Transcription
I have said before, and I would repeat it again: if it's not going to zero, it's going to a million. It's either nothing, right? If it's nothing, then it's getting scrubbed out and banned. And of course, we now know that it's not getting banned, right? There's no way that Fidelity, Citadel, Black Rock, Charles Schwab, Deutsche Bank, Crédit Agricole, Banco Santander all decide they're interested in this, right? They're not endorsing a tulip bulb.
So once you go from zero to one, then the question is, okay, well, it's an asset class. If it's not going away, then what's it worth? Well, it's worth 1% of the assets in the world. So 1% drives it up by a factor of 10 to 20, right? Once you get to a 1% exposure, the recognition as an asset class is a big deal. The availability of a spot ETF is a big deal. The normalization of accounting via fair value accounting, which is the FBY initiative, is another big deal. And then the HAVOC is a big deal.
So those are four pretty serious milestones that we're staring at right now. I think Wall Street and the general community are kind of just internalizing this all in a short period of time, and that's why the bullish outlook.
So you're a normal person, and you want to save money for retirement or to give to your kids. So you put it in the savings account; you get 5% interest. The monetary inflation rate is 7, 8, or 9%. You got a negative real yield of 3%. If you end up with a negative real yield of 3.5%, then over a hundred years, a million dollars saved is worth $30,000.
Okay, and so for the average person saving money in bonds with a 3.5% or 4% interest rate, when the currency expands at 7 or 8, that's a losing proposition. You lose 97% of your wealth over the course of three generations. So clearly, bonds don't work, right? And savings accounts don't work.
So the next question is, do I just put all my excess money in the S&P index? Well, traditionally, the money supply in the US is expanding at 7%, and the S&P index is going up at 7%. So if you save a million dollars over the course of your life and you put it all in the S&P index, then in a hundred years, it'll be worth a million dollars. So that's wealth preservation, but you're not doing any better than that.
And that just kind of assumes that the S&P 500 is going to be relevant for a hundred years and you can stick around the country. But it's like treading water. The next issue is, well, so what? I put in real estate. If you buy real estate, you're an average person. Can you buy a building? Probably not. Can you buy a warehouse? Not easy. Maybe if you're a rich family, you buy warehouses, right? Rich families buy warehouses, city blocks, and buildings, but the middle-class person doesn't.
So how do you buy $4,000 worth of a building? Can't. Okay, so the issue there is your property rights are inferior when you're buying shares of stock or security versus the underlying property. If you own the building, you can mortgage the building, sell the building, upgrade the building, you know, build 10 floors above the parking lot that the building has. You can develop the building.
When you own a share in a REIT that owns the building, like you own one-hundredth of the building, you don't have any of those rights. You can't do anything to the building. You're just along for the ride, getting one-hundredth of whatever cash flow the general partner decides to distribute to you. And if they make stupid decisions, you're stuck with them, right? You don't have any property rights; you're inferior in your economic rights.
So owning shares of a REIT to get property for a hundred years? Not a great idea. And that leads us to the problem of securities. What is the problem of securities? So you have some money; you invest it in Apple stock or Amazon or Facebook or Google or a REIT that owns buildings. The diluted problem with securities is there are risk factors.
First of all, there's a management team. They're going to take 1% every year. They're not doing it for free; they're charging you to manage the company or the building, right? And if you're lucky, that's only 1%. You want to see that in action? Just go look at any ETF. The ETFs charge 90 basis points. You know, if you want to put money into a Bitcoin ETF or whatever, they'll charge you 90 basis points just as the management fee.
So about 1%. What's the cost of 1% over the course of a lifetime? An infinite duration asset, you would basically multiply by 20 or 25. So it means that when I charge you 1% to manage your million bucks, I'm taking 20% of your money. Okay, I'm taking 20% of all your wealth to charge you 1%.
So that's only the first problem. It turns out that when you run a company, you also have the risk of labor, right? Your company may unionize, so you've got labor expenses. And what happens to the equity value when the company unionizes? Well, the union just takes all the profits, and the equity values of those companies start to trend toward zero. So labor is another risk.
The third risk is your competitors, right? Your competitor may come up with a better product, and you end up like Yahoo, squeezed out, or AOL squeezed out by Google. Well, then your stock's going to zero, right? I mean, how many companies actually had a competitor? Xerox, Kodak—world's full of great companies. Where are they today? They end up getting squeezed by competition.
The fourth issue is technology. You may just get obsoleted, right? Maybe you own natural gas fields or oil fields, and someone creates nuclear power plants, and they don't need your oil anymore. Or maybe you sell the world's greatest chemical cameras, and people don't need cameras anymore; they have digital cameras. There's always that kind of risk from technology.
Then there's execution. Maybe you just don't ship the iPhone 47 to be that good, right? Maybe the iPhone 13 is good, and the iPhone 15 is not good, right? And you know, the world's full of examples of that, like Firestone tires or something. I ship a tire, and the tire blows out, and now people stop buying my tire. Or New Coke—remember New Coke? It's a product launch that didn't work out well.
So when you're investing in a company, you're not just getting a pure investment; you're actually getting an investment in an asset, but you're getting hammered and diluted by force majeure, by, you know, bad weather. You might get a war; you might get a tariff or a trade war, like we just decided to put a tariff of 20% on all Chinese imports. Oops! If you had a factory in China, what happened there?
And then maybe you get a real war where someone just impounds your ship or blows up your factory. That happens too. We have real wars all the time. So what's the return on the S&P index? 7% a year. What's the monetary inflation rate? 7%. What's really happening? Well, all these companies, they're just barely holding their wealth.
And so what would happen if I got rid of all those risks? What if I could buy a product that was never going to obsolesce, that's good for a million years? What if there was no management team, and they worked for free? Right? What if the product is run by computer programs that don't charge a fee? What if there's no labor? What if it's a digital product, so there is no chance to block it via a trade war or destroy it via a real war?
What if it was an indestructible, immortal, incorruptible product? When you buy a Bitcoin, you're buying one 21 millionth of all the money on the network or all the money in the world that's ever going to be on that network. Okay, so would you want to own one 21 millionth of all the money in the world in 10 years, 20 years, 100 years, 1,000 years, 10,000 years?
The product is not obsolescent. It's one 21 millionth of everything. You see, the iPhone will obsolesce one day. You'll be using Apple Vision, or maybe they'll put a telepathic implant in your brain, and you won't need phones, and you won't need goggles. Maybe you won't need televisions. Those things can obsolesce.
But will you want one 21 millionth of all the energy in the human race? Probably. Like the whole point of pure energy, right? Einstein said energy can neither be destroyed nor created; you can just transform it, right? It's a pure idea, and it's an idea that doesn't have competition because of the immaculate conception.
There's one Bitcoin. There's one network that was created by a nameless, anonymous figure, Satoshi. And Satoshi gifted a million coins to the universe, never ran an ICO, never kept anything from a pre-mine, and the network now is just owned by the people. So how do you actually compete with that? You know, it's hard to see how you compete with a pure thing like that.
So it's a digital monopoly with no labor risk, no war risk, no product risk, no execution risk. Now, there is execution risk that takes place, so you have to set up Bitcoin miners. And if you set up a Bitcoin miner in China and they shut down Bitcoin mining, the miners lose money. But you don't lose money as the holder, right?
So it's like the perfect monetary franchise. All of the work to improve Bitcoin is done by the miners, by the Bitcoin device builders, by the Bitcoin banks, right? You know, BlockFi, Celsius can fail, but if you're holding Bitcoin in cold storage, you don't fail, right? The hardware company can fail, but you don't fail.
And so if you study business, let's take McDonald's. McDonald's is a great business, but the reason they're a great business is they don't really take that much risk. All the franchises take the risk. And so it's possible for every restaurant to lose money in the McDonald's chain, and the McDonald's corporation still makes money because they've laid off that risk downstream. Other people risk their capital.
So Bitcoin is kind of like this viral ultimate banking monetary franchise where banks will take risk, miners will take risk, individuals will take risk, companies will take risk. When the risks pay off, the Bitcoin holders benefit. And when the risks don't pay off, the people that took the risk pay the price, but the Bitcoin just continues. It's very anti-fragile.
So coming back to your question, right? How's the middle-class family benefit from this? Well, Bitcoin represents pure digital property, global property. It doesn't have the dilutive elements of a security. It doesn't have the dilutive elements of a currency or credit instrument or debt instrument. It doesn't have the dilutive elements of property.
Right? You want to buy a second apartment in Airbnb? Okay, well, fine. You know, someone may come move into it and trash it. You may have a renter that doesn't pay the bill. You may get rent-controlled by the city. You may actually have a tornado hit it and trash it. You'll probably get a property tax on it from the city, maybe from the county, maybe from the state, maybe from the government.
If you ever have to leave, you can't take it with you. And at some point in a hundred years, the thing is probably going to have to be completely rebuilt and renovated to be usable again. So property is not a great long-term store of value. Credit's not a great long-term store of value. They're not scalable. You can't buy $437 of an Airbnb apartment every two weeks.
So Bitcoin offers you apex global property, theoretically. You know, if the S&P index yields 7%, there's no reason why Bitcoin shouldn't appreciate about 14% in that environment. I think you get about a 7% real yield over the course of a hundred years, whereas the S&P index gives you 0% real yield.
The best you can theoretically do with real estate property is maybe a 2% real yield if you're just really good at it. But there are just so many risks. You know, will your grandson or granddaughter be able to run the family property portfolio, no matter what country they live in? And are you sure that any of 10,000 politicians aren't going to pass a law to destroy your property values sometime in the next hundred years?
Think back from 1900 to the year 2000, and now imagine that you own a bar of gold in the bank in your city. What's the likelihood that you still have it 100 years later? Imagine you have a building in a major city in the world. Imagine you still have it 100 years later. Would you want to own a building in Russia, in Moscow, in Kiev, in Tokyo, in London, in Paris, in New York? Where would you want to own the building? Where would you want to own the bar of gold?
It turns out that everywhere in the world, the gold got seized. Maybe you might have got by in Zurich, Switzerland, but everywhere else, you lost all your money. Every bank failed; every currency failed, you know? So your best bet is maybe you own property that they can't make more of, if you're lucky enough to own.
If you owned a piece of property on the Gold Coast of Florida for a hundred years, it went from $100,000 to $50 million. Good! But the property taxes on it probably offset the capital gain from it if it was residential. So the only way you could have actually made money owning property is if you owned commercial real estate and you generated a rent on it in excess of the taxes and the insurance and the depreciation and the maintenance.
It's not easy. Not easy to do that everywhere in the world. So Bitcoin represents property rights or the right to purchase perfect property that is maintainable, right? It's low cost to maintain; it's indestructible. You know, the rain doesn't melt it; tornadoes don't destroy it. And it's scalable. You can buy it with your weekly paycheck.
So it's liquid. You can sell it. Try selling one-hundredth of a building? Not so easy. You want to mortgage the building in Kansas City? You could mortgage to a bank that deals in Kansas City real estate. But if you're Turkish and you have a building in Istanbul, there's only just a small number of banks in the world that will give you a mortgage on that.
The mortgage will be in lira. The lira is losing 30 to 40% of its value a year. You got a problem. So Bitcoin represents global digital property. You can take it anywhere on Earth. You can hold it for a hundred years, in theory. You can hold it for a thousand years.
So you can take a very long view. And how many banks will want your Bitcoin? You see what's going on right now. It's a French bank that wants to custody Bitcoin. There's a German bank that wants to custody Bitcoin. There's a Singapore bank that wants to custody Bitcoin. The banks in the UAE are getting into the business. The banks in Spain are getting into the business. The banks in the US are getting into the business, right?
And on the other hand, none of those banks want to give you a mortgage on your house in Arkansas. Only a local bank in Arkansas is going to get into that, right? So Bitcoin represents a pure economic asset. It doesn't have the liabilities that come with securities and other forms of property and other commodities. And it's simple.
And that's why it appeals to the middle class. I don't have a better solution for you if you're a working person on a salary and you want to take control of your own economic destiny.