I was on the floor trading in 0809, and I can tell you the fright of the market participants was over the top.
So Bitcoin that lives on an exchange today might not be there tomorrow.
If you have any type of financial crisis, 0809 type scenario where people begin to question the viability of their money in the bank, what are they going to do?
They're going to pull their Bitcoin out of the exchange and they're just going to hold it on their Trezor until everything calms down.
Well, everything I know about derivatives tells me that this ends in a mother of all
short sequences, right? The only solution to the problem will be, I mean, substantially higher
prices. Had Bitcoin existed in 08, 09, you will have a supply stock the likes of which
Wall Street's never seen. What's up, guys? Before we get started,
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Bing bong! I am back with another edition of the State of Bitcoin podcast where I've got the man, the myth, the legend,
Darkside 2030, excuse me, in the house.
But Darkside, I heard a recent interview with you
where you were talking about the potential of this Bitcoin supply shock.
We just had MSTR having the most insane earnings potentially of all time today.
So I want to hear your thoughts about all of these Bitcoin treasury companies coming on
and the potential of this coveted supply shock that we are seeing.
Yeah, absolutely.
Thanks for having me, Brandon.
I look forward to the discussion.
Let's dig right in.
Yeah, so tell me, what do you think of all this?
Do you think that there is the potential of a supply shock with what we are seeing here
with all of these Bitcoin treasury companies now coming online and, you know,
really just buying up days, weeks, months worth of supply in one big swoop?
Yeah, it certainly feels like we have the immovable object meeting the immeasurable force,
We have a massive amount of buying coming from treasury companies, from institutions, from people playing the fiat Bitcoin arbitrage game.
At the same time, we have an ever-growing and ever-expanding derivatives market creating synthetic Bitcoin, paper Bitcoin.
Just in the last two weeks, we've seen 12 million shares of Ibit sold short.
The amount of COMEX cash settled futures outstanding is about 121,000 Bitcoin.
So then we get into the perp markets, excuse me, the perpetual future markets globally, probably about another 40, 50 billion dollars worth of Bitcoin there.
So we have, at the same time we have this insatiable desire to buy Bitcoin, we have Wall Street creating synthetic paper Bitcoin almost seemingly to meet the demand.
Now, these two systems are antithetical to each other.
Wall Street is used to large derivatives markets.
Now, the issue with Bitcoin is that, A, there's only $21 billion.
It's an infinitely scarce asset.
And at the same time, we have in Bitcoin, you have a market that cannot essentially fix itself.
Right. Meaning that if you look at traditional trad fi markets, they're always able to adapt to their derivatives complex.
They're able to grow through the creation of more of an asset because the assets are almost entirely inflationary.
Additionally, they're able to create a playing field by which hedging and the need for economic
shorts is made available to the market.
Bitcoin was never designed to have a derivatives complex.
Satoshi didn't envision paper Bitcoin, synthetic Bitcoin, tremendous hedging of Bitcoin positions.
It was created as a peer-to-peer money to live outside of the existing banking complex.
So you can see where this is almost headed, right?
At some point, and this is my thesis of the big long takeoff on Michael Berry's big short,
is that at some point there won't be enough Bitcoin available to loan.
And sitting underneath this entire thesis is a blockchain that's auditable and verifiable
on average every 10 minutes.
So what happens when we get to the point that Bitcoin treasury companies own 21.5 million Bitcoin?
Well, it's checkmate.
And arguably that checkmate will come a lot earlier in the equation.
But for now, it's sort of like the golden age of Wall Street.
They are just printing Bitcoin to meet the insatiable demand.
But at some point they will lose their ability to print.
And I also would speculate that in the next financial crisis, and make no mistake, we will have a next financial crisis, but in that next financial crisis, we'll find ourselves in a position where institutions and even individuals fearful of a banking system that's in potential freefall will pull their Bitcoin off of exchanges and into self-custom.
right so bitcoin has a couple characteristics that wall street's really never seen before
one it's infinitely scarce and second probably even just as important is that it's a bearer asset
that you can take delivery of it off of the financial rails so how do you build an effective
derivatives complex around an asset like this well the answer is you don't right in the end
it's built to fail.
And unfortunately, I would suggest to you
that the compensation structures of Wall Street employees
hasn't changed in decades.
They didn't learn anything from 08, 09, right?
And the way Wall Street is constructed,
the players are out to make money today.
They don't look at the risk that they're taking
years down the line, right? If they did, they wouldn't be borrowing and creating synthetic
Bitcoin because in the end, there's not going to be enough Bitcoin to meet the demand. The underlying
foundation of any derivatives market is that underlying asset, in this case, Bitcoin,
is freely available to be borrowed and loaned. And when that tightens up, as we saw with GameStop,
as we saw with Porsche and Volkswagen, as we saw with Nickel, right? In all of these cases,
when the underlying asset becomes tight and you can't borrow it and you can't lend it,
the derivatives markets freeze up, right? And then because Bitcoin is a bearer asset
and you can just yank it out and put it in self-custody, you can see where this entire
problem can become exponentially worse, literally overnight. And I think we're headed in that
direction brandon yeah so let's dive into that a little bit more so do you think this is essentially
going to be the the mother of all short squeezes because we'll see you know the the true scarcity
of bitcoin just really play through with all of this or do you think that they're going to try to
muster up some solution quote unquote where they're issuing that that more than that fixed supply of
21 million. Well, you can't issue more than the 21 million, right? You can issue some,
you can get to a number, but at some point, the amount of Bitcoin that's actually out there
available for institutions to borrow and to loan will freeze up. Like the creation of IBIT,
the creation of ETFs wasn't a mistake. It was intentional, right? The creation of cash settled
futures on the COMEX. Wasn't a mistake. That's intentional. These are tools used by Wall Street
to create instruments to easily short Bitcoin, to create derivatives complexes, to manage risk,
to hedge volatility. All of the natural economic forces of Wall Street is that if institutions are
going to get into a product, they want to manage the risk. They don't want high volatility products,
They want low volatility products, and they use derivatives to accomplish these means.
But in the end, it's not going to work this time.
Bitcoin's different than any asset Wall Street's ever seen before, and its design, its very design, will be the undoing of the derivatives complex.
Yeah, so that is really interesting that you think that the design will be kind of the undoing of this entire financialized system.
But in the interim, what needs to happen in order for us to get there?
Is there going to be some sort of just major colossal crash where everybody's going to not, I guess, a bank run, but almost flood all their capital into Bitcoin and then take it off exchanges, which would cause this giant tsunami up?
Or, you know, how do you see this playing out?
Is it obviously, you know, you mentioned the derivatives market and how Bitcoin isn't really meant for all of this.
But how do you see, you know, this this kind of, I guess, you know, we're starting to see some cracks underneath the surface.
How is it going to develop, you think, further?
Yeah, I think that the catalyst for the mother of all short squeezes, as I like to call it, will be a financial crisis.
But it may come out of Japan.
It may come out of Europe.
Right.
It remember our financial system is so intertwined and institutions have so much counterparty exposure to each other.
that it doesn't need to be an American problem, right?
It can easily be a global problem that spreads to America.
But I can tell you this, that had Bitcoin existed in 08, 09,
that crisis would have looked a lot different, right?
I mean, it's funny because so many of the participants
in the market today were not participants back,
you know, it's coming on almost 20 years now, right?
I was on the floor trading in 08, 09,
And I can tell you the fear, I'll actually use the word fright, the fright of the market participants was over the top.
I knew traders that were going to the bank and pulling out every single dollar they had in cash, putting it in their mother's freezer.
It was that scary because we didn't know when Lehman failed.
I think that was September 16th.
Then September 17th, Congress declines the request for the TARP bailout funds, the $800 billion. Then the market crash has a virtual crash, I think on the 19th. In that time period, had Bitcoin existed, almost every institutional player would have bought Bitcoin and held it in self-custom.
they would have gotten out of the banking system every last dollar they possibly could.
Right. And that's the part that people don't understand, is that everything's fine until it's not fine.
Our system is fragile. I've seen the fragility. I've been doing this for quite some time.
You know, I started on the options floor in 1989. I've been through long term capital management, Russian default, Internet bubble, GFC.
like just go one after the next, after the next.
And we've gotten to a point now
where everybody knows the numbers are too big.
If you ask any market participant with a straight face,
you know, what does 37, 38 trillion dollars look like?
They just look at you with a blank stare, right?
The whole thing's almost ludicrous at some point.
But here we are, and the system's kind of cranking along,
but at the same time, we see the cracks.
We see the cracks in Japan.
We see our long-term interest rates going up when the Fed cuts the short-term rate.
These are all signs of trouble.
The dollar has declined, what, 10% in the last six months.
I mean, these are all signs that the system is not healthy underneath the coverage.
Yeah, the dollar actually had, I think, the worst start that it's ever seen in the year
for the first, like, 30 years.
or the worst six months start to the year,
it's been the worst in 30 years.
So, I mean, I think that this is, you know,
kind of lining out for the potential of just, you know,
a big giant either recession or depression.
But it seems like the only way out is to print.
That's what everybody's talking about.
Larry Lippard's got the big print.
Lynn Alden says nothing stops this train.
It seems like everybody in the Bitcoin space thinks that it's inevitable.
Do you see it the same way?
because I mean, we do have some kind of interesting,
I guess we'll call it political theater going on
with Trump essentially trying to strong arm Powell
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proven. I know that's a form of QE, but do you see that there's going to have to be some sort of,
I guess, like mega print that's similar to what we saw in 2020 and 2008?
I do. Remember, there's two ways to get to a depression. One is through a deflationary
spiral, a la 1929. The other is through a crack up boom. That's Mises theory,
the Austrian economist where you essentially go into hyperinflation They both end up in the in the exact same spot which is an utter and complete depression So I in the camp that we see a crack up boom I think prices just continue to go higher The money printer will go into full burr when
Powell's replaced at some point. And yeah, I just think we'll lose control of the dollar to
printing not to a deflationary spiral now do you think that that that would lead to essentially
just like an economic crash and burn globally and uh you know i guess it'll be a slow rebuild back
on onto a potential bitcoin standard or do you think that you know we're still going to have some
i i guess almost delusion in the market where you know we're seeing some hyper inflationary signs
uh but uh you know people won't lose faith in the dollar as quickly as maybe the bitcoiners think
Well, it's a good question.
I like to say the dollar is the world's tallest midget, right?
So we're gonna lose every other currency in the world before we lose the dollar.
Now, to that point though, if the dollar does begin to hyperinflate,
yeah, it will crash the global economy.
But I would say this, that out of the ashes of that crash,
will be born a much better system.
The system we have today is functionally, it functionally does not serve society, right?
We have a system that's created a complete K-shaped economy with the top 10, 15% of the
country killing it and the bottom 85% really getting smoked, right?
It's only the people that own assets that are doing well.
So we're seeing right now signs of trouble, right?
I point to the housing market because there's so much leverage built into real estate.
So between commercial real estate and housing, we've seen, you know, obviously the commercial real estate story is well known.
The housing market is starting to see inventories build past 2019 levels.
We all know what COVID did. That was crazy.
But as these inventory levels build, you end up in a real problem.
So either they solve the problem with substantially lower rates and how you get to those lower rates is not just a function of the Fed.
Trump can yell at Powell all he wants about the front end of the curve, but that doesn't do anything for the back end of the curve.
Right. So you could lower you could cut the front end of the curve down to one percent tomorrow.
I think the long end would go higher. Right.
And that would force the Fed and the Treasury into some form of operation twist, betterly known as yield curve control, where they're forced to buy down the long end of the curve.
That's a massive QE printing exercise.
That's sort of the last straw.
It basically gets you to one of the last tools in the tool shed.
And how long they can maintain that, I don't know, probably a couple of years before the whole thing blew up.
But that's certainly seems where we're headed, Brandon.
Yeah, and it's interesting that you're, you know, kind of describing the real estate market as well, because, I mean, we've just had this recent law that was passed by Bill Plute, where you can use Bitcoin as collateral for Frannie Mae, Freddie Mac, for some of these, you know, housing markets.
Obviously, Bitcoin has been, you know, the move for Bitcoin as a collateral has really taken off in the past, you know, six months.
So how do you see that as playing a role?
I know you kind of talked about the potential of these companies, I guess, using the traditional system to buy more Bitcoin.
But what about Bitcoin as collateral?
Well, Bitcoin, to me, is the most pristine collateral in the world.
But let's look at what's happening with MicroStrategy, since you mentioned it earlier.
their creation of these perpetual preferreds, particularly STRF and now stretch STRC,
where they're creating a fiat yield curve on Bitcoin. So what does the market see as the
appropriate rate for Bitcoin as collateral in the current system? And this is a monumental
see change in the way the financial markets, Bitcoin will view Bitcoin the way the government's
going to view Bitcoin. Essentially, Saylor is making an end run around the rating agencies
and telling the market, you go ahead and rate my debt. You go ahead and rate the Bitcoin that I hold
as pristine collateral. So I personally believe these products are going to explode.
I think you're going to see demand off. I mean, like he said yesterday in his earnings call, he mentioned that, well, to him, this STRC was their, I think he called it their AirPod moment or their iPhone moment, something like that.
But he really now understands that the $6 trillion sitting in money markets earning 4% could easily migrate over to a Bitcoin-backed debt instrument yielding 8%, 9%, 10%.
That's just where we're headed.
It's just getting started.
We're in pitchers and catchers, to use a baseball analogy.
We haven't even gotten to spring training yet.
So we're just getting started, but the world's going to change drastically over the next few years.
Now, the question, Brandon, that we all need to ask ourselves is if they want to save the dollar, if they want to save the system as it's constructing, they need to start intertwining hard money, Bitcoin into the system.
Right. And, you know, easier said than done.
And the objection, you know, it sounds good at first thought, right?
Well, let's just create bid bonds that'll work, that'll yield 9% and that will solve some of the social security problems of Medicare, Medicaid, underfunded liability problems as yields would rise.
But what would that do to housing?
What would that do to car loans?
What would that do to credit cards?
Right.
So there's knock on effects.
We've gotten so far down this hole, right, that any attempt to fix the problem comes with second order effects.
So look, I hope that they make, I hope they take their medicine and do the right thing.
But my confidence in government is extremely low.
So I will generally assume that the government will go down the worst possible road and get the worst possible result.
Yeah, and it seems like, you know, that's kind of a similar thought to majority of Bitcoiners and myself as well.
And it's interesting.
How big of a role do you think MSTR is going to play in all this?
Because I think one of the more interesting, you know, graphics that I saw was one Preston tweeted out this morning about our last night, actually benchmarking the strategy, benchmarking strategy versus the S&P 500 companies.
And one of those unique things was if you look at the PE multiple of strategy, it's at 4.7.
Of course, that's with massive amounts of earnings from their unrealized gains in Bitcoin.
But with that, it seems like it's getting back to a little bit more of the quote-unquote value investing principles where it seems like we've kind of gotten away from that.
And it seems like the market has just been kind of almost built on a house of cards where everything is all just very forward-looking.
The tech companies rising up to billion-dollar valuations, then crashing, and then going bankrupt.
I mean, it seems like it would almost help the financialization of the markets to move towards a Bitcoin standard.
But there is a lot of resistance, it seems, at least initially from companies to get Bitcoin on their treasury.
Now, with this massive earnings call that, you know, strategy just had, do you see this as like an overarching shift where, you know, eventually every single company in the S&P 500 is going to have some sort of Bitcoin play?
Not yet.
So let's kind of break this down a little bit.
strategy is a balance sheet based company, right?
Their earnings are coming from their balance sheet, as you just stated.
The entire concept of the Bitcoin treasury is a balance sheet play.
Wall Street has spent the last five, six decades rewarding the income statement,
right?
And they use the balance sheet as a way of hiding problems.
So you'll very often see a company report record earnings
and then some type of one-time charge
where they write off some bad investment
and they just throw that on the balance sheet
and analysts ignore it because it's a one-time charge.
That's a trick, it's sleight of hand,
but it goes to show how Wall Street has so degraded
the value of the balance sheet
and so inflated the value of the income statement.
Now, what's Saylor's bringing to the table?
This bull run, I think everybody should focus on getting their Bitcoin in self-custody and off exchanges.
We all saw what happened last time with the huge blow-offs.
We had Celsius, FTX, all of the big dogs blowing up.
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Enough from me. Let's get back to the show.
Not just seller, but all of the treasury companies are going to bring a balance sheet
based company to Wall Street. They don't like balance sheet based companies. Matter of fact,
they never want you to look at the balance sheet because the balance sheet will show you any of
the defects in the company, whereas the income statement and the earnings per share and all of
the different metrics that they pull out of the income statement, that's how they sell their product.
So it's really an interesting dichotomy to look at a balance sheet based company like
strategy versus an income statement company like everything else and understand that real
value is created in the balance sheet, right?
If you're making all this money, the balance sheet should be improved.
But when you see companies where they making a ton of money, but the balance sheet is deteriorating,
well, that should be a warning sign.
Saylor's gone about it the exact opposite way.
building unique products, but the real flow of value comes into the balance sheet. And as the
balance sheet grows, it's going to change at some point, not immediately, not next year,
but at some point, some Wall Street analysts are going to get together and say, hey,
we got to spend more time focusing on balance sheets. And that will be when the sea change occurs.
Now, he did say something interesting in that earnings call as well, where he was kind of
describing the balance sheet, you know, the amount of like cash or Bitcoin equivalents on the balance
sheet, where, you know, I think it was the speaker after Saylor, I can't remember his name, I'm
blanking, but he essentially said that it wouldn't surprise him to see strategy move to the second
largest balance sheet, you know, behind Berkshire Hathaway by the end of this year, or in the next
two to three years, and then in the next three to five years, passing Berkshire Hathaway and being
having the largest balance sheet of any corporation.
Now, those are some bold claims, obviously, to come in hot like that.
But analysts are now starting to look at Bitcoin because they're having to look at MSTR.
And for better or for worse, they're projecting Bitcoin's price.
They said a modest $165,000, I believe, by the end of this year.
So with all of this attention now around the Bitcoin space, it seems like everything is just going to accelerate now.
But there seems to be there's got to be some risk around that.
Right. So is there any risks to these Wall Street companies and Wall Street and coming into Bitcoin at this point?
You know, where maybe they just are, you know, it's a little bit nuanced and they don't understand the true scarcity as we were kind of lining out earlier,
that there could be some potential downfalls coming with Wall Street coming in?
Yeah, I think it's fair to say that leverage in the system becomes a risk.
At this time, I think the total leverage of all of the existing treasury companies,
obviously strategy being so far and away the biggest, is about 16%. It's very low.
If you get on Bitcoin Twitter, you would think we're in the greatest bubble since 1929.
But the reality is we're nowhere close.
I saw one stat that said back in 1929, the average leverage in the companies was somewhere around, you know, a thousand percent.
And we're at 16.
But look, there's a narrative being spun now, right, by Wall Street.
They're threatened by Bitcoin.
Don't kid yourself.
Right.
Bitcoin threatens the existing system, unlike any invention in my lifetime.
Right.
There's nothing even been close.
Bitcoin is a deflationary system sitting alongside an inflationary system.
These two systems cannot peacefully coexist, right?
A deflationary system will eat an inflationary system 100% of the time.
So is there risk?
There's always risk, right?
But over the long term, I feel pretty confident in telling you that Bitcoin will eat fiat.
And that's what we're seeing, right?
When you see STRC, when you see MicroStrategy, 21 Capital, the rest of them all coming out and buying Bitcoin, realize that that's capital leaving fiat and wanting to get into Bitcoin.
And we're still in the very low numbers.
We have $2 trillion of cash out there, cash equivalents.
And we're talking about sub $1 trillion in Bitcoin-related companies.
So the door is wide open for fiat to find its way into Bitcoin.
And ultimately, I think it will.
Yeah, and we talked a little bit and touched on it briefly of the big long, your theory for this, kind of the anti big short, so to speak.
So I'd love to hear you dive into that theory and the timing of it.
How quickly do you think that this thing is going to take off?
That's above my pay rate on timing, but my thesis is well grounded.
as a guy who traded on the options floors
for 20 25 years I understand options markets I understand derivatives markets And the underlying core necessity of any well derivatives market is that the underlying security has to be freely available to be borrowed loaned and shorted
Right?
That's just a fact.
You cannot have a functioning options market, a functioning derivatives complex, unless you can borrow, loan, and short the underlying asset.
Okay, that's why, just for the audience's information, the reason Saylor hit the ATM so hard last year was not just to acquire Bitcoin through that methodology.
The real reason he hit the ATM so hard was he needed to create the shares, the float,
to have a dynamically functioning, well-oiled derivatives complex around microstrategy.
You wouldn't be able to have products like MSTY or STRC or STRK or convertible notes
if you couldn't borrow and short his stock.
And he understands this.
That was the reason that he pounded the ATM so hard. There is now plenty of stock available. It's easy to borrow. It's freely available to loan. You can short MSTR and get full rebate. That's not an issue. And that's through hitting the ATM.
Now, unlike MicroStrategy, Bitcoin is infinitely scarce. There's not enough Bitcoin to support a gigantic derivatives complex. Yet what do we see being built every day around Bitcoin is a truly gigantic derivatives complex.
It's growing with leaps and bounds. And this is a natural function of institutions coming into the game and wanting to minimize their exposure. They want to hedge volatility risk. They want to hedge downside risk. You have long-term holders that have figured out, well, I'm better off hedging my risk to the downside now that I can, rather than selling and incurring a huge tax consequence.
So, you know, it's important for the audience to understand that a huge amount of the shorting that takes place in Bitcoin is not people betting that Bitcoin is going to go lower.
Right. It's economic hedging. If I own a thousand Bitcoin, OK, let's say I own it at a thousand dollars and I want to go out and say, look, Bitcoin's trading 115,000.
I want to stop out myself at $100,000. And I go to Goldman Sachs and I say, look, I'd like to buy
Bitcoin insurance at $100,000. I own this $1,000 Bitcoin. I want to make sure that if it crashes,
it goes to zero, at least I get my $100,000. They're going to sell you an over-the-counter
put product, essentially. They've now sold you that put. You want Bitcoin to go higher. You still
own $1,000 Bitcoin. Yes, you bought insurance, but by buying insurance, you don't want the product
to go down, you want it to go higher, right? Goldman Sachs doesn't want Bitcoin to go down,
then they have to honor their put contract. But they do need to short Bitcoin in order to hedge
their downside exposure, right? So you have two parties to a transaction that are creating a need
to borrow Bitcoin and short it, but neither party wants to see Bitcoin go lower. They both want to
it go higher. While plenty of people need Bitcoin to short to hedge exposure, that doesn't mean
they're betting on the price to go low. And that's the problem in its derivatives complex. It's not
designed for an asset like Bitcoin. It's designed for an asset that you can freely borrow and loan
and short. And that's not what you have in Bitcoin. Yeah. So when we have that and you have this
non derivative uh you know the the infinitely or not infinitely scarce product like all of this
and the derivatives market that is essentially built essentially needing that is there ever
going to be a future where there's never going to be like the derivatives market just kind of like
runs out like how does this future hold is it just going to end in some sort of just giant short
squeeze like this or is there um you know going to be some sort of i guess like end to this market
because there is just such fixed supply with all of this?
Well, everything I know about derivatives tells me
that this ends in a mother of all sorts of reasons, right?
For a couple of reasons.
And I touched on this earlier.
Probably the most important characteristic of Bitcoin
beyond the fact that it's completely scarce
is that you can take delivery, right?
So Bitcoin that lives on an exchange today
might not be there tomorrow.
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Enough from me. Back to the show. Bitcoin that's available to short today might not be there
tomorrow. So if you have any type of financial crisis, as I mentioned earlier, right, 08, 09
type scenario where people begin to question the viability of their money in the bank,
right, what are they going to do? They're going to pull their Bitcoin out of the exchange.
They're going to pull their Bitcoin out of custodial services, and they're just going to
hold it on their Trezor until everything calms down, until they have a resolution.
But in doing so, they're going to create the fuel to throw on the short squeeze fire.
And unlike GameStop or Volkswagen Porsche, there's no CEO to tap on the shoulder and say,
hey, look, we need you to sell more Bitcoin, right? Like that doesn't exist, right? So where
do you end up? You end up in a short squeeze that can't be stopped. There is no easy mechanism
to put an end to the squeeze.
Now, once the squeeze starts, of course,
every hedge fund in the world is going to come in
and start buying call options,
just making the entire situation 10 times worse
or exponentially worse, and off you go.
The only solution to the problem will be,
I mean, substantially higher prices.
You will have a supply stock
the likes of which Wall Street's never seen before.
My God.
Well, then I guess we need to all buckle up at this point
So does that mean that this is the end of the four-year cycle with this?
And then it's going, as Michael Saylor says, up forever, Laura?
Yeah, the four-year cycle is dead.
The four-year cycle was born out of a miner boom-bust cycle with supply cuts and miners going bust.
Today, I just don't see that being a major effect on Bitcoin price.
The amount of Bitcoin being acquired just by IBIT, add strategy in there.
Those two entities are acquiring so much Bitcoin on average that they just dwarf anything that the miners can produce.
Well, I'll play devil's advocate with you here because this is one question that I'm kind of wobbling with.
Because yes, I agree, there's only less than 7%, 6% left of all coins to be mined.
So I think that that amount is not going to really hold weight.
But I think there's still two factors here that might play a little bit role into the cycles.
One, I think that if you take a step back and look outside of the Bitcoin mining having cycles,
You also got the business cycle, which seems to run every four years as well.
And then, of course, like the presidential cycle here in the US.
So those kind of two factors almost seem to help with the boom and bust and maybe have
elevated the effects of the halving in a sense.
But I'm curious if you think that that point is, I guess, worth the argument or if you
just think it's more about this, just the simple supply and demand and I'm overcomplicating
it.
Well, I think the biggest argument you could make is the political cycle, right, the presidential cycle.
But I would argue back, well, now that BlackRock is in the game and, you know, we can argue about whether what they control, but I'm kind of in the thesis that they sit on top of all politics.
I just don't see the political cycle being the major driver.
This doesn't mean we won't have bull markets and bear markets, but I think it's going to be like a traditional asset, a lot more like traditional asset than what Bitcoin has been in the past.
So I'm not a believer we're going to see 80% drawdowns.
And I would also suggest to you that the last drawdown, the last cycle was more driven by choke point 2.0.
FTX, I believe, was a government operation of sorts.
We know how much money was funneled back into politics.
Celsius was involved with governments.
It's just hard to believe that with the modern framework we have,
the political framework, yeah, I just don't see it.
I mean, it's possible, but I don't see it.
No, that's all a fair point.
I had to play a little devil's advocate with you for all of that.
But I mean, we've gone this entire time
and we haven't really even talked about the main macro economy
and kind of where you think that that is.
Because I mean, if you look on Bitcoin Twitter,
Like you said, it seems like we're in a giant asset bubble.
If you listen to DJT these days, inflation's dead.
If you listen to Powell, inflation's still running rampant.
So I'm curious, with your experience, where you think we are,
and are you seeing any similarities to any of the times past?
Well, today we got the jobs numbers.
They were awful.
True inflation came in at 1.6%, well under the 2% target.
Look, I think we're headed straight into a crack up boom.
That's what I think.
I think prices are just gonna go higher.
It's gonna catch everybody by surprise.
Inflation will at some point, you know, pick back up again.
Credit creation is the problem.
I mean, we just have too much credit creation and the wrong type of credit creation.
I don't know if you saw a Richard Verner's piece on Tucker.
It was absolutely a dynamic, unbelievable three hours.
Encourage the audience to go watch that.
He did an incredible job of summarizing for me everything I've known is wrong with the banking system, but wasn't able to put into words.
Werner is an incredible economist who rightfully predicted the Japanese debacle.
Yeah, he kind of lays out there's three types of credit creation.
There's credit creation to buy assets.
There's credit creation for the consumer, consumer credit.
And then there's credit creation that's actually productive that goes into businesses, goes into hiring and creates productivity.
I think he said the numbers today are 85 percent of all credit is created for asset inflation and consumer inflation.
And we know that, right? Banks want to loan on things that have collateral that are collateralized.
They don't want a loan if you go to try to start a business and get a loan.
Even if the business you have is cash flow positive, they don't want to make a loan.
They want no part of it.
And that's part of the problem is that when you create credit and that credit's used to buy an asset, that doesn't help GDP at all.
It just raises prices.
And those prices then get filtered back.
Asset inflation certainly leads to consumer inflation, but also credit cards lead to consumer inflation.
Money printing leads to consumer inflation.
So yeah, given the system we have today with credit creation out of control, I think we
go straight into a crack up boom.
Then does this mean that all assets are going to essentially rise up to including S&P 500
and gold as well?
Absolutely.
Gold seems to be wanting to do the best, better than the S&P.
Look, the S&P, it's a cap weighted index, right?
So what we're really talking about is the top, the MAG 7, maybe the top 15 stocks.
The other 485 are sort of a drag on the index, if you look at it.
And that just speaks to the health of the economy.
The S&P 500 has become, in its own way, a measure of monopolies, right?
The bigger the monopoly gets, the more powerful and the more representation it gets in the S&P 500.
But I think we all know that that's not really good for the economy.
it's good for the monopolies yeah now let's get into the monopolies do you think that there is
I mean I know strategy isn't necessarily a monopoly at this point but you know they're so
far ahead of every other company is there a risk where uh you know strategy becomes essentially too
big with all of this because what they have over 600,000 bitcoin right now and the next closest
is a marathon with like 50K.
So the gap between one and two is drastic,
whereas the gap between two and three and so on isn't too much.
No, I don't think so.
I mean, in the end, strategy owns what, 3% of the Bitcoin out there.
We know the central banks hold about 65% of the gold that's out there.
So just compare the two assets.
One is truly decentralized.
even the largest player has gotten to 3%.
They're going to struggle to get to 5% or 7%.
It'll be really, really hard for them as the price goes up.
So no, I don't see it as a gigantic problem.
I think they're going to use that Bitcoin
to offer fiat collateralized products like STRC
and that just serves to drain capital
out of the financial system and into Bitcoin related products.
All that being said, look, I love strategy.
I love sailor.
but Bitcoin in self-custody is the exit ramp, right?
If you own Bitcoin, you're able to self-custody it.
You put in the work.
It's not hard nowadays.
When I got involved in 2013, it was scary.
Passwords, no seed phrases, right?
Like a wallet.dat file.
We've come a long way.
Organizations like Unchained, Casa,
make it really easy to set up multi-sigs.
The ability to custody your own Bitcoin's gotten so easy
that people just need to put in the work get their money out of the financial system and be secure I sleep really well at night with Bitcoin in self Yeah I mean as you should
I mean, I think that's the true power of Bitcoin
is being able to hold it with yourself like that.
But it's interesting kind of the way that you've gotten to all of this
with your background and the way that we're seeing
the financialization of Bitcoin,
or I guess maybe it's the Bitcoinization of finance here.
How do you see this developing when it comes to corporations
with Bitcoin on the balance sheet and just for people in general?
Because it seems like now we've got banks starting to come in
and allowing banks to custody and all these different ways.
Do you think that we're going to get to this future
where people and businesses and everything under the sun
is just able to, I guess, get confident enough to custody their own Bitcoin?
Or do you think that there's, I guess, there's no way out for the businesses?
They're going to always need to have some sort of custodial solution.
And a lot of people in general just feel more comfortable
having the banking system and whatever hold their Bitcoin.
So self-custody is still a long ways away.
well you know i hate to say it but i'm kind of in the camp that the next financial crisis might
be the last one um yeah i'm fearful when i see that banks want a custody and there's all these
different institutions that want to custody your bitcoin um not your keys not your coins
and and don't kid yourself in some kind of massive financial crisis the bitcoin that's in the
corporate system will become the government's Bitcoin and you'll get back the fiat when you
least want it right so yeah for my two cents get get out of the system get your Bitcoin in self
custody there's no reason to expose yourself to risk when you don't have to yeah and I agree with
you with there and and do you see this with any sort of you know scaling risk or anything like
that as we're starting to see Bitcoin develop? I mean, of course, you know, the fixed scarce
supply of Bitcoin is the true superpower. And I think that's, you know, kind of what you see as
well. But, you know, traditionally, it always seems like there's that, you know, the Wall
Street guys, they always say, hey, you know, the Keynesian economics sort of thing, like you need
some sort of inflation to have the economy grow. Do you see it as that way? Are you, I guess,
seeing Wall Street, I guess, open their eyes a little bit more towards the Austrian economics
type of thesis? These are really good questions, Brandon. Look, I see a world that's similar to
the dark ages going into the Renaissance.
Just to kind of paint the historical picture here,
Europe was in the dark ages.
The Medici family created the Florin, a gold coin.
That gold coin became the standard unit,
unit and weight and measure of a gold coin throughout Europe.
And society flourished.
There was abundance with hard money.
The arts flourished, music flourished.
I think the same thing is going to happen here. Do we need inflation? Absolutely not.
But what does a world look like on a Bitcoin standard? There won't be interest rates. There
won't be yield on Bitcoin. Bitcoin will be loaned from a grandfather to a grandson to start a
business. Bitcoin will be loaned inside of a community because abundance creates the willingness
to loan Bitcoin. You're not going to do it out of a desire for more Bitcoin back. The entire concept
of interest rates and yield comes out of an inflationary system. In a deflationary system,
I might loan you Bitcoin and take some equity in the business you're starting,
but I'm not going to loan you 10 Bitcoin and expect to get 11 back. That's not a thing.
There's not enough Bitcoin to support that model.
That model may work today.
Today you can borrow Bitcoin, but in the future, you're not going to be able to borrow Bitcoin
or charge interest on Bitcoin because there's not enough Bitcoin available to pay back the interest.
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All right. Enough from me. Let's get back to the show.
Right. That's just common sense. The math, that's mathematically solid, right?
You can't create more Bitcoin. So, yeah, it's just a different world, right?
It's a world of abundance.
It's a world of deflation where things get cheaper.
Nobody can come up with a good excuse
why the price of a car goes up every year.
The price of the car should go down
because the technology involved makes it so much cheaper
to manufacture.
We now have robots.
We now have all of this amazing technology.
Prices of cars should go down every single year.
That's the entire concept of an economy,
is that as you invest in a better way of doing things, the price goes down.
But we live in this crazy inflationary world where the price goes up,
even though the technology gets better,
even though people create innovations that should make things cheaper,
the price still goes up because of inflation.
So it's very hard to wrap your fiat brain around what a Bitcoin world looks like,
what a deflationary world looks like when you're in an inflationary environment.
And that's all we know.
But if you really sit down and think about it deeply, you'd realize that society would be just so much of a better place.
We would be a world of tremendous abundance.
There would be so much of everything that you need.
Right. And you wouldn't be buying junk because your money is going up in value.
Right. One of the things about inflation is it forces you to spend your money on cheap crap that you don't need.
Right. When you're in a deflationary environment, you're thinking with a Bitcoin mindset.
Well, if I don't buy this, my Bitcoin will go up in value and I'll be able to buy more tomorrow.
So it's just a very different way of thinking.
You really need to adopt a totally different mindset and then think in that mindset.
And I think you get to the fact that we'll be in a much better world.
Yeah, and I agree with you.
I think it just aligns incentives more with people.
And, you know, it's interesting because of the way that, you know, we've been taught with everything, you know, really on the Keynesian economics sort of standard and everything along those lines.
And, you know, with this, I guess, Bitcoinization of finance that we are seeing, like MSTR, all of the different, I guess, you know, corporations now putting Bitcoin on the balance sheet.
It seems like Wall Street still isn't really, really here too much.
I mean, of course, we've got BlackRock and we've got those ETFs, but the narrative around the ETFs is that it's mostly retail buying and it's not a lot of the institutional investors.
Is that the way you see it as well or am I missing the institutional kind of investors starting to come in?
Yeah, they're coming in.
You better believe they're coming in.
I think right now, I mean, we don't know the exact numbers, but I guess I'd say 25% of IBED is institutionally held.
And remember, these derivatives complexes, that's institutional.
So there's a lot of institutional money coming in.
Like, I'll give you a perfect example.
FDRC, right?
So we know that's a 9% instrument.
It's set up to attack the money market business.
It pays a monthly yield.
It also happens to pay a dividend instead of interest.
Dividend tax rates are extremely beneficial, right?
So qualified dividends, obviously much better, much more tax efficient than your standard interest income.
Institutions are going to quickly figure out that they can buy STRC and they can hedge the downside in Bitcoin by buying way out of the money puts.
And they can lever that product 10x, right?
And they can make 50, 60% returns.
That's the trade that I see institutions wanting to do.
I think Sailor just stepped on an absolute, like he said, I created that this was our iPhone moment.
That's why, is that they're going to quickly figure out how to take these products and create
huge yields by levering them up. They're very low risk. Then by hedging the downside exposure
using the derivatives market. Again, not designed to support this, but that's what's going to happen.
yeah i definitely hear you now i want to have a little little fun with you here dark side
so with your experience and being in bitcoin for so long i'm sure you've tried to orange
pill some people for some very smart people in the financial space what has been the craziest
excuse or reasoning why uh somebody has told you that bitcoin is not going to work or it's going
to fail or something along those lines maybe a little bit different than the traditional fud that
we hear, it seems like every single cycle. Well, it's funny because Wall Street really
comes back at you with the same narrative. Look, these narratives, the Ponzi scheme narrative
has been sown over years. This is not by mistake. These narratives are born out of very sophisticated
people thinking very hard on how to protect their monopolies. So yeah, I wish I could come up with
crazy stories and tell you some funny stuff. But generally speaking, it really always goes back to
it's a Ponzi scheme. But then I have to ask them, well, what is money? What is the dollar?
The dollar is really a Fiat Ponzi scheme. And built into the dollar is all of the characteristics
of a Ponzi. You have to have deceit. Well, we have something called the debt ceiling.
right? The debt ceiling is pure deceit. Anybody who understands how debt works knows you cannot
pay down the debt. If you pay down the debt, you cause a deflationary spiral. There won't be enough
money to pay the interest on the existing debts. So the debt has to go up. But yet they come up
with this crazy debt ceiling thing that Congress has to raise every couple of years because that's
It's a measure of deceit, right?
The entire fiat debt-based Ponzi scheme is exactly that.
Now, Bitcoin is proof of work, right?
It's actually stored energy.
It takes tremendous energy to create Bitcoin through mining.
So look, you cannot compare these two systems.
And you know what?
I don't waste my time on the Wall Street guys because screw them, right?
Like they're getting theirs now.
I spend my time mostly with, you know, Bitcoin, Twitter, trying to preach the message of Bitcoin in self-custody and answering the questions.
Right. That's what really excites me. Trying to get the Wall Street guys on board.
And by the way, if you do get them on board, you know what their answer is?
Well, well, that will kill the system. But once they figure it out, they come back at you with, well, wait a minute, that'll blow up the entire system we have.
Well, no kidding, right?
The two systems are antithetical.
They can't peacefully coexist, right?
And that's where the whole thing kind of lends itself, right?
There's just, look, people that are killing it today on assets and Wall Street, trading,
high frequency trading, right?
They don't want to hear about Bitcoin.
And I understand it.
I understand why, right?
Like it threatens their way of life.
But for the bottom 85% of the world, certainly of America, you know, Bitcoin, you know, offers a chance to opt out and to say no more.
And I think that's who we should be targeting our message to, right?
The top 15%, let them be the last in.
But right now we want to get, you know, every American on board, especially, you know, those that are struggling, even with $50 a month, whatever it is, right?
In the end, you're not going to need much to be a very wealthy individual.
Yeah, exactly.
And I mean, I think just doing that DCA over four years really drastically can change your life.
I mean, it changed mine 100%.
So, I mean, without Bitcoin, I'd be in a completely different place.
Who knows?
I'd maybe even be in a cubicle at this point in time.
So, it's definitely been a life changer for me.
And that's why I get so passionate about preaching it to everybody just because of how many more doors it can open and really unlock.
And like you said, I think, you know, everybody gets Bitcoin at the price that they deserve.
And, you know, I think the Wall Street guys, maybe it's a little bit better that they're coming a little bit later.
But DarkSide, you've been very generous with your time.
So I really appreciate you coming on the show.
Why don't you tell people where they can find out more about you or, you know, maybe follow along and hear some of the great things that you preach?
Yeah, so come follow me on Twitter at darkside2030 underscore. I do a show on spaces every Monday through Friday, 830 a.m. Pacific, 1130 Eastern. I also host a bunch of my own spaces, usually really pertinent subjects related to what's going on today.
yeah I'm pretty much there full time
you know I'm retired so
this is my work
is giving back to the community
I've been so blessed to be in the position I'm in
so yeah what an honor
it is to be able to come out and
just share the message and try
to get to as many people as possible
yeah and you're a legend for that
and I definitely recommend those spaces
for anybody that hasn't tuned in
and I'll put all that in the show notes
Darkside thanks so much
Thank you, Brandon. What an amazing time. I really appreciate you.