E167: Bitwise Advisor: Why Buying a House Is the Worst Investment You Can Make

29:44In other words, the person who is buying a$40 million penthouse in 157 here in New York, because they want it to be a store of wealth, because they need to move$50 million. dollars and historically they didn't know how to move 50 million dollars easily can now just buy bitcoin and it is much better because you don't need to pay taxes on it uh in in the construct of there being like an annual servicing you don't also need to worry about like eminent domain right technically all of these things exist on american property where it could be seized one day if they thought you were someone who should be on a list you don't have to worry about these things and And that means that money will no longer come to real estate.

30:25If that money no longer comes to real estate, there's a demand curve reset in which home prices will probably come down. And then young people can buy homes. But of course, there's so much political apparatus around wanting to preserve house value to constantly go up because it is the foundational social contract of the American dream that home ownership has led you to affluence that is being fundamentally challenged by Bitcoin. And I think that is the biggest test for Bitcoin adoption, that more of us need to think about saving in Bitcoin as the primary source relative to other assets like real estate, and then come to the same conclusion that this is socially a win-win for everybody.

31:06Even though the short-term pain might be that real estate price goes down, it's actually a much more efficient way to store wealth because it's much less discriminatory in the way that property exists today. hmm that's why Michael Saylor calls Bitcoin digital real estate you tell Manhattan mm-hmm can buy today but we're gonna be worth much more it's like buying Manhattan real estate 100 years ago yeah again the reason that real estate goes up is not so much because the home got physically more valuable it really is because dollars keeps debasing over time and humans tend to cluster around areas where there's more productivity gains to be had, right?

31:53Like the natural state of capitalism is that the big keeps getting bigger. And if you don't allow there to be an outlet for that, something will eventually break. And we're seeing that, of course, in New York with the rise of Mamdani at a level in which that no one would have suspected we'd have a socialist mayor here in New York City, the capitalist beacon of the whole world. Quick shout out to our sponsor, Athena. It's one of the fastest growing projects in DeFi with over$7 billion in stablecoin supply and an average 11 % APY on SUSDE. And importantly, zero DPEGs since launch, which is exactly what you want from a stablecoin.

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33:16So this is part of this thesis of the fall of the intelligent investor and the rise of the ideological investor. Can you explain what's the intelligent investor? And why has the intelligent investor fallen? Sure. So the intelligent investor is a moniker that I use to frame how generally investors like Warren Buffett or Benjamin Graham have approached value. So when people talk about value investing, there used to be a very specific connotation of that definition. So it would be like stocks that are cheap relative to its cash flow earnings power or trading at multiples that are lower than otherwise the growth momentum stocks might trade for dividends over reinvesting profits for growth, things like that, right?

34:06There's a concept of value and value stock. But value ultimately means cheap. That's kind of what they're saying. I am making the case that era has ended. And it has ended for a long time, because cheap actually has not worked. If you look at kind of all the greatest performers in the world today, as I've mentioned about the penthouse units that are the ones that are doing better, it's actually not cheap that is doing well. It is the thing in which there's scarcity for, and how people think about there being additional value beyond that construct. And that is to me what I then transition into the idea of the ideological investor.

34:43The whole idea of intelligent investor as a framework exists based on a lot of assumptions that were taught in school. And those assumptions, I believe, have now totally come undone. One of the core assumptions of the intelligent investor, for example, is that everything must be priced off of the risk-free rate, the risk-free rate being T-bills. And it's in that sacred kind of acknowledgement of what the risk-free rate is that we have these cap-end models or discounted cash flows or what's their equity premium on how to value stocks. And it's the foundation, it's the cornerstone of investing, the risk-free rate.

35:20But everything we know about the risk-free rate is changing. And it's part of the reason why 60-40 is not working as well as it used to. We're seeing more correlation between U.S. government bonds and equity stock markets. and all of it is because the fundamental idea of risk-free is being challenged. Why is it being challenged? Because US creditworthiness is being challenged. Why is US creditworthiness being challenged? Well, it's all we just talked about. This is a generational shift that is happening. It's always back to what we talked about, right? Everything is always back to that. And so once you take that assumption away, right?

35:56Just take that assumption away that the risk-free rate is this thing that informs all asset pricing and now it's a free-for-all, then you get to see the world a lot more clearly, which is like, what are the ideologically important things that people are purchasing today? What are the things that drive value for them that isn't just about cheapness? And so on that front, I talk a lot about culture. I talk about the role of AI and how AI is affecting people's ideology around investing and geopolitics as well, because it's very hard to invest in something cheap if you felt that there was no bid for it the way that the government in the US at least now has stepped in to buy a variety of different stocks on their own balance sheet.

36:37And so, you know, you want to buy the stocks that you think White House capital management is going to buy, right? And that is an ideologically driven investing mandate than it is driven by what I otherwise have called value investing. And so to put it bluntly, value investing in the way of the intelligent investor, They think about geopolitics and AI and culture and all that stuff, and they want to hedge that away and capture something intrinsic without it. What I make the case for is actually those are the levers of value creation techniques today in the ideological investor. And so you have to lean in, not lean out against those mechanisms at play.

37:20So what does the ideological investor do? So the ideological investor spends a lot of time trying to anticipate what is going to happen in the future that the past models could not tell you. Because we know that everything about the past models is being re-underwritten. And if that's the case, you need to be outward looking. So how do you get edge in outward looking markets? You have to spend a lot of time thinking about fund flows. You have to start thinking about liquidity paradigm shifts and where you think the buyers are coming for different kinds of things. You also have to start thinking about the kinds of manipulation that can happen to assets and how to prevent yourself from being caught in that asset manipulation.

38:03and so you have to devise an investing framework where you can opt out of some of those dynamics at play with ways that people have not conventionally spoken to you about before so to put it an example imagine you're talking to a mom here yeah like to simplify everything because this sounds like a cio job right but most people are not cios they have normal jobs my mom is very good at this and i bet your mom is too that's the and i'll tell you how moms do it Tell me. Moms, of all people, really know what valuable things are. They know. And they know it's not like just Apple stocks in their brokerage account.

38:42They know the most valuable things can sometimes exist in the physical realm. It could be their one-of-a-kind jewelry. It could be their Hermes bag that's in their closet that tends to outperform the S &P 500 now for over 20 years. There's other things that are not historically called financial assets that can serve that value. Great works of art, for example, is another category of investing that is not related to what is otherwise conventional stock picking, but can also serve as a wealth diversifier. So I believe moms actually have great insight into this particular paradigm of investing that isn't otherwise conventionally taught as a way to do things.

39:20And that's kind of the direction I'm leaning into. So you're taught with your financial advisors 6040 buy equities buy bonds, maybe if you have a little bit more cash buy private equity, buy private credit, put some money in venture capital, put some money in esoteric asset back finance strategy, whatever it may be, and you build like this whole portfolio. But all of that is basically the same thing. They're all correlated to the fact that it's one giant global carry trade where the risk-free rate is and how the macro cycle shifts amongst investor appetite and portfolio reallocation. What you want is another pool of assets that those things will never touch.

40:01That is diversification. That's true diversification. And in that lens, things like crypto and Bitcoin serve a useful proxy because historically, at least until the adoption of the Bitcoin ETF, those investors were separate. It did not matter what happened with stocks as it would affect Bitcoin prices. And I would argue that there are still a lot of things in that category that individual investors can harness to their advantage and benefit from before the idea of otherwise what happens in traditional mainstream assets. so crypto gold hermes bags pokemon cards is another popular sneakers sneakers do very well i also think owning direct ip into certain categories are are critical um and i think the big asset class that has yet to find like a product market fit for wealth creation um that otherwise the young people already are harnessing is data your data is actually very valuable and right now a lot of people just give it away for free because they don't know how to monetize it i think especially my generation the millennial generation that grew up with facebook kind of unconvincingly like give it away not recognizing the trade-off and that's being made but i feel like the younger generation are much more aware of it they're more aware of this you know, creator economy construct where they're able to actually intermediate a flow of that data creation and benefit from it.

41:35And so, you know, I might argue even data as an asset class in the future where every individual needs to be aware of what it is that they own and how they can monetize it for their own benefit. And so one example of that is like prediction markets. Like I think prediction markets is a huge asset class to come. And it's not 60-40 stock picking bond portfolio type stuff, right? No financial advisor is going to sit down with you from J.P. Morgan and tell you how to bet on prediction markets because they're going to think it's unprofessional. Well, I guarantee you 10 years from now, someone will do that.

42:06And it's because the way you make money off of prediction markets requires data that is so proprietary at a level that is not related to the rest of the financial markets. And the payoff is also unrelated. And I think more young people are going to lean into this because they just know there's so much financial manipulation across the border with everything else. They know, the young people know, they do not want to play in the game that is rigged. And that is why there's such a hunger for an alternative. That's why crypto exists. It's why Bitcoin's found success. It's why people do DeFi. It's why people are on predictions market.

42:41It's why people trade 2x lever ETFs. It's why sports betting is a category that now DraftKings has doubled down on as well as Robinhood. All of this is a trend towards greater individual liberty away from the manipulation of general assets that are all characterized by one global carry trade. I had a couple of times on this podcast. Oh, yeah. I mean, you're a CIO. We just talked about intelligent investor, ideological investor, diversification, all that stuff, right? He basically says diversification is dead. because you said hey look you need some part that is kind of linked to this risk free rate some part that is not etc he says basically everything is linked to only one thing we talked about in the beginning basically money printing and fiat currency debasement and that's why he's all in crypto what do you think about that and how do you think about your own personal portfolio around that.

43:46Yeah. Yeah. I agree with him, but I also disagree with him. And the reason I disagree with him is because he's not thinking about the world as bigly as I am. Because he's absolutely correct when he says there's no need for diversification, when you're looking at, again, a bunch of the same trade with different complexions that has one common factor, which is global liquidity. I agree completely there. But if you are able to widen the aperture, and imagine a different set of investable asset class that isn't manipulated by the same cross border flows of that arena, then there is value in diversification.

44:25So when I talked about the radical portfolio theory last year, I went down a list of 25 different assets that people should consider as part of a diversified bucket that is not related to how we think about stocks and bonds and private and public compositions. So in that category, I talk about gold. Gold, I think, is still a good diversifier for most people. And I think this is the year that I finally feel like I got a chance to win at that. Because as Americans, they kind of laugh at gold bugs a little bit. But going back to the cultural awareness that I have in Asia, gold is a huge asset class.

45:03And because people know gold is the original non-fungible store of value. Like it truly is a class of its own. My family still gifts me gold from family gatherings to my children as their way of showing affection. And it's very much rooted in the culture of being a store of value. But beyond gold, great works of art are huge diversifiers because they're also scarce. And they're actually such high culture assets that they can compound wealth so incredibly over time. And those things don't have anything to do with where the stock market is at 6 ,800 or 6 ,200. So you often hear about these great art collections trading at multiples regardless of what market environment we're in.

45:57In 2008, 2009, some of the greatest trades were actually in that art asset class. And so that's another great diversifier. People do wine. People who trade wine as a way to store value because again, it's limited. It's consumable. It disappears. And so there's a whole list of things that I do think diversification is beneficial for. It's historically no one's taught you to do it that way. But here's the thing. One thing I'm very bullish about crypto is tokenization. Because if tokenization works in the way that I'm hoping it will work, I'm not interested in talking about tokenization of Apollo's private equity fund, or KKR's healthcare fund, or BlackRock's money market fund.

46:39Those things all generally kind of work. I think there's reasons to make it better and ways to appeal to a wider asset class. So there's probably still some net benefits for tokenization in that format. But the biggest opportunity is actually to go for the long tail assets that I described, like fine wine or owning a piece of a mega yacht that you otherwise couldn't own because the pricing point is out. So just for people who don't understand, I mean, not necessarily like super technical, you can tokenize a bottle of wine or yacht or whatever. And then it means that someone who doesn't have millions of dollars can buy a hundred bucks or a thousand bucks worth of this bottle of wine or of this yacht, right?

47:18Right. Because historically, the reason people haven't accessed these as financial assets is because they're hard to source and it requires such expertise and it requires curators and they're not served. But if you talk to any billionaire today, billionaires invest like this, right? There's a reason why yachts are continually bid up on their incredible value storing assets. And so the problem is the ticket size is too high for most people to access. So tokenization has this great chance to democratize esoteric long tail alternative assets that hopefully in my lifetime will see the radical portfolio become a real possibility where you and I can sit across and talk about this esoteric 40 % and it's not going to be the things that are easy to buy, which is just what Robinhood and E-Trade tells you to buy on their programs.

48:08It still sounds very complicated for the average person. Does that mean that investing is not for average person and they only need a financial advisor that can bring these new kind of portfolios or there's still a fairly easy way for my sister who is 35 year old and has a normal job and wants to save and invest and build wealth what does she do she can't do all this stuff even i can barely do all this stuff yeah yeah you know i saw an incredible stat the other day they said that something like only like five to 10 % of Americans after college had opened a stock brokerage account in 2005. If you look at that stat now, it's, I believe, half.

48:52So in that time of the past 20 years, younger people have become much more financially literate, or at least chosen a desire to be financially literate, whether they succeed or not is the question at large. but they've shown interest and there are a group of investors that now are getting to learn about finance a lot earlier than maybe you or me or your sister had begun their journey in and so I think we have to applaud that and be optimistic that will lead to good outcomes as long as we can equip them with the right choices and then I'm also enlightened by the fact that you do see a lot of young people trading in these strange esoteric things like people that are involved in sneaker trading and like pokemon card tradings i know it's fun to make like light of it um but culturally to me this is absolutely what young people need to be doing they need to start thinking about wealth diversification slightly differently than just constantly bidding up nvidia and palantir because numbers go up only like that's fine it's a game you can play but at some level like young people can play their own games and if they can play their own game successfully in it then I think there's a lot of power to that too.

50:05Quick one. I want to thank our partners who help us make this show possible. Thank you, Treasurer. My favorite cold wallet to store my crypto and make sure I sleep well at night. If you want to order a Treasurer wallet and sleep well at night too, you can use my promo code WSH10 to get a 10 % discount. Big thank you to Bitwise Asset Management for backing today's conversation. Bitwise is a crypto specialist asset manager with more than$15 billion in client assets across 30 plus crypto solutions, including ETFs, index funds, alpha strategies, staking, and more. However you like to invest in crypto, Bitwise has something for you.

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51:01I want to talk about, we talked about currency debasement and the entire kind of problem that this is bringing to the world and our generation and the prices of things. Nothing makes sense anymore. How hard it is to buy a flat or a house. So that's already very bad, right? but now there's another thing that's coming on the top

51:27that is about to or already making things for a lot of people even worse it's an amazing thing but it's also making people lose their job right ai you wrote an article called occupy ai we're not gonna go through the whole thing, but I want people to understand the key principles. And again, you said before, I joined the workforce in 2008 during Wall Street, the great financial crisis. And there was this thing called Occupy Wall Street. And your article is called Occupy AI. Can you explain what Occupy Wall Street was? Yeah, sure. And then the concept of Occupy AI. Yeah. And then we'll see together if we're cooked or if there is some potential solutions to that.

52:15Yeah. Absolutely. I have vivid recollection of Occupy Wall Street because it was a very physical event. And it was downtown here in New York. A lot of angry populists came together, camped out, and wanted justice. And they wanted justice from feeling like they were duped and taken advantage of by Wall Street. And it ultimately emanates from the subprime mortgage crisis, but also the fact that there was no sense of accountability, that the banks had truly committed anything wrong, both at a legal level, but maybe even at a moral level. So in the end, it was actually a moral crusade, which was how can we let the banks do these things and not share accountability?

53:00What are these things? The subprime mortgage crisis. Yeah. Concretely, for a normal person, like basically take crazy risks. Yeah. Pocket crazy money and bonuses. Yeah. And then when everything blows up, have to pay no consequences, right? Yeah, exactly. And the people are paying for the consequences. Exactly. It's this idea as you've described it, privatizing the gains, but publicizing the losses. And the taxpayers are on the bailout for otherwise incentives that were crooked and misaligned, in which there was a lot of privatized gains from the banks level. And it wasn't just the banks, right?

53:37There was a lot of actors involved to allow it to happen. The rating agencies were a big component because they also gave ratings agencies and they were biased to do it because they were getting revenue from the issuers to get them graded at a high level. And then, of course, it afforded young people and bad credit people to go buy homes that otherwise they couldn't afford. So there was a lot of like turning the blind eye, but it ultimately all fell apart because economically it was unsustainable. sustainable. The thing with that, that's relevant to me is that there was a class warfare. And AI is going to be a class warfare, in my opinion.

54:17And the reason is because we have never had technology like this, in my opinion, as disruptive as AI in the ways that it could totally displace the labor force, while giving record profitability for the corporates behind the boardroom. So we're going to see a K-shaped economy potentially that are even more exacerbated by the fact that the very reasons that the earnings power keeps continuing to rise is actually because it's not the revenue that is growing, but it's the costs that are being cut. And by what I mean, the costs being cut are the people that are losing their jobs. Yeah. You wrote to sum this up, right?

54:56Occupy AI, Occupy Wall Street, people getting very mad and it's justified in one way hey how can we suffer when you make all the kind of gains right you wrote amazon laying off 30k people 30 000 people while the stock market hits all-time high tells you everything you need to know about the collapsing price of free will and the soaring value of self-determination. Can you explain this to my mom? Yeah, look, I think most people, when you ask them why they work, they will say they work because they want to earn an income. But we all hope for a higher aspiration, which is that we want to be productive.

55:44And we actually want to contribute towards society and actually build something meaningful, maybe for their own children as role models or maybe for their community. But the goal is beyond income generation, right? Men and women are on this earth to be productive at the core. And if they're not productive, there's going to be psychological problems. And it's not going to be just about the money. And so the issue that is happening with the dialogues around society's general adoption for AI technology is the kinds of things that AI as this moment of, you know, LLMs is that they're taking away some of these autonomous decision making abilities of humans to contribute towards it, right?

56:25It's this almost like sense of loss in the free will that comes of AI that I think people haven't totally understood yet. When we talk about electricity, or automobiles or trains, or these kinds of other technological A growth factors that have occurred in history, those amplified human capabilities, right? Like when you think about electricity, the great thing that it did is that you let you work two times longer in a day than otherwise, because now you can work at night and maybe you couldn't work at night. And same thing with like airplanes and like trains and cars. Like you can travel somewhere faster, you can work faster.

57:08Email, same thing. Like you can get information faster, you can work faster. But the key is you always worked. I think there's elements of AI where those work go away totally. And they're going to have to find something else to bring value for. But the reality is most people are not going to be able to have all of those top decile level human capital contribution. We already know this. We know this because there is a model in which people have to be employed to do things that are meaningful, even if it can be automated away, because that is the thing that makes society function at large. And you need those jobs at some level.

57:49Not everyone can graduate into the highest echelon of being a manager towards these implementations of things. So that kind of accelerated displacement that might happen, I think is the scariest part of the challenge that we're coming through. And the thing that's really unnerving about this is there's conversations around federal backstop that needs to happen for these investments for AI data centers, because it's almost being framed as like an existential risk. Like if we don't do this, then China is going to do it. And like, because of that, we have to spend more and more. And if we don't, it's like, it's like, it's like a unbearable loss.

58:30And so when you, when you start shaping around investments in that category, we're like, well, the investment has to happen because without it, you lose everything. And the investment leads to the greatest wealth creation ever. People can't value that stuff. It's like, what's the call option? What's the price of a call option on something that is like the human brain? Like you can't put a value on that thing. So then you start from top bottom and you say, okay, the total human labor force is worth$35 trillion of economic productivity. If AI can take 10 % of that, is AI worth$3.5 trillion today and make that investment case?

59:03I mean, all of these numbers start getting very, very strange. And so then you ask for federal backstop. But then guess what? The federal backstop is then being used to invest in the things that displaces the very people who they're representing. So if you go into the future where... Sorry, it's not funny, but it's crazy. But if you believe at your heart of hearts that the role of government is to not displace their own people, to actually help there be a social flywheel in which there's harmony, you cannot imagine that the people will get behind the scheme in which they are funding their own demise.

59:40That's why Occupy AI is going to happen. Now, the challenge with Occupy AI is that the banks, you know who they are, you know what their faces look like, and you can point fingers at them. You know, there's that guy in his suits and his Hermes tie, like, he's my enemy. With AI, it's really hard, because by definition, the AI construct is amorphous, it's faceless, and it sits on platforms. And yes, it might be associated with companies like Meta and Nvidia and whatnot, but no one actually kind of owns that construct in the way that they're all platforms, right? Think about how many things Facebook gets away with because they just say we're the platform.

1:00:21So anything that happens is not our fault. It's the platform. AI has the exact same problem, but it's worse because the platform now has a life of its own. Absolutely. Life of its own is a bit of an exaggeration. but it doesn't have feelings or doesn't feel bad the meta you can still say okay it's a platform but there is zuckerberg right yeah the ai i mean you could say there is some altman but the ai is the ai right so and the ai doesn't feel yeah or doesn't care yeah yeah it doesn't care so this is the great i think social of people that we may experience and i think this is the number one problem facing the young generation young generation right graduate college today with huge amounts of student debt, right?

1:01:06Then they can't get jobs. Then they realize they can't buy homes. Then they realize they're not going to have a job. I mean, you make the list of all the generational problems to come. And it is mind baffling to me that we still sit here and think that we're all going to go okay because the S &P is making new highs. Guess what? The S &P making new highs is the symptom of something gone horribly wrong, which is that money continues to keep getting flushed around and how people want to store assets but there's no real productivity gains to be had even the ai super cycle where they're all investing in each other like open ai invests with microsoft who invests in anthropic who invests in nvidia who then invests back in open i mean it's basically the same slush fund of capital that's just it's like it's like factoring it's like central bank like factoring just happening with tech companies where the money multiplier is happening at the reserve level because they're all just slushing their money around back and forth at each other's customers you wrote at the end of this article occupy ai occupy wall street turned a generation of millennials into hardcore bitcoiners you're one of them indeed occupy ai will be the moment that turns gen z and gen alpha into bitcoiners yeah explain this to me simply everyone needs an awakening that's how they discover bitcoin i don't think bitcoin creeps up on people i mean for some it can but now everyone's almost lived with it for a long period of time but usually it takes a certain aha moment like a little light that just goes off a little switch in your head and that aha moment for a lot of millennials is the context of the great financial crisis because they know fundamentally money is not what money looks like and we've now lived with decades of QE and QT and QE.

1:02:57So this is what spoke to this generation. There's probably two. There was the invention of Bitcoin during the great financial crisis. So the very, very smart people, like one person, a bunch of people getting together saying, we need something because the system doesn't work. And then there's a second moment with COVID, right? With the crazy money printing where many more people realize, holy shit. Yes. this makes no sense yeah yeah i would definitely add kovic to that list as well um but now you're saying occupy this is like okay the the the the boomers i mean boomers the boomers crypto us right the millionaires were the boomers 2008 9 2020 shit right yep gen z and gen alpha to turn into bitcoiners you say it's going to be occupy ai yeah because the gen z and alpha uh i've learned from my own experience they have not cared about debasement as much and it's again it's not because they don't care about the way you and i care it's because they are so disadvantaged already at this point that it doesn't matter like they have they're at a point where it's just hopeless like you i think i think there's a millennial cohort who still believe in like talking about social security as a thing that can be saved and even though it's probably not savable but we connect that with the boomers, right?

1:04:20Gen Z and alpha, like, they know it's all screwed up. And they know they're never going to benefit from it. They know it like it's nothing they can solve. So like debasement is not the thing that's going to get them out of bed. They're already disillusioned. It's made worse by the fact that now that Bitcoin is happening at this institutional adoption with BlackRock, and more like, you know, the bridge waters of the world, it's become even more skeptical where they're like, Oh, man, now it's not even my game. It's It's not even money for us. And so it's actually turned even more, I would say, adversarial for that court.

1:04:55The reason I think AI will work is because just like I was the first generational recipient of having Facebook and understanding all of the ways it can be good and bad by living in it. These are the kids who are now going to live with that AI in their mindset from the moment they're out of college and they're competing with this for their jobs. And so it has to be something deeply personal to them that will awaken what is wrong with society at large. And I think the AI movement will largely come from the young force as an opposer. And that's going to be the conduit for which not only Bitcoin, but they'll hopefully rediscover the ethos of crypto at large, which is why, why, why, why?

1:05:37Because I understand Occupy Wall Street, currency debasement, all that stuff. Okay, it's why Bitcoin was born, a hedge against that transito valuation. But why would this new generation understand through this Occupy AI moment or AI that Bitcoin fixes this? Or how we say in the industry? Or Bitcoin is a life raft, as Michael Saylor says? Or Bitcoin can help me when I kind of abandon everything else? Yeah, I think that it will be because they will realize it is a better store of value than anything else the millennials compete with from the remnants of Occupy Wall Street, right? Occupy Wall Street was still a crisis of home.

1:06:20It's a home value crisis. And so there's a substitution effect there that I don't think the young people are nearly as susceptible for. And even then on top, if you believe the one thing that AI and Bitcoin share as a nexus, it's energy consumption because they're power assets. And so if you want to vote with your feet and say you don't want to actually support some of the social dynamics and the externalities that are arising negatively out of AI, the other side of energy consumption that is used for scarce goods of the same coin is Bitcoin. And so you could choose Bitcoin. And then I think even though we're talking about Bitcoin, my hope is for the younger generation, we can revive and rejuvenate the spirit of crypto and cypherpunk money at large.

1:07:07So now it's not even just a store of value construct, but this generation can really carry the peer to peer monetary mechanism mission at large, which is that it's useful for things beyond just a store of value. and they'll kind of be able to rejuvenate all that in the construct of the need for decentralization that is going to be at the center pin of combating AI. Because I think even for millennials, decentralization is a talking point, but it's not something that is so native to us because like we've talked about, we've lived with a lot of centralized intermediaries as well and have benefited from it.

1:07:41But you have this whole group of investors that might come to our eyes who actually are against that from the very beginning. decentralization is not just a talking point it's gonna be their ultimate right to livelihood why is decentralization so important when it comes to ai well because i think the entire point of ai is that it's ultimately centralizing all your data and harvesting it to replace you

1:08:11it's not funny but i just no i don't know how to react so like But that's kind of the point, right? Better to love not to cry. That's the point. And if you believe in decentralized efforts to which you may then have attribution power in which you're being paid a certain amount of kind of remuneration for the contribution of that information, then I think that's part of the decentralized question at large. You know, this makes it sound like I'm very bearish on AI. And the truth is, I do think we need technological progress. And I am very hopeful and optimistic AI will be useful for society at large.

1:08:47The key unlock, though, is we need to make sure that gain comes with the ability to provide attribution for those who are doing the work. So the problem right now is we're centralizing profits at a level for which the consumption is happening at every individual's layer without compensation. And if we can solve that problem, then I think there's a great, great, bright road ahead for AI to be embraced. But we need to solve that attribution problem. If my data is being fed into things for which I'm making the model smarter, I need to be compensated somehow in a way that I feel as though I've contributed towards that machine that may end up displacing my labor.

1:09:32That kind of stuff, in theory, can happen only with crypto. for sure because of its ability to have attribution qualities yeah that's when all these decentralized AI companies and compute a lot of people might think oh they're just trying to like surf on the AI wave to make some money I mean probably some or probably a lot are right many are there is buried to that to not discard that because it might actually be one of the answers to this gigantic point yeah and look to to their critics perspective and point like none of the things in crypto have been real and a lot of it has been vaporware and it's awful right i get it like i'm not saying these are the champions that have kind of put the best uh foot forward but we must adhere still to the ideals of that being a possible realization because that's the way that we're going to be able to intersect this greater mission at large what does that mean for bitcoin today many people might listen to that or, you know, Gen Z, millennials, but they might just say, oh man, Bitcoin is all over the place, right?

1:10:41Bitcoin is at 120K, 100K, 70K. It's still freaking expensive for a person, right?

1:10:47Jeff Park:Yeah, yeah. Is Bitcoin too expensive? If they say Bitcoin is too expensive, like I missed my chance. This was my only life raft. What do you say? I think more people need to start thinking about what happens if you don't have Bitcoin. Meaning as much as we want to think about upside speculation, it's time to get realistic about what is the downside you're exposed to without Bitcoin and the role that it can have in supporting your portfolio diversification at large. In other words, if you don't own Bitcoin, you're basically short Bitcoin. And I think this is hugely important that no matter what the wealth creation effect may be from a multitude level, that having it in your portfolio is going to be advantageous, if not just for the fact that fiat debasement is happening at an unprecedented level in ways that history has shown you time and time again, these monetary resets tend to happen in cycles.

1:11:51And if you study the history of the dollar hegemony, right from Bretton Woods to 1971 to the Nixon shock moment, all of that will tell you that the entire mirage we're living in of the dollar hegemony rests upon our fiscal deficit being managed and controlled. And we are on the path in which this is going to reach escape velocity that is not manageable. and in that if that is the case the fastest horse that you need to think about considering having exposure to should be something like bitcoin or other alternative assets that are resistant from the global carry cycle hermes bags pokemon's bags rolex watches um maybe last question you say think about the downside but does it you're a cio you talk about diversification you're a very wise person in the investing world or at least how you see investments does that make sense for someone instead of being defensive to be offensive using bitcoin as a large part of their portfolio

1:13:06there are a lot of folks in the crypto industry i meet who have bitcoin as a great share of their wealth uh in savings um and it's like a bar build approach where they'll have a bunch in bitcoin and a bunch in like money market funds um and they won't entertain any risk segmentation in between you know i'm still of the view that there is some level of diversification that is going to help you achieve a greater degrees of freedom for pushing out the frontier of your capital allocation framework. So people should aspire to have more diverse exposure away from just like a two asset bar build model.

1:13:45But if you forced me to pick just two assets to have in my portfolio and only two, I would say Bitcoin has to be one of those two in the ways that I think it is going to be the most uncorrelated and orthogonal asset and performance that is going to be unrelated to everything else that is happening at the global capital markets stage. The other asset that I would still then consider if you needed to feel like you're a part of society at large is you do need dollars. Yeah, absolutely. So you probably should find something that is dollar-based and income generating and income producing that is dollar-based.

1:14:23For example? you know i tend to believe that we're going to go back to a zero rate environment i know many people are skeptical given kind of where rates are today japan now having reached all-time highs in the past like unimaginable years of u.s you know tenure also still feels relatively higher than what people should have expected it to be but my belief is that if the global carry trade is going to sustain itself into kind of pushing the can further down the road. It only works if rates go lower. And so if that's the case, 30-year bonds right now is a great thing to purchase for that speculation.

1:15:08And it is a speculation on my end. And this is because if rates go down, prices of the bond goes up. Right. Just for people who don't know that. And that's actually, I think that's my way of maybe betting on America. Like I think America will win. I think in the end, the US will always find a clever way to solve problems using ingenuity. And our greatest export is a dollar. It is going to be stable coins. It is going to be other things to which people want to save money and US-based assets and remuneration. So I'm very bullish on the US. And one way to express that is to go long dated bonds.

1:15:46A bonus question. You have two kids and a Bitcoin mindset. how do you raise and prepare your kids for an occupy ai world with a bitcoin mindset sure man look one of the things i think bitcoin has taught me uh and i think it's taught many is

1:16:15that you never know enough to know everything about anything. And we have to be open-minded and humble to all the attack vectors that can exist. Maybe it's at the technical level. Maybe it's at the societal level. But the truth is that it's so much bigger than one person. It's so much bigger than one model. It's so much bigger than one paper. And for that reason, it's a living experiment. And to succeed in living experiments, you have to keep an open mind. And so as I try to instill that to my kids, I reference a lot in the context of money and Bitcoin's evolution in the way that helps build resilience.

1:16:55So there's a common saying, you know, practice makes perfect. And I would rather phrase with my children, it's not that practice makes perfect, it's practice makes progress. And nothing's ever perfect. Bitcoin's never going to be perfect. None of these things will ever get to an absolution where it is deemed perfect by empirical evidence and measurement, but it'll make progress. And everything we do in life in practice is to achieve for the ideals of that endeavor. And so I try to enthuse that Bitcoin mission with my kids every day as I can. Not that I rope them into, you know, the cores versus knots debate and all that, but maybe one day when they're older.

1:17:40You can do the Max Keiser method. Hey, take the bills, put fire to them, say, this is shit money. This is real money, guys. Thank you so much, Jeff, for doing that. That was awesome and very, very insightful. Yeah, this is great, Kevin. Thanks for having me. As you probably know by now, I host some of the biggest names in Bitcoin and crypto on my podcast, but a lot of the best stuff never makes it on air. The Shift newsletter is where I share that raw behind the scene alpha, The insights, stories, and lessons straight from my guests that you won't hear anywhere else. If you want the real insight take on Bitcoin and crypto, join my newsletter, The Shift, in the description down below.