TILP #11: Low time preference business & money w/ Ben Justman

00:01.27

ilm

All right Ben Justman thanks for thanks for joining me today on the podcast for sure. Why ah I enjoyed a bottle of ah your cab last night for my my birthday dinner had a nice couple nice steaks.

00:01.50

Ben Justman

Um, great to see you Jim thanks for being having me here.

00:19.10

ilm

And ah and some some mashed potatoes I threw together I was surprised how why they turned out and ah yeah, opened up a bottle of Cabernet and it was fantastic. So glad you're here so I could just ah ah, boast on your your delicious wine.

00:33.40

Ben Justman

Um, yeah, that's music to my ears I mean having wine as my business is such a beautiful thing because I just kind of get to share those great moments with people all the time as part of my business structure and. And be part of those beautiful times.

00:54.10

ilm

I guess let's yeah for those who don't know who you are then Mac you tell us who's who's been Justman why why are you here? What do you? Ah what you suppose we should talk through today.

01:01.99

Ben Justman

Sure I'm a natural winemaker in western Colorado doing wine made without any additives or much manipulation at all so wine with super minimal soul fights and it's wine that makes you feel like. Pretty clean afterwards. You don't get the nasty hangovers headaches all from just lack of intervention. It also makes for wine that is more representative of my location of my high elevation desert region which. Kind of brings out some some great attributes and specifically pinot noir is what I grow myself and I am also just a solo entrepreneur who found bitcoin partway through his journey and kind of just had that plus. Building a wine business kind of just like reshaped my world in the last few years so it's been a fun journey getting this going both finding bitcoin and starting a business.

02:04.50

ilm

Sweet. Well, ah yeah I want to talk I get I would love to talk through your business and your journey on starting and building that and where you think you went ahead and then also your.

02:18.85

ilm

Ah, encounter with bitcoin and your journey through that and then the collision of those 2 things and how you navigate where to deploy capital and ah you knows your thoughts on both those things moving forward. So I'd I love to have that conversation. So let's let's start off with ah.

02:35.23

Ben Justman

Um.

02:37.43

ilm

Start off with let's start with the bitcoin side of things that's like that's less heavy than the the business. Let's start off with bitcoin So tell us about your your bitcoin story. How do you come into this and what's it look like for you.

02:47.28

Ben Justman

So I was always really basically since college I got really into personal finance and through that was taking as minimal risk as I could in the eyes of you have to invest you have to save a large amount was my philosophy and. In that I was trying to get the the best credit cards for percent back. The best savings account to at least get like 2% interest at at those times and then do robo investing through just index funds just be kind of as baseline as possible I read a book about investing that. Um, by the Marl Lynch Peter Lynch and basically was like oh yeah, cool. So I'm not going to pick stocks. That's just ah, that's a whole nother job and so all I did was those baseline things and then twenty nineteen the reverse repo spike is. Caused interest rates on my savings account to go to 0 from 2% and I knew that Cpi which was what I used for inflation back then was 2% so my world of like oh I can just have I have my savings account. That's just going to keep up with inflation I'm not worried about making money there. My investment account that like rug kind of got cut out from under me where I was like oh it's just 2% but it's like I can't keep up with inflation with saving There's nothing I can do without taking risk so starting there I just was kind of looking for something.

04:20.33

Ben Justman

Like this system isn't really working for me and I moved back home after having started my business and moved in with a good friend from high school who I think is really smart and he was really into bitcoin so he just kind of directed my attention towards the the. Bitcoin and I always had kind of a monetary Lens. So I never got really deep into any of the alcoins that seems like a lot of people went through because I was never really looking for a gamble I was looking for low risk kind of sure thing and once I figured out Bitcoin It was just like you know was a. All these things popping together and um, kind of just flipping that whole investment thesis on its head because within the fiat system. It is this continued amount of risk where I just wanted to go super risk off weirdly like I was also extremely risk on by. Betting on myself on a business and going as all in on bitcoin as I did just because I think a lot of people who find bitcoin kind of just get swept up in the hype when I was really getting the hang of it and understanding it. The price was going Crazy. So um.

05:36.40

Ben Justman

Just I was like I need as much of this as possible I need to go all in because I think it's going to infinity because that's what it's worth,, but it's worth that in my mind and as a pretty novice investor. It was um, ah definitely a harsh wakeup call to be like oh yeah, the markets are irrational. They do not value this thing like I do. Um I need to to I need to slow down a little bit.

05:59.26

ilm

I Ah, there's so many things I'm sort of laughing at that. You just said, um we here, let's when with so when did you stumble into bitcoin. Well first off you said a friend that introduce you to bitcoin high school buddy and is he still in the bitcoin.

06:12.60

Ben Justman

Yeah, definitely? um, he yeah, he's he's killing it. He has a ah family fruit business here. So um, two young guys and in payona with family businesses that hoping to see us thrive in the future. Um, but. But it was late Twenty Twenty by the time I started getting a hang of it. So I'd lived with him for a few months and that's why I started buying but like it was maybe early twenty Twenty one when the final like the final big like brain blast of I get it now hit me. So.

06:48.84

ilm

That was when bitcoin was that like ah mid 30 s or so.

06:51.21

Ben Justman

Um I started buying before the runup but not much money and then um, listen to Jeff Booth with Robert Breed Love to finally have the last thing of like what does what do prices look like in a world with like. Ah, hard currency and that was always the flip for me I was like it isn't inflation just built in things just always get more expensive. How can it be that things just where do things go if we have hard money and the flip of just understanding that prices should. Inherently be getting lower because we get better at producing things was the final like nail in the coffin for me. Unfortunately, that happened right before the price crashed to 30000 so I was definitely like in my holy crap mode at a little bit higher price. There.

07:46.18

ilm

What? Ah I think that's the story of a lot of people and yours was your your basis was education. Not hype. Um, it just happened to coincide that your education was your your education phase coincided with the general hype phase. But unfortunately many people.

07:54.30

Ben Justman

Um.

08:03.30

ilm

Buy in the top. The the top of these cycles not be due to the education but rather hype so I sort of gave the answer that I would assume but like what what allowed you to continue to purchase despite the fact it went to 30000 and to continue dollar cost average along the way versus so many people who buy the top. Based off of hype and then get burned and they walk away for 6 years what What what allowed for that.

08:27.40

Ben Justman

Well I that was it was all education like you said so I was full conviction at 50000 expecting it to go much higher because that's what I realized it was worth and so I had a stacking goal that in my mind was like wow. That's going to if I get there in my entire life I'm going to be happy and so I you know invested a ton of money at 50000 and you know at that point I was like I'm all in and then it dropped like I think literally the next week it dropped to 30000 and I said to myself like. You know yeah I wish I'd waited you know I wish I'd saved that money but this is the greatest opportunity of my life because now I have a chance to really make a dent in this stacking goal whereas previously. It was like wow this is just going to get away from me and there's no way I can make enough money to keep up. With the price continuing to go upwards. So when it went down. It was just like I was so thankful that I had another opportunity to continue stacking.

09:34.11

ilm

So ah, along the way. So it's been a couple of years now how have you continued to acquire bitcoin and or i'mssuming you have so how how is that how's that progressed

09:43.62

Ben Justman

So those my first two years of starting the winery I was definitely pretty fully invested in like buying grapes and making wine but those expenses only come about you know once a year so I had huge expenses every fall. But. During those first two years I was also not selling any wine so I had a full time job and I had an income and so I was just investing what I had as far as savings go I was putting some in the winery sum into bitcoin and then finding just all the excess money that I could dump into bitcoin because I had. The availability for loans to continue building the business and and make wine since then I started selling wine and that has become my entire income and through that I've been able to just get bitcoin through selling wine so I sell wine for bitcoin which is um. You know it hurt I guess like I have such a long time preference with with bitcoin like I'm not worried about the price if I sell a bottle and the price tanks like I'm just happy to have bitcoin at that price. Um, but all of 2022 I'm selling wine during my busy season of the summer and it's sitting around. You know 40000 and then the later that year drops to 15 so you know in the short run you're like wow those bottles I really sold for not much money. But then you get down to 15000 and I'm starting to really sell a lot of wine for bitcoin and now I mean just in the course of a year um the value of those bottles that I sold.

11:19.19

Ben Justman

Down there of about 3 x so long run I know this is the right strategy. It's just kind of like anything I can do to turn any excess I have into bitcoin is what I'm trying to do so I have right now as you can see behind me a ton of wine and.

11:34.85

ilm

Um, that looks that background looks real and.

11:39.26

Ben Justman

Yeah, this is not cgi. This is my wide seller. So um, basically I've just trying to turn like I know that my margins online are high enough that if I sell as much as I can for bitcoin and just have that put away I'm going to be able to have enough money through. Um, dollar wine sales to be able to fund continuing to make wine every fall. So everything that I have like quote unquote extra and wine which I've never hit the limit of that is I'm trying to turn into bitcoin whereas um, all the dollar sales I get. Kind of just go back into the business and continue funding that for.

12:17.82

ilm

Gotcha So That's how you navigate because that that can be a risk like we saw that with ah like some bitcoin mining companies and stuff a few years back not managing their balance sheets. Well you know they were maybe holding an irresponsible amount of bitcoin on their balance sheets when their ah their overhead was payable in. Fiat and if if bitcoin drops by 70% but your bills remain the same. You could be toast so that is that That's how you navigate thated you you have some to allocate long term and other yeah, the your your fiat bills you keep in fiat.

12:36.98

Ben Justman

Um, and he.

12:44.79

Ben Justman

Definitely.

12:49.82

Ben Justman

Yeah, if I mean if I ever got to a point where I was like selling too much wine for bitcoin I think I could get into a dangerous spot. But it's not such a high percentage of my sales that I'm getting to that point and honestly like I. I Think in the short term I would be better off if I converted all those dollars to bitcoin and was able to kind of just continue paying off debt and investing slowly into the business I mean this is how I'm going to build my livelihood but um I know I I kind of need to continue taking this long term perspective. So. I Don't It's not like this systematical like well thought out approach. It's just if I get bitcoin I keep bitcoin. That's it's that simple and the rest of it is all right? Cool. So if that's the Baseline then I need to go out and continue selling a ton of wine and. That's really my only financial problem is I have a bunch of wine and I just need to sell it and I'll be Fine. So.

13:50.78

ilm

It's that that simple well I know I when I was in tellide this summer ah went and saw you the ah the farmer's market which you go to the tell ride farmer's market in aspen and a third town which what's the third place.

14:03.97

Ben Justman

Basalt is a community pretty close to aspen.

14:07.36

ilm

Nice so you go there and you sell your wine in person when it's not ° outside and then you you sell online throughout the year which I I see you some bitcoin last week for some wine and ah yeah, it's great. Yeah.

14:15.97

Ben Justman

Um, you did aging Well both of them. So yeah, so part of that is like at going into this I didn't have a ton of Capital I got um.

14:24.71

ilm

Ah.

14:32.13

Ben Justman

My dad loaned me money to start the winery I had infrastructure from him to start the winery all of that infrastructure needed to be scaled up so I've definitely poured a lot of capital into scaling up my business but essentially that meant like I have everything I can do to get this going as long as i. Continue selling my wine. It's good which both of those have worked out and keeping low overhead has been huge for me. So that's why I've angled towards farmers markets is I live in a town of 2000 people that is not all that wealthy and so. I'm surrounded within 2 hours a ton of ski towns a ton of wealth. But my my town not so not really so I'm really not focused on selling to my community at all and I just travel to where there's money to where people are. Appreciate my natural wine quality of my wine and are willing and able to pay for it so going to these places I'm on the road a ton. It's a lot of work but I have no employees no overhead and I make what I feel like is good money every day. Plus it's a marketing opportunity where. I'm a new winery and within wine like there's a little bit less of people wanting to try the hot new thing because your established reputation is so important you buy from I mean you want to buy from vineyards that are extremely old brand new vineyards are not as good wine. So.

16:01.20

Ben Justman

Everything I can do to build my reputation both like in meeting customers firsthand getting to know me the winemaker like having a personal relationship with me people are going to be more willing to buy and also letting them taste my wine so instead of going to liquor stores to sell wine. And it's all of a sudden just another bottle on the shelf that I sell to them for much less margin I'm putting it in front of my customers directly for them to taste and I've found that everything I can do to control the good experience that people have with my wine goes so far because. There are people who know wine and are able to kind of dissociate from their emotional stance when they're tasting it. But for the most part people come to me about wine and the first thing they say is I don't know anything and so I just see that as like you know. Kind of a blank canvas of 1 resetting expectations of like you don't have to know anything. The 1 thing I want to know is does this taste good to you. That's all that matters. You know I mean what I'm trying to get through is wine is a status symbol in a lot of ways. So you know.

17:04.78

ilm

Um, yeah, yeah.

17:16.26

Ben Justman

People want to impress their friends with certain bottles and there's a little bit of like yeah I found this new wine. That's really good that you've never heard of try it. There's definitely that aspect of it and I can fulfill that aspect of it but getting away this like this point where you have to. Spend a ton of money or buy from a vineyard that everyone knows to enjoy the experience. So if I can control and just like make you happy and make you feel like you're having a good time when you drink my wine you're going to like it and therefore you're going to like it probably the next time because you've invested that emotional capital into the wine.

17:38.67

ilm

I.

17:53.92

Ben Justman

And so anything I can do to increase the positivity around the experience of actually tasting my wine is huge. So I've not really wanted to outsource the sales of my wine because then I'm out of control of that and you know I think my wine's really good. Everyone seems to like it generally. But again. If you put it in a situation where it's not going to thrive where like the environment's not right for it and every wine is going to every product really is just going to have this level of like decreased enjoyment. So everything I can do to increase that level of enjoyment is you know. Pays back a ton now. It's not super scalable. But I'm doing but that said like my wine is such a slow scaling business that everything I do is like every bottle of wine that I quote unquote that I make is like. 2 years away from even being released 3 years away from really seeing the full gains on that. So as I've been building this slowly. It's just make sure I have this strong base of customers. The strong base of enjoyment and everything that scales up beyond that will come.

19:06.50

ilm

I love ah, a lot of what you're speaking to outside of having good wine and I like that you boil it down like you're you're removing this connotation of wine has to be about you know, feeling. Whatever it's like is this? do you like the way it tastes like okay that's that's pretty important and if you're drinking it for another reason like at least admit that but you should at least enjoy it and I I really do enjoy your wine and but the same time I you so you speak to that you simplify things down to its base. Goal is is this tasty to you. But then you're also speaking these other things of creating an experience around it. That's why you like for lots of reasons you mentioned but 1 of the reasons you like to deliver your wine and have people experience it. There is it draws these emotional connections to it and it paints a story of here's here's what you're drinking and these things around it and that's what happened? ah. Few nights ago. Um I stay Friday so Wednesday Wednesday night I believe I received the the box of wine you sent me sent me 6 bottles and ah I picked it up I was outside I was moving so kenjura and I were moving right now and I was at our old house. Ah, breaking down boxes and ups showed up and you know I quickly you know it's dark outside it was cold I was gross. You know, breaking down bunch of stuff and I quickly opened up just because I was excited to see it and I opened it up and just like taking a bottle out and seeing like your labels and just everything like.

20:36.24

ilm

It was a mean it probably happened in a fraction of a second but I was whisbacked to September of last year when we were in Colorado and I was transported for that brief moment I was no I wasn't on my driveway breaking down boxes getting sweaty and stinky I was in tell your eye in a nine Thousand Square Foot house ah with a group of friends enjoying that wine you know and that's just that that emotional connection I didn't drink it I just saw I saw your label on it I you know knew it from Ben and I I like you a lot and it was like oh this is that that moment and if you could start piecing together moments for people and that's where a lot of like. You know that's the the Ritz Carlton you know that's they've created an experience. It's ah it's you're not paying for a just a bed and a Tv if you worry should go to the laquita and you would save a lot of money there like you're paying at the Ritz for certain things. Yes, maybe like. Comforts and safety or security or something like that. But you're really're. You're largely paying for an experience and if we could deliver experiences throughout the any encounter we get with a business like that just how much more does that add to the value of your business and the value of the experience of the the partaker of that. So I like how you lean into that even just you know like with the wine you sent me, you send a couple of your stickers and a handwritten letter from y'a'll know if you do that for everybody if so that's fine, but it makes me feel special and I like it. Um, and I think that's awesome. Um.

21:47.72

Ben Justman

Um, you.

22:02.15

Ben Justman

Um, yeah, so wine is all of that and I think a lot of products are all of that. But wine is this extra level of really connection to time and place where I made this wine the the wine you bought was ah 2021 so I made that almost you know, two and a half years ago at this point and you think back to like oh what was that year like it was it was it hot was it super wet. All these things to make the different wines and the the location's so important in wine because. That is especially like for what I'm doing the natural wine low intervention. It's not about me. It's about the place. It's about what the environment brought to make that good wine because I'm trying to take my hands off of like the making style of it. So it's the wine itself that kind of becomes. What it is based off all the inputs from nature. So I a lot of people look for that in wine and that's why they buy wine from specific regions you buy wine from France you kind of feel this like little connection to this this chateau in France and. Everything I can do to just kind of enhance that connection is is huge because wine is this like multiplier effect for experiences where ah, most of the time when you're drinking nicer wine. You're not like drinking to get drunk. You know.

23:25.55

Ben Justman

I mean you can buy Franzia. You can buy barefoot all that stuff if you just kind of want to have ah a drink but you buy nicer wine because it enhances your quality experiences where you head up for your birthday dinner like that is a nice way to commemorate that moment kind of think back to all the memories you had maybe over the past year and connect to this other like special time and place and enhance where you're at currently so in that it's like I know my wine is going to be drunk in happy times for celebration and so i. That is such a beneficial thing because then you associate that product with those beneficial those happy times and it all kind of just goes together really well and.

24:12.95

ilm

Unless it's unless you have like some winno who like you know, gets back on his feet then the connotation of that that wine out of a paper bag is him being homeless. That's not a good connotation. But that's he's probably not drinking yours if that's the case. Um.

24:23.33

Ben Justman

Um, let's do.

24:28.62

ilm

Um, how okay so your dad did this business before you and you came in and now you've taken over the business sense. So tell me about your vision for like I would assume the business has scaled over the last couple of years like there's just more demand like you're really active on.

24:31.33

Ben Justman

And. Yeah.

24:46.11

ilm

Social media and all those fun things and um, yeah, how how have things scaled over the last couple of years and then what's your vision like do you want to create this empire where you are the next what I don't know I don't know wine very well. Um, but you're the next big thing and you take this up and you're an executive or like no I I want to keep it small and boutique early. Yeah, tell me about yeah how you got to where you are and where you are and then where you want to go.

25:09.58

Ben Justman

So the while my dad had a winery. It wasn't necessarily like a business that was operational at the time that I started doing this so he made wine for himself for maybe 6 years had a group of people coming to help make wine as well. He had a bit of a wine club a winemaker's club and the idea was he just wanted to make wine for himself. He grew all his own food. Got convinced to plant grapes. They turned out really nice and the rest was history for that. But we had this one massive year of pinot noircropp and so he um. Basically either had to sell all the grapes or get a liquor license to be able to make that much wine because he was over the threshold of a home winemaker so he got the liquor license and for 3 ah 3 2 years he was selling it so 2012 was his his wine that. And he made a ton of so about in 2014 he started selling it and that was like he had great success with no real business for energy like he was just like I have too much wine I'll just give it to people and sell my sister was living here at the time and was going to restaurants to sell it. And it was kind of like ah an it wine I mean I'm sure some of it was the mystery of not being widely available but people loved it around here. It was it was great wine and so three years into that he being a winemaker who you know was I say I hands off my dad was like ridiculously hands off.

26:43.45

Ben Justman

And also like didn't really know what he was doing didn't really care about it because it it. It all worked out fine for him. It wasn't in it for like all the money he was 65 and you know retired so he had his entire wine crop entire wine. Go bad 1 year because he didn't do some due diligence on. Um. Ah, barrel that was bad and it went it infected all the other barrels. So when that happened he kind of just said screw it I'm done. Um, this is not worth it. I'm just gonna make as enough a much wine as I want to make which is about two barrels for him and my mom for a year and the rest. He just sold the grapes to people so about a year or 2 into that was when I was realizing that I wanted to start a business I'd had a couple side hustles and was just working as a geologist and was not convinced of any career path there realized I wanted to be an entrepreneur. And kind of was looking for something bigger to like what am I going to do you know What am I going to do with my life and it just kind of happened that I was like oh wine is that's kind of there for me, you know I can just do that and so if my dad did it I can figure it out so started there 2019 um, like I said 2 years of having a full time job making wine as well. 2021 started selling and then have just been kind of growing pretty naturally from there. Um I started this thinking like I don't want to sell wine online.

28:14.37

Ben Justman

Because I'd had failure in previous businesses. It involved me being on the computer a ton was just not yeah no and I didn't want to do that I mean geology was not ah it was like work for the government was kind of the career path that I would have been going into and I would have gone crazy there. So um, but as.

28:18.82

ilm

It's hard to it's hard to be an online geologist man. Um, yeah.

28:34.18

Ben Justman

Then I found bitcoin I got on Twitter and and people started wanting wine off of Twitter from my bitcoin connections. So um, now it's like I'm in this spot where I'm maxed out on farmers markets I I can't take on anymore. Um I could hire people to run them. But it's pretty difficult to find labor around here and compensating someone for the drive as well as the sales just kind of takes away a lot of my upside there and as I said I want to have as much connection to the customer as possible. So i'm. Losing a bit of that by hiring people. So I'm kind of orienting where I'm going to continue doing those in-person sales go to these places where people have money build those connections there and then implement more of an online approach. So really keep my my costs down. No employees except unless like I get to a point where I really need someone to do some things but see how far I can build kind of on my own and keep as much freedom as possible where going into this I thought okay next step is a tasting room then I want to do like an event space and have the whole. Downtown of my hometown scene like kind of come to my place would be really fun but over time I'm realizing that the freedom of this is the is such a beautiful thing where these barrels I open them up about once a month once every six weeks and other than that.

30:03.56

Ben Justman

I mean I could hire someone to fulfill orders I can send emails from anywhere. So like I'm this very physical business that keeps me here with a ton of freedom to kind of do whatever I want where I have winters and springs with no specific commitments outside of managing my barrels. So I've kind of realized that I want to grow very streamlined do as much as I can online and sells and then if I ever have too much wine like if I have because I have to produce wine 2 years in advance of knowing my sales. So my production has scaled growing every year and I have. Um, barely caught up to production. So if I can scale sales more get to a point where I just am selling on my wine then that's super streamlined, super high high returns on my investment if I'm doing all direct to consumer. Um I think that long term. That's not totally where I want to go because a big part of being in this physical place being in my hometown that I think is super special. Well, it doesn't really make sense for my business at this point. Um, it makes sense in the future because a lot of what I'm doing is. I want to create the life that I want to live and that's I mean that's the reason I I love business I'm kind of in this just because I love doing business not because I'm like this crazy wine guy or um.

31:33.52

Ben Justman

Want to get super rich. It's just I like doing this So um to make my life better I can use my business to create spaces in my small home town that I enjoy so long term I think I'd like to go that physical approach and create a event space that has.

31:52.27

Ben Justman

Things that I like to do like music that I enjoy that kind of brings money to the downtown and allows other businesses to thrive around it but in in the short term. It's really keep things streamlined and then get to a point where I do want a little bit more. Time responsibility like maybe that's kind of when I have a family and I'm here a little bit more anyway and and kind of kind of have my kids grow up alongside the business and see what's going on there the whole time. So.

32:21.56

ilm

Have you ever have have you ever heard of or read the story of the Mexican fisherman.

32:29.40

Ben Justman

No I haven't I.

32:32.65

ilm

Oh man, so good. Go ah check it out for this I'll I'll send it to you but it's I'll ruin it for you. But it's basically it's a lot of what you describe there's I just tell the story. Ah there's a ah, a like a. Wealthy investor from New York is down in Mexico the small fishing village and he's sitting on the beach one morning and he sees a local fisherman come in. He just had a small little boat and he had a he had a pretty good catch. He said wow it's ah did a great job. You know if you ah. Ah, what do you can do after this you said oh after this I'll go and ah um, I'll go home and have a siesta and then play with my kids and spend time with my wife and then tonight I'll go out with my amigos and play some music and ah go to sleep and wake up tomorrow and do it all over again, go fish in and. Go home and have a siesta and play with my kids and spend time with my wife and go out with my my amigos. So ah, that sounds that sounds fantastic, but with how many fish you brought in just on your little boat have you ever thought about growing said well what would that look like well you could ah you can go and get a few fish or a few a few boats and you have a small fleet. And that would allow you to scale and then that would allow you to get a loan and then you can go get a ah a larger fleet and then at that point you're you're able to really scale this thing and you can go to ah, you're going to have to go and raise some money so you might have to move to the states for a few years and ah, ah, raise some some capital to really grow your business and then eventually you can go public.

34:03.18

ilm

And ah, then you'll be able to cash out. Um, he said wow that sounds fantastic. What what does that means? Well, you'll get a lot of money for that. He said well that sounds great. What within what said Well once you once you ah cash out from that. Ah that business. You can move back to us. You can move to a small fishing town and you can wake up in the morning and just go fish in and maybe have a siesta in the afternoon and spend time with your kids and your wife then go and go dance with your yourmigos at night and ah I I love that little little story. It's what what are you getting at and. So often what we're trying to do is right there in front of us. It doesn't have to be this elaborate thing and that's what so many people want is man I just want more time freedom I want to have impact on my community I want to be able to spend time with the people I care about and ah we we can't allow ourselves to get trapped in these in the weeds of what are we supposed to do from a. Ah, general, you know, whatever this this book I'm suppose a 20 exit. You know it's like well. But why? what? then? what? And ah, yeah, peeling back those layers of what's important to me. Why is that important to me. Why is that important to me and eventually get at okay this is this is why I want this thing.

35:03.31

Ben Justman

Um, you.

35:16.61

ilm

This stated goal like when I was when I was younger I thought I really wanted a private jet and then I was talking with a friend one time he said I do want spend all lot money on a jet I said oh man I just you know airports are a pain and security and with a jet you can go anywhere you want easy. So you you don't have to have your own jet to do that you can you can rent private jets you don't have to buy 1 you can just. You know rent a few hours and I realized that point I didn't want to own a private jet I wanted convenience of travel. Those are two separate things. We think that a jet equals convenience. That's not what I wanted and ah anyways, yeah like I love where your business is at and the way you're you're engaging with people. Ah, you're.

35:55.28

Ben Justman

So one point on that is I think out of context someone says I love business I don't really care about like making money or like really that's not my focus.

35:55.39

ilm

You're being intentional with it and I think that's that's a lot of fun. Um.

36:11.36

Ben Justman

I Think that that out of context that's like what what are you doing in business then but what I'm getting at is that I love doing a business stuff and in that part of that is making money I like making money and I want to do that. But the Baseline the Baseline part of it is. I Want to make a life where I'm happy and in that I think that if I'm happy I will have a successful business and I will have plenty of money coming towards me So I'm not I Just don't worry about that in the in the focus I Want to build this strong Baseline of a happy life. Um, and I think the money will follow that. So.

36:50.87

ilm

Let's ah guess I Want to go back to visiting your your wine plus bitcoin stuff now I'd be curious So as you navigate growing this business. Um, growing your direct consumer then eventually scaling into having built a.

36:57.60

Ben Justman

Um.

37:06.21

ilm

Really impact your small town. Um between now and then like how do you make these decisions for ah how to grow like if you you you like bitcoin you think Bitcoin is going to go up a bunch but you have needs.

37:18.71

Ben Justman

Um, in.

37:20.59

ilm

For growing your business like if I'm going to have grapes and or wine in 2 years I have to have grapes this year so you have a need to purchase more grapes. But how do you decide like all right I'm going to purchase the bare minimum to grow the business or heck I'm not going to purchase anything any sales like I'm closing down shop because I think bitcoin will do better versus like. Actually I'm going to grow the business further therefore it's less bitcoin I can buy how do you make? How do you make those decisions where to allocate your capital. Be it business bitcoin or the s and p and I know you're a big index fan guy earlier.

37:53.61

Ben Justman

But yeah, but yeah, so I've definitely simplified my finances as much as possible basically just bitcoin and um as much of the wine business as I can afford to have so um.

38:06.35

Ben Justman

The last few years before 2023 I was frantically trying to establish a ah bitcoin position and kind of like also while staying on the course for my wine production growth where. Every year I want to produce a little bit more wine than the previous year assuming a little bit more growth until I hit my production capacity which I'm at right now. Everything is is full behind me and I don't really have any more room. Um, so that would be a big infrastructure growth that I'd have to put money into. Um, which I'm not quite ready to do or 2 until I have more wine than I can sell so every year I want to release wine at 2 years old and sell it for a year and then release the next wine at 2 years old and so yeah, there's some fluctuation. My sales are gonna fluctuate a bit. Um, and my production fluctuates a bit based off of the production in Colorado so 2021 there was no grapes in Colorado and I had to buy wine from buy grapes from California that meant no peanut noir which is my bread and butter. What I grow. And a little bit of a disconnection from the sense of place that I've had so. There's always going to be these big fluctuations and things. It's not like I have this um set like oh I'll just buy more of this and I'll buy more widgets and I'll sell them and and and I'll make money. It's what's available.

39:30.10

Ben Justman

Um, what can I get and a bit little bit of estimation. So basically I I just in the beginning of this year released my first wine that was properly aged. So I finally caught up to production where I had to release wine early because I needed money and sell it. But.

39:43.40

ilm

And more.

39:47.15

Ben Justman

Now I'm selling wine from here on out that's at least two years old which is a mark of quality for me. So um, I've entered this next phase where now I have as much wine as I need and I just need to get sales and so I have enough wine that if I sell it all I'll be totally fine. For production in the fall. Um, that could leave me with some excess money and that's a point that I've never hit in the in my business because I've either been all in trying to get bitcoin or just so deeply far out invested in making wine. What I've done in the past is. Like I said just sell wine for bitcoin and that's kind of just I actually in 2023. That's that's when everything changed but that's when things changed for me where I stopped actually buying bitcoin and only had it from only gained bitcoin from bitcoin sales that way it was like. This is an easy way for me to just put some money aside and have the rest to invest in wine production. Um I think in the future if I have I've never had this point where I have enough dollars to put in 2 different boats like I've never had to make that decision yet and. What I'm kind of gaining like my plan moving forward expecting to have finally I finally aged into my business. This is like the period of time where I can actually start seeing some real returns in it. Um is to kind of just wait for accumulate capital maybe invest some in the business if I have excess. But.

41:19.97

Ben Justman

I Don't really want to be in the position of timing markets because I've done that so poorly in the past. Ah, but also like I said going back to the beginning I've learned about investing and I said that's not for me because that's a full time job I Want to run a business and I want to be happy and I want to have my savings in Bitcoin. So my thinking right now is. Sell as much wine as possible have some excess cash and probably just hold onto it and be able to invest in the business to smaller degrees not make any huge changes like I said I want to keep things streamlined and then be ready to attack if there ever is another huge bitcoin correction right.

41:57.26

ilm

Gotcha what? ah you I've seen you post over the last several months so like you know September was a big month for you then October was another record breaking month in November. What do you think led to all of a sudden like. Yeah, these these larger and larger months of sales. What's what's happening there.

42:19.34

Ben Justman

So ah, a lot of my that that was specifically just for online customers. Ah I'd say about 50% of my business last year came from four months of farmers market sales and the rest was basically just through Twitter. Ah, people wanting to buy my wine. Those people are bitcoiners and so a year ago my last November December January was the all time bitcoin bear market ah well not what recent all whatever. Um and every one of my customers at that point was feeling very poor. Or very poor comparatively and all their excess cash flow was going into bitcoin so I had some people buy wine with bitcoin at $15000 but like I didn't really at that point I wasn't orienting towards online sales and then throughout the year just continued to gain traction there. And for some reason septembers have been really good for me I don't know why every september I've had record sales and then going through that just kind of in the winemaking process sharing my story ah people feel connected to me so they buy the wine because september october is when I start. Making wine. So there's a lot more content to share daily and through that is also thanksgiving so great opportunity for people to buy wine and christmas which is great opportunity for people to gift wine buy wine for their own meals and everything. So I've grown through that. Um.

43:48.87

Ben Justman

And then in December I had the double whammy of releasing my newest vintage so it's a like exciting new wine I hadn't released a new vintage in 2 years and then also Christmas and people feeling more wealthy after their bitcoin investment has increased 3 x. Um, so it's this kind of baseline it's just kind of worked out that way but now looking forward I need to take things more into my own hands and expand my marketing or um. Business reach beyond just my personal profile on Twitter that's done me so well. Um, and actually this is like those last few months are like okay yes, confirmation orient your business to online sales where I've I've kind of just like had that as an option and focused on in-person since then. So. 2024 is me like actually dialing in getting focused and learning how to truly become an online marketing business to move a bunch of wine. Yeah.

44:54.91

ilm

Sweet Well ah if assuming bitcoin does well over the next couple of years if if ah if your wine experiences a bear market in correlation with Bitcoin's price then we would expect a bull market for ah for your wine as well.

45:09.20

Ben Justman

definitely definitely I mean also I found like um people that are into bitcoin tend to value slow moving businesses ones that are built on quality. They value connections with people. So um, I've built that with with plenty for. And the connections to place connections to like building a better world building and through good regenerative agriculture and all wanting to eat and drink healthy while people don't associate wine with like being healthy I think it's a super a super positive thing to have in your life where like to be talked about with your birthday. It adds this like extra level of connection and I mean there's ah been a reason that people drink alcohol for thousands of years you know it can lift spirits it you know, kind of liberates and and can make a time a little bit more special. Um, but also it's wine that doesn't have all the horrible additives. In it so you can drink my wine and feel very good comparatively the next day. So it's all these things that bitcoiners seem to really enjoy built in there and then so that's like saying these are my perfect customers because they really appreciate what I have to give. And then you get to the part where I'm also marketing to the future financially elite of the world. So my brand can grow with them.

46:36.23

ilm

You may I know like my wife Kendra she's very ah she she's heavily scrutinizes ingredients on everything she eats and ah makeup she wears and clothes she wears like ah possibly to a fault I think she'd even admit, she's a.

46:46.38

Ben Justman

Um.

46:54.92

ilm

Ah, yeah, very very scrutinizing and ah we were she was looking at your wine and reading about and everything over the last ah few months and she's either been pregnant or nursing for like 7 years now um but Adeline our our youngest just a few more few more months of nursing and Kindra's certainly excited to try your wine. Um, so that that speaks highly that she would you it passes Kindra's test because ah, most things definitely don't.

47:20.34

Ben Justman

No, it's and it's hard to find wine that you know passes it like I always just tell people meet your local wine maker and kind of learn what they are about That's really the only way because you don't have to put an ingredients list on a wine bottle. It's this. But all of wine. The wine industry is this like very secretive obscured industry I kind of relate a lot of it to to crypto and the crypto and bitcoin dichotomy because a lot of. Especially american wines are made to taste a specific way based no matter like what the grapes produce and the winemaker manipulates that through a bunch of additives to change everything you can think of like every sensory experience you can have on wine. You can change with with additives. And so that's like this very high time preference approach of make this very specific wine that you know will sell and you'll make a ton of money but there's also this very low time preference natural wine approach a lot of it's found like in in Europe this is just kind of the standard approach is to make wine based off of. Ah, farming practices that produce good wine and do a lot less manipulation and additives within the wine. So all the people that are producing the more fiat crypto wine is wine that you're hiding behind the label. You're hiding up behind this like veil of.

48:51.52

Ben Justman

Superiority or mystery and not telling them much about the wine and trying to make them just feel special with words where that's what I try and cut through is do you just like the wine. That's all that matters Beyond wine that makes you feel good afterwards. Did you have a good experience drinking this. And so taking that low time preference approach where it's not like all just buzzwords and Marketing. It's actually making sure people have a good experience I think wins in the long run. But yeah I could be doing more in my cellar and just flip in wine real quick and Click. You know trying to make a ton of money quickly. But I'm trying to build a life that's enjoyable in a sustainable business that people want to continue coming back to. So.

49:33.38

ilm

What's ah like with with most healthy foods. It's so it's a matter of not more ingredients but less so the question is not like what's in here but rather what is not in here and it's sort of like that's how yours is It's like what what is not in this and it's sort of the same time like the story we were talking about this earlier with like the the.

49:38.19

Ben Justman

You.

49:51.14

ilm

Overall connotation with the wine experience or the the Ritz things like that. It's not just a bed to sleep in or a drink to sip on there is this whole narrative along with it and your the story that you bring is sort of like that. Not. How many agreements are in this but rather what's not in this and your story is a lot of like so many other companies there're they are trying to they have a veneer of crud that they have to tell a story for and the story of yours is simplicity and purity and ah. It's almost a lack of having to you know cover it up with all these other things. Um, yeah.

50:35.40

Ben Justman

And yeah, um, the goal is to let the wine speak for itself and the I think the hardest the hurdle that I'm really trying to cross is how do I let the wine speak for itself when I can't always be there to. Give you that first taste because there is that level of trust I mean you buy a lot of people buy their wine from the store. They like what they buy. Um, maybe they ask the the wine store owner. What's good and and everything but I'm asking you to try this new wine that and order it online and like you know, pay for per. For some nicer bottles coming to your house. It's a bit of a risk I get it and so I'm really just trying to to be as open as possible and you know just make sure it's like yeah this is you know this is what you're getting I think you're really going to enjoy it a lot of other people do um but I'm not here to like. My philosophy like I said is wine sells itself. So I'm not here to totally sell and push the wine I think the story the wine it all will work out in the end but there is this barrier of oh we've never tried it. How do you trust that this wine is good. So that's just time.

51:43.56

ilm

It's like a year when people when people start businesses. It's like oh what your marketing scheme. It's like oh it's ah it's going to be word of mouth. It's like well if you don't have any mouths to have words in. That's not going to work. You have to have you know mouse for those words and for you, it's like oh well, you know it's going to be.

51:58.55

Ben Justman

Um.

52:00.77

ilm

Just by how they taste it or people who taste it like but but we have to have the tasters to taste and or for it to grow. Um.

52:07.74

Ben Justman

Yeah, so that's why starting with the farmers markets was such a big thing for me and then at this point um, so many people have ordered on online and within the Twitter bitcoin community that there's enough word of mouth at this point, the things are going well. Um, the the 2024 for me is about expanding that I've I've kept things super streamlined I've done 0 marketing and things have been working well. But now I just have a lot more wine to sell so it's ah formalizing things for me. So.

52:36.20

ilm

What's having ah drinking your wine. We're in Colorado this this past fall like since then like that's that's like whenever I want wine I I intend on just ordering more of yours because like I've tasted it I really enjoy it I think it really does taste great and ah yeah, it's ah. Easy to drink and ah, that's you know that is you are now my go to grocery store wine. Ah maybe that sounds bad. You're my go to wine because I've tasted it and I trust like I know that this is this is a quality product that I know what I'm I'm getting out of it versus ah and I know I'm getting out it from a taste but also like I'm not. Ah.

53:00.89

Ben Justman

I.

53:12.27

ilm

Again, there's not this. What am I actually drinking ah sort of thing like I was I was watching a video on if you ever come across this guy him's like Ethan Choblowski on Youtube he he's like a home chef does a lot of awesome tutorials I was watching a video of his other day and it was ah.

53:15.50

Ben Justman

Are you.

53:28.51

ilm

Ah, talking about truffles white truffles versus black truffles and he was talking about how so much of the truffle oils and shavings and stuff that we have are actually these other chemicals and things that are created to make it all taste the same and ah yeah, so you're wondering like not only what Like. What is this I'm eating like is am I actually eating the thing I thought I I was or in your case, the wine like I know what I'm getting from a quality perspective but even from a actual ingredient perspective which is certainly nice to know I want I Want to go way or sorry you want you have anything there.

53:56.14

Ben Justman

So go for it. Go for it.

54:01.95

ilm

So want to go way back in the conversation I was laughing and I had so many so many stupid jokes in my head you mentioned your geology and different things like you know I'm sure you had lots of geology jokes when you're in school. What what did you study in school wine wine or bones. What's.

54:16.68

Ben Justman

But geology is rocks Jim it's true.

54:20.91

ilm

Rocks Rocks rocks if there if there are bones long enough. They turn to rocks right? That's how it works I promise I'm not an idiot you you're digging stuff up I'm sure if you're digging if you're digging for bones. You probably come across a lot of rocks all right? So ah.

54:30.18

Ben Justman

Um, me gets hurt.

54:36.26

ilm

It might be good have a rock dude on hand if you're looking for bones just in case you come across a weird rock. You don't know what it is bring over the geologist. Ah yeah, um, anyways.

54:42.90

Ben Justman

Your personal but.

54:48.80

ilm

So earlier you said a few things that I thought were hilarious. So you mentioned like back when you're Index investor. You said you like you like things that are low risk and more of like a sure thing which we obviously know like there's no investment. It's a sure thing all the disclosures. Whatever Um, but it's pretty funny. You say that because you pretty much only own a small business is a small business which is.

54:54.10

Ben Justman

Um, you.

55:00.88

Ben Justman

Um, and it.

55:07.38

ilm

Very risky, especially in like the food and ah the food and beverage industry like super high turnover there. So I'd say that's a risky investment and then you own bitcoin which is also perceived as a very risky investment. So you said you like low risk and sure things but you own these two ah perceived as highly speculative assets tell me more about how you.

55:12.30

Ben Justman

Um, let me.

55:27.38

ilm

How do you? How do you sleep the night with that. Um, how how do you bridge that gap of I don't like Ritz but I own these things.

55:32.42

Ben Justman

So well, there's 2 different things of risk where investing in um, investing in the market is investing in other people and investing in. Bitcoin buying bitcoin is buying math that doesn't change and investing in myself is in taking the bet on myself is something that I wouldn't be able to sleep at night if I didn't do so I don't see I know bitcoin's volatile and um, you know creates opportunity. Um, like I when I was given the opportunity to buy at a lower price. that's that's amazing but if I yeah if I went my entire life. Not invest, not taking the risk in investing in myself. Um I would where how yeah how could I sleep a night. So yeah I had a lot of sleepless nights. Um, starting the business. Not really knowing where I was going I had my first couple of years I had some wine go bad. Um basically just because of inexperience and through that I've I've made it to the point that I am and um I guess I just I see.

56:45.88

Ben Justman

Investing in yourself as the most important risk you can take and ah for a lot of people. It's like most people would not succeed as entrepreneurs I mean it takes definitely a a high level of risk tolerance that I think I gained through just exposure for risk through skiing. And being comfortable with being somewhat out of control or being in that moment of Wow I Really have to make this happen.. There's no one that can help me in this instantaneous Moment. So I just am naturally like okay with high risk tolerance and if there's something I can do about it. It's great. But I know that I'm also not a like trader. And financial expert able to be timed in with everything. So um, essentially my comment there with not wanting to take risk was not wanting to take trade risk not wanting to bet on other people and you know. Um I was just doing Index funds through the lowest cost um virtual automatic investor because I knew that within the fiat system I had to take risk. There was nothing I could do but take risk if I was earning a wage I have to be able to keep up with or and grow my wealth past inflation which. Um, now I'm on this other paradigm of I have bitcoin that um mathematically will grow if it doesn't fail I'm also on the in the camp where if Bitcoin Fail Bitcoin has to succeed not it will succeed and I can just bet on myself and continue growing.

58:19.26

Ben Justman

Where I think I have skills. So I think I'm good at what I do and we'll continue getting better at it and with that will come good returns.

58:27.95

ilm

I love both your responses there like ah so much of that the ah yeah, investing in businesses investing in people and their their marketing efforts and a you know board of directors and their sales. All those things you know buying bitcoin is is your you're investing in math. And ah adoption like I yeah think that's true and in the matter of like investing yourself. That's something I used to get a lot was ah what if like when I started my own business. Um, it's like man aren't you aren't you afraid of it not working out so I it was a. Three years ago today is the anniversary three years ago today I was fired from ah I was fired from out of the firm. It was funny. It January Tenth is my birthday so three years ago yesterday I was cooking dinner for my wife and I and the kids were down I was cooking dinner and I was supposed to have lunch with my my boss the next day said what? if what if tomorrow at lunch they fire. You.

59:03.57

Ben Justman

Um, they are.

59:20.12

ilm

And ah, there's no way they're going to do that they know that we have a baby do our third babiess do in two weeks and we just moved here to like started this company. They're not going to do that? No no one would do that and ah sure enough the next day my lunch meeting was canceled I got canned. Um, yeah, it's pretty cool.

59:32.13

Ben Justman

Smile.

59:35.72

ilm

Ah, but it's okay I I was intending on starting my own firm eventually I'm I'm a very bad employee because I'm super opinionated and um, yeah so writing was on the wall there and I I don't no hard feelings. Ah it was yeah it was a it was a nice confirmation. Um. Anyway, so today's anniversary of me getting fired and that was pretty funny because I was actually I was I was going too quick. Um, and I was actually just thinking man if I go start my own business I'll probably never be an employee again and and maybe being fired is an experience I sort of wanted to have and I literally was thinking a few days before I was like I never got fired from a job in my life and I got I had it. So. That's pretty cool and.

01:00:14.69

Ben Justman

That's funny I've actually have a similar experience with that where since all my sales were during the summer during the winters I was moving to a ski town to ski and work in a restaurant to like gain a little bit more connection with wine but really just get out of my small town. And make some money over the winter because I didn't at that time I didn't have enough wine to really to sell and so I did that the first winter 2022 ah and you know did well had a relatively enjoyable experience at the restaurant and then 23 my winery was picking up a little bit and I was kind of in this mode of like. Yeah, I'm making good money here I don't totally enjoy it and I don't need it and I got fired last winter. Um, and that's the last job I'll ever have.

01:01:00.19

ilm

It will if then you shouldn't have been eat. People's foods while you're trying to deliver a tool you come on. You know that? Well yeah I hope maybe you probably want to be an employee ever again. So that was your one chance and I'm glad you you took that one shot of one opportunity to get fired. Um.

01:01:06.80

Ben Justman

Ah.

01:01:18.30

ilm

Um, that oh I was going is when I when I when I left that company. Ah, ah, not by um, my my own choosing when I when I left that company. Um I had some friends reach out and say yeah like yeah you can go get a job at these firms and you could do really well and I could I could make a pretty good living but I wanted to start my own thing and I had friends who thought I was crazy like Jim you. You're about to have your third kid your wife my wife Kendra stays at home with our kids. We have four kids now. It's like you should aren't you nervous that it won't succeed and ah or yeah are are you afraid of that and for me the the best way I could put that is for me personally the fear of failure was far outweighed. By the fear of regret of never trying. So yeah, if it doesn't work out like who cares. But I know that if I was 60 and I never tried it I would have so much regret of like what if and that that what if what it was way stronger than like don't work out what it like okay cool. We'll go try. We'll do something else.

01:01:59.77

Ben Justman

Um.

01:02:15.80

ilm

I'll go get I'll go be a employee for 5 years and we'll try it again like I'll keep coming at you like ah if anything I'm I'm persistent.

01:02:22.54

Ben Justman

Um, yeah, you can always you can Ah, there's always a ah fallback like if you. Set high goals and don't reach them and things don't work Out. You learned a ton and I mean so much of this is just learning building and and doing better the next time but something that you have that I don't and and um was that pressure of supporting the family. Where if I fail you know I've I've lost some money but it's really just me and I can go get a job and and find myself on the way back up. But if you failed you you had a family to support you with people counting on you and so that's just this like extra level of push like um. This extra level of I have to make this work and I'll figure out a way and that's sometimes I think you might not have taken that risk if you hadn't been kicked out of the nest so in in some way like getting kicked out of the nest and being told like go ah be telling yourself but like really kind of the the universe telling you. Go fin for yourself was probably the best thing that could ever happen to you.

01:03:28.15

ilm

Yeah, it's fantastic. Um, what? Ah the other thing I wanted to speak to is I loved the way you said this earlier is you're talking about bitcoin and how like you started buying it a bunch of 50 and you mentioned that you have a high conviction of where bitcoin will go. But then when bitcoin dropped from Sixty Nine Thousand to 16000 over whatever ah eight month period on it. It's all a blur but when that happened you said your your reason there is not that I'm irrational for buying it at 50 your reasoning is people are irrational that led the price to go from 69 to 15 it's the yeah, obviously everyone knows there's irrationality and investing so you could pin it on yourself of yeah I bought I made a super investment but rather you you pin that on the general market of being irrational and not understanding. Bitcoin can you ah you expound upon that I think that's hilarious and I agree.

01:04:05.70

Ben Justman

Um, you.

01:04:18.95

Ben Justman

Yeah I mean so much of investing is not necessarily like knowing the in the short term is not knowing the underlying value of the asset. It's knowing the value that other people perceive that asset so the underlying value of bitcoin is infinite dollars in my opinion. But. Obviously people don't agree with that in the short term so you know at that you know twenty seven Twenty Eight year old winemaker with no investment. No real investing experience I like Macroeconomics and it's something I'm I'm interested in but um, it's it.

01:04:42.46

ilm

What.

01:04:57.96

Ben Justman

I Guess I wasn't mad at myself because it's like look the goal is accumulate as much bitcoin as possible I could have more bitcoin than I do right now if I time things correctly. But I also learned a ton in those times of like really you know having like.

01:05:04.19

ilm

Take me to? yeah thanks sir.

01:05:17.36

Ben Justman

Just such a visceral Wow you did that wrong? um experience like pretty instantly and so now it's like I'm glad I learned those lessons early I could have more bitcoin but if I had more bitcoin from timing things correctly I'd probably make those lessons learn those lessons later and it might cost me more money. So I'm thankful.

01:05:33.18

ilm

Yeah, you learn them with more bitcoin.

01:05:37.45

Ben Justman

Yeah I'm I'm thankful for the slap in the face right away and then with the way I see every price drop is I think that the way a lot of bitcoiners see the price drop is um I'm thankful that I have an opportunity to stack more sats at a lower price because I don't see I don't.

01:05:53.50

ilm

Are.

01:05:56.21

Ben Justman

I view like long term future. Yeah, taking advantage of bitcoin wealth but short term. It's really I have to make this business work and that's where my capital is going to come from. That's where I build the life I want and then all the sprinkles on top that's all bitcoin. So um, it it forced me to really. Get out of the wow you're going to get rich quick on bitcoin mindset like whatever I had of that was just had to be like driven out for me because it was like I made those I made some purchases at both tops and um, the first one especially but the second one was a low slow long grind down. To a pretty low point that that that winter and then I mean since then it's just been I think everything like that was a turning point for my business that was a turning point for figuring out what I wanted to do with my life and having. Ah, bunch of things kind of coalesce at that point and really hitting a low and then building both myself and the business and watching the bitcoin price kind of grow along with me slowly has been pretty confirming that I've built this really strong base heading into 2024 and the rest. Coming along. Okay.

01:07:09.97

ilm

Sweet Well man I I think you'll do well I think ah your your store your connection with with people the quality of your wine. The lack of things that you're putting in your wine and just allowing the grapes to speak and how you grow them and everything. Um. Think it's phenomenal and um I would be absolutely astonished if you don't continue to grow in parody with Bitcoin's adoption rate ah may may your adoption rate scale as Well. Um, but then thanks for.

01:07:40.70

Ben Justman

So.

01:07:43.15

ilm

Thanks for joining me and we covered a lot that had a lot of fun. So thank you for coming on.

01:07:46.89

Ben Justman

Yeah, thanks! Jim this great time.

TILP #09: The practical and emotional sides of investing w/ Clay Finck

00:02.50

ilm

Clay Fink thanks for ah, joining me here today. Looking forward to talking to. You should be a lot of fun.

00:09.40

Clay

Well Jim ah I've hosted a ton of podcasts and you've been on a ton of podcasts. So it's interesting to turn the tables and ah you know reverse the roles for this one.

00:19.70

ilm

The turntables have yeah this would be thispi a lot of fun. Yeah, think you you host a small show. Um that that's out there. So hopefully also help get your name out to the crowd and maybe get some increase of viewership of your your little thing.

00:37.37

Clay

Um, yeah, hopefully.

00:39.26

ilm

Yeah, well I'll do what I can no well yeah so clay. Ah yeah, if you want to just tell us about yourself you what you do and where you're at what you enjoy and we can. We can go from there.

00:53.90

Clay

Sure? Um Clay fink host of we study billionaires and my prior life I worked in insurance for 4 years and knew that that route wasn't I wasn't what I wanted to do ah for the rest of my life and. Ah, thankfully tip had an opportunity come up for their millennial vesting show and I talked with Jim on that show a couple of times and I recommend people check out those conversations where we talk about financial planning bitcoin money. Ah everything else and ah. Yeah, so I was host of millennial vesting for a year after I transitioned out of insurance and then ah been a host on we study billionaires for just over a year now and ah yeah, it's been the time of my life and then Jim we've we've gone back and forth too on ah the community I helped tip recently launch. Ah, back in April it's called the tip mastermind community and we have just over eighty members there and I'm kind of just helping our many of our audience members just kind of get connected with each other just another learning avenue outside the podcast where people can get more personalized. Information from others or just kind of keep in touch with others on what's happening and how others are managing their portfolios. So ah, yeah, it's been ah the time of my life working with ah tip for just over the past two years

02:14.70

ilm

Yeah, this will be fun. You've had an opportunity to talk with so many smart people and glean so many nuggets that's why I'd like to sort of camp on that today just hearing some of your favorite conversations and thinkers and. Key takeaways that you've had over the years um yeah let's let's let's go there so I guess first off, what for those who don't know what is the investor' podcast and we study billionaires like what are you usually talking about what's that what does that look like.

02:48.40

Clay

Yeah, so ah, tip is sort of going gone through these different phases. Initially it was Preston and st they started we the we study billionaire show in 2014 and ah. You know for years. It was just a weekly hobby almost and then um, all of a sudden the podcasting space matured it developed more and more people started listening to podcasts a advertisers started to get interested and presstonig realized the incredible asset that they were sitting on. So around 20192020 has started to turn into a real business for them where they could start hiring people. They could start you know, developing a process for taking on advertisers and building a business around the the podcast and then ah, that's led to tip launching other shows. Led to a news. They have a newsletter now that has over 35000 subscribers. So ah, the the showss outside of we study billionaires is ah obviously Preston piss yourself bitcoin fundamentals who you just had on. Your show 1 of the first episodes and then we have William Greene hosting our richer wiser happier series where he brings on you know these you know legendary investors and many of them are billionaires that he's developed relationships with for the past ten twenty years he had a long career.

04:18.32

Clay

As a journalist interviewing these types of people. The Bill Miller's the you know Peter Lynch's of the world and ah so he's been an incredible asset to tip in addition to our team and then um, we also have a millennial vesting show that Jim you and I chatted on. Um, that's on a different podcast feed. But yeah on the we study billionaires feed. We mainly talk a lot about maybe just business and general in general or we talk a lot about stock investing so that's mainly stegan I nowadays and ah, yeah, and then. Preston and William Show are also on that same feed too. So yeah, so subscribers to that feed are ah, kind of getting a host of different viewpoints perspectives and such.

05:07.87

ilm

So You let's go here actually um, where so you you like me I live in this weird dichotomous world of of bitcoin and thinking about macroeconomics and monetary and fiscal policy. I Think that makes a lot sense and it's fun and intriguing and I think if you do not pay attention to these things, especially if you're working in the money industry are sort of bearing your head in the sand. But also so I live in this this place. But Also I'm a financial planner in a very traditional sense I'm a certified financial planner. And most most cfps out there tend to sort of bury their head in the sand and they say that hey if you're if you're considering the macroeconomic environment you're trying to time the Market. That's an evil thing to do and you should You should be on autopilot in totality in the moment you look you look up, you're you're you're foolish. So for you, it seems that you also live in it in a different but also in a dichotomous world of very staunch traditionalism of investing you're talking to people who have built businesses and ah you know you're talking about like valuation of company stocks. But then also.

06:18.79

Clay

Um.

06:19.59

ilm

I mean you and I just hung out for a week in tell you I Colorado with a bunch of crazies talking about bitcoin and macroeconomics which is they're they're certainly not in contrast. It can seem that they are a lot of people who especially if you're entrenched in the traditional world. You might think that bitcoin is the intenthesis of that which I would argue. It's not It's actually. Ah, going to be a restoration of the health of that. Um, but again the perception is these things are are conflicting. So for you. How how have you navigated living in this traditional sense but also living in this like I own bitcoin to and where to put your money in those conversations and is it.

06:45.25

Clay

Here.

06:56.87

Clay

Um.

06:58.63

ilm

You have these conversations with traditional managers. What's going through your head when they when they talk about ways of viewing money in traditional sense versus like you know viewing it as a bitcoin or press and pitch side of things that was like 8 questions and 1

07:12.45

Clay

Yeah, yeah, um I Love that you went this direction because ah yeah, you and I are definitely in those worlds where you're talking with financial planners and they want nothing to do with bitcoin and I'm talking with ah fund managers who could care less about it. And ah, you know everyone has their own perspective on it. Um, one of the interesting things is yeah I have this mastermind community that I'm ah leading for tip and many people in the group do own bitcoin. But like the people joining they joined because they want to talk stocks and it's just something that is intellectually stimulating for them is something they enjoy doing and bitcoin May or may not be a part of that and I mentioned to you earlier that? ah. Bitcoin. It's kind of this thing. Ah for me personally like it's a part of my portfolio and it's kind of just a set it and forget it type thing you know I don't care if it drops by 50% tomorrow I don't care if it goes up by 50% tomorrow. Um, although that would be nice. Um, you know, no matter what. Happens really on the upside or downside I plan on just hanging on to it for the long run and that's kind of the way I view it and you know many people in the group that I'm talking to kind of view it the same way in that they believe in it long-term but they don't want to have 100% of their assets.

08:40.52

Clay

And this 1 thing and that's kind of the camp I'm in like you know I want a investment approach and investment style that allows me to sleep well at night it allows me to ah you know not have to worry about checking my investments all the time. So for me, that's led to me. You know, have a portion of my investment assets in bitcoin. And then a good portion is also invested in stocks and ah, that's the approach I feel like is most appropriate for me. It's what I'm most comfortable with and um I just honestly enjoy looking at companies and talking about companies with others and um.

09:18.65

Clay

You know, being a host on the show I've wanted to be very mindful of you know, not be not um, being so not thinking in such absolute terms and thinking that bitcoin's going to take over the world or um, a certain company is going to do amazing. Um, so diversification I think is something that's really important for me and um, it's just an approach to that I think just works well with ah you know what? my goals are what my temperament is and you know where I want. You know to be 102030 years down the road financially and then also on the macro point of view. Um I thought that this might come up today. So I I jotted down some notes on ah some points I wanted to make related to macro. Um I think I think it's certainly. Important and it you know drives many things but you know determining you know how the economy is going to act in the next one two 3 years or where interest rates are going to go and then how that ends up impacting markets is incredibly difficult if not impossible and. You know I think in 2021 if you wouldve told a lot of these macro forecasters that interest rates were going to be 5 % in 2023 mortgage rates were going to be 8% the fed would have sold off $1000000000000 off their balance sheet I I mean they would have told you you're in crazy land and like that would just destroy the markets yet.

10:52.56

Clay

You know stocks you know haven't crashed like they probably thought they would and you know these simple correlation causation if x then y thinking um can be very dangerous and I wish life were at were that simple and the world were that. You know, easy to predict. But ah we live in a very complex world and that's just something I've kind of come come to terms with this year and um, yeah I just try and focus on things I can control and things I feel like I have an edge in and part of that when it comes to like. Investing in stocks is just finding a handful of really great businesses buying them at what I think are reasonable prices and then just hanging on to them because I think we just live in a really short-term world world where people are just really impatient and a lot of people aren't willing to ah, buy these and hang on to them. Ah, for a really long time and then another point I wanted to make is that if you look at like the best investors with like credible long-term track records and say you pull 20 or 25 of them you might find like 1 or 2 that. You know achieve the results they did based on making macro predictions like Stan Drak and Miller is one that comes to mind but like most ah, mostly the other ones were all almost all of them I would say were're stock investors. So I think that also points to how difficult it is to predict the macro.

12:24.91

Clay

I guess not only predict the macro but also predict how that impacts the markets because you know tons of people have made accurate predictions but in terms of how that affects their portfolio. It just makes it so much harder in my view. So yeah, it's just my general thoughts on some of the things I've learned.

12:37.25

ilm

Yeah I mean it's it's it's not too. It's not. It's not too hard to be hard to be right? eventually? Yeah I could be right eventually about most things there will be a flood in Texas like all right like 15 years from now. It's like I told you so it's like dude.

12:47.28

Clay

And.

12:56.52

Clay

Um, yeah.

12:57.10

ilm

I've been sitting in a raff with a life jacket on for the last fifteen years I've wasted a lot of time and that's I mean ah Warren Buffett a very popular saying of his is what the ah the market can stay ah irrational longer than you can stay solvent I probably just butchered that. But yeah, it's this. It's this thought of.

13:11.23

Clay

We hear.

13:16.97

ilm

How not only how right are you? But how right are you in the time frames you're considering and how do you place that into what you're owning your yes what you're owning but also like where your head's at I like that you mentioned that ah that you know you wouldn to be able to sleep all at night as well. That's something I speak to regularly is like.

13:30.97

Clay

Who.

13:36.68

ilm

You're not ah, you're not a spreadsheet or in a math equation like we're not trying to optimize you as an excel document your person with emotions and convictions and with desires and goals and you have to consider these things that that goes into like how do you invest it also goes into like note debt. It's like hey Jim like I have I had this.

13:40.29

Clay

He.

13:56.12

ilm

Had this debt should I pay it off and it's like well we could we can look at the math we could break that down and sometimes that's really important like if some people really need to. We have to optimize spreadsheet wise should you pay out this debt or not but a lot of times. It's less that it's more of like yeah look mathematically, you should pay off this debt. Because of x like the risk free return right? now is 5% and your industry on your debt is your mortgage is two and a half percent so yeah math would say don't pay that thing off keep that as long as possible. But yeah, if you're sitting here. It's like look I I just don't like debt and I can afford to pay it off and it really wouldn't change my life at all. It's like cool. Well. I hope you sleep well and let's let's get that thing taken care of so I like we've got to. We've got to sit on that with with portfolio as well. That's where you know people get caught up gosh. There was a ah, there's a study that was done several years ago that was comparing investment versus investor returns.

14:50.38

Clay

N.

14:51.27

ilm

And there is a ah, pretty good gap between the 2 and that that gap they've labeled the they've labeled the behavior gap the the behavior gap is why is there this chasm of a few percent between these investments. But then the people who invested in those underlying investments and that can be related to.

15:00.10

Clay

Ehe.

15:10.67

ilm

Behaviors and that's what's where it's really important to think through if you're going to buy something you better have high conviction of what you're buying or at least be willing to stay put if otherwise you're gonna be like someone who goes you can go to a ah you know you go to 6 flags or Disney world and you get out a roller coastaer. You're you're sitting outside of line of a roller coastaster.

15:13.80

Clay

Um, yeah.

15:29.74

ilm

You see that wow those people look like they're having fun doing it and all my friends want to do the roller coastaer I don't really like those but I guess I'll do it myself and you get on and you start going up. It's you're going up this thing and you start going this massive dip and you realize as you're going down or oh the first loop you realize you know this this isn't really for me. You take off your seatbelt. That's the worst time to take off your seatbelt. So you you want to think through is this something I can tolerate prior to getting on the ride now. Obviously this this equation or this ah this analogy falls apart when we introduce like Enron. It's like look if you own enron I don't care if you're going around the loop or not, you probably should go ahead and bail.

15:56.25

Clay

In here.

16:05.62

Clay

So e.

16:07.39

ilm

Um, but if you're sitting on something that's relatively sound. Um, you know you you want to consider like should I take off my seatbel right now and and risk massive hurt. Um, or why? why do I buy this thing and it would do people go long ways and just help bridge that gap or close the gap of this behavior gap. If We just thought through not just the investments but also my yeah, how sweaty will my hands be while I'm sitting on this roller Coastaster. So yeah, again, you're not, You're not an equation and I like that you're you're a good guy clay.

16:36.13

Clay

Yeah, you yeah, you ah brought up some really great points. There. Ah, one of the interviews I had ah is with Chris Mayer he mentioned that even the great investors they trail the market. 1 third of the time so say over a 10 year period they might drastically outperform but there's going to be 2 or 3 of those years where they're going to be and underperforming and that points to the behavior gap you have where people tend to chase. Whatever's hot and then they bail on whatever's not doing so hot.

16:55.40

ilm

Um, shoot.

17:11.40

Clay

So They're just like making their decisions based on whatever prices are doing when in reality the great investors they understand a process they're sticking to it. Um, and then they're sticking with that process. You know when things aren't going their way. They're sticking with it and Understanding. You know why. Um, essentially they have a thesis on why it is ah their investments are going to work over the longer term and ah yeah, it kind of points to what I was saying earlier where people are tend to be too impatient. They tend to make changes too often to their portfolios and just kind of. Ah, Fall Prey to all these biases that you're mentioning.

17:54.96

ilm

there's there's ah there's a nice equilibrium of conviction and patience but also agility that's in in the interview with with Preston I spoke to him about this gentleman who has been managing money for since the early eighty s. And I was talking with them a few years back and you mentioned that his most of his clients are sitting in like 80% bonds 20% equity portfolios and I asked him about his thoughts on the risk of owning such things and he said that well look I've look I've I've done really? Well I've been doing this since 1982 and that's where yes conviction.

18:20.97

Clay

Okay.

18:26.48

Clay

Here.

18:31.26

ilm

Is is good and all ah but it better be founded in something not just recency bias. Ah, but actual a a good ah sound thesis and so yeah, there's this this this healthy marrying of agility and critical thinking. And it can't be based off critical thinking 1 time based off of one thought I had but does it still make sense and that's where investing is really interesting. You run into so much so many biases something I hear regularly for for especially like a new client will come on and they'll own.

18:51.80

Clay

Again.

19:05.24

ilm

We'll be looking at their portfolio that they've owned prior to working with us and a lot of times they'll own something that they've owned for a really long time and this thing maybe it's down a lot. Maybe it's a stock they bought several years back and it's down 40% and it's like hey man I really want to I don't want to sell it yet I just want to wait for that to get back to break. Even.

19:11.13

Clay

Your head.

19:24.14

ilm

And then we can go invest it in something else. It's like okay 1 we can look at this from so many directions if it's in a taxable account. Okay, well we can harvest the losses now and offset capital gains or offset some earned income like why like that that makes sense too.

19:25.10

Clay

Yeah, um.

19:41.16

ilm

Do you want to own this thing versus owning something else because you think that during this timeframe this thing that's down 40% will outperform the other asset that we would otherwise sell it into or is it because you are so anchored into getting back to your initial purchase price that you'll wait out whatever time it is because then we are back to a simple math equation like. Will X outperform y over this time Again. We don't know but we're guessing It's like yeah I own this hot pile of garbage but man I want this thing to get back to where it was so I don't feel bad about myself Again. There's just so many weird biases here that we succumb to and that's where you've you've had an opportunity to talk with so many smart people who.

20:08.95

Clay

You hear you replace the box.

20:19.13

ilm

I Think a big part of this is being aware like I know for me I know that I'm not that smart about most things. So I I try not to have these biases because I at least am familiar withized I can succumb to I think it's a lot of it. It's just being aware of what you your downfalls can be.

20:22.75

Clay

Um, in her name.

20:37.66

ilm

And I think that's that's ah, that's a big part of being smart is realizing what you're dumb in in a sense and I think that's those are some of the hard lessons of life learning these things.

20:41.36

Clay

Yeah, yeah, yeah. Yeah, is it the dunning Kruger effect or feels like you know a lot in the early stages and then it like totally drops off and then goes goes back up. Ah yeah, speaking with so many smart people I think ah it has a way of really humbling you. And um, just making you humble in what you think you know about the world and the assumptions you make because ah people want to feel like they know what the future holds and they want to you know, follow people that make these predictions on what's going to happen when in reality. Yeah.

21:09.50

ilm

Um.

21:26.35

Clay

We Really don't know what's going to happen to a lot of things. Um, yeah, and it really just makes me humble and the ah fund manager you mentioned with the ah yeah, that was heavily weighted towards bonds. Ah, it reminds me of you know, kind of the inertia. Of people kind of find a process they find out that process works and then it's just like people have a really tough time sometimes to adapt. Ah when it's absolutely necessary to do do so and you know there's so much evidence that they need to rethink how they approach things.

22:03.73

ilm

I Heard Ah yesterday I was listen to a podcast and the the guy was I'll remember how it came up but he mentioned just this ability like over time what wisdom and things you can glean and what he mentioned was. When you're young when you're young, you think that you're real strong. You know like I have my Oldest. He just turns six this week and he always talks about all my all my boys regularly. They show me their muscle all the time and how strong they are So when you're little you think that you're stronger than you are. And there's a like there's a point in life that you realize you're not as strong as you thought you were and ah you learned some lessons that way. But then you also go to a point later on in life. You realize that being really strong isn't really that important and I think those are different Phases. We all go through from you know muscles but also like. These other things we put such an emphasis on like oh I I you know whatever I'm going to be rich. It's like man if when I when I zoom out you know, maybe I don't have as much as everyone else does and then you later gone. It's like hey these things aren't even that important like why did I chase this and ah, just really really sobering. Especially.

23:00.64

Clay

Who.

23:12.32

ilm

Yeah, yeah mean there's there's some. There's some wealthy people who are really happy and that's awesome. There's other pit wealthy people who are miserable and that's sad. Um, but really what it comes down to is you can learn early that ah all that stuff at the end of day is not going to make you happy or miserable necessarily like that's that's a good lesson to learn.

23:21.65

Clay

Um, in here.

23:30.57

ilm

But also recognizing other lessons like you know being ah being ah agile enough to recognize like okay I've I've owned this thing forever therefore it keep doing what it'll keep doing well like man you need to progress your your your frame of reference around these things. So yeah I think there's just it'd been. I'd love to see people and you're in ah, you're an amazing position that you can glean wisdom from other people that having to learn these lessons the hard way yourself and ah I try to keep an open eye where I can glean those lessons themselves that way I'm not having to encounter and learn everything the the tough way. What are some of your favorite takeaways from conversations you've have. You've had where it's like oh that's that was a that was a good lesson to learn. Maybe it's a hard lesson or a fun one. But ah I'm going to I'm going to put that one in my back pocket I don't have to navigate that myself. But I can at least take the lesson away is or what are some of your favorite things. You've you've got to glean over the years

24:24.81

Clay

That's a good question. Um, a lot of them are related to what we mentioned of just like being humble and ah being ah, really mindful of you know what your biases are and um.

24:41.67

Clay

Yeah, just being humble in what it is you think you know, but ah, I'm reminded of a conversation I had ah last week with the fund manager and it kind of ah reminded me again just on the the true power of compounding and how it relates to investing and. Um, I'm sure you're aware of this and with all the people you speak to and you know they want to they want to do all these things today which is like great you know, but also recognizing the power of that long-term compounding. So it's kind of marrying the 2 of you know what do you truly value in life. And then recognizing the sort of rewards that compounding can give you later on down the road ah years ahead and I'm sure. Yeah that mixes in with a lot of the conversations you've had and we've talked to talked about it on the millennial vesting show. But the compounding example he gave me he ah he had said that compounding is convex on the upside in concave on the downside and you know I asked him to sort of explain what this means and he gave an example of say you have 2 investments.

25:45.15

ilm

K.

25:54.70

Clay

They both started a hundred dollars the first one is an incredible investment say you pick a stock and it compounds by 26% for 10 years and then the second the second investment compounds by negative 26% for 10 years So ah, over that 10 p. 10 year period one investment ends up becoming a multi-bagger and then the other one essentially becomes like a 0 but since compounding is convex on the upside in concave on the downside. Your upside is essentially um, unlimited when an investment does well and it's. Limited the downsides limited to whatever you invest. So even though 1 investment did you know is almost a zero. Ah you still end up getting an average return of 17%. So even though you only had a 50% hit rate you still end up with a fantastic result because of the asymmetry. That compounding offers and that's just you know when you're putting together a portfolio and just thinking about individual stocks ah like like I am like many of the guests I have on are it's just amazing to think that. Ah you know you need to be humble and you don't have to be right one ah hundred percent of the time you know you can even be right 30 or 40% and still ah end up with a fantastic result if ah, you know, individual stock picking or you know picking investments is something that's in your wheelhouse and something you're interested in. Um, yeah, that's a 1 a.

27:27.10

Clay

Lesson I found really interesting in a recent interview at least.

27:29.76

ilm

We think back in ah remember when the Covid shutdowns happened. You know, ah sports were put on pause and traditional means of gambling were put on pause and then suddenly we had this massive rise of people utilizing. Ah you know, just investing Apps. And the rise of Meme stocks and people speculating the Market. What are your thoughts on that just like you know so anyone doing some investing versus how educated should you be when you and like what's the difference between investing in gambling and where does that where does that crossover take place.

28:08.41

Clay

Oh man. Yeah I mean ah, most people investing during that time period were essentially doing gambling but ah yeah I mean.

28:15.43

ilm

I Think yeah, there's a reason you saw this correlation of traditional gambling go down and rise of these memes stocks get in tandem. So sorry, keep going.

28:25.55

Clay

Yeah, yeah, I mean if if you're buying say individual stocks or you're buying options or whatever else then you need to obviously have a firm ah understanding of what the heck it is. You're buying so you're buying options you need to understand how a call and a put option works and understand that in some cases. There's 100 % downside in you know a month or two months or however long the duration is when it comes to stocks I mean for me I've I've just read so many. Ah, books on the subject that I can typically just look at a company and disqualify at least 95 % of them just because I know exactly what I want I know the type of kind of risk return profile I'm sort of looking looking for and um, yeah, just looking for. Just filtering out things like highly indebted companies or ah, maybe companies of a certain size I don't want to buy a lot of the mega mega caps oftentimes and looking at you know the managers and like are they just being compensated. You know. Ridiculous levels relative to how big the business is that's all too prevalent and then stock-based compensation is something that is all too prevalent and I mean for someone that's like just getting into this stuff. I mean you should most likely limit.

29:54.30

Clay

You know some of your individual picks to a small portion of your portfolio and like you know the tried and 2 true methods are what should be like the foundation of like most pupils Portfolios things like an index fund and s and p 500 fund things like that. Um, and yeah I mean. Yeah, if you it's really hard to you know distinguish between investing and gambling because it's just all totally subjective and you know there's only so much you can know about a company but um, under I will also mention that ah.

30:32.56

Clay

The the market is the always has a way of humbling people. So like you know, getting that experience of losing money in the markets is like so humbling and that happened to so many people in 2022 2021 after the covid rise and um. There's so many insight that can be gained from that too and almost all of the really good investors went through those periods of having to learn things the hard way rather than learning them from a book or a podcast.

31:02.54

ilm

Yeah there's there's some lesson you just got learned the hard way one of the lessons I learned several several years ago. Um I bought a company did really well it was it was nothing for the longest time just sat flat and ah. Yeah I checked my account and suddenly this thing within a week like five x did just incredible and ah and and unfortunately unfortunately at that point we were were we were within days of it reaching a place of long-term capital gains versus shortterm cap gains. It's like all right man like. I don't love this company I haven't loved in a bit. Um I won I want to go ahead and sell this. But if I literally just wait a few more days I'll be able to take advantage of long-term cap gain rates and ah, that'd be that'd be more fun I'm not make this somehow in the few days of waiting this company went bankrupt. Um, and that's a tough lesson of you know that's. Why did you buy something in the first place. Do you still have that thesis behind it that same conviction or is your conviction change. What are you anchoring this position in and ah what what is driving owning this and for me I let the the tax tail wag the investment dog I didn't like the investment any longer and I thought it was at that point overvalued and it turns out it was. Um, but again I let I let one way of thinking Trump a ah more sound way of thinking those lessons. Yeah that's one of those lessons you learned the hard way and ah man it's stuck with me. Yeah, just worked out perfectly to be absolutely painful.

32:28.14

Clay

Um, yeah yeah I think ah, another ah lesson I've sort of seen or learned is the companies that get people's attention often. Teams tend to be like just very risky picks like ah some of my. My favorite investors that I follow one of which is Chris Mayer wrote a book called hunterbaggers which is fantastic. 1 of his roles is he's not going to buy ah unprofitable company. You know because if a company can't make money from its operations then it either needs to ah, receive financing through debt or through equity and whenever. Ah, tough financial times hit. It's really hard to do those things and it's it puts the business in a really really tough position and you know if a business you know somehow has a way of like marketing itself and everyone's talking about it call it a a Zoom or whatever else, then there's. Probably a reason for that because the company might be issuing shares to essentially the public issuing shares to retail investors and then then these managers are getting extravat extravagant compensation packages and it's just ironic that the companies that people want to talk about oftentimes tend to. Be unprofitable and ah yeah, it's almost like a situation where it almost is gambling where you need like everything to go right in order to make any money and then you you know find so many of these unprofitable companies end up dropping eighty ninety percent ah during a market correction.

34:00.92

Clay

Um, yeah I always turn to ah I don't know if you've heard of Chuck Auckrey he has what he calls his 3 hree-legged stool approach of he wants to find a great business which means a great business to him is a business that earns a high return on capital. So. A business re invests in itself. It essentially earns a high return call it above average which be above like ten fifteen percent um many then he wants us great management team and a long runway for growth and that's essentially oftentimes what I'm looking for when I invest in a stock is like.

34:29.55

ilm

Know.

34:37.49

Clay

Does this business have a track record of performance. You know and oftentimes a stock continually outperforming the market is a sign of hey they're doing something right? kind of the thesis that winners tend to keep on winning. Um and you know if a business. Ah out competes its competitors over the past five or ten years there's probably a good reason. They're able to do that and it's going to be really hard for a business to jump in and disrupt that and then you know the management piece you want managers that have skin in the game and they yeah.

35:11.10

Clay

You know, essentially they're financially incentivized to have the share prices do well over the long run if they own shares for the past ten years and they've shown that they're effective managers and that's ah also a pretty good sign and then um, the long runway is also important too because ah, you know if a business can reinvest in a cell at. 20% over a really long period of time that's where you start to see that sort of compounding magic but this is definitely ah much different than a lot of the discussions. Ah, you're going to have about ah bitcoin and macro and all this stuff. So ah yeah, it's kind of the world I've been.

35:47.37

ilm

But yeah I think a lot of people when they think of financial advisor they picture me behind like ah, a wall of monitors and watching the stock market and that's like the last thing that I do so but it's still fun to think through and talk about and yeah I certainly pay attention and.

35:48.81

Clay

Diving into.

36:03.93

ilm

Am more macro-driven just how I work but also I like to come back and and look at look at companies I think I think look at individual companies can get you a good pulse on how the market's doing and also um I think there is a place of achieving Alpha I think it's possible Obviously people have done it. It's really difficult and I recognize I'm not smart enough to achieve alpha.

36:06.54

Clay

A.

36:17.76

Clay

Be here.

36:23.39

ilm

Ah regularly especially by switching strategies all the time. It's not going to happen. You better have high conviction over a prolonged period of time and in order to have a chance of doing this Otherwise you're sort of if it happens It's probably by luck um with with investing it's interesting I think we.

36:25.75

Clay

A.

36:35.53

Clay

A.

36:42.44

ilm

It's so easy to forget that when you invest in the market. You're literally buying companies and we we lose touch with that like I'm buying this stock and the stock's going to go up and that's where like you know value investing these sound principles investing. It's like does this company make money.

36:52.60

Clay

Yeah.

36:59.60

Clay

Yeah, yeah.

37:00.67

ilm

You know it's and it a lot of times. It's maybe not the sexy thing like if we put it back to a small business like ah you know it's a lot of times like these's people who are like blue colllar you know millionairereck store. It's it's a plumber. It's a welder I talked to someone recently who it's a machine was a machining company who recently sold to a a large institution.

37:10.65

Clay

And here.

37:20.30

ilm

And ah for all for a lot of money. Yeah, it's not. It's not the sexy work. It's companies that make money consistently over a proling period of time when you think of small businesses. That's what you want to own versus my grandparents. Um something they always talk to me about when it came to business was ah.

37:27.11

Clay

The hair is.

37:39.60

ilm

Not just playing business and they would say how they they were successful in owning a few different businesses. They mentioned how so many of their friends and people they would observe would would just play business and the moment they had a fun idea they would run with that fun idea and they would quickly think of like ooh. What do I want my my logo to look like and ooh those would be neat business cards.

37:49.34

Clay

Of a.

37:58.62

ilm

And that would be fun Swag to have thatd be that'd be cool and we could have this event. It's like but does that make money. How are you going to reach a place of profitability and ah you observe that like I I love talking with people about like business owners themselves and how do you reach a place of profitability. It pains me to see when I have friends who.

38:01.61

Clay

Right one.

38:17.24

ilm

You realize that man they're just playing business I don't think this is gonna survive not because they have a bad idea like was it 80% of businesses. Go out of business in their first year and then the of those that survive like 80 or 90% of those don't survive the next three years and I think a lot of times that's that's not because it was a bad idea. And I think a decent malmar. It's like dude you shouldn't store that in the first place like no one needs. Whatever sweaters for dogs like it's bad company but ah like the the the gri.

38:39.60

Clay

So.

38:47.23

Clay

You you made some great great points there I want to jump in on um, like you said you know stocks are real businesses like people are so detached when they're on their broker jab. You know, clicking by on some ticker that's gone up recently like Jim if if you were to go out and buy another financial planning firm which as I'm sure it's something you've thought about or something you've looked into doing I mean you'd look at you know how much has this firm earned in revenues over the past few years and how what are those earnings and you probably wouldn't be interested if it was deeply unprofitable. They're constantly issuing debt yet. So many people are going out buying something just because the stock price has gone up regardless of what you know regardless of how the actual business has performed and you know. In the short term. The stock price is essentially driven by just sentiment and hype and people jumping in and out and all these momentum traders but over the long term. It's it's the actual business that's going to drive the performance of the stock and you know just again like so many people thinking short term you know trying to. Chase you know whatever's gone up recently when you know when you get anchored in. You know these fundamental principles of you know what? what drives value creation is when you can you know start thinking about you know, achieving sustainable consistent long-term returns.

40:16.24

ilm

Yeah, it's are you are you building? are you building or or investing in a company that actually makes sense does it is it beneficial to people is it profitable is it sustainable um is it does have a moat. And ah if you can't check those boxes. What are you buying? You're probably buying hype if you're building a business. That's like that you're probably just playing business. Um, again, if we're just looking at a small business side of things I think a lot of the lot of business I run into that failed failed again. Not because it was a bad idea not because they were making. You know, whatever like I mentioned earlier like sweaters for dogs or something like this probably that's like that's a bad idea. That's a bad business. Don't start it or you know something like that goofy. It's like no, that's a good business but a lot times those fail not because it was a bad business idea but because they were caught up in the wrong things they they wanted to play business. Or because their personal financial side of things was not able to support and sustain their business like ah when when I started this my financial planning company. We we committed to not taking any income for minimally 1 year because we had to make sure that we had revenue to put back in the business. there's ah there's a little strip mall down the street from my house that has an insane turnover of restaurants and over probably like a four month period there is probably 5 or 6 restaurants i't some of those restaurants literally were there for two weeks which is incredible if I go to a restaurant Kindra and I go on a date and we love that restaurant and say ooh I want that to be our new date spot.

41:45.51

ilm

We don't go on dates twice a week. So even if even if they get someone who goes to the restaurant and they love it. You don't they're not going to get the repeat business like I don't understand these people put up a sign and read the kitchen all that stuff and literally what gave themselves two weeks of ah two weeks of operating capital like.

41:51.10

Clay

A.

42:03.71

ilm

You could have been the best restaurant restaurant ever. But they didn't have the personal side of things to sustain it. They were. They didn't think through this so again I think this this overlaps with with large businesses you can invest in like what are you actually building here. Um is a are they playing business are they um you know is it is it. Built up on hype. That's where I mean yeah, there's this detachment of small business. This is detachment of like wow your color scheme on your business cards looks fantastic and that's exciting for a moment then you realize it's just a bad service or product same thing with a large business. You know it's like oh wow that that ticker is doing well, you should go buy this ticker. It's like well what's the company. I don't know like I can't remember what it was but I do remember a case several years back where there was 2 companies that very similar stock tickers and suddenly the one that was the different one just skyrocketed. No one knew why? no one knew why this company it was such an obscure company.

42:50.84

Clay

Oh yeah.

42:59.52

ilm

But ah, they realized like oh my goodness because it was one letter off of this other one. So everyone was buying this company. No one. No one knew what it was no yeah, that's.

43:09.43

Clay

Well, ah like when the coronavirus hit ah sales of Corona just like skyrocketed you know, just ah, there's so many weird things that can happen and yeah, like you mentioned sometimes people go out and buy the wrong ticker when they realize that like.

43:15.59

ilm

That.

43:26.70

Clay

Big news hit a specific company but they go yeah just crazy things I'm sure you've seen it in terms of the stock market.

43:31.82

ilm

Um, ah it comes it really enforces people are people are funny and ah yeah, we're we're emotional oftentimes illogical beings and ah.

43:45.26

Clay

Is in.

43:47.54

ilm

Can lead to some fun stories. Not so fun if you're on the receiving end. Um, but yeah, that's where it helps also to take a step back and not not get too wrapped up in the moment and then also being able to to all right that hurtrd a lot What can I learn from this and ah I think if you can get both of those. You'll you'll survive another day to keep swinging and ah unfortunately it is. It's really sad to think through the people who um, who don't clean. Those 2 things who get wrapped up like this is too devastating I can't can't keep going. You know that's that's 1 reason one of the biggest reasons I got into working in personal finances. Money is the number one cause a divorce every year The American Psychologist Psychology Association has done a poll money's been the number one cause of divorce and it's also one of the top causes of personal stress and suicide. It's like man like if you allow this thing to bog you down and to beat you up and pull you apart like that's sad.

44:28.92

Clay

Um, and.

44:44.28

ilm

It's common. Um, but you have to Zoom out like really, what's going on here and ah, you know like a few weeks ago I I've been I've been sprinting really hard for several years but 8 years I've just been running really really hard and it sort of hit me recently. So ah.

44:44.51

Clay

Oh okay.

45:02.91

ilm

Like two weeks ago I realized I felt like force gump you don't force Gump he just he just takes off running. He felt like running you just start running and he does this for a long time and ah eventually one day he just stops. He's like I'm pretty tired I'm going to go home now that hit me like two weeks ago and I was like man I'm really tired. I talking to Kindra one night and this it sort of led to a I don't get stress very often, but it led to a brief moment of stress and kindra and I were laying in bed. It was like hey babe like you've got my back right? She like yeah I like good or bad. She's like did you do something wrong I like no I just sometimes I just need and.

45:27.90

Clay

And.

45:42.60

ilm

I Just wanted to be reassured and ah yeah, zooming out like seeing my wife my kids It's like you know what? if something goes bad here like we'll be okay and I think there's where even stepping back and it's like yeah doing you know people people pay me to do to take care of their money. It's really important but I care about.

45:42.63

Clay

And.

46:00.18

ilm

Care about my clients more than I care about their money. Obviously I mean I've I've studied really hard and I work in this a lot to do well with their money and to care about it. But I care about people and like it's really important you know going back to these like anchoring and why are you doing things I've had so many conversations I I probably worked with about I would I would guess about 40000

46:11.41

Clay

Um, a.

46:19.28

ilm

Probably a little bit higher than that now people over the years with their money and it's really sad how many people even more successful financially but missed the whole Mark with why they wanted to do it and you have to go back and revisit that like Kenra and I we have Kinder's my wife we have we have four young kids.

46:28.69

Clay

I think.

46:35.95

ilm

Like yeah, we want to do really we want to. We want to do well financially we want to be able to give generously and spend time with each other and um, those sorts of things. It's important for us. But if I neglect if I say hey I want to be able to retire early so I can go backpacking with my kids before they're old and have jobs and can't take time off work. Want to have money so I can do that whatever. But then I sacrifice my children on the altar of having future financial financial success like Success. What's the point you know, like right now. It's like hey dad can you read to me. It's like sorry son I got to go to work so I can spend time with you later. It's like oh gosh you missed the whole point. Anyways.

46:56.73

Clay

I mean.

47:12.95

ilm

And ah, yeah, it's where you know thinking through this from a from an investing investing perspective like why are you buying what you're buying has that thesis changed if so like how's that changing with you but also from a life perspective. Why are you doing the things you're doing has that thesis changed. Um if so or if not you better you better dig back like. Again and not just think through the the base level like I'm I'm buying the same because of service level reason like why? Why are you buying this? Why are you making this decision and I think that people would do a lot of good by asking why more both on investing in bigger picture.

47:47.33

Clay

Yeah I recently had a shane parish on our show and I can't remember the exact quote he had but it was like you know it's 1 thing to achieve what you set out to achieve but it's ah it's a whole nother thing that people maybe. Sometimes don't think about where did you are you working to achieve something that you actually want to achieve you know we feel good about achieving something but you know if you want to you know achieve some sort of net worth goal and you know. Hey that's cool and not that many people can you know, maybe achieve that level of wealth but it come at a sacrifice to all these other things because um I think people think about money so often and set kind of money goals because you know something you can point to and it's a number. That you can like see you either hit it or you don't hit it. But then there's so many other things that aren't really quantifiable whether that be you know, spending time with your kids spending time with your wife um and doing those other things that are also important you know I asked Shane he's very successful with his business. Business has finances and such and you know him Shane and then preston pitch is the same way where you ask them? What's important to them and they just say they're family and like you know when you look at someone like them that says you know money is not the most important thing obviously it is important.

49:12.99

Clay

But there's many other things in life that are ah are likely more important to most people.

49:19.97

ilm

Well money one of my a vague definition of money I would put on it is a means of communicating storing and transferring value across space and time and I think a big problem that we have with money is the communication aspect. And I think that's a big reason that you have divorce and money so highly related is because money is meant to communicate what's important to you and suddenly if your money is being spent on 1 thing and your spouse thinks that money should be spent on other things you're saying with where your checkbook's going is this is important to me.

49:47.34

Clay

A.

49:57.65

ilm

Versus this other thing and suddenly like oh well, that's you know you're you're putting out these signals of value and you are tangibly voting What value is you know what? what you place value and I think if you yeah again, show me like show me your your calendar and your checkbook and I'll tell you what what? you're voting.

50:10.10

Clay

Um, you.

50:14.77

Clay

A a.

50:15.90

ilm

With your resources are important for you and unfortunately again, there's a lot of people have things that are important to them but their resources their time their money their talents are not being used in tandem with where their heart or their mind or their words would say it's important to them. That's a lot of people don't realize that's til it's too late like man I really want to you know how many people on their deathbed are like I wish I've made more money versus like I wish I would have spent more time with my kids. It's like dude like make that vote now and ah yeah, that's yeah, the purpose of a goal is to inform the best next step. It's not to It's not to corner you in to have to continue to pursue this one thing. Um I understand like your goals will change like Clay I bet your your goals today are different than they were five years ago and 5 years from today. They'll probably be different than they were than where they are right now that's fine. That's expected and again the purpose of a goal is not to say like I have to do this thing now. That that would be sad if you feel I think that's why a lot of people don't set goals is they feel if they do suddenly they are pigeonhoed into doing this one thing that might seem obscure in a few years and if they don't they didn't reach their goals when setting a goal and saying you know what? I'm taking a guess as far what as far as what I want but man. Think this is what I want right now I will start pursuing this um and taking action that aligns with this and real It's really important and I believe is to make sure that you're asking the y behind a goal I want to make x dollars y because I want to be able to have a nice house. Y.

51:49.44

ilm

Oh man because I want to be able to entertain people why because it's important that my kids are around that we spend more time with them like oh so what? you just told me in all of that is you want to make sure that you have time with your kids and your family The house is just a means of facilitating those moments and memories and the money is just a means of obtaining the house. But really, what we're after here is moments and memories with your kids like how do we pursue that and yeah, allowing money to serve those things but not losing track of what you? What ultimately said is important to you and that's I know we're we're way off of talking through company valuations and stocks. But again we've as we yeah we go through these conversations like this really comes back to and like. Yeah, let the resources serve these other things.

52:29.84

Clay

Yeah, when it comes to the company stuff like the community I'm running like I tell people that join like you don't have to be analyzing individual companies. A lot of times you can hit your financial goals with just these basic you know investment foundational principles. But um, these people just absolutely love this stuff and I I Enjoy. Ah yeah, chatting through it with them too. But um to your point about ah you know money as a means to communicating value. Um.

53:04.78

Clay

My conversation. It reminds me of my conversation with Shane Parrish and how so many of the decisions that people make are like totally unconscious and it's driven by like almost like our biological hard hardwiring like people will but go out and buy like this expensive car because um, it. Like shows status and it shows it like gives them the approval of others and it's like a very external viewpoint. But if you get down to like what it is do. You truly want and you know how can you use money to you know facilitate that ah that relationship between what it is. You're actually. You know, spending that money on versus what it is you truly value and I think it's also important not to like over analyze it like I'm not I'm definitely not someone that like has a budget and like has to stick to it and like you know you know be very close and like what it is I budget and like what it is I actually end up spending. It's just like. Being mindful of the decisions you're making I think is just so important and but not like overdoing it too. It was just like so much of a balancing act to it too.

54:13.72

ilm

Um, yeah, it's allowing your you like ah man I came who was I heard on a podcast years ago. This lady she said that she she keeps her needs small so her wants can be outrageous and I thought that was pretty cool like again, it's.

54:32.70

ilm

Ah, everything you do in life is there's tradeoffs in everything you do and you are making decisions consciously or subconsciously to choose something and there's opportunity costs with everything and ah you you. Really a big part of this is being cognizant of where what am I voting for right now with my time and my money and my relationships and my talents. what's the opportunity cost of this I'm working in a job I hate okay and I wish I could start a business okay well what's the opportunity cost of not trying that. Um you know I um i. I'm broke and stressed but my dollars are being spent on this other thing. That's where I'm not going to be like a cliche financial advisor who's like you should make your own coffee I make me own coffee with a really nice coffee machine I have 2 nice coffee machines one at my house and 1 at my office because I like making good coffee. It's way better than coffee I can get the coffee shop right? below my office is on top of 2 coffee shops. Bought my own espresso machine because it's a lot better and I I save a fortune I can justify it ultimately with how much how many espressas I drink a day. Um, but yeah, I'm not going to sit here and say like don't buy coffee but like think through like what is important to you I remember years ago I was talking with different financial advising firms.

55:34.34

Clay

Sit.

55:47.17

ilm

And there's a few companies. There are two companies I went through this long interview process and eventually went to lunch like basically got the job and went to lunch with the owners and on a couple of occasions this happened I pull up I was driving sort of all beat up Nissan at the time had a bumper that was. Not the not the prettiest sight to see now pop to lunch and ah, you know we'd start talking. It was like hey Jim you know when you work here like what we're doing is we're trying to convey the sense of success financial success and wealth. So we really would want you to. Drive something nicer Alexis or a g wagon that's going to portray financial success and at that point I knew I could not work there because my job is not to portray a sense of financial success. My my job is to help people use their money in the most efficient and effective manner to serve what's important within them life and for me driving a fancy car is not important. Having more time to spend my kids is way more important. Why would I drain and buy buy this thing that's going to have me have this massive car note when instead I can have that where I I don't have this this stress of having to go to work all the time or not being able to go on this vacation. It's like man like that's again, if we have to. Can peel back and say why might why do I have this habit. Why am I doing this thing if it means that you're buying coffee orre going to brunch and that's really important to that's awesome if. It's I do this thing out of autopilot. It's like well let's just stop and let's think let's think think through it and ah yeah, if we can just become aware I think it'd be.

57:07.71

Clay

Significant.

57:12.29

ilm

Really really helpful with with what we're doing and again like just being aware for yourself, but also on a relationship side of things like I remember a few years ago I met with a family and I found out after multiple meetings that I was actually a laditch effort ditch effort before they got a divorce. They'd been fighting about money for years. And they thought talk we'll we'll talk with a financial planner and what we realized one of our meetings. They just broke down crying and we realized that they fought about money all the time and the last thing that came up was they were. They're on vacation at Disney and ah the wife she she wanted to go to Disney but like make the sandwiches to take.

57:41.60

Clay

The.

57:49.30

ilm

And ah, no souvenirs and just just experienced Disney itself. But no, no other things and ah the husband on the other hand like while you're there. You got to get the big ears or whatever it is and the ah the turkey leg and the funnel cakes and all of the stuff and they were bickering the whole time. Like you're so cheap. Oh well, you just you're drained all over money what we realized though was taking a step back from this place of emotion-driven hype saying like well why? Why do you want this and for for one for the for for the wife. It was well gosh like if we if we enjoy the simple thing of being here. Ah, don't just lavishly spend on these other things we could go on a second vacation and man I really want to that was really fun but I want to do these other things with the kids as well and with you as well. I would love that and the husband's perspective was look I didn't get I didn't grow up going on trips. So if we're going to be here I want to do it all the way because I really want this to be a special time. So it's sad because they're both coming from this this place of I enjoy this I enjoy being with you and our family and I want to make the most of it. They're just communicating it in different ways and their dollars were saying being represented in different manners and it was it was again. There was mixed signals mix communication.

58:49.53

Clay

A.

59:03.19

ilm

By how their dollars being spent if it could step back and say look this is important. There's a book that Kenra and I read few years ago together it's called the ah the strengths based marriage and as by it's ah based off of strengths finders have you heard of strengths finders clay. Okay, yeah, it's it's a.

59:06.12

Clay

Um.

59:15.89

Clay

Um, yeah.

59:21.28

ilm

Sort of personality test and it has like 20 ranks like your top strengths through like your weaknesses in a sense and ah, there's a book the husband and wife like Kenjura and I both did this strengths finders test and there's this marriage book you go through to talk through like how your strengths and weaknesses play off each other and like. The good part of the strength each strength has its true strength and then has this like false narrative associated with it this way it can rise up poorly and that was a great thing because like I live in the future like all my strengths were like planning futuristic like long-term kinders are all about optimizing today.

59:59.10

Clay

In.

01:00:00.37

ilm

And I live in the future and both of us came back and like you know she thinks I'm cheap. But for me I I look at this as like no I I want to make sure we're able to do this long term and I look at her like she loves spending money if she does but ah, it's like no I want to make the most of this now it so having a.

01:00:08.30

Clay

Um.

01:00:14.22

Clay

That.

01:00:19.34

ilm

A context to place. These conversations is really helpful. Um, yeah, long rant.

01:00:19.56

Clay

Um, what what you mentioned there about ah earlier about the job where they said oh you have to portray you know this status and this level of wealth. Think it's amazing. How ah what that tells you about like someone who acts in that manner. You know when you could analyze a company and say what are the managers focusing their time and energy on you could look at manager in your own business. You know where are they focusing. Their time and energy energy and I think so many people kind of go off into entrepreneurship because they just can't find an environment that like suits you know what their values are and what you know how they want to spend their time. How do they? How do they want to help people or they don't want to play these political. Type games and I think that's probably 1 of the reasons why you ended up going and you know starting your own business because you know just the avenues that opens up for you and how you can design your life. However, you want and then you can you know. Fulfilled what you value even at an even higher level in terms of your family and your long-term financial rules. Um, yeah I think it's just sort of amazing how there's this sort of a balancing act within our capitalistic society where you know these bureaucratic organizations end up.

01:01:47.88

Clay

Growing and they create these political games as a result of it. Um, almost ah, unintentionally in some ways and then you know it leads to someone like you to take advantage of that opportunity and like fill the gap in the market where it's not being met where you're not trying to go out and get a financial advisor that. Ah, it's flaunting their wealth or flyinging their car and such. So Yeah I Love that that you told that story.

01:02:14.76

ilm

Clay. Do you? Ah you have any? Yeah We've been. We've been everywhere today. Um, do you have any parting thoughts any yeah, any episodes like oh man, you should be ever should go listen to this conversation or a book or yeah, any anything on your mind that you'd you'd want to share that and. Gadash you about.

01:02:34.84

Clay

Yeah I would say ah just like education is just like so so important it doesn't even have to be my podcast or any other podcast just like getting educated on. Yeah, if you're interested in learning about investing in stocks or bitcoin or whatever else. Just. Like picking up books and like picking a podcast is like so so important and um, you know as I mentioned kind of towards beginning is just like being humble in what it is You think you know like beginners when they get into anything it feels like they make these very simple assumptions and they. Essentially get themselves and into trouble by taking these sort of mental shortcuts on how the world works or how how they think the world works. Um, but yeah education is just like so so important you know I'm sure it's a foundational sort of.. It's a foundation of you know what's led to your success gym and all all the things you've built and ah yeah, and then just ah going out and trying to.

01:03:39.38

Clay

You know, do it. It do whatever it is. You're trying to do whether it be. You know, investing starting a business excel in your career and then just on top of that education from the books and the podcast just learning from your own experiences is ah all part of the journey and it just makes it all fun. But yeah, if you want to learn about investing ah check out, we study billionaires you might. Find a thing or 2 That's interesting.

01:04:03.60

ilm

It's good. Good little show. hopefully yeah hopefully all'll pick up a good good audience. Ah eventually, we'll turn around now I noticed when I was recording with ah with Preston I I love he done. Hed un flaunted but I saw in the background in the in the in the corner you saw the ah the Youtube whatever. Color it was the big plaque of x-mol listeners. It's amazing. What y'all have done there and the amount of people y'all reach the different shows and the community you're building. It's awesome stuff and yeah I've listened to countless hours of you guys and of your podcast and getting even just getting hang out with you and ah.

01:04:20.50

Clay

Oh yeah.

01:04:37.21

Clay

Yeah.

01:04:38.50

ilm

Clay and I we roomed in ah Miami years ago for the bitcoin conference. We accidentally ah got a terrible hotel right in the party district of South Beach Miami so that was fun of ah the ah the guy blaring was like we will rock you at like 2 in the morning you're I'm a mile away. Um, and then yeah little different experience last Mark until you eye in absolute natural bliss. Um, so yeah I love getting to spend time with you and ah keep tabs on you through your podcasts appreciate it. Awesome! ah.

01:05:10.72

Clay

Yeah, Jim you've been a absolute blessing in my life and ah right when I ah right when I joined tip I got connected with you. You know it was almost by fate and we've been connected ever since so you're a great friend and it's great to know you.

01:05:27.20

ilm

Thanks for coming on Clay I appreciate it.

01:05:30.46

Clay

You bet my pleasure.

TILP #10: Financial Planner answers questions that the average person might have about money

00:01.36

ilm

All right? Cody Morgan thanks for thanks for joining me today on the show. Great! Thanks for being here hey I guess before we get started. Um, who's Cody Morgan why are you why are you here

00:04.20

Cody Morgan

Hey how's it going today. Jim.

00:15.93

Cody Morgan

Ah, so I am Cody Morgan and I grew up in a small farm town in Minnesota and then I joined the army then I transferred to the air force to cause I didn't know what else I wanted to do with my life and now I'm moving back to Minnesota and yeah and I just went through life. Not really understanding money a whole lot or how it worked and I always thought like there'd always be more and then it realized with the family that I got to start pre-planning and so I hired somebody smarter than myself and I met Jim and through my wife and you've been awesome. You've helped us out a ton. And we really appreciate it.

00:52.53

ilm

So why? Ah why I guess why? Why are you here on the show and what do you hope to talk about.

00:58.45

Cody Morgan

Ah, so I'm here this all started through a conversation with us and probably all of our little meetings about I ask a lot of dumb financial questions because I don't understand finance at all. Um, and so as we stated before and talked about was. The last time I know about finance was Alan Greenspan and that money wasn't backed by gold or anything is backed by faith and that was in tenth grade in high school and ever since then I just kind of dug my head in the sand and was like okay I'll always just make more money and now that I get older I realize that I would like to retire someday. And um, but I didn't understand money and when I started talking to you through meetings and things and through our text messages back and forth. We're like I'm like there's a lot more I don't know but there's a lot of dumb questions that i. I don't know and I need to find someone to ask and so that's where you get a ton of text message from me about this or that or whatever I find on Google that data ask you about.

01:50.11

ilm

You know that's that's actually 1 thing I like is ah the the dumb questions you ask I think a lot of people have dumb questions but they're just too afraid to ask them and I like the people who are willing to ask ah 1 because that shows that you're willing to set aside ego for the sake of actually learning. Versus having this facade of pretending you know something but then going along the rest of your life actually not knowing that you're prioritizing the appearance of knowing over actual knowledge versus like actually knowing and who cares about the appearance. So I appreciate that and I'm sure ah like I used to always ask dumb questions in class. And there were questions that like I felt stupid asking but I was pretty confident. A lot of other people in the classroom had those same questions and sure enough most of time after class people had pulled me aside and like man I'm glad you asked about that because I was wondering the same thing so that's ah these questions you asked today. Um, yeah I'm sure some of them might seem goofy and they're probably things like. I don't know maybe you feel like you should know. But ah, most people probably don't know them either. So I'm excited I would I I anticipate a hodge podge of questions I have no clue where this is really going to go today. So this will be fun. Well.

02:58.33

Cody Morgan

Oh I'll get ready because I came up with a couple more the other day too for you. So this is gonna be like a hot round of just I'm expecting a lot of ums and us just starting to throw office quotes back and forth at each other for a while.

03:12.11

ilm

Let's do it so you had to give ah what we're gonna do today is basically Cody's just going to ask questions that he has they could be things that like for their personal money or from like I saw this on a movie or I heard this once can you actually explain this to me so this can be related to. Anything ask away. So ah here we go.

03:31.10

Cody Morgan

All right? Well then I have a choice for you First do you want to start out with bitcoin questions or you want to start with just general finance questions all right? Yeah, your favorite right? Let's do this all right? cool.

03:39.13

ilm

I'll start off with bitcoin get some momentum going.

03:44.19

Cody Morgan

So all right? So we talked a lot about bitcoin and stuff in your previous episodes and I just got done with episode 7 so if this is an episode 8 I apologize if it's a repeat of the question or not. But um, bitcoin is a non central currency and from my understanding of bitcoin until I started talking to you was. It's just this made up coin that someone made up. And I first heard about this in 2015 and I was working with some tech guru guy at a base and I said well I'm going to create my own coin then it's going to be called codycoin and people better start using it right? and I didn't understand blockchain all this other stuff which your episodes help clear up a little bit as much as my simple to mind can understand. But um, if it's a non-central currency and this something I don't understand we can get into it a little bit more is how come when I have my on-river I own like point zero zero zero zero seven of a bitcoin but it goes up and down all the time kind of like a stock market trend.

04:36.94

ilm

Ah, ah yeah, the the valuation of something is not dictated. Hopefully not dictated based off of a centralized Authority's ability to monitor or Maneuver a price.

04:38.83

Cody Morgan

But if it's not central. Why does it keep going up and down all the time.

04:54.39

ilm

That's actually where free and open markets. Ah how they should work now a yeah having a centralized control over something is something. We're sort of used to but really that is not free and open markets. So the yeah, we've we've grown accustomed to. Crony capitalism which is hilarious when people you know you have people who come in and say like oh man, we need to move to more of a marxist or whatever type of economy and government. Um because ah capitalism clearly doesn't work and what they're referring to is not actual capitalism. What they're referring to is this distortion through hijacking um that actually draws us away from capitalism and actually towards the towards marxism and through ah and towards centralization. So you have a central bank you have ah people who benefit. From ah ah, financial or monetary or fiscal manipulations. Um more so than others. So centralization itself should not in a pure economy should not nationally impact prices. So if bitcoin is decentralized. Why is there movement of purchasing power there that there's there's there's a few ways to look at this and one I'll give you a better answer in a second I promise. Ah but 1 way I look at this is bitcoin itself. We think to like what bitcoin is the technology behind it.

06:28.48

ilm

The issuance of blocks the mining the code all those things they're Stable. It's not a volatile technology. Um, what's volatile is people and people's understanding and adoption of bitcoin and that's why you see volatility in the price. It's not because bitcoin itself is changing. It's because you have more people who are learning about it. You have people who are speculating around it and you have people who are buying and selling So like yeah if we had I mean we could have ah a room of 50 people. Um, all bargering for a few items. And we're we're closed off in this little room. No one knows about it. So There's not a central authority to Govern Howard're trading that can still go up and down in price. Especially for if we're On. Let's say we're an Island um on our own for a decade and as we catch fish and collect rainwater and stuff like. Yeah, the values of those are going to change like if we ah maybe it's really dry for a long time and there's finally a little bit of rain. Um, when we're able to collect some dew then you better that water's gonna be a lot more Valuable. You're going to demand more fish for that water. But if you go through a monsoon. You're able to collect a lot of water. Well then Ah, yeah, it's ah. Less valuable compared to other assets and that's that's despite not having a centralized authority where I could get dangerous though is actually if you brought in a centralized authority and said no ah water always has to be pegged to this amount of fish. But why like at that point you are messing up.

08:06.22

ilm

The communication method of supply and demand so Centralized. Ah authorities can actually mess up those those communication methods. That's what again, what what money is and like you know how we value things is is to communicate ah value across space and time. So ah. Yeah, the the price of things communicates the value that we're placing on certain items or at least someone's placed on a certain item. This is a super roundabout answer. So Why if bitcoin is not owned by or controlled by a centralized authority is because again, ah the adoption rate the Purchasing. Of something ah at different levels. So if you have somebody who wants to come in and buy a whole bunch of bitcoin. Um, that could you know then you, you're you're throwing a new ah sound or voice into the supply Demand Communication vector.

09:00.56

Cody Morgan

Yeah, oh yeah, no, but it makes sense right? because like that's where we were talking about work the other day and I'm like well it's tied to the us dollar and it's going up and down but it's not tied to the us dollar. It's just that's how we perceive the value of it at least in this country. Um, but it's actually helped a lot in episode 7 with the guy that you had.

09:01.45

ilm

That was a terribly long answer I'm sorry.

09:19.68

Cody Morgan

Talking about like the little glass beads and you know then you're talking about Roman money and how like the value of it went down because of precious metals in it were less overall and you know, um, so no, that actually helped a lot. But now here's my other question with that right? So El Salvador just adopted it to ah two years ago now bitcoin is one of their currencies. Let's say heaven forbid but that country just goes bankrupt everything like that right? Well that caused the bitcoin value to go down.

09:47.11

ilm

Um, it it could because they own a decent amount of bitcoin. So if they had to immediately sell a whole bunch. Then yeah again, you have supply and demand and if a whole bunch of new supply hits the market. Um, you're going to that could drain the.

09:54.55

Cody Morgan

Nope.

10:04.35

ilm

Ah, exchange rate of that as you find more people who are willing to buy at the demand now eventually it will reach an equilibrium as you have a number of buyers who want to come in and stabilize the the purchasing price. Yeah, technically that that could impact the price same thing if you had I mean Satoshi Nakamoto has a ton of bitcoin on a wall that hasn't moved and. But 15 years So if he came in and sold all his bitcoin moved off there. Yeah I would drop bitcoin's pursing power probably relatively significantly over a short period of time again because you're messing with the supply demand communication method.

10:38.29

Cody Morgan

So be the same thing if that dude in England who's like missing like a thousand coins in the trash or something like that and he went. He's going out to go and find him as a story a couple years ago I think so yeah.

10:47.13

ilm

Yeah I mean there's ah yeah, it was ah I think what you're referring to as a guy in the Netherlands who's ah, he's spending a fortune to unearth a um ah yeah I was on a flash drive and he's unearthing a old.

10:53.20

Cody Morgan

Now Yeah, that's it. Yeah yeah, it was like a flash drive or something.

11:05.51

ilm

Like a dump a landfill. Um as he's searching for this thing. It's crazy. Yeah I mean there's based off of that like obviously there's there's ah, there's ah amounts of units that will impact like it's same thing with like stocks.

11:08.94

Cody Morgan

Okay.

11:23.20

ilm

So if you are a ah majority shareholder or an executive at a company you have to disclose when you're going to sell things and there's things called dark pools like if you own. Maybe you're blackrock and you're trying to acquire a whole bunch of a smaller company. Um, if you go out and just start buying that and everyone knows that you're buying it. You're buying a whole bunch. Well, it's just going to cause the price to grow up to go up and you're going to have to buy it at a higher dollar amount because of that so you can go in you can purchase these things ah relatively will be secretly to help not scoop up the price. Um, if you're buying a whole lot. You'll buy it over a prolonged period of time now me if I go out and buy like 2 shares of Apple.

11:52.79

Cody Morgan

Yeah.

12:01.25

ilm

That won't impact the price like at all just because the amount I'm purchasing compared to the total market cap. So yeah, there's a percentage of total market cap that is bought or sold can certainly ah, bring in price swings more heavily.

12:14.92

Cody Morgan

Yeah, um, all right? Well then here's my other question for you. This is your Utopian Bitcoin society coming out. Would you ever see that it would take away like the Euro the Us dollar or anything like that and we'd all just deal in bitcoin all the time.

12:30.94

ilm

Possibly um I don't know how this is going to play out so we could have we could have ah fiat currencies or what is what are currently fiat currencies that become backed by bitcoin. So maybe it is like just like ah the us dollar the Us dollar was originally backed by gold we we used to trade in gold and then it was too difficult to trade in gold so you were issued a depository note of hey at this bank this paper signifies that you had this gold. You go to the bank you could turn in for your gold. And then it got to the point where people are trading those notes those notes from another like I give you this note and then you can have once you have that note you can go to the bank and exchange it for the gold and then eventually people were just trading those notes back and forth and then we had governments come in create those notes that was backed by the gold that was owned by them. And eventually they remove the gold itself and now we're just trading notes that say it's backed by nothing except for the ability to say that's backed by their power their authority. So yeah, we could eventually get where like this us dollar is ah related to this much bitcoin or. We could just get away from that completely and yeah, everything is priced in bitcoin directly. Um.

13:40.66

Cody Morgan

So then do you foresee like gas instead of being I think it was like two or two dollars and fifty cents today or something like that in Texas now. Can you see it where it's like point zero zero zero zero one bitcoin per gallon.

13:53.70

ilm

Yeah, so bitcoin itself like you don't have to buy a full bitcoin. Ah's they're denominated in units called Satoshi's so a Satoshi is one one hundred millionth of a bitcoin. So currently, you can purchase multiple satoshis with one penny so eventually yeah we would expect like a galln of gas will be x satoshis now there is unit of account issues in my opinion that ah will be resolved over time naturally to like it's going to be tough to say like hey for that. Whatever.

14:13.68

Cody Morgan

No okay.

14:29.23

ilm

For that car that's going to be because you know this many satoshis where's just astronomical or we're like yeah that cup of coffee is whatever 5000 satoshis um yeah I think we we will probably come up with different denominations to signify amounts of bitcoin over time. Um.

14:38.74

Cody Morgan

Um, yeah.

14:48.21

ilm

Yeah, that's ah, that's how it would work is like even if it's the you know a dollar is not 1 bitcoin a dollar is whatever a hundred satoshis if we reach dollar if we so if we read Satoshi sent parody then obviously one ah or hundreds satoshis would be $1 so we could have Satoshi Dollar

15:05.28

Cody Morgan

Yeah, so we kind of like the us to the y kind of like a pennies like one yn roughly kind of.

15:05.57

ilm

Percent parody at that point.

15:13.12

ilm

Correct yeah, and that's where is it is it backed by this is it backed directly by it. Um, if so and like how many dollars equals that can it change like that's where ah if more dollars are created technically that dollar would be worth less bitcoin. Um, now that's where you all have a trust you have a lot of trust by by centralized authority to say that they are backing this thing by something else and that's where that that trust was massively eroded in 1971 when it came out that basically from the 1940 s till 1970 s we were creating more dollars than we had in the goal that was supposed to back those dollars. That's how we were able to fund all these wars and all this massive expansion in the us. It really benefited us um and then other countries started sort of getting a little bit privy on that and saying hey let's go ahead and I'll take delivery of my gold. Finally 71. We had to come come clean and say hey you know what the amount of dollars we have in conjunction to the amount of gold that's supposed to back those dollars. It's not it done fit it done. Line up now. Bitcoin is easier to ah ah verify and authenticate. Or audit then then then gold is um, but still yeah if a government started creating more dollar somehow then yeah would it would change the dollar to ah bitcoin ah like parody amounts.

16:35.92

Cody Morgan

So let's just say right that perfect world like 1 shioshi blah blah blah zero zero zero zero equals one penny right? just for easy math right? And let's say mean you are. You're doing I'm doing landscaping for you right? and you're like I'm like hey that's gonna be 1 bitcoin astronomical but. Just for easy math right? Yeah and I do all that and then I'm like all right cool. You owe me a bitcoin we each have wallets we transferred. However, but isn't it where from my understanding from your ah the swedish dude you had on who's heating his house with bitcoin miners which I need to figure out how to do here. Um. It like refreshes every 10 minutes right so we have to wait around for those 10 minutes right cause like venmo right now I can send you money and be like all right cool see you later man high 5 we're out right? But now what I have to wait for those 10 minutes for that hash rate to refresh to get that or could I this could creates another problem that I could see is. Could I be at your house spin that get you could give me that one bitcoin and then you run inside before that 10 minutes up and spin the bitcoin somewhere else real quick and now it causes us an error in the system and it freaks out and can't figure out what to do.

17:42.43

ilm

Yeah there's a few points to that is the easiest answer that eventually the and already at this point but it will be built out more so that the actual day-to-day payments layer of bitcoin will not be on the main bitcoin chain. It will be on ah other layers. So like right now there's. The the primary layer 2 ah ah technology for bitcoin is called ah the lightning network. So lightning network is really if you're going to send relatively small transactions or makes relatively small transactions in bitcoin. Rather than paying ah the main chain fees and waiting for that to settle in 10 minutes or 24 hours depending on the ah ah fee you're willing to pay you can make that transaction over the lightning network and it's going to settle instantaneously in that network and then we'll also cost. Way less than it would to get into the actual block space that's going to become really important because when when bitcoin was created and this was really ah ah a point of contention a few years back with block space and block sizes. But. Bitcoin was decided that they would emphasize security and decentralization um over efficiency and block sizes and some people have v for that and think that the the block sizes should be larger. We can put more data in there that we could ah ah we should. We should make it.

19:11.89

ilm

Better as a payments level. Um, but that would that could um, bring about issues from the security and for the amount of people to easily run a node and verify the network. So I would rather have the base of bitcoin be a secure ah network. And then find these workarounds on additional layers that's built upon security if you're building if you're not building on security if you you can have the most efficient thing that's not secure and it's dangerous. That'd be like building a you know whatever, amazing house on sand yeah, maybe it's an amazing this this amazing place. That's beautiful and you know has. Ah, really good insulation. So it's efficient there but like it's going to crumble versus you have something that's built on a rock solid foundation like you can build on top of that and know that's it's not going to just crumble a lot from underneath you so bitcoin made that that tradeoff so again because it's built on security we have it is relatively inefficient compared to some of these other. Cryptocurrencies out there in that sense. That's where layers will be built upon it. So like the the lightning network how that works in a very simplified manner is like you and I could open up a tab together and ah, it's like all right, we're going to put in some bitcoin towards this thing and you and I like youmo my lawn. And I ah ah I'll know I cut your hair and ah we just keep running tab between us and one day we want to settle that tab and based off like all right? You mow my lawn you give me 1 bitcoin. Oh I cut your hair I give you half a bitcoin you mow my lawn again. You give me or I give you another 1.

20:49.94

ilm

It gives it keeps a tab of that and then we can finalize that transaction So that's really how it's going to work now. Not everyone's going to have ah their own lightning node like I'm not going to have one with just you and me probably like there's already big lightning nodes that are sort of centralized so there are risks there in a sense.

21:03.78

Cody Morgan

Um I.

21:09.46

ilm

But ah yeah, like I use a light new network pretty much daily to send or receive bitcoin like I just bought some wine a couple days ago ah paid with bitcoin over the lightning network and I saw that it settled immediately I sent it my buddy he lives in Colorado and ah yeah I said how much for. A few bottles of wine. He told me I sent it to him and like he he received that settle payment right? Then. So.

21:35.28

Cody Morgan

Yeah, no, just something I was thinking about when we were talking to that swedish dude about hash rates and stuff like that like that might slow down transaction time right? when we're getting faster all the time with Apple pay and even credit cards are slow now compared to like writing a check. So.

21:48.76

ilm

Yeah, well all those things again like you're technically like a check I mean heck you think about that like a check can bounce. They're not going to that. Check's going to bounce for a few days same thing with credit cards like that's going to take a bit of time to go through that unsettle instantaneously there is a level of trust that that level of trust is obfuscated to ah.

21:56.58

Cody Morgan

No, right.

22:08.16

ilm

Ah, visa or Mastercard or the bank in the case of a check. That's why the bank gets mad at you for the check was bounce because that yeah sort of comes back bad on the bank for letting you write a hot check. So yeah, bitcoin in that sense is actually more efficient even on just its main block space right now eventually it will be. You know.

22:16.95

Cody Morgan

Yep.

22:25.41

ilm

Tougher to get in as more that that block space becomes more vulnerable valuable as more and more people adopt bitcoin 1 last thing about the payments level and ah money like backed by currencies and so on you know this is sort of maybe people had argue. It's 10 full hot conversation I feel like people think it's less so than it was you know four years ago when I was saying this. But like I do believe there's a pretty good chance that we will have central bank digital currencies or cbdcs like in short order maybe a couple of years or I would say in the next decade for sure we will have central bank digital digital currencies. Um, that are related. That's it's. Ah, yeah, it's it's money that the ah or digital currencies that your governing institution can issue and ah it will be sort of like bitcoin. They'll probably try to spin it like that. Oh it's it's a cryptocurrency and buth blah and they'll try to make it sound like bitcoin and so it's a marketing scheme. Um, and then I would venture to say that this will also come in with 2 other things like I think that some sort of universal basic income will become a norm. Um and it will be easier to issue that universal basic income with a cbdc. So like every month the Morgan family will get $500 um, dropped into your cbdc wallet now I think we take this further I think that there will be ah measures tied to your wallet of cbdcs. So like.

23:57.24

ilm

Right? These that $500 you get on a monthly basis that expires quarterly so on a rolling quarter basis that $500 ah ah expires. So you're forced to try to spend because the government's forced to keep people spending money like we're on this treadmill of Consumerism. So they're going to prioritize that versus savings. Ah again to take the 10 full hat. Maybe a little bit further I would speculate that that will also go in line with some sort of like social credit score. So I mean yeah with a cbdc you think through like with cash the government doesn't like cash really. Too much which side note it's pretty funny when people think that Bitcoin's evil because it can be used for nefarious cases like okay, well so can cash like around 90% of USDollars have traces of cocaine on it. Um I can't remember the statistic. It was pretty astounding though like if we got rid of.

24:47.70

Cody Morgan

Yeah.

24:53.96

ilm

Ah, ah, hundred dollar bills and $50 bills and our our largest denomination that was used in regular circulation was a twenty then ah like in-person drug transactions would drop significantly because it' would be like it'd be really hard to hand over a wad of twenty s um, way harder to do that than it is a wad of hundreds. So yeah, people don't talk about that anyways, I think the government is aware of that and that's why they're you know they're pushing for you know, ah other payment mechanisms. Also you can maybe have under the table you know transactions that they're not be able to collect taxes on because you know you give me twenty bucks for cutting your hair. You know you don't can you do have to report that legally like you should legally. But yeah, you gave me twenty bucks they'll know about that. Anyways, there's so many reasons that I think the government would push for cbdcs and um, yeah, 1 is those one of those I think we monitor monitoring transactions. So i. Again, this is all speculation but I would be I'd be sort of surprised if this doesn't happen in the next ten fifteen years is ah

25:57.60

Cody Morgan

Well, if you if you let me ask you this real quick right? So right? What would stop? The government. Let's just use right? The dollar right now because that's everything that me and you understand what would stop the government from going hey you know what we're done printing money. We're done the coins everything we're just done. It's all going digital. It's over. You know, like whatever you have in your pockets whenever it goes through circulation you could pay cash for the next ten years but eventually your money like the dollar isn't going to be worth a dollar anymore. It's just like a collector's item now wouldn't that become a cryptocurrency in and of itself.

26:30.79

ilm

Um, what? what? what would become cryptocurrency like the Us dollar that's digital. Yeah I mean it'd be a digital money. That's why it's central Bank Digital Currency now is it backed by Cryptography and like.

26:32.20

Cody Morgan

Just the the Us dollar would become acrypted because it's digital now.

26:40.76

Cody Morgan

Yeah, yeah, yeah.

26:47.19

ilm

What do we mean by cryptocurrency and oh the blockchain lot stuff like yeah, there's some level of digitization of the dollar. Ah, but that does not mean it's remotely the same thing as bitcoin and that's why I think I think that's where things will go. Is ah basically we'll remove we will suck out ah actual tangible physical dollars and coins from circulation and you'll be forced to use digital currencies. Um again I think they're going to push that um for a few reasons one of those is for primarily is going to be for monitoring. Where your money goes and then also they're going to say oh like this will make it easier for us to give you your monthly subsidy which I think they're going to do is everyone's going to get so many dollars per month or whatever. Um, but they're going to monitor your spending and it's like hey Cody y'all's family. y'all get five hundred bucks a month. Um, for existing congratulations. But again you, there's going to be parameters you have to spend that $500 quarterly to keep money in circulation because that's what keeps our economy going to I think it will be where like hey Cody if you allll if you are using your money for things that we don't approve of ah. Next quarter. You're not getting your 500, you're getting two fifty you do it again. The following quarter or following month. You're not getting anything like hey you spent too money ah too much money on fossil fuels or too much on red meat or I'll know maybe you gave to this organization that we don't agree with um, you better, watch it.

28:15.37

ilm

And I think they're going to try to force people to use their money in a way that they want you to Um, you know this is big again. This is tenvo hat stuff like most people would say at least but if we follow like what the world economic forum is pushing. Um it would indicate this is probably the direction we're heading which I think bitcoin is the antithesis of this. Um, and yeah I think this is is' coming to a head of battle of these these forms of money from ah ah self-soverety and relative surveillance proof. Um yeah, bitcoin is not anonymous, but it's ah it's certainly more surveillance proof than. A central bank digital currency would be so I think this is I think that's another reason besides like number go up and I'm trying to I'm trying to increase my purchasing power from a ah from a like protecting my family and not allowing Uncle Sam to come in and say like Jim you can't give to that organization. Um. I think that's another reason to own bitcoin actually saw someone last night I was reading I was on Twitter and I saw some dude posted that bitcoin is only own bitcoin to increase their like to make more money and that anyone who says otherwise is basically lying which I disagree with I think there's a lot of good reasons to own bitcoin outside of. I think it will increase my purchasing power There's a lot of use cases outside of that. So.

29:35.43

Cody Morgan

Yeah, oh man, your super tinfoil hat right now. Well then I'm going to add to that is bitcoin just another way for skynet to take over and become sitting sentient a eyes come chat gbt and now we got bitcoin terminator right around the corner judgment day coming down.

29:51.60

ilm

I think that ai will discover and begin using bitcoin because like it will recognize that as the superior form of money and that can transact itself. Um, so you will have Ai systems that you give information like hey you do your job and like here's your budget to do these tasks. And you put bitcoin in these things and then yeah, it's all go out and perform a task like a I have this ai system I need to build spreadsheets. Um, but it can't do everything for me. So it's going to use other ai systems that maybe you've built to attach you know, bring in attachments to it. But your attachments cost 10 sats. Well. My ai system spreadsheet system is going to go find your system and like I know this is a good purchase I have the ah ability and authority to give you x amount of sats for a transaction and it will do that and they'll communicate to each other like I think that's going to be done over ah over the bitcoin network. Yes.

30:43.16

Cody Morgan

All right? So skynet is coming around and terminators coming around. So I use I need to buy more so I give be more for the robot overlords to like me. Okay, perfect. Yeah, okay, good. Yes, the best the? yes.

30:48.16

ilm

What I am trying to say correct. We're talking about I would put this more towards a terminator to where he comes back. He's a good guy not towards you.

31:02.41

Cody Morgan

That's the best 1 by the way of just throwing that out there. So yeah.

31:03.48

ilm

Yeah terminator one was good terminator. Two was definitely the best. Yes, we're talking about would be I would say um Cbdcs would be ah the ah the the dude that dresses up as a cop and ah yeah, yeah.

31:16.59

Cody Morgan

Oh yeah, the T one thousand the liquid guy sweet. Yeah yeah.

31:22.89

ilm

He Ah, he looks like the good guy but and he's Clean. Cut looks good, but there's a level of ah um, Authority there. Again I'm not trying to obsusgate Authority like I'm not trying to hide taxes like these are narratives that are put out like people who like bitcoin like it because you want to pay taxes like that's not that's not true. Um, it's a matter of like ah what is a better form of money. That's where a lot of people come in like you like bitcoin because you're trying to make money. It's like no um I like bitcoin because it's better money. Um, yeah, So I think I think bitcoin is honor schwarszenegger and terminator two not terminator one where he's trying to kill you. It's your friend.

32:00.24

Cody Morgan

Oh okay, good. Good. Yeah, right? Um, all right? So um, all right, we're gonna move away from the bitcoin talk for a little bit and I came up with this question this morning when me and Jes were driving back after we got a cup of coffee. So inflation's going up right at 2% per year. Is what we're talking about right and right now it just popped into my head like let's say right? There's no number basis for this or evidence. But let's say right back in the 1940 s people were making a dollar a day right? and there's penny candy and gas was like five cents and now we're making $15 in minimum wage right. But gas and everything's gone up with how much we make right? So eventually let's say 20 years from now I'm making $100 a minimum wage but a house costs me $5000000000 because staying sticking with and we're shifting why like eventually aren't we going to reach that level of like that Zimbabwe billion dollar that you. You have like we're eventually just going to be handing around money like it's going out of style like and this isn't just like the us like global economies growing like inflating and it's just like well can't we just reset and be like okay, everything's back down we're moving the decimal spot 3 spaces again. We're starting over.

33:13.41

ilm

Yeah that's I think that that is I think the writing is on the wall. That's where we're headed. Um, there's I'm not aware of a case in history where inflation where a fiat currency is worked out and they're able to taper inflation over a prolonged period of time. And actually go back to a total ah deflationary disinflationary reset act like none of this happened scenario like all right? We're going back to 1940 s prices I don't know how you would do that and ah like that would be.

33:44.35

Cody Morgan

Um, yeah.

33:48.20

ilm

Pretty much impossible from the government's perspective like we have so much debt how in the world like our debt is priced in us dollars. How would we ever pay off $ $34000000000000 of debt if we made it where $1 is worth way more than it currently is suddenly like. That'd be like if if the dollar was worth what had the purchasing power of $10 well suddenly instead of $34000000000000 we have whatever three hundred and forty trillion dollars of debt and purchasing power in a sense the government say I want to do that if anything they're going to make it worth 30 $4000000000000 is like paying off $10000000000000 of debt and to do that where you have to make money. Cheaper and when you do that that's done through inflation and ah it's just inless cycle. So yeah I don't I don't see how to be possible now. The crazy thing here. There's a few parts to that one like what you described is I mean is it's manipulation. It's so it's a it's a sneaky tax on people. Um, there's so many issues with this. Um me think here so 1 issue is when you have inflation. Um you are forced to invest your dollars in order to just keep up with purchase. Keep your purchasing power there. Now thing is like let's say inflation is 10% okay well now I have to go buy assets that will appreciate by 10 percent in order just to keep up with my current purchasing power thing is if I make 10% on investment I have to pay capital let's say I hold it for a long period of time. So it's long-term capital gains.

35:20.70

ilm

Now I have to pay what 15 to 20? Maybe you have state taxes 30% capital gains tax on that so in order to keep up inflation I have to invest. But then the government's Goingnna tax me because I made money off of that but did I I I yes I technically made money but I did not increase my purchasing power. So. It's a double tax your tax by reducing your purchasing power. Then you're taxed because you're trying to just keep up with that purchasing power. It's super manipulative and really dangerous. Um, yeah, sorry, where are you going with your initial question.

35:49.35

Cody Morgan

Oh no, that was good see this is why it's so much fun because I like to setting you off on rants and see where where it leads. Um, no, it was just um, yeah you know it's just I was just wondering like why especially like okay we're in debt. How many other trillion right right now

35:55.65

ilm

It's dangerous.

36:07.30

Cody Morgan

Just in the us who do we owe that to that's my next question like I know it's probably the like I know we have you know government contractors and stuff and we always hear like those there was a commercial. What was that two years ago where it was like in the future and it's like. Ah, chinese guy saying like we own the us and stuff it was like this like propaganda thing about you know like we need to get our. It was probably during the political season like we're coming into now right? So like but that's a lot of money couple trillion more than a couple who do we owe all that money to. Is there some secret organization we owe it all to.

36:42.43

ilm

So There's a few types of debt. Um, there's a spot you should go check Out. It's a us Debt clock. Let me see yeah Us Debt Clock dot Org and ah, it's a real-time debt clock and it's broken down to like what people think of as general our national general National debt. It shows it over different periods of time. Ah it shows like it breaks down our types of debt. Um, but then also it in it. It Ah, one of the final numbers is our unfunded liabilities. So going back up like us national debt where is like when we say debt What is that like do we owe? Visa do we owe like.

37:18.48

Cody Morgan

Um, yeah.

37:20.00

ilm

You know some do we owe some guy in China. No I mean that debt is pretty much all through um, like us bonds. So ah, treasury notes treasury bills treasury bonds. So I mean that's that is what bonds are you are.

37:39.47

ilm

Allowing people to ah lend you money um and we will one day pay you that amount back with interest we might pay you all the interests at the end or we might pay you. What's called a coupon where you get interest over a period of time and the end we give you that. So if I if you buy a treasury note for 10 grand. Um, you could over the next. Let's say it's a ah 10 year treasury note for ten thousand bucks just for simplicity's sake well over the next 10 years. You can get 5 % per year on that note and then to the end of that time. You'll get your $10000 back. So the us government owes you. That debt so you are an owner of us debt now. So all of those us treasury notes and bills and bonds. That's where that debt comes from now. This debt is auctioned off regularly and people purchase that like all different people have purchased that there's a lot of governments who own us debt. Um. We also as a us government we own a lot of own debt. There's individuals who own this debt so that's where you hear people like you know the us owns owes china trillion dollars of debt but China owes US a trillion dollars of debt. why't we just cancel it and start all over which yeah that that's.

38:49.80

Cody Morgan

No yeah.

38:52.89

ilm

That's fun to think through but that's not really hot works if you if you actually start pulling that thread. It would all unravel when you got back down to like but who all's involved with this debt like you have like right in the us right now you have like tons of pinches like penschions. Basically have to own so much of bonds because they're considered a safe investment so I can't imagine the amount of I could look it up but ah yeah, the amount of debt that just ah us companies own inside of their pension plans. So yeah, there's those people there's other governments. There's individuals. There's there's our own government institution. There are lots of people. Um, so there's that debt. But then there's also unfunded liabilities. So that's like our really our total debt so that could be like all right? you want a bond. Maybe ah kind of think the easiest way. So like a simple illustration be like all right? Ah Cody I'm going to give you or I I borrow ten thousand bucks from you and we have a ah note saying like look you have this or I have this $10000 and I owe you in a year I owe you that $10000 back but I'll also give you an extra thousand So ten percent 1 year note okay so in a year I'm going to give you 11 grand. Okay, that would be ah our general like gym or in this case like us national debt. Okay, so that's where debt. But then.

40:21.37

Cody Morgan

Yep.

40:23.57

ilm

Also it's like oh I forgot to tell you in in 5 years I have to give you $500 per month. Um, because I promised you I would at some point a long time ago. Those are unfunded liabilities so that would be things in our governments would be like sole security medicare. Those types of programs. So you lump all these in on top of our bonds that we owe we have all these other liabilities and it's astronomical. So like our us national debt right now is thirty four trillion and change that just turned over from thirty three trillion like a few weeks back and like a couple months before that it was thirty two trillion like this is escalating. At a crazy like rate. Um, but then we add in like the us unfunded liabilities is actually ah two hundred and eleven trillion dollars so per citizen that's $630000 um, yeah, so we're we're talking about numbers. They're like. Are unfathomable of how much we owe to everybody yet. Yeah you.

41:26.27

Cody Morgan

So then why if our debt keeps going up who keeps buying it cause like let's just say right? Ah I'm gonna loan you 10 grand and that's why we have credit right? And then I realized that you owed me 10 grand for the past five years and never paid me back I'm not gonna give you any more money right? It makes sense right? I'm not a dude. No. And it ain't going to happen. So what who would buy up debt or other countries debt because eventually someone's going to be stuck with the bill. This is like a game of ah where we're gonna like that 70 show when they dine and dash right? Eventually someone gets stuck at the table and you get stuck.

41:46.27

ilm

Well.

41:57.79

ilm

Yeah, yeah, well, there's a few things here. We we pay our debts by issuing new debt. That's what we do. So it's like hey we've got a trillion dollars of ah of bonds that are being ah that are maturing this month let's say

42:12.49

Cody Morgan

If.

42:15.32

ilm

Okay, well gosh we need to go. We need to go sell a trillion dollars worth of bonds. We can pay off those other people's trillion dollars that's what we essentially do with the government for decades now is just snowballing now. Fortunately, it worked out in a fortunate way for since like 1980 basically that we were issuing debt at lower and lower interest rates. So if at first let's say a bond was 15% and then we were able to issue new bonds and roll that debt over to a 10% and then a 5% the 2% interest rate. So our debt was getting cheaper in a sense. Well over the last couple of years our interest on our debt has gone up so we're refinancing debt at a higher interest right now. So the other thing like other governments so one we have paid our debt sort of we've paid it by. We've paid it by getting more debt that'd be like you owe visa um, you know your payments coming up and it's like I can't actually make I don't have a thousand dollars my bank account. I need to go and get my get a new mastercard then I'm going to roll that I'll I'll get a cash advance on that Mastercard to pay my visa card like look I've always paid all my debts. It's like yeah, but you actually have more debt and what's happened is previously that visa interest rate was 10% but your Mastercard interest rate is 8 % actually you're rolling it over at cheaper rate you're getting more and more debt because now you rolled over that 10000 or that thousand dollars and you're adding more on you're digging in your whole self at hole. But at least in a lower rate. What's happening now is we're doing that but we're rolling over from a 10 % interest rate to a 15 % interest rate while adding more debt.

43:48.39

ilm

And what's happened is our our receipts as a government ah like our our income um has gone down like whenever the market doesn't very do very well when ah corporations aren't producing and capital gains aren't being realized all that fun stuff then our our gross receipts aren't as high so like the. That we're bringing in actually is not good. So I'd be like you know Cody your you're continuing to spend at the same rate, you're actually consuming way more. You're spending more money you're rolling over your existing debt. Um, so you're not paying that off, you're rolling it over and you're rolling it at a higher interest rate right now. Oh and the amount of money are making as a house just dropped as well. Um. So that's that's more like what's going on. Um, yeah, don't know where I am.

44:33.53

Cody Morgan

Oh that was That's perfect. Yeah, absolutely because I mean I think that's where a lot of us get caught up where we hear a lot in the news like hey you know the debt ceiling's going up, especially we're coming up in a political season right? So That's all we're going to talk about is fiscal responsibility and all that other stuff and um. But I mean it'd be political suicide for anybody to be like hey we're super in debt and we're just going to try and dig out of it and I don't know if you can.

44:54.30

ilm

It's terrible because that would the best thing to do on a if we're talking about generational my grandkids great grandkids. The best thing to do was to rip the bandit off and say you know what guys we can't afford this stuff. I mean that's you know you try that as a family. It's like look guys. We're eating beans and rice. We're not going on vacation. We're unplugging the Tv it stinks right? Then that's what's good for your family. The problem is we have people who are more concerned about saving face like I just want to look like I'm a good dad so keep watching Tv we're going to keep going to vacations. Behind the scenes though I'm stressed as could be and we're broke and that's where we're at like politically we are shortterm focused on saving face rather than actually thinking through the the longevity and the betterment of our country overall so we'll we'll keep doing that otherwise like hey we're gonna have to cut these entitlements those unfunded. Liabilities. We're going have to cut some of those no one wants to do that? No one wants to be the guy who says you know what social security sorry we're going to get rid of it or Medicare that's going down or ah, the amount of money we're spending to continue to fight wars has to drop like no one wants to do that. But what else you going to do like you got to cut the cable at some point that or keep spending. Now. We're a fortunate place where we can keep making your own money fortunate sort of um oh that's what I'll see earlier. 1 other thing is historically you ask like why would someone keep buying our debt. Well we've we've been at a ah privileged spot where other countries have basically been forced to buying our debt. So like we've ah.

46:25.80

ilm

Ah, we've benefited from. Ah, what's called the petro dollar system where basically other countries were forced to when they when they transacted for oil and gas they had to do so using the us dollar. So if you're if you're forced to do that you better keep some dollars on your balance sheet. Because maybe your currency. Maybe you had Yen or francs or whatever and that goes down in value and compared to the dollar. Well, you're sort of hosed. So you're going to be forced to keep some dollars on your boun sheet. You're not going to actually keep dollars for the most part you're going to buy us debt that will continue to pay you in dollars so other countries because of. Petra Dollar system and a few other mechanisms have been forced to buy our debt but that's starting to go away like it's sort of other countries sort of getting ticked off, you're starting to see the rise of the bricks nations Brazil Russia India China's South Africa so you're starting to see these rise of these other countries who are saying you know what we're not going to transact for oil and gas in. Ah. Using the Petr Dollar system we'll use our own currency. We'll use this one and ah so you're again, you're obfuscating the need of other countries to buy our debt. So I think what's gonna happen is us the us ah will have to buy more and more of our own debt and it becomes this weird. Um, we issue debt. The other guy in the same team buys it and ah it's it's it's this strange game of sort of musical chairs. Um, yeah, that's where it all looks so choppy like that's that's why I love ah referencing you mentioned earlier my world war post world war one picture of.

48:01.13

ilm

The german Mark um, there's there's a chart at that same period of gold to German Marx and there's it's it's showing over a few year period the value or purchasing power of Marx versus gold and it's super volatile. So there were days and years or whatever that you look like I could total more on if you sold your marks for gold because oh yeah, maybe maybe we do have a zillion of these things but oh well, it'll be fine. We'll we'll figure it out. There were other times that you look like an idiot for holding it. You should have bought gold over the long period. We all know that like german marks became. Truly worthless and you should have owned gold but it wasn't clear that point when you looked at it as a chart um and and did not think through actually underlying problems here and that's what that's what you have people who are trying to shout from the rooftops. We're not talking about like bitcoin as a hype. Um, but rather I knew bitcoin come back in the conversation. Um, we're not but we're not talking talking about hard assets for hype. We're talking about a lot a lot of bitcoiners are really interested in Macroeconomics because ah, they're they're so intertwined like bitcoin's important because there's a hard supply cap and ah.

49:01.86

Cody Morgan

Ah.

49:16.71

ilm

Versus the us dollar doesn't and it can be easily manipulated when you have someone a centralized authority to control these things who can create print by their own like it's it's it's too much power in 2 person's hands and you have what's you alluded this earlier as well. Um, early on the conversation. But there's something ah always butcher outs pronounced but it's very like it's called the like cancel on effect effect. So what that is basically is ah people who are closer to the money printer benefit more by printing money so us government would benefit more by issuing new. Ah, by. Printing more dollars than ah ah basically anyone else but then like big banks would benefit as well like right now there's these crazy temporary measures in play for banks to be able to essentially like take loans. Ah, so they're they're going to benefit more than whatever like bill gates but bill gates will benefit more than you know, a small business owner that small business owner is going to benefit more than ah like a 10 maybe like a w 2 employee but that guy is going to benefit more than like. The old lady who's living off her deceased husband's pension that has no cost of living adjustment like that old lady is a person who hurts the most can you imagine living like what if your only income was ah a pension that like like there's trs Texas retirement system pretty much.

50:50.30

ilm

Almost all school districts in Texas if you participate in trs. You don't participate in social security and a lot of Trrs Trs does not technically have a cost of living adjustment. They can give you an increase whenever they decide it's time or fitting to they don't have to so imagine if you were a 85 year old woman. And you spent your entire career working in ah the Texas retirement system or in Texas schools and and you had no other assets. Maybe you're renting or maybe you own but you just have property taxes up. Let's say you rent just take to an extreme you rent. You have no assets your income stream is your trs textile trauma system that technically doesn't have a cola associated with it and groceries go up by 25% between 2020 and 2022 and your rent goes up by 50% but you maybe t rs was generous enough to give you a 5 % increase but they didn't have to like that's who's hurt the most and that's a cancel on effect and that's why like that's why this stuff really gets me like fired up um, is to think through those people because that's real I remember I remember a couple years ago is at the store. Um, when grocery started really, it was almost exciting how much more expensives groceries were getting. It was like infuriating but yet curious ah to go to the store and observe like wow it's I can see how much more expensive it was than was last week and for a few months there I would always ask the the you know the high school kids bag in my groceries like.

52:23.66

ilm

1 like how much more expensive would you say like an average person basket is compared to a year ago and then I I would also ask like roughly what percentage of people that y'all check out comment on the price of groceries that was really interesting but man I remember when there was 1 ah, one time I was at the grocery store and this old lady behind me she had like. 5 items you like it was really it was almost like cliche it was like hot dogs some cat food like coat hangers few little things like that and ah she went check out and they were backing my groceries and they rung up a few of the items and then she looked and saw the like. Already reached how much she could spend so she had to like she was gonna have to put some stuff back and ah, that's infuriating. Um, yeah, that's that is that that's where you have people who are like inflation is theft. Um, if you own assets it benefits you so think through like ah.

53:14.59

Cody Morgan

Now.

53:20.86

ilm

Let's go to another country because that has experienced hyper inflation. Let's go down to like Venezuela let's say you own a ten Thousand Acre ranch in Venezuela like you were you had a great job. You made a lot of money and you own this ranch but you took a mortgage on the ranch and it's 2% mortgage for a million bucks okay um use venezuelan currency so was it the peo. Whatever so you buy this thing for venezuelan dollars for a million bucks over a thirty year timeframe mortgage for 2% but you have you also have other assets. You have a 4 1 k and stock plan and all that fun stuff. And we reach hyperinflation the value of your pesos or dollars whatever we're going to call him gets annihilated so suddenly you a million dollars on this thing and maybe prior you're making a lot of money. So maybe you're making half a million a year so that was 2 years of work that it would cost you to pay this thing off but you decide to take a note because the the.

54:11.72

Cody Morgan

Um, for.

54:17.86

ilm

The debt was cheap. Let's go ahead and do that well hyperinflation comes and suddenly you're making $5000000 a year your your salary went up by tenfold. Well now you can pay off that land with a few months of your salary you benefited you just got.

54:24.25

Cody Morgan

Are.

54:37.19

ilm

Ten Thousand Pristine acres of you know you got a beautiful stream not stuff like desirable land. You just got for next to nothing and your assets if they are good. Assets went up as well because people are fleeing to those things as stores of value people who are renting and don't own hard assets. They just got annihilated maybe that a few bucks in the bank or maybe they're not able to get a bank this happens a lot in like smaller countries like they're unbakeable so they had a few bucks stored away under their mattress and that money that they just worked if you're able to squirl away $1 a week and finally you have you know enough for down payment. A little cottage like a little condo. You know it took you 5 years ah to scroll that amount away. But then also you reach hyperinflation and that 5 years of savings was just turned into a month of savings and the their cost of that condo went up.

55:35.58

ilm

In Tandem with how much inflation took Place. You just got wiped out. Um, not only days that was was your money stolen but ultimately was stolen was your time your dreams like your family's hopes of having your own place that's infuriating um and that's that's what happens when we reach places of like hyperinflation. It's obvious. But inflation itself like we're okay with saying like 2% inflation is good and normal and healthy. Why like that is unnecessary but is a ah that is a narrative that we must continue propagating in order to keep this thing going.

56:09.76

Cody Morgan

Nice, Well, that's why I like talking to you because you get so passionate about this stuff and it gets me fired up too I'm like yeah, let's ah, let's start mining some bitcoins and stuff. Let's do this. So let's talk about something fun right.

56:18.81

ilm

Ah.

56:21.38

Cody Morgan

Retirement everybody wants retirement right? We got this whole fire movement right and experts and there's commercials Jpmorgan you know invest with us and we'll let you reach your dreams and all this other stuff and you know shoot oh yeah, yeah, just like.

56:31.49

ilm

Yeah, there's people sitting in those like I adirondack chairs you know and like they're looking out on the beach holding hands.

56:38.77

Cody Morgan

Oh just like sipping their coffee and they're like you know and you're and I'm getting dressed to go to work like oh I can't wait to be there right? So let's talk about? No oh the? oh oh well I mean if that's your if the if that's your retirement.

56:43.91

ilm

Yeah I think I was just I I was thinking of a see Alice commercial instead I was thinking ah I was picture I was pictured people in a bathub holding hands in a field like wait a second. That's not what? Ah um.

56:56.20

Cody Morgan

You live how you want to live gym all right man. Well um, but you know, um, anyways, so let's say I want to retire right? This whole fire movement's like you know retire as soon as you can right? and you had a guy on the other day who I actually agreed with um where these fire people work their butts off for like 10 years and miss out on their family and then all of a sudden. Can retire but their family's not there anymore, right? and that can be set for anybody who works right? You get people who investment bankers military people. You know, anybody like that right? But let's just say right? Perfect world I want to retire when I'm 50 I got a good hopefully 50 years left of my life right? And so everyone says hey you gotta invest.

57:16.20

ilm

Pure.

57:34.14

Cody Morgan

Let's invest let's invest right okay cool so let's say I retire when I'm 50, but then I have an accountant or a financial planner such as you and now I want to you know I want to live on my farm and I have a fixed income everything like that. How do I plan that out right and I know. Your your most hated thing is I want to make enough money to retire. How do I make that happen right? because everything's so volatile. But I'm talking like the very basic stuff like do I sell a stock a year but then if I sell a stock year eventually I'm going to run out so am I trying to plan that perfect peak of I die when all my stock runs out.

57:56.46

ilm

A.

58:09.58

Cody Morgan

Or like how like I don't know like it is the dumbest question but nobody ever talks about it. They're just like yeah invest and you'll retire. It'll be great right? exactly and it's like you got like 4 ah one k's and you got iras and everyone's like you know.

58:14.55

ilm

Yeah, you'd mess and you retire on it like but what does that mean? So I.

58:25.25

Cody Morgan

You got to do this. You gotta to do that and you're like okay but I want to retire when I'm 55 and they're like cool. okay like what what ah okay I retired now what do I do like I know I'm sitting around sipping coffee in my see alice commercial I get that but like where's my where's my money at.

58:42.45

ilm

Perfect here. Yeah, that's ah, um, at least you got the need got so many funny think.

58:43.70

Cody Morgan

You know like and where's it coming from.

58:50.35

Cody Morgan

Sorry I got you I got you think about bathtubs now. Sorry.

58:56.70

ilm

Well, you got you got the names right? I've heard so many like oh, where's my my k one zero four you know it's like you know isn't it. There's like a radio station or yeah, my you know, ah my four zero one k there's a guy who thought his 401 k meant that you get four hundred and one thousand dollars when you retire um and that was a given like yeah, there's so many crazy things out there.

58:57.23

Cody Morgan

Yeah, yeah, yeah, yeah.

59:11.65

Cody Morgan

Now.

59:16.74

ilm

I've I have I have a notebook somewhere of like the craziest statements I've heard people make about their money and retirement and one day I'll write a book just summarizing like this is the average This is the state of the average American when it comes to financial literacy and it's astonishing. Um.

59:29.86

Cody Morgan

Well I mean Phil speaking speaking personally right is like ours was I mean there's a song out there like buy dirt. It's a country song but like growing up on a farm it was hey if you got land you got money like that's it and like cool but now somebody go into stocks and they're like hey if you got a. Piece of paper that says you own some Apple you got money like okay, but where but where is this money I want it like it's my money and I want it now right? And so like yeah, right, give me my money man but like so then do I like would I have to like plan it out where like you say.

59:55.83

ilm

Yeah, come on Jaden you wentworth.

01:00:05.73

Cody Morgan

Hey Cody you're retiring at 55 congratulations mean you high 5 each other woo great. So then for the next let's say thirty years I'm selling 10 stocks a year to survive is that what's going on or how do I do that.

01:00:17.89

ilm

So I try to make things as simple as possible. There's enough complex things in the world. The things that can be simplified. Let's simplify them and ah yeah, so how we look at this in a general sense is a few fold so one. We're going to look at fixed income sources that you'll have during retirement. So that could be sole security or a pension or ah military disability. Um, it could be income from a rental property things like that. So let's say let's say that's 50 grand a year they will get from ah military disability and and the pension. And so security. So 50 grand a year from fixed income sources all right? and then let's say you have $2000000 of investment assets all right? You got $2000000 there and let's say all needed $100000 a year to live the lifestyle you want. So we have 50 grand a year that we know is coming in we need we need. 100000 so we need another $50000 we have to get that from your investment assets. Okay, so what we're trying to figure out is fixed income plus a distribution rate of investment assets equals how much you can draw from or you'll receive annually during retirement. And the goal is to get that equal to or greater than ah in your that case $100000 then we're at 100%. Okay, so where we look at that would be ah um so a distribution of investment assets. So in that case, you have two million bucks so if you have $2000000 and this is again. This is speak in general terms. But ah.

01:01:45.85

Cody Morgan

MS.

01:01:48.91

ilm

Let's say you're in a diversified portfolio. So like a sixty forty portfolio is what's utilized in its ah in the the case studies here so sixty forty being 60% stocks 40% bonds diversified portfolio all right? So here before I go too deep. There's a study done to figure. Sort of this question out so back in the 90 s the market went up for a long time and you'll always goofy talking heads on the news saying like hey the market's up by 12% this year you can pull out 12% of your portfolio and you won't run out of money like you can pull out 12% every year and you'll actually keep your initial basis in there because you're just pulling out the growth. Which sounds great and it gives a lot of people a sense of false hope the problem is what if the market doesn't go up by 12%. What if it goes up by 4 well if it goes down by 12 or goes down by 30% and you pull out 12% of your portfolio. That's what's called sequence of return risk. So we're not talking about just the general returns. Maybe your portfolio on average returns 12 % but what in. What order does that average of 12 % take place like if you have a negative 25% followed by a positive sixty. Well, that's a good return. But if you have that negative 25% for the first couple of years like if you're pulling out 12% of your portfolio. You're in big trouble. Okay, so the order of which. Ah, returns happen is really important here. So anyways, in the 90 s you had these group of people saying hey you can pull out so much of your portfolio. You had a guy named Bill Benan who went and said ah well that doesn't seem quite right? Let's look at more data to to figure out what number is reality if it's not 12% then what is it.

01:03:24.30

ilm

So he went did a study I believe it went back to 1926 and then ah he actually redo the study going back to the mid eighteen hundreds a few years back um to grab a distribution rate called what's called ah like the safe withdrawal rate. So basically that you want to see all right if you retire and you're going to live for 30 years in retirement what dollar amount of your portfolio can you pull out in year one and then adjust that amount according to inflation annually for every year thereafter and in any situation. Um would you have not run out of money at that third years so I could be like retiring in. Right? before the great depression happens or in the early 1970 s during these terrible times retire. How much could you pull out your portfolio then so the number came out to about 4.2% they rounded it down and said it's four percent so there's a rule. It's called this 4% safer draw rate. Okay. So in reality if you only pull out 4% of your portfolio on like 98% of the time you would die after 30 years with more money than you started off with because that's accounting for a safe withdrawal rate ah during these worst case scenarios historically so to answer your question that's ah, that's a big explanation for how we arrive at this. But basically if you have. That situation if you have $2000000 of a diversified portfolio if we utilize the trended you study for this then you could pull out 4% of your portfolio which would be 80 grand per year and statistically you would not run out of money over that period actually 98% of the time.

01:04:56.27

ilm

Historical numbers. You would die with two million or more dollars in that situation. There's a lot of times you would die with way more than $2000000 because you're pulling out only 4% each year and again if you're if 4 Percent first year that would be 4% of two million is eighty grand well then let's say inflation the next year is 5% well you would adjust that number by 5 % now what we actually utilize is ah what's called guardrails. So for our retired clients. We use a higher distribution rate we use a five and a half percent distribution rate but we utilize what's called what we call guardrails so a guardrail is like all right? You have $2000000 five and a half percent distribution rate would be one hundred and ten hundred and ten dollars ah hundred and ten thousand dollars in year one now if your portfolio goes up during that year and ah one hundred and ten thousand dollars actually is now only 3% of your portfolio. We're going to give you a good raise the following year if the market drops during that first year and one hundred and ten thousand dollars is now like 8 % of your portfolio well that year we're not Goingnna give you a raise and we actually if it's bad enough might say like hey instead of going on 4 vacations this year you're going to go on 2 but that allows for a by having those parameters. It allows for a higher total to distribution rate because you're moderning. Ah, the spin down of your portfolio.

01:06:10.57

Cody Morgan

So with that what what I want is for you to be able to call me and say hey I need you to go buy that pontoon boat. You've been eyeing up really badly actually by 2 you have too much money. That's what I hope for.

01:06:20.26

ilm

Yeah, yeah, there's there's way too much money here.

01:06:25.70

Cody Morgan

Yeah, like you just don't there must be a rounding error somewhere because you gotta go buy a lot of stuff and yeah, um, okay, no that answers that um, okay now I'm gonna change it again 1 more time on you right? because this is from an outsider's perspective right? The stock market all I know about it is from what I seen on the wolf of wall street. And the dark night rises when Bain walks in and the guy's like there's no money here and he's like why are you all here and then he like beats the dude up but like all does a bunch of people walking around youll and sell sell sell or buy and it seems like chaos. But yet we base everything on these nasdaqs and all these other portfolios being like oh.

01:06:48.91

ilm

No, ah.

01:07:01.38

Cody Morgan

They're gonna make more money so buy more stocks or it's worth more so it seems like it's all built on faith and people just like it seems like a giant fantasy football game to me. Yeah, so so like we're basing all this on that and people put so much faith into this like but why.

01:07:09.24

ilm

Yeah, sort of.

01:07:20.25

Cody Morgan

Like what's what's the whole point.

01:07:20.50

ilm

Well, you have to keep in mind personally I don't think that our market currently is built on true fair note and free and open markets. So that's where it's like I want to invest in good companies. So yeah, that's what you're doing you buy a stock you're buying partial ownership of a company if you think that the company the value of that company is going to go up if you think they're going to have free cash flows. They'll distribute dividend then maybe you want to own some a bond is debt like hey that like that person is investing in something good. But they want they need some money in order to build up the infrastructure and in a year they'll give me that initial money back plus a little bit more you don't own that if they're building a bridge. You don't own the portion portion of the bridge. You just loan to money as they can build the bridge and they give you payment on top of that. So in reality, you're just looking for good places deploy your money. What's. From a risk-justed perspective. What can give me return on my money greater than what my cash should be doing and that's where you deploy your dollars. The thing is where we're out right now that's not the case like owning companies that actually are solid and make. Money is not necessarily what's in vogue. It's what companies have access to cheap debt and can continue to scale and grow and like maybe there's zombie companies that aren't making any money or maybe it's debt that we know is terrible like there's a few years ago

01:08:54.99

ilm

Ah, countries were issuing negative interest rate debt like you give me a thousand bugs and in 10 years I'll give you $900 back. That's ridiculous who would buy that you're not gonna buy that because of any rational thinking you're buying it out of spec speculation of manipulation like you're buying that because you think that. That de centralized authorities are going to take interest rates where instead of you know you buy right? now you buy it. You'll get if you buy a thousand dollars. You'll get $900 back. Well if you buy it next year you'll only get $800 back. So it was like man that that $900 back is way better than $800 back and someone's going to want that one later on like. That has nothing to do with rational investments that has to do with like playing this goofy game. So there's ah I think there's a good reason. It's not easily understood. Um, yeah, now in general like what we should be observing is the market figuring out values of certain things. Like yes like I think that this company is going to do well that they're deploying their capital. Well they have good marketing. They have good executives. They have ah what's ah, what's called a moat around the company. So like they have something that's protecting them from outside intruders that's going to protect their longevity. Um, so they have a good. Moat as a company they produce free cash flows and they're growing. Whatever it's like that's a good place to put my money. Um, so that's normally how works and other people like I think it's I think it's valued fairly right now I don't think it's gonna go up so I'll sell it so I could buy something else and I think we'll do better and the other these people are saying like hey I want to buy that well I want to sell it.

01:10:31.30

ilm

Perfect. Let's make a market Market Makers They go there when they connect buyers and sellers. Um, that's that's why there's so much yelling is just people trying to communicate what they think it's the best place to put their money at um, but again, that's we've lost touch with reality like we lost the plot so long ago. Um.

01:10:47.62

Cody Morgan

Yeah.

01:10:50.30

ilm

And that's even like right now like with the with the rise of index funds like no very few people even know what the heck they invest in like you go buy go buy an index fund like you own everything. It's like in that thing there's so many like Crudy companies buried deep in there that don't have any business being in like own being owned.

01:10:53.21

Cody Morgan

S.

01:11:10.29

ilm

But they're carried along because they're part of an Index um sort of like like a real estate investment trust as well like a reit you know a reit is like a mutual fund with real estate and like maybe you own some place like in the bottom of that reit is like some cockroach invested ah apartment complex in the middle of a. Junk You know the little spot that no one wants to rent but it's being invested in just because it's slipped into that thing and would anyone in reality like if you actually went and visited that place and looked and said like I think it's a good investment. No One's going to buy that thing but it's slipping through the cracks because we got to keep.

01:11:37.60

Cody Morgan

Ah, yeah.

01:11:48.69

Cody Morgan

Yeah, so so it is a big gamble. It's a big ga big fantasy football game then? yeah yeah, so for well and that's where it's hard right? Especially when we're talking about you know, being 35 year old who didn't grow up learning about this stuff is that you're like.

01:11:48.89

ilm

Keep the money going.

01:11:52.97

ilm

Yeah, sort of but.

01:12:05.89

Cody Morgan

Um, there's too much to know here like you hedge funds index funds all sudden. We're talking about mutual funds and everything I'm like I don't know what we're talking about anymore. It's just getting chopped up into bits and don't know um, but the last big question I have for you right? shorting stocks since we're talking about the stock market right? So the movie the big short right. Christian Bale's character is jamming away on some drums or something like that and he's like I'm going to stop I'm going to short all like mortgage companies stock for some reason, right? I don't know why I didn't understand half the things that were going on in it. So but here's my question for you right? So let's say you. Buy stock in. Let's just say Aig right? was that was one of the banks that went under right? I think in 2008 when this happened right? You won't stock it and I shore them I said hey now something's gonna happen. These guys are gonna fail right? So I'm basically betting on them failing and you're betting on them winning. So we're basically in a horse race against each other right? Yeah, so let's say then they do.

01:12:49.50

ilm

Yeah.

01:12:58.60

ilm

Yeah, sort of yeah.

01:13:03.96

Cody Morgan

They do fail you know, okay like they did historically where does that So I shorted the stock I said yeah, you're going to fail. Well their company goes under Do I get your money then is that where that money's coming from but then they yeah yeah.

01:13:15.50

ilm

Yeah, what you're describing is options trading so you when you Ah, there's a this options can't get super complex but it doesn't have to be that hard like there's ah, there's what's called call options and put options a call option.

01:13:33.48

ilm

Is ah if you think the value of something's going to go up here so we'll we'll make it. You're you're the purchaser of a call option. So you think that Aig is going to go up but you don't want to go buy Aig right now but you want the ability to buy it later on for thirty bucks

01:13:40.77

Cody Morgan

Yep.

01:13:51.75

ilm

So today. It's trading at $28 and you want the ability to buy it for $30 in six months like all right cool and I think that aig is going to stay flat or go down well and by I maybe I own a I g so it's a covered call. Well I'll say all right? Well I want to keep holding this thing. But I don't think it's gonna go up to it's 28 I don't think it's gonna go up to 30 maybe'll go up to 29? Well yeah, I'll buy. Well we'll come up with agreement where you have the ability within the next six months to purchase it for $30 a share and I have to if you exercise your option if you say jim. Want to buy this thing from you for thirty bucks I have to give it to you for that amount. Okay, now you have to pay me for that option. So you are giving me ah ah, pre agreed up on amount. Do you deliver upfront for that agreement. Maybe it's. fifty cents well I get fifty cents to take that risk of it going up too much so that day I profit fifty cents so what happened is let's say in this scenario again. Ah the it's called a strike price is $30 so that's ah I actually let's stay away from terminology. It's twenty eight bucks a day

01:14:53.33

Cody Morgan

Like f.

01:15:05.22

Cody Morgan

No yep.

01:15:07.20

ilm

You have the ability to exercise at 30 you give me 50 stins for that ability to do exercise. Okay, let's it for the next six months if if Aig goes from 28 to 35, you would exercise because you could buy it from me for 30 and immediately sell it if you'd like for 35 you just got $5 per share. Built in you paid fifty cents for the ability to do that I lost well I owned the stock so I made the difference from 28 to 30 but then I lost the other runup. So I made $2 and fifty cents you made the difference if if Aig goes up from 28 to 30 well you're not going to exercise on me. Because or let's say it goes up to twenty Nine Ninety nine okay well you're not going to exercise because why was you buy it for twenty Nine Ninety Nine ah you don't have the ability you have to you have to buy it at at 30 so I win I made fifty cents it went up so I made I made the amount that went up by anim made my fifty cents

01:15:45.52

Cody Morgan

M.

01:15:54.63

Cody Morgan

Now. Yep.

01:16:04.58

ilm

Um, same thing if it goes down. Um, now if it goes up. Let me think here. Um, if it goes up to ah me think. Here. Let let's let's skip through this stuff. You're you're talking about shorting so shorting is another option. It's the ability to ah ah you be able. You're you're hoping a stock goes down so you have the ability to sell it to me at a predetermined price. Okay, so let's stick with Aig. For thirty bucks and you think that ai is going to go to 0 and I don't think that's the case. So I'll say all right? Well here you think it's going to go to 0 you have the ability to sell it to me for thirty bucks later on and we enter that agreement you're going to pay me for taking that risk so you give me fifty cents for

01:16:47.47

Cody Morgan

Yep.

01:17:00.10

ilm

For that right to exercise so aig goes from 30 to a dollar then you can go buy it for $1 but then sell it to me for $30 you just built in a twenty and a dollar gain.

01:17:12.98

Cody Morgan

So we're kind of playing the prices right? a little bit. Yeah.

01:17:19.40

ilm

Yeah, you're you're you are speculating on movement. The thing is there's different option. Period. So like you can say like all right for the the that that ah that price that you're paying for the ability to force me to do something. That price is going to be dictated based off the market. So like if we're talking about a stock that moves a whole bunch. It's going to cost you more money in order to get that option if we're talking about something super super stable it doesn't really move well, that's Goingnna be a super cheap option because it's more likely it won't move than that band. Also we're talking about time frames. We're talking about an option that expires tomorrow the chance from it going from 30 to 0 in the next day is super low. So it's going to be inexpensive. Um, if we're talking about a year -long ah open option period. Let's go be more expensive because more things could just happen. Um, there's how close it is so like. If we're talking about something that's like it's called being out the money. So if it's ah ah, currently trading at forty bucks and you forty bucks ility to exercise at 30 like that's a long ways. So it's gonna cost less versus like it's at 30 and you can exercise at first thirty like that's gonna be a lot of money you're in to pay me in order for me to take that.

01:18:20.45

Cody Morgan

I.

01:18:27.25

Cody Morgan

Yeah, yeah.

01:18:29.98

ilm

That bet because if it drops any you're you're in the money. So um, yeah there there I know I just did a terrible job of explaining this you.

01:18:38.58

Cody Morgan

No, it sounds like a lot to me to simplify it I like sports betting and stuff like that. So. It's just like being at Vegas and being like hey the browns are gonna win the super bowl. Yeah dude, that's 1001 odds all right. Let's do this I'm gonna put down $10 right compared to you know, betting on you know one of the better teams. Ah chiefs. Winning the super bowl right? So and the more volatile it is the more money you could make off of it.

01:18:55.96

ilm

Yeah, you're correct and like maybe the less it costs you yeah like betting on some crummy team is probably gonna cost you very much you know because the chance of it are slim so you're you're considering your.

01:19:07.39

Cody Morgan

Yeah, yeah.

01:19:14.99

ilm

There's someone else on the opposite side that trade who has a different opinion than you and ah, you're just meeting in agreement to say like I think it's going to go this I think it'll do that. That's like in the big short he was. He went to the banks himself in the movie at least he went to the banks and was like hey I want.

01:19:18.20

Cody Morgan

Yep.

01:19:30.31

ilm

I Want to short these mortgage-backed securities and they all laughed at him because like there's no way this is going to go down. He had to he had to create this new product that would allow him to do this. So ah yeah, he was he was forcing them or he was He bought the ability to be able to buy that company back from them.

01:19:36.16

Cody Morgan

Yeah.

01:19:47.18

ilm

At a predetermined price. So if it goes to 0 He has these big built and gains now at the end of the movie. Ah Steve Carerell is like we gotta do it. It's now or never you know you know's talking about. He's on top of the skyscraper. It's actually not him who says that it's thedu's yelling at him. He's like he has this moral conflict should he actually do it will he be like the rest of the bad guys and find like fine. We'll do it. They make a.

01:19:57.87

Cody Morgan

Um, yeah, yeah.

01:20:06.74

ilm

<unk>llion dollars. Um in that scenario I think with that came I mean technically you could exercise at zero because someone you got to to get the thing delivered for thirty bucks a share so you just made thirty bucks per share I think that situation where it's like if you don't do it now. It's never going to happen. Um.

01:20:15.56

Cody Morgan

Ah.

01:20:22.64

ilm

And that could have been again. I'm not the person I talked to about options by any means if you can't tell I haven't thought about options in 8 years since I took all these tests like I don't I don't trade options I'm a pretty boring dude. The only time options are considered is with clients who own like ah not to confuse things like stock options or like. Equity positions in their companies. We might look at options to hedge their risks of companies like if you in private if you own a company's stock that you can't sell. It's going to vest in 3 years maybe we could buy some options in order to hedge that risk of something you can't sell. That's really the only time I even think about these things so that's why I sound like an idiot right now. Um.

01:20:55.78

Cody Morgan

No, you Don's not you're doing waste smart than me I'm the one asking about you know Christian Bale drumming on drums to figure out how to short a stock. So.

01:21:05.69

ilm

No, you're good. Um, anyways. Ah I know where I was head. Oh yeah, at the end of the movie. He's like we got to do this. It's now or never, there's a few reasons that could happen again like options expire. So like I mean they basically automatically exercise if it makes sense like it'll just. Exercise it for you but maybe those wouldn't automatically and maybe they actually expired that day and it was like we got do this before they expire and you'd lost all your money or maybe it was like a liquidity place like this place is literally not going to have money to pay you so you have to exercise now let me if we're talking about like Apple stock and you short Apple stock from like $100 to $95 like.

01:21:37.47

Cody Morgan

You know what.

01:21:42.29

ilm

You You would make that and it went down. You would get that difference. You know so that that's why that movie it seems so crazy at the end is probably because we're talking about not just like shorting a company. We're talking about this cataclysmic collapse.

01:21:43.59

Cody Morgan

Okay, yes.

01:21:52.60

Cody Morgan

Yeah, and I mean well if it was just a normal like oo you made five bucks you wouldn't make a movie but it would be like well that was the most boring movie I've ever seen in my life like wow that was sweet dude you bought yourself a 24 pack of bushlight on that good job I'm happy for you.

01:22:01.73

ilm

Ah, the okay snort. But.

01:22:10.32

Cody Morgan

Um, all right? So now we're gonna come up to the end of this but I have some fun questions for you. Okay to change it up all right? So here's the first one are you ready for this all right? if you can meet 1 person from history or right now dead or alive who would it be and why.

01:22:20.32

ilm

Stew it.

01:22:29.79

ilm

I guess is probably super cliche but it'd be it'd be Jesus ah yeah um na now war jesus is wayr the Warren Buffett ah

01:22:31.43

Cody Morgan

All right? That's a good one I was not I was trying to say Warren Buffett I'm not gonna lie idea. Well yeah, we can all agree upon now one come on now. All.

01:22:45.95

ilm

I Feel like yeah feel like that's one the cough out answer almost. But yeah I mean.

01:22:48.43

Cody Morgan

Yeah, that was okay, all right, Let's do. Okay besides him Obviously yes, okay, who else then.

01:22:55.92

ilm

Ah, yeah I guess my other answers would be super cliched be other apostles. So probably Peter maybe Paul ah Stephen okay outside of no okay, no no biblical, no biblical person. Um man I don't know. Ah.

01:22:59.28

Cody Morgan

No okay, you can't no now man you're cheating. Okay, we're moving on to another one. You're a cheater. Yeah yeah.

01:23:11.67

ilm

Maybe King Griffy Junior I'm kidding that was my favorite baseball favorite kid. Ah no, there's.

01:23:12.72

Cody Morgan

Do it? Well he is my first glove man back in the day I had the blue glove It was sweet. It was signed by him in gold. It was the coolest glove ever had. Yeah.

01:23:19.21

ilm

I Do everything I hit left handed on all sports because when I was little like I'm naturally right handed but I wanted to be a lefty like griffy. So I first screwed me up but I I I'm Amex because that.

01:23:26.65

Cody Morgan

Oh isn't it amazing isn't amazing like a guy like that right? like I mean yeah, he was good and the team was okay but they weren't phenomenal, right? There's not like a Derek Jeter out out there like. Best ever but like everybody from our age group knows exactly who King Griffy Junior is yeah like I mean it's awesome. It's like being from Minnesota and if you don't know who Kirby Puckett is it's like you might as well just get out of the state man.

01:23:46.47

ilm

Dude, Best best swing in history. Best swing in baseball.

01:23:55.81

ilm

Ah, now my my realize maybe ah my my great great, great. Something grandpa many generations down was a guy ah named John Rogers who was burned at the stake by Bloody Mary for translating the bible to english um, like people's english in England and he was burned at the stake while his his wife and kids watched what one of those kids was my great. Great great something grandpa. That's pretty crazy. So ah, the bold move.

01:24:24.13

Cody Morgan

Dude, that's that's nuts man all right? Yeah wow all right? That's a bold 1 all right cool all right? Ah, we'll make this one fun. All right take a trip to the beach or to the Forest which would you rather do.

01:24:35.13

ilm

Is the forest flat or mountainous.

01:24:39.99

Cody Morgan

Ah, let's say okay now it's 3 all right the beach or you can go to like Yosemite where it's mountainous hiking or it's a flat forest like ah the plains of like Montana.

01:24:49.60

ilm

Yeah, do I Do the mountains I grew up as a beach guy but man I Just love the the crisp mountain air a good mountain like a good stream in the mountains and maybe a aspen grove who can't beat it. Yeah.

01:25:04.33

Cody Morgan

Oho nice a little town called as spin all right cool now. Let's say right? You go back to being you know, 20 something you're just getting out of college. Let's say you're not going to start your own company. You're going to go work for a company right? and they offer you this they say hey we can either give you invest in 4 1 k for you or we're gonna start.

01:25:07.56

ilm

And.

01:25:22.60

Cody Morgan

Giving you bitcoin in your retirement fund which one would you pick? Well I already know which 1 you would pick obviously the let's do both okay 2011 Jim and then let's say there's another person of you who just is about to graduate this may.

01:25:25.12

ilm

What is this me present getting out of school or is this be present is this me graduating in 2011

01:25:39.78

Cody Morgan

And you already have your job and they call you let's say I'm about to graduate this may I'm gonna go work for a company and I so call you up and I say hey Jim I need some advice they're offering me these options which one would you do so let's start out with Jim in the twenty eleven yeah and you can buy 5 3 pizzas with it.

01:25:52.43

ilm

2011 heck yeah I take bitcoin. No no doubt my mind present Jim yeah ah present Jim if I mean let's say let's all think equal. They'll give me $100 a month in company match.

01:25:58.47

Cody Morgan

And be awesome.

01:26:07.82

ilm

If I have to do the 4 1 k to get that company match I'll do the four 1 k up to the company match if they say Jim I'll just give you a hundred bucks you can put towards the I'll put it towards a 4 1 k or towards bitcoin I take the bitcoin but I do I I do I do like particating in 4 1 k's up to a company match at least being on your.

01:26:07.98

Cody Morgan

Yep.

01:26:18.12

Cody Morgan

Okay, awesome. All right? and.

01:26:26.79

ilm

Situation and tax situation. All that like my wife and I we were both fortunate enough in our late 20 s to work with companies with fantastic matches. So my wife worked at the company that had a dollar for dollar 10 percent match and the company I worked had a dollar for dollar seven percent match and we took advantage of those and invested it really well and made a whole bunch of money. Now my wife most of her friends she works at the airline most of her friends did not participate in the four 1 k because they' were like 26 and I was like I just want to go to brunch and like you know, try spend travel which is great like go to brunch and travel but like but they were 30 and had. Never put a dollar into their 4 on k plan versus my wife has a whole bunch of money in hers like yeah, there's it's good. It's free money. So anyways.

01:27:07.87

Cody Morgan

Now all right? and then all right if you could go back right? back in the early nineteen ninety s right during the.com boom right? Would you rather buy $10000 in a tech stock Apple Microsoft your pick. Whatever. Or would you rather buy $10000 in bitcoin when that dude bought the 3 pizzas with it which one would you rather do.

01:27:30.93

ilm

I I would do the bitcoin without doing the math I would assume that bitcoin has gone up even more than like ah let's say Amazon and like 2000 ah versus bitcoin from like zero nine um

01:27:39.26

Cody Morgan

Yeah.

01:27:45.94

ilm

I would assume bitcoins gone up more in that time frame I Honestly I probably sound dumb did not know that um, but even from a even if if I especially if I had to if I continue had to continue owning the asset moving forward I would rather have bitcoin and also from a ah.

01:28:03.83

ilm

Maybe an altruistic perspective like I I like owning bitcoin I think it is a better form of money that would advocate for versus like owning a company. That's just me and that's not investment advice. But.

01:28:14.19

Cody Morgan

Nice all right? Oh yeah, no, this is all just for fun. Um, okay, and then this ah this is a question that my son asked me the other night and so I got to ask you this if you could only eat one food. The rest of your life. What would it be.

01:28:26.52

ilm

Would it be healthy for me by default.

01:28:29.44

Cody Morgan

Yeah, like yeah sure Christmas chronicles too. You eat cake and it's like broccoli or something like that right? I don't know if you've seen that yet. but yeah. but yeah

01:28:38.63

ilm

Haven't ah man man.

01:28:40.21

Cody Morgan

You'll you'll live like you'll be who you are whatever but you can only eat one food. It's like literally every other food disappears off the planet except for this one food and you have to eat it. What would it be.

01:28:48.71

ilm

Oh that's tough I'm conflicted maybe either ah like a medium rare ah rib eyee or fill a or or chocolate ice cream. Um, ah.

01:29:00.56

Cody Morgan

But that was like the most Texas I answer I've ever heard in my life. Yeah yeah, nice, nice, awesome. Okay, and then the last thing I got for you is what would you give.

01:29:07.27

ilm

And maybe be 1 of those. Ah if I was going to make more things we have more more Texas and be like or maybe enchilatas.

01:29:20.60

Cody Morgan

And was talked about a person who's just graduating from college or trade school or whatever. Let's say mid 20 s right? and they're about to start you know hey we just got out I don't have any debt right now. What advice would you give them right away.

01:29:37.12

ilm

Um I would I really encourage people to think through investing your time and and yourself really well like I think that your 20 s or a large part of your twenty s is to learn about yourself and to learn about the world and things around you. And investing by trying stuff is really important. So um, one um, try things and I say this I try to hedge what how say this? so try things and be willing to stop when you recognize. That you don't enjoy or aren't good at something but also don't just sit around waiting like oh what am I Pat like I don't wait you to sit around like thinking about what you're passionate about while not doing anything. You're not going to find your passions or your talents by doing nothing so try stuff at the same time. Don't allow that try things side of things to be an excuse. To be flaky. Do things really? well. You also won't learn about yourself and learn about things unless you're doing them well like if you're just haphazardly trying things and just you know flippantly going about it. You won't get enough out of it and also you'll be cheating the other people. So yeah, invest in yourself and and learning about things like I um. Got Kendra and I got married ah when I was I just turned 22 I always romanticize being a poor newlywed and we were super poor really woods like 2013 I think our gross household income was like thirteen thousand bucks like ah super broke and ah I tried different weird jobs.

01:31:09.62

ilm

And I started a business that was a flop but it was so much fun and like we just tried different stuff and then ah I I actually went to I had a career job for like four days and I remember those four days the first day I was like wow this is sort of fancy out a big office and it was like the sixtieth floor this fancy highrise in Dallas was a big corner office all glass. And ah, the first day I was like this is sort of neat I feel like an adult day two I getting in the elevator and it was like man when you're a kid and you think I don't want to grow up because I don't want to be an adult. This is the adulthood that you picture that you don't want to be by day three like I began praying and fasting about whether I should be there. And day four I quit and ah you know I and then I went from a few different jobs and I tried stuff I remember feeling a lazy bum in that period like I feel like my in-laws were probably disappointed for letting my wife marry me because like I wasn't in a secure job. And it wasn't because I wasn't trying things or trying to do well is because like I wanted to explore and figure out where I should be and what I am good at meanwhile I have a few friends who have since told me this um, almost apologetically I have a few friends who worked really decent jobs doing things that were safe and secure and comfortable. They knew weren't long-term jobs but they were the responsible thing to do and those friends since are now like we're all in our early mid 30 s and a lot of them are now they've recently left those jobs because it was sort of like it worked out really well in your twenty s and now they're sitting there like I don't know what I want to do when I grew up.

01:32:38.93

ilm

But now I'm married with three kids and it's really hard to like try new things at this point I have a lot friends who have since told me like Jim never told you this but I definitely thought you were a bum for a few years there and now I realize that you were you learned enough about yourself that you're able to like go deep so like for me when I started in finance I didn't know what if.

01:32:49.83

Cody Morgan

Um.

01:32:58.40

ilm

I didn't know what a cfp was or really financial planning was at all I just knew I wanted to help people with their money. That's it and that's why I started and I I took a friend of a friend helped me get a job at a big firm with that premise and from day one like I found in like ah vice president was like hey how do i. How have better conversations with people. How do I get in front of people instead of on the phone. Oh you need? Ah you need read these books and you get this certificate you you go this position I started running so hard I was working 70 hours a week and reading any chance I could and I went from job to job to job and certificate to certificate all that fun stuff and grew. And over time like I didn't know that I eventually want to have my own financial planning company serving people in this way but I did get more direct like okay I don't want to do roofing sales I know that for sure. Ohh I like working with people with money like oh I actually like working with people with like their holistic money picture. Who I like working with people about these things. Oh I need that in my own company. Oh I like working with this type like well I want my company to look like this eventually and ended up here. So yeah I I came to that conclusion by learning about myself and also what was out there.

01:34:03.99

Cody Morgan

Nice, well look at that awesome. Well, that's all I got for you unless you got any parting shots.

01:34:09.90

ilm

Oh man, think that's it I talked way too much. But thanks for flattering me with all of your questions I'd fun.

01:34:16.41

Cody Morgan

Oh yeah, me too and I bet it's different being on the other side where you normally just ask the question. Let the guy talk now you got to be the one talking the whole time. So.

01:34:26.70

ilm

Yeah, the the ah I feel like ah the wizard of Oz suddenly the the curtain's gone up and it's just me behind there pulling some ropes I'm not a big deal. No.

01:34:31.10

Cody Morgan

Yeah, ah that just tell it just tell me. Yeah, oh you're a big deal in our household by the way. So yeah, you're the you're the financial guru. Yeah, nice.

01:34:42.57

ilm

Thanks Cody but dang I'm it awesome! Thanks for coming on Cody.

01:34:49.88

Cody Morgan

No thank you very much.

Investing Frameworks w/Clay Finck

00:02.50

ilm

Clay Fink thanks for ah, joining me here today. Looking forward to talking to. You should be a lot of fun.

00:09.40

Clay

Well Jim ah I've hosted a ton of podcasts and you've been on a ton of podcasts. So it's interesting to turn the tables and ah you know reverse the roles for this one.

00:19.70

ilm

The turntables have yeah this would be thispi a lot of fun. Yeah, think you you host a small show. Um that that's out there. So hopefully also help get your name out to the crowd and maybe get some increase of viewership of your your little thing.

00:37.37

Clay

Um, yeah, hopefully.

00:39.26

ilm

Yeah, well I'll do what I can no well yeah so clay. Ah yeah, if you want to just tell us about yourself you what you do and where you're at what you enjoy and we can. We can go from there.

00:53.90

Clay

Sure? Um Clay fink host of we study billionaires and my prior life I worked in insurance for 4 years and knew that that route wasn't I wasn't what I wanted to do ah for the rest of my life and. Ah, thankfully tip had an opportunity come up for their millennial vesting show and I talked with Jim on that show a couple of times and I recommend people check out those conversations where we talk about financial planning bitcoin money. Ah everything else and ah. Yeah, so I was host of millennial vesting for a year after I transitioned out of insurance and then ah been a host on we study billionaires for just over a year now and ah yeah, it's been the time of my life and then Jim we've we've gone back and forth too on ah the community I helped tip recently launch. Ah, back in April it's called the tip mastermind community and we have just over eighty members there and I'm kind of just helping our many of our audience members just kind of get connected with each other just another learning avenue outside the podcast where people can get more personalized. Information from others or just kind of keep in touch with others on what's happening and how others are managing their portfolios. So ah, yeah, it's been ah the time of my life working with ah tip for just over the past two years

02:14.70

ilm

Yeah, this will be fun. You've had an opportunity to talk with so many smart people and glean so many nuggets that's why I'd like to sort of camp on that today just hearing some of your favorite conversations and thinkers and. Key takeaways that you've had over the years um yeah let's let's let's go there so I guess first off, what for those who don't know what is the investor' podcast and we study billionaires like what are you usually talking about what's that what does that look like.

02:48.40

Clay

Yeah, so ah, tip is sort of going gone through these different phases. Initially it was Preston and st they started we the we study billionaire show in 2014 and ah. You know for years. It was just a weekly hobby almost and then um, all of a sudden the podcasting space matured it developed more and more people started listening to podcasts a advertisers started to get interested and presstonig realized the incredible asset that they were sitting on. So around 20192020 has started to turn into a real business for them where they could start hiring people. They could start you know, developing a process for taking on advertisers and building a business around the the podcast and then ah, that's led to tip launching other shows. Led to a news. They have a newsletter now that has over 35000 subscribers. So ah, the the showss outside of we study billionaires is ah obviously Preston piss yourself bitcoin fundamentals who you just had on. Your show 1 of the first episodes and then we have William Greene hosting our richer wiser happier series where he brings on you know these you know legendary investors and many of them are billionaires that he's developed relationships with for the past ten twenty years he had a long career.

04:18.32

Clay

As a journalist interviewing these types of people. The Bill Miller's the you know Peter Lynch's of the world and ah so he's been an incredible asset to tip in addition to our team and then um, we also have a millennial vesting show that Jim you and I chatted on. Um, that's on a different podcast feed. But yeah on the we study billionaires feed. We mainly talk a lot about maybe just business and general in general or we talk a lot about stock investing so that's mainly stegan I nowadays and ah, yeah, and then. Preston and William Show are also on that same feed too. So yeah, so subscribers to that feed are ah, kind of getting a host of different viewpoints perspectives and such.

05:07.87

ilm

So You let's go here actually um, where so you you like me I live in this weird dichotomous world of of bitcoin and thinking about macroeconomics and monetary and fiscal policy. I Think that makes a lot sense and it's fun and intriguing and I think if you do not pay attention to these things, especially if you're working in the money industry are sort of bearing your head in the sand. But also so I live in this this place. But Also I'm a financial planner in a very traditional sense I'm a certified financial planner. And most most cfps out there tend to sort of bury their head in the sand and they say that hey if you're if you're considering the macroeconomic environment you're trying to time the Market. That's an evil thing to do and you should You should be on autopilot in totality in the moment you look you look up, you're you're you're foolish. So for you, it seems that you also live in it in a different but also in a dichotomous world of very staunch traditionalism of investing you're talking to people who have built businesses and ah you know you're talking about like valuation of company stocks. But then also.

06:18.79

Clay

Um.

06:19.59

ilm

I mean you and I just hung out for a week in tell you I Colorado with a bunch of crazies talking about bitcoin and macroeconomics which is they're they're certainly not in contrast. It can seem that they are a lot of people who especially if you're entrenched in the traditional world. You might think that bitcoin is the intenthesis of that which I would argue. It's not It's actually. Ah, going to be a restoration of the health of that. Um, but again the perception is these things are are conflicting. So for you. How how have you navigated living in this traditional sense but also living in this like I own bitcoin to and where to put your money in those conversations and is it.

06:45.25

Clay

Here.

06:56.87

Clay

Um.

06:58.63

ilm

You have these conversations with traditional managers. What's going through your head when they when they talk about ways of viewing money in traditional sense versus like you know viewing it as a bitcoin or press and pitch side of things that was like 8 questions and 1

07:12.45

Clay

Yeah, yeah, um I Love that you went this direction because ah yeah, you and I are definitely in those worlds where you're talking with financial planners and they want nothing to do with bitcoin and I'm talking with ah fund managers who could care less about it. And ah, you know everyone has their own perspective on it. Um, one of the interesting things is yeah I have this mastermind community that I'm ah leading for tip and many people in the group do own bitcoin. But like the people joining they joined because they want to talk stocks and it's just something that is intellectually stimulating for them is something they enjoy doing and bitcoin May or may not be a part of that and I mentioned to you earlier that? ah. Bitcoin. It's kind of this thing. Ah for me personally like it's a part of my portfolio and it's kind of just a set it and forget it type thing you know I don't care if it drops by 50% tomorrow I don't care if it goes up by 50% tomorrow. Um, although that would be nice. Um, you know, no matter what. Happens really on the upside or downside I plan on just hanging on to it for the long run and that's kind of the way I view it and you know many people in the group that I'm talking to kind of view it the same way in that they believe in it long-term but they don't want to have 100% of their assets.

08:40.52

Clay

And this 1 thing and that's kind of the camp I'm in like you know I want a investment approach and investment style that allows me to sleep well at night it allows me to ah you know not have to worry about checking my investments all the time. So for me, that's led to me. You know, have a portion of my investment assets in bitcoin. And then a good portion is also invested in stocks and ah, that's the approach I feel like is most appropriate for me. It's what I'm most comfortable with and um I just honestly enjoy looking at companies and talking about companies with others and um.

09:18.65

Clay

You know, being a host on the show I've wanted to be very mindful of you know, not be not um, being so not thinking in such absolute terms and thinking that bitcoin's going to take over the world or um, a certain company is going to do amazing. Um, so diversification I think is something that's really important for me and um, it's just an approach to that I think just works well with ah you know what? my goals are what my temperament is and you know where I want. You know to be 102030 years down the road financially and then also on the macro point of view. Um I thought that this might come up today. So I I jotted down some notes on ah some points I wanted to make related to macro. Um I think I think it's certainly. Important and it you know drives many things but you know determining you know how the economy is going to act in the next one two 3 years or where interest rates are going to go and then how that ends up impacting markets is incredibly difficult if not impossible and. You know I think in 2021 if you wouldve told a lot of these macro forecasters that interest rates were going to be 5 % in 2023 mortgage rates were going to be 8% the fed would have sold off $1000000000000 off their balance sheet I I mean they would have told you you're in crazy land and like that would just destroy the markets yet.

10:52.56

Clay

You know stocks you know haven't crashed like they probably thought they would and you know these simple correlation causation if x then y thinking um can be very dangerous and I wish life were at were that simple and the world were that. You know, easy to predict. But ah we live in a very complex world and that's just something I've kind of come come to terms with this year and um, yeah I just try and focus on things I can control and things I feel like I have an edge in and part of that when it comes to like. Investing in stocks is just finding a handful of really great businesses buying them at what I think are reasonable prices and then just hanging on to them because I think we just live in a really short-term world world where people are just really impatient and a lot of people aren't willing to ah, buy these and hang on to them. Ah, for a really long time and then another point I wanted to make is that if you look at like the best investors with like credible long-term track records and say you pull 20 or 25 of them you might find like 1 or 2 that. You know achieve the results they did based on making macro predictions like Stan Drak and Miller is one that comes to mind but like most ah, mostly the other ones were all almost all of them I would say were're stock investors. So I think that also points to how difficult it is to predict the macro.

12:24.91

Clay

I guess not only predict the macro but also predict how that impacts the markets because you know tons of people have made accurate predictions but in terms of how that affects their portfolio. It just makes it so much harder in my view. So yeah, it's just my general thoughts on some of the things I've learned.

12:37.25

ilm

Yeah I mean it's it's it's not too. It's not. It's not too hard to be hard to be right? eventually? Yeah I could be right eventually about most things there will be a flood in Texas like all right like 15 years from now. It's like I told you so it's like dude.

12:47.28

Clay

And.

12:56.52

Clay

Um, yeah.

12:57.10

ilm

I've been sitting in a raff with a life jacket on for the last fifteen years I've wasted a lot of time and that's I mean ah Warren Buffett a very popular saying of his is what the ah the market can stay ah irrational longer than you can stay solvent I probably just butchered that. But yeah, it's this. It's this thought of.

13:11.23

Clay

We hear.

13:16.97

ilm

How not only how right are you? But how right are you in the time frames you're considering and how do you place that into what you're owning your yes what you're owning but also like where your head's at I like that you mentioned that ah that you know you wouldn to be able to sleep all at night as well. That's something I speak to regularly is like.

13:30.97

Clay

Who.

13:36.68

ilm

You're not ah, you're not a spreadsheet or in a math equation like we're not trying to optimize you as an excel document your person with emotions and convictions and with desires and goals and you have to consider these things that that goes into like how do you invest it also goes into like note debt. It's like hey Jim like I have I had this.

13:40.29

Clay

He.

13:56.12

ilm

Had this debt should I pay it off and it's like well we could we can look at the math we could break that down and sometimes that's really important like if some people really need to. We have to optimize spreadsheet wise should you pay out this debt or not but a lot of times. It's less that it's more of like yeah look mathematically, you should pay off this debt. Because of x like the risk free return right? now is 5% and your industry on your debt is your mortgage is two and a half percent so yeah math would say don't pay that thing off keep that as long as possible. But yeah, if you're sitting here. It's like look I I just don't like debt and I can afford to pay it off and it really wouldn't change my life at all. It's like cool. Well. I hope you sleep well and let's let's get that thing taken care of so I like we've got to. We've got to sit on that with with portfolio as well. That's where you know people get caught up gosh. There was a ah, there's a study that was done several years ago that was comparing investment versus investor returns.

14:50.38

Clay

N.

14:51.27

ilm

And there is a ah, pretty good gap between the 2 and that that gap they've labeled the they've labeled the behavior gap the the behavior gap is why is there this chasm of a few percent between these investments. But then the people who invested in those underlying investments and that can be related to.

15:00.10

Clay

Ehe.

15:10.67

ilm

Behaviors and that's what's where it's really important to think through if you're going to buy something you better have high conviction of what you're buying or at least be willing to stay put if otherwise you're gonna be like someone who goes you can go to a ah you know you go to 6 flags or Disney world and you get out a roller coastaer. You're you're sitting outside of line of a roller coastaster.

15:13.80

Clay

Um, yeah.

15:29.74

ilm

You see that wow those people look like they're having fun doing it and all my friends want to do the roller coastaer I don't really like those but I guess I'll do it myself and you get on and you start going up. It's you're going up this thing and you start going this massive dip and you realize as you're going down or oh the first loop you realize you know this this isn't really for me. You take off your seatbelt. That's the worst time to take off your seatbelt. So you you want to think through is this something I can tolerate prior to getting on the ride now. Obviously this this equation or this ah this analogy falls apart when we introduce like Enron. It's like look if you own enron I don't care if you're going around the loop or not, you probably should go ahead and bail.

15:56.25

Clay

In here.

16:05.62

Clay

So e.

16:07.39

ilm

Um, but if you're sitting on something that's relatively sound. Um, you know you you want to consider like should I take off my seatbel right now and and risk massive hurt. Um, or why? why do I buy this thing and it would do people go long ways and just help bridge that gap or close the gap of this behavior gap. If We just thought through not just the investments but also my yeah, how sweaty will my hands be while I'm sitting on this roller Coastaster. So yeah, again, you're not, You're not an equation and I like that you're you're a good guy clay.

16:36.13

Clay

Yeah, you yeah, you ah brought up some really great points. There. Ah, one of the interviews I had ah is with Chris Mayer he mentioned that even the great investors they trail the market. 1 third of the time so say over a 10 year period they might drastically outperform but there's going to be 2 or 3 of those years where they're going to be and underperforming and that points to the behavior gap you have where people tend to chase. Whatever's hot and then they bail on whatever's not doing so hot.

16:55.40

ilm

Um, shoot.

17:11.40

Clay

So They're just like making their decisions based on whatever prices are doing when in reality the great investors they understand a process they're sticking to it. Um, and then they're sticking with that process. You know when things aren't going their way. They're sticking with it and Understanding. You know why. Um, essentially they have a thesis on why it is ah their investments are going to work over the longer term and ah yeah, it kind of points to what I was saying earlier where people are tend to be too impatient. They tend to make changes too often to their portfolios and just kind of. Ah, Fall Prey to all these biases that you're mentioning.

17:54.96

ilm

there's there's ah there's a nice equilibrium of conviction and patience but also agility that's in in the interview with with Preston I spoke to him about this gentleman who has been managing money for since the early eighty s. And I was talking with them a few years back and you mentioned that his most of his clients are sitting in like 80% bonds 20% equity portfolios and I asked him about his thoughts on the risk of owning such things and he said that well look I've look I've I've done really? Well I've been doing this since 1982 and that's where yes conviction.

18:20.97

Clay

Okay.

18:26.48

Clay

Here.

18:31.26

ilm

Is is good and all ah but it better be founded in something not just recency bias. Ah, but actual a a good ah sound thesis and so yeah, there's this this this healthy marrying of agility and critical thinking. And it can't be based off critical thinking 1 time based off of one thought I had but does it still make sense and that's where investing is really interesting. You run into so much so many biases something I hear regularly for for especially like a new client will come on and they'll own.

18:51.80

Clay

Again.

19:05.24

ilm

We'll be looking at their portfolio that they've owned prior to working with us and a lot of times they'll own something that they've owned for a really long time and this thing maybe it's down a lot. Maybe it's a stock they bought several years back and it's down 40% and it's like hey man I really want to I don't want to sell it yet I just want to wait for that to get back to break. Even.

19:11.13

Clay

Your head.

19:24.14

ilm

And then we can go invest it in something else. It's like okay 1 we can look at this from so many directions if it's in a taxable account. Okay, well we can harvest the losses now and offset capital gains or offset some earned income like why like that that makes sense too.

19:25.10

Clay

Yeah, um.

19:41.16

ilm

Do you want to own this thing versus owning something else because you think that during this timeframe this thing that's down 40% will outperform the other asset that we would otherwise sell it into or is it because you are so anchored into getting back to your initial purchase price that you'll wait out whatever time it is because then we are back to a simple math equation like. Will X outperform y over this time Again. We don't know but we're guessing It's like yeah I own this hot pile of garbage but man I want this thing to get back to where it was so I don't feel bad about myself Again. There's just so many weird biases here that we succumb to and that's where you've you've had an opportunity to talk with so many smart people who.

20:08.95

Clay

You hear you replace the box.

20:19.13

ilm

I Think a big part of this is being aware like I know for me I know that I'm not that smart about most things. So I I try not to have these biases because I at least am familiar withized I can succumb to I think it's a lot of it. It's just being aware of what you your downfalls can be.

20:22.75

Clay

Um, in her name.

20:37.66

ilm

And I think that's that's ah, that's a big part of being smart is realizing what you're dumb in in a sense and I think that's those are some of the hard lessons of life learning these things.

20:41.36

Clay

Yeah, yeah, yeah. Yeah, is it the dunning Kruger effect or feels like you know a lot in the early stages and then it like totally drops off and then goes goes back up. Ah yeah, speaking with so many smart people I think ah it has a way of really humbling you. And um, just making you humble in what you think you know about the world and the assumptions you make because ah people want to feel like they know what the future holds and they want to you know, follow people that make these predictions on what's going to happen when in reality. Yeah.

21:09.50

ilm

Um.

21:26.35

Clay

We Really don't know what's going to happen to a lot of things. Um, yeah, and it really just makes me humble and the ah fund manager you mentioned with the ah yeah, that was heavily weighted towards bonds. Ah, it reminds me of you know, kind of the inertia. Of people kind of find a process they find out that process works and then it's just like people have a really tough time sometimes to adapt. Ah when it's absolutely necessary to do do so and you know there's so much evidence that they need to rethink how they approach things.

22:03.73

ilm

I Heard Ah yesterday I was listen to a podcast and the the guy was I'll remember how it came up but he mentioned just this ability like over time what wisdom and things you can glean and what he mentioned was. When you're young when you're young, you think that you're real strong. You know like I have my Oldest. He just turns six this week and he always talks about all my all my boys regularly. They show me their muscle all the time and how strong they are So when you're little you think that you're stronger than you are. And there's a like there's a point in life that you realize you're not as strong as you thought you were and ah you learned some lessons that way. But then you also go to a point later on in life. You realize that being really strong isn't really that important and I think those are different Phases. We all go through from you know muscles but also like. These other things we put such an emphasis on like oh I I you know whatever I'm going to be rich. It's like man if when I when I zoom out you know, maybe I don't have as much as everyone else does and then you later gone. It's like hey these things aren't even that important like why did I chase this and ah, just really really sobering. Especially.

23:00.64

Clay

Who.

23:12.32

ilm

Yeah, yeah mean there's there's some. There's some wealthy people who are really happy and that's awesome. There's other pit wealthy people who are miserable and that's sad. Um, but really what it comes down to is you can learn early that ah all that stuff at the end of day is not going to make you happy or miserable necessarily like that's that's a good lesson to learn.

23:21.65

Clay

Um, in here.

23:30.57

ilm

But also recognizing other lessons like you know being ah being ah agile enough to recognize like okay I've I've owned this thing forever therefore it keep doing what it'll keep doing well like man you need to progress your your your frame of reference around these things. So yeah I think there's just it'd been. I'd love to see people and you're in ah, you're an amazing position that you can glean wisdom from other people that having to learn these lessons the hard way yourself and ah I try to keep an open eye where I can glean those lessons themselves that way I'm not having to encounter and learn everything the the tough way. What are some of your favorite takeaways from conversations you've have. You've had where it's like oh that's that was a that was a good lesson to learn. Maybe it's a hard lesson or a fun one. But ah I'm going to I'm going to put that one in my back pocket I don't have to navigate that myself. But I can at least take the lesson away is or what are some of your favorite things. You've you've got to glean over the years

24:24.81

Clay

That's a good question. Um, a lot of them are related to what we mentioned of just like being humble and ah being ah, really mindful of you know what your biases are and um.

24:41.67

Clay

Yeah, just being humble in what it is you think you know, but ah, I'm reminded of a conversation I had ah last week with the fund manager and it kind of ah reminded me again just on the the true power of compounding and how it relates to investing and. Um, I'm sure you're aware of this and with all the people you speak to and you know they want to they want to do all these things today which is like great you know, but also recognizing the power of that long-term compounding. So it's kind of marrying the 2 of you know what do you truly value in life. And then recognizing the sort of rewards that compounding can give you later on down the road ah years ahead and I'm sure. Yeah that mixes in with a lot of the conversations you've had and we've talked to talked about it on the millennial vesting show. But the compounding example he gave me he ah he had said that compounding is convex on the upside in concave on the downside and you know I asked him to sort of explain what this means and he gave an example of say you have 2 investments.

25:45.15

ilm

K.

25:54.70

Clay

They both started a hundred dollars the first one is an incredible investment say you pick a stock and it compounds by 26% for 10 years and then the second the second investment compounds by negative 26% for 10 years So ah, over that 10 p. 10 year period one investment ends up becoming a multi-bagger and then the other one essentially becomes like a 0 but since compounding is convex on the upside in concave on the downside. Your upside is essentially um, unlimited when an investment does well and it's. Limited the downsides limited to whatever you invest. So even though 1 investment did you know is almost a zero. Ah you still end up getting an average return of 17%. So even though you only had a 50% hit rate you still end up with a fantastic result because of the asymmetry. That compounding offers and that's just you know when you're putting together a portfolio and just thinking about individual stocks ah like like I am like many of the guests I have on are it's just amazing to think that. Ah you know you need to be humble and you don't have to be right one ah hundred percent of the time you know you can even be right 30 or 40% and still ah end up with a fantastic result if ah, you know, individual stock picking or you know picking investments is something that's in your wheelhouse and something you're interested in. Um, yeah, that's a 1 a.

27:27.10

Clay

Lesson I found really interesting in a recent interview at least.

27:29.76

ilm

We think back in ah remember when the Covid shutdowns happened. You know, ah sports were put on pause and traditional means of gambling were put on pause and then suddenly we had this massive rise of people utilizing. Ah you know, just investing Apps. And the rise of Meme stocks and people speculating the Market. What are your thoughts on that just like you know so anyone doing some investing versus how educated should you be when you and like what's the difference between investing in gambling and where does that where does that crossover take place.

28:08.41

Clay

Oh man. Yeah I mean ah, most people investing during that time period were essentially doing gambling but ah yeah I mean.

28:15.43

ilm

I Think yeah, there's a reason you saw this correlation of traditional gambling go down and rise of these memes stocks get in tandem. So sorry, keep going.

28:25.55

Clay

Yeah, yeah, I mean if if you're buying say individual stocks or you're buying options or whatever else then you need to obviously have a firm ah understanding of what the heck it is. You're buying so you're buying options you need to understand how a call and a put option works and understand that in some cases. There's 100 % downside in you know a month or two months or however long the duration is when it comes to stocks I mean for me I've I've just read so many. Ah, books on the subject that I can typically just look at a company and disqualify at least 95 % of them just because I know exactly what I want I know the type of kind of risk return profile I'm sort of looking looking for and um, yeah, just looking for. Just filtering out things like highly indebted companies or ah, maybe companies of a certain size I don't want to buy a lot of the mega mega caps oftentimes and looking at you know the managers and like are they just being compensated. You know. Ridiculous levels relative to how big the business is that's all too prevalent and then stock-based compensation is something that is all too prevalent and I mean for someone that's like just getting into this stuff. I mean you should most likely limit.

29:54.30

Clay

You know some of your individual picks to a small portion of your portfolio and like you know the tried and 2 true methods are what should be like the foundation of like most pupils Portfolios things like an index fund and s and p 500 fund things like that. Um, and yeah I mean. Yeah, if you it's really hard to you know distinguish between investing and gambling because it's just all totally subjective and you know there's only so much you can know about a company but um, under I will also mention that ah.

30:32.56

Clay

The the market is the always has a way of humbling people. So like you know, getting that experience of losing money in the markets is like so humbling and that happened to so many people in 2022 2021 after the covid rise and um. There's so many insight that can be gained from that too and almost all of the really good investors went through those periods of having to learn things the hard way rather than learning them from a book or a podcast.

31:02.54

ilm

Yeah there's there's some lesson you just got learned the hard way one of the lessons I learned several several years ago. Um I bought a company did really well it was it was nothing for the longest time just sat flat and ah. Yeah I checked my account and suddenly this thing within a week like five x did just incredible and ah and and unfortunately unfortunately at that point we were were we were within days of it reaching a place of long-term capital gains versus shortterm cap gains. It's like all right man like. I don't love this company I haven't loved in a bit. Um I won I want to go ahead and sell this. But if I literally just wait a few more days I'll be able to take advantage of long-term cap gain rates and ah, that'd be that'd be more fun I'm not make this somehow in the few days of waiting this company went bankrupt. Um, and that's a tough lesson of you know that's. Why did you buy something in the first place. Do you still have that thesis behind it that same conviction or is your conviction change. What are you anchoring this position in and ah what what is driving owning this and for me I let the the tax tail wag the investment dog I didn't like the investment any longer and I thought it was at that point overvalued and it turns out it was. Um, but again I let I let one way of thinking Trump a ah more sound way of thinking those lessons. Yeah that's one of those lessons you learned the hard way and ah man it's stuck with me. Yeah, just worked out perfectly to be absolutely painful.

32:28.14

Clay

Um, yeah yeah I think ah, another ah lesson I've sort of seen or learned is the companies that get people's attention often. Teams tend to be like just very risky picks like ah some of my. My favorite investors that I follow one of which is Chris Mayer wrote a book called hunterbaggers which is fantastic. 1 of his roles is he's not going to buy ah unprofitable company. You know because if a company can't make money from its operations then it either needs to ah, receive financing through debt or through equity and whenever. Ah, tough financial times hit. It's really hard to do those things and it's it puts the business in a really really tough position and you know if a business you know somehow has a way of like marketing itself and everyone's talking about it call it a a Zoom or whatever else, then there's. Probably a reason for that because the company might be issuing shares to essentially the public issuing shares to retail investors and then then these managers are getting extravat extravagant compensation packages and it's just ironic that the companies that people want to talk about oftentimes tend to. Be unprofitable and ah yeah, it's almost like a situation where it almost is gambling where you need like everything to go right in order to make any money and then you you know find so many of these unprofitable companies end up dropping eighty ninety percent ah during a market correction.

34:00.92

Clay

Um, yeah I always turn to ah I don't know if you've heard of Chuck Auckrey he has what he calls his 3 hree-legged stool approach of he wants to find a great business which means a great business to him is a business that earns a high return on capital. So. A business re invests in itself. It essentially earns a high return call it above average which be above like ten fifteen percent um many then he wants us great management team and a long runway for growth and that's essentially oftentimes what I'm looking for when I invest in a stock is like.

34:29.55

ilm

Know.

34:37.49

Clay

Does this business have a track record of performance. You know and oftentimes a stock continually outperforming the market is a sign of hey they're doing something right? kind of the thesis that winners tend to keep on winning. Um and you know if a business. Ah out competes its competitors over the past five or ten years there's probably a good reason. They're able to do that and it's going to be really hard for a business to jump in and disrupt that and then you know the management piece you want managers that have skin in the game and they yeah.

35:11.10

Clay

You know, essentially they're financially incentivized to have the share prices do well over the long run if they own shares for the past ten years and they've shown that they're effective managers and that's ah also a pretty good sign and then um, the long runway is also important too because ah, you know if a business can reinvest in a cell at. 20% over a really long period of time that's where you start to see that sort of compounding magic but this is definitely ah much different than a lot of the discussions. Ah, you're going to have about ah bitcoin and macro and all this stuff. So ah yeah, it's kind of the world I've been.

35:47.37

ilm

But yeah I think a lot of people when they think of financial advisor they picture me behind like ah, a wall of monitors and watching the stock market and that's like the last thing that I do so but it's still fun to think through and talk about and yeah I certainly pay attention and.

35:48.81

Clay

Diving into.

36:03.93

ilm

Am more macro-driven just how I work but also I like to come back and and look at look at companies I think I think look at individual companies can get you a good pulse on how the market's doing and also um I think there is a place of achieving Alpha I think it's possible Obviously people have done it. It's really difficult and I recognize I'm not smart enough to achieve alpha.

36:06.54

Clay

A.

36:17.76

Clay

Be here.

36:23.39

ilm

Ah regularly especially by switching strategies all the time. It's not going to happen. You better have high conviction over a prolonged period of time and in order to have a chance of doing this Otherwise you're sort of if it happens It's probably by luck um with with investing it's interesting I think we.

36:25.75

Clay

A.

36:35.53

Clay

A.

36:42.44

ilm

It's so easy to forget that when you invest in the market. You're literally buying companies and we we lose touch with that like I'm buying this stock and the stock's going to go up and that's where like you know value investing these sound principles investing. It's like does this company make money.

36:52.60

Clay

Yeah.

36:59.60

Clay

Yeah, yeah.

37:00.67

ilm

You know it's and it a lot of times. It's maybe not the sexy thing like if we put it back to a small business like ah you know it's a lot of times like these's people who are like blue colllar you know millionairereck store. It's it's a plumber. It's a welder I talked to someone recently who it's a machine was a machining company who recently sold to a a large institution.

37:10.65

Clay

And here.

37:20.30

ilm

And ah for all for a lot of money. Yeah, it's not. It's not the sexy work. It's companies that make money consistently over a proling period of time when you think of small businesses. That's what you want to own versus my grandparents. Um something they always talk to me about when it came to business was ah.

37:27.11

Clay

The hair is.

37:39.60

ilm

Not just playing business and they would say how they they were successful in owning a few different businesses. They mentioned how so many of their friends and people they would observe would would just play business and the moment they had a fun idea they would run with that fun idea and they would quickly think of like ooh. What do I want my my logo to look like and ooh those would be neat business cards.

37:49.34

Clay

Of a.

37:58.62

ilm

And that would be fun Swag to have thatd be that'd be cool and we could have this event. It's like but does that make money. How are you going to reach a place of profitability and ah you observe that like I I love talking with people about like business owners themselves and how do you reach a place of profitability. It pains me to see when I have friends who.

38:01.61

Clay

Right one.

38:17.24

ilm

You realize that man they're just playing business I don't think this is gonna survive not because they have a bad idea like was it 80% of businesses. Go out of business in their first year and then the of those that survive like 80 or 90% of those don't survive the next three years and I think a lot of times that's that's not because it was a bad idea. And I think a decent malmar. It's like dude you shouldn't store that in the first place like no one needs. Whatever sweaters for dogs like it's bad company but ah like the the the gri.

38:39.60

Clay

So.

38:47.23

Clay

You you made some great great points there I want to jump in on um, like you said you know stocks are real businesses like people are so detached when they're on their broker jab. You know, clicking by on some ticker that's gone up recently like Jim if if you were to go out and buy another financial planning firm which as I'm sure it's something you've thought about or something you've looked into doing I mean you'd look at you know how much has this firm earned in revenues over the past few years and how what are those earnings and you probably wouldn't be interested if it was deeply unprofitable. They're constantly issuing debt yet. So many people are going out buying something just because the stock price has gone up regardless of what you know regardless of how the actual business has performed and you know. In the short term. The stock price is essentially driven by just sentiment and hype and people jumping in and out and all these momentum traders but over the long term. It's it's the actual business that's going to drive the performance of the stock and you know just again like so many people thinking short term you know trying to. Chase you know whatever's gone up recently when you know when you get anchored in. You know these fundamental principles of you know what? what drives value creation is when you can you know start thinking about you know, achieving sustainable consistent long-term returns.

40:16.24

ilm

Yeah, it's are you are you building? are you building or or investing in a company that actually makes sense does it is it beneficial to people is it profitable is it sustainable um is it does have a moat. And ah if you can't check those boxes. What are you buying? You're probably buying hype if you're building a business. That's like that you're probably just playing business. Um, again, if we're just looking at a small business side of things I think a lot of the lot of business I run into that failed failed again. Not because it was a bad idea not because they were making. You know, whatever like I mentioned earlier like sweaters for dogs or something like this probably that's like that's a bad idea. That's a bad business. Don't start it or you know something like that goofy. It's like no, that's a good business but a lot times those fail not because it was a bad business idea but because they were caught up in the wrong things they they wanted to play business. Or because their personal financial side of things was not able to support and sustain their business like ah when when I started this my financial planning company. We we committed to not taking any income for minimally 1 year because we had to make sure that we had revenue to put back in the business. there's ah there's a little strip mall down the street from my house that has an insane turnover of restaurants and over probably like a four month period there is probably 5 or 6 restaurants i't some of those restaurants literally were there for two weeks which is incredible if I go to a restaurant Kindra and I go on a date and we love that restaurant and say ooh I want that to be our new date spot.

41:45.51

ilm

We don't go on dates twice a week. So even if even if they get someone who goes to the restaurant and they love it. You don't they're not going to get the repeat business like I don't understand these people put up a sign and read the kitchen all that stuff and literally what gave themselves two weeks of ah two weeks of operating capital like.

41:51.10

Clay

A.

42:03.71

ilm

You could have been the best restaurant restaurant ever. But they didn't have the personal side of things to sustain it. They were. They didn't think through this so again I think this this overlaps with with large businesses you can invest in like what are you actually building here. Um is a are they playing business are they um you know is it is it. Built up on hype. That's where I mean yeah, there's this detachment of small business. This is detachment of like wow your color scheme on your business cards looks fantastic and that's exciting for a moment then you realize it's just a bad service or product same thing with a large business. You know it's like oh wow that that ticker is doing well, you should go buy this ticker. It's like well what's the company. I don't know like I can't remember what it was but I do remember a case several years back where there was 2 companies that very similar stock tickers and suddenly the one that was the different one just skyrocketed. No one knew why? no one knew why this company it was such an obscure company.

42:50.84

Clay

Oh yeah.

42:59.52

ilm

But ah, they realized like oh my goodness because it was one letter off of this other one. So everyone was buying this company. No one. No one knew what it was no yeah, that's.

43:09.43

Clay

Well, ah like when the coronavirus hit ah sales of Corona just like skyrocketed you know, just ah, there's so many weird things that can happen and yeah, like you mentioned sometimes people go out and buy the wrong ticker when they realize that like.

43:15.59

ilm

That.

43:26.70

Clay

Big news hit a specific company but they go yeah just crazy things I'm sure you've seen it in terms of the stock market.

43:31.82

ilm

Um, ah it comes it really enforces people are people are funny and ah yeah, we're we're emotional oftentimes illogical beings and ah.

43:45.26

Clay

Is in.

43:47.54

ilm

Can lead to some fun stories. Not so fun if you're on the receiving end. Um, but yeah, that's where it helps also to take a step back and not not get too wrapped up in the moment and then also being able to to all right that hurtrd a lot What can I learn from this and ah I think if you can get both of those. You'll you'll survive another day to keep swinging and ah unfortunately it is. It's really sad to think through the people who um, who don't clean. Those 2 things who get wrapped up like this is too devastating I can't can't keep going. You know that's that's 1 reason one of the biggest reasons I got into working in personal finances. Money is the number one cause a divorce every year The American Psychologist Psychology Association has done a poll money's been the number one cause of divorce and it's also one of the top causes of personal stress and suicide. It's like man like if you allow this thing to bog you down and to beat you up and pull you apart like that's sad.

44:28.92

Clay

Um, and.

44:44.28

ilm

It's common. Um, but you have to Zoom out like really, what's going on here and ah, you know like a few weeks ago I I've been I've been sprinting really hard for several years but 8 years I've just been running really really hard and it sort of hit me recently. So ah.

44:44.51

Clay

Oh okay.

45:02.91

ilm

Like two weeks ago I realized I felt like force gump you don't force Gump he just he just takes off running. He felt like running you just start running and he does this for a long time and ah eventually one day he just stops. He's like I'm pretty tired I'm going to go home now that hit me like two weeks ago and I was like man I'm really tired. I talking to Kindra one night and this it sort of led to a I don't get stress very often, but it led to a brief moment of stress and kindra and I were laying in bed. It was like hey babe like you've got my back right? She like yeah I like good or bad. She's like did you do something wrong I like no I just sometimes I just need and.

45:27.90

Clay

And.

45:42.60

ilm

I Just wanted to be reassured and ah yeah, zooming out like seeing my wife my kids It's like you know what? if something goes bad here like we'll be okay and I think there's where even stepping back and it's like yeah doing you know people people pay me to do to take care of their money. It's really important but I care about.

45:42.63

Clay

And.

46:00.18

ilm

Care about my clients more than I care about their money. Obviously I mean I've I've studied really hard and I work in this a lot to do well with their money and to care about it. But I care about people and like it's really important you know going back to these like anchoring and why are you doing things I've had so many conversations I I probably worked with about I would I would guess about 40000

46:11.41

Clay

Um, a.

46:19.28

ilm

Probably a little bit higher than that now people over the years with their money and it's really sad how many people even more successful financially but missed the whole Mark with why they wanted to do it and you have to go back and revisit that like Kenra and I we have Kinder's my wife we have we have four young kids.

46:28.69

Clay

I think.

46:35.95

ilm

Like yeah, we want to do really we want to. We want to do well financially we want to be able to give generously and spend time with each other and um, those sorts of things. It's important for us. But if I neglect if I say hey I want to be able to retire early so I can go backpacking with my kids before they're old and have jobs and can't take time off work. Want to have money so I can do that whatever. But then I sacrifice my children on the altar of having future financial financial success like Success. What's the point you know, like right now. It's like hey dad can you read to me. It's like sorry son I got to go to work so I can spend time with you later. It's like oh gosh you missed the whole point. Anyways.

46:56.73

Clay

I mean.

47:12.95

ilm

And ah, yeah, it's where you know thinking through this from a from an investing investing perspective like why are you buying what you're buying has that thesis changed if so like how's that changing with you but also from a life perspective. Why are you doing the things you're doing has that thesis changed. Um if so or if not you better you better dig back like. Again and not just think through the the base level like I'm I'm buying the same because of service level reason like why? Why are you buying this? Why are you making this decision and I think that people would do a lot of good by asking why more both on investing in bigger picture.

47:47.33

Clay

Yeah I recently had a shane parish on our show and I can't remember the exact quote he had but it was like you know it's 1 thing to achieve what you set out to achieve but it's ah it's a whole nother thing that people maybe. Sometimes don't think about where did you are you working to achieve something that you actually want to achieve you know we feel good about achieving something but you know if you want to you know achieve some sort of net worth goal and you know. Hey that's cool and not that many people can you know, maybe achieve that level of wealth but it come at a sacrifice to all these other things because um I think people think about money so often and set kind of money goals because you know something you can point to and it's a number. That you can like see you either hit it or you don't hit it. But then there's so many other things that aren't really quantifiable whether that be you know, spending time with your kids spending time with your wife um and doing those other things that are also important you know I asked Shane he's very successful with his business. Business has finances and such and you know him Shane and then preston pitch is the same way where you ask them? What's important to them and they just say they're family and like you know when you look at someone like them that says you know money is not the most important thing obviously it is important.

49:12.99

Clay

But there's many other things in life that are ah are likely more important to most people.

49:19.97

ilm

Well money one of my a vague definition of money I would put on it is a means of communicating storing and transferring value across space and time and I think a big problem that we have with money is the communication aspect. And I think that's a big reason that you have divorce and money so highly related is because money is meant to communicate what's important to you and suddenly if your money is being spent on 1 thing and your spouse thinks that money should be spent on other things you're saying with where your checkbook's going is this is important to me.

49:47.34

Clay

A.

49:57.65

ilm

Versus this other thing and suddenly like oh well, that's you know you're you're putting out these signals of value and you are tangibly voting What value is you know what? what you place value and I think if you yeah again, show me like show me your your calendar and your checkbook and I'll tell you what what? you're voting.

50:10.10

Clay

Um, you.

50:14.77

Clay

A a.

50:15.90

ilm

With your resources are important for you and unfortunately again, there's a lot of people have things that are important to them but their resources their time their money their talents are not being used in tandem with where their heart or their mind or their words would say it's important to them. That's a lot of people don't realize that's til it's too late like man I really want to you know how many people on their deathbed are like I wish I've made more money versus like I wish I would have spent more time with my kids. It's like dude like make that vote now and ah yeah, that's yeah, the purpose of a goal is to inform the best next step. It's not to It's not to corner you in to have to continue to pursue this one thing. Um I understand like your goals will change like Clay I bet your your goals today are different than they were five years ago and 5 years from today. They'll probably be different than they were than where they are right now that's fine. That's expected and again the purpose of a goal is not to say like I have to do this thing now. That that would be sad if you feel I think that's why a lot of people don't set goals is they feel if they do suddenly they are pigeonhoed into doing this one thing that might seem obscure in a few years and if they don't they didn't reach their goals when setting a goal and saying you know what? I'm taking a guess as far what as far as what I want but man. Think this is what I want right now I will start pursuing this um and taking action that aligns with this and real It's really important and I believe is to make sure that you're asking the y behind a goal I want to make x dollars y because I want to be able to have a nice house. Y.

51:49.44

ilm

Oh man because I want to be able to entertain people why because it's important that my kids are around that we spend more time with them like oh so what? you just told me in all of that is you want to make sure that you have time with your kids and your family The house is just a means of facilitating those moments and memories and the money is just a means of obtaining the house. But really, what we're after here is moments and memories with your kids like how do we pursue that and yeah, allowing money to serve those things but not losing track of what you? What ultimately said is important to you and that's I know we're we're way off of talking through company valuations and stocks. But again we've as we yeah we go through these conversations like this really comes back to and like. Yeah, let the resources serve these other things.

52:29.84

Clay

Yeah, when it comes to the company stuff like the community I'm running like I tell people that join like you don't have to be analyzing individual companies. A lot of times you can hit your financial goals with just these basic you know investment foundational principles. But um, these people just absolutely love this stuff and I I Enjoy. Ah yeah, chatting through it with them too. But um to your point about ah you know money as a means to communicating value. Um.

53:04.78

Clay

My conversation. It reminds me of my conversation with Shane Parrish and how so many of the decisions that people make are like totally unconscious and it's driven by like almost like our biological hard hardwiring like people will but go out and buy like this expensive car because um, it. Like shows status and it shows it like gives them the approval of others and it's like a very external viewpoint. But if you get down to like what it is do. You truly want and you know how can you use money to you know facilitate that ah that relationship between what it is. You're actually. You know, spending that money on versus what it is you truly value and I think it's also important not to like over analyze it like I'm not I'm definitely not someone that like has a budget and like has to stick to it and like you know you know be very close and like what it is I budget and like what it is I actually end up spending. It's just like. Being mindful of the decisions you're making I think is just so important and but not like overdoing it too. It was just like so much of a balancing act to it too.

54:13.72

ilm

Um, yeah, it's allowing your you like ah man I came who was I heard on a podcast years ago. This lady she said that she she keeps her needs small so her wants can be outrageous and I thought that was pretty cool like again, it's.

54:32.70

ilm

Ah, everything you do in life is there's tradeoffs in everything you do and you are making decisions consciously or subconsciously to choose something and there's opportunity costs with everything and ah you you. Really a big part of this is being cognizant of where what am I voting for right now with my time and my money and my relationships and my talents. what's the opportunity cost of this I'm working in a job I hate okay and I wish I could start a business okay well what's the opportunity cost of not trying that. Um you know I um i. I'm broke and stressed but my dollars are being spent on this other thing. That's where I'm not going to be like a cliche financial advisor who's like you should make your own coffee I make me own coffee with a really nice coffee machine I have 2 nice coffee machines one at my house and 1 at my office because I like making good coffee. It's way better than coffee I can get the coffee shop right? below my office is on top of 2 coffee shops. Bought my own espresso machine because it's a lot better and I I save a fortune I can justify it ultimately with how much how many espressas I drink a day. Um, but yeah, I'm not going to sit here and say like don't buy coffee but like think through like what is important to you I remember years ago I was talking with different financial advising firms.

55:34.34

Clay

Sit.

55:47.17

ilm

And there's a few companies. There are two companies I went through this long interview process and eventually went to lunch like basically got the job and went to lunch with the owners and on a couple of occasions this happened I pull up I was driving sort of all beat up Nissan at the time had a bumper that was. Not the not the prettiest sight to see now pop to lunch and ah, you know we'd start talking. It was like hey Jim you know when you work here like what we're doing is we're trying to convey the sense of success financial success and wealth. So we really would want you to. Drive something nicer Alexis or a g wagon that's going to portray financial success and at that point I knew I could not work there because my job is not to portray a sense of financial success. My my job is to help people use their money in the most efficient and effective manner to serve what's important within them life and for me driving a fancy car is not important. Having more time to spend my kids is way more important. Why would I drain and buy buy this thing that's going to have me have this massive car note when instead I can have that where I I don't have this this stress of having to go to work all the time or not being able to go on this vacation. It's like man like that's again, if we have to. Can peel back and say why might why do I have this habit. Why am I doing this thing if it means that you're buying coffee orre going to brunch and that's really important to that's awesome if. It's I do this thing out of autopilot. It's like well let's just stop and let's think let's think think through it and ah yeah, if we can just become aware I think it'd be.

57:07.71

Clay

Significant.

57:12.29

ilm

Really really helpful with with what we're doing and again like just being aware for yourself, but also on a relationship side of things like I remember a few years ago I met with a family and I found out after multiple meetings that I was actually a laditch effort ditch effort before they got a divorce. They'd been fighting about money for years. And they thought talk we'll we'll talk with a financial planner and what we realized one of our meetings. They just broke down crying and we realized that they fought about money all the time and the last thing that came up was they were. They're on vacation at Disney and ah the wife she she wanted to go to Disney but like make the sandwiches to take.

57:41.60

Clay

The.

57:49.30

ilm

And ah, no souvenirs and just just experienced Disney itself. But no, no other things and ah the husband on the other hand like while you're there. You got to get the big ears or whatever it is and the ah the turkey leg and the funnel cakes and all of the stuff and they were bickering the whole time. Like you're so cheap. Oh well, you just you're drained all over money what we realized though was taking a step back from this place of emotion-driven hype saying like well why? Why do you want this and for for one for the for for the wife. It was well gosh like if we if we enjoy the simple thing of being here. Ah, don't just lavishly spend on these other things we could go on a second vacation and man I really want to that was really fun but I want to do these other things with the kids as well and with you as well. I would love that and the husband's perspective was look I didn't get I didn't grow up going on trips. So if we're going to be here I want to do it all the way because I really want this to be a special time. So it's sad because they're both coming from this this place of I enjoy this I enjoy being with you and our family and I want to make the most of it. They're just communicating it in different ways and their dollars were saying being represented in different manners and it was it was again. There was mixed signals mix communication.

58:49.53

Clay

A.

59:03.19

ilm

By how their dollars being spent if it could step back and say look this is important. There's a book that Kenra and I read few years ago together it's called the ah the strengths based marriage and as by it's ah based off of strengths finders have you heard of strengths finders clay. Okay, yeah, it's it's a.

59:06.12

Clay

Um.

59:15.89

Clay

Um, yeah.

59:21.28

ilm

Sort of personality test and it has like 20 ranks like your top strengths through like your weaknesses in a sense and ah, there's a book the husband and wife like Kenjura and I both did this strengths finders test and there's this marriage book you go through to talk through like how your strengths and weaknesses play off each other and like. The good part of the strength each strength has its true strength and then has this like false narrative associated with it this way it can rise up poorly and that was a great thing because like I live in the future like all my strengths were like planning futuristic like long-term kinders are all about optimizing today.

59:59.10

Clay

In.

01:00:00.37

ilm

And I live in the future and both of us came back and like you know she thinks I'm cheap. But for me I I look at this as like no I I want to make sure we're able to do this long term and I look at her like she loves spending money if she does but ah, it's like no I want to make the most of this now it so having a.

01:00:08.30

Clay

Um.

01:00:14.22

Clay

That.

01:00:19.34

ilm

A context to place. These conversations is really helpful. Um, yeah, long rant.

01:00:19.56

Clay

Um, what what you mentioned there about ah earlier about the job where they said oh you have to portray you know this status and this level of wealth. Think it's amazing. How ah what that tells you about like someone who acts in that manner. You know when you could analyze a company and say what are the managers focusing their time and energy on you could look at manager in your own business. You know where are they focusing. Their time and energy energy and I think so many people kind of go off into entrepreneurship because they just can't find an environment that like suits you know what their values are and what you know how they want to spend their time. How do they? How do they want to help people or they don't want to play these political. Type games and I think that's probably 1 of the reasons why you ended up going and you know starting your own business because you know just the avenues that opens up for you and how you can design your life. However, you want and then you can you know. Fulfilled what you value even at an even higher level in terms of your family and your long-term financial rules. Um, yeah I think it's just sort of amazing how there's this sort of a balancing act within our capitalistic society where you know these bureaucratic organizations end up.

01:01:47.88

Clay

Growing and they create these political games as a result of it. Um, almost ah, unintentionally in some ways and then you know it leads to someone like you to take advantage of that opportunity and like fill the gap in the market where it's not being met where you're not trying to go out and get a financial advisor that. Ah, it's flaunting their wealth or flyinging their car and such. So Yeah I Love that that you told that story.

01:02:14.76

ilm

Clay. Do you? Ah you have any? Yeah We've been. We've been everywhere today. Um, do you have any parting thoughts any yeah, any episodes like oh man, you should be ever should go listen to this conversation or a book or yeah, any anything on your mind that you'd you'd want to share that and. Gadash you about.

01:02:34.84

Clay

Yeah I would say ah just like education is just like so so important it doesn't even have to be my podcast or any other podcast just like getting educated on. Yeah, if you're interested in learning about investing in stocks or bitcoin or whatever else. Just. Like picking up books and like picking a podcast is like so so important and um, you know as I mentioned kind of towards beginning is just like being humble in what it is You think you know like beginners when they get into anything it feels like they make these very simple assumptions and they. Essentially get themselves and into trouble by taking these sort of mental shortcuts on how the world works or how how they think the world works. Um, but yeah education is just like so so important you know I'm sure it's a foundational sort of.. It's a foundation of you know what's led to your success gym and all all the things you've built and ah yeah, and then just ah going out and trying to.

01:03:39.38

Clay

You know, do it. It do whatever it is. You're trying to do whether it be. You know, investing starting a business excel in your career and then just on top of that education from the books and the podcast just learning from your own experiences is ah all part of the journey and it just makes it all fun. But yeah, if you want to learn about investing ah check out, we study billionaires you might. Find a thing or 2 That's interesting.

01:04:03.60

ilm

It's good. Good little show. hopefully yeah hopefully all'll pick up a good good audience. Ah eventually, we'll turn around now I noticed when I was recording with ah with Preston I I love he done. Hed un flaunted but I saw in the background in the in the in the corner you saw the ah the Youtube whatever. Color it was the big plaque of x-mol listeners. It's amazing. What y'all have done there and the amount of people y'all reach the different shows and the community you're building. It's awesome stuff and yeah I've listened to countless hours of you guys and of your podcast and getting even just getting hang out with you and ah.

01:04:20.50

Clay

Oh yeah.

01:04:37.21

Clay

Yeah.

01:04:38.50

ilm

Clay and I we roomed in ah Miami years ago for the bitcoin conference. We accidentally ah got a terrible hotel right in the party district of South Beach Miami so that was fun of ah the ah the guy blaring was like we will rock you at like 2 in the morning you're I'm a mile away. Um, and then yeah little different experience last Mark until you eye in absolute natural bliss. Um, so yeah I love getting to spend time with you and ah keep tabs on you through your podcasts appreciate it. Awesome! ah.

01:05:10.72

Clay

Yeah, Jim you've been a absolute blessing in my life and ah right when I ah right when I joined tip I got connected with you. You know it was almost by fate and we've been connected ever since so you're a great friend and it's great to know you.

01:05:27.20

ilm

Thanks for coming on Clay I appreciate it.

01:05:30.46

Clay

You bet my pleasure.

TLIP #8: Bitcoin is not a financial plan, but it should be a part of one w/ Jim Crider

00:00.00

ilm

Over the last several weeks I've had a lot of conversations with really smart people talking about bitcoin in particular areas. So from the current macroeconomic environment and bitcoin's involvement the debt spiral and bitcoin's involvement. How do you buy bitcoin. How do you store it. The intersection of bitcoin and financial financial independence um bitcoin itself and the technological side of things and bitcoin on the monetary side of things we've had all these conversations. The future implications of bitcoin and I encourage you go listen to those conversations. There's a lot of great nuggets in those. Um, through my wonderful guests and I just want to sort of finish up this series about bitcoin um addressing a few particular areas. Ah that that I'm confronted with regularly as a financial planner and ah not that many people are. Overly interested in my specific viewpoints on bitcoin. Um, but that's what we'll be talking about today is how I've how I view bitcoin and financial planning the questions I'm most most regularly asked how I approach bitcoin in financial planning and ah. Yeah, how we're going to utilize this moving forward and rebuttals to common questions those sorts of things so it'll probably be brief conversation and I appreciate you joining me here. So ah, we're going to start off I wrote an article a few months back ah titled bitcoin is not a financial plan but it should be part of it.

01:33.65

ilm

And the opening statement of that article is ah I'll just read it so living in the seemingly dichotomous worlds of financial planning and bitcoin maximalism I hear a good deal of impassioned takes and see many of stones thrown from camp to camp bitcoin is just tulips yells the tradify community. Bitcoin is my financial plan retorts the laser eyede maxie yet here I sit observing two groups group at just parts of an elephant while misunderstanding the full picture blinded by their inability to set aside their familiarity bias and see the whole for what it is what in the world I just say. Again I live in this strange world of very traditional relatively conservative financial planning through cfp certification and studies and working at large firms those sorts of things and they view bitcoin primarily through this lens of. It doesn't make sense. It does not fit into a portfolio. Um, it's foolish to own so have have one foot deep in that that area. Um meanwhile also living in this world of bitcoin maximalism. I engage with a bunch of crazies on Twitter and in real life talking about bitcoin and many of these people think that bitcoin itself will be the saving Grace of humanity will be the saving grace of an entire financial plan and a financial plan is not necessary beyond bitcoin itself and ah.

03:09.33

ilm

It's It's an odd place to live because I love both of those places and I try to approach both of those conversations. Ah in ah in a dualistic way One I try to approach it gracefully and to help show here's what you're not seeing. And why the ah the other person's viewpoint can make sentence to an extent but then also I try to be somewhat ah of a so of a a thorn in their side to force them to pay attention to the other things that they might be missing.

03:45.51

ilm

So I just want to take a few minutes today and talk through those. Um, what I think financial planners are primarily missing then also what I think ah the bitcoin community a lot of a lot of those I talked to are missing and to really bridge the gap between those 2 things to really help someone's financial life. Um throughout this conversation i'll. Ah, we've in ah lots of questions I'm asked regularly about bitcoin and planning. Ah how it works with financial planning. We'll also talk through some historical references of allocating to bitcoin. So ah yeah. Let's let's dive in so when we talk about bitcoin it's important that we first lead off with what is bitcoin itself again the problem ah that I see many people have when they say that you shouldn't own bitcoin. Because it doesn't make sense or you should own bitcoin plus these other crypto assets usually those conclusions are arrived to because the the wrong question was being asked so again in order to answer the question properly. You must first be asking the the correct question. And Satoshi did that when Satoshi created bitcoin the question being asked was how do you create this decentralized form of money that can't be manipulated by any ah particular group. Be it a government or a company or an individual organization. How? How do we remove? Centralized control.

05:21.96

ilm

And create a form of money that is truly peer-to-peer and ah, that's what bitcoin's done and that's not something that was created overnight again. Bitcoin is by the financial planning community oftentime is related to beanie babies or Tulip Mania but I think that comes from a. Ah, misunderstanding of the history of not just bitcoin but cryptographic ah assets and the actual history of money. My last statement there is. What I've the conclusion I've come to over the last couple of years is many financial planners are really really smart and I have so much respect for a lot of people in this community and most financial planners or mini financial planners are great at managing pieces of people's financial lives. It's reducing their taxes or managing stock compensation or ah, interweaving their personal and and business finances or budgeting or so many things a lot of smart people with actually addressing particular areas of money in people's lives. But what I've come to recognize in my opinion is that most financial planners while they're good at managing money have not stopped to actually ask what is money and that question when it's actually pondered and thought through fully.

06:53.30

ilm

Should lead you to realize that our current money system in the us and globally is not is not what we think it is and the problem is stopping to ask what is money itself is. Sort of like a fish asking what is water. It's something we're so used to being around that it seems foolish to even take time to ask that question and especially when you're taught that money is a certain thing. Um and the definition of money is is sort of changed and is loose and it's sort of up for interpretation. Asking that question again can be foolish. The good news is um I personally sort of enjoy people thinking I'm a little bit stupid. So I like asking the questions that most people are maybe ah intimidated to ask because they don't want to look foolish and I enjoy that. Um, I'll be the first one to raise my hand and ask the question that I know that most people most other people are are wondering in their head but too afraid to raise their hand and ask so I'll ask those questions. Um I'm okay to look foolish I want to learn not here to protect an ego and ironically that's 1 big thing I've recognized with adopting bitcoin is. 1 thing you have to do to actually understand and adopt bitcoin is to first say this is almost the the vast majority of people almost the full amount of people I've ever met with bitcoin is step 1 to actually accepting bitcoin.

08:23.71

ilm

To say I was wrong about bitcoin in my initial interpretation of it. It's a humbling experience say I was wrong and this is actually important and I'm willing to learn and move forward. From a proper mindset proper heart. So it's a humbling experience so that's ah I think it's also another barrier that is up is you're forced to confront the fact that you were wrong admit it to yourself and maybe admit it to others. Okay, so let's talk through this when when people. Clients friends strangers when people ask me about bitcoin. Um I'm not going give you the full spiel right now you've heard some of this through conversations over the last several weeks but when people ask me like what is bitcoin it is emphatic that we begin with discussing what is money and. What is a store of value. We take that through a historical lens. So I'll do a brief summary of money and and stores of value through history. So we'll talk through again things that were used initially as collectibles and then built the way up into actually being means of. Ah, ah of transactions that being glass beads or ryestones or seashells will talk through precious metals. Well talk through Rome and the deri and ah the devaluing their currency and how you know war is funded through um.

09:56.59

ilm

The debasement of their currency. We'll talk through those things then we'll we'll sort of skip head through history after laying several examples of here's different forms of money and here's how all these different forms of money have been hijacked. Um in some manner or another ah through um erosion. Be it some so some form of manipulation from an outside party or internal party um taking some control so we'll talk through that. But then we'll we'll sort of fast forward through history and we'll get we'll land back again in the nineteen hundreds and ah, we'll go to post world war two Germany. Um. Next right? Wherever you're next to me I have a picture of some children building a tower using german marks and they're playing with it and I'm sure you've probably seen pictures of maybe that picture people with wheelbarrowels of money. Um or burning money or wallpapering their house with their money. We'll talk to how that happened and the war reparations and the money printing. Um and the the troubles that caused and how's that come about and we'll talk through and the 1930 s when it became illegal to actually own gold in the us outside of ornamental pieces and jewelry. We'll talk through the.

11:08.66

ilm

Ah, forced the confiscation of gold and how immediately following the confiscation. The ah ah the purchase price the value of gold was ah was changed ah for the government for the better of the government immediately after so um, i'm. I believe I might be off on the numbers. But I believe it was ah $20 per ounce is what you had to turn your gold into to the government and then basically meetly after it became illegal to own gold. Um in the us again outside of ornamental jewelry gold was repriced at about $30 $ 35 per ounce again. Don't quote me on those numbers. But it's that's the theme. Is. We'll give you a certain amount and then once you weren't able to hold anymore the gold became worth more and the funny thing is gold is not worth more. Your dollar is then worth less and ah, keep that in your mind of.

12:02.91

ilm

Assets being worth more versus your currency being worth less. We're going to revisit that in a bit. So after that we'll talk through the 1940 s there's a thing called breton woods so group of ah central bankers essentially gathering a gathering from around the world in the us on the East Coast to talk through. Um. The global financial system. Ah and the our gold backing our currencies. Essentially what happened there is um, the different banks around the world. It was agreed upon that they would.

12:39.25

ilm

Ah, the us would hold gold in our balance sheet and we would back our Us dollar by that gold and then other currencies would back. Ah their their currency by the us dollar so they were peripherally backed by gold because they were backed by the us dollar. We took that bet we said hey well yeah, we'll accept those terms so we took those terms and ah worked out really well. There's a few decades of the us manipulating and abusing our ability to create money. Was supposedly backed by a hard asset that's much more difficult to create than the money itself and then of course in 1971 we came clean that hey the amount of gold versus the amount of dollars that we've created that are supposed to be backed by that gold. It's no longer at parody and we're going to default on that. So when we defaulted on our gold position in 71 because other currencies were essentially backed by our currency. Um, pretty much every currency became. It's called a fiat currency and that's no longer backed by gold or anything that actually takes ah resources or energy to procure. But rather backed by the enforcement of government so I was in the 70 s law funky things happened from after 1970 um, when when money is manipulated money itself in my in in my loose definition.

14:06.16

ilm

Ah, money is a means of communicating storing and ah transferring value across space and time. So. It's a means of communication and when that means of communication is hijacked and manipulated ah the messages themselves become distorted That's what happened starting in the 1970 s really it it happened before through other ah ah, hijacking of of money systems. But we see this massively in modern era starting in 1971 because again there became a massive distortion of of money itself and money is a means of communication. When the means of communication is hijacked then the messes themselves become distorted fast forward. We don't really get too far into you can go do your own reading on all these things but ah we have the petra dollar system. Anyways, we'll talk. We'll go through that a little bit then we'll talk through ah bitcoin. Now. It's important to recognize that bitcoin is not something that was arbitrarily created five years ago by some tech pros or a kid living in his basement. Maybe that's a Toshi who that's serious who she is but it wasn't just ah stumbled upon as ah as a way of making a quick buck as a ponzi scheme. This is something that a group a group of people have been trying to work on for a very long time. Ah, how do you use cryptography to create some sort of online ah money and there there was a few issues that these people kept running into ah for for decades and Satoshi um came on these chat forms essentially and said hey.

15:43.90

ilm

Um I think I've I've solved these and um I think I have this payment network this money system that will actually work um by solving these these issues that have come about and you put his work out there. Others agreed in this 2008 in 2009 bitcoin actually began running so again, this is not something that just came out overnight. This is something that lots of people who are way smarter than I am were trying to create for for decades and Satoshi was able to crack the nut that had stumped many of people. Up to that point when he wrote the bitcoin white paper. He referenced those people who also contributed to the work of bitcoin. Um different parts of it. The coding itself. Um or was not just him. There are parts of a graph mother people and he referenced those people in his paper.

16:40.15

ilm

So bitcoin itself again. this is ah this is money um I was talking to my wife Kendra last night and about our our kids my my oldest he's 6 and his name's Atticus and Atticus is now starting to. Understand money to an extent and have a lot of questions. He's now carrying along a wallet with a few bucks in it and ah picking up change anywhere can find it and ah weird. We're been talking about. What all money can buy. He wants to go to the toy store with his $2 and buy a bunch of things that not he wanted to buy dinner for our family and had to tell him that your money doesn't go as far as it used to and explaining inflation to a six year old is exciting um and rather difficult we talked to that we also talked through bitcoin he knows. He knows sort of what bitcoin is and after explaining it he recognized that okay bitcoin is money and he wants to trade his change his us dollars that he's been finding. He wants to trade that for bitcoin because it's a better form of money. So these are conversations we have in our household. Um. on ah on a regular basis. Probably not most family conversations. But it's fun to it's fun to go there with the kids. Um, so this leads us to again if bitcoin is money.

18:05.93

ilm

Money has a few properties and again I'm not going to go super into this. We've talked to this in other conversations. But some of those properties are scarcity money itself. There has to be a certain it needs to be scarce if it's too plentiful. Um, then it's it's we it uses its loses value over time.

18:26.47

ilm

Now if it's exceptionally plentiful but we know there's a fixed amount and it's easy to count those amounts or relatively easy to account for the amount of units there are that can be okay, but ah we have to make sure that it's not overly puntable where you just have 0 record of how many exist. Um, and also we have to make sure the inflation rate is not. Too high. Um or ideally is is very low or nonexistent and so again it needs to be scarce needs to be portable when you be able to take it from 1 place to another. Um, again, if you're going to use this means of trade. Um, it's important to be able to move this thing from 1 place to another so portable. Um, it needs to be verifiable so you have to be able to verify that. Okay, this actually is a us dollar this is actually gold. This is actually a bitcoin. Um I'm not going go through all these properties but there's a few things that we have to have s be like we'll go to that sb divisible. Um. Ah, Mona leases are difficult to have ah as money or fine art because you can't take a a van gogh um or renoir and chop it up and use that as a means of trade. So we have to have something that's divisible. Um, again. So these these parts of money that. Or these attributes of money that make it good money and bitcoin is that so it's scarce. We know how many units will ever exist. So we know that there will only ever be 21000000 bitcoin in circulation. Um, right now. Ah about 19000000 of those 21000000 are already in.

19:58.84

ilm

Ah, in existence and the remaining couple of million will be mined and come into circulation over the next 12100 and ah 17 years we know that the rate that bitcoin gets issued. Um, through mining. Ah and we know how many bitcoin will ever exist. We know the last bitcoin will be mined roughly in the year of twenty one forty. So we know the quote unote inflation rate of bitcoin. We know the exact amount that will ever exist so it is it is scarce. It's divisible so you don't have to buy a full bitcoin. You can buy. Ah, a satoshi a Satoshi is obviously a reference to Satoshi Akamoto who created bitcoin but a Satoshi is one one hundred millionth of a bitcoin so you can buy multiple satoshis with a penny at this point so it's divisible. Um, it is certainly ah transferable and portable. So I can take my bitcoin and I can send it receive it basically instantaneously for a super low cost. Um, and it will settle within a few minutes um that's that's unlike our current payment rails. Um, that can be expensive and. Inefficient with time and we're trusting multiple layers of protocols to actually achieve those transfers. Um.

21:28.20

ilm

Let's go into some questions and I apologize this is tough for me I'm not having conversation I'm talking to I'm talking to myself right now and I don't do that often at least for this amount of time so be patient with me and I appreciate it. So I get let's go into questions that I'm asked. And this will jog up other things sort to continue the line of thought I was on so questions asked regularly by other financial planners clients people are curious. Let's see what if someone bans it what if someone bans bitcoin I think that's a legitimate question where you're first coming into this. 1 thing was Satoshi nakamoto when he created bitcoin that's really impressive is not just the depth of knowledge he had in a particular area but the depth of knowledge he has in multiple areas those areas being again cryptography um economics game theory. So these different areas all work together to make bitcoin a valuable asset on a technology side of things but also on a monetary side of things. Um, and ah, ah, individually and then globally so how? um, yeah, what happens if someone bans bitcoin. Funny enough. Bitcoin's banned a lot been banned a whole lot. So China sort of became a running joke a few years ago China ban bitcoin. It seemed every other week in some capacity they would they would ban. Ah the onrampps and offramps of bitcoin. They would ban the mining of bitcoin they'd ban bitcoin itself and a a common meme.

22:58.10

ilm

Amongst bitcoiners is you can't you can't ban bitcoin. You can only ban yourself from bitcoin so banning bitcoin in your country would be sort of like North Korea banning the ah use of the internet by its citizens.

23:17.00

ilm

Does that hurt the internet not at all internet will carry on it'll help those who have access to it and utilize it properly your help you're hurting the citizens of your country so when when you ban bitcoin you're not hurting. Bitcoin itself. You're not stopping bitcoin in order to stop bitcoin you'd have to go through and destroy every node out there every computer that's running ah bitcoin. You'll have to go and destroy those essentially at the same time because if 1 survives that will then that that information will then replicate. And continue to circulate globally so banning. It itself is ah ah, again, that's working in analogies banning bitcoin like banning the internet also sort of like ah I guess another question would be. What if someone creates a better bitcoin bitcoin 2.0 maybe a jimcoin. Um, that's doable I mean I could go create jimcoin um in a few hours I could build it pretty much I could build it just like bitcoin and it's just bitcoin 6.0 what if someone else does that. That's something I hear regularly is well someone could just build a new bitcoin and ah so why is bitcoin itself valuable. Um, well there's a few things there 1 ah you can do that if you want to try it, please go ahead and start your own coin.

24:49.58

ilm

That's fine, but you better be not just a little bit better but far superior to ah the existing bitcoin system because what we're working with here is not just technology but also is adoption and adoption by lots of different interested Parties. Who are interested for different purposes people who own bitcoin already. The people who are mining bitcoin. The people who are ah the the companies who have adopted bitcoin The people who are legislating for bitcoin these groups already have a vested interest in bitcoin itself. So if you go and create a new cryptocurrency that is similar to or slightly better than bitcoin. Um, that's it's probably not going to ah cause many people to flip over to your new thing Again. We also have to ask why is your cryptocurrency better than bitcoin and if if it's better because it has these features. It's better because you can. Ah. You can send pictures over it quickly. Well maybe that's a neat feature that you want but you're answering the question that bitcoin did not set out to solve Again. We wanted a Peer-to-peer Network That's decentralized and if you're creating a currency or a system that does something else. That's Superior. Superior and something different that'd be like ah having a world-class Distance Runner. Um, and then you say well what if I get someone who's faster say okay, well and then you bring in you bring in a sprinter and the sprinter is faster. The problem is you're running the wrong race.

26:25.37

ilm

So bitcoin's not here to run a race that makes it better as everything we're looking for a better form of money. That's what we want. So I'm not concerned about other cryptocurrencies coming in and beating bitcoin at a race that bitcoin's not trying to run and it's super simple. Bitcoin itself. It's ingenious but the same time. It's very simple. It's. Its genius in its simplicity. Um the base layer technology of bitcoin is um, it's meant to be simple. Ah the simplicity it reduces the attack vectors and that's susceptible to and also reduces the amount of features that's trying to protect. Against being hijacked so keep that simple and then allow other layers to be built on that overtime if necessary. That's what bitcoin is done. Um, what if what if someone wants to change bitcoin or what a Satoshi comes back and wants to change bitcoin. Well again, that would be I'd be like if. The person who created the wheel came back and said hey guys I made the wheel I changed history. You know, sorry, that's a terrible analogy. Um, if so if the person who created the wheel came out and was able to prove that they actually created it. You know. get get a standing ovation. Good job you you really help civilization and then if they said you know what I thought long and hard about this and I think I like I would like to have square wheels instead of circle wheels the initial wheel I made was good and all but I'd like to change things up I think this one's going to be better.

27:58.17

ilm

We might simply because they made the Wheel. We'd probably give them a moment to speak all right? We'll hear you out but he better be really convincing why this new wheel is better and ah eventually say that a square wheel will not be superior than the Circle Wheel. So Even the person created the wheel if they wanted to come in and change it. That change does not have to be adopted by those who use it. Some people could go and start using Square Wheels that me as a circle normal wheel User does not have to adopt that change. That's how bitcoin works people who come in and say hey I like this feature better. Let's tack this on if you want to go that route if you want to choose this fork of bitcoin or if you want to. Adopt this total new Cryptocurrency. You have the ah option to do so and your choosing to do so does not necessarily impact the existing wheel itself unless you're able to wield a large enough ah impact and a large enough change in adoption rate where actually wheels themselves are changed. But again it better be not just a little bit better but way better and Square wheels won't work. Um, so it doesn't matter who's making that change. It doesn't matter if the person who created the wheel or Satoshi who created bitcoin came in and said hey I'm making this change or if it was me Ah, ah, relatively. Ah.

29:16.74

ilm

Neanderthal Ah when it comes to these. Ah, these things came in and said how making this change it doesn't matter. It doesn't matter if it's if it's blackrock or a government they said hey I'm making these changes to this. They have no authority or ability to make changes beyond any other person.

29:34.80

ilm

Again, that's not that's not something that you should use lose sleepover. What about the the use of bitcoin that's something you know when I was first introduced to bitcoin was back in 2012? Um, there's a guy I worked with who would regularly ask ask our bosses to pay us in bitcoin. And I didn't know what bitcoin was the first time I heard about it and all I knew was that guy seemed to be stoned the majority of time even at work. So I didn't have too much weight in his opinions. So when he mentioned bitcoin I brush it off. Um, and you know equated there was ah equated bitcoin with ah the silk road and the dark web and again wrote it off because it's used for nefarious cases and certainly did not understand it as money itself. Um I viewed it more as chuck e cheese tokens for buying drugs. Um I think that's where a lot of people still are they think that and bitcoin and this is this is propagated through media and through politicians who are running their own agenda who continue to say these things like bitcoin is used primarily for nefarious cases. Ironically. The vast majority I think it's about 90% I hate making this up. You know, think it's a 76% of statistics are made up on the spot. Um, that was a joke. Ah I feel like I make it up numbers here. But I believe it's about 90% of usdollars. Ah.

31:05.21

ilm

Ah, cash bills have traces of cocaine on them. So if we're talking about nefarious use cases then we need to address the Us dollar itself not to mention the ah the amount of wars that have been ah, ah, funded through. Us dollars and other fiat currencies if we're talking about. Ah you know, ah violence being propagated through money. Well we need to address that as well drug trade arms trade um human trafficking all kinds of stuff that's often used. Paper bills um or different. Yeah different means of fiat currencies. Um, and also using bitcoin for ill list. Activity is actually pretty foolish. Um, it is not fully anonymous. It is ah each address.

32:02.73

ilm

Is a line of figures. But if you're able to understand who that person. Ah or who those figures belong to that address then you understand who's using that whose address that belongs to so um, if you're going to be buying a bunch of the I don't know. Ah. Rocket launchers online using bitcoin then ah, you're you're probably using the wrong thing you might want to go get a stack of hundreds and do that in a back alley? Um, and yeah, like this is something ah, just recently I believe is Hamas. Um. Jesse mentioned this in our podcast a few weeks ago I believe Hamas recently actually told people who are giving the money to stop using cryptocurrencies to to give to them because it's too traceable. Um, this is how a lot of people actually been stopped and found out who ah, who's using or who is funding. Ah. Ah, criminal activity is because they were using bitcoin or other cryptocurrencies again. That's that's say ah, ah that is a poor argument and but we're going to argue against this. We have to argue against everything else. That's also being utilized. Um for for illicit activities.

33:19.27

ilm

But about the volatility I saw this one I see this all the time I actually saw this again yesterday. Bitcoin's too. Volatile there's a few thoughts there when we had to start with understanding that volatility and risk are not synonymous. Volatility is just the means the the amount. That the purchasing power itself of an asset moves ah throughout a duration of time risk is your an inability to achieve a stated goal now Volatility and risk become more and more coolate correlated as your time Horizon gets compressed and.

33:56.86

ilm

Generally speaking ah become less correlated as time moves out. That's why if you're going to own if you're going to use money tomorrow for something that's super important. You have a hundred bucks today and you're going to need $100 on the dot tomorrow. You're going to keep that hundred dollars as dollars. It would be foolish to take that hundred dollars put it in the market I don't care what you're buying put in the market and hope that tomorrow. It's $101 because if it goes to 99 and you can't buy that thing that doesn't make any sense so with your time horizon that compressed risk and volatility ah become highly correlated. Um. Why we have yeah like typically when you're younger, most people are going to have a higher stock allocation when they're saving for retirement versus when you're actually approaching or in retirement you're going to reduce your stock allocation because in risk and volatility as we talk through distributions and suit sequence of return risks those become highly correlated. We need to reduce volatility because again volatility and risk then become almost synonymous um but risk and volatility are not synonymous in its totality. So yes, the purchasing power of bitcoin ah moves a lot. Daily weekly monthly over the last decade it does move a lot. Um, but to equate that the the the level of movement with risk and to turn a blind eye to the lack of high movement um of other assets.

35:29.35

ilm

Foolish. So for instance, ah in the us let's let's let's be generous and give cpi the benefit of the doubt. Let's say inflation historically us has averaged about 3%. We know that right now it's significantly higher I know for my family we go to the grocery store. Our inflation rate is way higher than 3 three and a half percent um over the last few years given we've had several more kids over the last few years but accounting for that. Um, our grocery bills minimally 25 if not 45% higher than it was just a few years back um so the us dollar again. Let's let's go back us dollar the the average inflation rate. Let's call it 2 to 3%. We'll say 3% in the us Annually and if that's a smooth transition down if it's a smooth 3% every year that is ah that's not volatile.

36:25.87

ilm

That feels safe but a safe lowering of yourself into a pool of acid where you're being eaten away or lowering yourself slowly to be to be drowned still leads to eventual death. Um, versus.

36:43.86

ilm

This this place I mean bitcoin has gone up over its long period of time. Um bitcoin has overall gone up and yes, it's gone up like up and down a lot for um, I'm moving my hands ah wildly for those who can't see me and. It's gone up and down a whole bunch but over its totality. It's it's worth more than it was initially um than it was fourteen years ago unlike the us dollar the purchasing power of bitcoin is greater than it was fourteen years ago the purchasing power of us dollar is less than it was fourteen years ago um the movement to get from here to there of bitcoin was. High gyrations the movement of the dollar to get from there to here was ah was smooth but again volatility and risk are not synonymous so we have to begin with that. What else it's too volatile my goodness you have to think through portfolio sizing.

37:38.48

ilm

Um, if you again if we're going to if if we're going to put volatility in risk even remotely in the same area. maybe maybe you're retired you're not just retirement. You're going to use that money soon in the next between now and the next few years at minimal then ah yeah, there's a high correlation of volatility in risks. And there's sequence of return risk and sequence of return risk is ah if if ah, the not just the total return I receive but the time of those returns intersecting with the need of distributions. Um, if a distribution is necessary when ah, your value. Your money. You're going to use for that distribution is down that has a poor impact on you. It doesn't matter if oh well over the you know the average 10 year this goes up 10% per year if you're 1 and 2 it goes down by 20% and you have to take out that year you know I can't sit in here and say like oh well, it would have smoothed out over the next decade the sequence of returns. What's going to impact you that's again, that's much more That's really important when you're actually taking distributions from an account less important. Ah, it's still very important but still but significantly less important. During times of just accumulation when you have a longer time time horizon okay back to it. Um, so volatility just think through your portfolio sizing if. Ah, if you're if you're afraid of the volatility of ah of a certain asset then you want to account for that of how much of your asset.

39:12.29

ilm

That asset do you own? um in your entire portfolio. Your portfolio can consist consists of a lot of things. It could be equities or fixed income or cash or cash instruments or real estate private businesses private equity I don't know whatever you want to own could do all these things. How does this one asset. Impact the rest of ah your portfolio and ah, we'll talk through that a few minutes um I'll come to some illustrations of portfolio waiting and and bitcoin's impact in that um over historical terms. Um. And speak to the bitcoin community for a second you know again I hear regularly from bitcoiners that they don't need a financial plan because they own bitcoin. Um I like bitcoin I own bitcoin I talk about bitcoin a lot I've probably said the word bitcoin a hundred times already in this conversation with myself and you and and I feel so. Ah, feel so silly saying bitcoin so much over and over again as I look at a giant bitcoin three feet from me bitcoin science not a real bitcoin. They don't actually exist in ah ah in a tangible way I don't have a wallet of bitcoins that. Could fall out of my pocket sorry terrible jokes. Um, yeah for those who say I have bitcoin I don't need a financial plan things I'd like you to consider just going to go through this real quick 1 bitcoin owning bitcoin is not tax planning.

40:44.46

ilm

There's a lot of opportunities with tax planning that can arise even if bitcoin's your only asset so consider that estate planning bitcoin's not a estate plan I have four young kids if I own all the bitcoin in the world but don't have an estate plan and I get hit by a bus I'm driving today I'm driving up to Dallas if I get in a car accident and pass away. Bitcoin itself will not help my family bitcoin won't tell my family. What's supposed to happen with my children. It won't tell the state. What's going to happen to my children that my wife and I pass away together. It won't tell doctors my wishes medically. Um if I if I'm on a respirator. Um. If ah, it's not going to tell. Um, it's not going to tell my family. What I want to have happen with my assets um with my house with my you know personal belongings bitcoin is not an estate plan. You need an estate plan. Bitcoin's not insurance. It's insurance against a lot of things in my opinion to get insurance against the fiat system. It's insurance against ah the demonnetitization of assets but it is not um, it is not life insurance I don't sell life insurance I don't have a life insurance license. Um. But bitcoin is not life insurance. There's this odd place though like right now if I went got a million dollar policy life insurance policy on myself. Um, for 20 years okay well let's just think this through if I if I kick the bucket next week bitcoin one bitcoin is not worth $1000000 next week.

42:17.80

ilm

Most likely if it is I will be very happy and will gladly eat these words. Um, so I'm glad I had that policy now. Let's fast forward 20 years from now. Let's say we experienced hyperinflation. Um between now and then well then yeah, the.

42:33.25

ilm

The value the purchasing power of that million dollar dollar life insurance policy has eroded. That's why we know we want to own other assets and heck owning bitcoin I think is ah is a good ah insurance against the erosion of that insurance itself not life insurance policy. Um. So that is interesting think through long term life insurance with inflation and especially hyper inflation. We have to consider though that if you're paying monthly premiums or annual premiums on this and we're experiencing high or hyper inflation. Yes, the death benefit. Of that policy is where is ah is reducing over time. Ah, but also the ah the value of the dollars that you're using to pay your premium is also reducing. So want to consider that. But anyways, bitcoin's not It's not tax planning. It's not a state planning. It's it's not insurance. But I just talked about life insurance. There's other types of insurance. There's key man policies. There's health insurance. There's there's lots of insurance. You know what I'm saying so it's not insurance. Um bitcoin itself is not ah. Ah, it's not um, a savings rate. So I've talked with a lot of people who are super smart and maybe they've invested really well. But if you have not saved enough of your income if you do not have enough savings then the equation for ah compound interest still won't work for you.

44:05.55

ilm

You can have all the time in the world and have the best rate of return. But if there's nothing there that's experiencing time and returns you're still not going to have anything at the end of the day so you need to make sure you have a good savings. Plan is your are you optimizing?? um your your savings rate Bitcoin does not necessarily solve for that I think it helps it. It. It helps your view on time Horizons and priorities financially but is not a savings rate or savings plan. Um, there's lots of other things. Bitcoin itself is not a financial plan is what I'm getting at but man it I think it should be part of it. Um, okay.

44:44.15

ilm

Had this conversation a few days ago and I had this regularly is how much you think bitcoin is going to be worth I don't know. Um, how do I think it will get to a certain price I think it'll be eventually worth a lot more than is today I can't guarantee that all right, it's time for disclosures to satisfy everybody. This is not investment advice. It's not tax advice. It's not legal advice state planning advice I'm not giving advice. We're having a conversation here. Don't take it as advice if you're looking for advice talk to an advisor of said sector you're looking for. Um this is not a guarantee of performance past performance nondicative of future results. To state otherwise is against the law. So don't take it as any of those having conversation here. Okay I personally think that bitcoin ah in the future we were be worth substantially more as today and I'm personally positioned in a way that reflects that viewpoint in my life. Okay. Um, now. Why? Why do I think that is where will the value of bitcoin come from the adoption rate. Okay if it's being adopted by more people. Those people are adopting bitcoin in lieu of something else. That's how it's going to go again. Yeah I guess we could have more. We can have more monetary units more dollars being printed and those new dollars. Ah prorata going to different assets and one of those assets could be bitcoin. But if it continues to grow. Ah at just a normal pro rata basis in line with inflation and new money printing.

46:17.90

ilm

Then Bitcoin's ah ah, nominal value would go up but it's real value would stay the same I'm not talking about I'm not talking about nominal value I'm talking about real value. So again, if we're talking about more people doing the same thing then yeah number might go up a little bit but in real terms. Not substantially so we had to think through then how will the price of bitcoin go up itself that can be answered. There are a few ways. But I think the easiest place to bring that in is the demonetization of other Assets. So What in the world does that mean? Well, there's lots of other assets out there that don't make sense. From a price standpoint right now and I think they will make more sense in the future because I think the the inflated values of those will reduce or go away and that inflated value. That's currently in those assets will move over to bitcoin those existing assets. We go back to a more normalized place and things will be to health their spot Again. So For instance I mean stock valuations are compared to historical norms very high um and especially Index funds where you. Most people utilize Index funds not as a means of actually investing and you know doing scrupulous work of analyzing companies and cash flows and risks and all these things to think should I use this Index versus another one. Um, we're just buying an index.. That's what most people do.

47:45.83

ilm

Um, you're buying a fund that's correlated to an index. Um, and that's led to these things being propped up and it's not investing. They are used as a savings mechanism like index funds are almost just long-term bank accounts and because of that we have a large monetary premium. In the stock market overall in my opinion. Um, a side note right? quick again one. So 1 thing I hear a lot from financial planners is if you're trying to be tactical and you're investing if you're buying bitcoin because you're trying to. Do whatever time the market buy beanie babies follow a fad. Whatever you want to call or whatever people accusations people make um one thing I ask is how they choose their portfolio allocation and a lot of times they'll tell me that they just buy index funds and call a day so they're not being tactical at all again, it's something they're not thinking through what they're sayinging. If you're buying if you're buying anything you're making a decision either consciously or subconsciously about what you're purchasing. There's opportunity costs and decisions being made if you're buying primarily us large cap you're making decision to buy more us large cap than midcap or small cap or international being it being it.

48:57.34

ilm

Ah, ah, a small percent or a large percent of your portfolio if you're buying ah mostly bonds or stocks um or money market instruments you're choosing that if you're going for a sixty forty portfolio if your clients you're making a decision. If your decision is based off of that's what most people do just admit, it. But that is a decision you're making so there's no money manager out there or even person who's managing their money who is not making some sort of decision so to say that you know if you're you're buying something you're trying to be active in some capacity. Please do recognize your level of activity in any decision that you're making because you are making a decision in anything you do um, recognize that some decisions are more involved than others. But at least recognize you are making a decision. Okay, back at it. Sorry for that I get that a lot doesn't make sense. Again I'm not the smartest guy so I have to take everything to its most base level begin there which sort of helps out because a lot of people don't go to the base when you go to the foundational level. It actually makes things simpler and ah when things are simplified. They're also become clarified to view and that's where I like to begin and sort of stay. Okay, I'll even know where I'm at ah bitcoin and planning. Let's see I told you it's gonna be rough I'm sorry gosh I wish there was someone here I could tell me where I'm at um.

50:36.85

ilm

Ah, yeah, Okay, portfolio sizing making decision if or how to put it into your account. Um, monetary premiums that was it. That's where I was. Okay, so we're talking about monetary Premiums. So montary premiums again I think there's there's a large monetary premium or Monetization Premium in equities would also ah say that's in the the debt markets. Um, heck I mean I would I would account for that in our current money system I think you'll grab some value from our current money system. Um I would attribute that to ah real estate as well. I mean heck I feel really bad for a lot of people when it comes real estate I don't feel too sorry for myself. Um I won't allow that I feel bad for people when it comes to to homes because what's happened is we've seen a hijacking of homes.

51:26.98

ilm

Become ah as a place for refuge and safety and creating memories and moments and to live and spin life for yourself and a family and being a use asset and that's been hijacked as. Being a store of value for people homes are now just houses. They're assets to be acquired to preserve your purchasing power over a prolong period of time which is sad see lots of institutions who are doing this massive hedge funds and private equity companies. Um, real estate investors they're going out. They're scooping up properties to preserve their purchasing power over time and that's my house we live. Ah we live in Texas and yeah, there's a lot of people who move into Texas a lot of people who move into our town but a few years back um the the the stated value of our house went up by 31% in a single year did my house become 31% better. No way, there's like there's sheet rock holes in our inside of our house from our kids running into the walls. It's not 31% better I guarantee you that and did 31 did our population increase by 31%. It didn't our town's growing a lot that did not increase by 31% if we count for those the factors. Maybe I did some work on the house I didn't but if I did and if our population and town increase so the supply demand.

53:02.87

ilm

Ah, communication system was impacted causing prices to go up. You have to account for that. But that's not the full amount so where's this other signal coming from it's from new dollars hitting the market. We're flooding it that goes back way back. West earlier. So I tug this one away we're going to reference this later. The value of my house did not go up by 31 the value of your avocados and meat and milk at the grocery store did not go up by 31% the value of the money that you're using to procure these things went down by a substantial amount. Maybe there there is some intersection again. There are people moving to my town. Maybe the population increase by 8%. Okay, well, there's still a 25% this is an example, there's still a 25% premium coming in that I I can only explain by the insertion. Of monetary units and also people purchasing houses because they're trying to protect against the deep devaluing the deep basement of their currency so they're purchasing homes or purchasing people's houses um to protect against inflation. So what happens if we have a better form of money. Um, that would remove the need of purchasing houses if you think about it a house real estate real estate historically is really just basically kept up with inflation over a prolonged period of time if we stretch this inflation or ah, if we stretch.

54:35.70

ilm

Real estate out over a very long period of time. It's basically kept pace with inflation people historically those who have done well with inflation generally do so for a couple of reasons. Maybe they're really good at finding deals or flipping things but a lot of times real estate does pretty well because it's it's compared to a lot of other forms of leverage. Real estate is a ah safer use of leverage compared to other types so you can utilize leverage in a quasi-safe way. Um through real estate. Okay, also there are some tax benefits of own real estate but the value of real estate going up overs. Over time is is not been anything to write home about really? Um, I'm sure I'll get a lot of flak from this. Um, not that anyone listens will listen to this conversation or many people will. But if anyone knows who is super in real estate I'm sure I'll take a beating from you I'm sorry you have a conversation. Um, so real estate itself I think that's where some of the on terror prim will come as well. Again, my house went up by 31% a couple of years ago maybe it should have gone up by 8% that 25% or that sorry that 23% difference. Um, where does that come from. Well I think when we have a better form of money people will realize that that my goodness I'm paying acquisition fees and sales fees and I'm paying property taxes and capital ah cap x and and I have vacancies in this thing. Um I have repairs all these costs.

56:06.23

ilm

If I just had an asset that held its value or kept pace with inflation or maybe do a little bit better I'd rather own the other thing that was easier to own and I think that's that will be that's bitcoin. So I think we'll see a ah demonetization of real estate heavily in the bitcoin. So I think these are all different places that bitcoin will start going up again. Not just in nominal terms. But in real value is by taking ah people owning these other assets and assigning some of those asset allocations towards this other asset. So again. We have the money printing that's going on inflation. Um, but then we also have the adjusting of total allocation from certain things to another depending on how much you think will be ah reallocated from from historical like traditional assets over to bitcoin that will massively impact where you think bitcoin will arrive as far as ah. Value or purchasing price. We also have to put it in terms of what are we valuing bitcoin against if we're va if we're valuing an asset against a currency that that becomes worthless then then that asset against that currency becomes infinite in value. Um, so again next to me I over here. My desk I have a $50000000000000 zimbabwean note. So yeah, if you owned a cruddy piece of land in zimbabwe maybe you own like just the worst house said hey in a few years this will be worth trillions of dollars you think you're nuts.

57:38.16

ilm

Because that house itself did not become that much more valuable. But again you have to ask? What is the measuring stick we're using and the measuring stick that we should be using in that scenario would be Zimbabwean dollars and yeah it became worth trillions of those so when you hear people say that bitcoin will be worth a million ten million infinite Dollars we have to put that to 2 places we're putting that in actually purchasing power um value and we have to assign that with are we are we referencing that against the us dollar. You think the us dollar is going to be continued to be be debased then then we would say that. Yes, bitcoin could in theory go to infinity if the us dollars appears. Um, so that's where you hear these cases I'm not going to make a price claim I think it will go up. Um, but my my goal today is not to sit here and make price claims That's when you hear value claims and ah. Statements of bitcoin going to x amount. That's generally how those things are being arrived against is the demonetization of assets the adoption rate and then also the ah devaluing of the thing that's being priced in terms of in the intersection of all of those things. Is how people arrive at certain numbers typically or at least I do one last thing is adoption. Let's just talk about that right quick so bitcoin how I view where bitcoin is right now is sort of like the internet um in the 90 s maybe in like the mid 90 s except for bitcoin is being adopted at a faster rate and a more distributed rate.

59:12.50

ilm

And the internet was during the 90 s um so I think that's going to be a massive contributor to again. The adoption rate the growth the scale and the appreciation of purchasing power in bitcoin as it's being adopted at a faster clip more diversely and more largely. Um, over time. Um, the internet itself again during the 90 s I love there's a video of it's like the morning show or today show one of those goofy talk shows in like the mid 90 s and they're trying to figure out the internet itself and email addresses and they talk through the at symbol they don't know what to call it. And even that just the concept of what the internet is was foreign and the way they talk about it is absolutely hilarious. Um, because it's it's second nature to us and that's sort of where bitcoin is right now like I'm sure that and I would think that in 30 years from now I'll look back on this conversation and think I sound like an. Idiot because I'll sign like those people talking about the internet in an email address in the 90 s the verbiage that we use the concept the way we conceptualize this is so then we'll be archaic and um.

01:00:27.16

ilm

Ah, yeah, ah, it's yeah is is. It's going to be so foreign at that point maybe I'll watch this in 30 years and and laugh um maybe I'll laugh not at that but just sell terribleless is um, yeah, the adoption rate mean I remember in ah 2009 I had a roommate in college who would buy his Doritos using Amazon I couldn't figure out what heck he was doing like Amazon to me again I'm sort of slow I didn't understand how Amazon worked. Was like's sort of like ebay and Walmart mixed and I could understand why you'd buy or how you would buy Doritos online how them shipped to you how that worked that's only that was 2009 you know, um that was over a decade after that video on the today show came out talking about the internet. So the adoption rate like where we think the internet is now just internet a few years ago looks totally different. So we have to again think through the adoption rate of bitcoin. Um I think it's just absolutely astonishing to watch. Um the conviction of people actually understand bitcoin is incredible. Um, we sort of seem like a brainwashed tribe. Is that because we've thrown our brains out I don't think so I think it's because we've done so much time of study to figure this thing out and to understand it and also to understand the the total monetary situation that we're in that's hard to look away. Um and we're seeing a higher and higher adoption rate and not just adoption rate. But.

01:02:03.00

ilm

Ah, long term adopters of this thing and I think that will continue to progress over time all right? Let's talk through a couple things here. This can be tough. You can't see it. Um I can do my best to give you some numbers again. This is all past performance nondicative future results. These are loose numbers. I ran. Ah thanks ah thanks to ah Swan bitcoin. They have a tool you can go poke around yourself on here. It's the ah nacommoto portfolio institute so or nacommoto portfolio go to nacommotoportfolio.com I'm not endorsing it I'm not whatever. Not making legal statements about it. But it's fun spot to go check out. There's a lot of great tools on there where you can look at like the implications and impacts of ah of dollar cost averaging versus lump sums during different periods of time you can look at ah the demonetization of bitcoin if if if bitcoin takes x amount of premium. Of certain assets. How would that impact the the current and future price of bitcoin in theory. There's a tool that you can look at ah utilizing bitcoin as different percentages of portfolios in historical terms. What would happen there. So fun little spot. So let's I'm actually going to walk through some examples of that last one I just mentioned so I ah I grabbed a couple different portfolios and here's the criteria. So I First this first portfolio I looked at is all right for the last five years

01:03:34.62

ilm

So we're looking at the end of 2018 till ah till I believe it was yesterday I used I believe I used ah November ah or December eleventh of 2018? Ah yeah, December Eleventh Twenty eighteen to December Twelve of 2023 so for that 5 year period what different portfolios look like so this first portfolio looked at and again anyone who's out there. Don't take this is investment vice. This is historical. These are loose numbers. Get what I'm saying all the ah ah. All the disclosures. Um, so if we use a portfolio ah generally widely used in a sense quote unquote like growth portfolio. Um would we're using a. 65% allocation. This model is 65% allocation to vti. That's vanguard total stock market fund and vx us at 35% so 65% us 35% international all stock portfolio over the last five years that portfolio. Um, over that period had a return of sixty six point one seven percent so that's his total return. Okay, it had a sharp ratio a sharp ratio of zero point four three percent sharp ratio um is essentially looking at risk adjusted returns.

01:05:02.95

ilm

You want to you want a high sharp ratio. Um, ideally the way you get a higher sharp ratio is by increasing returns and reducing ah volatility. So um I can again, you can go and run these numbers yourself not can give you every statistic that built this sport this. This model? Um, but yeah, so a a 65 vti 35 vx us over that 5 year period of time. Had a return of 60 66.17 with a sharp ratio of 0.43 bitcoin during that period of time had a one thousand one hundred and seventy eight percent return okay and that a sharp ratio of 0.96 so a little bit more than double the sharp ratio which again you want to you want a high sharp ratio. That's the goal. Okay, what if we just took what if we substitute part of your portfolio with bitcoin. So again, let's say we kept our portfolio 65 us 35 international hundred like toll stock allocation. But then we grabbed bitcoin and plug that in for 1% of that portfolio. So your original portfolio to return of 66% that new portfolio with 1 % allocation of bitcoin would experience a 73% return during that same period. So 73% return and the sharp ratio.

01:06:31.30

ilm

Went from 0.43 to 0.47 we can look at as we plug in different numbers. So again, original portfolio a 66% rate of return a 5 % allocation of bitcoin plugged into that would get us to a hundred percent rate of return during that same period a 10 % allocation of bitcoin would get us to a. One hundred and thirty eight percent of ah returned during that period 25% bitcoin would bring us to a to 72% return and 35% allocation would bring us to a three hundred and seventy nine percent rate of return with a sharp ratio on that last one landing at 1.11. Okay, so.

01:07:08.69

ilm

Think it's clear. This is all past performance. This is not indicative of future results to do or say so other ah to say that it is is a not right? It's against the law can't do that and I'm not doing that this is past past performance says owning some bitcoin in your portfolio makes sense. This is rebounce on a quarterly basis. Take note of that. Okay. Um, yeah, so I'm looking this if we rebance on a quarterly basis I thought okay well, that's that's fun. Um, what about what about people who maybe who like work with a financial planner typically and they're maybe about to retire already retired. Um, what would happen there. So I just grabbed a super generic so seventy thirty portfolio okay or sorry sixty forty portfolio so what I did here was a vanguard total vti. Um 40% ah Vx us of 20% so again, 40% UStocks 20% international stocks and then 40% of b and d which is vanguard's total bond market etf so we grabbed a sixty forty portfolio pretty darn generic same timef frame that 5 years What would happen that portfolio. A pretty traditional sixty forty portfolio over last five years had a thirty nine point six nine percent rate of return. We'll call it 40%. Okay so at a 40% rate of return over that total period. It's to six point Nine One percent annualized okay it had a sharp ratio of 0.3 8%

01:08:40.32

ilm

Okay, let's see what happens if we plug some bitcoin into that and I apologize I know I'm throwing numbers out here hop on that tool if you'd like and you can plug play with this as yourself. So just remind you that portfolio roughly that that sixty forty um had a 40% well call it rate of return during that 5 year timeframe bitcoin was a one thousand one hundred and seventy eight percent rate of return in that same timef frameme. So if we grab that sixty forty portfolio and just substitute 1% of it with bitcoin you would take your afraid of return from 40 to 46% sharp ratio increase as well from 30 up 0.38 to 0.45 we March along. We move to a 5 % allocation of bitcoin where a 70% rate of return. We move to a 10% allocation where at a hundred and five percent rate of return and again that's one hundred and five versus 40%. We move to a 25% allocation. We're now to two hundred and thirty percent rate of return in a 35% allocation. We're at a three hundred and twenty three percent rate of return landing that last sharp ratio of a 35% allocation would bring us to a sharp ratio of 1.09 compared to the ah 0.3 8 % sharp ratio of the initial portfolio. Okay, now I'm not telling everyone to go put one five 10 Twenty five thirty five any percent of your portfolio and bitcoin norma saying to go and keep your existing portfolio. Do we have saying that you should do some research and to say that owning zero bitcoin is foolish.

01:10:17.26

ilm

Think it's foolish to just say that blanket ah statement and not look at ah what it's done and again not just basing our we're not basing this off of just past performance. But also what is it itself. Someone mentioned me yesterday that they think that bitcoin is only going up because of the hype around it. It has nothing to do with technology. That doesn't make any sense because again, this technology is something that people spent decades trying to build so toshi nakamoto himself was able to finally build it and that's when bitcoin compared to other cryptocurrencies of past actually took off bitcoin would be useless without the technology. It's the technology itself. It is the removal of the double spin issue or the solving of the double spin issue. It's a decentralized ledger. It is ah digital scarcity. It is these technologies that are beyond me how I can figure out how you're supposed to do this like I couldn't have built these things. It is the technology itself that allows the. Value as a monetary asset to even be built on. Okay, so we're looking at this from a technology standpoint from a use case standpoint and then we're looking at what is the use case. What's the problem. It's ah ah, stating it's trying to solve then okay will. This be adopted. What's the adoption rate will continue to be adopted how so and then then you'll start arriving at should I own some why should own some where I think this is going. How should I value this. How should I position this my portfolio thinking about risk volatility portfolio sizing.

01:11:53.46

ilm

And you think through these things. The last thing I want to talk through is ah just real quick historical numbers. Um with like lump sum purchases dollar cost staveraging another thing I hear regularly is like well you know, bitcoin's down a lot compared to its all-time high of roughly sixty nine thousand and now it's at 40 something thousand it's down a bunch. Have to look at our time frames we're using and also how we're purchasing this thing. Um I was hesitant to use a 5 year time horizon on my last illustration because some people come out of woodwork and say Jim. That's not fair. You're using your cherry picking data. That's favor for bitcoin. You should use different data I don't know what data you would want me to use you want me use tenure data that would skew it in favor of bitcoin more. Do you want me to use to your data that would make bitcoin that would put bitcoin in its worst ah position at the moment. Well then we're looking at a very short time horizon what data would you like us to use. So let's look at data from a few different places. So now we're going to look at all right as of yesterday. Okay, so what? I did here is what if we what if we purchased bitcoin lump sum versus dollar cost to averaging um, but how would that work out so just to run you through and get this is on the knock the nakamoto website. Ah so you can go and play with this yourself. But ah what I did was okay, let's say we started buying bitcoin on November Eighth of 2001 it's like right around when we hit the all time high so you started buying at the all time height date and you kept buying at the same external dollar amount. Um, til through yesterday.

01:13:26.32

ilm

Twelve twelve of 23 you bought daily. Okay, you start off with you had 10 grand you bought daily every day from November Eighth Twenty Twenty one basically all time high day to December twelve of 2023. What would that look like. Um.

01:13:52.16

ilm

Your portfolio is up significantly in doing that if you dollar cost average europe're up I multiple double double digits. Um, roughly you're in the 40% rate of return. Get better numbers here actually right quick for you. Um, where are we if you would have lump some well buying a lump sum as of yesterday versus the long all time high. You'd be down 38% thirty eight point one percent actually so ah yeah, that's that's not exciting so we had to think through. Portfolio sizing your time horizon am I going to use this money and next week next year next month am I going to use this money in a few years am might use this money in a few decades. Um, how much my portfolio should I have in this thing. How am I buying it am I buying this as a lump sum and be and setting it aside. My buying of this thing on a regular cadence and that regular cadence be it hourly daily weekly monthly. How are you starting to put money into this thing. Um, so we'll look it from that perspective. How do I own. It.

01:15:04.68

ilm

How have I acquired it.

01:15:09.94

ilm

Let's see.

01:15:14.85

ilm

I Want to run the same thing right? quick. What if we bought.

01:15:29.60

ilm

Okay I want double check these numbers. Don't take this as gospel. Um I'm running numbers right? quick so I'm looking again going back if we bought November Twenty Twenty one December of 23 what I mentioned earlier you're buying daily.

01:15:45.50

ilm

Um I believe your your rate of return. What I'm seeing your rate of return during that point would be 42.1 3 or sorry 42.8 3 if you bought daily starting at all time high up until yesterday. Okay, um, your. Ah, minimumal buy price. You'd bought you had have scooped up bitcoin and around 18000 you'd have ah, you'd have also skipped up scooped up some bitcoin at like 67000 and change. Um and you would have bought all throughout um ah hedged volatility and continue purchasing bitcoin along the way. But you did that starting in 2018 so I ran this as well looking at 5 years that knows number is and numbers I mentioned earlier but the 5 years Ah with if you subtued portions of your portfolio. So if we did the 5 year period what would happen um you you would have a rate of return. Ah. Several hundred percent again ah go double check my math on the nacommoto portfolio but looks like you'll be running like a five hundred and ninety three percent rate of return during that period by dollar cost averaging if you would bought it lump sum day one you would had a one thousand one hundred and twenty one point three seven percent rate of return

01:16:56.60

ilm

So lump summing at that point would have been superior. We would have known that it's all Bas Performance I couldn' have told you which one's gonna be better so you going to think through this again, don't take these numbers as gospel plan around the tool in real time while I'm trying to talk to you? Um, but it's evident just looking at simple charts that going back 2018 buying a lump sum. Versus dollar cost averaging would have worked out better versus buying an all time high of course buying an all time high lump sum versus dollar cost averaging the dollar cost average would have been superior. Um, so you want think that that if you're going to start buying bitcoin. How are you going to buy it are you going to buy it all up some are you going to buy in en tranches. Maybe you're going to establish a. Ah, sizable position upfront and then dollar costs you have average in over there. Maybe as a way of hedging both if bitcoin goes up a bunch you established a sizable position and you'll keep going up over time and acquiring more as it rises or you know if you put in a sizable position then bitcoin drops. Ah, in in value or purchasing power. You didn't put all of your seed in at once and you're able to continue to dollar cost average in as it goes down so you want to consider these things I know I just talked a lot. Um, if you're still listening to this I appreciate it. Um. I would love to have a conversation with you if you have any questions about about bitcoin planning again if you're a hardcore bitcoiner and you don't understand or you think that financial planning is foolish more than happy to have a conversation to see if or how.

01:18:30.63

ilm

Actual financial planning can work in with your bitcoin Bitcoin Holdings If You're a normal person. You don't own Bitcoin. You're just learning about it would love to have a conversation with you again. None of this is tax investant. Ah Legal advice. Um, but what I'm trying to do is encourage you to have a conversation with people. Um and to learn go do your own research if you need investment advice. Go talk to investment advisor if you need tax advice talk to a tax advisor if you need legal advice talk to a legal advisor. Um, but start doing some research, ask hard questions. Ask simple Questions. Don't be afraid to ask the questions of what is money or I don't know going back again like I don't make decisions you're being tactical and what you're buying Well am I being tactical in what I'm buying in my portfolio. Even if you're sitting at Index. How do you arrive at that. Ask the simple questions ask questions. Then ask the question that builds up from that that initial statement just keep pulling threads and I think what I found is when you pull the thread of of bitcoin. It's a thread that you keep pulling and eventually a lot of your worldviews on our current money and financial situation begins unraveling and it's rebuilt. Um off of a bitcoin standard. Um, and I think a lot of people who like bitcoin arrived at that because of that same situation. It was humbling um to know that that guy that I worked with who asked us our bosses to pay some bitcoin. It's humbling to think man I Wish you to listen that guy. Um I think we're all going to be humbled I Think that's fine.

01:20:03.31

ilm

Think it's good. You you be able to admit that you're wrong about certain things anything you're wrong on. You would admit that you're wrong. Um, so you can keep growing the goal here is to grow and better. Ah, not to be staunch in a position. Um, so yeah. Be open to growing learning becoming better seeking truth I'm excited for bitcoins I'm a Christian and I think that bitcoin also causes a lot of people to think through like well what is actually truth and ah yeah, like bitcoin but truth itself is certainly not bitcoin. Um I think. Bitcoin is good money but is not truth ultimately I believe Jesus is truth says the I'm the way the truth and the life I think truth is a person seems Jesus something so much deeper and I think a lot of bitcoiners starting to understand that or at least ask like wow I understand this what are things or misconceptions have I had um and. Sort of thinking through the worldview. So yeah I think it's great I want you to think through things you've been questioning and really search out truth from reliable sources I love to have conversation with you if I can answer anything with you if you think I'm an idiot. Still love to have conversation with you and talk through why and won't have a mind changed again. My goal is to learn and to grow not to be staunch in a position either and so I'd love to have a conversation with you. Thanks for listening to these ramblings hope it was helpful in some way and I'll see you in the next episode.

TILP #7: What is bitcoin - The monetary side w/ Jesse Myers

00:01.20

ilm

All right? Jesse thanks for thanks for joining me today. Yeah man. Well ah I'm really excited for this conversation I had a conversation a few weeks back with a guy named Michael Schmidt and we talked through what is bitcoin from a technical side of things. My.

00:02.50

Jesse Myers

Thanks for having me jim.

00:17.57

ilm

Hope of that conversation is to make it make bitcoin understandable and approachable for anyone a grandparent or a college student who knows a pretty good amount about the technical side of things to someone who knows nothing and I think we did a good job in that episode. And my goal for this one is to take that same approach of what is bitcoin from the monetary side of things and help if you know nothing about bitcoin or if you know a pretty good amount. You can be encouraged if you know nothing you can walk away understanding what it is and why it's probably important. So that's the framework. We've got a lot to do in the next hour or so you with me.

00:55.59

Jesse Myers

Yeah, yeah, that is a quite a bit. We'll cover.

00:59.12

ilm

Sweet. Well let's let's get started. So Let's let's start off with a framework before we jump into establishing like why you should own bitcoin All that stuff. Let's begin with present date and then we'll work away backwards and then we'll get then we'll work our way into the Future. So Let's just start off bitcoin when it was created or present what problem does it intend to solve.

01:28.97

Jesse Myers

Yeah, so the the proximate cause ah for bitcoin like the the real innovation. The breakthrough was solving the double spend problem which is a ah, very technical thing that that basically means how do you have a ah digital system where um, you. You ensure that people can't trick their way into spending the same currency twice by you know by gaming the system in some way and that hadn't been solved in the digital arena with a decentralized currency until ah, bitcoin's breakthrough there but that's a technical. Answer really and and the the bigger um the bigger picture answer is that bitcoin solves a problem in money that we especially feel today with with ah unbacked currencies like the dollar. Um, where bitcoin. Um, has a finite amount of supply there will only ever be 21000000 bitcoin they're they're fractional so you can there's two point one quadrillion subunits but there's a finite number that will ever exist and that contrast to the dollar there. For the dollar There's an infinite number of dollars that can exist and in fact, we've seen an exponential growth of the number of dollars in circulation. Um, and so that's the problem with ah with money today is that we deal with inflation and you know people talk about how.

03:05.10

Jesse Myers

Inflation is necessary to have you, you need to have two percent inflation for an economy to work to have the incentive to spend your money but um, that is ah you know a bit of an assumption and it's actually rooted in ah, a flimsy ah flimsy study from. Australia or New Zealand in the 80 s and and and people ran with it ever since then? Um, so you know that the reality of inflation is that if you have any significant amount of of inflation whether it's 2% or five or ten percent um people's savings.

03:42.58

Jesse Myers

Are diluted over time and it's that's debased over time and and savers people who who earn their money store their money in in the currency and save it for a rainy day see their money slowly erode their value slowly erode over time. Nominal number of dollars is still there but the purchasing power of that dollar erodes over time and that's a big problem for people. That's a problem for people who want to live a life of saving which is to say that you want to work hard and put that you know put your your extra earnings away as savings. And save that for a rainy day and the the real breakthrough of bitcoin is creating a currency where you are guaranteed to not have dilution over time so you can therefore trust that the. Your units of that currency will be propagated through time as the same percentage of the total pie that they were when when it when it began and that's ah, that's just a big change in how ah money has worked in the fiat money Era with the Dollar. Um. And it even improves upon the Gold um supply dynamics from the past as well.

05:03.16

ilm

Awesome! That's ah I think that's a fair summary. That's when when someone asks me like why is bitcoin even important and without trying to give them a ear fool that they didn't ask for I try to boil it down. Basically there's a fixed unit of supply. That set a strong juxtaposition to the fiat monetary system and then also the decentralization of control again. That's another juxtaposition not only to fiat money systems but other cryptocurrencies for both of those There's an unknown supply cap or limitless supply cap. And ah centralized control. Be it a government, a individual an institution a hedge fund whoever created these things and ah those are those are truly important things and that's not even considering the technological side of things so being able to send value pretty much instantaneously. Across the world for nominal fees. So let's ah so now we've established why bitcoin. Ah let's go back in time to sort of March through like okay.

06:13.62

ilm

Historically what is established things as being good forms of money and good stores of value to arrive at why is this? Why is this relevant today though. So yeah, let's look can you can use give it a history of money and stores of value.

06:20.16

Jesse Myers

Yeah, yeah, absolutely so. This is the this is the thing that we don't learn in school and so this comes as news to everyone when they really dig into bitcoin to try to understand why it it has value so the history of money. Ah, for humanity goes back seventy Thousand plus years so there there's actually actually evidence of shell money being used and in cave sites from dating back 70000 years um and and so back then shells were money because shells were these little. These fancy trinkets that you could collect at the seashore and bring inland and they were rare and ah people realized that they wanted them. You know they they wanted to collect them these these precious little things had value to people and so. When that happens in a social group once you establish that something is a collectible That's actually the first stage of ah, a commodity developing the properties of money it needs to be viewed as a collectible that people desire then once that. Begins to happen that process takes hold then other people start to realize that this this small group treats this commodity as a valuable thing and therefore they want it to you know it becomes something more than just a collectible. It starts to become something that's valuable.

07:52.21

Jesse Myers

Valued because it's valuable as it collectible. So you know you start to have this second level. Um, abstraction of this this thing has value and then that's when a commodity begins to be a store of value asset. It's first a collectible for a small group of people. Then it becomes a store of value asset for a larger group of people because they all know that there's a group of people who value this as a collectible so I can store my value I can I can trade for it I can if I obtain this I can hold on to it and exchange that for. Value in the future because there's a group that values this then from that then the the next stages is it becomes something that you can trade in right? So it goes from a store of value to something you can use as a medium of exchange and that is fundamentally ah a social group level. Um. Treatment of a commodity as a form of money that you can use this to exchange for goods and services and exchange value and finally once everybody's doing that and it's ah then it's a unit of account then everything's priced in terms of shells. You know that's the seventy thousand years ago version so that's how money came to be in in our um in the story of our species notably It's also worth mentioning that. Um so homo sapiens sapiens is our subspecies and those are the cavesites that have shell money evidence.

09:24.95

Jesse Myers

Um, homo sapiens neanderthalensis is a subspecies neanderthals that does not have any evidence of of shell money or any other form of money being used at their cave sites at the same time so that was it that was our species that that was one of the defining. Characteristics of our species and possibly one of the main advantages that we had over neanderthals and and why we outcompeted them over time because we had a money and therefore a more thriving economy anyway, so seventy thousand years ago shell money but moving forward from there. Any any commodity can be money any physical thing that that meets the certain characteristics that you need it has to be durable. It can't rot you can't use it an orange as a form of money you need to be able to store value in that orange or whatever money you're using so it can't be oranges. It can't be fruit. Ah, it can be shells though. Um, it could also be salt or ah glass beads. So over time we saw different versions of little commodities be valued as collectibles and then. People placed their value into these things that become store of value assets and and used as money. Um, ah shell money gave way to in in different places. Different commodities substituted that in some places. It was great. Big round stones. You know that were carved the effort was put into.

10:57.63

Jesse Myers

Making a round stone and that becomes money um or in other places it's glass beads in in large parts of Africa it was glass beads that were very difficult to make um, you know you'd have to have some sort of rudimentary furnace in ah in a fire. Ah, to create glass beads. Um, but they're rare and they're precious as a result of that and they're they're they're cool. They're glass beads so you place value in them and you start to use them as money but the problem with all of these rudimentary forms of money is that fundamentally they're they're easy to make more of. Like even if it's kind of hard to make glass beads using rudimentary techniques in in Africa um, thousands of years ago it's very easy for venetian glassmakers thousands of years later who then come into contact with these civilizations in Africa who value glass beads. Ah, then the word goes back to Venice hey they seem to use glass as money in Africa Let's make a bunch of it and so and ship that down to Africa and trade for goods and services and land and resources. In the glass that it's easy for us to make but hard for them to make and so that's the process. Ah that played out over thousands of years of of civilizations would come into contact with other civilizations in each if they use a different form of money then.

12:30.11

Jesse Myers

Whichever civilization found it easier to make more of the form of money that the other civilization used would be able to confiscate the wealth of that civilization to easily purchase the wealth of that civilization by creating new units of currency. Ah, and. And totally you know, upending the the soundness of a currency system based on glass beads. So we we saw an evolution over 70000 years of human history from from shell money to things like glass beads cloth strips round.

12:49.53

ilm

And.

13:07.93

Jesse Myers

Um, stones and then eventually you know civilization develops enough that there are mining operations. You start to find silver and tin and and gold. Ah and those are much harder. Ah, forms of a commodity to make more of it's not easy to go create more silver you have you have to go mine it and it's it's difficult to do that and you know you can't load up you you can't go back to Venice and create a bunch of silver and and bring it back. You have to go mine. It? Um, and so monetary. Commodities became monetary metals and and we started to treat ah precious metals as money. Um and gold was the the metal that was the hardest to make more of of any of the metals out there. It's harder to go. Mine gold than it is um, silver or or tin or any of the other metals that are mined copper um, and so so gold is in that sense a quote unquote harder money. It's harder to make more gold. And dilute the existing supply of gold than it is anything else and so civilizations gravitated through this organic free market process over time of um whoever was holding was using gold as a store of value asset as ah as a money. Um.

14:41.34

Jesse Myers

Was more protected and had better properties of money from using gold than if they had used a different form of money that could be ah, diluted more easily and so that emerged through this free market competition almost like ah like ah like a. Ah, March madness bracket of different forms of money competing against each other to see who emerges as as the strongest form of money and it's gold. It's the best physical commodity out there to use as a money and that that began about six thousand years ago and for the last several thousand years gold has been the money worldwide last several hundred years really because it took us a while to to reach the new world. Um, and that's the history of money that we also forget about and and aren't really taught about. Ah, in school that you know these are free market processes that play out in the commodity landscape that resulted in gold being the gold standard for money in the physical world.

15:53.16

ilm

I want to want to highlight a few things you mentioned there so one the the glass beads in Africa and how that was hijacked by the venetians there the difference there is. There's a ah. There's true scarcity and then there's a perception of scarcity and the problem was the africans thought they had an asset that was truly scarce but it was just their perception and the italians knew that and took advantage and you see that without getting us to the conversation where I want to be in half an hour but ah I will skip ahead right? quick.

16:12.22

Jesse Myers

Yes.

16:30.30

ilm

Um, that's similar to what we're seeing today is most people think the us dollar is scarce so there's a perception of scarcity yet. The people who are able to go easily create these things understand that it's not actually scarce. It is simply a perception of that and that that perception of scarcity. Something that they have to continue to uphold. Um, otherwise it could be dangerous for them. So there's that and then even you should mention a second ago marching into gold. Yeah, we've seen gold for thousands of years um usually when I think of gold I tend to go to the Roman Empire and even even. how these metal these metal-based money systems were still able to be debased through manipulation of different forms manipulation by individuals and by government entities. So government entities for instance, able to continue to grow the Roman Empire through expanding through conquering through wars were able to pay their soldiers. With ah diluted value of their currencies. So Roman Deary they're able to collect these and at first a fiudinary contained 100 % precious metal will by the end of the Roman Empire contained a very small fraction of that precious metal with the vast majority of it being fillers. Um, so that was a means of just debasement through the Roman Empire and I personally think that like 2 the biggest causes of the fall of the Roman Empire would be monetary debasement and then ah moral debbasement. Um I think it was a culmination of those 2 things.

18:02.28

ilm

Ah, but then you also saw the manipulation of the donary through individuals so people working you know Stan I'm here selling I don't know animal hides and you give me a denery I could just pile those up and then at night just shave down a little bit of scraps and then able to melt those scraps. And build them up again and be able to make a whole new freshman area out of that and that's really small again. That's a small debbasement over a large time and but eventually over a pro period of time you have an eroded currency that ah that has actually ah added to a a greater supply. And that greater supply than erodes the value of each individual unit. Um, okay, let's keep let's keep going so I want to fast forward, you know a few thousand years and so I think a few different interesting turning points would be world war one and ah Germany and what happened there.

18:46.59

Jesse Myers

Um, second.

18:54.48

ilm

Ah, they're very famous ah pictures of kids building blocks of money and then maybe 1934 nineteen forty the 1940 s bretton woods seventy s and then we'll be at present day. Can we walk through those as well.

19:07.60

Jesse Myers

Yeah, yeah, absolutely So so the modern history of money I Guess it's It's helpful to remind people that the the closest thing that we have ever had to you know in the modern era to like ah a true gold standard um period was.

19:25.63

Jesse Myers

You know in the us from the end of the revolution until the creation of central banking in 1913 so that's ah you know about one hundred and fifty years of ah free market money on ah on a gold standard where gold is money. Um, and you've got you've got a variety of banks competing you know promising um issuing promissory notes against gold that they're storing in their vaults. But these banks are in competition and that competition more or less keeps people honest of you have to you know. Be fully reserved. Um, full reserve banking and and actually um, yeah, do right by your promises and and what we saw during that period if you think about it was an incredible era of prosperity and and and development in the us in particular. And so that that's the context of that's what's possible on ah on a sound money standard ah gold ah gold the gold standard at that time and then in 1913 a few a few clever things happened that our founding fathers specifically warned against. And tried to stave off successfully for a century but then ultimately these forces of um, wanting to take control the the state wanting to take control of money with the you know the help and collaboration of.

21:01.41

Jesse Myers

Of of private bankers eventually won out and and that was the founding of the federal reserve in 1913 which incidentally was done over the Christmas break on short notice. Um, you know without much. It was snuck in the the the voting on the federal reserve and the and also the installment of a personal income tax. So those happened together and that which. Which at the time was just for millionaires people who would now be called billionaires because the money meant so much more back then um, that that was the the only people that were subject to a federal income tax at the time and it was like several percent were were millionaires anyway. So that.

21:58.15

Jesse Myers

That process really begins in 1913 of of central banking coming into the world and central banking then from that point forward means that the the government is in control of monetary policy. It's no longer a free market for money. Um. Because the government is is saying what monetary policy is what is money? What are the rules around money. Um, and obviously you you have this legacy of of free market money and people trust in gold and so they can't overnight change what money is but you start to see a slow. Erosion over the next century of what what is money and and what is monetary policy so you already teed up how well let's I guess talk about what happened to weimar Germany after world war one ah, they lost the war. Um. Had spent a ton of gold on the war and had borrowed a lot made promises to pay back in order to try to fund the war in order in a desperate bid to to win. Ah obviously that didn't work in world war one and. Then they were saddled with war reparations as well which was massive debts that they had to pay payback and the the way they tried to navigate that reality was by printing more money so they um.

23:28.66

Jesse Myers

Tried to pay back their debts by printing new money. Um, and some of their debts were were in all of their debts were denominated in gold so in order to print new printing new money didn't get them more gold. It just obfuscated up. Ah, remaining portion of what was left you know and in the value of the currency from the holders of that currency and siphon that into gold which they could then use to pay back debts if if yeah, if you can't tell that is a losing gambit. Um, which. Kicks the can down the road until it can't be kicked anymore and the can't be kicked anymore is is what hyperinflation looks like so the weimar Germany is the most famous example of hyperinflation where you know the the government is is trying to pay their debts in gold doesn't have the money. Um. Creates more money and a paper ah reichsmark money and and that money has some value on the market that can be you know traded for gold so they have to create a ton of it. In order to trade that money newly created money for gold in order to pay back their debts and they have to and and the amount that they have to create gets exponentially more um and so they're creating exponentially more money.

24:59.25

Jesse Myers

Paper money in order to get the gold that they are trying to pay their debts with until they finally simply can't print enough money ah in order to confiscate any more gold value out of the existing supply in order to pay those debts and they collapse.

25:16.90

ilm

It's It's just ironic that in order to be able to purchase more gold with their money you had to they had to create more money but then the creation of those new units meant that they had that took more units to buy more gold. It's this feedback loop and that's where the government the us is privileged fortunate enough right now where our debts are denominated really in in our own currency in a lot of Census so we can continue to devalue it. But yeah, we see this. Mean you're on this never ending Hamster wheel things. You just can get messier and messier as you go and it's it's inevitable that it falls Um, sorry to cut you off. It's just The. It's not humorous to the people I have I have a I have a picture in my office right by me of kids building towers with ah with their marks.

25:55.25

Jesse Myers

Out.

26:08.59

ilm

Their notes and ah obviously it wasn't funny for them at the time but looking back now hundred years it's the the irony is just amazing and and that that that escapes a lot of people and it's so simple like if if creating more money or more pieces of paper monetary units led to. Ah, led to people being well more well off and ah, a better civilization then we could simply go create a lot more units hand them out and we're all in a better spot. That's not how things work and it it overall just it bleeds a system dry. Anyways, let's let's carry on.

26:43.76

Jesse Myers

Yeah, no yeah that the lesson that you're hitting on here that that is the takeaway from the whole history of money is that when you you know you can't you the the pie is what it is like there is a pie of value. Um, and. You know in the currency. However, much currency there is each unit of currency is a percentage of the total pie of value and when you add units of currency to that pie. You're not growing the pie. You're just adding you're inserting more ah, your. A fresh slice of the pie and squeezing everything else into what remains you know you're you're redistributing the the area of that pie to to a new denominator of total units of area in that pie. Um. Units of of value in that pie and so you are yeah that that's the the lesson of monetary history is that in all of these cases whenever there's um, an expansion to the money supply. You're not creating wealth. You're just redistributing the existing wealth to a new number of total units of currency. So we we can we can jump to to finish out the the evolution of money over the last century so we had you know 1913 central bank and created. Um.

28:19.10

Jesse Myers

Notable example of hyperinflation in 191921 with Weimmar germany and then ah, it's 1944 the allies Win World War Ii the us is the most powerful. Um, country left standing and gets to dictate terms for a new monetary standard for the world and that's the bretton woods system that's put into place and that system says. Okay, we're going to be on a gold system a gold standard.

28:57.79

Jesse Myers

And ah the us will hold everybody's gold and ah you can all have your own currencies and your currencies will be pegged to the us dollar and the us dollar will be backed by gold. Works out great for everyone right? Well really works out for the us because the us is then able to um manipulate adjust down the peg ah of ah how much how many how many ah francs. Um. Is in each dollar and when you do that you're confiscating wealth from from holders of french ranks and so that process happened for a couple decades until in the late sixty s um. The allied power started demanding their gold back and in fact, France sent a aircraft carrier to New York City demanding their their gold out of fort knox be placed on that aircraft care and taken back to France um, and then when. West Germany was threatening to do the same in one seventy one ah Lo and behold. We're going to go off the gold standard entirely and so then we don't have to pay our debts in gold terms anymore now we can pay our debts in dollar terms and.

30:28.67

Jesse Myers

Because that that link is broken. So now we can print as much dollars as we need to and in order to pay our debts which we'd and been incurring for the Vietnam war and that's what we did and and and lo and behold. There's high inflation in the 70 s as a result because suddenly we're off the gold standard we're having to pay our our debts. From Vietnam and we create a bunch of money to do that and that creates the inflation because because now there's more money in the system. The the value the the cost of a hamburger goes from five cents to twenty cents or whatever it was at the end of the decade. Um, because there's that much more currency and in in the system and and that's you know the percentage of the total amount of currency in the system didn't change just the total number of units did.

31:17.18

ilm

Yeah, what we what happened there was just a manipulation of the numerator and denominator and we were We were lying through our teeth for decades about the the denominator in that equation.

31:24.46

Jesse Myers

Right? but.

31:34.50

ilm

And the parody between the numerator denominator then finally in 71 we got called on our math on our equation and ah said all right fine Here's the real math but then instead of having a fixed denominator. Um, we said all right? The numerator is the denominator as Well. And suddenly we're We're not even using math anymore to ah to portray and communicate value. It's like having a ruler and that's a fixed obviously a fixed distance Length. Um. And then suddenly changing the length of a ruler and saying well the length of a ruler is whatever we say this ruler is and we can. We can We can manipulate it as we go well and suddenly how are you going to measure things and it's more of a as you-go basis and you're suddenly pegging one ruler to another versus a ruler to another hard asset or a a fixed thing. So yeah, sorry to cut you off there.

32:29.42

Jesse Myers

Oh yeah, no, so so you're right that tying that back to the the history of money that we that we talked about so you know seventy thousand years ago and until 1971 were on some form of commodity money that were on a commodity money standard. Ah, sound money standard because it's hard to make more of a commodity whether that's seashells or glass beads and obviously it's easier for those to make more of it than it is for gold and that's why gold ended up the victor but you're on some kind of sound money standard for that entire time period with some. Experimentation that that always went ended poorly of like of of printing money along the way towards you know in the last several thousand years in particular. Um, so yeah 1971 we're now in a fiat money era and so we think of. You know we all grow up in this and we all grew up thinking that money is what it is and that it's always been this way but we happen to live in a 50 year anomaly right now which is the fiat money era and sorry um, and that. Is. There's no guarantee that that's going to continue and in fact, there's a whole lot of evidence that it can't continue in the same way that Weimmar germany eventually on ah in a very accelerated way ran up against reality when and you know the ill effects of.

34:03.50

Jesse Myers

Being able to print more money we are running into the ill effects of being able to print more money today and and what that looks like for us is the gradual erosion of the us as a superpower first and foremost because we are able to take on more debt. Then you know we are able to spend more than we produce and that takes the form of of debt so we are we are as a country we are running deficits. We spend more than we produce and each of those annual deficits adds up to our national debt. A running balance of how much debt we've accrued and it took us as a country two hundred and twenty five years to get go from 0 national debt to $6000000000000 in national debt and at the moment we are on. We won't end up doing this but over the last four months we have spent an annualized. We've added to the national debt an annualized rate of $6000000000000 so that is some context about what's going on for us right now. Um an important bit of. Perspective here also is that we we sort of depends on what um data sources you turn to here. But I believe we have one hundred and twenty nine percent debt to gdp at the moment. So you know our our.

35:38.44

Jesse Myers

National debt is now thirty three and a half it's um, it's almost 34 now thirty four trillion and our gdp is varies. Twenty Twenty three trillion per year. So that means we have one ah hundred and twenty nine percent debt to gdp and ah a study a couple years ago pointed out that in um and there have been fifty one cases since 1800 of countries that have gotten over. Ah, hundred and thirty percent debt to gdp and the only and and every single one of them defaulted in in either a hard default or a soft default a hard default meaning they throw their hands up and say we can't pay our debts and a soft default meaning they print more money. To pay their debts in nominal terms but not in real purchasing power terms basically inflate away the debt and so that's happened 51 times. The country has gotten above one hundred and thirty percent debt gdp in 50 out of 51 cases. They've defaulted. The only um. The only time that hasn't happened is modern day Japan because they are circling the drain still and have yet the default and that's the only reason and so we're on that threshold right now of like the point and overturn in my opinion. We've already crossed the effective event horizon where we just don't have the.

37:11.19

Jesse Myers

Ability the political will the the appetite for austerity that's necessary to pull ourselves back from the black hole that's pulling us in in terms of um national debt because we haven't balanced our budget in 22 years as a country. And we've now normalized multitrillion dollar per year deficits. Which means we're adding in the last few years on average $2000000000000 every single year to our national debt pile and then that. Keeps that not only keeps adding up with each additional addition to it but it compounds because of the interest expense that you have to pay on that national debt which for the last decade has been more or less 0% interest rates but now that interest rates have risen. It's like 5 % on that national debt which at you know $34000000000000 in total national debt means one point seven trillion dollars in annual interest expense on the national debt that's in addition to all of our already high. Um. Spending amounts you know we're already running multitrillion dollar deficits per year now you're talking about adding one point seven trillion dollars per year in additional debt. Ah, for context that's two Us militaries per year that we're spending just to service the national debt that we've accrued over.

38:42.58

Jesse Myers

Spending more than we produce for the last fifty years in particular.

38:46.61

ilm

Here. Let's ah as we March forward with with arriving at bitcoin. Um, which bitcoin bitcoin is simply money so we've talked through the history of money. But let's let's go ahead if if we could we define money itself like I'm familiar with and I know you are as well. What are the key attributes that define something being money being you know and scarcity and those sorts of things could you walk us through those those core attributes.

39:13.72

Jesse Myers

Yeah, um, so so scarcity is is the most important. Um we'll we'll talk about that more about let's t up and and Jim helped me with this list because I'll I'll hit some of them but I'll miss some of them too so you need durability. We talked about that one already. Um, you need divisibility, you need to be able to to break this down to a subunit and you can't trade in in monet paintings. Um, but you can trade in in grains of gold. Um, let's see other things you need portability so you need to be able to carry it around in your pocket and use it at the market. Which is sort of 1 of gold's limitations. It's not really good at that gold coins. Um I don't really work because the the mass there means you can't really carry around a lot of it. Let's see what what are the other ones I miss.

40:05.64

ilm

There's as you mentioned a moment ago. There's scarcity and that's when you let off with there's verifiability so verifiability the ability to verify Obviously ah that the unit is is actually what's claiming to be so ah.

40:09.56

Jesse Myers

Okay, yep, and and.

40:21.85

Jesse Myers

And and and one of the innovations in the history of of monetary metals was when we went from ah the invention of of standardized coinage which which was to say ah you know you'd have your your king would collect a bunch of gold put it. Melted into coins and then stamp his face on the front of the coin which is a way of saying the King has guaranteed that this has you know a standardized amount of gold in this coin so you can trust it when somebody offers this to you. Um, and that's a ah way of solving for that verifiability problem where otherwise you'd have to assay the purity of this gold that you are being offered and that's an impossible problem to do in the marketplace.

41:12.54

ilm

Um, here, let's camp you you mentioned scarcity being important you want just tell us right quick Why that why that one specifically is is important.

41:17.21

Jesse Myers

Yeah, yeah. Yeah, so it it really is the solution to the key insight in the whole history of money of why did we evolve from using shell money. Why didn't we just keep using shell money. Why didn't we keep using glass beads. Why did we end up at gold. And we ended up at gold as ah as I mentioned because it's harder to make more gold than it is hard to make you know to find more seashells or make more glass beads or anything else in the physical world in terms of commodities that can be used as a money gold. Is the hardest to make more of that means it's the scarcest and so that scarcity is really a measure of what percent is added to the total existing supply per year and it's a concept in the in the monetary metal space called stock to flow. So. So how how much stock is there above ground and how much flow are you adding to that every year and that ratio um the higher that ratio is stock to flow meaning the less you're adding to the existing supply every year ah the more scarce

42:38.32

Jesse Myers

Ah, commodity is and the more scarce a commodity is the harder it the the more you can trust that value that you place in it will propagate through time effectively because you're not being diluted by new supply coming into the market and. And diluting what you're holding so that's why gold is a better store of value than copper where copper can have a huge percentage of of new supply added every year gold on average for last hundred years has been one point 5 to 2% more gold added to the existing supply each year copper can be 10 twenty thirty percent and that would mean 10 twenty thirty percent dilution of your value if you were to store your value in copper and so that is why gravitating towards using the scarcest form of money. Is a winning strategy for storing your value and propagating it effectively through time.

43:39.66

ilm

Now Ah, a couple things there um to just reiterate stock Toflow is just the inverse of inflationary inflation rate and when you say scarcity you're meaning you're referring to not just scarcity of existing but the scarcity of of of introducing new units.

43:55.31

Jesse Myers

Right.

43:57.40

ilm

So let let's let's just play this out for just for funs sake. Um, obviously if we had so the most scarce asset there was one one item in existence that'd be a horrible form of money because how would you possibly transact with that now if we're introducing new units of that on a regular cadence we would at least have some sort of predictable inflationary rate. Now let's play the opposite. Let's say sand let's say we couldn't create more sand. Okay I'll know who knows how many grains of sand exist. But theoretically if no more grains of sand could be could be created and we were able to easily measure you know grains of Sandsand theoretically could be a decent form of money because it's it's a fixed supply and it's. Super divisible. Um, despite the fact there's a gazillion units of it. So it's a matter of the introducing of new units the inflationary the stock to flow rate mixed with the existing units for ease of transaction. Um.

44:53.89

ilm

When before as we go forward? Um, in my my simple brain I try to keep things really simple. There's enough complexities in the world. So things that camp is simplified. Let's let's go ahead and do that. So My simple brain like money is simply a means of communicating storing and transferring value across space and time the problem with. Introducing New units is it's an introduction of noise to a means of communication and if I'm trying to communicate value across time and during that time transfer ah ah transfer during that time if noise is introduced. Suddenly it's it's it is a ah the the sound the message I'm trying to communicate is suddenly hijacked by that so that is ah that's where this. Ah. Inflation or stock to flow can really come in and impact things now if we know that there is a set inflationary rate or stock to flow Rate. We can account for that relatively with the communication Factors. So Let's let's start off that as a basis now. But let's go into bitcoin specifically so we've talked through history of Money. We didn't talk through gold and like I mean yeah yeah I think I mean the us is defaulted on our debt lots in in very soft ways I think one of those being when gold was became illegal what they the Us basically made it illegal free to own Gold. Um outside of like ornamental Juules those sorts of things.

46:21.45

ilm

Um, I think they purchased it for like $20 an ounce and immediately the day after it became illegal to own. It was revalued to like thirty five bucks an ounce like if that's the one that's terrible too that is that is certainly a means of soft default. Um, but anyways, let's get to. Bitcoin because people I talk to suddenly think that bitcoin is just something used by. You know tech bros or ah, ah, people who live in their basement and like to code um or things like that which I'm not tech bro nor do I live in a basement but I like bitcoin so clearly that's not the case. Um, so. How do we get to bitcoin. Can you give us a little history of like cryptography and why we're here now.

47:01.64

Jesse Myers

Yeah, um, so it is a misconception that people think that bitcoin is just this random experiment that happened and it came from nowhere but it's actually the culmination of forty years of of people pursuing this sort of. Holy Grail in the digital landscape of creating a non-sovereign immutable hard-capped supply decentralized currency and so that that story um you know began in Silicon Valley in the 60 s and 70 s. Of ah the invention of this new form of of code ah and encryption which we now use you know the entire internet runs on on these encryption algorithms that were invented back then. And these are just incredibly sophisticated pieces of math that make it impossible to um, ah know what a message is unless you have the particular unhackable password to decrypt the message. Um, and and understand what that message says and that's why the whole internet runs on these um encryption algorithms the most commonly used is is called Sha58 and that is what bitcoin uses as well.

48:28.57

Jesse Myers

So there were ah a number of attempts over the years and decades um to try to create a digital money and and specifically you know with various flavors of ideology woven into them. Ah most notably that people wanted to have a non.

48:48.39

ilm

So.

48:48.42

Jesse Myers

A non-state based money. So ah, you know, ah an internet based money. Ah, that's a free market money in the digital landscape rather than something that is by decree of fiat money is fiat means by decree. Um, and so in the. And sort of dotcombubbleera. There were a number of of attempts at creating a cryptocurrency that failed or the government shut them down mojo nation was a popular one that started to see success and then. Government was threatened by it and they chopped its head off um and in the end those were that was all because each of these attempts had some sort of centralized entity that was administering this. Database of who owns what digital currency and in what amounts and issuing that currency so there was a centralized authority that the government was able to shut down and that's why they they? you know kept killing these these upstarts and so that was the context in which um. Creator of bitcoin knew the parameters around which he had to solve for. He knew that he couldn't implement a a digital currency that had any kind of centralized authority because that centralized authority could be shut down because it had been in so many cases in the last few decades

50:18.73

Jesse Myers

And so he knew it had to be a decentralized networking solution and this is in the wake of yeah the invention of Napster and other peer-to-peer networking solutions for you know for exchanging information and in a decentralized way and. Satoshi brought those sort of ideas to money you know so peer-to-peer file sharing. What can we can. We do that with money as well with value. Ah and through ah the orchestration of a few innovations and and just strokes of luck probably as well. Ah, landed on the system that is the invention of digital scarcity and and that's the essential piece for understanding bitcoin and understanding. Why bitcoin can't be can't be bested by any ah challenger going forward. Invention of digital scarcity and that can only happen one time that's an important part I'm sure we'll get back to um so this is a system in in the in the internet landscape you can copy and paste everything. It's just information you can copy and paste any information. Um, and so it was never possible to bring value into that landscape but bitcoin is the invention of a system of digital scarcity. So within this little system within this little little walled garden. It's impossible to copy and paste and that's the real breakthrough of bitcoin. That's the invention of digital scarcity.

51:50.64

Jesse Myers

Um, so that you you know that your unit that you hold can't be copied by somebody else. It's yours it's yours forever and you have perfect property rights around that so long as you maintain maintain security of of your. Private key which is an extremely long password that's unhackable.

52:11.36

ilm

Um, let's ah okay so we've talked through money history of it stores a value bitcoin in general so where go for it.

52:22.20

Jesse Myers

Yeah, should we should We do? Yeah okay, go well I was going to say maybe this segues into you know we talked about digital scarcity and then there's the you know the key to understanding the value of bitcoin The the attractiveness of bitcoin as an investment asset in particular is an understanding. That scarcity the invention of digital scarcity. The fact that bitcoin has increasing scarcity which is a key misunderstood bit and then finally the absolute the terminal absolute scarcity of bitcoin which the world has. Literally never seen an asset like this before.

53:02.10

ilm

Let's go in. Let's go into then bitcoin specifically for like Okay, then you we we we defined upfront like what is Ah, what's the value proposition of bitcoin. What problems is trying to solve for but let's get more specific there I think that's what obviously people. Want to really understand is the the financial side of things as the implications of this So you you write a lot you wrote article. Um that that speaks pretty heavily to this. Ah, that's um, was the name of the article with ah was it the full potential valuation of bitcoin.

53:34.12

Jesse Myers

Yes, yes.

53:36.92

ilm

So Let's let's talk through that. Ah, so yeah, the the full potential value. Um, and let's bring in like ah obviously in that we're going to talk to like okay well what is what is the value proposition more specifically what market is this supposed to be competing in is this a tech stock. How big is that Market. Um, so let's let's get into this sort this this type of conversation now.

53:58.36

Jesse Myers

Yeah, okay, so to set the stage here. First of all bitcoin right now. Well I guess right now it's about seven hundred billion but I ran these numbers when it was at five hundred billion so I'm going to I'm ah say it's five hundred billion so I can still have accurate numbers here. Um. $500000000000 total value for this for bitcoin as an asset and that is in the context of the global asset landscape. So how much how much value is out there sitting on all the different assets in asset classes. How much is out there. There's $1800000000000000 across all your different asset buckets that you know that includes money itself. Um bonds which are promises for future money. Ah real estate stocks fine art collectibles precious metals and bitcoin.

54:53.51

Jesse Myers

Ah there's nine hundred trillion across all those those buckets and bitcoin is one two thousandth of the total landscape. So that's 0.05 that's how tiny bitcoin still is so that's the context. Um, and then you know then we should introduce like what. What's what's the point of bitcoin. What is it seeking to do and bitcoin is a digital store of value and it is seeking to to be. You know a competitor on this global asset landscape for ah where people store their value and that's fundamentally it's it's ongoing. Constant competition between different asset types which are ah trying to attract ah capital based on the properties that they offer and the potential return that investors could could see if they parked capital and in that asset. And so that's an ah you know everyday competition that's constantly evolving and ah bitcoin has this secret weapon. Ah, that is that only bitcoin has because it's the only one that's digital. So all these other asset classes like real estate or fine art. Um. they're they're physical there's no there's no limitations on how much fine art can be created and in fact, there's no real limitations on how much real estate can be created like you can. You can not only dredge you know swamps to create more good land. You can also.

56:25.75

Jesse Myers

Build skyscrapers to create more built square footage. Um, so bitcoin is the only asset that because it's digital. It has and it has this um immutable supply schedule which is the heart of it all where there's only going to be 21000000 bitcoin and. How you get from 0 bitcoin in existence on you know, bitcoin's launch date in 2009 to the eventual terminal amount of 21000000 bitcoin in existence. How do you do that? So what Satoshi implemented is a very clever system that in the first four years Half of the bitcoin that will ever exist were were released through bitcoin mining and so that's a process that happens every 10 minutes um it's ah, a lottery basically um of a computational power on the bitcoin network. Um. Trying to win the the lottery for that 10 minute period and get the right to um, create the next block in the bitcoin blockchain and so each block happens every 10 minutes in the first four years each block. Ah each. Block came with 50 new bitcoin being issued to the minor of that block that the the computer that creates that block or gets the gets to create that block and so that's how you you go? That's how you issue supply but the genius part about is that.

57:59.80

Jesse Myers

In the code in the bitcoin protocol that that everyone's agreeing to when they participate in the bitcoin protocol and that's why it can't be changed because nobody has authority to change it. Everyone has agreed to this consensus standard set of rules. Ah in that code it says that after 4 years the amount of new bitcoin issued with each block will drop be cut in half down to 25 and then after 4 years cut in half again every 4 years cut in half until it reaches 0 and so that means that if you if you add up the total supply of bitcoin in the existence over time. It creates a bit of a. Asymptotic curve where it starts at 0 and rapidly goes up and then it starts to level off as it approaches that hard cap total supply. Um, what's incredible about that is that is a system of increasing scarcity. So. You know the amount being issued relative to the existing supply in the first few years was huge and then as every 4 years the amount being issued at each 10 minutes gets cut in half over time. The amount being issued per year relative to the existing supply becomes. Nothing and so you you go from high inflation to 0 inflation and it's.

59:21.73

ilm

Yeah block block one to block 2 again. The first four years the the block roar was 50 bitcoin so block 1 to block 2 the inflation rate in that 10 minute period was 100% block. Whatever 210000000 or two hundred or nine million ah from all the ones that created that point was relatively large now where we are today. The mining reward being about 6 bitcoin versus the existence we're at a really small inflationary rate and as you're aware ninety but just over 93% of bitcoin that will ever exist. Has already been created so as we introduce, new units ah bitcoin. We could make debate semantics in a sense is still being inflated because the units that are actually out there to be traded ah is going up. Um, but it's being inflated at a minuscule rate.

01:00:15.61

Jesse Myers

Yeah, yeah, so.

01:00:17.51

ilm

And at a ah at a rate that we can calculate and foreseeing the future for forever.

01:00:21.62

Jesse Myers

Right? Yeah, yeah, and it's a good bit of context here that right now the annual inflation quote unquote inflation rate for for bitcoin is 1.8 and that happens to match gold. Right? Gold's one and a half to 2% per year we're we're at parody with gold right now. Um, so each of these times that the and the new supply the supply issuance rate gets cut in half that's called a halving. It's just the term that we landed on to describe it and there have been 3 halvings. Um. 202012 2016 2020 and in 2024 each each of these 4 years apart and 2024 we're going to have the fourth having so supply issuance is going to get cut in half suddenly our annual supply inflation rate is going to drop from one point 8 0.9 suddenly it's much better than gold in terms of storing value and propagating it into the future without dilution. So that's that's how the process by which bitcoin slowly becomes a better store of value asset. Better and better and better and better every 4 years and doesn't get any worse at being a store of value asset with regard to scarcity specifically which is the most important property of money.

01:01:47.89

ilm

The wild thing with this is we have this? ah ah, collision of increasing scarcity with increase adoption rate. So the new units being introduced are being suddenly. Ah.

01:01:58.26

Jesse Myers

Yes.

01:02:04.38

ilm

Distributed amongst the larger population right now. Very very small 1% or so of population actually understands and owns bitcoin. So yeah, we have these things colliding that that really make for an interesting environment and that that is that is constant but is but is ah.

01:02:14.88

Jesse Myers

Um, yeah.

01:02:23.15

ilm

Highlighted emboldened every 4 years at this having cycle because most most normal people like you and I are weird but most most normal people right now think the bitcoin's dead. So there's we've reached a supply demand relative supply demand ah equilibrium and then in whatever five months

01:02:25.99

Jesse Myers

Yes, yes.

01:02:33.83

Jesse Myers

Yep.

01:02:42.14

ilm

Ah, that Equilibrium will be impacted by this having event. So Suddenly the new supply will be suffocated and the demand will stay relatively the same assuming there's no new adopters at that point and when we have a reduced supply and increased in and a steady demand like causes. That should cause price to go up and that's what happens every 4 years. The price goes up and then everyone who thought the bitcoin was dead so that look hey I thought thing died then to go down 80% like I have friends who lost a ton of money. Well I guess I should go buy a little bit because it went up some well then you have again this reduced supply met with an increased demand which causes.

01:03:03.20

Jesse Myers

That's right.

01:03:19.48

Jesse Myers

Yep, so.

01:03:20.25

ilm

More euphoria and so on and then we then we reach the place where people go do stupid stuff. You know they're you know getting kidneys taken out and ah doing all kind of doing and doing dumb stuff to to building a lot of leverage and goofy things come along with other cryptocurrencies and a lot of speculation and then it reaches euphoric high then something happens. Ah, you know a domino falls and it goes down There's like a seventy eighty percent drop and then people think that I knew that was a ponzi I shouldn't have trusted in the you know in the first place I was right? Um, and then it goes back to this hibernation in a sense where weirdos now the weirdo population grows every 4 years. Um, but.

01:03:53.57

Jesse Myers

Yep.

01:03:57.79

ilm

But nonetheless weirdos continue accumulating for a few years and then it pops back up and that's that's what we've seen. That's why there's this I thought this thing died this seems familiar now because we've seen this multiple times and I I strongly assume that we'll see this again in the spring of next year

01:04:13.64

Jesse Myers

Yep, that's right, you you hit on a bunch of key points here in In fact, my earliest bit of analysis that you probably haven't seen because it was I was less well-known three years ago was I bitcoined at. Adoption adjusted scarcity and where I combine the adoption curve um in the amount of people competing for new bitcoin versus the increasing scarcity function of it and that results in you know as sort of amplified. Um.

01:04:48.47

Jesse Myers

It that yields ah, based on depending on the assumptions you put into it. It makes sense based on those mechanics that the price of bitcoin would go up 5 to 10 x every 4 years during particularly during this stage of the adoption curve where. It's exponential in terms of the amount of New Adopters coming in per per unit of time.

01:05:12.99

ilm

We have this introduction of computing stuff that's beyond me. We have the monetary side of things and then we have game theory that makes us really interesting So you choose the game theory part of it which comes in with conversation. We'll have in a minute about whether there are cryptocurrencies.

01:05:25.59

Jesse Myers

Um, yeah.

01:05:30.53

ilm

But also we look at adoption rates I view I view the adoption rate of bitcoin very similar to the internet's adoption rate I would say that right now bitcoin's adoption rate is probably in the mid 90 s maybe like ninety five ninety six ninety seven as far as the internet's concerned, but it's being adopted. More quickly and more distributed than the internet was which is really interesting to watch I mean heck just think about the internet just even the last fifteen years I remember my my sophomore year of college in 2009 when my roommates would buy his doritos on Amazon and I couldn't understand what like what is Amazon. You know that that I I feel stupid saying that but that that wasn't that long ago and at that point the internet at that point was was really adopted but it's just come so much further. So that's that's more of how the adoption curve is working so you wrote another article. It's is sort of fun and it's the yuppy elite. Article can you can you talk to us about that right? quick.

01:06:23.50

Jesse Myers

Yeah, ah so so everyone who gets into bitcoin has this pretty classic arc of you know everybody First of all everybody thinks it's stupid at first everybody writes it off at first. Because it it sounds stupid. It sounds like internet monopoly money. So why should I care about that and then for various reasons people take finally take serious interest in it and and start to actually do their homework and then in doing that you realize ah, many of the things that we've been talking about over the last hour like oh wow like I didn't know the history of money I didn't know the properties of money I didn't know that scarcity was so important important and I certainly didn't know that bitcoin is a system of money where there will be a finite amount of it and I kind of want to own a piece of that before the rest of the world catches on. And I also didn't know that bitcoin has increasing scarcity such that it's easier for me to obtain a ah unit of this currency now than it will be in the future when they're issuing less of it and so those those things when they start to make sense. You start to get excited about it and want to. Want to own some of it. Um, and yet everyone in your life is not there with you right? everybody in your life is still viewing it as stupid and writing it off because because it sounds stupid and and and so that that was my experience. You know i.

01:07:50.00

ilm

Ah.

01:07:53.66

Jesse Myers

I went to I went to Stanford to get my Mba which is a fantastic school and I went to school with incredibly smart people and they're all very resistant borderline hostile towards bitcoin um because it doesn't make sense. It sounds stupid. So why won't Jesse shut up about bitcoin and this is an experience that everybody everybody who gets into bitcoin deals with and so I ah tried to articulate what I think is going on here and ultimately in part of this is that. You know we see how um out of there's all types of people who who are into bitcoin and yet there's ah, there's kind of a particular archetype of people who dismiss bitcoin and the people who tend to dismiss bitcoin are very smart. So. What is that is it is it that the smarter you are the more you think that bitcoin is stupid because you know that would make sense right? that that which that would line up with our expectations of reality. But then when you get into bitcoin you find out that there's a bunch of nerds like you and me who are pretty damn smart. Who think that this thing is incredible. So how do you reconcile that and I realized that for me the the major driver of that gap is how much you trust the existing system and and I think that is helps explain why so many people who are very smart.

01:09:27.30

Jesse Myers

Think that bitcoin is a stupid idea because they trust the system they trust the Us dollar um they trust what the government says ah in general and and bitcoiners tend not to and so to to understand bitcoin to see the point of it. You have to be. Have to be coming from a place of of not entirely trusting the dollar not entirely trusting ah that the government's going to. You know, not ah debase your savings and dilute you or soft default on its debts or any of these other things. Um, and I think that's the big driver.

01:10:07.55

ilm

That's that's why I like to lead off conversations with establishing historically what are stores of value and forms of money because that that's how we have to arrive at why bitcoin. Um, if you don't understand those things the history then you think you're going to solve for a non-problem. And bitcoin is certainly not is not trying to solve for a non-issue. It's solving for an issue. It's existed for thousands of years the issue I I interact with a lot of financial planners and yeah, a lot of people a lot of financial planners but me most of think I'm stupid. That's fine. My mom thinks I'm smart and ah, that's all I need. Thanks mom now we ah.

01:10:42.25

Jesse Myers

Um, yeah.

01:10:45.34

ilm

The problem is most financial planners I interact with are really smart and their issue is they're really good at managing money. They're great at helping people with stock options and tax planning and all these fun things managing Moneywise but most of them what I've recognized have never actually stopped to ask. But what is money. And if you don't go there then you'll be like a fish that is swimming in water all day and maybe you're a great swimmer and you're good at interacting with the water but you never stop to think but what is this substance and as that substance begins to change. You're not recognizing that change itself because you never put thought of what is this thing I'm in anyways and that's that's something we have to start. Pulling the current back on is what is this or else you're you will think that you're solving a non-issue. Let's go there I I do want to talk through the where do you think bitcoin is going but let's let's confront some stuff there while we're at it first like we need to pull back these things ask the hard questions. I get asked a lot of questions by clients by random people because I talk about bitcoin a lot and by financial planners I regularly. Ah probably quarterly prod the prod the bear trying to get financial planners to at least look into this and they all think I'm an idiot. Um, and I get a lot of questions by these people and so it's okay for to sit you up with some common questions I get speed round all right? Ah, why would I buy bitcoin versus another cryptocurrency.

01:12:01.20

Jesse Myers

Yeah, we'll do the speed round.

01:12:11.35

Jesse Myers

Yeah, this is where the ah bitcoin. Ah, digital scarcity is a 1 ne-time phenomenon comes in because once you create that system of digital scarcity. Um, where you cannot copy and paste within that system. The problem is you can you can take that system that circle. Ah, is how I conceptualize it and you can create a copy of that. Um, and so now you've created a new system of digital scarcity. But it's a copy of digital scarcity and that you can create infinitely more copies of that system of digital scarcity. And that's what we've seen. There's 30000 copycats of of bitcoin's invention of digital scarcity and then if you think about it those copies inherently are not scarce because they're all there always being more new copies created so there's no scarcity. For a copy of digital scarcity. Ah and and therefore you can't you know be storing value in in one of those copies. It doesn't make sense because they're going to make so many more new copies of that of a new form of digital scarcity system that you're.

01:13:26.14

Jesse Myers

Your copy isn't special. It. It doesn't make sense to to store value in overtime and in fact I I call this the crypto catch 22 where to catch bitcoin to catch up to Bitcoin. You need a marketing budget and. And a leadership team to guide the development of your project. But if you have a marketing budget and a leadership team to guide the development of your project that means that you are a centralized entity and you cannot compete with a decentralized open source protocol like Bitcoin. So It's It's a losing game from the get-go.

01:14:04.92

ilm

What about the volatility. Um, it's it's too volatile and yeah, it's dangerous.

01:14:05.52

Jesse Myers

Yeah.

01:14:12.50

Jesse Myers

Yeah, it's it's too. Volatile it's too volatile ah it's It's very volatile because that's how you experience it? Um, because the the. You know the thing that's not volatile is the supply of bitcoin and what's volatile is the rest of the entire world adjusting to this changed reality of like okay this thing bitcoin How much do I value it and it goes through and it's also experiencing these periodic Um, having events. Upend The equilibrium that's been established and supply and demand price Equilibrium and ah results in ah in a bubble as you described well earlier. You know the the history of bitcoin is the is a history of miniature bubbles. Not so miniature bubbles These are these are Bona Fide bubbles that. That develop for for real reasons for positive reasons which is the halvings causing the price equilaorium to be Upended. There's not ah as much. Um, New supply being created going out to meet ah the unchanged demand.

01:15:25.96

Jesse Myers

And so the result is the price has to drift upwards but people get too excited. It turns into a speculative mania you create a bubble the bubble pops ah on the backend of that and you know it crashes. There's big drawdown but stability reestablishes. Itself over that 4 year period from having create upending that equilibrium until the next having four years later so what we see is this sort of sine wave effect um like a heartbeat. Um, every four years following the halving. And the key is that you know each of these bubbles each of these sine waves these heartbeats has a higher high and a higher low at the back end of it and that's the key is that every ah post bubble bottom. Is higher than the one four years before it significantly higher than the than the one four years before it and that's that's how bitcoin grows grows through this these ah periodic shocks of volatility. But if you can hold for more than 4 years. You see the value of your the purchasing power of your. Stored value grow.

01:16:44.80

ilm

Um, what about I mean just going do classics. Um, it's funny. The same things come up over and over again. So what about it's It's just a. It's just a shiny rock. It's just Beanie babies. It's just tulips. It's just speculation.

01:17:00.40

Jesse Myers

so yeah I love this one ah so the tulip mania the Dutch Tulip Mania was a four month period and people forget that you know when they talk about this is this is a tulip bubble. Um, and you know that. For each of those examples beanie babies. Let's talk about that. Um, who was there any sort of finite supply of beanie babies was there any sort of like reliable um supply constraints on beanie babies. No not at all it was all Manufactured Hype um you could create however, many be babies you wanted and that's not true of bitcoin bitcoin has this increasing scarcity that is completely indifferent to how much bitcoin we would like to create and in that sense you know it's it's truly different because you know. I would love I would love to get my hands on a whole lot more bitcoin than I than I have but I can't I can't do anything but buy it on the market from people who already hold bitcoin or compete for the small amount that's being issued today via mining those are my only options. And that makes it fundamentally different from beanie babies or Tulip Tulip mania or anything like that and you know the the other thing to think about here is that we've now had 15 years of bubbles a whole series of bubbles and each bubble.

01:18:30.96

Jesse Myers

Ends up with a higher base than the one before it and that is not how beanie babies or tulips or any other classic bubble works out those bubbles. Go back to 0

01:18:42.94

ilm

What about another oldie but a goodie I get regularly primarily from financial planners would be um I'd rather own companies that cash flow. Um, or I don't invest in non-producing assets.

01:18:56.72

Jesse Myers

That yeah that's a great one. Ah and this is a school that thought we were all brought up in in in in terms of investing you want yield you want yield you want something that generates more dollars but um, but why you know like the assumption there is that. Ah, the dollar is money. Um, and there's no other form of money that's kind of baked into that you're sort of assuming that there's no money competing with dollars that could possibly outperform holding dollars. So you know if you want to think about it in that sense. Over the last ah gosh I mean if you go back for a decade and bitcoin is returning 100% annualized average growth in terms of value appreciation. It's not yielding any additional units of bitcoin by holding it. But you're. Growing your value by more than you would generate a nominal yield by holding any dollar based asset dollar generating asset and then the other thing to think about there especially with regard to bonds is you know a bond is a promise for future dollars. So. You know if you hold a ah ah 5% bond which is sort of the you know what bonds are trading at right now. Um, you get 5 % per year for holding that bond. But what's inflation you know it is is is inflation 3% like.

01:20:32.60

Jesse Myers

They you know like they say it is do you when you go to the grocery store this year versus last year do you feel like you're spending more than 3% more is it 7 % more what's the true cost of inflation and if you're the bond that you're holding is generating less than the true cost of inflation. Then you are losing in real terms just by holding a dollar yielding asset that is not yielding enough to make it worth your while.

01:21:01.51

ilm

Yeah, our our inflationary rate at the ah inflation rate at the grocery store is certainly more than three percent or 5% and based off of the the gaffes gasps and groans that I hear in line at the grocery store I think other people's wallets agree that they're experiencing far more than that.

01:21:19.00

Jesse Myers

Yep.

01:21:20.12

ilm

What what about this one? Um, if the government bans it. It's all going to 0 Anyways.

01:21:25.37

Jesse Myers

Yeah, this is an interesting one because it's a very compelling point right? like that makes a lot of sense. But then you have to think about how this is this is a an international money. It's ah it's a non-s sovereigneign money. It is a super national money it it's the. It's money for the internet and the internet is a global thing. Ah and this is where game theory really comes in um, one of the one of the best things that the us did with its with regard to its ah policy on internet innovation in the ninety. S. Was to allow innovation to develop because they knew that they wanted that innovation to happen in the us to be the home of this industry and that worked you know Google Amazon these are us companies. So the the home of the internet is the United States and fundamentally and. That has accrued a ton of value to the us. It's been very strategically smart for the Us to embrace the internet and and bring adoption and capital to the us. Ah, and so every country knows that and every country wants to be that for cryptocurrencies. Um. Every country has that incentive at least to be that for cryptocurrencies and some will not do that like China has been kind of increasingly negative on allowing this stuff because it's sort of incompatible level of freedom with what they generally go for. Um.

01:23:01.49

Jesse Myers

But every other country has this incentive El Salvador has made bitcoin legal tender and has seen a huge influx of of capital and talent flowing to El Salvador and it's been an ah, extremely successful initiative in just 2 years every country on earth has that incentive in the game theory to be to embrace bitcoin and want it there and so unless you get every single country on earth to ban bitcoin then the innovation flows somewhere the capital flows somewhere. And that means that you know when you think about it from the game theoretic point of view. It's kind of the only losing move is to you know ban bitcoin and instead you want to embrace it.

01:23:47.67

ilm

Yeah, the the classic meme of you. You can't what you can't ban bitcoin. You can only ban yourself from Bitcoin Um, who you brought the internet a second ago I think this is really important and something that stops financial advisors from understanding why you should own bitcoin and only seeing it as a speculative.

01:23:51.39

Jesse Myers

Yes.

01:24:04.31

ilm

Like speculation versus investment is because what they're viewing bitcoin as is a competition or competitor amongst like tech stocks or something like that if you and as another company or trying to value it as a bond. But again bitcoin is not a company There's no free cash flows. Doesn't have a dividend. Ah it's not growing in valuation based off of taking over market share because it's producing a new good. It is money itself and the way it's going to grow is by adoption rate. So I'd put that as ah, bitcoin is not Facebook or my space bitcoin is the internet and um.

01:24:39.40

Jesse Myers

Right.

01:24:43.50

ilm

Bitcoin or the internet's adoption rate grew um, and as that the the internet itself became more valuable now you have companies that's built on the internet that come and go um, that's that's um, that is wildly important to understand that. That's important in a lot of ways again from evaluation perspective like what market shares is' trying to take but then also as an attack vector you mentioned earlier ah mojo nation I think I've never heard of mojo nation. It lost its mojo um, that was like perfect time I would assume that came out like right around. Ah Austin powers times too.

01:25:17.50

Jesse Myers

You have probably.

01:25:19.90

ilm

Ah, but okay so mojo nation like you mentioned like all these other cryptocurrencies had were wereep it to these state attacks because they had a centralized authority and ah bitcoin doesn't have a president of Nava Cdo Ceo it doesn't have a marketing team. Um, it's it is money that's out there. It's it's wild to think through. Okay, a couple last things that I think are important. You can answer these real quick. Um, one. It's primarily used for illicit activities and 2 it's bad for the environment.

01:25:48.83

Jesse Myers

Yeah, the illicit activities one is is just totally ah, totally wrong. Um, you know what? what currency is best for ah illicit activity one. That's not trackable. Um, like ah like the Us dollar like physical. Ah, notes. That's what you want to use for for illicit activity. In fact, there's a real example.

01:26:11.80

ilm

Was I saw I'd be making up a number. But I think it was like 90% of us dollars can ah contain traces of cocaine on it.

01:26:19.80

Jesse Myers

Right? I've heard that too. Yeah I believe it? um and and some tiny tiny portion I forget if it's like half a percent or less something tiny of um of bitcoin activities is illicit. Um. And there's a recent example here of um of Hamas um, having to tell its supporters to stop sending cryptocurrency because the cryptocurrency is trackable. And so you know they they may they don't want forms that that form of donation to their cause because it's more easily ah shut down so you know that's just entirely wrong. Um, but ah, you know I guess it's rooted in. You know the very early days of. Of bitcoin were um, some of the earliest adopters were were these online drug bazaars where you could go buy drugs anonymously over the internet using this form of currency and I think it you know that it's vestigial from then and and that's really not. How bitcoin is used now. The other thing you you asked about was ah well was it energy. Yeah so I would actually take the completely opposite stance. Um, that bitcoin is.

01:27:32.88

ilm

Yeah, it's bad for the environment. Its energy uses waste.

01:27:45.37

Jesse Myers

Possibly the single greatest tailwind for um, the adoption of renewable energy. Ah in the world. Um, and and I would also include in that nuclear power. Um, to be fair which is not all. Commonly thought of um and and and I say all that because um, one of the problems with like hydro power is a great example. Um, let's talk about we'll talk about Africa. Ah. There's a lot of places in Africa that have abundant water and therefore lots of rivers and hydropower potential. Um, and they simultaneously don't have any electricity. They don't have a grid um because there's not enough industry to justify creating. You know a coal-fired plant. That would create electricity for the surrounding area. Um, but they have all this hydropower. that's that's unused but there's not even enough of a business case to put in a hydropower facility. Um, until bitcoin and and that's a pretty. Radical change because bitcoin is what's the phrase that people like to use. Ah, ah, it's always willing to purchase electricity any spare unused.

01:29:19.24

Jesse Myers

Excess electricity bitcoin will take because all you need to do is plug in a computer. Ah a bitcoin miner and use that electricity to generate new bitcoin which is money and so you know all you need is electricity to generate money. Just by plugging in a computer ah a piece of hardware and that's a super low barrier in terms of infrastructure necessary. So suddenly we're seeing um communities that don't have electricity in Africa.

01:29:53.73

Jesse Myers

Ah, get micro hydro power installations put in There's a cool company called gridless compute doing this for example and now that that micro hydro power facility is generating electricity. That's being used first. For bitcoin miners. But it's actually available to the highest bidder. So if you know the local community wants to buy that electricity. They can um and so suddenly you've bootstrapped part of what's necessary for um, development to occur in an area. Now. There's electricity that's available if you want to build some kind of plant. Well you can plug into the microhydropower facility that's spitting off electricity now. Um, and so in that sense that that renewable energy installation becomes possible because bitcoin is the. The buyer of last resort is the phrase that I was thinking of um and and that's true across all types of of renewable energy. Um, and you know in particular one with regard to like intermittent energy like solar power where half the day solar power creates too much energy and that energy goes unused. But if if you have bitcoin miners there they can use that energy and turn it into money. Um, and so suddenly the business case for when you're evaluating whether or not to put in that renewable renewable energy installation makes more sense.

01:31:28.63

Jesse Myers

Because you're going to get more revenue than you otherwise would have if you had wasted unused electricity and so that helps justify from an ah economic point of view adding more renewable energy to a world and so and it's actually a tailwind. And not only is it a tail when it's it's helping to um to incentivize more efficient forms of of energy installations. It's also helping to ah balance the grid to load stabilize so in like in Texas Texas has a problem with. Intermittent energy. Um, occasionally, there's you know too much demand for energy and not enough being created ah and in and in that those scenarios any bitcoin miners in Texas can actually just switch off. Um and the. Energy grid incentivizes them to do so and pays them for for not using electricity for that period of time. Um, and so that way becomes ah a way to load balance to stabilize um an energy grid just because there's bitcoin miners who are happy to switch off at a moment's notice.

01:32:43.39

Jesse Myers

To stabilize that that energy grade. So when you dig into it. Basically there's a lot of reasons why bitcoin mining is one of the best new variables in the future of energy for the world.

01:33:00.55

ilm

That even with all that if we if we put aside like well Jim if you create 1 unit of waste that's unnecessary. That's still waste. We still have to consider what is bitcoin doing anyways. And again we have to consider the the alternative so of having sound money.

01:33:16.20

Jesse Myers

Right? right.

01:33:20.43

ilm

Um, versus a fiat standard. Um, and again I would I would argue that our current monetary system creates much more wasted energy both human energy and also energy energy. Um I don't know the word. Um, but actually you know the energy people get mad about and so there's a lot of wasted energy there.

01:33:27.20

Jesse Myers

Yes.

01:33:34.28

Jesse Myers

Um, yeah.

01:33:40.38

ilm

Um, that people don't account for.. They just see the surplus of energy created by bitcoin or utilized by bitcoin without thinking of the opportunity cost of bitcoin not existing so we have to consider that as well. Aside from the the opportunities now presented through bitcoin all right?? um. I've kept you for a really long time. Would you have a moment to talk through. Okay I think we should own bitcoin but where's this going Again. We talk to like having cycle adoption rate game theory history of money. Um, really small adoption right now most pretty smart people don't own it The having cycles.

01:34:04.36

Jesse Myers

Yeah, yeah.

01:34:17.96

ilm

Um, all that stuff so like in the the what is what is bitcoin trying to solve for and ah the full potential valuation. So let's let's arrive at that. Finally.

01:34:26.14

Jesse Myers

Yeah, so we we set the stage for you know it's it's $500000000000 asset 0.05% of global asset value out there and. You know what is bitcoin trying trying to be It's trying to be digital gold at at minimum like that's I think the easiest mental starting point. Um and gold is a $12000000000000 asset all the gold in the world is is $12000000000000 so to get from today. To that is what is that it's a ah 2024 um, twenty four x to get to gold to to become digital gold and how does it become digital gold just by the march of time just but by increasing scarcity continuing to play out. And people and at the same time. The adoption curve of people realizing the properties of bitcoin um, leading to increased demand. That's all that's all it takes for bitcoin to 24 x to match gold. But that's that's the the low end of what's possible for bitcoin. And this is where it gets a little crazy and I understand this this all sounds a little crazy but with every asset in the global asset landscape. There's new supply being issued every year and that new supply sets the ceiling for the total valuation for that asset class.

01:35:59.26

Jesse Myers

Um, you know gold at 1.5 to two percent a year is a $12000000000000 asset class real estate. There's a tiny amount of real estate like new land being created every year and that's a $300000000000000 asset class.

01:36:16.94

Jesse Myers

But the ceiling is there for both of those because the the market has to absorb the the new supply created every year and um and with bitcoin obviously that new supply created every year goes eventually to 0 so. Bitcoin doesn't have like long term over yeah this will take decades to get to. It doesn't have that kind of ceiling. Um, its ceiling is therefore then based not on how much supply has to be absorbed because it's zero. But instead how much people want to hold. Bitcoin as a digital store of value versus other assets and that's kind of open to everyone's interpretation of of how much how much bitcoin do you want to hold versus bonds or versus equities that that are generating some kind of yield and. Versus how much do you want to hold a form of money. It is savings vehicle that allows you to propagate your value through time undiluted and grow at at least the rate of the economy's growth in in purchasing power every year um and you know over the next several decades as increasing scarcity plays out. It'll be yeah magnified by that jet fuel of increasing scarcity causing value appreciation to play out so how much do you want to hold that.

01:37:47.66

Jesse Myers

Versus how much do you want to hold bonds which are going to generate a negative real yield ah over the next few decades as we are forced to inflate away our national debt. There's three hundred trillion sitting in bonds ah half a trillion sitting in bitcoin. How much of that will flow into bitcoin once they realize the properties of bitcoin as an investment asset. Don't know. It's kind of up to everyone's individual assumptions about what's possible there but I I personally think the a conservative. Ceiling of what's possible for bitcoin within this framework the full potential valuation framework is is ah to be a $200000000000000 asset class and that would mean $10000000 per bitcoin in today's dollars several decades from now. And so that you know that's a 30 year prediction maybe even more. But right now you know it's ah 35000 per bitcoin so to go from there to to even a million per bitcoin would be an incredible success and you know the. Best performing acid almost in almost anyone's portfolio.

01:39:05.20

ilm

Yeah, as we think through this again, there's the adoption rate the the alluding to internet. There's the game theory involved. Um, again, how do we arrive at this like bonds real estate equities. There's all these things and Trey and I talked about this a few weeks ago on the podcast was. Ah, monetary premiums assigned to all these other assets like a house cost outrageous amount right now not because people want homes but because houses are used as stores of value assets and in my opinion. Ah that monetary premium the difference between the actual. Use case of a house and the cost of a house again. We can assign that as being called a monetary premium that monetary premium. My opinion will be eroded and put into bitcoin because bitcoin is easier to easier to hold. It's more tax efficient to hold in a lot of senses. Um, you can transact it. It. Lot more easily. Um it. It contains these these properties that we just assigned earlier as being or find earlier as being important parts of money. Um in a much more simplistic way than than ah yeah, real estate or gold or bonds. So that's where you get not just the adoption 1% to 100%. Whatever maybe that's too bullish but this adoption rate but that coinciding with ah as people start understand this they will in may may I think that they will start taking a portion of the monetization of other assets putting into this thing causing to go up further until eventually reaches equilibrium.

01:40:38.70

ilm

The goal is one day probably not my lifetime Bitcoin's really boring. It's talked about maybe I'm in a really small bubble that I hear people say like talk about fiat and stuff all the time now. Um probably just me Um, but I feel like people talking about money and what money is is actually sort of in vogue at the moment. Um.

01:40:56.30

ilm

Historically, That's not been a very fun topic for most people and my hopes is that yes I assume that over the coming decades money will be a popular conversation not money in the sense of like you know rap videos and doing stupid stuff is money but like actually the core principles of money itself. But then eventually once bitcoin is. You know, globally adopted. It should be really this should be really Boring. We don't have to talk about it. It would make financial planning a lot easier because we're not speculating with with a store of Value. We have something that's a hard asset that we can just account on pretty pretty well and ah yeah, eventually this will be a non-issue. It's something that you don't hold bitcoin in order to grow your wealth. You hold bitcoin in order to retain your wealth that is what money is supposed to do money is supposed to hold communicate and transfer value across space and time right now it's just bitcoin is been growing purchasing power. And value across space and time because of the adoption rate because of the inflows of capital to it but eventually it all Reaches Aquilob It's boring and just just own it because you want to retain purchasing power and then you'll go when you'll Buy. You'll buy other assets that have been reppriced against actually a good sound money that will cause these other assets to actually be Ah. We can actually use math again to value things versus speculation. It is like hey the opportunity cost of holding bitcoin money is boring versus if I go invest in something and actually invest. Um, if I go and invest this I can get some yield off of that it will reach this place again. Well people will be motivated to go in part with their bitcoin to.

01:42:28.44

ilm

Buy assets other assets Income Producing assets and things will be reset in a healthier way and I'm excited for that I doubt I'll see that my lifetime but is fun to see that's another thing I heard ah another financial advisor say to me is like yeah I think this is probably going to happen but it's not going to happen in my lifetime. Why would I even Care. It's like. Know Do you have kids? do you care about Humanity. Um, that's weird. Um, and yeah, I'm excited. That's just the ability to participate in this you know I was ah born way too late for the adoption for the adoption of the combustible engine and you know the internet. Ah you know we saw a rise of that in our lifetime and but I think this will be on par with the internet. The the wheel. Um, and we're right in the middle of this and it's amazing like ah maybe we'll look back as fools in 20 years and it's like dude I can't believe I put my so I stick my name to that thing I don't think that's the case I'm willing to put my neck out there because I think it's more of like.

01:43:12.15

Jesse Myers

Yeah, yeah.

01:43:20.18

Jesse Myers

Yeah.

01:43:23.72

ilm

Wow, these people saw something and I have a lot of respect like whoever Satoshi is it's incredible like they were able to build this the vision and the amount of things that he was able to understand and build together in bitcoin is astounding again from the technical side of things from computing to. The financial side of things. The game theory gets just beyond me and it's pretty awesome to to be part of that.

01:43:49.63

Jesse Myers

Yeah, ah, totally agree with all that the you know it may not happen in our lifetimes that bitcoin becomes the the unit of account money The the end state of what a money should be but we just happen to be I think. Living through the early stages of its adoption which means the most opportunity and the most upside is right Now. Um, and you know great. Ah, and so so I think it's a challenge for everybody to figure out how. How they're going to approach ah bitcoin and you know this is ah this is a problem that everybody faces every day whether or not they know it is how do I allocate my portfolio and my earnings into assets. How do I spend my money do I consume it. Do I invest it and then what and I believe we are living through the very early stages of the digitization of value and bitcoin is the protocol. The internet that all of this value will accrue to ah and. What better problem to have and.

01:45:03.60

ilm

I think on that note man we we hit a lot so I appreciate you let me interrogate you for the last almost two hours I enjoyed it. So appreciate it. Jesse.

01:45:13.51

Jesse Myers

I Yeah this was a ton of fun. We packed in a ton I Hope people get a lot out of it.

01:45:21.28

ilm

Alrighty.

TILP #6: Future implications of Bitcoin becoming mainstream w/ Marty Bent

00:01.90

ilm

All right? Marty Bent thanks for thanks for joining me today I'm excited to have you here? Well ah, let's see I have as we we talked about before recording there's a lot of things that I would love to talk with you about. But we don't have enough time so where I would like to go with you today is just talking through. Um.

00:03.75

Marty Bent

Jim I'm excited to be here.

00:19.89

ilm

Where all bitcoin can go and how you see that playing out from a just the impacts we'll have on different economies and the business sector and everything but I guess before we go there launch. You just tell me and us about you What you do and business life who you who are you.

00:35.44

Marty Bent

So first and foremost I'm ah a father and a husband I've got 2 young boys and ah and a beautiful wife really the the anchor behind us but beyond that I own and run a media company tftc I found that in 172 essentially started as a newsletter to help educate my friends and family about bitcoin what it is what they should be paying attention to it was during the beginning of the bull run in 2017 or June 2017 I was getting text calls emails and I was like hey right everybody stop. Doing this I'll I'll write this newsletter I'll send it to you once a day you don't need to reach out to me that morphed into a podcast later that summer and beginning of September I believe which is tftc which is ah.

01:14.67

ilm

3

01:28.27

Marty Bent

Interview series I host that morphed into another podcast rabbit hole recap that I do weekly with Matt Odell covering the topics. Ah that pertain to bitcoin privacy freedom tech in the digital age and then I'm also a managing partner at 1031 which is a bitcoin investment platform focused on investing in companies building out the infrastructure that people leverage once we're under a bitcoin standard so we cover the whole gambit of the subsectors in the bitcoin industries that could be mining ah custody security. Ah, lightning network companies built companies building on the lightning network and then even credit products that are beginning to materialize as well. So started a media I have a background in finance before I started the media company and now parlaying that into. Ah, ten thirty one and what we're doing to to invest in the space.

02:25.10

ilm

Sweet so you've been in this space for a bit I actually listened to ah 1 of y'all's ah you Odell's most recent episode last night ah talking about or are we in the next bull run that was a lot of fun. Um I will abstain from going there. Um I think we both agree that ah. Bitcoin's in a foreverable run until we see global adoption and then then bitcoin will become really boring. That's the goal and but yeah, so with ten thirty one obviously you have you have the amazing I would imagine just amazingly fun job of getting insights and pondering. All the different places that bitcoin will go once as you mentioned once we're in a bitcoin standard. So I guess before we go into the the details like what do you What do you mean by bitcoin standard again, we're like let's just take it like we're talking to an audience that. Maybe just own some bitcoin and is just beginning so in these past conversations prior to you joining us today. We've had conversations about like Macroeconomics Monetary Policy fiscal policy how in the world. Do we get here? Oh bitcoin very well could be the solution that gets out of this absolute mess that we're in right now what is bitcoin from a generic. Or general a to z conversation. So when we talk through like all right bitcoin standard what in the world does that mean.

03:41.99

Marty Bent

I Think it's very simple ex of the explanation a a world living under a bitcoin standard is a world in which people acting throughout the economy save their money in bitcoin and transacting bitcoin. Um, it is the store value medium of exchange and unit of account. Ah, people use price the goods and services that they purchase within the economy I think think it's important just to keep it simple a bitcoin standard is a standard in which people use bitcoin as their money whether it's to save or spend.

04:16.62

ilm

It's it's interesting to think through the implications of just having a money that is not centrally controlled and not debased by anything and like 1 of my least favorite conversations. Especially a few years ago when um. When the money printers were on yet. We weren't seeing inflation day-to-day it was just in like aspects of life like houses I live just a little bit south of you in new bronfuls so here like I mean 2021 my house appreciated by 33% and at that point the money market funds and stuff hadn't caught up yet. So. Your your bank was yielding like a quarter percent but yet your house is appreciating by 33% so I hated the question of Jim I want to buy a house in 1 year how do I save for that and that's only a question in a system where the money's broken itself. Like if you have a but if you have money that's not broken. It's like hey I want to buy a house in a year what do I do it's like save your money because the money itself is it's it's it's meant to be saving mechanisms but when when you have money. It's hijacked. You lose you have. It's a currency. It's a means of exchange but it's not a means of savings and what you just articulate is it's it's it's. Both of these things which is so foreign like right now we use savings accounts basically a savings account is like the index like buying index funds like we're just hoping to retain value in that. So yeah, interested. So what do you like? How do you see that happening like right now there's a global adoption of like 1% of bitcoin. So like.

05:48.91

ilm

What how do you see that play out. Do you have a thought on it I mean obviously we're just guessing. Do you have a thought on like how that happens and what's the timef frameme will it be fantastic and this great deal leveraging of written Ray Daio's words or will be like will it be ugly I mean I have a picture right here on my desk of ah kids stacking money and in ah. Postord war one Germany like what look like that is the US dollar and around the world like kind give me your thoughts here.

06:11.90

Marty Bent

I don't know exactly how it will look. But since Parker Lewis is standing literally a dozen feet away from me outside. Ah the studio here. It's probably going to happen gradually then suddenly which means we're definitely in the gradually part. We may be approaching the suddenly part but.

06:26.18

ilm

Um.

06:31.93

Marty Bent

Ah I think that's part of the beauty of bitcoin whether it be ah via the the network topology. It's very grassroots individuals running nodes plugging miners in that part of the network is very grassroots. You have.

06:37.30

ilm

Was learning it.

06:48.50

Marty Bent

Tens of thousands of individuals and companies disperse throughout the globe just using economic incentives to drive them to do this thing whether it's running a node to verify that they're actually actually receiving the bitcoin they think they are or to plug in a minor to contribute to the production of blocks so that they can make bitcoin. Ah, it can produce bitcoin cheaper than the spot price and I at any given point in time so run a profitable business that allows them to stack bitcoin. But then the other side is ah of the grassroots movement is the individuals who decide. Ah, to use bitcoin as money whether it's via savings vehicle or a transactional currency and so that will really dictate when the suddenly part comes is when more and more individuals come to the belief that bitcoin is the best money that is on this planet and they decide to acquire it. Ah. By selling goods and services by exchanging their dollars for bitcoin and holding it on their personal balance sheets. Um, so that's I think the next big step to take is this educational effort. Maybe it doesn't even need to be effort. Maybe people come to the conclusion. Themselves but more and more people recognizing that bitcoin is money and it's better money and that's money that they should demand. Ah, and that is facilitated by companies in software projects that make it as easy as possible to receive and send bitcoin in ways that are at parody.

08:19.80

Marty Bent

With the ways in which people send and receive money in the incumbent financial system.

08:25.52

ilm

Um's there's one if if if if you're hearing that it's like what in the world is a node and mining and stuff a few episodes ago we listened we talked with guyiding michael schmidge go listen that episode. We talked through like what is a node What's what is mining what do these things mean and ah. Just to reiterate that like you don't have to know all these things like I don't know I have 0 clue how Marty you and I are talking right now and I can see you in real-time blows my mind I'm not going try to figure it out I just know it works and ah you know I don't know and ah you can't explore these things I think bitcoin. Is a lot easier to understand that our current fiat monetary environment like it's code. It's written out and there's there's certain principles that exist versus things that are made up ad hoc based off of a small group people in ah in a room I think it's easier to understand that our current financial situation. But I also think it's okay. Settle down and say I don't fully understand how it works but I'll use it and ah now with that There's right now just because you have to remember this is a young technology and if you're going to go do things if you're going to run a node or set up a lightning channel. It can be conky. Um, but as we see this thing progress. Will become more and more obtainable. Um from a use standpoint. So let's go let's go there um Marty like what are you seeing from a one I guess from it from an adoption standpoint especially with everything going on with like ets right now and blackrock and all that like what are your thoughts as far as adoption from.

09:58.42

ilm

Corporations governments and individuals um is one outpacing on adoption rate more than another or is it general like moving forward. How do you think that's going to take place as well.

10:10.75

Marty Bent

Ah, yes I do think individuals are certainly outpacing adoption or the businesses or countries for that matter. It's that's the beauty of bitcoin too again and going back to this grassroots nature. Um. Particularly of acquiring bitcoin individuals are usually the first that come to realize like oh bitcoin's a better money I want to hold a better money. Um, and so that historically throughout the first fifteen years of bitcoin existence is is probably the the main driver of adoption up to this point. From like an individual basis number of people adopting bitcoin. Ah because when you think of it too like when you get to the company level. The company makes decisions based off the consensus of a bunch of individuals and so for companies to put bitcoin.

10:58.46

Marty Bent

On their balance sheet and you need a bunch of individuals within that company to come to a consensus that hey we should probably acquire some bitcoin for our treasury so that adoption is obviously a bit slower than you would see at the individual level and then when you go up to like the financial system. The banking system pensions what it may be. Those decisions are even harder because they're much more conservative and they're much more burdened with regulation and allocation mandates that they have to live within and so the cell to get to the tipping point of bitcoin adoption is a much higher bar and so yes I do think. There are different tracks of adoption individuals have adopted it much quicker businesses um are are getting there Obviously Micro Strategy has been a big advocate of that and then institutions um like endowments pensions. Banks will probably be a bit slower. It's just the nature of how you come to the consensus for this. Decision to put bitcoin on her balance sheet with that being said I do think something like the fasb guidelines that were released earlier this year will be a catalyst to make it easier for the businesses to put bitcoin on their balance sheet the way that they can mark to market it year. Mark to market their bitcoin holdings year in and year out the new fasb guidelines make that much more palatable for a business whereas before ah you just had to mark to the lowest price of your bitcoin holdings at any given point in time and you had to keep it there. Um, which was not conducive for.

12:35.83

Marty Bent

Good financial reporting So It seems like particularly in the accounting world. The the regulations are getting to a point where it's going to make it easier for businesses to adopt. But yeah, and totality individuals are certainly adopting it and a much quicker pace which I think is good at the end of the day. Um, and then. Those individuals working in businesses and institutions have to convince the others that they're working with that. It's worth putting on their balance sheet and that that takes more time.

13:04.70

ilm

Yes, this is an opportunity to see I mean like front-run blackrock but also like sort of reverse the the canon effect of these people who've controlled the money large institutions. Um and generally people who just wield more control. Um, now's a time for the individual to come in and no one has more control than another over bitcoin. But the early adopters certainly will benefit um by price appreciation or purchasing power appreciation than a later Adopter. So This is an opportunity that we haven't seen before um with normal people to come In. And frontrun these institutions and corporations and and governments is just amazing to think about the long-term implications so bitcoin can seem volatile on a day-in-day out. Basis. You know there's There's a lot of there's a lot of memes in bitcoin and one of those being like 1 bitcoin is is one Bitcoin. It's worth one. Bitcoin. Um, but the same time when you if you're checking your bitcoin and you see that it's worth a.. It's pegged to a dollar amount and the what we're what we're concerned here is not necessarily not necessarily the ah the ah ah trade Amount. Of dollars to bitcoin. It's the purchaing purchasing power itself and eventually as you mentioned as we see Bitcoin become this unit of account and means of transferring value that ah the bitcoin itself will be denominated not in a dollar parody but rather.

14:34.56

ilm

It will be a means of communicating purchasing power itself. So I Guess let let's let's start talking through things that I guess excite you once we see this full bit bitcoinized world like what do you mean? like what would that change like will as I mentioned earlier. Having a sound form of money I think we'll just do wonders with making saving money so much more obtainable and way less complex. But what else like individuals companies like from ah from a project to just an opportunity for I know. Way Business is done like what are what are things that they excite. You.

15:13.78

Marty Bent

There's many things. There's so I think to jump it to this part of the conversation. It's probably to deal like ah like demarcate the different sectors and so we'll start with like the base layer and I should probably make the point that I believe for bitcoin to succeed. As wildly as I think it can. There's an order of operations to its success and the lower runs that order of operations to the front ah end of those order of operations revolve around custody and security and ah there have been a lot of developments in the custody. Realm particularly that have me extremely bullish and really paint a fascinating picture of how business can be done in the future and so as I'm sure you're aware ofropic wins 15 year history there's been many exchange hacks mount gox ah bitfin x bitstamp obviously ftx. And sometimes not even hacks just pure frauds ftx Celsius blockfi have taken in people's money told them that they're going to take their money and buy bitcoin with that hold it for them and they've completely lost it and I think this is due to the nature of people trying to apply the incumbent. Fintech infrastructure and user experience to bitcoin and not really leveraging. Bitcoin's native properties that give the end user and the end customer more assurances than exist in the incumbent system and so what I'm excited about.

16:44.71

Marty Bent

In the custody sector is this move towards multi-insti institutiontion multisig custody. So within bitcoin you can set up a wallet in a way where to move the bitcoin out of the wallet you need n of m signatures ah to move the bitcoin and so you need. 2 of 3 let's use the example of 2 of 3 if you want to move bitcoin from the address you need 2 signatures from 3 of the wallets in the quorum. Ah, and this allows us to create new standards for custody that rival the incumbent financial system and so. Down the hall for me is unchained. They're really they have trailblazed. Um this this part of the bitcoin industry which is using multi-institution custody to secure. People's bitcoin and so on that side of things we've seen unchain. Do it. We have companies like onramp. Anchor watch. There's more and more of these companies coming to market and essentially when the adoption of the tools that they're building becomes widespread. You have this incredible ability as an end user to verify that the counterparty you're interacting with has the bitcoin they say they do and so. With this I think new standards are going to be built where when I go to unchained and I take out a loan For example I put my bitcoin in a 2 or 3 multi-sig wallet. Ah I have a key in that quorum on chain holds a key and kingdom trust holds the third key and so that's myself and 2 institutions evolved.

18:18.10

Marty Bent

Since I have a key in that quorum I have visibility ah knowing throughout the duration of my loan that my bitcoin is where I think it is unchained and kingdom trust have not moved that and re-hypothecate it and len it out to some degenerate tradeor that can use it on a bet and I think this. Ability is really going to change the landscape of the sort of structural integrity of the financial system built on bitcoin it really reduces the ability for institutions to misallocate funds and commit fraud which I think is going to be massive. Really disincentivizes those actions and so it's really a forcing function for ah, good business at the end of the day so that's 1 thing that I'm very excited about.

19:07.32

ilm

Um I was was with where that's heading from a custodian and even the safety and security being able to take a loan and use this as collateral we're seeing growing pains and I was thinking about this last night actually with ah this last bull run the amount of people who were. Advocating for ah using x-exchange where you would get a whatever 14% ah yield on your bitcoin that's kept there and then the amount of bitcoin that was totally lost and the just the grand scale of rug pulling that took place. Um, yeah, there's obviously you you use the word he but reypocation. Do you want to fear before we keep going do want just like what does reypotheate mean just make sure we're using like people understand as we go forward.

19:54.80

Marty Bent

So reypodication is essentially when you're interacting with a custodian and either buy bitcoin from them that they're supposed to hold on their balance sheet or you send bitcoin to to them that they're supposed to hold on behalf of you. Ah re-hipothecation is them essentially taking that bitcoin. And giving it to somebody else that isn't you so your bitcoin is being re-ypothecated and typically throughout ah the history of the industry built around bitcoin when companies rehypothecate bitcoin they're usually giving it out to. Traders who are taking risk with that bitcoin and that is how you can get yield products like Gemini's earn product. Um, and they were partnered with genesis genesis was re-hypothecating gemini users bitcoin and sending it to trading houses like 3 hours capital who were taking that bitcoin and making degenerate. Bets on other cryptocurrencies that essentially went to 0 and when you rehypothecate that bitcoin and your custodian's counterparty on the other end loses that bitcoin you don't get it back at the end of the day. Um.

21:00.20

ilm

Yeah, so during that process of re-hypothecation all the while you've seen oh I bought I have one bitcoin I see it on this screen when I go to Xwever.com it says one bitcoin. So it's there but you're not seeing that behind the scenes your bitcoin that you purchased was. Used as collateral in someone else's trade so they then essentially created a second faux bitcoin the one that you're seeing on your login and then the one that you're actually they're actually utilizing in some 1 else's trade so they're creating fake paper bitcoin as a means of trading behind the scenes. Versus having it locked up and cussy that that's not able to be done ah that that that process and is unable because again like using a multi-sig setup you remain you retain the keys and these other institutions who should have your best interest in mind and can't move it on their own. Um, are not able to take this and use it as a means of collateral without your permission. Um, so that's yeah, it's pretty important from a security and safety perspective. Do you have any? you have any thoughts there.

22:05.26

Marty Bent

Yeah, and I think it's I think what you touched on there right? You don't with bitcoin particularly these multi-sig primitives that are available to bitcoiners if you're in it. We we now live in a world where if you interact with a counterparty. They don't have unilateral control of. Funds and they can't do things with your funds that you wouldn't want them to do and so with the multi-institution set up. Ah, you don't even have to have a key in the quorum. You just have to have an address that you can audit at any given point in time to know that the bitcoin's there and isn't moving It's totally possible with this setup too. But again going back to the economic incentives and the social incentives that this new paradigm introduces to the market is you can interact with a counterparty like unchained but due to the multi-institution. Set up that they have particularly with kingdom trust now coin cover to mismanage your funds. You need 2 institutions to collude to mismanage your funds and again going back to incentives that is significantly reduced the possibility of that is a.

23:14.11

ilm

Mentalism.

23:18.67

Marty Bent

Significantly reduced because you have 2 institutions that have many different business lines and you have to assume that they're not willing to ruin their reputation by mismanaging funds and the fact that one company on chain doesn't have unilateral control. Even if they wanted to mismanage your funds because they gotten a problem and this is just an example I don't think unchained is doing any of that. Um, they can't which is a big shift of power back to the end user at the end of the day.

23:46.16

ilm

Your let's it's hard to think through this objectively considering just it's the environment. The environment that we've been in I mean our whole lives so like for like for instances banking like it's it's hard to think through a bank. Their job actually just being keeping your money safe like that's so foreign to us as a concept like everyone I think most people recognize if you put money to a bank It's not there it then immediately becomes someone else's asset as well and you see it there and you expect it to be re-hypothecated. You own it but yet it's somewhere else and if you go and you ask for a million bucks they're not going to have all million because it's somewhere else. So it's foreign really expect that to bank for banks we know that they're not the business of actually protecting our money and holding it. They do other things with it I would say the same thing with like if you're going to take a loan and use your bitcoin is collateral. I think though the water we've swam in for so often has ah at least maybe maybe I'm just speaking for me I think I'm speaking for a lot of people though we become so normalized to thinking like well how else are they going to make money like why would someone else take that risk and set up a business of literally just owning. And like allowing an asset to be on their balance sheet. That's alone if they're not taking creating yield off of it and to create yield off of it. They have to go take that asset and do something with it and they can't so like how how would that business even function like why would someone else set up a business to do that if they're not able to like.

25:16.50

ilm

Take it and go and speculate on that asset that they're supposed to be just watching like how does that work.

25:20.21

Marty Bent

Like the business model is going to have to shift where people particularly if they're engaging in ah with a with a partner or multiple partners in the multi-intitution model that are going to secure their bitcoin bitcoin. I believe is going to be 1 of the most valuable assets on the planet and so it's going to be worth paying to secure it and so I think that'll be 1 way in which these companies ah create new revenue streams. Ah and then two while we're in this transitionary period on chain has our lending desk and ah you can. Use bitcoin as collateral to get a loan and there's an interest rate associated with that loan typically higher than your average interest rate right now just because of the relative lack of information on behalf of ah credit funds understanding bitcoin. It's it's a bit riskier to them even though they.

26:16.20

Marty Bent

Sort of collateral setup that unchained has is 40% ltv. It's one of in my opinion 10 unchains at 1031 portfolio company. It's one of my in my opinion. Nothing's risk-free, but it's like 1 of the least risky sort of credit products that exist on the market right now can get. Revenue from that and then value added services like actually providing value in terms of advisory services. Um I think we'll we'll see a lot of these bitcoin custody solutions like unchained and the companies behind them evolve into the goldman saxes of the. Bitcoin standard where they really understand what's going on in the market whether pertains to custody financing um in opportunities that exist out there to invest and take equity positions and companies. That's where it's going to go I believe is um, instead of. Sort of expanding the economy via debt. It's going to be equity investments and brings opportunity costs back to the market. That's what a bitcoin standard will do and so the idea is that you'll be able to get equity positions and companies that are producing cash flows and they're able to return that capital plus some. Moving forward and so I think in terms of the business models of these companies. That's how I think they'll evolve. We're at the very early stages but people are actually going to have to provide value at the end of the day.

27:38.66

ilm

With the with growth pains we're experiencing and just some of the rug pools we've seen over the like several years obviously there's a lot of unfortunate results of that I mean a lot of people have got really hurt. Um and it's created a lot of fear for for people who are starting to. Have comfort in this and now suddenly something bad comes out and said oh maybe the fears that I had were were rightful. Um, and yeah people lost a lot of money and that's that's really sad, especially like I mean I've I've known people who. You know like I actually I didn't think I knew anyone but I found out a few months ago that a friend of mine had all this bitcoin at ftx um, lost a whole bunch of money and that's really sad like this kid worked really hard all of his 20 s saved insanely aggressively saving like 80% of his income and it's all gone and ah so that's really sad.

28:18.77

Marty Bent

Ah.

28:30.83

ilm

But another sad outcome is for the lack of clarity at who's at fault here and what I mean by that is I've heard people say like when we talk about these these exchanges being hacked or the re-hypofication and then the. Loss due to gambling on the third parties act. Um people who don't understand bitcoin say hey I thought that thing that just happened I thought bitcoin was supposed to fix that suddenly you lost your bitcoin because of x or or y bitcoin is supposed to fix that and then suddenly bitcoins. This scapegoat of blame. So could you help us understand that I know this is sort of off topic. But these things that have taken place these scams that have come out or like literally I lost my bitcoin because of this bitcoin's at fault like why is bitcoin at fault or why is why is bitcoin not at fault and who is then when all these things happen.

29:26.91

Marty Bent

Now I mean what you're leaning into is centralized. Third parties are security holes and that's what ftx was that's what Mount Gox was that's what celsius blockfi were and I think a lot of the money that's been lost over the first fifteen years particularly via these. Third -party security holes is due to a lack of knowledge on the end consumer's part not understanding that with bitcoin. They had the ability to audit where their bitcoin should be at any given point in time and again, that's why I'm very excited about what on chains doing and others to push forward this multi. Institution multisig model because I do think that will be a standard once the knowledge of this type of custody solution permeates the market and then consumers understand that it exists in the first first and that it's possible in the first first we'll get to a point where it's demanded where you will not engage. With a third party that's handling your bitcoin unless unless they have this multi-insti institutiontion multisig custody enabled um because the benefits provided by this model are step function improvement that you would be dumb not to interact with a company doing that.

30:41.31

ilm

Yeah I agree. What? a I sorry I took us you you you presented 1 very you said it's like a base level for you further we need to understand this and then I sidetrack conversation for 10 minutes so yeah what else like. What other things. Do you see is like all right. This will be an impact from a bitcoin standard.

31:00.24

Marty Bent

So bitcoin peer-to-peer digital cash system running on a distributed system with limited counterparty risk and very importantly, quick time to transaction finality relatively quick time compared to. Incumbent banking system. Um, and that gets supercharged on second layers like the lightning network which allow you to lock up bitcoin in a 2 of 2 multi-sig and then send big small amounts bitcoin or large amounts of bitcoin instantly and settle instantly and so I think the instant settlement. Aspect of second layers like the lightning network is going to unlock a lot of economic opportunity that simply is not possible in the incumbent banking and financial system and the payment system built on top of it via companies like mastercard visa stripe paypal um, the fact that. Now have the lightning network that allows us to send small or large transactions. Very small. We talkingn microransactions instantly have final settlement is a massive unlock it prevents things like chargeback risk for companies which end up in higher prices for end consumers. Because those companies have to factor in chargebacks if somebody buys something with a credit card and then they go to their credit card company and say hey I actually didn't buy this That's that's a significant cost for a lot of businesses throughout the economy lightning network solves that and is it cross-border payments without permission.

32:36.18

Marty Bent

Being able to remit money back to a family member who may be living in a country like Venezuela or Argentina or Nigeria or India to do that instantly while evading companies like western union that typically take up to 30% of the transaction when you make it that's going to be. Massive cost savings for the end consumer and then what I'm really excited about for the lightning network and where it really get sci-fi it is it has given us the ability to fully realize the the original view of the internet and so when they designed the internet. Built the protocol they envisioned that there would be a payments layer and they actually built a payments layer or sort of an http four zero two error into the the layered stack of the internet imagining that there would be a payments layer of the internet when they originally designed it. And it wasn't until bitcoin and more specifically the lightning network launched that we've had the ability to realize ah that original idea and so now with the lightning network with bitcoin. We can essentially inject. Ah. The internet with a native payments layer and it's happening in real time and so to give you actionable sort of examples of this like 1 thing ai is very popular right now. Um, but right now if you want to use AiCompute

34:10.11

Marty Bent

You set up an account with Openai. You can your credit card information. You pay a monthly fee and you may use it once or twice a month just for just for fun. Maybe you're not using it. You're using it as a hobbyist but you're paying $20 a month which is very inefficient. You're not getting $20 worth of value out of the 3 times that you use it per month. With something like the lightning network you can completely granualize your usage ah of Ai tools ah in in a way that was never possible would not be possible using the incumbent rails and so there's. Extensions extension wallets in your browser. 1 of them is Albee Getalbe Dot Com is their website a l b y and this essentially allows you to put a bitcoin wallet in your browser and load it up with bitcoin and then as you go surf the web and you interact with. Websites that accept bitcoin over the lightning network. You can automatically pay it. Ah right there and we're beginning to see this with Ai models where somebody doesn't want to pay a monthly fee to open ai but they just want to use a model once or twice they can go to particular websites that have set up. Essentially a lightning ah bitcoin payment gateway between the end user and the ai compute and so you would go say hey I'd like you to make a picture of Jim Kreitter looking handsome in New Bronhels by by the river you'd hit. But.

35:41.23

ilm

We don't need Ai for that baby. Got the real thing. Ah.

35:44.70

Marty Bent

Hit send and then essentially your browser says hey if you want this give us ah 10 sats worth of bitcoin. Give us half a penny and bitcoin and you hit send boom you get your compute right back and so that um is a use case. Ah. Again, it was not possible in the incumbent system. So it gives the end user the ability to spend um ah small amounts of money to get things done on the internet very quickly and from the Ai company's perspective like they're okay doing that. Ah, because they know they don't have any chargeback risk as soon as the invoice is paid. The bitcoin is in their wallet and there's nothing I can do I can't call American Express and say hey I didn't I didn't buy that ai compute I need you to send me those sats back. It's not possible.

36:32.14

ilm

Yeah, someone else wanted that handsome picture of gym by the river that wouldn't be let me, um here we'll we'll break this down I'll play stupid play stupid. Um, well ah, what's the difference. You have a internet native payment system versus. Being able to pay via venmo or put my credit card information on the internet. Why is how is that any different and what's the benefit of having a internet native payment versus like giving my Mastercard online.

37:04.21

Marty Bent

So when you give your Mastercard online. It's again, it's not internet native who's essentially duct taped a ah like credit card form on top of a website and then once you fill that out the website sends that information.

37:04.85

ilm

He just.

37:19.50

Marty Bent

Up to Mastercard of visa says hey is this information good and you say yes, it's good and then manually using their own systems visa mastercard will take money out of your account. Give it to the company. Um that you're that you're paying for their good or service and that's not native at all. It's very clunky. You have. Ah, message going from the website to visa Mastercard server. They're saying yes, you're good. Give them the good and then they're on their servers taking money out of your account and giving it to the business and you're getting the good in return whereas with. Bitcoin being natively integrated into Http. There's no calling of that service. It's either. You have the bitcoin in your wallet or you don't in the browser and so it's essentially the company just calling your you. Your endpoint and saying hey do you have the money to pay you say yes I do sends the payment and it's a peer-to-peer transaction between you and that service or good provider at the end of the day they're not pinging something externally um and depending on somebody else's servers. It's literally a. We'll know you had the bitcoin. Um, if we ping you and you're able to pay the invoice. We don't want to ask anybody else.

38:36.71

ilm

Which I mean this carries out it practically benefits in a few huge ways one from a time perspective. It's instantaneous settlement versus a lot of people don't recognize like I guess we do sort of in a sense but like. When you go, there's a baker you cross a street from office dangerously close if I go there and buy a ah buy a crosant in a bit and I pay with my credit card that doesn't actually settle instantaneously I swipe the card it sort of feels like it does. So a lot of people don't recognize that. That's a difference between paying a credit card versus paying in bitcoin the actual instantaneous settlement. So the how quick this happens but also just the I think some it's really important here is the the fees that we're seeing so like at least in in my town I'm starting to see a lot of smaller restaurants. Are increasing their cost and we'll have an itemized or line item on their on the receipt for credit card fee. So things are getting really tight I mean obviously where everyone's experiencing inflation including the businesses themselves. Um, in 1 total sidetrack. There's a lot of people who don't understand how we've arrived at where we are from an economic perspective and they blame corporations. Ah for inflation as if as if like every few years corporations get together and they do this little thing with their fingers.

40:04.78

ilm

And a couple scrooge mid ducks and swim around and and gold and then they they say hey let's let's go ahead and you know we've been been making good profits lately. But let's really stick it to them and let's all increase our prices at the same time and to think that that's how economics work and like oh that's why I don't like. Um, that's why I don't like this and we need to go to a marxist society is because of of this you know it's it's capitalism as if as if that's what's yeah, it's as as if that is what's causing inflation is this gathering of corporate leaders every few years to say all right now we're going to do it. It's clearly.

40:28.64

Marty Bent

It's the bourgeoisie.

40:39.59

ilm

It goes back to the money itself. Okay, total side track anyways, so people are experiencing and experiencing inflation and so are companies and 1 thing I'm what I'm I'm seeing right now is companies in my town are passing on one of those inflationary hits the way they're hedging that is by passing on. Credit card fees because they're expensive like three four percent for a credit card transaction in a first world country I'm not talking if I go to Africa and try to pay and they're trying to verify payments across borders just in town. So I would I would love to see like and this is a very simple one like this could happen very quickly and it's already happening obviously with with companies that. Do accept bitcoin lightning payments but I could see this being a very entry-level way of more of like hyperbit bitcoinization in a real- life day-to-day manner of restaurants taking lightning payments and hey if you if you pay via bitcoin you'll get. You won't have this three and a half percent increase or we'll give you a three and a half percent ah deduction on your bill. Um I would love to see that like and are you familiar with any companies that are working on this outside of like obviously there's super niche places like that you and I are familiar with you go and buy like a bitcoin shirt or a bitcoin little fun gadget. You can pay in bitcoin. But are you familiar with? is there anyone who's working on ah actual payments that you know like the mexican restaurant down the street would be able to set up and like I go in and pay on my bitcoin. It's not this weird like oh you like bitcoin too like.

42:08.52

ilm

Normal people. My parents go out and it's like hey if I do this I can download this wallet I can pan bitcoin and I just save money and we start seeing this in a real life place like are you seeing anything like that.

42:18.94

Marty Bent

Yeah I mean I mentioned him earlier I don't want to pump his ah pump his wheels too hard here but Parker Lewis works for companies zap right? And that's exactly what they're doing doing. They're building invoicing software for businesses and individuals we use it here at tftc. Ah. She found out last month that my direct personal care doctor is using it now and so essentially what zap right? allows you to do is to connect your wallets their wallet agnostic so you can have an account at strike at river unchained and you can plug your wallets into their. Software you could self-hot your own wallets your own hardware wallets and plug that in to their software and then essentially what they do is they allow you to hook up your fiat payments as well. So stripe and and bank accounts directly and create this invoicing software. It allows you to set permissions or set up your invoice in a particular way where. You can present to your end user or your client hey here's your invoice you can pay using stripe and pay million in dollars here's the price and if you pay in bitcoin. You can get a 10 percent discount 20% discount they've actually fixed the flipped the framing where and I think this is actually very smart instead of getting a discount in bitcoin. It's a premium for the fiat where if you're going to pay in fiat. It's 10 % more expensive and I think that small psychological tweak is actually pretty important. But yeah that software.

43:47.37

Marty Bent

Gets back to what I said earlier in the conversation was like how do we get to hyperbiquinization. It's creating tools like zap right? that abstract um, something as simple like invoicing where you don't have to go into a wallet and pick ah an address to send to somebody you just plug it in to zap right? and. Software knows how to go find an address and send it to somebody a lightning invoice and sending it to somebody. Um, so that it's tools like zap right being built and then getting adopted and again going back to my personal life I was actually shouldn't be but I was shocked that my wife my kids and I always. Ah, direct personal care doctor that we essentially pay a monthly fee. It's called ultra personalsonal health care based out of dripping springs right? outside of Austin and Veronica runs that decided she wants to hold bitcoin in her balance sheet and uses apppright to give us the option hey here's your monthly bill. And paid fiat or bitcoin and so yeah, more of that being enabled by software like zap right is how we get closer to this bitcoin standard.

44:55.23

ilm

What else? Ah so I think that is one the most practical outside of like buying bitcoin holding bitcoin those are fundamental. We have to have onramps for right now and eventually the on-ramps if we think through like a total bitnized world like theoretically and there's. You know, does the Us dollar always coexist or whatever fiat or country's currency coexist with bitcoin or bitcoin be the money itself and you know I don't know like I think I think fiat currencies will exist for quite a while longer than I like them to um. And I think that will probably make for a healthier transition anyway, so we'll we'll have to have off-ramps and on-rampps and then obviously holding it is super important to make sure it's actually safe. Um, so those are foundational. How do I how do I get access to this be it buying it or mining it or transfer transferring it from peer-topeer. Then? how do I make sure that's kept safely so we spoke to both of those earlier and then how do I spend it. That's something you just spoke to right now like there's companies that are popping up like I can I can set up and receive this and there's means of sending it and that's primarily going to be through the lightning channel like we we talk through this is ah. And a previous conversation. The lightning network versus base layer payments and how you know that's one of the critiques of bitcoin is it's too clunky and takes too long but like there's tradeoffs with that you can have something goes a lot faster but there's there's again, there's there's any fishies that take place with trying to highlight that efficiency if you think to like a.

46:27.14

ilm

Um, not much of a video game person. But ah if you're if you're playing an old school video game maybe and you're building your ideal basketball player and you have a hundred points. You can Divvy up. You can make that basketball player. The biggest guy on the like the tallest guy on the on the court but he has a terrible shot or you can go for a guy who is amazing 3 pointer but like. He can't he like he's super slow. Whatever there's so many points you can divvy up and that's when we think through bitcoin itself like there's tradeoffs. There's opportunity cost and like bitcoin itself. It is slow and clunky every 10 minutes for a block and only so many things that go into a block but that makes sure the security and the decentralized nature of bitcoin itself. Is emphasized and that's where personally I think anyone who understands bitcoin and understands the problem that bitcoin set out to solve is we're not trying to get the most fast and efficient means of payment we're trying to get the most secure and decentralized means of payment online and ah out there. So um.

47:23.73

ilm

That's where these other layers come in. It's like right? How do we Then once we have security nail down. How do we? then? add efficiencies. Um, okay so that brings us to lightning network and payment rails. Um anything else. You're seeing like there's I mean there's there's there's neat things I think like streaming where you can pay like. Ah, sat per second or whatever for something you stream like you could I don't know I live in this really small bubble of bitcoin and weird spot of bitcoin and traditional finance. But you have this awesome opportunity to see other things like what are things that out there excite you it could be super boring or it could be like wow this is I haven't thought of that yet.

47:58.40

Marty Bent

Well, we'll combine a couple things here I'm very interested in mining as well. I've been professionally involved in the industry for 5 years now. It's one of the early members of great american mining we did off-grid bitcoin mining in. Ah, on upstream oil and gas wells to do flare mitigation North Dakota had learned a lot during that and have really fallen down the mining rabbit hole over the last five years and I am wholly convinced that what we're witnessing. Is the beginning stages of an integration of the energy sector in the bitcoin mining industry and I I think that's extremely bullish. Um, and what we're seeing both on-grid and off-grid is just bitcoin mining being this mechanism too. Be as energy efficient as possible to to eke out as much economic value from the energy sources. We're pulling out of the ground the electricity we're creating on the grid as possible. So Ongrib. We're also involved with a company called standard bitcoin now where essentially what we do. We go and we find rural areas in Tennessee and Kentucky right now that have falling populations and they have falling populations because they had large manufacturing facilities move out of the neighborhood either recently or decades ago because of globalization because the way the dollar works.

49:28.59

Marty Bent

Is we had to flood the rest of the world with dollars to drive demand for dollars reserve currency and one of the ways we did that was buy cheap goods from other countries and neglect our own manufacturing base. So um, we're seeing a standard bitcoin is this sort of fixing of that problem where we're able to go. Into these small virol areas that have substations that haven't been fully utilized for years because the manufacturing facility that was pulling electricity from it doesn't exist anymore and so there's not as much demand for that electricity. But the substation still there with a ton of capacity and so what we do is we we. Show up to town and we say hey you notice you got the substation here like how much excess capacity. Do you have and they say all right? We got ten Megawatts and of excess capacity. We go all right? We'll buy that from you and what this does is ah allows the local utility to buy more power and bulk from the Tv where we are and since they can buy more power in bulk. They get lower pricing and since they're utility co-op with a mandate to keep residential prices low they're able to pass that low price. Ah onto residential consumers who are paying their electricity buck bill month and month out and again this is a perfect example. Of bitcoin just creating this economic incentive to create efficiencies like we're able to get lower pricing. Um because the utility is able to buy in bulk the residents able to get lower pricing because they can buy in bulk. We're able to mine ah bitcoin profitably um, the town benefits and you begin reversing.

51:00.78

Marty Bent

This problem ah that the globalization of the dollar created starting in 1971 and so like that's not really a technical aspect of bitcoin. It's the physical aspect of bitcoin which is the mining world which is very energy intensive and so that's another thing I'm extremely excited about I mean at standard bitcoin. Um, again, the whole mining game is driving your cost down as low as possible. So our thesis is what we're building next to these substations right now is essentially a proof of concept for utilities companies that are going to see what we're doing. They're going to see the revenues. We're able to pay them and then there's going to be a. Ah, switch that flips in their minds eventually which is like hey we can actually mine cheaper than these guys because we have the power and we can just mine a cost and eventually utilities companies and power companies and energy companies that are extracting molecules upstream or wherever they may be will.

51:45.68

ilm

I.

51:56.82

Marty Bent

Integrate mining into their business stack. So that's a big one and then we can tie it back to lightning network as well. There's companies like Satoshi energy and sonota where they're building lightning software and accounting software that enables or starting with miners as their first users that enables miners to pay. Power bills to utilities using the lightning network on a daily basis for the utility that is a massive benefit because they don't have to wait and 60 and 90 whatever it may be to get paid then you can paid every day as these miners are mining bitcoin. You get paid in bitcoin. Ah. Ah, your pool pay outcome and then you're able you set up a lightning channel and you're able to pay your bill on the go and that actually gives a utility comfortability with the miner where the miner then doesn't have to put up a big deposit on the front end and lock up all that capital. They can go be more capital efficient outside. Ah. That setup as well. So yeah, the efficiencies that bitcoin brings both in the digital and physical world I think are extremely underappreciated right now and we're at this point fifteen years in where they're really beginning to coalesce and become obvious to those of us who are. Very close to the industry and live and breathe a day and and day out. But I think over the next decade the the benefits that it provides both on the software side and on the hardware side in the physical world are going to be completely obvious retrospect you'm like oh yeah, this was everybody's going to be like that this with no brainer.

53:29.00

Marty Bent

Bitcoin was always going to succeed.

53:32.50

ilm

Um I think obviously mining bitcoin gets a lot of critique and one of those is more directly to related to the mining aspect and the quote unquote waste of energy it is and I think there's 2 places that people view a waste of energy and I was actually thinking about one of these this morning. Um.

53:50.63

ilm

The one that's usually alluded to is the waste of like physical energy so electric cost and oil and gas or whatever. It's like okay that that could be better used by heating homes or cooling homes or I don't know like whatever like funding the war machine or whatever. Whatever we think is a better use of Energy. Um the other. Another critique that I don't hear is often is the better use of Energy. We have Energy. It's going towards bitcoin that can be better used elsewhere and that's the people's energy the amount of smart minds working in Bitcoin. What is these? What if bitcoin want a thing. Why do we have this weird pet project that we're Using. Energy and mind power on when we could better focus that on building things. So like I'll know for medicine to save. People's lives or I don't know any any project you deem more valid and those sound good until you recognize the problem that bitcoin solving. So if you think that if you think that the the physical Energy. Exp expand ah expended to mine Bitcoin is a total Waste. You have not got to a point of recognizing the alternative. The alternative is the current money system that we have so okay if you don't want bitcoin a better form of money in our opinion then you have we we stay with status quo and status quo right Now. There's There's no money going towards it. Versus Bitcoin is it seems like all right bitcoin costs a lot of physical energy status quo costs nothing This is way off but like what are the costs of staying on a dollar standard like what does that cost us and why why should we expand expend energy on bitcoin from a physical. Ah.

55:23.79

Marty Bent

Yeah, on on this note and I've got to run here in a bit but I think it's important to end on this because what I just described is a very direct first order effect of the energy efficiency that bitcoin mining can provide the world. There is all these inefficiencies whether be flaring.

55:24.00

ilm

Energy perspective.

55:41.58

Marty Bent

Natural gas upstream or just having all this electrical infrastructure that's completely underutilized in the rust belt because all the manufacturing capacity moved out like that's a first order efficiency gain by bitcoin mining miner showing up reducing that flair taking a advantage of that excess capacity that makes systems more efficient, more profitable and. Ah creates a better economic outcome for everybody involved at the end of the day the second order effect of a bitcoin standard which is I think what you were alluding to is it brings opportunity cost back to the market which makes it hard to print money. It makes it impossible to print money ah out of thin air which brings the opportunity cost back. And so in the incumbent fiat system. The fact that the governments and central banks of the world can just go in and create money at no cost and then go allocate that money to whatever they deem necessary to any any given point in time whether it be war solar and wind infrastructure health care education. Ah, that many would argue has been misallocated money pretty terribly. Yeah, the big man. Yeah, and so what bitcoin does and the bitcoin standard will reintroduce is since you can't do that you bring opportunity cost.

56:41.63

ilm

The big the big man. Whatever but.

56:55.52

Marty Bent

Back to the market so you've reduced the misallocation of capital because instead of just hitting a button printing money and throwing it at whatever you want you have 21000000 bitcoin and you have to make an informed decision of how you allocate that capital Ideally you allocate that Capital. And invest in things that are going to be productive and create cash flows that return your money then some at the end of the day and add value quality of life and productivity to the rest of the economy and so that is when you talk about the energy debate and juxtaposing fiat to bitcoin where I think people really need to internalize is the. Ability to print money out of thin air at no cost and then throw it at whatever The government wants is a massive waste of Energy. There's no opportunity cost. There's no economic calculation that needs to go into that you can just print money and throw it at what you want under a bitcoin Standard. It's simply Impossible. You have to make. Educated decisions about how you're allocating Capital and when the opportunity cost of misalcating that Capital is high. You're not going to waste energy on things that aren't going to return productivity and increase the quality of life to the rest of the economy.

58:01.27

ilm

Yeah, it's It's ah it's a cheap, very expensive alternative. It would be like on it I know you have you have you have a couple young kids I have a few young kids as as Well. So The the fiat versus bitcoin If for my kids I just thought of right now would be like. Yeah I do dishes feel like nonstop and the fiat way like my kids are fighting I hear them fighting The fiat response would be for me to yell hey shut up, you know, like whatever just go off on them that is that is that is that doesn't cost anything I can keep doing the thing that it was important to me at that moment and it solves a problem right? Then it costs me nothing or I can stop what I'm doing. Use energy to go sit down with them talk through hey what's going on. How do we fix your behavior right now but also change the way you behave moving forward and learn something from that in that moment that costs a lot more that would be the bitcoin it costs something but the long-term perspective of like well the other the yelling at them is free. No, But what are you creating by that you're creating a whole system that is built on fragility and is not healthy and that's where we're at right now is like look we're looking at just the cost in this moment like I have to stop doing dishes like what are you actually building and I think that's what bitcoin forces you to take a step out and say Like. What is the what are the long-term implications multi-generational impact here and ah, what are we are we building something that's healthy versus we building on something that's convenient in this moment and unfortunately we've been building base off convenience for a long time and it's It's certainly catching up to us.

59:28.27

Marty Bent

Yeah, the the backend pain created by that high time preference decision to take the easy route out is I mean. As you mentioned you've talked with Preston and James Lavish and I'm sure if you've watched this episode you understand the severity of the situation we put into as we've been put into as a global society due to all the debt It's been run up by these governments ah could be a lot of pain in the future. It's because. Um, the governments and central bags took the easy way out. They hit the button printed money out of thin air and just threw it at problems instead of taking the time to sit down and say hey maybe we shouldn't have been using our money this way. Maybe we should think about moving in another direction, especially considering. We're transitioning into the digital age. Um, it's I do think it's important for people to really grock this the the fact that opportunity cost in a world in which money can be printed out of thin air does not exist or if it does exist. It's very small. It's very small cost under a bitcoin standard. Opportunity cost gets correctly priced and people make allocation decisions based on educated sort of frames of mind that force people to actually think through the implications of how they're allocating money where today it really does you can.

01:00:57.38

Marty Bent

Spin up trillions of dollars and throw it at airlines and pharmaceutical companies and banks and again that creates a disincentive for them to actually act nobly or morally or ethically within the economy. They know that. The central banker government's always going to hit the button and bail the ball it the other day.

01:01:21.59

ilm

And on and on that light note now that's I think what it comes down to is like to fully understand this, you have to change your way of thinking and ah zoom out and yeah, there's place of being myopic and like understanding the technicalities of this which. Love like again, a lot of the companies you've mentioned and stuff they've zoomed in on very specific areas of making bitcoin better in the world. Um, but you also have to Zoom out and see like why are we doing this and ah so I appreciate you taking time and letting us zoom in a little bit and also um retain a healthy perspective of why why is this important. So Marty again. Thanks for thanks for joining me I appreciate it is sir.

01:01:55.90

Marty Bent

Jim thanks for having me it was blessed all right? see you.

TILP #05: FIRE with Bitcoin w/ Trey Sellers

00:01.11

ilm

Trace soers thanks for? Ah, thanks for being here. Glad to have you join me today. Thanks yeah man, well ah, just prior to recording. We caught up a little bit but it's been a couple months since we hung out in Colorado and ah.

00:04.39

Trey Sellers

Thanks for having me Jim looking forward to the conversation.

00:18.57

ilm

Appreciated and enjoyed our conversations there. So certainly happy to have you in to can continue that conversation today. Well ah.

00:26.15

Trey Sellers

Yeah, looking forward to to chatting about you know my journey. Um, what we do it unchained and how that could apply to you and your clients and anybody else out there who's listening happy to share it.

00:38.81

ilm

Yeah man well and let's I Guess let's frame the conversation. So Um I want to I want to talk just about bitcoin in general how you see things how you arrived where you're at you wrote an article about. Fire Movement Financial Independence retire early in bitcoin and how they work together. Um, so I certainly want to talk through that and then we can also go through and specifically talk about keep your bitcoin safe custodying it obviously working with Unchain. You're a place that does a great job with that. So would. Would be remiss if we didn't touch on that point as well. Yeah, before we I guess before we go into the the droillll conversation of just keeping your your bitcoin safe. Let's let's talk about bitcoin itself. So I Guess Ah, okay look I'll we'll see that well hey yeah you wrote this article. It's ah bitcoin.

01:15.46

Trey Sellers

Um, yeah.

01:26.54

Trey Sellers

Um, I'll make I'll make that interesting too.

01:33.72

ilm

Is fire friendly. Um, let's talk through that. So I guess first off for anyone who doesn't know what is what's fire. What's fire Friendly mean.

01:42.58

Trey Sellers

Yeah, so um, my financial personal financial journey um was kind of haphazard. Not really well thought out for a long time and then I got to a point in my career. I was in banking and financial services consulting you know, pretty broad and diverse experience. All good jobs. Large companies. Ah, but you know it's like 1 of those things where you go in and you're not like fully enjoying what you're doing and kind of just like looking for a way out. Like oh this whole retirement thing sounds great I really don't want to wait until I'm 65 to do that. So like how can I accelerate this um and in trying to figure all that out I found this approach to financial management for personal finances. Called the fire movement stands for fire financial independence retire early and it's ah, an approach to managing your personal finances that advocates for intentionality in the way that you spend money. Um, and really like having a good handle on that making sure that you're not wasting money on frivolous things or things that don't add value to your life. Um, and then saving and investing as much money as possible as quickly as possible and as early in your life and ah in career as possible.

03:11.33

Trey Sellers

So that you can take advantage of the compounding effects of um, the the investment landscape the stock market real estate is very popular there but the primary tool that people use in the fire. Um fire Community is a stock Market Index Um, and.

03:21.96

ilm

Um I believe um.

03:30.35

Trey Sellers

You know one of the things that ah that I found in that journey is I was going through this process of saving as much money as possible and buying and a stock Index fund at any price. It's just like whenever you have excess money.

03:38.10

ilm

Um.

03:46.92

Trey Sellers

You just put it into the market right? You're you're working backwards from retirement and trying to bring that retirement day closer and closer to the present day so that you can be in a place where you don't have to rely on having a job and be dependent on a paycheck for. Ah, you know your everyday living. Um, and ah you know I around the same time I was starting to go down the bitcoin rabbit hole and I started to see the similarities between what I'm doing in terms of.

04:24.20

Trey Sellers

Pushing money into the stock market and um the way that bitcoin came to be perceived in my mind's eye as the ultimate savings vehicle and so I started shifting my capital allocation away from stocks and into bitcoin. Um, and the more I learned the more I grew in my Conviction. Bitcoin the more it dawned on me that I actually wasn't doing any investing at all when I was buying the Stock Market Index right? I wasn't going in and looking at a specific investment opportunity a particular company and reading through their balance sheet and checking on their Pe ratio. And their debt to equity. Um, and you know any of the other things that a fundamental or value investor might be looking at to try to ah pick a specific ah point in time that an investment would make sense. Um and then track that through time. No I'm not doing that I'm just taking my money and. Putting it without any kind of regard for any of that stuff into every company that's out there. The Broad Stock Market Index That's not investing that's saving and so when when that resonated with me. Um I started to realize that like well why am I So Why am I. Saving in this subpar vehicle when I could be saving more in bitcoin and so ah, that's kind of what led me to write this. Ah this article that you mentioned bitcoin is fire friendly because I wanted to convey to the fire community.

05:56.51

Trey Sellers

That really helped me a lot in thinking through my my personal finance journey. Um, that bitcoin actually is a superior vehicle for you to achieve the goals that you are trying to achieve and so you probably should take a second look at it and and give it You know a fair shake in terms of analyzing how that can. Fit into the way that you approach your personal finances.

06:20.11

ilm

I ah yeah I fell into the whole fire thing probably i't know 7 eight years ago and the there's the there's a lot about that I like now I think there is there's some unhealthy mindsets as well like I like I mean the.

06:30.50

Trey Sellers

Are.

06:35.31

ilm

Basically the advocate for really healthy, basic principles of money and it coincides a lot with like Dave Ramsey principles as well. You know it's like lot thoughts like Dave Ramsey do you like what he has to say like you know is it is it trash is it great. Frankly, if if that if all of America just stuck to Dave's general principles. The us would be at a better place financially. Um, and I think that'd be this we could apply that same metric to the fire community. It's basically like live well below your means save aggressively invest or save the difference and let time work for you and ah just be patient versus.

07:14.57

ilm

You know it's so many people like what the average person should say about 15% of their incomes towards retirement the average person reality saves like 3% so versus the fire community they're saving usually it's like 20 to 45% of income getting socked ah socked away. But ah.

07:31.12

Trey Sellers

Yeah, um, um more of a like fat fire. Ah adherent right? So like a lot of people in the fire community will just strip everything down right? They're like I can't have this cup of coffee I'm going to live in this like tiny house.

07:32.84

ilm

Yeah I think a lot of it.

07:48.39

Trey Sellers

And ah, you know, completely give up all the luxuries of life for the whole next ten years so that I can be in a position where I can retire and like look man those 10 years are very precious. You're giving up so much when you do that and so you know my my perspective has been look. I want to replicate the lifestyle that I have now and improve on that and if that means that I need to um, save more or invest more in order to reach a higher goal that will allow me to do that. That's what I should be going for because like you can retire great but like how are you going to spend that time. Um, you need to be thinking about like what is the vision that you have for your future and and the way that you want to be spending your time in the future in the future and then work toward that make your decisions based off of that adults and and don't sacrifice so much in the here and now so that such that you are.

08:46.92

Trey Sellers

Really like not getting the most out of the time that you've got like you might not make it to those 10 years. Let's be honest that that does happen for some people and so you know if if you're living out of a ah you know Cardboard box essentially trying to save for this like mythical retirement. That's that's somewhere in the Future. You're really doing yourself a disservice and and and in my opinion like kind of wasting valuable valuable time.

09:10.71

ilm

Yeah I think that's what concerns me about a lot of people in fire is again. The principles are fantastic. The end result can be fantastic. But I think a lot of time. It can be misguided and you want to make sure you're not running from something but rather pursuing something.

09:29.47

Trey Sellers

Yeah, that's really good way to put it.

09:30.26

ilm

You'd enjoy more and that running from something like so many people in fire like I hate my job therefore I'm going to double down and just burn myself I'm already burned out might as well double down and burn a salt file even more but be done sooner but then they stiff arm any sense of community or enjoyment. So they can one day experience these things and what I'm what I'm concerned with is we're going to have this group of people who caught onto the fire movement together and like in 15 years they're going to be like what mid 30 s like 38 and they're going to retire and go travel southeast asia and realize like dang I'm still empty I guess I have a good amount of money but like. I spent the last fifteen years neglecting community and finding any means of passions and pursuing those and now I have a lot of money but like I still don't have those things and ah obviously it's a jimal blanket statement. But I think that's that's a big concern that I have with ah getting to my opic on what you're trying to pursue. There's a difference like this is really important to distinguish is goals and then the thing informing those underlying goals and the problem I think with a lot of people in fire is you come you become so focused on the goal itself while neglecting the thing that is informing the goals like for instance like my wife and I I'm 33 we want. We want financial independence and I would say ah like fat fire both now and later on by the time I'm 45 so but when I when I think to that it's like all right we want financial freedom at 45 but why do I want that? Well I want more time really the things that are most important to us on time with family.

11:02.40

ilm

And ah, the ability to give generously are really the the reasons we want to build to do that now. Let's stick with the the family thing if I say hey I want to retire at 45 so I can spend a lot of time with my wife and kids. But in the meantime spend so much time working. That I'm neglecting my kids like dad you're never here to read to us. It's like shut up son I'm working so I can spend time with later on you know it's like what at when I'm 45 atticus my oldest yeah atticus that point will be 18 I'm like all right son I can finally go play catch with it. He's like dude get out of here where were you when I was a kid you know.

11:24.86

Trey Sellers

Um, yeah I can't hang out with you now because I want to hang out with you in 15 years

11:36.31

Trey Sellers

Um, right exactly.

11:38.67

ilm

So that's that's a big risk is ah sacrificing ah my my kids in our relationship on the altar of future financial success and how foolish would that be to ah to pursue something in the end goal by neglecting the thing that's over that is the overarching theme that you're trying to pursue. And that does present this It's a it's a false dichotomy but yet it does present a balancing act of pursuing future financial freedom or whatever goal is that that seems like it's counterintuitive to making sure you're doing well in what you're pursuing today and that's just that's why you have to be intentional. Like all right? How am I spending my time. It's not just about money like my time my money my talents these things to make sure it's aligned now and in the future like what I want is and what I hope to equip clients for is let's let's understand what's important to you. Let's articulate that. Let's make sure you're doing that today and also able to do that well in the future and hopefully in the future we can do that in an even more grand way because we've allowed for the resources we're setting aside now to compound and grow for the future.

12:42.12

Trey Sellers

Yeah, it's it's um, what you're describing where people are and and again like you're right? This is um, a broad brush and the the fire community is is very diverse in you know their backgrounds and the way they approach this. Um. There are some people who like take this stuff to the extreme.. There are some people like me who who think about this in more of a fatfire type of of standpoint where it's like you know you're You're okay, working a little longer because you want to enjoy things now and and actually live well in later in life. Um, but I think like this overcorrection that you're talking about.

13:18.97

Trey Sellers

Ah, and and this like um relentless pursuit of the later. It's almost like too low time preference. This is a ah ah bitcoin related type of concept where you're you're so focused on the future that you're you're missing out on the president. Um I think it's it's kind of like an overcorrection from the fact that people recognize intuitively that they have to constantly do more work harder. Um, and. And be on their toes so to speak to keep up with the ever-rising cost of living with the fact that that you know their kid's college education is going up at like 35% annually or something you know like by the time my kids are going to go to college. And might cost them a half a million dollars or something for a 4 year degree it's like you're you're never going to get that that value back you know, um, and and in order to do that because that's the expectation you have to continually be focused on that and be very intentional about it. Um. And so the reason that that's happened and and part of what I lay out in this article is ah you know that that these fire proponents they intuitively understand a few things right? They understand that the money is broken that life continually gets more expensive.

14:50.75

Trey Sellers

And that you have to continually save and invest in order to keep up with that. Um, and they don't really get why that's happening. They don't understand the same things that I think the bitcoin Community has really focused in on in terms of the money being being broken and being the cause of all of those things. Um, but they are acting like they understand that right? And so um, that was part of of what I wanted to communicate in in writing this is just that. Um you you get it right? like you get it fire Community. You're you're there, You're like so close. Um, you're just not quite addressing the root cause of the Problem. You're just reacting to it and in doing so it can lead to this kind of overcorrection where you're just you know focused so far on the future that you that you forget to live now.

15:41.56

ilm

In in the article you break it up through I mean it's it's really easy to read marches through ah generally what is fire houses generally accomplish through like 4 % safe withdraw rate the trendity study those sorts of things. Let's talk through a couple of those items in there. So. I guess ah, let's start off with most people in fire tend to just use index funds and I understand the reasoning here like if we if we looked at ah, most active funds net of fees and net of taxes underperform. Ah, they're the index and they're they. They're placed against so with that I mean it's just let's go ahead and just place the index and allow it to allow it to grow. But if we're just as you mentioned earlier if we're blindly throwing money at an index. It's odd because suddenly. Is that still considered investing or is that simply savings if we get this place of well if it's in reality it really is just more you're using an investment tool as a means of general savings without any thought it's just all right. This worked. Over a polling period of time so we'll continue to do so without any thought about where we are currently in the macroeconomic landscape with our current fiscal monetary policies microeconomics whatever these specific companies inside of this index. We're going to throw that out and just say that it's worked in the past and it'll continue to work and it probably will work for a lot of.

17:11.90

ilm

For over a very long period of time if we don't have some sort of strange event that happens. But then we have to bring in this other thing this the system is different now I know everyone always says that things are different this time. That's a really dangerous thing to say as things are different this time but we look at like. The outrageous prices that things cost and I'm not talking about like avocados but like Pe ratios and everything of the average stock out there like I think that is indicative of the fact that these indexes are being propped up and that's a term that we were talking about earlier. It's just what financialization of assets. And um, that sounds sort of weird to say like Index funds are being financialized but what what I mean by that it's not.. It's not ah, it's no longer being used as a means of investment but rather a means of general savings. Ah, you want talk through that like I just talked a bit about it. But.

18:02.40

Trey Sellers

These you know stocks are a great um example and and that is probably the primary tool for a savings vehicle that the fire community is using real estate is also very popular and suffers from um, a lot of different types of tradeoffs. Ah, then does the stock market. Um, but you know what you're describing here is that the money is broken. You can't just hold onto it because it's going to continually lose purchasing power right? Everybody knows that whether you whether you intuitively know that and or whether you explicitly know like no there is a direct mandate. To at least have the purchasing power of your dollars fall by 2% per year right? like yeah yeah.

18:42.96

ilm

Let's camp on that right quick because that's that is something that we're so used to it's like bringing up water to a fish. It's like well yeah I guess like what do you? What do you? only know what you're talking about yes I guess I'm aware of this concept. But it's it's normal. Why is that normal like why do we have 2%

18:48.80

Trey Sellers

Yeah, exactly right? yeah.

18:59.62

ilm

Inflation like you have this book behind you ah price of tomorrow. Um, that talks about how it sort of makes more sense to be a deflationary economy. So why? why? Why is two percent inflation normal.

19:09.14

Trey Sellers

Um, yeah.

19:15.00

Trey Sellers

Ah, well I don't know if normal is the right word for it. But it is the accepted standard um for sure and the reason is because um, our money is actually not really money. It's just credit. Like every day when you go to a store and you swipe your credit Card. You're spending what you kind of think of as money. But in reality it's just credit right? It's a ledger entry that is owed to somebody else and. That expands the monetary base essentially because you are spending money. That's not really in existence yet. Um, and that that has a cost to it. Um, we typically think of this as an interest rate Well that interest rate. On the total debt load needs to be paid back with other money like other dollars but those other dollars are not yet in the system and so what needs to happen is that either somebody needs to lose money and go bankrupt. In order to pay off the total debt that is in the system that our money is built off of or the other option is you need to create New Monetary units in order to satisfy the debt load that is out there. This is really accelerated in the past you know few years.

20:35.16

Trey Sellers

Especially since Covid as as debt levels have just like been screaming higher and then interest rates rise and you start getting this like exponential. You know people call it the debt spiral where it's just like it feeds on itself and it's more and more um on a personal level. You can just think about this as. You're putting your living expenses on a credit card that has like a 20% interest rate and you're not able to keep up with the interest payments. Um, you know because it just keeps compounding at such a high rate that is essentially what is happening here just at a like. Ah, much larger magnitude and a little bit slower pace than if you're using an actual credit card. Um, but because everything is built on credit and you're going.

21:11.50

ilm

We we talked about we we talked about the debt spiral with James Lavish episode two a few weeks back when that for about 45 minutes

21:22.67

Trey Sellers

Yeah, so you're so perfect you your listeners are well aware of of exactly with that. No better person than than James to be able to articulate exactly how that works and so that 2% inflation rate. Ah that. You were talking about. It's essentially required to expand the money supply in order to meet these debt obligations that are out there that our money is just built off of um if that doesn't happen the the bill comes due. And if the bill comes due somebody has to lose money in order to make everything whole and make the math work and people don't like to lose money. Especially really powerful interests and those people who are very powerful interests. Um, who are loaning money into existence like banks governments are creating money like all that. Like they don't like to lose money but they also control the monetary system so they don't have to lose money they can just literally conjure it up out of thin air pay their debts. Um, the rest of us who don't have that luxury of being able to print our own money and then spend it into the economy. We pay the price for that. Um. Our purchasing power is decreased by that 2% per year if you believe that number. Um, so that these other powerful interests who do control the monetary system are able to um you know fly around in their private jets and lecture us about carbon emissions. Sorry now now I'm really getting after it.

22:52.58

ilm

Um, so yeah, what it comes down to is money monetary expansion ah leads to devaluation of the money itself. So it's not a factor of like suddenly.

22:54.43

Trey Sellers

That.

23:07.73

ilm

Ah, everything costs more but rather the means of purchaing those things is worth less so you have to have more of those units in order to acquire these things and that's where you see this? Ah so if you look at Cpi or most metrics for inflation you're going to have a basket of goods and services. And if you look at those basket. What's in that those baskets it shows going to be things that are be like really scarce or frankly more important for life are going to experience a higher average inflation rate versus the things that are easier to produce less scarce and not as important generally are going to be lower inflation rate or even Deflationary. So. Things that are generally higher inflation. It be Healthcare housing education food energy like pretty important things versus things that ah.

23:51.18

Trey Sellers

And and all the things that that everybody knows like you you all like everybody sees this every day in their life that college is way more expensive. It's ridiculously hard to pay for for college. Um, you basically have to take on student loans in order to pay for it which is just adding to the problem by the way um, housing costs constantly going up and and ah is leverd to the hilt as well, right? like we're talking about like these massive mortgages people coming out of out of college now they can't make enough money. In order to save for a down payment to pay for a house because that down payment is now like $200000 or whatever for just? Ah, um, the median home I'm exaggerating a little bit but um, but that is a massive problem that that continually compounds. Um, and the reason it does that is because of all this debt that is built up and and the fact that our money is just it's credit based um, it's not It's not based off of the the productive capacity of the economy. It's pulling pulling forward um productive capacity from the future for the here and now. Which just is gumming up the works in the way that you're describing.

25:05.62

ilm

Um, there's strangely enough there's a lot of camps who don't recognize that the cause of debt is monetary debasement or monetary printing rather but as other factors if it's corporate greed or. Just suddenly things are getting more scarce and hard to produce which doesn't make any sense which again goes back to Jeff's Jeff Booth his book press tomorrow talking about how in a lot of things. We should actually be experiencing a deflationary economy like if we have technology and our efficiencies picking up then why shouldn't we be at a place where average person instead of working. 40 to 60 hours a week is only working 20 to 30 hours a week and things still cost the same if not less that just that makes sense. But again that that takes a total paradigm shift of how we view things and I don't think most people even have allowed themselves to go there because we're so used to being fish inside of this water of. Inflation and let's let's talk to them. So um.

25:57.76

Trey Sellers

Yeah, well everything is everything is financialized and everything is funded with debt right? All of the big things. All of the big important things and because it's financialized and funded with Debt. You have to continually chase after more and more monetary units in order to pay that ever growing debt compounding right. And so that's where this like Rat Race wheel thing. Ah you know analogy comes into play and that's where this overcorrection comes from from the fire community where they're just saying like I'm I'm going to get out ahead of this thing and I'm going to do everything I can in order to get out of the Rat Race so to speak right. That's where all of this leads from and and and that's that's that's the like key point that I wanted to make in in writing this is is the connection there between um, the problem that the fire community is trying to solve for or um. Ah, address in their daily lives and the root cause of that problem that is monetary and that bitcoin bridges the Gap there. It is the solution for those things.

27:06.50

ilm

That's what I mean so just a bit ago I saw that apparently the bank of Japan is about to ah release a round of ah basically like universal basic income payments to help with the impact of inflation.

27:23.81

Trey Sellers

Um, disturbable.

27:23.85

ilm

Which is hilarious if we're so if we're sitting here saying that monetary debasement through ah monetary printing is the cause of inflation going through and saying hey I know everyone everyone's struggling because things cost more here's some free money like we're just kicking the can further down the road and not just kicking the existing can down the road. But we're making that thing larger whenever we have to face the the repercussions of it like you cannot let's say that that's kicked a few months down the road or a couple of years again this happened in March of 20 you know stimulus checks all that fun stuff. And that point people are blinded to saying to seeing the inflationary impact of this and it took a while for it to catch up in normal people's lives. Ah but it eventually came and we're experiencing that the impacts that right now. So but I would I would venture to says despiteke the fact that we're experiencing that now I think the us will do something very similar in the next. eight months and ah to curtail the issues that were caused by this thing we'll come in and we'll we'll reprint and we'll keep putting bandaids on it and that's a.

28:26.35

Trey Sellers

It's it's such an insidious form of taxation really and wealth transfer from the masses to the people who are closer to the monetary spigot right? We can call this the kention effect. Um, the people who get the money first when all this happens. Benefit because they're able to go out and purchase goods and services with that newly created money before it has time to work its way through the system. Um and and and increase those prices now if you just splash the entire economy with you know thousands of dollars into their bank account. So much of the way that happened with covid you're going to get inflation like in a much quicker way and it's going to be much stickier. That's that's essentially what happened and then you know pre prior to covid and and all of that those happenings I think there was a little bit of um, you know complacency from um, you know. Economists out there and the fed and the government that look we're doing all of this stuff that we've been doing since the great financial crisis to try to get inflation and we're not getting it right? like we're we're we're really, um, we're really pulling out all the stops we've got qeone 2 3 4 ah we we're just like um spending more than ever and we still yeah, but yeah, oh I remember getting a $600 check from george bush back in the in the middle of the the um ah great financial crisis back in like 8 or 9 or something like that.

29:43.69

ilm

Um, helicopter money remember that that phrase helicopter money in 2016 or so.

29:57.25

ilm

Cash for flunkers. All kinds of things. It's like you know where's that money coming from. Actually it's coming for you, you're they're they're taking out one of your pockets and putting you to another one and that's.

30:01.19

Trey Sellers

oh yeah, oh Yeah, notes yeah and really and really what was happening is like okay well inflation didn't skyrocket the way that it did ah in in 2020 2021 um, but the reason for that is because we were just coming out of this massive ah definancialization so to speak or this collapse and credit around the world and that was such a strong deflationary force that um, all of the inflation that was being created to combat it. Was able to kind of stop it and maybe like reverse it a little bit to that like to the tune of you know, half percent 1% 2% whatever their their target was they couldn't quite get it up to 2% because there was so much weight coming down from from the collapse of this credit bubble. Um, and and then. Layer in all of the productive capacity that we've created um with the expansion of the internet and iphones and like all these stuff you got to remember the Iphone was released back in 2008 like what the world looks totally different now than it than it did back then and there's so much more productive capacity. In a lot of areas of the economy and all of that drives down prices so they're really just like pissing into the wind so to speak. Um, they're they're fighting against this massive deflationary force. Well when you.

31:27.61

Trey Sellers

When you come to 20202021 and you shut down the entire global economy like literally shut it down and then you print all of that money. There's nowhere for there's no deflationary force to counteract all of that money printing and so that's really the reason that we saw this kind of. Runaway spike inflation that that everybody's dealing with now. Um, so you can't you can't get away from the fact that um, you know inflation is caused from the monetary base expanding. Ah, it's just so far removed from our everyday experience because. Money is built on credit and we just don't see it and it takes time to play through.

32:07.12

ilm

Let's pull that thread a little bit more than of inflation. So in that article you mentioned the trinity study which basically is came to it was a study that led to this 4% rule this 4% safe withdrawal rate which is basically I think that went back to 1926 which bill biyan I believe is his name. We ran. He actually redid this study in 2019 going back with more data in more diverse markets and it came back to actually out to a higher distribution rate of somewhere in the fives and five percent say ah withdrawal rate the initial was again four point two I believe they rounded down to 4% said hey if you have ah. You can you can distribute from your portfolio at initial 4% of your invest total invested assets and then adjust that number for inflation annually in over a thirty year timeframe um out of all the market data we have available at no point would you have run out of money in that thirty years actually. But I believe it was about 98% of the time you would have.

32:58.16

Trey Sellers

Yeah, it's it's it's almost a hundred percent

33:00.40

ilm

Wound up with if not yeah, you would actually a vast majority of the time you would actually ended up with more money than you start out with by multitudes the problem is again. We're trying to outpace and there's it's an inflation adjusted number. So there's a lot of unknowns here now. Can we if we imagine a world.

33:07.78

Trey Sellers

Um, yeah.

33:20.21

ilm

Where there was no inflation that would change how we do all this. For instance, if we had no inflation. We could just look and say Jack cut this out. We got a bill sign. Um.

33:34.66

ilm

Yeah, so if there if there was no inflation then we're just look all right I plan I think I'm going to live for about thirty years I just need to have 30 years of lemu expenses set aside I mean that's that's really broad and oversimplified. But the impact of inflation makes us lot.

33:52.93

Trey Sellers

It's not It's not even that though Jim right? like all this productive capacity that we were just talking about the improvements in society all that it it increases people's purchasing power over time if you're measuring it in something that can't be printed so here we're harking back to bitcoin right. But like you would expect that if we are 3 4 5 6% more productive on a yearly basis if you are just holding money that can't be printed then you're getting you know 3 4 5 6% more wealthy over time so you don't actually have to have. 30 years worth of expenses saved at the beginning. Maybe you only need fifteen or twenty years worth of savings and then that compounding effect that you get from your purchas and power increasing through just general productive capacity growing over the the global economy that takes care of the rest and and um. All the same rules in terms of a safe withdrawal rate apply here in in that same regime It's just that you're not having to go out the risk curve and invest in the stock market or bonds or real estate or art or classic cars or whatever else that you're trying to get your hands on so that you don't have to hold on to cash. If you can hold on to money that can't be printed. Um, you can hold on to like the base layer of savings. that's what bitcoin represents that that's what bitcoin is

35:18.80

ilm

Um, a big issue here is that by money itself is meant to be a store value and then a means of transferring that value that you're able to store the problem is when you have a money I would argue that the Us dollar and pretty much a need. Money out. There is not actually money It's simply currency. But when you have a a currency or money that does not actually store value over a prolong period of time it just transfers that in a diminished capacity over time then people are forced to invest or speculate in different things which in which introduces. Volatility and unknowns and the the necessity to go hire financial planner. It's going to increase your taxes like if we just had a if we had if you had a money that kept its value over prong period of time and ah, you have you have a dollar that's worth a dollar today and in 30 years it's still worth a dollar and you go and use that dollar to. Purchase something There's no capital gains impact versus if you want to have a dollar of purchasing power and in 30 years well during that time you're going to actually have to invest that money and then when you finally sell that investment you're going to realize a taxable event. So. You're getting to get stolen from in multiple ways. 1 of them is through inflation. The other one is it's caused by inflation and that's the capital gains that you were forced to utilize in order to keep up with inflation itself. And yeah, it's it's frustrating now. Let let's say let's take ah, let's take this to ah to bitcoin.

36:40.50

Trey Sellers

Insidious as I said yeah.

36:43.40

ilm

So you had this 4% safe withdrawal rate we have to think through what's called a you mentioned the article again. It's sequence of return risk. That's why where this came out was in the 90 s the market just went up a whole bunch and all these goofy talking heads on financial. What a Tv were saying like hey the market's up 12% again this year you can pull out 12% of your portfolio and you won't run out of money. Which sounds fantastic. You know like I wish that was the case but the issue is if you do that in a time like in the 70 s or the 40 s or the nows. Um, what would happen with your portfolio. Um, when the market drops. So that's when Bill went back and tested over prolonged prolonged periods of time over different markets and came out with this 4% so sequence of return is again. It's basically it's not just the returns you see, but the sequence the order in which you have experiences Returns. So if you have a high return at the front of your retirement and then low returns to the end. That's not as negative of having a very low return in the first few years first and then having high returns later on. So um, like.

37:43.88

Trey Sellers

Yeah, if if you if you retire and then March Twenty Twenty happens the next month and um, maybe that's a bad example because they came in and printed a whole bunch of money. Well it's not that bad of example, actually because. Purchasing power actually really did fall off ah off a cliff. Um, but let's take let's take just to make it a little more plain right? Um, the you know if you retire in um, in late 2007 ah, you're at the top of the of the market there. You've just hit your your. Finding your independence number which is 25 times your annual expenses that you expect to have over over the course of your retirement that that equates to that 4% rule. You just hit your number you retire day one on that and then the market and the economy enters into recession. And your portfolio gets cut in half over the next course of the next year well now you're selling way more than four percent of that original value and you haven't had time for compounding to help that value of that grow so that you can keep up with inflation and ah fund your lifestyle there. Now all of a sudden if that happens in year one your chances of getting through your entire retirement just on that portfolio and selling it down ah have lessened drastically. Um, if you make it through the first like 5 years or so I think is what the trinity study is is showing.

39:13.82

Trey Sellers

You make it through the first like 3 to 5 years after that point there's almost no scenario historically speaking where you need to worry about a great financial crisis. Um like one that we that we saw that would would force you to go back to work. But that sequence of return risk that is what that's illustrating is that. Um, you know the volatility that's associated with holding your your savings in an investment vehicle like ah the stock market can adversely impact what your retirement looks like if it just so happens. To be affected at the wrong time.

39:52.79

ilm

Let's bring bitcoin in the conversation then so obviously a lot of the issues that we've highlighted with inflation and money printing and central control and all those things like bitcoin was created as a means of ah correcting that and removing those. Ah.

40:08.57

ilm

The the people who introduce those those problems but we're not at a place yet where bitcoin is uses the money and is a stable store of value in short durations which is important like if you're if you're 100 % in in bitcoin and ah, you retire in 2021 and then the purchasing power of that bitcoin drops by 80, you're in a lot of trouble unless we experience an immediate K-cor Correction um you're you're sort of hosed which I've seen people do this unfortunately years back? Um, when I was working another firm. It's few people who reached out wanting to do these types of things and you have to which bitcoin maximus out there will will maybe throw rocks at me saying that everyone should own all their assets in bitcoin. But I think by introducing unnecessary risk which unnecessary risk comes through ah incorrect portfolio sizing.

40:47.20

Trey Sellers

Um, and.

41:01.61

ilm

And ah, by not having the right portfolio allocation portfolio size and having unnecessary risks. You actually put your overall bitcoin allocation at risk as well again through poor sequence of return risks and ah distribution times. But anyways I think the people who don't like bitcoin or don't understand bitcoin. If we're sitting here talking about sequence of return risk and pull returns and stuff I think they'll they're probably snickering right now saying like well heck bitcoin so volatile how would this outrageously volatile asset help a ah during this this case of with with sequence of Returns. You can you speak to that like ah.

41:36.27

Trey Sellers

Yeah, that that secrets of of return risk is certainly applicable to bitcoin in the short term. We are not advocating for bitcoin as something that like immediately like.

41:39.64

ilm

That's.

41:56.90

Trey Sellers

One day it's not the next day it is like full global money and can protect against all of these things because you're you're holding the base layer savings mechanism. That's not going to happen. It's ah, there's an order of operations here. It takes time for people to actually understand its value and put a material amount of their net worth into it. Ah, so and and create a liquidity profile for the asset such that the volatility so continues to drop and and at the point in time in the far future where you and I think bitcoin is going. Um, we're denominating goods and services. Ah, and our investments in bitcoin right? We're using this this 21000000 hard cap supply ah as a true measuring stick for all of economic value and when you do that. There's no volatility at all. You don't have to introduce this noise into the calculation mechanism of your day-to-day life of having the purchasing power of or the the measuring stick moving the purchasing power is going to to ah to vary regardless of what money you use. It's just that. You get a clearer signal as to what that purchasing power actually is and it's reflecting in a purer sense. What is actually going on in the economy as opposed to having all this extra noise introduced into.

43:21.89

Trey Sellers

Ah, your assessment of what's going on in the economy because your measuring stick is also is also changing in shape and size That's what's happening when when money is printed um you know and then something busts and there's this cascading liquidation effect of all of this debt you know collapsing in on itself. And then we get these massive deflationary forces. You're seeing that measuring stick you know widen and and crunch widened and crunch. It's really difficult to make economic decisions. You know when you're when you're using that as as the the way that you account for value in the bitcoin world. What we're trying to do here is is. Help people understand that by adopting bitcoin by the world adopting bitcoin we can move away from that like really crazy measuring stick. We can just say ah an inches an inch you know it's like an an inch doesn't move ah back and forth widen and narrow. If you tried to build a house with that kind of a measuring stick. You're going to have a bad time. Um, and the same thing goes for when you're measuring economic value as well. That's what we're going for and when we get there all of a sudden you don't have to worry about secrets of returns risk when you are when you're holding bitcoin because it is the world's money. Is the denominator.

44:38.11

ilm

It's when I when I when I talk about bitcoin and its its value or price. Whatever Um, obviously there, there's there's the exchange rate between bitcoin and whatever fiat currency we werere we're exchanging it for but over a prolong period of time I Deliberately don't use the word like. How many dollars you going to get I use the word purchasing power which trade as you just mentioned purchasing power will move. That's expected. There will be deflationary and inflationary forces in the world for for you know for a house. Maybe you live in a spot that is just really nice and a lot of people want to move there. Ah, that way you would expect natural inflationary forces on the ah on the the homes that area versus if you live in a dump and people decide like Wow, They just it just found out that there's a we on ah on a fault line. Well we expect the value of that house to go down and ah yeah, so but it's I deliberately use that word of purchasing power.

45:09.78

Trey Sellers

Um, yeah.

45:29.00

ilm

So we understand exactly what are we benchmarking things against and when it comes to benchmarking like when you when you have a system of measurement that is fluid and doesn't work I can'tma ru mentioned this but it talks about like you if if you have a ruler that that it just in in its length. And you're trying to measure a table with it. The question is are you are using the ruler to measure the table are using the table to measure the ruler itself and that's where we are like my house a couple years ago appreciated supposedly by 33% but did my house become 33% more valuable. Yeah, right? Dude I've got I've got four kids like there's no way my house is worth 30% more with their fine works of art all over the walls. So my house didn't get didn't appreciate by 33% um, you know our town grew by some so maybe it grew by 8 % but the remaining appreciation of my house that remaining 25% was actually devaluation of the thing that you're denominating it in. Buy that that 25% so we're using this goofy ruler. So I work in my brain works in terrible analogies. So that'd be like Adeline. She's my seven month old so let's say we're trying to measure Adeline against our dining room table. Okay, and she's growing the reason I use that so like ah bitcoin bitcoin is this place of infancy. And I expect it to grow and become the size of the table eventually that Adeline bitcoin but now small but she's growing a regular cadence now. Let's say I wanted to send updates regularly to grandparents about how how big adeline is um I could and I had this ruler to say it. So.

47:06.80

ilm

Adeline on this ruler against this table. Well we can see that she's growing against the overall fixed thing. But if I'm trying to measure her against a ruler that's pegged against this table. But then we throw in this ruler that switches. Well I could say hey Adeline right? now is three feet tall but then we in a month. We want to send the update how of how tall adeline is and since then the ruler got shorter. It's like hey adoline is only two feet tall well did she shrink no the measuring stick itself is being adjusted and suddenly Adeline's seven feet tall. It's like well that's bigger than the rule. You said a few minutes ago how that happened well that happened because suddenly we have this multiple above. Ah, that's where we're at right now we have ah the total monetary supply in the world is just outrageously large compared to things that we're supposed to be being keeping in account of so like the length supposed length of this table is greater than the table's length itself because we're manipulating the ah the means of measurement versus if I just had. My child this thing this bitcoin the purchasing power of it is growing and expanding to eventually we know exactly how much table she is. We've removed this third party that brings so much noise in that ruler. That's that's changing. That's simply noise we have to remove that. From the system itself and allow just 1 thing to be pegged against another That's a terrible analog analogy. That's how my brain works is through these these bad things. But ah in the career.

48:29.80

Trey Sellers

Yeah I mean when when you go through life when you go through Life. You're you're constantly solving problems. Um, it's really hard to solve a math problem. Let's say when every um, every integer or variable. There is a variable like you need a constant. You need a constant in order to be able to solve a math equation. Um, and that constant needs to be the money if you don't have a constant money. You've got variable money. It's going to be really hard to pinpoint what the answer is to ah the question that you're trying to ask and that question for most people is how do I Just live a good life. And ah, plan for my future and be able to give my kids the things that I want to give them so they have a good life So that um, you know they've got food on the table so they can enjoy the sports and games that they want to play so they can grow up and and be. Um, you know, intellectually stimulated and have all the other opportunities that you would want them to have ah that that constant needs to be there. Otherwise it becomes really hard to solve that equation that you're trying to solve.

49:37.67

ilm

Ah, can you imagine if we had algebra and it was like you know a plus seven equals solve for x equals x solve for x and you realize through going through multiple problems that a equals 1 so it's like oh 1 plus seven equals. So the answer is 8 and suddenly it's like wrong a in this equation is actually worth seventeen. It's like why it's like done matter figured out. It's like how do you actually guess what a is supposed to equal or what x is supposed to equal when this this other number this variable is supposed to remain constant.

50:05.33

Trey Sellers

Um.

50:12.29

ilm

But you have some goofball behind the scenes who's like sorry it changed this time. It's like no in order for me to solve for this future thing I have to know what the the variables they're adding up are going to equal otherwise I'm I'm doing a guessing game which honestly is where we're at we're at a guessing game like how do I Invest how would I save for these things like well based off our best guess is what? x.

50:21.10

Trey Sellers

Are.

50:31.80

ilm

What? what? what? a is in this equation we should probably do these things but who knows and that's that there is a necessary place of investing investing is not a guaranteed thing. There's a place of necessary place of investing but we've made it way more complicated than than that it needs to be in that user way another way that you can solve for this volatility.

50:34.16

Trey Sellers

Um, yeah.

50:48.75

ilm

4% state withdrawal rate is by having what we call guardrails so like for our retirees what we do is we actually have about a five and a half percent distribution rate in their portfolio. But then we introduce guardrails. So if in year one your portfolio grows a bunch and instead of having an effective ah instead of having an effective five and half percent distribution rate now you're to. Three and a half what we can give yourself a raise that year or if the market does poorly that year and suddenly 7 out five and half percent distribution rate you're at a 7 % distribution rate. Well we're just not going to give you a cost of moving adjustment that year maybe you have to rain things in and that helps smooth overall volatility and actually ah.

51:27.37

ilm

Inject some more insurance into your your your cash flow over polling period of time which I think is really important when having like bitcoin as it's growing right now that'll help you ah weather those ebbs and flows of purchasing power power.

51:39.90

Trey Sellers

Yeah,, there's there's there's another thing to to recognize and maybe this is like too far past people who are new to bitcoin and they're trying to understand it and and trying to understand its value but you and I can can definitely agree because we've been around for a long time and and fully have conviction. In in bitcoin as like a long-term savings vehicle is that Um, there's so much asymmetry and upside in terms of its purchasing power because it's so young and and not understood and because there's so much store of value. Um, value out there that can be pulled away from subpar assets and into bitcoin Once people recognize that it is superior. Um that you know that trinity study was based off of the ah the total market.

52:22.17

ilm

Are.

52:35.91

Trey Sellers

Going up by you know, 8 to 10% per year and you adjust it for inflation. Maybe you're getting like 5 to 7% in in purchasing power growth or whatever to combat to to compound well if bitcoin has all of this upside because it's becoming more and more adopted now. All of a sudden. Even though it's more volatile. It's still growing way faster than that stock market investment or savings vehicle that you're using and so that has to also play into into account when you're thinking about a safe withdrawal rate and all that that can be scary for sure, right? But ah. You know, but but that definitely does play into this equation.

53:14.28

ilm

Um I think it was in 2020 this this fun statistic came out and who knows what bitcoin will do moving forward. Um, but I believe it was from the genesis of bitcoin in 2009 until sometime in 2020 um, if you had your portfolio one one percent in bitcoin the remaining Ninety Ninety nine percent sitting in cash. You would have outperformed s and p five hundred index with substantially less volatility in your portfolio and yeah, obviously the the adoption rate at that point massively. Skyrocketed who knows we'll do moving forward from a percentage growth and of a price but ah yeah I think does speak again. It comes to portfolio sizing not saying you have to have 100% of your portfolio in this thing. But if we if bitcoin becomes this global store value and sediment layer. Um, we would expect that to take up a lot of the existing financialization of other assets and ah yeah I think that would um.

54:15.45

Trey Sellers

Yeah, you? why? Why would you? Why would you hold your schooler value in something that ah can't be moved and is taxed every year and has constant maintenance costs and ah you know things that you have to fix. Um. Which I'm referring to you know your your house or other real estate assets. You got to deal with tenants if. You've got real estate investments. Um, you know like those can be good investments and there are some good tax benefits there but there are a whole hell of a lot of work and are you really outperforming.

54:51.78

Trey Sellers

Um, just holding the stock market. Um, if you're you know, doing real estate there. Well why would you hold the stock market if you've got to trust that this counterparty that's holding onto that is going to be there. Um, and and let's not forget like we're taking a very we're taking a very um, uscentric. View here in a very us-centric conversation. Um the rest of the world does not have the same type of privilege that the us does in terms of access to the stock market. Um, you might not have access to the right stock market. You might not have access to any stock market at all. Um, your. A large portion of the world. Their only option for saving any type of value at all is the the cash or the the currency or the money that they are forced to use on a day-to-day basis. Um, and across the world in places like Argentina and Venezuela and lebanon and turkey. And various other places around the world like the the opportunity for people to take this very us-centric approach that we've been talking about for the whole last hour um it's just not there so they need an alternative they need something that they can access that they can control that. Can't be taken away from them by their government and that cannot be printed into oblivion. Um, they don't have access to ah dollars in a lot of cases and they don't have access to the us stock market. Well what other option do they have bitcoin can be that option. It can be something.

56:24.14

Trey Sellers

Even despite its volatility that allows people to actually build up savings and and follow the fire methodology. Ah, even though they don't have access to you know the same types of tools that that you and I do.

56:39.44

ilm

Let's if yeah, do you have a few more minutes cool let let's let's take a second. So let's say someone's thought like all right I'll buy some of this I think it makes so it makes some sense like I'll I'll go ahead and get some but ah and I encounter this regularly I'm sure you do with with where you work the ah you know.

56:42.49

Trey Sellers

Um I do yeah.

56:56.74

ilm

I Saw this article I have a friend who they had some bitcoin early on and they lost it and now it's in a you know landfill somewhere or whatever they lost their seed phrase like how once you once you've bought bitcoin or acquired it in some capacity. What are different Ways. We can just talk through like simply from the simplest means of holding it through the more secure means of holding it. How do you make sure this thing is kept like we've talked about in the in other episodes like how this is a Bearer assets. You're able to take custody of it itself. What does that mean or what are different ways of custoding it and what are the risk and tradeoffs with those.

57:35.59

Trey Sellers

Yeah, bitcoin can really help you in your personal finances and in the way that you manage you know saving for the long term. But only if you can actually hang on to it right? And so um, there there are different ways to do that and everything has tradeoffs. What.

57:35.93

ilm

Um.

57:53.14

Trey Sellers

What I do in my role and what we do it on chained is to help people to hold on to bitcoin in the best possible way that eliminates or drastically reduces the ability for them to just make 1 mistake and lose a bitcoin. So let's step back and and talk a little bit about fundamentals here as you said. Bitcoin is a bearer asset. It's akin to holding a bar of gold or bag of cash in your hand. It's something that you can keep in your possession and the way this works is that you are managing what is called private keys. It's essentially just secret information. You can kind of think of it like a secret password. Um, and as long as you are the only person who knows and has access to that password you are the only person on the planet who can spin this bitcoin nobody can take it from you. Um, you are are not able to have the bitcoin move from your possession into somebody else's without a cryptographic. Signature from these private keys and so when you start to understand that there's there's some kind of power that is um that is illuminated there which is that wow I can hold on to this thing and literally nobody can take it from me. Without me somehow cooperating or them getting cans on this secret information. Um, but the flipside of that is if they get access to that secret information they can spend your bitcoin regardless of where they are in the world. They don't have to like come to your house and grab your borrows of gold that you've that you've buried in your backyard. Um, you know so.

59:26.12

Trey Sellers

Ah there's there's a little bit of a double-edged sword there. Ah but those cryptographic keys because we're just dealing in math and and information here you can actually manage bitcoin where you don't have that single point of failure and that's what we do at unchained. We help people to hold bitcoin that is protected behind multiple keys. 3 in fact, with a quorum of those keys needed to spend the bitcoin out of the vault as we call it once it goes in so our clients hold 2 keys we hold one and that puts them in a position where they have full unilateral control over the asset. Um. Have no single point of failure because they can keep those keys in geographically dispersed locations and if something happens to them. We're in a position to help because we've got that third key and we can act with um, you know, ah in cooperation with one of those other keys in order to. Ah. Refresh the the setup and get them into an ah uncompromised situation if something happens to them and their bitcoin needs to pass down to their family. We're in a position to help with that with that scenario as well. And so um, you know bitcoin um, security and. The act of actually holding onto it and making sure that that you are securing it in in a way that is resilient to your mistakes that where bitcoin can't just be taken from you. It's come a long way over the last you know 7 eight years or so and.

01:00:57.37

Trey Sellers

It probably has a long way to go but we have the tools now that will allow people to actually take a material position in bitcoin. Some people start dipping their toes in with like a 1 % allocation it's like hey if I buy 1% of this thing because. I think it might go up or could go to 0 well, that's great like could have a very significant impact to your ability to save over a long period of time if you could hold on to it. Ah, and if it goes to 0 well, you know you've got the rest of your portfolio in the stock market and that goes up and down by 1% you know every single day so you want to go feel that right. But when you start to develop conviction. Ah, people tend to want to allocate more to bitcoin and when you start doing that you need to make sure that you are securing. It appropriately. So we talked about how bitcoin is a ah bearer asset and how you can actually control it yourself. Well why would you want to do that. Because you don't want to trust somebody else with an asset that you don't have to do that right? We've seen a lot of exchanges go bankrupt we've seen banks go bankrupt and and needy bailouts and that kind of thing. Um, you don't have to be dependent on somebody else to manage your wealth for you. In this new world of bitcoin. You don't have to be reliant on a counterparty because bitcoin is not based on debt right? The reason that we have to kind of brings it full circle. The reason we have to have intermediaries and banks and other financial institutions involved in our transactions from day to day is because ah.

01:02:32.25

Trey Sellers

You know we we need to be able to transact over ah large, um spaces and do that very quickly and that requires those people moving money over electronic communication systems. Um and up until now the most efficient way to do that is to create debt right to create Credit. Um. Bitcoin is not like that you get all the benefits of ah that credit-based monetary system where you can zap value around without having all of the downside of the counterparty risk that comes with those financial intermediaries and those banks involved in all of your transactions knowing everything that you're doing. And taking a ah 2 to 3% slice of that of that transaction volume right? So we can just leapfrog all of those financial intermediaries you can hold your wealth in your own hands. That's very difficult. Ah for you know governments or any other bad actor to claw away from you and also if you set it up the right way. Very difficult for you to lose um and you can get all of the benefits of that bear asset without any of the downsides of holding cash or gold that you can't send over large spaces. That's very difficult to to um you know essay and make sure that it's real and and all that kind of thing. Bitcoin solves for so many problems. Um and you just have to recognize that secure it in the best possible way and then just sit back and and watch as you you know, take a better view than an index fund or real estate in terms of the savings vehicle that you've got.

01:04:04.83

ilm

It's it's easy to get lost in so many of the other things about bitcoin from a ah again I generally view this in a more of a macro macroeconomic lens and get caught up in that or you can take in the technology side of things. But I mean a few days ago was bitcoin white paper day celebration of when Satoshi released. Ah, the the white paper to talk about what is bitcoin how he's built it and the title that itself talked about it's peer-to-peer money like this is something that we're removing these. These trusted third parties that you know all the times we've we've placed trust in people that shouldn't have trust the problem is by by just because you own bitcoin this is ah this is a a poor argument but a common why here is well you know whatever this this institution collapsed that institution collapsed. I thought bitcoin was supposed to solve that it's not bitcoin's fault. That's this institution's fault that you're not supposed to place trust in so we have brought centralization back in and there are places that that helps it's necessary to an extent That's where even when you when you when you own bitcoin. There's a lot of ways to own it. You can you can keep it on in exchange you really? but you want to be very cognizant of what exchange you have that on you kept it on mount gox or ftx or litany of other ones over the years your bitcoin was was taken it was either it was either stolen from you directly or was stolen because it was actually never bought and ah you just had a.

01:05:33.31

ilm

You know your screenshot shows you had bitcoin but didn't exist that would be like Tre. Ah, you said Jim I want to buy some real estate in Hawaii from you and I said all right here give me give me a million bucks I'll get you beach beachside property in Hawaii right now to give it to you I give you a picture of it even like perfect. That's mine. But you're a really busy guy. You're not going go to hai today or tomorrow in the next year so I can go out and sell that same beachfront property to a million other people and suddenly I just got a lot of dollars and maybe there's one. There's maybe there's one real estate actual house in hai maybe there's maybe there's none that doesn't matter because I have your money. And none of you are able to actually testify that hey I have taken cusy this thing I've been there. This is mine and that's why these these bad actors in this space do like they've given you a picture of your beachfront property. But you're not actually going and verifying that. Yes, this is mine and I'm taking custody of that and so in in essence you're by keeping on exchange your. Doing that and again, that's that's dangerous. That's sort of like ah fine gold. But then never actually seeing the gold and trusting that it's at a a gold vault in Switzerland which they probably maybe they have the goal I'll know. But then even if they have it what if someone else who's really smart is able to go in there and and take it. Plunder it. Maybe it's suddenly switzerlands in a war zone and they get invaded and someone takes that gold. It's not yours anymore. Sorry so there's that um, you can move it all over to like a ah hot wallet on your phone which I keep some bitcoin on a a mobile wallet and that's just I keep some on there so I can.

01:07:04.10

ilm

Send payments to people and ah use it as they did it day-to-day manner I think it's going to be really important for that payment layer of bitcoin that means an exchange you can move it over to a single signature hardware wallet or finally as you just talked about a multi- signatureature wallet. So yeah, there's degrees of trust and what you highlighted at the start of this part of the conversation is there's tradeoffs with convenience and trust and security and depending on what you're going to use it for if you're going to day trade bitcoin which I would not advocate to do you probably want to keep it on the exchange. That way. You're not moving it on off a wall that'd be that'd be equally as goofy. But if you're actually if you're going to if you're going to own this thing as a means of of personal wealth growth over a pro long period of time I think it's foolish to not actually take custody of it and once it becomes a decent amount. Of your net worth. Um I think it's equally as foolish to not go ahead and move this to a multi ah multi-key setup to remove risks a lot those risks. maybe they're not maybe not risk of third parties. You're probably a pretty big risk to yourself something it happens. Just forget your password I forget password passwords all the time like for Google I literally reset my Google password anytime I go into Google that's just it's the way of life. Um, ah.

01:08:28.90

Trey Sellers

Um, but most people who ah are taking it upon themselves for self-custody they lose it because they make a mistake not because there's some person who's like knock on their door and and stealing their bitcoin. Um, and the other major way that people lose bitcoin is by leaving you on exchange. Which in essence is always connected to the internet. It's accessible from anyone anywhere in the world with an internet connection or who can socially engineer a support person at that exchange and trick them into sending your bitcoin away right? And maybe you get it back. Maybe you don't but um. You know you definitely don't want to take that chance with something that is finite in supply right? So We we kind of started the conversation talking about how banks and you know governments and all this have the ability to print money for themselves and for their friends you can't do that with bitcoin. Once it's gone. It is gone. There's no way to print more of it. So either that has to come from somebody else to make you whole or you're not going to get it back and so you have to be very mindful with how you manage this asset. Um, that's obviously one of the main benefits of bitcoin though right? like.. That's why you want to hold it. You want to hold it because it can't be printed because the supply can't be increased and your wealth stolen from you from out from under you by other people who have the privilege of printing the monetary units that you are forced to use um that that is the essence of the.

01:09:59.77

Trey Sellers

Ah, the the foundation of value that bitcoin brings to the world is that it is hardcapped twenty one million. There cannot be anymore and so whatever the range of custody option that you choose and the tradeoffs that you choose to make you just need to keep that in mind right? You might be an individual and if you're an individual.

01:09:59.89

ilm

You can.

01:10:18.88

Trey Sellers

And you have the means you should absolutely hold your own keys if you're an organization or an enterprise. Um, multisig is a great way to distribute the key management for the bitcoin that is sitting in your treasury that you need to fund your business as like an endowment over the next hundred years um multisig is a great way to. Involve multiple people and distribute the trust of that treasury to to make sure that the bitcoin cannot be lost there as well and there are some businesses and enterprises who can't actually hold their own keys either because they just really don't feel comfortable with it. Their auditors hate it ah hate the idea of it. Ah, or they have regulatory mandates that prevent them from doing so um, but there are ways to use the technology that's under the hood here right? that this this multi-sig um and private key management technology. Um, that allows you to distribute that risk across multiple institutions that are independent of each other That's one of the cusdy options that we offer as well and one of the things that I focus on on a day-to-day basis is helping enterprises and large family offices and people who need to have massive amounts of. Bitcoin exposure and bitcoin on their balance sheet. Um, but they can't or don't feel comfortable holding their own keys yet. So we provide a path for them to get that exposure distribute the risk across multiple counterparties instead of relying on layers of counterparty risk by trusting some black box institution.

01:11:48.35

Trey Sellers

That would that you don't even know if the bitcoin is actually there all of these things are options for people depending on their situation organizations depending on their situation and you know unchain makes that available but bitcoin generally has opened up this Pandora's box of new options for the world. It's opened up new ways to save um, new ways to manage your wealth that create financial independence not only in the fact that you have this like incredible savings technology but financial independence in the sense that you can manage your own wealth and you don't have to rely on somebody else. You don't have to trust somebody else with the majority of your net worth you can hold it yourself. You can do that in a really safe way and you can get all of the benefits that come with doing that alongside the fact that the savings vehicle is there to help you you know, endow your. Family for generations to come. That's really why we're here like that's that's what gets me up every morning and and helps me ah to help people understand the value of bitcoin and all that it's it's rearranging the incentive structure of the world and getting us to a place where. We're building on savings and and equity ah as opposed to on debt and something that is really fragile and collapses all around us at all times and creates all kinds of chaos in the world. We got to move away from that and towards something that that speaks truth and reliability and has this like.

01:13:23.90

Trey Sellers

Lower time preference view of the world. So we can get all the benefits of the greater productivity that that we're all working for so hard every day.

01:13:33.22

ilm

Um, awesome. Well, it's ah think's a good place to wrap it up that was ah, a varied conversation. But now I appreciate talking through. Just yeah, how how can be utilized from a I don' use the word savings or investing but as a savings vehicle. Um, and then. Yeah, the the common concern of how do I make sure that I don't screw this up somehow from being stolen or more than likely my own forgetfulness and ah yeah, appreciate I appreciate you I appreciate what unchains doing and yeah, we'll definitely. Link some stuff to learn more about ah you I'll link your article in this and if people don't reach out. How should they reach out to you directly should they reach out to Unchain. What's what's best there.

01:14:16.10

Trey Sellers

Yeah, um, you know I'm on Twitter or x or whatever they call it these days at ts underscore hoddle my article is both on the unchained website and the blog as well as on my personal website which is traceellers.com you can get in touch with me there. Um. And then you know I'm available on Linkedin if you want to reach out there. Ah but otherwise definitely go check out on chain see what we're offering. We do complementary consultations as well. So you can you know, get on the calendar of of you know my calendar or somebody on my team and we'll talk you through exactly how we approach this. Ah, issue of securing your bitcoin and all the other financial services that we layer on top of that that core custody product to make sure that you're maximizing the value of your bitcoin while you're holding it. Thanks a lot jim really enjoyed it.

01:15:02.32

ilm

Sweet Thanks Trap appreciate it. You are.

How to buy bitcoin with Ben Epling

00:00.00

ilm

Hey in today's episode Ben Eppling joins me to discuss how do you actually buy bitcoin. So again we discuss buying bitcoin also how do exchanges work. What's going on behind the scenes and some trends that they're seeing at the exchange that been works at river let's get started.

00:00.00

ilm

All right Ben thanks for thanks for joining me and excited to jump in have a conversation with you today.

00:06.86

Ben Epling

Yeah, thanks for having me as well. I'm ah mis tell your ride's been been a while since we last hung out in person. So I'm glad we can have a conversation virtual here as well.

00:14.38

ilm

Yeah, man, glad you were able to come. Um, yeah, such a good diverse group of people out there hanging out talking bitcoin and business and world and economics and things that for some reason are exciting to us but probably not most people reasonably. So.

00:29.68

Ben Epling

Um, yeah, yeah, not yet, not yet, but there's no better place to do it than Colorado is absolutely gorgeous. So yeah, it was amazing.

00:33.64

ilm

Sure? Well hey I yeah I want to have you on today to I guess talk through a few things and primarily to talk about actually buying bitcoin in the most practical sense. You know we talk through this you know theoretical like. What is bitcoin what problem does bitcoin solve and that's where a few weeks ago had a conversation with with Preston Pich and then had another one with with James Lavish talking through the current macroeconomic landscape and the current like ah financial scenario that we're in and. Ah, monetary policies and all that fun stuff and the debt spiral that paints this relatively grim picture and how we all believe that bitcoin is the most probable thing to help remove us from this this dire situation. Um, so if that's the case. It's like all right maybe I should own some bitcoin. How do I acquire this so that's where I want to go today is buying bitcoin and I thought who better than ah than Ben with river river you Ben you work with river I guess tell us a little about that like what do you do? who? are you.

01:37.23

Ben Epling

Yes, yeah for sure happy to give ah a quick intro there and dive into to how is the acquisition of bitcoin piece as well. So yeah I've been with river for coming up on 3 years now a relationship manager here also help on the operational side of things across money operations and a few different teams as well. So join the team. But back in what 20202020 at this race. It's been a while. It's kind of crazy looking back on it. But yeah to give context on us the organization company who is river just to lay the groundwork in that sense. We are a bitcoin only financial services firm. Um, so our flagship kind of product of what most people know us for is a bitcoin brokerage bitcoin exchange um, where clients can buy and sell bitcoin custody bitcoin transfer bitcoin deposit bitcoin all the functionality of what you would imagine a bitcoin exchange products being um, that's kind of our our bread and butter. So with that. Um, in mind definitely have the have the knowledge in terms of how that works in the backend as you mentioned right? for a lot of people. They know they want to get access to bitcoin. They know it's something that they should get access to but there's not really an easy way to do it or they don't know of an easy way to do it. And that's really where river fits into that picture for a lot of clients and their financial journey in terms of getting exposure to the asset class itself. So river really is that easy on-ramp for a lot of clients and and a lot of times. It really is the place where clients go for the first time in their bitcoin journey.

03:00.96

Ben Epling

When they're first dipping their toe into the water to either a learn more about it or b get their first exposure to it whether that's a dollar whether that's $10 $100000 whatever that looks like it's a wide spectrum. Um in terms of what everyone's kind of first foray into the asset class is but that's where river kind of builds that bridge for a lot of clients from traditional finance. To their first exposure to bitcoin.

03:23.76

ilm

Perfect and I guess with when it comes to buying bitcoin in exchange. Ah it can seem sort of strange like all right? So it's like buying a stock and obviously bitcoin is not a stock It's not a bond. It's it's it's own Asa class. It's it's money bitcoin is money. And I think when we position buying bitcoin itself I view it less as or not even less as not as the same thing as acquiring a stock so less as a a stock broker you go here. You give us money we're buying something that we're going to turn around and trade it later on but rather an exchange. So like if you went to and if you flew to another country. You have you flew there with us dollars and you land and you're going to need rupies for your monthlong trip through India you would exchange your usd for rubies and based off that current exchange rate you're probably not going to stand there and. Watch the exchange rates in real time and try to trade it in out. You're go to use it for your your intended stay in that trip and that's when exchanges you are literally exchanging this currency or this money for another and would you guess that's again I'm I'm a pretty simple minded person. Would you.

04:35.13

Ben Epling

Um, yeah, yeah.

04:36.10

ilm

Is there anything along like like basically like what is the exchange that you you think would be important for us to understand.

04:40.22

Ben Epling

Yeah, in terms of I think you described it pretty well from a simplistic way and I guess from even a higher level right? The the step that you need to complete is converting fiat or us dollar into bitcoin. That's really what your goal is it is that exchange right of your currency that you may be using the time us dollars convert that into a new currency. A new form of money as you mentioned rights and that is is bitcoin so it's a bit different than if you were going on to a td ameritrade or something like that and buying the stock as you mentioned now. When you are making that exchange since it isn't as simple as just buying ownership in a company like it would be with buying a stock There's a lot of complexity that comes up behind the scenes in terms of making sure that that is happening and happening correctly and smoothly for the individual who is wishing to convert their dollars into bitcoin um it's by no means a novel concept or a novel process. There's a lot of complexity behind the scenes which I'm happy to dive into some um of those complexities that may be may be fruitful or top of mind for some listeners as well and really the end state is converting those dollars to bitcoin. Um, there's a fiat on and offrampps right? You may hear people mention that's in the media or some some listeners may hear that as well on other podcasts fiat on and offramps right are the way in which you're getting the dollars that you'rechanging for bitcoin either on to an exchange to make that conversion or off of the exchange to make that conversion.

06:05.16

Ben Epling

In order to do so you need to be able to at least have an ach which is a bank transfer from a a checking accounts or savings accounts and you are transferring those dollars from a bank to an exchange such as River or any other exchange out there to then convert those automatically into bitcoin. Or you could go with a fit with a wire transfer as an alternative as Well. I'm sure most listeners are aware of the as H and wire transfer process but those are just the onrampps to get dollars to the platform or to an exchange and then from there that conversion happens. Um like with that conversion.. There's also complexities. Not sure how deep we want to dive into. Um, the complexities. Ah in terms of exchange rates and how like I guess Liquidity flows and things of that nature happy to dive into that as well though. So.

06:50.10

ilm

Yeah let's let's start. Let's go there behind the scenes and then I sort of and try to poke holes through things. There's a lot of I would say ah for anyone who's quasi-familiar with the crypto space probably has some level of distrust for exchanges based off of other crypto. Exchanges going all the way back to Mount Gox and as recent as ftx. So I think that's that's a hesitation of I thought this thing is supposed to be something that I'm not placing trust in any centralized party. But yeah yet here I am in order to even acquire. It. Yes, you can't acquire it through mining home mining something like that.

07:08.73

Ben Epling

Yep.

07:24.87

ilm

Um, but in general, most people will acquire their bitcoin through an exchange which pretty much mandates some trust in a centralized party. So I do want to address some of those concerns. But before we go there and maybe maybe this conversation will help alleviate some of those tell us like how does how does this work.

07:37.69

Ben Epling

Um, yeah.

07:44.51

ilm

So I go online I create an account with you guys. It say all right I've got thousand bucks I want to turn those us dollars into bitcoin tell us about that process.

07:53.89

Ben Epling

Yeah, in terms of that process first step as I previously mentioned is really just getting the dollars to river right? It's going to be an ach transfer from a bank account or a wire transfer from a bank account as well to river that's going to be step 1 no matter what is is that. Initial currency to convert into bitcoin. We need to have that on the platform in order to convert that or you can have it automatically pulled as well. But what that looks like is once that does arrive say in that your scenario right? A thousand dollars you're looking to convert that into bitcoin looking to invest in bitcoin through river when you go on the platform. Um, you're going to make a purchase of $1000 of of bitcoin now what does that mean, what does make a purchase of thousand dollars bitcoin look like that's going to pull a thousand us dollars from your bank accounts. It's going to automatically at that moment in time instantaneously convert those thousand dollars into 1000 Dollars denominated worth of bitcoin. So that conversion automatically takes place that conversion takes place at an exchange rates that exchange rate isn't agreed upon it was shown to you in the user interface when you make that that exchange. Um, that is going to be the bitcoin price in which you are acquiring that thousand usdollars worth of value in bitcoin if if that makes sense that exchange rate is denominated purely on peer but the market right? That's the beauty of bitcoin being really truly one of the only free markets.

09:21.65

Ben Epling

Um, a free market kind of tools in the world is that it is purely a market denominated price from supply and demand so that will fluctuate every second when you go by at one P M today it's going to look way different than 1 p m tomorrow and vice versa right? There's no kind of stagnant price in that sense so that will always change and when you go to make that thousand dollar purchase um, you will see that exchange rate in that price that exchange rate and price is being displayed to you is is a little more complex and just displaying you a mid-market price. Um, there's different sources essentially of where that price is being derived from we are showing you the best quote in that time. And that's something a lot of people understand is is we're showing you the best execution price but there's multiple execution prices out there on the markets at that time we're just giving you the best 1 for your quotes at that time. So for example, say in that $1000 kind of purchase order example that you mentioned there. There may be 10 order books or liquidity providers out there and they might say liquidity providers. What does that mean that just means other exchanges. Um other marketplaces out there that have access to deep pockets essentially for liquidity in in the bitcoin markets. They may have 10 different price quotes. We're pulling in that best price quote that best execution price at that time and displaying it to you so that's kind of the first step of complexity and a lot of people realize is that there is no one kind of agreed upon execution price across exchanges that varies wildly if you go on coinbase if you go on a crack and if you go on river wherever you're looking.

10:50.39

ilm

Equally.

10:55.41

Ben Epling

Um, where where you can purchase bitcoin. The prices may look different because they're they're sourcing their liquidity from different providers. Um, or they may also build a spread into the order which that kind of introduces a whole different complexity right? is step 1 exchange rates that's being pulled in from the market. That time. Step 2 is a lot of providers will add a spread on top of that exchange rate so that spread is being realized by the exchange itself as a result of facilitating that that transaction. Um, what that spread does say it's 0.2% 20 basis points that spread is inflating that purchase order. Or that execution rate um or exchange rate that rather by that 20 basis points and that's being realized by the exchange in order to facilitate that transaction now in practice what that spread does for a lot of exchanges is it actually hedges against slippage and volatility risk. Ah, which I'm not sure if that's getting too different into the weeds or not ah but what that does is when you go in an exchange and you're placing an order especially on river we're holding that quote for you for a se amount of time when we're holding that quote for you. The market could drastically change right? We saw a week ago two weeks ago the price just went skyrocketing up. Um, so if you're on the order page at that time and we're holding a quote for you. We built in spread for a certain percent or certain order size in order to hedge against that slippage involved utility risk in case, the market were to move one way or the other while you're deciding if you want to actually go through this purchase on the confirmation page so does.

12:29.75

Ben Epling

Have some utility aside from just building on top of that execution rate from an exchange fee standpoints. Um, it's more so to hedge that slippage and volatility risk here at river um, we have a spread for anything under fifteen thousand us dollars um in terms of trades and think above that is directly otc or over the counter which. Can can dive into that there too which one to pause since that was a a decent bit of somewhat deeper in the weeds. Um, in terms of the exchange rate. Obviously there's complexities aside from that but just explaining exchange rate and spread want to pause there and see kind of let you digest that and see if you're any questions there.

13:04.66

ilm

Yeah I don't want to make these questions too simple but I want to I want to keep it practical as well. So for instance, um, someone goes on river says hey I have I have ten thousand us dollars I want to buy bitcoin with and they execute that order through allt where are y'all procuring. That those those sats are also is river sitting on a mountain of bitcoin that you're ready need to deploy in exchange for us dollars and if so like are you then holding dose to us dollars or are you acquiring. Bitcoin are you the middleman like how is functionally how is that executed.

13:28.28

Ben Epling

Um, is.

13:33.65

Ben Epling

Um, yes, functionally. Great. Great Question. So How that works um is we are Abiqui Brokerage. So That's going to defer from a peer-to-peer Exchange That's kind of distinguishment number one with a brokerage. You're technically trading in and out of River's bitcoin Position So We have a set Bitcoin Brokerage balance or position if the trade is is ah small enough to be facilitated by our our bitcoin balance or Bitcoin Position. We can trade in and out of that position. If It's over that Balance. We will then source liquidity from Market Providers. So kind of answering your question there. We will then source um liquidity from other Providers. So mostly other large exchanges on a global scale who will pull in those quotes in livetime we will source the best quote and show that to you for whatever that order size may be. If. It's small enough though and we can essentially trade in and out of the art of Rivers Bitcoin position without having to access the open markets we will do so so it depends on the order size and threshold or that changes every now and then but typically we'll source that from external liquidity providers to get that. Best. Um, and I say liquidity providers that really is just other large exchanges across the globe who have access to deep liquidity deep balances of bitcoin who are willing to sell it at that exchange rates.

14:54.40

ilm

Which again this may sound super simplistic. But I've got a simple brain That's how a market is made or at least a pure market is made is is a pairing up of of willing sellers and and willing buyers for an agreed up on price. So what happens like right now a lot of the. A lot of the bitcoin that's in existence right now. 93 per the bitcoin 93% of the bitcoin that will ever be in existence is already been mined and out there now a lot of that's actually lost and will never be recovered or a fair amount at least um and the remaining 7% will be. Mined over the next or we had about one hundred and sixteen hundred and seventeen years before the remaining 7% introduced to the to the fair open markets. So with that the a significant portion of the bitcoin that's in existence has already been locked away into. People like you and and me who don't intend on spending it right now. This is a long-term asset that we are going to hold until we feel like we can actually use this for for day-to-day money purposes primarily and I think there's a lot of people out there like us you can look on on chain analysis and be able to see.

15:56.29

Ben Epling

Um, yep.

16:08.67

ilm

How long bitcoin sat in ah in a certain wallet and it's it's it's it's very bullish for um, people have high conviction. So with that said, a lot of the liquidity that's hitting the market is either through traders or also miners. So again, we we talked about we last week with with Michael Schmidt talking to like the mining process and if you mine a block you're rewarded with x amount of bitcoin and those miners I'm sure they would love to be able to retain all the bitcoin they mine but they're also running a business with lots of expenses and and significant amount of cost overhead. So they go and they had to sell some of that bitcoin and that's how a lot of the bitcoin right now is hitting the market is through miners and that's coming on now. Let's play this out where let's say over time the the mining reward I mean I heck in.

16:48.52

Ben Epling

Um, yep.

16:58.41

ilm

Few months the mining award it's going to get get get cut in half and now happen again and roughly 4 years after that and then four years after that again. So the introduction of new units. That's a large like liquidity supply is going to be reduced and as the. Understanding education of bitcoin grows I would assume that long-term holders and conviction will will grow in Tanle. So what happened y'll have to youll have to go source y' are essentially sourcing sellers either through y'all's own and pile of bitcoin or through other large sellers out there. What happens when there's not willing sellers for a purchase for a for a bid or an ask so when they're not reaching up obviously that leads to price increase but tell us about that.

17:40.90

Ben Epling

Um, yeah.

17:43.54

Ben Epling

Yeah, yeah, well I think the latter piece is the important piece right? that you mentioned there in terms of the the price increase in the beauty of bitcoin and just markets as a whole kind of zooming out just any economic market. It's the beauty of economic actors being able to freely buy at the price they're willing to buy or sell the price they're willing to sell as you mentioned. And that's really what would happen in that scenario right? As you mentioned mining rewards are getting cut in half in every four years they're going to do so so it's continuing to dwindle um in terms of the open supply out there with the chart of bitcoin being held over a year over two years up until it's growing up into the right significantly so supply out there is continuing to get smaller and smaller. In that scenario even if demands stay the same inherently price is going to increase and as you mentioned I don't think demand is going to stay the same right? We have Etf News we have institutions getting involved. We have education in the bitcoin space going up. Um, we have financial advisors like yourself right? that are educating clients. Um, and users on bitcoin and kind of and and orange pulling in that sense. So even if demand were to stay the same as supply is getting cuts inherently, it's going to lead to a price increase theoretically in that scenario in a pure theory. Don't want to absolutely price guess in that sense. But what that does is that when you're going to sell. Um, the price and the exchange where it's going to react natively to that right? So if you're trying to sell. It's say on global scale and you're trying to sell bitcoinnets right now. So they're trying to sell it at Fifty Thousand U s dollars there's obviously not going to be a whole lot of buyers for your bitcoin out there. Fifty thousand us dollars because

19:19.35

Ben Epling

There's an agreedup upon Agreedupon quote rate at whatever it may be or now 34 35000 Whatever it's hovering at right now and vice versa on on the buy side for for an exchange rate as well. So that typically will will go into Equilibrium right? And that's where the exchange is agreed upon and so there's really. I Guess there could be a scenario at some point in the future right? where all supplies dried up and and there would we wouldn't really be able to find a quote or or any bitcoin in that sense. But that would mean everyone in the world is also not being able to find a quote um or any bitcoin in that sense as well. So It's really just would just lead to a higher exchange rate. Then incentivize people to be willing to sell at that price you and I were long-term holders. It won't necessarily incentivize us if the price is is 10% higher. Whatever that may be but a lot of economic actors out. There will see that and be willing to sell now. The price is 10% higher. So then there would be bids that would flow into exchanges on a global scale. As a result of that price increase.

20:16.65

ilm

Yeah, and I don't want this to sound condescending to listeners but just in a very practical sense. How our markets made is actually really interesting again. Markets are simply a whole bunch of buyers and whole bunch of sellers if you had if I came in and said hey Ben I'll give you one hundred bucks for a bitcoin right now. You you would turn it down because you have thousands of other people who will offer you a better price and vice versa. If you said Jim I'll sell you a bitcoin for $50000 I would not take that offer because there's a large group of people who be willing to sell it to me for a better price and it's that gathering around a generally agreedupon price in real-time that. Creates the market itself and yeah.

20:56.56

Ben Epling

Yep, and that's and that's for for any good right? And that's that's I guess for for listeners as well, right? It's it's a really interesting kind of theoretical question to think about like I could sell you a shovel right now right? But if I'm offering you if I'm selling to you at $20 but there's somebody down the street who will offer you $5 for it. You're not going to buy my shovel. You're going to buy their shovel and that applies to really any market and obviously it also applies to bitcoin from a theateral standpoint. Um as well. So there is just the interesting kind of thought and in question to think about. Um. But when you're going when you're laying your head on the pillow at night those are the questions I think about not sure if that's normal for everybody but that's usually what I'm what I'm thinking about.

21:30.44

ilm

But yeah, it's super simple yet something most people gloss over and don't think about is how do we reach prices for things and again, that's supply demand Now you you started going somewhere a second ago with if there's no more supply which I think that's a common concern. Ah, amongst people who don't understand Bitcoin is so you're telling me this is money yet people don't spend it and it's somewhat highly concentrated amongst a few people. Um, how in the world is that money. How will I be incentivized to spend this. When you simply view as ah as a savings backing Mezzle Can you speak to that like how will that play out if if you and I are long-term holders but it's supposed to be uses money and tell us about that were your thoughts.

22:17.40

Ben Epling

Yeah I think my thoughts on that. Um really are I guess right now where we are in the the bitcoin story or the bitcoin trajectory is that it really is a store of value for most people across the globe now. It is obviously medium exchange and it is used as as currency as money. Um, and many countries such as El Salvador and other places as well and also even people in the us um, utilize it. We've been spoiled over the last ah hundred years um to have access to a somewhat stable and a use stable very very very very loosely um currency from a dollar perspective to use that for transactions. Um, obviously the governments can print as much dollars as they want and that's where as you mentioned that's the difference with bitcoin is that scarcity is that that finite supply that cap of 21000000 ah decreasing um circulation of new supply due to the having as you mentioned as well on the mining side of things. Um. And I guess it all comes back to to the market in economic actors in terms of if and when bitcoin is used as money. Um and traded it's being traded at its fair market value that exchange rate. Um, so. If you were price have been a bitcoin I think there's some some really good articles out there as well on on Twitter on the internet of of if you bought if you valued your house maybe back in 2010 in bitcoin and valued it the same today. The price discrepancy is pretty crazy in terms of the difference ah per bitcoin ah essentially bitcoin and nominated value.

23:46.77

Ben Epling

Um, of your home. So it really is the inherent value that you're trading whether that is the nominated in dollars or in bitcoin getting access to the currency to trade it. That's where a lot of people get turned away from bitcoin because it seems very intimidating to.

23:50.26

ilm

Are.

24:06.19

Ben Epling

Go buy this magic internet money right? A lot of people have these have these preconceived notions that bitcoin is is used by criminals super shadowy coders in their parents' basements with red and green flashing lights popping up on their computers and and they don't know how to get access to to that. Um, they're very intimidated by it. Um, so getting access to it right is kind of step 1 in order to use it as as currency and as that supply dries up getting access to it unless it doesn't get harder it just leads to an increase potentially in exchange rate. Um as the demand continues to grow for it to to be used as money the demand for the the assets will also grow. Demand for the currency will also grow similar to what we saw studying kind of throughout history with different global currencies right? When a new global currencyre is introduced to the world such as the us dollar potentially bitcoin in the future other currencies one hundred hundred years ago the demand for that currency rises therefore the value of that currency. Dedominated against other currencies will also rise in part with that. Obviously fiat currencies. You can print as much as you want bitcoin. You can't print more bitcoin. That's a key difference for for listeners when thinking through that as well but just kind of my thoughts on that.

25:15.83

ilm

We have to remember that I mean money itself is simply a means of communicating storing and transferring value across space and time so right now and in the most practical sense that we're talking about transferring storing.

25:25.41

Ben Epling

Um.

25:33.90

ilm

Value through bitcoin is first taking the the value that has been stored in us dollars converting that to a new new storage unit of bitcoin and then holding on to that that would be like ah maybe I was going to a barbecue and i. Ah, need to keep someone on ice. Okay so I could I could just simply lay my brisket over a bag of ice itself and then take that to the barbecue but that bag of ice is not well insulated and will melt and is exposed to other elements. Okay, so the protection I can transfer that easily. From my house to the park where I have in the barbecue. So I can trace that from 1 place to another but the storage of the energy is going to reduce quickly then I could take that and I could place that and exchange just that ice for something else that is a better means of.

26:20.40

Ben Epling

The.

26:29.58

ilm

Storing energy across time. So I could take that that bag of ice and my brisket and I could throw that into a cooler and that cooler is as easily kept and taken across space but also is going to retain that energy over time far better than. The the bag of ice alone. So again, we're not talking about exchanging simply us dollars for something because eventually that will break. We're talking about exchanging value for 1 thing for another in value and money itself is a means of storing that value. So if I went then I mow your yard. Said hey Jim I um I don't have any money I'll pay you in apples. Um, maybe I don't want I don't know how many a thousand apples for and in exchange for mowing your yard that would be that would be a poor transfer, especially if I if I if I don't need all those apples before they go bad that would not do not work out. Well.

27:19.93

Ben Epling

Um.

27:27.11

ilm

Um, so we have to have something an agreed upon unit that represents the value I presented and that that agree on unit is money now eventually like so I have a few few feet from me I have a picture of kids in post war war one Germany building a tower of their currency. That was inflated away. There got to a point and it wasn't a linear linear smooth transition of this is worth something and now it's not it was very volatile of those german marks priced against gold. It was very volatile there are days that you look like a fool for turning in your marks and buying gold and there's days that you look like. A fool for for holding onto your german marks and and not buying gold in the end they they became worthless though and there's a place of transitioning value is kept like if if we played that out. So go back to 1920 S germany and ah we're talking about this this currency that is being inflated away. It would be a hard tool to it'd be hard to grasp the concept of exchanging the value of the german Mark against gold when the german Mark is no longer even relevant. Well I also have on on my my desk next to me I have a $50000000000000 zimbabwean note and again if we went back not too long ago.

28:32.78

Ben Epling

Um, yep.

28:45.50

ilm

Said this is $50000000000000 that would not register because the value that represents is enormous but suddenly it's inflated where that value is meaning meaningless and it's simply something I have as a relic. Um, so again, the transfer primarily of money is not to transfer. Denominations but rather value and that's something we've lost touch with money is so normalized to us but yet skewed that we we think that it's mean it's simply a means of exchange rather than a means of transferring value. So again like if bitcoin is so I hope work.

29:10.22

Ben Epling

Yep.

29:19.75

Ben Epling

Um, and also and also how you generate how you kind of denoate production right? and that production inherently is value right? like especially here in the Us Whether you're looking at gdp or you're a construction worker or you're working whatever labor you're doing.. It's also a way that you are you are converting your production into value. Um, and not having to barter as you mentioned I Love the brisket example I haven't heard that before that's an awesome one I'd rather steal that for myself. But but love that example, in terms of the transfer and of the value as Well. That was awesome.

29:45.50

ilm

What when and then again this is something I commonly hear is well how will bitcoin ever actually exist if it's owned solely by a small group of people who don't want to part with it and it's not that I don't want to part with it per se It's just I I think that this thing retained its value better than other things. And the ah other things have a certain amount of value of prescribed to them based off of their utility but the cost of those assets in general is inflated because we have the ah the intrinsic value of something. The use cost of something but then we also have this monetary premium built-in because we're trying to use these other assets to store value it and I think that's going to cause a lot the the cost and the value of other assets in comparison to bitcoin to eventually dwindle down to their actual use costs and value. And then that premium will be transferred into a better store of value and better form of money and that's bitcoin So. That's why I own bitcoin Now long-term and people could see this as being bad for markets and bad for the economy. So you're saying that the primary primary means of money is going to be something that no one wants to ever sell. But again if you talk to someone who actually understands bitcoin. It's not that we don't want to ever sell our bitcoin. It's that we want something that later on we can exchange it directly for energy for use cases for ah you know, whatever for an exchange for value.

31:18.11

Ben Epling

Um, yep.

31:20.90

ilm

Ah, in a way that makes a lot of sense. We've removed the noise and we're able to exchange it and that's when like yeah I will partner my bitcoin to go and I hope one day to to want to deploy assets sell bitcoin to go by stocks again because this stock the growth rate of the expected growth rate of this stock. Is better than the growth rate of my bitcoin I hope that bitcoin gets to a point where it is very boring and we talk don't talk about it. We talk about in the same sense that most people talk about money now and when that happens I will gladly part with my bitcoin for useful assets. Um begin.

31:48.75

Ben Epling

Um, yep.

31:55.16

ilm

Because again, it's for transferring it for other means of value. It's not money is not really meant to be something. That's just so sat on forever. Otherwise this system would break. But again our current system is broken for another reason that's because we we can't sit on for a long time because the the the melting brisket an outward.

32:10.86

Ben Epling

Yeah, yeah, yeah, and I think I think exactly what you're describing is really hard for for a lot of people to grasp that situation. You described it very well and I think listeners will will grasp that for that I think it's just really hard for a lot of people to grasp it because we've so we've become so accustomed.

32:13.46

ilm

The very core analogy.

32:30.70

Ben Epling

And also numb to inflation into the current kind of structure of money and how it is and how it this is how it has to be right? people just kind of go through their daily lives saying oh every year I'm going to lose 7 % of my income as a result of an invisible tax. Um I don't even realize it's being done to me through aka inflation. We. We become so accustomed to that. It's hard to grasp that that money is that transfer value a lot of people just just don't picture it that way because the the relationship with money has become so tainted because of inflation because of these monetary policies monetary fiscal policies has skewed a lot of people away from learning about the actual kind of. Economic actors and and what is money and and answering that question and when you do answer that question. It makes you ask yourself a million other questions in terms of of deriving that and I don't think it's just individuals and we we chat about this before as well. But I think institutions are starting to wake up to this in terms of. The money they're holding on their balance sheet a sometimes isn't their money right in terms of fiat banking collapses. They're starting to realize with fractional was their banking and all of that that there's inherent counterparty risks that come with that. But there's also treasury risk when you're holding a currency that is not. Transferring value. Well like you mentioned when you're holding that as a as a company as a corporation as now we'll see um, you're at an an immediate disadvantage as a corporate treasury or as the person or the treas responsible for that because you're immediately trying to beat this hurdle that is.

34:03.33

Ben Epling

You're you're basically starting negative as a result of inflation. Um, and if you hold dollars you're just having your your treasury your balance sheets and plateated as well. So we've seen a lot of institutions start to wake up to that. Um, here at river and just in the bitcoin industry as a whole over the last twelve to eighteen months has a lot of. Um, inflationary risks continue to play out as a lot of counterparty risks in the fiat system continue to play out just the interesting trend that we've been seeing on our end as well.

34:28.56

ilm

Yeah I want to talk through what you're seeing on the institutional side but let's ah, let's finish up a few things from the individuals right? quick so like buying bitcoin. Um, you know you there are people out there I'm sure who bought a bunch of bitcoin at the high of 69000 and then it dropped a bunch and now they're sitting in the sidelines thinking I have friends like this I have a really close friend of mine and he reminds me regularly that he's just waiting to get back in the money on his on his bitcoin positions at which point he will just he'll sell it all and be done. Um.

34:57.59

Ben Epling

Um.

35:04.80

ilm

And he doesn't understand he doesn't understand bitcoin. That's the funny thing here and it's it's hard for me to talk with him about this because he doesn't want to listen from a long he views it as a stock rather than the long game of basically more of like internet Internet adoption is how I view this more. So anyways. Um.

35:24.14

ilm

So I'd like to talk to like the the ways you can buy it So lump sum. There are there. There are inherent risks of making large large lump sum purchases. But there's also inherent risks of not buying um or not buying lots of it at a certain time so you can. You can make a lump sum purchase Also River facilitates ah recurring automatic purchases through a dollar cost Average. So I'll let you talk to this but right quick a couple things like if if you have an asset that goes up linearally.

35:40.71

Ben Epling

Yep.

35:57.96

ilm

Um, or more than it goes down over a prolonged period of time if your timing is good then it makes more spent sense to make a lump sum purchase I'm reading a study a few years back of and this was related to the general stock market but historically statistically it makes more sense to make a lump sum if available over a dollar cost average in now bitcoin is. Much more volatile at the moment than a general stock market and that's a way of dollar costavaging is a way of hedging your risk of your of poor timing again. If if you bought a whole bunch of bitcoin at Sixteen Thousand earlier this year or end of last year um then you've done really well from that. If. It's 16000 you saw a dollar cost averaging at X dollars or x amount of bitcoin per day or per week or per year per month. It made more sense instead to do the lump sum now if instead I saw about a week or two ago ah Dylan Mcclare tweeted that. Had you started anyone who started buying bitcoin the day of the all time high at sixty nine thousand if they bought daily all the way through about a week or so ago they are now in the money on their total bur bitcoin acquisitions. So that's where obviously banking a large lump sum purchase versus dollar cost average in makes a big difference in the. Ah, for the it's to better the dollar cost averager so you want to just talk through like those and like what you see as far as like people who buy there and how that works.

37:17.46

Ben Epling

Um, yeah, yeah, yeah for sure and I think the root of the question is also partially risk appetite as you mentioned with with lump sum purchases if you time it well the upside potential is a lot higher if you're trying to time. Its. But the downside is also a lot higher. So. It's really where your risk appetite and kind of what your your risk is within your your pick and holdings or your portfolio as a whole um, but in terms of acts and strategies and and what we see and what a lot of clients do as you mentioned right? There's a market buy. That's just the a lump sum purchase you're buying at the exchange rate at that time. There's a recurring order. That's a dollar cost average order daily weekly biweekly or monthly whatever cadence a user wishes to deploy their assets or their dollars to exchange bitcoin for they can set that and that will automatically occur based on that set cadence thirdly we also have target price orders. Um, a lot of people may know this basically essentially as as a limited order very structured very similar to that where say you want to buy bitcoin at thirty thousand us dollars you're thinking it's going to drop over the next few weeks you can set an order to buy ten Thousand u s dollars worth of bitcoin if the exchange rate hits thirty thousand us dollars and vice versa on the sell side. So you have 2 bitcoin if it goes to fifty thousand us dollars you want to liquidate it. You can set a target price order for those 2 bitcoin at a $ 50000 exchange rates if the price were to hit that's you would sell your bitcoin at that time. So those are really the 3 different ways in which you can acquire.

38:50.53

Ben Epling

Bitcoin through river what we see most clients doing is a mix of the first 2 in terms of kind of percentage basis wise. It's a mix of a lump sum and mix of a recurring order so a lot of clients will initially do a larger lump sum order um, depending on what their their assets look like. Deploy that get their exposure and then set a recurring order to get that kind of smoothed out exchange rate or smoothed out cost basis. Um, so it helps to kind of decrease that risk with a lump sum because you're smoothing out your call spaces over time by having that daily or weekly or monthly recurring order because you're getting exposure to the exchange rates. Over that time as opposed to just the 1 lump sum purchase. Um and to the recurring order and dollar cost to average piece for a lot of people the old verage of of time in the market always beats timing the market is true for a lot of people in bitcoin and that's why they love the recurring order or that dollar cost average feature. Just because it allows them to get that exposure over a set cadence because as you mentioned the price obviously fluctuates wildly It's very hard to time most people aren't in the business of day trading bitcoin. They just want to get exposure to it over the long run and if they do have that low time preference and they want to get that long exposure. Really is no better way than just setting the recurring order having 0 fees in those orders here river and then going and having that sort of execute on the set cadence as well.

40:12.31

ilm

Um, yeah, that's where I mean owning a volatile asset. It certainly can you know Ah, it can certainly pay off to have regular recurring orders through a dollar cost averaging mechanism to achieve an overall lower cost basis. Um, yeah. So and certainly it certainly helps. Also yeah from a risk appetite. You know if you bitcoin's at thirty five Thousand whoever it is today if you went and bought a whole bunch of 35 and it drops to 33 or 30 you might be kicking yourself if it goes up to 40 you might think you're a genius ah versus if you set a certain amount at a stake of 35 and say all right over the next.

40:31.73

Ben Epling

Um, yep.

40:48.88

ilm

X amount of time over the next month six months year I will buy on a regular recurring basis this much and you just scoop it up. You are reducing your regret on the downside but at least you took a large enough stake up the front where if it goes up. You have a stakee and you continue to buy on the way up and I think that's usually ah a great way to go for for most people if you I mean if you plan on buying this over x amount of time and a since you are going to dollar cost average. That's where like a 4 1 k plan is helpful is its automatic force savings on a regular recurring basis. That's yeah, the the.

41:12.70

Ben Epling

Um, yep.

41:27.00

ilm

Average savings rate of an American is abysmal and most of the average savings comes through outside of force savings mechanisms like social security or pension plans is going to come through forward case because you can set it up and be done with it and that's where you know if you have an investment if you if you have something you want to invest in or own. But you just never purchase it. You don't deploy dollars to it Even if it goes up a Thousand X. You're on the sidelines all time or maybe had a small exposure versus if you have something that goes up not very much at all. But at least you've been saving towards it. You're going to opperform and that's where at least starting with setting healthy setting Healthy Habits. Can make a massive difference in a way of a healthy habit can be used having automatic recurring orders that just happen on the backend and just know that you are saving regularly to an asset over a very prolong period of time but a big fan of dollar cost savaging.

42:19.18

Ben Epling

Yeah, and you're saving an asset That's that's scarce right going back to that conversation. You're saving an asset that can't be inflated in terms of printing more? Um, but just adds a difference of obviously appetite or or risk profile to a portfolio and that's why a lot of clients. Love the biweekly or the monthly recurring orders. Because structure very similar to say you get your paycheck biweekly say you have $100 biweekly recurring order. You just have $100 pulled from your bank accounts biweekly essentially on that cadence where you get your paychecks as well. Don't have to think about it. You're just getting exposure to bitcoin over time without any manual inputs. It's just being deducted automatically. So super super convenience um and a great way to get exposure of the long run as well.

42:55.59

ilm

Couple last things on the person I want to address that's going to be the ah the fear of exchanges I alluded this earlier with like Ftx the noncox. So um, yeah, what's what am I what am I talk about there like exchanges collapse what leads to that and how are you all different and.

43:05.43

Ben Epling

Um, yep, yep.

43:12.42

Ben Epling

Um, yeah.

43:15.15

ilm

Should even with y'all being different like should we trust it and trust our bitcoin with you guys. Do you advocate for moving it to to a wallet. How does that work all all of those questions.

43:21.10

Ben Epling

Yeah, yeah, yeah for sure having to address that first and foremost right, the end state and most secure option for bitcoin clients bitcoin users bitcoin holders is to self-castsy. So if someone's comfortable with self-casting. They can move their coins off a river anytime. They can hold that self- cusdy we will help them transfer it off of the platform. So by all means when someone gets to that portion of their journey. They can always transfer off in self-custody with that being said, we also believe that right clients can trust us as well and where that trust or I guess where the lack of trust in the industry has come into play as a result of. Ftx and the whole host of exchanges that have gone under um is really a lack of I guess operational efficiency a lot of times engineering issues. Um, and also just building products and comingling assets and a lot of funny business in the backend to say the least. Um, and where that comes into play and and where river is different than a lot of those companies as we really are the vertically integrated solution. So what I mean by a vertically integrated solution from a bitcoin exchange standpoint is we are the custodian and the exchange a lot of times those are two separate entities with river we are both of them. Um, and what that means is that we built all of our infrastructure so we have our own custody our own multi-signative cold storage custody full reserve no lending no reapppovocation we have full control over that there's no counterparties involved that can have a say over that that reduces counterparty risk.

44:52.12

Ben Epling

For any end user for any client who's buying through us and any client who's customing bitcoin on our platform as a result of that in order to do that. There's a lot of complexity behind the scenes from an engineering and security standpoint. But there's also a lot of complexity from a regulatory piece. Not a lot of people realize that regulatory that that matter piece is also. Um, a big hurdle in order to to be the casstodian and be the exchange. It took us years and years to get all these licenses we are registered in every state we operate where it's required as a money transmitter. Um, that allows us to exchange currencies that comes with a whole host of other kind of.

45:22.61

ilm

Um, go do it with.

45:29.14

Ben Epling

Ah, things that we're upowed upon from regulators financial audits surety bonds having different operational operational processes with the file with them different things that we have to submit essentially to auditors to regulators to hold those mtls and then on a federal level. We are registers of money services business by finsen so financial crimes and enforcement network. Um as a money services business or msb now a lot of companies don't hold those. They're essentially built on top of other companies who hold those. That introduce is counterparty risk whereas river we are the custodian and we are the exchange and the regulated entity having full control having only but truly bitcoin-only custody where a lot of exchanges especially ones that have collapsed. They were comming with other cryptocurrencies hundreds of different assets. They had lending products they had credit card products they're splitting up on top of it. Yield these yield generating products where their promising set yields whereas with river full simple 1 to one reserve. There's no lending, no rateprocation. There's no fractional reserve banking the number you see on the screen is backed fully 1 to 1 with bitcoin. In cold storage on your behalf. You don't have to worry about figure out keys doing all of that we will handle the complexity in that sense for you and hold that in cold storage on your behalf with no custody fee. No ongoing annual fee or account management fee. We think security should be default so we don't charge clients.

46:53.39

Ben Epling

Ah, for that for that kind of ongoing custy as well.

46:57.20

ilm

My wife actually about a week Ago. We were talking about bitcoin and she I mean she was asking some some questions along these lines and said well if bitcoin is supposed to be something that no one can ah create duplicates of and it's supposed to be safe in this. Asset and all that fun stuff. Then? how did this whole thing with with Ftx and sambaker free. How how did that happen and again that comes back to That's not that's not Bitcoin. That's an institution that just happens to be related to the broad crypto Network and some bitcoin in a sense even explaining that how that took place like.

47:25.30

Ben Epling

Um, yep.

47:31.80

ilm

How they were able to essentially inflate and manipulate manipulate the exchange rate of bitcoin based off of inflating the ah the supply or at least creating a false level of supply and that is ah you use that word a moment ago as re-hypoication. So you mentioned a second ago if you see. On your screen when you buy bitcoin at river and exchange it says that you own 1 bitcoin um is there actually 1 bitcoin backing that and you mentioned a second ago that you said that river does that versus like ftx if I went on there and I bought I gave you $35000 and it says now you own one bitcoin and um, there's that was a screen. And that would be and a common analogy I use and I talked with Kindra about this would be if if I wanted to sell her and a whole group of friends a beach house in Hawaii now I even had a picture of that beach house said hey give me a million bucks and this house is yours. And I know that most people aren't going to go to Hawaii for quite a bit despite the fact they really want to go there. It's just it's a long ways from here. So I they give me the million bucks that can they have a picture of the beach house as well. I can go sell that same beach house to a hundred people and they all let's say let's say even.

48:25.96

Ben Epling

Are.

48:41.87

ilm

Maybe the beach house does you know exist I just made a picture of or I grabbed off the internet. Maybe I have one I own one beach house and everyone decides to fly out there at once who has claim to that and that's what we had poation is and they fly out there and the local say that that house doesn't need to belong to him you grab that thing off of of Google that's ah, that's a picture of someone else's house. Essentially was happy. You had a picture of an asset that was not actually backed by the asset itself and you can recreate that picture over and over again and suddenly if you do that enough. You can actually ah deflate the value of beach houses in Hawaii because suddenly there's so much more so many more houses. In existence quote unquote than really are out there and that's minutely manipulating the price of those and you're messing up these again. It's ah money is a means of communicating value and when you mess up the means of communication you mess with the signal you introduce noise. And it confuses a lot of things and the confusion can be the exchange rate of those those means of money as well.

49:43.31

Ben Epling

Yep I think the the key part there kind of I love that explanation again similar to the briscoe one. Love the beach house explanation I think the key part of that is that it can be. It could have been any asset right? It could have been a beach house. It could have been whatever that they were doing fraudulently. It wasn't. As a result of bitcoin or was it bitcoin or digital assets or crypto that was defraing people. It was the the the actors within an institution that were that were derauding people. It wasn't inherent to bitcoin and and that's a stigmama I guess ah that education is starting to help people overcome. That's a lot of people who. In the industry or or haven't learned about bitcoin. They see the Fda situation. They think that that's a result of of bitcoin like that was something that that bitcoin did whereas that could have been any other asset as you mentioned like like a picture of a beach house. It wasn't something inherently native. Um, to bitcoin as a result of that it was just the practices in which the exchange was engaging.

50:39.48

ilm

Exactly um, here, let's go right? quick I don't I don't want to muddy the waters with 2 different conversations but just quite let's keep it brief again and I'd love to bring you on. Ah again to talk about this specifically. But you mentioned earlier and. The institutional side bitcoin for businesses institutional sign of things like what are you all seeing there.

51:01.62

Ben Epling

Yeah, the institutional piece. Um, the snowball is getting bigger and bigger for lack of better terms over the last twelve months um it seems that a lot of institutions I mentioned a little bit ago are waking up to the risks of their treasuries of their balance sheets inflationary risks that come with it. But then also the benefits that bitcoin exposure and holding bitcoin their balance sheets can do for them in in hedge against that now there's a lot of complexity around the benefits of holding bitcoin on a balance sheet and there's also complexity of holding bitcoin on a balance sheet as a whole if you're a 5000 person corporation. Holding bitcoin on a balance sheet can be quite complex. Especially if you're self-cusding or having different custody models. It can get a little complex from internal controls. Um, so there's obviously complexity. There don't a dive completely into that. Um, but from a advantage standpoint from what we're seeing for a lot of institutions who for who want to get exposure to it. It's really a a reduction of counterparty risk right? Um, you're reducing your counterparty risks on fiat banks. You're also I guess mixing um, putting not putting on your eggs in 1 basket for lack of better terms depends on your custody model. But it does decrease your counterparty risks if you're a corporation holding bitcoin. Um, it's a bit of an insurance policy as well against fiat debasements as I mentioned on the inflationary standpoint. It's an insurance policy for a lot of businesses to have exposure to bitcoin um and get that kind of inherit. Um, guess yeah insurance policy for like better term and then also thirdly having a twenty four seven liquid market

52:34.68

Ben Epling

Is huge for a lot of businesses. Um say in the scenario of Svb right? say you are an operating business. You have to pay payroll you have to pay vendors. You have to pay whatever expenses you have to pay even if you had Fdic insurance with svb or any other fiat bank that went under up to two hundred Thousand Euros dollars you still have to wait for those funds to arrive in order to do that and you can't just stop your operations for weeks or months but while you're waiting for this this currency to arrive in order to exchange value going back to kind of tye it all back together having 4 % 3% 5% of your Balan sheet bitcoin at 24 7 3 65 liquid markets. Allows you to at least have access to some sort of transfer of value in that scenario. So. It's also an insurance policy for a lot of operations for corporations l will see is all like good stuff in that sense as well. So really those 3 buckets are are a lot of what we see here and there's complexities to each of those 3 um, that's kind of just a quick rundown of really the 3 themes and 3 advantages that a lot of institutions are approaching us in terms of why they want to get bitcoin in their balance sheet.

53:38.20

ilm

It's Michael Sailor the the Ceo who's really best known for doing this I watched an interview him yesterday and he mentioned ah strategically this is a means of not only deploying your productivity of the company but also deploying your balance sheet. A means of growing the value of your company. So now you instead of having you're trying to grow your productivity so much that you are outpacing inflation press but plus producing profits instead you're using and and almost essentially fighting your balance sheet. From an inflationary perspective. Suddenly you're able to deploy your your balance sheet as a means of overall complementing that with your productivity of the company to grow the overall value of your company really interesting and I curious to see how this progresses over the the following years. Ah.

54:25.37

Ben Epling

Yeah, it's definitely super interesting and it's it's a big shift from I think previously five years ago if this question was prompted. It's a lot would be a lot of holding companies who are holding bitcoin right? A lot of just trust and and and oscs and things of that nature. But we're starting to see a shift to actual operational businesses such as Micros Strategyy obviously being the biggest case that everyone knows about but even construction companies real estate companies plumbing companies all these different sorts of small medium large sized businesses that are on the operational side and not just holding companies or funds. That are getting exposure to it for those exact reasons as you mentioned so super interesting shift just to pay attention to.

55:00.90

ilm

Awesome! Well Ben, thanks for coming on I know we we talked a bit about handful of things. Some of it were real simple and unpacking the the overly simple in a sense and but we're able to scratch the surface on some more things as far as where you see bitcoin coming. So glad to have this conversation and. Appreciate you joining me alrighty.

55:20.39

Ben Epling

Um, yeah I Appreciate you have me it was a pleasure.

TILP #3: What is Bitcoin - The technical side w/ Michael Schmid

00:00.00

ilm

In today's episode I'm joined with Michael Schmid now Michael and I we talked through a whole lot today. It's a great great conversation unveiling and de mystifying what is bitcoin. Not on the monetary side of things not on the theoretical but on a practical standpoint from the computational side. What is this Michael does a great job breaking it down in a very simplistic manner that someone like me can even understand if you want to learn more about Michael you can follow him on Twitter at schnitzel all right. I don't want to give intro too much about who big who Michael is or what he does you'll learn more plenty of that in this episode to come so let's get started.

00:00.00

ilm

All right? hey Michael thanks for joining me today. Appreciate you being here and I'm excited for our conversation. Yeah for sure. Well I guess before we dive in won't you go ahead and introduce introduce yourself and who are you and what do you do? and.

00:05.90

Michael _ _Schnitzel

Same same and thanks for having me.

00:16.55

ilm

Why would I have you here for a podcast.

00:20.12

Michael _ _Schnitzel

Cool. Thanks yeah, my name is Michael um, based on my accent probably your listeners can tell I'm not from the us I'm a Richie from switzerland grew up there and but was always always interested in the us specifically big the tax scene and. And then had the opportunity around 7 eight years ago to move to the us lived in Austin a couple of years decided at 1 point that Austin is was cool but I want to see more um than traveled all over the us in an airstream trailer and which was really nice to actually learn. A lot about the country that I didn't know a lot and also learned that a lot of the things that we learned from the media and the press is completely wrong and so did that for a couple of years and now I live in Virginia and in a small town in the middle of nowhere among 400 other people which. Is another new experience because I always lived in big cities before and but I'm really enjoying it. It's really cool. Um, yeah, my bitcoin story. Um I started quite early I think my first interaction I had is like 2011 um, where in the tech scene in surik there were people like really excited about this new technology and the problem was I had no idea how broken our money system is and coming from Switzerland it's pretty cushy like you don't have to worry much about.

01:42.94

Michael _ _Schnitzel

4 1 case and things like that just because the government takes a lot of this for you and also um, inflation and stuff is just not a big issue. Um, but only after I now move to the us so like in two thousand and Nineteen Twenty I realized how important bitcoin is for us. And from a monetary point of view because technically I understood it from the beginning but all right or I knew about it for a long time but only when I learned about the money part I really fell into the rabbit hole and went all in fall in.

02:14.61

ilm

And I didn't know that about you with the airstream. That's pretty awesome where ah where were some of your favorite places you explored during that time.

02:23.12

Michael _ _Schnitzel

Um, that's a good question. Um I think the places that we will really buy completely by ourselves one of them was like trochetary national park and there's a lot of blm um land so the bureau of lab management which is owned by the government. And you can basically just stay there for up to two weeks in the middle of nowhere so you literally like there's the highway and you go to an exit and then there's like gravel road and you just drive drive drive and you just hang out and we basically cooked every night over fire. We saw stars our dog just ran around. Um, off the airstream because for two weeks we saw nobody else like not even a car of somebody else and just that was really really cool.

03:09.26

ilm

That's awesome. That would. Ah yeah I used to try to get Kendra my wife to ah travel live out of rv for a bit but then we kept cabinvin kids and now we have four kids I think it's they'd be really tough to. Live it off an rv with our family that's doable. But.

03:24.58

Michael _ _Schnitzel

You with mad people that do it. It's It's quite a so it's like a luck going on. But um, yeah, it's It's a different life like we now realized yeah now now that we're working on On. Or planning on children and having more dogs and it's also nice to have a house like yeah, so.

03:46.31

ilm

Yeah, there's there's romance in the nontraditional lifestyle. But there's also you know practicalities with a practical normal lifestyle. So for right now I'll live ah vicariously through others. But Monday maybe.

03:53.70

Michael _ _Schnitzel

Yeah, yeah, yeah. No nice. Yeah.

04:01.92

ilm

Hey I wanted to have you on this. You have you definitely have a different way of viewing bitcoin and just ah experience and hands-on a relationship with bitcoin far beyond my personal ah technical prowess. But then also with. Really anyone else that I've talked with um from a just understanding the technology behind it how it works and actually you know working with it on a regular basis. Do you want to go and just tell ah tell us a little bit about like things that you've done talk to us about like ah your your mining and home and everything and then we can we can talk through like. They're really well on to get to today is talking with you about like what is bitcoin not on the monetary side necessarily but like actually how does bitcoin work. You know there's there's a lot of confusion around. Not only the bitcoin is. It's a lot in a lot of facets. It's we're trying to tackle. Economics monetary but're also trying to tackle like coding and ah energy policies like there's so many things tied up in here and we've we've spent some time in the last few weeks talking through the monetary side and that still leaves this gaping gap that I I certainly am not sufficient to fill with. Ah. Like how does it actually work the computing side the code sort of the history behind that like why bitcoin the security of it. So I'd love to hear that. But before we go there like I feel like you maybe talk to the audience about why you'd be a good person to talk with and some neat things about what you do from a you know physical.

05:34.63

ilm

Standpoint with bitcoin.

05:36.43

Michael _ _Schnitzel

Yeah, um, yeah for me right now today that I'm mostly work in bitcoin is has all to do with mining and the specific case of mining which means home mining and. If you try to mine at home. 1 of the problems is that we all very have very high electrical costs compared to like industrial rates and so mining only becomes profitable if you start to use the mining for something else and just creating the bitcoin and that's in my case is using the heat. So what I'm doing is I'm heating my house. My hot water and the hot tub completely with bitcoin miners. Um, which basically means that these miners they generate a lot of heat and because a computer any computer converts 100% of the energy you put in it actually comes out as heat. And as soon as I realized that um I could not stop and thinking about how can I reuse this heat and so how it technically works is you actually put the miners into oil you heat up the oil and then because you have it inside the liquid or you have the heat as a liquid you can then transport it throughout your house. You can convert it into water. And so that's basically this this um the technical way how it works and that then becomes the calculation of is this profitable which everybody is asking all the time becomes so much a different discussion than like these really big miners that for them. The profitability is purely the bitcoin that they mine.

07:06.10

Michael _ _Schnitzel

With the electricity for me I now generate 2 things. Yes I generate bitcoin but actually way more important is I generate heat and in case of let's say the water that I would have heated any way with electricity and the electrical cost that I have is 1 to 1 the same. From before where I had the regular water heater to now the bitcoin heater and because I want to shower anyway and so all the sides that are generated are now completely free like um, any sets that is generated through this mining system. Um. Do not cost me any additional electricity the cost because I've paid them already so that's the that's the big part and and I've been working on this now since two or three years and just for myself. Um, because I was wondering if it's possible or and I believed. It's possible and so I spent hours and hours in. Learning about immersion about different tubing systems and mining itself and all the different things and have put this on Twitter and people are super excited about this because people that realize that you can now for the same costs and they generate free sets they want to do this and so. What I'm working on now is actually creating as much content for people that want to do this themselves so that it's like open source videos built built and cyst or like in it in instructions on how to build the systems by yourself but also and.

08:17.70

ilm

2

08:35.77

Michael _ _Schnitzel

Thinking about how could we actually create kits or plug and play solutions that we can send to people's houses that they can plug into their house and also mine their house or heat their house with mining.

08:47.64

ilm

That's ah yeah, it's that's incredible think about um, as and I mentioned to you a about a month back being in Texas heat is not much of a concern but what we're looking for is cooling so I would love ah 1 day if you can figure out how to take that hot air you you. You you explain it to me ah in a dumb down manner. So I could somewhat explain it how it is technically possible to take that hot air and convert it to cold air. Basically just how like Ac systems do it. So if you can crack that one from a bitcoin mining perspective. Um I think the.

09:14.70

Michael _ _Schnitzel

Correct.

09:20.61

ilm

The state of Texas will be eating out of your palm.

09:23.92

Michael _ _Schnitzel

Ah, yeah, no, that's actually 1 of the next things I'm working on because funny enough in the airstream. We have a fridge and the fridge runs on propane and the propane can only generate heat so there is physical possibilities to convert the heat back into cold and so. I'm literally scouting ebay right now for like some of these frictions and try to find one and connected it to my bitcoin miners to in the end, not cool the whole house yet. But at least the beer and or some other ah beverage that we want to cool down and through bitcoin mining and just as a proof of concept. But of course with the very very end goal. To maybe cool complete full houses with bitcoin mining like.

10:02.41

ilm

That'd be amazing. Well, let's so let's take it back now from your heating your house and your hot tub and your water with bitcoin miners. Let's just talk through again. The side of things that I know the things I'm smart at which is into it's it's easy to keep track of because there's not many of those. And I know a lot of things I'm not very smart at and 1 of those many things is just more of the technical computers and like yeah just the simple things I mean frankly, it's where people are like I don't understand bitcoins therefore I won't use it. It's like dude I don't understand how most things work like you and I like were. We're thousands of miles away but yet we're seeing each other and talking in real-time I don't know how that works that blows my mind I I couldn't begin to tell you how I can see you right now. But I still use Zoom so or a phone or a picture out alcoholic camera works and that's nuts I couldn't explain it to you. So let's take those are things we're used to and I think a lot of yeah. Using something that you don't understand um you either have to you either have to has to be so normal that it's used that you don't even think that you don't understand it like you know people use cameras and phones and stuff all the time and most people don't understand how they work. It's just normal part of life so you're okay with that. But to begin using something that's abnormal. Or at least currently abnormal to be comfortable with utilizing it. It helps to understand at least at a base level what that thing is or how it works it sort of you know it? Ah, it pulls back the curtain on the the mystery of the what ifs.

11:32.28

Michael _ _Schnitzel

Yeah, yeah.

11:34.43

ilm

And ah brings in a lot of comfort. So if you want let's just talk. Let's talk a little bit now about like what is bitcoin. What's the computational side of things like these terms of mining and hash rate and nodes or like I mean in the 90 s like this is this is not something new like a peer-to-peer trustless permissionless. Money system is something that wasn't traded in 2017 or 2018 or even 10009 by Satoshi Nakamoto is something that people have been working on for for decades. Um, so just let's talk through those things like why and what and how and all that fun stuff.

12:09.40

Michael _ _Schnitzel

Yeah, now happy to do so yeah I think the most important thing as you just mentioned this satoshi the creator of bitcoin he didn't come up with all the technologies or the different things that we're using today in bitcoin what he did or what they did. Whoever that is and they combined existing tools very cleverly and added some things on top of it that solved some of the problems that these other tools had that they failed like you so like you correctly said since the very beginning of the internet. Or of any digital communication people have been wondering. How can we send money or how how can we can we transport value between 1 person and the other and that's actually how I ended up in bitcoin and we at the time in like 2011 all we talked about this digital scarcity. And and what this means is that Satoshi figured out a way. How I can send something to u dream without me using it anymore while the whole internet. Everything else about the internet up until their point was about copying something very simple so like content. Or a picture or music like Napster like all these technologies they all created something where in the past let's say you want to copy a bible. You need first you needed somebody that wrote it and a second time then people figured out how to print books and then they.

13:42.21

Michael _ _Schnitzel

But still there was physical labor involved in printing the the book and transporting it and then the internet came and said you know what there's a pdf I can send it to you. It's basically 0 physical cost for anybody and so it was all about transferring knowledge very fast and copying knowledge very fast and now. The problem is though with value and specifically if you want to have um, a stable amount of anything you want to ensure that if I send you something that that I cannot use it a second time that's called double spend that means that if I send you a specific amount of bitcoin. I cannot spend it anymore and the system bitcoin figured that out and I think that is called digital scarcity and interestingly Satoshi like there are references that that they say look this could actually be used for other things as well like it doesn't have to be only used for money. And but it obviously makes a lot of sense to use it for money because that's the thing that that where we store value in and we store value in money and so if you have a way to have digital scarcity and to use it for money and to transact and and that's. Basically the crazy invention that bitcoin is is digital to scarcity and everything around follows after that. Um, but yeah I think that's that's the really the part that in 2011 when I saw it the first time was like oh wow we have never seen this before.

15:09.37

Michael _ _Schnitzel

Um, and that's was the big invention from Satoshi.

15:12.10

ilm

Yeah, that's I was I was actually talking with someone earlier today and they mentioned they're just saying it's it's interesting. Someone was able to create a money itself through bitcoin. The thing is bitcoin itself I guess we we treat it as money and it is money. But it's based since it's not like someone went out and created a a currency in the way that we think about it. They created a a line of ah a line of code that allows for digital scarcity that can then can be transacted and utilized as a form of money. So it's not like they you know Satoshi did create money that is white papers about that. But it's not It's not We're not looking at money in the sense of how we view money in its sense of like you know like I I have actually right your front to me from a conversation earlier, a 50000000000000 ah, Dollar Zimbabwean note or you know us dollars we think of money as this as a currency as a piece of paper that's backed by something that's not what bitcoin is it is a means of digital scarcity that can be utilized as money. It could have other functions. But if you think of like. You know, important things in life money is very important. Um maybe more or less to you. Ah, ah, subjectively but objectively having a means of ah communicating storing and transferring value across space and time is really important and ah so that's ah yeah, say ah.

16:42.72

ilm

First primary base of what is something that could be utilized from this technology. So yeah's when I'm trying to communicate with people sort of some of the issues that were having trouble getting cracked through other cryptocurrencies now like the term cryptocurrencies has been hijacked. Um, or but really, we're talking about like just cryptography and currency so crypt crypto cryptographically ah backed money and ah that they used to be that's ah that's a pure thing and it's it's in a sense but it's been hijacked by everything else that comes along with the baggage of of cryptocurrency. But with with these I mean this is something that's been. Try to tackle for for over a decade before Satoshi came on the scene and one of the problems when I try to relate to people in my simple mind is like if I send you Michael an email I retain a copy of that email and then you have a copy of that email. So now we've duplicated this and bitcoin was somehow to make it able to make it where I send you that bitcoin. I no longer retain this this copy of code and you have it and not only that. But we're also not counting on this trusted third party or me individually or you individually to keep a safe ledger that the transaction took place but rather that transaction is then ah signaled to everyone else. In this ecosystem to keep a ledger um to verify what transaction took place that Jim sent this email to Michael and I could I could say no I never sent that email but everyone else received a signal to know that took place and y'all can verify it and basically the the greatest number of verifications wins.

18:19.20

ilm

And y'all can March on and assume that that that actually took place because you'll are able to verify that. That's very simply how I put it but ah like I guess let's keep pulling. Let's go keep pulling those strings. So um. Do you feel like so so Satoshi Nakamoto guess for those who are listening who don't know who that is or what in the world. We're talking about Satoshi Nakamoto is a person or people or entity. No one, no one knows and that's something you have to come to terms with is like we don't know who this is and don't you can't get hung up over that I mean frankly like I don't know who invented the wheel but I still use it all the time.

18:48.23

Michael _ _Schnitzel

Or fire. Yeah yeah.

18:51.68

ilm

And you know if the person who invented the wheel came and was able to prove like hey this is me I invented the wheel. You know we don't have a lot of appreciation. But if that person came and said hey I've thought about it and circle wheels have been great. But I really think that square wheels would be better. You know if they could really prove they created the wheel I think we'd all just like. Out of a sign of respect say all right? We'll hear you out. You know if I said I want square wheels or like dude beat it. But if he if if the wheel creator came out and said I like square wheels we say look I don't think it's going to work but we'll hear you out just out of a out of respect but they could do nothing to change wheels that are used into so into squares beyond like. Ah, instead of a circle beyond anything like more than you could or I could they'd actually actually have a convincing argument. So if this satoshi nakamoto person comes out as an individual that you like or dislike or institution that you like or dislike that doesn't actually mean that they have any more control or less control. Any other individual or group or entity. Um, over how bitcoin works moving forward and you have to be you have to come to terms that that's okay so with that said, so to Satoshi Nakamoto they wrote this white paper basically with el lotta allen or stand I guess Michael if you want to talk to us like. Sort of what was in that white paper. What made it important and any key pieces of that paper or just the initial like hey here's bitcoin here's what it is what made that special compared to the thousands of cryptocurrencies that exist now or even the things that we're trying to be created up to that point.

20:18.92

Michael _ _Schnitzel

Yeah, yeah, so the big thing that Satoshi Ogamoto came up with is the complete decentralization of the lecture before bitcoin. There were digital cache systems that always relied on a central entity. To actually confirm or deny a transaction. So that's basically a bank where I will send money to gym what I actually do is I go to my bank tell the bank please send money to gymm and because we both trust the bank and we trust that the bank has you can imagine this like an an excel spreadsheet. That says Michael has 1 bitcoin Jim has 0 and then I say Michael sends 1 bitcoin to Jim and then in the end it says Jim one bitcoin and Michael 1 big zero bitcoin and anytime we can go back to the bank and saying hey bank. How much bitcoin has Jim and then bank says Jim has 1 michael has 0 and because we both trust the bank. This is how we can transact and and people recreated this in digital ways and but we there was always this central entity and that's what Satoshi figured out a way how to not do this and how we did. This is basically first. He created a global lecture so instead of having he said instead of having a central entity that keeps this letter. Let's give everybody the lecture and that's one of the things that I think a lot of people don't understand this if you have a bitcoin note which is basically that excel spreadsheet.

21:53.39

Michael _ _Schnitzel

You have every single transaction that ever happened in bitcoin is in that lecture and the other interesting thing is it actually doesn't say Michael 0 chim one. It just has every single transaction in it. So the tally and the end that says how much bitcoin does. 1 specific person or address have is never actually stored. It's only every single transaction and so with that we basically have a way that I can confer I can verify and you can verify that um that you have 1 bitcoin and I have 0 bitcon.

22:31.73

ilm

Um, yeah I don't know how I would begin to even create that. Ah I took when I was in probably sophomore year of high school I I took a coding class and I was proud when I was able to make like a stick figure. Um.

22:46.96

Michael _ _Schnitzel

Yeah, and and.

22:48.87

ilm

So but yeah, when I when I think of me doing anything technology- wise I think of on the office when when they when creed wants to create a ah a blog so they actually just give them a ah ah web doc or a word document that you types on it's it's connected to nothing is just on you know Microsoft word. That would be me trying to make anything like this.

23:09.85

Michael _ _Schnitzel

And actually what what is funny enough like this is all peer-to-peer. So if you have these these spreadsheets or um, these bitcoin notdes as we call them that keep the lecture they all talk to through peer-to-peer meaning there's no central entity again. It's just every node connects to. 5 6 other nodes and because not not every node connects to everybody else and they just create a massive network of of nodes that are peer-to-peer connected and that technology again Satoshi did not invent this like Napster brought this already up like that's a technology that we knew way from before. From doing illegal things and where people figured out these peer-to-peer protocols and how these tools can find each other can communicate to each other can also handle like bad actors things like that. So. That's that's where the peer-to-peer and how this basically works is whenever you want to do a transaction or let's. Let's go back to the transaction I want to send one bitcoin to you? What I do is I transmit this transaction to let's say my other 7 nodes that are connected to me and they will transmit to all the other nodes and the other nodes and the other notes that at one point you can reasonably assume. That all the nodes have received this transaction at one point and the problem is though how can we assure that after I transmitted this transaction that I sent 1 bitcoin to Jim.

24:39.57

Michael _ _Schnitzel

How can we ensure that I not suddenly say later? Oh no, no, no by the way that was a mistake I now sent the bitcoin to Ruth and so that's the because you don't have a central entity now the bank would say no wait Michael you sent the bitcoin already dream. You don't have it anymore I'm sorry and. But if we don't have a central entity and we need some other way to ensure that you cannot change suddenly rewrite the past that I cannot go in there and saying oh by the way now I send 1 bitcoin somewhere else or my bitcoin is now suddenly at roof's place and things like that. And that's where the blocks come in and.

25:22.78

ilm

Um, see I was about to I was about to bring that up because there's there's these phrases that have been become gimmicky and that like I actually stay away from despite how much of my time both personally and vocationally involves bitcoin.

25:38.32

ilm

I avoid so much of the terminology that is so related to bitcoin yet is just mixed with other things. So one of those being cryptocurrency like I never say the word cryptocurrency or crypto just because it has like I'm a christian but I don't really talk about like religion that often because ah the connotations of religion has. Baggage when christianity is it's a religion. Um, but I don't throw around that term just because the baggage come along with it so like crypt cryptocurrency I don't use that term another one is blockchain. You know Blockchain is such a. Ah.

26:13.77

ilm

Buzzword and no one really knows what it means you have companies who are putting everything on the blockchain which can you talk about that like has anything that you've talked about thus far is any of this related to the blockchain like have you already spoken to what the blockchain is we just haven't used that word yet or is the blockchain something else.

26:30.13

Michael _ _Schnitzel

So The blockchain in its simplest form is basically a distributed database where which allows you to store data in a lot of different nodes or. Places or computers where together all these computers can agree. What Actually the history is and you cannot change the history.

27:01.70

ilm

So it's ah you mentioned earlier these excel spreadsheets that I can keep and you can keep and instead of having a bank keep so is the blockchain essentially all of those verified the grouping of verified excel spreadsheets in 1 spot. And then as and from I understand it basically as a new spreadsheet is created. We add that to a the block. It's a it's a chain of blocks is that remotely correct in a very dumb down manner. Yeah.

27:27.92

Michael _ _Schnitzel

Yeah, so yeah, so the problem with these distribution systems. We need to ensure that if I send you one bitcoin and I cannot suddenly a week later come back and saying like oh by the way. No no, actually that bitcoin is now with with person c let's say that's Ruth. Um, and the blockchain solves this with all the transactions that happen within 10 minutes so let's say I send you a bitcoin um that transaction Michael sends chamber 1 bitcoin is added to yeah what wait one's like.

28:00.40

ilm

Here. Let's let's let's make this from just being a hypothetical want't you go ahead and send me a bitcoin real quick. Ah so I carry on.

28:05.25

Michael _ _Schnitzel

I have a test net I can send you a thousand pick on if you want but that's and not don't have any value and no so but but yeah, what you do? So we take all the transactions that happen within 10 minutes so everybody else that also transacts we take all these transactions together. And yes, we put them on 1 spreadsheet, um, altogether and then we take a so-called hash of this spreadsheet so that's like a checksum we basically calculate and we say okay this spreadsheet has a checksum 7 now if 1 person would change. A tiny bit of information like let's say I would say I will send you a 2 bitcoin the checksum will change meaning that um the 7 changes into a 9 um, so and then what we do we create a new spreadsheet and we put the number 7 that was the checksum of the first spreadsheet we put it on top and we put the 7 in there. And then we gather all the other transactions of the next ten minutes we put them all in there and they have a checksum. Let's say 12 then I create a new spreadsheet and I put the 12 on top of it now and this goes on and on and on this happens every 10 minutes now if I come a week later and I say hey Jim. By the way the bit kind that I sent you I already sent them to Ruth over there. You can go back and say like no, no, no, no look here and this spreadsheet says Michael to Chim and then I say well no, no, no, it actually says my version says Michael to Ruth and then you can say well show me your checksum.

29:38.16

Michael _ _Schnitzel

And then I need I show you you show me 7 let's say my checksum is 9 and then we can look in the next block and then we see the checksum 7 in there and my checks from 9 is not in there. So the blockchain basically ensures that we can agree on a specific history and if ever anybody claims. Something in the past was different everything else needs to change so in order for me to change something in the past I not only need to change that single spreadsheet that entry I need to change every other spreadsheet or every other block that I also need to go and change. And that's impossible. That's just so much work that this would not be possible. Um, there is a chance though and we can go into that and that's where the miners come in but that's basically what the blocks ensure the blocks ensure that together we can agree on the history and what is interesting. And that's where maybe some people have heard oh you need to wait for six confirmations. It's actually easier for me to change something that just happened like 1 spreadsheet ago or 2 spreadsheets ago than changing something that happened a thousand spreadsheets ago so that's why sometimes you say hey. Let's wait a couple of confirmations or blocks and um to actually assume because what could have happened is that when I sent you that the initial transaction because there's a completely node like all these nodes that are loosely coupled with each other that need to all agree. What the next spreadsheet is.

31:11.67

Michael _ _Schnitzel

Maybe half of the nodes have not received my transaction yet and they actually in the spreadsheet that they generated my transaction is not in there so I need to wait a bit for the system to actually be able that I can trust it that the my transaction. That I did has been seen by every single node and has been added to the spreadsheets of every node.

31:34.61

ilm

Um, there's I want to take this a lot of ways. Let's while while we're I want to go back like 3 points ago right? quick you're talking about. We could. We could have a bank as the centralized party that we reference. For transactions and their database. So they're the they are the spreadsheet keeper. Um, why is why is having a decentralized these group of spreadsheets. Why is that better than um, a centralized party and why is that better in some instances maybe like I would argue and. And the case of bitcoin so money yet. It's not better for other things like if it's better. Why don't we put everything on a blockchain or everything on a decentralized ledger if if it's if it's better like you want talk to about that right? quick.

32:17.84

Michael _ _Schnitzel

Yes, yes, yeah, well basically these decentralized lectures are very slow, very compute intensive and not optimized at all and. So and that's actually one of the things that when I looked at the very first time in bitcoin we realized that you can do 3 to 4 transactions a second because you need to wait these blocks or these spreadsheets they have a specific amount of rows. So if you have more transactions. Just like the newest rows they have to wait for the next spreadsheet and or for the next block to get in. So it's a very slow process and very compute incentive like all these nodes. So every bitcoin node stores today around six hundred gigabytes of data and every node stores. Byte for byte the exact same data in all these hundred I think we we estimate we have like 200000 bitcoin nodes today. So there's 200000 bitcoin nodes that all store six hundred gigabytes of exactly the same data like if you tell this to any technology person that tries to make optimized fast systems. Like this is complete stupid like just store it once agree which of the one is the main one and then the all the all the other ones you can store it for something else. So these these centralized systems are very very very ineffect in. Ah um, inefficient. But they're very trusty.

33:49.17

Michael _ _Schnitzel

Because there's no single entity that can suddenly go in and saying oh by the way chim you didn't pay your taxes. So let's off this off this whole bitcoin that you have now half of them. You don't have access to or this transaction actually never happened because Jim you. We don't like you anymore. Um, and we have numerous and thousands of examples of this where with the current fiat system that relies on decentralized entities aka banks where suddenly people get kicked off and people suddenly have less money on them because there's a computer bug or things like that. So. It's inherently, really bad, but it's very efficient to have it centralized, but that's what we want with bitcoin the layer one and maybe we can go into the different layers a bit later but the layer one is inherently very very slow, but that's a good thing.

34:40.52

ilm

Yeah that's that's one of the biggest critiques of bitcoin. There's a lot of when we can get in some of those in a bit but but 1 of those being it's it's inefficient which I would agree with there's this there is a. And in anything in life. There's going to be tradeoffs and opportunity cost and a tradeoff with bitcoin and its decentralized manner is the efficiencies or lack thereof so other cryptocurrencies as mentioned earlier. There's thousands of these other things and could you know that's a lot of the sales points of these other cryptocurrencies is it's more efficient. It's. Can process more transactions or um, it's easier. It uses less computing power than bitcoin. Why is why is that not a worry the inefficiency versus the efficiency of these other cryptography cryptocurrencies.

35:28.99

Michael _ _Schnitzel

Because in order to really do it. Decentral. We can only do it this in in an if inefficient way like as soon as you want more efficiency you have to add, you will add some kind of trust into the system and trust means that. Individual people will be trusted by others and then these individual people suddenly have an incentive to play some games. Um like that's what we see with governments. Um, there's no government in the world that has not a corruption like if you are the person that decides who gets. Ah Driver's license how fast of course there is an incentivation automatically to say well if you pay me a little bit more I will just put you 1 1 1 1 like on on the staple of or ah staple of all the set of the driver's license. Ah um, applications I will just put you on top of it and then. Like yeah, you just give me give me a little bit of dinner or whatever you invite me to your boat or you so pay me a holy yacht like whatever it is. That's humans humans are inherently not fair because humans think about themselves again. This is all a good thing and the problem is if we do this. If. We let individual people decide about others. That's when these things come in and that's where bitcoin writes it into code lets machines which inherently are not unfair. They just execute the code. So if we write fair code and give these computers all the same code.

37:02.69

Michael _ _Schnitzel

We can create a system that is very slow but very fair.

37:07.67

ilm

Awesome. Yeah, it's perfect and obviously you mentioned earlier the layers and everything we can go there in a bit. Um, here's here's something you you earlier talked about how you do home mining with bitcoin. But since then you've used the word node a lot as a means of verifying transactions. Can you help me understand the difference between like a node like was like what is a node like running a node. What does that mean and what's the difference between a node and mining or like what takes place in running a node are the applications of that versus mining.

37:33.80

Michael _ _Schnitzel

Yes, yes. Yes, so as I said before we want the notes keep all these spreadsheets or these blocks and they basically synchronize themselves they store the transaction history if you want to know hey James how much bitcoin. Do you have or Michael how much do I have I need to go to a note that has the complete transaction history. But what I also said is we want to make sure that every 10 minutes a new spreadsheet is generated and now how do we do this in ah in a. In the internet where everything is in real-time where everything is super fast where we literally invent new fiber optics to send data as fast as possible between different continents. We need to find a way that something happens every 10 minutes and that's where the miners come in. So. Bitcoin has a way to enforce that the spreadsheet is onlyrinerated roughly every 10 minutes and important here is roughly. It's not exactly every 10 minutes and how he does that is that the checksum that I mentioned before the seven the nine and the 12.

38:50.76

Michael _ _Schnitzel

Bitcoin actually says or the network says the checksum let's say needs to be 5 of this specific block now if you take all the transactions in that spreadsheet and you generate the checksum There's let's say there comes a three out. And that means the pi bitcoin network says no no, no it needs to be a 5 now in order to change the tax sum to a 5 the only way is to add some random number bitcoin calls it nones number used once and this number you add to the spreadsheet at the end and you generate the checkso again. And then maybe let's say a 1 comes out so you change the number to something else and you generate it again and a 2 comes out and the interesting thing about these checks sometimes is you cannot predict what the or you cannot go back. Um, so you cannot say I have all these numbers and have a 5 tell me which number I need to add to generate the 5 the only way to do this is just to randomly test the 1 the 2 to 3 to 4 to 5 to 6 to 7 until you have to check some number 5 and what is really clever. Bitcoin has a way to predict that. All the computers in the world that are basically guessing this number that roughly every 10 minutes a block is found and the the act of trying to find these numbers is called mining. So basically when I do ah when I have a miner.

40:23.60

Michael _ _Schnitzel

At home. What this miner does it. It takes all the transactions in the last ten minutes it takes them together creates a block runs the checksum and now the checksum doesn't says 5 it actually says like the checksum is like 30 and characters long. So it's an extremely big number. But the bitcoin network says the checksome for our block in order to be valid needs to start with a specific amount of Zeros and I what I do then my minor just takes all the transactions in the block transnaster checksome and says oh it starts with of one so this is not a valid block. So I will add a nons again. This can be a random number and I just do it again and again and again at 1 point this thirty thirty two length number will start with a specific amount of Zeros and that means because the baker network says currently it needs to start with a specific amount of Zeros. I find a valid block and the really crazy thing is that the bitcoin network can predict based on how many computers or how many miners are there in the world. It can predict how hard or how many zeros at the beginning of this. And of this hash or this checksum needs to be to create it roughly every 10 minutes and that's how the bit network can ensure that we generate a spreadsheet every 10 minutes and not every 1 minute or 2 minutes or 5 minutes or

41:58.15

Michael _ _Schnitzel

Every hundred minutes but roughly every 10 minutes and that's another thing that Satoshi invented this difficulty which is basically says how many zeros that it has to be in front that's something that they generated that didn't really exist before.

42:15.13

ilm

That's ah in those another term that I hear and a lot of people here is ah like hash rate or hash power and that hash power is essentially the the guessing of those Zeros It's the computing power to do that. So ah is that correct. Okay.

42:20.00

Michael _ _Schnitzel

Yes. Correct Correct yes and the hands rate I don't know no, that's correct. Yes.

42:32.46

ilm

And remember I'm I'm playing a part of a stupid person here this in me really yeah, I'm a good actor aren't I no um, let's see so um, again a way I in my simplistic actor. Um, in my in my simplistic mind. how I how I explain this is um, especially like the difficulty adjustment you alluded to that briefly a moment ago. So how I explain this to people is if if it was just you here and I I wanted you to be able to guess a number in the next ten minutes I could say hey Michael I'm thinking a number of a number between 1 10000 and you could just start going one 2 3 4 and you could count to 10000 in the next 10 minutes so roughly I would say all right if it's just one person it'll take 10 minutes to guess one between 1 and 10000 but if Ruth came in here as well. Um, I would need to increase that number because suddenly y'all are both just shouting out numbers and I need to double or maybe triple the amount of the the between instead of 1 and 10000 I'm thinking of number between 1 and 20000 and then if all a sudden we have a room of 100 people who are just shouting out numbers as fast as they can. I suddenly need to make that a really big thing and harder to guess and that's ah, that's essentially what's happening happening with this hash power. It's the hash power that's being exerted the amount of voices and how fast these voices are screaming out numbers trying to guess and if I did this for a while I could probably have a go to pretty good pulse just like if.

44:04.90

ilm

If you have a weird hobby of ah ah, guessing how many gumballs or in a gumball machine eventually, you get to the point where you can just see a gumball machine and say like that 1 has 728 and you're probably gonna be pretty close because you do that a lot and that's what this ah the the. Bitcoin mining network what Satoshi created it's able to get a pretty solid idea. It's not going to be 10 minutes on the dot but man it can based off how many people are trying to guess there's so many people in the room right now are going be yelling out numbers. We need to make it this much more more or less difficult. Do you want to you want to look I think this is one of the coolest things about bitcoin itself. Is the ah difficulty adjustment. Um, do you want to tell us a bit more about that I have a I'll tell you my simple brain way of explaining it after you give us the better more articulate way of explaining it the actual technical way.

44:48.33

Michael _ _Schnitzel

And no, that's exactly correct. So what the bitcoin code does so again, there's no central entity that says the difficulty the next difficulty is that many zeroes in front of these for for the. For the checksum. It's the code that runs on every bitcoin node and every miner also has a node running that looks at every roughly two weeks bitcoin the code looks at how fast did these ah blocks come in. So if it's exactly 10 minutes it will say hey the currently difficulty is good. We. We keep this for another two weeks if the bitcoin if the blocks over the last two weeks came in a little bit too fast. Let's say 9 minutes and 50 seconds it can calculate how much harder it needs to make the difficulty. That's again, the amount of zeros upfront in order to make it exactly 10 seconds longer and that calculation I mean I can't explain you how exactly it works but that is the freaking part that it can based on the history can predict the future to say roughly. This is happening every 10 minutes and what is interesting now this of course this works really? Well if you have like block times of 9 minutes 50 seconds or 10 minutes 10 seconds like it's very very close but we actually had cases where suddenly sometimes a big amount of the bitcoin.

46:25.19

Michael _ _Schnitzel

Hash power. So that's basically all the how many computers altogether are working on guessing these hashes when they all drop off very fast like there was the china ban a couple of years ago and very fast and 30% of the comp total hash power fell off cliff like was offline. And we actually had blocks that took 20 to 30 minutes average rate. But the first difficulty adjustment realized this made the difficulty. Also again, 30 to 40% easier and from that point on we had again 10 minute blocks which is fascinating to see that it not only works in these small increments. But also these. Big jumps bitcoin basically for two weeks it was struggling a bit but after that it was all fine again and that's the crazy thing if you go to anybody in the world and you say you have a computer system and you lose 30% of the network from one day to the other no system will. Continuously work again like everybody will say oh we need to bring back the 30% but bitcoin is able to handle a 30% drop off the hash rate and it takes a couple of days and after a couple of days bitcoin just jogs along and creates every 10 minute blocks again and that's that's like yeah. And a thing that even today talking about is is fascinating. Give me goosebumps that we have a technology that can do this? yeah.

47:46.92

ilm

Yes I think that's one of the most incredible parts of it even just the concept of having that a difficulty adjustment built in which the moment you start pulling the thread of bitcoin at all that is a that's one of the first things you encounter of like oh it won't work because of this. Um I had someone actually on Twitter today I mentioned something about bitcoin and someone commented about ah about mining profitability or lack thereof and how are we going to overcome this but there's too many miners and bitcoin drops in value. No one will mine anymore and ah, that's where this difficulty adjustment is just incredible. Again, going back. Ah, you know if if it was just you in a room and suddenly you know like wow that guy is earning some easy money by guessing numbers I want to go do that too and suddenly the rooms flooded with people. Well if we're still only guessing like a smaller number that number is going to be guessed too quickly and we just threw off the entire system. So we have to increase and then if everyone leaves like ah this isn't very fun I could be I would be better off going back to my 9 to 5 job instead of guessing numbers I'm out of here. Well suddenly you're staying in room by yourself and if that number remains super high. Suddenly it's inefficient. That's able to adjust again every roughly two weeks so again my my simple brain illustration. Would be ah if the gold in California in ah eighteen forty Eight was able to see wow. There's a lot of people heading here from ah from the from the east um, it up to that point gold was being pulled out of the mountains at a certain cadence. So. There's a certain.

49:19.71

ilm

Inflation rate of new gold being introduced to the market if the gold was able to somehow forecast and see like oh my goodness. There's a bunch of wagons coming. It would be able to retreat deeper into the mountains itself. So when those people arrive they get out there. You know suddenly when I think of cold miners I think of a scraggly guy wearing a red long Johns. Um, so they all show up. Ah no offense to any gold miners out there. Um from the 1840 s um, but ah, that's my picture so these guys pull up in their wagons and they got their their pickaxes out and ah their pans and they're sifting gold that gold is suddenly. Hard to get to despite there being this flood of people. So the the amount of gold being pulled out is at the exact same rate as it was before this big arrival which again the reason that 1 reason that's really important is to monitor the flood of new gold hitting the market and that's going to encourage and or discourage.

50:05.40

Michael _ _Schnitzel

Correct.

50:17.15

ilm

How many people are actually working on this versus other things that can and should be worked on. So if you got out there and it's like man digging for gold stinks. That's hard work and it's not worth it. I'm going to go I mean even it's maybe playing this illustration out too far but a lot of the companies that are still around today from the Gold Rush Era we're not companies actually based around gold mining itself but in peripheral exposures for instance, like Levi Strauss they created genes um out there to help people like have a good rugged gene while digging for gold same thing with ah ah garadelli good I think it's giadelli is ah a chocolate company. They were. They were a grocery store first and then they became ah a chocolateteer in California a lot of companies that are around today were they got there was like dang this thing this works stinks I can go sell chocolate instead and that's where bitcoin it comes in It's like dude that guy is making a fortune doing this. I'm going to get into it and suddenly it's really tough because everyone wants in and all sudden. It's not profitably more because so many people are trying it that all right I'm going to go and spend my time doing something else that benefits society and is not as hard for me and I can get rewarded and that's again going back with this terrible Monologue I sorry to drag all through this. But.

51:18.25

Michael _ _Schnitzel

Yeah.

51:31.44

ilm

Again, the the comment that was made to me prior today and that I get regularly and something I wrestled with at first before I fully understood mining and hash rate and difficulty adjustment is this whole thing about miners and like what happens when suddenly the reward is small but yet it cost a fortune. And thing is if if the the reward of bitcoin. It's cut in half roughly every every 4 years if we look at this 10 minute block and all that fun stuff. We know they every roughly four years the reward for mining a bitcoin is cut in half and that's going to happen next April April of 24 and if that if that happens. Um, suddenly the the benefit of mining a block is cut in half. So these people are out there mining bitcoin and not like Michael who's doing it and they're just that's a peripheral benefit besides mining or heating his house and water. But as a pure business expense. What happens to those companies. You know that's a danger well then because of this difficulty adjustment. It will just simply make it where people less people are are incentivized to mine if you don't have the energy efficiencies to mine bitcoin. Well you'll you'll stop. It makes sense to use that energy on something else instead to go make chocolate or make blue jeans. And the people who are able to do it well will continue doing so and this difficult adjustment will be able to account for all of these things so it just continues to happen at a 10 minute rate roughly and ah the people who stay in are are benefit properly and those who don't well, it's I mean it's it's fair economics in a very pure sense.

53:08.49

ilm

If you want to waste money on it if everyone decides we're going to stay out here and keep wasting money just because I mean technically we could do that but that's where logic just falls apart. It'd be cheaper. That's where it's it's interesting to think about like it would be cheaper to not try to mine bitcoin but instead just to buy it. Um, yeah, it's it's pretty incredible. The. Motivating factors. It comes along with with this again, it's not just money It's not just computing it's it's energy it's all of these things. Um, yeah, let me let me ask you this Michael so I guess while we're on things that concern people other concerns that come up regularly is like. Ai or super super computers or hacks can you talk to us about those things like you mentioned you you almost wouldn't here earlier and I'm glad you didn't quite because ah I want to get I feel like we've done it I think have we hit everything from a base level like what is bitcoin or anything else. You feel like would be good to share.

53:57.83

Michael _ _Schnitzel

So the only thing we need to talk about is the block reward and that part I think we don't have done but then but then we covered bitcoin as a whole. So yeah, so so one of the things that.

54:07.77

ilm

What is bitcoin we did it. Ah.

54:12.62

Michael _ _Schnitzel

As I explained like there's the hundred thousands of computers all over the world that try to guess this number this hash to find a block to then why we need to give these computers an incentivation to do so and Tooshi figured out two ways to do this one of them is to actually. Distribute the bitcoin at the very beginning so the very beginning of the on the day one there were 0 bitcoin in the whole world and what happened is that every block that a miner found. They got 50 bitcoin from zero so that was how bitcoin was created and. And then every 4 years like you say this 50 actually reduced so it was twenty five then a half of this half of these happens this. That's why we call it a haling and but the but the miners obviously have an incentivation to actually mine now because they get 50 bitcoin now at the beginning bitcoin wasn't a lot worth but that's why it is happening so the idea or the game theory behind this is having is that as bitcoin grows in value. The miners get less and less in terms of bitcoin value. But because the bitcoin is worth more and more it actually starts to even out and at one point though. All the bitcoin is going to be distributed so in the year twenty one forty we roughly have 21000000 and that's maybe 1 thing we have to talk about about the scarcity again. But basically at that point there will be no more bitcoin distributed all the bitcoin will be will be mined.

55:36.49

ilm

I'm glad you're bringing this up I remember when I first realized that like this is something I wrestled on for about 2 hours and then I was smart enough to think there's no end. The first person who's thought of this as a concern and there's tons of resources. So yeah, their whole thing of like okay there's only so many bitcoin. What happens when they're all mind. Why would anyone else? Why would anyone continue to mine and verify this network. So why would someone keep doing that after all the bitcoin's been distributed that is quote unquote the only ah incentivizer to to mine. So I apologize for cutting you off, but I'm so glad you brought this up.

56:08.39

Michael _ _Schnitzel

Yeah, you know that's good like I said so in bitcoin every block has a specific size. So that means a block can have a specific amount of transactions in it now at the very beginning when I started with bitcoin like. Every block was almost empty because not a lot of people transacted in it. But today now since a couple of months we actually have more transactions than block space. So more transactions every 10 minutes are are generated by the people that use bitcoin then have space in these blocks. Now the miner somehow has to choose who to put into the block because let's say there is 50000 transactions and you only have 5000 slots and who do you put in and that's where the transaction fee comes so me as a person if I actually send you a bitcoin. I don't send you a whole bitcoin. Maybe I send you and or in the transaction I put in 1 bitcoin and let's say 10000 sets and which is a little bit so that's like 0.0 1 bitcoin and.

57:13.36

ilm

Yeah, just ah since this is the intro. What is bitcoin a sat or Satoshi named after Satoshi Nakamoto is a is one one hundred millionth of a bitcoin so you don't have to buy a full bitcoin you can buy again. It can be divisible up to one one hundred Millionth there's no reason to say the code couldn't be changed to make it were. We have even smaller fractions if bitcoin gets to a place that we need ah even further divisibility. But that's it. That's a sad or Satoshi sorry keep going.

57:39.15

Michael _ _Schnitzel

Yeah, correct, no no, that's okay, so yeah, so um, let's maybe keep let's keep it a bitcoin so I want to send you a bitcoin and what I do is I actually send you 1 bitcoin but 0.1 bitcoin I say hey this is for the miners and. The miners basically look at all these 50000 transactions that are currently exist. They look at which have the highest transaction fee because they obviously are interested to make the most money it wouldn't make any sense to add a transaction in there that has 0 transactions or very small one so they're incentivized to mine the ones that have higher transaction fees earlier. So they will put them into the next block faster and so that's the way for me to signal to the network. How important is to this transaction if I just want to send you a bitcoin and saying hey here's a bitcoin I don't really care when it arrives I can put a very low fee. If we are literally standing next to our house and I want to go into the house because I just bought a house from you and I need to pay you I will probably put a high transaction fee in it and the game theory says that oft twenty one 40 and already today the miners will make more ah more money or value through these transaction fees. And basically after 21 forty we only will have the transaction fees and obviously the idea is that at that point bitcoin is so valuable and some people say it will take over all of the currencies and all other value in the world that we stored that even if we only have a little bit transaction fees.

59:07.90

Michael _ _Schnitzel

It will still pay for all the energy and the cost of all these miners together and and so there's no risk or really worry about this because it's all part of this big plan that bitcoin will take over the value of the world. So.

59:24.48

ilm

That's a fantastic segue away from a question I was going to ask but into another one. So if if I let say it happens Twenty one forty suddenly the transaction fees are so high those transaction fees are coming from. From you and me like if we're if we have to use bitcoin to transact and suddenly these transactions or fees are so high to make sure that we're actually able to pay for things. Why would I keep using bitcoin if it cost me much to use a currency is there any solution to that you mentioned this earlier with layer two so up to us about that.

59:52.82

Michael _ _Schnitzel

Yes, yeah, so actually let's let's start with outside of um of like bitcoin itself any systems that we're using today is always built on top of layers. So. Let's say if you want to fly from from the East Coast to the west coast you have an plane that flies directly between these 2 destinations but they don't go that often. What they do is they take together a lot of people put them in a tube and fly them. But then you maybe don't live right next to the next to the airport you have like a bus system or a car and things like that. So what we're doing is we're starting to do things in layers where you have very big transportation systems that only go from. Like every couple of hours like the plane while you have smaller systems like a bus that go much off much more often that can do the fine distribution and this system that is something that humans figured out and we also know for example in computers like as we're talking with each other. We're talking through the tcp ip system. And this actually has 4 different layers where every every single audio file that I send you that you hear go through all these layers and each layer is responsible for each specific part and also they start to chunk these different things so layering stuff anything.

01:01:24.54

Michael _ _Schnitzel

Is is a normal thesis thing in nature and humans and and whatever and so bitcoin does exactly the same so bitcoin has the layer one which is what we talked about so far is the system that can do a transaction every 10 minutes but is completely trustless meaning you don't have to trust. Anybody at all now layer 2 comes in which is called today the most known layer 2 system is called lightning and basically people explain it always like in a bar tap. So if you go to a bar and every couple of days sending them money every single time. And or maybe using your credit card every single time that you walk up to the bar and you buy a beverage and you walk away swiping the card doesn't really make a lot of sense. So what do you do instead? is you give your card to the bartender and saying I want to open a tap and then. You consume all all the badages you want in the end and um and at the end of the day or of the night or maybe over multiple days if you are a really good friend of the bartender and you trust them that they're not going to run okay with your credit card. And fun fact that actually happens where I live like we you just have like a running tab over multiple months at the restaurant because you know them so well and um you at 1 point you tally up and so and but that only works because there's trust there's trust between the bartender that you not suddenly move away and you never close your tab.

01:02:34.76

ilm

Multiple months at the restaurants because you know this so well. Wow, that's cool.

01:02:52.80

Michael _ _Schnitzel

And there's trust with the bartender from you that the bartender doesn't run away if your credit card and just spends it and that's where layer 2 comes in so I can basically open up a tab with let's say my restaurant and saying hey restaurant I want to open up a lightning channel between me and the restaurant. And through that one I can then transact all the time without ever touching the layer one. So we basically trust each other we send each other bitcoins back and forth and only when we say okay now we don't trust each other anymore or I want to use the bitcoin that I have. Locked into that channel because I have to put in some bitcoin into that channel and if I want to use it something else I can close it and meaning I can undo these things and the opening and the closing of these channels this happens on layer one. So for that. We need to do one transaction. And that takes a bit of time that we have to wait for and that cancels transaction fees but every other transaction between me and the power um or the bartender is completely free because it's trusted between now what is really nice about lightning is this can go over multiple hops. So let's say. You trim also go to the same bar that I always go now I need to send you some money I don't know we I laed your ioio lawn and I say hey you gave me $10 for this now instead of opening a lightning channel with me directly which again would take 10 minutes and you have to wait and then the.

01:04:24.84

Michael _ _Schnitzel

The bitcoin is locked into that channels. You can go to the bar and saying hey bar by the way. Can you send Michael Ten ten dollars or 10 bitcoin or whatever it is so the light. So the the bar now suddenly becomes an intermediate between us 2 and that's how. Internet works. That's how routing works. That's how everything that we do in terms of communication works that you don't always actually talk with each other directly you talk through intermediaries and the lightning network uses that system to ensure that I actually only need to open a couple of channels with. Maybe the things that I interact with all the time but because they are then connected again in the background I can send now money in lightning speed. That's where the idea lightning comes from it's in real time and between people without needing to wait for these 10 minute block times. And every single time that they're going to be slow and as you correctly say got to be very expensive because I believe at one point these layer 1 transactions. They're only going to happen if you do really really big transactions like if you buy a house or. Ah, company buys one another. That's when you go to layer one because again, there's trustless down there and for the daily stuff of just using systems. We're going to go layer 2 or maybe even layer 3 however, these look like we don't know yet, there's some ideas of layer 3 on top of layer 2.

01:05:52.20

Michael _ _Schnitzel

But that's where we like daily transactions are going to happen. They're going to be instant. They're going to be almost completely free. So like these lighting transactions. Sometimes you pay like even less than a set so that's like less than a hundred millionth of a bitcoin so in dollars today. That's a couple of cents um of costs to send and these transactions and around and they're instant or like almost instant fast. So so that's where we see the layer 2 really happening and to go back to the history. That's the part that I did not realize in 2011 when I looked at bitcoin 2000 and glamin I said like this is way too slow but I did not realize that people will come up with layer twos and layer threes and so yeah I missed it that at that point but I learned it later on.

01:06:40.43

ilm

Yeah that's ah, that's a big thing of of other cryptocurrencies is the inefficiency from a that we spoke to earlier the inefficiency of time and power and everything that that comes with bitcoin and again that that comes with the tradeoff of security. But then ah the. The ability to build on top of that to create quicker less ah more cost-ef efficient. All these things I do want to if you could just real briefly I want to remove any sense of fear or or queasiness. Ah, this lightning thing because when when we when you speak to this and not you but when it's spoken of of like oh you set up these channels and blah blah blah like that can seem scary like I don't know what in the world like so I have to go to if I want to send money to what we set up a channel. How do I do that like I don't even I reallyly know how to get in my email like how do I set up a lightning channel like. Does that mean like if I go like I have walled of Satoshi on my phone. It's a it's a bitcoin wallet and I could send you over the lightning network I can send you bitcoin instantaneously that takes place and I didn't have to set up a channel with you. So did the channel get set up for me automatically is that is that routing through someone else's channel like. How does that work.

01:07:54.54

Michael _ _Schnitzel

Yeah that's really the part that I see a lot of this is being abstracted or will be abstracted completely like if. You remember like in the past when we had to go into the internet like you had to take your phone and disconnect the cable and connect to your computer and you had to click a button and it took a couple of seconds and you made all these beautiful sounds that we all missed today and and then you were in the internet and they could use your phone and like and now literally my watch is in the internet all the time. Like that's from like where we went from and that's where we're going and I think we're still in analog times in like bitcoin or lightning and and so yes today if you want to use lightning you have to do channel management and if you want to really do it by yourself. So meaning if you want to have your own lightning node. You have to find peers you have to open channels to them. You have to make sure that like the channels are balanced and all that stuff there are today now solutions where companies take this over completely for you. The problem is they actually then have access to your bitcoin. So you basically store it with them now. They don't have an incentivation to run away with the bitcoin but it could happen and we've seen these exchanges and all these other. Oh just trust me I will keep your bitcoin safe type of company's people eventually. They're all going to again like like we said before about the driver's license. They have an incentivation to actually start.

01:09:12.79

ilm

Ah.

01:09:21.20

Michael _ _Schnitzel

Do some shady stuff and and so but what I believe is in the Future. We're going to have lightning software that will do the channel management completely autonomously where you just have your note or your lightning note it can be on your phone. It can be at home wherever it is. And all these channel management is going to be completely automated where you just send money between different entities and you don't worry about this anymore like in the past where we worried about am I now using the phone or the internet and today. The internet is everywhere all the time active and we don't even realize it anymore.

01:09:59.61

ilm

Yup, that's exactly there. That's that's so much of the demystifying. This is a few things of recognition one is the recognition of how much we utilize today that we don't really understand that it's it's we take for granted and it it just works. And I know bitcoin at being a new thing and there's fancy words that aren't used in normal vocabulary so it can seem mysterious but the moment we come to come to realize like well that's that's how most things work and it will become all the more normalized um it it demystifies and again it makes it but more.

01:10:34.10

ilm

Available and and you know ah relatable from a normal sense. You know like yeah, whatever thirty years ago the internet forty years ago like I dude I don't even know what you're talking about like how would this work. How do I like how do you get online? What is an email like I love this video from like. Was they like the morning show or something where they're trying to figure out like what is the internet and what's ah they're talking about that the at sign like oh that little thing with a circle around it I think it says about it like that doesn't make a sense like what is it? What's it. What's the internet. Anyways, it's like that's where we are with bitcoin like what is what is a bitcoin anyways. And there can so there can it can seem daunting and again daunting can also equate to unnecessary but but so much of that daunting and unnecessary is built around unfamiliarity and if we can just start removing that sense of unfamiliarity and even that sense of having to understand everything. Just not I'm not saying blindly trust and just fully accept you have to know anything but like you know there's there's there levels of like I don't know how most things work and I'm okay with that like I don't know how to toilet works I can't if my toilet breaks I can't fix it. It's okay, I'm so can use it and that's okay and there's certain things I want know more or less about depending on like how depend up it's. It working and trust it takes and I think that's where different people are can come to terms of like I need to know all this or like I don't need to know that much as long as I know it works and other people know it. So um here my I guess along with that that that lack of trust and the fears could we just spend a moment talking through these.

01:12:10.98

ilm

These last these these things that tend to trip people up. Um, some of them may be valid. Some of them may be completely irrelevant from what But what if X happens what about supercomputers or what if what if I don't know what if bitcoin gets hacked like what if what if someone. I've heard I have a friend who lost his wallet and he would be rich and blah blah Blah Can you talked about like these what ifs.

01:12:33.45

Michael _ _Schnitzel

Yeah, yeah, yeah, there's definitely the question of like yeah, what are what are possible issues that could happen to bitcoin that it. It's going to 0 that's basically what but but what what we say if we say it's going to 0 that something breaks within bitcoin that this system that I just described somehow fails in some way and 1 of them. Yes is that people talk about supercomputers so and or quantum computers basically and so. In this calculation that that we talked about to figure out the hash where we have to guess all these numbers and or where you said like shouting into the room and a quantum computer can this can do this much faster and or. We believe quantum computers will be able to do this much faster based on what we currently see of a quantum computer doing and if we say much faster we know we don't mean 2 times as fast or 3 times we mean like a million times faster. So the worry is that if somebody figures out a quantum computer. They will have more hash rate than everybody else and one of the problems is if you own all the hash rate. So meaning you can create every entry in a Google spreadsheet you can basically do games that you can like.

01:13:58.49

Michael _ _Schnitzel

So or you can and publish a transaction and later on you can say oh no actually I never published that one but you already bought a house with that transaction and stuff like that. So if I'm the sole person that has all the hash right? or if a company or and and some kind of entity has this. That entity can then start to play games with the network. That's the worry about quantum computers. There is two things we have to understand first of all quantum computers are very far away today. Quantum computers are literally struggling with calculating one plus one and that's literally like that's that's a problem that where we are.

01:14:33.20

ilm

I Want to take this moment to just state at this point in time I am I'm smarter than a quantum computer. So take that.

01:14:35.50

Michael _ _Schnitzel

So we're.

01:14:40.90

Michael _ _Schnitzel

You are yes ah and and the other thing is there's only very few in the world to do this? Um, So so there is a risk but we believe that it will take quite a long time and it's. And that means the network has enough time to adapt and adapting means that we could change the hashing Mechanism. So The hashing mechanism that we currently use is called to shard to 56 You don't have to know what it means but it's just that. That's the way of that we're Using. And bitcoin the network could agree on using tash shard to 56 Quantum safe or something or we create another one and we could all agree as a bitcoin network that we all upgrade our nodes and to use this new standard and so that's one of the things. The other thing is why of course. The faster. The bitcoin grows and the more the more that bitcoin is actually adopted by all these big companies and some of them already using it today. Why would they interested in actually breaking bitcoin because they literally would like if you go back to your gold. They would literally. Throw their gold from their ships that they just mined so hard like it would not make any sense if bitcoin is really used globally by all these different companies and people. Why would you attack bitcoin like it doesn't make any sense because bitcoin then will be all worthless. Everybody is going to go back to I don't know what.

01:16:10.91

Michael _ _Schnitzel

Trading maybe Salt or who who whatever we're going to use at that point and and so that's the other thing is like yes there is a technical risk but we always have to understand that the game theory says that a company with such amount of power they better just mine and behave in the system then.

01:16:11.44

ilm

And whatever we want to use at that point.

01:16:29.92

Michael _ _Schnitzel

Trying to destroy a coin.

01:16:31.30

ilm

Do you outside of Quantum computing is there anything else you feel that or anything else that you hear as being like the big what if or that you think would be a ah what? if or that that that's scary with bitcoin.

01:16:49.21

Michael _ _Schnitzel

I think there is 1 thing that is still scary to me and that's that there is a bark in the software that we haven't found yet. But I also have to say of all the software in the world that runs. Probably bitcoin is one of the software that has seen the most scrutiny of most people of most programmers of the most intelligent people in the world they have looked at this code probably more than the code that flies your airplane that drives your car. That literally does a surgery robot like bitcoin is now so widely used by so many companies that so many people had an incentivation to find a buck in there and that if it exists it would have been found but what we have to understand is also we constantly. Modify bitcoin. We add new features to it and there are things that are not complete box that we say oh now bitcoin is broken but there are cases and they have been some in the recent months where people start to use bitcoin on it like but in a way that nobody else intentioned and. Not have to go into them. But I mean that's like where the whole ordinals and inscriptions comes from there's that's a technology that we we added a feature to bitcoin and somebody figured out another way to use it where nobody else thought and so we have to be very careful that as bitcoin is growing that we're not um.

01:18:25.00

Michael _ _Schnitzel

Blindly adding code or new functionality into this but that I also have to say is like of all the open source stuff that I've ever worked with bitcoin is probably the hardest the slowest the most scrutinized way if you want to even change 1 line of code in bitcoin. There's so many people looking at this There's so many tests around like no other software that I've ever seen in my life. So I really think that the chance that this happens is very very small but there is a tiny bit of chance. But I believe that chance is actually less than. Us finding a bug in an airplane or things like that. So putting it relatively to other things that could happen to our lives I think it's actually less and so therefore I've I sleep pretty well and about all of these but there is a tiny chance.

01:19:17.81

ilm

It's something. The last thing I talked through is that like ah the as bitcoin grows the safety of it in a lot of senses increases as well. So when bitcoin was young and not widely distributed from a hash rate or a node system. And easier to manipulate the system. But as the hash power increases and the people running nodes increase and people verifying these transactions. Um it as a system and the the more I scrutinizing it. It itself is becoming strengthened um in that that's similar to the the. What I believe as Preston I talked about a few weeks back was the the value of bitcoin is as the value of bitcoin increases unlike most assets you know you get a higher P ratio. It becomes more and more risky because it's It's seemingly overvalued what meanwhile bitcoin as it becomes more. Increases in purchasing power. There's a place of it becoming in a sense a safer asset because the adoption and the ah ah the market cap of taking over other things just the probability of overtaking other things become even further adopted just increases. So.

01:20:27.16

Michael _ _Schnitzel

So correct.

01:20:30.60

ilm

That's where time and ah, ah, the adoption rate is is doing the antithesis of so many things out there is like oh if we have more people scrutinizing this or adopting it or buying it. It's it's poking holes in all the time. Meanwhile this thing is just being more and more built up and and secured and valuable that so I was writing an article just a bit ago. Um before this and the question was about price of bitcoin if it's safe now because it just went up by like 25% in the last few days and it's in my one of the responses. Who who knows what's going to happen short term as price but theoretically as again I just mentioned as we see an increase in these things like it should become a safer asset a safer code a safer thing in general. Um, because of this these people around it. Um.

01:21:18.85

Michael _ _Schnitzel

Correct yeah and and analogy I've heard about that is like if you want to like? let's say you have a hotel and you go to the hotel and you burn down the hotel like that's that's obviously bad for all the people. But if everybody has a room in that hotel. Suddenly.

01:21:21.38

ilm

Yeah, it's it's it's It's pretty amazing.

01:21:38.81

Michael _ _Schnitzel

Everybody starts to protect the hotel like if you if you literally also burn down your own room and the shelter that you have and in that single hotel like nobody has an incentivation anymore. People are incentivized to work together to help each other to keep the hotel alive and now of course this. It's a bit weird and and into the into bitcoin. But that's exactly what's happening and if everybody starts to use bitcoin nobody has an incentivation anymore to hurt it and everybody suddenly is very incentivized to make it better to improve it and that's basically the thinking of open source. That's the whole reason that open source exists in coding. And and I think that's what's so hard for so many people to understand is that today we don't have a single money that everybody rallies behind we have all these different currencies and they all have incentivations to hurt each other and things like that. But if you have a global standard where everybody agrees up on. Suddenly the whole world will be a better place because we're all going to be incentivized, um on of working together because if 1 person tries to hurt everybody. They hurt themselves and that's what bitcoin will do.

01:22:48.83

ilm

Yeah, that's where I mean theoretically if you have some maniacal person who wants to burn down even their own room. They don't care that that would be scary but that's where ah, um, with bitcoin as it. It's not just as it's not just a room that requires a match.

01:23:00.50

Michael _ _Schnitzel

Oh yeah.

01:23:01.95

ilm

Now it takes a lot of resources. So suddenly you have to have a maniacal person who has access to an insane amount of resources and is able to manipulate those in a very particular manner where it just becomes the the statistical probability of this taking place is miniscule and not worthwhile. So.

01:23:15.30

Michael _ _Schnitzel

Correct. Yep.

01:23:17.66

ilm

Yeah, it's a self and you know enforcing mechanism. Well Michael I finally understand bitcoin. Um, ah.

01:23:24.35

Michael _ _Schnitzel

Ah, and by the way this is maybe 5 % of all of it. So ah, it's big. The rabbit hole is big but like you say well you don't have to understand everything I don't understand everything I have never read the bitcoin code from top to bottom. But I'm still able to explain it and I think that's really the the part like you're saying is that I feel like it's really great that you can go really deep in bitcoin and understanding the basics and I would say what we talked about now are the basics I think that's really good. Um, but. There is so much more to explore and it's an endless amount of rabbit hole I started again two years ago roughly and I feel like yeah like I said I've maybe found ten or fifteen percent and there's also so much more to come like so many people are working and improving bitcoin every single day and that's the exciting part that we can now be part of this because. If you want. You can be. You can go out and change this thing still today I think in a couple of years it will be impossible to actually move it around but that's a good thing again. We want slow systems but that's the super exciting part that we can now build the future of money for the world. Um, and yeah I encourage everybody to to learn specifically podcasts are a great resource to learn There's so many and things out there but there is websites. There is books there is endless amount of information to learn about all of this.

01:24:47.79

ilm

Awesome! Well thanks Michael is a handoff is there anywhere that anyone anyone wants to reach out to you or learn more about you or anything you think that' would be important for them to learn. But ah, what would you have them check out.

01:24:58.62

Michael _ _Schnitzel

So so you mostly find me on Twitter under the name schnitz all and so yes, that's the that's the austrian and speciality and I'm not from Austria but I still like schnitzl so. And maybe for the next podcast we can look at the history of that name. But and yes I'm on Twitter and there's also a link to naster over there and and pretty much on every other social media thingy. You will find me under the name of schnitzl I'm trying to whenever a new one comes pops out and go there and try to claim it. Um, but yeah reach out and my Dms are open on Twitter reach out if you have any questions I talk right now a lot about the home mining. But I'm I I really like to explain people things. So yeah I'm happy to have meetings with people to explain them the stuff because. I don't know a lot about other things and I love to learn new things. So if I can tell somebody else about bitcoin and they can get a deeper and a better understanding of it. This is what what brings me joy and so yeah I reach out if you have any questions I'm happy to help.

01:26:03.23

ilm

Perfect and definitely off to have you back on once you've managed to scale the heating system and certainly once you figure out how to you've cracked the nut on the cooling system. We'll bring you on. Ah we run will run a trial at my house. Awesome! Thanks! Michael.

01:26:14.41

Michael _ _Schnitzel

All right? That's good. Let's do that. Thank you.

We're in a debt spiral and we ain't in Kansas anymore! w/ James Lavish

ilm

In today's episode I'm joined with James Lavish James is a charter financial analyst a hedge fund manager and the author of a weekly newsletter called the informationalist now James and I today we talk through the current macroeconomic landscape the looming debt spiral and bitcoin. If you'd like to learn more about James or follow his writings and thinking you can follow him on Twitter at jameslavish or go online to jameslavish.com/newsletter to subscribe to his weekly newsletter also of those links below. Let's get started.

00:00.54

ilm

Yeah, so James lavish. Thanks for being here I can I yeah I can hear you go good now I ah glad you're here. Yeah I love your your thoughts and ah your your writings and I mean you're on tons of podcasts and I'd love to.

00:02.63

James Lavish

And Wow hi man. It's good to hear good. Can you hear me is this good.

00:17.79

James Lavish

Crazy.

00:19.14

ilm

Have a conversation with you today about just your views on I mean the the debt spiral and what in the world does that mean to nonbit bitcoin Twitter people and where we are in the macroeconomic landscape and what do you think the the endgame of where we are right now will will result and I guess. And this is like 6 things. Um, but also like how in the world. Do we get to where we are right now like we've we've got quite the mess on our hands. What's the way out can the fed fix it and how did we get to this place so here talk through all of that you have 20 minutes I'm just kidding. Yeah.

00:42.64

James Lavish

No god yeah, okay, so the the answer is no, there's I I mean look well first of all. Thank you for having me Jim I appreciate I'm honored to be 1 of your early guests on this new show and I'm sure it will do fantastically. So um, and happy Friday I'm in kind of a friday mood. So I'm gonna warn your your viewers who may be used to me going a little bit debt spiral doom. Um, loop podcasting. But I mean if it gives you any idea of how my mood is today I'm wearing a pink floyd t-shirt I mean I'm still kind of I'm in I'm I'm in business mode here because it's it's a workday but um.

01:34.17

ilm

You know that the the James that I know on a personal level is ah laid back in Colorado taking it easy. So this seems right in line with with my familiarity with you so nothing out the ordinary here.

01:43.81

James Lavish

It's perfect. Yeah, it's good I get ah sometimes sometimes people ask me if if I could just take an hour or 2 on a Monday morning off to just. Not freak them out for the whole week. But yeah I like to you know? And honestly I just like to tell the truth and really what What's been going on the last year in particular is I've been trying to I've just been trying to help people see what's going on. You know and trying trying to get and and make it relatable to them to understand where we are where we're going and I mean I'm ultimately I'm I'm an optimist and ah I'm a you know Um I'm a diehard optimist forever perpetual and. I believe that we're going to find a way out of this I believe that bitcoin in particular is is ah is a key component of that. But your main question is like where are we? How do we get here and and where are we going in the macro world like in the you know and at all. Comes down to money so when I talk to people about you know what I work on and what I'm what I focus on I typically just try to explain to them how the money is broken and how the system is broken and so you know you know what? it's like when you you have a family that.

03:12.47

James Lavish

Some people believe in this political party and other people believe in this political party and you know and you can tell it's Friday because I keep saying you know I'm I mean I'm such I'm I'm in real chill mood. But ah the bottom line is. It's not either political party. You and I and Jeff Booth had this conversation I think when we're standinging there in in the lodge and and telly ride a few weeks ago and the bottom line is it's it's ah the system that's broken. It's the system of money that's broken. It's the incentives that drive the decisions around that money. That is broken and so when when we look at these massive and gargantuan and mindummbing numbing numbers of the the treasury piling on $2000000000000 of debt in and just the last few months. It's almost inconceivable. You just can't. Wrap your brain around it and you're like well how is that possible and who's buying it. What's going on and what does it mean is I mean are we collapsing the answer is no, we're not collapsing not today but we are setting the stage for a a. Monumental collapse and that's the problem and that's what I want people to understand is that we can't do this forever and the treasury itself knows it so people are blaming the treasury but let's call it what it is. The system is broken. You have the white house.

04:45.26

James Lavish

And legislatures legislators they're they're up in Dc and they and they make law and in that law part of that law is the budget and what we spend money on as a country and they spend too much money now the treasury's job. Is to so just to facilitate that spending it's to make sure that whatever is signed into law and what are we? Whatever we have agreed to spend money on the treasury can facilitate that and they do that by trying to balance a budget and by issuing debt. In times of need. Well, we've been in a time of need for a long time now we've been running perpetual deficits because we spend too much. We don't produce enough. Um, and that's really not even the the problem we we produce plenty as a nation I mean you and I are sitting here on a Friday working hard. And we actually are working you know people say like they'll look at the sale you're having you're doing a podcast. They may not understand all that goes into it I understand I've done it I understand what goes into this this is work and it doesn't just start with flipping a switch and you have a lot of components that go into this, you're buying software. You're. Interact with people you're you're trying to maximize your reach you know, um, you're spending money on devices and and inputs and there's there's a lot of there's a lot that goes into it and that's production and we and you know we are. We're blessed to be doing these things you know.

06:18.18

James Lavish

Pontificating on these things on a Friday but there are people out there um out and you know you can't hear it but there's construction going on 2 streets away from me and there are people out there working every single day and so the government taxes that and then they take that and that's their income.

06:38.44

James Lavish

Um, but they're spending way more than they than they take in an income and so enter the fed. So the fed's job is to maintain and restore sometimes confidence in the us dollar and how do they do that? Well their job is to. Ah, they say they've got 2 mandates full employment and low inflation right? and their definition of low inflation is a constant 2% annual rate I don't know where that came from I mean I actually I know it came from ah it came from europe. Ah, you know half a century ago but that's where we've glommed onto as ah as a world. There's a global financial system that 2% inflation is that's normal. Okay, well we'll talk about this but there is no normal right? That's not normal. Inflation is not normal. So. But the fed's job is to make sure that people have confidence in the dollar and that they have confidence in owning treasurys which means that they have to make sure that people believe that inflation is not so far out of control that when they invest in a bond or they hold dollars. That it's not just melting away on them that that's actually worth something at the end of that period of holding those dollars or holding those bonds and that's kind of where we're at where those where those are the 3 you know main players in the United States financial system and.

08:13.30

James Lavish

And we're not even talking about the banks. They're another massive player and huge influence on that first set right? and on that last set right? So they they are a huge behind the scenes influence but those are 3 main players who are who are making chess moves to keep this whole charade going. And the charade is the debt charade and that's where we're at and that's kind of what what we're looking at today and that's what I've been trying to teach people over the last few years as a long answer for a Friday afternoon but here we are.

08:47.94

ilm

Now you're good actually. Ah I usually wait till about two thirty or 3 for my for my afternoon latte. But ah I accelerate that one over up to noon. Ah yeah, well little tired Friday but now this is great. What? ah.

08:53.90

James Lavish

Keep it going.

09:04.32

ilm

Is this new like how do we get to this place of debt and all these parties with mixed interests like is this a symptom of 2008 financial crisis and suddenly like this is a band-aid or is this symptomatic of something that's been happening for longer like.

09:13.30

James Lavish

Um, yeah.

09:22.50

ilm

Are we the first people have encountered this or as is this only happening right now in the us or is it elsewhere and it's another question is this? Maybe it's happening just here or other places business first time in history its does this happened sorry for like 5 questions and 1

09:27.39

James Lavish

Um, yeah.

09:35.89

James Lavish

it's good question you know ah no um it's no it's not the first time in history. It's happened, but it's it's it's different um in a number of ways. Um the real problem if you go back to the the main problem is. And if you ask people and you just walk around the street you ask people? What's a Us dollar backed by they'll say two things they'll say gold or they'll say the military you know like those are 2 things that people usually will fall back on but the reality is the Us dollar is backed by nothing. Is backed by the good faith of the Us government. That's it and so what happened is 1971 Richard Nixon made a play that he knew that the way we were spending money we we were never going to be able to keep up with it and so he.

10:14.85

ilm

Um.

10:27.70

James Lavish

Took us off the gold standard officially took us off the gold standard and and when he did that it means that people couldn't if you go back and look at old us dollars it. It would say that they're exchangeable for a certain amount of gold right? But they're not on that. That's not on the dollar anymore. You know all you've got is that weird eyeball at the top of the pyramid. You know the all-knowing eyeball and that's the us government. Um, and so ah, but the problem is they took us off that standard. So now there's no check and balance there right? So you can just keep issuing debt. And print more money right? So this is where the issue comes in is that the the money is not really worth It's it's only worth what people believe it's worth so it's ah it's ah it's this generally accepted. Note. That people believe whoa. Well, that's worth $100 and if I take that and I go over here. It's going to be worth $100 to that guy. Well the United States is in this wonderful position that we benefit from the fact that we have the global reserve asset in the us treasurys and the global reserve currency in the us dollar which means that us dollar is is the one that people are are using around the world more than any other currency. But here's the issue is that when we got off the gold standard. We started running massive deficits because there was no check and balance there was there was no worry about. Do we have enough gold in the in our.

11:59.18

James Lavish

Ah, vaults to exchange for these notes that we're putting out there because now they're not exchangeable for gold. So well, they're just well. They're just exchangeable for dollars. That's all they're exchangeable for you know so or goods and services for whatever people believe. Those goods and services are are you know the price of those are but the issue is that we are running these deficits which is and in running deficits just spending money. We don't have okay so we're borrowing money in order to create productivity. Now debt in and of itself is not a bad thing. It's not a terrible thing if you if you use debt responsibly you can own a house. You can start a business you know like if you have I like to give this example if you have $10000 but you want to go start a restaurant. You've got this place that you know people are asking for food. There's a lot of there's a lot of office buildings around there and you you know that you can have a great restaurant right? there and so you've got this opportunity but you only have $10000 but it's going to cost you $100000 to open that restaurant small restaurant. So. What do you do? Well maybe you're able to borrow the rest of that money and open that restaurant today right? So meaning that you've borrowed that $90000 now you've got 100 and you can you can buy your ovens and your your cookware and your diningware and you can.

13:34.69

James Lavish

Hire employees and you can buy all the the food and you can as soon as you're done with that in a few weeks you can open your restaurant and start generating productivity and so that's you know that's that's pulling productivity from the future into today because instead of having to. Work and work and work and work and save money and save money and save up that ten that $10000 to make it $100000 well now you've pulled the productivity from the future into today and you're creating so debt and as long as you didn't borrow too much as long as you you know you probably would be a better example if you you borrowed. $30000 against that 10 but the bottom line is as long as long as you're you're covering your expenses. You know you're covering them the the interest on that debt and all the other expenses you have and you're generating a profit continually that's large enough that you have this the the ability to. Um, to ride the wave of of economic cycles. Well then you're okay, but the problem is many people take on debt that they just take on too much and we're in that situation now in the United States where we have taken on too much debt and we're in what we call a we're we're in a. Get spiral and I can I can talk about that a little bit more but I'll kind of pause there and and let you ah let you ask questions or or or maybe reflect on it.

15:01.73

ilm

Yeah, like to because we can. We can continue go into like what is the debt spiral and yeah, what would be what's that step look like let's let's keep let's keep going on that for a bit. Yeah.

15:15.29

James Lavish

Yeah, pull that thread so on that thread. So okay, you the problem with debt is sometimes you're taking on debt that has too high of an interest rate that that ah you can't really pay back. Okay, so say you're a single parent. You've got a few kids. You know and you've got ah your whole you hold 2 maybe even 3 jobs in today's day that's not abnormal. You know, many many people have 2 jobs the last employment report showed a rise in in double employment of ah 100000 people and it's just this last.

15:49.49

ilm

Wow.

15:52.80

James Lavish

This last ah week you know it's it's crazy so people are taking on second jobs because they're not. They're not keeping up. Okay, they're not keeping up with inflation but let's just let's just walk through that so you you so you have mandatory expenses right? You've got your house your car payment. You've got gas to get back and forth to your job if you're not ah you know if you're not fortunate enough to be working remotely and you have to have to actually go to an office or a facility or you know and so and you've got to pay for food. You got to pay for your kids's food and your kids' clothing and you know they're growing they need they need new shoes. You know so those are mandatory expenses and so if your jobs are not covering those expenses. What do you do? what? you're going to take out a credit card. It's the easiest fastest way to make sure that you're covering your expenses. But the problem is you're running up debt on that credit card. You're still not meeting those expenses and you're falling behind. Well, you're eventually gonna run up that credit card and it's gonna be full and you're gonna have take out another credit card and then eventually that's gonna be full and you take out another credit card and now you're paying on that. Third or fourth credit card. All you're using it for is to pay the interest on the last 2 or 3 credit cards and you're you're not you' you're nowhere near making your ah the margin you know you're not meeting the margin and you're going under. It's called the debt spiral. You can't get out of it.

17:22.19

James Lavish

Let's look at the United States so if you look at the United States in particular and all fiats are in this position or all modern fiats are in this position. The us is not alone. It's just the us has has the benefit of of being as I said the the global reserve. Asset and global reserve currency. So we're going to be able to perpetuate this for a lot longer than I think people think I believe people think but so if you look at the United States and we were say that the United States is a company on The New York Stock Exchange you would call it a zombie company. Why. Well a zombie company as you know Jim is a a company that ah is not generating enough income to cover. Its its interest expense. Okay, so typically. Ah, ah, um, a healthy company will be generating enough income annually to cover their annual interest expense by. 7 8 9 10 times. Okay, so it's not a problem at all the United States is not is not only not covering it. It's it's it's it's at like a point five coverage which means it's um, it's not even it's not even covering the the interest expense which means that it's a zombie company. Well the United States also has mandatory expenses right? So you have your you have social security medicare medicaid. Okay, you've got some. You've got some internal expenses that are that are signed into legislation. These are all signed into legislation.

18:55.80

James Lavish

You have to be paying these expenses every year that's number one that's a big chunk then you've got a next chunk which is military expenses. Okay so it's about. So if you if you say that? ah you know Medicare Medicaid and all that I mean it's it's now. Ah, it's kind of a moving target. But.

19:00.29

ilm

To.

19:14.92

James Lavish

Ah, if you look at last year okay so I kind of went through this last year and I wrote a thread on it back in August of last year okay and these these all these expenses have gone up. But if you look at it back in. In in terms of 2022. Um, you know you have you have expenses of entitlement entitlement expenses that were upwards of three point seven trillion dollars so and then you add on your.

19:51.63

James Lavish

Military expenses which is about $800000000000 now those are not signed into legislation but those are long-term military contracts with defense contractors that you you have to be paying these? okay especially if we plan on going to war in every single country. Um, it's another issue but.

20:09.97

James Lavish

So you've got about $800000000000 of defense spending. Okay, so now you're at about four point five trillion dollars give or take now entitlements all that that have gone they've gone up as employment goes down that those go up and and you know the need for unemployment all that that's that's going to be rising here. But let's call it 3 point 5 or four point five trillion dollars of of expenses last year we were running about $600000000000 of expense on interest payments. Okay, so now as an as a country you know we're we're. Taking in. Ah if you look at if you look at the debt clock and I and I like this and maybe we can share the screen is that is that something we can do let me see I don't see it. We can do that here.

20:55.25

ilm

I Don't know I don't know I hadn't had a chance to figure that one out yet.

21:06.91

James Lavish

But for your listeners you can just go to ah, you can go to debtclock.com okay and or I think it's dot org us debtlock.org and it'll show you continuously where where our our expenses are our debt and all that. And of course it's down right now. So I won't be able to to tell you but um, so and I'll I'll look it up here you you might have to cut this part out Jim but let me look up the exact debt so we get people numbers so they can they can understand exactly what I'm talking about here. But we're talking about and these are numbers that come in from these come in from the cbo. Okay, the congressional budget office every single year they put out budgets and they tell you exactly what they expect so they're expecting to take in about $4000000000000 three point nine trillion dollars okay of of tax collections this year okay these are a lot of numbers. We're gonna go back start at the top they're taking in about three point nine trillion dollars which is 10% lower than last year okay that's what they're taking in as tax revenue.

22:10.53

ilm

So.

22:23.22

James Lavish

And they're about to spend this year they're going to spend about five point five trillion dollars okay so right there you can tell it that math doesn't work. Okay and 1 of the biggest problems is are the interest on our debt. Is growing so rapidly last year it was $600000000000 this year. It's getting to be about $1000000000000 okay, so we're just like that single parent who is issuing more and more debt. Okay, we're we're borrowing more and more money. Now. We're borrowing at higher interest rates just like on a credit card the next credit card. You get a higher interest rate next and that's what's happening to us. Okay, part of that has to do with just because the fed is has raised rates but also it has to do with the market realizing that we have so much debt that's coming onto the market they're they're they're demanding a higher interest rate for that. So now the treasury is issuing this debt and they're having to pay more and more interest on that. So when you when you pull out all of those numbers you see that we've got this this gap. Okay, that's just growing and growing and growing that deficit is growing. It's getting worse and worse and worse. Okay. And so we are in what's called a debt spiral. So what is your choice if you're in if you're the United States government and you ask me where we are okay here this is where we are. Our deficits are growing. We we issued $2000000000000 of debt in just the last few months.

23:56.63

James Lavish

Because we need to borrow money to pay for all these things part of that was because there was a a log jam of you know there were a lot of things they had to pay for in June that because we had that debt ceiling crisis and they were holding off a lot of expenses and they all came due but you know we're worth $3000000000000 above where we were last year. That's the only number you need to know okay doesn't even matter what the but the the debt ceiling was we have borrowed $3000000000000 more this year that's 10 % more? Okay, so we are we are in the same spot as that as that. Single parent but because we're the United States government we have ah we have a few other options. 1 thing we can do we have basically 3 main options and then a fourth sneaky option. But the 3 main options are you can either be. You can institute some fiscal austerity. Which means cut spending okay which is meaning that you're going to cut spending on on certain entitlement programs because we just heard that those that that's the big expense you have to cut entitlement spending in order to bring this bring this deficit down.

25:12.54

ilm

Um, yeah, that's ah I think that the word like I'm not I'm not much a fan of ah, an entitlement in a lot of things but like I think the the term entitlement there is is actually merited like that is social security Medicare those are things like you've literally paid in. It's not a handout from the government those yeah I paid that that is mine.

25:13.26

James Lavish

Well, that's just political suicide. You know jet you right.

25:30.17

James Lavish

Um I paid for that. Um, yeah, exactly exactly I I mean I've been paying for my entire career and I get my my I get in this little statement every year it says what my social security.

25:32.45

ilm

I am entitled to that.

25:43.60

James Lavish

Payment will be if I retire at 62 or 65 or 70 It's just it's pathetic. But I paid into it. You know I paid all that money into it for for decades and I'm gen x I'm not expecting to get much from it unfortunately because of what we're talking about here. Okay, but let's walk through it. You can cut spending but that's political suicide neither party will do that they'll try to push the other party to do it to be fiscally responsible. Take the blame and then not get elected on the next round but neither party will do it. The second thing they can do is raise taxes. Well we know from. Many studies over many ah years and centuries that raising taxes ah winds up just disincentivizing productivity and it takes it takes away the ability for thriving companies to reinvest money. Into ah into good investments that will grow productivity over time you know, research and development New New Divisions new products you can't do that if you're being taxed and it's taken away and given to the government for um, you know, ah just silly spending.

27:01.83

James Lavish

So that's the second thing you can do. But so you you end up getting back to the same place. It doesn't help productivity and you know you wind up with the same tax dollars eventually. The third thing you can do is just issue more debt. You know you can so when ah when a bond matures and we don't have money to pay for it. We just. Sell another bond take that money pay for that first bond and give people back their principal they wind up buying that new bond with that principle and so it's just this circle. That's a third thing we do and we're issuing more and more debt right? Um, but that can only go on for so long before you get to a spot where. People realize that they're dollars their their're bonds they're they're not worth what they were before why because of the fourth sneaky option which is allow for and hide perpetual high levels of inflation. And when you do that you allow for inflation to create productivity in nominal terms meaning we're producing the same goods but those goods cost more because of inflation and so the tax dollars are higher. Because of inflation and it's really just fake productivity and so they take that fake productivity that they tax and they use those cheaper tax dollars to pay down debt that they issued years and years and years ago so it would be like if I borrowed $100 from you today.

28:36.96

James Lavish

And ten years later I pay you you back that $100 well who had the benefit from that. Well I I got $100 when it was worth $100 now I give you the hundred dollars back and it's really worth about 50 that doesn't sound like a good deal for you. You're the one who's loaning me the money in this situation I'm the us government. And you're the citizens. Not a good deal, especially if you're if you're a european or an asian country. You're you're China and you're you know, lending me dollars. You're getting them back and you're looking them thinking but these are worth a fraction of what they were so why? do you think China is letting their. Us treasurs just mature off their balance sheet and they're not reupping the same thing that Russia did that was a tactical error for us to freeze their assets. So there's another reason for them to do it but they don't want these dollars that are worth less and less every year and they know that's what's going on. And you're seeing. That's why the bricks nations have have been trying to you know commingle and congregate and get a a not a competing currency but an option against the the treasury because they don't want to be holding treasurys anymore. They want to be able to buy oil and gas. And their own currencies. So that's kind of where we're at we're at a spot here Jim where we're taking on so much debt so rapidly that the market is realizing it. They're forcing higher interest rates and the fed is lost a little bit of control at the long end of the curve here because.

30:13.40

James Lavish

It's the it's the what we call the bond vigilantes and I wrote all about this in my newsletter this last weekend. It's the bond vigilantes that are that are refusing to buy long-term treasuries at 4% they want them higher four and a half Four point seven four point eight approaching 5% now. So if you look at that ten year treasury. It's going higher and higher and that isn't because people think that you know the fed's going to be raising rates here. People think the fed is going to be lowing rates next year if you look at the fed. If you look at fed fund's futures. They believe the fed's going to be lowering rates next year so why is the tenure going up well because people realize that this high perpetual level of perpetual inflation is going to eat away at their dollars and so they're not going to loan the money they're not going to loan money to the us government at 0 interest rate. Policy anymore. They want to be paid for that that risk of high inflation perpetual inflation that the fed quite honestly is working and I they're not working with the bls but they. They are not demanding the bls make it look any better than it really is because again the fed's job is to restore confidence in the us dollar and so the Bls The Bureau Bureau of labor services that that creates um the the different measures of Cpi and and.

31:37.54

James Lavish

And the other inflation measures they're there there they make it look as good as they possibly can pulling out. You know, very sensitive things like energy and how.

31:46.13

ilm

Yeah, that like this week yeah energy housing used cars and food was it was a you know pretty basic stuff. You.

31:54.44

James Lavish

Whatever they whatever they need whatever they need to pull out. Yeah, the stuff that you kind of need those are mandatory expenses for people you know heat their house eat their food drive their car to work like those are kind of mandatory expenses pay for the house.

32:09.40

ilm

School James the secret is go by go by a new big screen Tv and you just ah, you just leveled out your inflationary hit because the Tv's deflationary and now you're you're breaking even things are good i.

32:21.93

James Lavish

that's right, that's that's right that's right so yes that's kind yeah so that's that's kind of where we're at. That's the debt spiral I wrote all about it ah last year and in in my newsletter you can find it's ah it's pinned on the thread of my ah. Ah, my profile on Twitter but you know in our little Friday fireside chat here. It seems depressing. It seems very very bleak. Um, but I'm not depressed I'm actually optimistic. And I'm optimistic because we found this wonderful incredible thing called bitcoin that I think can help us out of this mess and so yeah.

33:00.38

ilm

Miss a couple things so one when I'm a very simple minded guy. So I try to keep I have keep things pretty simple and I I guess when I tie this back like when we're talking about numbers like this. It's hard to lose touch with reality. Like my I have four young kids my oldest turned six this week and ah he was saying yesterday. Ah that he can talk he can count to hundred million billion trillion quintillion to start going off and at that point it's like it's just you can make up words because no one even knows like I don't even know. Is is dodecca dillian like I mean that's is that 12 whatever like I don't know so we lose we lose touch with reality once we get to these numbers and if if a a if a small business or a large business or a household was managing money in the same way. Our government is like. You'd be in big trouble now. The government is able to kick cans a lot farther down the road but it's it's it's very sobering to think about this is the this is our government this is impacts everybody? Um, and I would not I would be I'd be very concerned if this is my house I'd be looking at manbabe. We've got a downsize. We're going to have to. We'll be living out of the car for a bit hope you like camping you know so I don't see how this goes for the for a government and you you sit here. It's like all right? Obviously you have a lot of smart people thinking through this and a lot smarter than me. But if if this was my personal household and the way this happens we roll a debt like it's it's hilarious. A few months ago

34:35.73

ilm

You know, big politician came out and said hey we've we've never defaulted on our debt. Do we default on our debt regularly. It's ah it's a habit of ours. We just don't default in the same way that like we come out and say like Michael Scott I declare bankruptcy you know we're getting faulting other ways.

34:44.27

James Lavish

It's it's.

34:49.79

James Lavish

We're we're yeah we're we're soft defaulting every single day by having inflation inflation. Yeah, the inflation number is just this number they they picked out of the air and they said okay, why is it 2% well that's why is it 2% because that's what they can get away with 2% is like.

34:52.22

ilm

Exactly.

35:06.39

James Lavish

Okay, well 2% of my you know of my income is kind of eaten away every single year so in order to keep up with that Jim you've got to be getting. You know you got to be getting at a 10 % raise at least every few years are you getting a 10% raise every few years I know that no most most people are not that's number one so that winds up that winds up creating this this this system that the top earners the 1% or is the people who own companies. The people who own assets they get wealthier and wealthier. Because those things inflate every single year assets inflate right? We just don't inflate until you go in and demand them That's what we have we have over 100000 people who actually I think it's over a quarter of million people have have been on so have entered or been on strike at some point.

36:00.50

ilm

2

36:01.25

James Lavish

Since the beginning of the summer in the United States and that's that's because they're demanding higher wages. Why are they demanding higher wages because it can't keep up like they're not. They're not able to keep up with the inflation and so they the 2% is okay because it's just low enough that. People they don't they almost don't even notice it. It's just it's it's a sneaky tax right? And that's what is that doing that's allowing for the government to continue to continue this charade of debt. The debt trade now. You know your your question you and this a really important thing so people ask me all the time they're like well why would s and p and fit downgrade. The Us debt are they do they think that there's really a chance that Us would default. And the answer is no so if you know to quote Lynn Alden here if you are a sovereign if you are if you have a if you're a country that you issue debt in your own currency. You would never default. Why would you? you could just print money and look at Japan. Okay, the bank of Japan has been buying their own debt so much so for so long that they now own the bank of Japan owns more jgbs japanese government bonds.

37:34.45

James Lavish

Than anybody else in the world they own over 50% of of outstanding Jgps I mean this is just insanity. They print. Yeah, exactly exactly.

37:39.60

ilm

That's what happens when you do in ah an emergency purchase regularly. It's well let's so where where the government is like if this is my household. It's sort of I mean we're rolling over debt to new debt. That's what's happening and that would be like oh gosh babe the ah. Credit card bills due and I go check the mail and there's a new mastercard there and it's like hey you're you're approved here you go hey let's roll it over in the next month aba we're not going to make it right? Hey we just got this visa in the mail. Let's roll it over and you keep doing that. Um, and what's really putting a squeeze on is not just this growing amount of debt.

38:01.92

James Lavish

Just roll it over.

38:16.47

ilm

But each time we get new credit card in the mail. Maybe initially our interest rate was was 5% but then we rolled it over to the visa and it's it's 15 and we roll over the massaccard now. It's 20 That's right right now. The fed raises rates. We're putting that pressure on ourselves. So's if I again take it back to a base if I was if this was my household.

38:26.81

James Lavish

Um, act is we hearing you know that? yeah that.

38:35.64

ilm

And I could control all right I'm about to get a diners club card in the mail and I could control the interest rate I have to pay I would say well heck, let's make the interest rate 0 I'll be able to actually start paying this down any principal I'll pay will go towards astead at 0 and I can get myself out of this. So again and obviously not now how it works but why not if the government can set the interest rates for the debt. The the interest rate on the debt we're going to pay why doesn't the government just come in and say hey new debt payments is zero then yeah, we could just buy our own debt. No one else is going to like actually but I don't want to say that you could you explain to me why we don't do that as a kind of as a country.

38:52.46

James Lavish

Um.

39:07.65

James Lavish

Yeah, that's a good. It's okay, we did that a little bit but the problem is that you know when you when you run 0 rate policy zirp you wind up it. It does become inflationary.

39:09.87

ilm

Because I would do that if I was an individual could set me an interest rate.

39:25.15

James Lavish

Right? And so our issue here is that we're trying to the fed is trying to they're trying to bring down inflation by cramping demand right? So when you when you crimp on demand to bring down. Spending all right? So if you just think about it in terms of if you're a company. Okay and it costs you So think of big terms. Not even just individuals big terms if you if you if it costs you more money to borrow then when you when you need Capital. And a lot of companies have what's called ah a bank line of credit. Well that line of credit just gets more and more Expensive. You know a lot of those are variable rates and so it becomes more capital becomes more expensive and and when they go out to issue a bond. It's more expensive and so. That means their margins come down that means their spending comes down that means that they can't they can't pay their workers as much and so that that pulls down their their profits and so they're less profitable which means that there multiples in the stock market will come down which means that. Asset prices come down which means that that's less money in the pocket of people who are selling stocks or borrowing against stocks to go and you know spend on things and so it all it all brings productivity down and it brings eventually often. What happens is it. It.

41:00.70

James Lavish

Pushes a number of large companies or institutions to break and then you know you have what's called a credit event and you have a drop off a cliff. So what? you'll often see here. Jim is the fed keeps rates high. They raise rates that keep them high. Higher than longer higher for longer than they should have and then you see a sudden spike in unemployment and we're in a recession and that's what's going to happen I mean that's likely very likely. What's going to happen in this in this cycle again. So but you can't keep interest rates that low because it's just going to if you lowered interest rates now. People go borrow again and go spend again. It's kind to just it's gonna perpetuate the inflationary issues right? So you've got to keep inflation high enough that you you can't you you don't want to go into a situation like in the 80 s where we all me. Ah we we were on the edge of of. Interest rates getting out of control and then Volker came in and and raise rates to almost 20% at one point I think they touched 20% you know and so we couldn't do that now we would I mean we would cripple the government with with interest expenses that would just be that would actually be laughable. Um, because we're back then we were we were running um at about a 30% debt to gdp and today we're running about 125% so that would not work. Um, so 12025? So what? ah.

42:21.68

ilm

Um, wow.

42:35.92

James Lavish

So that's the point though and go back to your statement of you. You take out another credit card. It's more It's higher interest rate. Okay, let's go back to it. So let's go back to Fitch and ah and standardism poors and why moody's hasn't jumped on this yet I have no idea I cannot figure out what they're thinking. But. What they tipped off to the market gym is that not that there's a higher chance of the fed of the of the treasury defaulting but rather the higher chance that inflation goes unchecked and that if you're investing in those bonds you're actually getting a negative real return. So inflation is higher than there were than the interest rate you're getting on that bond and so they they tipped off the market mean the market already knew this and the you know the bond vigillante is already out there but they said yeah we agree there is a there is it. There is a distinct probability that. You're going to get a negative real return on those bonds and so we're going to lower the bonds from the highest rating Aa a to double a plus. They're still you know they're a great place to keep your money. You're not going to lose it all. But. When you get paid back that principle. It may not be worth quite what you thought? what? what you planned on it being worth because of high inflation and so that's the issue and what you're talking about and I 100% agree with you. We're defaulting every single day and that's in the form of a soft default which is called inflation.

44:08.11

ilm

So There's the ah, there's a lot of the problems. So How how does this work out like where here's where I see things right now like I talk with normal people daily about money and obviously ah you know I'm looking out my window right now to our account Square and there's people out. And drinking coffee and on walks and stuff and it's I think where things are right now I don't think most people are aware of the the gravity of the situation. Um, but I think it's about to hit you think through? Um, just a few weeks ago.

44:29.70

James Lavish

Um, yeah.

44:44.82

ilm

And ah student loan payments. You know, federally owned student loans became you know you can to pay them again for year. It's been years. So I mean it's been what three and a half years so three and a half years ago if you're student loan payment was four hundred bucks a month. Okay well I have four hundred bucks a month and I can go get coffee with some friends and my avocado toast once every.

44:46.79

James Lavish

They could yeah.

44:56.24

James Lavish

Person.

45:03.66

ilm

Once a week once every two weeks and then ah when the covid shutdowns happened um and they cancel your student loan payments for a bit. Um you suddenly had $400 in excess and you were given some you know fifteen hundred bucks and those covid payments.

45:06.75

James Lavish

Um, right.

45:19.71

ilm

So you had $400 in excess to go spin on avocado toast and coffee and you couldn't spin on anything right? then. So then you saw savings rates go through the roof the best they've been in decades and your everyone just got fifteen hundred bucks to go and sock away or most people did something in their yard or whatever and that's when ah the the coinciding of house projects with the.

45:36.11

James Lavish

Yep.

45:39.37

ilm

The the ah lack of production of these. Ah these assets.

45:44.16

James Lavish

And stimulus checks that were that were that were deposited straight into people's accounts. Yeah but but that's a good point that you know these these interest payments have kicked in again. That's number 1 number 2 when you look at the demographics Jim the lower. You know the the lower 80% are struggling. They're taking on more debt and it's not because they think they they think that they're you know it's not because they're optimistic about the future. It's because they're struggling today and so those credit card the credit card amount the the credit card debt in this country is just going.

46:15.56

ilm

Um, yeah.

46:23.63

James Lavish

You know, straight in a straight line almost exponential number one and and you're seeing defaults start to tick up. You know.

46:25.55

ilm

It looks it looks almost exactly inverse of what happened in March of 2020 March April May Twenty Twenty saving rates were the best. It's been in decades accounts and everything was just it was it was impeccable. So it was it was great but again at that point everyone had.

46:42.41

James Lavish

That's right.

46:45.30

ilm

These people had $400 in excess and they were just given fifteen hundred bucks and then we we weren't we weren't facing the reality of the taxation of this inflation yet. So suddenly like cool I can do this and people are going out and doing things and then after several months inflation started to pick up and people are realizing it and suddenly it was like instead of going out and getting coffee daily.

46:48.70

James Lavish

I try.

47:04.82

ilm

Now I can do it every few every every few days then it was once a week and then reach a point where like hey I'm back where I was I can go out and get coffee with my friends once a week um oh crud what happens is my $400 short loan payment comes up again and that's where we are. We were back to a point where things were. Just about as tight actually more tight than they were prior to covid without even having these debt payments and suddenly this is back. So I think there's a lot of people between the age like 25 to 45 who are about to be in a lot of pain and I who knows what's going to happen but I would not be surprised if in a few months like the the consumer spending just.

47:26.60

James Lavish

Might see.

47:40.33

ilm

Falls off you know, Falls off map and you know use cars start getting out there like it's yeah when we look at again a few years back average balance of savings, accounts and savings rates were phenomenal and it was just a spike where we had this injection of capital.

47:43.95

James Lavish

Um, yeah.

47:57.70

ilm

Um, and then it's the inverse. It's all it's like it's not this gradual thing. It's just sort of fallen off the map and the the other side of like credit card the average ah delinquency on credit cards. The average ah amounts on credit cards are just abysmal and ah.

48:10.81

James Lavish

Um, yeah, yeah.

48:13.84

ilm

Yeah, who again I think it's just going to get more dire I'm curious to see how the how they're going to government's going to respond to this What the implications are going to be with with homes I mean houses cost a fortune. Ah I mean the houses are like the least affordable, they've been in in several decades.

48:26.40

James Lavish

Um.

48:30.54

ilm

What's going to happen. Let's say the fed. Well if the fed pivots and starts dropping rates. There's pint up demand for people to buy houses look. There's a lot of people who want own a house right now. But the interest rates I don't think the yeah the the the cost of a house has not gone down in tandem with the rise of interest rates. So the affordability is not.

48:39.76

James Lavish

There They're black him out. Yeah.

48:50.35

ilm

Even doubt it's just the interest rates have skyrocketed the house prices have maybe gone down to hair.

48:52.10

James Lavish

That's right? Well, that's because yeah, that's because nobody's selling because what are they? they're not goingnna they're not going to give up their their two and a half three percent mortgage why would they do that they wouldn't so until that happens you there.

49:01.73

ilm

Death.

49:09.19

James Lavish

So what's going to happen. Well I see it kind of in 2 different paths right? So either. We we kind of plunk along here and the fed keeps rates too high for too long and we do have that whoosh moment of a bunch of layoffs. We go into recession. You have a spike in unemployment. And we go into like this kind of hard landing. Okay then hardish landing that's kind of the optimistic case. Um the pessimist. The pet. The pessimistic case is that we have a major systemic.

49:35.53

ilm

I Like how that that's the optimistic case. Okay, let's so.

49:47.77

James Lavish

Far-reaching default that has counterparty risk with contagion that produces an event like we saw back in 2008 that we have a major. Credit event that ah or in 2019 where you saw the the repo market lock up you we have a we have a credit event that forces that all markets sell off every single every single thing you own sells off it. It all. Correlates to one and it does it in in in like face melting fashion where you just cannot even believe how quickly it happens and all happens like a 1987 black monday moment where everything sells off. Everything correlates to and why does it happen? Well it happens because you if you're a money manager and you walk into the office and you have a massive event like this. You don't know where your counterparty risks are you don't know where your margin calls are going to come from. You don't know what assets are worth what you sell everything and often you sell things that are more liquid. Things like bitcoin because they're liquid. They trade all day every day 24 7 you can be selling that on a Sunday if if bad news comes on a Saturday night. You know, um, but everything correlates to 1 and you have a so just a drastic downturn of you know.

51:21.48

James Lavish

10 Fifteen 20 25% maybe even more of assets and it's it's extraordinarily painful now the thing is the fed can't have that the treasury sorry can't have that and really the fed by extension. They can't have that why. Because of the deficits we're running. Can you imagine if our tax receipts go down by another trillion dollars I mean it would be catastrophic. You know for this country to try to weather a a period and it'd be catastrophic for the entire world. Because in reality what we're talking about is the treasury market locking up and if that happens then the entire financial system crumbles. So you've got to keep the treasury market going. Well, how do you do that? You do it by turning on the money printer the treasury press a button on the fed and it. Dumps trillions and trillions of dollars onto the fed's balance sheet and the fed through yeah through the dealers through the bank major dealers they go and buy up the Us treasurys and keep that market going and so that's what people are talking about when they say. Qe infinity like that's the moment so that would be very scary. it'll be it ah it'll be a v in my mind. It would be a v recovery where you have this steep drawdown ah a credit event and then the treasury market gets disorderly or locks up.

52:54.75

James Lavish

Treasury steps in the fed steps in they shore up the market. They dump a bunch of money on the market and here we go again and the same thing and so I would recommend and this is what I do is if you don't own any bitcoin own a little bit I own bitcoin and gold and silver. Because I believe that that type of event in those types of events. There's going to be a a ah ah flea to stores of value where you you know you can hide money not literally hide from the government but hide it from the from the risks that are out there. And these things they they hold their value over long periods of time and so it'll be interesting to see in this cycle. What bitcoin does and if it breaks away and really becomes that store value that everybody's talking about. But I think that's still a ways off I still think it's considered a risk asset. However. Because of its scarcity value. It is something that would absolutely own at least 2 or two percent if you're not a believer become a believer do your work figure it out. Um, and and it may just save you because if the worst case scenario happens. Which I don't believe would happen in this cycle but it is out in the future that the world just stops believing in the dollar and then you know then you have to have something protect your wealth and so um because the entire financial system will be reset.

54:30.40

James Lavish

So but the optimism the good news is that we do have bitcoin and we do have a system that we can run in parallel that we can onboard to over the course of the next decade or 2 and that's my hope is that we run this system in parallel. And eventually that becomes what people use as a store value as they spend their dollars and that gives me hope because otherwise you know that we can't do this forever and as the treasury said themselves earlier this year this isn't where we are. On an unsustainable physicalal path. So um, do your homework and and and and read up on it. But that's my and that's why but I have hope because thank god for bitcoin period.

55:22.48

ilm

Awesome James thanks for ah going through and talking that out with me. That's that was really helpful from a yeah again, how do we get here where are we and what's so what? do we think a way out of this is so I appreciate your time and in chatting.

55:33.77

James Lavish

Yeah, yeah, yeah of course of course I'm I happy to be here and is it's great to spend a little time with you on a Friday gym looking forward to the next time we get out to Colorado together that'd be fun. So yeah, so thank you thank you for having me and I appreciate it.

55:45.51

ilm

Let's do it. Yes, Sir. Thanks.

Macro, monetary, and other ghoulish things w/ Preston Pysh

In this episode I'm joined with Preston Pi Preston is one of my favorites. He's the founder of buffetbooks.com the co-founder of the investors podcast that's a podcast network with shows ranging from real estate investing to traditional stock investing and the show that preston. Currently host bitcoin fundamentals now press and I in this conversation we talk through the current fiscal and monetary environment. How in the world we got here? What might be down the line scoobydoo all sorts of fun stuff if you want to learn more about preston you can follow in on Twitter at Pressandish.com again, tune into his show over on the investor's podcast specifically but bitcoin fundamentals all right? Well thanks for being here. Let's get started.

00:01.60

ilm

All right Preston P I appreciate you being here with me today. Yeah like I know it's been about a month since we last hung out and ah, you were my first podcast guest. So ah.

00:02.49

Preston Pysh

Awesome to be here. Awesome to hang out again. Jim yeah.

00:15.16

ilm

Gracious and patient patient with me and I hope this is a great conversation I'm sure it will be with with you here to talk with well hey I I'm excited to have you here I wanted to just have an opportunity to talk with you and I've listened to you since about Twenty Sixteen I've heard I've heard your voice on double speed.

00:16.13

Preston Pysh

Um, yep, can't wait. Can't wait.

00:34.61

ilm

For countless hours while doing dishes. It's hard for me to not be scrubbing some dishes right now while talking with you and or or helping me not road Rage. So I appreciate that this opportunity to actually have a dialogue with you So I'd love to have an opportunity just to talk with you and ah. Just go deeper on where what you've seen as far as the fiscal monetary macroeconomic landscape that's leading up to this strange spot that we're at right now and what you think possible solutions would be and what's the what's the endgame of where we are right now so we can. And that's a lot whole can of worms we can unpack. But let's let's start off with ah yeah, ah, how do we arrive at where we are today.

01:19.37

Preston Pysh

So I would ah I would frame this up in ah and I've talked a lot about this in bitcoin community. But for your audience and maybe people that are coming from this from a much more traditional lens I would first tell them. To ah study Ray Daliio's long-term ah credit cycle. Um, there's a 30 minute video there's tons of writing Ray has published multiple books about this idea of long-term credit cycles and short-term credit cycles. Um, and. If you have show notes or you have links that people can kind of click on I would highly recommend for you to to have links to ah raise video how the economic machine works. This is a 30 minute video and this is the gist of it most people that ah. You know, have money to invest. They're accustomed to credit cycles these boom bus cycles. They typically last or at least what they have in the last couple decades since we've been alive. You see these eight year cycles. Um. 8 to 10 year to 5 years somewhere in that mix where you go through a big credit event. The stock market melts down ah bonds get bid and ah become really valuable and then the system gets reset and we go through another cycle. That's what people are accustomed to but what few people.

02:41.97

Preston Pysh

Understand is that there's also a much larger credit cycle that we have been a part of whether you realize it or not that's been playing out over about eighty years since the bretton woods system was was stood up in the 1940 s and if you could zoom out if you wanted to graphically see this long-term credit cycle. It's it's actually quite simple. You can just go on to ah Google type in long-term debt cycle or credit cycle and then just look at the pictures that come up and what you're going to see is you're going to see pictures of like the 10 year treasury and you're going to see the yield on the 10 year treasury go from the 1940 s where it was really low and you're going to see that yield go really high into the 1980 SA 1970 s 1980 s where the tenure peaked out at about 16% and 1981 and then you're going to see the ten year treasury continue to go down for forty years straight until we get to covid and it pegged it at a half a percent or whatever it got down to I think it was down to like 50 bips around covid on the tenure treasury specifically and this if you. If you weren't just looking at the tenure treasury but you were looking at short duration or long duration bonds. You would see this long term credit cycle that's playing out now. Why is why is that important it's important because ah like the short term credit cycles that we're all used to.

04:05.85

Preston Pysh

Um, where things go boom and then things get built again after it goes Boom Um, and everybody goes about their life and things were bad there for a little bit. It was hard people were losing jobs and then all of a sudden they're they're hiring again and all these types of activities and and everything refflates.

04:24.91

Preston Pysh

That is going to play out but on a much grander scale and um, we are we are in that end game I would argue we're in that end game right now and so for people that are like looking around. Qualitatively and saying what's going wrong with the world. Why is everything feel like it's falling apart like everybody seems to be at each other's throats like what? Why are all these bores happening like it's all happening because of this longterm credit cycle and it transitioning into a new form of money as the settlement layer. So when we look at the second half of this long term credit cycle which you know my argument is is is from like the 1940 s post great depression world war two to I would say covid is probably a really good. Ah, marker of where this is really starting to accelerate for the transition to wherever this is going next. We're obviously of the opinion that it's going towards bitcoin next? Um, and we'll get to that so when we look at this. And we're just trying to wrap our ah heads around like why now why had why did covid why are you saying that it's covered and like because for the last you know since I've been alive. It just seems like the treasury market and the US dollar and

05:42.92

Preston Pysh

Euro and all these other currencies have always been really stable and secure and everybody just seemed to get along quite fine with no issues and what I would describe is when ah your credit markets when bonds continue when the yields continue to get compressed. And go lower and lower like they did from 1981 till covid what that is actually serving as as a bedrock to ah economic calculation of every asset on the planet and the reason why is because the values going up as those yields are going lower. The value of equity is going higher and higher reference to to that. Um, and if if that doesn't make sense I would ah strongly encourage a person to just just understand the mechanics of bonds and understand how they're priced. And also understand how equity's priced because stocks are priced based off of a ah quote unquote risk-free rate of bonds. So the 10 year treasury has really kind of been that benchmark so generically speaking if the 10 year treasury was yielding 5% then stocks should give you a return of let's just say 200 basis points higher than that stocks should be priced at about a 7 % return okay so that would that would equate to some pe ratio for a 7% 10 percent as ah as a p e of 10 right? when you go to a p e of.

07:15.36

Preston Pysh

Ah, fifteen the the the multiples kind of compress and and work in a very similar manner. So I would just I would tell a person that your pe ratio think of it almost like a bond yield and if the pe ratio is a 10 and that's giving you a 10% return because it's one divided by 10 that gives you the percent so you'd take if it was p of 15 you'd take 1 divided by 15 and that gives you the percent. Um and that percent needs to be yielding higher than ah debt. Because you have more risk associated with equity I know I'm getting into kind of the mathematics here a little bit maybe a little too granular for this bigger overarching site picture. But the point I'm trying to make with all of this comes back to bonds particularly Us bonds being the bedrock of economic calculation for the last 40 years that works until you compress the yields to literally nothing that continues to work as long as you can continue to hide the inflation that that everyday participants think.

08:13.75

ilm

Um.

08:22.77

Preston Pysh

Is their debasement rate. Okay in the price of getting food or gas or buying a house or things like that as long as that appears like it's stable and that inflation isn't manifesting itself through to basement people will continue to pile into this. This ah retain their savings I don't want to say piland I would say retain their savings in these debt instruments which were Us treasuries and bonds from europe and the Uk and Japan and and whatnot because those yields continue to compress and they can continue to become more valuable what we found after we compressed. All of that down to nothing. In fact, we we got up to how high did it go Jim. You might know it was like negative Twenty ah billion dollars or I'm sorry trillion dollars worth of um debt around the world negative yielding debt is is how.

09:15.19

ilm

Yeah, just just absurd.

09:20.30

Preston Pysh

How compressed that spring ah because we'm talking about like this really long term credit cycle that spring got compressed down to the point where negative $20000000000000 worth of debt was issued on the market just to kind of quantify How insane that is. Those that's $20000000000000 worth of contracts that guarantee the loss of Capital guarantee. It. Okay and there were people buying it because their opinion was that they were going to make the rates even more negative which would have made them more valuable was the reason you had buyers of to the tune of. $20000000000000 of these instruments. So yeah.

09:59.24

ilm

Press and right quick Could you could you talk through if ah if the risk for your return is negative. It seems at that point that equities would just have to essentially return less negative or zero to be a better investment than equities or than this this debt. How did that.

10:06.71

Preston Pysh

Um, and.

10:15.31

Preston Pysh

Um, yeah, yeah is.

10:18.59

ilm

Why does that relate to it seems that there's so there is a lot of concentration in the market with ah with just a few companies but seems like despite a few years ago when we had these negative interest rates a lot of the markets were still firing off and doing phenomenally.

10:26.70

Preston Pysh

Ah, okay.

10:31.94

Preston Pysh

Um, yeah.

10:35.13

ilm

Especially even in backwards times like Covid when everything was shut down. So why do we have this decoupling of risk freeze Nothing I should be happy with Cash theoretically yet equities are still running off in a place of just absolute nonsense.

10:38.66

Preston Pysh

Yeah, yeah.

10:50.76

Preston Pysh

I love this question. This is actually a pretty advanced question that ah I think the reason you see so many people in the market today saying I have no idea where to go or what to do is because of this question because we have now. Now that you're starting to have inflation manifest itself in everyday. The prices of everyday things desirable things. Okay, you're seeing the debt markets chase after a ah premium to that debasement rate or that inflation rate. Okay. So inflation. Let's just say the inflation today is four or five percent or at least that's what they're telling you. It is right and you.

11:28.59

ilm

Hey did you did you know that? ah last week Paul Krugman tweeted that we we beat inflation. Do you see that as long as you as long as you take out housing and energy and food and and ah transportation we won. So if you if all you need is a bunch of televisions.

11:34.43

Preston Pysh

We've beat it. We've beat.

11:42.48

Preston Pysh

Yeah, it's hilarious. Ah so you have you have the the puppeteers that are trying to convince the populace that everything's a ok right? when it's totally not the house is on fire. Let me tell you.

11:45.56

ilm

You're in luck.

12:00.80

Preston Pysh

So ah, but to your question why this is so tricky to understand so you got these inflation rates that are being published. You have credit markets that are trying to sell off to provide some type of premium or yield above that inflation rate. So I I would tell people you got to think of inflation as. Benchmark of what you have to outbeat or that you have to that your hurdle rate right? So if if inflation's 4%. You've seen the bond market sell off to a point that now it's it's yielding higher than 4% across the entire yield curve short duration long duration is above that 4% rate so you you should be ah able to keep up with inflation and I say should be because there's there's a lot more to this but just in generic and generic terms I would say you were you're outpacing that inflation rate by 1% so you're making your real return is going to be 1% right? If we're really generically speaking here and what you would expect is that that equities would also be selling off based off of a stable currency and stable market equities should also be selling off and providing a pe ratio that exceeds the the return you're getting in fixed income which is. Ah, around 5% I would expect it based off of past performance that it would be around like 7 % yield inequities ah to to capture the risk premium right? which means your pe would have to be way lower than where you're at today which I think the pe on most is.

13:36.97

Preston Pysh

Where's it at Jim like 25 to 30 Maybe even 35 depending on the type of company for pe ratios which for people to understand what that equates to and yield that's a call it a 3% yield okay 3% yield for equities now you might be scratching your head you're saying okay so debts give me 5%

13:42.20

ilm

Um, yep.

13:56.88

Preston Pysh

Fixed income giving me 5% inflation's 4 inequities which should be the riskiest is priced at 3% that doesn't make any sense and this is to the crux of of the question you're asking. So why is that. Why does the why is the world completely upside down like that it doesn't make any sense Jim and preston well here's why when the currency fails throughout history. There are tons of examples. Ah there's a book called this time is different if you want. Ah. Case study after case study throughout history of a currency failing and what happens during those periods of time read that book it. There's 200 examples or whatever in that book about about what is playing out and the reason that you see equities continuing to hold valuation.

14:45.42

ilm

Um.

14:53.50

Preston Pysh

At ah, really high premiums relative to inflation or the debasment and relative to fixed income is because when the currency fails. What happens is is that those debt markets and those credit markets. Ah aggressively reprice themselves. I sometimes refer to it as credit markets blowing up and think about it. The reason why is that credit market is a contract to deliver fiat currency dollars back to that issuer. It's a contract and the contracts. Specifications of repayment is in dollar terms. So if that dollar is getting debased at a breakneck pace which it is since covid ah, what was the debasement rate it was in excess of 25% annual I think if we would go from covid to today I think it's.

15:48.12

ilm

Um, yeah.

15:50.47

Preston Pysh

Debasing at 20 according to the m two if you took the m two and you looked at the growth rate since covid um, it's it's getting the base at about a 25% annual debasement rate how that how that influx of fiat enters the economy it nests itself into areas that. Some is in the meat of the price of meat. Some of it's in the price of equities some of it's in the price of you name it and so it's not just 25% spread across every single asset and commodity on the planet. It nests itself into different areas. So like if you were looking at real estate in downtown Manhattan or you know wherever you name it that inflation rate is going to be different than the inflation on the price of gas or the price of corn or the price of ah, an sandpfivehundred share. Okay like that the basement enters itself into the economy in all different ways. But if you're going to generically look at what's the hurdle rate I think that the best way to think about inflation and there's many of other very smart people out there that would echo this idea. I think the m two growth rate is probably the real inflation that you need to outpace with respect to ah money itself that debasement rate if we were going to say that that's what we're thinking about as inflation like real inflation. Um.

17:11.77

ilm

Um.

17:21.80

Preston Pysh

I would say that. Ah, if you took the past ten years and you did a compound annual growth rate on on that growth of the m two. You would probably be around like 7 or 8% annualized. So if you're not outperforming that with your savings. I would argue you are losing buying power. So if somebody invested in something and it was growing at 5% I would say congratulations you've underperformed just ah, you know the basement rate by 2% like you're losing 2% of your buying power based off of what you did with that savings. So um, when when we answer your question. This is the this is the real answer with all of that and it's important for people to understand all that context so that they can understand what I'm about to say when the when the currency melts down the bonds blow up because they're denominated in. Said currency of the past system. What isn't specified as the the denomination is equity is stocks okay because you have a stock certificate and that that company is performing business and they can elect to be paid in Whatever.

18:26.37

ilm

Um.

18:35.42

Preston Pysh

And retain their their savings in anything that they want most companies actually retain their savings not in dollars a lot of them were using treasuries for a very long time when they kept appreciating in value but those companies can they can save in marketable securities. They can buy s and p 500 stock. They can buy. Individual companies and put them. You know their non-operational so subsidiaries that are just sitting on their balance sheet. Um, but that's how they can save and so let's say the currency. Let's say the world would start using Schrobucks which is basically which is basically the dollar. Um. But let's say the schrobuck was like really it didn't debase at all and it was actually a wonderful currency that company can choose to denominate their savings and their unit of account inside that company in in Schrobucks if they wanted to and obviously what I'm what I'm getting at is. Um, companies in my opinion are going to decide to save in the hardest money as we continue to go through this transition of this of this legacy long-term credit cycle into this new financial system and I think that they're going to choose to do it in a currency that's backed by energy.

19:48.42

ilm

Are.

19:50.51

Preston Pysh

That is immediately saleable that has near 0 frictional cost to transact that no entity or government can come in and screw with the amount of units that exist and has a terminal fixed number of units in it which is bitcoin. And I think that's what everybody's going to move to. So If you're looking at this market and you're owning Equity. It's all going to be repriced. There's going to be different Pe ratios on the other side of this event horizon. But um, that's why I think you're seeing it already that equities are. Ah, have a premium to debt and um, that's why you're seeing the yields that that they're at and they're kind of holding their value is because once the eventual transition occurs and this is why you go, You know you go read the book. Ah, this time is different.

20:42.99

ilm

Um.

20:47.65

Preston Pysh

Um, you'll find that stock markets in their local firm in their local fiat currency term denomination. Go parabolic through these events they go way up in. That's right.

21:00.79

ilm

If you have I mean if you have a ah money that's infinitely debased the assets that's being priced against go infinitely up.

21:06.61

Preston Pysh

Right? That's right, it's it's the same I use. This example sometimes to help people understand if we're playing monopoly and there's a fixed amount of equity on the board right? and those are businesses and let's say the banker comes in and they flood the game with all the money that there's that they're squatting on. And everybody's currency is going straight up. Okay, and there's 5 times as much currency in the game. What's going to happen to the scarce equity on the board. It's going to be that's right.

21:35.27

ilm

Yeah, everyone's gonna be. You're gonna be buying as many houses and hotels as you can because the money's no longer. Yeah, it's you want something? that's that's that's finite rather than this infinite flood.

21:43.61

Preston Pysh

Only thing that's right, that's right, anything that's scarce in that game is going to get bid. The value is going to go higher and here's another thing to think about is if you borrowed money from one of the other players to buy the scarce thing the equity. Stock right? You ah the person who gets screwed in that deal is the lender because they're getting paid back at a remember they they issued the debt when there was one fifth of the amount of currency in the game.

22:19.61

Preston Pysh

The the repayment was in in currency terms like the deal that you struck with the other player was I'm going to pay you back in the Monopoly money and I'm going to pay you back This fixed amount. Okay, then the Banker steps in and they debase the the fiat in the game by 5 x. But that contract didn't between you and the person that lent you to money didn't change. But what you did with that money is you went and bought scarce equity off the board that now has appreciated in value tremendously and so that's the game that's being played right now on a global level and this is why. Ah, you know if I was going to add a little bit more realism to the the Monopoly example that I just provided with ah people basically using debt to buy scarce things look at look at who the us is ah at War with. Everywhere in the world. It's people that are providing scarce commodity physical things and what they're trying to shove into their throat as payment are treasuries right? They're saying.

23:26.61

ilm

Um.

23:28.97

Preston Pysh

Ah, you have to use the dollar you have to use our treasury market as basically the backbone of payment for these physical things that you're delivering every every every enemy that the us has or Europe or Uk like they're all trying to jam these these paper nothings down their throat for physical things and they're just not having it and I would argue that that's one of the main reasons you're seeing so much social unrest in the world from a nation sovereign state level.

23:55.88

ilm

Um's there's so many places I want to take this but we'll we'll camp on that right quick where we're at it's so obviously with this where we are with oil right now is it's interesting.

24:05.10

Preston Pysh

The.

24:10.67

ilm

Ah, we we haven't set ourself up for an advantageous spot over the last several years we've essentially drained our strategic petroleum reserve meanwhile last week who was it that tweeted that they're going to mandate that we get the price of oil down to what like sixty bucks a barrel I don't I don't know how they think they're going to achieve this. You're trying to get something that has.

24:15.97

Preston Pysh

Um.

24:21.98

Preston Pysh

Gal.

24:28.79

ilm

Again, there's there's a limited supply and we don't right now we don't have access to that much of that limited supply yet. We're mandating or supposedly going to mandate that we get it for a a price when I I would I would argue that a lot of other countries are trying to lose trust in the Us dollar so

24:41.44

Preston Pysh

Um.

24:47.98

ilm

Let's just go there right quick. How what? what are your thoughts on oil like will we be able to get $60 a barrel like how is that going to happen or like I don't know how you even process that.

24:55.40

Preston Pysh

Well, the way that well the way the government would try to do it and just just for people to if you think we're operating in free and open markets. We totally aren't like not even close. Um and I could go into like the backstop facility and how basically yield curve control has been happening for banks since.

25:04.57

ilm

Um.

25:12.75

Preston Pysh

You know they stood up that facility with the Silicon Valley bank and all this other stuff to kind of prove my point of like why we are not actually operating in free and open markets which manipulates the cost of capital blah blah blah right but to your 2 year question about oil if the government really wanted to try to keep the. Keep the price down they could just print a bunch of theirrobucks they could go and um, if and this is this is becoming more of an if as the days go by if they can find somebody to sell them oil. They don't care about the price because they're just printing therobucks.

25:36.41

ilm

Um.

25:49.69

Preston Pysh

If They get the oil for $140 a barrel. They can just print Therobox shove it into the hands of the person willing to accept Therobox and then they get the oil and then they drop it into the market through the spr program to to flood the market to try to push the price down to $60 Is the play so they're trying to lever the schrootbox to to create a false sense of price action in a physical market and ah that is a total fool's Erran Now what they think they can do they like if if you're going to. Jump into the mind of of a person in government. That's that's trying to play this game. What they're trying to do is they're trying to create a recession through so much pain interest rate pain that um that they suck the demand for oil out of the market which would also drop the price. And if they can if they can do all of this through interest rates before um, they they run out of oil to put into the market then they get away with it or at least they they think they get away with there's all other types of maturation that kind of pops out of all these. Sinister Market manipulation type activities that we're not even talking about but in that short term window if we were analyzing it in that short term window if they can do all of that before they run out of physical oil or a person willing to give it to them.

27:22.79

Preston Pysh

Then they kind of get away with it in the short term at least from like the psychology of the the global or the the citizens of that nation state. But boy what? a what a game to play and what dice to role because if they do run out of The. Of the oil which look at the sp or the strategic petroleum reserve right now and I'm seeing it's tapped right? It's tapped So if we don't get the the demand suffocation that naturally comes through a recession. Ah boy it's going to get fascinating and you would see the price of oil just totally rip. And ah and and now think about the ramifications of that into the treasury market because the treasury market is is moving based off of the expectation of of inflation itself. So Yeah man we're we're in the end game. We are. We are definitely um.

28:09.95

ilm

With that.

28:16.13

Preston Pysh

Where we're at in the end game and how long that end game lasts I don't know but I think we're definitely in it and ah, we're probably in the start of it. Ah, but I just I don't know how long it takes to play out and I think that for somebody listening to this if if that idea like really makes you. Raise an eyebrow like what the heck is this guy talking about I would strongly encourage you do your own research and dig into this a whole lot more because for me this is just matter of fact, like this isn't even like a question of whether this is actually we're in this end game in this transition to a new system. We are very much in that. But if that's if that's a shocking idea to you go find somebody else and dig into this a whole lot more and and I would again go back to the Ray Dalio video because he gives such a great overview of of um, the beautiful del leveraging part there near the end. Maybe he's a little delusional to like how these systems. Ah, transition. But um, in general the premise and the thesis is very strong and important for people to understand.

29:22.39

ilm

Um, you're you're seeing so many pieces lining up that would be indicative of this this endgame situation even like again the the spr you have the bricks nations. We talked if we could find if we could.

29:34.89

Preston Pysh

Um.

29:36.16

ilm

Find someone to give our our shootbucks to you know, most people only need to take a Stanley nickel for ah for it. So ah yeah, and for a long time. We've been able to shove our debt as a country onto other nations because hey we were. We were the big person on the block. But now again, you're having other countries starting to rise up and recognize the the.

29:51.92

Preston Pysh

Um, ah.

29:55.80

ilm

The abuse that we've leveraged over decades and are going to put their foot down which is ah it's frightening I think it's healthy I think a really easy way to think through where we where we're at now is thinking through like a forest fire. So like California like Southern California

29:57.40

Preston Pysh

Yeah, yeah. So Well in.

30:15.54

ilm

If you live out there I know a lot of people in Southern California want to think it's like Hawaii it's just tropical paradise it's not it's it's really quite a desert and you can plant some palm trees and everything but it's still. It's pretty deserty out there. Anyways, we've we've created this facade for what we think this atmosphere is like and then.

30:22.76

Preston Pysh

And.

30:31.80

Preston Pysh

M.

30:34.65

ilm

We've built homes on places They shouldn't be built so we've we've that's building up of assets in places that aren't very stable. Um then with with with force fires. You know there's there's natural cycles with the burning of brush and what we've done is we've we've put homes in places that.

30:40.17

Preston Pysh

Yeah.

30:48.98

Preston Pysh

Um, me.

30:52.40

ilm

Probably shouldn't be that It's not natural for them and the moment a spark hits we put it out. We put it out when the the healthy thing to do over the long term will allow some some of that underbrush to be burnt up but we've allowed for any time we see the smallest Spark we we.

31:06.19

Preston Pysh

Um, I'm from.

31:10.31

ilm

We stomp it out with our big foot and then over time we just had this building up of pine needles Now we have the society that's built around feet and feet of pine needles and leaves and undergrowth and it's eventually a spark will hit that we can't with our giant foot come in and put out and.

31:15.89

Preston Pysh

Um.

31:27.72

Preston Pysh

And.

31:30.58

ilm

Unfortunately, we've built so many homes around this So many people's lives are intertwined with this undergrowth and it just become natural. It's just part of its its it seems normal to us and eventually when it goes up. It's gonna be really most likely I Really hope it's not the case but it will probably really be really painful. But.

31:40.70

Preston Pysh

Even.

31:50.20

ilm

Eventually it will lead to healthier place. That's few years ago kindra my wife she and I went on a hike we were in ah grand tetons and there's a beautiful hike. It's right along. It's ah it's called Ginny Lake and on your left. You've got this big lake we're going up to the grand tetons and this ah ah.

31:52.43

Preston Pysh

Yeah, yeah.

32:08.80

ilm

Big waterfall out there but on the right, there's a whole bunch of beautiful trees that are you can tell they're they're not infants anymore, but they're they're young trees. They're just real vibrant. They look like the healthiest trees in the whole park. Well, the reason it's like that is because several years ago they had a big fire right there and that allowed things get burned out new nutrients to come in and the dead and old to be.

32:24.25

Preston Pysh

Um.

32:28.45

ilm

Taken away and that is a natural state. Um, that that we've we've suffocated out in a literal sense Again, we don't We don't like force fires. Um, it's it can be damaging to society in the short in the short term but we've also done that with our with our situation financially monetarily and it's.

32:29.57

Preston Pysh

Yep, yes.

32:48.10

ilm

Yeah, there's there's a place of unnatural habitation like people now going back to like where do you put your money if if if inflation is this high and bonds are negative and what do where do you put your dollars Well, that's led that's led to this monetization or financialization of everything.

32:49.99

Preston Pysh

Yes, yes.

33:06.83

ilm

Suddenly a few years ago gosh it was absurd during covid remember how like use cars were just skyrocketing in price. Everything went up massively and that's because people are looking for anything to hold their value in and it just led to these bizarro world of.

33:06.95

Preston Pysh

Um, that's right.

33:14.87

Preston Pysh

Who.

33:23.97

ilm

Trying to retain value and worth in something that is relatively scarce at least scarce compared to this 1 thing that can just be printed out and ah yeah, it's I don't know what the the match will be or the the lightning strike will be um.

33:32.63

Preston Pysh

Ah.

33:40.64

ilm

But there will It's it's inevitable that something will take place that will lead to all this underbrush that we've been accumulating for decades and decades to take to take a spark and then lead to ah.

33:51.30

Preston Pysh

Well Jim I would argue that the that the spark has already happened. Ah I would argue that the fire is already raging. Ah no seriously like the the bond if you if you sat at a billion dollar bond desk you have experienced.

33:58.44

ilm

Um, yeah.

34:08.35

Preston Pysh

The deepest selloff in the history of the the United States since covid in fixed income. So like if you put a dollar amount on how much ah buying power has been destroyed since covid in fixed income. It's unfathomable like you. Totally unfound trillions upon tens of trillions in buying power has has been evaporated and eviscerated from the market already now for most people they don't own that most people don't have savings if you lined up 100 people on the street. Most don't even have any savings so to them. They're not necessarily seeing that but I would tell you the the the mat or the the spark has already happened the the fire is already raging when you look at the reaction that we're having from policy makers. From the countries that are in debt up to their eyeballs and are flooding the market with more fiat. They're not They're not dropping water on the fire they're they're actually dropping gasoline on the fire. Okay, um, so the process is already underway.

35:18.69

ilm

Um, me.

35:23.50

Preston Pysh

It's already. It's already left the station. It's it's nature going to your point about like the force fire. What I think it makes us so hard for people to wrap their head around is it's never happened in their lifetime, especially if and if you're in a developed Western Country. It's never happened in your lifetime. So. When you're hearing this, you're saying. There's no way because we have a cog as humans we have a cognitive bias that if if you've never seen the the the black swan. Well the black swan doesn't exist. It's just a myth right? but. This is this is like extremely obvious. It's all it's just mathematics. Um, and it's it's well underway, it's well Underway and and it's not something to fear. It's something that naturally happens there is a way to prepare yourself and to protect yourself. You don't have to do anything.

36:08.76

ilm

4

36:16.78

Preston Pysh

Ah, like based on let's say we're right about bitcoin and that it becomes this new global settlement layer for for the world to settle the exchange value based on where the price is today is. if if you have a million dollar net worth I would argue you really just need about a 1 % ah position size in bitcoin from that million. So a $10000 position on a million dollar portfolio to preserve the buying power of that portfolio based on the math right. And I think I'm being and I'm not being ah I think that's a pretty conservative estimate is like just a 1 % position so like people that are fearing this or are saying oh my god like sure there's going to be social unrest with that. There always is just like in the forest fire like hey there's things that are that are burning like you got to get away. You got to. You got to be lean, you got to be agile. Um, but you also have to have ah some type I would argue you really need to have some type of position size to preserve your buying power. The other thing that we've already talked about that's really counterintuitive is you is if you don't like bitcoin or you don't. Think that it's going to be that as we migrate to a new system. Well the only thing other that you're going to be able to really kind of preserve your buying power is is inequities and you're going to have to own high quality equity that you think is going to continue to be competitive on the other side of this event horizon.

37:49.00

Preston Pysh

Um, because you definitely can't preserve it in debt because it's blowing up because.

37:54.39

ilm

It's gonna so you mean a moment ago. You're talking about just this the black swan How we haven't experienced it and there's ah, there's a money manager that I run into but it all often and he in town and ah.

38:10.67

ilm

Her talking with him about probably like 2 2 or so years ago 2 two and a half years ago and I overheard him in a conversation with client. He was a coffee shop talking about their allocation their their bond and stock allocation I pulled him aside afterwards and I was curious and and he said all of his clients are sitting in about 80% bonds 20% ah, stock portfolio and I asked him isn't this frightening for you one. How are you achieving yield right now in this environment with such low rates and to what happens when the fed pivots and starts raising rates. You said said, hey look your son I've been doing this since 1982 we've only made money and it's it's this.

38:48.50

Preston Pysh

What an egotistical response? Yeah, what an egotistical response and um and ironic that he said 82 right because going back to yeah me going back to talking about like how this long term credit cycle has played out since 81

38:48.76

ilm

Entrenched.

38:57.39

ilm

He is perfect. Ah.

39:05.76

Preston Pysh

You could have been a ham sandwich and you would have crushed your performance if you just had ah a significant allocation to long term bonds ah through that entire 40 year period of time because it was. It's a massive. It was a massive forty year bull cycle for long long duration bonds. So yeah and he was. His comment like literally marked the peak. Um, you know the low point and yields but the peak and price and ah boy if if something goes up for forty years straight which bonds long duration bonds did. What do you think the correction on that's going to look like. Ah.

39:47.30

ilm

Actually I am curious So I saw him recently and he mentioned I asked him all his portfolios doing he mentioned they've mostly shifted to ah ah, investment grade debt and ah trying to get some higher yield and to me that seems quite risky. Um, seems like you're trying to pick up pennies in front of a steamroller but I am curious I meant to actually this until your ride. Um I'm I'm curious your thoughts I'm under the inclination that the fed man I Want to go so many places the fed's obviously trying to bring pain I think that's that's writinging is on the wall there. I Don't think the market and the economy is reacted as much as they would like to see so I think they're going to keep put their thumb down to to bring more pain but we have to keep in mind. Ah you know next fall it's ah it's a voting year an election year and ah yeah I think they'll be.

40:21.62

Preston Pysh

Ah, hub and.

40:25.42

Preston Pysh

Ok.

40:36.67

ilm

Keep their phone on thumb on the pane for a bit but I would expect for them to pivot probably around I don't know March april is my guess I'm probably way off here. But that's my guess.

40:45.29

Preston Pysh

I think they're already trying to pivot I think they're trying to pivot right now I mean you had what? ah multiple fed officials every single day for the last like two weeks come out and try to talk this thing down like that we're we're done raising. yeah yeah I think they are. They're already in pivot mode.

40:57.36

ilm

Um, it's all my games.

41:03.13

Preston Pysh

And what's what's interesting is as because anytime they've done that in the past you would have saw bonds just bidding like crazy and the yields coming down off of that that news of of you know a dozen and a half. Fed officials coming out and and pumping this narrative that we're pausing we're pausing. We're pausing. Um, you didn't see that you didn't see that at all. In fact, you saw the the Bond Market rage into a further sell off as they're saying we're done. We're done. Why.

41:39.15

Preston Pysh

Why was because because people can actually do the math and they can see that. Ah, they've got to flood the system with more printing at this point in time and those Yields ah continue to go higher and higher and the prices continue to go lower and lower. So they're already trying to pivot jim.

41:59.61

ilm

That was my my my next question was going to be actually related to that when the if if we follow normal Bond values in in interest rates. Ah, we would think we would say that all right The fed Pivots interest rates begin dropping. Therefore existing bond values theoretically would go up. Um, do you think that's the case or is there just lack of trust in the system and a realization of the the value of the underlying return of payment is just people are trying to wake up to this so we won't see that.

42:20.58

Preston Pysh

Huh.

42:33.97

ilm

That seesaw go the other way as as interest rates start to drop again or should we see just a normal. Oh yeah, interest rates. Go go back down therefore Bond values like should you be looking to buy the long. The long duration stuff as as they start to pivot. What are your thoughts there.

42:49.63

Preston Pysh

So here's here's ah so if you think that we are at peak yield in that the the bond market is going to go into a bull cycle for the rest of the year obviously you want to own duration right? because you make more money on on the move. But. Today right now. The three month is offering you 5.46 okay, the 30 year is offering you 5% so you're getting ah approximately another 40 bips by owning three month money. With and this is really important the optionality to to plug it into anything that you think is is going to provide more value into the future versus. Ah, gamble that you're perfectly timing the the bottom of of the bond market and you're going effectively levered long because you're using the duration to get an outsized performance that you know right now that that it is the the bottom of this bond sell off right. And that the 30 year even though it's giving you less yield and you can change your mind three months from now. Okay, you can change your minds three months from now Jim like and collect 5.46 annualized as you wait three months so like

44:19.21

Preston Pysh

I Guess the question I throw back to anybody that's buying long duration right now. Yeah I would say Wow You really are that good. Ah you your time your ability to pluck out the timing is so perfect.

44:30.19

ilm

That.

44:34.31

Preston Pysh

You can't even squat for three months and collect a 5.46% return because you're that good like it's ego like it's somebody's stepping into this right now and buying longage and you know what they could be dead right? But boy like. I'm sorry like everything that I'm looking at from a from a geopolitical backdrop right now in this market and I'm I'm not even going to say like the wars and this I mean it was just like Biden like ah you know what we're just going to pop out another one hundred billion to these other countries in the world with. Nobody in congress voting for anything. We're just going to throw this hundred Billy their way. Um, if you're in credit markets and you're buying the 30 year like long at this point like I don't I can't understand it for the life of me.

45:29.17

Preston Pysh

For the life of me. That's why I think it's gonna I think you're totally nuts my personal opinion.

45:38.12

ilm

It's but where where we're at though I mean going back so you and I both I think would would agree that the the endgame for this would be bitcoin I think it's the most likely result. But there's so much argument against that and it's mostly by the entrenched players here and as as we're talking I have a bunch of young kids. So I think in their terms a lot of times. So what I'm what I'm picturing with this is like um I feel like we're living in an episode of Scooby-doo and in Scooby-doo everyone's the same.

45:55.78

Preston Pysh

Yeah, yeah.

46:09.74

Preston Pysh

And.

46:11.48

ilm

It's every episode's the same what happens they're driving along and they you know they break down in a small town and there's this person you meet you always as an adult you know who the bad person is it's the person who is trying to not have some sort of change or inconvenience in their life. It's old man Jenkins the whole time because old man Jenkins has lived in this place.

46:19.60

Preston Pysh

Oh.

46:30.66

ilm

He likes that it's quiet. He likes that he's easily making money and has his life sustained for him or whatever you know he's got his old in that he takes care of but then suddenly there's this new thing on the block. That's that's making a ruckus and it's it's ah it's bringing change. Yeah.

46:45.54

Preston Pysh

Those darn kids. No, it's those darn kids.

46:50.90

ilm

You see there's There's so much going on and suddenly like oh well, it's this.. It's this ghost. It's this this villain they villainize something and that's the evil thing and they paint this picture of this this terrible thing the whole time. That's hey this should This is really the problem we need get rid of this problem and everything will be fine again. But in the end of the episode they they finally catch the ghost and the whole time.. The bad problem was the one that was the ah the one who's been intrenched all time their their whole stake here is keeping status quo and they want to make sure that status quo was quote was kept but you had these these darn kids who came in.

47:16.22

Preston Pysh

Seeking order. Yeah, yeah.

47:27.60

ilm

And ah revealed like oh wait. It's it was old man jekins the whole time and I really feel in my ah terrible terrible analogy I like that's where we're at us government is sitting here like oh that it's this and it's that it's these other things and these are bad. This is going to boil the like bitcoin's going to boil the oceans and you know drug dealers use this thing and it's. Quick look at that that ghost over there and meanwhile you have bunch of gubers on Twitter ah talking about bitcoin and oh wait I think it's this thing and we're we're the ah we're the darn kids. But I think the people trying to see the mass is getting pulled off and who's it with blackrock a couple days ago I mean

48:00.13

Preston Pysh

Yeah, yeah.

48:06.20

ilm

Stated that that he thinks that this this current price movement in bitcoin is yes, related to the false etf but he even indicated He think it's also just the fact that people shouldn to wake up and realize that bitcoin might be a relatively safe asset and ah.

48:20.53

Preston Pysh

Um, they're seeking quality I think was the quote. Yeah.

48:22.36

ilm

Equality That's it I think the mask is trying to get pulled off and people should realize the villain this whole time was not this foreign thing. It was the the familiar thing we've been entrenched with the whole time That's been built up that it has the most to lose um with with a changing of tides.

48:37.87

Preston Pysh

The ultimate fool's errand is seeking order in a universe of disorder and change right? and what you just described is geriatric incumbents. That are living an extremely um, amazing life and they have all of the equity and they hold all the buying power and we can see this in in the manifestation of like just the the amount that proportionally wise like percentage wise. How much of that buying power is stuffed into the top 1% or ah tenth of a percent. Um and what they seek is is order in a world that is always changing and.

49:32.79

Preston Pysh

When we look at bitcoin and we look at what it's Changing. You are changing this idea that that I can send you gold bars over a over a wire now and to custody these gold Bars. I Don't need a vault I don't need all this men with guns surrounding the vault. Um, there's no middle man that's taking their cut to transport this which happens instantaneously and there's no.. There's the miners aren't able to drop more supply onto the market when the price rages and if a person doesn't want to wrap their head around that technology they're they're seeking the the fool's Errand. Which is they're seeking order in a world which is constantly changing and improving itself and it's just that simple and and I and I actually like the analogy a lot I think it's hilarious because you're right that like if you really do dissect those those ah those shows it is often.

50:40.90

ilm

Ah.

50:47.65

Preston Pysh

Some old fart that's like seeking order and doesn't want the pesky kids or the noises or whatever and they're trying to scare them away and use use illusions and use ah fear tactics to prevent. Ah. Chaos or disorder or change. It's really change prevent change from happening that's hilarious. Yeah.

51:11.78

ilm

My My last thought for you here um would be why Why do you see bitcoin as a solution. Versus just fling to equities or gosh were We're only talking about the Us right? So Why? not? Why don't We just go to an international market or an ah international currency. Um, why or housing like why there's only a there's not but there's there's There's so much Land. There's a finite number of houses sort of.

51:25.52

Preston Pysh

Yeah I Love this quote at.

51:38.76

Preston Pysh

Yeah.

51:40.44

ilm

So why not real estate or equities or international markets currencies or equities or debt or something else. Why why? this.

51:45.78

Preston Pysh

Yeah I Love this Question. So I Think what? what is a really hard concept for people to think about is what would a Pe ratio look like in an economy with a money that's not being debased like fiat. Okay, and. When you when you think very deeply about that question you will come to the you'll you'll arrive at why I'm um like all in on bitcoin versus ah stocks. Um, that's my.

52:15.11

ilm

Which is so bizarre because that's your I mean so much of your career and your life like that's how I found you was talking about the most traditional of investing you know Warren Buffet you you buffet books dot com like you're the traditional investment guy. But here you are.

52:22.15

Preston Pysh

Yeah, yeah, yeah.

52:32.26

ilm

Pivoting so much not out of hype or just general speculation. There's something there. Yeah.

52:36.99

Preston Pysh

It's out of math. It's based on math. So here's the math so like um when when I look at an equity and today it's priced and obviously I'm talking public you know large cap equity if it's priced it at. Ah, 30 or somewhere in that ballpark and we're saying that that's a yield that's equivalent to 3 what happens when you move to a world and it was compressed to that 3% yield because it was because credit was being compressed to a half a percent. Okay, so that's how it got there. And then as credits unwinding equity is staying at these really high premiums because there's nowhere else to go with with your buying power. So it's continuing to be there. In fact, the multiples might even become higher which is probably crazy to even think about. But. But I think that's where it goes next is I think the multiples don't go down to 25 I think they actually in in dollar terms I think they actually start going to like thirty five and forty as as debt continues to explode because there's nowhere else to go to preserve your buying power. And most people aren't going to understand bitcoin until you're like at a price in excess of $1000000 per bitcoin and then they're going to. They're going to have to they're going to have to understand it or have to learn it and then that's when it really starts to get interesting because.

54:00.89

Preston Pysh

Then you're going to be looking at what's the value of the equity in bitcoin terms so you have to you have to come to well what? what in this new world is going to be the risk-f free rate I think the risk free rate is going to be ah, ah, lightning channel capacity and ah, how much a person to. Person has bitcoin they they can take those bitcoin they still hold the keys they can open channels I think all this is going to be turnkey ah for a person that's squatting on bitcoin they're going be open channels on layer 2 for immediate payment settlement and you're going to collect fees for that routing I think that is going to be the new risk free rate. Because because what's so interesting about that is you're still holding the keys what? what in the history of humanity have you been able to hold the keys while the underlying asset or physical asset is being routed back and forth. Um, I would equate this if people are trying to wrap their head around it think about like if I had gold bars and I wanted to open up an I O U Network with with you Jim I can do that but the gold bars are still sitting in my vault and. I still hold the key to the vault but I we can still settle them back and forth amongst each other and if there's ah another person a third person I can open a channel with them and they can they can basically use these gold bars that continue to be in my vault. It's almost ah ah akin to.

55:36.92

Preston Pysh

Um, Quantum Mechanics is what I would describe this. It's almost like I have a gold bar that's like ah that can be in multiple places at once is is how a person can maybe wrap their head around this and and with that you've de risked.

55:52.45

ilm

Um.

55:55.88

Preston Pysh

Ah, me or me lending it out right? because I'm not lending it out I still hold the keys and and nobody else does so. That's what makes this really fascinating. That's why I think it'll be the new risk free rate now what? what percent fee am I going to be able to collect. On an annualized basis for let's say 10 bitcoin that would be in a vault because whatever that percent is in fee routing I think is your new risk free rate then you have to think the next thing that I would say that is going to be a different. Ah, concept than what most are accustomed to is how much of a premium above that risk-free rate is equity worth. Ah.

56:43.65

Preston Pysh

For the for the price. So like let's let's use some generic numbers here. Let's say that the routing fees for this lightning network is 3 historically in this fiat world. We we would slap 200 basis points above that and say that that's an appropriate risk premium for equity. Which would mean 5 which would mean a pe of 20 for equity. Um I don't think that that's going to be enough personally. Um I think it's going to have to be higher than that and I think it might it might even be aggressively higher than that and so ah.

57:11.40

ilm

And.

57:20.80

Preston Pysh

You know I'm just ballparing it here because when I look at my own personal bitcoin I I know what I would be willing to part with it for what what yield I would have to be collecting on it for the risk that's associated with owning equity and their ability to produce future Free Cash flows I think that numbers like.

57:27.22

ilm

Um, yeah.

57:40.76

Preston Pysh

Maybe ten a p e of 10 which is a which is a return of 10% ah and it it might and and obviously it's it's business dependent in the prospects of that business and it's competitive moat and blah blah blah. But I think that you're going to. And another thing that I think makes this really hard to to wrap our head around is like what does Ai introduce because I think that that's kind of a landmark technology that's way different than anything we've experienced in our lifetimes. Um and and where that's going and the pace that it's going is is going to really change things a lot as well. But um. Going back to the initial question and and why I'm saying all this there is a point is if if the pe today is 30 and I think the pe is going to 40 and it's just ridiculously out of control versus the the free cash flows that it's kicking off in the risk that it that's associated with that. When I reprice it in bitcoin terms. The prices have to be drastically different than where they're at right now and for how much I think bitcoin's going to appreciate in value between now and whatever that moment is in the future. There's no way equity can compete with that after it's repriced in bitcoin terms like not even remotely. Like 80% lower than where it's at right now would would pique my interest.

59:02.24

ilm

Well, it's amazing. It should again going back to the ah the wildfire analogy like this should bring Health and Equilibrium back it again. It might bring some pain to get there but it should bring health back to an investing standpoint right now.

59:11.83

Preston Pysh

And her.

59:17.69

ilm

Most people were not investing. We're buying the market. Why Why are we buying the market is it because you think that these companies are actually valuable and they have opportunity for risk you know risk adjusted return that makes sense. It's it's primarily speculation again I world I live in this weird dichotomous world of like Bitcoin maxy crazy people and.

59:36.84

Preston Pysh

Yeah, yeah, well.

59:36.93

ilm

Financial Planner cfp and almost all them most most financial planers bury their heads in the sand to anything macro economic and the moment you mention anything about macroeconomics or fiscal or monetary policy. They say that you're trying to time the market or whatever versus living in reality and there's this place of like look just buy the index. That's the safest thing to do.

59:48.64

Preston Pysh

Yeah.

59:56.56

ilm

But again I would argue is that is that safe or is that just what the masses are doing and why why is that perceived as being safe and there's there's so many weird things there when it comes to investing and ideally again like this comes to this financial or monetization of everything. And these indexes are no longer used as investing Oh does this make sense as an investment. It's a it's basically a savings Tool. You just got to do something out of desperation. Try to at least reach if not try to moderate outform inflation and the implications of having a.

01:00:30.13

Preston Pysh

Ah.

01:00:31.50

ilm

Ah, money. That's not debased is astounding like 1 of the hardest things I think is especially when interest rates for nothing is hey Jim we want to buy like a few years ago I hated this question hey Jim we're want to buy a house in one or two years what should we do with our money between now and then it's like well jolly like what do you do. Do keep it in cash like where I live in New Bromles Texas little town in in Austin San Antonio area a few years ago I mean houses went up by 20% and then my house appreciated by 33% in 1 year and then about 20% and 10 percent like so if you keep it in cash I just lost 33 % purchasing power on my home in 2022 do you put it in bonds. Do you put in at that point money markets were yielding nothing. Do you put in equities and risk a pullback in the markets where do you park this? That's a terrible thing that we have to speculate on again. This is not because our house is becoming that more valuable are that more people moving to do bronles that it's 33% more valuable.

01:01:11.31

Preston Pysh

Um, ah.

01:01:29.10

ilm

Or is it the dollar that we're denominating these things in is becoming worth less when we introduce a money that cannot be manipulated suddenly the communication methods again money is just simply a means of communicating storing and transferring ah value across space and time.

01:01:33.65

Preston Pysh

Bingo.

01:01:42.58

Preston Pysh

Energy. Yeah yeah.

01:01:45.64

ilm

So the moment we remove this hijacking of of communication. We're able to actually sit here and have a better dialogue. Okay well I can look Jim I want to buy a house in a year it's like okay well, how much do you think New bronhel is going to go by and like yeah, there's some underlying things like. What's wood going to do like. Is there going be a big force fire that causes all the wood to be depleted and suddenly wood's going to cost a lot like we could. We could probably get a better idea like all right like we think that housing because the amount of people moving to this area. Houses will go up by x amount most likely but we're not sitting here trying to speculate on what's going to happen with our monetary policy over the next two years it'll make it just put it in keep it in money money itself versus again, that's gosh There's so much to be. You know so many questions being begged out like what is money.

01:02:23.58

Preston Pysh

I.

01:02:34.20

ilm

What are good stores of value. Why is our money suddenly not a good store value that seems bizarre that money itself is a terrible store of value and I think most people even the people who don't think about this at all are starting to recognize that Wow The the dollar is a bad store value right now. Um, which doesn't make any sense. So yeah, it's it's it's it's it's.

01:02:48.76

Preston Pysh

Over.

01:02:53.46

ilm

It is really fun to think through the implications of having money that can't be hijacked by a centralized party or debased um on a especially at someone's whim and ah the yeah, the impacts all have on investing and the the need to speculate is is.

01:03:03.59

Preston Pysh

Um.

01:03:10.30

Preston Pysh

So yeah, people just need to think that there's going to be things as as we go through this big event horizon that we've been talking about there's going to be things that perform best and there's going to be things that perform horrible.

01:03:10.77

ilm

Fantastic I think it would be great for civilization.

01:03:27.41

Preston Pysh

And then there's going to be a whole multitude of things in between. It's a vector of many different arrays and um for me I Just want to own the the best performing thing and ah.

01:03:41.88

Preston Pysh

And when I think ah if I was going to just generically quantify things for folks, it would be you know Bitcoin is going to outperform everything then equities are are in there next and then ah you know commodities could actually Perform. Outperform some equities and it could then underperform and it's going to be very volatile in between and it's really hard to do that because you're using it through futures and then there's a huge ah so I think for most people and and a lot of it's timing and and the frequency of that performance outperformance and underperformance is. A very tight frequency and so that's really challenging for people to to navigate. But those are going to be in there with equities and sometimes it'll be better and sometimes it'll be worse and then you have real estates in there which I kind of treat like ah equity as well and that's so dependent on location. Ah. The the growth in that location the politics in that location and so speaking to that is is a little difficult as well because it's very nuanced but think of it like anything else if it's scarce and desirable. It should probably perform quite well and if it's. Not scarce and not desirable and there's not some type of local ecosystem. That's fueling growth making that land and that property more valuable. Ah well then it's going to suck and go back to Them. You know use Monopoly if you want to understand which properties do well and which one's down. Um, and then at the very bottom.

01:05:14.29

ilm

Um.

01:05:17.91

Preston Pysh

The very very bottom is going to be long duration debt. So um, short duration debt might be actually not a bad place to sit here and there as you're trying to navigate this violent volatile storm. Um, but I would say very short duration like under a year type duration. Um, so like that's how people need to think about this and it's all about the preservation of your buying power and and if you select and you have the right composition of this to navigate it based off of your appetite of volatility. Um, because I know that that's a huge for me. It's not a big deal like the volatility doesn't scare me when I feel like I actually understand something I actually prefer the volatility. Um, but I know a lot of people aren't like that and and a lot of it comes down to just their understanding and their conviction of what they own is why they can't tolerate a lot of volatility. Um. And so they have to come up with whatever composition of all these different types of asset classes as as they can to to allow them to navigate it and still sleep. Well at night based off of what they feel like they they know and and don't know so I would kind of leave it at there for them. And going back to the comment that I said earlier where we're at right now in this event horizon like you don't really have to have a whole lot on this to protect yourself from what's about to happen and this is this is going to be very difficult for people to comprehend.

01:06:46.10

Preston Pysh

But the further we go across this event horizon and into this new world that we're moving towards as the price of bitcoin runs higher and higher when the price is at five hundred Thousand I think people this is going to have to compose about 10% of their of their overall portfolio value in dollar terms. Okay. When it goes to a million. It's it's going to have to be twice as much as that it said 20% of their portfolio will have to be in bitcoin at that point to preserve just to preserve the the portfolio value. Okay, so it.

01:07:19.46

ilm

Well you think through let's see like the german marks at first it's like all right if you think I mean obviously that happens at a parabolic rate but upfront like all right, you just have a fraction of your your money kept in us dollars at the time talking about ah early.

01:07:28.26

Preston Pysh

Um.

01:07:32.31

Preston Pysh

No no.

01:07:36.20

ilm

Ah, twentieth century just a little bit in the Us dollar and mostly in german Mars but then as it went off like suddenly if you have 99% of your your money in german marks and 1% of the Us dollar you just lost 99% of your purchasing power. So suddenly as that as this ah ah switch.

01:07:40.59

Preston Pysh

Ah, safe.

01:07:56.10

ilm

Takes place. Yeah, there's there. There is more risk associated with owning the legacy asset itself and so how do you? How do you navigate these this waitings of portfolio.

01:08:02.30

Preston Pysh

Jim this is what's gonna be really really really difficult for people because they're gonna be looking at a chart and and remember you got to remove your brain and put their brain in there. They're gonna be looking at a chart that looks like. A tula ponzi and they're going to be told by this imaginary mario coin that we have no idea who invented it because this is how they're recent. This is how they're looking at it right? you and I don't look at it that we know it's backed by energy and all the hashing and like we know all that but they're not going to know the the.

01:08:39.80

Preston Pysh

Everyday person off the street isn't going to understand that all they're going to know is that there's this imaginary coin that somehow floats around on the internet that we have no idea who invented it and ah it's gone from. Five hundred thousand to a million in the the past four months or six months or whatever and everybody's telling me I need to buy it right now and it's going to feel like a total trap to to a lot of people and they're going to continue to sit on their hands and the the crazy part is is that person. At a million is going to have to have 20% of their life savings or buying power in that thing at that moment in time and today where people sit. They only need to have 1% to have the same protection. So.

01:09:26.34

ilm

Can.

01:09:31.81

Preston Pysh

Why I say that is don't go buy it because I'm telling you to buy it or that somebody because I'm not I'm telling you do your homework. Do your research now. The only way you're going to be able to actually handle what's about to come is through knowledge and nobody can perform that work for you other than yourself. So go out and do the work.

01:09:51.72

ilm

Yeah, knowledge builds conviction and conviction builds strong hands. So we've got to be based in knowledge. Otherwise you're going to get shook out so well. Ah Preston thanks for thanks for taking time and talking with me I appreciate it that was ah that was a lot of fun.

01:09:58.93

Preston Pysh

Yep.

01:10:04.70

Preston Pysh

It was a blast and thanks for having me.

Clean House or Cleaning House

I like a clean floor around the house. With 3 little boys, 2 playful adults, and a dog, it’s hard to keep the floors spick-and-span longer than a couple of days (hours, really). A few days back, Daphne, our dog, tracked in a good amount of grass from the yard and scattered it in the entry of our house. Atticus, my 3-year-old, decided he wanted to help me vacuum the mess. He was a big help for about 90 seconds, but once most of the major mess was sucked up he began bringing in new dirt and food crumbs and creating new messes to vacuum. He likes the sound of the vacuum sucking up big pieces of dirt, and who can blame him, it’s a satisfying sound. However, he lost sight of the goal and got sucked into (no pun intended) the task. The goal was a clean house, not to vacuum. The vacuum was just the tool. Remember this as you think about your money and your work. It may save you a lot of unnecessary messes.

Order of Operations

Values | Goals | Decisions | Actions

I have had tens of thousands of conversations with clients over the years and, in all of it, I’ve found that few set goals and fewer understand why they have the goals they’ve set. I’ve worked with people who, by all social measures, are successful, yet, through introspection and reflection, recognize that the success they’ve obtained isn’t related to what they actually feel is important. That’s like, as Stephen Covey put it, climbing a ladder to the top only to later realize the ladder was leaned up against the wrong wall.

One of the most common examples I’ve seen and talked clients through is this: Person grew up in a household with little money. Food was scarce, clothes were shabby, and always heard parents fight about money. As they got older they made a vow that they would make lots of money and that their kids would have a better childhood than they did. Fast-forward 40 years and we are talking about their life and the wealth they’ve accumulated. They drive a nice car, wear nice clothes, go on great vacations. Their kids don’t get made fun of for their clothes, are spoiled with a fridge full of food, and got to go on plenty of trips. However, once we get past the money conversation and move into the motivator, uncovering what is truly important, the client begins to realize that maybe they successfully climbed a ladder leaned up against the wrong wall. Yeah, their kids had nice stuff, but they still heard the money fights (just in a different context). Yeah, they went on vacations, but dad was never present because he was always working. Looking at it this way, now they aren’t sure if their kid is all that happy and chances are, despite plenty of money, their kids probably had a worse childhood than they had.

So how do you combat this? It starts with anchoring in Values, what is truly important to you and the motivator of what you’re doing. In the example above, the value was facilitating a good life for their family. The money and stuff was never the driver, it was only meant to be a tool to help facilitate what they intended. Yet, due to a lack of intentionality, they were distracted and derailed, all the while thinking they were doing the things they needed to. Goals can be deceiving like that. Goals aren’t the end. Goals simply inform the best next step. Losing 20 pounds is a goal; being healthy so you can hike and run with you kids and grandkids is the value. If losing 20 pounds was the end-all, then taking unhealthy measures to achieve this would make as much logical sense as creating a healthy lifestyle does. Getting back to it, start with understanding your Values, what is truly important to you. Who do you want to be? That will inform all that comes next. From there, establish goals. Again, goals simply inform the best next step. Goals change, and that’s ok. Set a goal, take a step in line with it, then another step, then another. If the goal changes (for good reason), great, start taking steps in line with the new goal. Once you’ve set goals, you have to make decisions. Everything in life requires a decision, demands tradeoffs, and has opportunity cost. Make decisions intentionally and informed. Then take action. Go. Do. Be.

Values

Values is your purpose, the why in what you do. We start with understanding what is of most importance to you, set this as the anchor of our planning, and continually reference this with each goal set, decision made, and action taken. After countless conversations, I’ve come to find that very few people actually understand why they do what they do. This often leads to people being wildly successful in something completely out of line with what they initially intended. That’s like climbing a ladder to only realize it was leaned against the wrong wall. Sure you climbed real high, but you still didn’t get to where you wanted to end up. Let’s start with and continually align with your why.

Decisions

Everything in life requires a decision, mandates tradeoffs, and has opportunity cost. If you choose one thing, you are, intentionally or unintentionally, giving up another. In his book, Essentialism, Greg McKeown states that “Essentialists see trade-offs as an inherent part of life. Instead of asking, ‘What do I have to give up?’ they ask, ‘What do I want to go big on?’.” We help our clients distinguish opportunities from distractions, consider the tradeoffs, and to make decisions intentionally

Goals

A goal’s purpose is to inform the next action to take and to provide context for our decisions. The thing is, goals change, and that’s ok. There are plenty of studies that illustrate the power of goal-setting, yet many people don’t set goals. Perhaps this is for fear of feeling tied to a goal that, in the future, is no longer deemed of importance; or maybe its just difficult to imagine what to expect or hope for “one day.” I give you permission to let go of trying to pinpoint what exactly you will do “one day”, and to simply to set intentions, goals that will inevitably look different in the future, just as your current goals look different than the one you set 10 years ago. The goals we set will simply determine our best next step.

Actions

It’s time to act. The best planning is worthless without meaningful action. Meaningful action is acting in a manner that is aligned and consistent with the goals that have been established. I once heard someone say that a hypocrite is someone who’s actions don’t align with their identify. We help our clients consistently take actions that are consistent with who they are and what they seek to accomplish. We help our clients take meaningful action, because we anchor into what is meaningful to their lives.

The Story of the Mexican Fisherman

The Story of the Mexican Fisherman (author unknown) is a favorite of mine and one I re-read frequently. If you haven’t read this, do yourself a favor and take 2 minutes to take this in.

An American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellowfin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.

The Mexican replied, “only a little while.”

The American then asked why didn’t he stay out longer and catch more fish?

The Mexican said he had enough to support his family’s immediate needs.

The American then asked, “but what do you do with the rest of your time?”

The Mexican fisherman said, “I sleep late, fish a little, play with my children, take siestas with my wife, Maria, and stroll into the village each evening where I sip wine, and play guitar with my amigos. I have a full and busy life.”

The American scoffed. “I have an MBA from Harvard, and can help you,” he said. “You should spend more time fishing, and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat, you could buy several boats, and eventually you would have a fleet of fishing boats. Instead of selling your catch to a middle-man, you could sell directly to the processor, eventually opening up your own cannery. You could control the product, processing, and distribution,” he said. “Of course, you would need to leave this small coastal fishing village and move to Mexico City, then Los Angeles, and eventually to New York City, where you will run your expanding enterprise.”

The Mexican fisherman asked, “But, how long will this all take?”

To which the American replied, “Oh, 15 to 20 years or so.”

“But what then?” asked the Mexican.

The American laughed and said, “That’s the best part. When the time was right, you would announce an IPO, and sell your company stock to the public and become very rich. You would make millions!”

“Millions – then what?”

The American said, “Then you could retire. Move to a small coastal fishing village where you could sleep late, fish a little, play with your kids, take siestas with your wife, and stroll to the village in the evenings where you could sip wine and play guitar with your amigos.”