What is up guys? Welcome back to the show. We have got I'm actually going to go through a guys take episode today. I wanted to talk about the having. I wanted to talk about the kind of the market sentiment around Bitcoin. And why I really don't think the having is priced in um, and after going over a Nick Carter's article and also plan B's article kind of pushing back on the the idea and really digging into the idea that the risk is simply over balt. I guess you could say or overestimated which it has which is done in the past and I think that was really Good argument. I think he's he's really hit the bulk of what I wanted to get at. But I still think there's a lot more there to unpack as so I wanted to dedicate a whole episode to why I think the having just is not priced in on Bitcoin. Now, I do want to say I'm apologize I guess for the lack of episodes recently. It's been a crazy week and weekend a couple of funerals and Burial and everything so I've been really behind sorry for this being late, but I'm hoping I'll get back into the swing of things here. So with that before we get into this if you haven't listened to Nick Carter's piece on the efficient market hypothesis that was two episodes back and then the previous episode was plan B's article on that and how it may relate to the stock flow ratio the stock of flow model, which is what we're breaking down. So if you if you Covered those yet, or you don't know the stock to flow model. I'll try to give a basic introduction, but I really don't want to spend too much time on it because we've hit it a number of times in the past. I'll have links to those episodes if you want to listen to them. But essentially we've got the inflation rate is going to cut in half on bitcoin. And so the supply schedule is, you know running its course and we've got just a handful of months now until the next Bitcoin has Having and instead of 12.5 new Bitcoin every 10 minutes. We're going to cut that down to 6.25 Bitcoin. And that is a very significant Supply shock and I think the only way to start with this is just the basic supply and demand and of course, dr. Flow. So just for the idea of stock to flows doctor flow is just how many Bitcoins exist versus how many new Coins are being issued or entered into circulation. So the higher it is that means the lower the inflation rate. And of course in the not-too-distant future between is going to have an incredibly low inflation rate or an incredibly High stock to flow ratio and the efficient market hypothesis is essentially I'll just actually quote Nick Carter here because he does a really good job of breaking it down. And again, I highly suggest the episode if you haven't listened to his article an introduction to the efficient market hypothesis, but it's just it's essentially that if there is a piece of known information that a free-market one without any huge barriers or any, you know, government controls or inability to actually obtain the price they will reflect that information. They will price in that Nation as long as price in price-setting entities are willing and mechanically able to act upon it that was kind of his caveat in the article, which I thought was a really great way to just kind of Define it because there are caveats to the efficient market hypothesis is there are you know jurisdictional barriers or there are you know geographical and cultural barriers and liquidity barriers all of these things that prevent that equilibrium Equilibrium price from being found so despite the fact that pressures will always be to account for that information in the market. And I think it's really important to understand where that comes from is that it's people seeing an opportunity and Arbitrage opportunity across time. So that is what it means to price some information in that is in the future is that you see a higher price in the future. Sure, or a lower Supply available in the future. And therefore you were trying to you're trying to take opportunity or take advantage of an opportunity for Arbitrage across a six-month or a one-year time period so the question or kind of thought would be is why aren't we taking advantage of that or why is that not being accounted for in the Bitcoin Market or is it as as Nick Carter says that he believes that To having is priced in and that the supply the change in Supply is not important or that it should not affect on the price significantly, but there are other things that would affect demand in the clearly. Nick Carter is very bullish on bitcoin, but it's got nothing to do essentially with the supply because that is necessarily priced in the information is widely known it is freely available to anyone in the market. We have very high liquidity. The market has become very financialized since you know, 2016-2017 is really the explosion there. And then in the last two years, it's gotten even more financial eyes and available to large institutions and Arbitrage is basically non-existent and Nick and plan B really break that down thoroughly as to how like essentially Arbitrage across currencies and stuff is just not not. Not there the connections or the flow across borders and jurisdictions is incredibly good and so he did not see a specific reason why that information would not be priced in if the EMH of the efficient market hypothesis holds true. It seems to make sins that there is not much holding the market from pricing in the having which is right around the corner. So first before we get into it, let's go back and hit supply and demand again. This is very basic and it's really assumed in both the articles but just in case supply and demand is a very simple curve, you know, you have the little chart and you've just got the line of demand starting high and going low. You got the supply starting low and going high and basically the equilibrium price of the market the price that the The market wants to get to is where the supply and the demand cross on that chart and any time when those things are out of balance. That's an Arbitrage opportunity, right? And if you move if you shift the supply or demand like if you should shift the supply lower since it's an increasing line. Well, then that means the new equilibrium price is higher if demand remains static if everything else stays exactly the same if you shift the supply down if new Supply is harder to obtain. Well, then the price will go up all other things held constant. So starting from that. Has me starting from that known we know that if demand stays constant and you cut the supply in half for the new Supply and half the price must adjust upward. Alright, so now let's go back to the EMH statement the clarification or or the kind of extension of the EMH that Nick Carter uses because I think this is really good. Was that quote free markets reflect available information to the extent that price-setting entities are willing and mechanically able to act upon it in quote. I want to start with willing. This is where I want to so are they willing enable and and Abel? Now, like I said, I think Plan B really hit it on the head is that this is a this is a situation where they're trying to price in risk and it's important to remember too that everything is going to have a Time discount. So Capital today is going to be more expensive than capital in six months. Everything has a a Time cost to it. So even if if we are trying to price in the next having today, it shouldn't it is unlikely to price in completely because essentially the amount of value and the amount of capital available is going to be less. Typically. It depends on you know, what kind of monetary system monetary system you're in but if you just look at strictly resources, there's always going to be less today than there is in the future and it is far more valuable to have Capitol today right at this moment than it is to be pretty sure that you're going to have it in a year which is why this is premium which is why there's a 10% interest rate. That's why the interest rate exists. It's the relative cost of time for using up somebody's resources today versus waiting for a year. And that cost difference which is not insignificant is is there to attempt to price in a the time itself, but also the the risk no matter how small that I might not get. I might not get it any Year and that could be because the institution that is involved the person who's borrowed. It might collapse. Like I said the institution might collapse I might not be around. The new year, I don't really know. I hope and plan obviously to be around in a year, but I don't know so I could use those resources today and know that I got to use them and there are a lot of unknowns and uncertainties in Waiting for a year and specifically in handing those resources over to somebody else and hoping that I'm going to get it back. That is why it calls money to borrow capital. The higher the uncertainty the higher the interest rate the higher that premium is on having to get it today versus in the future. I think the vast majority of why I think that having is not priced in is in that right. There is in the fact that uncertainty is extremely high and very different for the Bitcoin market and for more specifically the price Setters and the financialized institution the the large financial institutions that are finally getting involved in this space. I think for the major price Setters and Nothing, literally anyone other than the hardcore Bitcoin enthusiasts uncertainty is seen as incredibly and Incredibly powerful force in this market and pushes prices down is centrally as far as they can. Go before they find equilibrium with Supply and essentially a foundational demand. I think there is a profound amount of ignorance about what Bitcoin is why it Here going back to the Nick Carter's EMH statement is the are they willing to take this bet are they willing to actually price it based on what it's what that future demands or what? Excuse me what that future Supply is going to be and here's one one really important thing too is that there's let's let's sort of just ignore let´s say that the time risk that the The the time discount quote-unquote or time premium, whatever you want to call it for Bitcoin is actually just the same as it usually would be for everything else. Why aren't all the having's priced in. I think this is a really important thing to consider if we're talking about how exactly the efficient market hypothesis because no matter what if we're going to reach if there is an equilibrium price here there is going to be time to finding that equilibrium price it's not as if the information happens and it's just like 10 minutes later it's like Boop now we've got the new equilibrium price there is a time to finding it and there is a consistent and ever-present pressure back back to the equilibrium price that's mostly what it is is a series of ever-changing pressures they never actually find a thing there's like you think about equilibrium price there's not really any such thing because there's no such thing as static information the state of the world is never static so there is only ever a pressure in some direction that is likely toward the equilibrium price based on the EMH based on this you know this Theory Which by the way if you haven't really dug into the ideas of prices and how they come about and high X piece the use of knowledge in society is all about that and I've got that as part 1 and part 2 and I've read both of these on the show. So I'll try to remember to link to those as well. But this has I constantly recommend this on the show. I'm sure you've heard me but if you haven't listened to it, you got to it's such a critical piece of this. Whole puzzle as to what prices are and how markets how they're used in a market like what's their role in the market? So anyway, so the back to that question, why aren't all the happenings priced in all the having's Phil Phil Geiger from Unchained Capital wrote a really good article that I'm actually in the process of doing audio for like a couple of them in his is one of them, but about how all 21 million coins exist already. And I think it's right and he makes a really good argument and but just just thinking about it on the surface. Is that everything about you know, the scarcity of gold or diamonds or platinum whatever it is. It's essentially guest. It's a it's theoretical scarcity. It's that based on our technology. This is roughly what we can find right now, but we don't really know somebody could stumble upon a very large cache of gold. It's somewhere, you know in a mountain there's something that we just didn't know about and increases the inflation rate at at an entirely unexpected amount and we don't know exactly how much is out there. We might find out that there's a lot more gold on this planet. We might find you know, if I tell us about asteroid Mining and some other planet or something there there may be there's tons of gold out there in the universe. The question is do we have the capacity to go get it? Because of that we really don't have any clue what the supply and inflation rate of gold is it's just happens to be relatively stable because of the nature of gold itself, but that certainly doesn't mean that it will be and and Bitcoin is completely different because he's completely different Bitcoin could not be more perfectly known to the end of things like to 21:40. We know exactly how much and we even can guess the dates that it's going to happen that the the supply schedule is going to change. So if if we assume that just because the information is known and just because you know, we can predict the time that's going to happen that we can still somehow evaluate and know what that future price is going to be then why wouldn't the 2024 having already be here as well? The price have already adjusted. I think Where we find the reasons that it has not adjusted to it is in a couple of things first is just the amount of time. It takes to mature something and for the essentially the markets to be certain that these events are actually coming in the future again back to risk. What's the amount of risk in holding it that long in in believing that that future is actually going to happen. What's the amount of certainty that we? or uncertainty that we have in holding it and having it today versus after The Happening actually happens now, I think it's time goes on that confidence will go up that degree of certainty will increase and we will start to really lead the having's and I think I'm inclined to think we'll do it this time just because there's so much conversation about it and it's far more widely known today than it was in the previous a and as Nick Carter said we have a far more financialized Market, but what I think that means is that we will we will simply lead it a little bit at least a lot more actually than we did last time. In fact last time we didn't lead it at all it it was basically dragging behind to the stock to flow ratio in a sense. Or at least it was it was underneath what the stopped a flow model would suggest was our new equilibrium price based on the inflation rate. So we've actually see the price being pushed lower and then pulled up essentially with that thing and I think you can't we cannot discount. I think they're the basis of this isn't trying to figure out why the structure flow is accurate because there is cointegration. The model is I think assuming just because it's convenient that this is a coincidence or that it just is random for as for his tightly as it actually follows that model. I do not think this should be outright discounted. I think it deserves a lot of attention particularly when you're talking about the monetization of a new You'll be able new good essentially. But I think that so much of the reluctance to actually price Bitcoin based on future Supply events is even though there's a lot of other things I want to get into. I really think that Bitcoin is just outside the Overton window for most investors. Um for I think there are plenty of speculators that are there just to put money on something but I think the mint Halladay of the market around trying to understand the significance of Bitcoin scarcity and trying to understand what Bitcoins utility look why does Bitcoin even exist? It is a wholly new type of asset. It's not just like we found a new metal and we're trying to figure out if it's going to follow the stock to flow ratio. We found something that we have no other utility for other than the fact that it is scarce and can be owned it. He's entirely digital there is no we have no reliable way to price this thing. We don't evaluating this good. Is it 100% unique in the history of markets? We don't have a easy way to do it. There are no price to earnings ratios. There's no Price to Book their there are no dividends to calculate it is a simple matter of I don't even think most of the people who invest in it who actually buy it as a Lid of asset can even explain properly why it would be valuable. So back to our basic supply and demand is our caveat that's is the supply is going to increase the price. Is that the demand remains static? I don't think anybody has that a I think they tiny tiny amount of the market actually has some degree of assurances that the demand will remain constant or increase. I think a lot of people I think a lot of people are in Peter Schiff situation is it this is a high bubble. They might put money in it to into just too. Play off of somebody else's hype to you know by the Ponzi scheme and be the one that got out before it all crashed on but I think a ton of people cannot explain to themselves why it would still be around in 6 months. Why would still be around in a year? I think the value proposition for Bitcoin for a scarce digital thing something that is completely made up in the digital world is so outside of the norm so out. Outside of the Overton window of the typical investor the people who have enormous amounts of money that they did is it simply they're unwilling they are unwilling to price in something like the supply change because they don't know if it matters. Essentially the risk of whether or not anybody is going to care about it. After that I think is seen as incredibly High. But let's say let's say they do let's sit. Let's say we do have some huge institution that really sees Bitcoin as valuable knows that it's going to be around the industry is also brand-new. Like Nick Carter says that you know past 2015 and 16. We were actually like financialized but I think in the grand scheme of things when we're talking about so let's go back to the stock to flow model real quick if the next having follows the stock to flow. Model and really follows the idea of the supply being the determining factor of what an equilibrium price would be for this Market. We're talking about trillions of dollars many multiple trillions of dollars. The amount of money that would require I think I think putting that amount of money in a market that can say it's financialized proton quote since like 2017. It's something that is seen as crazy. At least I would think that's how the General Financial Market would see it. This is an untested financialized industry, even the institutions that are supposedly good Fidelity digital assets backed back to his brand-new backed is barely out the And see me Futures like these other institutions, they didn't they're not even holding Bitcoin. There are the purchasing of Bitcoin in like CME Futures, whatever their cash settled so they don't actually they're not actually buying Bitcoin. So yes, there's liquidity there to price in something like that. But what there isn't is the assurances that you're actually buying a Bitcoin and the idea that you would put money into an institution that started in Timber that that's what I think is like September 20th, something was backed which is actually one that is actually bat hahaha snicker snicker backed by Bitcoin and that if you were purchasing it with them they were actually holding it and that you know, they're trying to have a consumer platform and all this stuff. I actually just read something just just the other day about they're going to have like an app that's going to look more like PayPal or something like that. So that really interesting but you know the part. Starbucks and I'll match All That Jazz but the first couple of days they were like a couple of bitcoins worth of liquidity. They dip their toes in the water very slowly. They're incredibly cautious and the entire not only is the industry. No, it has no it is not matured at all. It is so it is brand-new as a baby out of the womb and because of that there's no trusted reputation, you know, like these huge institutions when you talk about moving trillions of dollars. You just don't do that by searching Google and seeing what came up with the highest Yelp rating. You use trusted institutions that you've had relationships with for decades or years. They have been around since you know, the one that has 1906 on, you know, they're their copyright day or whatever the heck it is, but I don't think anybody with that amount of money with serious money like that is going to just throw it at something simply because there's liquidity available particularly something that is brand new and even more so so do they have the ability to store it does the company that's got this new reputation and this brand new industry. Do they have the ability to store it safely think about all of our vaults that have worked all of the processes and everything. They don't necessarily apply to bitcoin. It's a very different mechanism again, all of this the systems for electronic transfer and electronic ownership of goods in the financial markets. Are specifically secured by the ability to edit it later if something goes wrong. That industry does not know how to deal and is absolutely by no means ready for the security practices necessary to secure an append-only database one that cost millions of dollars to attempt to reverse and is politically or I guess you can see socially or like by the protocol practically an impossible task. This is not a call up customer service and reverse the transaction situation. So who do they trust with that sort of money do they trust themselves? I think it would be like is if if a new metal came on the market and again, we're trying to price it with stock to flow or something or we're trying to figure out what it's useful for with, you know, a utility. We don't even know the market. It has even found what all of the utilities are for it. Is it is it even conductive, you know, like does it work good in electronics? Does it work good in you know structures of buildings and all of this stuff like we have no idea. What it's good for really were just starting to scratch the surface and at the same time somehow you can't protect this metal with all of the vaults in all of the infrastructure that we already have. We have to recreate it from scratch. Well, somebody is going to see buying that metal. If you can't put it in the vault you already have now the cost of having that new metal is not just the price of the metal and the price of time if Or again with say we're pricing and you know, the fact that the inflation rate is going to be, you know lower later. They're trying to price that in so not only is the price of time there, but the price of feeling like you probably have to redesign and construct an entirely new Vault and security system in order to properly store it for yourself and I feel like most people who are holding that amount of money are going to want to custody it themselves. I could be entirely wrong about that point. I don't really know the ins and out. I have never looked at a balance sheet anyway with a trillion dollars on it. So I don't know what those institutions do but regardless of whether or not they want to self custody. I cannot imagine that they are fast and loose with where they put that sort of capital. And in addition you look at this industry. There's an article on bitcoin magazine very recently 2019 was the worst year for hacks. We've ever had um, not for amount actually because of Mount gox and was in 2018 is like coin check or something like that. I can't remember Reddit some time ago. I'm just actually still I'll try to link to that one to I'll try to remember to put that in but it's just about all the hacks that Happened this year in the amount, but because of those two big ones those amounts were so high that the amount this year was not the max. In fact, it was like half of what was in coin check or something like that, but in 2018, however, the number of hacks and think the reason the amounts as well weren't so high is just because exchanges have learned not to put so much freaking Bitcoin in their hot wallet. But hacks are not uncommon. They are not they're not really getting better in the degree of Or in the sense that exchanges you can expect an exchange to just not get hacked. I still think the exact opposite is true is that if you're holding money with an exchange, you should always think that the longer you have it there that it doesn't get hacked that you're just you're right around the corner from being hacked. It is so common in the industry and I think that's another part of the maturation process that is not there and another part of why there's is the perception of whether true this is arguably you can say this one is true the perception that holding Bitcoin in any form or fashion is a giant risk, if we're dealing with people who are anywhere in the ballpark in the same stadium as Peter Schiff on his degree of intelligence or Competence in regards to how he stores his Bitcoin. We are going to really bad spot if we're trying to claim that that market is ready to price in, you know, the next having or is at least not considering that a risk. I would imagine that a huge consideration mostly because it's consideration for me. And I know what I'm doing and I know the risks I'm not you know, I know how these institutions can hacked most of the time. I stay very up-to-date on it which may or may not be a good thing for my perception of it. Um, but because of that like like I know the risk and it scares me and I think the fear Much of the fear comes from ignorance from not feeling or from feeling like you do not have a clue what's going on. Then you don't know the risk and I think which is why I think that risk would be overestimated. One of the you know, the risk of exchange hacks was listed in plans be a little like where he thinks a risk is being overestimate and I think that's a huge part. Now even know if it's easy to overestimate that in fact, the hackers are actually getting better at At it they're getting more particularly in the context of like chain analysis in stuff. They're getting better at hiding their money their knowing not to be quite as stupid and where to move their money to still getting call and you know chain analysis is still basically able to break most of the Privacy measures, but nonetheless if the hackers are evolving and the number of hacks are increasing that that risk isn't Smaller with time to hold money with somebody else again. It makes it look like the only way to actually hold, you know, a hundred billion dollars or trillion-dollar securely in this asset, which is exactly what's needed to really price in all of these future having's in the idea the real true nature of the scarcity of Bitcoin may just require making your own custom proprietary held in a secret Hardware wallet in a bunker. Vault, you know, like I think it would looks more and more for an institution in that position. There isn't a safe place to hold that amount of money in it. And that even if I'm I stand to make 200% 300% Is it worth the possibility of losing it all not even because you know the price crashed but just because you might just lose it. I mean, yeah, there's the plan B talks about in his article the risk and return. Learn model is that like World of the risk is only 80 percent and the return is 200% because of the historical price moves. That's not the risk here to risk really is 0% or a hundred percent. Excuse me. You're just going to lose everything because there are a lot of ways to you lose Bitcoin that have nothing to do with the price crashing. All right, there's still a number of other points that I want to hit on the are of these institutions willing and then another couple I want to hit on whether or not they're able to price this in but really quick. Let's get our sponsor. I had to go get a drink of water and we'll be right back. 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So if you were thinking of starting a show or already have a podcast, there's no better platform out there check out anchor by downloading the app or go to Anchor dot f FM today So there's something else at play here that I think is probably one of the key factors a to assessing the risk and be also trying to price in future events. So the cost of time ends the cost of the risk associated with actually being involved in Bitcoin. So again, there's all the immaturity of the industry the very very new avenues that it's to the financialized institutions In fact, actually there was this one have what was that? I forgot about this. It was actually a and ARA an episode of something that I listen to it might have been Tales from the Crypt. Maybe it was the one with um, Man, I'm not gonna remember the name. I'm gonna see if I can find it again, but there's actually one with somebody who is part of these funds and moving enormous amounts of money around and actually said something about hedge funds wanting actually being interested in buying Bitcoin, but could not For having any sort of a large stake in any significant amount of money in it couldn't justify it to their investors. They felt it was too scary or the even though they believed in it or something that it was such a difficult sell to most of their investors. They didn't invest that money into it and alternative assets, which I think Bitcoin would fall under, you know, hedge funds will invest in Commodities bonds, you know. A bunch of the very typical stuff, but then they do they do startups as well. Even though that's riskier and not a huge portion of their I think it's like something I read recently was like half of their money is in the traditional sort of bonds and things like that of the more safe-haven assets, but then they do invest in alternative assets and they do invest in more risky Vehicles Bitcoin being an example, I think. Of not really a start-up not a small stock with a lot of potential but an alternative asset like buying a piece of artwork and you know baseball cards or something like that which you know funds do actually Duke but you gotta justify that stuff. You have to justify that sort of thing to the investors. You have to know what you're doing have to be very knowledgeable in that and again, I think this is specifically one of those cases in which There is such a huge lack of knowledge and lack of confidence in so many different ways that the Bitcoin does not fall under a safe alternative asset. It falls under a giant question mark of is this stupid or not. But back to the idea I want to get at is that so yeah, there's all the maturation there's high risk and holding it etcetera Etc. But let's take a comparison of something that we know would adjust to the inflation. That if there was going to be a known Supply shock in the not-too-distant future. Why do we know that this asset would respond to it? What are the characteristics about the industry and about the asset itself that makes it obvious that the efficient market hypothesis that the the efficiency of the market would work incredibly quickly to price that in as soon as possible. And then ask does Bitcoin have those characteristics? So let's look at gold. Let's say for some reason we know some giant mine did it produces half of the gold reserves in the world? Let's say it's sitting under a volcano or something like that you like and we know in just a couple of months. This mine is going to be completely inaccessible and all the gold will essentially be irretrievably And this is literally half of the inflation schedule and we've got two months left to get as much out and we just know we're going to miss like 90% of it. There's just nothing we can do. Well they're going to price that in right the market is absolutely going to adjust for the fact that holy crap in two months is going to be gone and the inflation schedule is going to be very different. So why do we know gold would do that? I think there's a handful of key reason one Gold's Market. Nobody thinks the supply mean. Nobody thinks the demand for gold is going to go anywhere. The demand for gold is not shaky. And even when it does subside at times, even when you know, when there's high in certainty and confidence in the markets and gold isn't really used as a hedge months. It's always going to come back around gold has an incredibly - Market presence it's used for lots of other purposes is got utility and electronics and all these manufacturing purposes ends when the price actually falls its use in all of those other areas goes up because it becomes more affordable to use gold which is a better alternative in some of these cases for those utilities. So there is all of this confidence in the industry and there's all this confidence in the other utilities and ways that gold Can be used and the fact that even if the demand does subside for some reason it will come back there for the markets going to price in a very quickly. There's no it's there's no question. That gold is still going to be around in, you know six months when the inflation rate is cut in half like nobody's like, oh the what if the industry goes away, no, nobody's nobody's concerned about that. And what's the most important factor there at least in my in my perception particularly in how it applies to bitcoin? The Lindy effect gold has been around for thousands of years. It's not going anywhere. So the Lindy effect. We've covered it a number of times on the show, but I actually couldn't find a specific article about the Lindy effect. And there is one that I read. It's like Bitcoin Lindy and something something is the title if anybody can remember it, please tweet it out to me because I can't remember exactly what it was, but I don't have audio. It on the show, so I might actually just cover something about the Lindy effect. But basic idea very simple the longer something has been alive the longer the sentiment is or the mentality of the market and the participants are that that it's going to continue to survive that it is proportional to the amount of time. It has existed for how much time it has left how long it's going to be around so Like right now the internet if you're investing in something in the internet or you're building something on like let's say you're a company and you're trying to you're spending an enormous amount of money to build a large internet presence. Well, you're not concerned that in five years the internet might not be around because the inner has been around for like 30 years now in a huge capacity. So it's like we can easily expand out or extend out 30 years in the future and assume yeah, the internet's pretty much going to be here. Kind of considered a normal facet of reality. Now. This is this is the new normal the internet exists and it's not going anywhere. That is the Lindy effect gold has an unbelievable Lindy effect. There is no Lindy effect. Like Gold's Lindy effect. That is why the market is going to price that in not only that but it has all of these other uses and it has these other utilities which actually make it a worse money, which is funny even though it It gives it a better. I guess you could say demand floor. It does actually make it worse as an economic measuring stick in there's a really great piece by Connor Connor Brown Bitcoin has no intrinsic intrinsic value or doesn't have intrinsic value. And that's great. I think is what it's titled. Oh man. I've got so many links. I just keep I just keep pulling them out. Okay. I've got to start writing some of these down there. I'm gonna forget all of this. I'll try to remember to Link to that one in the show notes. That's a really good one, but How do we compare that to bitcoin? What's Bitcoins Lindy effect? So back to my original question the question I actually started this off with is why aren't all the having's priced in. Because there is General there is no Market sentiment or pressured the Lindy effect suggests. There's no reason to think Bitcoin will be around for another three having's we've only been through to this is this is number three Bitcoin just turned 11 years old and is far as its Market presence. Its nine years old really ate before that. It could have been killed before that. It was incredibly. Why's it was Tiny? It was it was a it was a baby still in the womb just released into the wild, you know, and so the Lindy effect for Bitcoin is a powerful force. I think for keeping the price down because if you're trying to plan for something that's six months out. It's a year out that's eight years out. And the thing that you are investing in is barely eight years. sold That's going to be seen you might not price that in at all. That might have a price of zero today regardless of what it means in the future and you know cryptography has a shelf life traditionally even even sha-256 has the possibility of being destroyed or being made obsolete by new technology new methods. You know new math that essentially and we could just we could find out that it's actually there's actually a way it can quantum computers. You don't notwithstanding but the assumptions of the the hard problems of the you know, one-way functions and the fact that some things are just incredibly hard to do might just be because we're humans and we're really incapable of doing things. Um, and you know, maybe a computer that's just made to it. It on one thing and learn from it and do it hundreds of trillions of dot times over a period of five years figure something out that we never could just from the process of elimination just from essentially an evolutionary process of code figuring out that there's a way to break some cryptography. So this plays into the Lindy effect this this plays into the value of any perceived thing that's going to happen in the future is that if it's only six months out, there's really a question as to whether or not this thing is going to be here in six months. If it's if it's 10 years old, you know six months is one-twentieth of its life, you know is does it you know, what degree of discount does that get for having to wait six months when we when there isn't an established? Polish market and again, it's so hot outside the Overton window of what the typical investor and asset. There's not even a standard way to measure it. You know, there's no way to even value this thing. Why does anyone value it? I think it's so misunderstood that all of these things are exaggerated. So even even though I think these risks and the Lindy effect and all of these things the time cost the uncertainty in the space. Or not it gets the exchange or the institution that you're using gets hacked whether or not you can even hold it whether or not that amount of money can even rightfully be stored in it. I think all of these problems and risks are exaggerated because there's such a tiny amount of the market. The even has a mental hold on why this thing should be valuable why it has any demand outside of sheer pure speculation right now. Now we read Parker Lewis is article on the show, which I think it's one of the gradually then suddenly series which we have the rest of that series coming very soon. But that Bitcoin is not backed by nothing another one. I highly recommend if you haven't listened to I reckon I highly recommend that whole series it's fire but Bitcoin is not backed by nothing, um breaks down how Initially what Bitcoin is backed by its utility and its its value is in its monetary properties the adherence and assurances to its monetary policy that we get and again, I don't think any of the normal investors any of the normal Financial. I like financial industry price Setters have any way to price that they do not know how to evaluate the likelihood. Hood or the Assurance of the monetary properties of this asset and that is what it's backed by which is why I think the actual real world Supply commands more power than the information of the next having is that when the supply actually gets cut in half that is when the market responds to the fact that there is going to be less Supply. There's still a couple of more things. Want to hit I'm going to get to to my conclusion too quickly. So so what's the value of money? So if this thing is valued by its monetary properties and money is the tool that it's good for what that what's money good for so we read another one that I love and highly recommend by ions from and Hapa the yield from money held reconsidered and talks about holding money or the very nature of having money is As a hedge against uncertainty against future uncertainty and this is why I think Bitcoin does not yet fulfill the role of money except for a tiny subset of people myself being one of those is that it only Hedges uncertainty. If you are more certain about Bitcoin, then the uncertainty that you're afraid of and that is where like someone in my position like when I've read all of this stuff and I'm broken down all these arguments and I feel like I know and I've really dug into the weeds of Bitcoin to see what it is and then subsequently learned about the risks associated with the alternative. Well Bitcoin is money to me because it exists does exactly that I'm hedging against uncertainty. I don't know what the hell's gonna happen with the Global Financial system negative interest rates seem absolutely batch. It insane to me and it scares me to no end to have money locked up in that world. Bitcoin is Bitcoin is relief for me. But I do not think that is how the majority of the market season. I think it's just the opposite is that all of the normal mentality and all of the hedging against uncertainty is specifically in things that are not like Bitcoin that are not these add new assets and alternative investment vehicles. So I think the predominant reason Bitcoin has value is completely lost on the institutions that are supposed to be setting its price. I think the information of what makes Bitcoin valuable the knowledge and understanding in the market is not there the confidence in it is not there. And again there is no consensus on any sort of valuation method the fact that we've had three episodes about the stock to flow ratio, I think is just here. Is some degree of proof of that there's stock to flow is an incredibly contentious thing to talk about because so many people will think you're crazy and stupid for thinking just Supply would have an effect on the price when everybody knows it's going to happen and Nick Carter laid out his argument incredibly well and I think he had a ton of amazing points. I think he's exactly right to on the nature of the efficient market hypothesis. I just think he discounts a lot of Just held new and when hunt just untested just this thing is just not like all the others. It just isn't and I don't think anyone sees it with that degree. I think the only people that are willing to throw their money at it and take the risks on the exchanges and do all this are speculators were just trying to make a buck and it's not people who understand what Bitcoin is is really valuable for and it's not demand that will stick around in the face of something very disastrous happening. I think those are the holders of Last Resort and I think they do produce a price floor and they play an incredibly important role, but it's not in pricing in future events. I don't think there's enough Capital there to account for that. And of course, I don't think the mentality is there to to properly S what a change in the supply of something that somebody can't even explain why it's not valuable any value right now why a change in Supply or how a change in Supply would affect it? And then basically after that, we've still got a whole crap ton of other risks that plan B went into the just give it coin might die huge software bugs a huge software bug or even some sort of some part of the structure just ends up not working in some sort of adversarial scenario just because we hadn't figured out how to kill it yet doesn't mean you can't again this is very much is in line. The Lindy effect and how I think people would assess, you know, something that like this it is 10 years old and so such new territory. I mean how many people even in the world could properly review this system and explain whether or not it was Secure and how many people are going to put a trillion dollars into something that can't get to that point that you can't even you don't even know somebody personally that you trust that could tell you whether or not Thought it was safe to put in put money in but maybe it does survive. You know, maybe it is incredibly secure. Is he going to be legal when you hold it for six months when you hold it for two years? What assurances do you have that even if you think it's the future as an as a hedge fund as an institution to buy something this associated with drugs on the internet and terrorism. Again, what a barrier to wondering whether or not it's safe to hold this thing for an event. That isn't here yet. I mean Trump tweeted about Bitcoin and name it wasn't exactly a nice tweet quote. I am not a fan of Bitcoin and other cryptocurrencies which are not money and whose value is highly volatile and based on thin air unregulated crypto assets can facilitate unlawful Behavior including drug trade and other illegal activity end quote. That is the president of United States. If I am a hedge fund manager and I read that that is not exactly High degree of confidence for having a long-term investment in something that Donald off the hinge Trump is talking about in that language but really the one thing that threw me for a loop in plan B's article for the risk was his little tweet. He did a poll asking what the biggest fear of investing is. Or buying Bitcoin or something like that. I can't remember exactly what the question was. But the number one fear, which was something close to half a things like 40% of the answers. I wish I had actually saved this somewhere so I could have it right here, but that it was Futures manipulation was that you would be buying paper assets essentially that weren't backed by Bitcoin that the price was being manipulated and the Even if Bitcoins price pressure was going to go up the Futures markets and the financial markets. We're going to essentially cheat and push it down. So they essentially are saying that they don't believe they're getting a fair price that they're actually getting the market price. So again willing and able is this a market that is willing and able to price in the future having And you know, even though I discount this what about competition? What about competition if literally scarcity is the only value that it has what about Litecoin like Owens even got all these other utilities remember? He's got cheaper transactions be cash has cheaper transactions and all of this like if we if we don't have consensus on the valuation model. Well, then it looks like we've got a thousand Bitcoins to choose from again. Why would the demand stay for this one? When I've got this other one that's got shiny gadgets on it and it's got crypto kitties and all of these great things that Bitcoin doesn't have why on Earth would the Bitcoin Demand with with the demand for Bitcoin stay consistent on the supply gets cut in half or this the new Supply gets cut in half, but then that's not the case for this other one. and then of course if you just got here in Bitcoin, if you only been here since 2017, you never been through having so if the the reward schedule is essentially the security of Bitcoin, well, then what happens when the reward for securing Bitcoin gets cut in half is the having something that's going to increase the value or is it going to significantly decrease the value because you have there's there's Less Supply, but it seems like at the exact same time that you get less Supply don't you also get less security. Okay, I think we've hit all these risk. I mean there's obviously a bunch of other things that we could just come up with and a lot of other specifications that we can talk about as far as risks of holding Bitcoin in the newness of the market. But so why would Supply really be the thing to judge this by? Why would Supply have such an effect on it? If we are considering the cointegration and the correlation that Squared or whatever it is of stock to flow if we are considering the it's so high because it is true. Why would the supply of really have that effect on it? And I think it's because I think it's because it's so perfectly inelastic. The reason it's actually a good measurement or a good way to actually evaluate Bitcoin. Is because its monetary properties are its value. The combination of the scarcity of this asset overtime with its survival. Is proof of that monetary policy is those assurances which means I think it is a derivative of time which makes it incredibly difficult for to price that in first because of the Lindy effect because if it's not very old, well, then it needs to survive again and again and its security model is going to change completely in about three or four having's so again, do we know it's going to be here? And and then lastly the demand is so up in the air. The demand is such an unknown and it's so impossible to measure that in any other context it all it just and maybe I'm just holding on to something because I'm super bullish but it feels like it just makes sense to ignore that and look at the supply of the money scarcity is what makes this money. What makes this sound money scarcity is the key characteristic to all of this is that we have a scarce digital asset in in the digital world in the virtual world. We've created scarce we've recreated scarcity that is its utility that is its value. That is why we believe it will continue to have value in the future. Cuz it's done something incredible that has never been possible before in the past using an entirely novel economic structure like game-theoretic design essentially. I think finding the price of something like that. He's going to take an extraordinary amount of time. The market is not ready for it in a hundred different ways. But what's funny is I agree with Nick Carter. Did I think the efficient market hypothesis is right and I think his is explanation of why it's not as simple that you know, it's not the hard version or the strong version of the efficient market hypothesis, but it's the it's the one with those caveats are they willing and are they mechanically able to price this information in? I think that's absolutely right. I I think he's just missing where they are not willing and where they are not or how they are not mechanically able to price in. It's a the reality of the big one having. So if Bitcoin had a Thousand-Year established Market with consistent demand if there was no perception of competition that it was obvious that Bitcoin was the winner and none of these other altcoins thousands of all coins had any chance there was it was clear that Bitcoin had no second place. that if it was unquestionable that Bitcoin was not going to die if there was a strong consensus on exactly how to evaluate this thing and that the market wasn't just speculators, but it was people who knew and understand why Bitcoin had value and what Bitcoin was backed by that if if the liquidity and the industry if not only the Klute liquidity There and not only the Avenues for their but if the industry was new, I mean it was not new. It was old and a tried and tested and had an incredible reputation and none of these none of these were new companies and you know, we could use all the same hard tested lasted for decades security measures on this asset just like they did on all of the others that if hacks were in steep Decline and there was unbelievable regulatory certainty that Trump came out talking about how great Bitcoin was and nobody on the it was it was so embedded in the social psyche that obviously Bitcoin wasn't going anywhere and the the idea that it would be made illegal was just flat absurd that if all that was true. Yeah the having would be priced in But because of those things are in the way because those things are risks and uncertainties in a good whose dominant role may very well be to hedge against uncertainty. Judging by the stock to flow ratio may be the best thing we have for a little while and you know an eight years. I think that's going to change if we go through this next having and then the one after that and the security model shifts over to predominantly fees and we get a very different space. We get a much longer Lindy effect. We have companies that have now been around in the financial institutions for you know near a decade. I think after we Cross a lot of Market barriers and maturation process then. Yeah, we will start pricing those things in and I think this having I would bet that will lead it a little bit and maybe the next happening will lead it a little bit more and maybe it will break down as the market actually gets mature and we start to realize that holy crap and another three happenings. This thing's going to be a scarce f being asset and they start just leading to having's out. I think we are still very very far from that reality. I still think we are. I think that is not this Market on the end it right now the inflation schedule and the stock to flow may very well be the best pricing mechanism or the best valuation mechanism that we have. Um, and that the smartest way to measure whether or not to get into Bitcoin is the risk and return model like Plan B said so I guess we will close this here. This has been a guys take episode why I don't think the having is priced in and yeah, thank you guys so much for listening. I want to remind everybody today about bit block. Boom. He recently Gary Leland just recently tweeted out the whole lineup and I will be speaking at bit block boom and I have a discount code. So if you haven't gotten your tickets yet for bit block. Boom that is in August. It's like towards the end of August was like 23rd or something like that. Um, but I will be speaking there. I would love to hang out with you guys use offer code CC crypto condom ECC and you will get a 30 percent discount. I think it is. It's a big discount. So if you haven't gotten your tickets go ahead and do that now. Don't forget I will be putting all of those links that I recommended in the other works that are recommended in the show notes. And if you can remember if I forget to put one up there remember you can go to the crypto economy.com and just search for it and it will pop up pretty much everything is now on that website. There's still some tagging left to do which is what mostly I did yesterday. So there's more to come don't forget to check out. The crypto economy.com and get your tickets for bit block. Boom offer code CC for that massive discount. All right guys, thank you so much for listening. I love you all. I'm out. I'll catch you all tomorrow. Take it easy guys.
As a follow up to Nic Carter's excellent breakdown of the efficient market hypothesis, and PlanB's piece addressing the market's evaluation of the risks in Bitcoin, I go through the reasons I feel the market both is very unwilling and unconfident about the consequences of the halving, and therefore sees it not as "known information," but more a blind gamble. For diving deeper into the many topics and works that I brought up, here are the links of all those I remembered: • Nic Carter's "Introduction to the Efficient Market Hypothesis" https://anchor.fm/thecryptoconomy/episodes/CryptoQuikRead_343---Introduction-to-the-Efficient-Market-Hypothesis-for-Bitcoiners-Nic-Carter-eac03b • PlanB's "Efficient Markets and Bitcoin's Stock-to-Flow" https://anchor.fm/thecryptoconomy/episodes/CryptoQuikRead_344---Efficient-Markets--Bitcoins-Stock-to-Flow-PlanB-eaco0i • Hayek's "Use of Knowledge in Society" [Part 1 & 2] https://anchor.fm/thecryptoconomy/episodes/CryptoQuikRead_250---Use-of-Knowledge-in-Society-Part-1---F--A--Hayek-e43pfj https://anchor.fm/thecryptoconomy/episodes/CryptoQuikRead_251---Use-of-Knowledge-in-Society-Part-2---F--A--Hayek-e444k0 • Parker Lewis's "Bitcoin is Not Backed by Nothing" https://anchor.fm/thecryptoconomy/episodes/CryptoQuikRead_335---Bitcoin-is-Not-Backed-by-Nothing-Parker-Lewis-e9v1rs • Hoppe's "Yield From Money Held Reconsidered" https://anchor.fm/thecryptoconomy/episodes/CryptoQuikRead_122---The-Yield-From-Money-Held-Reconsidered-e2ndqn • Conner Brown's "Bitcoin Has No Intrinsic Value, & That's Great!" https://anchor.fm/thecryptoconomy/episodes/CryptoQuikRead_249---Bitcoin-Has-No-Intrinsic-Value---Thats-Great--Conner-Brown-e43bcm  Don't forget to grab your tickets to BitBlockBoom and use the offer code CC for a 30% discount! 