66. The Bullish Case for Bitcoin with Vijay Boyapati

In this episode Saifedean is joined by Vijay Boyapati, author of one of the most widely known articles for bitcoin beginners: The Bullish Case for Bitcoin. In this wide-ranging discussion Saifedean and Vijay analyse bitcoin’s rise through their shared framework of the Austrian School of Economics. They discuss Vijay’s four frameworks for valuing bitcoin, how technology “hype cycles” can help us understand bitcoin’s price movements and why fiat economists like Paul Krugman are so keen to undermine bitcoin’s success.

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Podcast Transcript

[00:03:35] Saifedean Ammous: Hello, and welcome to another Bitcoin standard podcast seminar. In today’s seminar, our guest is Vijay Boyapati. Vijay is an old  time Bitcoiner or who has written some excellent articles on Bitcoin,  some of what she’s now turning into a book called The Bullish Case for Bitcoin, which is really one of the best things you can present to newcomers into Bitcoin.

If you’re looking to present somebody with a case for why they should pay attention to Bitcoin. It’s a very good introduction to the case for why Bitcoin and why Bitcoin is likely to go up and why it represents a unique opportunity that most people for all human history have had nothing like it.

It’s a great paper and I’ve actually gotten the paper translated to Arabic and posted on my website. So I have an Arabic website, saifedean.com/arabic, where I have the translation of my book in Arabic [00:04:35] available for download for free. And I’ve also gotten a bunch of good Bitcoin intro articles translated into Arabic and posted on their website.

And Vijay’s is one of these because I think it’s quite good as an intro. And  Vijay is previously a software engineer . He was going to do a PhD in computer engineering, but he was rescued from the jaws of academia right before he was about to start his PhD, he didn’t, and he joined an obscure little startup.

Some of you might’ve heard about it, it’s called Google. And he joined it when it was very few people that heard about it. And now I think most people have heard about it. So Vijay’s also an old time Googler. And it’ll be interesting to hear about what the startup is up to.  So, Vijay thank you for joining us.

Vijay Boyapati: Thanks Saif. I’m really honestly, very excited to [00:05:35] speak to you because you’re a fellow Austrian and your writing has influenced me a lot as well in my thinking about Bitcoin. So I’m very excited to talk about Bitcoin and Austrian economics with you.

Saifedean Ammous:  Fantastic. So let’s get started. Tell us what is your bullish case for Bitcoin? Summarize it and let’s begin with that.

Vijay Boyapati: So it’s an article that I first started writing in, I think about early 2017, when the price of Bitcoin was about a thousand dollars. And, first found out about Bitcoin in 2011. And when I first discovered it discovered I had no idea what it was. And I was really curious as an Austrian because clearly early on, I recognized it as a monetary phenomenon.

This was a new monetary good. But why did it have any price? How did it, why was it valued? It almost defied the sort of conventional auditorium thinking. It was just a stunning development, I think. And [00:06:35] it called for an explanation. Why is this new form of money that was created out of nothing?

Why does it have economic value? So I have been obsessed with this question since 2011 and went down the rabbit hole and trying to try and wrap my head around it. And I felt like with Austrian economics, I had the tools to understand this. And it’s something that I’d been thinking about before with gold.

How is the price level of gold set? And I’ve been thinking about that since, early two thousands. So my article is really trying to explain, where does the price level of Bitcoin come from? How has it gotten to where it is now? Sort of the path of monetization? Because the process of monetization.

With gold is something that took millennia. When first primitive man picked up gold, that was, thousands of years ago from that earliest stage where early man picked gold up and valued it just as a [00:07:35] shiny collectible thing to gold becoming global money in the 19th century. That process took a very long time.

Whereas the process of monetization  for Bitcoin is happening in such a compressed timeframe that we get to see for the first time, the process of monetization happening in real time. And I think we’re learning stuff even as Austrians. I think we are learning new things and I think it’s important for us to have humility and recognize that maybe there are some things that we didn’t understand about the process of monetization that we can improve and revisit our theories.

And so that’s really what the article was about, the motivation I wanted to write it because I felt like. By 2017, there’s already a lot of misconceptions about Bitcoin and people had some very poor arguments against it, and didn’t really understand it as a monetary phenomenon. So I wanted to lay out an economic framework with which [00:08:35] people could understand Bitcoin, understand why it has any price, what that path to becoming a global money would look like.

And a little bit of the history as well, like the history of money and also the history of Bitcoin in the early days, it covers a number of different topics, but it’s really my way of explaining to people why Bitcoin is valuable, where and where it’s going in terms of its development as money.

Saifedean Ammous: Yeah. And you make a pretty compelling in case for why a Bitcoin is likely to go up, the number go up technology of Bitcoin, why it goes up and you define it in terms of you know, you look at it in terms of different sizes of markets, in terms of different levels of capitalization to allow you to estimate the price.

And I think you were one of the first people to really think about this systematically. Tell us what are those price scenarios and adoption scenarios in your [00:09:35] article?

Vijay Boyapati:   Since I’ve been observing Bitcoin there are really 4 valuation frameworks that I’ve seen people use to think about how valuable could this become.

And the first one is it’s really the most dismissive one.  One that’s used by people like  Nouriel, Roubini, or Paul Krugman or Taleb. It’s that there is no innovation here, there is no inherent value. This is like some kind of Ponzi scheme or like the tulip mania. And people have just gotten excited about something which doesn’t have any fundamental value.

If you believe this valuation framework, you think that the long-term price target on Bitcoin is zero. Eventually people are going to figure this out and it’s going to go back to a fundamental value of zero because there isn’t anything to it. The second valuation framework is that okay, there’s something here, this is clearly [00:10:35] a new innovation and Satoshi Nakamoto has solved a problem in computer science that created something that does have some value, but it’s really limited value.

It’s limited to people who are ideologically aligned with Bitcoin, people who are libertarians or cypherpunks  or very on the technological vanguard.

It’s really, it’s not going to be a widespread thing. It’s just this small group of crazy people who are interested in it, or you’re a technologist places like Silicon valley. And if you were to believe that you know, you could put a price target on Bitcoin, maybe somewhere between 10,000 or 100,000, because there are actually a lot of wealthy libertarians  wealthy people in Silicon valley who were excited about it just for the technology aspect.

The third valuation framework,  this is actually a fundamental innovation to money. When you compare it to competing monetary goods [00:11:35] and systems, when you  compare it to gold, you can see that Bitcoin has obvious advantages to gold. If you look at the attributes that make gold good as a store of value and you compare Bitcoin to it, bitcoin is superior along a number of those attributes.

Certainly, obviously it’s much more transmittable across the world. It’s very easy to send large sums of value across the world without anyone’s permission. Whereas doing that with gold is very risky and cumbersome and costly. And if you believe this, if you believe that Bitcoin is, similar monetary good to Goldman has similar scarcity properties, but it’s superior along a number of the other attributes that make for a good store of value.

Then you think that Bitcoin eventually is going to surpass gold in market capitalization. And so you’d put a price target on Bitcoin, somewhere in the range of 500,000 to a million dollars, which is comparable. We’ll get Bitcoin to a comparable market capitalization to [00:12:35] gold, perhaps surpass it because it is superior to gold.

The final evaluation framework, the fourth one is that Bitcoin is eventually going to become the reserve currency of the world, it’s going to attain the status the gold had in the 19th century. And if that was the case, then it becomes a final means of settlement between financial institutions and nation states.

 They will hold it on their balance sheet or in reserves for nation states. If you believe this valuation framework, then Bitcoin is gonna represent the wealth of the entire world. And so you put you’re going to have a price target on Bitcoin in the tens of millions of dollars. Now, I think Bitcoin is transitioning from the second valuation frame  with people’s mindset is sort of transitioning from the second to the third.

They’re starting to say, okay, Bitcoin could be gold or even more than gold. And I think once it gets there, once it gets to the [00:13:35] level of people comfortable with Bitcoin being this non sovereign store of value, which has a market capitalization similar to gold, I think it will begin to transition to being that global reserve currency.

I think that process could take many years. I have a viewpoint of Bitcoin as a transformative technology that will transform the world over a period of decades. So I’m, in terms of price movements, I don’t really like to make price predictions in the short term, but I’m extremely bullish about Bitcoin over the timeframe that it will be important to my children.

Saifedean Ammous: Yeah,  I think obviously I agree with you and  I am curious though, what are the best arguments that you would make for why Bitcoin could say, get stuck at the, what I like to call the Esperanto stage, where it’s a bunch of internet we are those who use this weirdo internet money amongst themselves, and the rest of the world  just carries [00:14:35] on using normal  people money.

Just like with Esperanto, there’s a small group of committed people  who want to use this language. And there’s an element of Esperanto where some of them don’t even want mass adoption.  They’re not out to replace national and traditional languages. They want to just have this as a global lingua franca for them, for people who want to talk Esperanto.

I think many people would generally default to this being this case for Bitcoin. Like Bitcoin, yeah, sure, okay, if you want to handle private keys and if you want to be a weird anarchist and run your own node and have hundreds of thousands of transactions every day of strangers being recorded on your node.

Sure, it works and so it’ll always remain niche and it’ll always remain a small, limited market.  And then of course there’s the level that maybe it just stays at the level of gold where, okay, fine, it’s out there. People use it [00:15:35] as a way to get around inflation. They can’t really use it for jewelry like gold, so it’ll end up somewhere in the range of what gold carries, but you and I, I think would expect that once it hits those either of these targets, that there’s no stopping that train. The same dynamic that got it to that level, continue to carry it on.

I’m curious. What do you think are the best arguments you could present for why that won’t happen? Why could it get stuck at gold or why would it get stuck at the Esperanto stage? Do you have any, or do you think that basically the snowball is rolling and there’s no stopping it?

Vijay Boyapati: I think this is, this is a market process and process of price discovery, and it is important to have humility about this, and we don’t necessarily know where it’s going to end up, but I think the desire, the human desire to have to keep on saving safe and have [00:16:35] the value of their savings be maintained over time is universal.

I think everyone wants that. You put your hard work in and you get some savings. You don’t want your savings to  to be debased. Gold was money for most of human history. It was the global reserve standard in the 19th century. It’s really an anomaly that gold stopped being money and gold had some problems that Bitcoin doesn’t have.

Its physicality is actually a major disadvantage of gold because the physicality makes it hard to store. It also makes it hard to transmit. So, what that causes is tendency for gold to be concentrated in these financial institutions, people will deposit them at banks and you have a concentration which made gold vulnerable to nation state attack.

And that’s really what happened. It wasn’t like gold was rejected by the market. No, not at all. Gold was aggregated by the state, the nation state [00:17:35] attacked gold, and it was vulnerable to nation state attack because it had these centralizing tendencies. I think fundamentally, there is this human desire to want to have one savings kept safe, and that’s much more obvious in visceral to people who lived in countries where the government is so badly mismanaged that the  monetary system has collapsed.

People in those countries. You don’t need to give them a long story about Bitcoin, about why it’s valuable, why it’s this cool technology they understand instantly, you know, we want sound money. In the west maybe, because they haven’t seen that collapse, at least in recent history. I think it’s as obvious, but governments have this tendency over the longterm to horribly mismanage economies and mismanage their money.

And I think the situation we’re in, the monetary situation we’re in right now is absolutely unprecedented. That you have these government bonds across the world, which had negative interest rates. Governments are [00:18:35] holding the short term rate at zero. I think this is going to end very badly, people are going to be looking for a lifeboat.

They’re going, looking for something to escape to. I think there’s almost an inevitability that the world savings are going to flee to Bitcoin. And once that happens, I think it’s very hard for nation states to unwind that as they did unwind gold. But,  I also have to say, I do have humility about this.

This is a market process and we’re learning. Maybe gold does get, sorry, bitcoin does get to the capitalization of gold, maybe we discover in this price, discovery process that, that represents the number of people on earth who really care about this. And the rest of the people are fundamentally statused and they’re happy to live with their savings in a government money that can be debased.

We don’t know. We are learning this and I think we need to be students as well as theoreticians and economists. And we need to watch [00:19:35] this process. And learn what we can.

Saifedean Ammous: I agree with you. Obviously I always try to be careful talking about the future because it’s not something that’s easy to analyze.

It’s much safer to talk about the past and the present, but I still think the case  ultimately for me, comes down to the fact that it is human action that determines monetary status and it’s not laws and regulations. And as you said, people are going to want savings. People are gonna want to have more money and more savings.

And I think it’s just inevitable that they are going to wise up to savings or even if they don’t wise up to the fact that this is better, there’s the brutal reality of hard money, which is that if you hold hard money, it continues to appreciate over time. Whereas if you hold easy money it depreciates. And the people who choose easy money, their choices don’t matter much for very long. You progressively [00:20:35] have less and less wealth, and so whatever you decide to do with it matters less and less over time because you’re commanding a progressively smaller share of the liquidity pie. And I think this is really how I’d like to think of Bitcoin’s success.

It’s a matter of capturing liquid cash balances. How much of the world’s liquid cash balances does Bitcoin have?  I think as it continues to grow, obviously the key point is there’s no way of making more so as demand grows, that just leads to the price going up. That’s the only way that we can meet the excess demand, but that in turn drives more demand.

And I don’t see that dynamic stopping, the more demand comes in the price rises. That incentivizes more demand. Nobody likes to stay poor. Nobody wants poverty. And so people are going to either figure it out or learn the very hard way, but it’s difficult to see a situation where it stops growing.

I think government bonds are just there for the taking. They’re  negative [00:21:35] yields. They’re, high-risk insane for me that anybody buys government bonds. Then again, if it doesn’t make sense that they buy bonds, whatever reason that is driving them to buy bonds might be convincing enough 20 years from now, perhaps.

 Michael Saylor has been saying quite frequently that he thinks  the Bitcoin doesn’t challenge the dollar, and I’m trying to give that idea some serious thinking. And I think there is a case to be made there that perhaps Bitcoin challenges bonds, and really inconveniences government financing, but that you continue with the dollar as a currency because you need it to pay taxes and they can still throw you in jail.

And you’ll have your central bank digital currency on your phone. Which is going to be completely controlled by your central bank. This will be full surveillance and it’ll be very politically correct in that, you can [00:22:35] only buy things that the government approves of.

You know,  no meat, no fossil fuels, none of those evil things that make life livable for most of us. It’s going to be all soil and solar panels, and so on. You can have this kind of economy subsist for perhaps a very long time while the price of Bitcoin rises in real terms. But  few people keep savings in the dollar, but they still buy it every month in order to get their  government rations of fiat food and all the other fiat’s things that they can buy.

So there’s still some residual demand that keeps propping up the price and everybody needs to buy it for taxation. And, you can see. You can see how they can, with central bank, digital currencies and all the surveillance capacity that they have, you can see how they could make it that you can’t operate unless you accept [00:23:35] dollars.

And that you know, with all the universal, basic income and all the money being handed out to people, there’s a lot of dollars out there for you to accept. So it’ll always make sense for you to continue to accept your local fiat coin. So maybe that is the case, but even in that situation, I think if I was to play devil’s advocate and think of the best case scenario in that case, I still would see that price of Bitcoin will continue to appreciate over time.

And so the dollar is going to continue to devalue in the situation and people will know that it is devaluing, but the worse it gets, the more Bitcoin rises because Bitcoin is going to be at the alternative. Bitcoin’s going to be how you keep your savings. Bitcoin is going to be how you are able to buy meat, how you’re able to buy gasoline, how you’re able to stay warm in the winter, how we’re able to buy all of the fun things that industrial civilization has given us over the last 200 years.

A lot of these things are becoming quasi illegal these days through governmental regulations that are [00:24:35] causing grid disruptions and so on. So even in that situation, I don’t see them being able to stop Bitcoin and I don’t see it quelling Bitcoin’s drives. So I’d like to try and disagree with you about something, but it’s very hard.

Vijay Boyapati: Yeah, it’s interesting. You’re talking about this, it makes me think that there is already precedent for this. If you look at Argentina, the Peso is used as the medium of exchange, but wherever possible people have tried, historically have tried to save in dollars because the value of the Peso is depreciating so quickly.

So you have this sort of disconnect with some of the functions of money are handled by different monetary goods. The Peso is used, because of government force, is used as the medium of exchange, but the medium of sale or the store value is the dollar. The problem really with that is that you don’t have any financial infrastructure for the dollar in Argentina.

So you don’t have the banking system or whatever. Bitcoin has this huge advantage that the infrastructure is on the internet, and can be used by anyone [00:25:35] anywhere on Earth. So I think it’s a much more ideal vehicle for savings to flee to, because of that, because you’re not completely disconnected from any infrastructure.

So I think that’s a huge advantage for Bitcoin. And I think people really talk about money as being a medium of exchange. And in fact, most economists define it that way. It’s the store of value role, where savings are held, which is by far the most important aspect of money, because that’s where the power is. The economic power comes from the ability to control the pool of savings in the world.

And that’s represented by what people want to store their value in. So the  US could maintain, like you’re saying, the US dollar as a medium of exchange and have some source of demand  through taxation, by saying, we will only accept taxation remittable in dollars. That creates kind of a base layer of demand for their currency. But then what they lose is the power to inflate away the savings.

Which is [00:26:35] a way of stealing people’s savings. And so what you would see is much, much higher interest rates because people would be keeping their savings not in the dollar non in US treasury bonds, they’d be keeping it in Bitcoin. And so the government would have to pay a much, much higher price to fund its operations.

And I think another big benefit of this is that governments wouldn’t be able to fund themselves through inflation, they’d primarily have to rely on taxation. They would have to go to the population, go into people’s pockets and take money directly. And I think, whatever role you think the state should have, I think taxation is a more honest system of funding than inflation.

 Because people see the money being taken out of their pockets and they get upset at that. And there’s this natural political pushback where historically, whenever governments tax too much, it would eventually lead to revolution. People don’t want their savings being taken in this way.

It puts a limit on how far governments  could go. And if you [00:27:35] look at the middle ages where you had the, not really nation states, but more like kingdoms, it was very hard to do things like raise armies and go and attack all the other places because of the cost of taxation, people would get upset and say, what benefit am I getting from this?

And if they don’t see a benefit from that, they push back or you have a revolution and the king is killed or kicked out. It’s really the development of the nation state and its desire and ability to inflate the money supply, which has allowed these gigantic wasteful projects like trillions of dollars being spent on bombing the sand in the desert in the Middle East to no benefit to anyone.

Actually, to huge detriment to both the people in the Middle East and two people in the US. So that’s one of the reasons I’m most excited. The world’s for savings fleeing to a store of value that can’t be inflated away will really have a limiting impact on what governments can [00:28:35] do going forward.

Saifedean Ammous: Yeah, I agree entirely. And I think if that scenario does come to pass, where maybe national currencies survive and they continue to operate as your local central banks, a surveillance mechanism over you. Bitcoin can’t fix that perhaps in terms of the government being able to point a gun to your head and threatening you with having to use a currency, but that’s a paper tiger, if it’s not backed by the ability to inflate the currency away.

As long as most people’s and companies savings go toward Bitcoin, then the devaluation of the currency doesn’t add much economic value. It doesn’t rob many people of too much economic value. I prefer the complete dismantlement of the state, but I’ll settle for a declawing it.

Vijay Boyapati: That’s a really good way of saying it, yeah.

[00:29:35] Saifedean Ammous: Exactly,  declawing the  tiger and turning it into a tame house cat, I think is much better, you feed it when you want and it doesn’t threaten to eat your children.

Okay, shifting gears a little bit, you talk about the hype cycles. You are also, I think perhaps one of the first people to start thinking about Bitcoin in terms of the hype cycles. So, what do you think of the where are we now in terms of the Bitcoin?  Tell us a little more about the hype cycle, mental model that you use and where we are right now.

Vijay Boyapati: Yeah, so like we were talking about earlier, this is the first time we’ve got to observe the process of monetization in real time. And one of the things, we may not have known this and we’re learning this, is that the process of monetization seems to happen in these hype cycles where you’ll have people come in the early stages who recognize this as a [00:30:35] fundamental innovation, that have very strong conviction and the price is still very flat, but starts to move up because the people are accumulating and recognizing it’s an important innovation to money.

And then you get other people  who recognize that the price is going up and say this might be a good investment. And so they decide to buy. And then eventually get  speculators coming in. The price starts to go parabolic as people are looking for very quick profits. They want to make, 50% or a hundred percent in a month and you get into the speculative mania, and it reaches a climax.

And then it crashes because the cohort of people who are interested in Bitcoin, that cycle is exhausted. And then the price crashes, but it crashes down to a new plateau, which was higher than the previous plateau when people first got interested  and saw this as an important innovation or technology.

And what I find most fascinating [00:31:35] is these hype cycles have a fractal pattern of increasing magnitude. And what I mean by that is if you look at the price chart of the 2017 hype cycle and overlay it on the 2013 hype cycle, they looked very similar and the same could be said of the current hype cycle.

If you superimposed on the 2017 cycle, they’re very similar price characteristics. And this is not something we necessarily  would have known as Austrian economists to try to reason about this deductively. We wouldn’t have known that these hype cycles happen, but it seems to me it’s almost inherent to the social dynamic of monetization, or it happens in bursts of enthusiasm.

 The first hype cycle was just the people who recognized Bitcoin as like this new improvement or solution to a problem that they didn’t think was solvable, the Byzantine General’s problem. It was a small cohort of [00:32:35] people, the cypherpunks and the computer scientists who had been thinking about this, really deeply who recognized there was something there,  people like Hal Finney.

The next hype cycle w was the sort of early Intrepid investors, people like the, the Winklevoss twins or Wences Casares who saw this as  an important technology. And also people who are ideologically aligned with Bitcoin as something that could improve the freedom of the world. That was really the cohort of people who define the next hype cycle.

And then you got  early retail investors in the 2017 hype cycle where they started coming and saying, wow  this seems to be important or, a good investment vehicle.

It was really the most Intrepid people, most Intrepid investors. So, the early adopters. This cycle can be characterized by institutional investors coming in, corporations coming in, [00:33:35] and perhaps even nation states thinking about, surprised me, I thought that would happen a few cycles from now, but coming in and thinking, maybe we should have some Bitcoin in our reserves.

So yeah,  that’s a description of the cohort of people have been in each cycle. But the really interesting thing to me as an Austrian is that the process of monetization is happening in cycles. They called Gardner Hype Cycles. They have this very particular pattern where the price, so it was flat and then starts increasing, it goes up to a big parabolic climax, and then collapses and gets to a new plateau.

We wouldn’t have known that, I don’t think, just reasoning deductively. But we’ve learned it and we’re observing this happening. It’s absolutely fascinating to me. I’d love to hear what you think, as an Austrian who thinks deductively, but recognizes that there’s clearly a pattern happening here.  What is the significance of that?

[00:34:35] Saifedean Ammous: Yeah, I think it’s probably not something that you would predict based on practicing logical reasoning, if left on your own. If you’d never seen a market, and I talked you Austrian economics, and then I told you, what would you expect to happened in the last 40 years?

You probably wouldn’t come up with this, no matter how much praxeology read and for listeners who aren’t very familiar, praxeology  is the Austrian method for studying economics, which is essentially the analysis of human action, where you think of economics in terms of human action. People act, and their actions have consequences.

And you reason about economic activity and economic actions through thinking through the consequences of human actions. So these things, I think, the hype cycles in markets, you may not really be able to predict them based on thinking through praxeology  but I think, as you were saying, you can dig in and understand what is going on.

And I think it’s an [00:35:35] explanation that has its heart in praxeology. So your explanation of the hype cycle is ultimately about humans acting. A bunch of people come in and then, and other kinds of people come in and then the price rises because so many people are coming in and then it crashes.

So I think ultimately it is about human action. And I think it’s also a good way of understanding, or maybe it’s  a praxeological answer for the question of market efficiency and the efficient market hypothesis. In that, in the efficient market hypothesis or in a lot of strands of mainstream neoclassical economics, there’s this idea that if the knowledge is public, then everybody in the market knows it, and then everybody is able to act upon it, and so w it is already going to be reflected in the price.

And I’ve always found this to be just completely academic in the worst sense of the word, in the sense that it doesn’t really matter because yes, if all the knowledge was available to everybody, then everybody [00:36:35] would act upon it, then it would be reflected.

But knowledge is not one central authority. And we see, I’m sure you agree, within modern economics, within modern mainstream economics, there is a very strong current,  more than just the current, it’s a shaping motivating assumption of there having to be somebody with a lot of knowledge who knows what is going on,  of their being, the possibility of somebody commanding all the knowledge, not just somebody commanding all the knowledge but all of everybody commanding all the knowledge.

But ultimately what this shows is that there is a conception of the knowledge as if it is just  a specific set of facts. It’s a highly simplified way of looking at the world wherein, it’s the knowledge, you can think about it in terms of say public companies, Google is going to buy that company, that’s not public knowledge today, and now it becomes public knowledge tomorrow, then people act upon it and then people buy the [00:37:35] company stock, and then that company stock rises and so on.

 So that knowledge gets internalized. You can think about it in that way, perhaps. And you can make models. You can make mathematical models wherein it works in that sense, but in  reality, in the real world, knowledge is not just one small set of facts. It’s not even a large set of facts. It’s an infinite amount of facts and opinions and interpretations and mental biases and ideologies and mental frameworks of looking at the world.  The world is a big giant tower of Babel of people looking at the world in different ways, understanding different things and coming up with different conclusions.

And so the notion that there is such a thing as just the knowledge, is I think a very statist and to an extent, Marxist socialist understanding of how an economy functions and it is  really,  I think going back to the socialist calculation debate, it’s  important one very underrated [00:38:35] fact is that the socialist calculation debate was not a debate between a mainstream economists and socialist economists.

It was a debate between mainstream economists and socialists economists on one hand versus the Austrians on the other hand. So the mainstream is pretty much on board with all of the fundamental tenants of the socialist calculation debate. And that’s in my mind where you come up with ideas like the efficient market hypothesis, because you think in this collectivist way, in that there is the knowledge and the market is made up of the few big banks and the few big investment managers, and those are the ones that are moving the majority of the capital and the market just follows that.

But I think in the real world, and Bitcoin is a perfect example of this, knowledge is not evenly distributed and it’s not even clear what the knowledge is. And, in the case of Bitcoin, which is something really new, we see how knowledge actually works.

And I think the hype cycle model is a much better way of understanding the knowledge [00:39:35] and the efficiency of the market than the efficient market hypothesis. It’s a better mental framework than  thinking about efficiency, because I think just the concept of efficiency for a market,  I find to be nonsensical. It’s inapplicable.

Markets can’t be efficient in the same way that Saturday can’t be read. It’s just a category error. The efficiency is something you use to describe an engine. So an engine has a maximum amount of energy that goes into it, it takes in this much fuel and that fuel contains this much energy.

There is  inefficiency because the amount of energy you get out of the engine is going to be a fraction of the amount of energy that you put in every engine. There’s no perfect engine. So every engine involves loss. So that’s why it makes sense to think about it in terms of efficiency. But if you think of a market in terms of efficiency, you’re essentially assuming that there is a maximum, there is an optimum for this market, and that is built on [00:40:35] the assumption that there is an optimal way of organizing society. Well optimal to who?

And of course that’s, that’s the underlying assumption is that there’s a central planner, who’s making decisions so that it is optimal for others. And so you get back to the idea that you can perform economic calculation from a central body for everybody else. And that’s the fundamental tenet of disagreement between mainstream economists and Austrian economists on the socialist calculation debate.

This is a very long roundabout way of getting back to the hype cycle issue. I think the hype cycle issue shows us just the knowledge of Bitcoin spreading and the information dissipating in the market.

And it’s the process of people learning how to accept, how to use Bitcoin, how to hold Bitcoin. And more importantly, there’s the, there’s the kind of adoption aspect in a tech sense, the tech adoption of figuring out your [00:41:35] private keys and figuring out how you’re going to buy and how you’re going to keep your Bitcoin safe.

But I think even more significant is the liquidity adoption aspect of it, which is making room on your balance sheet for Bitcoin. You usually don’t keep a lot of cash on hand and you have your money spread out over all sorts of things. And then having the conviction to take out money from say your saving account or from your stocks or from your bonds, and then putting it into Bitcoin, it’s going to take time for people to be able to do it, even if they achieve the you know, the conviction about, I understand this thing, I know how to hold it, I know how to do it.

They have bills to pay. They have financial obligations in their local fiat, and they need to meet them and they have their salaries coming in and you need to start making room in your balance sheet, in your savings without compromising your ability to meet your financial obligations.

And of course, if you do that, which many people do in Bitcoin where, you go all in and you forget about your rent and then end of the month, you remember you have to pay [00:42:35] rent. So then you sell Bitcoin at a loss. If you do that, you could get wrecked, you could lose money because you’re not doing the correct liquidity calculation.

So it takes time for people to really get into Bitcoin completely. And for balance sheets to go in, just, I like to think of it as just, the building of the Bitcoin part of the balance sheet.  It’s not, even though you can do it with a press of a button, send everything to your Bitcoin dealer and just get Bitcoin for it, in practical terms, you can’t really do it.

You have balance sheet considerations and you have payments. So I think that, you have the knowledge and the awareness and the ability to adopt an increasing size of your balance sheet in Bitcoin, we are going from zero to 100% effectively. The journey of Bitcoin is to go from 0%, in 2008, Bitcoin owned exactly 0% of the world’s cash balances, who knows when it’s going to be 100% or if it’s going to be [00:43:35] 100%.  Let’s think of that as the objective. It’s only natural that we’re going to be witnessing these things go gradually, and it’s going to grow at an increasing rate because it spreads virally, and then we, each person who gets in can produce more content, can communicate to more people, and then it creates more people in the kind of viral transmission of the idea.

So it can increase exponentially in terms of size. But I think perhaps thinking about it in terms of the market actors, I think it makes sense that you would get these hype cycles, particularly when you combine the market access with the way that the Bitcoin supply works.

And so like the individual hype cycles that you see around particular technologies, usually let’s say it’s the VCR or the DVD or the iPhone. There is that big hype. And then there is a crash and then the demand stabilizes [00:44:35] around the valuation stabilizes around a certain level.

But then there comes a point where the thing matures,  you have the big parabolic rise in adoption in market capitalization and profitability. It may overshoot, but then eventually it stabilizes at a level that is sane, and then that’s it. Each industry will do it’s 10 X, it will do it 100 X and then it’ll get to a level where it settles down.

But Bitcoin has had, four or five of these it’s gone through seven, eight orders of magnitudes from less than a cent to more than $60,000 in the space of 12 years. So, I think the reason that we get these repetitive cycles in the case of Bitcoin probably has to do with the supply, probably has to do with the way that the supply is being generated in that, the way that I see it as that with each level of production, we started off with 50 new Bitcoins as a block [00:45:35] reward.

Which meant 7,200 Bitcoins a day at that kind of level, the value of Bitcoin that was outstanding, the value of stockpiles of Bitcoin and the stockpile of Bitcoin out there, it’s value is always going to be pretty small compared to the inflation. So there’s just very little limit on how much adoption can actually happen.

So it’s not just that it was a small number of people because it was a small little project on the internet that only appealed for a small bunch of weirdos.  More than that, Bitcoin couldn’t really handle a lot of wealth at that point because if a lot of real money had gone in the price would have gone up so much that the inflation would have gone up.

The new supply, the new 7,200 coins would have been worth so much that it would have brought that wealth crashing down. And eventually that’s what happens. So because the value of the production keeps rising as the price rises, that inevitably has a negative feedback loop [00:46:35] on the price.

And so that’s why I think, you get that hype cycle, so you get that big adoption and growth, but bitcoin basically becomes more inflationary as the price goes up because you’re getting more real market value in terms of the new Bitcoin that are being produced.

Yes, you’re still getting to the same 7,200 Bitcoins, but they’re worth a lot more, if Bitcoin is worth a thousand dollars, then if Bitcoin is worth a dollar. So you’re going from $7,200 of new Bitcoin, a day to 7 million and $0.2 million of  Bitcoin being produced a day. So a thousand fold increase in real market value, which means, you need more hodlers coming in.

So I think this is why, we get that crash after there’s a big hype and people start catching on, the price rises, the value of the new production rises as well. Eventually the increase  in the price [00:47:35] overtakes the ability of new people to come in and keep pumping the price up. In other words, the value of the new production increases the value of new buyers.

And then it begins to crash. And then with the leverage, you witness the big crash and then effectively, we consolidate around a certain level, but then what triggers another hype cycle is the next halving. Cause then the 7,200 drop to 3,600, and yet we’d already established the price of where we’re able to handle this new price, which was,  before the first having it was around $10 or so.

So the price of Bitcoin was around $10 before the first halving. That was a price where, new demand could handle 7,200 coins a day. So then when you drop that number of coins by half, then  the existing demand is going to pump the price higher, and that’s going to start the hype cycle again, and the price is going to keep shooting up until it [00:48:35] overwhelms, the new inflation becomes so valuable that it overwhelms the new demand that is coming in, you get the big crash again.

 I’ve gone on for way too long, but this is something that I find extremely fascinating because the crazy thing about Bitcoin is that it’s the first commodity or asset on a market  whose supply is extremely accurately well-known and everybody can estimate it so we can see those market trends play out even if most market participants don’t know them.

It’s a little bit different in that, whether people know it or not, there’s the price rising is going to affect the quantity of Bitcoin that is being put out everyday or the value of the Bitcoins that are being put out every day.

The quantity is going to stay the same, but the market value is going to be affected, and so that’s going to necessarily affect the market for it, I think.

Vijay Boyapati: Yeah. So you said a couple of things that I think are really interesting and I completely agree with, I think the idea that knowledge [00:49:35] permeates instantly to all people is as naive as the idea that inflation happens uniformly. That when  the central bank creates new money, suddenly everyone, and this is a model that classical economists often use, that inflation just rises all prices at the same time.

That we know about the Cantillon effect where money, people who get it first had the greatest benefit in their purchasing power, and then it flows out into the economy. And I think you’re exactly right. The same thing is true of information. I think that’s something that we are understanding with Bitcoin that, information may travel very fast around world, but understanding and appreciation about information is lumpy and it happens in sort of stages. 

And it reminds me a little bit of this essay written by Friedrich Hayek, the use of knowledge in society, and  he talked about how central planning, his argument  was slightly different to Mises’, so I think Mises had the stronger [00:50:35] argument, but Hayek  had some interesting points about how central planning can’t work, because information is distributed in society. And there’s special pockets of information, if you’re running a factory, you may have particular knowledge of how that particular factory runs. 

 It’s never known, it’s just part of the process of running the factory, you learn these things that could never be known by a central planner.  What you were saying really reminds me of that essay by Hayek, and I completely agree with you, I think that the causal factor for these hype cycles is the halving and, Bitcoin’s halving and difficulty adjustment is what’s controlling these, or triggering these hype cycles.

I write   about this in some detail, in my book where I explained in a sort of similar way to you, how once Bitcoin crashes and it comes to a new plateau, there’s a sort of certain amount of demand, which keeps it at that plateau. And the halving is a supply shock when the amount of supply [00:51:35] that can be supported by the market is halved, the demand is excess over the supply, and that starts to push the price up in that pushing of the price up begins the hype cycle, and eventually it gets into this speculative mania again, and it goes beyond what the market can support.

Because, just as you’re saying, what’s the price of Bitcoin gets high enough, you have to have new demand, which can support  what the miners are putting onto the market. There’s also an interesting dynamic with miners as well, because they’re trying to anticipate where the price is going. And as  one of these hype cycle starts, a lot of miners will hold back the supply that they’ve mined and a part of what I think causes the climax, the final climax is miners starting to dump what they’ve held and also deciding that they’re going to be selling the coins that they’ve mined, which will bring the price back down to a level which can be supported by demand and bring in a new plateau.

But I completely agree with you that these are ultimately tied to Bitcoin’s [00:52:35] halvings as supply shock events, which trigger these hype cycles.

Saifedean Ammous: Yeah. And I think  this is ultimately what  the stock to flow model is saying. It’s saying that these halving cycles are significant to the price formation. I think people get too caught up on the math because the world is so full of bad math, that they expect all math to be bad.

You look at most scientific studies that get quoted in the media on whatever scientific issue. There’s just a bunch of scary math and then we’re all gonna die. And so it’s very useful to be skeptical of numerical models in general. But I think what people miss is that every time you think about what Bitcoin is going to be doing in the future, every time you act in a market on what Bitcoin is going to be doing in the future, you are developing a model and the most basic model is number go up.

And that seems to be doing an extremely good job, which is saying basically, over a horizon of three [00:53:35] years, number’s going to go up and that basically has never happened. There’s never been a day where the Bitcoin price was lower than where it was three years ago. I think maybe that’s maybe three years in a couple of months is the longest we’ll find. This has never happened.

You know, that ultimately is the bullish case for Bitcoin and that number’s going to go up. So you buy it because you think you’re going to be able to exchange it for more things. The number of things that you can get for it in the future goes up. You can think of that qualitatively as just, it’s going to go up and then you can try and model it by trying to estimate based on past performance, what you would think the magnitude of this going up is going to be, and here, you would expect it not to be very accurate, but if you just looked at  time, you made a relationship between the price and time, you’re going to get a statistical relationship and you can extrapolate and you can make predictions on the future.

 That’s what kind of the rainbow model is, [00:54:35] it’s just a time  model where you’re looking at the price every day and then extrapolating and making error bands around it. And the difference between that and the stock to flow is that the stock flows like a time model in many ways, because the stock to flow rises as time goes on.

So it’s very similar to it, but it is different in one very important way, which is that the stock to flow doubles every four years, it has that jump every four years. So if you find that the stock the flow model is better at explaining the variation in Bitcoin prices than a static price model, then I think what that’s saying, the signal there is that the halvings matter for price formation.

I think it’s very hard to look at Bitcoin seriously and think that the halving doesn’t matter, you have to have spent a lot of time getting miseducated in bad mainstream economics in order to think, no,  halving doesn’t actually matter because  it’s knowledge that is out there. Well, no, it’s not knowledge [00:55:35] that’s out there.

The vast majority of people in the world to have no idea what Bitcoin is. Among the minority that have heard of Bitcoin, the majority don’t understand that properly,  don’t think it matters to them, and don’t think that it is relevant. They think it’s just this weird new thing that  weird people are using like  Ethereum or some shitcoin.

The vast majority of people still don’t really get what is going on here. So for the vast majority of people, the knowledge of the halving is inexistant.  Amongst the people who know about Bitcoin, only a small minority know about the halving. And then among the minority that know among the people who know about the halving, I think a significant chunk, maybe not a majority has had its economic reasoning compromised by mainstream  education’s take on these questions where they just think, oh yeah, okay, we know about the having, but obviously everybody else knows about the having. And so it doesn’t matter.

No, 99.9% of the world’s wealth, maybe not 99, probably [00:56:35] 90% of the world’s wealth doesn’t know what the halving at least I’d say that doesn’t know what the halving is and doesn’t think that it has an impact on the price. And so whether they do or don’t also, it’s one thing to know, this the other thing that I think people miss is that it’s one thing that people know about the halving, it’s a completely other thing whether their knowledge is actually going to matter.  In order to do that, they need to take resources out of one thing, and deploy it into, pricing in the having.

So it’s not enough to just say, oh I know that the halving is going to happen. You need people to actually think, all right, I’m going to sell my house or my stocks, or I do this and buy me some Bitcoin now in order to sell it six months after the halving, because I think they’re halving is going to do that, is going to cause the price to rise.

And so here, not only are we talking about a small minority of within a small minority, but [00:57:35] also you have their own liquidity constraints. The people have bills to pay and they have other things to own. Some of them have chairs they want to keep. And so there’s a limit to how much capital they can bring into arbitraging this.

And you know, that’s why people have been shouting that the halving makes number go up for six, seven years now, and you still could have traded the halving both times and done really well. So we’re now…

Vijay Boyapati: I see you have a chair, Saif,  you’re sitting on a chair, so maybe the understanding is not fully embedded in your mind. You see, I don’t have a chair so that I fully appreciated the significance of the halving.

Saifedean Ammous: A lot of us (???) in our understanding the economics of Bitcoin, but spend money on a chair.

Knowledge is incomplete and [00:58:35] conviction. I’d say knowledge is incomplete and conviction is also lacking. And in order for people to start pricing it in, I think you need more conviction.   With each halving, I think that’s going to increase because if you look at it,  it’s  basically been a very lucrative trade in every example, which is, by six months before the halving and sell six months after the halving.

So let’s think what was it? Six months before the halving last year, it was December, 2018, Bitcoin’s around three or 4,000 and then six months after the having was November 2020, or December 2020 or something like that, bitcoin was around 20,000. So it was all just an eight fold appreciation, or five fold appreciation in just the matter of one year.

It’s hard to believe that there are you know, people don’t like to believe that there are dollars on the sidewalk, but [00:59:35] sometimes there are dollars on the sidewalk and if you don’t pick them up, somebody else will. But they won’t be there for long you know, but they will be there in fact dollars fall on sidewalks all the time, but they just get picked up quickly, I think. And another…

Vijay Boyapati: Could I just say something about, I think you said something that I think is really important, but not very well understood. I think conviction itself is almost a form of understanding and this talk is cheap in markets and a lot of people talk and say, I think this will happen or that’ll happen, but really that’s not true understanding.

True understanding only comes with the willingness to deploy capital, that’s when you believe in what you’re saying. Because you can utter words, out of your mouth that you have no real belief in. And I like to think of the example of you know,  the great debate about what Bitcoin should be and   the fork and the split of the network in [01:00:35] 2017, there are a lot of people who said this new version of Bitcoin, this SegWit2x is the real Bitcoin.

And we believe it’s going to be new Bitcoin, and all these miners are gonna mind this new chain and the legacy chain is going to die. One of the things which made me realize very early on, that this was absolutely not going to happen because I challenged these people directly. I said, hey Eric, Eric Voorhees or Mike Belshe or these people, okay you believe that, but I believe something different and I’m willing to trade with you.

I will give you all of my 2X tokens that I get for free when the split happens for all of your Bitcoin, not a single one of them were willing to trade with me. So I think it’s really important to understand that conviction itself is a part of knowledge.

And when people say things, we don’t know whether they really believe it or not. It’s when they act, this is the human action, which matters. And when  the conviction is manifested in deployment of capital, that that’s when it really matters. [01:01:35] So I just wanted to highlight that point I thought you made, it was really important.

Saifedean Ammous: Absolutely. I think this is yeah, this is another difference in, in the approach between the Austrians and the mainstream is in that, in mainstream  theories, if you have the knowledge in your equation on the software that you’re using to model the economy with your general equilibrium models, if you add in the fact that,  now people know that say, there was a fire at the shoe factory.

Now shoe prices are going to rise. Yeah, you add it into your equation and you click calculate. And within a few seconds you come up with a result of people have adjusted, but in the real world, people have to actually act upon it.  That’s not effortless. That’s not costless. That requires knowledge and requires conviction.

I think, one example that I like to give for this, which I used to use when I used to teach is,   [01:02:35] Chicago economists I think I’ve heard some time mentioning that, when they go to the supermarket,  they don’t care about finding the shortest line because they believe the market will have already, there’s no difference. People are always looking out for the shortest line. And so all the supermarket lines are expected to have the same weight.

And in my mind, this is exactly the problem with  efficient market hypothesis. The only reason that the lines end up being roughly equal, of course, they’re never equal, you can’t make them perfectly equal. Nobody knows how much time each shopper is going to do.

But the only reason they tend to be equal is that every single shopper looks around and looks at all the lines and tries to make their best guess about which one is going to be shortest. And then they line up with the one that they think is going to take the least time.

And so if everybody believed in the efficient market hypothesis, nobody would look and everybody would be [01:03:35] acting like the Chicago economists and just lining up behind the same line. And you know, you’re going to end up with lines that are empty for a very long time and lines that are extremely crowded for a very long time, because people are picking randomly.

And if you do it randomly, you’re going to get concentrations in one. I have five, we’ll have 20 people, add in all six we’ll have nobody for a while. It’ll happen.

Vijay Boyapati: This is why Warren Buffett has said he really loves people who believe in this stuff because it gives him the opportunity to find these inefficiencies.

Like you’re saying,  if everyone believed what these economists said, you have this gigantic line. People would just go into the closest line thinking oh, this is efficient. But that presents the opportunity for people who recognize that this theory is nonsense to act on the inefficiency caused by people believing this stuff.

So yeah, it is  funny because Warren Buffett has said the exact same thing. He loves it, that people don’t think there are any market opportunities that they should [01:04:35] just buy the entire market because they have no information or  no knowledge. Perhaps in some cases, some people don’t have any information or knowledge and they should just stay out of the market.

But there clearly are opportunities.  If there isn’t an information asymmetry, you know something, or you understand something better than something else, someone else.

Saifedean Ammous: It’s also just almost a nihilistic way of looking at the world where, nothing matters because people have already known it.

If it’s true, then everybody knows it and you shouldn’t act upon it. And if it’s not true, then nobody should act upon it and it’s wrong and you shouldn’t act upon it. And this is why a lot of economists and business school professors are out there teaching about investing. The majority of them don’t invest, don’t manage their investments.

They just put their money in their  university retirement account, and then they have others manage it. You know, they’re constantly making these theories telling people that basically there’s no value for judgment [01:05:35] and there’s no value for knowledge.

 Maybe it’s just projection. Maybe there’s no value for your judgment and your knowledge, and maybe you should stay out of the market. But you know what real people who actually work in the real world, people who have actual jobs, they all have some knowledge, you might not know enough about the world market to be able to go and pick the right stocks and hedge properly and to have the correct allocation of the portfolio between different stocks and commodities and bonds and all of that stuff.

But you have a business in which you work in and, you know, for instance, you work in fast food and you know that our company is getting its ass kicked. The other company is doing much better. Perhaps I should buy some of the stock or the other company. That’s very valuable knowledge, which people who don’t work in your fast food industry don’t have.

And so everybody has that knowledge and it’s almost like the difference between being depressed about life and being nihilistic and thinking that npothin you know matters, and therefore, you just trudge along from your job [01:06:35] and get your paycheck…

Vijay Boyapati: It’s a form of determinism, isn’t it?  To me, it’s almost denying free will, it’s determinism.

I’ve always found that people who believe in determinism tend to be very nihilistic about the world.  Why do anything, why believe in anything, if it’s all predetermined. So to me, it’s almost like an economic manifestation of this mindset that we have no controls or predetermined. If you believe that you wouldn’t do anything.

Saifedean Ammous: Absolutely. And that’s why a lot of these people don’t do anything.  You can see this incidentally,  this helps us understand another layer of nocoiners in that, if you think like that, if you think the market is all knowing and everybody knows everything that has ever happened, then in your mind, nothing new can come along.

We can have small cosmetic differences. We’ll  witness the computer go from one big giant building into a little machine in your hand, over 50, 60 years. But you can’t [01:07:35] mentally take the idea that we’re going to go from a world with no computers to computers. A lot of those people would have struggled and a lot of people did struggle with computers and  they died and never used computers and they died thinking computers were weird little distractions that people will outgrow.

 If you think in this way, I think it’s highly conducive to it, especially when it comes to government money where none of those people has ever imagined that anything could challenge  the sacred position of government money. And yet, if you look at it with fresh eyes, with reason, like many people from all over the world, have you see that there’s a very compelling case for why people aren’t going to figure out that  Bitcoin is better and why Bitcoin is going to prove itself better on the market and why it’s going to continue to rise and why it’s probably better for you to stop being a negative bitter nihilist and [01:08:35] start stacking some sats.

Vijay Boyapati: There’s an interesting Austrian insight that I’ve always been fascinated with, which is that to act itself requires the presupposition that the action can affect the world.

So the people who are saying, they believe in determinism or whatever, that they have this inherent assumption prior to the action of saying that they are able to  do something or to say something or to utter the thought or to give voice to what they believe. So that they’re almost contradicting themselves in a way. They’re presupposing that they have the power to act  to say something which is denying  the thing that they’re saying, that the world is predetermined.

So I’ve always  found that an interesting insight. I think maybe it was Harper or one of these  Austrians who use this, that when we act there are certain presuppositions [01:09:35] we make that are inherent to our action, and what logical deductions can we make from those presets suppositions.

And that’s one of them it’s very contradictory, almost self-contradictory to say that the world is predetermined because you are assuming something, when you say that.

Saifedean Ammous: I think this was just beginning to occur to me right now, but there’s definitely something in the fiat mentality that militates you to ward having  an impotent view of the world, of you as a spectator. Where you’re just a TV viewer where passively receiving what the world is doing.

I look back to many of my colleagues in Lebanon who have heard me talk about Bitcoin in our university for many years now, it’s been a few years of me talking about Bitcoin and years of them just giggling about this weirdo talking about this weird internet thing.  You can [01:10:35] explain the technical aspects, you can explain the economics of it. You can explain the bullish case for it. You can give them the Bitcoin standard. You can give them the bit bullish case for Bitcoin and they could even read it. But there is, there’s an element of,  that there’s a switch that just doesn’t click wherein, okay, so I can actually act myself and fix my own life with this thing.

Okay, that switch just doesn’t exist in the mind of many academics in the sense,  okay this interesting  thing is there, if it gets approved, then we’ll all be using it. Until then, stop wasting my time, talking about your stupid magic internet money. It’s like somebody needs to flick the switch of action for you because you’re just a TV viewer.

You know, if they’re going to put that show on TV, then I’ll watch it. But you know, for now I [01:11:35] just need to get back to watching my current show that is on the TV. I think really fiat education militates for this kind of mentality because, think about fiat education. It’s completely debauched the scientific process where  the scientific process is not about asking questions.

It’s not a method for knowing how the world works. Under the fiat system, it’s a method for finding set answers. How do we explain why the world is like this? Why is the word like this? And not like that. And  there are answers. Fiat sciences has answers, fiat economics has answers.  If you have a recession, if you have unemployment, you fix that by doing 1, 2, 3. It’s all about finding  set answers because somebody’s going to have to determine who gets funding and that person has to have an objective idea of what is the correct answer.

What is the correct physics? What is the correct chemistry? What is the correct biology? What is the correct nutrition? And Bitcoin really breakes [01:12:35] these mental shackles in people who accept it. And a lot of people are just not able to make that jump. And it’s, it’s quite astounding actually, you said something earlier, you were saying, this is why this example occurred to me, you were saying how you can see how people in developing countries could be more likely to see the value proposition in Bitcoin because their currencies are being destroyed by inflation. I’m beginning to realize over the last few weeks, I’m beginning to realize a very, very powerful and very malignant strain of Bitcoin derangement syndrome that is triggered by being in an inflation.

Wherein it becomes  it’s not just that you refuse to get into Bitcoin, then it becomes a matter of personal pride that you need to make sure that the world knows that Bitcoin is bad. And I think the prime example of this is the Nassim Taleb, who’s just on this insane crusade at this point to. I [01:13:35] don’t know what he’s trying to prove.

Basically, Bitcoin is bad and Bitcoin is not good and it’s not a major technology. He doesn’t really have any coherent idea. Like again  it’s a fiat mind that’s just out there issuing proclamations that Bitcoin is not good and it doesn’t work and shouldn’t work.

Well, it’s out and it’s working. And you think about  the level of derangement, I’m beginning to be convinced that a big part of that is just, he is psychologically unable to handle the load of thinking about the implication of the fact that Bitcoin has been there for 12 years now, and anybody in Lebanon over the last 12 years who had considered Bitcoin and then put some money into Bitcoin, had basically saved them selves from the financial collapse that has destroyed the Lebanese economy.

It’s one of the worst collapses that the world has seen in the last century or so, the world bank was saying a few days ago. [01:14:35] So it’s been completely devastating, it spared nobody because businesses have been destroyed, the currency is continuing to get destroyed. It’s lost 90% in two years and it shows no signs of stopping.

Everything is falling apart in the country. The infrastructure is falling apart. Everything is terrible. And just think about how much better life would have been for people there if they had accepted, if they’d started adopting Bitcoin earlier. And now it’s at the point where, admitting that Bitcoin could have made things better means that you were a massive idiot a couple of years ago for not thinking about Bitcoin.

And so now it’s important to double down. It’s astounding,  it’s absolutely amazing. The use of Bitcoin in Lebanon is spreading widely, people are getting into it. But it’s real normal people, it’s not academic who are getting into it. Academics are still having their seminars, discussing [01:15:35] how do we reform the banking system and how do we reform the political process and all of these university professors coming up with political reform.

And it’s so pathetic that the Lebanese state is so transparent about the fact that they’re just a bunch of mafias and bunch of militias that are out there to rob the people of the country. It’s so blatant. It’s so obvious. And it’s so pathetic that you go to those people and tell them, hey, I figured out a way for you to stop robbing us and make us stop losing our wealth.

Could you please implement these reforms that I’m asking for? This is the level of discourse  in most fiat minds. This is what the university professors are doing. This is what the intellectuals are doing in Lebanon because they can’t snap out of this. And it’s devastating that so many people put weight on the words of these people, because they’re out there unable to see that, look there’s a lifeboat that’s just [01:16:35] it’s a spaceship and a lifeboat that’s just waiting for you, and you can just get in at any point in time, and all you need to do is just go in there.  Nope, they’re sitting there and listening to Nassim Taleb pontificate about why  it’s not going to work and it’s…  

Vijay Boyapati: These intellectuals will be last in line for adoption because I think psychologically their identity is so tied to the system that they support and they get their power from. In a true free market where they don’t have any (???)  coming from the state. You know, people like Paul Krugman their opinions have no value.

No one cares about them.  I think you made a funny comment when we were on stage in Miami, that he would be a elementary school teacher or something like that. And you talked about Taleb  switching to saying Bitcoin is going to [01:17:35] die.  I think when someone predicts a fire successfully, you have to wonder whether they’re, a good prognosticator or they’re just an arson. Are they someone who started the fire themselves and predicted it. And I think some of these intellectuals, not only are they content with dismissing Bitcoin, they actively are trying to destroy it.

They’re trying to call upon the state to destroy it because they see that its success is a real threat to their identity and their credibility. And so that they’re not merely content to try and understand it as an intellectual endeavor, they want to actively destroy it. And they’re out there to do it, trying to do that with their words.

They’re  trying to convince people that this isn’t the lifeboat, as you say it is and you recognize it. So, you know, I have very low opinion of these people. They’re not merely interested in understanding the world or [01:18:35] interested in understanding these new phenomenon, even if they don’t fully understand the technology or whatever.

 To me, someone who had the curiosity to say I’m just trying to understand this, I want to understand, this is new clearly, it doesn’t fit within the models I have. I’m willing to come to this as a student. They’re not willing to do that. They have their identity tied to the current system, to the status quo and any threat to that status quo is reason for them to attack the new thing.

So I have very low opinion of people like Krugman and Roubini. I think they’re the kind of people who don’t speak truth to power. They speak power to truth. They’re the mouthpiece of the state. And they’re really inherently evil for doing that. Being the mouthpiece of the power apparatus.

I think it’s completely disgusting.

Saifedean Ammous: Yeah, honestly, I think the last few weeks is when I’ve started to really switch from just thinking of these people [01:19:35] as inconsequential idiots, into truly despising them as being despicable criminals effectively almost. You think about somebody like Taleb in Lebanon, just, he’s got an enormous following of morons who hang by his every word.

 A lot of people going around and trying all kinds of industrial shitpasta in order to stick with his prognostications and trying all kinds of weird things because he talks about it. Just think about all of those people and how different their life would have been if this world expert on risk, who has predicted everything that has ever happened in financial markets by his own admission, by his own estimation, even though, he’s never shared his records.

If this guy been telling his cult to get into Bitcoin, 1% allocation of Bitcoin for somebody in [01:20:35] Lebanon, a 1% allocation in June, 2019. So two years ago, it was exactly two years ago when the problem started in Lebanon, July, when the problems, when the lira decoupled from the dollar, and then everything began to collapse.

If you had a 1% allocation to Bitcoin in June, 2019, that allocation today if you had 99% in lira on 1% in Bitcoin, today you would have 99% in Bitcoin and 1% lira without doing any rebalancing. Bitcoin has appreciated in dollar terms, over those two years, is appreciated about four or five fold.

Whereas the lira has dropped to 10% of its value. Yeah, run the numbers and basically, Bitcoin ends up being, you end up, I ran the numbers on this roughly, you need the one you needed a 1% allocation  in Bitcoin in July, 2019 [01:21:35] in order to basically have lost no wealth today compared to what would have happened.

Maybe it’s, maybe it’s a little bit more than 1% actually. No, I forget the exact numbers, but yeah.   1% hedge would have been an enormous help for anybody.

Vijay Boyapati: I was just going to say, this is great great irony, that the guy who wrote the book, The Black Swan has the greatest financial black swan right in front of his face and he can’t see it.

Saifedean Ammous: It’s amazing. It’s absolutely amazing.  You can laugh at him, but I think that it’s truly tragic. How many people out there are not getting into Bitcoin because they look at this guy and he seems like he knows what he’s talking about because he has that sure attitude.

And people are giving up on the lifeboat and they’re continuing to hold onto their liras. And of course, he is statused [01:22:35] in many ways, but he’s also buddies with people in the Lebanese government. So his mental model is still that, the Lebanese government is going to, if only they’d listened to him and do what he says, then they could fix the banking system and fix the currency and get everything back in order.

And it’s just, it’s so pathetically  naive. But you can’t just excuse the naivety because it’s actively  harmful. He’s he’s turning people away from something that could actually save them. And the currency is just continuing to collapse. It’s unconscionable, really.

Vijay Boyapati: Yeah, I agree. And he has this role as an educator and, I feel like we we have this role as well with thrust into the role of educators.

I never imagined that would be explaining things to people or going on podcasts or whatever. But  I take that very seriously.  The consequences to the people who listen to me really matter to me, I  you know as Bitcoiners,  I think we really [01:23:35] care about the world being a better place and I think  it definitely is always important as someone who is being listened to who has an audience, to think about  what people take from your words and whether it benefits them or it harms them.

Saifedean Ammous: We’ve gone on for longer than usual, you and I. It’s time to let others ask questions. Spencer has a question he wanted to ask, Spencer?

Vijay Boyapati: Can I ask you a question first, Saif? There’s a couple of topics that we haven’t talked about. And one of the things that I would love to hear your opinion on, you can be as brief as you want, but one of the things I don’t think I fully anticipated when I started thinking about Bitcoin and started to understand the evolution of money and people using it as a store value before it transitions to being a medium of exchange, is Bitcoin’s use as a collateral asset.

That’s something which  I think I’ve learnt and I’ve [01:24:35] recognized. This is an incredibly powerful form of collateral. And I can see that as one of the sort of driving forces of Bitcoin becoming the monetary base of the world, is these financial institutions recognizing this. Hey, this is an amazing form of collateral. We can build all sorts of financial products on top of this. You post some Bitcoin as collateral and we’ll provide all sorts of derivative products that let you bet on anything. You can bet on the, you can be sending someone in Bangladesh and you have some Bitcoin you can bet on the US stock market.

That’s an incredibly important development, I think, an interesting development. I think you recognize this pretty early on, and I’m interested in your thoughts on that development.

Saifedean Ammous: Yeah, I think Bitcoin makes a lot of sense as collateral because it’s an asset that doesn’t have  third party liabilities and it doesn’t need somebody to continue to make payments.

It doesn’t need revenues in order for it to continue to [01:25:35] function. So in that sense, it’s like gold and gold does a great job as collateral. You keep it with somebody and then they can be sure that they have something. And its value is not limited to any anybody else  performing things.

The interesting thing is whether, this is similar to the question that we were discussing earlier in terms of Bitcoin coexisting with national currencies, it’s interesting to think whether Bitcoin can stick to just staying as collateral while other monies get used. And I think there is perhaps a case to be made.  The Michael Saylor idea that you just continue to borrow against your Bitcoin, and people just borrow against their Bitcoin.

So you can imagine, if the fiat coins continue to survive, then why would anybody want to spend their Bitcoins? People will have Bitcoin, we’ll just collateralize them and borrow against them and spend from them. And Bitcoin appreciates so much that if you keep your spending within a certain limit, if you spend less than the appreciation, then you [01:26:35] don’t lose any Bitcoin.

So you just keep the same stack. You could go through your whole life living off of a Bitcoin stack handed to you without selling a single Satoshi. But I don’t see how that can survive  because, if everybody does that,  who’s going to be paying the interest rate for it?

I think eventually we get to a point where everybody wants to do that and then there’s no more fiat to borrow against. And then you can’t really use it as collateral because nobody wants to take the fiat.  Everybody wants to hold the Bitcoin. That’s the way that I see it.

Vijay Boyapati: Yeah, but  I think it’s an interesting driver for adoption, is financial institutions saying this is a really great form of collateral for us to provide products on top of, and gold is a great form of collateral too, because it’s a bearer instrument.

When you have the thing it’s valuable in and of itself. It’s not  like you say, a liability. But Bitcoin is so far superior to [01:27:35] gold as a collateral asset because of its transmissibility and the ease with which you can custody it.  Financial institutions can fairly easily roll out aa node and start accepting Bitcoin and be accepting large amounts of collateral that way.

And building services on top of that. Whereas with gold, it’s kind of  a pain, right?  Are people going to post gold in the US mail to you? Are you going to build a storage vault or whatever? It’s  certainly much more difficult. So I’m fascinated with Bitcoin’s growing use and the services that are being provided.

It’s still very early, like the companies that are doing this Genesis and BlockFi are giving you a very small inkling of what’s possible, but I think we’re going to see all sorts of products built on top of this in the future where people all around the world can make bets on any kind of market, just because they have Bitcoin, I think that’s pretty cool.

Saifedean Ammous: Yeah, [01:28:35] absolutely. It’s fascinating, and it’s not something that you would have predicted easily earlier, but it developed. Business and the markets develop in ways that, you know it takes one visionary to do something and then if it works, everybody finds out about it, then the knowledge spreads. But yeah, you had another question you wanted to ask?

Vijay Boyapati:  Yeah, I had  another question, but I can take questions. I wanted to talk to you a little bit about  the book you’re writing,   because you helped me, you guided me to this sort of going in self-publishing and I think there’s a lot of interesting thoughts on that.  I think  many more people are authors in the space.

They’re going to move in that  direction. And  I’d love to just chat with you about that because I think that’s interesting for other educators in the space who want to get their ideas out there and do that in the most effective way, both for their audience and for themselves. But we can leave that till [01:29:35] later on. If we have time.

Saifedean Ammous: I guess I’ll just cover some of the main ideas.  I published The Bitcoin Standard with an academic publisher and part of the motivation then was that I was an academic and I thought getting academic obligations was important because it will help me keep my job. But then thankfully I later decided that the academic job is just not something that I want to be doing.

So it was an expensive mistake in retrospect, because they ended up taking a lot of the rights. And in my case, it’s not like the publisher had a big role to play with the book. I’d already written the book and then I sent it to the publisher and they just had to print it and take a big commission of it.

But  that’s the system of slavery that is academic publication,  which I discuss in The Fiat Standard, and so appropriately enough, I’m not presenting it to any publisher. Even though my publisher for the Bitcoin standard wanted to publish The Fiat Standard and they made me an offer for it, but it really makes no sense.

So they do pay you in [01:30:35] advance, but they take a big chunk of the returns on the book and it really doesn’t make sense because they’re highly inefficient compared to what’s happening. And the reason they can get away with the inefficiency is that they have practical monopoly position.

There’s a few mega corporations in the publishing industry that are in the academic publication, specifically in the academic publication industry. The reason that they continue to make a lot of money is that you need to get your papers from them and you need to get your papers published with them in order to keep your job at a university.

And so fiat science functions by money assignment from above. Government committees decide which department gets how much money and which   universities will get funding in which projects get funding and which research grants get approved. And so  in order to impress those people, what you [01:31:35] need to do is you need to get publications in these academic journals.

And so a guy by the name of Robert Maxwell, who happens to be Ghislaine Maxwell’s father, I always like to bring this up. He made a huge leap in the publication industry by getting the universities to adopt the publication in the academic publication industry as the standard for promotion and for assesing  work in academia.

And so with that, he basically managed to capture a lot of the rents that come to universities.  A lot of the money that is made from the education system goes to the academic publishers who do nothing. Let’s be clear about it. All that they do is that they add titles to the journals that you need to publish in order to  keep your job.

 What they do is, they’ll get academics to write for them, they’ll get academics to edit [01:32:35] for them and they’ll get all the work done for free. They’ll then publish the journal and then they’ll sell it at exorbitant prices back to the academic same university. So it’s a big, giant corrupt mess. And it’s all financed by fiat money by government money coming in from above.

And it works for the publishers greatly. It works for the administrators of the university who are friendly with the publishers and who keep the system going. And it ends up turning academics into a bunch of slaves that are  make work papers that produce nothing of value,  but they tick the boxes of the academic journals.

And so this is why most academic papers are unreadable. It’s just people filling quotas. It’s industrial production of Chomsky sentences as  Alan and I were saying in the earlier podcast, Alan Farrington. It’s just a bunch of sentences that are grammatically and politically correct, but reading them doesn’t [01:33:35] benefit you in any way.

So all of that is to say that the publication industry is is not a very good place for authors, particularly academic publishers. And I think right now, what the internet  allows us,  what’s hugely disruptive is the model of self publishing. Because you can do a lot of the things that you that you publisher  does for you.

And there’s not a lot of things that the publisher does. You can do them yourself, or you could hire people to do them. They’re a specialized services   that will help you self-publish and that’s what I’m going with The Fiat Standard. And that’s why I also did the Kickstarter, as you have done.

You did your Kickstarter for The Bullish Case for Bitcoin, and I’m doing one for the Fiat Standard, which I think makes much more sense rather than getting an advance from the publisher. Get the advance from the readers directly so people can buy the copies in advance and they can get access to the draft as it is being written.

[01:34:35] And that’s what I’m going with. Hopefully I’m going to have the book out by December, The Fiat Standard.

Vijay Boyapati: Yeah, I think it’s awesome. And one thing that I learned is, started when I started working on the book is that if you go with a publisher and you sell a book for $20, you might be lucky to get a $1 – $1,50 out of that.

 If you self-publish and you go through retailers, then you might get $5 or $6 out of $20. If you use something like Kickstarter, it’s great because you’re selling directly  to your audience. I’m excited because I got to buy your book directly from you. And I got to get the signed copy as well, which I’m excited about.

And that’s cool because I’m essentially, you’re getting most of that. You would probably get 90% to 95% of that minus the cost of production and shipping, which is much more renumerative to you. And I’m hopeful that, other people who are creating books in the Bitcoin space are going to go down this same path that we’ve both chosen to go down because it takes power [01:35:35] away from this printing establishment, and it connects you directly to your audience.

And I think for most people it’s going to get much more money  into their pockets as well, which I think for people who are educating, who doing that as kind of their profession  that’s important.

Saifedean Ammous: Yeah. And another very important point about self publishing is that you own the rights for the book, and then you can do whatever you want with the book, which is actually, this is probably the biggest problem that I have with The Bitcoin Standard is that, it’s very difficult to get the publisher to sign off on all kinds of very interesting projects that I would have done if I owned the rights.

So I’d happily sell a company, or sell a Bitcoin company that drives to send the digital copies at a massive discount, if they want to buy a big bulk number of copies. The publisher has no interest in getting into things like that. I put the book up for free online, I think that would be [01:36:35] a very good because a lot of people would read it, a lot of people would share it.

The publisher or, putting excerpts of the book, the publisher was very careful about not wanting to do that. They’re much slower for moving on all kinds of things, because you’re dealing with a big bureaucracy. But if you own the rights, can do all the interesting projects that you want.

You can take excerpts from  the book, publish them in a specific format. You can make derivative works and you’re not constrained by them having to make the call. It’s your book. And there really is no good reason for somebody else to control the rights of the book and tell you what you can and cannot do with your book.

Vijay Boyapati: Yeah. I’m really grateful that you pointed me down that path. I could have easily made the mistake of going the other way and very early on,  you pointed me in that direction and gave me some good reasons for that, so I appreciate that.

Saifedean Ammous: well, I’m glad to hear that. All right, let’s get to Spencer’s question, Spencer?

[01:37:35] Spencer: Thanks Saif. I was actually reviewing the original article earlier today on The Bullish Case for Bitcoin and something that kind of stood out to me Vijay, was the part, talk about the entrance of nation states. So right after you explain the Gartner hype cycle, you say that the last one will start when nation states start accumulating bitcoin as part of their currency reserves.

And recently El Salvador had that. Passed a law where Bitcoin’s now legal tender. And I’ve heard all sorts of perspectives from the community, whether that’s a good thing. And this is like the best thing that’s ever happened to Bitcoin. Some people feel it’s a bad thing, the way that it was legislated.

How do you feel that legislation is going to affect Bitcoin as a whole?

Vijay Boyapati: Yeah, I think this is a very [01:38:35] exciting and a stunning development, to be honest. I predicted this kind of thing happening later on, and it could be the case that El Salvador is just so far ahead of the curve that we won’t see many more states doing this for a while. But I think that the primary benefit here is the Bitcoin can be used without friction in El Salvador.

So if you want to use Bitcoin as a medium of exchange in the US if you’ve bought some Bitcoin, let’s say for a hundred dollars, and now the value is $500 and you want to spend some of that Bitcoin. You’ll be taxed on the difference on the $400 gain you’ve made when you spend and that tax rate in the US is quite high.

Biden wants to get it as high as, if you include the federal tax and if you live in say California, it could be high as 50% that you’re losing on those gains. Whereas in El Salvador, people were going to be able to trade Bitcoin without friction. It’s going to be  tax-free. And I think that [01:39:35] removes a huge impediment to adoption, and I think it will help accelerate adoption.

I think it’s fantastic for a country where there’re  very poor parts of the country, which don’t have good financial infrastructure,  the infrastructure for Bitcoin exists on the internet, so anyone can use it  if you have an internet connection. So I think this is going to supercharge adoption of Bitcoin in El Salvador.

 Just the marketing of the president saying that we’re making it legal tender is going to get people across the entire country, interested in it. And I think as adoption grows, I think neighboring countries in Latin America are going to look at El Salvador and recognize that it had a powerful impact on the financial position of their country.

And then, I think that’s probably going to take a few years, but it will not escape the attention of other countries. In my article, I said that the final Gartner hype cycle will happen when nation states [01:40:35] start adding Bitcoin to their reserves. El Salvador hasn’t really done that. They’re not taking a big reserve position in Bitcoin.

And my view is that, somewhat unfortunately I think that the nations  which will do that first are the dictatorships and kleptocracies these nations like North Korea perhaps or Venezuela, and these countries will do it because they will want to have something valuable that can be traded and can’t easily be confiscated.

With the example of Venezuela, they tried to repatriate their gold from England and the British government said, no, you can’t have your called back. It was president Maduro doing that and, whatever opinion you have on Madora, I think he’s an awful person. And I think his policies are awful, but it’s a very worrying sign if you’re in the position of power for a nation state, that you can’t even repatriate the savings of your nation back to your nation.

So [01:41:35] Bitcoin really solves this and I think smaller nations, which feel shut out by the US hegemony over the global financial system will start to look at Bitcoin as something that they want to add to their reserves.

El Salvador to me feels like a bit of a curve ball. It’s a really exciting and stunning development to me that a nation state would get involved  this early on. And I think it’s exciting because it provides an example to other nations, especially in Latin America, that it’s beneficial to them and to their people and to their economy to adopt Bitcoin. So yeah, that, those are my thoughts. I’m very excited about it.

Peter Young: Regarding Vijay’s article in The Bullish Case for Bitcoin, in the article, you go through quite a lot of the monetary history and the emergence of gold from collectibles historically. And I just wonder what your take was on the state theory of money in general, because the general cases put forward in articles that you referenced like Nick Szabo shilling [01:42:35] out has been criticized by people like David Graeber in Debt: The First 5000 Years.  And so I wondered what your take was on that general theory  of money. And whether you think it’s in any way, a legitimate theory of money, or do you just think that the standard Austrian framework is a better way of looking at it?

Vijay Boyapati: I suddenly subscribed to the Austrian view of the emergence of money on the market.

And I think that the state theory of money doesn’t hold up for me for a couple of reasons. Firstly, nation states didn’t have this gigantic power going way back in human history. You have these very small tribal societies, nomadic societies, and   going way back in history, people are already using things that sort of are proto-money.

They were using things which didn’t really have,  I think the archeological record shows this and this stuff that Nick Szabo has written about, societies which were using shells and [01:43:35] beads and stuff like that when they didn’t have powerful nation states. I also find that sort of debt-based emergence of money that Graeber posits as highly unconvincing.

Like I can see debt arrangements working within small high trust societies where people really believe that they’re going to get paid back. But I think that doesn’t explain how trade happens between societies that don’t trust each other or are antagonistic to each other.  You’re not going to have debt-based arrangements with rival tribes, but you could potentially trade with them if you have a means of settlement or something that you both mutually value.

And I think that really helps to explain the emergence of gold. It’s not an obligation of anyone, it’s not a form of debt, it’s just something that’s widely recognized as valuable, and that people will ultimately want to settle in. And allows trade between people [01:44:35] who don’t necessarily trust each other at all, or are antagonistic.

I just don’t think you could have trade between, say Rome in ancient Rome and India by a debt arrangement. I just don’t think that can work.  Trade can only happen through something that’s mutually valued between different people who don’t really trust each other. So I don’t find it convincing at all.

And, I know he’s put forward those arguments, but I just, I don’t see how it explains how trade could have happened. And clearly trade did happen between people in different societies that were either distant from each other or didn’t trust each other. How do you explain that?

I don’t feel it like  the Graeber’s account is a compelling one to explain that. Perhaps there are debt arrangements that did happen within a high trust society. So small societies, I can buy that. But I don’t think it explains [01:45:35] how something like gold emerged as a medium of settlement between people who were far apart.

Saifedean Ammous: Yeah. I agree entirely. I think it’s a ridiculous theory of money, the way that he presents it. Because first of all, as you say, the issue of trust, you can’t have that with people that you don’t trust and you can’t have that with people that you don’t expect to be continuously dealing with.

So if they’re in your family or your neighbors or your tribes, then yeah, I can help you with your harvest now. And then you help me in my harvest three months later, and we settle it by me giving you a part of mine and you giving me a part of yours. Okay,  these things can happen, of course.

We live next to each other. We don’t want to antagonize each other. And we’re both better off from doing this. But that’s not what a market economy is. He’s a Marxist because he doesn’t understand what a market economy is and how it functions. The way that a market economy functions is that it is impersonal trade.  You don’t have to be friends and family with somebody in order to trade with them.

[01:46:35] And beyond the scope, the scale of a primitive tribe, it’s strangers who are trading and who don’t want to have a commitment. I want to pay you. I want to give you something, and I want to take the money.  I don’t want to have to come back to you for the money. I want to spend it now. So first of all, he misses the fact that, you don’t have the trust with others and markets grow much more than our  circles of trust can grow.

 We trade with people from all over the world, but we can only trust a few people. So there’s that problem. And then there’s the issue of liquidity, which he misses I think, which is that debt is just not good money. It’s not liquid money. I trust you and you promise me you’re going to pay me back in something in six months.

But for now until the six months, I can’t use that money for anything because that’s tied up with you. I would obviously prefer something that I could have the optionality of using, in case I needed it. If there’s a crisis in the six months [01:47:35] intervening and you paid me with a form of cash, I could use that cash to get myself out of that crisis.

 But if you pay me with debt, then there’s no benefit from it. So I think it just misses the importance of money on many levels. And then it just assumes that, yeah well look, we have examples of people within small settings dealing with each other from debt, and then we just assume, this is how debt, this is how money comes along.

It’s a very special case of money that exists between people who are very familiar with each other. And I think in a part of Principles of Economics, I get into this discussion about  what is the difference between debt and money? And we can think about debt  in the same terms in which we think about Bitcoin and gold and fiat and other kinds of money. If you’re going to make that into money, how does it measure against those things in terms of its saleability?

It’s saleable across time. Not very well [01:48:35] because that can get devalued, then people can default and it’s not very saleable across space as well because the circles of credibility,  for your debt quickly diminish, your debt is good with me, it’s not very good with my neighbor and it’s even less good with their neighbor, or with their friend who doesn’t know me or you.

So using this as a medium of exchange, just puts the people who use it at a severe disadvantage compared to people who use a better money. And so ultimately in economic logic, that’s what matters. If it gives people an advantage, it’s going to be used more and more.

Peter Young: Yeah. In addition to that, there’s not really a common unit is there, for debt? It’s a kind of derivative quantity. So in the case of gold or in the case of Bitcoin or in the case of the collectibles that Vijay talks about in his article, there is at least some kind of common unit some [01:49:35] kind of homogeneity of the asset.

 But with debt, it’s not clearly defined. It’s valuation  depends on, it’s in the eye of the beholder. And yeah, I just found that also to be quite a problematic aspect of the theory.

Saifedean Ammous:  Yeah, you can’t have a, and this is another important point from Mises which is, the market economy is an institution that can only exist with money. Only when you have an in an impersonal system of trade where people can divide the labor, not based on ties of kinship and friendship and direct relationships, but the division of labor is allocated and handled by prices by people performing economic calculation.

But you can’t perform economic calculation unless everything is denominated in one unit. And so that you have one good that you can compare everything to, and then you can figure out, should I eat this or should I [01:50:35] produce that? Or should I consume this?

 Only if you have this one good in which you express everything else, are you able to do that. And debt cannot be that good. You want something that has low supply elasticity to be that good, because you don’t want it to be something that can be produced easily. And so that explains why historically, we see things like gold and silver and Bitcoin monetized.

All right. We’ve run for two hours,  we’ve certainly filled our quota. And I think we’ve taken up enough of your time, Vijay. This has been a lot of fun, I think we could do another six if we just, if we had a couple of steaks handy, you and I could probably keep going.

Vijay Boyapati: I’m really looking forward to it, we’ll do a steak dinner or I’ve always wanted to cook some brisket for you, smoke some brisket.

If you ever find yourself near Seattle, then I hope you’ll visit and I’ll  cook you some meat, and maybe we can record a podcast at the same time.

Saifedean Ammous: Yeah, [01:51:35] or we  make a cooking show, cooking with Austrian economics show!

Vijay Boyapati: Thank you Saif, it is honestly, it’s a great honor for me. You’ve had an influence on my thinking, so I appreciate the chance to get to speak to you.

Saifedean Ammous: Thank you too. Thank you so much for coming. And likewise, your work has also influenced me and I’ve enjoyed reading it. So it’s always fun to chat with you Vijay. Thank you and take care.

Vijay Boyapati: Thanks, Saif! Bye.