Robert Leonard  02:37

How did you get from being in the military, and then running growth at Snapchat and Facebook, then bitcoin?

Pomp  02:44

The first time I ever heard about Bitcoin was in 2014 while I was at Facebook. We hired David Marcus, who was the president of PayPal at the time, to come over and run our Messenger product. He was very into bitcoin. He was talking about it in terms of remittances, etc. I had never heard of it, but they were all talking about it. I literally asked the engineer next time I said, “Hey, is that thing real? What are they talking about?” I’ll never forget that he hit me with, “It’s stupid.” And so, I just said, “Okay.” I never googled it or anything. And then, at the beginning of 2016 or end of 2015, there was a kid, named JP Baric, that I had met while he was in high school, who came to me, and said, “Hey, you really have to pay attention to this thing.” He’s now a freshman in college. At the time, he was doing a bunch of ether mining, and he showed me the hardware and the economics on it. I took a little bit of money, bought machines, and started to mine as an exercise of learning. Very quickly, I was thought, “Whoa. This is a whole new world,” and so decided to eventually just focus almost exclusively on that for a while.

Robert Leonard  03:45

Yeah, you’ve definitely come a long, long way from there, and now you’re one of the leading authorities on bitcoin. Obviously, you’ve spent a lot of time studying it, but most of the people listening to the show today, myself included, are relatively new to bitcoin and cryptocurrencies. So, for someone listening who may not know a lot about these, what exactly are cryptocurrencies? And specifically, what is bitcoin?

Pomp  04:07

A very high-level description of Bitcoin is that it’s a decentralized digital currency. What that actually means, most people will say, “I have no clue.” So, let’s start with what a currency is. A currency, basically, has two properties. It is a store of value and a medium of exchange. It has to be both of them. If you think of the US dollar, for example, you can save it and keep your wealth, and it retains its value fairly well in short- to medium-term. You can also exchange it for other goods or services. I can hand it to you, you give me something in return, and that medium of exchange gives it value.

Now, that’s all predicated on a belief system, right? Money is a belief system. The only reason why you’d accept that dollar from me is because you and I both believe it has value. When you look at something like bitcoin, it basically has two key pieces that are different. It’s the same belief system where the people transacting with it believe that it has value, but it is digital. It is not physical in any way. It solely exists on the computer. It’s ones and zeros. There’s a lot of cryptography behind it to give it security. It’s very computer science-driven. But it is also decentralized.

The US dollar is completely controlled and really driven by a central bank or a government. With Bitcoin, there is no one single person or group that controls it. It’s made up of millions of people around the world, all having a vote in the governance system, but not actually having control. It’s driven by consensus of a group rather than having just one individual organization making the decisions.

Robert Leonard  05:36

There are a lot of different coins out there, and many of them are cheaper than Bitcoin. So, why Bitcoin? Why is Bitcoin going to be the long-term winner?

Pomp  05:46

You have to separate the different types of digital assets or crypto assets. I put them in three categories. There are basically crypto currencies, things that are actually acting as money stores of value or medium of exchange. There are crypto utilities, which are things that can give you access to a network or give you the ability to interact, but don’t actually act as money. These are similar to Chuck E. Cheese’s tokens or airline miles. And then, there are crypto securities, which are like tokenized securities. These look very similar to stocks, but are just in a different technology form factor.

And so, if you break down the cryptocurrency market or crypto asset market, there’s really only two or three assets that are vying to be money. Bitcoin is definitely trying to be a currency, and it is the leader in that category. There are other stuff trying to be crypto utilities or crypto securities. While they look similar, as people call them tokens or cryptocurrencies, that naming is actually incorrect. They are something else. It would be like looking at stocks, and saying, “Yeah, technically, I bought a stock, but if I buy GLD, I’m really buying exposure to gold.” A similar example is that if you buy some of these other tokens, they’re not trying to be money, they’re actually trying to be something else. 

I think that’s step one to understanding the market: be able to categorize what goes in what bucket.

Robert Leonard  07:04

Do you happen to have an example of a common coin or token that is thought to be a coin or token that actually isn’t that somebody listening to the show might be aware of?

Pomp  07:15

Let’s take Ether, for example. There will be plenty of hardcore people in the crypto community that will will debate this, but Ether only allows you to use the Ethereum network. It’s literally called a gas, so if you kind of think of it that way, to drive your car, you have to put gas in it. You literally expend a commodity in order to drive the car. It’s the same idea. If I want to send something on the network, I have to spend a little bit in order to use that network. In that case, it is acting as a utility or a sort of commodity rather than acting as money that can be exchanged for a good or service. Now, there are people who are trying to pivot it and do all that, but for the general audience, I think that’s a pretty good description.

Robert Leonard  07:58

What about the technology that we haven’t even seen yet? What are the possibilities of something being created that has all of the benefits of Bitcoin, and fewer or none of the disadvantages that Bitcoin might have?

Pomp  08:11

This is a great question. Let’s go back to fiat currency versus digital currencies today. My belief is that every currency is ultimately going to be digital. And so, if you think of money in general, there’s a technology layer. We started out with gold, a physical commodity; then created paper claims on that gold, dollars backed by gold; eventually broke the gold standard, and just had paper dollars; and then now we have an electronic version of it, the ones and zeros you seen in your bank account.

At some point, Bitcoin was created in 2008/2009, and we got actual bearer assets. That meant one can actually hold the token or the digital good in a digital wallet. That’s important because there are conversations right now in many countries. They want to digitize their currencies. They want a digital dollar, a digital won, a digital yen, a digital, Euro, etc. And so, my belief is that, ultimately, we’re going to have every single currency in the world digitized, whether it’s a fiat backed by a nation state, or it’s decentralized money from states.

In that world, what you get is not competition at the technology layer, but competition at the monetary policy layer. That means, for example, if you think about why people want dollars in today’s world, it’s because they’re relatively stable in the short to medium term, they’ve got the full backing of the United States government, so no one thinks it’s going anywhere, and everyone accepts it, for the most part. Those three things make dollars really attractive. If, all of a sudden, we start to see high levels of inflation or any kind of issue around the monetary policy as we’ve seen in other countries (Venezuela, Zimbabwe, Lebanon, etc.), you now don’t think that dollars are as attractive anymore. The other way that dollars would become unattractive is if a better monetary policy would present itself.

Ultimately, the argument for Bitcoin is that the currencies are inflationary. The way money works is that the more money they print, the more the currency is devalued. The argument for why they do that is they want to incentivize you to spend it. So, if you just hold all your dollars in your bank account for 50 years, if it’s actually worth the same or more, you’re incentivized to keep holding it or save it. But, if instead, they erode the purchasing power of your dollar, so you can buy less goods for the same amount of dollars over time, then you now have an incentive to spend those dollars. They encourage you to either buy assets or buy goods and services to generate economic activity.

Now, the problem is that works really well for people who understand that game. All of the, basically, rich people, they know that this happens, and so they spend the money or they invest it. But the bottom 50% or so of Americans actually don’t know how money works. They live paycheck to paycheck, so they don’t have real assets. They don’t make investments, and also, they’re usually getting paid hourly wage contracts that aren’t adjusted for inflation. So, they may get paid $10 an hour for three to five years in a row and think they’re getting paid the same, but on a purchasing power basis, they can actually buy less goods. With that, what you get is a wealth inequality gap that continues to widen. The rich get richer, the poor get poorer.

The belief behind a Bitcoin is that the monetary policy is flipped. There’s a 180-degree difference. They actually have a set amount, so only 21 million will ever be created. It’s a hard cap supply, and, over time, they put less and less into circulation. It started as 50 Bitcoin every 10 minutes was put into circulation. It got cut to 25, then 12.5. It’s now at 6.25.

The thought process is if you have one asset that can be added to as much as possible, that’s likely to go down in value, and will be devalued. If you have an asset with a fixed supply that should increase in price as long as more and more people find it valuable. It’s just supply-and-demand economics. That’s the main difference that you’ll see right now in the monetary policy level. That’s why Bitcoin is deemed valuable.

Now, to your question as to why wouldn’t another digital currency come along and surpass Bitcoin. It goes back to this belief that digital currency, or decentralized currency, is a separation of state and money. We’ve never had this before. For every single currency that’s ever existed before Bitcoin, a state government or nation state government has been behind it. Bitcoin is the first opportunity to break that system. Now, it has been very fortunate that over the last 11 years, it has gotten millions of people around the world to buy into the value that belief system has built around Bitcoin. If Bitcoin was to fail, my belief, and many others’, is that people would not trust the second, third, or fourth version of a separation of state money. It’s kind of like if you’re in Venezuela, and your state currency fails, if the government comes back and says, “Oh, wait! Just kidding. We have a second currency!” You’d say, “I’m not trusting you twice. You fool me once you, shame on you, right? Fool me twice, shame on me.” It’s the same thing here. That’s why Bitcoin is the one-shot to make this work. If it doesn’t work, then I don’t think we’ll have separation state.

Robert Leonard  12:51

Is there a way to improve Bitcoin or fix some of its disadvantages?

Pomp  12:57

There are two different types of answers to this.

First, just like any technology, new things are created over time. You can continue to improve software. For example, there’s a lot of development and experimentation that happens across all of these crypto assets. The Bitcoin developers may see something around privacy or scalability or cost or speed or whatever else. They may say, “Hey, that’s a great idea.” This would be similar to Google seeing Facebook create a new video player with new technology, and say, “Hey, we should incorporate that in our product.”  It’s the same thing with Bitcoin. As they look to these other projects, they’ll incorporate some features into Bitcoin.

The second piece is I don’t think that money has a technology problem. Again, money has a monetary policy problem. When you look on a scale of importance, technology is actually one of the least important things. Physical cash is actually really hard to use, but people still use it. The banking system in the United States pretty much sucks. Banks are closed on Saturdays and Sundays. It’s hard to send wires because you have to get in by a certain time for you to wire the money. All of these inconveniences exist, and so, the concern is not so much technology. The barrier is really the monetary policy. And while there will be improvements that occur, ultimately, if you get the monetary policy right, everything else is secondary in importance to that monetary policy.

Robert Leonard  14:11

Now, my next question is going to seem very simple. I think a lot of people in your world would probably think it’s a crazy question, and even some people that listen to the show would think so, too. But I think there are a lot of people who aren’t as into bitcoin, or just the investing world in general, as we are that are probably thinking about this. When you say “digital money”, I think a lot of people think, “All of my money is already digital. I just go log on to my online banking, and it’s all digital. I never see cash. I just use my debit or credit card.” When you talk about Bitcoin being digital, how is it different than what we have now, in terms of online baking and things like that?

Pomp  14:48

This is a fantastic question. I always say that the US economy and financial system is predicated on 50% or more of the citizens not understanding how money works. To explain, let’s take an easy example: your bank.

When your paycheck gets deposited into your bank account, you look on a mobile app or on a website, and say, “Oh, wow! I’m rich!” Right? You’ve got a few thousand dollars in there. What many people don’t realize is that when that money is deposited in the bank, it’s not your money anymore. When you put money into a bank account, the bank then takes your money, and basically says, “We owe you the $10,000 that’s in your account. We’re going to take it and lend it out to other people at about 2-4% interest.”  The bank then takes the interest payments off your money that they’re lending out, and they give you a little piece, like five to ten basis points, in your checking account. So, really, you’re giving your money to the bank, the bank then takes it, lends it out to somebody else, and then pay you a little tiny upside for custody.

Now, that would be really, really risky if you can’t trust the bank to lend to the right people. The government realizes this, and realizes that there’s a trust issue there, so it steps in and provides an FDIC insurance. An FDIC insurance says, “If you have $250,000 or less in any bank account, that’s FDIC insured. We, as the United States government, will back up that deposit. So, if the bank loses your money, we’ll pay.” That gives people the confidence to put money in the bank. What the government doesn’t want is for people to have cash under their mattresses. They want it in the in the financial system, so it can be used for velocity of money, and things like that.

Now, the reason why it’s important to understand that that’s no longer your money is when you are actually transacting, you’re not transacting money. You’re actually transacting the IOUs. So, if I say, “Hey, I want to send Robert some money,” normally, I can do it through a couple of different ways.

One, I can send you physical cash, but I’d have to go to the ATM, pull out the physical cash, then come and bring it to you. Two, I could send it via ACH, so within the same bank, I could say, “Hey, Bank of America, I have an account. Robert has an account. Just transfer it over internally on your balance sheet.” They would do that, but really, they’re just editing numbers on a spreadsheet. They’re not actually moving money. And then three, I could actually send you a bank wire. In effect, I’ll send you an IOU, and then at some point, if we’re at two different banks, our two banks will settle up and actually send money back and forth to each other.

The reason why that’s important is it’s all funny money. It’s not actually money that’s there, what you’re seeing is a digital representation of the money, but the money itself is not in the bank. And so, I think that what you get with something like Bitcoin, when we talk about a digital currency, is you actually have control of the digital currency.

The best analogy is a music file. If I say to you, “Hey, I want to listen to that music,” you can’t send me an IOU on the music file and have me play that on my phone or my computer. Instead, you actually have to send me the music file or I have to download it from somewhere, but I now take provenance. I take control of the music file, and I can play it. Money is very similar in the digital currency world, as well, as I can send you the file, and then you’ll have the ability to play that.

Robert Leonard  18:02

As Bitcoin continues to grow in popularity and just mass adoption, what does that mean for banks?

Pomp  18:02

Now, if you think of that music file, since it’s a computer file, I can simply have it on my computer, copy it, and send you the duplicate file, so you can listen to your favorite Shakira song. At the same time, I can listen to the song, as well, and we won’t really care who has the original and who has the duplicate because we both get to listen to the song. Everything’s good. But, with money, if I could duplicate it and then send you that duplicate, that would be counterfeit money. So, we have to make sure that the original is always sent. Bitcoin was the first currency to really figure out that problem of double spending. They created a technological solution to make sure that when I send you that digital money, you’re getting the original; I didn’t keep another copy, and you don’t have a counterfeit. That leads to trust, and as money is ultimately a belief system or a trust system, that’s what really gave life to this idea of Bitcoin becoming a digital currency,

The short answer is nobody really knows. There’s a lot of speculation on this. There are three separate scenarios I could see play out. Option one, the US dollar-denominated financial system as exists today continues to exist, and Bitcoin ultimately fails and goes away. Option two is the exact opposite of that, in which Bitcoin becomes the next global reserve currency, the fiat currencies all fail, and everything we know of a financial system blows up and it’s over. Option three would be the coexistence of the two, similar to how gold and dollars both exist as some store of value and a medium of exchange. I believe that’s more where we’re headed. So fiat currencies like the US dollar will still exist, but Bitcoin will also become more important.

What’s interesting is that five years ago, or even three years ago, most of the legacy banks wanted nothing to do with Bitcoin. In their eyes, everyone involved with Bitcoin were all scammers and criminals, bad people. Within the last six months, though, multiple banks have started to say, “Hey, you know what? This thing’s not going to go away. There’s an entire generation of people who are gravitating towards this currency, and we need to support it.” And so, whether it’s JP Morgan, starting to bank, some of the crypto companies or other people trying to build functionality to help interface with that currency, we’re starting to see more acceptance. That leads me to believe that coexistence will really play out.

And so, you may, in the future, have a bank account where you can denominate it in US dollars, in euros, in Bitcoin, or in something else. They’d have the same values, but you’d have the choice of which currency you want to denominate your wealth in. I think that would ultimately be good for the end user.

Robert Leonard  20:43

You mentioned those two currencies coexisting. I often get told that Bitcoin can’t be a legitimate currency because no one is willing to buy or sell things using it as a real currency, unlike like the US dollar. So it just can’t be real. That’s what people, although I haven’t really studied it, always say to me. That was my number one argument before I really started learning about this from Preston and yourself. So, how would you debunk this fallacy? Is Bitcoin not expected to be a fiat currency in the sense of like trading hands, but rather a peg similar to gold?

Pomp  21:16

This is another great question. Understanding the history of money is really important. Gold has served as kind of God’s money, if you will, for a really long time. It has been a store of value and a medium of exchange for 5,000 years. Gold is actually really hard to transact with. If I want to give you some gold, but I have a bar of gold, I have to cut it in order to give it to you, so that you get a physical commodity, and you give me goods or services in exchange.

Over time, it became very obvious that maybe gold shouldn’t be used as the actual currency itself. One of the things people don’t know about money is that if you look at a coin, part of the reason why there are ridges on the side of the coin is so that you could pick up a coin and know that no one had actually scraped some of the metal off of it. You’d know that it had the actual amount of metal that was supposed to be in that coin. So, that was a big problem. What we eventually came up with was this idea of creating a paper claim on the gold. If I had a dollar bill, that bill is equal to a certain amount of gold. I don’t have to walk around with gold in my pocket. I can actually leave the gold at my house or at a bank, and just trade the paper claims. That obviously made commerce much easier and more efficient. I didn’t have to scrape anything. It’s also easier to measure, and all that kind of stuff.

So, what ultimately happened was that, eventually, we went from gold to paper claims on gold as kind of a layer two. Then on layer three, we got the idea of building out electronic money. We then built credit on top of that, and you kind of get the financial system that we have. There are multiple layers stacked on top of each other, and Bitcoin’s going through the same thing. The difference is gold is 5,000 years old, and Bitcoins 11 years old.

Bitcoin as the core blockchain technology is actually not super-fast. It’s very methodical and it’s very secure. It’s very similar to gold as a physical commodity. It was very expensive to get. It was very secure. Now, the big question is how long does it take for layer two, layer three, layer four technologies and so on to be built on top of that. So, it will become easier over time to actually transact in Bitcoin. It’ll be faster, cheaper, easier to denominate in small amounts, and things like that.

I always tell people that if you look at Bitcoin in a snapshot, it does not serve as a great currency. Like today, there are better options in the United States. The dollar actually works pretty well for all of us. If you look at it over a long horizon and look at the trajectory of improvement or progress, Bitcoin becomes attractive. It’s very similar to looking at Amazon’s first website. In 1994, man, the internet was terrible, right? It was hard to use. Dial-up takes a long time and is super loud, and you can’t get on your own phone while being on the internet. There were all these problems, but if you look at the trajectory of that technology today, now, we’ve got a supercomputer in our pocket. We’ve got AirPods that connect to our phones, and all kinds of cool stuff.

I think it’s really important to understand the trajectory of this technology. It’s more important than any one single snapshot. That’s the other reason why I tell people who are just learning about this for the first time that one of the key components to understanding Bitcoin is to understand that you must have something called a low time preference.

If you are looking to get rich and immediately be able to use Bitcoin, and things like that, it’s not going to serve that purpose for you. Instead, if you look at this over five or ten years, saying something like, “I’m gonna allocate a little bit of my portfolio to Bitcoin, and I’m not going to look at it for five or ten years.” It’s probably a pretty good thing to do because what you’re betting on is that trajectory playing out. That trajectory, if it continues, will end up being so asymmetric. That’s the attractive component of Bitcoin today.

People have a point in that there’s not a lot of people going to buy groceries with Bitcoin simply because the technology hasn’t had the time to develop to do that yet. It would be like going to use gold today at the grocery store. They wouldn’t take it. Nobody wants to be sitting there with a bar of gold, trying to figure out how much it weighs.

Robert Leonard  25:01

Yeah, I think that’s really the biggest misconception about Bitcoin. I think that’s probably one of the most commonly held beliefs from people that haven’t really studied this. They don’t think of it as an investment. Rather, their thoughts are more on, “I’m not going to go buy my Starbucks with it. I’m not going to buy my dinner with it, so it can’t be real.” I think everything you just said is exactly what people need to hear, so I’m glad that that we talked about that. What stops Bitcoin from following the same path that gold has in becoming somewhat obsolete over the last hundred years or so? What stops Bitcoin from following that exact same path?

Pomp  25:40

It’s definitely possible. Gold has always been serving the purpose that gold was intended for. The idea of it being God’s money or sound money is because you can’t create more gold and inflate it. You can go dig it out of the ground and find more, but there’s a cost associated with doing that. It has a relatively fixed supply, and we generally know how much is coming into the incoming supply every day or every month.

Bitcoin is very similar in that right now is a great time for people to be paying attention. I continue to tell people that if you don’t know that much about the economy, you don’t know that much about finance, don’t do anything. Just watch and learn because what’s going on in the macroeconomy is a crash course in global finance.

We have a Coronavirus health crisis occur that has then caused governments to mandate a shutdown. That mandated shutdown has basically forced everyone inside, resulting in all these bad economic data points, like businesses shutting down, people losing their jobs, GDP dropping, and so on. The government has a choice whether they just let the market play out, and say, “We’re not going to do anything.” Or they can step in and intervene. They’ve chosen to intervene by, basically, creating more money and injecting it into the system. The reason they do that is that when there’s a crisis, everyone gets nervous. And when you get nervous, what do you want? You want safety. And if you go back to what is the safest thing in the world, it’s dollars.

And so, what happened in March of this year is basically that every investor in the world said, “Oh, this thing is real. I don’t know what’s going to happen. I have fear and uncertainty, so I’m going to sell whatever I own to get dollars.” And so, they looked in their portfolio, and they said, “What has a liquid market? I have stocks. Sell. I have gold. Sell. I have Bitcoin. Sell. I’ve got real estate. Sell. Anything I can sell, I’ll sell. I want dollars, that’s where safety is.” That environment is called a deflationary environment. All of those asset prices go down because there are so many people selling, and they’re trying to get dollars. So, the dollar strengthens. It takes less dollars to buy the same goods. That’s why stocks go down. If it took $40 to buy a stock yesterday, today, it only takes $20. The dollar got stronger, the asset got weaker.

What ends up happening over time is the government realizes, “Whoa, everyone wants dollars. Those dollars are getting scarce.” And so, they’ve got to print more dollars and overwhelm the system with dollars so that there’s not such a FOMO (fear of missing out) for US dollars. That’s where you see something called quantitative easing, and that is reaching unprecedented levels. We now have over $2 trillion created, and they’re talking about doing another $3 trillion.

And so, part of this is you’re getting a crash course on how the existing system works in both good times and bad times. In bad times, what they believe is that the government has what I call a god complex. It can step into markets, and it can solve the problem. The issue with that, or the counter argument, is: no, what you’re doing is you’re solving a short-term problem, but making the long-term problem worse. So again, if everyone wants dollars today, do you just let that play out? Or do you step in and print a bunch of money? And what happens five years from now? Many people are worried that something called inflation or the devaluation of your money occurs, and frankly, this is what every great empire has fallen from. They devalued away their money, and ultimately, they were no longer the global superpower. That’s the big concern today.

Robert Leonard  28:56

Because of everything that you just said, do you see now as the perfect tome for Bitcoin? Over the last 10 years, things have been really good for Bitcoin. It shot up to $20,000. It’s coming back down to earth a bit, but now with everything that’s going on, do you see now as the perfect time for Bitcoin to really take hold and take-off in its trajectory?

Pomp  29:16

Last June, I started writing a lot about this idea that there are economic alarms going off. What I meant by that was, you never know when a bull market is going to end, and when you’re going into a bear market, but you can start to see signals that say, “Hey, things aren’t looking as healthy as they once were.” There are things like inverted yield curves, all the CEOs start leaving their jobs, and all these other little things that start to happen.

We’re seeing the very early days of economic alarms go off. At some point in the future, we’re going to go into a recessionary period or a downturn. When that happens, a central bank only has two tools to combat the economic cycle. They can basically manipulate interest rates, meaning putting interest rates up or down to try to make money cheaper or more expensive, or they can print more money. What’s important is that if they only have two tools, the more they use them, the less effective those tools become. And so, the economy across the world, especially the United States, is addicted to this monetary stimulus.

In the past, when there were some economic downturns that were starting to happen, we said, “Let’s try lowering interest rates. Let’s print some money here.” The next time it happened, we said, “Let’s do that again.” But we needed to do a little bit more to have an impact. Then again, and again and again. And to this point, now, we’re so addicted that we actually can’t stop doing this stuff without the economy tanking. What we’re actually doing in some weird way is we’re getting in a situation where the central banks had to cut interest rates and print money.

Pomp  30:51

Last year, I started to write about how, if they cut interest rates and print money anywhere around this Bitcoin halving that just happened, that’s going to be rocket fuel for Bitcoin. Bitcoin halving is an event where every four years the amount of Bitcoin created every day gets cut in half. So before May, 1,800 Bitcoin were created a day, and just last Monday, it got cut to 900 Bitcoin a day. So we know exactly how much are coming in.

Understanding supply and demand economics, if demand stays the same or goes up for an asset, but there’s less of that asset available, the price goes up. What would make demand go up potentially for something like Bitcoin is the belief that if the government’s printing more money, our money might be getting less valuable so we need to protect ourselves. That’s what we’ve seen play out. We’ve seen interest rates cut to zero, trillions of dollars printed in the economy, and we just saw the Bitcoin halving. All three of those things have happened, literally, within weeks of each other. I think that we are going to see a material increase in price of Bitcoin in US dollar terms. Some of that will be driven by the Bitcoin becoming much more desired in the world, while some of that will also be coming from the US dollar being devalued at the same time. I think that that’s likely to play out. Again, there’s a lot of risk there. People should educate themselves and kind of go do their own research, but that’s the macro environment I think we’re in, and how that that impact looks like.

Robert Leonard  32:10

Why do you think we’ve seen, over the short term, a fall from, say, $10,000 to $8,500? I mean, in the grand scheme of things, what you and a lot of other experts like, Preston, whom we had on the show not long ago to talk about this, think is that Bitcoin’s going strong. The fall is relatively small and it’s immaterial in the grand scheme of things, but I think everything lines up, as you said. We have arguably demand rising and we have halving taking place, so it’s probably all leading to rocket fuel, as you said. So, why did we see a dip in Bitcoin over the last couple of days?

Pomp  32:38

There are two pieces here that are really important. One, Bitcoin is naturally very volatile. A great way to conceptualize this is Amazon. Amazon went public in the late ’90s, and has been one of the best-performing publicly-traded stocks for the last 20 years. Amazon is very volatile, as well. Every single year, it has drawn down a double digit percentage within that year’s timeframe. The average drawdown every year is 30%. One time, Amazon drew down 95%. So, it’s been an incredibly volatile stock, but volatility is not bad by itself. Volatility actually works both ways. Volatility means big drops, but it also means big rises. What people forget is you need volatility to get upwards movement or to drive returns.

Now, something like Bitcoin, or the Amazon stock back in the day, because of the volatility, is very scary to people. “Oh, what do you mean it was worth $3,000, then $10,000, then $8,500, $15,000, then back to $8,500? What is this thing??” To better understand, think of an early-stage technology company. When Uber first got started, there were days where they think they’re going to take over the world. Then in the afternoon, they get news, and think that they’re going out of business. So, there are hyper-volatile cycles because it’s new. There’s a lot of pain and hardship in building a company over time. It becomes less and less volatile.

The good news in technology is that in the early days, there’s no stock price if they’re a private company. With Bitcoin, since day one, there’s been some price at which it clears your trades. What we’re seeing is the volatility that exists with all other technology, but we just have a price attached to it with Bitcoin. That’s why I harp on people that once you’ve educated yourself on what Bitcoin is and how it is important to the world, you really have to ask yourself: “Am I willing to take a percentage of my portfolio, and put it into what is still a pretty speculative thing? It may work out the way we all think it will, or it could go to zero. It could be worthless, right? There’s risk associated with this, but am I willing to look at this over a long-time horizon?” When you do that, you don’t worry about the day-to-day moves.

If you don’t worry about the day-to-day moves, you actually prevent the number one problem that humans have, which is being human. We’re really good at being emotional, and having biases, and succumbing to trends and peer pressure. “Oh my god, everyone’s selling I have to sell because it’s going to go lower.” Right? It always seems like when you sell, then it recovers, right? That’s due to human emotion. And so, by not paying attention to the day-to-day price movements, what you get over the long periods of time is Bitcoin has grown very, very aggressively. There’s about over 30% compound annual growth rate, and I think it’ll continue to do that for the next good while here.

Robert Leonard  35:13

Alright guys, that wraps up this week’s episode, and the first part of this two-part series with Pomp. Be sure to follow me on Instagram @therobertleonard, and let me know what you thought of this episode. I’d love to hear your feedback about the content and the two-part series format. Next week’s episode will be part two of this conversation. See you guys then!

Outro  35:39

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