#39 - Michael Green: The Bitcoin Bear Case

28:18You look at your Federal Reserve note, which is what we call a$10 bill, right? And it says this is a legal tender for settlement of all debts, public and private. That's what money does. It cancels debt. Now, no one has an obligation to accept Bitcoin. You can enter into a voluntary transaction with somebody to do so. But the fact that almost nobody does so should be a warning sign in and of itself. And what people in the Bitcoin community have told you is, well, once the price reaches a certain level, then people will be willing to use it for transactions, right? Then its volatility will settle down and people will use it.

28:57Well, how am I to prove that? Well, that I'm rich and you're not, and then we'll see if that remains to be the case, right? I promise you that ultimately it's going to work. My children's artwork is going to be insanely valuable in the future, Alex. Are you sure you won't let me decorate your house? That's effectively the pitch. Now, where the frustration that the Bitcoin community has, and many Americans and candidly people around the globe have with quote unquote fiat currencies, is the perception that the flexibility of that currency, the ability to print additional quantities of it is a bug of the system.

29:35It allows the government to devalue your hard work and the effort that was put forward into accumulating those tax credits. It's a completely legitimate complaint. Behind any type of stereotype, there has to be a little bit of an element of truth in order to get people to buy in. If I went out and I marketed that the sky was purple, people would look up in the sky and be like, all right, that guy's crazy. But if I say it's blue because there's an impending alien invasion, I can probably start a religion around that. And that's really what's happened with Bitcoin, right? We have started a religion that says the government is attempting to steal from you.

30:13All the banking bailouts, all the nefarious activity was not done with your interests in mind. It was done counter to your interests because you should just be able to save by taking your proverbial electronic money, shoving it under the mattress, and under that framework, you should get rich. That's actually exactly why the bailouts occur, because people make mistakes like that. What bailouts really represent is an accumulation of claims in a system, debt, that is expected to be paid back into the future that ends up being wrong and done so at a scale that requires the government to step in and say, hey, wait a second.

30:52If we actually allow these assets and debt is an asset, you own a bond, you owe a loan. I owe money back to the bank. I've taken out a mortgage. But that asset, that mortgage itself becomes an asset that somebody else relies on for their income. When those bets go badly, right, when we make a societal error and everyone buys too many mortgages, when we facilitate too many houses being purchased under fraudulent conditions, the value of those assets fall and that uncertainty manifests itself as a dramatic reduction in purchasing behavior and in economic activity that we call a recession or even a depression if it becomes endemic and entrenched.

31:38And so what the government is doing with these bailouts is it's stepping in and it's saying, everyone made a mistake. We don't really know the best way to solve this. So one of the ways we're going to solve it is by simply putting out the fire. Now, should we have done a better job of deciding who to let burn? Should we have done a better job of facilitating the transfer of that income to people who needed it as compared to those who simply would have benefited from it? Absolutely. I have no other response than saying, elect better and more informed representatives and regulators. That's all you can do under those conditions.

32:17Attempt to be proactive in your maintenance of these risks, right? But the idea that society as a whole should simply shut down because someone made a mistake at scale, or many people made a mistake at scale, is ignoring the real asset that all of us have, which is time. It's the time to convert our labor into income and wealth that can then support our children, support our communities, support our retirements, right? And if you're forced into a period of low economic individual activity, we call unemployment, in that peak period of your ability to convert your labor into income, those are wasted resources that can't be claimed.

33:00I can't go back to 2008 and say, gosh, if only I was working, I would have made X. And with that X, I could have bought Y. And that Y would now be worth so much more. You can't do that. You can only move forward in time. And so the response of government bailouts, the response of trying to fix the system as inelegant and as unfair as it may be, is really simply an attempt to make sure that you are maximizing that time available to you. So one argument for Bitcoin, I guess one of the biggest arguments is the government can't print more of it, like fiat currencies. But that viewpoint assumes that printing currencies is necessarily bad.

33:41If you go back to the global financial crisis, if the government had not stepped in and printed money to go through the bailouts that you just described, we could have very easily been in a depression, another Great Depression, and you would have had massive collateral damage. So I think it's hard to see that because that's not a history that actually occurred. If you lived through the 1930s, and those people have generally passed, you would appreciate it more than somebody who has not gone through that. So you can understand why Bitcoin with the blockchain technology coming out, the printing of money, it started in 2009, right during the global financial crisis, you could see it becoming much more popular in that environment.

34:23But that's not necessarily a good thing if you prevent printing of money. Is that consistent with your thinking? It's a good thing to raise the barriers to it. It's not something you want to respond to everything with. I hate the analogy that I'm about to use in part because it presents people as children. But if your response to every time your child comes to you and says, hey, dad, I've got a problem, and you give him a$100 bill, you're not actually doing a good job raising your children and bringing them to their full potential. So there needs to be a considered application of this, and you need to be very thoughtful about how seriously you step in.

35:03But one of the problems that I would argue that's created this underlying condition is related to the work I've done around passive, which is we have turned to markets to solve our savings problem. We use our markets not for capital formation, increasingly because candidly, they're terrible under this structure at raising money. But we use them for funding our retirements, the expectation being that we're going to get 11 % per year out of the S &P 500 if we simply put in on a dollar cost average, a stable amount of money or a growing amount of money every year, we'll fully fund our retirements, everyone can live happily and buy as much Bitcoin as they want with the speculative assets that they have available to them.

35:44So when you rely on markets to ensure financial outcomes for your entire population, can you allow them to fail? No, you can't. And as a result, you'll be forced to step in and do this. So we've created structural features that have nothing to do with Bitcoin. And candidly, that Bitcoin does nothing to solve. That is a very real question we as a society need to ask ourselves. Do we actually want to use financial markets as savings vehicles? Are we corrupting them in some way, shape, or form by creating conditions under which everyone in society is dependent upon the financial market behavior? I think the answer is no.

36:26But that's a question and problem that we're going to have to deal with in the future. It's not necessarily one that we're prepared to address today. Also, when you live far beyond your means in aggregate, it seems like that's one of the few options you have left. I think that's true, but I also think, you know, you introduced the idea of the 1930s, right? Remember, moralizing has no real place. Saying to somebody, you're living far beyond your means can mean very different things depending on who that person is, what stage in life they are, et cetera. As a good friend of mine once pointed out around the housing crisis, if you tell me that you've taken on debt of five times your income to buy a house, is that a good thing or a bad thing?

37:11Well, it depends, right? Am I actually, did I just get a promotion to partner or do I anticipate being promoted to partner at a law firm in the next month? So my income is currently very low versus what it's going to be. Likewise, Do I have children coming so that I'm going to need to incur additional costs of having to rent a larger apartment? Does it make more sense for me to stretch to buy a house at that point in time? Those are decisions each of us individually have to make as compared to a societal statement around them. Do I desperately need a replacement for a washing machine? Well, I mean, we know the answer to that is no.

37:48You can actually wash your clothes in a sink. Would that be an effective use of the vast majority of Americans' time? No, I really wouldn't. Likewise, if I'm hard at work and I can't leave the house because I've been working for 16 hours in a row and I have a deadline to meet in the next three hours, is the extravagance of ordering food over DoorDash, is that living beyond my means or is that me actually making a statement that the most productive use of my time is not to go get into the car, go to the grocery store, spend an hour and a half preparing dinner and then finishing my deadline, right?

38:22Like it could be very, very different. So I just think it's very important for people to understand that living beyond your means is a statement about you individually or what you think is important. Each individual has to make those that we fail to provide education to our population that helps people understand when they are doing so. And that what we often see is those who are, quote unquote, living beyond their means are those who are actually pushed into the most adverse conditions under which they don't have the luxury of making choices. that's really what money buys you, is the freedom to make choices.

38:58And so if you save money and an emergency presents itself, you don't need to go to the loan shark who's going to break your knees and charge you 18 % VIG on a daily basis in order to meet that need. I'll give you a really staggering statistic from some analysis I recently did around the healthcare system. Believe it or not, one of the best predictors of increased healthcare costs is not actually obesity, which most people think it is. It's the availability of payday lenders. Why? Because payday lenders allow you to not go into an emergency room and get stuck with a bill that you can't pay that then accumulates massive finance charges and penalties as you continue to avoid it and eventually approach medical expense-induced bankruptcy.

39:46The ability of that high interest loan from a payday lender can actually solve that problem in a way that is superior to incurring the costs associated with it. That's what the majority of problems that we have in this country are, are people who are trapped in a situation in which they don't have choices. Should I take on student loan debt? Well, the only path to professional success is pursuing a college degree. Now, I don't believe that. I think that's actually an important thing to emphasize, but it has been more true than not. Do we provide adequate financial counseling to young students who are going to college, particularly those who come from families that don't have prior experience with college degrees, that explain to them what majors will offer the best return?

40:30Do we have different prices for different majors? Do we have the returns associated with those that influence the actual availability of those? No, we don't. We have a system that is totally devoid of pricing information. We expect 17-year-olds to negotiate it with non-dischargeable debt that has been inflated by the government's guarantee that it'll be paid. So what we do is we end up with ineffective institutions that have really high standard of livings for students that will often not be replicated once they leave those schools. That's a crazy outcome, but it's one that, quote-unquote, is living beyond our means when we're asking 17-year-olds, hey, would you like to live in a dorm that has lattes available to you.

41:11Bitcoin has been around for 15 years. And that time period is actually long for technology, if you think of it as a technology, but it's also very short when you think of it from a currency standpoint. How do you think about its progress towards broad adoption? Obviously, the price has gone up a lot, but how else do you think about it in the other areas? Well, I think unfortunately it's an inevitable feature of anything that is marketed as a speculative asset that attracts proponents and new buyers that are greater than the number of sellers. Price reflects the latest transaction. The market cap is simply the outstanding quantity times that.

41:57If a limited quantity is available relative to what people are trying to buy, either for speculative purposes or for their perception of saving, then the price will go up. To me, the test of whether it can become a currency is twofold. One is, is there actually the mechanisms and tools that allow it to function in a transactional manner? And two, does it have the stamp of imprimatur that says the government will ultimately force people to accept this. Because if I go into store A and store A takes Bitcoin, that's a nice to have. That could be a marketing expenditure by that store that says, hey, we are willing to transact in Bitcoin.

42:40On the flip side of the equation, if the government steps in and says you have to take Bitcoin, then you're creating a demand structure that says, okay, I can use that Bitcoin in any store, in any situation, or the vendor that is selling to me is forced to change their business or potentially shut down under penalties for failing to accrue. That's what the US dollar is. The US dollar has that imprimatur in which an entity that we have outsourced legalized violence, which is what we call police, You will be penalized and punished if you fail to obey the laws of the United States. We broadly accept that that's a good thing as it relates to our families.

43:24If my children willfully disobey me, they will be punished. They're now largely out of my house. And so that threat is mostly meaningless. But that's because that threat existed that they're now able to function as rational and functioning human beings. If I told them, go be raised by wolves, they probably wouldn't be functional members of society. And so policing and enforcement of rules is an important feature. Again, we outsource that to the government. We make that choice on a consistent basis. And if you don't like it, you get to leave, right? It can be expensive to leave. Unsurprisingly, governments don't want to give up their assets in the form of citizens, but you can do it, even if it's very expensive.

44:05When you start thinking about whether Bitcoin will ever cross that hurdle, we've seen a number of small countries effectively decide that they're going to do what store A does. We're going to advertise. If you want to come to El Salvador, you can use Bitcoin here. We're going to enforce it. Now, is it broadly accepted as a currency in El Salvador? No. Do lots of people try to make it happen? Yeah. But that lack of utility function, that lack of enforcement, because El Salvador is largely incapable of even enforcing its own tax collections, suggested this is really just a marketing pitch by the Bitcoiners.

44:43And we really haven't seen any further progress towards that, nor do I think we will. We've had introduction of Bitcoin ETFs relatively recently, and Simplify actually has a Bitcoin ETF. So do you feel like this has made increased the likelihood that it will pass that phase of being a purely speculative asset or is this just very early innings in that regard? No, I think it actually just reinforces that it's a speculative asset rather than a currency. I have yet to walk into the store that says, well, except to simplify S &P plus Bitcoin ETF or the covered call writing strategy that we have around Bitcoin that has generated significantly positive returns in excess of Bitcoin itself.

45:28Like all we're doing is introducing speculative assets that enable the investment in another speculative asset. That's what an ETF is. Does it make it a currency or move it towards that? No, I don't see it as doing so. And candidly, this is the ultimate rallying cry as an institution simplifies, strives really hard to make products that we think are appropriate for utility in people's portfolios. Should they be the entire portfolio? No. Should they be the only speculative assets that you own? No. And where you do want to own speculative assets, we want to try to offer them in a package that facilitates and simplifies your portfolio creation process.

46:11That's all those ETFs represent. It seems like there's a clear distinction between a currency that you use to go and buy lunch versus an asset that has the potential to appreciate in the diversifying to your portfolio. And I think that's a really important distinction to figure out where to draw the line in terms of Bitcoin. I mean, look, that's the definition of liquidity. The closer something is to liquidity, the more easily exchangeable it is for cash at a knowable price. Cash itself has a par value to that knowable price. And that's part of the reason why inflation is so frustrating to us, because it creates volatility around that, similar to a money market fund and the concept of breaking the buck.

46:53I show up at the store today, that dollar I have in my wallet buys 20 % less. That's understandably frustrating to me. That discourages me from holding dollars, encourages me to spend, which actually paradoxically reinforces inflation as you go through that process. The really key thing to understand about currency is currency is that which cancels debt, right? Think of Rochambeau, right? You know, rock, paper, scissors. Currency is that which cancels debt. It can cancel a formal debt contract in the country of origin. This is legal tender for settlement of all debts, public and private. It can also be a micro debt transaction, which is largely social in nature.

47:33And we don't think a lot about it. But when you go up to the counter at Starbucks and you say, give me a venti latte, they are entering into a transaction with you that has two unfulfilled obligations. They have to deliver a venti latte, to cancel their portion of the debt contract. You have to transfer$763 to cancel your portion of that debt. Obviously, I'm joking about the expense of pente lattes at Starbucks. So it's$5, whatever the number is, but you have to transfer your asset. They are trusting that your presentation of a valid credit card and the obligation that is created to that trusted counterparty we call Visa in your bank is going to ultimately mean it ends up in their wallet and they're willing to accept that.

48:22But the entire thing is a debt transaction that has now been canceled out. Even if you use that credit card, now there's a facing transaction between Visa and Starbucks and you and Visa. Starbucks no longer has any direct relationship with you. You can skip all that process by giving them$5. That's what you're really doing in these transactions. That's what currency does. Currency cancels debt. Currency is a very interesting thing because it seems that there needs to be, in many ways, faith and trust for the citizens to trust the currency. And I personally believe for Bitcoin to pass that hurdle, it needs to survive a major crisis or two, a crisis of confidence beyond just the price volatility.

49:10Do you agree with that? No, I don't. I think ultimately, if Bitcoin were to be declared a reserve asset by a variety of governments of notable size, that they accepted it in exchange for and mandated the acceptance of it in exchange for canceling debt, then it would become a quote unquote currency. That's really the only mechanism for it because debt contracts are legal contracts. And in order to become a currency, you have to cancel that legal contract. The only framework that that can occur is through state sponsorship. You and I can swap shares of Apple all we want. Does that make it a currency?

49:52No. In that case, the government would basically be giving up control of its currency. Is that feasible? I think it's absolutely feasible. We've done it in the past, right? So when we were on the gold standard, the government broadly accepted that they did not control the expansion of the money supply. Human innovation in the form of gold mining controlled the expansion of money supply. human innovation in the form of US production of goods and services that were purchased by others around the world where we wanted to buy less from them than they wanted to buy from us, either due to the unique innovative nature of our products or the fact that we were able to produce them more cheaply in the case of grains in many situations.

50:39Those created imbalances in trade that were settled on the gold standard by the exchange of reserve assets at the national level. that is giving up an element of control of your own system. Now, do you do that as the world's leader, as the country that already has the dominant reserve asset? That would be foolish. And I will be very clear, like there's lots of foolish politicians, right, who say lots of foolish things. But I think the prospect of that occurring is very, very low. And then on the other side, do you feel that society is ready to operate without government control over a currency?

51:20So I think it largely does. I mean, each dollar, the total quantity of currency, I think, is somewhere in the neighborhood of a trillion dollars worth of actual printed cash. And off that base of operations, it's like 970 billion or something like that. Off that base of operations, we're able to use digital symbols of those, which we call bank accounts or checking accounts. We're able to use all of that to facilitate somewhere in the neighborhood of$400 trillion worth of dollar-based transactions that occur on an annual basis. Doesn't feel like that's really government control per se. Where the government occasionally has to step in is where we've entered into a series of legal contracts that the abrogation of those contracts through default would materially lower the productive capacity of the country and put many of those resources that could be deployed on a continuous basis, whether those are people or buildings or automobiles, if we suddenly stop using those less because of that time-based component I referred to before, like those are absolute losses, right?

52:25A human being ages and becomes less valuable, I hate to say it that way over time. So to fail to actually utilize them, to fail to capture their innovation and productive capability while they still can offer it is the real crime. If you were to apply odds to Bitcoin surviving as a currency, so what would your answer be to that? And then also surviving as an asset long-term? So I think those are two very different questions that unfortunately come to a very similar answer. So I think the prospect of Bitcoin becoming a currency is infinitesimally small. It is technically a currency in places like El Salvador.

53:07I wish you the best of luck. Please proceed with caution. The idea that the U.S. government is going to adopt Bitcoin as a currency is really silly, particularly when you consider that all of the features of Bitcoin, except for the current wealth of those who control Bitcoin can be easily replicated at very low cost. The security budget of Bitcoin is somewhere in the neighborhood of$7 billion a year. Spending that much on maintaining a database of record would be immaterial for the United States, right? If we were to choose to transition to a digital currency, again, there's somewhere in the neighborhood of $400 trillion worth of transactions.

53:49To spend$7 billion would be nothing. if we actually wanted to head in that direction. The second question around, is it going to maintain itself as an asset? Now, this is where actually Bitcoin becomes very interesting, because if Bitcoin continues as a speculative asset, what are you supposed to do? You're supposed to hodl. You just hold it. Now, what that means is that ultimately, anyone who transacts in Bitcoin runs a risk of loss. And anyone who simply holds Bitcoin in a totally secure manner is guaranteed to benefit from any future price appreciation. So transactions incur potential risk and holding is quote unquote riskless profit, right?

54:35If you run through the gaming of that system where there is a finite supply, it ultimately ends up that the dominant strategy is to do nothing, therefore have no economic value, therefore never put your Bitcoin at risk. And ultimately, anyone who attempts to do so positions themselves in a situation of potential loss, which would transfer control of that Bitcoin back to those who had done absolutely nothing. They would benefit from that cycle. So when you run through that system, you actually discover it's very much like a game of monopoly in which no real wealth is created. Sure, I can collect slips of paper, but the quantity of land is fixed, the quantity of hotels is fixed, the quantity of everything is zero sum in its underlying construction.

55:21And that game plays through to one person owning all of it. That's why people promote it. They imagine themselves as being that one person or part of a select crew that ultimately ends up being fantastically wealthy at the expense of everyone else who can rent access to their Bitcoin or who can buy it at inflated prices from them, exchanging large quantities of their labor for an infinitesimal fraction of the wealth of the Bitcoin holder. That's the idea behind it. Don't we all want that? Again, my children's artwork is ready for your home. There is this perspective that Bitcoin, it's interesting, it'll either go to zero ultimately, or it'll go up a lot more from where it is today.

56:08Is that consistent with your views? Yeah, no, I think that's completely consistent. So it can go up a lot, it can also go to zero, right? In the end, it doesn't change any of the statements that I've made around this. Now, my expectation is that we'll ultimately discover that Bitcoin is everything it says it's not. If we actually look at the processing of Bitcoin, if we look at the mining activity, it's increasingly concentrated. Bitcoin is unique in its computational intensity and energy consumption, in which it's largely unprofitable to engage in Bitcoin mining unless you're using the newest, most efficient, most specifically designed products.

56:48That means that it is in no way transferable technology to another industry, with the exception of data centers and the power infrastructure, which we are seeing miners rotate towards hosting AI processing equipment. But the actual ASICs and the actual miners themselves, the physical machine, is actually worthless in a world in which Bitcoin ceases to exist or does not transition. And so again, everybody that's involved in the industry has an incentive to sell you the story. Bitcoin, it's definitely going up. How do I know this? Because I mine Bitcoin. And if it doesn't go up, I lose money. Okay, well, that sounds like a pretty good incentive plan for me to go out and mislead the public, which is what I think is actually happening.

57:37These are unfortunate, right? But they're understandable in the context of the system. And Bitcoin, I think, is somewhat uniquely exposed to the risks associated with other strategies that also can use blockchain, they can also use distributed append-only databases, they can also offer anonymity and privacy, which Bitcoin does not, by the way, that ultimately those solutions will emerge and Bitcoin will become, as people have often pointed out, will become MySpace to Facebook. And if you were to place odds on it going to zero or going up a lot from this point, where would you place your bet? Well, the down 100 % versus up 500%, like I would lean towards the down 100%.

58:22Do I think it's going up 500 % from here? I don't see any evidence that that's the case. And in fact, I think everything that we've seen has been an element of last ditch attempts to get other people to, in Bitcoin parlance, buy their bags. The ETFs are by and large a failure. Yes, they've raised assets. They largely have attracted assets from existing Bitcoin holders who are looking for greater liquidity and greater integration with their existing portfolios. It is a perceived blessing that has happened within the financial system, even though the SEC had to be dragged kicking and screaming into that process.

59:00And it's done really nothing, right? I mean, let's just stop for a second and actually look at what's transpired. We've heard from every Bitcoin proponent that the price is going to$100 ,000,$300 ,000,$500 ,000, right? That the Bitcoin ETF adoption is going to be the launching point that we're going to see all sorts of innovations around the lightning network and level twos, et cetera. None of it's happened. None of it's happened. It's a little bit like robo-taxis and Tesla, right? None of it has actually happened. Does that prevent Tesla from appreciating. No. One argument is if you look at the quantity of Bitcoin, you look at the market value of gold and you say Bitcoin is going to grow to a larger percentage of that market, then the price goes up massively from here.

59:50How do you think about that argument? I mean, that's just a math calculation. It has no bearing in the future. If the price of my children's artwork goes up to$10 billion apiece, I am fantastically wealthy. My children would probably attempt to reclaim some of that artwork, making them fantastically wealthy. But that's a hypothetical wish scenario. I'd love to have the winning ticket to the lottery next week. If I have the winning ticket to the lottery next week, I will be significantly richer. That's a fact-based statement. If the quantity of Bitcoin is fixed and the total market value of Bitcoin rises to the$10 to$12 trillion of gold valuation, then Bitcoin will go up a lot in price.

1:00:31Well, that's just a math statement. It has no bearing on what actually will happen. If we look at this from an investor standpoint, is there a risk in not owning some Bitcoin, considering it's very volatile, it has the potential to obviously go to zero, has the potential to go up a lot. You could own a little bit. If you think about it from an allocator standpoint, where would you side in terms of does it make sense to own a little bit just in case? I actually don't own a little bit of Bitcoin. Ironically, I'm currently in a bet with a well-known Bitcoin maxi that Bitcoin will not exceed$100 ,000 by the end of this year.

1:01:15If that's the case, I collect$100 ,000. And if I'm wrong, I pay$20 ,000 to give you some idea how silly the odds were on that. Do I think there's a risk in not owning something? I candidly don't, right? Because all you're really saying is that that asset is going to appreciate to the point that I will regret having not bought it. That's true for anything. It can be true for Apple stock. It's certainly true for NVIDIA stock for many people. It's certainly true for any number of speculative assets that have gone up. And I see nothing unique about Bitcoin per se. Could the same thing be said about Solana or Ethereum or anything else?

1:01:57And by the time I go through my portfolio and I figure out all the things that I have to own to avoid regret and minimize the potential that I could be wrong about everything being worth something in the future, I actually discovered that I've got no money left. I mean, my God, Alex, I have offered you a golden opportunity to buy green family children's artwork. And so far you have proved, you know, immune to my marketing pitch. I'm telling you, this is the future. Right. Don't you feel risk? Shouldn't you just allocate a tiny portion of your portfolio? Yeah, I guess the difference is if you look at Bitcoin's track record, you just look at its returns.

1:02:37It's been pretty extraordinary for, you know, since it started. So how do you think Think about that. And what warnings would you share with investors and overly relying on that? I think that's embedded in every SEC disclosure that we have to put. Past performance is no indication of future success. And if I candidly look at Bitcoin and the price appreciation that it's seen since I started speaking up about Bitcoin and the concerns that I had around it since 2020, early 2021, it really hasn't changed in price. Now, most people don't focus on that. Most people focus on the 10 years prior to that.

1:03:18And candidly, what is the relevance? If you're telling me as an advisor, you would be willing to go to court and defend your decision to buy Bitcoin based on the fact that you'd done no primary research other than the price it depreciated significantly over the prior decade, and therefore it was an acceptable asset for you to put your 75-year-old client into, the court would probably find against you. Now, having put it into an ETF framework that largely insulates people from that liability, it's perceived as being blessed by the SEC, even though the SEC fought it every step of the way. And so now it It simply becomes your client's risk as compared to necessarily your risk.

1:04:03Taking away that component absolutely is going to drive the price higher, right? I remove an element of liability. It creates an increased avenue for speculation in the asset. The price pushes higher. But the fact that it has done so little actually in response to that, when you consider that an ETF has made it available and the billions of dollars in these ETF launches and the assets that they've attracted should theoretically have sent the price to the absolute moon. And instead, it's done absolutely nothing. It's generated significant losses for people in the billions of dollars in aggregate.

1:04:41Now, as I said, the vast majority of people, it turns out, already owned Bitcoin. So those losses are truly paper. But imagine if you had actually used that rationale, right? Your clients would be sitting on losses and asking you to defend yourself in reverse on this. Why did you buy into it, Alex? Well, because some guy on the internet told me it was the future of money. If we relate it to your children's artwork, if the price of it had gone from a dollar to 50 ,000 each, then you could look at that and say, well, I must be missing something. This must actually be like the next Picasso that I just don't see.

1:05:16And you could see why people would rationalize investing in it because they feel like they're missing out on something. I think that's right. I think, by the way, the price has actually just recently gone up to 100 ,000 per piece. So you've already missed out on 100 % appreciation, Alex. Aren't your clients upset at you? I knew it. I knew it. Yeah, it was a clear trade. It had come just under the 200-day moving average. And because of the finite quantity, it was inevitably going to bounce from there. Yes, obviously, I can point to that track record and use that to justify the investment. And that does contribute to people's belief system and behavior.

1:05:55And it's very easy to simply say, OK, Boomer, how does your performance compare to this asset that has appreciated dramatically? But that, again, doesn't tell me anything about the future. It simply tells me what's happened in the past. The parts that contribute to the future are the points that I would highlight. Are we seeing a dramatic increase in the use of Bitcoin for transactions? No. Are we seeing dramatic improvements in the ability of Bitcoin to be accepted as a currency to cancel debt contracts? No. Are we seeing governments of size and significance accept Bitcoin in lieu of their currency for tax payments?

1:06:28No. Right. So like what has actually happened other than the speculative fervor around it and people's desire to sell you something? And if it can't get to a currency level and status, then the odds are it goes back to zero. Is that the general perspective? Well, it becomes a question of transactions, Does somebody attempt to sell something with no demand for it? What price are they willing to take? And so this is where that debt component becomes very real. Those who have traded Bitcoin are very familiar with the waterfall effects of forced liquidations, people who have used margin to buy Bitcoin.

1:07:09I would argue that part of the feature that we've seen over the past decade or so has been people's growing ability to use Bitcoin as collateral to make loans or to borrow against loans, right? If I collateralize that, a micro strategy would be a perfect example. I'm going to borrow, I'm going to buy Bitcoin, and then that Bitcoin becomes the collateral that is held against the loan itself. If the price falls and I'm forced to sell Bitcoin under those conditions in order to satisfy the debt obligations that I have incurred either in obtaining that Bitcoin or in financing an increasingly extravagant lifestyle in the face of my appreciated Bitcoin rather than transacting, selling, potentially pushing prices down, I choose to borrow against that collateral.

1:08:00But if the price of Bitcoin starts to fall and I get collateral calls or margin calls, then I could be forced to sell at very unattractive prices as prices begin, continue to go down. Unless there is actually a reason for somebody to step in and buy it at that point, then the price can go to zero. And that is typically what it means when a price goes to zero is somebody attempts to transact and raise dollars from that asset when nobody else has any need for it. We could go back to the 17th century and the tulip mania, which is often cited as one of the first recorded speculative asset bubbles and ultimate collapses.

1:08:42Is there some analogy here to Bitcoin? I think there's fewer analogies than many people would like to think, right? So, you know, tulips are often cited as one of the first recorded speculative manias, in part because it seems so easy to point to it and say, look at the madness of crowds, right? Look how people can lose their minds on stuff. First, the actual transaction, like the tulip bubble was never as big as everyone likes to make it out to be, right? It didn't dominate the entire behavior in Holland. It was significant and it did represent a belief system that prices were going to continue to appreciate.

1:09:23Therefore, you should exchange your hard-earned guilders in exchange for tulips because those tulips were going to return more guilders to you in the future when you went to sell them. This is a very similar phenomenon. People are very worried, understandably, about the future. Will I have enough assets and resources to allow myself to live a life of relative dignity and leisure versus what I desire. Both our desire for leisure and our desire for a safe and secure retirement are completely understandable, right? All work, no play makes Jack a dull boy. All work, no play on an assembly line in a poorly dimly lit factory with terrible quality water around you makes Jack not only a dull boy, but very sick.

1:10:12So it is important that people have access to those. And that lack of faith, that concern that people can't generate that through the normal channels, particularly younger people, don't see a path to succeeding better than their parents in today's current societal structure, I think encourages people to try to win lotteries. One of the few state-sponsored gambling institutions is the lottery. It was introduced in the 1970s, early 1980s as a mechanism to provide people with a tool for hope, right? Dream a little dream is the New York State motto for it. It's amazing how that little ray of sunshine can take you forward through life.

1:10:56And so Bitcoin has stepped in for many of these young people and become effectively a religious experience in which they're saying, yes, I'm taking my shot. And if it doesn't work out, then I'm going to complain a lot, but I will ultimately have to live the drab existence that I already see for myself. Right. Bitcoin is the escape valve, that wish, that dream, a little dream, the lottery ticket for them. And it's understandable that a lot of people are very frustrated because, again, we've done a terrible job of educating our children. We've done a terrible job of reinforcing the validity and effectiveness of the institutions and structures that we have in this country because we've made very weak choices for the past 50 years or so.

1:11:40Now, many of those choices are coming home to roost and people are saying there is no solution. No, there is a solution. It's just a 10, 20, 30, 40, 50 year solution of making good choices in the opposite direction. And actually, they don't even have to be the opposite. They can just be modified slightly. There's complaints about a 6 % U.S. government deficit in a period of expansion. Well, then there are solutions to that. They're just politically unacceptable at this point. There is a solution to inequality. It's a combination of giving people better skill sets at the lower end so that they're able to effectively participate in the modern economy and see a path forward for themselves.

1:12:23And candidly, there's an element of redistribution around it that involves making those who have benefited most from the system to pay more. That those are currently politically unacceptable choices is a reflection of the political environment. It doesn't speak to the underlying asset of Bitcoin or the value of a lottery. Well, Mike, I've really enjoyed our conversation. I feel you shared a lot of valuable insight and I wish you the best of luck with selling your children's artwork. Thank you very much. I appreciate it. Up to$150, by the way. Very good. Take care, Alex.

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