Bitcoin Phase 5 PlanB Jeff Booth Preston Pysh Peter McCormack

Bitcoin Has Entered Phase 5 with PlanB, Jeff Booth & Preston Pysh | What Bitcoin Did Podcast

Check out the What Bitcoin Did Episode Page & Show Notes

Key Takeaways

  • One question to ask when deciding on a store of value, “Does the thing you own have counterparty risk?”
  • Technology is an unstoppable force that drives prices lower and enables less human work
    • Moreover, because technology evolves exponentially, money printing has to increase exponentially to match the exponential deflationary pressure
    • A Bitcoin standard, which I believe we will go, forces the technology abundance to be broadly shared” – Jeff Booth
  • While giving people free money is politically popular, it fails to explain the source of the money: it’s insidious stealing from the people
    • Under capitalism, time eventually becomes the most valuable asset
  • Pension funds can gain Bitcoin exposure by holding stocks of companies that own bitcoin reserves
  • Bitcoin’s price tends to follow its production cost
    • The question is what is the cost of energy and how has it adjusted to fiat currency inflation
    • Based on PlanB’s model, price should start making new All-Time Highs (ATHs) around the start of 2021

Resources Mentioned

Intro

The Search For a Store of Value

  • One question you need to ask “Does the thing you own have counterparty risk?”
  • Central banks started off with coordinated printing and have now evolved to competitive printing
    • As a result, money chases stores of value rather than productive avenues, the market is now a gamble
  • Most people don’t yet understand Bitcoin and stop at the basic arguments (e.g. anyone can make an altcoin)

That said, people are learning to ask, “What is money?”

Technology is Deflationary

  • Technology is an unstoppable force that drives prices lower and enables less human work
    • Moreover, because technology evolves exponentially, money printing has to increase exponentially to match the exponential deflationary pressure
  • Technology moves fast and leaves people and companies playing an old game (E.g. Sears losing to Amazon, Kodak blinded to the rise of digital photography)
    • Similarly, expect governments to be left behind, trapped in a bubble of their own creation
      • “Interest rates policy, printing of money, is all of those things on a last leg of an old system, trying to keep the system alive” – Jeff Booth

Creative Destruction

  • New technology destroys old technology and creates new jobs and opportunities, an essential part of a thriving economy
    • Instead, Quantitative Easing forces money into unproductive avenues and kills the creative destruction process
      • Luckily, “The seed of the change is sawn into the thing that’s causing the destruction” – Preston Pysh
      • Bitcoin is a technological solution that forces price deflation to take place, solving the root of the problem
  • “I suspect it’s [Bitcoin] going to breakout like crazy when people understand what’s really happening”
    • “It blows my mind that educated smart people can say ‘how can Bitcoin ever be a store of value or currency’ while at the same time believing, unilaterally, in a currency that they know is being manipulated” – Jeff Booth

A Game of Incentives

  • Election cycles incentivize not dealing with the problem now, and instead leave it to the next election cycle
    • For instance, Donald Trump is incentivized to keep the stock market high in the short-term regardless of the long-term consequences
  • The current system incentivizes overconsumption and punishes prudence; saving is punished while loans are encouraged
  • A traditional view of inflation is to drive consumption

In reality, inflation is needed to wipe out debt. Else, banks fail if the real cost of debt goes up

Gradually, then All at Once

  • In his cross-asset pricing model, PlanB views Bitcoin as a new asset with different properties as it goes through phase transitions
    • An example of phase transition is heating water; molecules remain in liquid form as they gain energy, then suddenly jump to a gas state
    • People have only known inflationary monetary policy for their entire lives, a change to an equity-based monetary system is akin to a phase change
  • Institutional investors are looking for a hedge against QE, instability, and wars
    • Additionally, populations are aging which causes more deflation

What Modern Monetary Theory (MMT) Misses

  • While giving people free money is politically popular, it fails to explain the source of the money: insidious stealing from the people
    • Additionally, devaluing a currency destroys its status as a reserve currency, eventually leading to revolutions and wars to reset the status
      • Instead of leveraging technology, inflation forces humanity into wars
      • In his tweet, Naval Ravikant talks about how “the only two ways to coordinate human societies at scale are free markets and physical power”
  • Under capitalism, time eventually becomes the most valuable asset
    • As opposed to working all your life with the goal of retirement in old age with some saved money

Peaceful Transition

  • People gaining value from holding bitcoin could drive a peaceful transition of wealth
    • That said, it depends on the speed of how things move, and the on and off-ramps to Bitcoin, and state response
    • We are already seeing expensive real estate being sold for bitcoin and settled in minutes outside the banking system
  • In The Sovereign Individual, authors describe how individuals will overtake states as the new sovereign entities
    • Individuals will be able to shop for a jurisdiction that suits their needs
    • Additionally, game theory will push some governments to adopt Bitcoin to gain a first-mover advantage and attract capital in the process
      • The order of Bitcoin adoption: Private companies, public companies, then state actors
  • “I think that the collective of sovereign individuals will be bigger than that of nation-states in phase 5 or phase 6” – PlanB

MicroStrategy is Phase 5

  • Pension funds can gain Bitcoin exposure by holding stocks of companies that own bitcoin reserves
    • In a way, publicly traded companies act as a Bitcoin ETF
    • Keep in mind, holding bitcoin reserves is a conversation that’s happening in board room meetings right now
      • A primary reason is the inability to store value in cash
  • Worth noting, companies owning Bitcoin on their balance sheets decreasing the chances of government bans, driving more network effects
  • “I think it would be irresponsible for anybody not to have some [Bitcoin] right now” – Jeff Booth

On Bitcoin’s Price

  • Stock to Flow model holds true even when Bitcoin is priced against Gold
    • Eventually, Bitcoin’s value will grow into its spot regardless of money printing
  • Bitcoin’s price tends to follow its production cost
    • “If the price is below cost, then production slows down. If the price is above cost, profit can be made by generating and selling more. At the same time, the increased production would increase the difficulty, pushing the cost of generating towards the price.” – Satoshi Nakamoto
      • The question we should ask is what is the cost of energy and how has it adjusted to fiat currency inflation
      • Increased network hash power is proof that the market is valuing the network
  • Based on PlanB’s model, price should start making new All-Time Highs (ATH) around the start of 2021
    • People will then dig deeper into the value proposition of Bitcoin

Bitcoin vs Other Assets

  • S&P and Bitcoin are correlated and co-integrated over the last 10 years (their correlation is not a coincidence)
    • This can be explained by the increasing quantity of fiat currency
    • It also means Bitcoin isn’t a safe haven asset
  • Historically, people weren’t able to escape hyperinflation because all their wealth was in the local currency, Bitcoin fixes this

A Bitcoin Standard

  • A Bitcoin standard, which I believe we will go, forces the technology abundance to be broadly shared” – Jeff Booth
    • Unlike the current situation of inflation concentrating power into the hands of the government, and people demand more government intervention in response
  • Only profitable companies will remain in business under a Bitcoin standard, no more government propping up zombie companies
  • “The biggest threat to Bitcoin is good government policy” – Saifedean Ammous
  • The army of Bitcoin Hodlers is growing and there will be a trigger point
    • Once you have seen, you cannot unsee. Once you get it, there is no way back.” – PlanB
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