23 May 2023

Preston interviews Bitcoin OG, Tuur Demeester, about how people need to be thinking about their position before the coming Bitcoin boom.

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  • What do inscriptions actually mean for L1 and L2 bitcoin networks?
  • Why do so many people have the urge to update the code base?
  • Why are inscriptions potentially good for L2?
  • Apps that are seamlessly working between L1 and L2.
  • What will future fees look like on both layers in 10 years or more?
  • Some of Tuur’s previous writing and what he’s focusing on now.


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:00] Preston Pysh: Hey everyone, welcome to this Wednesday’s release of the Bitcoin Fundamentals Podcast. We’re back for part two of my discussion with the super thoughtful Tuur Demeester. In this second part interview, we pick up where we left off last week, and we go deep into Tuur’s latest report on why right now in particular is a great time to be a Bitcoin bull.

[00:00:19] Preston Pysh: He talks about numerous on-chain metrics. And circumstances happening in the macro backdrop that only contribute to the bullish narrative. And Tuur’s pretty good at making calls like this in the past. He’s been in the space for a very long time and has made these bullish calls at bear market bottoms.

[00:00:36] Preston Pysh: And so right now he’s doing that again. So without further delay, here’s the rest of my chat with Tuur Demeester.

[00:00:45] Intro: You are listening to Bitcoin Fundamentals by The Investor’s Podcast Network. Now for your host, Preston Pysh.

[00:01:04] Preston Pysh: Okay. Let’s talk about this next one here, and I think this is a really important one. You say collaborative custody is a good option for novice investors, and you get into the this is near the end of your report. You’re talking about the various ways that people can custody Bitcoin, and you do such a great job kind of talking about the different types of people and how they need to think about their technical competence in order to custody Bitcoin.

[00:01:29] Preston Pysh: So talk to us a little bit about these ideas.

[00:01:32] Tuur Demeester: Yeah. Thanks. And I, I appreciate that you, I, I value your opinion. I, I’m glad you liked it because it’s really important. Like I wrote this report with like my own friends and family in mind. I’ve been doing this for 12 years now, Bitcoin analysis and a lot of things can go wrong and it’s tricky.

[00:01:49] Tuur Demeester: There are a lot of different ways to think about storing Bitcoin and they each have trade-offs, but I feel like, like you’re saying, the most positive trade-offs or the, the best balance is that collaborative custody model because basically you can. Story, Bitcoin yourself with one key, which is kind of vulnerable.

[00:02:10] Tuur Demeester: Because if, if one person sees your private key, then they’re gone. That’s called the evil made attack, right? Somebody just glances at the, at the wrong piece of paper and, and they’re, they’re gone. It’s not a hundred percent like that, but that, that’s roughly the risk factor. And then you can also just say, oh, I’m, I’m not going to bother doing it myself.

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[00:02:29] Tuur Demeester: I, I’m a beginner. I’m just going to give it to an exchange, a Bitcoin bank. But then of course, since 2021, we’ve seen a lot of things can go wrong. We’ve seen these Bitcoin banks can go belly up. They don’t have FDIC insurance, and you’re kind of looking at a black box, like you don’t really know how they handle things inside.

[00:02:46] Tuur Demeester: And then you can also do multisig storage, which is better, but it’s more involved like having multiple keys and then those work together to secure your Bitcoin. And maybe you give some to a friend and you give another one to, you know. But, but that’s like, that’s the kind of more thing that hardcore bitcoiners tend to do because you have a network of people that are literate in the same way.

[00:03:07] Tuur Demeester: And so collaborative custody is that same technology of multisig, basically multiple key storage. But you have a company that assists you in doing it. And I think that’s really powerful because like I said earlier, I was talking about minis script. Like this technology keeps improving. Like we’re starting to have delay mechanisms built in.

[00:03:25] Tuur Demeester: It’s just so powerful what you can do now. And so these companies are going to compete with each other and going to keep, you know, kind of helping you upgrade your system. Right? You’re going to have someone that’s going to upgrade it the moment that it’s stable and safe enough, they’re going to, you know, just ask you like, Hey, do you want to upgrade?

[00:03:42] Tuur Demeester: And you’ll do it together and be very simple. And so the nice thing is you don’t even have to trust them, right? Because they are only storing one key of yours. Maybe there’s another key in another company, and then you have one key, or you have one key who’s with a family member. And soon there’ll probably be like, I’ve seen some demos that are so powerful.

[00:04:00] Tuur Demeester: Where you, if you’re all part, you’re all customers of the same company. The company doesn’t know the private keys, by the way. They don’t know it, but they just built an interface where you and I can communicate with each other. And so I can ask you like, Hey Preston, I know you’re a customer with the same company.

[00:04:15] Tuur Demeester: Would you be willing to store a key for me? And you’re like, sure. And I just send you with one click on the button, a request, and you see this and you’re like, accept requests. So that kind of collaboration is going to become so much easier than fiddling with some kind of obscure open source interface that, that is hard to understand.

[00:04:33] Tuur Demeester: So, so this is so exciting and yeah, just, I dunno, it’s a long-winded answer just to say yes. I think collaborative custody is probably, probably the best solution for 95% of of new, new adopters of Bitcoin.

[00:04:47] Preston Pysh: I love this point and I think that in the coming two to three years, this is going to be a major shift.

[00:04:53] Preston Pysh: Technical shift that we have not seen to date. And I think a lot of it comes down to the ment protocol. If you, I don’t know how well versed you are on the Fedimint protocol and some of the work that’s happening there, but exactly like you say, so I look at my personal family, right? And I look at my grandparents and their ability or just other family members that in their technical competence to wrap their head around storing their own keys and doing it in a multisig kind of way, and.

[00:05:22] Preston Pysh: I’m saying to myself, there’s just no way. There’s no way they, they’re going to be able to wrap their head around some of this. And when I –

[00:05:31] Tuur Demeester: Even just remember the passwords, things like that, right?

[00:05:33] Preston Pysh: Yeah. Yeah. And just out of the mindset that, oh, there’s some type of central entity that can kind of unlock my, my account, right?

[00:05:41] Preston Pysh: Like I think we are still very much in that line of thinking and the world is, is aggressively moving out in a different way. But it’s going to be really hard for most to kind of overcome that way of thinking that they’re so used to. Yeah, I guess from

[00:05:55] Tuur Demeester: Femine, and by the way, this, this is how Bitcoin becomes un confiscate because if you have a, an external party who’s trying to get hold of your Bitcoin, say, you know, say a government who’s trying to confiscate your Bitcoin, you can have it be that if Bitcoin, the Bitcoin’s in a certain account, don’t move because they’ve confiscated your key.

[00:06:15] Tuur Demeester: Right? And one of the keys. And you cannot sign. This is smart contracts, by the way. This is a smart contract where after a certain amount of time, those Bitcoin automatically moved to another address that’s controlled by a company who might be abroad somewhere. Who specialized in this kind of stuff, like, and then, you know, and there may be the custody insurer or something like that.

[00:06:33] Tuur Demeester: And then this is not just pieing the sky. Like you can build this stuff today.

[00:06:37] Preston Pysh: I was talking to Obi who’s the CEO, founder of Fedi, which is using the Fedimint protocol to do some of these things. And he used to run an exchange and he was telling me just like how exchanges manage their treasury of Bitcoin and having multiple people handle various keys.

[00:06:57] Preston Pysh: So it’s a multisig solution. And then the other people don’t know who the other participants are that are holding keys. You know, you used to do this physically with gold vaults and things like that with multiple keys in order to unlock a vault, and you didn’t know who the people were that were holding it.

[00:07:11] Preston Pysh: And he showed me a demo on their app and how they’re basically able to do this for, you know, let’s say you set it up for your family. And you’re able to provide one key. The person can accept it all through the app. The person doesn’t actually know what the key says because the key’s encrypted, right?

[00:07:30] Preston Pysh: And they’re distributing it across however, you know they want it, three or five or whatever. And how many, how many keys they want to hold versus the ones that they’re providing the family members. And he’s showing this to me on the app, and I looked at him and I was like, Is this a better solution than what you were doing, like when you were running an exchange?

[00:07:47] Preston Pysh: Is this more turnkey but yet almost at the same security level or better than the security level? And he just kind of smiled and looked at me and nodded like, yep. And I was just like, oh, this is going to be huge. This is going to be crazy. And I have to, I have to disclose something. So I’m a part of advisor on ego death and that’s one of their investments.

[00:08:05] Preston Pysh: So all of that aside, but I’m bringing it up because I completely agree with your point that I think technically this is something that the world needs in order to continue to take self custody. I. But also bridge the technical gap that so many people in the world just cannot even begin to, to bridge based off of their expertise and, and them just not having any type of technical competence in this area.

[00:08:32] Tuur Demeester: Right. And, and if we think about the internet, like what, what created the 1995 moment where all of a sudden regular people were just going to the store, buying a box, putting in their house and, and going online is, is because all these parts had been developed to a maturity that was just enough to provide for a seamless, pretty seamless customer experience.

[00:08:55] Tuur Demeester: And I think that is where we’re at with Bitcoin. , 2023, 2024, is going to be the 1995 moment, I believe.

[00:09:03] Preston Pysh: Yeah. As, as far as channel management. So when we go into layer two, and you’re talking about channel management, do you have any type of centralization concerns when we talk about, you know, I’ll, I’ll provide an example.

[00:09:15] Preston Pysh: So like Wallet of Satoshi when I’m using that with Noster and just looking at the ease of sending five SATs to somebody, or 20,000 SATs to somebody. It just works. It’s super fast. The app immediately pulls up. I click send in, like, boom. It, the, the screen turns green, but I’m not self custodying it. When I do my own self custody, I just don’t get the speed.

[00:09:41] Preston Pysh: And maybe that’s a, again, going back to technical competence, it might be on my end. I’m sure there’s some really smart technical people that get the immediate feedback, but whenever I was doing it on my own, it just wasn’t as fast as using Wal of Satoshi. So I’m like, all right, well, I’ll throw $300 on wall of Satoshi and kind of use that to zap some stats around in a really fast and effective way that I just don’t have to think about channel management.

[00:10:03] Preston Pysh: But is that a centralization concern, is really kind of the question Tuur.

[00:10:09] Tuur Demeester: I think there are. Yeah, there are for sure some concerns, and I think there’s always going to be that friction where if you run your own node, You can’t really provide the same, have the same nice experience as a company that does nothing but that and has lots of users.

[00:10:25] Tuur Demeester: Kinda like, maybe there’s an analogy with with email, right? In the beginning people thought everybody would run, run their own email server, and then it’s like, no, no, no. What happened is certain companies specialized and those became the dominant email providers. I think it’s likely we’re going to head that way, but I don’t know enough about, it seems to be that because Bitcoin is an open protocol, that you can really build things, build infrastructure for people who don’t want that, who are willing to, and, and also it’s different, you know, changing email might be, there might be more friction involved than changing your lightning provider.

[00:11:02] Tuur Demeester: So maybe the competition is just going to be more fierce, which is good for the consumer. And also fundamentally, it doesn’t really worry me, even if there are issues there, because you know, the base layer is decentralized, the base layer is not going to be, you know, attacked. And so, yeah, of course, if basically your wallet can get stolen, right, it’s like 200 bucks in your wallet.

[00:11:19] Tuur Demeester: It’s just a risk that that’s, that’s cash for you. That’s just what happens with cash. But if your money is safe in the bank, that that’s the main thing that we gotta worry about. So, and I think people are, are going to be just less concerned about lightning stuff for a long time because it’s only a small part of their Bitcoin experience or their Bitcoin portfolio, so to speak.

[00:11:40] Preston Pysh: And it’s becoming so seamless. It’s becoming so seamless, right?

[00:11:44] Tuur Demeester: Yeah, yeah. It’s not easy. Yeah. Its like, and then you can be like, oh, I have $2,000 worth of Bitcoin in my lightning wall. Let’s sweep some in cold storage. So you just move it to a safer place.

[00:11:54] Preston Pysh: Yeah. It’s funny, we were talking about fees when we started off and like all this like layer one fees and it’s like, I could send you 10,000 SATs right now, and there’s basically no fees associated with any of it, right?

[00:12:05] Preston Pysh: And so people that are maybe new in showing up to these conversations and hearing us talk about that, were like, well, how is that possible? Right? They just said the fees were really high, right?

[00:12:14] Tuur Demeester: Yeah. It’s incredible.

[00:12:15] Preston Pysh: It’s crazy.

[00:12:16] Tuur Demeester: Somebody, do you remember that? There was a little competition. They had a, they had a prize, for whoever managed to send the smallest lightning transaction. In terms of amount? Yeah. And I forget the, the, the Bitcoin amount. It was like fractions of a satoshi, which is like, you know, a billionth of a Bitcoin or something and somebody calculated that that amount was less than the price you’d have to pay for one grain of sand if you order like a balam sand.

[00:12:44] Tuur Demeester: So anyway, it’s just like mind blowing to think like these are the, the quantities that, that Bitcoin can facilitate the Bitcoin network.

[00:12:52] Preston Pysh: For people that don’t run their own node or open their own channels, the fees. So you are collecting fees on layer two lightning, but they’re fractions of a satoshi.

[00:13:02] Preston Pysh: They are so small that like you truly don’t even notice it, right? Because they’re so small. Okay, so when I was down at the Micro Strategy Conference last week, we sat on a panel, it was Jeff Booth, Lynn Alden. It was awesome. The, the panel discussion was in reference to the the future and kind of the, where we see things going on the Lightning Network, specifically on layer two.

[00:13:28] Preston Pysh: And the comment that I had was, I was really excited about the potential for the cost of capital, the risk-free, the quote unquote risk-free rate, really materializing on the Lightning Network. I believe you and I have been talking about this for a few years now. There’s this thing called magma marketplace.

[00:13:46] Preston Pysh: This is on the ambos website where literally there’s a free and open market for people to purchase liquidity on layer two. Do you think that with enough time, five, 10 years, that this really kind of materializes into a free and open market for a risk-free rate? And if so, what, what do you think that number goes to?

[00:14:10] Tuur Demeester: Yeah, I think Nik Bhatia first you know, came up with the concept because he came from the, the bond market, from that kind of world. I think it’s valid. I think that of course technically there’s never total freedom of risk, but there are certain risks that become very manageable over time because they’re based on such robust mechanisms that they’re basically just creating a price for however low your time preferences is.

[00:14:36] Tuur Demeester: Like you’re going to get reward for that. And so basically you can lend to lightning providers and they can kind of almost guarantee you that you’re going to get your loan back. I don’t really know, honestly, I don’t know in terms of numbers what that’s going to be, but I do think that it’s not going to be just lightning where you can lend Bitcoin to reliably.

[00:14:56] Tuur Demeester: I think there’s also going to be a growing market. I think it’s going to be a huge market for Bitcoin insurance Bitcoin custody insurance in the first place, and then eventually, and it’ll go into other areas. But because of these, we were talking about Fedi, mint, and minis script and, and these very sophisticated, almost like three dimensional custody models, you can make custody extremely secure.

[00:15:23] Tuur Demeester: Which means that to ensure the custody of bitcoins can also become very, very reliable. And then, but investors still need a pool of money to pay out in the case of a loss. So you can invest in that pool. And the nice thing is with these new mechanisms is you don’t even need to trust the insurance company.

[00:15:40] Tuur Demeester: Like, they don’t actually hold the Bitcoin in the sense that Coinbase holds your Bitcoin, the, the stuff that they’re ensuring. They can, they just have the power, the veto power to prevent the bitcoins from being spent for the period of the insurance. So you’re ensuring for three months that period they can lock it up, but they don’t have the power to send it wherever they want.

[00:16:00] Tuur Demeester: They can just prevent it from being spent. So, so I think that is going to be a huge area of potential investment where you can generate Bitcoin alpha for big for Bitcoin savers.

[00:16:12] Preston Pysh: That is really a fascinating idea. I never thought of it from a multisig where maybe so they’re, what you’re, what you’re suggesting is they’re holding a key, the insurance company is holding a key and they have an ability for, for that particular wallet, that it’s three of three Or like, how, how would that technically work, Tur?

[00:16:30] Tuur Demeester: Yeah, technically the demo I’ve seen is basically you have a regular Multisig wallet that’s who knows, three outta five or something, and then it’s almost like there’s an, it’s almost like you’re building a logical circuit, and so you add an and So it’s like we need this condition first three outta five.

[00:16:46] Tuur Demeester: And we need an additional signature at the end. And that can also be a multisig within the insurance company. It’s just they also need a quorum to then finally release the Bitcoin.

[00:16:56] Preston Pysh: And then that, and that’s what I mean, and would have a time duration that after so many blocks, it’s not valid anymore.

[00:17:02] Tuur Demeester: And, and it verifiably, verifiably expires. Yeah. So you know that if this insurance company goes bust or mm-hmm. Whatever, the Bitcoin are going to get unlocked again after that period of time. Wow. So it’s, it’s like imagine like not having to trust your insurance company is huge.

[00:17:19] Preston Pysh: Do you have any other, like from an innovation standpoint in the coming five years that you think maybe the rest of the market isn’t necessarily seeing, or that you think is going to play a, a major role moving forward?

[00:17:31] Tuur Demeester: Yeah, that’s a good question. I keep hammering on insurance. It’s just, it feels like people are not seeing it still. Like, you know, you and I have talked, I think about Bitcoin, Bitcoin based life insurance, tho those kind of ideas I think is going to be in the realm of financialization that we’ll see these innovations where it’s like, oh, but I thought this how it’s done.

[00:17:51] Tuur Demeester: And it turns out we can do it. Way more reliably with Bitcoin. I think that that’ll be a theme over and over. I also think that derivatives are, are a valuable thing. Are, are important for people to manage risk and, and those kind of things. So that’ll, that’ll happen. I mean, I mean, just financially speaking, a lot of assets can be shorted against Bitcoin.

[00:18:11] Tuur Demeester: That’s kind of cool. Right where, where like if you see things you don’t like, you can just kind of build some short exposure against your, your Bitcoin position. And and in a way you’re pushing the market to where it needs to go, where, where fraud is being stamped out and things like that. In the eighties there were a lot of shorts, hedge funds because the money was strong and it made sense to short against the dollar.

[00:18:31] Tuur Demeester: So now we’re entering a new era where we have another strong money. And so ba some of these excesses that we’ve seen, Part of why they’re there is because they can just proliferate and they’re not being punished. Like we need a financial predator to be able to like kind of call the, the population of, so to speak, of, of these you know, fraudulent organisms.

[00:18:52] Preston Pysh: What are your thoughts on, so AI has just been nuts in the past year. It’s, it’s gotten a little crazy. How does this, it, it almost seems like these two worlds are about to collide between Bitcoin immediate settlement, lightning. And all the resourcing that’s required from a computation standpoint for ai.

[00:19:13] Preston Pysh: What are your thoughts around that?

[00:19:16] Tuur Demeester: Maybe this goes back to like reading Ray Kurzweil back in 2005, I think, where he was talking about, you know, the, the singularity and, and kind of just that, that organic evolution towards hyper intelligence that has gone on for many hundreds of years, thousands of years, in his opinion.

[00:19:32] Tuur Demeester: So I don’t have that fear of like, oh my God, like, what is this? And, and I also always think in markets, like even when you’re thinking about governments, like governments compete with each other. Like there is that political market. We don’t have a world government. I don’t think we’ll ever have one. And so it doesn’t make sense to me to make an abstraction of AI and be like, the AI is going to take over.

[00:19:53] Tuur Demeester: Like, no, they’re going to compete with each other. There’s going to be a multitude of, of AI. And I was talking to Dhruv Bansal about this. He’s the CTO at Unchained, and he and I are actually doing a panel at the main Miami. So I’m kind of like spilling the beans a little bit because he has such a fascinating take on this.

[00:20:11] Tuur Demeester: His take is that the AI world is an ecosystem. It’s going to be an ecosystem and the way that you see boundaries between organisms, like how, how do you, because they’re going to interface with each other. And in the, in the real world, while there’s, you know, you have cells and cells have walls and, and that’s how of course physical animals have, you know, they have skin and the, and so like what is going to be the boundary between eyes like, and to prevent them from just being a.

[00:20:38] Tuur Demeester: A blob that doesn’t know how to allocate resources. And he’s saying that the food that they need is CPU. They need to, you know, have that electricity to run the machines and also do the machines need to be replaced. So they need to interface with the real world somehow. They need to be able to basically bargain for more electricity or more CPUs.

[00:21:00] Tuur Demeester: They’re going to have to trade with us, basically, and we, we cannot outthink them. They’re probably going to become smarter than us. But we could trade with them and the most likely currency is going to be Bitcoin. Because they can, how do you know the difference between one AI organism from the other? Is that one knows the private key and the other one doesn’t?

[00:21:21] Tuur Demeester: So you can always, they can even check for themselves like, are you a part of me or not? It’s like, Hey, can you sign this message? And then if they can, it means they don’t have access to the consciousness that you do as an ai. So it’s just this, he has this fascinating take. It’s, it’s much more elaborate than that, but that, yeah, basically Bitcoin could be this peaceful technology that allows us to coexist and thrive together as an AI slash human society.

[00:21:47] Preston Pysh: We talked about this a little bit earlier, about how it’s changing from being an expert of borrowing to being an expert of not borrowing and having. Already settled monetary value and retaining that. And when I think about what you’re talking about, ais bargaining, working with each other in harmony to become smarter.

[00:22:11] Preston Pysh: They’re going to have to settle with something immediately. They’re not going to want to accept some coupon for future payment. They’re going to want to, Hey, I want to task you with doing something and it only costs 7 cents, and I don’t want a high fee on paying that 7 cents for you to solve whatever this small processing is.

[00:22:30] Preston Pysh: They want to immediately settle that. Right. And so like, yeah.

[00:22:33] Tuur Demeester: And also because if you trust, if you trust one party to provide something to you in the future, you don’t have the option of opting out. And an AI is going to know that it’s better to have optionality than to be stuck with one provider. Yeah.

[00:22:46] Preston Pysh: So it almost seems like it’s going to force AI to settle in lightning because they can do it at a, for two points really.

[00:22:55] Preston Pysh: Because it can immediately settle. They’re going, it’s going to receive that buying power right now. And it can do it in a, in a very low cost where there’s effectively no fee kind of way. And you can’t do that in traditional rails where I can send you 7 cents or I can send you 15 cents and it, there’s no fee associated with such a small settlement.

[00:23:16] Preston Pysh: But yet I can still collect the resourcing of the, the processing of such a small micro payment that’s immediately settled.

[00:23:24] Tuur Demeester: And then you get that symbiosis, symbiosis between two very different species, like you see in nature. Yes, like between like mushrooms and trees. And the mushrooms, they gather the, the minerals, and then the tree provides the, through photosynthesis provides the, I believe it’s the glucose and things like that.

[00:23:40] Tuur Demeester: And so then you have that, you know, they, they both become better because of it, even though they’re totally different species. And we’re already seeing this, that’s going to work for us, right? The AI is going to provide us with services that we are going to pay them stats for, and then they’ll use that to then purchase electricity and CPU.

[00:23:59] Preston Pysh: Well, and Tur you’re already seeing, so like Elon Musk is saying, oh, ChatGPT is too left-leaning or too liberal. We need one that’s more conservative. Right? And so like, when I think of, so now we have these two different ais. Let’s say they’re total powerhouses. They’re going to be smarter if you mix them.

[00:24:16] Preston Pysh: Right. You’re, they’re be, they’re, and this is to your point, they talk to each other already. Yeah. If they can talk to each other and settle to just see a more holistic viewpoint. So how, how are they going to pay for that energy expense from one to the other? I don’t know. I think it’s going there. It, it’s interesting.

[00:24:32] Preston Pysh: I had a chat again last week with some, some really smart folks, and we were talking about how there’s going to be huge demand potentially in the global south for immediate settlement because so many of these currencies are a disaster. And the one person looked at me and just kind of like smirked, kind of like, okay, that’s a cool story.

[00:24:50] Preston Pysh: That’s a cool narrative that people are sharing. But his opinion was the bigger use for immediate settlement and lightning is ai. And yeah, it’s had my mind, kind of had my mind kind of racing ever since he, he said that to me.

[00:25:04] Tuur Demeester: Well, yeah, I spoke to someone who’s at at Microsoft recently, and I mean, he’s saying they’re just buying these insane amounts of CPU.

[00:25:13] Tuur Demeester: Like, it, it’s, it’s like Not, I mean, not just really a weapon, it’s a technological race, you know? They’re really, it’s, it’s a race and so that’s why these political statements, I just don’t listen to like, oh, we should pause development and blah, blah. It’s just, no, the world is an anarchy on a global level, and so if you are, if the good guys are like, Ooh, we’re going to pause it.

[00:25:34] Tuur Demeester: Some other guys are going to keep developing, and it, it doesn’t make sense to me to do that, but it is, it is going to be a big change. Yeah, for sure.

[00:25:42] Preston Pysh: We didn’t even talk about this yet, but this is huge. All the banking fiasco that’s going on right now in your report, you say global macro predicament is a powerful tailwind for Bitcoin.

[00:25:53] Preston Pysh: And I would say at the center of all of this is this looming debt ceiling. Which, you know, if it, if it’s not resolved politically, could really express itself through all these bank failure. It just enhance all these bank failures that we’re seeing because their ability to step in and just provide liquidity on a whim is the only thing that’s kind of keeping things somewhat stable at this point.

[00:26:17] Preston Pysh: So how do you see this kind of playing out into the next, I think the coming two quarters. And where does this end?

[00:26:26] Tuur Demeester: I remember back in 20, this is back around when we had the sovereign debt crisis in Europe back in, I believe it was 2012 ish. So kind of like in the wake of the 2008, I was like, oh, in two, when I lived in Europe back then in Belgium, and so.

[00:26:43] Tuur Demeester: The general feeling was like, oh, we had this big crisis across the pond and, you know, they’re, they’re in trouble. And of course, yeah, we had some banking problems, but we fixed it. And then we had the pigs, countries like Portugal and, and Italy and, and the Southern European countries who all of a sudden got really in trouble because the interest rates were going up on their debt.

[00:27:01] Tuur Demeester: So anyway, in that period you saw on the level of the b i s and then there was the, this new entity called the Financial Stability Board was a started. And then the IMF as well, they were starting to really think about, okay, what are we going to do with 2008 hits again? And people call our bluff, right?

[00:27:21] Tuur Demeester: Where like they just assume we’re going to bail everything out. We can’t keep doing this. And they started working on these bail-in regimes. And I’ve been keeping track of that over the years. It’s been 10 years now. And like a lot of these, a lot of this stuff has basically been codified. And then bailin just means that instead of rescuing the bank from the outside, We’re going to apply haircuts and we’re going to decide, you know, we’re going to do a controlled bankruptcy.

[00:27:46] Tuur Demeester: And that’s what we saw with of course when the Cypress Crisis happened. That was a test that was back in 2013, which surged, it was a contributing factor to a Bitcoin rally as well. So this is now happening on a very large scale with Silicon Valley Bank, first Republic and these other banks where yes, they are rescuing the deposit holders.

[00:28:05] Tuur Demeester: So far we’ll have to see, because I think the next step is going to be more like Argentina, where they, they corral the money for a certain amount of time. They won’t let you pull it out. If you look at M2, the the decline, which is, by the way, I got this from Hugh Hendry. I think he’s right. When you see the decline in M2, it’s like that’s mostly deposits.

[00:28:24] Tuur Demeester: So you’re seeing deposits fleeing, it’s like, I don’t, no, I don’t want to draw the Ethereum analogy, but it’s like basically deposits are fleeing and people are investing in short date bonds and money markets and stuff like that. And so they’re going to want to stem that flow, so they’re going to want to hold the cash somehow in the banking system.

[00:28:42] Tuur Demeester: So anyway, long story short, I think. For in shareholders of banks, for people that have bonds that are in banks or that have lend money to banks or people that have deposits in banks, all that stuff is going to become toxic. It’s just a matter of time. And I mean, I guess, sorry, you were talking about the next two quarters.

[00:28:59] Tuur Demeester: I think the bank runs are going to continue and I think the interventionism is going to get heavier and heavy handed her. And I think the Fed is going to turn around, you know, once, once this crisis. We, we have a few more bank runs. I think Silicon Valley Bank had like a 42 billion bank run in one day. Like this is the iPhone era.

[00:29:18] Tuur Demeester: You can just be like, boom, I’m outta here. I don’t, I don’t want it anymore. That’s different from 1930s. You know, these things can happen really fast and I think the Fed is going to pivot and then people are going to understand like it’s QE forever. I think inflation could be backed by the end of the year and I think that could very well coincide with a huge rally in Bitcoin because people are going to remember 2020, we had big inflation in 2020.

[00:29:41] Tuur Demeester: They’re turning on the spigot. Is that how you say it? Turning on the spigots like you, you like Yeah, open the faucets and the next thing is going to be inflation again.

[00:29:49] Preston Pysh: That’s a really contrarian take that you think we could see inflation ramping up by the end of this year? I think so. I mean, this is the thing that I just, I cannot-

[00:29:58] Tuur Demeester: Sorry, just to kind of like, just to like make sure I, I say it right.

[00:30:02] Tuur Demeester: I mean, inflation and the stuff people need Yes. Not in the stuff they want. Right. We can see flat line stocks or terribly performing stocks while corn and oil and all that is spiking and, and copper.

[00:30:15] Preston Pysh: Yeah, I think that’s such an important point to, to make that delineation between things that people actually desire, which goes back to that quote that I recently or that I said earlier in the show.

[00:30:26] Preston Pysh: Something I think that also that’s lost on people is the sheer size of the bank bailout that have happened just this year in 2023, exceed the amount of the 2008 crisis.

[00:30:39] Tuur Demeester: Even corrected for CPI inflation. Yes.

[00:30:42] Preston Pysh: That’s nuts. Because you’re not, you have no, oh, I don’t want to say no, but I think if you talk to a hundred people on the street, they wouldn’t even know any of it really has even happened.

[00:30:54] Preston Pysh: Where I think back in 2009, everybody knew every single person that you’d talked to was talking about this. And now today it’s even larger. And the only people talking about it are the people creating media around it like us, right? Like. I don’t know. I think it’s a really big deal and I think that nothing has been solved.

[00:31:11] Preston Pysh: Like you saw the Jamie Diamond Jim Kramer, that the system’s very, very stable as they bailed out. What was the one that they just recently bailed out? First Bank, I think it was. And JP Morgan goes in there and buys it. It’s a huge boon for them and it just seems like disasters right around the corner.

[00:31:29] Preston Pysh: But I also have an appreciation for how it always can kind of seem like disasters right around the corner. And I don’t really know, like yeah, right where we’re at in space and time. But yeah,

[00:31:39] Tuur Demeester: there were people who were calling for $5,000 gold way back in 1980, right? Yeah, it, it’s true like the, the inertia is something that you kind of have to learn to deal with as an investor.

[00:31:50] Tuur Demeester: Like it’s not because you are seeing that there’s a problem that everybody is seeing the same thing, but at the same time, like to me, that is a big sign that the wheels are starting to fly off. There’s kind of panicky, these, these panicky interventions and and the, and also the cohesion politically, like within Europe and within these like multinational organizations, the cohesion is not.

[00:32:13] Tuur Demeester: It’s not there anymore. Like you’re, you’re starting to see a lot of shifting alliances pretty quickly. I don’t know. It’s, it’s the same with predicting what was going to be the top of the Bitcoin rally in 2021. How do you know, how do you predict the top of exuberance, right? And it’s kind of the same with this, like how do you predict when the inertia is going to break?

[00:32:33] Tuur Demeester: I don’t know. Like, how do you know when the forest is going to, you know, light on fire and it’s going to go from manageable to uncontrollable? But but yeah, at the same time, you kind of have to try, at least for your own psychological preparedness, you have to do these exercises.

[00:32:48] Preston Pysh: I find at least, there was a person on Twitter that was asking about Hyperbitcoinization.

[00:32:55] Preston Pysh: And so when we’re talking about this, you know, when does the forest light on fire? When does the avalanche actually fall in this very complex setup? Right. When you think about a Hyperbitcoinized world, are you thinking of it as so much of the population has been orange peeled and they’re now using Bitcoin?

[00:33:14] Preston Pysh: Or do you think of it from like what I, I guess the real question is, is what’s the framework you’re using to think through? Alright, now we’re in the hockey stick part of the curve and things are taking off.

[00:33:25] Tuur Demeester: To me, the main thing that I look at or think about is just big pools of money converting to Bitcoin, and that usually means kind of a small percentage of the population.

[00:33:35] Tuur Demeester: It doesn’t mean that everybody has kind of, like, if you think about Argentina, there is, back in the day, the number was like 50 billion worth of physical dollar bills circulating in the country. I think the last number I heard was maybe two or 300 billion. So that kind of thing where you have like an underground store of value that is maybe not even officially recognized, but that, you know, that that’s the people used to talk about the offshore, like the offshore industry and, and, and I even President Obama identified Bitcoin as like an offshore bank account, right?

[00:34:07] Tuur Demeester: And so there’s, there’s trillions of offshore money. And now, and they have tried to crack down on this, but with Bitcoin, it’s not even going to be in a physical location. It’s not even going to be in a bank. It’s going to be multisig over multiple continents. And so it’s kind of going to go to the cloud. It’s, it’s going to, in a way, evaporate from that regulator’s point of view.

[00:34:27] Tuur Demeester: And, and I think institutional money has the know-how to do this, to manage this to, and then pensions funds will buy into it and insurance companies. And so yeah, I mean, it’ll, it’ll be this gradual process where the world bitcoins, I think. Yeah, there’s going to be grassroots ization, but I think the big ones is going to be once we have that big blow up of the, of the good old trusted fiat currencies, like the British pound and, and the Euro and the dollar, like once they become.

[00:34:56] Tuur Demeester: We get over, say, over 50% inflation in a year. Who wants to store money in that? Even if it’s a derivative, it’s like, oh, it’s a bond. It’s like, yeah, but it pays out in a shitcoin. Like, I don’t want that. So, I don’t know. It’s hard to predict, but that, that’s, that’s more what I look at is like, where are the, where’s the big money going?

[00:35:14] Tuur Demeester: When is the big money going into Bitcoin?

[00:35:17] Preston Pysh: Is this something that just gradually continues to gain more and more market share? Or is it something that does have a hockey stick type event?

[00:35:26] Tuur Demeester: Yeah, there must be multiple hockey sticks. Literally bitcoin’s melt up is because of the value transfer, right? It the, it doesn’t come out of thin air like it comes from somewhere.

[00:35:36] Tuur Demeester: We have a lot of mark to market assets in the world that are overvalued, in my opinion. But so far kind of keeping each other afloat because everybody’s in denial. But once they realize that the actual demand is way lower, well that’s when we see meltdowns. But then that money has to go somewhere. And I think concurrently you get a melt up in Bitcoin and it’s going to go in phases because certain asset classes are going to break down before others.

[00:35:59] Tuur Demeester: And you know, like, like the, yeah, like the, the meme stocks, like, they, they kind of broke down and, and the crypto, the shit coins, they kind of broke down. And, but there’s others that, that people are still in denial about. So I think it’ll be a series of, you know, the, the cyclicality is going to remain in Bitcoin, I think.

[00:36:14] Tuur Demeester: Just like how even the, the meltdown of the German mark was cyclical. Like it wasn’t a straight line either.

[00:36:22] Preston Pysh: So you came to Bitcoin what year and at what price was your

first purchase?

[00:36:28] Tuur Demeester: So 2011 is when I started studying it, and then I recommended it in my newsletter to my in subscribers at five Euros, technically five euros in first quarter of 2012.

[00:36:40] Tuur Demeester: Yeah.

[00:36:41] Preston Pysh: Holy moly. We have first time listeners. We have people that are coming to Bitcoin for the first time. You’ve been through multiple hurricanes, right? When we, when we think about Bitcoin price, action, and the volatility, What advice do you have to somebody who’s maybe making their first transaction?

[00:36:59] Preston Pysh: Right now we’re at like 27,000 and they’re buying and they’re saying, Hey, all this makes sense. I’m going to buy a little bit of it. I’m going to put it on my balance sheet. I’m going to let it sit there as an insurance hedge against this chaos that they can understand is happening in the markets, but they’re in for a ride.

[00:37:14] Preston Pysh: They’re in for a very crazy ride. What advice do you have for these people having lived it for a decade? What can you say to them, Tuur?

[00:37:25] Tuur Demeester: First of all, I know I’m speaking to an audience, so I can’t do that. But what I always try to do is listen first, like what are people’s experiences? What are their doubts?

[00:37:32] Tuur Demeester: What are their, you know, because there’s always, this is so different that there’s always a particular worries that come up. And I, I do try to address a number of those in, in the report. I think that Bitcoin is one of those things that really you benefit the more you understand it, because it, it that, that’s why I’ve been studying it nonstop is because it gives me, it’s so volatile, but it gives me peace of mind to have better understanding and also like understanding Bitcoin, which you, and I’m sure many other people can attest weirdly, by understanding Bitcoin, you better understand the world as well.

[00:38:07] Tuur Demeester: Just by seeing that contrast of how things, things can be very different. But then like on a more practical level, Something that I’ve noticed resonates with people is when I speak of Bitcoin as a potential insurance policy for your financial portfolio. And if you think about, if you own a home, you have a homeowner’s insurance, traditionally you pay about zero point 25% per year of the value of the house for the insurance against fire and other disasters, and people accept that it’s, it’s a reasonable expense to make.

[00:38:39] Tuur Demeester: So you can think about your portfolios as similarly. It is subject to pretty existential threats over time. And so you could say like, okay, I’m going to insure my portfolio for 10 years, so two and a half percent of my portfolio, I’m now going to invest in Bitcoin and that’s my insurance against the proverbial house burning down.

[00:38:58] Tuur Demeester: However, this is different from 10 years ago. Like in, in a way, the kitchen is already on fire, right? I mean, if you looked at your bond portfolio, it’s down 30%. Something like that. In, in real terms, corrected for inflation. So, of course the insurance is more expensive. So in the report, I, I forget the exact number I use, I think I say maybe like between 5% of your portfolio.

[00:39:22] Tuur Demeester: You know, if you invest that in Bitcoin, like that’s, that’s a way to think about it as an insurance, you know, really solid insurance policy because it’s not correlated with any of that stuff. And if anything, it’s going to benefit from the instability of the system. It like money is going to flow into Bitcoin.

[00:39:37] Tuur Demeester: The more things start looking badly in, in, in the world of fiat. So yeah, there, there’s a few other scenarios I kind of go over, but I think it’s important to understand why you’re investing, right? Don’t do it if you feel like you just want to place a bet, like just buy some weird coin if you want to do that, or you know, buy a penny stock or something.

[00:39:56] Tuur Demeester: But I would just kind of urge people, don’t taint your experience with Bitcoin by having that mentality of like, I’m going to do a five cause on this rally. Like try to buy it and hold it for at least five years and just kind of see. And try to figure out the amount that would make you comfortable to do that, right.

[00:40:12] Tuur Demeester: I mean, maybe in the beginning it’s very low, and then as you learn more it grows a little bit. But I’ve definitely learned to not try to badger people into buying Bitcoin. Like people come to Bitcoin when they’re ready. It’s been around for 14 years, but it’s also been misunderstood by the media for 14 years.

[00:40:28] Tuur Demeester: It’s, you know, like people like Preston have done incredible, like spreading the word and helping kind of educate people and, and introducing people to not just the technology, but also the kind of people that are deeply involved in this new paradigm. So, yeah, I would say if you listen to this podcast, you’re totally on the right track.

[00:40:45] Tuur Demeester: Like, good for you.

[00:40:47] Preston Pysh: Thank you, sir. Just kind of expanding on your comment. So often you find people that get really excited when they first discover it and their position size far exceeds their competence to match the position size. And because it’s so volatile, it, depending on where they buy it, sometimes you can go through a downturn and you didn’t match your, under your true understanding of, of like what this is with this oversized position, and they get shaken out of it.

[00:41:17] Preston Pysh: And so I really appreciate your comment there because people need to, when when they discover it, they’re all excited. They need to buy a small position. Probably dollar cost average is the best way to really kind of remove that situation where you could have gotten too far over your ski tips and you don’t really understand it enough to really grasp why you hold through such deep volatility.

[00:41:40] Preston Pysh: But yeah, just great advice Tuur.

[00:41:42] Tuur Demeester: Right? Yeah. By the way, in the report we also have a page talking about the difference between dollar-cost averaging and lump sum and, and the different trade-offs that come with that because they, they matter in Bitcoin because it’s so volatile, they have different outcomes.

[00:41:55] Tuur Demeester: Usually I would say people that have a more steady income and younger people tend to do great with dollar-cost averaging. And if you’re more like maybe you’re retired and you have more of a fixed pool of assets, I think that’s when you want to look at lump sum and how that works for you.

[00:42:10] Preston Pysh: Love that.

[00:42:11] Preston Pysh: Alright, this is my last question for you. Is there any pet peeve or passion topic that you would love to address right now in 2023?

[00:42:23] Tuur Demeester: I would say. Maybe very cliche sounding or, but in a financial context, kind of unorthodox is just this idea of slowing down and unplugging and like sitting in a chair and reading a book and kind of like doing it the way we did it before the internet.

[00:42:41] Tuur Demeester: And because I, I find it just very kind of unnerving how being hyper online tends to destabilize me and I tend to make worse decisions if I do that. The ideas I come up with both for like whatever writing project, but also investing wise. I tend to, they tend to be very cerebral and kind of like shortsighted in hindsight.

[00:43:01] Tuur Demeester: But then when I really unplug and I sometimes go into rabbit holes that seem to have nothing to do with what I should be doing, quote unquote. Weirdly, there’s this meandering thing that then brings me exactly where I need to be in. Like, I commended these things that are totally out of the box and original and, and invigorating and exciting and I don’t know.

[00:43:24] Tuur Demeester: It’s all very, I guess I’m saying it because I’ve been in the Bitcoin space and this practice has helped me to like try and not get stuck because also like when you, when you’re in your head a lot and you’re hyper online, I think that’s where the, you get that unrest and I think you sometimes people get shaken out of their positions just because of that.

[00:43:43] Tuur Demeester: Even though, and then they build a story as to like, oh no, but it’s, this influencer is fear mongering and like, oh, I need to. It’s like, okay, well when you plug out, unplug and slow down, then you have like, you allow your brain to review the, the fundamentals. Again, let’s go back like, you know, let’s read some Bastiat, right?

[00:44:00] Tuur Demeester: Or let’s read some of the old school economists, or let’s read some philosophy or, so, yeah. And that, that’s part of why I enjoy like podcasts and audio books because you can kind of go out in nature and kind of, you know, be part of a, you know, at least in your mind, be part of a conversation that is slow.

[00:44:16] Preston Pysh: I love that point. And I need to do the same. That is fantastic.

[00:44:24] Tuur Demeester: On this time, I’m wherever you are at, we’re happy to just go out on a walk and-

[00:44:29] Preston Pysh: I would love it. Well, I’ll see you next week. I don’t know how much time we’re going to spend together, but-

[00:44:34] Tuur Demeester: Yeah, yeah, yeah. Let’s, let’s go to the beach or something.

[00:44:35] Preston Pysh: Yeah, yeah, for sure. For sure. Yeah. The last year, we linked up there shortly with Bill Miller, which was really an exciting picture. What was it, 2017? I was interviewing Bill Sr. And he, after the interview, he, he shot me a note. He was like, can you connect me with Tuur Demeester? I was like, yes, I can.

[00:44:57] Preston Pysh: And so then we linked up and while we were with Bill Jr. When we saw each other in Miami last week, it was honestly so funny.

[00:45:04] Tuur Demeester: The Miller clan, like, wow. They’re like, they’re building something for the long run. I’m, I’m really impressed with their analysis and what they’re doing. Very, very, very steady, very exciting.

[00:45:14] Preston Pysh: I was literally last week in Miami, had dinner with Bill Jr. and the first thing he said is, have you talked with Tuur lately, was the first thing he said. So, no, it’s really fun and looking forward to seeing you next week. This was a lot of fun. We’re going to have links in the show notes to all of the articles that you’ve written historically. And Tuur, can’t thank you enough for coming on for all these years and always just sharing your deep knowledge on this particular topic. Is there anything else that you wanted to highlight or point people towards?

[00:45:45] Tuur Demeester: Nothing other than the report is entirely free. I want you to just download it. It’s, it’s perfect for printing and just sharing it on paper with, with whoever you want to share it with.

[00:45:55] Tuur Demeester: It’s really it’s, yeah, it was a labor of love and I just want it to be seen by a lot of people. That’s exciting to me.

[00:46:03] Preston Pysh: I love it. And we will be sure to share it online and in the show notes. So thank you so much for making time, Tuur.

[00:46:10] Tuur Demeester: Thanks.

[00:46:11] Preston Pysh: If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener if you enjoyed the show or you learned something new or you found it valuable.

[00:46:35] Preston Pysh: If you can leave a review, we would really appreciate that. And it’s something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I’ll catch you again next week.

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