All right guys, it gives me a great deal of pleasure to welcome someone to the rebel capitalist show that i have really been looking forward to speaking with that’s an understatement. Uh he is someone that really needs no introduction. He is ralph paul with real vision. I started my macro journey in 2012. I knew absolutely nothing. I didn’t know what a bond market was. I didn’t know what the fed was and when you guys started real vision. I was right there watching every single video and there is no way that my youtube channel or my understanding of macro would be where it is today without you and without real vision. So, first and foremost, thank you. Thank you very much for everything you’ve done in the content. You’Ve produced wow. I didn’t expect that, but thank you. I really appreciate it and that that was the whole point of doing it. You know is to give everybody the same level of access and understanding, because you know we realized it. Wasn’T fair for people and you’ve been driving this message as well: it’s not fair for people not to have the information that everybody else gets or the the more elite people get, and you know to level the playing field. I mean it’s been a great journey and it’s great that you’ve been part of that journey as well, because you’ve gone out and done your own thing and that’s been incredibly successful as well. So well done you, let’s get into the interview here, you did a video. The other day that i’ve watched probably 10 times well, it was this bitcoin life raft idea and man. It was really really good. So what i’d love to do to start is: have you kind of summarize your take on this idea and then take it to the next level and say: okay, we understand what bitcoin is. We understand the functionality, we understand the benefits, we understand the problems, but what if bitcoin was global money but like and that’s what i’ve been trying to think through for the last week or so it’s like what? If all there is what was bitcoin. That’S it and just very similar to maybe gold or precious metals a couple hundred years ago. So anyway, could you summarize that idea and then let’s just keep going and take it further into the future yeah we’ve been i’ve been talking about this life raft idea. Actually, for some time, i think i probably first wrote about it for global macro: invest my research service back in 2012, when i was in europe and we almost lost the whole european banking system and almost europe itself – and you know, after i’d, seen cyprus, where everybody Got bailed in i you’re a depositor in a bank minding your own business. The bank goes bust. They take your money. I realized that okay, this is a big problem and you know having gone through the financial crisis and seeing nobody knows who owns what. So we have and then the debt upon debt and derivatives upon derivatives. Looking at all of this thinking, christ where’s this going to go. How is this going to play itself out? You know, i know you know, there’s been a lot of talk, they’ll inflate their way out, but inflation deflation they’re more nuanced than i think anybody really expected, because we have like wage deflation and we have inflation of assets and that wasn’t something we quite got. Our heads around early on, but we’re now realizing it’s much more nuanced. What it generally means is: savers are going to get screwed in this environment um to benefit the debtors. Now the next phase of this battle seems to be the central banks and their digital currencies. What they’re doing here is realizing that the digital infrastructure is the way forward for making money and transferring mechanism much simpler, but also they also realize that they can change economics. We’Ve been stuck in this kind of weird world of monetary economics versus keynesian economics, by fiscal stimulus versus monetary stimulus and a number of different things and the central bank digital currencies are about to change. All of that, because you can give different stimulus incentives to different people. So that’s the rise of behavioral economics. Much like facebook does right, um, and so there is also a big talk about okay. Is there a new bretton woods coming? What what is coming here? What are the central banks want to do because they’re over-reliant on a dollar system? The dollar the us is 25 of world gdp, yet the dollar is about 80 percent of all transactions on earth. So there’s this problem that we talk about the dollar shortages and the euro dollar markets and all of this stuff that gets wrapped up into it and other nations. Sovereign nations feel that it’s excessive. So if you’re, south africa and you’re a commodity producer, you’re beholden to the us dollar at all times and your dollar funding is everything and that’s true of even china, so countries have started to say: listen is there another way and the imf and the bis are Both talking about this, which is maybe banding together and creating like a global currency basket, not like the euro, not a single currency, but a basket that facebook libra had decided upon with their groundbreaking idea of the um of including the dollar in the basket. Because right now we understand currencies denominated against one against the other right dollar yen, euro dollar – stuff like that. But if the dollar is part of the basket, what’s the denominator, it’s probably global money, supply yeah. So what was? Wouldn’T that be like going all the way back, that’s right, and so but gold everybody’s pinned two goals but and we’ll come on to this pin two idea later, because that’s the bitcoin discussion but yeah, but everything was pinned to gold. But this is like a basket of currencies like the european exchange rate mechanism we used to have in the past, and that goes back to keynes right. I think you’re talking about the bank yeah, that’s the bank core idea, and this is roughly what that is now. The problem is, is, as we get co-opted into this new digital system, we’re now totally beholden to what the central banks choose to do. I think some of it’s going to be amazingly powerful. I mean if we could have done the fiscal stimulus directly from a central bank to a restaurant in minnesota. Okay, that would have helped massively, but we hadn’t we’ve got the banking system that doesn’t function, that’s in the way and other intermediaries, but this whole mechanism can change that. So there’s some really good benefits. Behavioral economics, the plus side of them, are good. The bad side is, you can manipulate people and governments tend to get nefarious. I think the the words you used with uh anthony pompliano – hopefully i’m pronouncing his last name correctly. I got it written down here. It was programmable, smart money. I think that kind of hits the nail on the head as far as what this could do. Well, i could give you money that you have to spend in 24 hours and you can only spend it on groceries, right right right. That gets rid of all of those coupons that they give out in the us, or you know it can change. Basically, the whole structure completely change it now. The problem is that there is a good side to it. I think it’s good and i think it’s better than what we’ve got the bad side of it is. It puts even more power in the hands of the of the the creators of fiat money, the central banks right. So this is where bitcoin starts. To really stand up on its own, because this system is digital, bitcoin is natively digital. In fact, it drove central bank digital currencies, that’s why they exist today or are just being built out, but it gives us a way of voting with our money outside of the system we’re in so you know. This is why, if you look at the top traders or users of bitcoin around the world, it’s venezuela, it’s colombia, it’s less american countries, it’s south africa countries who have dollar funding problems and weak currencies, but people understand what they can do with it. It’S much more effective than gold to kind of step out of the system and say well. I trust this thing more now will we we will likely get taxed for that and there’s not much you can do about it. Yes, you can try and operate entirely outside the system, but my guess is you have to on-ramp and off-ramp to your own native fiat currency, to pay your taxes or whatever. It is and just to be clear in your view, it’s better than gold, because it is programmable. You can hold the banks or whoever’s holding it. You can hold them more accountable because it’s all on the ledger and it’s just far more efficient. It’S probably the best way of saying it: yeah, that’s right because, let’s say you’re a central bank and you’re just using gold, and i want to give george gammon a stimulus, because his restaurant’s in minnesota is not working right. What do i do? I transfer gold to who well it’s not to you. So then it has to go to a bank and the bank needs. You know. The whole thing still requires intermediaries intermediaries. But with this i can give you direct money with terms and conditions attract attached into a contract. This is not the first time it’s been done. The japanese tried this back in the mid to late 90s, where they gave vouchers to people with um a time element attached to it. So they said we’re gon na give you a stimulus, but you have to spend it by a certain date now, bizarrely, which most economic economists didn’t realize. Is the japanese saved it because they were so? You know that the whole balance sheet recession idea of repairing your balance sheet. They didn’t want to spend it um. So it’s not, you know, not necessarily will this work and not necessarily will it drive inflation and all of these things, but it’s just a very interesting system. Let’S add to that about the swap lines, because a lot of people have been hearing that that’s something that you discussed. I think with our good buddy uh alex saunders and you’re. You’Ve talked about either bitcoin or ethereum, potentially solving the existing problem with the the dollar funding. So basically xyz corporation in uh needs dollars, but they’re they can’t get it from the bank and even though the fed sets up swap line, it still has to go to the bank and if they don’t have the cash flow to service the debt. The bank isn’t going to give them the loan, so it you might as well have nothing there. So how do? How does bitcoin or ethereum solve that problem and when you were talking to alex about that, you know in the back of my mind i was thinking, but but does that solve the problem? I understand it’s far more efficient and it and the mechanism for getting them. The money is, is more direct, but if they have an insolvency problem then it doesn’t, it doesn’t really fix it because, at the end of the day, it’s about the debt and the cash flow. What i was talking about is bitcoin’s superiority is a collateral asset yeah. So um, because as a collateral, u.s treasury is the world’s collateral right, that’s the form of us dollars that we, the whole financial system, uses collateral yeah. The problem is with that collateral. Is the us can issue as much of it as they want, so the intrinsic value of that collateral over time falls. It does so in interest rate terms, and it does so in terms of total supply of dollars. So as an asset, it’s not a great reserve asset, but bitcoin doesn’t have that. So it has this solidity to it now. The problem it has is price volatility right now, because we haven’t got to full price discovery phase, but its future potential superiority as a reserve asset is incredible. It’S pristine. It has no claims on it, while the u.s treasuries have like 32 claims on the average treasury bond right. So there’s not that whole layer and because you can figure out who owns it and it’s also immediately transferable and you don’t need a middleman. It’S a it’s phenomenally good collateral, so in terms of the world’s best collateral, this is probably it. I don’t think you could have invented anything better, so that helps all countries and governments because you’re not then using dollars as a collateral as the basis, because you know whatever collateral you need for the loans. Well, imagine if you can use bitcoin as collateral, so this starts to help some of the issues, but you’re dead right. It doesn’t stop the insolvency issue now a lot. Why do we have these insolvency issues? A lot of it is because of the shortage of dollars that people need to borrow more of them to use it for trade, so it creates this endless amount of dollars that people need now, if you didn’t, have the dollar as such a dominant force. This is what the imf and the bis and everybody else are saying. Then we don’t need to have this reliance on the dollar and we can start shifting away. Even the ecb have a huge problem because their banks all funding dollars, really because, yes, they can get all the euros they want from the ecb, but all of the trade outside of the eurozone is basically in dollars again. So everybody has this shortage of dollars and then they changed. Then they changed. The regulations with basel iii. That meant deutsche bank in the us couldn’t couldn’t make fungible a dollar in the us with the dollar in europe and it untethered the euro dollar markets, which is the offshore borrowing markets for dollars and because of basel iii, the european banks weren’t able to issue more Of this stuff i either had to de-lever, so it’s created a huge problem for everybody and it shows up sometimes in a stronger dollar and other times in the lack of ability for foreign corporations to get hold of the dollars. They need the fed need to give these swap lines, but the swap lines go from central bank to central bank who can give them to the banking system. But if the banking system doesn’t want to give it to the corporate because they think they’re a bad credit. The money doesn’t flow, so bitcoin doesn’t solve all of it, but it probably helps a lot. Bitcoin’S greatest asset potentially is its scarcity and but then at the last week, as i’ve been trying to really um mull over this, i’m thinking, okay, it starts with full reserve banking. I mean i took it all the way back to just let’s go to the beginning. Here and how would this differ, and then you go into a free bank, i’m just talking about how it kind of evolved in the united states. They had this free banking system, where the banks would create their own ious for lack of a better word with gold. Being the backing, and then it was nationalized in the civil war, then you have the central banking era starting in 1913, but then taking it forward to bretton woods. You know, i’ve had a lot of conversations with schneider and snyder’s thing is bretton. Woods was really the catalyst to the system of the euro dollar system itself, because uh, there’s corporations or entities outside the united states that needed dollars and those dollars weren’t or enough of them weren’t getting outside of the united states, because they weren’t running a big enough Trade deficit – let’s say so, they had to create this system that we now have and snyder would would argue that that’s the system that created the gfc in 2008, and but that was due to a scarcity of dollars right. If you want to look at it that way and i’ve i’ve gone back and forth with a bit got the same bitcoin guys that give you a hard time giving me a hard time and they’re like well, that’s never going to be a problem, because it’s infinitely Divisible, i’m like yeah, but but so was the dollar, and i don’t think it’s just. I don’t think the dollar got replicated just because you could. I think there was something else, and i was thinking okay well. If we just immediately went to a goal or excuse me a bitcoin world, where that was it, there was no fiat currency, it was just bitcoin um. Then how would other countries you know get them? I understand through, like the price specie mechanism that hume talked about and i’d like to go into that in a minute. But you know i’m thinking, okay, that creates scarcity, there’s only 21 million, and it’s it’s not just being divisible and if so do don’t we just get right back to where we are today, but a more efficient system that we have today. Due to that scarcity, am i am i crazy and thinking that way. Humans are humans, credit’s been around when it’s been around for thousands of years and credit’s not going to go away and humans will create massive derivative markets, massive lending markets. We don’t have a bitcoin yield curve. Yet – and i keep talking about this, but when it comes it means it has time value and then i can lend it to you. You can lend it to me and off we go recreating because don’t forget everyone has this kind of rose tinted spectacles about the gold standard. There was excess leverage, massive booms and busts deflationary pressures, all of the same things. It doesn’t go away, it’s because of human behavior we and because that’s how we can generate growth is by using leverage. So i none of that goes away to me. As you say, it’s a better system, but there’s going to be claims on it. Now the claims will be on a smart contract where we will know who owns what to whom and where we are in the subordinated stack. Okay, that’s fine, but it’s still all there and that’s not that, so it doesn’t change that to have a hard money at the at the center of the world’s monetary system. Just creates a lot of deflation, and so countries have to compete with each other in different terms, so it’s not in currency terms any longer. So what way is it? Well, it’s price terms in terms of labor or technology. Can i produce the goods cheaper than you? There isn’t or better than you that’s the only thing we can do right. If we’re in a perfect competition world where the currency is the same, we have to find an edge right and all of those things are deflationary um. And so, if you do have debts in a deflationary world, they go up in real terms. So i’m not sure there is a panacea. I don’t think it exists. I think there’s an inherent problem with with humans and their risk-seeking behavior and and that’s normal, because people want to believe there’s a better way yeah. They want to believe that. It’S not us it’s them who cause their problems. It’S not the central banks, it wasn’t the gold standard, it wasn’t any of that. It’S us! We create it because if i can borrow money from you, if you own bitcoin – and i say – hey – listen, george, can i borrow some your bitcoin because i want i want to pay a you know i want to. I want to put a deposit down to buy a house. You’Ll say sure you know it’s going to cost you six percent a year and i’ll give you my six percent a year. I use that, but it’s collateral in the house, because that’s normal, that’s not going away. There is no unlevered world, it just doesn’t exist. It doesn’t even exist in small kind of rural communities in africa there is still leverage, there’s always the money lender. I mean the money lender is you know the oldest profession on earth or the second oldest, so it doesn’t go away and just because you’ve got a better form of collateral, it doesn’t change everything, but in the transition from here to there, maybe you can extinguish a Lot of the dollar debts – maybe there’s a bunch of this stuff that changes over time. So you get to rebuild and don’t forget from um from the nixon period onwards we had an enormous period of growth because leverage came with it. So you know you can you? Can generate huge amount of growth once you rebuild the system, but in the end it’ll be the same result. It’S always been yeah yeah. You know when, when you’re saying that it makes me think of people who look at a new president or a new fed chair as a panacea, if we could just get the right guy or the right gal in charge, oh all of our problems would go away. They they’d handle everything and it’s it. It’S almost looking at bitcoin the exact same way. You know i. I read an article the other day that uh interesting hypothesis and they they said in the west. We’Ve really moved away from religion and uh. You know i’m not going to debate whether that’s good or bad. It is what it is, but they said that, but the human being still needs meaning in their life. So they looked at our political landscape, let’s say in the united states being so divisive and their hypothesis was maybe that’s because we’ve moved away from religion and people are trying to find something to fill the void to give their life. Meaning and we’ve done that, potentially with politics or you know – maybe we’ve done it with bitcoin. Maybe we’ve done it with gold. Maybe we’ve done it with other things. I thought that was really fascinating. What do you think about that? Yeah? I mean we’ve definitely seen the rise of tribalism online because yeah as sovereign societies, the countries we live in, have become less societal. We’Ve formed our own societies, you and i met in our little tribe, which has been twitter right, where we all hang out and talk and argue with each other and learn from each other and that’s what we do and and you will have different communities. And i all have different communities, but those are our little tribes. So that’s our new sovereign state to us because digitally borders don’t exist, so i don’t care which country you’re in you and i move around countries, but that doesn’t make a difference to to that. So i think that’s interesting, but i actually did a lot of work for global mac investment try and get to the bottom of okay. Why is all this happening outside of the religious thing, which i i think is true and it’s the changing nature of society? And i looked at it and brought it back to world war ii and it could go back further. It could go back to world war one and the end of the british empire, but really world war ii after world war ii finished. The record number of people came into the labor force, so 76 million baby boomers into the us. Okay, so, by the time they were all getting into their 30s. Much like the millennials are now i’ll come into that in a sec. These people were competing against each other like wages. At the same time, we we abandoned um bretton woods. So that was another marker in this, but what happened was is when he put 76 million people into the labor force and at the time the population was much smaller. So this was gigantic, as a percentage wages never went up again ever in real terms, so wages stopped going up in about 1974 in real terms, then, if you then wind forward a bit, so that was nobody’s fault apart from the silent generations, for having too many Kids – and that was a function of world war ii, so then the next phase of this is cut to the credit boom that came out the reagan thatcher years. What was that all about? Well interesting enough credit growth offset the lack of wage growth. It’S almost perfect when you measure all assets against it, so people did what they thought was the logical thing. I’M earning less money in real terms, therefore i’ll borrow to make the difference. The next phase of this came with the rise of technology, the pc. Obviously, in the 80s, but really by the 90s and the internet. Okay, this was technological change that we hadn’t really witnessed before it was. It was feeding on itself. It was becoming exponential um, so that was becoming deflationary as well, because you could use you’d get more productivity out of a computer than you could out of a person and then from 96 to 2000. We had that whole period of the wto and the wto basically opened the playing field that everybody can compete on labor price and when china came in, that was it done. The europe us manufacturing industry completely hold out unless you were the best in class, which was germany and japan, because they had great high quality. So they didn’t compete on price. Everybody else got killed and wages just didn’t go up and the labor force participation rate started falling right. Then those people, the baby boomers, had a record number of kids 80, something million of them. They all came into the labor force recently they’re all hitting 30
So now you’ve got these and the the um baby boomers aren’t leaving the labor force because they can’t afford to they never made enough money had too much debt. So now you’ve got two massive cohorts and the globalized world and technology, and i’m like 1.8 trillion in student debt. So no wonder everybody’s angry and they don’t know what the anger is about. The anger is the fact that their quality of life over time has diminished, because wages didn’t go up and it wasn’t a function of necessarily because we left the gold standard. It wasn’t because of you know, there’s more rampant inflation, it’s because there was too many people competing for jobs, both internally and externally, and then we’re competing against computers. So nobody understands why why? Why can’t i get out of this trap? Why does the american dream not mean anything? Why can’t i get do that, so they get angry and it becomes political and it’s the banks, it’s their problem. It’S the central bankers, it’s their problem. It’S not any of these problems. It’S humans problems again! You know we are our own worst enemy. We always have been so that’s my take on this and it’s a it’s very different because everybody wants to blame everybody else, but really, i think it’s demographics. That makes a lot of sense. So how does that play out? In in investing because last week on, you know going back and forth well throughout twitter, you always get people that aren’t just uh invested, they’re emotionally invested in xyz, and i’m very bullish, gold and bitcoin and all these things. But when i see people that are emotionally invested on top of that, i’m like wow, how does it work today? Well, you were dead right in your observation and i’ve noticed this. I’M like who are the. I went out of my way to find out who are these people getting really aggressive about bitcoin with me, the people who were saying there can only be one they’re kind of zealotry over now. One thing is fascinating: is those systems of of um, [, Music, ], source of value, gold and bitcoin, or anything else, they’ve got an embedded, behavioral incentive? If i can persuade you, it goes up in price, and it’s this it’s so and i’m going to benefit. So therefore it is in my economic interest to be a zealot, because i’m incentivized to do so and it’s the same as the missionaries you know that’s what has that religious connotation, because it has this behavioral incentive system, which is we get more power if we convince Other people to come into our religion – and we do this by a number of things, but the most obvious one is by saying. Well, if you don’t believe in my god, you’re going to hell by the ultimate penalty system right, that’s a behavioral incentive. It’S the opposite way around so and – and i will go to heaven right or if you don’t buy, bitcoin you’re going to be poor and that that comment really angers me is have fun being poor yeah exactly and it’s the religious conversation i was. I was gon na write an article about it and i stepped back from it um just because i i’ve noted this too, but i also understand it’s also a feature. It’S a bug and a feature yeah see, that’s what i wanted to get your opinion on. I was trying to think that through and i i put that out on twitter – i’m like okay, it’s got this cult falling, it is what it is. Is that good or bad for the price, because i always listen to channels and channels always talks about cult stocks? Being a potential short and because there’s so much emotion around it and i’m like okay, i get that. But then i look at tesla, which is a cold stock and that that cult has driven the price to the moon. So i don’t know, is it good or bad? Well, because when again, humans are narrative driven creatures, right storytelling is as old as humans, and, what’s so interesting about both tesla and particularly bitcoin or gold, is it it has the embedded savior within it and it because it’s money itself. It’S not like a stock because you’ve got nowhere, valuing it really. Yes, we have the stock to flow and a bunch of charts, but really it’s it’s metcalfe’s law, it’s just an adoption of trust, and how far can that go? If that trust collapses, then it’s worth nothing same with all money same with gold itself. If we don’t trust gold, if we don’t believe gold has value, it has no value. So there’s that kind of whole embedded thing tesla what’s interesting about tesla, it has an embedded kind of god, philosophy in it as well, which is that this technology is going to change the world right and yes, it is going to change the world, but does all The profit accrue to tesla no, but the narrative does, and so it’s why these things have been so successful because again, they’re all about a future change apple doesn’t get that because it doesn’t have that narrative. It doesn’t have if you invest in apple everything’s, going to change and things will get better. So if you’re a millennial – and you can see the issues with climate change – and you want to do something about it and you’re angry, because the baby boomers – don’t and governments are still pandering to the baby boomers. But the younger people all want to do something about it. Well, tesla is the way to drive your narrative and bitcoin is the same for those people. Who’Ve been screwed over by this wage, deflation and globalization, and all of this thing bitcoin is the one god that could save them right, because they can get a chance to accumulate wealth and they don’t get a chance, and i think that’s true. I don’t think it’s a false narrative. Necessarily i don’t think tesla is a false narrative. Tess is more difficult because it’s a stock – and you know you know he clearly he’s a showman and a bit of a fraud. But what he’s? What that whole thing stands for? He’S now got access to unlimited capital, so he’s fine. So there’s no that that’s not going to go wrong from here sure it can fall in price. But this bitcoin narrative is really interesting because it drives at the heart of everything being wrong and there’s something that can change it: gold, favors people with the politics of nostalgia. If we only went back to how it was, and they look back and think the 1950s was a glorious time – well guess what in the 1950s, none of these baby boomers were in the workforce. They hadn’t had to borrow money that, of course, it was a better time in some respects, obviously not really either in longevity of life and quality of life terms, but that’s how they perceive it. So gold has that that nostalgia about it when the times were better and bitcoin has that optimism about it is this could be different and the kind of crypto, anarchists and others hook on to the narrative of we could have a different way, and i keep saying To people stop thinking about what you think uh it’s all about, and you need to follow what it is actually about, because people want it to be this libertarian unregulated world, but that’s not happening yeah yeah i mean i would be one of those people for sure, But from a philosophical standpoint, but i look at reality and uh back going to. I did a video last week and i i went through that full reserve and free banking and whatnot and and people that are are uh. You know hard money, folks, they they want. There to be a limit to the supply of money, but uh, you know they don’t realize it even under the gold standard, with free banking, when there was no government whatsoever, we had fractional reserve banking, so they could increase the supply of money and when we were Under the gold standard, going back to what hume was saying uh, you know he was the first one, the first one. I found that really thought about the flows with gold going from one country to the other, where there would be more gold going to xyz country. Therefore, the money supply would increase, prices would increase and you get. Although it wasn’t a global phenomenon, you would still have a money supply increasing when there was a scarce amount of quote-unquote money uh. It’S it’s still a system that i don’t think we can get away from, but i’ll go ahead and to go back to your philosophical discussion about okay. What could that world look like again? The euro dollar market exists and you’re dead, right and jeff sounds dead. Right existed because there was not enough dollars and people needed access to it. So if you go to a bitcoin system, people want access to more of it, and so we will see as we’re seeing already the rise of d5. The rise of yield curves. The rise of leverage, the rise of derivatives, the rise of of of other lending based on the back of it, and so the cycle will repeat yeah, and how do you think social media plays into what we were just talking about when we were going over? You know the let’s say the cult pros and cons with tesla or bitcoin. I i think you know going back to what chain also saying – and he always says well. Enron was a cult-like stock and i’m not comparing enron to tesla or bitcoin. But i was thinking about them like yeah, but we didn’t have facebook, we didn’t have twitter, we didn’t have instagram, we didn’t have all these ways of connecting in real time. Is it different now to where back then, the the colts component may have been a negative, but maybe now it’s a positive or is it a positive short term and a negative long term? I just i don’t know well for bitcoin itself. It’S all about adoption. You know, does the narrative when adoption and i’ve said the crypto anarchist, or some of these narratives won’t win full adoption, so they’re going to have to allow regulation and institutions to bring full adoption. So if full adoption is what you want, then you have to bring more people into your religion and it’s a religion of trust in money, and i don’t have a problem with it at all, so i’m not using it as a slur against bitcoin. I think it’s a feature not a bug. It gets a little too tribal, which is the bug for me um, but social media. This is where it gets difficult, because it’s again the rise of behavioral economics is, you can affect different people by telling them different stories and you can have multiple narratives at the same time and that’s what’s going on in the crypto space, it’s becomes you versus me Because you like ethereum and i like ripple and somebody else like or um xrp and what it becomes is, is i want my value system to go up because i’m desperate to make money and therefore my answer online is it’s to the exclusion of all others. Now those of us who are investors have never looked at the world that way, because that would be ridiculous. But when you’re fighting for your own system of money and a way of making your own wealth you’re driven by those narratives to say it’s us versus you, because you want more of the capital flow now, i think that’s also a feature of 2016-17 bull markets. When you didn’t really know who was going to win out in this, but right now it seems to be opening out and as institutional money comes in, there’s plenty of opportunity for tons of these projects to do well and tons of them to fail in the perfect Way that capital systems allocate capital over time, so i just don’t worry about that. I didn’t you know, but i understand from the beginning in that world between let’s say 2013 to 2017, it was a fight for who can get the most trust for their network. Right same with social media, you know why facebook won and friends united reunited, didn’t you know it’s who could drive the most trust and the most connections yeah? I just think that social media gives human beings just that echo chamber, and it enforces it through their algorithm, and you create that echo chamber with this narrative that you’re referring to and it exacerbates it a thousand times, and it’s just interesting to see how that will Play out over the long run in the actual price of of xyz asset yeah, i mean dead right and then we’ve seen that this kind of feeling of unease that’s been driven by some of the factors i’ve talked about, has also made people more tribal and us Versus them and it’s become politically tribal as well, so everything gets supercharged much more than it normally would do. People are much less tolerant of each other now because of these super narratives that are grabbing holes of whole large groups of people online in different ways, whether it’s anti-vaxxers or whether it’s crypto enthusiasts or whether it’s you know whatever it may be. There’S these super narratives and you can’t escape them. I mean my twitter feed. I can barely use any longer because it’s now swamped by crypto stuff. So i’m missing. You know if you’re writing a comment on bonds. I don’t see it right now because of the algorithm and it’s it’s really hard yeah. I want to switch gears because i know we’re limited on time and i’ve got just a million questions that i wanted to ask you today. Uh i just the these moments. For me are so precious to the opportunity to sit down and talk to you and i want to steal a question from from bill fleckenstein. I want to give him all the credit and he brought this up with jim rogers who’s, my favorite investor of all time, with your good buddy grant williams on his uh podcast, the end game, and it’s a question that i’ve i’ve heard bill ask quite a few Times and that’s what happens in japan or to the yen if they have a debt jubilee um, the question is: what happens to the japanese capital base? Do they invest at home or go abroad? It’S as simple a question as that, and my guess is: if there is no japanese government bond market, so we’ve called it all. Quits we’re down to zero debt. Where do those tens or hundreds of trillions of dollars go that they need to look for cap investment opportunity abroad? So i think that young collapses, i mean truly collapses in that situation and not because of hyperinflation loss of faith. Just the natural reaction of the pension industry, the insurance industry and all the investments, which is if the bond market doesn’t really exist in any size any longer, everyone has to leave to find a market that suits it. Oh, i see okay, so i i had that one written down the next one i had written down is an idea that i’ve had for a long long time, and i just want to get your opinion on it to see if i’m crazy, for thinking this way Or maybe there’s actually something to it, and i always tell the people comment on my videos or on my live streams or whenever i’m giving advice that try to think of about portfolio construction just as much, if not more than you think about what individual assets you’re. You’Re potentially buying – and i always use the example of buffett, druckenmiller and jim rogers – and this takes me back to my days playing blackjack and i used to use this thing called a binomial calculator, which is a real geeky thing, but it basically, you know it tells You the odds of xyz happening, so in my mind, the reason buffett was successful is because, when he you know designs, his portfolio he’s taking bets that have a high probability of of working out. Therefore, he doesn’t have to take that many bets for mathematically for him to be successful over the long run where he compare that to druckenmiller, and he has. Admittedly, he has a lower percentage of success. Let’S say 55 percent of his bets actually work out, but he takes a lot more bets, so he has the the law of large numbers on his side, just like a casino as an example where jim rogers takes very few bets like uh like buffett, so he Doesn’T have the that benefit of the large numbers on his side, but his bets are so wildly asymmetrical. You know going into north korea or something like that and they don’t work out as many as as often as buffets do, but there’s so much asymmetry that again, the math is on his side over the long run. So i look at those three people’s individuals or their individual styles and understand the math behind it, and then i try to emphasize that for people. So they understand that if, if r, if jim rogers tried to do what warren buffett does or stan druckenmiller with a portion of his portfolio, it might not work out because then all of a sudden, it would skew the the binomial calculator to over the long run. He might not have an edge, so how i i looked at this and i wrote a whole tweet thread about the investment tribes and, i said, there’s three tribes: one is the standard deviation tribe, they’re the people who look for the normal events and mean reversion and Warren buffett will be of that. I you’ve got a low propensity to take risk, but you you’re what you’re doing is looking for the higher quality investments and assume that over time that that will pay out, then you’ve got the long. The long tail tribal um, which is those people who look for the more extreme events and most of the gold community, the bitcoin community, fits within that, but there’s plenty of other bets that are in it. A lot of these guys who traded these asymmetric bets play that and it’s trying to figure out what what are the odds of that tail and the normal distribution being mispriced. And then there’s. I call them. The kind of two standard deviation crowd and that’s where drucker miller sandra miller probably lives most of his life in the one standard deviation thing, but he’ll flip to two and sometimes to three when he sees opportunity where the distribution is mispriced um. I think over time that two standard deviation tribe tends to be more robust because they end to tend to take less structural problems. So a lot of the one standard deviation tribe are the volatility sellers, the implicit volatility sellers people who buy, who sell credit who sell cds for yield, yield investors, and those guys do well well well well well blow up now. Not all of them do buffett. Has that genius thing of his cash flow, which acts as like the support question for all of what he does um stan druckermiller doesn’t have that fragility necessarily um he’s exhibited once or twice, but it’s very rare and the long tail tried tend to lose all the Time and then make huge, so this year was one of the years that they all made. So it’s fascinating, there’s different ways of doing it. I prefer that middle ground, which tends to be that macro area in the middle, where you’re you can be kind of quiet in your investments and and just look for the ones and twos. But when you see something you can question and say this narrative’s not going to be continuing and it can change and it’s when it can change. That is when you can make the really big money yeah. So that takes me to my last question. I was looking at my clock here. I know you got to get to another interview, so i won’t ask the entire question because i i was going to see if you could outline your whole thought process from a to z on why you kind of went all in with bitcoin and ethereum. But what i will do is suggest everyone watching or listening right now to check out the pomp podcast that you did just the other day or came out the other day where you explained that extensively, but the one question the short question i’ve got for you regarding That is when you were outlining your thought process. I was wondering if that greatest trade story, that you told maybe was it maybe two years ago, something like that on twitter. I was thinking you know. I wonder if that was in the back of raoul’s mind. No, i actually did that trade again, it completely perfectly replayed. Last year in bonds, it was a complete, even when he mapped the charts between 2001 in euro dollars and 2001 in bonds, and that 2001 2002 period and the period that we’ve just had in 2019. They were perfect, so i did that trade and it was great it wasn’t as great, because interest rates didn’t go from six percent down to one or whatever, but it was a great training get plenty of leverage. No, this is a. This is a unique bet altogether. It’S a unique bet because i think it has the propensity to have the largest reflexive loop of anything, because we’ve talked about the power of narrative here right we’ve talked about the the benefits of the tribalism and the protectionism over the space. We’Ve talked about institutions coming into the space, but then you get this weird thing. Is it’s been such an obscenely good asset class in terms of its risk reward profile? Unlike anything, i’ve ever seen in my career as a whole asset class that the institutions have no choice but to get involved, and we’ve seen the hedge funds first and the family offices. But what becomes really fascinating is the more it goes up in price. The more the market cap of the asset class goes up, the more it brings in other investors so, and that brings in retail and the more the price goes up, the more it brings in investors, so you’ve got a almost a gap risk to to kind of The same size as the gold market, 10 trillion dollars embedded within this and that’s a reflexive loop, unlike i’ve ever seen before, because it’s not i want to have it because i need to have it and those need to have scenarios are incredibly powerful. It’S the same narrative that drives put buying in bear markets and stuff like that or treasuries in times of economic weakness. I need to have it not. Oh, i quite like some treasuries here. This whole thing has got that kind of setup which, when you play into the whole philosophical new future, optimal and metcalfe’s law and the vision of a different financial system and the central bank digital currencies, i mean that’s a super narrative laid on top of a supernarrative. So you know that that i think, is why metcalfe’s law is so powerful in this in the in this adoption yeah, and you talked about that every what maybe decade or so there there have. You have to you, the big hedge funds and the big family offices. They have to have this strategy, whatever is in vogue, and it’s not only that it’s also the core: the corporations, the internet strategy from the 90s, the computer strategy from the 80s and early 90s um, and then it became the china strategy in 2003.
I mean i i’d go to a bar in shanghai and there’d be all of these westerners in the bar. So what are you doing? Is i don’t know i’ve been assembled my company to figure out our china strategy. I knew they had to have an answer to their investors. Then it became your social media strategy in 2010. Then it’s rapidly becoming two things. One is your video strategy, the whole world’s pivoting to video and the other’s, been artificial intelligence, and i think bitcoin is another one of these super narratives and they they tend to go a long time. You know 10 years of everybody having to adopt it and they’re. All real adoptions: they have bubble phases in the middle of them, but they’re all real. I mean they’re all here to stay yeah, yeah so, and so this takes over and these flows these capital flows take over and it creates this like opposite doom loop. You know you you’ve talked about the doom loop, all the time which is kind of this, this positive feedback loop, but in a downward spiral. This creates the opposite going up until and i know a lot of people in the comments right now are going to say. Oh yeah, but the governments will ban it the government’s banned it and i totally get that i think they’ll make it illegal, but i think it’ll most likely have a hell of a run before it’s a big enough player for the governments to yeah. I’M not sure you can, i’m not sure i’ve read all the imf papers, the bis papers, the ecb boj. All of these guys, none of them have talked about anything except regulating crypto on the on-ramps and off-ramps. They just want their tax, they want their tax and they don’t want it to be used for illicit activities that are within their jurisdiction. That’S it now do they do they try and do something in due course and try and get rid of it? Well, there’s going to be another jurisdiction that allows it that you can’t stamp something out on the internet. China’S tried to ban it. Russia’S tried to ban it. India tried to ban it. No all of them failed, so i don’t think it gets banned but sure it’s a risk. We need to price it. I wonder if they made it illegal, i know they. They literally can’t ban it, because it’s it’s code or whatever, but uh. If they made it illegal with a very severe penalty, say 25 years in prison and then you’ve got a lot of people that would just leave. I understand that, but a lot of associated mass adoption. You know you got the guy in the country club with his wife and his kids are in private school and he’s driving. The question is: if you’ve allowed institutional adoption, what do you do? You turn around to blackrock and say: oh screw, all the pensioners who you’ve just put into bitcoin yeah. I don’t understand how you can do that without losing i mean that’s your voter base, you’re gon na destroy their wealth because you’ll have driven institution adoption by regulating it and then shutting all these people – i i don’t just they don’t know, but they did that with Gold gold again, this is a false narrative, okay, so gold, they did it in the us, and the u.s gold flowed to switzerland and elsewhere. Gold around the west rest of the world traded freely. Americans look at this as their own personal narrative, but it didn’t happen anywhere else, so so it wasn’t a global phenomena right and in the end, u.s citizens held gold but offshore. It’S always been thus same with turks right now, they’re not supposed to be using gold. So they use bitcoin, everybody finds a way of circumventing capital flows because they always have all right buddy. I know you’re short on time. I appreciate you hanging out this long for all my viewers who want to find out more about what you do. Should they just go to real vision and check it out? I suggest everyone do so. I just want to reiterate that i’ve never taken an econ class in my life. I’Ve never taken a finance class. I almost flunked out of high school and i owe almost everything or a lot of what i know to uh sources, just like real vision. So if i can do it by watching real vision and being a huge fan, then you can too yeah. I mean. That’S amazing: if people get a real vision, they can take a trial, cost a dollar and you can check it all out there. If you’re, if your focus is just crypto, we’ve got a free, crypto channel, so you go to realvisioncrypto.com or just on the normal real vision home page uh at the top there’s the crypto button. So you can do that either way get involved and get learning. Because there’s a whole new world out there, and these are really important times whether you’re looking at traditional finance or you’re. Looking at the new world of finance – and you know we all owe it to ourselves because nobody’s going to help us – we need to help ourselves get up the knowledge curve as fast as we can absolutely raul appreciate it. I cannot wait to do it again. My friend absolutely we’ll get you on real next [ Music ] time.
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