Debasement Trade: Gold and BTC Go Mainstream

Transcript

Intro

Some of what's happening is basically things that those of us in either the Bitcoin space or the gold space uh have been talking about for years are kind of hitting the mainstream. So, I think it is absolutely true that from a structural perspective, trust in the major fiat currencies is increasingly diminishing. The only thing that can stop the train is a major default on existing obligations. Yeah, likely not normally, likely through purchasing power. So, major devaluation compared to gold and other hard assets of the currency combined with then some sort of reform to stop the existing bleeding.

The reason gold is so valued is that a you know, central banks can hold it in their own vaults in their own jurisdiction and there's no one that can really kind of just rug pull them. There's no one that can change the rules other than an outright invasion or something. For the first time, I had a friend in Egypt ask me if he should get out of the dollar cuz he's concerned about the dollar ironically. Uh that is new. [Music] [Applause] Hello everybody and welcome back to Reinvent Money with me Paul Buitink.

Everyone and their mother is talking about the debasement trade. Basically, people across the world buying gold and Bitcoin because they do they lose trust in fiat money. This has led to record highs in gold and Bitcoin. Who better to discuss this with than with investment advisor and author of Broken Money Lynn Alden. Hi Lynn, welcome back. Uh thanks for having me. Happy to be here. Yeah. Uh just like I told you in the in the conversation before we started recording, it's it's a it's a crazy time. It's so in that sense, I'm I'm very fortunate and happy to be able to talk to you today given everything that's going on. Uh yes, over the past few days, everyone including mainstream media, Wall Street Journal, also in Holland, Dutch uh financial uh Telegraaf, they they all talk about this phenomenon called the debasement trade.

What is the debasement trade

Um before I explain it in the wrong way, please could you elaborate and tell our viewers what it is exactly? Uh so, I think that some of what's happening is basically things that those of us in either the Bitcoin space or the gold space uh have been talking about for years are kind of hitting the mainstream uh in a way. Um which is basically that there's an increasing recognition that major developed countries um whether it's the United States, whether it's uh Europe, like large parts of Europe, whether it's Japan, uh that they're uh not going to get their public finances in control anytime soon. Uh that their money supplies are going to continue growing pretty substantially uh and less so from bank lending and

more so from fiscal transfers. Uh and that because of that, um that there's an increased interest in harder assets. Now, things when when things do hit the mainstream, you have to be a little bit careful uh because you start to get consensus. Uh and so for example, after a disastrous five or six years in global bond markets, like basically the worst bond market performance uh especially in real terms but even nominal terms uh in modern history, um it's natural that people are now extremely anti those things in favor of the things that have done well. Uh now, I still I still think structurally those things are going to do well

um but there is some kind of caution at certain points. But basically, the debasement trade is the increasing recognition that nothing stops this train uh that fiscal deficits are going to keep barreling different countries at different speeds. They all have their own unique dynamics uh where I should actually should say currency blocks cuz it's it's countries but then in your in Europe's case, it's also that the shared currency. Uh and that these things are long-term. They they've already kind of received a kill shot in a way. They've already kind of become unsustainable and now it's just that gradual realization and then that gradual um playing of those cards that have kind of already been dealt.

Yeah, so first gradually but now suddenly if you look at at at some of these prices that um for for many years, people were just sitting on the fences waiting to to buy gold or Bitcoin. Now, it seems like a lot of FOMO is also at play cuz I get a lot of messages like I run a gold company here in Holland, Holland Gold and we're just swamped. We're flooded. It's it's um like what we do in a week now, we used to do like in a month or several months. Um but I also get a lot of messages from like uncles or friends or whatever like Paul, should I buy gold now? And it's like kind of the FOMO of feeling that I saw with crypto uh over the years depending on the cycle but I get the same feeling a little bit with

Is gold becoming a FOMO play?

gold at the moment. Yeah, I think that the enthusiasm is mostly focused on the precious metal space right now uh here in 2025. Uh you know, there there are prior years, prior cycles where where Bitcoin and the broader crypto space absorbed a lot of that enthusiasm. Um I think basically after um a lot of the a lot of the crypto projects basically went nowhere uh and those of us that kind of focus more on Bitcoin in that space have kind of been pointing out out for a while which is that most of those projects don't really have long-term legs to them. They're kind of a a solution in search of a a problem uh more or less.

Um and so outside of Bitcoin and stable coins, there's not been a lot of um kind of going on in the whole space. And then to some extent, tokenized assets which is basically just a broadening of the stable coin thesis to other types of assets. Um so, there's not really any sort of hot enthusiasm in Bitcoin if you look at most metrics. Uh it's not really overbought. Uh it's nothing like those kind of historical kind of four-year cycles it would go through. Uh whereas instead, most enthusiasm right now is in gold uh and then finally, the other precious metals are also catching up. So, gold has had a pretty good multi-year run uh whereas like silver, platinum, some of these others, um they've had more recent explosive runs to kind of play catch up. Um and I I still think that has some legs to it um but you know,

that we are at the phase where I'm going to get a little bit concerned about the popularity in a cyclical sense. Uh the last time I felt this way was back in uh mid-2020. So, of course, after the the pandemic stimulus, um gold soared uh and my view at the time uh in writings was still long-term bullish um but that I'm worried about it taking a breather. Uh and the the breather actually lasted longer than I thought. It was it was you know, I thought it might might last 12 months or or so and it ended up lasting uh two or three times that before it eventually broke out. Um and gold's kind of in that phase right now. Another way I kind of look at it is that you know, basically you want to be careful about enthusiasm and bubbles but you also

don't want to get shaken off too early. One of the big lessons I learned from the whole 2010s decade was the the popular FAANG stocks uh and how everyone was talking about how expensive they were and yet they they spent years and years continuing to go up. They're the most of them are still going up. Now, they're called Mag 7. They've they tran they they transformed because people underestimated the sheer scale of what was happening. Uh the sheer transformation of what was happening uh and so they would get temporarily overbought at times but in a structural sense, uh people get kept getting shaken off way too early. And I think that what we're in now for hard money is kind of like that which is that there is going to be local periods of euphoria and um you know, corrections and consolidations

after that. But one of the biggest uh errors I think people will make is just getting out of the space entirely too early because every time it gets a little bit overbought, they'll think this is the end of the whole cycle. Whereas I think actually this has massive legs to it. And and a kind of metric I'd point to is that from literally like World War II until the kind of the past decade, uh gold's share uh of central bank holdings, of their reserve holdings, was diminishing. It used to be, you know, 70, 80%. It was most of what they held. They'd hold gold, they'd hold a little bit of like, you know, UK uh assets and a handful of other things.

Gold metrics to watch

Uh and then of course, you had the the rise of the dollar uh especially after World War II as kind of displacing uh the UK kind of entering this new era of fiat. Um and so, we had this kind of multi-decade decline of gold as a share of central bank holdings, the rise of of treasuries and other dollar-denominated assets. And that reached kind of the the inflection point back when gold fell to something like 10% of of global central bank holdings and the dollar was uh 40, 50%, 60%. I don't know the exact figure and then other fiat currencies were the remaining uh section. Uh and what we've really seen since then is gold has been forming this gradual bottom. Uh and ever since 2009, the tonnage of central bank gold holdings is

increasing again. But then also because of price appreciation, uh so, gold has completely crushed uh dollars and treasuries uh over over the past several years. Uh you've had a rise of gold in central bank holdings. Uh and I basically think that we're reversing a trend that's been in place since World War II. Uh and so, it will get overbought at times um but that I think that it is durable. Uh and so, one thing you can do is kind of, you know, when Bitcoin's over overbought, you kind of maybe focus a little bit more on gold. When gold's overbought, you focus a little bit more on Bitcoin. But the the structural trends I think are going to be with us for for years longer.

Yeah, because if you look at like money supply ratios for example and if you then look at the ratio was in 1980 and the gold price back then and right now looking at the total money supply, then yeah, gold could easily go to 10,000 Troy oz for example looking at some of these basic metrics. Yeah, yeah, it's it's still not that expensive compared to those longer-term metrics. One thing I try to do and I used to chart this more frequently years ago is that I I often compare the estimated gold market cap to money supply because gold also does go through some degree of dilution from new mining. Uh so, if you compare money supply growth to just 1 oz of of gold for example, uh it can look like gold should be

higher than it should be, but it's partially because gold as a as a total size is gradually increasing at maybe 1.5% per year, which doesn't matter much in a given year or two, but if you look at those multi-decade charts, uh, that becomes pretty relevant. Um, but yeah, even by that metric, um, you know, gold is still it's reasserting itself into the financial system from a very low, discarded base. Um, and I still think it has has room to run even though it can take breathers from time to time. Yeah. Well, one thing that worried me was that Jim Cramer was tweeting uh, today that he said as a confirmed gold bug for four decades, I think gold is finally catching up with the ridiculous US budget deficit. I think that's kind

of a contrarian sign, right? If A little bit, yeah. >> Usually when he says something you have to do the opposite, but Yeah. Yeah, I think so. Yeah. And then I saw on your on your timeline that you get a lot of uh, uh, messages from everyone across the world like like is this the is the death of fiat, right? Because of what's going on in the in the market. I I guess that's that's too soon to conclude, but it it does it does say something about uh, of course something you wrote of extensively about broken money. It's also the canary in a coal mine, right? It's it's a lot of FOMO, a lot of people that want to step in, but it also says something about the state of our monetary system and um, and and and how broken it is basically.

Is this the death of fiat or just a bubble?

Yeah, I think that there's again, there's a a structural trend and there's a cyclical reality over it. So, I think it is absolutely true that from a diminishing. Uh, the quantitative aspects underlying it, so the the public debt to GDP, the structural deficits, the the uh, shifting in global reserve status, that kind of things, the the the the more multipolar world that we're entering, uh, rather than just like a very unipolar world set around the United States. Um, as we kind of enter that that period of time, these are structural changes uh, that I think are very real. Like I just talked about that the the the biggest trend shift basically that that reverses something that's been going on since World War II.

Um, I I think that those trends are in place for years and decades into the future. Um, and then over top of that, there's this, you know, 12-month, 24-month, 36-month cyclical thing that can happen over it's based on emotions, it's based on um, attempts by central bankers and governments to rein things in temporarily um, to try to try to take the air out of bubbles and kind of shake out uh, you know, levered longs and things like that and you kind of go through a consolidation. Uh, but then because the trend is real, it generally rebuilds. So, a bubble uh, the difference in a bubble and an overbought trend is that a bubble um, it's there's nothing really substantial behind it uh, or or the the disconnect between the

pricing and what is actually real is so big um, that when it does collapse, it's very unlikely to recover anytime soon. Uh, whereas a something that is real, but temporarily overbought uh, is more likely to it it it will bounce back once it gets temporarily shaken out. An example is during 2021 because of the hyper stimulus, everything was up. So, stocks were up, uh, meme stocks were up, uh, you know, all of crypto was was up, um, everything was kind of soaring and in the correction that followed, a lot of the unprofitable zero rate environment stocks, um, you know, they they of course crashed like 80-90% in many cases. The Mag 7 also crashed uh, less so.

Uh, but then as we kind of reentered fiscal dominance in 2023, 2024, and 2025 uh, a lot of those unprofitable stocks that were like very popular by like say ARK, uh, those like you know, unprofitable tech stocks like the the moonshot things, most of them have not recovered their 2021 highs. Um, whereas most of the Mag 7 have and they're profit, you know, they're actually generating major profits. Um, they're you know, their actual fundamental fundamental metrics are there. And so, you get a recovery in in what is temporarily expensive, but real versus things that were just expensive and not really real.

Uh, and I think again, the same thing will be true for kind of the the precious metal space and certain and the Bitcoin space and certain other kind of out of favor sectors, which is that temporarily uh, they can get overdone, but then even after they get temporarily crushed or corrected they still keep shooting back because that trend is real and and pretty unrelenting. Yeah, I totally agree with that. Um, as always I've also asked my audience some questions and the one thing that people ask me you have to ask Lynn what stops this train? What will stop this this particular uh, debasement trade train or or golden and and and Bitcoin train? Is is there anything apart from technical corrections and what could fundamentally change this

What will stop this train of increasing US deficits and debts?

trend? Uh, so for the most part, nothing, but so I would break that down a little bit. So, when I refer to nothing stops this train, I specifically refer at its core to US fiscal deficits. The sheer scale of US fiscal deficits. There are of course other things that follow that. So, other developed countries are in generally speaking various uh, stages of fiscal dominance as well. Uh, and then of course, large structural fiscal deficits and fiscal dominance has implications for asset prices. Uh, but primarily I refer to those fiscal deficits and kind of the unsustainability of these major public ledgers, these these major currencies.

Um, for the most part, so the reason that that it's so hard to stop this train is it's not just a political decision, it's this whole intertwined problem. Especially in the US, but also elsewhere. You each each area kind of has its own particular difficulties. Like in Europe, it's a monetary union without a fiscal union. That is incredibly hard problem. In the US, it's it's basically decades of our reserve currency giving us these really big imbalances. Um, so we've got these really big structural twin deficits that most other developed countries don't have. Uh, we we have, you know, a lot of political polarizations come from that.

And we're also more financialized uh, than most other developed countries including much of Europe, which is when our stock market in the US goes sideways to down for 12 months or more, our tax receipts follow that more closely uh, than than many other countries. Like when Japan um, stock market goes down for a while, it doesn't blow out their fiscal deficit in the same way that it does in the United States because we have so much global capital stuffed into our um, capital markets and because we have more wealth concentration than most other developed countries and because of our specific tax laws related to our own executive compensation, related you know, how we structure things, we've just got that very financialized economy. And so, one, we've got these really entrenched entitlement systems

that are very popular. So, they're very hard to cut. Then we have the whole military industrial complex, which is very hard to cut. Uh, and then we have of course public debt interest expense um, uh, and we have this financialization problem. So, even if you temporarily do austerity uh, it's likely to hurt the stock market, which then with a lag is likely to hurt your tax receipts in such a highly financialized system. So, really the only thing that can stop the train is a major default on existing obligations. Yeah, likely not nominally, likely through purchasing power. So, major devaluation compared to gold and other hard assets of the currency combined with then some sort of reform to stop the uh,

existing bleeding. Uh, so one example was in World War II, of course most most major currencies devalued significantly. Uh, but in the United States' case, so we we inflated a lot of that debt away. So, if you were a bond holder, you got killed versus pretty much holders of any other decent asset. Um, same thing with you have of course currency holders. Uh, but then after inflating that away, they also shifted toward austerity. So, combination of financial repression and austerity uh, and they were able to then grow their way out of it, but they had way better demographics. They had way more cultural cohesion at the time, kind of a we're all in this together uh, mindset. Now, it's a very fractured uh, reality. Uh, so basically not without significant disorder devaluation

and then some degree of kind of picking up the pieces and and kind of putting it back together, which is why I I don't think it happens in the 2020s. I think the train keeps going throughout the 2020s. I think it keeps going well into 2030s. We can reevaluate from there. I try not to look more forward than 10 years cuz crazy differences can happen and and accumulate, but not in any sort of investable time horizon do I think anything stops the train. Right. What I also what I also found interesting was Morgan Stanley coming out last week that they would advise their customers to abandon their classic 60/40 portfolio, 60% shares, 40% bonds and change into a 60/20/20.

Morgan Stanley and institutional demand for gold

So, 60 shares, 20 bonds, 20 gold portfolio. I mean, if if their institutional customers are going to follow that advice on on a on a grand scale, then I mean, what would that mean for for gold market cap? Well, that'd be pretty tremendous for for for gold market cap. Generally speaking, you know, when investment banks release stuff like that, it's not necessarily going to result in their all their clients shifting over. Um, and it's funny cuz I think it's great advice. I think it's great advice late though. I mean, uh, like I I've been talking about the three pillar portfolio, which is basically instead of stocks and bonds uh, to do basically stocks, that that that part's the same.

Uh, and then some degree of cash equivalents for for, you know, disinflationary corrections and things like that. Uh, and then the third pillar is is either hard money or commodity producers. Uh, so it's basically saying, okay, so you can take some of your equities uh, add it to Bitcoin. You can take some of your bonds or cash, put it into gold or other precious metals. And that helps round out an otherwise stock and bond portfolio. It's it's been the debasement trade for I mean, I had that in place since 2018. Um, and so I'm glad to see major investment banks finally catch up. Uh, it makes me a little nervous, at least in the in the cyclical sense.

but I think that that generally makes sense. I think that there's a risk of doing it more at 4,000 gold than at 1,500 gold or 2,000 gold. but I I I think that over the long term that makes sense. I would just be careful about distributing where that is. So, if it's if it's, you know, right now gold's hot, Bitcoin is not really hot. There were pure there were periods of the inverse where Bitcoin's hot and nobody cares about gold. Um, so, I think a mix of high-quality things, uh, can help with the help protect against the whole debasement scenario.

And right now, one of the areas that's totally under-loved is energy, um, which I think will have its day in the sun again as well. And of course, no one wants to buy that whole sector when it's cheap, uh, but then maybe years later when oil's up and all that's up again, then we'll get the investment banker saying, "Actually, you should own energy again." Uh, so, we'll see. Yeah, so, better better to, uh, follow Lynn instead of, uh, Morgan Stanley. so, Bitcoin's not so hot, you said, but at the same time we saw, uh, new record highs, uh, over the past few days. So, how would you explain that then given the fact that it's not that hot? Uh, because it's it's slightly reclaiming highs reached earlier this year.

Bitcoin all time high

Um, and so, it's it's not had good performance this year. I mean, it it it cracked 100K late last year. you know, if you look at say just quantifiable metrics like, you know, relative strength index, just various measures of kind of, you know, technically overbought or or oversold, um, you know, gold's much more hotter in that case than than Bitcoin. Um, part of what happened was basically all all this past summer, a lot of the enthusiasm is in Bitcoin treasury companies and to some extent altcoin treasury companies, uh, a lot of that bubble has been washed out, uh, and it's now kind of back to a more solid foundation.

Um, so, I I I think that that space is likely to kind of build a a base from here and kind of head higher. Um, I I I'm obviously more focused on Bitcoin than the rest of the space, but things tend to follow to some extent. and so, in in compared to the performance that Bitcoin can do in a bull market, and especially a positive liquidity environments, um, I think its performance is pretty lackluster this year. Uh, whereas gold has surprised a lot of people to the upside, even gold bulls like myself. You know, if if you were to ask me in the beginning of this year, uh, is gold going to touch 4,000? I'd be like, "Well, I'd like it to. It might. I wouldn't it wouldn't be my base case."

So, I'm glad to see it happen. Or would would silver be kind of flirting with $50 an ounce? Um, I'd be like, you know, it's good for my portfolio if it does, but I wouldn't I wouldn't bet that it will. Um, so, I think yeah, precious metals surprised to the upside, uh, whereas Bitcoin's kind of muddling along, uh, even though it has nominally touched new highs. What's your Bitcoin price target for next year? Or what do you expect it to to reach next year? By the end of next year, I mean, you know, I I think I would guess over 150,000, uh, per coin. I mean, there are scenarios that go much higher than that because it tends to be a pretty explosive space when when momentum builds, so I wouldn't try to predict a top.

Uh, it's more like what I would consider healthy or realistic, uh, which is, uh, you know, another, you know, 20% increase, uh, over the course of next year, if if not more. Yeah. I I also read that Deutsche Bank was, uh, expecting Bitcoin to also take a place on the central bank's balance sheet as a reserve asset in the future next to gold. They wouldn't rule it out. Actually quite favorable, uh, opinion on on Bitcoin in in that, uh, report. Um, I I guess that's the the next move a lot of Bitcoiners are waiting for, right?

Will central banks adopt Bitcoin?

For it to be adopted officially also by central banks. Uh, um, of course, we saw Czech Republic I think it was the Czech central bank thinking about it, but I I don't think that ever, uh, got through. And then, of course, we have smaller countries, uh, like El Salvador that were experimenting with it, but we still have to see a, um, a big central bank owning Bitcoin directly. Of course, they own stocks in like strategy and and stuff like that. So, in a way, indirectly central banks already owning Bitcoin, but for them to own it directly themselves, is that something you expect to happen, uh, also like next year or so?

I don't know about next year, but in the longer term, yeah. And and so, what I would separate is sovereign wealth funds from investment from central banks. So, when you mention like some of them own MicroStrategy and stuff, that's generally in the in the sovereign wealth fund level. And there's a couple of reasons for that. One is central banks, I mean, one, the the the biggest underlying thing is that they don't move quickly. Uh, so, most entities that we saw get into Bitcoin early, uh, have a pretty kind of, um, centralized decision-making structure. Uh, so, individuals and small businesses could get into it quickly cuz it only takes one or two key people saying, "You know what? We want to own some Bitcoin now." Uh, whereas a major corporation like let's say Microsoft, uh, there's

there's a whole lot of people There's no one just kind of unilaterally running the whole thing, even the CEO. There's a whole bunch of people that have to kind of be on board with something, and it takes a long time to build that consensus with something that was, you know, historically contrarian and it's obviously very volatile. Um, you know, part of why, uh, MicroStrategy could do it so decisively is cuz the the, you know, the founder, uh, former CEO, now the chairman, uh, he he had a majority control via, you know, dual-class shares. Um, so, he had disproportionate weight compared to most CEOs. You could almost run it in some ways like a small business. Not the same thing cuz it is publicly traded, but he had a lot of uh, he could break through a lot of, um, bureaucracy to make something like that

happen. In a similar way, I mean, part of why Fidelity, uh, among major, uh, Wall Street, you know, um, you know, major, uh, traditional finance firms, Fidelity was really early into Bitcoin. They were mining it like 10 years ago, and they were, you know, they were hiring analysts to to cover it, uh, and then they got into custody. I mean, that's a private Yeah, as large as it is, it's a private business. Uh, and because the CEO was interested in it, they were able to move more decisively, uh, than many other peers like, you know, BlackRock at the time or other kind of big things. Fidelity was early for for that whole class of investors because it was more closely held.

Um, and central banks are kind of like more like that Microsoft example. Um, the these are big public institutions that are more about managing career risk and and kind of not not doing anything that that seems unusual. Um, so, that's the kind of fundamental thing. The the second layer there is that when a central bank holds reserve assets, it's something that they want to be able to to it's two main purposes. One is they want to be able to sell it at a time of stress to buy back their own currency to defend their currency. So, generally speaking, they buy things that are less volatile than their own currency.

Uh, so, if you're an emerging market central bank or if you're a even a developed market central bank, you you generally going to hold harder currencies, um, which generally includes gold, uh, or in many cases the dollar. Or or in some cases the euro or the or the, you know, the pound sterling. You're going to buy a larger, kind of more solid, uh, currency or gold. Um, and uh, and you you want to sell them at time of stress, which generally means that, uh, you expect that asset not to have a big drawdown at the same time your own currency is having some sort of crisis or drawdown. Um, and Bitcoin being a younger, more volatile asset that it still tends to be correlated with risk-on environments, um, doesn't really meet a lot of their

criteria for something that they want to be able to sell at a time of stress to backstop their own currency. Uh, so, I think that that will slow them down until Bitcoin is a larger and less volatile asset, more gold-like. Um, and uh, and so, it's it makes sense that there are smaller entities like, you know, El Salvador and others that they they have that more small business scenario where someone can make a key decision. Kingdom of Bhutan, El Salvador, they can be like, "You know what? You Kingdom of Bhutan's like, we're going to use our spare hydro. We're going to mine Bitcoin and hold it." And El Salvador's like, "We're going to buy some Bitcoin and hold it at the sovereign level." These are and and other central banks that have either holding MicroStrategy stock or holding Bitcoin ETFs, um, they don't have that requirement

that they want to be able to sell it at a time of stress. Sovereign wealth funds are for longer-term investment, so they can say, "We we're buying this despite it's volatile because we expect 5, 10 years from now it will have appreciated." And that's a different mandate than a than a central bank. Um, and so, I think that'll take time, and that generally speaking, it'll it'll be slower the larger, uh, and more traditional a central bank is. So, I think it's it's somewhat rational that central banks don't hold it, even though I think it should be increasingly held by sovereign wealth funds. I just think they're they're generally slow the bigger that they are. The other thing that's interesting about Bitcoin is that it does, in addition to being a reserve asset, it's also a reserve settlement system.

So, if if a country finds itself cut off from the dollar network, uh, and and from other types of of transactions, uh, the interesting thing is that they're all trying to build these alternative systems, uh, and those themselves are permissioned. Uh, whereas actually holding Bitcoin gives you a kind of a payment system of last resort in addition to a asset of last resort. Yeah, interesting. And how do you look then at the Ethereum, for example? Because I've, uh, heard that the European Union or Eurozone are also experimenting with the all sorts of initiatives. Um, also European banks are experimenting using Ethereum apparently to to settle transactions.

Lyn's thoughts on Ethereum

Um, why are they not using Bitcoin and why are they using Ethereum instead? Uh, well, I think I mean, there's a couple of reasons. I think one is a lot of times people keep feeling that they missed out on Bitcoin cuz it's, you know, it's a six-figure asset, so they're like, it's almost like a contrarian thing. It's like a knee-jerk thing. This is okay, this thing already ran. What can we do so we feel like we're not late? Uh, we want to catch the next thing, which I think is actually often a fallacy. Number two is that a lot of them are interested in stable coins, which makes sense compared to Bitcoin's current level of volatility. So, Bitcoin's current level of volatility it's more for longer-term holding and it's also, you know, it's the most decentralized one. So, in terms of sending it around it's kind of like I've

used the analogy it's like driving a tank to work every day. It might be overkill in many cases. If your goal is to trade with other other partners that you you have some of your trust with, then something like stable coins can facilitate that pretty easily. Or if you're in a country that is not sanctioned, so you're not like, you know, your stable coins are not being frozen and you're an individual and you need working capital for the next 3 to 6 months and you don't want, you know, Bitcoin price to go down 30% and you know, your your working capital's all messed up, you want dollars or something like that, that's where stable coins come into play. So, I I do think that it makes sense that they they they have been exploring private

blockchains, they've been exploring other other things like that, but these are at the end of the day mostly pseudo centralized at like networks. They're not kind of that like super robust setup. They're more for kind of trusted environments, experimentation. So, I think that makes sense. But basically when you think of a reserve asset, the reason gold is so valued is that a, you know, central banks can hold it in their own vault in their own something. It's very hard to anyone to, you know, take their gold. And with

Bitcoin, because it's the most kind of like, you know, institutional grade like, you know, asset network out there, the one that's most resistant to arbitrary rule changes, that's the most resistant to censorship and things like that, it's something that you could conceivably hold for 5, 10 years with pretty high confidence that that network's going to continue to operate as expected. Whereas many others, you wouldn't hold a stable coin for 5, 10 years. You probably wouldn't even hold the underlying rails for a stable coin for 5 to 10 years. They're more like tech plays than they are like a money.

Right. I remember from back in the day, 2017 already, I feel like like a veteran, that we had the block size wars within the Bitcoin community. Right now there's this heated debate amongst whether one should use as a miner or node the core implementation or the Knots version. Could you perhaps explain what the differences are and whether this poses a threat for Bitcoin? Is there like a risk of another fork or you say something about that? Sure, that's pretty complicated, so it's hard to get into quickly. The short answer is I don't view it as a existential threat. What's interesting about this one is that back in the back in the block size war, that was about the consensus. That was about changing the consensus of like what is what the

Bitcoin Core vs Knots

node software recognizes as Bitcoin. So, if you increase the block size, then it then older nodes, when they see those new bigger blocks, they will say, "Well, this doesn't meet the rules of our node and therefore we're going to reject these blocks and therefore you get an actual hard fork." And then of course there's other changes that are soft forks. What's interesting about this current debate is not even about a hard fork or a soft fork. It's basically about policies on top of And so, all both both Knots and Bitcoin Core, generally speaking, when they see a given block of transactions, they both agree whether or not that block is valid Bitcoin transactions.

Once they get once they are mined and once they distribute to the network, they agree on the same chain of all prior transactions. Where they disagree is that um Knots wants to tighten, generally speaking, filters on top of consensus. So, they basically say, "If something makes it into the blockchain, we kind of have to accept it, otherwise we're we're a hard fork. But we can we can try to do these things to to slow down certain types of transactions that that we consider less valid. It could be things that are filled with JPEGs, for example, instead of monetary transactions." And they say, "Okay, we can block these from getting to miners.

We can maybe slow them down from getting into blocks. Even if they even if they do get into blocks, then we have to accept them." Whereas Bitcoin Core is saying that, you know, this has always been a part of Bitcoin and if anything certain allowances for those types of non-monetary data allow it to go into places in Bitcoin that is safer than other parts of Bitcoin because it prevents things like UTXO bloat and stuff like that. Like more if basically if you have no spot to put in JPEGs the easy way, there's still ways to put it in the hard way. So, it still gets in there and it actually causes kind of damage from going into those like less ideal places. So, the Bitcoin Core theory is we'll make it easy to put it

in these other areas so it does less harm elsewhere. Not that we endorse that going in, but that we, you know, we want to give a better space for it if you're going to do it. And but either way, the consensus is that these are valid transactions. Over the past couple years the core side has been winning in the sense that no amount of filtering has really blocked this from getting in. But it's it's an ongoing major debate around what the kind of the the standard filter policy should be. Anyone, because it's open source code, ironically anyone can tweak their own node to have their own relay policies for what sort of transactions they will relay to others.

So, the the parts they can't really control unless they want to just fork to their own network is they can't really determine what meets consensus because they're on a different network, but they all can determine what transactions they will broadcast to others. And so, that's that's the ongoing debate right now and I don't view it as existential, although it is interesting and it is important. Yeah, it is interesting for sure. But I also feel like compared to 8 years ago, the skin in the game for all people involved is so much bigger and it's such an such a big market cap that everyone is I guess is much more cautious now than than back in the day and people will try to resolve

this in the end and and and and not cause any any harm to the value of for all these people that that hold it because otherwise, you know, if you have another fork or it will eventually lead to another schism that would be of course I don't think that will be repairable in the end. It would be so destructive for for Bitcoin as a brand also. That I just assume that the the stakes are too high to to go that way. I think I mean a a fork would do some temporary brand damage.

I don't think even a a fork would be necessarily existential. It's kind of the market like basically if these if these disagreements can't be solved with these current methods, then sometimes it's like, "Well, fork it and see which one the market picks." And basically what happens is the value temporarily gets split and and, you know, for the listeners the way it the way a hard fork works is that if you hold Bitcoin and there's a hard fork, the, you know, the UTXO set, all the existing coins up to that point are the same, but after that it's two different networks. And so, you now have both types of coins. If you held, you know, 10 Bitcoin, you now have 10 Bitcoin and 10 whatever the new Bitcoin's called.

You've got 20 coins, 10 of each, and you have a choice. If you're highly confident which fork's going to win, you can sell the 10 or some of the 10 from the side you think is going to lose and you could buy more of of the one you think is going to win. Or if you're not sure or you're just not even if you're in a coma, you're not even paying attention, you just keep holding both and generally speaking one will reabsorb the value of the other one. Kind of like how Bitcoin and Bitcoin Cash split. For a while Bitcoin Cash was a pretty meaningful percentage of the market value of Bitcoin, but then it kind of decreased over time to a sub 1% value of Bitcoin because almost all of that network effect and and energy got kind of reabsorbed by Bitcoin. I I

think the same thing would happen. But yeah, I think during during it of course you'd have headlines on major media like, you know, Bitcoin split, Bitcoin is, you know, which one is trusted. I think it would shake out people. Part of why I got convicted on Bitcoin in the first place is seeing the resolution of the block size war. And so, I ironically as that dust settles, if Bitcoin is still here and still functioning and it reabsorbs the the weaker fork, that can further strengthen Bitcoin. It just it's not a pleasant experience while it happens for those of us that are already in it.

Microstrategy House of Cards?

Yeah, right. Last time I talked to Henrik K Zeberg, I guess you also know him, he's a known analyst and he he's quite worried about MicroStrategy it being a house of cards. Do you see risks with MicroStrategy, the fact that they hold so much, that they have so much leverage? A house of cards in the sense that they are going to collapse or that they have undue control over Bitcoin? Exactly. Which which one? That they that that they would collapse when you look when when the price starts to slide and you get like the cascading effect of them having to liquidate Bitcoins in order to pay back debt holders. Of course for the next few years or so there's no redemption I think, so it's it's quite safe for the next few years or so, but is there is there a scenario in the long

run that the whole MicroStrategy setup, so owning that many coins, I think like 600,000 plus, plus a lot of leverage, could that pose a threat for Bitcoin as a whole? >> So, they hold about 3% of Bitcoin. Just put that in context. So, it sounds like a lot of coins, it's something like 3% of Bitcoin. And of course that's distributed among their shareholders, you know, kind of the the by proxy. So, 3% of Bitcoin can holding 3% of Bitcoin severely damage Bitcoin? I'm like, if they were to just wake up tomorrow and market sell their entire stack, they say, "Hey, we we have 600,000 Bitcoin for sale now."

Sure, that would be a very bad day for the price action. But, in any sort of reasonable scenario, I don't view that as nearly anywhere close to an like a major problem for Bitcoin. I mean, back in the day, Mount Gox was way more concentrated. I mean, people often forget GBTC had, you know, they they touched 600,000 coins before MicroStrategy did, back before the ETFs were a thing. And so, there there has been this influx into, you know, MicroStrategy and ETFs, but that's largely out of GBTC and a handful of other places. As for the leverage, they're still fairly low leverage compared to their amount of Bitcoin. So, you know, if they had as much leverage as Bitcoin, it increases

the odds that they would have a problem. But, they're actually still fairly low leverage. You know, their their their leverage is a somewhat small percentage of their total Bitcoin. So, I don't view that anywhere near close to something that I'm I'm very concerned about. Now, if you're a MicroStrategy shareholder, there are times where the MNAV, the market value compared to their kind of Bitcoin value minus debt, gets kind of concerningly high. And so, you'd be concerned around your value potentially getting cut in half even if Bitcoin is is flat. So, there are price risks especially for the shareholders of MicroStrategy and certain other treasury companies. Those are those are genuine.

But, yeah, I'm not concerned currently around major price risks for the network as a whole. Thanks. Then, the final question to to go back to the debasement trade. It it It looks to me like it's a lot of demand coming from Western nations. You see ETF inflows, the US, Europe. But, you also spend a lot of time in Africa and Egypt. And I have family in South America. To what extent are like average people in these countries that already know much better than we all do that that you cannot trust governments maintaining the value of their purchasing power.

Are developing countries also doing the debasement trade?

Are they also getting into gold, for example, and and and Bitcoin? Do you have any any signs of that? So, for the first time, I had a friend in Egypt ask me if he should get out of the dollar cuz he's concerned about the dollar, ironically. That is new. So, for for those aren't familiar, in Egypt, yes, not is unlike say Nigeria, which is very Bitcoin and and stable coins heavy. Very high adoption rates of Bitcoin, stable coins, and and to some extent other crypto. Egypt has pretty low adoption rate. So, it's one of the most populous countries in Africa, over well over 100 million people. Pretty low adoption rates. They're general stores of value because like many other other developing market currencies, their their, you

know, their currency grows very quickly. It generally gets debased over time compared to the dollar and other major currencies. Their preferred stores of value historically have been gold, real estate, and dollars for different purposes. So, so real estate is obviously illiquid, generally longer term. There's a lot of overbuilding there where people will literally like build a house, not even live in it, and they just kind of hold it thinking they might they might one day move there or that they could rent it out. Often, they're not rented out cuz there's too many.

The other one is gold. They hold that for It's kind of a moderate term cuz it's fairly liquid, but it's it's got some degree of volatility to it. And then dollars, which they generally hold for shorter term, but that they, you know, they still debase over the longer term. And they'll they'll often they'll be like gray markets or black markets in the streets of Cairo where where people will trade, you know, the local currency for dollars. And because the dollar's actually been slightly falling compared to the Egyptian pound recently, as Egypt kind of holds a pseudo peg for a little while, and as you get the, you know, kind of the the dollar has weakened this year. There have been people there saying, "Should I get out of dollars?"

And so, I there is this kind of global kind of cracks forming around perception of dollar. Now, I think that that'll probably get refreshed at some point. They'll say, "Okay, no, the dollar's fine." And but then probably years after that, they'll say, "Well, maybe the dollar is having issues." I would say that in in Egypt, appreciation of Bitcoin is still pretty low. Appreciation of gold is on the rise from what I've seen. But, it's already been pretty substantial there. And one thing that that tends to I think lull people into complacency is in in Egypt, and something I compare Egypt to Nigeria here. So, Nigeria's currency is kind of like always devaluing. People get very accustomed to the fact that Nigerian

currency is going to devalue. In Egypt, it kind of for years will be kind of almost one like pegged to the dollar. It'll it'll like not really change at all as the central bank's kind of doing its best to maintain that. And then it'll kind of devalue all at once. Like, you'll kind of wake up and just oops, like the currency's cut in half relative to the dollar. And then it stabilizes. And then people can say, "Well, that was a one-time thing." And then they go another years, and then there's like another major devaluation. And it it kind of just people are more likely to keep holding the currency and get rug pulled all at once than, you know, if every single month like another devaluation.

That's more likely. It's more It's more kind of um decision points or number points to say, you know, maybe I should get out of this thing. So, I would say that I haven't seen major fundamental changes recently other than, ironically, a little bit concerned around the dollar. That's That's interesting that Trump is trying to dupe all these people into into treasuries through stable coins. But now, people in developing nations are saying, "Look, I I don't want your fiat. Let's just take something else instead and follow the debasement trade."

Well, thanks so much, Lynn, for your time. I I am So, I have the the English book here, Broken Money. We all already talked about it last time we spoke. There's a Dutch translation for my Dutch Dutch viewers. I wrote the forward. So, thanks so much for for that opportunity. I'll I'll put a link in the show notes where to get the Dutch version called uh And then maybe you will you will laugh because it's it's a very very Dutch, but it's called Geldnood, waarom ons financiële systeem ons in de steek laat en wat we eraan kunnen doen. Now, you repeat after me, Lynn. I'll take it again. I'll eat it.

Outro

Yeah, I'll I'll put the links in the show notes and thanks so much again, Lynn, for your time. And yeah, if we can do this every year once, that'd be amazing. Anything else you you'd like to end the the episode with? >> I know I think that covers it. Thank you for having me on. Yeah, perfect. Thanks a lot, and talk next time. Bye.