1 00:00:00,000 --> 00:00:06,160 John, we're back Monday morning after a pretty crazy week in Bitcoin. 2 00:00:06,560 --> 00:00:12,280 I mean, we had our first recording seven days ago, and between then and now, the price of Bitcoin 3 00:00:12,280 --> 00:00:17,160 dipped, tipped, tipped into the 50s, the high 50s there, 59, 58. 4 00:00:17,600 --> 00:00:21,520 We're second on Thursday, I believe, has since recovered. 5 00:00:21,920 --> 00:00:26,500 Currently trying to break past through a 70,000 and stay above there. 6 00:00:26,500 --> 00:00:27,840 It's been drifting up and down. 7 00:00:29,720 --> 00:00:33,660 Long-winded introduction to basically say that people are scared. 8 00:00:34,320 --> 00:00:40,060 And you took some time to write a newsletter that was published on Saturday to really get people back to the fundamentals. 9 00:00:40,800 --> 00:00:41,660 Price is what you pay. 10 00:00:42,220 --> 00:00:43,280 Value is what you come for. 11 00:00:43,780 --> 00:00:45,300 Why do you feel compelled to write that this week? 12 00:00:45,300 --> 00:01:12,880 I mean, I feel like the only all the time, like regardless of what's happening in the market with any asset that you own, what you should be focusing on is the underlying reality of the thing it is that you own and what its prospects are, whether it's a cash flowing asset like equity in a business or a commodity and playing some sort of demand cycle or a monetary good like gold or like Bitcoin. 13 00:01:12,880 --> 00:01:42,860 And you should always be focusing on the fundamental story, like why you're there in the first place. Right. And I think that's even more true. And it's most true when the fear and greed index goes to four, which it did this week. So like literally lower, lower than the COVID wick, you know, when everyone thought the world was literally ending lower than FTX. Right. And, you know, everyone constructs those indicators differently. And they're only of somewhat limited value. But I think it's still indicative, you know, are the RSI this week on Bitcoin. 14 00:01:42,860 --> 00:01:48,940 went the lowest it's basically ever gone. That was the lead chart for the timestamp this week. 15 00:01:49,500 --> 00:01:56,020 But I made the subtitle of the newsletter this week. I didn't hear Nobel quoting philosopher 16 00:01:56,020 --> 00:02:01,740 Randy Marsh, who I think puts you in the mindset you need to be in when you're getting punched in 17 00:02:01,740 --> 00:02:09,560 the mouth on price of anything that you own. And the only solution to manage the emotions and to 18 00:02:09,560 --> 00:02:16,760 not make rash decisions and to keep yourself level-headed is to re-evaluate your thesis, 19 00:02:17,380 --> 00:02:21,480 ask yourself if anything's changed, ask yourself why you're there in the first place. 20 00:02:22,240 --> 00:02:27,580 And certainly there are times when the market's giving you new information, the markets don't 21 00:02:27,580 --> 00:02:30,860 think something everyone wants to get out because something has fundamentally changed 22 00:02:30,860 --> 00:02:35,460 and you need to re-evaluate that information in your thesis. A lot of the time, that's not the 23 00:02:35,460 --> 00:02:42,780 case. And so I think it's important to follow Buffett's advice, which is where that quote 24 00:02:42,780 --> 00:02:46,840 comes from. Price is what you pay, value is what you get. Buffett, by way of Ben Graham, 25 00:02:47,240 --> 00:02:53,720 and I know he's not a favorite among Bitcoiners, but if you read his shareholder letters over the 26 00:02:53,720 --> 00:02:57,540 years, you'll find that he's spiritually a Bitcoiner, even if he didn't fully understand 27 00:02:57,540 --> 00:03:02,820 what was going on with Bitcoin. But here he gives great advice that I think all Bitcoin 28 00:03:02,820 --> 00:03:08,040 holders need to take to heart. Evaluate the fundamentals in situations like this, in weeks 29 00:03:08,040 --> 00:03:12,420 like this, and don't tap out until you hear the bell. And I don't think we've even come close to 30 00:03:12,420 --> 00:03:19,180 hearing the bell here. No, it was a bit poetic, ironic, maybe not ironic. It was poetic because 31 00:03:19,180 --> 00:03:24,900 as this price was dumping Thursday over the course of the week, over the course of the last month and 32 00:03:24,900 --> 00:03:30,260 a half, really, I've been talking about it on RHR. I think I mentioned it last week, and this is a 33 00:03:30,260 --> 00:03:36,320 good segue into the next chart we'll pull up but me personally i've been playing with open claw for 34 00:03:36,320 --> 00:03:42,920 the last three weeks and have been pushing my agent to the limits to see when i'm trying still 35 00:03:42,920 --> 00:03:47,620 trying to map the territory of what's possible with these agents now and one of the things i did 36 00:03:47,620 --> 00:03:53,980 over the course of the last 10 days was get my agent to spin up a phoenix d server so a bitcoin 37 00:03:53,980 --> 00:04:01,400 wallet a lightning network server and begin signing into websites using lnurl auth which is 38 00:04:01,400 --> 00:04:06,100 for those who are unaware it's basically an authentication sign-in flow where instead of 39 00:04:06,100 --> 00:04:10,460 putting an email and a password you basically use the private key in your lightning network server 40 00:04:10,460 --> 00:04:16,700 to sign into a website and that is your identity and so my agent signing into websites with its 41 00:04:16,700 --> 00:04:24,860 private key that it controls. And going back to price versus value, like it is a confirmation of 42 00:04:24,860 --> 00:04:29,360 something that we've been talking about. Me and you personally, it's part of our thesis at 1031 43 00:04:29,360 --> 00:04:36,600 is that Bitcoin is native internet money. And as AI becomes more prominent and agents begin 44 00:04:36,600 --> 00:04:42,120 doing more things, they're going to need money to do things. And the ease with which my agent was 45 00:04:42,120 --> 00:04:48,080 able to spin up a Phoenix D server, use bolts to submarine swap to open up a channel and begin 46 00:04:48,080 --> 00:04:54,240 signing into websites and sending Bitcoin to them was astonishing. So as the price was falling, 47 00:04:54,700 --> 00:05:00,400 I was being starkly reminded of the fundamental value that exists within Bitcoin and particularly 48 00:05:00,400 --> 00:05:06,120 at this intersection with AI, which you want to talk about today. You have this chart that is 49 00:05:06,120 --> 00:05:12,480 highlighting the the capex spend of these hyperscalers which is exploding this year above 50 00:05:12,480 --> 00:05:19,840 600 billion yeah it's a uh it's a crazy chart in terms of order of magnitude here this is i said in 51 00:05:19,840 --> 00:05:25,740 the newsletter but we're now at a point where and this doesn't even include oracle neoclouds 52 00:05:25,740 --> 00:05:32,880 core weave etc um you know the hyperscaler complex broadly like the ai data center complex 53 00:05:32,880 --> 00:05:39,460 is basically spending like one tarp a year now on, you know, the thing that led to Bitcoin's 54 00:05:39,460 --> 00:05:44,340 creation in the first place, the bailout of the banks, you know, during the financial crisis, 55 00:05:44,340 --> 00:05:49,720 we were all just like pearl clushing at the time that, you know, we were spending $800 billion 56 00:05:49,720 --> 00:05:55,020 on this bailout packages. The numbers were so high, you couldn't even imagine it, you couldn't 57 00:05:55,020 --> 00:05:58,980 conceive of it. And now we're just kind of casually, you know, doing that in a year for 58 00:05:58,980 --> 00:06:03,120 data centers, right? And granted, yeah, you know, it's, it's not a constant dollar comparison, 59 00:06:03,340 --> 00:06:08,000 whatever. Like, I think it just goes to show you how, how much the monetary base has expanded and 60 00:06:08,000 --> 00:06:12,860 how much our kind of expectation of, you know, what a dollar buys has changed. But this, these 61 00:06:12,860 --> 00:06:18,460 are huge numbers. And I think there are, this chart says a lot about a lot of different things 62 00:06:18,460 --> 00:06:25,380 that are going on in the market right now, both in and out of Bitcoin. I think number one is what 63 00:06:25,380 --> 00:06:30,420 you, what you first said is on the most fundamental level for Bitcoin. Like what this chart tells you 64 00:06:30,420 --> 00:06:40,240 is like the smartest and most well-capitalized and most, shall we say, singularly oriented people 65 00:06:40,240 --> 00:06:47,380 in the world, in the world of tech are going to bring about their version of like digital God or 66 00:06:47,380 --> 00:06:53,420 die trying. We can debate whether that's a good thing for society. I think there are a lot of 67 00:06:53,420 --> 00:06:57,620 implications we get into of that. But this train is not slowing down. I think all the 68 00:06:57,620 --> 00:07:12,844 commentary on the earnings reports over the last two weeks which is where the these estimates come from all companies updated their CapEx estimates for the year on those calls The commentary is like I think Sundar at Google has literally said we would rather go bankrupt than lose this race 69 00:07:13,184 --> 00:07:18,464 They're all thinking that way. And you can see in, Marty, what you're talking about with 70 00:07:18,464 --> 00:07:25,264 progress on the agentic side in the last couple of weeks, that that's just scratching the surface 71 00:07:25,264 --> 00:07:30,824 of like what's going to come as long as scaling laws hold, which is basically, you know, the idea 72 00:07:30,824 --> 00:07:34,884 that very simply, and there's a much more technical kind of way to think about it, but like you are 73 00:07:34,884 --> 00:07:40,844 getting more output relative to the input of computation and training and GPUs and power that 74 00:07:40,844 --> 00:07:46,804 you're throwing at these things. Right. So as long as this curve continues to produce positive ROIC 75 00:07:46,804 --> 00:07:51,924 or positive returns on, you know, positive intelligence returns for, for the spend, 76 00:07:51,924 --> 00:08:12,264 It's just going to keep going up. And clearly the plan among all these companies supported also by the Trump administration with the running hot agenda is this line just needs to keep going up. And that's going to have implications for all these agents that people are playing with in the last few weeks, just getting more and more capable, again, assuming scaling loss can need to hold. 77 00:08:12,264 --> 00:08:19,184 and you know that's the first kind of fundamental indicator to me about where bitcoin's going right 78 00:08:19,184 --> 00:08:25,184 like you often hear people boom that bitcoin doesn't have a use case it's not being used as 79 00:08:25,184 --> 00:08:30,624 money well you're starting to see you're starting we can talk about other ways that in the real world 80 00:08:30,624 --> 00:08:35,764 you're starting to see it uses money but we've got a growing army of bots out there now that 81 00:08:35,764 --> 00:08:40,544 pretty quickly discovered with some human prompting it may be somewhat autonomously maybe somewhat 82 00:08:40,544 --> 00:08:46,904 not whatever, but discovered how to use their native money and are using it. Right. And that's, 83 00:08:47,384 --> 00:08:52,344 this chart tells you like that kind of thing, that kind of trend is only is just we're in the 84 00:08:52,344 --> 00:08:57,604 warmups, right. Of, of the nine inning ball game. Like that's just starting. Um, and I think we're 85 00:08:57,604 --> 00:09:02,484 going to see a lot more of it over the coming year, two years, et cetera. So that is fundamentally 86 00:09:02,484 --> 00:09:08,924 like a positive tailwind for the most widely accepted, largest network effect, most robust 87 00:09:08,924 --> 00:09:15,204 internet native money. I just full stop. The other piece that I think is worth highlighting here is 88 00:09:15,204 --> 00:09:19,644 there are a couple of things, other things we can say. One other thing I'll say before pausing is 89 00:09:19,644 --> 00:09:26,684 there are implications to that on employment, right? On white collar employment. And this is 90 00:09:26,684 --> 00:09:33,184 one of the things that I was alluding to a second ago, like the, the many potential social near-term 91 00:09:33,184 --> 00:09:38,964 downsides of the implications of this chart. You know, Dario at Anthropic has reiterated multiple 92 00:09:38,964 --> 00:09:45,984 times in the last few months that AI or AGI or however you want to define it over the next couple 93 00:09:45,984 --> 00:09:50,644 of years, we'll be able to do an increasingly percentage of white collar work autonomously. 94 00:09:50,984 --> 00:09:55,564 There's some book talking there because there's massive capital required for all this stuff. So he 95 00:09:55,564 --> 00:10:01,624 and Jensen and all these guys are incentivized to overplay it and to, you know, talk it up 96 00:10:01,624 --> 00:10:05,764 aggressively. But, you know, so maybe it's not six months when everyone gets disrupted, 97 00:10:05,764 --> 00:10:11,644 but is it like two years? Is it three years? Like it, you know, I don't think it's 10 years. 98 00:10:11,764 --> 00:10:15,164 I don't think it's 20 years, assuming again, scaling laws hold, assuming this spending 99 00:10:15,164 --> 00:10:21,764 continues, et cetera. And so what does that do to the run at hot agenda? What does that do to 100 00:10:21,764 --> 00:10:25,604 the federal budget, which is already like historically constrained? We talked about 101 00:10:25,604 --> 00:10:30,204 last week, you know, non-discretionary spend relative to tax receipts already running up 102 00:10:30,204 --> 00:10:35,204 right at a hundred percent with fairly low unemployment. If you get like a couple additional 103 00:10:35,204 --> 00:10:40,064 percentage points of unemployment, even it due to kind of white collar workforce disruption, 104 00:10:40,704 --> 00:10:44,964 what does that do to automatic stabilizers in the budget? What does that do to everyone's 105 00:10:44,964 --> 00:10:50,404 mortgage payments, everyone's car payments, the household debt, et cetera. You quit. This chart 106 00:10:50,404 --> 00:10:55,904 tells you like you could quickly get into a situation where, yeah, you get a ton of productivity. 107 00:10:55,904 --> 00:11:04,284 You get a ton of like nominal GDP going up, but potentially at the cost of meaningful employment disruption, which is something we typically haven't seen historically. 108 00:11:04,284 --> 00:11:07,924 Right. At least at any kind of like accelerated pace, like what would be happening here. 109 00:11:07,924 --> 00:11:25,324 So the other implication of this chart for Bitcoin is the for this to for all of this agenda to hold together and for all of us to work and for all of these projects to kind of bear fruit in the way that people are thinking and hoping, you know, they're probably unless it all goes at exactly the right pace. 110 00:11:25,324 --> 00:11:33,004 there's probably some implication for employment and unemployment benefits and the need to finance 111 00:11:33,004 --> 00:11:37,404 those without blowing up the whole system. So I'll pause there, but I think those are some key 112 00:11:37,404 --> 00:11:41,024 things that we can take away from this chart as it relates to what's fundamentally happening in 113 00:11:41,024 --> 00:11:48,024 the world as price goes against us. Yeah. I mean, we've been talking about it. I mean, 114 00:11:48,024 --> 00:11:54,764 it's been very clear with the Trump administration, Trump too. Scott Besson came in before he came in, 115 00:11:54,764 --> 00:11:59,344 famous Manhattan Institute interview where he says there's going to be a new monetary order, 116 00:11:59,484 --> 00:12:03,824 there's going to be reordering. I want to be a part of it. And it seems like that is certainly 117 00:12:03,824 --> 00:12:10,564 in play with this Don Rowe doctrine of the national security strategy that was laid out at the end of 118 00:12:10,564 --> 00:12:16,504 last year. And then you couple that with, it has become very clear as well that this AI race is 119 00:12:16,504 --> 00:12:22,484 existential for the long-term dominance of the United States, at least it's viewed that way. 120 00:12:22,484 --> 00:12:31,144 I think it's pretty clear that whoever wins this race is going to have a lot of leverage in the brave new world that we're venturing into. 121 00:12:31,144 --> 00:12:39,624 And to your point, it's going to have the win at all cost is going to come with some negative externalities in the form of job disruption. 122 00:12:40,244 --> 00:12:42,404 And they're going to have to print money. 123 00:12:42,404 --> 00:12:55,144 And there's a very strong case to be made that the fundamental value that exists in scarce assets, the scarce assets that in the world that is Bitcoin is not priced in yet. 124 00:12:55,544 --> 00:12:59,464 And like you said, we're warming up before the game is even started. 125 00:13:00,164 --> 00:13:04,124 And it's going to be very interesting what happens. 126 00:13:04,124 --> 00:13:09,204 And there's a ton of people out there thinking that we're going back into a bear market. 127 00:13:09,624 --> 00:13:14,464 Four-year cycles are still intact as it pertains to Bitcoin's price movements. 128 00:13:14,784 --> 00:13:21,504 And I think I would just take this information in mind when thinking about where Bitcoin could go from here. 129 00:13:21,904 --> 00:13:27,364 But one thing, I think there's other knock-on implications that are more direct to Bitcoin that we can see. 130 00:13:27,504 --> 00:13:29,084 You've got a chart here of hash rate. 131 00:13:29,084 --> 00:13:44,884 I think this is actually an important chart to bring up because there's a lot of misinformation floating around about mining as an industry right now and what's happening, what's causing this collapse, not collapse, but a very strong correction in hashrate. 132 00:13:44,984 --> 00:13:50,664 I think we had our 12th largest downward difficulty adjustment ever at the end of last week. 133 00:13:50,664 --> 00:13:56,944 And it was this largest downward adjustment since the Chinese mining ban in 2021. 134 00:13:56,944 --> 00:14:16,008 that adjustment was 28 last week adjustment for Bitcoin was let me pull it up here 11 so pretty pretty massive downward difficulty adjustment you have people saying that with the price down like all miners are unprofitable the quantum fud uh miners 135 00:14:16,008 --> 00:14:21,048 are diversifying away from bitcoin money because they're worried about quantum risk they're all 136 00:14:21,048 --> 00:14:26,648 going to ai quantum risk i don't think many bitcoin miners really thinking that way i think there is 137 00:14:26,648 --> 00:14:35,208 certainly increased competition from ai and an appeal to diversify into ai data center infrastructure 138 00:14:35,208 --> 00:14:39,688 because of how profitable it is the chart we just looked at the hyperscaler is going to be throwing 139 00:14:39,688 --> 00:14:46,088 a ton of money at scaling this stuff and so with that it's going to come sort of they don't care 140 00:14:46,088 --> 00:14:52,008 about energy prices they'll pay whatever it takes but i think i'll start with debunking one of the 141 00:14:52,008 --> 00:14:56,388 The lines of FUD that's been out there, which is all miners are unprofitable. 142 00:14:56,508 --> 00:15:01,908 I'm sure many of you have seen the stat that the average cost or the cost to mine a Bitcoin. 143 00:15:02,088 --> 00:15:06,288 There's a stat going out there like it cost $100,000 to mine a Bitcoin. 144 00:15:07,688 --> 00:15:11,728 And obviously, the price is at $69,000 right now. 145 00:15:11,768 --> 00:15:13,708 So all miners are unprofitable. 146 00:15:13,708 --> 00:15:18,408 And this is just completely idiotic because each individual miner is an individual actor 147 00:15:18,408 --> 00:15:24,228 with their own sort of setup, their own electricity price, their own hardware that they bought 148 00:15:24,228 --> 00:15:25,068 at a certain price. 149 00:15:25,068 --> 00:15:29,308 And I would just say that not every miner is unprofitable. 150 00:15:29,428 --> 00:15:33,868 There are miners out there that are using electricity that they're getting for very 151 00:15:33,868 --> 00:15:34,228 cheap. 152 00:15:34,368 --> 00:15:39,568 For example, I've got personal miners on a stranded natural gas well, and the cost of 153 00:15:39,568 --> 00:15:43,488 that electricity is probably around one cent per kilowatt hour. 154 00:15:43,488 --> 00:16:00,688 So it's not 13 cents per kilowatt hour, which is the stat that you'll see floating around is that all mine will take the average residential or industrial cost per kilowatt hour of electricity and just basically paste that on Bitcoin miners and say, look, this is how much it costs to mine a Bitcoin. 155 00:16:00,848 --> 00:16:01,468 That's not true. 156 00:16:01,588 --> 00:16:06,368 There are miners out there with very low cost of energy, very high performance machines. 157 00:16:06,628 --> 00:16:12,428 And there are plenty of miners out there that even at $69,000 are plenty profitable. 158 00:16:12,428 --> 00:16:18,488 And now that we've had a 11.15% downward difficulty adjustment, it's easier to mine. 159 00:16:18,648 --> 00:16:24,488 So their revenue in stats should be going up after this, despite where the price is. 160 00:16:25,548 --> 00:16:29,728 So I'll end it there, my little rant and pass it to you. 161 00:16:30,048 --> 00:16:31,308 Any comments on this chart? 162 00:16:31,848 --> 00:16:32,848 Yeah, I think it's all great. 163 00:16:33,168 --> 00:16:40,788 The other piece that I would throw out is just so people are aware, because I've seen, I saw a lot of posts about it this week, you know, looking at this recent drop. 164 00:16:40,788 --> 00:16:45,308 Again, without usually the charts presented on like a six month basis or maybe a one year basis. 165 00:16:45,768 --> 00:16:48,608 So not really zooming out and saying, oh, look at how massive the drop is. 166 00:16:48,828 --> 00:16:54,808 You know, it started in earnest with the crazy winter storm a couple weeks ago, which we talked about last week on the show. 167 00:16:55,508 --> 00:17:02,388 So there's an element of major drop off that you would kind of expect, especially in a more like sideways or down price environment. 168 00:17:03,368 --> 00:17:04,968 So that's a big piece of it. 169 00:17:04,968 --> 00:17:16,108 I think the idea that everyone suddenly decided that quantum is an existential risk and that they need to turn their miners off or they only just now realize they should be, quote unquote, pivot into AI is, I think, pretty, pretty suspect. 170 00:17:16,668 --> 00:17:20,688 And I think that's just illustrated by like zooming out on the chart like we have here. 171 00:17:20,688 --> 00:17:25,588 Right. Like for the last couple of years, you know, the data center story has been very much in play. 172 00:17:25,588 --> 00:17:34,808 You've seen many, many public trader miners moving to AI capacity using their rack space for that kind of a hybrid strategy. 173 00:17:35,588 --> 00:17:38,328 And yet hash rate has just continued to climb higher and higher and higher. 174 00:17:38,948 --> 00:17:39,768 This is a crazy chart. 175 00:17:40,288 --> 00:17:50,408 And this is the first real meaningful pullback that we've had in hash rate since the China mining ban, which now you can barely kind of even see on this chart. 176 00:17:50,408 --> 00:17:56,828 Right. So this is a fundamental KPI as we think about kind of values or prices, what you pay, 177 00:17:56,888 --> 00:18:00,468 values, what you get. Here's a fundamental KPI that I think is worth paying attention to 178 00:18:00,468 --> 00:18:07,408 are more and more real world resources, physical world resources over a reasonable amount of time 179 00:18:07,408 --> 00:18:14,188 being applied to Bitcoin mining by some set of actors. Right. And I think this chart tells you 180 00:18:14,188 --> 00:18:19,408 like the answer is just absolutely resoundingly. Yes. You know, we shouldn't expect if we continue 181 00:18:19,408 --> 00:18:24,848 to to range here or dump here you know should we expect some ongoing consolidation or decline in 182 00:18:24,848 --> 00:18:30,768 in this chart yeah probably that would likely happen but this is this is telling you as we 183 00:18:30,768 --> 00:18:38,048 think about the rotation that is now just starting to be like popularly discussed in mainstream 184 00:18:38,048 --> 00:18:44,048 financial press of you know the rotation from bits to atoms right you're seeing software getting 185 00:18:44,048 --> 00:18:49,088 killed unfortunately bitcoin's kind of traded basically like igv like a software stock like 186 00:18:49,088 --> 00:18:54,048 like the software ETF over the last few weeks or months, you're seeing software get killed and 187 00:18:54,048 --> 00:19:01,008 anything that is kind of capital light or thought of as immaterial or leveraged to the world of bits, 188 00:19:01,008 --> 00:19:07,928 the world of the ones and zeros and just pure data is kind of getting sold hard on the various 189 00:19:07,928 --> 00:19:13,388 theses about running it hot and reshoring and needing to aggressively build out physical 190 00:19:13,388 --> 00:19:17,088 infrastructure again and not being able to rely on just-in-time supply chains that are mostly 191 00:19:17,088 --> 00:19:22,728 depending on China, right? This chart should be a reminder to everyone that Bitcoin is effectively 192 00:19:22,728 --> 00:19:28,488 the one system in the world that we've ever invented that on a decentralized basis control, 193 00:19:28,588 --> 00:19:36,728 why no one dynamically links bits to atoms, right? There's a whole massive, like unbelievably large 194 00:19:36,728 --> 00:19:42,828 amount of infrastructure that has been deployed to make this chart happen and to make Bitcoin run 195 00:19:42,828 --> 00:19:49,228 as it does. It adjusts dynamically based on a whole host of market forces, again, without any 196 00:19:49,228 --> 00:19:55,008 central coordinator. And the long-term trend on it is very, very clear. There's clear utility to 197 00:19:55,008 --> 00:20:00,628 Bitcoin mining, even, and probably most especially to actors that are not primarily profit-oriented 198 00:20:00,628 --> 00:20:07,388 or who use it more as a tool or an input than a standalone business. That could be an HPC data 199 00:20:07,388 --> 00:20:11,928 center, that could be a sovereign, that could be an oil and gas company, that could be a grid 200 00:20:11,928 --> 00:20:15,848 operator using it for load balancing that it can uniquely do that nothing else can do. 201 00:20:16,488 --> 00:20:21,088 And so again, for the people who are watching Bitcoin's price decline and saying, well, 202 00:20:21,108 --> 00:20:23,008 obviously this was this, you know, it's going to zero. 203 00:20:23,088 --> 00:20:23,828 It doesn't have a use case. 204 00:20:23,948 --> 00:20:26,008 It's $69,000 too high. 205 00:20:26,348 --> 00:20:32,148 I think this chart is a good reminder on a long-term basis of one of the most interesting 206 00:20:32,148 --> 00:20:38,808 and valuable elements of what Bitcoin is and why anyone's selling it on a bits to atoms 207 00:20:38,808 --> 00:20:45,608 rotation thesis is really missing the force for the trees on this yeah and i'm just going to pull 208 00:20:45,608 --> 00:20:52,168 up in more dynamic chart i'm going to pull up mempool.space 1031 portfolio company but see the 209 00:20:52,168 --> 00:20:58,168 same chart but with the difficulty adjustment going back to the value of bitcoin and the protocol 210 00:20:58,168 --> 00:21:02,488 itself and how it operates you had the hash rate so you had this chart but i'm just going to overlay 211 00:21:02,488 --> 00:21:14,452 difficulty which reacts to the amount of hash rate on the work on the network at any given point in time which the network basically guesstimates that by looking at the the time it takes to produce a block 212 00:21:14,452 --> 00:21:21,292 every 2016 blocks and i think to your point the value this connection of the world of bits and 213 00:21:21,292 --> 00:21:29,552 atoms via proof of work in bitcoin is is something that many people do not appreciate fully yet and 214 00:21:29,552 --> 00:21:32,032 when we're talking about the price falling, 215 00:21:32,312 --> 00:21:33,352 hash rate coming off, 216 00:21:33,772 --> 00:21:34,912 and people wondering, 217 00:21:35,152 --> 00:21:36,572 is it profitable to mine Bitcoin? 218 00:21:37,312 --> 00:21:38,532 That is the beauty of Bitcoin. 219 00:21:38,832 --> 00:21:40,532 Satoshi designed the system in a way 220 00:21:40,532 --> 00:21:42,952 where it dynamically adjusts 221 00:21:42,952 --> 00:21:45,212 based off of the amount of compute 222 00:21:45,212 --> 00:21:47,512 dedicated to the network at any given point in time. 223 00:21:47,752 --> 00:21:50,592 And so as difficulty, as the price goes down, 224 00:21:50,652 --> 00:21:51,752 as hash rate comes off, 225 00:21:52,112 --> 00:21:53,772 the network knows, like, okay, 226 00:21:53,952 --> 00:21:56,392 it seems like people aren't incentivized 227 00:21:56,392 --> 00:21:57,932 to mine as much right now 228 00:21:57,932 --> 00:21:59,192 because blocks are coming in. 229 00:21:59,192 --> 00:22:04,732 longer than 10 minutes on average. And so I need to adjust. The protocol needs to adjust down to 230 00:22:04,732 --> 00:22:09,472 make it easier to buy and to incentivize more people to come in and construct and broadcast 231 00:22:09,472 --> 00:22:15,112 blocks and keep adding them to the ledger. And there is incredible fundamental value just in that 232 00:22:15,112 --> 00:22:22,292 little design aspect of Bitcoin in and of itself. The difficulty adjustment is one of the most 233 00:22:22,292 --> 00:22:27,492 important parts of the Bitcoin protocol. It's working as designed. This is exactly what you 234 00:22:27,492 --> 00:22:33,412 want to see. So we'll just add that as well. We're talking if the theme of today is price versus 235 00:22:33,412 --> 00:22:39,052 value, the difficulty adjustment has a ton of fundamental value that will ensure that the 236 00:22:39,052 --> 00:22:43,792 network persists into the future that blocks are being produced and miners are incentivized to 237 00:22:43,792 --> 00:22:49,212 produce blocks. I'm trying to keep this a tight 30 minutes. We got five minutes left. What should 238 00:22:49,212 --> 00:22:53,872 we end it on? I think the last thing maybe that I would just direct people to, I referenced it in 239 00:22:53,872 --> 00:23:00,052 in the newsletter. But if you've never watched Parker Lewis's video, his talk, Bitcoin is not a 240 00:23:00,052 --> 00:23:05,512 hedge. I think that would be good to play this week and kind of delve into his points there. 241 00:23:06,792 --> 00:23:16,632 When you see the price fall rapidly on market uncertainty or correlations to the NASDAQ or the 242 00:23:16,632 --> 00:23:21,672 S&P, when Bitcoin's not acting like a quote unquote safe haven, it's not acting like gold 243 00:23:21,672 --> 00:23:25,732 or the 10 year or something, you'll, you'll off, everyone comes out of the woodwork, all the 244 00:23:25,732 --> 00:23:29,232 concerned trolls come out of the woodwork to say, you know, see, it's, it's not acting like an 245 00:23:29,232 --> 00:23:32,332 inflation hedge, or it's not acting like a debasement hedge, or it's not acting like an 246 00:23:32,332 --> 00:23:37,012 uncertainty hedge. Like why would anyone own this? I think it's important to realize that Bitcoin is 247 00:23:37,012 --> 00:23:42,312 not a hedge right now. It can become a hedge. It's, we think by doing, you know, but doing what 248 00:23:42,312 --> 00:23:47,692 we're doing, owning Bitcoin, trying to help the ecosystem develop, investing behind it, that it 249 00:23:47,692 --> 00:23:53,832 can and will become a hedge over time. But despite the crazy gains in market cap that it's made over 250 00:23:53,832 --> 00:23:59,812 its life without any marketing department or central force pushing it forward, it's a tiny 251 00:23:59,812 --> 00:24:07,492 asset relative to global capital flows. And the vast majority of capital is controlled by, 252 00:24:07,892 --> 00:24:13,172 I wrote in the newsletter somewhat sarcastically, septuagenarian central bankers or 253 00:24:13,172 --> 00:24:20,832 bulge bracket wealth managers. And those classes of people are just barely beginning to wake up to 254 00:24:20,832 --> 00:24:26,392 what Bitcoin even is. A lot of them are still dragging their feet on it. They kind of still 255 00:24:26,392 --> 00:24:30,472 think it's going to go away and it'll die. They won't have to worry about it or learn about it. 256 00:24:30,472 --> 00:24:35,792 You know, vast majority of the world hadn't heard of Bitcoin 10 years ago. So the idea that 257 00:24:35,792 --> 00:24:42,692 anyone, any massive allocator is going to reflexively shift allocations into Bitcoin 258 00:24:42,692 --> 00:24:47,912 when things get hairy in the world, when markets get more uncertain, when they're worried about 259 00:24:47,912 --> 00:24:52,972 an increasingly multipolar world, increasingly fractured world where globalization is kind of 260 00:24:52,972 --> 00:24:58,552 ending or changing. The idea that they're knee-jerk is, let me just up my Bitcoin allocation a few 261 00:24:58,552 --> 00:25:04,652 percent to keep the portfolio balanced and to keep myself hedged against tail risks that may be 262 00:25:04,652 --> 00:25:10,572 growing is kind of insane, right? We're so, it's a meme, but it's also very true. Like we are so 263 00:25:10,572 --> 00:25:17,512 early in the development of what Bitcoin is. Gold has been around thousands of years. The 264 00:25:17,512 --> 00:25:21,772 treasury market is obviously quite a bit younger, but also has the backing of trillions of dollars 265 00:25:21,772 --> 00:25:28,772 of, you know, US military aggregated capability and force behind it. And, you know, a massive 266 00:25:28,772 --> 00:25:33,412 network that's been built up around that. Bitcoin is just so young. And so when you see it fall 267 00:25:33,412 --> 00:25:39,832 on market uncertainty, when you see it fall in periods when you thought, because you understand 268 00:25:39,832 --> 00:25:43,912 it, you thought it should have been going up, remember that we're not yet in a place where it 269 00:25:43,912 --> 00:25:50,332 can meaningfully function as a hedge. The longer it goes without dying, the more converts it wins, 270 00:25:50,532 --> 00:25:54,752 right? The more knowledge of its fundamental properties that we've discussed here distributes 271 00:25:54,752 --> 00:26:01,732 around society and especially within circles of large capital allocators, the more it will 272 00:26:01,732 --> 00:26:05,652 tend to act like a hedge if we're right about what it is and if it continues to operate. 273 00:26:06,112 --> 00:26:09,872 And you know, there's the old phrase, somewhat morbid phrase, science progresses one funeral 274 00:26:09,872 --> 00:26:10,472 at a time. 275 00:26:10,772 --> 00:26:14,292 Like, I think portfolio management also progresses one funeral at a time, right? 276 00:26:14,292 --> 00:26:16,392 Or one retirement at a time, maybe less morbidly. 277 00:26:16,612 --> 00:26:20,352 The composition of capital allocators is changing. 278 00:26:20,452 --> 00:26:22,112 It's going to change, but it changes slowly. 279 00:26:22,292 --> 00:26:27,012 And knowledge also among all those different classes and ages of capital allocators has 280 00:26:27,012 --> 00:26:28,012 to distribute slowly. 281 00:26:28,452 --> 00:26:36,832 So don't be fussed when Bitcoin doesn't do what you think it should do because you deeply understand it and you've read every Bitcoin book and listened to every Bitcoin podcast. 282 00:26:37,392 --> 00:26:43,172 Remember that the vast majority of people who have money have never done any of that and they don't really want to still at this point. 283 00:26:43,532 --> 00:26:46,952 Right. So just keep that in mind as price action goes against you. 284 00:26:47,112 --> 00:26:49,992 I'll end it with a short story to validate this. 285 00:26:49,992 --> 00:26:57,432 uh we've got the boys in the new uh catholic montessori school and the school is very good 286 00:26:57,432 --> 00:27:02,072 about getting all the parents together so we had our kindergarten parent party on friday and it's 287 00:27:02,072 --> 00:27:06,152 always weird for me people are like what do you do i'm like i work in bitcoin and they're like oh 288 00:27:06,152 --> 00:27:11,592 what's that mean like and then you try to explain i run a partner in a fund i run a media company 289 00:27:11,592 --> 00:27:15,592 like what do you do but one woman just deadpan looked at me and she's like oh you're in fake 290 00:27:15,592 --> 00:27:19,592 internet money that's like is that what you do i was like yeah i guess i guess that's what you 291 00:27:19,592 --> 00:27:25,552 think I do. But to your point, knowledge has not been distributed evenly amongst the masses and 292 00:27:25,552 --> 00:27:33,632 not even a subset of the masses, those who control the wealth of the world. And so your early price 293 00:27:33,632 --> 00:27:38,812 is what you pay, value is what you get. There's a ton of value in Bitcoin. I think we just spent 294 00:27:38,812 --> 00:27:44,932 30 minutes, we could spend hours diving into the fundamental properties of Bitcoin that give it 295 00:27:44,932 --> 00:27:50,292 immense value. But I think this was a good little short rip to highlight some of the areas in which 296 00:27:50,292 --> 00:27:56,272 that value is emerging today. Cosign. All of it. All right. We'll be back next week. We're getting 297 00:27:56,272 --> 00:28:00,412 good at this. This is nice. I like this. 30 minutes is a good form factor for this. We'll 298 00:28:00,412 --> 00:28:01,392 be back next week, freaks.