Bitcoin Is Rebuilding the Financial System | Andrew Hohns - What Bitcoin Did

Episode Transcript
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(00:00):
Inflation is the biggest form of institutional theft in the world.

(00:06):
If you just receive parback as a credit investor, you are in a very, very vulnerable position.
You can deliver superior financing terms to borrowers that are embracing Bitcoin as a capital asset with a modest amount of it,
can dramatically improve the credit risk and position the assets to accrete value in inflationary periods rather than to dissipate into nothing.

(00:33):
If we integrate some of these Bitcoin incentives into our public institutions, could we not expect that these institutions might flourish and change?
I mean, all you have to do is read an English language newspaper and your front page article

(00:55):
is that people are losing faith in the dollar.
Andrew Holmes, we go again.
How are you doing?
I'm doing great.
Thank you.
Good.
Thank you for having me in Philly.
My pleasure.
Delighted to have you here.
It's been fun doing a little tour today.
Yeah.
We've seen all sorts, seen the good and the bad of Philly.
Yeah.
It's interesting.
I had a really incorrect perception of what Philly was going to be like.

(01:19):
All I've really seen of it is the documentaries where you see the drugged out crazies on the street.
And we did have a drive and go and see that area of the town.
And it's depressing.
It is depressing.
But the actual city is really nice.
It's lovely.
Yeah.
I really enjoyed it.
It was cool having a bit of a tour.
You showed me the first central bank in US history.

(01:41):
Yep.
First bank of the United States.
That was very cool.
And it's just over the road from the building that you did your Bitcoin backed lending against.
That's right. It was good symbolism.
It was very cool. They're literally right across the street from each other.
So I think maybe we should start there. Do you want to explain what you did?
Sure. We provided a financing solution to the owner of a multi-family asset

(02:13):
in Old City in Philadelphia.
The building was originally built,
well, there are three buildings that are joined together
around a courtyard in the back.
And they were built at various times in the 1800s.
They were old industrial buildings.
So nowadays, they're loft-style living with exposed brick
and nice architectural windows and wooden floors.

(02:35):
It's been owned by the same family investor for,
at this point going on almost 30 years so it's been a good asset for them they've upgraded it
from time to time and they had a loan that was coming due on the asset it was about a nine
million dollar loan buildings worth about twice that and we provided them with a refinancing

(03:01):
solution which enabled them to pay off the existing mortgage the then existing mortgage
to invest about $2 million of additional capital into the building to make routine repairs.
They wanted to renovate some of the common areas, recarpet the hallways,

(03:21):
replace the cabinetry and the kitchens as the units turn over. And then importantly,
we added another million and a half dollars of value to the financing, which was used to buy
just shy of 20 Bitcoin, because at the time, the Bitcoin price was a little bit higher than $75,000.
So our collateral for our loan is the combination of this nice building located across the street from the Museum of the American Revolution and just a short walk away from the First Bank of the United States.

(03:58):
Nice neighborhood, lots of restaurants and boutiques and art galleries and whatnot.
it's secured by that building and it's also secured by 20 Bitcoin. And if something were to
go wrong with the asset, we think we're in a lot better position than a conventional lender
because a conventional lender has to recover only against that asset. And as nice as it is,

(04:23):
it's idiosyncratic. You need to find somebody that wants to take on that specific asset that
It has the means, the ability to do so.
It's not liquid.
It's not divisible.
You can't just take on a little bit of it.
You have to take on all 63 units, all three commercial spaces.
And it's good collateral, just like any physical collateral, but it has limitations, just like

(04:48):
any physical collateral.
We have the ability to recover against that, but then we also have the ability to augment
our recovery with the Bitcoin, which puts us in a far more robust position because the Bitcoin is
liquid, it's fungible, it's divisible, it's universal, and it tends to go up over time,

(05:10):
meaning that our loan-to-value goes down over the life of the loan, which is a unique feature for a
loan. And that's obviously already happened if the strike price when you did this deal was 75k.
Yeah. You're already up quite big on that Bitcoin. Yeah. So the loan-to-value
has already declined by several hundred basis points, which is remarkable because the loan

(05:31):
itself is actually in an interest-only period.
So, I mean, just think about that for a second.
You know, we made a term loan.
It's in an interest-only period.
Normally, you would think the LTV is going to remain stable until the borrower starts
paying principal, which doesn't come for a few years.
But because we added the Bitcoin to the financing package, our loan to value has already diminished significantly.

(05:58):
So how big was the entire loan that you did?
About $12.5 million.
$12.5 million, which $1.5 million was Bitcoin.
OK, so they would have had the option to go out to a regular lender and get the loan against the property.
But instead of doing that, you've actually given them a larger loan than they would have otherwise got and added Bitcoin to it.

(06:18):
Yeah. OK. And then at the end of that period, what happens with the upside of the Bitcoin?
We share it. You share it. So the person at the end of the term will
be debt free in terms of the loan and also get the upside of Bitcoin.
A portion of it. Yes. So why isn't everyone looking at doing this?
It makes perfect sense. Everyone is looking at doing it. OK.

(06:40):
I mean, everyone who's tuned into the frequency of Bitcoin, which is not everyone in the world.
I mean, Bitcoin, as much as you and I interact with people all day long that are focused all the time on this asset and its many, many interesting elements, the vast majority of people are not yet tuned into the frequency.
But everyone who has tuned into the frequency, we've gotten a huge amount of inbound demand, several billion dollars of organic borrower demand after having announced this first loan package.

(07:12):
Is that when you announced on CNBC?
Yeah.
Yeah.
And I mean, we've gotten, you know, it's a commercial real estate asset.
So we've gotten a lot of commercial real estate, a lot of multifamily apartment buildings, a lot of office buildings, hotels, but also logistics facilities, some seasoned assets, some assets that are in development.

(07:32):
Also project finance assets like wind and solar and other energy facilities.
A huge number.
Small businesses, medium-sized businesses,
large businesses have reached out to us
seeking to integrate financing into their collateral.
It makes total sense.
And so the risk really is just down to the volatility of Bitcoin.

(07:53):
But because these terms are over multiple decades,
you can just ride that out and almost write it off as a risk.
I mean, we've designed the financing facility, Danny,
to not have mark-to-market risk on the Bitcoin.
That's a really critical element.
Most, basically all other Bitcoin financing

(08:14):
that's available from any provider in the market
except for what we're doing
has embedded mark-to-market risk.
And with the volatility of Bitcoin being what it is,
it's very difficult to finance a long-term project
with an asset that is subject to mark-to-market risk.

(08:34):
You either have to dramatically over collateralize it, which is not a great use of Bitcoin from a financing potential point of view, or you run the risk of getting liquidated, which is not suitable.
So what we do by fusing the Bitcoin with a physical asset, a conventional asset that has its own cash flow profile, we're able to underwrite it in such a manner that we can take the Bitcoin to the worst possible hypothetical outcome, which is that the Bitcoin goes to zero, as implausible as that is.

(09:15):
And we can say, OK, this loan is still capable of satisfying its interest expense based on the cash flow coming from the traditional asset.
And we don't need to maximize interest as most lenders do because we also have this Bitcoin sharing element of the arrangement.

(09:36):
So we have flexibility on the conventional loan terms, interest rate, amortization schedule, interest only period, prepayment penalty.
We don't need one.
And that flexibility is driven by the sharing of the Bitcoin upside over time.
So that's the essence of the proposition.

(09:56):
So if the person who takes out this loan wants to close early, you said there's no prepayment penalty.
What happens on your end?
Do you change the amount of Bitcoin upside that you take as a company?
Yes, we encourage borrowers to stay in our loans for a longer period of time.
because we have a very constructive view on the long-term value of Bitcoin.

(10:20):
And we want to work with people that have a constructive view on the long-term value.
And so as the years go on in our financing structures,
the borrowers stand to earn a larger and larger share of the Bitcoin appreciation.
And we get a lower and lower percentage of the Bitcoin appreciation.
That's OK with us.
Our LTV is going, our loan-to-value is going down.

(10:42):
Which means your risk is going down.
Which means our risk is going down.
So we're still getting a very nice current return for that credit risk.
And we have a gradually reducing share of the Bitcoin upside.
If the borrower has circumstances that lead them to prefer to pay early, those circumstances
could be anything, really.

(11:04):
It could be a life event that has a change or a business decision that makes a change.
or maybe interest rates have moved to such an extent that the borrower wants to refinance or
wants to whatever, whatever the case may be, they can pay off whenever they'd like. And we release
the real estate, we release the mortgage on the conventional asset, but the Bitcoin, it has to

(11:28):
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(13:43):
With the current, I know you've only done one so far, is that correct?
What is your share of the Bitcoin upside at the end? How is that split?
Well, you know, just like any loan, it's dependent upon the credit characteristics, the overall leverage.
the other terms of the loan, the interest rate, the amortization structure.

(14:08):
And so we don't have a one size fits all appreciation sharing.
Generally, I would say that at the end of the life of the loan,
we aim to share somewhere between 40% to 60% of the Bitcoin upside with the borrower.
That's very cool.
When I saw you on CNBC, it was quite like we've, as Bitcoin, spoken about Bitcoin being

(14:31):
sort of the ultimate form of collateral for a long time.
But watching you tell those people on TV, you could see the like cogs turning in their
brain as they were trying to figure this out.
But maybe it's worth getting into like why Bitcoin is actually the ultimate form of collateral.
Yeah.
Well, I mean, I think CNBC has done a great job on covering Bitcoin.

(14:52):
And I think that Joe Kiernan and Becky Quick and Andrew Ross Sorkin have really-
Joe Kiernan's great.
He's great.
Yeah.
And they've really carved out an expertise in covering this within the financial markets
that is not just recent either.
I mean, this has been ongoing discussions now for some years.
So I think we have to acknowledge legacy media and the leadership that Squawk Box, I mean,

(15:18):
it's amazing.
They're actually celebrating their 30th anniversary as a television program this year, as a matter
of fact.
So long history at Squawk Box.
Look, Bitcoin as ideal collateral, I mean, it's so good.

(15:39):
It's finite.
It's limited to 21 million.
Already, we're at 95% of all Bitcoin that has ever been issued has been issued, which
makes new supply extremely scarce. It's fungible. No Bitcoin is different than any other Bitcoin.
It's just Bitcoin. It's the same in Virginia as it is in Vietnam. It is divisible. You can

(16:02):
effortlessly divide Bitcoin into 100 million units, which means that at today's prices,
there's the smallest unit. There's about nine of them in a penny, which is pretty finely cut,
if you think about it from that point of view. It's weightless, so it's very easy to transport

(16:23):
from place to place. It's extremely secure, protected by the largest computer network on
earth with extremely powerful encryption. It is liquid. It's trading 24 hours a day,
seven days a week. It's probably the most liquid asset in the world, as a matter of fact.
And for all of these reasons, it is a superior way to store value across time and space.

(16:50):
You compare it to some other forms of collateral.
Like, let's just go through a couple.
You can think of precious metals, gold, silver.
You could think of real estate, maybe collectibles.
Collectibles are sometimes collateral, like art or wine.
financial collateral like stocks or bonds. With gold, gold is scarce, but it's not finite.

(17:17):
Actually, as a matter of fact, gold is growing in volume about 1.5% to 2% per year, depending on
the intensity of new mining. And if something grows at 2% per year, that means that the quantity
doubles every 36 years. So think of it. If you received an ounce of gold in 1989

(17:38):
and you retrieved it from the drawer in 2025, it's still beautiful. It still has the same gleam
and the same design. But in gold terms, it's about half as much of the purchasing power of the gold
network, even though it may have appreciated 10x in dollar terms. And so you think you may have had
good dollar return, in gold terms, it's dissipated half of its energy. And if you hold it for another

(18:03):
35 years, it will probably dissipate at least another half of its energy, but maybe more.
Because as price of gold goes up, gold that was previously an economical to mine is now
economical to mine and supply comes online. Yeah. And also, if you think like artificial
intelligence is making almost everything easier, isn't it plausible to think that it's going to
make mining gold more effective, that we'll be able to pinpoint where the gold is located,

(18:28):
or that robotic machinery will be able to more easily retrieve the gold from the Earth,
or underwater machinery will be able to retrieve it from the seabed, or outer space machinery
will be able to retrieve it from an asteroid.
Absolutely.
Or synthetic gold.
I mean, we have synthetic diamonds now.
So what if we were to have ersatz gold?

(18:50):
and indistinguishable for all intents and purposes from physical gold.
Silver, palladium, platinum, they all have the same risk factors there.
And when you come to something like real estate, real estate is good.
I mean, it's good, but it's not scarce.

(19:12):
If you look at an overhead map of Boston from the 1670s versus one from today,
it's a completely different looking city.
You know, like back bay, like a bay, right?
Nowadays, a neighborhood.
And you look at the same thing for New York City.
You look at it for Los Angeles and Philadelphia,
anywhere in the world, especially you go to Dubai.

(19:32):
Oh, you see the pictures of Dubai and places like that in the 70s,
and there's nothing there.
And now there's huge megacities.
Megacities, but not just on the same land, new land.
Yeah.
Right, land that's been created.
And even if it were scarce,
it's still subject to quite a bit of restrictions on its use because you have local zoning rules,

(19:52):
you have taxation, you have risks related to weather, hurricanes, you know, local direction
of economic development could take many different paths. And so real estate has been good collateral,
but it's not timeless.
It's not timeless collateral.

(20:13):
I mean, if you made a loan in the Athenian Agora
in, you know, 2500 BC,
it would have gone through quite a lot of changes
between now and then, you know,
even though it's still right there on top of the Parthenon.
So, you know, on top of the Acropolis.
And so, yeah.

(20:35):
And then, you know, you come to things like wine,
not fungible. No one wine is the same as any other. Art, not divisible. You can't just cut
the corner off the Mona Lisa and get 10% of the value. You've ruined the entire value. So you have
to sell the whole thing. It's not at all liquid. No liquidity yet. No liquidity whatsoever. I mean,
wine is liquid, but it's actually not at all liquid, right? So when you start to think about

(21:01):
it from a collateral perspective, Bitcoin really presents superior characteristics that can serve,
especially in combination with physical collateral that produces cash flow, can really serve to create
a nice blend of cash flow to support debt service, appreciation potential based on Bitcoin's growing

(21:25):
adoption and use cases and strong recovery characteristics or strong recovery capabilities
driven by these characteristics that Bitcoin possesses.
So you run a very successful hedge fund, but you now started Battery Finance to do this.
I don't know when you started this, a couple of years ago?
Yeah.
Why make that pivot?

(21:47):
I think that we all have one life to live, and we have to do the things that are calling to us, and the things that best use of time is always something that's motivating to me.
And for me, I've always been personally really interested in innovation.

(22:10):
That's just been a focus of mine professionally over decades now.
We've done a lot of first of their kind transactions in the structure credit arena.
First geography, first asset class, first issuer type, first features.
And around, you know, at the time of COVID, when the liquidity supernova was bursting over the earth,

(22:39):
I really just became very focused again on inflation.
and what historically inflation has done
to different places at different times,
and the sense that that was where this was headed.
And as a credit investor, inflation is the biggest threat

(23:01):
because although it easier and it alluring because it becomes so easy to pay off old loans Because if you take a loan for in 2005 and you have to pay off in 2025 well everyone knows that what was 20 years ago is very different than what is today

(23:28):
And so if you can just bide your time and pay the interest, then the ultimate repayment is much lower in real terms.
But if you're on the other side of that, if you're the investor and you're getting back your principal in 20 years, you say, oh, I got my money back.
But as a matter of fact, on a real basis, you've gotten much less.
And the extent to which the inflation increases in terms of its rate, and it's not just the reported rate.

(23:54):
I mean, everyone knows that what's reported around the world and in different markets are really quite artificial numbers.
Absolutely.
And it's important to take a broader view of what inflation is across different assets, different geographies, over different time periods.
But to the extent that inflation increases, and I think that we're poised for a dramatic asset price inflation and increase over the course of the coming years.

(24:22):
Well, if you just receive par back as a credit investor, you are in a very, very vulnerable
position.
In fact, I would say, look, I would go ahead and say that in my opinion, the large credit
allocations that are persistent among pensions, sovereign wealth funds, insurance companies,

(24:46):
20%, 30%, 40% in some instances, overall portfolio allocations to credit present
the single largest risk, systemic risk, to those investment portfolios because they are so vulnerable
to the effect of inflation. And so what are people doing? What they're doing is they're reaching for

(25:07):
risk. They're saying, well, you know, I know that I have to keep ahead of inflation. And so the way
I'm going to do that is I'm going to invest in riskier and riskier credit. And not only will I
do that, but then I'll amplify it with leverage.
And as a matter of fact, I think the market has been lulled to sleep in this regard because

(25:28):
every crisis over the course of the last, my professional memory, going back to 2000
when I first started in finance and I graduated from Wharton, every crisis, every time there's
been a crisis that should have rationally manifested in significant credit losses, what

(25:52):
has happened is that the cavalry has rode in with enormous liquidity every time. And
some of them are really easy to remember because they're high profile. Which one were you saying?
I said 2008.
Yeah.
Yeah.
Very high profile, right?

(26:12):
2008.
The next high profile one may be the European sovereign debt crisis.
After that, you might think of COVID.
That was very high profile.
But even the lower profile ones, they all were met with additional liquidity.
These are things like Silicon Valley Bank.
Yeah.
Or even Evergrande.
If you remember those words, they're hard to remember now.

(26:33):
I remember.
That was a bank run.
Is that right?
Well, it was the Chinese real estate.
Oh, of course.
Sorry.
Yeah.
Yeah. And for two weeks, it was breathlessly commented on all financial media that this was going to be the canary in the coal mine.
This was two or three years ago.
Yeah. I think it was 2021 maybe, or I can't remember exactly when.

(26:54):
But the PBOC came in with significant additional liquidity.
And so those liquidity infusions, Silicon Valley Bank, Turkish lira crisis, Italian sovereign debt crisis, Evergrande, and we could name another five or 10 beyond that.
What they do is they have the effect of making it way easier to repay old debt because the quantity of money has increased and therefore the asset values increase.

(27:23):
And so people get paid off, but in real terms, they're getting paid off in greatly eroded amounts.
And so it's lulled the market into this willingness to point toward riskier credit with leverage, because we haven't really seen the negative effects of actual credit losses.

(27:44):
And they're essentially stealing from the population to keep these credit markets afloat.
Yeah, I mean, inflation is the biggest form of institutional theft in the world.
So when you think about, I don't want to be too hyperbolic here, but do you think that Bitcoin can actually save the credit market?
Oh, definitely. I mean, if you integrate even just a modest amount of this profoundly scarce asset into credit contracts, and you position the underwriting in a way that you can make not a one-day journey or a one-week journey, but you can make a four-year, eight-year, 12-year journey based on the cash flow characteristics of the asset, let alone longer,

(28:31):
However, the extent to which the Bitcoin is poised to appreciate is an excellent, excellent
counterbalance to the risks of inflation.
And what it enables you to do as a credit investor is to actually be more virtuous in
your asset selection in the sense that you don't need to maximize the return as a conventional

(28:57):
investor must do by reaching for that biggest risk or amplifying it with leverage, you have a new,
way more powerful tool, which is Bitcoin. And the name of the game is to stay in the Bitcoin position
for the medium to long run. The best way to do that is to actually focus on high-quality credit

(29:19):
investments, which you can achieve in part by delivering more favorable terms like reduced
interest rates or longer amortization periods, longer interest only periods, no prepayment
penalty. So you can deliver superior financing terms to borrowers that are embracing Bitcoin
as a capital asset. And what that's driven by is this alignment of interests around sharing

(29:46):
in the Bitcoin appreciation. It's pretty incredible. Just a very quick tangent. You said a minute ago
that you think inflation is going to come back in a serious way over the next few years.
Where does that come from?
Because obviously inflation has come down from,
I don't remember exactly what it got to in the US,
but 8% or 9% or something like that, quoted CPI.

(30:08):
It's back to around 3%.
Where do you think that inflation is going to come back from?
Do you think they're going to print a load of money again?
Yes.
I mean, look, plan A is to monetize the debt.
Rule number one of plan A is that no one discusses plan A.

(30:31):
And so you're never going to see the central bank president of any central bank stand behind
the podium and say, I would like to report that the inflation has gone very well for
the last quarter.
We have ruined your savings by 6.5%, and it will continue.
You're never going to see that.
what you're going to see is they're going to say we're fighting it we're fighting it with everything
we have we've brought in this tool this program this acronym if you look at this report you can

(30:56):
see that it's improving if you look at this report this is the one that we're watching
but the indicators are are are shifting and people are uh you know hanging on every uh syllable they
even release a red line of the fed minutes and so oh well they you know they deleted the word very
and replaced it with somewhat, what should we interpret from that?

(31:21):
And what we should interpret from that is that the plan A is continuing
and that the monetization of debt is continuing more or less uninterrupted.
1981, we had a trillion dollars of funded federal debt.
Now we're at $37 trillion.
Maybe I haven't looked.
Maybe it's already $38.
Could easily be.

(31:41):
But that's not hardly the story because we have $174 trillion of unfunded liabilities at Social Security and Medicare.
Those are coming due 2034, but with cost of living increases could very well come due sooner.
And that's just the United States.
We're not even talking about similar circumstances in any number everywhere, right?

(32:05):
You look at that big picture of, you know, indebted countries and the, you know, the ones
that are properly capitalized are very small and the ones that have enormous debt burdens
are very, very large.
And then if you just take a step back and you think about this historically, I mean,
you know, unfortunately, the power to produce money has been something that has been badly

(32:34):
abused over long periods of time.
And intervals of sound money are short, and they're few and far between.
You look at the Roman era and the debasement of Roman coinage.
I mean, it took 150 years.
It debased at a slower rate, 5% or so per year.

(32:56):
But that's because they were limited by the industrial capacity to obtain additional copper
copper, refine the copper to a point where they could then melt the silver, mix it with
copper, strike it as a new coin, and get it all the way back out into the population.
Of course, they didn't have airplanes, and they didn't have trains to easily transport

(33:20):
these coins or cars.
They had to transport them with the technology that was available to them at that time.
So it took 150 years.
But as you look at all of the inflations in the subsequent periods, you look at the Spanish
inflation that occurred after the discovery of so much gold and silver in the New World,

(33:41):
it was basically limited by its industrial capacity at the time.
What was its industrial capacity?
The stowage capacity of the ships that they were sailing from the New World back to Europe
and how long it took them to bring those ships back from the New World to Europe.
And once they arrived, they were limited by the length of time that it would take.
So actually, the inflation was worse at first in Iberia.

(34:05):
And then-
Because that's where the ships landed.
Because that's where the ships landed.
And then it radiated out through the rest of Europe.
And when you come to the money printer, that was a big advance in terms, you know, printing
press.
I mean, that was a big advance in terms of making money, literally making money, right?
Manufacturing money.

(34:26):
But then again, you still had to transport it in bundled packages by cars.
And you saw in the 20th century exponential inflations, whereas prior to that, they really were not growing at that rate.
And now we're in the 21st century.
And our industrial capacity to make money at this point is at the lowest marginal cost that it's ever been.

(34:52):
It's literally a click of a button.
Yeah, a keystroke.
And you can dramatically inflate at a trivial expense with CBDCs, which I think really deserve very significant political criticism and opposition and should be an area of focus for any thinking member of a democratic society.

(35:19):
Because you imagine CBDCs, what do the central bankers say?
Their only weakness.
Their only weakness is that they have blunt instruments to manage the economy.
The overall interest rate, it applies to everyone.
And if they could just provide a specified interest rate to one set of employers or one

(35:42):
region, well, I don't think that that's the reason that central banking has been a failure.
I think the reason is that, you know, plan A, rule number one of plan A, we talked about that.
But with central bank digital currencies, you're going to be able to say, oh, well, you know, we have a micro interest rate for even this person or this family or this city or this neighborhood or this segment, this sector.

(36:05):
Or, you know, your money is expiring.
We're already seeing that.
That's already been the case.
the Chinese yuan with the
e-yuan experiment. The money
expired after the Chinese New Year already.
And that's like another way of stimulating the economy
without actually debasing the people. Instead, you just say, if you don't spend your money by

(36:27):
X date, then it's gone. Yeah, but I mean...
I mean this in a massively negative way, by the way.
There should be no one telling you when you can and can't spend your money.
Right, right. But if you know it's going to go,
then you're going to spend it. And so the ultimate effect is going to be deeply, probably
inflationary rather than deflationary. And then again, you might have controls on how you can

(36:50):
spend it. Like, oh, you've had enough red meat for this week, or you've had enough alcohol or
people. I mean, I'm sure you've heard about that. What do they call it? A five minute city or a 15
minute city or something that you should be able to do everything within a 15 minute radius.
Well, now they say, OK, every 15 minutes more you go, your money loses 15% of its purchasing power.

(37:11):
That's a disaster for freedom.
And when you think about, though, the combination of how trivially easy it is to make more of this money and how profoundly easy it could be to control the manner in which people spend their money,
it's a bad recipe for very significant inflation in the future.

(37:35):
So I think even if you just like, you know, we could talk for a while about the current
macro fundamentals and the level of indebtedness.
But if you can just like elevate, you know, the altitude of the vantage point and think
about it in terms of just the actual mechanism of how money is made and distributed into

(37:57):
society and how technology could be used to adversely affect that, I think that it's very
rational to anticipate that we're headed toward that kind of outcome right now.
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I-R-E-N dot com. Well, it seems that we're certainly heading towards it. I saw in Alex
Gladstein's recent paper, he did a small section on CBDCs, and I didn't realize that it's over 100

(40:33):
countries that are actively looking into that right now. And obviously, they're live in a couple
of places. But this isn't a far-fetched idea now. It feels like it's about to happen.
It is. It is about to happen. I mean, Alex is a genius. He's a tremendous voice for human rights and a great advocate of Bitcoin's role in human rights.

(40:54):
And the stuff you're seeing in the UK as well at the moment just feels like a precursor to it as well with the digital IDs that they're implementing.
I think they're on a hugely slippery slope and it feels like they're just doing everything they can to replicate China at this point.
Yeah, but before we go to the UK and China, let's just stick with Alex for a minute.

(41:16):
So he wrote in this essay, this is a great essay that he just published, called Is Bitcoin
Freedom Money?
And it was published by the Journal of Democracy just in the last few days.
And he wrote at one point in that essay that most of Bitcoin's critics are located in the

(41:39):
United States or in Europe, where they enjoy enormous financial privilege.
And the privilege that they enjoy is not necessarily how much money someone may have, but even
just access to a range of financial products, like, for example, stocks or bonds, credit cards,

(42:04):
car loans, small business loans, long-term mortgages. Even just a bank account. Even a bank
account. And when you look at, you know, about a billion people in the world are born into what he
calls a global reserve currency that corresponds to the US dollar, the euro, the yen, sterling,
maybe the Canadian dollar, Australian dollar, Swiss franc,

(42:28):
the other 7 billion people around the world
are born into a currency that is practically useless beyond its borders.
And if you look at areas that are less developed in the world,
like Malawi, as Alex Gladstein has helpfully pointed out,
the best way that those individuals have to save
is through either local paper currency,

(42:51):
which is debasing very rapidly, inflating very quickly away the value. Sheet metal,
which is extremely cumbersome, extremely conspicuous, subject to rust, not really easily
divisible, very heavy. Or cattle, which you literally have to feed in water, subject to

(43:14):
disease. In order to recoup the value, you have to kill it. It's just not good. And now you take
that person in Malawi, and as long as they have a cell phone with an internet connection,
they now have the ability to invest and save in the best tool for investing and saving and

(43:38):
protecting against inflation that humanity has ever known. And it's the same exact bundle of
rights that someone would have if they invested in it in Minnesota. Minnesota is the same as Malawi.
What else can you say that for? Nothing really, because there's nothing else around the world
that actually spans that distance. And it's a profoundly democratic instrument.

(44:05):
It has very, very strong implications for human rights and for global justice.
And I think it gives every reason to be optimistic about the way that people are using it.
And of course, his essay is not only about financial access, but it's also about human

(44:26):
rights activists that are operating within totalitarian regimes.
It's about places that are dealing with the residue of colonialism, like Togo, which he discusses vis-a-vis the CFA.
So very, very thoughtful individual and a very good and important voice for Bitcoin, in my opinion.

(44:49):
Absolutely. I'm going to record a show with him next week, actually, on that paper.
And I was in Malawi with him a couple of years ago.
And they do generally have mobile phones.
We were in rural Malawi in the middle of absolutely nowhere.
And still people do have mobile phones.
So the access to Bitcoin is possible.
Obviously, the biggest hurdle they all have saying, oh, that's a huge generalization.

(45:13):
But a lot of people in these rural areas in Malawi have is just a capital problem.
Like if you have no money, Bitcoin is not interesting to you.
Yeah. But I think the democratization of, maybe that's the wrong word, the easy access to Bitcoin and how it's exactly the same for me as it is for anyone else in the world is truly revolutionary.

(45:38):
Yeah, I mean, the divisibility is helpful because it means and when paired with some
of Bitcoin's technology like the Lightning Network, facilitating lower cost transfers
of Bitcoin instantaneously, you can invest and save in Bitcoin.

(46:01):
And you can scale it to what your needs are.
I mean for a large real estate developer in the United States that wants to integrate Bitcoin into their collateral package of a million portfolio of real estate maybe they buying million of Bitcoin collateral and they actually adding 500 Bitcoin or 1 Bitcoin into a structure

(46:29):
That's obviously not what's going to be happening in Togo or in Malawi for an individual saver. It's
not what's going to be happening in the United States for an individual saver. But the ability
to gradually build 1,000 sats, 10,000 sats, 100,000 sats, I mean, pretty soon that will

(46:51):
benefit from the overall dynamics of the broader Bitcoin market.
You know, one sat is the same value as any other sat, no matter how many sats it's surrounded
by.
And that's a pretty profound statement in terms of savings technology.

(47:12):
And when we actually went there, it was very unfortunate for everyone living in Malawi,
but it was an interesting timing for us because about two weeks before we got off the plane in Malawi,
the government overnight debased the currency by 40%.
And so there's no easier incentive than that.
Like anyone who has to deal with that, having their savings cut in almost in half overnight, like they're going to understand the properties of Bitcoin.

(47:38):
Right.
And there are a lot of little circular economies popping up in these places, which is really cool to see.
It is. It's wonderful.
Do you want to touch on the UK stuff?
I mean, I don't know.
I mean, I could tell you that.
You don't have to.
Yeah.
I mean, I think on the UK, I would probably say that the tawny cut orange marmalade is my personal favorite, you know, with the larger amount of orange in it.

(48:00):
I mean, that's almost the limit of my knowledge of, no, I mean, I'm being a little silly, but I mean, the circumstances are similar in the sense that you and I were talking earlier today about High Street, you know, what they call Main Street.
in the United States, what they call high streets in the United Kingdom, center of town,

(48:26):
where all the businesses once were, and where everyone in the town, I mean, it's more than
just a place to conveniently shop, right?
It's a place to-
It's where community happens.
It's where community happens, right?
Friendships, new ideas, sorting through important administrative matters for the town, and, you

(48:46):
know, socializing.
I mean, just relaxing.
all of these different elements.
And with the ease of getting packages delivered
to your doorstep and shopping online,
and with the hangover from COVID and the social distancing

(49:07):
and these broad factors, we've seen a very, very significant
reduction in those kinds of vibrant urban corridors.
There are some. They attract a lot of foot traffic because people are yearning for that type of connection.
You know, but there aren't enough.

(49:29):
And when you get out of the big cities and you get off of the main streets in the smaller towns, it's really hard to find a robust main street or high street environment.
And, you know, I guess what are the options?
Well, one option is that we could just bemoan it and say, well, that's that.
And, you know, ready player one.

(49:49):
At least we can walk down, you know, a virtual high street and shop in Amazon and see the
avatars of other people as they shop.
I guess that's an alternative.
It's not a good alternative, in my opinion.
Yeah, yeah, but not the best alternative.
But another alternative would be to strengthen communities with Bitcoin.

(50:10):
And I think that it's incumbent upon local governance councils, local business leaders, local voters, local politicians to say, how could we attract more vibrancy to this community?
And one way to do it is to really lean in on Bitcoin, to encourage the businesses that

(50:32):
are in the area to accept and save and integrate in Bitcoin, to maybe provide them with savings
on permits or savings on business licenses or business taxes, create a Bitcoin free zone
where people that are embracing the protocol are able to put more money back into the businesses
because Bitcoiners want to build.

(50:53):
I mean, there's a deep yearning within the Bitcoin community to make a mark on civil society and on the built society around us, the built landscape.
And then obviously, on top of all of that, thinking about Bitcoin integrated financing solutions is very, very powerful.
I mean, if you have a small restaurant or a gift shop or a service business like a dry cleaner, and you want to borrow $50,000 or 50,000 sterling for working capital or to purchase some equipment, and your interest rate is 8%, that would be 4,000 pounds of interest per year.

(51:34):
Well, what if you did 60,000 pounds of a loan with an interest rate of 6%?
That would be 3,600 pounds of interest per year, so less interest per year.
And we use the additional 10,000 sterling to add Bitcoin to the balance sheet of that dry cleaner or that butcher or that cheese store or that clothing store,

(52:03):
whatever the business might be, that accountancy. And now that business has an uncorrelated treasury
asset, the Bitcoin, which gives them the ability to manage through different economic circumstances
in a way that is way different and way better. It's likely to appreciate over time, which is going

(52:26):
to give them the ability to reinvest in that business, give them liquidity, whereas the
business itself is hard to obtain liquidity from. And it can all be done while at the same time
improving the cost of capital for the business motivated by sharing and the Bitcoin upside.
And so now you could say, well, what if we articulated a more comprehensive approach?

(52:51):
The Massachusetts Economic Development Authority, MassDev, or the Pennsylvania
you know, Industrial Development Corporation comes with a program to say, we're going to
revitalize main streets across the Commonwealth by infusing them with Bitcoin.

(53:13):
And you just let time do its thing because the incentive structure is very powerful as well.
And so you're going to start to see people are going to repaint their facades.
you're going to start to see that they're not going to tolerate graffiti at all.
And when people, when it's nice, people don't want to put graffiti on it.

(53:34):
You know, it's the broken windows theory.
What was the name of the police commissioner in New York?
Bill Bratton or something?
And, you know, he had this idea that, you know,
you have to repair the window quickly.
Because if the window's broken, it just invites the next window
and the next, you know, and it's a slippery slope.
And so when you can keep things up in a nice condition, then it's a virtuous cycle, but it requires maintenance.

(54:03):
And I think the societal benefits of something like that are huge.
There's a huge culture war going on in the UK at the moment over really what I think English and British people are thinking of as like a loss of a shared culture in the UK.
And I don't think you can discount how much losing a high street can do that.
And high streets across the UK are dead.

(54:23):
Like if you go through any major town or even small town, like it's just all boarded up shops.
Like there's the same, you know, 10 shops in every high street that have managed to survive.
But if you could bring back like real business and real community, like that has a pretty profound impact on society as a whole.
Yeah.
I mean, I think the only high streets, main streets that are really thriving these days, practically speaking, are tourist destinations.

(54:50):
And, you know, they thrive with specialty shops.
and they don't really serve the local community.
They're really designed, for the most part,
to serve people from away that are visiting
and spending money on a bauble or a trinket or a piece of art
or something that if you live two blocks away from there,

(55:11):
you don't really need on a regular basis.
So even the ones that are quote-unquote thriving,
they're thriving for reasons that I think are more superficial.
and what we really ought to be thinking about is how to build stronger communities.
Of course, there's a space for specialty merchants, right?

(55:33):
That's wonderful, too, and that can be part of a good retail mix.
But we need to think about how to serve the needs of a community in person
because with technology these days, so many things are becoming less and less in person
that I think we have to be intentional about bringing people together.
So back to this product that you've built, you've done one building so far, one commercial building. You said you've had a ton of inbound, but so far it's still just the one that's actually out there live in the world. Why have you not been able to move quicker? Is there a problem on the capital side?

(56:07):
Yeah, we have several that I anticipate that we'll finance over the next few months.
We've been working on them for some time.
But I mean, you've hit the nail on the head.
I mean, basically, there's an incredible imbalance between borrowers who have already tuned into the Bitcoin frequency and realize that their assets that they hold are not growing as quickly as inflation.

(56:29):
and that this is a tool for them to re-denominate some of the equity in the assets that they know
and like out of fiat and into Bitcoin.
Very powerful tool.
So there's an enormous amount of demand, which lends itself to exceptionally good credit
selection and everything else like that.
And it's just been met with not the right degree of engagement on the part of large institutional credit investors as of yet.

(57:02):
No, I think that's going to change due to factors like the enormous political embrace of Bitcoin that has unfolded over the course of last year by the Trump administration, but also elsewhere around the world.
I mean, it's like night and day compared to where we were two years ago or three years ago.

(57:26):
You look back and it's just, it's, you know, and just to be clear, you know, that was night
and this is day.
And, you know, then again, there's everyone realizing more and more that, you know, the
inflation is accumulating and wanting to find a solution.

(57:47):
But people don't, you know, people don't like to talk about inflation.
It's a very uncomfortable topic.
It's not very pleasant.
There's nothing that you can do about it.
I mean, there is, right?
You can integrate Bitcoin into your life.
But there's nothing that you can do to stem the tide of inflation.
So it lends itself to this Kafkaesque fatalism.

(58:13):
But I think that for the credit investors in particular, what credit investors need as
as an industry right now is moral courage.
They need to be able, we need, I'm a credit investor too,
we need to be able to say, yes, our portfolios

(58:37):
are marked at par.
Yes, it appears that our value is intact.
But unfortunately, it's not really intact due to this
exogenous factor of inflation that doesn't have to do with the credit decisions that we've made.

(58:57):
It doesn't have to do with the specific assets that we've selected. It has to do with this broad
cloud that's hanging over everything and just raining down more money as time goes on.
And if we fail to pivot, we are baking in the cake a very substantial erosion in the real value of these portfolios.

(59:24):
And it's a problem because people need credit investments as institutional investors because they need income.
And there's nothing wrong with that.
People need income because life is not forever.
and you have to pay income associated with pension beneficiaries.
If you're a charitable foundation or endowment,

(59:44):
you have important projects that you have to support,
research and scholarships and things like that.
If you're a sovereign wealth fund,
maybe you're making payments for medical care of your population
or public buildings or schools or whatever the case may be.
If you're a family, you may just need income
to balance your own household finances.

(01:00:06):
So you can't just invest exclusively in non-income producing assets.
That's not a rational response.
So with that as a frame, the question is, OK, how do we repair credit in order to be adequately defended in this inflationary setup that we have?

(01:00:29):
And I think that the institutional investment community is going to be coming to that question more and more and more frequently.
And the ones that come to it faster, and there are good tools and good approaches.
We've seen them firsthand ourselves.
But the ones that come to that question faster and engage it with intellectual seriousness

(01:00:54):
and with an open mind are the ones that are going to benefit their beneficiaries and protect
their beneficiaries.
And the ones that wait until it's too late, it's going to mean that, you know, there are
police officers and firefighters and teachers, especially teachers, that are not getting what

(01:01:14):
they signed up for.
Yeah.
And, you know, I'll just mention one other thing, which is that sometimes you hear, you
know, everyone gets Bitcoin at the price that they deserve.
But that doesn't extend to the pension beneficiaries, the teachers, the firefighters, the police
officers, and anyone else who gave their lives in service to others, in part motivated by

(01:01:39):
the safety of retirement and a secure retirement.
And since those individuals are not actually making the decisions associated with how those
pensions are being invested, but in fact, they are placing their confidence in the professional
asset managers that are responsible for deploying those large pools of capital, it is in fact

(01:02:05):
the responsibility of those professional asset managers to seriously engage on the topic of
inflation and to ask themselves, how can Bitcoin help? And if not Bitcoin, then what is the strategy
to defend against inflation? I mean, let's all meet in the arena of ideas and chat about it.

(01:02:27):
But what we can't do is just not talk about it at all. I mean, somebody might say, well,
gold is better. I mean, I don't think it's better for the reasons that we talked about earlier.
But at least it's a strategy. At least it's a strategy. We can start there. Someone might say,
well, equities are the way to go. Okay, well, let's talk about the right proportion of exposure

(01:02:48):
to different inflation combating strategies. Timber, timber. Timber historically has kept up
against inflation. Okay, well, maybe timber. But maybe the way that people are living will change.
Or maybe, you know, I don't know. But that's at least a strategy. But I think that Bitcoin is a
very good, timely and compelling strategy and one that with a modest amount of it can dramatically

(01:03:11):
improve the credit risk and position the assets to accrete value in inflationary periods rather
than to dissipate into nothing. And if these people aren't taking Bitcoin seriously,
they're just not doing their jobs at this point. They're not doing their jobs.
It's going to be really interesting to see how this plays out.

(01:03:33):
When it comes to these Bitcoin backed credit products, you think that this should be at
every single level from personal mortgages to commercial property, and then basically
all the way through the stack up to government level.
Is that correct?
It's a very adaptable financing instrument.
I mean, we talked about the BitBonds back in March, which has gotten a lot of attention

(01:03:57):
attention, especially among the Bitcoin community, because I think it just resonates.
It makes so much sense.
This was when you did a presentation at the Bitcoin Policy Institute Summit.
Yeah.
It was incredible.
Yeah.
BPI is a great organization.
But your presentation there was brilliant.
Maybe it'd be worth, obviously, not doing the presentation, but going through some of
the key points from that.
Well, the basic idea was the credit markets are driven by credit ratings.

(01:04:27):
And many buyers of instruments require a minimum credit rating.
Now, some buyers are targeting AAA or AA or high investment grade.
Other borrowers, they have a cutoff at investment grade, BBB.
Some are speculative grade assets.
But those ratings play a very important role in facilitating capital flows because many

(01:04:52):
Many buyers have regulatory capital requirements that are keyed off of those rating levels,
banks, insurance companies.
The amount of equity that they have to hold against individual positions is in part determined
by the credit rating of the assets to which they take exposure.
And so it governs their overall leverage as an institution.

(01:05:15):
The United States enjoys a high credit rating, not as high as it used to be.
I was going to say it was downgraded earlier this year, I think.
Downgraded, but still very high.
It's very liquid, the Treasury market.
And Secretary Besant articulated a very important goal of spreading out the maturity of future Treasury issuances beyond just the short end of the curve and out toward longer points on duration.

(01:05:44):
Because what Janet Yellen did, which is really just terrible financial management, is when
interest rates were extremely low, instead of terming out as much debt as she could for
longer durations, which, for example, was done in Austria with that century bond.
I mean, what a great bond.

(01:06:05):
They issued a 100-year bond in Austria when interest rates were very, very low.
That's very low cost of capital for the government of Austria.
And instead of doing like 30-year bonds, Yellen did like three months, one year, five
year.
Yeah, like three-minute bonds.
Let's get it as cheap as we can.
And we'll just keep on, keep on keeping on.
And it's such a fiat mentality.

(01:06:27):
And when the Trump administration came in, Secretary Besant said, look, he really wants
to term out the debt.
But he inherited the problems of the Yellen approach, which was that a lot of short-term
debt was coming due.
Interest rates were still elevated based on the Federal Reserve.

(01:06:52):
It turns out that they were thinking about thinking about raising interest rates when
they said that they weren't thinking about thinking about raising interest rates.
And it's put them in a box.
So what can you do with the BitBond?
Because he's not managed to do that, has he? Even though he said he wanted to turn out a debt, he's not managed to do it yet.
Well, it's very hard to take on 4.5% 10-year debt, because you look at the interest expense of the funded federal debt now exceeds the defense budget, and it's not feasible to lock it in.

(01:07:21):
So what you really need to do is you need to bring down longer-term interest rates and then term it out, right?
Which is why they've been pressuring Powell so much.
Pressuring Powell, yeah. Now that's on the short end of the curve.
So what if we had a market-based structure to bring down interest rates, hence the BitBond?
So we all have seen Bitcoin's powerful impact in capital markets over the course of the

(01:07:44):
last 12 to 24 months with the leadership of strategy, first with their convertible preferred
instruments and more recently with their perpetual preferred securities.
And other issuers as well have used similar securities to less liquidity than strategy, but nevertheless, building out a robust market, capital markets for Bitcoin-infused credit products, which is excellent.

(01:08:09):
And I think that if you added, so what was the proposal?
The proposal was straightforward.
We said, OK, look, let's do a treasury bond.
and the use of proceeds will be 90% goes to conventional government spending,
whatever it is, 10% goes to Bitcoin.

(01:08:31):
The overall interest rate is much lower, let's say 1% instead of 4.5%.
And at the maturity of the bond, let's say 10 years,
investors split the Bitcoin upside with the bond issuer,
in this case, the United States Treasury, 50-50.
And if you start to plug in historical Bitcoin performance, CAGRs, it produces exceptionally attractive returns.

(01:09:00):
And if you say the Bitcoin goes to zero, well, investors are still going to get paid back 100 cents on the dollar because they have the full faith and credit guarantee of the U.S. Treasury.
So there's no principal risk.
And from the US Treasury's point of view, if they're saving 3.5% per year on interest over 10 years, that's 35%.

(01:09:21):
So even if that Bitcoin goes to zero they still have a net savings of 25 relative to what their debt cost would have been And so it really it a win And it taking advantage of
the position of the U.S. Treasury bond as absolutely central collateral in so many financial

(01:09:49):
contracts. So many people post treasuries to obtain liquidity and post treasuries for many,
many different reasons. Right now, they're saying, OK, I'll post the treasuries and get that
4.5% yield. OK, that's one approach. But here, you could post to get this 1% yield,
but then have the possibility of generating a 10%, 15%, 20% return. While at the same time,

(01:10:11):
the Bitcoin on the balance sheet that the government obtains through this bond issuance
is poised to appreciate over the life of the bond issuance way faster than the debt is otherwise
going to increase. And so you effectively defease the liability on the balance sheet of the federal
government by adding Bitcoin through ongoing debt issuances. It seems like another very obvious win

(01:10:44):
as something they could actually implement?
Because like you say,
they can potentially defease the debt with this.
Likely, if you're someone who's looking to buy long-term bonds,
at the moment, inflation is the biggest risk in that.
And if you think you're going to get 4.5% back,
you're probably not going to be incentivized to buy a 30-year bond.
But with a Bitcoin kicker on it,
the upside of that would almost certainly outperform inflation.

(01:11:09):
What are the risks to it?
Is there a optics risk in the sense that if the US did this,
it looks like they're losing faith in the dollar.
Look, I don't think that that's an optics risk
because, I mean, all you have to do
is read an English-language newspaper
and your front-page article
is that people are losing faith in the dollar.
Yeah.
And JP Morgan this week came out

(01:11:29):
with the so-called debasement trade,
buy gold, buy Bitcoin.
So, you know, now, if we had a government
that was unwilling to think creatively about these solutions,
then you would have an optics risk.
If the response was, well, there's no problem here.

(01:11:54):
Let's move along.
There's nothing that we need to do.
Everything is working fine.
But as a matter of fact, we have such exceptional leadership on Bitcoin
coming from the United States federal government right now.
President Trump, Senator Cynthia Lummis, Congressman Nick Begich from Alaska, such exceptional

(01:12:16):
leadership around the strategic embrace of Bitcoin by the United States government, that
there's every opportunity to say, this is why we are strategically embracing Bitcoin.
This is what it can do for us.
So I don't think that the optics are the main issue.
It also is, you know, going back to the community building discussion that we were having some moments ago.

(01:12:44):
You know, there are a lot of patriotic people in the United States.
And I'm sure that there are a lot of patriotic people in many countries around the world.
But apart from flying a flag, there are not that many ways that the average person can advance the well-being of the country where they live.

(01:13:06):
But the idea of creating, for example, a bit bond where you could say to a saver, and part of the original proposal, by the way, was that these bonds would be tax exempt for American families and American investors.
so that this would become a really superior form of long-term savings.
You know, they refer to baby bonds.

(01:13:29):
You know, you want to do a baby bond.
Well, why don't we do $1,000 in a bit bond, you know, for junior
so that when junior is going to college,
now it has the opportunity to grow over the course of this 18-year period of time.
And in the meantime, you're defeasing the debt of the United States
because you're splitting the upside with the United States government.

(01:13:50):
It's an extremely patriotic expression of investing.
And if you're the government looking at doing something like this, it's also a budget neutral way of acquiring Bitcoin for a strategic Bitcoin reserve.
Yes. It's actually, it's one step beyond budget neutral.
It's accretive because the proposal here is to reduce the current interest rate to such an extent that the net savings, even if the Bitcoin goes to zero, is greater than the current interest rate that the government is paying on marginal debt issuance.

(01:14:28):
And in the proposal that you put forward, you did a paper.
Was it with Matthew Pines?
Yeah, he's great.
He is great.
What was the percentage of the Bitcoin kicker part of the bond?
10%.
10%, okay. Is there an amount of Bitcoin you could put in a bond like this that would actually yield 0%?
Yeah, I mean, I think so. It depends on the investors. That's the beauty of capital markets, is that once you get into the capital markets, you can test out different tranches, different maturities, different pricing combinations.

(01:15:06):
And quite organically, you discover where there's the greatest depth within the capital markets to distribute.
And at some points in time, one part of the curve is going to be more efficient than the other.
And at another point in time, it might be the other that's more efficient than where it was at the first measurement.
And so within capital markets, the treasury function is to remain nimble, to remain oriented toward market feedback.

(01:15:35):
And that's what we proposed, Matthew and I, in the white paper.
We're not proposing like, oh, let's just put for sale $2 trillion of BitBonds, and they're all one size fits all.
The proposal was, look, why don't we start with $25 billion?

(01:15:58):
And let's try out, let's first of all make sure that we have all the systems in place,
the systems for custody, for transparency, the right documentation, the right approach for investors.
Now, maybe we do multiple tranches.
We have one maturing in this year, one maturing in this year.
We try out different prices.

(01:16:19):
We basically build that market.
And as we build depth in the market, have the capacity to offset more and more of our future interest expense.
And thanks to Janet Yellen's approach, we have regular refinancings that are coming due.
So it could actually happen quite quickly.
So it could happen quite quickly.

(01:16:40):
And, you know, I think that that's very rational.
And it works, Danny.
It works for states.
You know, it works for the federal government.
Yes, it works for states too, right?
You know, I mean, there is nothing that is preventing the state of Illinois or, you know,
State of Illinois last year, 20% of the budget was a pension stabilization payment at the state level.

(01:17:06):
And, you know, people are leaving.
They're leaving because they don't want to be under a repressive taxation regime.
And they're seeing the writing on the wall.
And so what does that create?
It creates a downward spiral.
I do not want to see Chicago enter into a downward spiral.
Chicago is one of the great cities in the world.
You know, I mean, it's just, there's such an entrepreneurial spirit there.

(01:17:30):
So many great institutions, so many great neighborhoods.
It's the capital of the Midwest.
It's the second city on the third coast.
And you look at California, you know, you have similar dynamics in terms of out-migration.
And, you know, I would mention other places outside of the United States, but I'm just
more familiar with what's happening inside of the United States.

(01:17:53):
And you could see that individual states, which incidentally are authorized to issue tax-exempt debt, could easily pioneer.
You could have the Louisiana Bit Bond, and that could go for the betterment of the people of Louisiana or the great state of Maine, the people in Maine.

(01:18:13):
And I think that the states are a laboratory of innovation.
They should be doing this.
Municipalities should be doing it, right?
New York City Mayor Eric Adams announced that he was going to issue a BitBond or start the study of an issuance of the BitBond.
But political fortunes being what they are, he's not going to be in a position to do that.

(01:18:41):
But other cities should pick up that torch.
And it makes sense for them.
And there are some cities actually that are really vibrantly humming with Bitcoin right now, like Nashville and Austin, Texas, and some rural areas where there's surprising connectivity to Bitcoin, like up in Wyoming.

(01:19:06):
And you imagine you have a BitBond issued by some of those jurisdictions.
It would be very popular and very powerful.
How likely do you think it would be to see a Bitbond within this Trump administration?
Because this may be my just massive naivety,
but I just don't understand why they wouldn't do something like this.

(01:19:26):
It seems to be just full of wins for them.
I think it is full of wins for them,
and I would be thrilled for them to issue a Bitbond.
I think it's a playbook that is right there for, you know, let's run this play.
You know, I mean, how do I handicap it?

(01:19:46):
I don't know.
But I think that it makes a ton of sense.
Yeah.
And so you think it's probably more likely that it starts at sort of a city municipality
level and builds up to being state level and then federal level?
Well, that's conventional thinking.
But the unique element of the Trump administration is that they-
They'll throw a curveball.
Yeah.

(01:20:06):
And there's also a high level of Bitcoin literacy among the members of the cabinet and many, many, many staff positions in the White House and in the Congress.
So I think that it's a very rational way to use Bitcoin as a tool because what is the tool doing

(01:20:32):
in this case? The tool is lowering the cost of the interest expense, which is otherwise
really debilitating. And it is strengthening the balance sheet by adding an appreciating asset to
to defease the liabilities.
And you could just buy Bitcoin.
I mean, you could just take some money

(01:20:53):
and buy Bitcoin, I suppose.
But we know there's lots of pools of capital
that can't just do that.
Yeah, they can't just do that.
And thinking of it as a tool is just, it's a very,
to me, it's a much more inspiring frame
than just treating it as an asset.
And do any additional laws need to be passed
for the treasury to actually do something like this?
I don't think so.

(01:21:14):
Okay.
I mean, I'm not an expert, but I don't think so.
It will be probably the most oversubscribed bond they ever issue.
It definitely would.
Yeah.
Right?
It would.
It's a good idea.
I really do hope we see it.
I have one more thing I want to talk to you about.
But before we move on from this, is there anything that I missed in any of that that you want to cover?
No, I mean, no, no, go on.

(01:21:34):
Okay.
So this is my curveball question for the end.
When we were in the car before, we were talking a little bit about Bitcoin.
And I've been increasingly convinced that something has changed in the market with, I guess, the institutional adoption of Bitcoin and that we may no longer have the kind of four year cycles that we've previously had.
But you kind of faded the idea and you think we're still in for a potential big run up here coming up and then another huge bear market.

(01:22:02):
I think that the world and capital markets and capital markets participants are very unaccustomed to an asset that has a finite supply and has no elasticity.

(01:22:25):
Normally, when something goes up in value, what do people do?
They just make more of it.
And that goes for gold.
We talked about that.
It goes for art.
I mean, how many Mona Lisas are there in the world where there's one Mona Lisa, but there
are probably millions of imprints of the Mona Lisa?
Same thing goes for Warhol and all of these kinds of things.

(01:22:51):
And stock as well.
People just issue more stock.
They dilute shareholders.
You know, when a company goes up in value, management, it's a very human thing to think.
Management says, we think that we have a very good idea of how to spend more money.
Let's take advantage of our high stock price, issue more shares, and then we'll go use the money for something.

(01:23:13):
That's just their money printer.
Yeah.
Yeah.
And, you know, so it's very foreign in a sense, very new, very novel.
The idea that there's this liquid asset, which is fungible, divisible, weightless, finite.
And now the next thing to consider is that we're measuring its returns in something that

(01:23:36):
is uncapped, which is dollars, euros, yen, sterling.
If we were measuring Bitcoin future returns in gold, I do not believe that it will be
as volatile as it will be when measured in US dollars, because barring the possibility of a
massive increase in gold because of the meteor or synthetic gold or whatever, setting that

(01:24:01):
possibility aside, if gold just continues to chug along at 1.5% to 2% per year expansion
of the base, then it's expanding, but not that quickly. And the Bitcoin is not expanding at all.
And the Bitcoin in gold terms, the volatility may dampen somewhat because the gold will also be going from where it is right now, $3,900 to $6,000, $8,000, $10,000, and so on, $15,000, and so on.

(01:24:29):
And the Bitcoin, yes, the Bitcoin's going up.
But as a ratio gold to Bitcoin, there's some, I don't know if it's ever going to be asymptotic, but it's diminishing.
In dollars, if we go back to the idea that the inflation is more governed by the industrial limitations on the manufacture of money than by other factors, and we really take seriously that proposition,

(01:24:59):
then it's entirely plausible that the roughly $1.2 or $1.5 quadrillion worth of assets around
the world today balloons not to just 4 or 6 quadrillion of assets, but balloons to 860
quadrillion, which is then followed by 1.7 quintillion.

(01:25:24):
And now we're using new powers of 10 in our vocabulary.
It's just things that I can't even comprehend.
Yeah.
Sizes that I can't comprehend.
And maybe the words will be changed or maybe the zeros will be knocked off the end.
Yeah.
And if you measure Bitcoin in those terms, then I think that there's no reason to think

(01:25:46):
that we're not going to go through periods of astonishingly rapid increase because the
price is set on the margin.
The price is set by the marginal seller.
And if everyone is holding on to the Bitcoin and unwilling to sell, and no one is stepping
into the market to buy, and you have all of these new institutional buyers like the treasury
companies that are able to issue stock potentially at a premium to NAV, and they use that to

(01:26:11):
buy more Bitcoin, which then has a positive reverberation back to that NAV issuance,
especially at a moment in time when the market's going up.
Not to say that you won't see a similar effect in the other direction.
Yeah.
But I think that you could imagine, I can imagine, that we arrive, whether it's this
cycle or next cycle, surely over the course of the next 8 to 12 years, we are going to

(01:26:37):
see moments of extremely rapid price appreciation in Bitcoin.
And I think that depending on how that sits on the rainbow, right, the Bitcoin rainbow
chart or on rational route spiral graph, you're going to see drawdowns as well, because the

(01:26:59):
scarce nature of the asset, the finite nature of the asset lends itself to a manic increase
at that moment in time, which will get ahead of the intrinsic value, not intrinsic value
forever, but the intrinsic value of the progress at that moment, because after all, we have

(01:27:24):
a long way to go in terms of individual adoption, family adoption, business adoption.
But we don't have a long way to go in terms of supply.
And we have a long way to go in terms of the use cases of Bitcoin, energy, grid management,
heat recapture.
Those are all mining payments, cybersecurity, Bitcoin culture, Bitcoin art.

(01:27:48):
We have a very long way to go on many different use cases, which we haven't so much talked about on this interview, but maybe in the future.
But, you know, all of those are demanding more and more of this finite asset.
And as they come online, they're presenting another buyer for this very scarce asset, which is not motivated by its inflation use case, but it underpins the value proposition as an inflation protecting asset.

(01:28:19):
And so when you mix all of those factors together, I don't see any reason to think that we're going to have, you know, muted upside on a permanent basis.
I think that it's going to be cyclical.
I think the cycles are very hard to exactly say what the size of them are going to be because you're measuring in something that you don't have any idea how big it will be, which is dollars.

(01:28:47):
So hold on tight and the dopamine hit will come.
Yeah.
Followed by pure depression.
Well, I mean, if you take a long enough outlook.
Exactly.
Yeah.
I mean, yeah.
Yeah.
I mean, you should mentally compartmentalize as an individual.
Yeah.
Right.
You should have, you know, there are some things that look, some people buy a stock or an index

(01:29:12):
fund and they literally don't do anything with it for 20 years.
They don't look at it.
They don't sell it, maybe even 30 years.
Humans have the ability to say, OK, I'm going to set this portion aside for this period of
time.
But the problem with the Bitcoin is that it's so fascinating.
And you have it on your lock screen.

(01:29:34):
And you're constantly looking at the price.
And it's very gripping.
And it's such a rich environment around it.
And it's so engrossing.
But I think that this is definitely the best advice that I ever received in respect of

(01:29:57):
it was just to, when in doubt, zoom out, take a longer term perspective on what's happening,
try to mentally compartmentalize the object of how you allocate your own asset portfolio

(01:30:17):
so that you have the ability to make that medium to longer term voyage.
The one thing I always think is, I've been in this long enough that they don't really
affect me that much anymore.
I don't get emotional about price going up or down.
I mean, I get pretty excited when it goes up.
but um whenever you consider selling it's like what are you selling it for you're selling it for

(01:30:40):
those dollars because that seems like a dumb thing to do like if you're selling it to buy yourself a
new house or anything like that like improve your life makes total sense do those things like you
have to live your life as well but don't just sell it for more dollars right well i mean yeah
i guess you know the other um phrase that i didn't really know about before i you know got

(01:31:01):
so interested in Bitcoin, but I've come to appreciate a lot, and this is coming from the
1031 team, because they call their funds the low time preference funds. And at first, what does that
even mean? A low time preference, high time. And then, of course, you do a little bit of research,
you learn about it. But the idea is, okay, lower your time preference. Don't eat the

(01:31:25):
chocolate right now. You don't need that immediate satisfaction or just have a smaller amount.
Take a longer view on where things are headed. Put in the time for physical fitness. Put in the
time for a good diet. Put in the time for study. And what is so interesting, I would say, about

(01:31:48):
Bitcoin is that beyond a financial asset, I have seen firsthand the very significant
behavioral economics impact that Bitcoin has on many different facets of people's lives.
And it changed my life almost entirely.

(01:32:08):
There you go.
And it makes you wonder.
You might be traveling to a beautiful place, and you walk by a souvenir stand, and you
see this, you know, you know, this irrelevant tchotchke, which is for sale.
And before you might have thought, you know, I'll buy this thing for $2.99.
But now you're using Marty Ben's opportunity cost app in your mind, or

(01:32:30):
maybe even have it on your phone.
And you're saying, I definitely don't need to spend 2,500 sats.
You know, on that thing or 25,000 sats or, you know, whatever, 2,500, I guess it would be.
And soon, you know, soon it will be 250 and then, you know, 25 and then 2.5 because you have this opportunity cost in mind.

(01:32:56):
And it just orients people toward a much greater degree of savings and self-investment and self-improvement.
And it enables you to focus more time on the things that matter, spending time with your family, with your friends, focusing on the important things in life.

(01:33:20):
And for some people, that might be faith.
For other people, it might be fitness.
For other people, it might be friends or any combination of all of those things.
And we've seen that for individuals.
So now, what's exciting to me is what can we rationally project of those things onto

(01:33:41):
corporate adoption?
And by corporate adoption right now, I mean a little bit less treasury company and more
like small businesses.
And how about farms? What if we added Bitcoin to the collateral package of family farms across the United States or across Canada? Imagine what that would do to recapitalize the agriculture sector in those countries.

(01:34:06):
because now you have an uncorrelated asset on the balance sheet of the farm.
You have a liquid asset against which the farmer can draw resources to invest in new
equipment, new property, new working capital for seeds or fertilizer or labor.
And on top of all of that, you have a tool that is extremely attractive to the next generation

(01:34:28):
where they say, you know what, if I join the farm, this is actually my best path for wealth
in the digital economy. This is my best path to get one Bitcoin or to get two Bitcoin is to
take over the family farm. Whereas before I thought I was going to make TikTok videos.
Or go and sit in a box nine to five. Yeah. Right. Or do something totally pointless.

(01:34:53):
And so you imagine that for agriculture, and you can do that by integrating it into loan packages,
small businesses. You can integrate it into loan packages, obviously medium-sized businesses,
larger businesses. But then again, where we just were, which is governments. And a lot of people
have lost they don trust the institutions like they used to That what everyone is saying We all hear it we feel it We see it And maybe but things change quickly And especially in democracies where these institutions are comprised of us we are these institutions

(01:35:38):
If we could integrate some of these Bitcoin incentives into our public institutions, could
we not expect that these institutions might flourish and change?
And would we not then want to invest deeply in the well-being and success of these institutions?

(01:36:04):
I think that, you know, I'll look, I'll leave you with this, which is, uh, you did a great
episode recently with Brandon Quidham on the fourth turning.
And it's a really fascinating, uh, you know, story.
I mean, it's a little bit pop, pop, pop history, but, but very informative and very interesting.
And a lot of people are focused on the fourth turning right now.

(01:36:27):
And, and I think that's understandable, but what's really, um, interesting is to go
back and read that book and focus on focus on the first turning.
Because, you know, the fourth turning is almost over.
Yeah.
Three or four years left.
Right.
Or, you know, yeah, it's not a science.
So maybe, yeah, maybe three, maybe four, maybe one, maybe two, but it's

(01:36:48):
almost over and knock on wood, we make it and everyone who's listening makes it.
So now actually the name of the game is what's the first turning like?
Because that's the next 20 to 25 years.
And if you go back and you look at what that's like,
that's the environment that long-term investors should be positioning for right now.
And rebuilding institutions in a more positive way is going to be a very crucial part of that.

(01:37:12):
Very crucial part of that.
I love it. This has been great. Actually, just quickly, one of the interesting
downstream effects of recapitalizing farms in this way is maybe the food will increase in quality
drastically. Because in America, the food that you walk through a supermarket is pretty shocking
what you see. Like it's definitely worse than the UK, although the UK is not great. Don't get me

(01:37:34):
wrong. Um, but like, I wonder if there's a downstream effect of farms being more well
capitalized, improving the actual output of their products. High time preference leads to processed
foods and you know, it leads to, you know, fiat, the fiat mentality. You have to work as much as

(01:37:55):
you possibly can because the money is dissipating and it's harder to keep up than it was last
year and so on.
And so you know you might not have time really to have a nutritious meal because it is time consuming to cook Even if you not you know I mean of course if you buying inexpensive processed foods

(01:38:19):
that doesn't have a ton of nutrition and that's its own trap.
But even if you're buying expensive processed foods, you might have more disposable income
because you're, you know, you're working at a higher paying job or what have you.
But the foods are maybe marginally more nutritious

(01:38:40):
or maybe significantly more nutritious.
But if you ever look at a label, you see all these things
you can't even pronounce, right?
And I think that's a good rule of thumb.
Like, don't eat it if you can't pronounce it.
Yeah, that seems pretty straightforward.
Yeah, that was what MF Doom taught us on mmm food.
And, you know, when you cook at home,

(01:39:05):
it's actually thrilling to know that you can transform
just a handful of ingredients, five, six, seven ingredients,
a little olive oil, some spices, some vegetables,
maybe some salt, a little meat.
You don't need more.
And you can make a delicious meal.

(01:39:26):
And if you lean into that, you know, then you can do that.
You can develop meals and develop an understanding of how to cook a meal.
But it still takes 30 to 60 minutes usually.
But it's less expensive, actually.
But it takes time.
And time is this common denominator that, you know, that's really that's all we have in the end is time.

(01:39:52):
And how you use your time is the most important question.
And if you save, if you invest and save in Bitcoin, what you get back is time.
And how you use it, in the end, is basically everyone's choice.
Some people will use it to paint or write poetry.
And other people will use it to surf or whatever.

(01:40:15):
I mean, soccer.
And others will use it to work because work is their passion.
But they're working on something that they're passionate about or they're researching.
Others will cook.
spend time with friends or family.
And that is just, and it's imperative too,
because a lot of the jobs, and we didn't have a chance

(01:40:36):
to get into this too much, but we should.
A lot of the jobs are definitely going
to profoundly shift with robotics.
I mean, there's no question.
I think it's already starting.
It's already starting.
And I mean, you look at the Teamsters,
one of the largest unions, maybe the largest, I don't know,
but one of the largest unions in the United States,

(01:40:57):
truck drivers how many truck drivers are gonna be humanly driven How many trucks will be humanly driven in 15 years You have to guess none I think Probably none
And the only question, the correct answer is none.
The only question is, what length of time do you put in that?

(01:41:18):
Is it three years?
Well, that seems a little implausible.
Is it 30 years?
That also seems implausible.
So let's just say 15.
But it could easily be seven.
It could be nine.
It could be 12.
And if you have those jobs just dissipate, then that's a major political crisis.
And so now is the opportunity for the Teamsters and the Teamsters pension and every other labor union pension to think about, OK, time out.

(01:41:43):
How do we integrate an investment view that has some protections and some defense against
inflation and is pivoted toward the future?
And I think, again, I think that we can discuss multiple implementations.

(01:42:07):
But to me, it seems like Bitcoin is a phenomenal building block to begin to have that conversation.
Absolutely.
Andrew, this has been great.
Hey, thank you.
I've really enjoyed this.
Thank you for showing me around, Philly.
Absolutely.
We're going to go and get some dinner now.
That sounds good.
Is there any way you want to send anyone before we do close out?
Yes, I would like to send people to the brand new Calder Garden on the parkway.

(01:42:41):
The Benjamin Franklin Parkway has just opened up another great art institution.
I could also send people to Shea's Steaks, which turns out to be a very good cheese steak.
um and you know i would just say you know come visit philadelphia danny got here and he told me

(01:43:02):
you know this is not what i expected not at all not at all it's beautiful it's a beautiful city
it's got a lot to offer um very authentic place uh with you know great a great local culture
not without you know uh its own set of challenges like every city we've been talking about some of
them, but a lot of firsts, a lot of innovation, and a lot of interesting places to visit. So

(01:43:27):
that's where I would send people. There you go. Brought to you by the Philadelphia
Tourist Board. Andrew, thank you, man. This has been great. Thank you very much, Danny.

(01:43:51):
Thank you.

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