Bitcoin Will Never Have Another 80% Crash | Eric Yakes

28:48And then there's also, so like that's one source of demand. And then I think there's also another source of demand for actual payment settlement. And that's the piece that I think is very bullish for Bitcoin over the long term from stablecoin adoption is that being able to move value over a protocol based on digital signatures is just something that for any, you know, I think about it in terms of like, what are the businesses? What are the applications? What's the software that's ultimately using this around the world? If, you know, 30 to 40 % of payment volume is done in stable coins in a decade, then 30 to 4 % of payment volumes is a button switch away from being done in, you know, Bitcoin directly.

29:37And so like getting the world to use digital signatures for payments is a big thing. And I think that that's bullish to get the infrastructure set up for a Bitcoinized world. So those two things, if those expand, then the Treasury is kind of like, okay, so every stablecoin issuer, if they grow into the trillions, and let's say a decade from now, the market grows to 10 trillion. It's like, you know, total public or total U.S. debts at like 40 trillion. And I think in terms of like Treasury, it's around like 30. So if we think about stablecoin providers being, you know, five to 10 trillion in market size over the next decade, like that's huge in terms of demand for treasury debt.

30:25And so I think that like that, this is one area that I'm curious to see how the treasury starts reacting to that and how this ultimately is going to get pushed at a global level. And yeah, so that is what offsets the idea of people being like, okay, we're going to go into a debt spiral. What is that? People don't want to own the debt anymore. So it goes down in value and that leads to debasement over time and the currency. The currency is the escape valve and that leads to inflation and economies can crumble from that. So the question's like, how do we increase the demand for a period of time so it doesn't happen?

31:05And this could be one vector or one of the areas that they start to pull on is like the inefficiencies of the international banking system in trying to capture the long tail of other people, of other currencies and converting them to dollars. I would guess that they start leaning into that pretty heavily over the next decade. And then I think there's a big story for Bitcoin adoption around that. At the start of the show, you talked about the three functions of money, store value, minimum exchange and unit account. Do you think Bitcoin's failed if it doesn't eventually become all three? I don't view it as binary.

31:37I view it as a spectrum. I wouldn't say it failed. At the end of the day, I think that if we have, let's say Bitcoin takes a market of gold. Did it achieve the full potential? We believe no. Do we have a permissionless store of value asset that we can ultimately move across borders and outside of the control of government? Yes. and we can do that in large quantities. How does that impact the incentives of governments? How does that impact property rights being protected by the individual? I think significantly, much more than people storing their value in real estate, much more than gold. So that's a win.

32:17I think it's a win for freedom. But I do think that that vision pales in comparison to the idea of the world being on the first neutral monetary system in history at a global level. Like, historically, if we go back to primitive times when people used commodity-based monies, non-government commodity-based monies, you know, those were neutral. They were subject to, you know, some degree of, like, market influence and, like, the supply and demand because they had utility other than being money. But generally speaking, and certainly relative to fiat currency, they were very, like, neutral systems, but they weren't global.

32:58They were neutral within their own, you know. And prior to precious metals, monies were largely confined to, like, the geography and the economy that they were in. And precious metals started to, like, you know, cross borders and power structures. And a lot of people were using gold and silver generally. But we just really didn't have, like, an integrated global economy. Like when I think about the Bitcoin maximalist type framework, or not even that, but just like I guess a general, I don't want to call it Austrian, but whatever it is, the viewpoint of like money converges towards one. It's like true from like an idealized perspective, like philosophically, it's true.

33:43Like that's the optimal way that things go. The reality is we've never seen that. That's never existed. And that's never existed because... Did you not see that with gold, though, like pre-fiat currency? Yeah, but gold was something that... It wasn't global. There was also a bimetallic system. So, because gold wasn't good at something, and silver was a little bit better at some other things. And these weren't global systems. Like, we're thinking about what they ultimately were in, like, European economies at those points in time. And, like, there was a whole other thing happening, like, in the East during these periods.

34:24And I'm no expert on, like, development of money within the Orient, but I think the timelines were actually very different for how some of the evolution was happening between these. But, like, it's, you know, it gets close. And I think that the reason that we start... But, like, the reason that those things didn't happen or at least didn't grow to a global level and persist for a significant period of time is that we quickly started to see more. Well, I won't say that. They did persist for significant periods of time. But even if we assume like a biometallic system is like one, we ultimately had the evolution into paper systems because paper had superior properties to gold from like a payment standpoint.

35:16and a bunch of other reasons, but that's another topic. So like, and then that got very fractured. And like, you know, generally speaking, I think across history, what I was writing about my book is what, like the primary reasons that we don't see like one money is because of one, information opacity, people just like not being aware of everybody else's money around the world. That's probably largely gone with the internet today. Like sovereign coercion amongst governments, That's probably the number one reason we don't have one currency today. And then just like monetary utility trade-offs. So one money being better than another at some things.

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38:15Go to bitkey.world today and use the code WBD to get 10 % off the new BitKey. That's bitkey.world and use the code WBD. But like, I think we'll get to a world that will be like very much like either Pareto rule, if not more exposure to one specific commodity. And I think that world of like Bitcoin being like the neutral first global neutral monetary system, you know, highly dominant where like 90 % of trade is being done with this neutral system. That that's something where it just changes the incentives and the power structures of any government. and that is what I think unlocks, you know, the memes of like the future where everything's perfect and the cars are flying and all this stuff.

39:03And I think having the neutral monetary system is that. I don't think we quite get that from a permissionless store of value, but it's a good step. So that's why we got to fight. I think that we have to build a lot more infrastructure. I think stable coins are doing a lot of that effort for us from an adoption standpoint of infrastructure. I think that there's a lot more. The way that we view this as a firm is Bitcoin needs to be in everything. There's all these markets of different monies, of store values, of things, and everything needs to become Bitcoin compatible. It needs to be an arm's length from that.

39:45Like, from us as a firm, when we think about, do we want to invest in something that's like its own, in its own little Bitcoin world that nobody uses? It's like, no, like, the battle's being fought where capital is today, and where people are storing their value. So things like, you know, the ETF is a great example of this. The ETF got a bunch of people who are in brokerage accounts to get direct access within these, like, tax advantage situations to Bitcoin. So, boom, there's a bunch of capital that moved into it. thousands of other areas like that within the financial economy globally. We need more and more software, financial products, banks.

40:27We need all these different financial institutions. Bitcoin needs to go everywhere, and it is. It's been growing significantly throughout all of that. But that's the stage we're in right now for adoption is let's make the world Bitcoin compatible. and then we get to a world where now the capital can enter the system now the capital at least can get exposure um and then people can be like oh well what if we control this ourselves oh what if we're moving everything over lightning oh what if i actually want to like store my own keys as an institution i think all these things are very far out um but it all starts with going to where people are and meeting the uh the you know ultimately the consumer where they are so i asked you to come on the show when you put a tweet out i'm gonna read it you said uh treasury pushes stablecoin adoption stablecoins expand dollar dominance long tail of smaller currencies dollarize bitcoin expands a stable stablecoin reserve asset stablecoins bitcoinize fiat currencies capitulate hyper bitcoinization um that's like your playbook and i was feeling it when i tweeted that i mean i like it but the thing so i i i want to believe in the hyper bitcoinization story, but I've always struggled to sort of see the sort of the route that we take to get there.

41:43How likely do you think hope Bitcoinization is as a concept?

41:53From what I'm seeing, um,

42:01so I'll explain my thinking. Um, So I'm not worried about the incentives of Bitcoin adoption. I think that those exist. I think the worry comes down to and what a lot of people focus on is what stops or what constraints ultimately emerge in that process. So like, let's just use the ETFs as an example. That's, I think at least amongst like Bitcoiners, that is one of the concerns. So like, okay, well, the more and more that Bitcoin is ultimately custodied in a concentrated area, and the ETFs could be a vector for that, the more risk there is to the network being controllable, no longer decentralized.

42:59and and i think like that's i've never gotten i think a reasonable answer from anybody who's hypercritical that maybe you have like i i haven't gotten a reasonable answer on it but like i'm like okay what's the number like what's the percentage of bitcoin that needs to be in one custodian for the network to no longer work or you could ask it the other way like what's the percentage of bitcoin that needs to be in self-custody and then define what that means Like, self-custody is a gray area. It's a vague term. But what's that percentage? And I don't think anybody necessarily has a clear view. I think the way that I view it is, I wrote about this in my writing on free banking.

43:49And, like, super quick, free banks, there were systems where, that ultimately, like, the banks were acting, generally speaking, in the interests of consumers, and they were highly competitive. And these were systems where a central bank doesn't exist. It's just banks were like you... And they worked because you put the gold in, you don't want to trade the gold, it's way easier to trade paper, you trust the bank with it, the bank gives you a receipt on their paper. And then a bunch of banks were all doing that, and they basically created their own private currencies that were all competing with one another.

44:21That competition amongst all of the banks to have a currency that was the most pristine was a really powerful incentive. And these banks ultimately served the general public pretty well. Every time there was a bankruptcy of a bank from doing like a fractional reserve behavior, they got bought by a competitor and the customers very, very, very rarely over a period of like over a century lost any sort of money. It was only on like the equity holders of the bank. So that view of banking is interesting. And it's just like, okay, well, why doesn't that exist? and it doesn't exist because governments would take control of those systems.

44:57It was very rare in history to see a truly open free banking system. There were two, basically. So it's like, okay, how do we manufacture that set of incentives? What's interesting is that at that period of time, it was so much less practical to operate outside of those types of systems. To say, oh, I'm going to get my gold out, and I'm just going to trade gold with everybody. You could do it, but it was much less practical. It was hard to like exit the system basically. And that is an incentive that I think is really important. Having the ability to leave the system gives service providers that you are trusting within a system a very different set of constraints.

45:40Not that, oh, they may move to one of my competitors, it's like, oh, they may just not even use our entire system in the first place. Having an alternative way to opt out is a powerful incentive to those who are opting in. And that is what I think is really valuable about how Bitcoin works is, in a world of trusted custodians, Bitcoin far and away, the marginal cost of being able to self-custody and participate in those economies is just so much far less than anything else. Like, try to exit the banking system today and operate in a modern economy. It wasn't possible unless you wanted to be a drug dealer operating in cash.

46:21um and i mean that was going to be my my point when when you said like if i don't know if i've heard a good answer to that it's i don't think it's really about the percentage although like i don't really want to see any individual have or any individual institution have more than like i don't know 10 seems like a lot i mean if you ask me 10 years or five years ago whatever five percent or four percent whatever strategies that seems a lot and it's not that i love to see that but i think the only really important thing is the ability to self-custody and move bitcoin outside of like any controlled system.

46:49That's the only really important thing. Exactly. So like, as long as you have that incentive, and even if it's a minority of the market that's in self custody, I think that makes a service providers act in your interest. And it's like, okay, well, what if the government tries to take control of one of those? And it's like, well, the remaining capital in the system is going to flow out. So it kind of puts the government into like a catch 22 in those situations. And like, that's, what's important is the marginal cost for an individual to operate in a self sovereign way is low enough. And I think it is.

47:17So like that is not something I'm really worried about from like an incentive standpoint. I think another thing too is let's take a step back. This system is so infant for what we're planning. Like anybody who's done their research on Bitcoin knows that the adoption for something like this is going to take decades to get to this like neutral monetary system type vision. we're witnessing the monetization of a new commodity. That's going to take a long time for people to understand and trust. And I think, like, I view it as its own economy. And if you study, it's like this new economy that's emerging.

48:01And if you study, like, economic development and how economies, like, grow from their instantiation to maturity, there's, like, a period where the concentration of wealth increases drastically and then starts to diminish over time. And I think it's measured by something, a Gini coefficient if you look those up, but it's a measure of wealth concentration in economies. And that's what I think is happening within Bitcoin as well is we're going to see concentration during periods, but the reality is the bigger it gets, the harder it becomes for people to control it individually. And the more that people who are taking large positions like the Michael Saylors of the world, the bigger it gets the greater their incentive to distribute more of the wealth like this is how economies grow so um that's another reason it's not necessarily something i'm worried about and unless unless somebody has like a precise argument to make about a particular form of concentration in the near term then it's not something that i'm like terribly concerned on because those incentives all kind of like line up to me and we see that distribution every time Bitcoin price ropes, OGs come out and start selling Bitcoin.

49:11Like the guy last year who sold 80 ,000 Bitcoin at the top, like as hard as that is for the market to digest, like it still is a good thing. It moves Bitcoin into more hands. Taylor's selling Bitcoin. Like, you know, it's, yeah, it's just, you can't eat Bitcoin. So you don't have to worry about people hoarding it till the end of time and trying to undermine the validity of their own wealth in Satoshi's words. But I kind of sidetracked you there. I want to know how likely you think it is. You said you weren't worried about the incentives, but how likely do you think it is? We kind of just described like, could Bitcoin be killed from some of this stuff?

49:45And that I view is very, very low likelihood. It's not really a question I look at as much as can Bitcoin grow into something less optimal than what it could be. And that means can Bitcoin grow into be something less than like, you know, medium exchange in your account. And I think people have talked about this a pretty, you know, decent amount of like it just getting stuck at digital gold. I think that what a lot of that boils down to over the long run, to the point I was making earlier, if we consume the store value market, now it's like, okay, medium exchange is on the table. Now this thing's big enough to like, everybody's, a lot of people are going to own it at that point.

50:34Your mom and your uncle and your grandma might all have it. And it's like, okay, cool. There's this other system. You can actually use this and you can just pay me directly in Bitcoin. And then it was like, whoa, oh my gosh, it was so fast. And like, there's like that world is, I think, a ways away. But the amount of infrastructure, and this goes to my point of like, everything needs to be made Bitcoin compatible. So like, that is another question. Like that's us as like being in venture capital are focusing on that. And that is a hard problem to solve. So like in the world of venture capital or in the world of like private capital focusing on this stuff, you don't hear about theses like ours.

51:19Like this is very niche. in the world you're basically playing in fintech is what we do and we're investing in like fintech companies and we're saying how do we have an angle of bitcoin adoption and how is that going to be a competitive advantage and that world is focused on AI and stable coins so it's one I think that's kind of like what VCs are doing is like we're kind of the boots on the ground like fighting the narrative in those realms basically saying like don't overlook bitcoin because here's where you can go do you can go compete on a bunch of stable coin deals and that's where a ton of capital is going and there's a bunch of people competing over the similar territory um but what makes you different and i think what makes you different is like support stable coins stable coins are valuable um your customers want them um but what if you have a bitcoin angle that nobody else has And like that's one of our key theses that we were writing about last year is like, you know, ultimately like bank adoption and financial institutions that I think one of the largest growing areas within the economy is going to be Bitcoin collateralized lending.

52:30There's just a ton of bottlenecks within the like fintech world and banking infrastructure to that ultimately happening from a regulatory standpoint, from a technical standpoint, from just like an understanding standpoint. standpoint. And so like that, that's kind of what we're working on is how we resolve that. And I think that like, sure, you could use stable coins and get more customers because you have your stable coin compatible. But if you're a bank, and you like all the viability of a bank on their lending business is pretty much just what's their net interest margin, how much they make on their loans versus what's their cost of capital.

53:08And the Bitcoin lending market is just like, I think this huge arbitrage within that because the collateral is mispriced. Like you go talk to these guys who are running community banks. I mean, they don't even know what a stablecoin is. And like, they're just like, that's spooky. And like, not a lot of our clients want to do it. But there's like mismatches that you see in the market everywhere. And it's just like, dude, if you guys just did Bitcoin loans, you can literally pull the collateral over a weekend. And it's a, you know, multi-trillion dollar asset. And you can keep the collateral in escrow.

53:39you can't do that with a house. You got to go foreclose on it. Like, you know, there's all these reasons that Bitcoin is just superior collateral to anything else. And you don't know the price of the house. Yeah, and you don't even know it's an illiquid asset. And like, and the transaction costs are so high. And like, you know, the operating costs of like running a foreclosure business on that stuff is expensive. And it doesn't mean that these aren't valuable markets to be playing in. But like then the rates that you're getting are significantly less than what you would get on a Bitcoin loan. um and so it's like you could double your net interest margin as a bank from like having like a very heavy focus on lending against collateral like this um and mind you like a lot of this discussion isn't just in like the u.s i think that there because of regulatory environments there's such a valuable opportunity for like international regimes to um uh be first movers in these areas uh but so you know it's it's a lot of things like that where it's like i think to the Bitcoiner, and if you read Ben Hunt's Epsilon Theory piece on the Eye of Sauron and Bitcoin ultimately being co-opted by Wall Street, I don't think he's wrong about that.

54:49I think we're going to see a ton of crap narratives and everything emerge. But to the conversation we're having earlier, I don't think that destroys Bitcoin. And I think there's a period of growth where it being implemented within the infrastructure is how it grows and ultimately creates the environment to get people out of that system and into a new system. But the reality is, if you understand the financial system, we don't have that new system yet. There's so much that needs to be built for that to work. So there's nothing to bring them to other than self-custodying their Bitcoin. But guess what?

55:25We need wealth management. We need financial products. We need insurance we need and there's all these companies working on things like this right now but we're still a decade away from all that happening um so yeah i don't know i'm just kind of rambling about it but it'll take some time that all needs to get built and that is going to be a very uh that's going to take a long time um there's people we need it we need a lot of intelligent entrepreneurs to be convinced of this thesis because entrepreneurs are ultimately like the top-notch guys who are intelligent, hardworking, and, you know, love taking on a ton of risk.

56:06Like, those guys are going after AI and stablecoins because valuations and capital are being attracted towards that. So we need entrepreneurs that are highly capable. It doesn't matter if you just love Bitcoin. Like, you have to be good at things. So, like, we need that thesis to be more well understood. That'll get easier over time. but um this is why like price going up matters because that's what's going to attract those people and that's what's going to attract the investment yeah i want to go through the rest of this uh because we've gone through a lot here treasury pushes stable coin adoption was point number one you made we've talked about that that makes sense stable coins expand dollar dominance yeah long tail of smaller currencies dollar rise again makes total sense like if you're some tiny country and your population are moving towards stable coins like you don't even have a choice in the matter at some point um bitcoin expands as stable coin reserve asset.

56:58Why will that happen? So like, you know, we covered the discussion earlier. And to just like quickly reiterate, you know, I think there's a strong chance the treasury starts to push heavily on international stablecoin adoption to proliferate dollar dominance globally. And so the question becomes, like, I think if you start to think about like, okay, well, how's that market going to develop? With the Genius Act last year in the US, we got a pretty clear view of what's going to happen with stablecoins in the US. And it's basically like Tether can't operate out here with their international stablecoin if they were to ever pay interest and with how their current reserves set up works.

57:47So the Genius Act was basically like, you guys have to use U.S. government treasuries as your collateral, short duration. And like the term is a narrow bank. You're very narrowly defined by what you can do. You heard David Sachs talk about why they didn't allow interest, didn't you? I don't think so. No. So he said on the All In podcast, just after that bill went through that they can't do interest on stable coins because they basically just got so much pushback from smaller community banks that they sort of bowed to the banking lobby and just said no interest. Because I guess the banks see the line on the wall.

58:26Overarching community banking. I remember when that letter was sent, their organization sent something to the lobbyist groups and it was like, look like, you pass something like this, like we're going to be out of business. And I think when you understand the community banking market, like the community banks aren't the bad guys. The community banks are very behind. They don't know what the hell is going on in the world. But like the bad guys are the bulge bracket banks on Wall Street, you know, the major ones, the JP Morgans of the world, all that. These are the guys that they're not just trying to bully, you know, Bitcoin or the crypto world.

59:01They're bullying all of their competitors as well. They kind of created this little club at the top and they get to extract a lot of wealth and have influence over the system. Community banks are the guys who are just getting like screwed, who are serving rural communities. And those aren't the guys. We want to modernize those guys. Like we want those guys to ultimately win and be the early movers. they just can't help themselves from like the what what I've seen on some of that and um but you know putting putting that aside like the like it when we think about the banking system right um and this question of like paying interest you know I I think like the con the consensus conventional belief I guess um like treasuries come into our banking system they pay a rate of interest that ultimately turns into all the way down the stream of intermediaries, a bank account that you get and you don't get any of the interest on it.

59:57So that float that they get from those treasury securities is basically consumed by the system itself because it's so inefficient. So any sort of system that ultimately passes like a direct yield of treasuries on a consumer, um i think that you know those are attacked by banks because their model is uh own the government so that we can create an inefficient system that allows us to extract that margin for ourselves and not pass it along to the consumer and and you know like what stable coins are doing is they go direct to treasury bills uh technically speaking you know they go through brokerages or something But like, they, nonetheless, they get treasury bills in their reserves.

1:00:44And if they, you know, if it was legal in the US, very strong argument that stablecoin issues could just directly be passing that on to consumers. The way it works is like in the US with Circle today, what they're doing and what the Clarity Act battle is primarily over is, Circle doesn't matter. They're just kind of almost like an arm of Coinbase. What matters is distribution. Coinbase owns that within the US. So they have an agreement where 60 % of that float is going to Coinbase, and then Coinbase is passing some of that along to their customer base's incentives. And then the banks are like, that's you guys paying interest directly, and you're not allowed to do that because we need to protect our senior age within the system.

1:01:30And so that's kind of the whole battle happening in the US. But nonetheless, if we take a step back from getting into the granularities of the regulatory on all of it, But the question's like, you know, the yield finds a way, right? Like people want to get access to it. And I think that the times this has happened before, like when money market accounts first started to emerge and there was a similar pushback from the bank lobby that this is, you know, this is going to destroy the banking system. It's going to draw deposits out into these money market accounts. The reality wasn't really the case with that.

1:02:03But like also money market accounts aren't money. Like you can't trade them peer to peer. You can do that with stablecoins and that just changes the game because now it's like, here's kind of an interesting way to think about it. It gets confusing when you think about the monetary system, the difference between a US dollar and a treasury security ultimately, because they're so tied together because one backs the other. And it's just like, well, the question is like, why don't we just trade treasury bills directly? And the reality is, is because they're not homogenous. They're not like for like.

1:02:37There's no fungibility across them. They have different maturities. They have different interest rates. They have different duration. Like there's all these different characteristics to where basically having a combination of all these things put into an account and then issuing a currency on top of that, it makes it like blends them into a homogenous thing. And then that currency is trading in a global market. and so like that's basically the value add I think of like the transformation of debt into a currency and stable coins can do that really perfectly so going back to the beginning of the question I think what's really interesting about that is like right now we just have tether competing globally and they're so dominant and you have circle in the US because they're playing this regulatory arbitrage game.

1:03:25But Tether is like, what's cool about Tether is just like, one, it's got the scale from the first mover advantage. It's much more liquid. It's more widely accepted. It's been used in a bunch of different exchanges, et cetera. Nothing that can't really be solved by a competitor over a long enough time horizon. What's cool about Tether though is their neutrality and the way that they've kind of avoided this, let's make a specific bet on a specific economy to a degree, at least, with their primary issuance. And that's cool because that really makes them different. And because of that, Tether has, you know, whatever it is, somewhere in the range of, like, I think$150,$200 billion AUM on the amount of, like, USDT outstanding.

1:04:14And they have, like, an excess amount of reserves on that. So they have technically like treasuries that are backing slightly more than that amount. And then they also have like 20 billion in gold and Bitcoin in excess of that, which is not small. That's like a pretty significant position. And they continue to like load up on it. They bought a bunch of gold this year. And so like what they're doing is like pretty based. Like I think when you think about it, like I'm working on some of this stuff as a writing, which if I can get it done in time, I'll try to do before we put this episode out. But it's like there's like a, you know, like a lot of this audience is probably familiar with a carry trade.

1:04:56And there's a bunch of different forms of it. And a stable coin is a carry trade, effectively. But it's so great because it's like the only carry trade on the leg where you're buying your cost of capital at zero. Like Tether has this zero cost of capital leg in their carry trade. And then they collect the float on everything else that they get in terms of securities on the back end. So the question becomes, we have this setup where there's kind of like this stablecoin carry trade happening. There's a long tail of stablecoins that are starting to enter the market. And the question is like, how does this grow over time?

1:05:40If the U.S. Treasury is pushing this dominance, how is it going to grow? is going to be a lot more fragmented. If you look at dollar mutual funds, those fragmented pretty significantly over time. So you could argue that we're going to start to see a lot more, but then it's like, how do these guys differentiate? I think one thing that's kind of thought about in the market is there's ancillary incentives where a lot of these stablecoins are basically trying to combine the idea of their own dollar payment in their company and a loyalty system. so there's like some angles like that but I think the primary thing that they're going to differentiate off of is yield they're going to say okay they're going to do what Circle's doing Circle is just test to use Coinbase for distribution but Circle's passing along 60 % of the flow that it gets on its reserves to ultimately get adoption by exchanges and get consumers to use it so we're basically just kind of like recreating the banking system by having a distribution arm that cuts into that yield again to some degree.

1:06:43And I think at an international level, we're going to see a lot more direct rewards or direct yield that starts coming. And as we start to see that yield, then we're going to have some spectrum of stablecoins where some are going to seem like, we're just going to own maybe a narrow bank. We're going to have only treasury securities or whatnot. We're going to pass that interest on directly. And then we're going to have a bunch of high risk seeking type providers. So they're going to be like, no, we're going to get very high return assets and we're going to double or triple the interest rate that you can get on something and, you know, see if we can sustain that through redemptions.

1:07:18And that'll be like this, you know, potentially like international free banking arm of like stable coins that emerges. So I think if we get fragmented, we're going to see incentives that are going to draw a system like that. the gut reaction to that is a lot of them are going to fail if they're trying to do that. But what I don't quite understand is stablecoins, Bitcoinize. I understand. So obviously Tether have done Tether Gold and I understand why you need a stablecoin version of that, like something backed by gold because it's like gold can't move on digital rails. But stablecoins, Bitcoinizing, is that not just Bitcoin?

1:07:48I think not. So it's a spectrum, right? So the point I was making about how like a stablecoin is blending treasury security issuance. So what about the stablecoin that has 5 % of its total reserves in Bitcoin. Which I think Tether used to have about that. Exactly, yeah. And these things will have in flow over time. But if we think about how fractional reserve systems used to exist, in free banking, competitive markets where it was like, what was the amount of fractional reserve that you needed to ultimately meet dollar, or not dollar, the domestic currency's redemption. So like in Scotland, that number came out to like between, it ranged 20 to 30 % of the total amount of outstanding liabilities they had in receipts.

1:08:36So think about it from that perspective. What if there was a world where something like a tether had 20 to 30 % dollar denominated liquid assets and the remaining 70 % was Bitcoin? What could they do with that? Who's going to have an advantage like that? And maybe I think the irony of a system like that as fractional reserve can end up becoming something that's very good for Bitcoin. I've never liked the idea of Bitcoin as hating on fractional reserve banking. I understand that the current fractional reserve banking system that we live under has so many flaws, but in a free banking system, if you're entering into an agreement where you understand that it's fractionally reserved and I don't have any problem with that.

1:09:16I have no problem with free market incentives competing. Like I've always believed like free banking, free banking was something that was created by a natural free market. So like, if your opinion is different than that, then like, I don't know, you're an idiot. I don't really care. Um, but like, I believe in free markets. I don't think that anybody's more intelligent from like what those were ultimately born from. But yeah, the system that we have today, um, is not that it is not any, any, anything, but is it's the worst fiat system in the world, but like a world where we have free banking existing again or something within Bitcoin, if that's what the market demands, that's what the market demands.

1:09:53If the market demands fractional reserve, and this gets into the more elasticity of money type arguments and this vague theoretical economist crap, but if you get into that stuff, I think the answer is literally what does the market create? I would argue that like though the market created in free banks a fractional reserve system naturally um through a large percentage was of like some some of the like inefficiencies in the system maybe it would have been higher if they weren't as efficient um and also if the system had a competing exit route um like a bitcoin option then that would have changed the incentives of the system so like i think the way it would work in like a bitcoin world could be very different But like, yeah, I agree.

1:10:42If the market demands it, so be it. And as long as information is, you know, granted to people on how it's operating, then that's fine. So the stablecoins Bitcoinize part of this tweet could almost be replaced with return to free banking. Yeah, I think that if people like, let's bring this back to the beginning. if the 50 % bottom and how that changes the perception of the asset and then that is something that can ultimately lead to a much greater scale which creates more liquidity for the asset and that makes it much more competitive with something like gold. Like if we were to think about gold as a reserve asset in a lot of these and like what Tether has been ultimately doing with their excess reserves there's no reason that couldn't expand in their reserve system today.

1:11:32And I think that it is those little things that if stablecoins were left to their own devices and they didn't have to worry about regulatory arbitrage and compliance, etc., that really what we're saying is treasuries need to compete with other forms of money and global dominance. And the reserves of something like this market is going to be the canary in the coal mine for where that's ultimately going. And if we know how money works, then we know that Bitcoin is going to be the most dominant reserve relative to treasuries within a market like that. And then we should expect it to see to gradually consume that market as it gets bigger and bigger and more liquid.

1:12:18That makes sense. So like essentially what that's saying is like that stable coins, Bitcoin eyes, free banking comes back, the amount of Bitcoin held in reserves by these stable coins might start at 5%, but the free market trend you're expecting to go to eventually 100%, which is when you just hit Bitcoinization, fiat currencies cannot compete against that, and we all drive flying cars. Yeah, exactly. I just think if Bitcoin's valuable money, that this is a vector through which the adoption could ultimately happen significantly. And the funny part about it is this is a vector that the US government is probably going to be trying to expand significantly over the coming decade.

1:12:57And so I, it's just, I think it's like a perfect thing for us to be pushing for global adoption of Bitcoin through. Um, and, and yeah, and like, that's, that's huge. So like, if I were, if you were to ask me like, what, what is a better option for like spreading Bitcoin? Um, Um, all the options we have to spread Bitcoin adoption today are things that are in independent regimes. Um, and we don't have a lot of like, uh, like I guess centralized forces that are pushing their adoption. Um, and, and, and all of them are too premature to get Bitcoin to be used as money. This is like El Salvador mandating people have to accept Bitcoin as payment.

1:13:39Right. When, when they're, cause nobody wants to use it as payment today. Cause it's, it's terrible for that. Well, like not it's terrible in terms of it's just going to move up and down in price. And like they literally launched it, you know, for certain merchants to use it. And then it dropped like 70 % within like a year after that. And like people hate it down there because of that. Like they're not expected to know this stuff and they don't they don't really give a shit. And they don't have the luxury of losing capital like that either. But this is like the free market mechanic that can move us to hyper-economization.

1:14:09It allows it to gradually exist in a monetary form. I like this framework, man. Yeah, I think that it can gradually get to, it allows it to be 10 % of your exposure to 30 % to whatever it becomes over time. And the incentives align to where if you believe the compound annual growth rate of Bitcoin is going to be 30, 40, 50, whatever percent a year, then it's going to be the number one way for you to add yield to the ultimate Stimcoin that you're providing and competing in a market on. so like if yield starts to proliferate bitcoin's the best reserve asset to start adding that and i think we'll see more and more small degrees of it in the long tail of the market and that that could be the way bitcoin really starts to expand over time i love it man that's cool i i think that's my favorite framework i've heard for hypercoinization uh that's because i'm your favorite guest fair um all right just to close out i want to know at the start of the year you did some predictions 2026 how many of them have hit what are you waiting on we have a lot of time left in this year is the first thing i want to say that sounds like coke

1:15:22so i don't even want to go through them yet do we have to do this yeah come on just tell me a few that have hit you don't have to we've got time the rest might hit still okay okay i i haven't i haven't given it a full scan let me let me pull up really quick um i mean you're never gonna get them all right well i know that i i i guess gun to my head when we were writing these i was hoping for like 30 to 40 hit rate i think um the big one that we got so close on was the strike acquisition because that was a very precise call and see i think you can almost count that as a win because it was like it was gonna happen and then it didn't Oh, for sure.

1:16:00I mean, we were thinking about it, but that seemed to make a lot of sense to me. Okay, so Bitcoin's got to get to$150K this year. I've been definitely off on that. Year's not over. The year's not over. I think to what we're talking in our second prediction, Bitcoin begins its decoupling in equities in 2026, but it will only be evident in 2027 hindsight. I think we're starting that, but it's kind of like a bit of a cop-out prediction because we got to wait until 2027 to really like no. This one we're probably just going to get cooked on because the AI trade screwed us. But Bitcoin rises 50 % gold terms from a Bitcoin rotation trade.

1:16:39I think it's fallen 20 % to 30 % gold terms. AI was the thing that sucked most of that. Major asset manager adds a 2 % allocation to their model portfolio. I need to double check, but I think we actually got that. But I'm not positive. I can't remember if that was a Morgan Stanley announcement or not.

1:17:03MetaPlanet achieves the highest MNAV. That's not happening. No, that didn't happen. Bitcoin receives conditional approval for a federal... A Bitcoin company receives conditional approval for a federal bank charter. Still time in the year. There's a lot of, I think, lines in the water, but may not get that. a stable coin uses Bitcoin as a reserve asset to pay interest to its holders offshore that hasn't happened yet but that could happen this year 21 Capital acquires strike so close and there's a bunch of others from a regulatory front on clarity etc blah blah blah oh I think one way we definitely did get was Bitcoin corn maintains dominance over alternative implementations definitely got that one it's true happened um see it sounds like a lot of those might not be wrong they might just take a bit more time that's right yeah our last one was Deepak Ventures begins raising it's fun too uh we're probably not gonna do that but sure we'll probably do it at the beginning of next year you've just gotta launch on like the 31st of December just to get that check mark right right yeah we do have control over that one yeah yeah all right man I've got to get on a flight to Hong Kong but always love talking to you man thank you have a banger dude later speak to you soon