Buffett dunks on Bitcoin. April 14, 2023

30:14So this is a long-winded way of me answering your question is, when you look at something like that, you go, okay, that's interesting. I can invest now at high risk and potentially do extremely well, or I could wait. And what do you look for? And let's use Milk Run as an example. Let's say you got to the point where actually unit economics started being positive. In other words, they were making incremental dollars on every sale made. That's interesting. What if their network had expanded and we're seeing increasing users and return users? Some of these metrics that, again, you would look at if you were a business owner.

30:47You're not just some person trying to speculate on a share price. You know, what are the kind of things that matter? It's like, actually, this business is objectively growing, moving in the right direction. Now, the market will recognize that if it's not listed and this wasn't listed. So when they go to raise, that will be recognized in these valuations. And therefore, you will be buying at a higher price. I would just put it to you that the risk-adjusted return be much more favorable. I think that's right. I am curious, though. It's a couple of things, I guess. Firstly, is we tend to – you're talking about probabilities and stuff before.

31:26there's a term in the i think i've used before in the poker world i don't know if it's a statistics world generally called eventing which is using the outcome to effectively back back test or back assume the assumptions made right so i i won this hand therefore i played it well right which is which is not even close to right most of the time i won this hand so i probably played it reasonably well maybe it was perfect maybe it was terrible maybe i got lucky maybe the cards fell the right way you know the outcome doesn't necessarily justify the actions which for a lot of people listening by the way is a really really screwed up idea some people we always want to believe that there's a linear choice between i got a good outcome therefore i was clever smart worked hard whatever those things are uh i picked well i i picked the right stock my analysis was brilliant we don't love it when someone says hey let me prick your ego a little bit here uh there was some proportion between 0.1 and 99.9 which was luck and we can't know you know over time you do it well enough often enough there's a decent chance there's something to it but i do think i don't know i think your explanation is perfect but i but i'm also wondering we convince ourselves that buying tesla and uber at some point was smart right and that buying milk run was always dumb and i and i i just think not you and i just people in general we just want to believe those things are true and i i guess i'm just i guess i'm just thinking about and i i don't i don't i don't i don't mind tesla actually i don't love elon but i don't i might tesla um but i don't want to be picking on it because people have the very very very strong views both directions on these sort of companies but like take uber right i'm not sure if it was ever smart to invest in uber you know just because the outcome was okay even to your point about the the probabilities um yeah if you're relying if you're if you're tired you know the outcomes if your entire if your entire outcome depends on whether or not there's a recession or whether or not money dries up and something you can't possibly predict maybe over maybe over a lifetime of investing that's smart enough because you'll get every you'll get uber right and a milk run wrong and then the next one right the one after that wrong maybe there's enough but i but i am i am kind of wondering whether we didn't convince ourselves at some point that money would always be free we didn't have to worry about it that risk was we thought the risk was much much smaller than it was i guess that's you know people now say of course it was right because i made money i bought uber i was smart i made money look i'm i'm right of course i was right to buy that one because i knew things were going to work out the way they were i'm not so sure mate i'm not so sure that any of these companies are ever investable with a capital I at those stages when the future is by definition unknowable.

33:54Well, that's the personal choice, right? Like at what stage, you hit a nail on the head, at what stage, right? So let's look at, let's go with Woolies. The blue is the blue chips, right? At some point, that was a startup, right? At some point, that was a very risky proposition. Yeah, true. You know? That's true, yeah. there's a spectrum. So you're right. And for you, it might be, well, that's way too early. But then I don't have looked at Uber for a long time, but let's assume that it's got to the stage where it's actually very profitable, high cash flow, good margins, massive return on equity today, right?

34:30Global dominant market, very difficult for others to compete. I mean, you would look at that if you'd never heard of it, never knew about the history, you just looked at it today. I'm sure, again, under my hypothetical scenario, because I don't think everything I just said was true. But under that hypothetical scenario, you might go, this is not a risky bet. Now I can do my normal business stuff and put a price around that and make a sensible investment. Others will go, well, I'm actually prepared to take a little bit more risk and get in early. Wherever you land is wherever you land. You've just got to understand that there is that trade-off along the way.

35:01And the other thing I wanted to say too, which is I think so important to internalize as an investor, you can do the exact right thing and get a disappointing outcome and even more frustratingly you can do really dumb things and get rewarded for it all the time exactly yes that's right in investing that's exactly right yeah and and you've got to be hyper aware of which one that was because pride cometh before all and i've seen it happen and i've experienced it myself where you sort of you have a hot they call it the hot hand fallacy right like you're you you've just you've just dunked you know i'm on fire a whole bunch of balls in a row third it's just not true i'm just gonna i'm gonna keep going now i'm gonna bet bigger and bigger and bigger and it can lead to very poor outcomes which is why i think the best investors are process driven they're not outcome driven and it's it's something that i think you and this is again we repeat ourselves all the time but these these things really do help where you just you've got to have an investment idea right I know it's hard, but you got to somewhere, right?

36:03Write it out, journal it. What do I think? What do I know? What can go wrong? What would cause me to sell? And then just have that impartiality to be able to recognize when something is broken and move on. Because you're going to like four, five, six times out of ten, it's normal, right? Like that is absolutely going to happen. And it's more – the damage is more done not so much in – well, plenty of damage is done this way, but misunderstanding the risk reward trade-off and the rest of it. But it's compounding those mistakes by averaging down. And I don't want to take the loss just yet. It'll come back and I'm going to add more.

36:42And these are the things that really do your head in. So what I'm trying to say is to your conundrum, and it is a conundrum, I think you need to be comfortable at what stage you want to invest in. Very early stage, very high risk, very late stage, very low risk, but very low return. You figure out where you want to be. but also appreciate that once you've made a decision, the great thing is, is that you can change your mind. You can change your mind really easy. And then you can pull out your smartphone and go tap, tap, tap, tap, and exit the relationship. Like it's speed dating in a way, right?

37:19And people look at it and go, I failed. It was a mistake. I lost money. Oh, woe is me. Investing sucks. This is all ridiculous. It's all rigged. And it's like, no, this is normal. So it happens to Buffett. It happens to Howard Marks. It happens to Peter Lynch. It happens to every single great investor in the world. They make mistake after mistake. The difference is they go, I've recognized that I've made a mistake. By the way, not because the share price has gone down. There's something fundamental I misunderstood about the business. No, that sucks. I'm selling and I'm walking away onto the next opportunity.

37:47And they just keep playing with loaded dice. That's what they're doing. And that's how I would sort of answer your question here is just sort of like, Like, you know, if you feel as though it's not going your way, then walk away. You don't have to like, this is it. I've made a decision no matter what happens. I said it would be great. It's going to be great. I'm here. That is really bad thinking, reasoning and investing. Do you invest in companies with negative unit economics? Not to date personally. Would you? I don't think. uh sorry i don't want me to put it on the spot i just i i think you've explained it beautifully and that that kind of at what point in the investment case or the business history i think it's exactly the right question because i don't think i've had some people talk to me about milk around say oh the founders are obviously stupid for trying this it's like no no there is you know they're no more stupid than tesla or uber founders right that they are trying to do something different they're going to lose money up front because and here's the other thing by the way i'll i will get you back to the answer but one thing i've i've been benging for a while largely by myself about the you know people say oh tech is great because tech grows fast tech's worth investing in and i my argument has always been there is nothing fundamental about that statement other than if to the extent that is true the market is undervaluing the pace of that growth so the opportunity for investors and it has coalesced around tech because you know i said before you want to build a steel mill business you start with one and then 10 years later you build a second and then if you're five years later you build a third and then three years later you build a fourth and you can see this stuff coming right you gotta you gotta grab the capital you gotta borrow it you gotta pay it back tech is like i've got i've got a thing and that thing now has 14 million users and i launched it 15 hours ago right so the speed is unprecedented but it doesn't mean that the tech therefore must have better returns because it's just a question of well was it undervalued before or at what point during that that growth period you talked to did you know was that was it undervalued at what point is it fairly valued at what point is it overvalued so the land grab is real if you are milk run you have to do it that way i would argue if you want to have it make a difference because someone will beat you to the punch if you don't so the the game is higher risk the returns are also potentially much higher because you can get scale at this at the size of the internet milk run you've got to literally daily delivery but if you can get that network effect early and get a lot of users and beat out your competition we saw to buy now pay later same thing right was it what eight nine different buy now pay later companies listed on the asx you've got to get there fast because if you don't someone else beats you to it so once the starter's gun goes you better go helpful so there's that but so they're not crazy to do it but i'm not sure whether i'm not sure whether i would invest in a business with negative unit economics just simply because of the the challenge ahead of it you know you've got to get to scale you've probably got to raise your prices once you beat out the competition because you know so there's you know the range of the the list of things has to go right in the right order is phenomenally large at that point.

40:45It doesn't mean someone won't do it. Uber did. Literally, we've seen the example. WeWork, by the way, blew itself up. So there's plenty of examples of that. I'll say for me, I wouldn't invest in a business knowingly with negative unit economics unless I could see that changing really fast. Yeah, yeah. I mean, that's my point, right? You can wait. You can wait and see. There's a compromise, yes, but you can see if that happens and then invest. Yeah, lose some return potential, but take a much lower risk. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

41:26One of the world's greatest investors is Warren Buffett. Funnily enough, speaking of changing his mind, he was big in banks. I think he's sold out of almost all of them now, or at least meaningfully sold down his position, all of them except the Bank of America. And he was the guy who was big on Wells Fargo. you know, Wells Fargo, the US consumer bank, was considered one of the jewels in the Berkshire crown at one point. That's a big, big, big fundamental change to his investing. I think that's really worth highlighting. Not actually, not because of the banks themselves, although it sounds like you agree with his stance.

41:57Just generally, I think that, you know, he's not, he's a, we want to hold forever guy. He said our favorite holding period is forever. There's our token Warren Buffett quote for the podcast. We can finish now. But he's sold them down pretty significantly just saying look these businesses aren't as good as i thought they were which i think is i think is remarkable not because of the share price changes just because he looked around and gone okay this might not be as good attempting to think he's now mindful of the risk of contagions slash bank runs in a digital world i have to say that that strikes me as because none of these none of these risks are new but the size and pace of the risk i'm gonna be arrogant enough to believe i might be able to think about what buffett is considering here the businesses aren't any less profitable they're no less attractive as organizations there is no serious sign they're being beaten out by anybody else whether it ends up being bitcoin or some sort of neobank is always possible but right now there is no burning up buffers are selling his banks because he's worried about bitcoin right um it strikes me that it's kind of a question of and he said he said it was in cnbc on was today thursday morning uh well thursday overnight our time and and was saying to Becky Quick that, you know, he would bet anyone a million dollars.

43:09He offered it on the show, which I was brilliant. He doesn't think anyone will lose money in a bank run, right? In depositors. We've talked about this before. Investors, you said, are at risk. Depositors are completely safe. And I think that seems to be the new observation of what if Silicon Valley Bank happens to a bank I own? Question mark. The bank, you know, the depositors will be okay. Investors will get wiped out. I don't want a large chunk of Berkshire's money in the banks. which I think is really, really fascinating. It's probably not got as much coverage as it should have, frankly, because that's a really, really big change.

43:40Buffett, who's loved banks for years, he said to himself he would happily own a bank, which I thought was fascinating. He's not allowed to because the rules in the US don't let Berkshire own a bank. So, yeah, I think it's a fascinating, fascinating outcome and a good example of a changed mind. This is his core competency. He's 92. I mean, I don't want to be ageist here, But I think it's probably a fair stereotype that the oldie, and I say this as someone who is very aware of their own mortality and aging, is you become more stuck in your ways as you get older. So have someone who's 92 who can effortlessly change their mind on big multi-billion dollar positions.

44:20I think that is what we need to applaud here. Absolutely. And there's also, there's a history there, right? So when did Buffett really get serious about this? It was a GFC because everything went to the wall. They called him up and said, we need your help because Berkshire's got billions of dollars. Can we have it? He said, yes, you can, but you're going to pay, right? Like I'm going to get the deal of the century. So he bought, this is always, I mean, people are too binary in their thinking. This is my point too, is, you know, Andrew hates banks. No, I don't. I just hate them now. And I've said before, and I'll say it again, there will be a point where there is a very different proposition on offer.

45:00So Buffett, to my mind, and it's why I was nodding furiously when you're talking, is like he backed up the truck when he just had the deal of the century, right? Was the banking system globally going to collapse? No, it was just going to be in a lot of pain. It was already recapitalized. He's getting it in ridiculously low prices. He backed the truck up. He did exceedingly well. Fast forward, you know, good way through the next part of the cycle. And now we're at, again, look, who knows on the timing? I don't know. But I think it's probably a reasonable statement to say we're closer to the top than the bottom.

45:29We know that there are some sort of issues going on. Again, years and years of easy money and surprise, surprise that tends to have consequences. And now he's saying it's not the same proposition. And it's not the same proposition. And so he's changed his mind. And people will be there on Twitter going, oh, Buffett changed his mind. What about the favorite holding period for his life? You completely misunderstand the guy, right? And it drives me bonkers because Buffett's skill is to take something complex and put it into a pithy saying, but the downside of that is it does lose a lot of nuance.

46:03And I think people misunderstand a lot of these sort of quotes and things that are out there. So I think he's dead right. I think he sees the writing on the wall as to what – and again, it's not Mad Max Fury Road sort of scenarios here. It's just a pretty crappy outlook for these kinds of institutions, which have always said, and I know it's not the Australian experience, but they are, as a business model, very cyclical, very levered, by definition, right? And that's cool. Nothing wrong with that. They provide a vital service to our economy and our modern way of life. But we lose sight of that.

46:43and Buffett who's been around for nine decades and seen various, very significant cycles is very aware of that. And we have got, again, this is what's interesting today in Australia. We've got 50 year olds who have never been through a recession, right? These are the senior money managers, right? Like people of our vintage and our peers who have never, ever, ever experienced that. And something they may have read in a history book is academically interesting, but that was a different era, you know? And it, yeah, it strikes me as an interesting set of circumstances. Mate, speaking of Buffett being correct too, he also said in that same interview that, well, let's just quote him.

47:20He said, Bitcoin, quote, doesn't have any intrinsic value, but that doesn't stop people from wanting to play the roulette wheel. And I'm just encouraged that now you've realised that Buffett is right about things that I'm looking forward to you changing your view about Bitcoin, finally putting that behind you, recognising the mistake. As you said, Buffett, you know, Buffett's right. Sometimes you're going to say, okay, I'm wrong. I was wrong. I thought I was right, but I was wrong. I think this is a great opportunity, Andrew, for you to just to finally put it put it put it into this one say you know what i was wrong i'm moving on i'm selling my bitcoin is that what we're about you know i've i've i've got i've got a few sort of um things that could happen that would bust it for me like i've just you know eat my own cooking here like i've said said there you need to be aware of of what a broken thesis looks like and when if those things happen you know it'll be wrong um one of them is not what to 92-year-old thinks of the, who's famously shy of, I know that's sort of, again, talking about someone who's changed his mind.

48:17We mentioned this recently. Apple's their biggest investment. But generally famously shy of technology. So no, it doesn't change my mind. You're not going to change your mind. I would imagine that you would also, I'm going to put words in your mouth for the fun of it, but I think I'm right. You would also agree that there is a very, very, very large amount of gambling happening with cryptocurrencies broadly. Oh, yeah, sure. And I know you've got an issue with Bitcoin being identified with the other cryptos, which is completely reasonable. I think it's absolutely possible for both to be true. I think, you know...

48:49Well, look at the share market. Right, right. How much is gambled on the share market each day? Like billions, oh, I don't know, hundreds of millions, right? But, you know, neither of us are going to turn around and go, oh, the share market's just for gamblers. No, people gamble on it, but it doesn't have to be that way, right? exactly i'm i'm gonna i want to finish off mate with this question for you because we've talked about it we've talked to it before and this is not there's no there's no gotcha here i am seriously curious and we've we've mentioned it in the past that we did in the bitcoin episode itself where i am still fascinated by the way shit that bitcoin's up like 50 or so since that episode uh what episode is that oh right okay okay nice um uh i am curious mate give it given we've talked a lot about speculation it's not there's not a guess it's not a gotcha but i my biggest concern with with bitcoin as an asset and i've described as not being an investable asset and i actually would do consider bitcoin speculation so you know i'm not trying to i'm not trying to trap you up with what we started with except that that is actually my view and it's largely because it's still reasonably early 14 years old but but i think that's reasonably early and we're still betting on i'm sorry i shouldn't say better that sounded pejorative we're still trying to work out what this thing is worth where it's not able to be meaning there's no output right you and i would have said about gold if we'd done this before you sort of change your view on bitcoin back when i had 100 bucks worth and you were giving me grief you would have said it's like gold it might be a thing but there's no there's no way to value it there's no output there's no price earnings there's no profit there's no there's no sales no cash flow no yield there's there's it's a it's an inanimate thing and i would argue by the way that's buffett's thing he's kind of putting the two together because he's been famously critical of gold before um i'm curious how you squared that circle for yourself this is a very very different asset do i assume anything else you own for exactly that reason you i don't think you've ever owned gold i've never owned gold and we would have said in five years ago you know what someone's just a digital gold we said well it's doesn't do anything there's no value there's no output gold's a waste of time i'm not interested in gold at all how do you how do you go from i buy shares in businesses with revenues and hopefully with profits and understandable economics and all that kind of stuff.

50:57And then on the other hand, say, and by the way, I've got this, I'll let me just be fun, I'm gambling on the possible future value of this digital thing that exists in cyberspace. And again, I've been deliberately just painful. How did you, how do you keep both those thoughts in your head at the same time? Yeah, it's, oh God, you're going to pitch this. You're going to love this to me towards the end of the podcast. There's a very good reason for that. it's a very good question and it's one i've wrestled with so as i've said to you before the reason i sort of started digging into it probably about 18 months ago now was that because i did i i did it's the gandy sort of thing right where you sort of first they ignore you yeah right laugh at you then they fight you then you were so so i went through the ignore phase and then i went through the laugh phase and i thought this is ridiculous not going away and it's in our world it comes up all the time right so i felt as though i wanted to be able i was just intellectually curious at a point like huh I really thought this thing had died right so you start digging into it and and the the really bizarre thing was rather than confirming my my bias um I actually found it being flipped and so it was a real journey I wasn't like oh this is one thing and that just changed everything like it was sort of like you kept digging in and then as the more I understood it the more I wanted to learn about it the more and I just kept on going and then you know so well, this is kind of interesting by a little bit.

52:21And then just the deeper down the rabbit hole I've got, that allocation has grown to match the conviction. And it's such a difficult question to answer because it is so fundamentally different. You can't do a DCF on this thing. It doesn't make any sense to do a DCF on this thing. How do you even value this thing? I mean, there's a couple of ways to go about it. But having spoken, I'm doing a conference this weekend, Bitcoin Alive, come check us out. We're at Roundhouse in University of New South Wales this Saturday. Snuck in a quick, quick, quick pitch. And you sort of, you, you, you hook up with these sort of people and it just, it's very an eclectic kind of thing.

53:02And it's very hard to, to get your head around in all these ways. And there's a lot of different ways to describe it. But I think the thing that stood out to me was understanding that this is actually a legitimate technological breakthrough without getting into the computer science. It is, it is as big a deal as the transistor, right, or something like that, and what it allows us to do. And just purely as a technology, as a network, it allows us to do things that were hitherto impossible. The framing that you've got to come at here is that we are like fish trying to describe water. We grew up with dollars.

53:43We've always had them. We got them in our piggy bank. We've worked for them. it's everywhere, right? And a lot of people will come who are new to Bitcoin or crypto more generally go, it's all ridiculous. And you go, yeah, it is. But do you understand how the current system works? It's pretty ridiculous, right? Like, again, I challenge you to describe, if I pull out my app right now and I transfer you some money, you describe to me what's actually happening there. And when you get down to the, you know, 15 turtles down into that sort of stack, you realize that it's just sort of like, oh my gosh it's it's it's crazy like how it just just a ledger on some bank's computer talking to another ledger that they all trust and it's it's bonkers mad but this is one of the fundamental uh distinctions of humanity and our greatest invention was money now whatever form of money you want but it has allowed for the specialization of labor it is allowed for the store of wealth it is allowed for civilization without money we do not have we do not have coordination amongst anything more than 500 people or something like that.

54:50So it's different. It sits on its own. It's a different kind of sort of asset class. And when you sort of say, well, what do we want money to be? And again, forget crypto, forget all this other stuff, just purely intellectual exercise. You realize that this thing just ticks every box. And it's just sort of like, it's not just like a little bit better, it's like a thousand times better on all of them. right and just is and these are huge big grandiose statements i'm making but all i'll say is do the work and i i think you'll reach the same conclusion yeah i and then to come full circle just to answer your question very quickly is that i did come at it from an expected value point of view and i've made this point before too and i'm not i'm not here to tell you this is guaranteed right i'm the first to admit that it's not but i'm saying that if it prospers and if adoption keeps growing it's probably worth many orders of magnitude more than it is today or it's zero or it's zero i guess that's And when you do the...

55:41I guess my thinking, I don't even necessarily... I mean, I'm not on Team Bitcoin, as you know, but I'm not anti either. I'm not shorting it. So I have no strong view. For me, it's just uninvestable because of that, because of the fundamental realities of it doesn't produce whatever. It is literally, I think someone else will think it's worth more at some future point for... But dude, you hold cash in your bank account. There's no cash flow there. No, but I don't. I hold as little cash as I can because I'm fully invested. So like to... Yeah, but you wouldn't look at someone with a term deposit and say that's an unproductive asset.

56:15No, because there is a cash flow. They are getting four or four. Why is there a cash flow? Because they're getting four or four percent interest on it. Where's the interest coming from? It's literally generating money. They're going to have more money in their pocket at the end of the 12 months than today. Where does the interest come from? It's not the question. I'm talking about valuing. No, but you've got to go first principles here. Money, that Aussie dollars in that person's, denominated in that person's term deposit is not birthing new dollars, right? They're transferring dollars from somebody else.

56:45Sure, but my point is as an individual, I can say if I put$100 down now, I'll have$104 at the end of the year, okay? Because unless I choose to believe the banks won't be good for it, which is a risk, but a really tiny one. So the term deposit is worth something because, no, I'm not putting money in term deposit. It's worth something because it's generating more, it's generating, I can value that asset, right? But the asset of the term deposit, the money invested in the term deposit is 4.5 % over 12 months, for example. Shares less so because you don't know the exact yields and the exact share price gains.

57:16But if I have a company like Woolworths that is generating more sales and doing it well and maybe slightly incrementally more profit per dollar of sale, I can come up with some sort of view. I can create a future value range of outcomes based on the fundamental production of the asset itself. Bitcoin just doesn't have that option. And I'm not saying it's bad for that reason. I'm saying it's like gold for that reason. And for the record, I don't invest in gold either. but again we wouldn't have invested in gold before for those very exact same reasons and if i'd said to you well yeah but more people will want it because it does these really great things you probably would still say to me but it still doesn't i still can't value it i can't work out how much it's worth that i'm not i'm not arguing the bitcoin thesis in and of itself i'm i'm curious just a tool but i'm curious as to the difference in in view of how you how you were comfortable to to consider that investable in a way you wouldn't if there was a company.

58:06If I said, here's a company idea, I think it'd be very, very unlikely to get you to invest in it, right? Because like, well, show me the money, show me what it's making some money. How the hell am I supposed to value that thing? Come on, you're an idiot. Like, I can't possibly value that. We've talked about total addressable markets before where we've gone, these are big numbers, but you know, just because it could be this big doesn't mean it's worth investing in. Bitcoin, your view seems to be different. I'm not saying it's hypocritical or you're wrong. I'm genuinely curious as to how you just keep both those thoughts in your mind.

58:30Regardless of the case itself, you've been very clear on Bitcoin. No one doubts your commitment and you're probably right and I'll probably be having a ride in your super yacht or Lamborghini or something at some point. Charlie Munger said, you're smart and I'm right. And sooner or later, you'll realize I'm right. That's right. That's right. So yeah, I'm just curious. Yeah, you can't look at it through that. I think I've got to stop you right at the outset there. I'm not going to apply a lens of equity investing to this because it just doesn't fit, right? But you wouldn't have done anything a phillips head screwdriver to a flathead uh uh screw right because it does it doesn't it's not fit for purpose it doesn't it's illogical to talk about it in that in that frame so you so you so that's that's gone right um the second the second part of it is is i don't think we we can't skip over this because it's fundamental it's like the only reason cash has a return is because the bank is lending that out for a they're borrowing they're lending it to someone else who's paying them back more than they lent them for the privilege of having the money.

59:28That's where the money comes from. You can do that now on Bitcoin. There's Bitcoin banks and lenders. I can put my Bitcoin up and lend it to someone and they'll pay me back more. So it's an equivalent on that kind of basis. If you're comparing a Bitcoin term deposit, for what a better term, with a cash term deposit, I think you can value both of those things in the context of how much Bitcoin do I end up with. That's estimable in the base currency. so term deposit as an investment versus just cash is a very worthwhile conversation to have and bitcoin versus bitcoin and term deposit what i can't work out unless you are doing that the the fundamental underpinning value of that bitcoin is still you know i i just don't i think the value you wouldn't have bought gold on the assumption that was worth more at some point in the future because you would have said to me that's baseless speculation there's no there's no reason for picking a price or maybe you wouldn't have um the trouble with gold well Well, gold, by the way, there's a 10 ,000 year history of gold, right?

1:00:24So it is very well established as something that holds value. And frankly, it's held its value pretty well over time. So the trouble with gold is that it's naturally centralizing. And we end up, I just can't carry a block of gold around. I can't shave a bit off from my cup of coffee and I can't transfer it over the internet. I can't do it. I mean, this is really crappy. So what I do is I put it in a bowl. I pay someone to look after it in that vault. And then they give me a bit of paper saying I own this amount. And then I trade the piece of paper and I send that around. That is the entire global system through to – it ended formally in 1971 when Nixon took the US off the gold standard, right?

1:01:05We have only had a full fiat system in the last 50 years. And then you go back to Bretton Woods and it was really only the US that was backed by gold and then everything else was pegged to the dollar. So we sort of, gold had its very good use and in the sense that it sort of kept the base money layer stable. But it was just very inappropriate for a telecommunications era. And so what's different here is we've got all the benefits of gold in terms of its scarcity. Like, you know, we can assay it. I can verify it very easily. All of these great qualities that you want in a money. But now I can combine it with the telecommunications aspect.

1:01:41I can break it up into a hundred millionth of a Bitcoin. I can zip it to you over the internet. It has these characteristics that combine the best of fiat, the best of gold. And it is, I've always said for something to be disrupted, it can't be a little bit better. This is the story of Betamax. This is the story of Laserdisc. This is the story of all these things. They were kind of like a bit better than what came before them, but not enough to make the effort. You need something that's 100x better. And now I've got something that I can settle globally with anyone on the planet. in a very short amount of time, the virtually no cost, and there's no trust required.

1:02:18And by the way, if you're big on the internet, and I'm huge on the internet, I tend to think that the internet is just going to get bigger. And it is so central to our lives already. But now, you know, if there is, again, short of any Mad Max Fury Road sort of scenario, and humanity goes on and we continue to flourish and we continue to build out our wonderful technology, you know i just think that it is the existing system is an anachronism it is it is it is a really great system the best we had for the technology that we had at the time and now you've got something that is just object again it's not opinion it's just objectively if you just want to like list the specs out of any kind of currency what you would like to have however it's done is sort of secondary but it just it just beats everything right um uh so substantially on any metric.

1:03:10And the other thing, the epiphany that I had with it was, is that you feel as though, oh, someone at some stage has to make a decision and we're all just going to flip to it. It's like, no, Bitcoin will be fine without you. It'll be fine without me. It doesn't matter. People are adopting it. So here's the best example I've come up with. You and I can go anywhere we want in this great country of ours. We can pull out a pineapple,$50 note. We can spend it, someone will take it. Not a problem. Why wouldn't you take it, right? Like it's great. So you take that$50 note to any other country on earth and they will not accept it.

1:03:44They will not accept it. Why not? Because I have to go and get an exchange and it's a pain in the eye. Does that mean that 2 % of the global population, actually we're less than that, 2 % of the global population, you and me, right-thinking, sensible adults, happily transacting this currency that 98 % plus of the world does not want? I think there's a difference between the system you're identifying, which I absolutely understand the whole argument and the decision to invest in the future price of same. That's what I'm coming down to because you've still made a decision based on the fact that people might use it.

1:04:19I can't value this fundamentally. I just think it's gonna be worth a lot more so I'm gonna buy it. I think you would poo-poo any argument on a company. I know it's different. I get that it's different except that a dollar's a dollar. You talk about opportunity cost all the time and you're absolutely right about it. That dollar can't be invested in XR if you mentioned before or any of the other companies you've got in your portfolio because it's in bitcoin instead and for the system itself you've made an argument for a digital global currency which cool i get it maybe it happens maybe it doesn't but then when you say and therefore it's worth x or therefore i'm going to buy it at x and speculate on it being worth more in the future and i mean speculate pejoratively um you know some speculation replace the word but just that that's that's the bit i just i find that fascinating on on babaku's known you for many years now uh of that departure from what you otherwise would have said your investing dollars were put into uh asset class you said you'd buy property at the right price you'd buy shares the right price yeah and the right price for property wouldn't be well i just think people will pay a lot more for housing in a few years time you've said this is a ridiculous price we won't pay that look at the yields look at all the whatevers that that is that is analogous to to other stops of investing the bitcoin argument is like well i think a lot of people going to use it in a lot in the future therefore it's probably going to be worth a lot more that is an argument i wouldn't be expected to hear from you on any asset again i don't i'm not talking about the investment thesis itself just the gap between the idea of like here's how do you price it how do you price right and how do you and how have you how have you decided to abandon what otherwise would have been your approach to roi for your investment dollars and go i'm gonna assume this is gonna be worth a lot more because i just think it'll be worth a lot more that that's the thing i find most fascinating yeah it's but it's i'd like i'd like to think there's there's something more solid to it sorry i don't mean to i'm not trying to by the way i'm not suggesting this for a second it's not i i absolutely understand your conviction that's why it's fascinating right it's exactly why it's fascinating to me because you're not this guy who's throwing money to anything because it might be worth more you literally said i'm going to change the criteria i use in my portfolio for this very specific case that's what i think is just That's what I find fascinating.

1:06:24Yeah, well, you have to because it doesn't fit through the other lens. And this is where it's diametrically opposed to equities because as the price of an equity goes up, all else being equal, the value reduces. So I don't know what CSL is really worth, but at$1 ,000 a share, it's an objectively worse proposition than it is at$1 a share. So the higher that price goes, now, again, you would say, yes, but over time the earnings will grow even faster and rah, rah, rah. And that is why you shouldn't worry too much about those kinds of things. But the difference with something like this is that the more the price goes up, the more valuable it becomes.

1:07:09So let's look at Bitcoin. 21 million coins will ever be in existence. Let's say it's a dollar a coin, right? We have a computer network that the market, the free market, is valued at a$21 million market cap. uh okay it might be handy for you and me to buy drugs online or whatever we you know people are going to want to do with it or hold hold ransomware attacks you know that that's kind of handy but i'm not sort of putting my corporate treasury on that you know uh the the the global elite are not investing their money in it certainly no corporations are transacting it's useless now today it's worth something like 600 billion us dollars so now as a fortune 500 company you can actually store money you can transact in it you can do global remit you can do all kinds of things because the depth and liquidity is there it actually becomes the network these tokens are still the same number of tokens moving around but what they represent and what they're capable of doing um it's an abstraction that's what money is right we've just abstracted to this thing it's a comparison of a couple of labor and a couple of products on a shelf and so it's a way it's why tablets you want to talk about crazy we used to get a bit of chunk of stone and a chisel and write down that you owe me three sheep right like that's what we used to we're still doing it today we're just doing it in a system that's now like triple entry accounting now now we're sort of now we're auditing the network every 10 minutes right like it's but it but it but it is at its core and at its essence the same thing and and where why so all i think is this and we've got to get you i don't And again, man, why did you raise this 10 minutes before the pod was meant to finish?

1:08:45I didn't expect a full rundown of what Bitcoin was. I just wanted to understand - You should have expected a full rundown. They're just very hard questions. And I've wrestled with countless nights lying awake thinking about this kind of stuff. But you have something where everyone just looks at it, don't understand it. Price is volatile. That's as far as they go. And I'm looking at metrics such as, well, how many people are using it? Well, that's up and to the right, like significantly so. number of nodes on the network, number of hash power on the amount of hash power on the network, you know, the amount of mining energy that's sort of used to secure the network is going up.

1:09:17The price, put the thing, again, stand back, it is the best performing asset class in history to date. Maybe that goes to zero, but it is sort of like any metric that you care to use, whether it's corporate adoption as well, whether it's nation state adoption, whatever, you name it, you know, That is going significantly higher, significantly higher. And I posit that as more and more people choose to use it, it's a voluntary thing, an optional thing, but more and more people do that and more and more people see it as having value, that will be imbued into the price itself. And you've got to be careful with price.

1:09:59What do I mean by price? I'm actually talking about the fiat price. I'm trying to translate one system to another system. Now, the amount of US dollars, Australian dollars that are in existence have never been higher. In fact, it increased 30 % in the last few years. Let that sink in, right? That's how much extra dollars there are in the system. And how much extra iPhones or packets of two-minute noodles or kettles are out there in the world? Our productivity and energy, you know what I mean? We are in a world of abundance. So it's more about I've got a set amount of this thing over here, this stone tablet that is now digital, and I've got an ever-increasing supply of fiat currency, of goods and services on the right.

1:10:36Now, you tell me what happens in that scenario. One has to appreciate against the other. Like it has to. It's logical, right? It's either that or we just stop producing. For as long as we all agree that it is worth owning, because that's still the challenge. If it doesn't, it's worth nothing or something. No, no, no, no, no. Not as long as we all agree. as long as some people agree it's true that's a very important point i think that's that's that's where a lot of people get home right the australian government's never going to do this yeah probably not yeah i probably fight it in fact and in fact i expect a battle it is a really really good system to be able to create money out of thin air right if you're if you're in power it's a very good so i don't think people will there'll be a lot of vested interests who don't want to see this change.

1:11:22But this is what's fascinating about it. The adoption levels in Australia are pretty low. I think it's one or 2%. Other places like, you know, and by the way, I think it's something like the vast majority of countries in history and in the world today have experienced extreme to hyperinflation. And most countries currencies don't last more than like a couple of decades. And so we sit here with this incredible financial privilege going, well, well, why would you use it? I can just use my pay ID and I can do this and that. And inflation is not pretty benign here. It's like, not for a lot of people, not in Lebanon, not in Zimbabwe, not in Argentina.

1:11:54And I'm just naming the big ones. There's a thousand of them. And you know what? People are using it, not because they have to, or they were given, they were told to, they're just choosing to because it's superior in their, objectively in their lives. And as that expands and more and more people opt onto that network, I think you will see the price increase substantially. But I'm also very aware of the fact that there's the unknown unknowns and it could go to zero. But I do the expected value calculation. And I sort of say it just comes out very favorably with the odds and the numbers that I'm using.

1:12:28I could be wrong on the numbers that I'm using, but that's, believe it or not, the shortest way I can try and answer your question. But we'll chat about it more over a beer sometime. We should do that because we should finish this podcast. It is absolutely my fault for asking the question. I apologize to you and to our listeners, but I still – Yeah, your fault. I'm not convinced I have – I know the answer yet, but I think we'll probably leave it there. again i just i'll finish by saying because i need to do this to you as much as they do it to anyone else now i i have said because i have to be honest with my i mean i'm i'm gonna be the one with egg on my face and also a lot of a loss if this doesn't go well so you've got to always remain intellectually honest and objective with yourself so there's various things that could go wrong that would make me go this thesis is busted and i will rush to the nearest exchange and sell everything I can very quickly.

1:13:15I would just, I would encourage you and other skeptics that are out there. It's actually, I love skeptics. Be skeptical, by all means be skeptical. But you can't make the same mistake as the hardcore true believer laserized people do as well, which is it's going to work no matter what. The other side of the argument, I think, is just as intellectually flawed to say, it won't work no matter what. So I would say to you, have it, at what point do you go, okay, I'm in? or at least I'm closer to realizing it. And I think you should sketch out some milestones that kind of go, okay, if this happened, I would reevaluate or make a decision.

1:13:53And I'm not saying it will happen, but if it happens. So one day, again, hypothetical story, you wake up one day, Tim Cook has just put 50 % of Apple's treasury into Bitcoin. The US government just passed a law where they just remove all the tax hurdles on some small micro transactions. you've now got Woolworths where you can go in and buy your groceries with Bitcoin. So this is a hypothetical scenario. The person at that point who's going, well, it's just a silly internet thing for spec. That is an idiotic stand. That is like the person in 2017, in 1994 said the internet's a gimmick and holding the same position in 2023.

1:14:30It's like, what point are you wrong? And that's all I would say. I would just say, everyone will be unique, but don't just be the person who is la la la no matter what it's done. I think that's a mistake. All right. Will you join me on Sunday for some member questions rather than my one? Yes. Yeah, let's just don't ask about Bitcoin. I shan't be doing that. I'm not going to make that same mistake twice in a week. Andrew Page has been always fun, illuminating, and a lot of joy I get from having our conversation. Thank you. I'm sure our listeners feel the same way. I will see you on Sunday. Until then, fool on.

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