Opposing Views on Bitcoin (w/ Anthony Pompliano & Mike Green)

Opposing Views on Bitcoin (w/ Anthony Pompliano & Mike Green)

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ASH BENNINGTON: First, thank you both for coming and having this conversation on Real Vision Crypto. Anthony, of course, you've been on Real Vision multiple times. You've hosted Raoul on your Pomp Podcast. Mike, you host Mike Green in Conversation series right here on Real Vision. This debate started on Twitter. We all love Twitter.

It's a great place to blast out little squibs but not always the best place to have a long form conversation. When I think about this, this is more than a debate between two individuals. This is two worldviews colliding, and that broader collision is just beginning to be felt around the world. I couldn't think of two better people to represent those worldviews here than you.

Pomp, you're at the very vanguard of the digital assets, investment movement at Morgan Creek Digital. Mike, what you do over at Logica Capital is some of the most sophisticated analysis of traditional capital markets anywhere. We're very glad to have both of you here on Real Vision for this conversation today.

Mike, since you started to make the case that kicked off this debate, why don't you go first and explain the basic framework? What is your view of Bitcoin and why? MIKE GREEN: Well, just first, its background. The reason that I became more actively involved in the Bitcoin debate was kicked off by actually a Real Vision event, the Blacklist event in Dallas, Texas in October of 2020. I was fortunate to be there   and have the opportunity to engage with a number of family offices that were almost uniformly making the observation that they were in the process of replacing gold in their portfolios or reallocating away from gold into Bitcoin. Interestingly, they all use the same terminology that it was the superior asset. As I began to evaluate that condition, and to think about that dynamic, it was important for me to really dig in, in a professional sense, and as I've indicated elsewhere, I've participated in Bitcoin, I've had involvement with Bitcoin on a personal basis historically, I ultimately have chosen not to do that anymore.

That was a personal choice. As I dug into it on a professional basis, it required a much deeper dive. Once I began to dig into it, and to evaluate this claim that Bitcoin was a superior asset, it became very clear to me that that was really totally untrue, that it was an inferior asset relative to gold, certainly in terms of the dynamics of why a central bank would choose to hold it. Secondly, it was recognizable as an inferior asset once you actually began to evaluate the claims that are made within the community. I think one of the things that sets my work apart in traditional asset markets is the recognition that a rising price does not tell you something is working, that something is going to be successful.

You and I have been recorded where I've used the terminology, driving uphill with no brakes. I would suggest the same thing applies to Bitcoin, where the price has clearly risen, and that gives people comfort in the story, but the reality is that Bitcoin is a superior asset for one reason and one reason only, it facilitates those who want to work against the existing system, either to generate dollars in the case of China, Russia, Iran, or other bad actors on the global stage that are trying to avoid sanctions, or for criminal purposes. As I dug further into the data that is presented within the industry, it became very clear that the data that is being  presented is disingenuous. For example, the industry will simultaneously say 95% of the data is fake, 95% of the transactions are fake, and then use those same 95% of the transactions in disputing the claim that crypto is primarily used for crime. If you look at reports, like the report from Elliptical that came out in 2020 regarding the utilization of crypto for crime purposes, they suggest that it's around 2%.

The disingenuous claim is made over and over again that the US dollar is more widely used for crime or the Euro is more widely used for crime. Of course, that's true given the relative acceptance of them, there's a proportion of transactions within Bitcoin. We either have to decide that the 95% of the transactions that are referred to as being fake and therefore shouldn't be considered should be ignored when we're thinking about the dynamics of the utilization for crime purposes. If we adjust for that, what we'll discover is nearly 40% of crypto transactions are actually used for crime. The vast majority of the mining activity is occurring in regions like China, Russia and Iran.

If we incorporate the participation of mining pools, they control in excess of 90% of the hash rate. This is not a decentralized system. It has become an increasingly centralized system focused on one thing and one thing only, attracting US dollars and providing that to those who are utilizing resources in regions like China, Russia and Iran to capture dollars. ASH BENNINGTON: Pomp, I imagine you have a different view.

ANTHONY POMPLIANO: Yeah. Look, we can get into all the specifics of Mike's opening statements, what I would just say is I think that Mike's worldview, I'm not sure what changed, I'm sure we'll get into it, but is misinformed. I believe that his position on the asset and  on the growth and the market  adoption is misinformed. I think that the argument that he is making, as I'll show historical context, is absurd. What we are actually talking about is if Mike's worldview ends up prevailing, we essentially are going to cut the United States off from the future global growth, and it is not only a misinformed worldview, but frankly, it's a very dangerous worldview.

I'm actually glad that most of the politicians who talk about this topic don't see the world the way that he sees the world. Because I think that, again, it's very dangerous. It could be the single greatest [?] to the United States continuing to have the position of power and leadership that it has on a global stage. If Mike's worldview was to prevail, he would actually be handing victory to many of America's adversaries, and so excited to get into it. I really respect Mike and a lot of his views and prior work that he's done, but I just think in this one sector of financial markets, he's misinformed, and his worldview is inaccurate. ASH BENNINGTON: Pomp, I want to characterize what I heard from Mike, there are principally two arguments that he made against Bitcoin that were really core to the thesis, the others are supporting those two pieces.

The first is that Bitcoin is a conduit for criminality, and that the rate at which Bitcoin is used to facilitate criminal transactions is far higher than US dollars or Euro, effectively higher than fiat. The second is that Bitcoin is inherently dangerous in Mike's view because it has the potential to form a geostrategic perspective, meaning that there are countries in the world who do not wish the United States well, that are either strategic rivals or strategic adversaries and they're using Bitcoin, fundamentally, to build an advantage against the US dollar system, against sanctions regimes, and some of the other things that the United States has controlled since the end of the Cold War. What are your views specifically on those points? ANTHONY POMPLIANO: Let's first just start with what Bitcoin is.

Bitcoin is simply an open, decentralized digital protocol, very similar to what the internet is. The perspective that Mike has of as other countries leverage this open digital decentralized protocol for their gain, we therefore should, as the United States, ban ownership, prevent usage, etc. If that worldview was to prevail, when the internet came around, we would essentially be living in prehistoric times. We would be North Korea, because that is what North Korea has done to their citizens. They have said, you are not allowed to use this open digital decentralized protocol called the internet. Instead, the United States, thankfully, was innovative.

It was forward thinking, and it believed in capitalism and democracy. It said, if any country is going to benefit from an open digital decentralized protocol, we are going to make sure that we are the leader, we're going to use this to further our leadership position on a global scale. While Mike, I think, has this belief that other countries are benefiting from an open digital decentralized protocol, he's not wrong, but the reaction or the end result of that should not be, we, therefore are going to opt out.

Because that will not stop these other countries from using that open digital decentralized protocol, you cannot shut this down. Instead, what we should do is we should embrace it, and we should ensure that the United States stays the leader on a global scale. What we've seen in other countries is when  their leadership has decided  to ban the participation in that open digital decentralized protocol, adoption has actually gone up among the citizens. I think that it's a very, very misleading argument to make around criminal activity to say that 40% of transactions are for criminal activity.

The beauty of this is while we can sit and we can guess what are the US dollar transactions, the differences, Mike cannot tell us how many dollars are in circulation. Mike cannot tell us and prove to us how much gold is in circulation. I can prove to you on the blockchain exactly how many bitcoins there are. I can prove to you and show you exactly how many bitcoin are in circulation.

I can prove to you and show you every single transaction that rd hasoccurredsinceJanuary3   ,2009.Mikecannotdothatforgold,andhecannotdothatfordollars.The whole argument of 95% of transactions are illegitimate or fake, he's talking about the exchange traded volume. What he is not talking about is the actual transactions on the blockchain, because you can prove it. That is the divergence of our worldviews. Many of the issues, I believe, in the legacy financial world in the macro system, Mike and I probably actually agree on.

Actually, I think we agree on many of the solutions from the sense of he holds gold and I hold Bitcoin. Those two things are very similar. They're both sound money principled assets.

He chooses the analog version, or the analog application to sound money principles, I choose the digital application of sound money principles. I think that what we end up seeing here and the great equalizer in this conversation is that the world that is outside of this new digital decentralized world is a narrative based world. Mike will throw a lot of data at the wall, Mike will tell a lot of stories, but he cannot prove the transactions. How much money is laundered in the legacy system? There's estimates that over $2 trillion is laundered, the global money supply would put that at a higher percentage than what is estimated to be the illicit transactions in the Bitcoin system. The difference is I can prove, I can show every single transaction.

He can't do that for dollars. The narrative based world is going to be disrupted and is actively being disrupted by this digital world where provability and auditability is at the core of it. If you cannot prove something, then the narrative doesn't resonate anymore. I think that's the key difference, and so there's not more criminal activity and I just don't see a world where advocating for essentially sanctioning and cutting off. When we sanction another country, when we sanction Venezuela, Iran, North Korea, we cut them off from the global financial system.

What Mike is advocating for is to cut off  American citizens from an  open digital decentralized protocol that the rest of the world is going to adopt with or without the United States participating. That makes no sense to me. ASH BENNINGTON: Mike, first, is it a fair characterization that you want to ban Bitcoin or think it should be banned or think we should consider banning it? Second, Pomp's made an interesting argument  here, which is that in  effect, there's a transparency bias because you can see all the activity on Bitcoin, it's much easier to detect the nefarious activities, whereas in the fiat world, for dollar, for Euro, it's more difficult to see those activities. What are your thoughts? MIKE GREEN: Well, I'd respond to a couple of those components.

First, in terms of the transparency of everything being on blockchain, Pomp and others will highlight the dynamic of level two applications that remove transactions away from the blockchain. Increasingly, we're seeing this within the criminal community. What they're actually doing is disguising their transactions. They're making sure that they washed the Bitcoin, the same thing that they would do if they were engaged in dollar transactions, or Euro transactions, that ultimately doesn't matter. He refers to the idea that $2 trillion is  used for nefarious activities  or illicit activities in dollar terms.

Of course, that needs to be considered against the velocity of the monetary base as compared to the total stock, the velocity of the US dollar is far higher than that of Bitcoin, for example, particularly if we ignore the dynamics of the exchange traded transactions, which are being included in the low estimates of criminal activity for Bitcoin. The second point that I guess I would spend some time on is this idea that is referred to that it is an open digital protocol similar to the internet. The internet, first of all, was actually created by the US government. The willingness and the desire to share that for the purposes of both national security reasons and for the freedom of information associated with it is radically different than what we're referring to in Bitcoin. In Bitcoin, we're actually  talking about disintermediating  governments from the ability  to finance themselves.

I understand that that feels very attractive 40 years into the Reagan revolution, and the idea that ultimately the private sector is dominant in all forms versus the public sector, but that's simply not true, and we know that's not true. The reason we have nation states and why we created them was to protect the citizens. Not necessarily from themselves, but importantly from those who would coordinate and work in a consolidated and centralized fashion against them. Nation states emerged to protect their population. In this situation where we have entities like China, Russia and Iran, playing the dominant role in the processing of transactions, and it is not even a question as to whether it is the extremely dominant role, again, 90% plus of all the hash rate exists in those three countries and that's particularly true at physically, it's about 80%. If we include the components of mining pools, it's in excess of 90%.

When we consider that dynamic, it's completely absurd that the US government would put itself into a situation in which the control of a monetary system was outsourced in the same manner that we've chosen to outsource our iPhone production. They're just radically different components. I would also highlight the fact that while Pomp is familiar with this space, he's far from a technologist, and the actual dynamics of the security of the network have changed radically. The industry has become very complacent after the experiences in 2015 and 2017 in terms of who is the dominant, who is dominant, whether it's the nodes or whether it's the miners. The problem with the Bitcoin system is that it ultimately relies on economic incentives to keep things flowing.

The current estimate of how much it would cost to shut down the Bitcoin network, in other words, the foregone Bitcoin that would  be received from controlling  the mining operations, if, for example, China were to decide simply to start mining empty blocks, and continually solving the elliptical math, cryptographic problems associated with Bitcoin, and releasing empty blocks into the system, continually presenting them to the nodes who would refuse them, but are unable to prevent the processing from going forward, the total cost of that is around $7 billion a year. For a nation state, that's nothing. This is an incredibly vulnerable network. The fact that they haven't moved against it yet tells you that you should be extremely suspicious that there is something else at work. ASH BENNINGTON: Pomp, I'm going to let you jump in, but if you could in your answer, Mike made some pretty technical assertions about the way that hash power works, the way that nodes work, some of the division of labor in the Bitcoin network, if you could in your response, give our viewers who may not be familiar with that infrastructure, a little bit of an overview on some of the points that Mike made, just so they can understand the argument at the level you guys are having it. ANTHONY POMPLIANO: Yeah.

The first thing I'll say is the point of this debate is I would like to have a debate where we use plain English and explain things to people like a third grader that shows that you understand it, and there's no intellectual sleight of hand. Mike, when he is backed into a corner in a debate, likes to use the intellectual sleight of hand, he likes to lash out. I'm not going to do that. I'm going to simply stick to the facts and explain exactly why he's wrong.

We can start with his assertion that I'm not a technologist. Mike manages money for a living. I spent multiple years building technology companies and running product and growth teams at Facebook, which, as far as I understand, is a technology company. If there's one person here who has a better technical understanding of how the system works, and how the technology sector works, I would say it's me.

If he wants to disagree with it, that's fine. The second thing is that Mike makes the assertion that Bitcoin, for some reason, was created to take down the US dollar or the United States. Mike has no clue and cannot prove to us who created it.

How does Mike know that an American didn't create it? How does Mike know that a politician didn't create it? How does Mike know that the US government didn't create it? He doesn't know. He's making wild assertions that are heavily misinformed, and he is making those assumptions to fit a narrative that makes no sense. Again, we can then go to, if we look at the internet, Mike would claim that 90 plus percent of users that use the internet are outside the United States. Therefore, the United States is allowing those people to work against the United States, and we should shut the internet off. That's absurd.

Just because there are transactions that are processed geographically somewhere else, that does not mean that those governments control that. Just because there is any capital flow elsewhere does not mean that those governments control it. If you were to ask Mike, well, if all of a sudden you're claiming that Russia, Iran and China control 90% of hash power, is he making the claim that Bitcoin is controlled by those three countries and when they want, they will take over the network and they will do whatever they want? No, of course, he's not making that claim. If he is, very, very ridiculous. What ends up happening is we have seen by every measure, this is the strongest computing network in the world. There's more hash rate on this network than any other computer network in the world by a lot.

On top of that, what we see is that there's a continued diversification both in hash rate and in ownership of the actual asset, and that continues to trend in the right direction. The United States has made a very, very big move to continue to increase its hash rate. This is a global free market competition. If Mike had his way, he would have us shut off all the American miners, he would have us ban ownership for Bitcoin, because that's what he's advocating for, whether he's going to say it or not, he said in the past, he wants to ban ownership of Bitcoin. If he has that, he is going to allow the rest of the world go use a digital open decentralized protocol and the United States is going to sit this one out. That's his argument is that we should sit this one out.

The argument that I'm making is not only is that absurd, but the market, meaning everyone from individuals in the United States, financial institutions in the United States, corporations in the United States, and government officials in the United States are all telling us that they're going to do the exact opposite, that they're going to embrace this and that they're going to go compete in a global free market. That is what we should do, we should embrace this, and we should go use it to our advantage, not sit here and say, oh, you know what, there's another country that has any money power. When Mike says Iran, he throws that in there, because it's a scary thing. Iran, Iran, Iran, how much of the hash rate's in Iraq? It's like less than 4%.

Let's not get all crazy and start to say that Iran, all of a sudden, owns the Bitcoin network or any of these other assertions that he's making. What we are seeing is we are seeing a globally decentralized digital open protocol. If the United States sits this out, we will suffer, or we can embrace it, and we can be the leader, and we can further our position of leadership on the global stage. Then the entire idea of China, there is a global rates for lowest cost power. In some way, the Bitcoin miners are driving R&D for renewable energy, and they are racing around the world trying to find it. Just because a miner sits in China does not mean that the Chinese government owns it.

That does not mean the Chinese government controls it. In fact, what it means is that if the Chinese government is going to do anything nefarious, they're going to shut down the miners, what we will see is we will see that hash rate shift, and actually, America would gain ownership of their portion of the hash rate. It's just a system where Mike is advocating for something very, very dangerous, Mike would like the United States to sit out on one of the most disruptive technologies that the world has seen. That's wrong. ASH BENNINGTON: Let's let Mike jump in.

First, Mike, if you could, I'm curious to hear your view of whether or not you agree with that characterization. Are you advocating that we should ban Bitcoin? Are you just skeptical of some of the exuberance on price? Second, as I understood  Pomp's argument, basically,  Bitcoin, in his view, is an open system, it's a free global competition, and just because hash power is in a particular place, it doesn't mean it's controlled by that nation state. What are your thoughts? MIKE GREEN: The first response I will make is to highlight that the idea that I am lashing out in some way, shape or form against Anthony is not what's happening.

I'm making a statement of facts, and we have not yet heard refutation of any of the facts or data that I have brought to the table. The second component was there were statements that were made that I am asserting that Bitcoin was created to take down the United States, or that I am not claiming that China, Russia and Iran can take it over or that I am advocating for a ban on ownership in the United States. None of those things are true. What I'm actually saying is I have no idea who created Bitcoin, what we know is the narrative of how Bitcoin was created is that it was a thought experiment and a working thought experiment that was distributed by an unknown individual to a mailing list, and it seems to have done remarkably well at continuing to propagate itself. Now, how much of that was facilitated? How much of that was supported by foreign actors? We may never know the answer to that. The simple reality is that what we do know is that those foreign actors now dominate the hash rate.

The second component is that Pomp makes an assumption. He says if China is going to do anything, they will shut down the mining. I don't see why they would do that at all.

In fact, if we look at Iran, Russia, or China, what they are all actively doing is introducing state subsidized and state licensed mining activities and they are shutting down, i.e. taking the equipment and repurposing it for the private sector, so they are increasingly in control of this. This is no different when we see a crackdown in Iran of unlicensed private miners, it is no different than a [?] corruption purge in which it is consolidating control.

In terms of ban of ownership, I'm not advocating for that. I'm actually suggesting that is the eventual outcome, whether that is good or bad, will ultimately be decided by the future. I would suggest that what Anthony is referring to when he says that politicians are saying the opposite is heavily disputed by the headlines that we've seen.

Janet Yellen called it out in the past couple of days. Lagarde has called it out. We have any number of leaders, Gensler, who is widely cited as an individual who has taught courses at MIT on cryptocurrency, if you listen to his courses, if you actually attend his courses, he'll highlight the high frequency of criminal activity and the sketchiness of the exchanges, which are radically different in their structures than say, the New York Stock Exchange or the NASDAQ, where you are facing other counterparties. When you're trading on a Bitfinex, or a Binance exchange, you're trading against the house. You are not trading against other counterparties. It is a different system, much more akin to the bucket shops of the United States in the 19th century that were banned.

To expect that this is not going to be heavily regulated and changed is, in my opinion, foolish. I would suggest that what Pomp is encouraging  is for people to ignore  those risks, and effectively speculate on the idea that as he says, it is a foregone conclusion that Bitcoin is going to become the central reserve currency for the world. That's just outright speculation that is designed to encourage people to invest a disproportionate share of their financial assets, whether that's taking their 401ks and piling it into Bitcoin as he's encouraging people to do or whether that is encouraging people to engage in projecting historical results forward,  which we are explicitly  banned from doing in this industry. From my perspective, the issue is not whether you should or should not buy Bitcoin. My issue is you should be informed, and I think the industry is increasingly structured around concealing the risks that exist for investors. ANTHONY POMPLIANO: We can start with Mike said that there are politicians and then he named Treasury secretaries  and appointed positions,  those are not politicians.

The politicians that have talked about this, Warren Davidson, a congressman, Tom Emmer literally just posted the Bitcoin whitepaper on his website, Cynthia Lummis, who is the first senator to own Bitcoin. These people own it. They talked about it.

On the Congress floor, they literally said Bitcoin cannot be stopped, and we should not try. To paraphrase quote, but literally, that was said in a congressional hearing. The assertion that politicians in the United States and then to name the Treasury Secretary, what Mike did not say is what the Treasury Secretary said, was in the clarifying statements, we should embrace this, and there are a lot of good things that can come from it. To label Janet Yellen as being against Bitcoin would be inaccurate. Not only is Christine Lagarde and others, they want to control their own cryptocurrency.

They would like to create their own. This is a game of every single datapoint in  the market, whether it is  the number of transactions, the market participants, the computing power, the exchange traded volume, the number of institutions, the number of corporations, the number of retail investors, every single one of those datapoints suggests that adoption is increasing, not decreasing. Again, what Mike has alluded to in the past, whether it was his conversation with Nick Carter or otherwise, is that if you are participating in this system, you are working against the United States, going to even as far as to say that it could be something similar to terroristic type activity.

My argument is that if you make the argument that if you go outside the system, if you leave the US dollar, that is a terroristic activity, Mike's entire career is to get out of the dollar, is to go into other assets, is to get outside of the US dollar. The reason that Mike does not hold 100% of his wealth in dollars is because that would be a death sentence to wealth. If you sat in 100% dollars, that would be a death sentence. Of course, we don't do that. We get into other assets. This asset happens to have a structure and a monetary policy that makes it the best preserver of purchasing power in the world.

Over the last decade, there has been nothing that has done a better job than Bitcoin. Now, I agree with Mike that we cannot say, because of the performance over the last 10 years, here's what the performance over the future will be. What we can say is when you have an asset that has a capped supply, we know with 100% verifiability that there's a capped supply. If demand increases, unless Mike is suggesting that we are going to violate the laws of supply and demand, the US dollar price will continue to increase. What I'm making the argument for is that, of course, there are risks. There are risks with holding dollars, there's a risk with holding stocks, there's a risk with holding bonds, nobody is saying that there's no risk.

What we are saying is that the characterization of an open decentralized digital protocol that the United States should sit out is [?]. If the US should basically say, you know what, we're not going to participate here, would be the equivalent of the United States years ago saying, we know that the internet is being created, and we are not going to participate. Our citizens will not be allowed to do it. We would be no different than every other dictator, or nefarious actor. The point is this is going to happen, because you cannot stop it.

There's a lot of things that we talked about in terms of Mike has issues with, but at the end of the day, what do you want to do about it? The simple answer is we can't do anything. You can't shut it down. You can't stop it, and because of that fact, what you are going to get is you are going to get people around the world are going to adopt this thing and the US has a choice, we can either say we're going to opt out, we're not going to participate, or we can embrace it. Every single market point is suggesting that we are going to adopt it. What Mike is really advocating against, which to me is absurd, is that Fidelity, Stanley Druckenmiller, Paul Tudor Jones, all the way down the list.

Renaissance, all of these guys, whether they are trading it, they are holding it, they are investing in it, etc. He's basically saying that they're not only, one, wrong, which would mean that Mike is smarter than the market,   but two is he's advocating that they're doing something to work against the United States. To make an argument, that  the people who participate  in this industry are not patriotic is absurd. What it does is it becomes close to a level of being dangerous. Because what it does is it suggests that people who are looking to further the position of leadership the United States has, or in some way working against the United States, and when you start to share that narrative, what you do is you create divisiveness, and you start to create an environment where we discredit or disincentivize innovation and progress.

There could be nothing more dangerous than that in a world that is moving to a fully decentralized digital economy. Everything is going to be digital. Everything is going to be on these open protocols, and we need to be the leader, not the laggard.

ASH BENNINGTON: Let's give Mike a chance to respond. MIKE GREEN: Yeah. Look, I am in no way asserting that I'm smarter than Stan Druckenmiller or Paul Tudor Jones, or certainly Jim Simons or Renaissance or anyone else.

I am suggesting that the fact that they choose to trade something or allocate capital towards it does not mean that they are embracing the view of Bitcoin becoming a large scale digital currency and I would highlight that all of those investors and myself included have made mistakes in the past and will continue to make mistakes in the future. The question is, do we position ourselves so that we can recover from them? I see no reason to take an absolutist position on this. Nor am I suggesting that by doing so, they are intentionally behaving in an unpatriotic manner.

What I'm suggesting is that they should consider the potential for that. Anthony continually refers to the idea that this is a decentralized protocol similar to the internet, and that if the US were to pursue this path, it would be the equivalent of us shutting the US off from the internet. Yet, the facts are very straightforward that those countries which dominate the hash rate actually have shut their citizens off from the internet.

They are the dictatorships that Anthony is referring to. We have to ask ourselves why that is? Why would they be interested in promoting Bitcoin, but being uninterested in providing their citizens with free access to the information over the internet? ASH BENNINGTON: Pomp, just so this conversation isn't entirely in the negative frame of reference, I'm curious, you've talked about some of the advantages that you believe Bitcoin can bring to the United States, some competitive advantages, development of new technologies. Could you talk a little bit about what your  view of the world might look  like with a decentralized asset like Bitcoin playing a greater role and how it would be beneficial in your view to the United States? ANTHONY POMPLIANO: Yeah.

I think that there's one key piece before I get to that, which is this open decentralized digital protocol is quite popular on a global basis. It is available in many countries, where US based systems such as PayPal, Apple Pay, or Venmo are not available. What we have seen is on a global basis, there are more transactions done from an annualized volume standpoint on Bitcoin than in Apple Pay, Venmo, or PayPal. This system, already a wallet is presented as a nascent system or a new system, a small innovative experimentation, it is something much, much bigger than that. There's more annual transaction volume on the actual blockchain, we're not talking about exchange traded volume, on the actual blockchain, than Apple Pay, Venmo, and PayPal.

This is going to happen, whether we participate or not. If we do choose to participate, what we are going to see is there will be a continued adoption by individuals on their personal balance sheet. We've already seen that. There's some people who decide that this is a speculative asset, and they want to put 1%. I think in the past, Mike has advocated for basically getting to neutral.

If it goes up a lot, then great, you benefit. If it goes to zero, no problem, you don't really feel the impact. There's a lot of people who that's how they do that today. There are some people who have chosen to increase it significantly, and so they are, like myself, denominating their wealth in this asset.

Meaning that they don't think of it as I have $100,000 or a million dollars, they literally think of it as I have x number of bitcoins, and they choose to do that. They price things in that. They want to go and buy a car, it's not I'm going to buy a $3,000 car, I'm going to buy a car that is going to cost me one bitcoin. That denomination obviously increases, you convert the dollars into bitcoin. The second group of people are the financial institutions.

When you think of it from  a pure price performance,  they're much less of a religious believer in this. They're much more of a financially driven actor. They see an asset that is the best performing asset over the last decade. Therefore, they believe that there's a continued adoption, which will lead to a continued price increase, which is why they want to participate. Then when you look at the corporations, and you see a number of the corporations who have started to allocate their balance sheet, we're talking about publicly traded companies that have taken material dollars, 10s of millions, if not over a billion dollars, and convertibles, you'll see bitcoins.

What they are saying is we are worried about the future macro environment, we are worried about our purchasing power, and we have decided that this is the best asset to protect our wealth. Part of Mike's argument is if you look at historically at inflation, there is very little to suggest that we will have high levels of inflation in the future. Therefore, it is a moot point that people are choosing to use this as an inflation hedge. I think that Bitcoin's response to that is one, people don't wait for the inflation to happen before they move their wealth and two, whether they are right or not, you cannot disagree with the fact that they are saying that is why they are doing. I think that's the key piece is a lot of people in the finance world, they want to make an analysis and then prove why somebody is wrong. This is the wrong way for something to happen.

I take the position and I said all the time, my opinion doesn't matter and neither does Mike's. What matters is the market. The market is statically saying people want this and they are adopting it. I think that the benefit to the United States and to individuals is that the United States' wealth inequality is at the worst it's ever been. It is that bad because we have a government and a central bank where it has become normalized to have interventionism and to create an ever widening gap because the bottom 45% of Americans hold no investable assets, and we are devaluing the dollar and pushing that divide further and further and eliminating the middle class.

The data is pretty strong to suggest that. What we are talking about here is returning to an environment where outside of the last 50 years, we spent 1000s of years, which was that the government was not able to create more money as they deemed fit. I think that's ultimately, the entire point of this is just because we spent the last 50 years doing this doesn't mean it's the right thing, and many people would argue, as would I, that the wealth inequality gap has gotten worse and worse and worse over the last 50 years.

If you look at the stock  market, and you denominated  it in dollars, it is up into the right at a 45-degree angle. If you did nominate that same stock market in gold, it is down since the 1970s. When you start to look at this, what we are doing is we have been financially engineering growth with the dollar devaluation, but that is unsustainable. Mike's argument is basically we will continue to print money, we will continue to manipulate the dollar, we will continue to intervene in markets, and everything will be fine forever, maybe, but the market is saying that they disagree, they are choosing to adopt Bitcoin, and the whole idea is that now, there's a parachute, there's an exit, there's a way to opt out of the system. That is people's American right and their freedom to do what they want with their finances, and they're doing it. ASH BENNINGTON: Well, I think you may have some points of agreement with Mike on some of the risks of central bank intervention and the challenges of wealth inequality.

Mike, what are your thoughts? MIKE GREEN: I think that's part of the irony here, of course, is that I'm not actually disagreeing that many of the complaints that people make about the role of central banks were the intervention by central banks is something that we should ignore, and something that we should not be concerned about. The answer to that is not to opt out of the system. The answer to that is to clearly communicate alternate preferences. There's nobody who has made more effort to explain why we see this separation between the fundamentals and stock markets than myself, and understanding-- ANTHONY POMPLIANO: I agree with you.

MIKE GREEN: --the role that regulators and others have played in facilitating that type of behavior is absolutely critical. To decide that Bitcoin is the answer, or to encourage the young people in America to believe in a narrative of a collapsing dollar and imminent inflation that is going to destroy their purchasing power, that's a concern for the old. The loss of purchasing power against accumulated financial assets, including dollars is a concern for the old. For the young, the concern is how do I convert my human capital into nominal dollars? How do I ensure that I make sure that I'm being adequately compensated for my labor, and that that labor is actually capturing income? That I'm not sitting unproductively locked in my house because I'm unable to go to work due to lockdowns? Those are all concerns that I share.

We need to change our society to reflect that. The path of Bitcoin is a siren call that is fundamentally false. That's the point that I am continually making. ANTHONY POMPLIANO: Yeah, and I said earlier.

I think you're going to reiterate, and this is like, Mike and I see pretty had eye on the problems and actually even think directionally the solution. It's the actual application of the solution. Mike, correct me if I'm wrong, but you guys hold what I would consider dollar denominated investable assets and gold, but no Bitcoin. I think that the argument that the Bitcoin community is making just right in line with the gold community is there needs to be something that changes.

Now, whether it is an awareness, and a let's change the system from almost inside the system, or it is an opting out, I think that's where the divergence of beliefs happen. The piece that I think is really, really important to talk about is, I fundamentally believe that we are going to see-- just like we have seen with individuals, financial institutions, and now corporations, that eventually central banks around the world are going to put Bitcoin in their reserves. What we are going to see happen is that Bitcoin, just like it is the parachute for individuals, financial institutions and corporations, it will become the parachute for those central banks as well. In some weird world, the thing that Mike is advocating against or advocating that, hey, there are risks here, which again, there are risks, of course, there are risks, is going to be the same thing that is adopted by every single one of those members of the establishment. What I think is really important to understand is having no exposure to this asset, in my opinion, is the wrong answer.

If you have zero exposure, that's the wrong answer. Even if you say there is a 1% chance that we have a future world where Bitcoin is at the center of it, then you should have 1% exposure to the asset, but I find it very hard pressed. Remember, there's some very staunch critics of this that have recently capitulated. Elon Musk, Ray Dalio, Mark Cuban, the list goes on and on and on, of people who I think most folks would agree are intelligent, who are trying to get it right, they might not always get it right, but they're trying to get it right. What they have all started to talk about is there is some future version of the world that includes this asset. We may all disagree on the severity of the success of the asset, we all may disagree on the importance of that asset for certain groups or certain organizations, but it is very, very hard to see a future version of the world where this asset does not play an important role for anyone.

It is also very, very difficult to see a world  where the United States,  or frankly, any superpower decides to sit this one out. That ends up back at square one, which if this is going to be important in the world, and if this is going to be an open decentralized digital protocol that is adopted by people somewhere in the world, you should probably be the one to adopt it, so that you're not left behind. I think that's my message here is get off zero, get off zero exposure.

If your family office, if you're an institutional investor, or an individual, having zero exposure at this point is the wrong answer, and you got to get off zero, ASH BENNINGTON: Mike, what's wrong with a 1% exposure in the interest of diversification and an unpredictable future? MIKE GREEN: One, I think that it would be a lost 1%. That is my personal interpretation of the facts. I find it interesting that it is almost impossible for Anthony and others involved in this space to not make the appeal to authority. Mark Cuban is doing it. Elon Musk is doing it. I'm encouraging people to think for yourselves.

Ask yourself, really, is there a 1% chance that the US government is going to choose to give up its access and its control of the monetary system to embrace Bitcoin as a reserve asset, given that, as I described, and Pomp was unable to refute, $7 billion per year could turn this system into a smoldering heap of garbage? It's not hard to do, the fact that they haven't done it yet should be warning you that they have something else planned. This is not difficult. Nobody has been able to come back and say, well, here's the reason why that can't happen. This is a system that is designed to appeal to people's economic interests.

War is not an economic interest. We are looking at a situation where all I'm asking people to do is to thoughtfully evaluate, have you addressed the questions of how this network is secure in the face of a concerted effort from a non- economic actor? Two, when you think about the arguments behind Bitcoin, and again, it was interesting that institutions are allocating to the best performing asset, that is unsurprising to me in the same way that many companies bought worthless.com businesses in the 1999 to 2000 cycle, that many decided to reorient their businesses around it much to their chagrin later.

It's unsurprising to me that individuals like Michael Saylor who are a product of that time period have chosen to take their investors' money and pilot into a speculative asset in the hope that they again become relevant. These are not individuals that I would turn to for guidance. All I'm asking people to do is approach this with your eyes open. When Anthony says 1%, what he's actually saying is, if you just want to be safe, go 1%.

If you really want to make some money, you know what, let's put 20% or 30% in there. We got the Glengarry leads, and they're for closers. ANTHONY POMPLIANO: It's hysterical that Mike thinks that he knows what I'm saying, when I don't think I've said 20% or 30%. The second part that is hysterical to me is Mike is essentially advocating that he has a nonzero percent belief that we're going to go back to a gold standard.

Because if his argument is a 1% allocation means that he believes there's a 1% chance that the US dollar goes to zero, then why does he hold gold? Is that a nonzero percent belief that we're going to go back to the gold standard, and gold is the answer? No, and I don't think that he's saying that. If you apply the same logic that Mike uses to Bitcoin, to his own portfolio, it would look of obnoxiously absurd. I think that what we are seeing here is a world where Mike does not believe in Bitcoin. That is fine. Mike does not believe in the future prospects of the asset in face of overwhelming data that suggests everybody else who is participating believes and is continuing to increase in adoption. Mike is correct in that the price doesn't necessarily mean success, but what it does mean is all of the underlying fundamentals around the amount of hash power, the number of transactions, the number of wallets, the number of individuals, the number of corporations, the number of financial institutions, in light of all of that market data.

Mike is not thinking for himself. Mike is actually just running along with the narrative that he did last year and continues to double and triple down on in light of the market data. Maybe there is something that we are all missing, and Mike knows. What I am saying is I don't try to be smarter than the market. I look at what the market needs to do. What I am seeing, whether it is a private citizen, a public corporation, a politician, or even central bankers, Treasury secretaries around the world, they are all leaning into this.

They are all more inclined to adopt it than not. When Mike chooses to pick out one person over others, what he doesn't say is, if you believe that Michael Saylor is not the best allocator of capital, that's your prerogative. I happen to think he's done a pretty good job and so far, his shareholders seem to be pretty happy, but Mike doesn't say that he doesn't trust Jack Dorsey who also did the same thing.

Jack Dorsey took 1% of his assets at Square, and he decided to go ahead and allocate it to Bitcoin. This isn't a story about one person, it's not a story about one company, it's not a story about even one country. This is a global, open digital decentralized protocol, and what we are seeing across the board is continued adoption, even in countries where the countries have banned ownership of that asset, banned the transactions of that asset, you're continuing to see adoption. ASH BENNINGTON: To exactly that point, one of the specific points that I heard Mike make and I'm curious to hear your thoughts on this is the risk of a non-state actor potentially attacking the network with hash power. When you think about it, as a technologist, do you see that as a significant risk to the potential stability of the network and the value of the underlying Bitcoin tokens? MIKE GREEN: Before you respond, Ash, I just want to clarify, it's not a non-state, it's a non-economic actor. A state actor would be a good example of a non-economic actor.

ASH BENNINGTON: Yeah. ANTHONY POMPLIANO: Mike, I'll summarize your point just to make sure that we're all talking about the same thing here. Your argument essentially is there is an actor who for non-economic reasons could determine that Bitcoin is bad, and therefore would take actions that have no economic benefit to them, but have some non-economic benefit, whether that's for power control, censorship, etc. Fair categorization of the argument? MIKE GREEN: Yes.

ANTHONY POMPLIANO: I think that there's a couple of different things. One is the analysis that Mike provides in terms of what somebody could do is the $7 billion he's talking about, this is not a static world. As you bring more and more hash power on the network, the beauty of Bitcoin is that people see bringing more and more power on the network.

People always say, one of the first elementary questions that people will ask is, well, why doesn't every central bank just print a bunch of money, then take it, buy a bunch of mining equipment, and then go ahead and just get 51% control of the hash rate, then they can do whatever they want, they control the network? Well, there's a couple of things. One, you got to actually be able to purchase that. Right now, if you want to buy $7 billion worth of hardware, you couldn't do it.

There's a manufacturing backstop, if you will, because American companies are buying up all of the mining equipment. The second thing is, even if you were able to get a lot, not 51%, but you could get a lot of hash rate, and you would then try to clog up the network, there's a number of things that other miners could do, the other economic actors could do. Everything from essentially increasing the amount, you could literally, as he suggested, reject a lot of the blocks of the transactions, you could basically try to cut off whether it's through a fork or something, there's all kinds of different things that can happen.

It's not just a static thing where everyone stands still. It's the same argument that I hear a lot about quantum computing, where people say, well, if a quantum computer is developed, then people will attack it. Well, sure, but over time, as the nefarious actors improve their technology, improve their tactics, so do those playing defense as well. As we get better, or the nefarious.

actors get better skills or tactics or technology to attack the network, the network is actually improving as well to play defense. What we have seen by every measure is that this is the strongest computing network in the world, and there is a very, very strong argument that suggests that regardless of whether it is very nuanced technical attack that Mike is talking about, or it would simply be an elementary 51% attack, is that the economic incentive is too great to do it. If you were to hack the Bitcoin network, the point of hacking the network means that Bitcoin would not be valuable. You'd be stealing something that has no value, because the second that you hack it, it ruins the entire thing. I think that in Mike's argument, the important part is non-economic actor.

Again, the non-economic actor is non-economic, being that it is not in the best interest of that person to do that thing. This argument that somehow one country is going to take this action, and another is not just makes no sense. There's more to gain from embracing it than from fighting it or destroying it.

If you look around the world, regardless of the story, whether it is North Korea, Iran, Turkey, China, Russia, somewhere in South America, the United States or anywhere else, every single one of those countries stands to gain more from it than they stand to gain if they go against it. That is why we are seeing all of them start to figure out ways to participate, whether it is to allow private corporations where they can tax them and regulate them, whether it is to actually allow for the transactions. There's governments now accepting Bitcoin in certain parts of the country, or of the world and in the United States. There's also been a number of times where we've actually seen countries say, we are going to participate ourselves, we are going to use natural resources to subsidize or we are going to use them to actually acquire Bitcoin for ourselves. With every single one of those situations, countries are choosing to embrace it, not fight it. Again, I understand what Mike's argument is, but the logic that he is using flies in the face of every market datapoint that we have today and I choose to believe that things in motion stay in motion, that there is not going to be some external Boogeyman that is going to come and go into reverse 12 years of progress and momentum, because we are scared of some unknown non-economic actor who's going to choose to attack this thing rather than benefit from it just like everybody else.

ASH BENNINGTON: Mike, does that argument in any way allay your fears of a non-economic actor attacking the system? MIKE GREEN: No, to argue that, a non-economic actor has economic incentives is in my opinion an attempt to end run the question. We're talking very small sums, and the impact in terms of a collapse in Bitcoin price, that that would lead-- if a non-economic actor were to decide, as I've indicated, that they wanted to throw significant sand into the work, start mining empty blocks and preventing transactions from occurring, we know that what would happen is that the price of Bitcoin would collapse. The economic actors would not be in a position to finance significant expenditures to increase hash power in response to that. It becomes an end game where it relies on economic principles, it relies on economic incentives. Again, it's ignoring the very simple observation that oftentimes players play with non-economic interests as their primary motivation. If you could address that, he has not-- and again, from my standpoint, it just speaks to the vulnerability and it goes directly to the point that there is very low probability, not a high probability, a very low probability of central banks around the world choosing to embrace Bitcoin, they are not going to do so.

On the other side of the equation, I just want to emphasize this. I do think that we will see a move to digital currencies. There is no question that central bank digital currencies are coming. There's no question that cryptography is going to play an increasing role and digitalization is going to play an increasing role in our lives, but I do not think that Bitcoin is going to be the vehicle that we choose to do that with. ANTHONY POMPLIANO: Mike, what do you think the percentage chance of central banks adopting Bitcoin now, just in their reserves, not as a global reserve currency, just at all? 1%? MIKE GREEN: Infinitely small.

ANTHONY POMPLIANO: But not zero, so not an absolute disposition of it's a 0%. MIKE GREEN: Or the Canton of Zug or for the Swiss National Bank that has already decided to make apple, sure they may choose to do so. Will the Fed do so? I would say significantly  less than 1% probability. Further, I would suggest that your attempts to trap me in some form of St. Petersburg paradox where 1% of an infinitely large outcome therefore justifies participation, like that's just fundamentally false.

That is a misunderstanding of the role of expected utility. ANTHONY POMPLIANO: Well, if you think that it's not zero, that there's some nonzero chance that central banks-- remember individuals, financial institutions, corporations, central banks do it, what would you say the chances that over the next 10 years, let's say 10% of the Fortune 500 companies end up putting Bitcoin on the balance sheet? Is that over under 1% chance? MIKE GREEN: I think it's going to heavily depend on the future performance. I would suggest it's much less than 10%.

Much, much less. ANTHONY POMPLIANO: Okay. Again, there's no right answer. I'm just trying to understand. MIKE GREEN: No, I understand.

Listen, Anthony, what you're trying to do is you're trying to say, if others adopt this, then the price will go up, therefore, I should adopt it. I'm suggesting that that is a fundamentally false way to reason this. Maybe the way to think about this, ultimately, is, what is the probability of the outcome that you're describing? What is the return that exists for those who risk a sizable fraction of their net worth? Now, you may claim you're not suggesting people to put 20% or 30%, but you have repeatedly on Twitter and elsewhere, highlighted the returns of Bitcoin as your returns. You're identifying it as this is what I have done. That's just not true, and the only reason I can think of that you would do that is you're trying to get people to do exactly what you're saying you're not. ANTHONY POMPLIANO: No, Mike, you're misinformed.

The reason why I say that is because 96% of my net worth I've chosen, not because I was early, not because I was on Silk Road or decided to buy a couple of Bitcoin and now it's worth a lot, I have chosen to convert from a dollar denominated world to a Bitcoin denominated world, and therefore in dollar terms, yes, I, meaning my portfolio that I've chosen to convert almost 100% of, has done that. Again, what I go back to is you believe that it is a financial asset from a financial return perspective. You are saying if you buy at x price, your immediate assumption is what is the price at which I will sell? You did that yourself, you bought Bitcoin early at a low price, you allowed it to appreciate and then you sold it. It was a financial asset to you. What I am making the argument for as the blind spot in your argument is that as we have seen over and over and over again in history, is that there is a nonzero chance that Bitcoin becomes the global reserve currency, where nation states, individuals, corporations and financial institutions should decide and choose to actually conduct transactions with this as the base currency. In every single economy around the world, there is a native currency.

In a US based economy, there's a native currency, in the Chinese based economy, there's a native currency, in Russia and every economy around the world. In the digital economy, there is not a native base currency until today. Now, what this has allowed because the friction of the currency switch has dropped to near zero, you no longer are going to be required to live in a single currency world.

I agree with you that central bank digital currencies are coming. I actually agree that there are going to be private currencies, things like Libra and many copycats of those. What it is going to do is it's going to create a global free market, where the competition is not at the technology layer, the competition is at the monetary policy layer. I would challenge you to show me a monetary policy that is superior to Bitcoin's monetary policy, for the individual, for the economic actor to protect their purchasing power. There is no currency in the world that has  a better monetary policy  to protect your purchasing power.

The reason that you hold gold is because you believe that it will protect your purchasing power. MIKE GREEN: That is not wholly true. The reason why we hold gold is because it has orthogonal behavior to the US dollar because it's a commodity. It's simply a commodity.

It's no different than corn. It's no different than wheat. It's no different than steel. It just happens to be a very dense store of value in the form of a commodity. Now, you're arguing something totally different. I'm not saying that gold is a currency nor would I ever suggest that gold was actually a currency.

In fact, the currencies that circulated with gold as their backing, they traded at a nominal value that was in excess of their gold content. The fact that they were backed by gold created ultimately a floor, but it did define their economic value. Your allusion to 5000 years' worth of history here is simply false, and as you like to say, misinformed. When I actually look at what you're describing, you're describing a system in which you say this is the superior asset for preserving wealth, this should be the ultimate asset for the boomers and everyone else who never want to have to worry about having a job, or an economy that takes risks around them. I'm not suggesting this is a terrible store of value if it were to be heavily adopted, what I am suggesting, and what I will stand behind, is that it is a terrible economic policy for the individuals that are choosing to buy this, for young people who want jobs, who want to actually participate in the economy.

Bitcoin is a terrible product. It is setting in place to guarantee that those who currently hold that Bitcoin need do nothing economic in order to gain actually increased  purchasing power relative  to those who participate. That's the core of the argument that I've made over and over and over again. Now, under those conditions, I would be willing to bet that we see Bitcoin banned, not by me, because I don't control that dynamic,  but I would suggest that  those appointed regulators that you dismissed are ultimately going to play a much larger role than the politicians that you can cite from Wyoming or elsewhere, who also get perfect scores from the NRA stand against the Green New Deal that many of those who want to buy into Bitcoin think is the future.

I would encourage people to look at the bedfellows that you have. ANTHONY POMPLIANO: Making the claim that gold was not a currency, I don't even know how you can defend that. Currency has two things, it's a store of value, or it's a medium of exchange.

You yourself have said that it's a store of value. It's a ho

2021-03-21 05:10

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