the way that China is a totally different animal and they're moving oil and other transfers over to Petra Yuan the biggest difference is in 2008 uh USD

was too big to fail in 2023 it's not and if it does go down we don't want China to be that Reserve currency we do want uh it to be Bitcoin a freedom currency and I think that actually the moves that

I'm describing that is like the positive vision of the future if this system is going to go down let's have an orderly exit if you think that the FED isn't simply really piloting in the wrong direction but actually crashing the

plane how do you make your way to the parachute and I think that parachute that exit is BTC um of course you might have a different opinion you might go and get gold you might get oil you might do other kinds

of things that's you know not Financial advice you for you know for for people to decide but but I do think that that will end up being the shelling point I may be wrong but that's my thesis on why

I think we see exit from the U.S banking system towards Bitcoin over the next weeks and months and perhaps years to come the exact timeline of 90 days you know I don't think it's impossible that happens given how fast digital bank

cards happen but directionally it's much easier timing is hard prepping is easy prep for essentially just like you prep for covid and prepping earlier was better if lockdown came in 42 days after some of the initial reports are covered

in the US who knows how quickly digital lockdown comes fed now is dropping in July so before that happens build the exits build the exit to bitcoin build exits other kinds of things and I think we have potentially a positive Vision on

their side thank you okay well we uh we certainly explored a lot and I I I I thank you apology for for doing this um you know uh I said wait a minute we we both have the same positive by how

could we on bitcoin how could we be so different and I I don't I don't think we are that different in the sense in in terms of what we are worried about so anyway well thank you again and uh I'll

look forward to doing this again uh at some point when uh we're at another another moment in time that deserves uh the time we spent doing this so thank you again apology thank you Kathy it was great Arc believes that the information

presented is accurate and was obtained from sources that Arc believes to be reliable however Arc does not guarantee the accuracy or completeness of any information and such information may be subject to change without notice from Arc historical results are not

indications of future results certain of the statements contained in this podcast may be statements of future expectations and other forward-looking statements that are based on ark's current views and assumptions and involve Known Unknown risks and uncertainties that could cause actual results performance

or events to differ materially from those expressed or implied in such statements [Music]