In this episode Saifedean talks to regular seminar attendees about Elon Musk’s recent bitcoin comments, and what they teach us about him & his business empire. Saifedean compares Elon Musk to John D. Rockefeller – both the richest men in the world in their eras – and discusses the extent to which their innovations have had an impact on the lives of everyday people, to give us an idea of how fiat alters society. To become the richest man in the world, Rockefeller built the modern industrial world, transforming the lives of billions, while Musk traded carbon credits & received subsidies to unprofitably build a few toy cars for the rich.
[00:03:39] Saifedean Ammous: Hello, welcome to the Bitcoin standard podcast seminar. In today's seminar, we're going to be discussing a topic that we have spoken about quite frequently in this podcast today, it gains added relevance and the topic is electric cars, Elon Musk, and shit coins. Essentially all of these topics come together this week thanks to Elon Musk intervening in the world of cryptocurrencies quite auspiciously by deciding to pump a joke shitcoin and also informing us that he intends to increase the speed of the transactions by 10 X and increase the block size by 10 X and drive down the cost by 10 X. And he's just going to basically achieve all the wildest dreams of cryptocurrencies with his scaling plan for Dogecoin.
And he also informs us that he also knows about how money works because he's worked at PayPal. So he's had Bitcoin up his [00:04:39] brain for a while and he's been pretty pissed about it for a bit. Recently, they announced that they sold some of their Bitcoin and yesterday somebody was talking to him and he responded something along the lines of you make me want to go all in into a Dogecoin or whatever it's called.
And later on, somebody tweeted something along the lines of maybe Elon should sell all of his Bitcoin and that'll teach the Bitcoiners a lesson and he seemed to agree with it. So it's quite fascinating to watch this transformation. And to watch him weigh in on the issues of Bitcoin.
He's another sucker added to the long heap of suckers who learn about Bitcoin. And we've mentioned this before here on this podcast is another favorite topic of ours. And I've discussed this with Allen Farrington. People who learn about Bitcoin and come to the conclusion that the first brain farts that we arrive at in the first 15, 20 minutes are extremely profound and I need to share them with the world and completely lack the self-awareness [00:05:39] to realize, well, maybe there are others who have thought about this and maybe others have discussed it with them. And maybe I should look it up first before thinking about it. And so Mr. Elon Musk now is worried about Bitcoin because he's realized that it's consuming a lot of electricity and that's obviously an evil thing.
And of course, Elon Musk comes from the green church of carbon hysteria, which is another favorite topic of ours on this seminar. And his entire business is built around the existential threat to humanity posed by carbon dioxide which is an essential trace gas that is essential for all living things and exist as a part of the atmosphere and has always existed as a part of the atmosphere. But apparently there are people who view this thing as dangerous and because it's dangerous we should stop driving cars. And in order to stop us from driving cars that emit too much emissions, Elon Musk is building [00:06:39] all these new electric cars that don't make emissions.
And we've discussed electric cars in one of our earlier podcasts here in depth. The key thing ultimately is that these electric cars don't make economic sense because they don't get produced unless they're heavily subsidized. So I've always been of the opinion that Tesla is basically a joke of a company that is only profitable because of subsidies.
And recently came apparent also one very important factor in their success is carbon credits or renewable energy credits. And so Mr. Musk likes to present himself as the environmental champion because he's out there replacing fossil fuels and terrible fossil fuel powered cars with his environmentally friendly electric cars and the environmentally friendly electric cars don't make emissions.
And so therefore they're much better for the environment and much better for earth. And so now he's worried about Bitcoin because Bitcoin makes a little bit too [00:07:39] much emissions and too much electricity and that's just supposedly not good. So now they stopped accepting Bitcoin. And this was the silly stunt. Very few people are going to want to be buying with their Bitcoin at this point. And apparently since Tesla announced that they were going to be accepting Bitcoin they've sold exactly zero cars for Bitcoin. Nobody's using that option. So it wasn't like it would matter anyway. What matters of course was the fact that they've put Bitcoin on their balance sheet as a treasury asset.
And so he effectively managed to score points with environmentalists by saying, Oh, we're working stop accepting Bitcoin. And in the process he pretended as if the problem with Bitcoin is that it's the transactions. So they're going to keep holding the Bitcoins, but as long as you're holding the Bitcoin you're not making emissions because you're just holding the Bitcoins. They're not moving around. And so that's not making any carbon dioxide. This is apparently how he thinks Bitcoin works. So they're keeping their coins. They're not selling anymore. That's what he said initially, but they're [00:08:39] going to stop accepting it. And all concern is of course environmental.
And so this is very rich irony of course, and a beautiful conflation of several topics that I'd like to keep banging on about in this forum, because, I've been very interested in the question of energy for quite a while. And I did my PhD studying renewable energy and all of these programs for getting all these alternative sources of energy to replace fossil fuels.
And, the rhetoric is very similar, whether it's ethanol and corn farmers or solar panels or wind turbines or electric cars, all of these, essentially can't cut it on the market. They can't operate without fossil fuels. They can't reduce or eliminate our dependence on fossil fuels, but they can keep sucking up subsidies.
They can keep acting up as excuses for subsidies to allow people like Elon Musk and Al Gore, and many, [00:09:39] many other people to make a ton of money on these technologies, even though they end up never really working at scale, at least, in any kind of meaningful way. So it's a very rich irony to find him saying this about Bitcoin.
It's quite interesting. One thing to come to mind is first of all, hearing him discuss Bitcoin shows that the guys clearly, I mean, there's no better way of putting it. It's just that he's a bit of an idiot. You don't have to be an idiot to not understand Bitcoin, and you can be intelligent and not understand Bitcoin, but you have to be an idiot to publicly pontificate about Bitcoin when, so clearly and obviously understanding nothing about what's actually going on.
It's a level of conceit that's quite familiar to us on this podcast, as we've said before, we had Allen and we discussed about the several people who are like that, but he's definitely got this: "I'm so smart. I don't need to know what Bitcoin is before I pass judgment on it." And so clearly the whole concern about the environmental impact [00:10:39] is something that is manufactured for his own business reasons.
And it'll become apparent for us why now. But the notion that these energy sources are improving in any sense, I think is completely ridiculous. There's really very little evidence that they're improving anything, that they're helping us achieve anything. Electric cars have received enormous amounts of subsidies, and that's the only reason they continue to operate.
And not a single producer is able to make them without subsidies and the credits. And the implication of their continuing subsidy is that if we're going to move to a world of more electric cars, it's going to be a world of massively reduced mobility for people that effectively trying to destroy the hydrocarbon car and thinking that the thing that the electric vehicle needs to succeed is to destroy the hydrocarbon car.
And that's not going to work out very well. So as a [00:11:39] kickoff, I think an interesting observation here is when you think about Musk is possibly the richest or one of the richest people in the world at this point. And what has he actually built to deserve this? On the other hand, compare to what the richest person in the world was under the gold standard. And I think the irony is quite delicious to compare the two. Back in 1913, the richest man in the world at that time was John D Rockefeller and his wealth was estimated at being around $900 million or about a billion dollars back then, which in today's terms would put him somewhere around $400 billion.
So it's arguably true that John D Rockefeller is the richest man to have ever lived. If you measure a net worth in modern terms, if you measure it in terms of purchasing power today, John D Rockefeller is the richest man to have ever lived. And [00:12:39] he was born in 1839, he died in 1937. He was the industrial force behind the spread of oil.
I mean, in a sense, this guy was the industrial revolution you could say. And I think it's very interesting to compare John D Rockefeller to Elon Musk in particular. Both of them were the richest person in the world at certain point in time. For Rockefeller, it was at the peak of the gold standard era, early 20th and late 19th century. And for Musk it's at the peak Fiat era and the early 21st century. It's very interesting because what did John D Rockefeller do in order to become the richest man in the world? Well, he completely revolutionized the oil industry. He brought all the oil, he brought industrialization to the modern world.
He gave the world the ability to have lighting at home. He gave the world cars, he gave the world all kinds of new different products that they haven't heard about [00:13:39] before, all extracted from oil. And he truly changed the world. It's a word that gets bandied about a lot. And of course, Rockefeller, he's got a lot of bad luggage that comes with the name and people will have a lot of problems with a lot of the things that he did. But one thing that he did do, which is enormously important is that he brought about the reality of the 20th century of a high use of hydrocarbons. High use of oil and gas and coal. And he was able to use these to just completely revolutionize the oil industry.
He didn't invent the engines. He didn't invent the oil industry and he came at it when it was still a small industry. But by the time he was done with it, he'd completely changed the way the world did business. And he completely changed the way the world lived, because he understood that there was so much value to be had from delivering energy in its many different containers and forms to the individuals all over the [00:14:39] world.
And he went about to build the vertical integration of the delivery of energy and whether that's gasoline or kerosene or natural gas or petroleum refining. So everything from prospecting all the way down to the consumer goods. And he was essentially considered the person who invented vertical integration.
He never really used the term himself. But he basically was the person who invented it. He invented the concept of vertical integration as a way of doing business. And he integrated the entire supply chain for oil products from prospecting for the crude oil to refining the crude oil and then making an enormous number of goods from it and fuels, and then distributing those fuels to houses and businesses all over the world.
And making all these different products that were derived from it. And it was absolutely earth transforming. It really changed the world in a very profound sense. So John D Rockefeller, he was [00:15:39] born to a poor family in New York, grew up in Ohio, came out of a poor family and started working in the oil business and he just thought kept on improving what he did in an absolutely amazing way when you think about it. So that by 1913, he'd basically retired at that point. But during that time up until 1939, that's when they broke down his company, his company had succeeded in bringing the price of kerosene down by 80%. This is really a testament to just how much of a success this company was.
And just, if you want to think about how much it must have made a difference to the world, he was responsible for the company that brought kerosene into every home, allowing people to cook safely and to have light. And he did this at the time when this technology was going from zero to mass production. He brought about mass production for all of these things on all of these mass distribution [00:16:39] channels.
And allowed people to access this enormously powerful source of energy. And you can think of fossil fuels, as I like to think of them or hydrocarbons, you can think of them as being batteries essentially. So he was shipping out all these battery technology that is much cheaper and much more efficient than the batteries that Elon Musk is shipping out these days.
And it allowed people to just completely transform their lives and it brought power into industry and it brought industrialization to the workshops all over the U S and it was an enormous, enormous driver of economic growth in the late 19th century. That's how you became the richest man in the world on the gold standard.
You gave everybody an 80% discount on the price of kerosene throughout their lifetime and increase their consumption of kerosene. I don't have the numbers on me, but I'm going to go ahead and guess by at least 500% over the lifetime of his work with the company. So his company was to a [00:17:39] very large degree responsible for transforming the U S from a rural agrarian society to an industrial society powered by hydrocarbons.
And the implications in terms of life expectancy, in terms of health, in terms of quality of life are enormous. It's absolutely enormous what he did. And that's how you became the richest person in the world under the gold standard. That's how you managed to be that. That's what John D Rockefeller did.
And so it's interesting to think, what has Elon Musk done to become the richest person in the world? So what has he done so far? If you look at Space X, they get money from NASA and they get money from rich people and they're blowing up rockets. But they haven't found a way of turning in revenue yet to do this profitably. Musk has been on Twitter going on about, we need subsidies for space exploration, the most important thing to do is that we need to go to Mars. And the way for people to go to Mars is for you to give me a lot of money. Similar business model to Tesla. [00:18:39] Which is, Oh, we need to move from gasoline cars to electric cars and the way to do that is you give me a lot of money. It's really the Fiat standard business model. And this is how you do it on Fiat. If you can just manipulate people's emotions so that you can then manipulate political process in order to pass laws and regulations about, we need to have more of this thing in the market.
And then you can just get the government to just keep buying stuff from you and keep paying you money. And you just need to keep up the pretense of doing whatever it is that your company is doing for the sake of whatever ideal you're using in order to emotionally manipulate people. So Tesla, one of the biggest companies in the world but what it produces is a very, very tiny percentage of the world's cars. And I know a lot of people love their Tesla cars and they really enjoy the driving experience and they find it to be infinitely better than other cars, which is cute. And I'm very happy for them, [00:19:39] but it's still a car. He didn't invent the car.
He didn't invent the car and he didn't mass popularize the car and he didn't allow the world in order to have cars. He's just produced a better car, possibly a better car, but we can't really say that it is a better car, as long as we can't see it in action in the market. As long as you don't have the market successfully buying this and successfully financing it and successfully building it out and consumer successfully buying it and enjoying it, you can't say that this has actually worked.
So what he's done really is that he's taken a 200 year old technology, the first electric car was invented in 1826. So it's about 40 years older than gasoline cars. We've had electric cars before. We had electricity before we had internal combustion engines and we had electric cars before we had internal combustion engine cars.
So 1826, it was invented and people have been trying to make it [00:20:39] work for 200 years. But it hasn't worked and that are very good reason why it doesn't work. Well, I mean, it does work and that it can be done, but it's just that the economics of it are massively, massively expensive. It's going to require, even today, even after all these subsidies, even after 20 years of subsidies and, well, I'm not 20 years, I don't know how long the Tesla's been around in the less than 20, I think maybe 15 or 12, something like that.
Tons of subsidies, renewable energy credits. So on, all of that stuff. And still they can't manage to turn a profit without the subsidies and still they can't manage to build a battery that can be recharged very quickly and that can have a pretty long drive range. So it's still underperforms gasoline cars by very, very, very clear and very important metrics. Cars range is really important and the time it takes you to recharge it, time it takes you to recharge gasoline cars is a few seconds. Whereas with electric cars, it takes a lot longer. So by these two metrics these [00:21:39] cars aren't an improvement, but okay, they might well be an improvement in many other metrics, but it's not an improvement that the market clearly values enough to pay the extra cost for it. That's really why it doesn't matter what your driving experience is. You can build a million dollar car that is better than everything on the market.
And then you can make people drive it and people will love it. That doesn't mean that everybody should pay taxes to make your much better car possible. When given the choice on the market, people don't seem to value this enough. We know this because people don't buy them when the subsidies and the credits are removed.
Like if you had a subsidy for solar cars removed, we've seen this happen in Hong Kong. When that happened, sales of Tesla went to zero. I think it was a tax credit or something like that. So we see that the sales are highly dependent on the subsidies and we see that we've never seen anybody manage to sell it economically with a profit.
So you wonder what it would look like if actually you want it to [00:22:39] have a profitable business around something like Tesla. Without the environmental sob stories and the horror stories and the subsidies, and renewable energy credits. And without the fiction that this is going to scale tomorrow, because we're going to 10 X the battery life and divide by 10 and the charging life, because... it's becoming clear, I think for Bitcoiners who see him just talk about how we're just going to increase the speed by 10 X and decrease the number of transactions by 10 X. And the way he talks about it as if it's just something that can just be done expressing complete ignorance. I think it probably should begin to dawn on people that he does have that kind of approach, not just to Bitcoin. It's also the way that he has dealt with his cars. So the manner of scaling the company has always just been, "well, you know, we're going to 10 X. And then it's going to happen."
Still, Tesla is still a very, very tiny fraction of the global car market. The notion that they can scale [00:23:39] to very large number, I think is highly misleading at this point. I can't really see it happening because the car is still extremely expensive and obviously fiat money printer can go Brrrr for a very, very long time and it can keep handing out subsidies for people like Elon Musk and they can keep running the company, but I don't see how you could run these subsidies up to the point where you'll have everybody driving those cars. I mean, if you just think about the cost of ramping up production, it's going to be so expensive. And then when the number of the cars that are supposed to be running this increases a lot then you're running out of people to subsidize the people who are driving those cars. That's the way that it works. So ultimately the people that are paying the price of Tesla are to a large extent the people are not driving it because they're subsidizing it through their taxes and through their renewable energy credits, which they pay for their other cars.
And so the more you run out of gasoline car drivers, [00:24:39] the more gasoline car drivers switch to Tesla, the fewer people left to foot the subsidy bill. So first, it won't last long because you run out of donors, you run out of hosts, when everybody turns into a parasite, but also of course, the reason that this company exists is an extremely regressive form of taxation. People who can afford Tesla are among the richest people in the world basically if you're able to afford that car. And you're able to afford that car thanks to the help of people who can't afford Tesla. People who are driving gasoline cars, people who are driving cheap cars are having to pay higher taxes on their cars and on their gasoline.
And that's going to finance your adoption of this expensive, very expensive toy. And I say toy because I can see how it might be awesome and cool, and very nice, but doesn't make it a better car in an economic sense, because in order to have this functioning, I'm sure this is eventually going to [00:25:39] happen, either these crazy subsidies are going to run out or the governments that are able to hand out these subsidies will go bankrupt and then they stop handing them out. And then we get to a point where there's a free market. In that kind of world, the amount of infrastructure and investment that you need in order to make a company like Tesla happen at scale, it might be much bigger than you could do for a small car factory. In other words, if they're able to just maintain it as a niche field... so let's say on the free market, the price of a Tesla is going to double and the price of a gasoline car is going to drop by, let's say 20, 30% if we didn't have all this climate intervention stuff.
So in that case, there's going to be far less demand for Teslas. It's not clear that that little demand is enough to justify the infrastructure that's needed in order to build this. You want to have charging stations all across the world, ideally, but clearly the more cars there are, the more economies of scale are there and the infrastructure that you want to build for it in terms of charging stations.
But [00:26:39] it's not clear that the market would undertake that if we had no taxes. So, to go back to the comparison, what Musk has done is essentially found a way to get subsidies for rich people to have very expensive cars become only expensive cars. And it's a very small number of people who are able to have these cars.
And it hasn't in any serious way transformed or changed the world. And I think I invite people to start thinking about his grandiose claims of engineering in these cars with similar skepticism to his silly remarks about Bitcoin. You'll start saying that Yeah. Maybe, maybe this guy doesn't really know what he's talking about and maybe this isn't really the future.
And in fact, I'm pretty sure of it. I don't think this is going to be the future. If you're actually building out something that is a real market product, that's demanded by the market and that you're able to turn it into profit as an entrepreneur, I don't think you would be so [00:27:39] superficial in your treatment of Bitcoin.
I don't think John D Rockefeller would've looked at Bitcoin in the same way. I think John D Rockefeller would have had a far more intelligent take on Bitcoin. It's amazing if you think about it, this is really another way in which we can see the difference between Fiat and hard money. On a hard money to be the richest man in the world, the richest man in the history, you had to really, really change the way the world live their life. You change everybody's life irreversibly forever, really by introducing all of those technologies in a commercially viable way, all over the world. And today basically you become the richest man in the world by hustling around scare stories about CO2 is going to destroy us all and so give me money so that I can make my rich people toy cars, and that will save the climate, that will save the earth. And that's how you become the richest man in the world. It's absolutely amazing. I think he's a great poster boy for a Fiat really.
Daniel Prince: I was [00:28:39] just putting some links in the chat there that report about Hong Kong sales falling to zero that happened back in 2017.
And then the up dated from the Hong Kong government website about how the updated the in February, 2021 the first registration tax for electric vehicles. So the subsidies that are still there and look to remain in place.
Saifedean Ammous: Peter saying Tesla was founded in 2003. Yeah. So it's now been 18 years, 18 years.
I think, you could say like, if it could scale, you would say 18 years is enough to get it to scale. Really. At this point all electric vehicles are fewer than I think the last number that I found was 1.8%. So 1.8% of new car sales are electric vehicles.
So 18 years after Tesla was founded, it's still 1.8% of total a car. So the notion that they're going to replace gasoline cars. I think at this point, Elon would probably have better luck with [00:29:39] Dogecoin flipping Bitcoin, before he flippens gasoline cars. I don't know. I think that there's no reason why this can continue no matter how much subsidies you pump into it.
Like the thermodynamics of it don't work. I think if I were to explain it to intuitively the key idea is that energy is extremely expensive to transport and to store. It's just a massive loss. Every time that you try and store energy and then use it again, it's extremely expensive to build the equipment that can do that, which is batteries.
And these batteries run out. It's just always a very expensive way of doing things. And then if you're going to transmit energy, there's also significant losses in transmission. When you want to move energy from one place to the other. So therefore it makes sense that if you have moving non-stationary applications where you have enough room to carry an engine around, thermodynamically, it will always win. If you can have the fire in house, if you can [00:30:39] light the fire in-house, on the vehicle or the thing that you're using, it's always going to be... Obviously not always, but you're going to be winning a big battle for efficiency in the process of production by having the fire on board because the fire is there. The fire burns the fuel. Think of the fuel is like the battery in the sense. You keeping the fuel in the car that the engine burns the fuel in the car. And it immediately burns into the cylinder and gets the cylinder and the crankshaft and the wheels spinning. So you have very little loss there and it just means that the astonishing thing about fossil fuels is that they're very easy to move around relatively.
And there's an enormous infrastructure that's been built for them. Thanks to John D Rockefeller and a lot of other people around the world that allows you to access them in many, many, many places, cheaply and affordably. And so having that engine on board is just a no-brainer. You make a lot of energy out of [00:31:39] it.
And then that energy allows you to operate your machines and run them. Operate all the machinery that is in the car. On the other hand, if you don't want to do the combustion in the car, and this is why I think a great way of describing Tesla cars is that it's an external combustion engine.
It's not like you got rid of the combustion. It's not some magical immaculate technology where energy just comes from our minds and the car just moves through the power of our wills. There has to be combustion. And the combustion is taking place in the power plant. And either your power plant is a nuclear power plant or gas power plant, or coal or possibly oil, but it's one of these big ones, maybe hydroelectric, if you happen to live near one of these, but it's one of these five. It has to be, your power plant has to be running one of these five and it's running one of these fives.
That's how you're charging your car. So it's an external combustion engine because you're doing the combustion in the power plant and you are transmitting the power in cable lines to [00:32:39] the car, and then you're storing it in the battery and then you're running it down by driving. I mean, I'm open to the possibility that it might work and maybe it could work, but it's just the reality of it is that it's enormously far, far more expensive and it's still, even when you make it heavily subsidized, and even if it were to become much cheaper, it's still technological step backwards in terms of range. And in terms of time for recharging. The way to think about it is that if we had electric cars today, and then somebody came around and invented the gasoline car today, I think that would be what Elon Musk pretends to be. Like I think the real revolution would be to think, hang on a second, we don't have to keep recharging these extremely expensive batteries in order to keep the car running. Why don't we put an engine on the car? I think that would just be an absolutely mind blowing invention.
And that's what it was a hundred years ago, 150 years ago [00:33:39] that's changed the world, absolutely, because they did this. So I think the thermodynamics of it don't make sense. And incidentally, it's not the only business. Well, before we get to that, let's just say the interesting thing about it, the Tesla stock price has been doing pretty badly over the last few weeks, and it seems like the really important issue, which is not getting reported on much, is that the renewable energy credits for Tesla that they use are running out. They are no longer going to be able to be selling a lot of renewable energy credits and particular to Chrysler.
So basically last week, FCA Chrysler, which is one of the largest car makers in the world. They announced that they no longer need to be buying renewable energy credits from Tesla. And that was a significant amount of money for Tesla. And so this was very important part of Tesla's profitability. Tesla would not have been profitable without these renewable energy credits because these renewable energy credits, it's just a [00:34:39] silly government law that makes it so that basically if you're selling a car that has an internal combustion engine, then it's bad because combustion is bad.
Whereas if you have a car that has an external combustion engine, like a Tesla, where the explosion takes place in the factory, then that's good. And so therefore the more electric cars you sell, the more credits you get. And then with these renewable energy credits, if you'd sell a fossil fuel cars, then you have to actually pay for that.
And you pay to the producer of the electric car. And so basically General Motors and Chrysler have been paying Tesla for the last couple of years with significant amounts of money as a carbon offset. And so the really interesting thing in this whole story is that basically last week PSA group and Fiat-Chrysler said they're going to be meeting their own carbon emission requirements, so [00:35:39] they don't need to be buying renewable energy credits from Tesla. And that was from 2019 until today, so for two years, it was $2.4 billion. That they got from Chrysler for these renewable energy credits . Just imagine, Chrysler drivers are paying Tesla to basically become profitable. And that's really how it manages to be profitable.
So when people talk about it scaling, this is what needs to scale. You need to get Chrysler to pay 10 X what it pays in order for a Tesla, maybe to 10 X its output. But I don't think it even works linearly. Chrysler might have to pay 10 X in order for Tesla to two X its output. So these renewable energy credits running down is going to be a massive problem for Tesla I think moving forward. And I think this might be what's actually driving Elon's foray into digital currencies. In a sense it's to generate a buzz around it and [00:36:39] distract from the renewable energy credits story, because that's not something that they like to talk about a lot.
And, they don't like to talk about it in the good days, and they're not going to want to talk about it in the bad days when it's winding down, because the implications are not very good for their stock prices. And so of course, what's he on about now, he's going on about wanting a carbon tax. He now wants to put tax on carbon.
This is the new climate hustle that he's doing and idea is that hopefully, by putting a tax on carbon, that will again unlevel the playing field in his favor against his competitors and allow him to shake them down even further. I guess this is potentially how to think about what he's actually doing in Bitcoin and digital currency space, trying to drum up support for that.
So what he's doing now is that he's pivoting from the auto industry to the refining industry. And so now they're going after the renewable fuel credit market. So that was for [00:37:39] fuels. And basically they're going to start sending these renewable credits to power generation companies, which is a good hustle.
If you're going to start selling electric companies that use up fossil fuels, if you start selling them your credits, you could potentially make good money from it. So that could replace the Chrysler money in his business. So now he's having to virtue signal extremely hard about carbon dioxide burning the planet down and therefore in my mind, that's what drove the turn around Bitcoin.
Because it's not like he now figured out the Bitcoin using a lot of electricity. It clearly was using a lot of electricity when he made his purchase in December or in January. And the timing is very, very suspicious. Why did you realize now that Bitcoin consumes energy?
And the answer is that he's trying to get on this new hustle right now, where he gets the refining industry and the fuel producers and maybe power generators to [00:38:39] start paying him renewable energy credits. And so in order to do that, he has to virtue signal hard about fossil fuels being bad and about Bitcoin being bad.
And that's really ultimately what I think drives it. And it's kind of pathetically transparent when you think about it, a lot of his fans like to think, Oh wow, he's a business genius and he's playing four D chess and he's going to come out of this. He has no idea what he's doing. I think he's just joking around with a Dogecoin and he doesn't realize that he's just pumping a massive Ponzi scheme that is eventually going to blow up.
Because, eventually there's not going to be sustainable demand for this form of digital currency. I think he manages to pump it for a year or so. He can't keep pumping it forever. The higher the price goes the higher the output of the mining, and then the more he needs to keep pumping.
So in a sense, like he's popped up the bubble right now. And he doesn't know what to do with it, except keep pumping it further. But [00:39:39] that can't end well, it's not Bitcoin. Ultimately the world's governments and the world's banks and the world's largest financial institutions are not going to sign up to a monetary standard built around one guy.
He's going to have the ability to do whatever he wants with this thing, it can be altered. They've already altered their supply before, so they can alter it again. He has complete control over this entire thing. And the notion that it's going to grow into becoming a global reserve currency is ridiculous.
And so he's going to be stuck with the bag of Doge or he's going to get a lot of people to be stuck with a lot of bags of Doge. It's highly unlikely to be the move of a genius. He's not really proven himself to be a genius much. Like if you look at his businesses, SpaceX and Tesla don't turn a profit, they run off subsidies. And he likes to flaunt PayPal but really his role in PayPal, I think is massively exaggerated. He was fired from PayPal, first of all. Peter Thiel and the rest of them [00:40:39] fired him. And I've heard pretty convincing stories that PayPal was a product of a merger between his company and his startup and Thiel's startup. Basically I've heard pretty convincing stories that Musk had funding and no product, Thiel had a product and no funding and they merged and they got rid of Musk as quickly as they could.
And basically he didn't have much to do with the success of the company. So I think that there's definitely an element of that. If you think about his record with PayPal, with Tesla, with SpaceX, with Doge and with Bitcoin and all of the decisions that he's made. I think it's just, it's very fitting that somebody like this would be the richest man in the world on a Fiat standard, as opposed to thinking about John D Rockefeller on the gold standard. That's what I would say.
Peter Young: I think you've hit the nail on the head there Saif regarding what you said about billionaires and the gold standard era. Having to absolutely change people's lives in order [00:41:39] to gain that status, or at least become the richest person in the world you have to fundamentally change everyone's life. And to me, that's something that really has stood out regarding Tesla, particularly when you compare it to the other FAANG companies. Like, Facebook, everyone uses it, Apple we've all got Apple phones in our hands, Google, we use it every day.
These are products that are in everyone's home that we make use of and have had a profound effect on society. Whereas if you look at Tesla, the statistics on it. I mean, we talked about it in general terms, but the statistics on it are pretty remarkable, like if you look at the market capitalization of Tesla, even after the selloff that we've seen in the last few days, Tesla's market cap stands at around $550 billion.
And yet it only has sales per year of about $30, $31 billion . Now, if you compare that to another major car [00:42:39] company, like Volkswagen, Volkswagen has $300 billion of sales. So 10 times as much sales as Tesla and it's market cap is valuation is around $150 billion. So we've got Volkswagen worth about a quarter of what Tesla's worth.
And they're selling 10 times as many cars. It just seems completely implausible to me, I suppose, under any sort of normal economic logic that this company would be worth that much, because if they're not actually selling that much real stuff in reality, they haven't actually proven theirself on the market.
And bear in mind, this is with all the subsidies that you referenced, they're only selling $30 billion after 18 years in operation. If there's not anything actually there, then basically this entire company that exists on promises, promises that in the future, we're going to do better.
And it just seems like a very kind of hype driven process. And [00:43:39] like you, I've always been kind of suspicious of Tesla, like, okay. It's might be a good, you know, I didn't have that much of a clear opinion on electric cars before. It's something I've been looking into more and more in recent years, but I was also kind of, I get the argument, but why is it this big?
Why is it such a big deal? And it's only now that I start to look at all of the different incentives going on and all of the subsidies that are at play, that it starts to make a bit more sense. But according to traditional market logic, it just seems like a completely outlandish valuation for the company.
Saifedean Ammous: Yeah, I think I agree. And I think when you say $30 billion in sales, a lot of that is renewable energy credits. We could go through a very long list of subsidies and ways in which they get their revenues padded up essentially. But yeah it's still a very small size and I think, yeah, it's an 18 year old company.
They've liked to present themselves as this upstart, that's going to really take on the establishment, but if this could be scaled what's [00:44:39] limiting them? It's not like they're running out of capital. They've got all these investors shoving buckets of easy QE money down the Tesla fantasy of investing in it.
And if you're already the biggest company in the world, or one of the biggest companies in the world, top five, and you're only making less than 1% of the cars that are being produced in the world. I mean, how much more capital do you need in order to scale in order for this to really change the world?
Like if this is going to actually matter as a technology for us to be able to think, wow, you know, Musk managed to get... Musk was the one who got us onto the electric car. And that is such an enormous improvement in humanities station, similar to John D Rockefeller. And it makes sense that he is the richest person in the world.
How much more capital does the company need? It's already one of the five biggest companies in the world or 10 top biggest companies in the world. And it's doesn't even have, it [00:45:39] doesn't sell more than 1% of the cars that are being sold in the world. So I think there's a huge mismatch here between hype and reality.
And I think the valuation comes to a very large extent from the fact that the company has been selling the story of scaling. The idea that if we just managed to get more and more subsidies, if we just get better regulations, if we just have better control on fossil fuel producers, then we'd get the regulatory push that we need and then we'd be able to scale.
But at the current margins, the company is able to be profitable with the subsidies, but they can't scale. It's not easy to produce these things. They're extremely expensive and there are a lot of inelasticities in the precious metals and the rare earth metals that go into making these batteries.
So it's all quite fishy and I think the way to think about it is now that you put it this way, I would say it's what they're doing is that they're taking the green [00:46:39] grift money, which is let's talk about climate change and how we are taking away CO2. And we're going to save the planet with electric cars and they're using that money to basically make the balance sheet look like it's healthy and therefore to present it as if this can scale. So essentially the fiction of scaling is being propagated using the revenues from the fiction of greenery and CO2 fighting. So all the money that comes in from the CO2 makes the balance sheet look good enough that people can look at this and say, all right, well, they're close to the inflection point.
They're close to scaling, they're close to going mainstream, but that's not going to happen. I can't see any potential world in which they are able to eat up a big, significant chunk of world car markets, because the majority of the world needs cheap cars, and they're not going to pay 10 X, 20 X in order to keep subsidizing this guy.
I think. Marquita is asking in the [00:47:39] chat, are other car companies like Volkswagen, just looking to attract subsidies and naive American consumers that buy into the green stories? What's that economic logic? It sounds self-sabotaging. I think the logic for other car companies is that it's not just that you get subsidies from electric cars.
It's also that you pay the subsidies yourself. If you produce the gasoline cars, that's really the dangerous thing about it for them, because they're having to implement, they're having to pay all kinds of environmental taxes and buying energy credits and so on in order to continue to operate. And if they produce electric cars that reduces the burden on them.
And so they have an incentive to get into electric cars as much as they can. It's a regulatory-driven everywhere.
Daniel Prince: Can I just throw one out there? Would SpaceX not need to buy carbon credits? I'm sorry. Would SpaceX not need to buy carbon credits?
[00:48:39] Saifedean Ammous: Oh yeah. Well, do you see SpaceX is like exploring the universe for us.
And so that's a legitimate use of carbon dioxide, so I'm pretty sure they're going to find a way of rationalizing this away.
Daniel Prince: Oh, there's a boondoggle there, right? It's just left pocket, right pocket and just fly straight off Tesla. They raise money, SpaceX, and then buy the carbon credits straight off Tesla.
Saifedean Ammous: That's an excellent idea. Thought about it down. Yeah. I think this is really the business model. I think we're getting an image of it, just how this guy works and I think that's really the business model. It might be the case that they'll just start buying up Tesla credits. So then they'll use the space exploration subsidies to pump up their Tesla bags.
But I think the interesting thing is I was thinking about what Musk is going to be doing in the crypto industry, looking at what he's been doing with the cars. I can see him doing something similar with Bitcoin mining, and I can actually see it [00:49:39] being quite harmful to Bitcoin miners in the U S. I think this is something that Bitcoin miners need to be paying close attention to because I think what he did with the car, with the renewable energy credits and think of what he was saying about Bitcoin.
And about how Bitcoin consumes a lot of energy. And so I think the next logical step will be that he's going to introduce some new Bitcoin miner or a crypto miner. It's some going to be some Rube Goldberg elaborate shitcoin slash hardware solution, where you can imagine combining all the worst aspects of Tesla and a Dogecoin..
Together basically. And maybe it's not going to be Doge, maybe it'll be some other shitcoin, but try and tie all of this picture together. Bitcoin miners are going to be portrayed by the friendly pro-Musk media and Musk paid PR, they're going to portray Bitcoin miners as dirty polluters.
And they're going to [00:50:39] push for renewable energy credits and well, I think Bitcoin miners already have to pay renewable energy credit as all users of power, large amounts of power in the U S do, but you can imagine them introducing something specific for crypto where it's the crypto sustainability tax or something like that.
Whereby if you are a crypto miner that runs on a fossil fuel solution, then you have to pay a tax. And then if you're a crypto miner, which uses Elon Musk's unique and proprietary shitcoin slash hardware solution for mining, which is energy efficient and is basically vaporware in physical form then you get credits.
And so you can combine the energy hustle with the shitcoin hustle and see him make a nice business model out of this and make themselves a few billion dollars wherein they talk down Bitcoin and they present their shitcoin as the healthy alternative. And then they [00:51:39] present their mining as the healthy environmentally friendly alternative.
And then essentially they use that as a way of having governments tax other miners in order to subsidize them. And then basically they make a worthless shitcoin, they pump a worthless shitcoin in order to make its market value large so that the mining that is being done, appears to be more efficient than Bitcoin.
So for instance, they'll say, well let's say the market cap of Doge is $100 billion at a market cap of Bitcoin is a $1 trillion, but Bitcoin spends say a 100 times more energy per dollar of market capitalization than Doge does. Therefore you need to put this much tax on Bitcoin mining, Bitcoin transactions, Bitcoin exchanges, and use that money to finance Doge because it is the environmentally friendly alternative, which is essentially just a centralized shitcoin vaporware.
I can see him working on [00:52:39] something like this. What do you guys think?
Daniel Prince: Yeah, I agree, man. I think he just wants to become like the face of his own cryptocurrency and Doge is there for the taking. The whole thing is really f*** upset to be honest. I've been getting texts from friends saying they've sold bitcoin. It's really shit what's going on. And he doesn't seem to really care or have any personal responsibility or accountability for it that he's going to be wrecking people's families. And, yeah, sorry to take it down a pretty dark route, but, you know, Saif, the work you've done in the past, this puts the brakes on so much good work that's been done in this space to help people understand what it is and what it could mean for their future.
These people with big followers and big influence can just unravel all of that in an afternoon with a few misguided tweets. It's shocking.
Attendee: The people I know that are Bitcoin positive that I've been in contact with in the last three or four days [00:53:39] are buying. They're saying, Hey, thanks, Elon.
Saifedean Ammous: Yeah. I mean, I think it could cause a significant drop in the market because I think, he's not just an idiot on the internet. He's got a big company and a lot of people listen to what he says and what he does. And a lot of people will pay attention to him when he sells. A lot of people paid attention and maybe a lot of people got in because of him. And so, in a sense, we might lose all the people, you know, if you're in for Elon, then you're in for the wrong reasons and you don't deserve to go where we're going.
And so it'll be fun to kick you off at the side of the curb as we march on to our destiny. But yeah, I think it might be big damage that he does, but Bitcoin will inevitably survive it. And then when it does survive and recover, that's going to be the real gift that he's given us. Bitcoin is just always eating the obstacles in its way and the bigger they get, the bigger Bitcoin gets. And so [00:54:39] now this idiot is going to be the SegWit2X of this bull market. In other words, in the last bullet market you have the Segwit2X hard fork and you had all of the war around that.
And then Bitcoin won when it established that it's not going to suffer this fate of a hard fork and that hard fork is not going to work. So I think this is kind of like it, we're going to somebody tweeted today. I think it's Arman the Parman on Twitter. He tweeted something profound, which is that, people are always asking Bitcoiners well, what happens, why can't we just copy Bitcoin? Or why can't we just get some rich guy who will just buy up some other coin and then pump it to the sky. And then that will be the new Bitcoin. Well, now we're going to find out we're going to see what's going to happen. He's going to keep buying and he can keep pumping forever.
He can keep buying Dogecoin and I hope he does. I really genuinely hope he puts all of his money in Dogecoin. And in fact, if that's what he's done. He would be an absolute pathetic coward if he doesn't dump all of his Bitcoin and put all of his money in a [00:55:39] Doge, I hope he does. And I think if he does it, it would be the honorable thing to do after getting so many people to put their money into Doge, he should buy it up.
And then we'll see what happens, where you have, one guy who owns a big part of the supply of one currency. And then you have a global, digital decentralized currency that nobody owns and nobody controls. And let's let the market show what happens. And of course, he's not going to just let the market there.
He's going to probably try and bring in a regulatory bullshit in order to allow him to continue to exploit this. But eventually I don't think you can beat economic reality with Bitcoin. I think what he'll do, the total effects of all of these things will be, it's going to be a tax on Bitcoin mining in the U S.
Probably, it depends on what other countries join them, but probably just the U S, possibly Canada. And some European countries. So it will be a tax on people mining in those countries. And it'll be just a subsidy for him and for his eternal business model of being a [00:56:39] huckster.
And so it would be a massive shame for the U S to take Satoshi's away from the miners who are the most efficient at getting them and give those Satoshi's to this huckster, but, Oh, well, you know, we see all of these things happen all the time. That's what Fiat does.
Fortunately, Bitcoin eventually fixes all of this.
Attendee: Tesla's stock price would be interesting if he switched all that Bitcoin to Doge.
Saifedean Ammous: Yeah, what he's doing with Doge is kind of similar to what the Hunt brothers tried to do with silver. And then we had also discussed this here on this podcast before, in the episode on GameStop and the silver squeeze we discussed all these people trying to squeeze all of these non monetary things into becoming money.
Carrington MacDuffie: Well, he's shown himself not to be an honorable guy, so whatever he does, won't be the honorable thing I would imagine. But my question is how do you see this fitting with a plan B's [00:57:39] model? How does this bump in the picture, in the graph? Like how does that work?
Saifedean Ammous: It's actually quite amazing because if you look at the graph, all of this stuff so far has been just one tiny little bump where we went from going a little bit above the curve to a little bit below the curve.
So far basically, the model said that we're going to be rising significantly after the halving from last year and it's happened. The bear market would have to continue for a significant while in order for this to break down, basically the price needs to go up over the next year or so it has to cross a hundred thousand.
Yeah, I would say like in order for it to not break it has to cross a hundred thousand in 2020, doesn't have to cross because it could still be in the one standard deviation line, but it's going to have to cross in 2022 it should cross 100 K at least once. So, we were running ahead of what the model predicts over the last few weeks.
Over the last few months, and now we're running a little bit [00:58:39] below, but we're still all this time, all the last two years, everything, everything that has happened in the last two years from May, 2019 to May, 2021, everything has been as in, within one standard deviation of the predicted price, which is incredible.
So, it's almost like this was priced in, we knew that that was going to be an eccentric billionaire huckster who was going to come and buy in and then he was gonna dump. And here we are.
Carrington MacDuffie: Yeah. That's what I'm thinking is that it was programmed into the coin in the first place that this has been foreseen, not by a wizard, but just through whatever brilliance went into designing this coin that this is part of the design.
How would you not foresee this kind of thing? If you foresaw all these other things that have made Bitcoin what it is. So it's amazing to watch it play out. And by the way, it's 2021 Saif it's 21. It's actually 2021. [00:59:39] Yeah. Yeah.
Saifedean Ammous: I thought 2020 would never end.
Carrington MacDuffie: Yeah. Right. It's it's it's one long two year, year. Maybe it's going to be three or five-year year. Yeah.
Saifedean Ammous: The winter of 2019 has basically never ended. All right. Well, thank you very much guys, for joining and we will see you on Thursday when we will be hosting Dominic Frisby to talk about his work on Bitcoin and libertarianism. So, take care.