Anthony Pompliano: Bitcoin | Lex Fridman Podcast #171

Key Takeaways 

  • An open, decentralized protocol like Bitcoin returns sovereignty, individualism, and personal responsibility back to the individual and takes it away from institutions
  • Bitcoin is a savings technology that simplifies wealth preservation and generation for the everyday person
  • Bitcoin is sound money that exists outside of the current political and monetary system, and it cannot be controlled by governments to benefit the few at the expense of the many 
  • Fiat currencies lose purchasing power over time as governments print more and more of it
    • Fiat currencies, as they exist today, have only existed for the last 50 years or so
  • Bitcoin and gold share many of the same monetary properties, but being natively digital, bitcoin has various technological advantages that will make it a better store-of-value asset in the long term than gold
  • Crypto is an arena of ideas; a war of attrition.
    • It will be obvious which projects are valuable and which are not ten years from now
  • Money is time, and the pursuit of money is driven by the belief that more capital accumulation will give the individual more time doing things they enjoy
  • Happiness is spending your time how you want to spend it
    • Having more money allows you to spend a larger percentage of your time how you want to spend it

Bitcoin Resources and Books

Intro 

  • Anthony Pompliano (@APompliano) is an investor and content creator in the business, finance, and technology industries. He has invested in over 100 early-stage companies and managed a portfolio valued at more than $500 million. His newsletter, The Pomp Letter, has over 210,000 subscribers. 
  • Check out these Podcast Notes from Anthony’s conversation with Keith Rabois
  • This conversation with Pomp and Lex includes the topics of Bitcoin, money, gold, time, memes, Elon Musk, Ray Dalio, the meaning of life, and much more. 
  • Host – Lex Fridman (@lexfridman

Bitcoin Maximalism

  • An open, decentralized protocol returns sovereignty, individualism, and personal responsibility back to the individual and takes it away from institutions 
  • The digital economy in the cloud has become the prevalent way we communicate and conduct commerce
  • Maximalism is not only about “this thing is the best”, it is anti-everything-else
    • Example: Keto diet is not only the best diet, but all other diets are bad
  • Traditional finance is more inclined towards diversification than people in crypto
  • Bitcoin is trying to be sound money; Ethereum is trying to be the world computer
  • Bitcoin vs DeFi & Ethereum:
    • Bitcoin is optimized for network security and decentralization over everything else
    • DeFi is less concerned with security and sacrifices a level of security to optimize for a specific parameter like transaction speed, composability, etc. 
    • Ethereum was created by a group of people that wanted to build something on Bitcoin, but they couldn’t; so they created their own blockchain that they could build smart contracts on 
  • Technology can be tribal
    • The market will decide what is valuable and what is not 
  • The “ticker price” drives the tribalism in the cryptocurrency market 
  • Crypto is an arena of ideas; a war of attrition 
    • Ten years from now, it will be obvious which projects are valuable and which were not

Money Is a Belief System

  • There is nothing “backing” today’s money other than government decree, but this wasn’t always the case
  • Gold used to be the layer-one monetary technology
    • It was “outside the system” and no one controlled it, but it was difficult to move around and it wasn’t sufficiently divisible 
  • Humans created a layer two solution in the form of paper claims built on top of the gold system 
    • Paper claims were redeemable for gold; they were pegged to gold
  • The United States broke the gold peg in 1971, and our monetary system transitioned from sound money that no one controlled, to a government-controlled monetary system

Bitcoin

  • Bitcoin is similar to gold as a store-of-value asset
  • Bitcoin has had a 200% compound annual growth rate for over a decade in terms of USD exchange rate
  • Two schools of thought have formed in the crypto space
    • Bitcoin is old technology, it’s too slow, let’s go build something else
    • Bitcoin is like gold, so let’s build layered solutions on top of the ultra-secure base-layer to improve parameters like transaction speed, scalability, etc. 
  • Both schools of thought will probably be around in the future, but what really matters is which school of thought will be more important 
    • Probabilistic thinking is better than binary thinking when thinking about the future
  • Security is fundamental – the other components can be improved on layer two and three solutions

Financial Censorship 

  • Every fiat currency and financial service is highly vulnerable to censorship
    • The U.S. censoring of other governments affects the people in those countries who may have done nothing wrong
    • Bitcoin democratizes access to a store-of-value asset and medium of exchange
  • Countries often use capital controls to prevent capital from fleeing the country
    • Bitcoin allows citizens to peacefully protest their corrupt politicians and to opt-out of a system that may not be benefiting them 

Bitcoin as a Main Currency 

  • There doesn’t need to be a direct competition between bitcoin and the dollar
  • The most valuable technologies tend to be market expanding technologies, not market-stealing technologies 
  • There is the medium of exchange aspect of money (which the dollar is very good at), and there is the store-of-value aspect of money (which the dollar is not as good at) 
  • The new generation of investors realize that the real returns on bonds are negative because they see that the dollar is being devalued 
  • The stock market is up-and-to-the-right in dollar terms over the last several decades, but the stock market denominated in gold is actually down since 1971
    • So is the stock market accruing value? 
    • Or is the currency that the stock market is denominated in just being devalued?
  • New investors realize that the 60/40 portfolio doesn’t work anymore (60% stocks, 40% bonds)
  • Bitcoin simplifies savings for the everyday person – it’s a savings technology 
    • The everyday person doesn’t have to be a professional investor on the side and pick winning stocks to preserve their purchasing power over time
    • A sound monetary system would allow them to save in a currency that preserves value over time
  • People turn to what they perceive as store-of-value assets to protect them from currency debasement
    • Gold, fine art, real estate, etc. 
  • Only 7% of gold, a $10T asset, is used for industrial applications
    • The rest of its market value is from store-of-value asset monetization 
    • However, gold is becoming demonized, and capital that might have previously bled into gold is now bleeding into bitcoin because they share many of the same monetary properties 
  • Bitcoiners and gold bugs agree on most things and believe that sound money is the solution
    • The camps differ on which sound money is better: bitcoin or gold
    • The disagreement is primarily driven by differing preferences regarding digital versus physical properties 

Scarcity Creates Value 

  • Scarcity has a high correlation to value across all assets 
  • Scarcity is a signal of value 

Money is Time

  • Money is time; the pursuit of money is driven by the belief that more capital accumulation will give the individual more time 
  • Time is finite, it is scarce 
  • The concept of a Time Billionaire: time is more valuable than money, but you acquire the money to gain more time
    • A person in their twenties has about 2 billion seconds left in their life
    • Trading their scarce time for fiat money that loses its purchasing power over time is not a good trade
  • Bitcoin is an asset that holds and appreciates its value over time
    • All assets are down relative to Bitcoin since its creation 
  • In a world where fiat currencies are infinite, bitcoin becomes interesting
    • Bitcoin is finite, which makes it essential for wealth preservation over time
  • The wealth gap expands because the savers hold the devaluing asset (fiat currencies) and the investors hold the appreciating scarce assets 
    • The bottom 45% of Americans hold no investable assets
    • Scarce assets appreciate against the devaluing currency 
    • Not only is Bitcoin scarce, but it is finite, which is not the case for gold, fine art, or real estate

Independent Thinkers and Bitcoin 

  • Society needs independent thinkers who challenge ideas and are willing to receive criticism for their ideas
  • Many Bitcoin critics haven’t done their homework 
  • On “Bitcoin Toxicity”: the extremists tend to be the loudest in the group, even if their message isn’t necessarily representative of everyone in the group 
    • The Bitcoin community is the ultimate insurgency 
    • Bitcoiners can’t play the same games as traditional finance people and expect to compete
  • Bitcoiners understand memes and how the internet works better than most people
    • Memes infiltrate traditional finance institutions and the people that work there

Ray Dalio’s Bitcoin Journey 

  • Ray Dalio (@RayDalio) understands the bitcoin argument, he just misses the point that Bitcoin is the answer to many of the problems that he discusses in relation to the long-term debt cycle
    • He is coming around to Bitcoin and is currently on the “bitcoin journey” 
    • He agrees with Bitcoiners that “cash is trash”
  • When Ray Dalio and other famous investors like Paul Tudor Jones (@ptj_official) put their stamp of approval on Bitcoin, it reduces career risk for other money managers in the traditional finance space who want to allocate towards bitcoin 

How to Acquire and Store Bitcoin 

  • There are many ways to acquire bitcoin, but they all require some form of value exchange
    • Mine bitcoin and exchange electricity for bitcoin 
    • Buy bitcoin on an exchange and exchange another currency for bitcoin 
    • Earn bitcoin via employment and exchange time for bitcoin  
  • There are many ways to store bitcoin
    • Kept on exchanges like Coinbase, Gemini, or Cash App
    • Software Wallet connected to the internet (Hot Wallet)
    • Hardware Wallet not connected to the internet (Cold Storage)
  • There are trade-offs in security and convenience for the method used to store bitcoin 
  • Not your keys, not your coins
    • Sovereignty is a part of Bitcoin’s ethos, which is why Bitcoiners advocate for self-custody and to withdraw coins from exchanges 
  • Bitcoiners optimize for self-sovereignty and the reduction of counterparty risk via cold storage 
  • The optimal storage strategy depends on how and why the person uses bitcoin
    • Traders will keep bitcoin on exchanges because they optimize for ease of use and speed
    • Long-term holders have no intention of spending their coins, so they maximize security and store their bitcoin in deep cold storage 

Bitcoin Investing Strategy 

  • Bitcoin is savings 
    • 1 BTC = 1 BTC
  • You become less consumptive in your behavior when the currency you use appreciates with time (bitcoin)
  • You’re incentivized to be a consumer when the currency you use depreciates with time (dollars)
  • Bitcoin purchasing power appreciation can turn people into longer-term thinkers 
  • A world denominated in sound money is a world with less nonsense because valuable money raises the bar for worthy investments
    • Free, easy money results in speculative investments in all kinds of things that may or may not return a meaningful value
  • A Bitcoin investing strategy to consider (that is not financial advice): choose a percentage of your paycheck to convert into bitcoin when you are paid and stick to it on a long-term time horizon 
    • Dollar-cost average into bitcoin instead of trying to time the market
    • You will inevitable acquire bitcoin at various high prices and low prices that will balance out over time
    • Think of bitcoin as a savings account and allow compounding to take place 

Bitcoin’s Volatility 

  • Volatility is not positive or negative
  • Every asset denominated in bitcoin over the last 10 years is down against bitcoin 
  • Lindy Effect: the longer it exists, the higher the probability it continues to survive 
  • Volatility depends on what you price your life in
    • USD price can be volatile in the short-term, but 1 BTC = 1 BTC

How Bitcoin Reaches $1M Using Gold as a Framework 

  • Gold is a $10T asset and Bitcoin is superior to gold in every way from a technological perspective
    • From a macroeconomic perspective, if Bitcoin is a 10x technology improvement to gold, but only captures 2x the market value of gold, then bitcoin reaches a $20T total market value, which equates to $1M+ per coin 
  • Gold’s supply schedule is typically linear but ultimately unknown
  • Bitcoin’s supply schedule becomes exponentially more scarce with time and is provably predictable 
    • The supply dynamics of bitcoin are completely known; all that’s left is to determine the demand 
  • Bitcoin Supply shocks happen every four years when the rate at which new bitcoin enter the market is halved 

Philosophy of the Meme

  • Sh*tcoin definition depends on who you ask
    • Bitcoin maximalists define sh*tcoins as anything that isn’t bitcoin 
    • Bitcoin proponents might classify the bottom half of altcoins as shitcoins
  • People use the term “sh*tcoin” to describe a coin that has no value 
  • Decentralized products do not have a prescribed leader
    • Tribalism naturally forms in these communities
    • Powerful memes become rallying cries for decentralized communities
  • Society has become adverse to constructive criticism 
    • Bitcoin is truth, it’s math, and it can be proved; this attracts a certain kind of person
  • The effectiveness of the meme depends on the intention 
    • When done right, a meme is the most articulate way to convey a complex method
  • Memes aren’t only low-quality images – they are ideas, videos, hieroglyphics, etc. 
    • The internet enables memes to spread around the world faster and convey complex ideas more efficiently 

Dogecoin & Elon Musk

  • Elon Musk doesn’t get enough credit for his understanding of memes, internet culture, and human psychology 
  • Elon uses Dogecoin to meme about things he cannot otherwise meme about
    • He probably doesn’t have an economic interest in Dogecoin 
  • Elon plays 3D chess

NFTs, Virtual Reality, and Artificial Intelligence 

  • An NFT is a non-fungible token
    • NFTs create scarcity in a digital environment 
  • People look at what is scarce in the physical world and use NFTs to replicate that scarcity in the digital world, i.e. fine art
    • This is a new technology; we might not be good at it for a while
    • The question that matters: will scarcity be important on the internet?
  • Virtual Reality is the replication of the physical world in a digital environment
  • The meaning of artificial intelligence is in the name; it is the replication of human intelligence at scale, automated, and programmed
  • Nefarious actors will use AI just like nefarious actors have used other forms of technology in the past 
    • Inadvertent and irreversible mistakes regarding AI will have more significant impacts on humanity than the “AI risks” that are commonly discussed today 

Can Money Buy Happiness?

  • Happiness is spending your time how you want to spend it
    • Having more money helps you spend a larger percentage of your time how you want to spend it
  • Money might not directly buy you more happiness in terms of acquiring more goods
  • Leverage financial resources to acquire more time to do the things you like
  • Happiness is specific to the individual  

The Meaning of Life 

  • The meaning of life is to be happy 
  • At some point, you ponder the question of “what is enough?”
  • Understand how you measure your level of satisfaction in life 
    • The people that think about this question earlier have more time to achieve that satisfaction – whatever it may be (financial goal, freedom of time, etc.)
  • Referencing Jeff Bezos’s Regret Minimization Framework for decision making: how do you minimize regret when you reflect back on your life
    • For example: which will I regret more if I don’t?

Lessons Learned from War

  • War is often thought of as black and white, but when you’re actually on the ground, you understand the humanity of it all
  • It’s common for returning veterans to be pacifists when they return from war
  • Paraphrasing the famous Navy Seal Marcus Luttrell (@MarcusLuttrell): 
    • The politician’s job is to be the diplomat; to do everything possible to not send soldiers anywhere, because when you send them, they are going to bring hell with them
  • We should avoid having to send soldiers into war at all costs, but we must understand the consequences that come when we do send them 
  • The United States is the best in the world at sending soldiers into war

Will There Always Be War?

  • War and conflict are two different things
    • There will always be conflict; it will always exist
  • The more important question: what form will war take?
    • Cyber War, Information War, etc. 
  • The implications of “going to war” with another country but having no death 
  • Separate a person’s intention from action 
    • The most heinous criminals in the world have rationalized their actions
    • The rule of law requires context 
  • The world is too complicated to make things black and white
    • Analyzing intention gets at the question of whether someone’s action is good or bad
    • There is an overemphasis on the action alone without any context 
    • Spending more time evaluating a person’s intention, rather than the action, might result in a kinder society
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Notes By Stan Rizzo

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