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TILP #12: Bitcoin and our current macroeconomic state
155 Plays1 year ago
In this episode, Jim gives a Shakespeare-like monologue regarding bitcoin, the current macroeconomic state we find ourselves in, and answers some questions you might be having.
Bitcoin is not a hedge - Parker Lewis: https://youtu.be/Z6qzEYxBYcQ?si=gmoO258W2kFAMoQp
US debt clock: https://www.usdebtclock.org/
Recommended
Transcript
Introduction to Intentional Living Podcast
00:00:00
Speaker
Hi, I'm Jim Kreider and this is the Intentional Living Podcast where we have conversations about how to use your resources, your time, your money, your talents for what's important to you in life in an efficient and effective manner. I'm glad you're joining with us today and I look forward to this journey with you.
Setting the Stage: Bitcoin and Economy Discussion
00:00:25
Speaker
Hey, for today's conversation, it's just me having a conversation with you. So I know last time I did an episode that was without a guess and it was just me rambling, I set up front that would be pretty quick and then end up being probably an hour and 20 minutes of me.
00:00:41
Speaker
talking endlessly about Bitcoin and such. But today, I would expect to be significantly shorter than last time.
Bitcoin's Price Volatility vs. Technology Stability
00:00:50
Speaker
But there are a few things I want to discuss with you regarding Bitcoin, current economic system, just things I've been mulling over the last bit, I think are really important to be aware of in the macroeconomic landscape, as well as the Bitcoin landscape. So let's dive in. So this will be just general
00:01:10
Speaker
sort of sporadic thoughts. Let's see where we're going to start. Well, I guess for updates on Bitcoin. So today is February 8th, 2024. It's almost 3 p.m. Bitcoin currently is priced at $45,610.30 US dollars. And so that's where we need to start off with. It's been quite volatile lately compared to other
00:01:36
Speaker
traditional assets, trading relatively sideways in the mid-low 40s for a bit now. I guess on that note, and I may have said this before to you, but Bitcoin itself, in my opinion, is not volatile. The technology behind Bitcoin and the security of Bitcoin is not volatile. What is volatile is people's understanding and adoption of Bitcoin.
00:02:02
Speaker
So it's the human side, not the code side. But needless to say, yes, the purchasing power of Bitcoin tends to go up and down significantly, especially compared to most traditional assets. Now, with that said, let's jump into traditional assets.
Banking System Challenges and Predictions
00:02:17
Speaker
So I actually sent out a video to some clients a while back when we started seeing some issues with banks with Silicon Valley Bank and the other banking
00:02:29
Speaker
Systems had a lot of issues, I think, massively underreported and underestimated issues in our banking system. And the fault lines began showing a while back with those collapses.
00:02:44
Speaker
Again, I don't think they got as much press as necessary. And I don't think people recognize the scope of the issue we're dealing with. Well, I think the fault lines are trying to show again. So there's a bank, it's New York Community Bank Corp. They're publicly traded, like mid-size bank in multiple states. Gosh, I'm looking at the stats of it right now. This is founded in 1859. Yeah, based out of New York,
00:03:15
Speaker
employees, about 7,500 people. So we're talking about a relatively good size institution. Again, they're publicly traded company. And this month, in the last month, they're down 60.67% as of this moment. Year to date, they're down 59.99%. So yeah, I think our banking system is in a very unhealthy place.
00:03:42
Speaker
And I think this probably will lead to further consolidation of banks, which I think leads to further risks from a choice perspective from consumers.
00:03:54
Speaker
and then also possibly introducing control mechanisms that banks could enforce, sort of a tenfold hat maybe, but yeah, control mechanisms enforced through the banks that are mixed with quasi-coercion from government institutions. Anyways, I think that will persist as our bank system is quite jeopardized.
00:04:18
Speaker
And that's being fed in from our monetary
The US National Debt Crisis
00:04:20
Speaker
system. So instead of talking about New York Community Bank, I would, uh, we'll keep an eye on how our banking system continues to progress. I don't know if progress is the best word to use there, but I'll say the situation unfolds over the next several years. Again, I think what we've witnessed in the last couple of years and what we're witnessing right now, um, is not an anomaly, but rather, uh, indicative of the underlying issue at hand.
00:04:48
Speaker
All right, so that's, anyways, talking about debt system, let's look at a, you can go to US debt clock.org is a fun website. If you ever want to go see some entertaining statistics. Anyways, I just hopped on there right now. And at the moment, our US national debt is at $34.2 trillion. I made a video
00:05:10
Speaker
I don't know, a few months back and our debt was in the 33 trillions. It is astounding how much debt we're adding on a regular cadence to a point where it's pretty frustrating. I personally had some taxes that I have owed from income tax returns. It's like, oh, actually here you got to pay us a few grand.
00:05:33
Speaker
the amount, like I'm watching, if you go to usdebtclaw.org, the rate these numbers change is unfathomable. It's like the amount of debt that I owe you for a tax return, a couple grand or whatever it is, or most normal people cannot even be calculated as like
00:05:51
Speaker
the clock is growing at a faster rate than you could possibly be able to make a dent in that with your tax return. It's infuriating. Yeah, go check that out. I think that is indicative of the underlying problem is the amount of debt, unfunded and funded liabilities, our national debt, how it's going, the per capita, per citizen debt. It's just astounding. So go take a look at that. What's going on here?
00:06:21
Speaker
I
Bitcoin's Institutional Adoption
00:06:23
Speaker
I guess other Bitcoin news I think is really important. Saw a few days ago that Fidelity, now this is in Canada at the moment. I don't believe it's on any of, I couldn't find, I dug for a while, but I couldn't find any of the US ETFs or mutual funds. But in their Canadian portfolio, so right now the ticker is FCNS. It's Fidelity's all-in-one conservative ETF portfolio. Again, that's for Canada. On highlight, they consider this a conservative ETF portfolio.
00:06:47
Speaker
uh...
00:06:53
Speaker
That portfolio is pretty interesting. You can pull this up. So again, they would allocate or classify this as low to medium risk. That consists of where we at about 40%, 40% equities or stocks, and then 59% bonds
00:07:16
Speaker
And then they've also slipped in a 1.1% cryptocurrency, which that cryptocurrency is 1.1% of their Fidelity Bitcoin ETF. So Fidelity, a multi-trillion dollar institution, has decided that it is prudent to add a
00:07:35
Speaker
1.1% allocation to what they would call a conservative portfolio in an ETF. That's pretty big. I would not be surprised. Actually, I'd be surprised if this doesn't happen.
00:07:51
Speaker
If further institutions do not begin adopting that, I would think that you'll begin seeing this rolled out in US-based ETFs and at Fidelity and other providers. That's my guess. So again, I think institutions are starting to catch on that the allocation to Bitcoin in some capacity is just going to make sense. So yeah, we'll keep an eye on that. But that's pretty exciting and actually really big news.
Debating Bitcoin's Utility with Federal Reserve
00:08:20
Speaker
I came across a few funny little items here recently. So there was a video of the president of the Federal Reserve Bank in Minneapolis. His name's Neil. I'm sorry, Neil, I don't know if that's his name. Kashkari. And someone asked him about Bitcoin. And basically he went on this like two minute little tangent about he think that he equated Bitcoin with Beanie Babies.
00:08:49
Speaker
And he said that he's asked at multiple universities if anyone in the crowd has ever bought anything with Bitcoin. He clarified that he's not referring to actually buying Bitcoin, but rather if you've bought something using Bitcoin. He said that he's never met a single person who has used Bitcoin to buy something. Therefore, it's useless and he has yet to find a real use case of that. He thought maybe the use case of Bitcoin would be to offset
00:09:18
Speaker
inflation and the risk there, but he said that that has not proven to be a valid use case either. To both those points, has anyone ever bought anything with Bitcoin? Well, I have. I wish you would ask me. Yeah, I buy stuff with Bitcoin regularly, and I know lots of people who have. Further, one, yes, I have, and so have other people. Two,
00:09:45
Speaker
Bitcoin to be adopted as a money system does not necessarily require it to be used as a payment mechanism up front. It is primarily being established as a savings mechanism, in my opinion, and then later on will be utilized as a more as a currency and a means of transaction and a means of pricing.
00:10:10
Speaker
So, I mean, a relatively valid response would be one, yes, Bitcoin is utilized. Two, Bitcoin is a phenomenal form of money for trade in its divisibility and its finite scarcity. And three, if we're just looking at the property of Bitcoin, not initially being used for transactions at the moment, but rather as stores of value,
00:10:36
Speaker
Yeah, there's lots of things that are not used. Have you ever used a share of Apple stock to purchase anything or a US bond? Have you ever used that to purchase anything or a piece of fine art? No, those can be used as stores of value assets rather than monetary assets, which again, I believe Bitcoin is both of those. Right now, primarily being used as a store of value asset and will over time progressively be used as a monetary transaction asset.
00:11:02
Speaker
Now to his second piece. So point one, he's never found anyone ever who has used Bitcoin to purchase anything. Well, he's never come across me or a whole lot of my friends. So, oh, well, you can't lean too much on anecdotal evidence. And I'm afraid that he is, too. He said that it has proven to not be a good hedge of inflation. There's a phenomenal video on YouTube. I would really encourage you to check out this guy named Parker Lewis.
00:11:32
Speaker
He's with Unchained Capital. We'll have it linked in this. The whole premise is Bitcoin is not a hedge to inflation. And yeah, I would agree. Bitcoin isn't hedging inflation. It's the means of solving inflation by solving the problem of inlessly debasing and printing money.
00:11:56
Speaker
Now, with that said, the statement that Bitcoin has proven to not fix inflation or do its job during inflationary periods, let's just look, again, this is quasi anecdotal, so stick with me though. So I was curious when inflation really picked up and what was the cause of inflation. And some people think that inflation was caused by greedy CEOs and executives and companies getting together.
00:12:19
Speaker
I don't think that's how it works. I don't think that every few years, a whole bunch of people get together and rub their fingers together and
00:12:28
Speaker
collude on how they can increase their profits through inflating their prices. No, I think that inflation is indicative of an underlying monetary problem, and that monetary problem is the creation of new monetary units. The introduction of new monetary units causes the value of the existing monetary units to go down, so the cost of things didn't go up.
00:12:53
Speaker
the value of the thing in which you're purchasing or procuring those things went down. Therefore, the exchange rate is being manipulated. With that said, if you believe as I do, that inflation is indicative of the money and not necessarily of
00:13:12
Speaker
greed per se, or greed on the side of institutions as a whole. Yes, there are greedy institutions and individuals. I think it's more indicative of the problem of the money.
Can Bitcoin Solve Inflation?
00:13:21
Speaker
And if you would agree with that, let's see what's going on with our monetary system. So I went back to COVID when a lot of the money printing began. So I was curious when money printing really kicked up. And so the IRS, they sent out their first electronic stimulus check payment. It was on April 11th.
00:13:42
Speaker
of 2020. It says that most people had that money arrive to their account by April 15th. So I was curious, all right, what's Bitcoin done since April 11th, April 15th-ish? Let's find out. So I went and looked at this. So let's see, April, let's see, we got here. So April 17th, that's a good enough date. So Bitcoin on April 17th,
00:14:13
Speaker
till now, again, as of this video, has gone up by 528.73%. Yeah, I would say that it's done pretty well despite, or in light of the inflationary pressures. Now, during that time, yes, there's been levels of high volatility. There are people who maybe bought the top of Bitcoin for this current cycle. They bought at 69,000 and their purchasing power with that Bitcoin they purchased has been diluted.
00:14:43
Speaker
But again, I think if we're looking at from that timeframe, we're looking at too short of a timeframe to be able to provide any substantial evidence or case that Bitcoin is a poor store of value. So one, Bitcoin is used to transact, both personally, friends and family, and nationally as well. When we look at El Salvador, personally, I think that will continue to pick up over the next several decades.
00:15:11
Speaker
And yes, I think Bitcoin has done a phenomenal job of, yes, I recognize the volatility. I think it's done a great job with preserving purchasing power. I wouldn't say that I think it has. I think I would evidentially state that since the monetary printing has begun, since spring of 2020,
00:15:38
Speaker
Bitcoin has done a great job up to this moment of preserving purchasing power better than basically any other asset in the world. So, those were debunked. Now, what else is going on? Let's see. Told you I want to keep this brief, and I promise I will. Oh, here's one other piece. It's like, well, dude, that guy, he's the president.
00:16:04
Speaker
Federal Reserve, he must know what he's talking about. He's probably a lot smarter than I am. I just think that he's literally getting us through the wrong lens. In the same way, I have this picture pulled up on my screen. This is an article from January 24th of 2014. It was in Business Insider and the title of it is, Bitcoin is an amazing example of a bubble from Robert Schiller.
00:16:29
Speaker
Nobel Prize winning economist Robert Schiller says he's blown away by how much fascination Bitcoin has engendered because as a currency, it's returned to the dark ages. Again, that was from January 24th of 2014. So I bring that up, not to rub it in Robert Schiller's face or to rub it in Neil's face or anything like that, but just a state, just because you're really smart at one thing doesn't mean you're really smart in everything. And even if you're really smart in all kinds of stuff, doesn't mean that you cannot view things through a wrong lens. And I think the people who are viewing Bitcoin
00:16:59
Speaker
in ways contrary to the way that I view them. Maybe I'm wrong, but maybe they're wrong as well. And rather than looking at Bitcoin as a hedge, you have to actually change the equation completely of how you're analyzing these things. Bitcoin is, we're not comparing it to another stock. It's not a stock. We're not comparing it to bonds. That's a big,
00:17:27
Speaker
argument I hear is it doesn't kick off coupons or dividends, and there's no reason it would. It's money. It's not a money-creating company.
Reframing Bitcoin as Money, Not Investment
00:17:38
Speaker
Another thing that I've been chewing on lately is how to help people understand Bitcoin further, and that is to price assets using Bitcoin as the denominator. For instance,
00:17:52
Speaker
Kendra, my wife, Kendra and I ... Sorry, I'm grabbing my calculator. One ready for this. Kendra and I, we purchased our house back in December of 2019. Bought our house, I think, for $258,000, so $258,000. Right now, if we sold our house, which we're about to, we would list it for $275,000, or $475,000 rather. Let's see, $475,000 minus $258,000.
00:18:20
Speaker
It went up by 217,000. So it appreciated by 84%. That's fantastic. Did my house get 84% better? No, it got like 50% worse probably from our kids beating it up. And I definitely need some new paint job and some work on it.
00:18:39
Speaker
So did our house get that much better? No, I think it's our city has grown and the supply and demand mechanisms in our town are squeezing where the supply is down, the demand's up, therefore prices have gone up. But also the value of the dollar's gone down and that's certainly impacted this number as well. So 84% appreciation. Now let's look at it a different way.
00:19:10
Speaker
My house appreciated by 84% in US dollars. Now let's take it. Man, Bitcoin. We bought our house, I wanna say it was December of 2019. Let's see what Bitcoin looked like then. It's gonna be painful. So Bitcoin December 2019. I don't know when it closed. It was probably like December 20th.
00:19:34
Speaker
We'll call it there. So that time Bitcoin was $7,000-ish per Bitcoin. So right now it's roughly 45. We'll call it, so 45,000, 7,000. So it's gone up 6.43 fold. That's outperformed the appreciation of my house massively. So again,
00:19:57
Speaker
Injecting Bitcoin as a denominator when you're evaluating assets really should change, really shifts the paradigm on opportunity costs, evaluating purchases, and considering where to put dollars. Again, I'm not telling you to go buy Bitcoin.
00:20:17
Speaker
I'm just trying to get you to think through this in a few different ways. And part of that, one of those ways is actually trying to shift the lens through which you view Bitcoin, again, not as a stock or as a bond, but as the form of money itself. All right, so that's sort of a fun exercise. Let's see if there's anything else I'm gonna bring up. I mean, MicroStrategy, this is a company.
00:20:46
Speaker
Out there, again, I'm not endorsing purchasing microstrategy per se. I would encourage do some research. They had their quarterly earnings meeting a few days back.
00:20:56
Speaker
had some interesting statistics. MicroStrategy basically converted their corporation's balance sheet from US dollars to Bitcoin a few years ago in late summer, early fall of 2020. In that period, Bitcoin's appreciated by 260%. Their company has appreciated by 305%.
00:21:22
Speaker
Um, and that's compared to the S and P, which has gone up by 48% NASDAQ by 42 gold by 1% silver by negative 18 bonds by negative 19. I don't know what he used when he said bonds. Um, just a full disclosure, but, um, uh, again, lots of anecdotal things pointing to it makes sense to look into Bitcoin.
The Need for Bitcoin Education
00:21:44
Speaker
Now, something that's super important. We're discussing Bitcoin is to emphasize the necessity to be patient. Um, again,
00:21:53
Speaker
Bitcoin's purchasing power can be quite volatile. If you need, if you're going to buy Bitcoin, you really want to make sure that you understand when you will need access to those assets and you need to have high education with this asset itself. So in my opinion,
00:22:16
Speaker
Education builds conviction and conviction builds strong hands. And if you do not have proper education, you will not have proper conviction. And then during times of volatility, you will get shaken out. Selling an asset
00:22:34
Speaker
If the asset purchasing price goes down a lot, selling that asset during a down period can make a lot of sense. Some people, they make broad sweeping statements to say like, oh, if something's down, you want to hold onto it. That's not the case if you're holding onto garbage. If you're holding Enron stock and it drops to $1,
00:22:52
Speaker
to continue to hold it out of the principle of like, well, it's down, this is the time to keep holding it. No, you have to evaluate what am I holding? Is this hot garbage that I should drop even for a 99% loss? Or has the investment thesis, has the thing that I'm owning, and has my circumstances, have either of those changed that would merit me changing my investment thesis at this time?
00:23:16
Speaker
And you want to really evaluate those things. And again, if you in order to properly evaluate those things, you have to understand what you're owning. So I really encourage doing a deep dive in education on Bitcoin. You can go back. There's several episodes of this podcast we've had talking through with super smart people about what is Bitcoin.
Conclusion and Educational Reminder
00:23:37
Speaker
How does it work from a technology side of things? How does it work from a monetary side of things, the application of Bitcoin, our current debt situation as a country? Yeah, lots of great conversations. So yeah, I just want to keep you up to date with things that I've been mulling over. If you have any questions, please reach out. We'd love to talk with you.
00:24:01
Speaker
Hey, thanks for listening to the Intentional Living Podcast. Now, today's show is simply entertainment and educational in nature. Do not take this as tax, legal, or investment advice. If you are looking for tax, legal, or investment advice, you should go talk with a tax, legal, and or investment advisor. Again, this content is simply educational and entertainment purposes.
00:24:28
Speaker
Thanks again for listening. We look forward to you joining us on the next episode.