Transcription
As radical as this will seem, in the next cycle, we will see the entrance of the financial institutions in the nation states. I think they are on the cusp of realizing that the power of Bitcoin is not simply the asset, but the network and that block space itself, that's actually what's precious and in a way potentially existential.
If you're Black Rock and every day you're going to be making Bitcoin transactions and you don't know if you're going to get in blocks and get confirmed and you don't know what the cost is, but they could stand up a couple hundred million dollars a year of mining and it barely moves their operational cost. I think we're going to see dozens of countries realize that this is their safety valve. North Korea knows they can do that. I'm sure Iran knows they can do that. Russia knows that they can do that. It also means you're getting virgin Bitcoin.
As radical as this will seem, um, with block space being so available and fees being low, um, I expect in the next cycle, so we'll call that the next, you know, post the next having, we will see the entrance at a decent scale of the financial institutions in the nation states.
I completely agree. Sorry, I just want to throw this super quick. Um, and please continue, don't let me interrupt, but I'm just so excited you brought that up because with what is it? Um, with Intel getting bought by the US government, the US government having to share in Intel and then Open AI is trying to give them a 5% stake as well too. I completely agree, but please continue.
Yeah. So we'll see it, we'll see it before the having, by the way. We will see the evidence of this occurring beforehand. But the institutional adoption of Bitcoin, we'll start there and we'll talk about nation states separately. The institutional adoption is there. Like, it's part of the reason why I think people are just completely fluxed by the price because we have all this institutional adoption of Bitcoin. I think they are on the cusp of realizing that the power of Bitcoin is not simply the asset, but the network and that in essence, block space itself is the, um, from their perspective as a bank or a financial institution, that's actually what's precious.
Yep. Their ability to participate and control transactions and in a way potentially existential. So if you're a bank, financial institution, and you have a shitload of Bitcoin, but block space is crowded, you don't have a mechanism to move it. And you're, you know, how many big businesses regularly use services where they can't predict when they can get access to the service and what the cost of the service is? Like, doesn't seem very reasonable, right? Um, so, you know, would you rent hotel rooms by just showing up at the hotel when you want to sleep a night at a hotel? Would you just show up in the lobby and say, "How much is a room?" And so, well, we're full, sir. Oh, shoot. What do I do? You know, um, or yeah, we have a room available, but it's, you know, $750 a night.
Yeah. Like, well, that's the way Bitcoin is structured right now, right? So if you're, people will probably hate this, but I'm just giving the reality. Okay. If you're Black Rock, if you're Bank of America, if you're Morgan Stanley, and you want, every day you're going to be making Bitcoin transactions, um, moving from account to account, doing trades, putting things in storage, and you don't know if you're going to get in blocks and get confirmed, and you don't know what the cost is. That does not sit well in corporate America, right?
Doesn't pencil. Yep.
So, there is a way around it. And the way around it is Bank of America gets, um, now they could build it themselves, or they could rent it beforehand, but rent it from somebody or have a partnership with somebody, but they go control, let's just say, half of 1% of the world's hash rate and they control the block template creation for that. And what do they do? They put all of their transactions in the block. Has nothing to do with fees, right? They just say, "Well, okay, we have you percentage-wise, we're going to get roughly a block every day. Some days we may get one. Some days we may get none. Some days we may get two, but you know, at that rate, and we're going to just prioritize all our own, and we'll put other stuff in if there's room, but..."
We're prioritizing our own shit. Um, and I think that's what's going to happen is the financial institutions will realize that they must participate in mining. And that might sound wild, but go look at, like Bank of America, pull one of their like year-end financial statements and look at what their IT budget is. It's like $10 billion.
Whoa.
I told you earlier, the Bitcoin network's revenue is like $12 billion in a year. The IT budget, they could stand up a couple hundred million dollars a year of mining. Um, and it barely moves their operational cost. They don't have to look at it as a business producing Bitcoin. They look and they will look at Bitcoin as an expense to get access to block space.
Yep.
So that's a misnomer. By the way, I've said this several times, but I think if you ask most people, what is the business of a Bitcoin miner, they will say something like, "Oh, they make Bitcoin." The answer is wrong. They make block space and they get paid in Bitcoin.
Yep. So people that are hashers, and to distinguish a hasher from a miner, hashers, which most of the public were not, were actually not miners, they were hashers. They would send their hash rate to a pool, they would get paid for that. So for them as a hasher, yes, their product, their product was their hash rate. They got paid in Bitcoin. If you're a miner, Barefoot's a miner. We use Ocean with DATM. We produce block space. We create our own templates, as do hundreds of other companies and individuals now. And there's even been recently an SV2 block.
I was going to say, yeah, created. That's great. That's wonderful. Like, the more the marrier. There's always been a few solo miners out there. Although some of the solo miners aren't really creating their own template. They're kind of, but anyway, I won't go into that. So, that's what we, that's the direction. Like, um, and I think the financial institutions will become miners. And it's going to get funky because the way they view the economics of mining, they're not trying to maximize the block reward. They're trying to maximize their financial interests, which include making sure that all their Bitcoin business is prioritized. So the value is not in the block reward. The value is in the power of the block space, which leads us to the second one, which is the nation state.
So the nation state, um, the nation state has some similar things. And, um, now I think you're talking about things like economic sovereignty. So if you're a nation and you want to insulate yourself or ensure yourself against economic sanctions or what I would consider financial attacks by the global financial system, this is how you do it. Now, it's pretty clear that Iran, for instance, is already doing this.
Yep. Um, and people, what, what I think got missed, I can't prove, I can't prove what I'm about to say. So, I'm, this is speculation within the Bitcoin community. There was, oh, look, Iran is taking Bitcoin payments as a tax to use the Strait of Hormuz. Remember when that came up?
Yep. Well, what? Nobody knows for sure, but they have like a percent or two, most likely, of global hash rate, too.
Yep. And I would expect, and they've been doing it for a long time, I would expect that they have a mechanism in place. They may or may not be using it, but they have a mechanism in place where they can solo mine if they have to. So that if we ever saw things like OFAC compliance trying to be forced into the pools or,
Yep.
like any of these sort of restrictions, that they'll just go and create those templates. And I think that's smart. And I, I'm sure North Korea knows they can do that. I'm sure Iran knows they can do that. Russia knows that they can do that. Um, and I think what we're going to see is we're going to see dozens of countries realize that this is their safety valve. It's their, their, so their national sovereignty, certainly their economic sovereignty, is dependent on this, and we're going to see an explosion of that.
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Um.
I completely agree. I even think that you'll see geographical pools. Like I, um, what is it? Antpool, I think, is based out of Singapore. And so if you're dependent on them to actually pay you out from the Coinbase after the fact, that kind of becomes a liability potentially at some point in time that you'd want to have like an American pool or like a UK pool. Like you might even see a little bit more decentralized in that sort of sense where they wouldn't want to have it outside the bounds of their legal system. I also just want to quickly point out that if you really want to get your tin foil hat on, which is great and tons of fun, um, what was it? It was June of last year that we, that the US bombed Iran and hash, hash came down. That when there was that first attack on their nuclear facilities, hash rate fell off a little bit. Could be a complete coincidence, but I thought it was interesting. Worth pointing out.
Yeah. I mean, none of us know for sure. Um, but I, but I doubt it was the full reason for that drop, but it...
Oh, agreed. I think it was just perhaps a similar power source or something, but it could have been a contributing factor. Um, and I mean, there's smart people in every country of the world. And I think the realization of the power of Bitcoin, see here in the West, we take for granted certain things like, like we talk about the sovereign individual, right? I mean, that's a very common, most Bitcoiners have read the book, and you know, we have all this thing. But the exact same principles extend at the state level. And so if you're Israel or Albania or, you know, pick your country, or El Salvador or, you know, Ecuador, whatever, whatever country you are, especially these small, medium-sized countries that are not like super aligned with either the US or China, like they don't have big brother, and they don't want that either. Like they want to stay sovereign. They don't want that. Bitcoin is a fabulous tool because if they can say, "Well, even if we get kicked off the SWIFT system, we have a way to sell oranges and buy wheat and move commerce around the, you know, sell goods and services around the world." That's really freaking powerful.
Yeah. And any country, I've spoken on this a couple times, but any country that doesn't at least have that as a safety valve and have some sliver of the template control is correct. And by the way, the other thing I think you're going to see more and more pools. I think we're going to see the death of FPPS. And I don't know how much your typical audience would understand the different payout methods.
Give them a quick rundown of like, what is it? Full payout per share?
Full payout per share.
In terms of, and then what something like Ocean and you were doing?
So, the simple version is this. If you point your hash rate at Foundry, you're essentially leasing that hash rate to them. And whether they win blocks or not, they're going to pay you. And when you get paid, it's kind of like getting a check in the mail. So, you're not getting paid from the Coinbase. You are getting paid from Foundry. And you're, by the way, I'm not telling you to be worried about this, but like, you're dependent on them paying you. And they might pay you from Bitcoin that they won in a block 10 minutes ago, but they might also pay you from Bitcoin that they had from a year ago. Like, you don't know. If you mine with Ocean, or you solo mine, also, you get paid from the Coinbase transaction. So, the Bitcoin network is paying you the money. And so there's no counterparty risk essentially in the equation.
Um, it also means, by the way, so you're getting virgin Bitcoin. And, um, but we get approached regularly from people who want to buy virgin Bitcoin. There is a secondary market for virgin Bitcoin, and it, it has a premium.
Why the premium? Because there are people who believe that in the future there may be enforcement by certain organizations of Bitcoin that came from the wrong group.
Okay. So they're worried about like the transaction history prior to them getting it.
Correct.
Yeah. So they say, "Well, if I buy it from Barefoot, as an example, and Barefoot was paid directly from the Coinbase transaction, I know that." And by the way, so let's say, I'll just give you an example. Let's say you're a family office. You're building a massive Bitcoin stash in a trust for 50, 100 years from now. You're never going to take this Bitcoin. You're never going to touch it for 50 years.
Yep.
You want the most pristine Bitcoin you can get.
Yeah. And would you pay an extra three or 5% for it knowing you're not going to touch it for 50 or 100 years? Do you really give a...
Like how?
Oh, it's like a 6% spread for non-KYC, right? There's absolutely potentially the value there because if you're planning to hold it for that long, you're derisking any sort of regulatory or cultural changes along the way.
Correct. And so that's essentially that's the way some of these big boys, family offices are thinking.
And you, yes.
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