Episode Transcript
[00:00:00] What distinguishes this speculative attack from its Weimar predecessor is that now thanks to Bitcoin, Bitcoin treasuries, money printer, go Brrr memes and social media, it is nearly impossible for public opinion to misconstrue the economic consequences of the inflation.
[00:00:19] The speculative attack has evolved from a relatively obscure trading strategy during the Weimar Republic into a coordinated full fledged social media mediated and Wall street assisted assault on the monopoly of state issued money itself.
[00:00:36] The best in Bitcoin made Audible I am Guy Swan and this is Bitcoin Audible.
[00:00:59] What is up guys? Welcome back to Bitcoin Audible I am Guy Swan, the guy who has read more about Bitcoin than anybody else. You know we have got a really fantastic series. I've been sitting on this one for a good little while actually waiting to finally get into it so we could hit all three back to back. But this is the speculative attack series about Bitcoin treasury companies and about the state of, of the investment and the corporatization of Bitcoin and trying to take a zoomed out image of what's happening and how we can compare it to other periods in history. And I just think this, whether or not you completely subscribe to basically his argument in these pieces, which he's also not even super, he's basically laying out the parallels without totally making a conclusion, but essentially laying it out for everyone to see and to hear the comparison and to basically determine what they think for themselves. But because of that I just think this is a really, really good perspective and a little bit of sobriety led to bring into our current market situation in the Bitcoin treasury craze. This show is brought to you by Leden Ledn IO. They offer simple secure, fully reserved Bitcoin backed loans and they do proof of reserves every six months so you can actually take a hash and confirm that your balance is there. And if you are on a bitcoin standard, this is a great way to get some fiat out of your bitcoin without actually having to sell it. I particularly find it helpful for investments that I think can beat an interest rate but won't beat bitcoin. But regardless, this is a really useful tool to have look into the details, make sure you know what you're getting yourself into. And I got a special link for you guys with a little discount right down in the show notes. And for those who want to re decentralize the web you need a set of tools to do that. Protocols like Picar and PKDNS and everything in a full Stack built by the team at Synonym showing what is possible in an atomic web one where you own your network, you own your media, you own your address and the ability for others to contact you. And you can get a small window of what that might be like at pubkey App P U B K Y dot app Also check out Getchroma Co they have some really cool products for red light therapy, for blue light blocking glasses, the nightshades, which I particularly like those because they actually block everything that has the major effect on hormones but actually leave like one little bit of purple band so that you actually aren't completely red washing everything. You can still look at screens and tell like color differences. It actually makes a huge difference. Check them out, check you get a 10% discount with code, bitcoin, audible and lastly a shout out to hrf, the Human Rights foundation, the Oslo Freedom Forum that they run, which is in June 1st to 3rd of this year. Tickets you can get right down in the show notes and then of course their Financial Freedom Report which we'll actually be covering again really soon in a couple of episodes. It is quite possibly the best resource I have on what's going on around financial freedom and bitcoin and monetary tools around the world. And you will find none of it in the description of this show because that would be too convenient. So don't even go there or think about it. Don't think about it. Stop it. Now there's a little bit of lead into or a precursor for this series that he mentions. Well, there's technically two, but the one I think is a little bit more relevant is the flight into fake values. So kind of the main arguments of this piece, just so you can kind of get an idea of where we're coming from, is really. He's talking about how inflation doesn't just destroy money, but it destroys kind of our hold on reality.
[00:04:44] He draws a lot of parallels between Weimar Germany's hyperinflation and today's environment. And especially the fact that we've let ourselves into a digital cryptocurrency. Cryptokitties craze. Cryptokitties is a main section that comes up, but something we've talked about in various degrees and in various ways on this show is that like when. When money ceases to have real value, it ceases to represent true value in the structure of the economy, basically all social and moral anchors start to dissolve and that the consequences are very psychological and cultural and that specifically in our current environment, central banks have created a self reinforcing Everything bubble that basically since 2008 we have had a fully fake market. The only reason that anything has continued and the major effect on, on all market moves has been trillions in quantitative easing and artificially low interest rates. It is all built on a fake foundation and none of it is responding to the genuine value change to this genuine state of the economy in the economy. Even Powell and some of these other people in the Federal Reserve have explicitly said that they've taught, and this was even done in like a politician positive context that investors aren't selling things or aren't getting rid of things and aren't making without saying it like this, they aren't making intelligent market decisions because they're sure or they know that quote unquote, the Fed will always step in and because of this they're taking on more risk. But this was literally talked about as if it was a positive thing. Not in the article, but when it comes to the representatives of the Fed and the people inside the Federal Reserve system who have discussed this openly. But one of the major consequences of this has been that not only you know, historically people when during inflationary, major inflationary periods move, people move to tangible assets like land, art and commodities, gold, often equities, things that represent something real to get out of the inflating currency.
[00:06:54] However, in the digital world, especially during like such an, such a transformative time in the context of like what we see of as valuable and with value rushing so aggressively into the digital era, it leads to bubbles and movements of capital into very hype based and purely kind of virtual. And I don't even mean that in the sense of digital collectibles and meme coins and NFTs which obviously in a very practical sense it does. But virtual in the sense that when seen as something that other people value, it reinforces itself and drives more people into it. Even if it is totally fake or even if it was completely overpriced. This is very similar to which we'll actually get into in part one of this speculative attack series about the investment trust or. No, no, the investment trust is part three, I think. I don't know. I've already read the whole thing so I can't remember exactly which is which. But one of the really cool things in the pre article here was how it flips the moral and generational order by essentially punishing the elderly, the prudent and the conservative and giving an apparent reward to the speculative degen and promiscuous behavior of the young. And that this just permeates and spills into everything else. And we have so much digital technology to actually amplify and exaggerate all these effects in so many different layers. Especially now with like social media and AI driven hype creates this almost perfect storm where perception overtakes reality and the money enables a feedback loop, a reinforcement mechanism to literally reward a false absurd perception at the cost of reality.
[00:08:51] So just to give you kind of foundation, that's just kind of the overview of what the flight into fake values is about. I think that should give enough because some of these points he touches on again and gets into in part over the three different parts of this series.
[00:09:08] But with that let's just go ahead and get into the article. I think that's a good framework and mental image to take us into our article for today. I think you are going to enjoy it. So sit back, relax and listen to today's read and it's titled the Speculative attack series part 1 Bitcoin Treasury Companies by B. Water A parallel with 1929 is the present commitment to seemingly imaginative, currently lucrative, and eventually disastrous innovation in financial structures. In the months and years prior to the 1929 crash, there was a wondrous proliferation of holding companies and investment trusts. The common feature of both was that they conducted no practical operations they existed to hold stock in other companies.
[00:10:01] J.K. galbraith the 1929 parallel the Atlantic, January 1987 Prior to the 1987 crash, Bitcoin has officially gone corporate. More than 200 entities now collectively hold over $350 billion worth of Bitcoin, and the stampede is rapidly accelerating as new Bitcoin treasury companies emerge almost daily to cash in on the trend.
[00:10:30] As a result, the true nature of this phenomenon remains hotly contested. Classic leveraged pyramid scheme or the latest front in the most consequential monetary battle of our lifetime?
[00:10:41] The truth may lie somewhere between these extremes, but either interpretation points to the same underlying reality.
[00:10:48] Multiflation is intensifying, and the dynamics we explored in the flight into fake values originally identified during the 2017 crypto bubble, are again playing out on an even broader scale. We recommend reading our earlier analysis first, as it provides essential context for understanding what the Bitcoin treasury craze potentially signifies.
[00:11:10] Building on that foundation will offer novel insights for both bulls and bears by placing this phenomenon within the broader sweep of financial history, including the Weimars, inflation profiteers and the 1920s investment trust bubble.
[00:11:27] Speculative attack Nearly 11 years ago to the day, on July 4, 2014, Pierre Richard penned Speculative Attack, making the case for what even Bitcoin skeptics should now recognize as one of the most spectacular trades in financial the strategy of taking on debt to buy Bitcoin, effectively shorting fiat currencies and the entire financial system.
[00:11:56] While his entire article merits reading, Richard's conclusion centered on hyperbitcoinization.
[00:12:03] Bitcoin will become mainstream. The Bitcoin skeptics misunderstand how strong currencies like Bitcoin overtake weak currencies like the dollar. It is through speculative attacks and currency crises caused by investors.
[00:12:16] In a follow up article published Last year on July 4, Pierre and Alan Farrington wrote Speculative Attack Season 2 the Case for the Greatest Pair Trade in History.
[00:12:30] The more mainstream Bitcoin becomes, the more compelling the speculative attack will be. Eventually it will become necessary and not long after that it will simply cease to be possible as nobody will trade Bitcoin for any amount of fiat or even risk its loss in financial calculation.
[00:12:45] While we are clearly incredibly far along from 2014, we are nowhere near this final state. The slow motion collapse of fiat continues and and the avenues for directing fiat shorts to Bitcoin longs widen, the speculative attack lives on. Season two begins this dynamic of borrowing depreciating currency to acquire appreciating assets is not without historical precedent. The Weimar hyperinflation created what Mises described as inflation profiteers.
[00:13:20] One of the reasons why public opinion at the time misconstrued the economic consequences of the German inflation was the emergence of a class of inflation profiteers. The profiteers were those speculators who were quicker to realize the true meaning of the inflationary boom than were the managers of the banks. No matter what stock he bought, the speculator netted a gross profit which exceeded by far the interest he had to pay to the lending bank. As long as the inflation went on, there was no risk for him in embarking upon bull transactions with borrowed money. The inflation favored the debtors at the expense of the creditors. The it made a very small group of smart speculators rich. It impoverished the immense majority of the nation.
[00:14:02] The parallel is striking in both cases. Those who recognized the monetary dynamic early could execute an inflation carry trade, borrow the depreciating currency at artificially low real rates, and convert it into assets that would appreciate faster than their debt service costs.
[00:14:24] Saylor's Inverting the Alchemy of Risk what distinguishes this speculative attack from its Weimar predecessor is that now, thanks to Bitcoin, Bitcoin Treasuries money Printer Go Brrr. Memes and social media it is nearly impossible for public opinion to misconstrue the economic consequences of the inflation.
[00:14:48] The speculative attack has evolved from a relatively obscure trading strategy during the Weimar Republic into a coordinated full fledged social media mediated and Wall street assisted assault on the monopoly of state issued money itself.
[00:15:04] Today's inflation profiteers led by Michael Saylor are openly calling their strategy an attack on fiat currency.
[00:15:14] Conceptually similar to a bank run, this potentially represents an incipient digital age version of de flug in des secwerte, the flight into real values that once drove Germans to dump rapidly depreciating deutsche marks for any tangible asset.
[00:15:34] Unlike the Weimar speculators and consumers, today's Bitcoin maximalists broadcast their strategy across social media platforms, podcasts and financial forums globally, creating a self reinforcing hyperstitious feedback loop that accelerates Bitcoin adoption. The more number go up, the faster the memetic virus spreads. Each successful conversion from fiat to Bitcoin validates the thesis and attracts new participants to the cause while simultaneously weakening confidence in the very currencies being abandoned, a dynamic we explored further in our piece on mimetic monetary theory. This transforms what would ordinarily be merely an inflation carry trade available only to sophisticated insiders into a mass mimetic movement that threatens the fundamental assumptions underlying the modern financial system.
[00:16:32] Moreover, Saylor is demonstrating black belt level mastery of financial jiu jitsu, employing Wall Street's own tradfi financial engineering against the tradfi system itself.
[00:16:44] In effect, he is single handedly attempting to reverse the symbolic alchemy of risk spell that the fiat system has cast over the past four decades.
[00:16:55] Saylor has already begun to weaponize the system's own ouroboric nature against itself. But two notable events would accelerate this process exponentially.
[00:17:06] S&P 500 inclusion would force passive index funds and likely momentum driven algorithms to buy MicroStrategy stock regardless of its valuation or MNAV. While AAA Bond ratings from the rating agencies would unlock massive institutional funding for MicroStrategy and Bitcoin, either scenario could send hyperbitcoinization into overdrive.
[00:17:32] Bitcoin bulls are already salivating, viewing MicroStrategy's various preferred shares as the foundation for how investments will be priced under a Bitcoin standard if Bitcoin replaces the dollar's reserve currency status, effectively taking the place of the U.S. treasury risk free rate in the alchemy of risk that currently sets baseline rates for all investments globally today.
[00:17:57] Tweet from bitpain Imagine shorting the company, creating the yield curve for the new world reserve asset Bitcoin Treasury Companies Bitcoin treasury companies like MicroStrategy are therefore the institutional embodiment of Richard's speculative attack and currently serve as the primary vector for Bitcoin's memetic monetary spread. As Saylor recently acknowledged, if we think about the spread of Bitcoin as a monetary virus, a meme, and as an idea, the super spreaders, the amplifiers of the virus are corporations.
[00:18:35] A Bitcoin treasury company is a business built on a straightforward accumulate as much Bitcoin as possible within a corporate shell the bull case for such a company. As opposed to simply self custodying Bitcoin oneself.
[00:18:51] Rest on leveraged exposure. If you believe in Bitcoin's long term potential, these firms offer amplified upside by locking in long term debt at low interest rates to buy more Bitcoin, creating safe leverage that amplifies gains while minimizing margin call risk.
[00:19:12] As Bitcoin eats the world, companies holding the largest reserves will capture most of the value in the financial system and then have multiple monetization options available to them in the future, such as acquiring profitable businesses with their Bitcoin holdings or leveraging their treasury position for other strategic advantages.
[00:19:33] MNAV the Master Key these Treasury companies currently trade at a premium to their Bitcoin holdings, measured by what's called mnav multiple to net asset value.
[00:19:46] Essentially, investors are willing to pay more for shares in the company than the underlying Bitcoin is worth. When a company trades at 2x M NAV premium, investors are paying $2 worth of stock value for every $1 of underlying Bitcoin that the company owns.
[00:20:04] This creates a powerful arbitrage opportunity. The company can issue new shares at the premium market price and use those proceeds to buy Bitcoin at regular market price. Since the company is trading expensive stock for cheaper Bitcoin, each share issuance is accretive. It increases the value for existing shareholders. Despite diluting the share count, each dollar of new equity raised purchases more than a dollar of underlying Bitcoin value, making existing shareholders better off even as total shares outstanding increase, assuming Bitcoin prices and the market premium remain constant following the offering.
[00:20:46] This dynamic explains the recent surge of new Bitcoin treasury companies racing to capitalize on M Nav premiums while market conditions remain favorable.
[00:20:56] As long as the market maintains its premium valuation of these Bitcoin holding vehicles, companies can quote print money by continuously issuing shares to buy more Bitcoin.
[00:21:09] The Skeptics the strategy has attracted notable skeptics. Veteran short sellers like Jim Chanos are shorting microstrategy while buying Bitcoin directly, betting that the M Nav premium will disappear.
[00:21:24] Chanos contends that he is executing the same underlying trade as Michael Saylor. He Too is selling MicroStrategy stock to buy Bitcoin.
[00:21:36] Tweet from real Jim Chanos LOL. I'm literally doing the same thing Saylor is doing at MicroStrategy selling the paper that can be issued infinitely to finance the purchase of the finance asset Bitcoin at a premium. Anyone advocating the purchase of MicroStrategy common stock is on the other side of the trade.
[00:21:56] As with all arbitrage opportunities, Chanos expects that this pricing discrepancy will eventually resolve itself, returning to a state where 1 bitcoin will equal at most 1 bitcoin in market value.
[00:22:10] Saylor, with help from the Wall street machine, will inevitably drive this convergence by continuing to issue Bitcoin backed paper in unlimited quantities until the premium evaporates and the arbitrage opportunity disappears.
[00:22:25] The Debate if you're bearish on Bitcoin itself, then naturally you'll be skeptical of companies loading up their balance sheets with debt to buy Bitco.
[00:22:35] There is not much point in discussing the matter further even if you don't believe in Bitcoin. However, let's posit several key assumptions for the sake of argument and see where they lead us.
[00:22:47] 1. Bitcoin represents one of the most significant technological breakthroughs in human history.
[00:22:53] 2. Every corporation and individual should incorporate some Bitcoin into their own treasury strategy as part of the Multiflation methods monetary evolution archetype.
[00:23:04] 3. Bitcoin is the apex asset that will take an enormous share of assets from Fiat and Tradfi and therefore Bitcoin's long term trajectory points decisively upward.
[00:23:17] 4. Michael Saylor stands as a visionary genius for weaponizing financial engineering jiu jitsu against the existing TradFi system.
[00:23:28] 5. MicroStrategy has intelligently gone about extending the duration of its debt to avoid forced liquidation during the next inevitable Bitcoin correction.
[00:23:39] 6. None of the BTC treasury companies are fraudulent and none get hacked.
[00:23:46] Up Next Part 2 Even accepting these optimistic premises at face value, the current frenzy surrounding copycat Bitcoin treasury companies or worse yet, non Bitcoin crypto treasuries bears striking parallels to the investment trust euphoria of the 1920s that contributed to and preceded the Crash of 1929. Discussed in greater detail in Part 2, a troubling question emerges. Why should investors pay premium prices for corporate wrappers around Bitcoin when they could simply Buy Bitcoin directly through an ETF or self custody arrangement.
[00:24:28] The MNAV premium that makes the entire business model work depends on the immutable human behavioral tendencies that drove investors in 1928 to pay $200 for shares in levered investment trusts holding $100 worth of underlying stocks.
[00:24:48] The investment trusts of the 1920s promised the same accretive leveraged magic that Bitcoin treasury companies offer today.
[00:24:57] Professional management and amplified exposure to assets perceived as scarce. Like today's Bitcoin Treasuries, they traded at substantial premiums to their underlying holdings. New trusts launched almost daily to meet insatiable investor demand.
[00:25:13] This should give us pause and prompt serious reflection about what these developments might signal, not just about Bitcoin, but about the broader multiflation, monetary and market environment we're operating within.
[00:25:29] Today's market environment mirrors an unholy amalgamation of prior investment episodes. The 2017 cryptomania, the roaring twenties boom preceding the Great Depression, the Weimar inflation profiteers and the Mississippi and South Sea bubbles we recently examined in the Symbolic Alchemy of Risk.
[00:25:49] And we will dive right into it in part two of the speculative attack series the Roaring Twenties.
[00:25:57] Let's say you have an investment you want to invest in, but obviously you think Bitcoin is going to outperform everything. Or you have some improvements that you desperately have been wanting to make to your home, but you don't want to sell your Bitcoin in order to do it. This is where a Bitcoin backed loan can be an incredibly useful tool. Maybe the investment won't beat Bitcoin, but it will beat an interest rate. Maybe you can improve your house without actually letting go of your Bitcoin and paying it off over time denominated in a currency that's getting inflated away. Leden IO Ledn IO does Bitcoin backed loans. Now this is a form of leverage, so you need to take this seriously. They're completely open about everything they do. Their rules are very simple to understand. They give you all the notifications necessary so that you don't put yourself at unnecessary risk. They have proof of reserves every six months where you can literally check your Bitcoin balance and prove that it's on chain. They have monthly open books and they have gotten rid of all of their other features and their yield accounts and all of that stuff. And now they just do one thing.
[00:27:06] Fully backed, fully custodied Bitcoin backed loans and they have survived through a hell of a bear market without any excitement. And that's what you Want, Boring, stable, simple. If you want to check them out, I have a special link for you guys down in the show. Notes and there's a small discount as well. And maybe this fits your situation and helps you hold on to a little bit more Bitcoin Leden IO so one of the most interesting things about the dynamic we found ourselves in is the kind of the memetic nature of all of this.
[00:27:37] And there's.
[00:27:39] He's got another article actually that's this link to. Of mimetic monetary theory.
[00:27:45] And I didn't read that one in full, but I read half of it and skimmed the rest real quick. But it's something we might actually return to and dive a little bit deeper into just because it's such an interesting framing of all of this. And it leads me to the quote that I think I'm gonna put at the beginning of this, which is about, you know, Mises talked about the inflationary. The, the inflation carry trade that occurred during the Weimar Republic's collapse and the, the Deutsche Marks hyperinflation is that this was a relatively obscure trade done by very sophisticated investors who kind of saw the writing on the wall and they were betting against that inflation to make, to, you know, profiteer to make enormous profit off the collapse of the currency. And this is exactly what makes sense. This is really what the middle class has been doing with borrowing against the dollar to this is why you've had such huge divisions and increasing friction moving between lower classes, middle class and upper class is the middle class has been wiped out of savings over the last 20 to 30 years and that savings has been shifted into housing equity. What they do is they take on debt that's going to be devalued in the currency that they take it on so their obligations will be less while the quote unquote value, while the price, the debt denominated monetary price of the house that they own will actually outpace the cost and interest of the debt itself. This could not be a more perfect example of the house that I am in.
[00:29:26] We bought a relatively modest house, in fact one that needed a lot of work that we have refused to do for a long time because we've just been trying to save money.
[00:29:35] But I bought this house for $150,000, $157,000 and it was in rough condition. My brother and I redid the kitchen and stuff ourselves. My dad was a contractor, so we kind of know how to do all the stuff. And I did order the cabinets custom built but then we put it in Ourselves and I saved like half of the cost of the cabinets in doing that. We tore out walls, we redid a bathroom, redid rotten floors. It would the, the house was in, it was the section 8 house of this neighborhood. And we got told this from neighbors who were like, your house has always been the problem house. And we cannot tell you how happy we are that somebody who actually lives here and is going to care about this has moved in. Now we've been here seven, eight years now and we still have aside from like a little bit of equity that I took out to buy some bitcoin when it was really low, we have a total of like 170/something,000 in debt on this house.
[00:30:32] But you know what the price, the Zillow price of this house is? It's like 330,000. And here's the thing. Zillow has no idea that we fixed everything.
[00:30:44] Zillow has no idea that we ripped out a shitty MDF swollen water damaged kitchen and ripped out a wall and made a nice beautiful custom cabinet quartz countertop kitchen. Zilla has no idea that we put Wayne Scotting in the bedroom and framed out the entire thing and changed out all the fixtures and redid both of bathrooms. That I've taken an eight foot crawl space and turned it into a 9T ceiling basement, that we have poured in concrete, that we have added a little house, a little sunroom extension on the back so that we had a real connection to outside, that we've put in a staircase, that I'm building a studio. We have a second living room and another quote unquote bedroom and another bathroom downstairs. Zillow doesn't know any of this and just flat on the price of the house thinking that it's still the piece of crap that we bought it as. I mean when we bought it, the reason everybody was scared away, it had been on that market for 11 days, whereas every other thing that we looked at was one to two days tops before it was gone. The reason this one had stayed on the market was because there was a stair step crack in the foundation wall and there was water downstairs or there was water in the crawl space. So everybody was scared away from it. Everybody thought it was going to be rotten and have a terrible situation and the footing was going to be destroyed, which is a nightmare to fix. But I came in and my dad and my brother, we all like gave it a very serious look and you know, I got inspectors in too just to be 100% certain. But there was no apparent they had ripped out and replaced the insulation. So I'm sure that was super mildewed and all that stuff. But the wood was fine, it was not rotten. And they had just laid down plastic over the wet underneath. But the footing was intact. There was no crack, there was no break in the footing, despite the stair step cracks in the foundation wall. So basically it was all repairable. And honestly, I will not do this again. But we excavated, waterproofed, repaired, we even put, we basically poured an entirely new footing because the footing looked like such crap. We have done a lot to this house. And this is specifically why I've used Leaden, Leaden and Unchained for bitcoin backed loans. Because you know, when the price is low, I'm like, I still want to move forward on this. I don't have to halt the project for three years. But also this house is not going to do, even though it's done 100% over, you know, more than 100% over eight years. And it's probably gained in value a rough proportion of what I've put into it. Probably not all that I've put into it, but maybe like 80%. But that was never the intent. I'm, I'm building a house that we can live in. I'm not stupid enough to think of this like a positive investment, aside from the fact that it will counteract the cost of the debt that I have on for the, for the loan, for the mortgage on the house. But this has become the standard practice of the middle class because it's been incentivized.
[00:33:39] Think about how crazy that is, is that I was incentivized to buy a house whether or not I could afford it. Because in eight years I wasn't going to have to pay for it. I was going to get half of it back for free for doing nothing but owning instead of renting.
[00:33:57] That is not a healthy economy.
[00:33:59] That is not a healthy economy.
[00:34:02] That value is coming from somewhere. Someone is being stolen from to prop that system up and think about how much more aggressively this occurs for the rich because they actually own equities, they own businesses, they own the actual productive capital of society, which they can borrow on debt. It's exactly like what's happening with the middle class and houses, except even more aggressive. In fact, it not only stays up with inflation, it actually beats inflation, which means that they can take on debt that's even less. You know, middle class get mortgages at 4 to 8% on a mortgage that's going to actually increase by 7 to 10% in price. Every single year. Well, large corporate entities, financial entities, get 1% debt, 0% debt, and they get equities with returns and dividends that return 7 to 10% a year. And everybody in the middle class that puts in a retirement gets it into an index where the, the rights and voting controls go to the entity controlling the fund. So it's owned by quote unquote owned, it's purchased. The purchasing price and the cost is borne by the entire middle class. And all of the power to control and decide what happens gets to go to the financial and counterfeit class. That is insane. That is insane. And none of it is natural. The entire thing is an artificial systems stacked on top of each other to increase the return on inflation. The basically the reward and the pushing down of the cost of debt down the ladder. And the reward of that inflation and offloading the debt, the actual capital ownership and control up the ladder. This is exactly why. Exactly why since the 70s, inequality has aggressively expanded. The rich have gotten richer and the poor have gotten poorer. And the divide between productivity like out actual capital output and production of the economy has been completely divorced. They were perfectly in line and now they're completely divorced between what the income and what people are paid and what actually gets what the output and actual production of capital can produce. Production has skyrocketed and the income and wages and standard living has completely stagnated.
[00:36:32] And that's largely because every benefit and every, every boost or technological innovation, anything that makes our lives better, we actually end up getting on debt. So every time we start to get a little bit of a head, a little bit ahead, we're actually further and further in debt. And so we're still having to run on that treadmill a little bit faster just to stay where we are. This is exactly why technology has sped everything up, but doesn't seem to actually give us any more time. Our situation isn't getting better, we're just better able to deal with our declining situation thanks to the technological improvements.
[00:37:03] Here's the crazy thing about where we are with bitcoin.
[00:37:07] It's being openly discussed.
[00:37:10] This is being, I mean granted it's not in the, it's not in the normal psyche yet, but it's getting there.
[00:37:19] And microstrategy and social media and bitcoiners are being explicit.
[00:37:26] I mean we talk about it on the show, I post about it all the time.
[00:37:30] We are doing an inflation carry trade against the dollar into a sounder money. This is a speculative attack on the currency and it's being memed into existence and it is open for anyone and everyone to participate. Low middle or wealthy class microstrategy or I guess strategy now is literally a corporate entity that has sold and memeified the fact that they are building their entire position, that they are putting the foundation of their company on all of their profits and everything that they actually produce and do. Going in, going into reinforcing their inflation trade, they literally are holding, they're creating their own debasement options contract and they're winning. They're winning so freaking hard. So of course people are going to dump into this like crazy. But here's the thing about the, the zone that we're in with this is that. And we'll get into more into this in part two and really part three. We really, they. I think he really gets into the whole bitcoin treasuries and laying out the entire thing and giving some really explicit connections to the Roaring twenties. But it kind of lays the foundation for it in part two.
[00:38:48] And he tries to draw parallels between like the amount of capital.
[00:38:52] And that's one of the things that's interesting is because if you look at just the sheer percentage and the amount of capital, it looks like we're, we're running very hot right now.
[00:39:03] But what's weird is it doesn't feel like that to me. It doesn't feel like that at all. This still feels really small and minor. Like this does not feel like a bitcoin bubble to me. Like it feels like we're very far from like, you could kick off really soon. But I don't even think we've hit the steamroll stage. There's a lot of these bitcoin treasury companies that don't really have much of an M nav and are still just booting themselves up, you know, like they're still just trying to get more bitcoin. M naver know when we had Alan Farrington on the show the other day, he was talking about the fact that a lot of these aren't going so well.
[00:39:42] But a lot of it depends on the success of bitcoin in the short to medium term.
[00:39:46] And bitcoin's largely just been bouncing around in the 100, 120 for quite some time now. And when he likens it to 1920s and the investment trust, which I don't want to get too far into because we'll have a better foundation in the next episodes. So we'll come right back to this topic. But when he likens it to those, the interesting thing is that the 1920s was purely a debt bubble and it was actually being rained. There was an aggressive reigning back in. Whereas you look at something where one of the things that was actually compared to in this one was the inflation carry trade in the Weimar Republic, which that never got reined in. I mean it did. There was a, there was a horrific collapse and there was massive volatility swings. I think there was one thing talking about like gold and stuff is that if you try to do short term bets on gold, I once saw a chart part is that like, yeah, you see this inflation and just like, see this averaged move of just like, whoa, it just like skyrockets up, right? It's just exponential and goes up to the right and it looks like, oh, you could have never had any loss. All you had to do is just bet against it. Well, you have to be extremely careful about how you bet against it because if you looked at. I saw it was, I think it was a book, a Mises book or something, I don't, I don't remember.
[00:41:04] Or maybe something on mises.org but there were charts and one of them was a chart of gold during that time. And one of the crazy things was that the, the mark.
[00:41:14] Because everything was basically speculation. And I don't mean in the sense that like, oh, everybody's just shallow and stupid and they're ruining the market. I mean it in the sense that like nobody had any idea what the actual price of anything was anymore. Like everybody's just guessing and so much, you know, if you think of the market as like the actual beer and the price discovery mechanism as the froth, it's kind of like the speculative window where a real economy based on real prices and respond to, you know, genuine peonies and where the money itself is actually sound. It's like a beer with like almost no froth, right? You just have this like really thin layer where it's bouncing around a little bit trying to find that equilibrium price. And it's, it's very precise. It's, it's honed and it reacts very quickly to, to major moves or shifts in the, the, the level of the liquid itself. Well, when you enter into an inflationary period, especially hyperinflationary period, the uncertainty is so great that it's like 90% of it is froth. You have no idea when the possible outcome could be 100% to any direction. Well, the entire mark, like all of it is based on perception. So you can have one little announcement or a shift of like, we're taking off a Zero. And we're doing this and we're finally getting ourselves back to austerity and everything's back in line. Just a simple announcement. Announcement from the central bank or from the leaders of the time could cause a 40% crash in gold. Basically an aggressive spike in the value, a return spike in the value of the mark, but then it just again just swings right back. So you literally have these like 30, 40, 50% just whoosh, whoosh and people just get absolutely wiped out who are, you know, making a short term or a medium term call in gold just get obliterated and they get margin called. So it's not as if there's just like an easy out here. You know, you have to be extremely structured and secure about how these things actually play out. But this is. So the question is, is this 1920s debt bubble to implode and you know, send us into the Great Depression or is this Weimar Republic, we're moving into hyperinflation. And the inflation carry trade is just the position you need to be holding for the next five to 10 years. And you need to hedge your bets and have enough capital on hand to prevent, to not get a margin call, to not leverage yourself so bad that you get wiped out actually betting the correct way, which can happen. And that's kind of the question here. And he pulls on that thread quite a bit more in part two and part three. And I think it's the one, I don't think it's the mimetic, I think, I think it's the flight into fake values where he talks about. Yeah, yeah, yeah. Where he talks about like we're basically in the crack up boom stage where the anti inflationary bets and the flight into NFTs and SPACs and all this stuff that just gets more and more frivolous and more and more financial, just financial engineering on financial engineering on financial engineering that has just become so much so aggressive and so heavily just dependent on the entire thing is just propped up by more and more rounds of qe. And the Fed is always going to step in of behavior and mindset as this gets increasingly worse. Moving in this direction, we're in this crack up boom phase where there's apparent prosperity there. It looks like everybody, because so much money, so much capital is moving into something desperate to get out of the dollar, desperate to get out of the, the obligations of the currency.
[00:44:53] And by taking on more liability denominated in the currency that you're betting against because the monetary base actually expands with taking on more debt and the Stupid and extremely short term thinking of the central bank and the governments in creating this mechanism of fractional reserve and issuing more debt into existence is that oh well, people will take on debt to invest in capital goods to invest in actually making the economy better. But what happens when they realize that the currency itself is the thing to bet against? And rather than actually producing anything, they actually get scared. They actually won't. They actually do not want to act, go out into the economy and build anything because they don't know how stable or reliable the economy is. And so what they literally do is take out debt to bet against the currency. And that exacerbates itself. It feeds back on itself in a, in a literal reinforcement loop because you're issuing more money into existence to buy bet against the money. The very thing you're doing to produce the bet, the counter bet, the put option is devaluing the currency itself. It's like a naked short on the entire structure of the financial system. You're not actually having to put up money because you can vent money into thin air, out of thin air in order to place the bet against the money that you're inflating. That is where we are and that's how dangerous this is. Because this just gets led by hype and inflate and, and perception. And when people start to realize that the idea is to get out of the currency, they will expand the currency aggressively in creating more liabilities so that they can get into something that will do better than the cost of their liability. And that's kind of what, that's what a bitcoin backed loan is. It's capitalizing on the fact that the finance, the financial world is completely mispricing debt. So you don't let go of your hard assets, you do not let go of sound money in order to get fiat. You take on fiat denominated liability. And I think over time the liquidity is going to get more and more because people are going to be looking for better and better vehicles and better and better ways to structure investments that actually have some sort of a decent return. And I think something like bitcoin backed loans especially especially proof of reserve and more explicitly reserved the multi sig. Bitcoin backed loans like Unchained and Firefish and Leden. Like there's just a handful of companies that I think really kind of do this in a different tier and there probably are others. I don't know about all of the companies that are doing this by the way, but I think this market, this, this corner of the market is just going to explode because people, there's, you cannot have a more reliable investment vehicle or return a way to get an interest rate return that's better than, you know, a loan or, excuse me, a mortgage or a credit on like a car or something like that or a business loan or something than a bitcoin collateralized loan. Not even like taking one out, like taking out a loan against your Bitcoin. But I mean the reverse of you have a fiat instrument and you're trying to buy bonds at fiat 4%, 5% when the money is being inflated by 7%, 8%, 9% and people are literally taking out loans to bet against the dollar which is accelerating the very inflation that's killing your interest rate. Yeah, hell no. Hell no. Especially if you were having, if you lived through the time in which somebody was doing this through 20, 20, 2021 and 2022, getting 1, 2% and now they're getting screwed. They literally have like 60 cent on the dollar in the face value of the bond, let alone they're still only making 1 or 2% while inflation's like 10. Hell no. Hell no. You have no idea what the value backing it is actually going to be at the end of the day. But then you have somebody willing to put up sound money for a loan and pay 10 or 15% because they don't want to let go of the sound money. The hell if they want to let go of digital gold to pay taxes and hold a lot of fiat. But it's over collateralized. It's over collateralized for the investor. So they make two, three times the interest rate on a far more reliable base that never, never has value below the actual ltv, the actual value of the loan itself. And in the literal worst case scenario, they can either sell or directly get the bitcoin. This is why I've kind of felt like the strategy if you want to play like the long, like four year, five year play from, from my perspective, I'm kind of intending on doing something like this. This is what I've done at least with a couple of investment decisions and House specifically. But I've been kind of feeling like the idea is to get a bitcoin collateralized loan, like take out the loan myself during the bull market.
[00:49:51] And then when it feels like we've hit a fervor and it's time to, it's like everything's just overheated and has gotten crazy, is close those out and back out of the market and then look into maybe making a sell into fiat and issuing an investment like, like actually being a lender in that market to get the percent. The one very scary thing and that is that you know you're letting go of bitcoin in order to get a fiat percentage. And the question is how much of a bear market do you really have? Like that, that's the one that I'm, I'm really scared about. I'm not, I'm not so much worried about the bitcoin backed loan and you know, let's say the price dips or something and I'm, I have to recapitalize a little bit. Not super worried about that situation as much as I am worried about how much would I be willing to sell in bitcoin under the assumption that we're going to have a prolonged bear market when we, when I don't really know, simply because I want to be able to make a percent and then turn around and put it back into bitcoin. Lower that you know, like over two year, three year time spans.
[00:51:08] It's a little bit more of a surefire thing and surefire, it's a bad way to put it. It's a slightly more reliable trade because it's not aggressive short term trading. But it still just feels so risky to let go of bitcoin in any context. But the kind of ocean tide sort of trades are the easier ones to do, you know, because I feel like no matter what you do or I guess no matter what happens in the market, it seems inevitable that you know, we get overheated there, there becomes this like hype feedback loop that you know, we, we hugely extend past the mayor Multiple and the 200 day moving average and then we basically correct back down and we're back below the 200 day moving average again. And then also specifically the kind of the MVRV realized value type metrics that these aren't perfect because they're you know, based on, on chain analytics but over a broader pick picture or broader time period I think it's very indicative of when we're really, when we're way too overheated and when we're overdue for a pullback. So you know, if you look at those like super zoomed out, I feel like there's this far, it's a far more likelihood, far safer to make bets on those big things that also happen to be extremely conservative. And if you're playing big plays over three year periods that these would be the bigger indicators to look at because you're really trying to judge where we are in the kind of heat of the market and also in additionally global liquidity. If you're just looking at dollar and debt liquidity, which we covered.
[00:52:50] Lyn Alden and.
[00:52:53] Oh my God, who was that? Callahan. Callahan's piece on basically showing or laying out the thesis that Bitcoin actually responds better than any other asset. Bonds, equities, Anything responds better to just global available liquidity than anything else. It's like an 80% correlation, which is wild.
[00:53:15] What I'm getting at with that is that there inevitably will be a bubble, but it doesn't feel like it's overheated yet. And maybe it's just because this isn't like an aggressively retail bubble yet, but I feel like we inevitably get that way and institutions are quieter about causing a fervor in the very thing that they're investing in. One of the key things that I did a bunch of trading courses and I did some really.
[00:53:44] There was one in particular that was just brilliant. The guy, he was literally doing it just because he loved it and he was that good at it. Like he did not make his money selling a course. He just did it for friends and friends of friends. Like it was a word of mouth thing. But basically the lesson of all lessons that you get in that world is that if you see somebody pumping something on CNBC or you hear Jim Cramer talking about something that's going to be good or a positive investment, it is literally because some company or major player has already put in their position and now they're looking for liquidity to exit. And so they literally that it's, it is an entirely a mechanism to dump on retail. If CNBC is pumping it, it's going to fall because they are looking for liquidity from quote unquote dumb money. And so that's kind of the thing about, you know, looking at this in bitcoin as like the corporate world gets into it is that it's not until everybody's talking about how Bitcoin is going to go up forever and there's never any risk that a lot of these major institutions are going to be exiting positions and they're building positions right now, that is what we're looking at I think is an insta, a prolonged institutional bid for the past, for all of 2025 as they slowly get into the market and build a position. And it feels like, I mean when, when the, the access to money is completely divorced from a supply of money that is just issued into existence as debt and then is being dumped into something like bitcoin or to any hard assets as explicitly a sort of inflation carry trade, a debasement trade.
[00:55:19] I there's no way it doesn't steamroll, there's no way it doesn't turn into just an avalanche because it is a self reinforcing mechanism.
[00:55:29] So we'll get deeper into this in part two and part three of this. I think you guys are really going to like this series. I've very much enjoyed it and I think there's just so much fun stuff to unpack here. So stay tuned. Don't forget to subscribe shout out to Leden IO for bitcoin backed loans to synonym and what they are doing in trying to re decentralize the web. They've got some fantastic tools. You can check them out at pubkey app then hrf, the Human Rights foundation, the Oslo Freedom Forum and the Financial Freedom Report. Links and details you will find right down in the show notes. And of course get Chroma, the red light therapy hormone Getting your hormones right, getting your energy levels right, protect yourself from all of the blue light in the screens at night. I have done it and it's made a big difference and you can get a 10% discount with code Bitcoin Audible. And until then, thank you guys so much for listening. I am Guy Swan. We will see you. I guess this will be on Monday with part two so stay tuned. Until then, keep stacking, be careful out there and I will catch you on the next episode of Bitcoin Audible.
[00:56:33] Till then everybody. That's my two sats if you take away the state's monopoly over the means of economic interaction, you take away one of the three principal ingredients of the state. In the model of the state as a mafia, where the state is a protection racket, the state shakes people down for money in every possible way. Controlling currency flows is important for revenue raising by the state, but it is also important for simply controlling what people do.
[00:57:15] Julian Assange, Freedom and the Future of the Internet.
