Mailbag: Is housing really expensive? August 24, 2025

26:32Yes, but then what's enough? I don't know. It's a philosophical question at some point. I'll stop now. You go. No, each to their own. There's no wrong answer. I think it's a perfectly reasonable stance for you to take. I think Henry's also perfectly reasonable. Yeah, 100%. It's one of those things, it's hard to give a black and white answer because, you know, debt is bad. It's like, well, is it? I mean, literally every, well, not every person, 99.9 % of people take on ungodly sums of debt to buy a house. Correct. No one blinks. It's just the normal part of society. So to use a bit of debt to acquire some very high quality assets that happen to be equities, I don't know, is that a dumb idea?

27:11If the leverage is low, if you've got a huge buffer in there that you can write out any volatility? No, I mean, the maths is going to math, as you say, like it's going to work out. It's going to probably work out pretty well. So provided you are fully cogent of the risks and don't get over your skis, sure. Sure, absolutely. Absolutely do it. But you don't have to do it, is your point. Yeah, exactly. And look, what I will say, and Henry makes the point, we have the opportunity to help people understand the difference between good and bad debt. That's absolutely also true, right? But good debt adds value, is taken out on appreciating assets, is done to invest.

27:55Bad debt is consumer debt, generally speaking. Hex debt is great debt, by the way, if it means you're going to have a better life. To your point about debt, it's probably the best that you can take on. If you can improve your earnings over the remaining 40-something years of your life by more than the debt costs you, that's a perfect investment. It's a great investment. Mortgage debt, same thing. You've got a roof over your head. We can argue about how much houses should cost, but as long as you can afford to repay it, And you get a house, you get some security, you get some shelter. Great debt, really good.

28:22Car debt, terrible. Consumer debt, woeful. Credit card debt, extortionate. So, yes, there's absolutely a difference between good and bad debt. The, yeah. I think we've probably done justice. Well, Henry makes some good points. A question from someone who doesn't give their name, so I'm going to assume they don't want their name mentioned. Hi, a loyal listener here for many years. Thank you. I always, here's an important question. I always hear that houses are too expensive. but if I think about the other side of the coin one, it only goes up by 5 % per annum that's very little without leverage and with leverage you need to pay interest and two, ask anyone what's more important cryptocurrency or housing yeah crypto has a much higher return and doesn't cost anything to maintain three, if it's too expensive then why does every house sell four, cost per square metre is not as bad as most people think and five, even though it's not an asset that benefits the economy however costs like maintenance, furniture the bigger the house the more you buy strata, insurance, tax, all contribute to the economy and construction and maintenance jobs.

29:21So you may say housing is an unvalued asset which improves the GDP. Tony Jones might say I'll take that as a comment. Do you have any thoughts, Ram? Can you rattle them off? My short-term memory shot. Give me the first one again. What was the first point? This is the other side of the comment. One, it only goes up by 5 % a year, which is very little without leverage. Let me stop you right there. That's not true. Recent histories probably would suggest 7 % per year. but when you take the strongest most long-lived property market in the world in a recent relatively short time frame over the last 15 20 years I just again that it's not you can have your own opinion you can't have your own facts and when you when you it would be and I'm not having a go at property because I know what people people know my stance on it but if I said to you hey you should invest in the market and I pick the bottom of the GFC and go forward to now and say, see, it's like, well, I'm being a little bit selective there.

30:16And a more reasonable appraiser will probably be, well, let's broaden the lens out a little bit here. What's it actually do over much longer timeframes? And let's look at other geographies and other places in history. And what does it sort of tell us? And again, the academics have been very busy on this front. So when you look at most Western sort of modern markets, capital markets, the UK, the US, obviously, Canada, Australia, you know, all these kinds of places, you know what, property tends to go at about 3 % per year, it actually very closely matches inflation, the longest property records are with Amsterdam.

30:51And yeah, it's about 3 % over very hundred years. So and it kind of has to be to a certain extent because unless wages are growing at that same amount you're getting a house i mean just do the maths right some something grows at a five percent where earnings grow at three percent and each year that goes by it's not a huge difference but those jaws get wider and wider and wider and we can debate all day long at which point it becomes unsustainable but you know yeah to take it to take it to a stupid example you know after a hundred years a house is worth you know 400 times average incomes, which is just not affordable.

31:28So it mathematically can't, it must be bound to what people can actually afford. Now the whole thing gets distorted by rampant credit creation. But even within that framework, I would just be, I'm very nervous when I hear people say these things like it's a law of the universe that property doubles every seven years. It's just like, no, it doesn't. It doesn't. You can't selectively point to a particular geography and point in time and use that as evidence. It's just not thinking soundly. It might continue to do so. It really might. And it might, maybe we see the next five years of 10%. I don't know.

32:07I'm not making a prediction. I just wouldn't base that as the foundation of my investment. Did you know Auckland and Toronto, very similar markets to Australia, have had properties fall 20 % from their post-pandemic peaks, right? Like it happened again, it's not people always misunderstanding. Oh, so you're calling for it all to crash tomorrow. No, but I'm just saying these things can happen. And whether it's shares or crypto or anything you want to talk about this idea of it's a sure thing and I can't lose and it's always going to do this I just get nervous with with that that kind of thing particularly when the return is entirely predicated on a greater full kind of theory it'd be different if you were sort of saying listen relative to my my purchase price and my ongoing cost I'm getting a yield out of this is vastly superior than what I'm getting in a term deposit or something like that that the money is made in the holding.

33:04It is its own justification. It is internally consistent. When it gets to the stage, it's like, I'm just bleeding cash. Like you wouldn't believe here. Try and claim a little bit of a tax loss. And in five years, 10 years time, hopefully I can have enough of a capital gain to make myself whole is, again, actually recent history would suggest that worked out pretty damn well. But I just, I wouldn't hang my hat on it. I just, be careful with statements of of fact which might not be fact is all I'm saying. I think that's right. Although I do think our question is actually asking the reverse question I wrote, which is saying 5 % isn't much for it to go up.

33:40And so the housing can't be that expensive, as I kind of think the inference there. Because they're saying it only goes up 5%. That's very little without leverage, which I think the point they might be making is that if you're equating expensiveness to the rate at which it increases, if it only increases a little bit, then it can't be too expensive. I think that's a logical fallacy because you can start from a high point let's say last time my house never went up but it was valued at$20 million and trust me not a$20 million house would it be inexpensive because it didn't go up much or was it just stupidly expensive to start with I think it's probably the latter in the dot com bubble Yahoo went from a PE of$1 ,000 to$3 ,000 now small base and there's nuance around that but I mean just using that as an example it's sort of like any person could have gone wow$1 ,000 times earnings that seems a little bit reckless I think that's expensive and yet it jumped up, it tripled from that point forward in a very short space of time.

34:34Now, we all know how that story played out. It was one of the worst investments you could have made at 1 ,000 PE. You know, it went way up and then it went way down. That's right. So, yeah, you've got to be careful with these kinds of things. Yeah. Look, so, yeah, you say, so the questions, the crypto question I think is a bit of an aside. The third point was if it's too expensive, then why does every house sell? That's kind of the crux of the challenge around house prices. I've banged on a lot. Andrew's banged on a little bit about population growth and vacancy rates. Why does it sell? Because where else are you going to live?

35:09Honestly. And by the way, the other answer to that is, why do they sell? They're selling to investors currently because the home ownership rate is falling. So it's too expensive because investors are using the attractiveness of tax breaks and the hope of long, big capital gains to bid up those houses. Why do they sell? Because you've got to live somewhere. I've said before, if you've got nine people bidding and there's 10 houses, 10 people bidding and there's nine houses, prices go through the roof. 10 people bidding for 11 houses and prices go through the floor. It is just supply and demand. It's not a question of price.

35:39People bid as much as they have to based on what the underbidder is bidding to buy the house they want, knowing that in a market where there is excess demand and not enough supply, prices are always going to be kept high. That's my view. Yeah, and more to the point, it's like they have, that's not always true as well. I mean, everyone will have that property that's near them that's been on the market for years because the stubborn homeowner thinks it's worth 50 % more than the rest of the market. And it doesn't sell. So the market will always clear for any asset at any price. There is a price which a trade would be doable at, right?

36:13Zero intention of selling my house. Someone knocks on the door tomorrow and offers me a billion dollars. I was going to sell it in a heartbeat without even thinking about it, right? Yeah, exactly. Does every house kind of sell? Well, I don't think you could say that every seller gets the price that they truly desire. It might ultimately sell. It might even ultimately sell at a price that's higher than their sticker price. Probably not in all cases when other costs are factored in. But again, we've got to be careful making statements of fact that aren't fact. Yeah. Right? I think that's true. You say cost per square is not as bad as most people think.

36:51I don't know how you would say what's good and bad for cost per square meter honestly I don't know if you have a I don't know what your name is if you have a comparison or a reason for a number being too high not high enough I'm happy to talk about it but I don't have a frame of reference for that and then you say even though it's not as the benefits of the country there's costs like maintenance and furniture and stuff it's absolutely true that doesn't mean that housing isn't expensive it just means that you want to fill it with stuff you're right we fill it with stuff we pay for it and that contributes to economic activity.

37:20You're 100 % right. Absolutely right. That's disconnected though from whether or not housing is expensive. There'd be as many, there'd be probably more actually, frankly, more furniture, more sofas, more maintenance if houses were cheaper. But even if it was the same amount of maintenance and we just spend any extra money on our houses, if the price halved the house but you bought as many pieces of furniture, the economic impact would still be the same for that spending and houses would just be cheaper. So there's no need to link the cost or expensiveness of housing with the other costs, other than you're probably more of them if you've got more spare money at the end of the day.

37:53Yeah, and a couple of fallacies I'll point out here. It gets done all the time. You're in good company here, Anonymous. Our highest standing politicians and economists say this all the time. Things are good for the economy. And what they mean is it'll be good for GDP, which means we'll spend a bunch more, which is just like, let's just give, you know, let's hire 10 ,000 people, give them a teaspoon and ask them to dig a hole in the middle of the Simpson Desert. they'll be employed GDP will go up right is that good for the economy I mean so I I what I consider good for the economy I I don't think GDP is is I think it's a very imperfect flawed measure and something that needs to be looked at in concert with a whole other range of things so you're right in in the way that it's usually framed but I would say wrong in in in in other ways the other the other thing that i want to get to here it's more philosophical but it's we all do it i do it especially but it's this idea of too high well what do we mean by too high that implicit in that question is the assumption it's just yeah exactly there is a there is an objective truth as to what it should be yeah and there is no such thing because we're all just monkeys that we either desire something or we don't and how much you desire something will depend on you and your preferences your situation so you know like there'll be something that Scott absolutely desires fills him with joy it's a big aspiration for him and I just couldn't care less about yeah and so for me it's worth 10 bucks for him it's like I'd happily pay a thousand who's right well we're both right right and so and and it's I know it's a little bit we're getting a little bit too philosophical here but that's also the situation when it comes to housing is buying a house that I'm going to get a 0.1 % net yield on too expensive.

39:41For me, it is. For me, it's insane. And you can't argue. That's just my opinion. And my opinion is my opinion. And, you know, there is no right or wrong when it comes to these things. For someone else, it'll be like, no, that's actually really good value because I think the capital gain is going to be, you know, massive in the next few years. So I think it's a great value. Who's right? Well, you know, relative to each of our expectations, we're both right. And this is the beautiful thing about the market. It will be the aggregation of all these individual perceptions that will come out with a price.

40:15Is it the right price? Actually, it always is the right price. It can't be anything other than the right price. The price is just telling you, geez, for better or for worse, or for whatever reasons that are behind it, these individuals were happy to exchange that good or service for that amount of cash. And that's just the fact. Scott likes green more than he likes blue, you know, or whatever it is. It's, you know, you like ABBA more than you like ACDC or whatever, right? Like it's, it's probably the other way around if you've got any good sense. I was going to say, no, here you go again. But you know what I mean?

40:52I think you know what I mean? And so we've been pretty critical here. I don't mean that. I think you make some really interesting observations and they're not unusual ones. And I don't certainly want to have this segment remembered as us just throwing cold water over everything. If you think everything that you think and you're confident in that, then I'm not going to tell you not to do it. Only urging that I will provide is to just be careful with some of the assertions you throw out there. They might be right. I'm not saying I'm right, you're wrong. I'm just saying don't take them as sacrosanct, unbreakable rules of the universe.

41:34So just think a little bit more deeply about that. And if you still come to the conclusion that actually my house will always sell, it's actually really good value relative to X, Y, and Z, then fill your boots. And I don't say that like sarcastically or cynically. I genuinely mean that. If that is your appraisal, then what else are you going to do except act on the way that you see things? Just be confident that you've reached a firm conclusion on sound reasoning. Yeah.

42:09I think, yes. My broad comment, I suppose, is that's a reasonable list of reasons why housing might not be as bad as other people might point it out to be. I don't think any of those justifies, or not, the price of housing. And the question really is, to your point, mate, why are you buying and what are you expecting and on what basis? And that's kind of all it comes down to. It's just, you know, it doesn't matter. It doesn't matter. Any or all those five points could be right or wrong. What happens from here? If you're investing in it, or if you're a homeowner, you're buying, what happens from here is the question.

42:53And whether those five points are right or wrong, the next five years, the next 10 years, the next 20 years will roll out its own way. Yeah, I'll frame it differently. I would say what you can say objectively is that affordability is getting worse. And the second part of that is affordability will reach a point, if you extrapolate it far enough, where it actually does collapse in on itself. because if no, like you might say that, look, I bought 10 million, I paid$10 million for my one bedroom dog box out in the outer ring of this city. And I think it should be able, I should be able to sell over 12 million, but you can't like, it's opinion.

43:30At the end of the day, if there's no one physically able to come up with that money, then you're wrong, regardless of what your expectations are, if that makes sense. So those, I mean, look, I was speaking to a neighbor the other day, right? lovely old bloke beautiful house four bedroom house got talking what do you do i used to be a high school teacher okay what did your wife do i should raise the kids stay at home mom okay so here's a guy yeah as a high school teacher in the public system who was able to buy a house i'm not having i think teachers are just saints i put them right up there with nurses and people who've got real jobs that do real things teachers are just absolute miracle workers that someone voluntarily says yes i will happily stand in front of a class of 16 year olds and put up with that you know i didn't i say because my wife is one right like what are you what is wrong with you but anyway she loves it but it's just like think about that today think about someone 22 graduating with their master's in education without the bank of mom and dad how long it takes them to afford a house.

44:36Now you might say, well, you can still make it work if, if, if, and if, and it's like, maybe that's true, but extrapolate that forward. And it's like, just, it just, it gets to a point where it's like the argument becomes more and more difficult. Everyone will have a different conclusion as to what the breaking point is. And the breaking point will always be further out and higher up than you imagine it to be. But this, this idea of, I'm just going to look at the last recent decade or two and blindly extrapolate forward and treat that as some unbreakable rule of the universe just always makes me nervous yes i think that's absolutely fair motley fool money for more subscribe to the free newsletter at fool.com.au forward slash listener hey here's a question from nick who's having a go at you but well not really uh also a little bit of me though he doesn't say it directly but i should be on the same hook for this new problem Afternoon, gents, says Nick.

45:33Oh, it's morning now, Nick. You should know that. It's Sunday morning. A quick question, more so for Ram. To my understanding, you are against the super tax, taxing unrealised gains. True? Yeah. But you want a wealth or land tax, says Nick. Wouldn't a wealth or land tax also tax unrealised gains? As if the value goes up, you pay more. I'm not trying a gotcha or anything, nor am I trying to defend the super tax change. But I'm just seeing clarification as in my head, both do the same thing in terms of making someone pay more as value goes up. Cheers, Nick. Yeah. Gosh, that is actually a really, really, really good point.

46:09So yeah. So as a broad-based wealth, I've always sort of advocated for a land tax. Interesting to see that back on the agenda with the round table. I think it was put forward as one potential. As an alternative for stamp duty, I think, from memory rather than as a broader. Yes, that's right. I mean, one of the recent studies that came out was that we've, there are a lot of people who are very asset rich and cash poor. And so you've, and you've, you've got a lot of one or two people households in four, three and four bedroom houses and all of this kind of stuff. So it was one of the things like, well, how do you, how do you encourage people to downsize and the rest of it?

46:44And one of them is that has been advocated is a broad based land tax. And I'm very much in favor of that. And that is a wealth tax and that is taxing on unrealized gains. So you've absolutely, you're absolutely right there. It's a little bit more tricky with equities tend to be far more volatile. So you've got that component as well. You've got something that actually doesn't have any direct utility value. So housing and land is just, it's in a little bit of a different category because it has very obvious and real utility, which is it provides shelter in some way to sort of live and raise a family.

47:25So when you've sort of got that covered, and now we're going to start impeding people's prudent wealth creation goals and taxing them before they've had that, you know, we're basically going to, what's the first rule of compounding is don't interrupt it, Right. And we're asking people to save for their retirement. I know there's nuance here. It's only people with a balance over 3 million and the rest of it. So even now I'm trying to walk it back a little bit. More conceptually, just the idea of unrealized gains as a general concept. I just don't think it's generally good policy. But yeah, Nick, you raise a really good point there.

48:07It is complicated and it's not cut and dry. What would you say, mate? so I'm not as keen on land tax as you are and it kind of comes out of just a philosophical difference and I actually to I'll defend myself a little bit against Nick because he was talking to you not me but the reason I don't like land tax and I know what your justification is so I'm not saying you're wrong or don't have a valid one but for me asking someone to pay a bill based irrespective of cash flow is not a great way to levy taxes I just think and again I know you have very good reasons for it. I think it's fundamentally a bad way to levy a tax because it creates or necessitates transactions that wouldn't be made.

48:48And I just don't think it's the way I would raise money. So I think my view is a relatively consistent on that one. In terms of wealth taxes, I'm a bit, let me be really unpopular 50 minutes in a podcast. I wouldn't tax, I would tax capital gains differently. I've already said that return to indexation. So that captures more of wealth when the transactions happen. And I actually have a debt tax. We call it inheritance tax, if you want to be cool, the bad is always called a death tax because it sounds worse. So I'll call it death tax and put myself under my own bus as a form of wealth tax. And is that an unrealised gain?

49:20Kind of, but it happens at the point in which the assets are being transferred to the next generation. So there is a realisation at that point. I might even allow for that to be carried forward on the asset for a period of time, depending on how big it is or what it's sold. It depends if we levy it at what level. Do I want someone to sell the family home just to pay the tax? No. but probably not just on a single house. If you've got$5 million and you've got a single house for$5 million, you inherit it, you can probably just sell it and take$4.5 million to be pretty happy that you've got to keep most of it.

49:48So that to me is the transaction or the transfer. So I think my view is relatively consistent. I get why you think a land tax is a good idea, by the way, Ram, and even a wealth tax through life is a good idea. The simple reality for me is I think it's worth separating out timing differences from quantum differences. And so if I tax you 1 % of your wealth for the last 10 years of your life or 10 % when you die. I mean, there's a bit of time value of money, but realistically, it's kind of the same thing. It's a bit like these instant asset tax write-off stuff, a bit of a tangent. But if I get to depreciate my work car over five years at 20 % a year, we'll get the whole thing up front.

50:23Cashflow-wise, I want the money up front, but it really doesn't cost the budget anything. It's just a timing difference. So I would do it all on realisation of transfer slash cashflow. I think it's a kind of the wrong word because it makes it sound soft. I think it's a more socially responsible, reasonable way to levy a tax is if you haven't got the readies, you can't be sent a bill. But that's just my personal view. I get why you want to do a land tax round. Oh, we could talk about it for an hour or so. Let's not. I mean, I really love the pushback though, Nick. I, you know, just contemplating as you make a really fair point.

50:59It's just, I mean, you really need to with all of this stuff. I think you need to step back. And I'm not saying you, Nick. I mean all of us. We all need to sort of step back and go, well, here's the thing, everyone. We kind of all like these services that we get, like from the government. We like our free health care. We like our roads. We like our stuff. And so we're going to pay for it. So how are we going to go about it? What's the most fair way to do that that doesn't remove any effective incentive, make sure that those are the most able to pay, do pay, but doesn't punish them for being successful?

51:33You know, you've got to sort of frame it up from the highest level without reference to your own personal situation and go, what is the best way to do this? And so usually when I say land tax, I go, I'm already playing enough taxes. It would be in substitute to other things, right? Correct, correct. You know, and anyway, as I say, I don't want to get into it because a whole bunch of things that are there. But, yeah, that's the better way to approach it. And that's what frustrates me with a lot of the tax discussion is that we're so in the weeds and granular at a point where we don't see the forest for the trees because we're forever tinkering and forever tinkering through, looking through a lens that is self-referential and only, you know, how it impacts me personally is to make it a very frustrating conversation.

52:23So, yep. No, fair, fair. I have a Bitcoin question I was going to say we haven't had one for a while yeah this is from Graham now I'm going to preface this by saying Graham you can't yell at Graham if he's asked a question you've already answered because he's asking in good faith do we agree sorry yes we do alright here we go hey Scott and Andrew says Graham just following up from my last note on AI and Bitcoin thanks again for the pod seriously yours is the only show I'll hit play on without even checking the topic it's very nice thanks man between the smarts because it's the same topic every week that's why Here we go again.

52:57Groundhog Day. Between the smarts, the banter and the genuinely long-term mindset, it's like a masterclass every week. You've both touched on Bitcoin before, but here's another twist I've been mulling over. What if the real risk isn't Bitcoin going to zero? It's actually Bitcoin becoming too scarce to function. We already know millions of coins are lost. Early miners, Mt. Gox, forgotten passwords, hard drives buried in landfill, you name it. On top of that, people are still losing access every year. Stretch that out over time and maybe you're down to 13 or 14 million usable coins tops. 16 is the best estimate I've seen.

53:33Nice. We've lost 5 million forever. Out of 21 million. That's careless. I have to add that. Not everyone knows there's a hard cap. Yeah, totally careless. Now, adding ETFs, micro strategy and corporate treasuries pulling coins off the market, locking them away, effectively freezing supply even further. I've got two Bitcoins tucked away, says Graham. There's a humble brag there for you. And I'm starting to wonder if I'll ever actually use them or just end up whispering, my precious. It's a terrible impersonation. While they gather digital dust. So here's my question. Is there a point where Bitcoin becomes too scarce to be useful?

54:05Could it lose the liquidity it needs to stay functional? Not just a store of value, but as a viable network. I'd love to hear your thoughts as well, even from Scott on the philosophical side. But Andrew is someone who still holds the orange coin. Thanks for everything you do. Fool on while there's still time. cheers Graham what's it mean why there's still time I don't know it's very ominous I know exactly should we be worried are we being cancelled have we not been told is that I mean it's not nothing right but we talk about share liquidity and markets and stuff is there enough pitch on liquidity to keep us going oh gosh okay so the challenge here is to do it quickly I mean firstly it is going to be one whatever happens it is going to be fascinating to see what happens when you have a truly scarce and finite asset because there's no such thing we've ever encountered before as a species.

54:55Like they just discovered some gold. Where was it? Somewhere which is more than all of the deposits on Earth. Oh, wow. Yeah, I mean, gold is abundant in the universe, right? It's just hard to get at. Anyway, so yeah, there is literally nothing that is as finite as Bitcoin. So that is fascinating. And I always find it funny where people go, well, it's perfectly finite and all these new demand is coming on. And isn't that a concern? I'm like, no, no, that is really good. Because, you know, year nine economics will tell you when supply is fixed and demand grows, there's only one thing to increase, which is the price.

55:34But here's the thing that's going to be hard to wrap your head around. We could run the whole thing on one Bitcoin. We could run the entire global economy on one Bitcoin if we wanted to. And why is that? Well, unlike gold or anything else that might be analogous. So if I have a bar of gold, I couldn't run the entire economy on it because at a point I get down to the atomic level. Now there's 6.023 times 10 to the 23 atoms. How do you know off the top of your head? It's avogadro's. I did chemistry for a while. Now I'm going to forget the atomic weight of gold. So I'm going to start off by sounding smart and then look really dumb.

56:13But anyway, at a point you run out where it's just like we're trading atoms of gold and you can't divide an atom of, well, you can divide an atom of gold, but then it's not gold anymore. And you start getting into sort of nuclear physics. But with Bitcoin, you can divide it infinitely. At the moment, it's divisible into 100 million Satoshis per Bitcoin. But it's arbitrary. And that always makes people think, well, that means it's limitless. And it's not. We do it all the time and we're very familiar with it. It's definitely divisible, but it's not limitless. Yeah, it's just the good old-fashioned pizza analogy.

56:48You know, if anyone who gives you this argument, you know, just say that, well, that means I'm going to order a pizza from Domino's and I'm going to feed the world because I'm just going to divide it into 8 billion pieces and now everyone gets pizza. And you go, well, that's dumb because we get hardly any. Yes, that's the point. And the point of this is I've tried to pivot my pitch on this lately. It's like forget about bloody Bitcoin. Just think about sound money. And what you really want is, it's Wittgenstein's ruler, to quote one of the sound money theorists who sort of talked about a lot of this stuff, is what you really want is something that is immutable and unchanging.

57:27You want a rock in cyberspace on which we can measure everything else against. It doesn't matter if we're measuring in centimetres, millimetres, nanometres, kilometres, just a standard. In inches, you can invent whatever scale you want, the size of the size of the size, right? It doesn't matter. It's just we need something on which we can measure it with. And that is what's so wild about this thing, to have something in the digital realm that is truly scarce and uncopyable. It's such a mind blow when you go into it. So, I mean, you know me and every listener knows me. We've probably got half the listeners on 3x speed at this point just to skip through this particular section.

58:05So I will shut up. Other than saying, you'll find, if you Google, You'll find some people who are far more articulate and smarter than me that have sort of gone down this particular rabbit hole. But, yeah, you could run the entire global economy on one Bitcoin. It would mean that that one Bitcoin was probably worth$500 trillion. Yes. Right? But it is because you could take – Why not? We're talking about shares. What's the word? God. I can't believe it. We share – we make more shares out of shares. Oh, split. Thank you. What the hell? It's fair to come. Yeah, you split shares and you can actually consolidate them too.

58:38You could take the 21 million Bitcoin, you probably literally couldn't because of the way the system is, but you could just turn that into one Bitcoin or 285 gazillion Bitcoin. And here's the other thing, it's a currency and money is weird. Andrew loves this stuff. I was going to say the other word. Sure do. But it's a representative token. So it says that I have a thing, a Bitcoin, a page dollar, a pound. Seashell, bale of tobacco. Right. And I can, there's this many tokens in the world and this much stuff in the world. And so everything is priced per token. And you can call the tokens where you can replace them.

59:15Now, Bitcoin may be the final token, maybe not. Maybe there's something else, maybe there isn't. We've done it with fiat for a million, not million years. We've done it for centuries. 15 years. Yeah, well, yeah, it was linked. But I mean, the actual, just the name of the currency. Right, right, right. Australian dollars have been around for, well, actually about 70 years. But you know, pounds have been around for longer. Dollars have been around for longer. My point is, it's just a representative token. It just says, I have a claim on this much stuff. And so to your point, Ram, whether you have 21 million Bitcoin or how many Satoshi that ends up being, you create a mini Satoshi, which was a fraction of that again.

59:49You could have pages and pages might be one billion billionth of a Bitcoin. We have fractional shares now on many of the apps. Exactly. That's a great example too. So yeah, really, really good point. Yeah. I mean, think about it this way, right? So if you go to South Korea, you'll take your Aussie dollar and you'll say, can I have some won, please? There you go, he's 900. Whoa, I'm so rich. No, it's arbitrary. Imagine having 901 coming to Australia and going, here's the dollar. It's like, whoa, what happened there? What the hell? Now, why is the Korean currency, or the yen is another great example, right?

1:00:30There's no other denomination. It doesn't break down, does it? Just yen is yen is yen. Yes, but it's like, but one Australian dollar is thousands of yen. Yes, yeah, that's right. So again, in our framing, I mean, money is a language that we speak. So you and I speak English. Yep. And I don't think you speak another language. I don't speak another language. It's the curse of being native tongue in English because you're never forced to do anything else, which is really shameful. But anyway, I speak English. I don't think about what I'm speaking. I just speak English because that's what I know. And the person I'm communicating with understands it.

1:01:08And so when I'm speaking to an Australian and I say a Big Mac costs$7, you automatically, without thinking, know whether$7 or you have a feeling, back to the earlier point, a subjective expectation of whether that is a lot or a little. The only thing that really matters is the time. Time is money is a good saying. A better saying is money is time. It really is. Because when you say to an Australian, a Big Mac is$7, you'll go, okay, well, the average person earns maybe$30 an hour. So what you're really saying to me, that Big Mac is going to cost me 20 minutes of my time. Now, you go to Korea and you say, do you know that Big Macs are worth$7?

1:01:52Is that a lot? Or is it? They don't know because they don't speak Australian. They don't speak Australian dollars. They speak one. And when you go there, they'll say, do the math in my head here, 6 ,300 won for a Big Mac, right? And they go, yep, I instantly know if that is high or low because I speak won. And what that equates to when you boil it down is like, yeah, about 20 minutes worth of work for the average worker. And that is the consistency here. So people get so hung up on the value of a Bitcoin and how can it be like, it's entirely arbitrary. Satoshi could have said, you know what, we cap out at$50 million or we cap out at$10 million.

1:02:28It doesn't really matter. It's not a jot. The point is the only thing that matters is that it doesn't change. And that's really, if you really want to, it's like the value proposition of this whole thing in a sentence is it's fixed. There's$21 million. Some of them lost. More of them will be lost. I've lost some in the past. There's things called dust wallets where it's so small that you can't even cover the transaction fee on the blockchain. And that will go up. And there will be a point in time where there is only a very small circulating supply. But it's fine. It just means that the value of that, I mean, it won't even make sense to convert it into dollars at some point.

1:03:05Because it would be like me trying to convert the Aussie dollar into whatever they used in ancient Rome. The De Niro. Is it the De Niro? Yeah, I think it was the De Niro. I think so, yeah. Or De Niro? Oh, that's an actor. De Niro. Anyway. One Scarface, please. Have I made my point? You have made your point. Does it make sense? Yep. Really, really well done. Yeah, but just, I mean, the only thing I add to it, which is a great question, Graham, is just that because you can break it down, there's no, you're not going to run out of them. If 20 million of them disappeared, if 20 and a half million disappeared, there still be enough component parts, those fractions, to allow the transactions to happen.

1:03:41Oh, see, I didn't finish that thought, did I? Yeah, so with gold, you get to the atomic levels that you can't divide it. With Bitcoin, you can, it's math. It lives in mathematical space, which means that you can add a, you can divide it almost well infinitely well you can't divide any you know you know what i mean like you can always fit anything as many as many decimal places you can have on a on a computer you can divide that many ways that's why i say like i mean think about it this way right there's 50 million millionaires in the world yeah and there's probably about 16 million available bitcoin right like the only thesis that you need for the and you might disagree with it in which case don't touch it.

1:04:17But if you think adoption is going to grow, if the demand for oil goes up, what happens? Drill more oil. Demand for - Well, price goes up until it's worth drilling for more oil, which people do, which keeps the price from going up any further. There is always a supply side response. It is impossible to have a supply side response. So if you think adoption will continue to grow, at the moment, it looks exactly like an ass curve, and that could end tomorrow for some fatal flaw. So I don't want to paint this as a certainty. But the big if here is if you think adoption will continue to grow, the price will continue to grow.

1:04:52And I wouldn't even think about it in terms of price because people make this mistake of going, I'm buying it to make money rather than, no, it's just a different, I'm just opting into a different network. And one that is, whose purchasing power is likely to increase over time. However, that, whatever that shakes out to in terms of one or yen or USD or Aussie is kind of the point. It's just so hard to wrap your head around because we all speak Aussie dollar. That's the language we speak. So when you say, what's a Bitcoin worth? I mean, I could price the entire global economy in bananas if I want, right?

1:05:27You know, a banana is worth, let's call it a dollar. Let's say you earn$100 ,000 a year. You could be paid in bananas, right? Like in theory, it's absolutely possible. The reason why not is because dollars became tokens to avoid having to exchange those physical goods. I've got watermelons, you've got a cow. Okay, well, a cow's not worth, you know, it might be worth 100 watermelons. What's the exchange rate? You want 100 watermelons. So what are we going to do about it? Well, if I give you this coin that says you can redeem a bit of a cow for a watermelon, that feels like a better way to do it.

1:05:57That's how money gets born. And that's literally, I mean, because it's a different form of, and we're saying a better form of money, so let me get them first. A different form of money, a different way of counting, a different way of transacting and recording with different characteristics. But it's the same thing, maybe a better execution of it, but that's really all we're talking about. It's the same idea. That's all it is. Go down the list of attributes you want in money. It needs to be scarce. It needs to be fungible. It needs to be divisible. It needs to be durable. There's all these things, right?

1:06:24People have talked about this for centuries. And when you go down the list and you compare it with everything that's out there, it just like blows everything. It's not even like it's night and day. Except, except, and let's be fair here, one of the most important things is it's widely accepted. And that's not true for Bitcoin at this point in time. And that's the weakness. And particularly in commerce as opposed to just that store. The store of wealth thing is perfectly fine and it's accepted enough. It doesn't even need to really be more accepted. As long as you can store it and then redeem it, it's perfectly fine.

1:06:57That's$2.5 trillion worth of value. It's worth more than Google, right? So it's definitely got that store of value. but but it doesn't have that yet maybe i should i and and and think about this we always talk about network effects right trying to try to compete against google or you know amazon how hard that is think about the most dominant network effect in the world is the existing money so it's super super hard to overcome which is why it's always going to be volatile and messy and shaky and scary and the rest of it but my point is is that i just just to follow on the on the coattails of what you were saying there in terms of the characteristics that we like.

1:07:36It's the first time that we've gotten – and it's one of those things too. I can say the term perfect because once you get to perfect scarcity, you can't improve on that. I can't be like, well, I'm twice as finite. Twice as scarce. It doesn't make any sense to be twice as finite. Or I'm twice as divisible when I'm already infinitely divisible. That's the real mind blow of this stuff. You get to the point where it's like, oh, this is the final evolution of money. there is no there is no there is no second best okay shut up Andrew you've gone on too long no I think I think it's it's it's pretty good I um I I'm only I'm only mindful of and I I'm sure this has been tested right so I'm not even disagreeing but it's kind of one of those things where people it's at the end of history kind of idea of like this is perfect as it could be because these are the criteria it's like in in 15 years I've looked back and go oh we've got the extra the extra criteria the extra thing that made it different it's the old you know six main frames in the world.

1:08:30It's like, yeah, it feels like enough until we realize we can do this with it. It's like, oh, hang on, you know, can't improve on TV. Well, you know. It's a big hurdle to get over. I spend a lot of time trying to get over it. And I do, but my analogy is it's like if I tried to list on the market with a company that was flogging Wheel 2.0 or Electricity 2.0 or Internet 2.0, you get to a certain point where it's like it's such an absurd thing to do. It's like, how can you say that? The other thing, I'll shut up. I promise I will. Well, no, I can't promise it. I won't. No one expects it. It's okay.

1:09:03But let's say that someone comes up with a computer science breakthrough that allows us to have all the things we have with Bitcoin, but in a slightly better way. Maybe it's not quite as energy intensive, but it still has that thermodynamic tether to the universe. I'm not going to backfill that. That's too hard. But it's super important. People get worried about the energy use, but without it, it's just fiat. So it's actually not a new invention. But what you've got, the real mind blow with it all, one of the 50 million mind blows, is that at its base layer, it's a social construct, as is all money.

1:09:47The Australian dollar is entirely a social construct. It doesn't exist except in the heads of these hairless apes. It is entirely made up. And so if something goes wrong with the global financial system, what happens? they get together and they go wave the magic wand and now we're adding all zeros and everyone goes yep that's perfectly normal of course you can do that it's made up and so if someone invents a different proof of work mechanism or a different hashing function or whatever you know without getting into the computer science you just incorporate it into bitcoin yeah right it it you can do that it's very hard to do that and the only way you can do that is to get very very broad consensus amongst everybody which makes it the most purely democratic inclusive thing that has also been invented but that that's why i can make this claim to sort of say it is the end stage of money because on all every characteristic has ever been identified with money over the last thousand years it's kind of like well it you as i said you can't get more finite than finite and if there is something unexpected we can change it we can change it it's computer code We just all have to agree to change it.

1:10:53And do you think in a world where a lot of people are holding their value in this thing, something comes up as like quantum computing is the classic example, right? Oh, what about quantum? It's like, well, there's a bunch of quantum resistant algorithms that we could employ. We're not doing it yet because it means everyone's got to change the software, run new nodes. It's very hard to do. There's not a burning platform. The threat is probably at least a decade away. We don't know. But if it happened tomorrow, you know what would happen? First, the price would crash, not to zero. everyone running a node would go oh shit pardon me sorry pardon the language they would go oh poo and then sorry and then they would and then uh core developers or people who there's various outfits that run that it's all open source that create the node software we'd switch out the algorithms we'd all burn up it all restore and we just keep keep ticking along that that's like it literally is future proof anyway maybe i'll shut up now i won't i won't guarantee it i'm just giving you time to start up again before i try and sign that endlessly fascinating it is absolutely it's so fascinating even separate from the investment case yeah the concepts behind it oh um i read a book recently i talked to you about i'm not going to recommend it here because just it's equal parts fascinating and not baggery and but but the philosophical theoretical historical stuff on this just just and to your i've made this point to you before off air but bitcoin is necessary for the conversation about sound money to happen yes bitcoin is also the biggest obstacle to the rest of the conversation on sound money happening because of proselytizing and the instinctive other love or hatred or or whatever for bitcoin itself um but but the the just the concepts that it that it brings into a conversation um the way you think about you to your point the way you think about money just it doesn't break your brain but it kind of remakes your brain a lot of ways around hang on so what are we doing and why are we doing it what else could we do and what would be better.

1:12:43And those things are fascinating, fascinating conversations. I mean, you know, when you say the word dog, there's no part of your brain that goes, why is it dog? Why does it start with a D? Why has it got an og sound to it? You never question it because it's just dog is dog and that's how I say that. That thing is four legs and hairy and licks my face. It's a dog, right? And it's the same with money. You're so immersed in it that your understanding never goes beyond your understanding of what it was at six, which is, wait, I do some work. Mom and dad give me a bit of money and I can exchange it for things.

1:13:16Yep, that's money. And then like, that was my understanding until recently, you start opening up these things. So I've recently pivoted to saying, forget about Bitcoin, right? Don't worry about that. Just think about sound money and what money should be. And then once you understand the problem, you can go, well, what's the solution? It's like, well, there's only one solution to it. It's up until now, the sound money advocates have only been able to rely on institutional quality and resilience. And actually, to be fair, in the West, we've had pretty good institutions that have resisted the urge.

1:13:52Like every other failed state in Latin America and everything, they're all blown up because there's been no discipline on the money. They just print it and it becomes worthless piece of paper. Now, we're getting to the point where we're doing that. So it's not perfect, but it's pretty good. And we know what happens when you lose that sort of discipline. And the great thing about this is it's just like for the first time in the world, we don't actually need to rely on some group of humans to instill the discipline. We just rely on the laws of thermodynamics. So as long as you believe those laws are eternal and immutable, so too is this.

1:14:27And yay, the sermon is over. Again, you said that twice already. Three times actually. I'll shut up, man. Yeah, I will. Try to. I'm going to wrap this up before Andrew starts again. You're welcome, listeners. Thanks for spending a bit of time with us. Fascinating conversation, mate. Thank you very much. Will you come back on Friday? If we get any Bitcoin questions, I mean, try and stop me. Zero questions on Bitcoin on Friday, I promise. A little regular episode. Next Sunday, you never know. We'll see how we go. Until then. Bye, Bitcoin, man. Full on. Cheers. Good. Nice one. The Motley Fool and people appearing in this program may have positions in the companies mentioned.

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