“Bitcoin is a non-counterparty insurance policy on central banking. The more dollars or fiat they print, the more valuable Bitcoin becomes.”
Robert Breedlove describes the lesser known history of the Federal Reserve’s creation and its long-term negative effects. Breedlove explains his Bitcoin eureka moment and how game theory helped him understand the crypto asset’s value amidst an ever-expanding money supply. He projects Bitcoin’s medium- and long-term status and explains why he does not see any of the alternative crypto assets as a competitor. Finally, he describes some of the potential threats to Bitcoin from overly punitive governmental regulations.
Robert Breedlove is a freedom maximalist, ex-hedge fund manager, and philosopher in the Bitcoin space. To him, Bitcoin is fundamentally a humanitarian movement exposing the greatest con in human history: central banking. By learning about the connection between honest money, entrepreneurship, and civilization, we are renewing hope for the future of humanity. To this end, Robert's mission is to restore freedom, truth, and virtue in our world by tenaciously asking the question: "What is Money?"
He is also a YouTuber and the host of the “What Is Money?” podcast. Through his writing and media work, Robert aims to elucidate the importance of freedom and self-sovereignty across all spheres of human action. Find Robert on Twitter (@Breedlove22) where he posts about Bitcoin, macroeconomics, and philosophy.
LISTEN AND SUBSCRIBE
MODERATOR
SPEAKER
Robert Breedlove
Founder & Chief Executive Officer
Parallax Digital
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
TIMESTAMPS
0:00 - Intro
2:45 - Federal Reserve’s founding and its negative effects
11:06 - Bitcoin eureka moment
12:24 - Inflation, stagflation and deflation
17:03 - Projecting out Bitcoin
23:55 - Evaluating Bitcoin dominance
29:44 - Threats to Bitcoin
35:04 - Bitcoin hash rates following China’s ban
36:54 - Potential Bitcoin crackdown in the US
EPISODE TRANSCRIPT
John Darsie: (00:07)
Hello everyone and welcome back to SALT Talks. My name is John Darsie. I'm the Managing Director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance, technology, and public policy. SALT Talks are a digital interview series that we started in 2020 with leading investors, creators, and thinkers. And our goal on these talks is the same as our goal at our SALT conferences, which we're excited to resume in September 2021 here in our home city of New York, but that goal is to provide a window into the mind of subject matter experts as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to bring you to the latest episode of our SALT Talks Digital Assets or Crypto series with Robert Breedlove.
John Darsie: (00:53)
If you're in the space, you likely know Robert. He has a fantastic podcast called What Is Money, something we'll talk about today. But he's a Freedom Maximalist, he's an ex-hedge fund manager, and he's a philosopher in the Bitcoin space, and he's also smarter than the rest of us because he lives in beautiful Hawaii where he gets to spend time in nature and think about the future of Bitcoin as well as plenty of other important topics as well. To him, Bitcoin is fundamentally a humanitarian movement exposing the greatest con in human history, central banking. By learning about the connection between honest money, entrepreneurship, and civilization we are renewing hope for the future of humanity in Robert's eyes. And to this end, Robert's mission is to restore freedom, truth, and virtue in our world by tenaciously asking the question, what is money? Again, the name of his fantastic podcast. We would highly recommend you go out and listen to every episode.
John Darsie: (01:48)
Hosting today's talk is Anthony Scaramucci, who's the founder and managing partner of SkyBridge Capital, which is a global alternative investment firm with over 500 million dollars of exposure to Bitcoin. So I know he and Robert see eye to eye on a lot of things related to Bitcoin, but without stealing anymore of that thunder I'm going to turn it over to Anthony for the interview.
Anthony Scaramucci: (02:07)
Well, John, thank you and since I'm not the millennial here I'm the only one dressed, so I'm going to loosen my tie this way we can get into it a little bit. And Mr. Robert, obviously you're a brilliant guy. I read your stuff, I follow your podcast. Congratulations.
Robert Breedlove: (02:25)
Thank you.
Anthony Scaramucci: (02:26)
You see something, but tell us when you started seeing something, so where was the eureka moment for you where you said, okay, I've got to own this, I've got to own it in size and then I've got to be a Maximalist or close to being a Maximalist about it?
Robert Breedlove: (02:46)
Yeah, it's a good question. I think the eureka moment was more of a process. It didn't exactly hit me quite like a bolt of lightning. But I had this foundation before Bitcoin in that in about, I think it was 2005, I had been going down the central banking rabbit hole and I got a lot of insight from G. Edward Griffin's, The Creature from Jekyll Island, which is a book that discusses the founding of the Federal Reserve, which is the latest and dominant implementation of central banking in the world.
Anthony Scaramucci: (03:23)
[crosstalk 00:03:23] Sorry, I don't want to interrupt you, but we have a lot of young listeners.
Robert Breedlove: (03:26)
Sure thing.
Anthony Scaramucci: (03:26)
So The Creature from Jekyll Island, basically Jekyll Island is off the coast of Georgia.
Robert Breedlove: (03:32)
That's right.
Anthony Scaramucci: (03:34)
At the 1910, '11, '12, in that time frame they were organizing what would ultimately be the third nationalized banking system, if you will, central bank.
Robert Breedlove: (03:46)
That's right.
Anthony Scaramucci: (03:47)
The other two failed.
Robert Breedlove: (03:48)
That's right.
Anthony Scaramucci: (03:49)
They're off the coast of Jekyll Island and they're conspiring to put this together and it's a little bit of a nefarious story. So tell us about the nefarious nature of that story and again, the book is called The Creature from Jekyll Island.
Robert Breedlove: (04:02)
Yeah, that's right. I think what you alluded to there is there were two failed implementations of central banking in the U.S. and actually, my favorite Tennessean, former President Andrew Jackson, I think he was notorious for keeping... One of the charters expired and there's also a story, I'm not sure if it's apocryphal or not, of him punching a central banker in the face at one of these conventions.
Anthony Scaramucci: (04:27)
Yeah, so in H.W. Brands' book on Andrew Jackson, he was a combative, spirited person. Obviously, he was a populist.
Robert Breedlove: (04:36)
Yep.
Anthony Scaramucci: (04:37)
He didn't like central banking because he thought that there was a ripoff scheme in central banking and so he did punch one of the central bankers in the face. You got the story correct and he allowed that banking charter to expire.
Robert Breedlove: (04:52)
Yes.
Anthony Scaramucci: (04:53)
And it was based on his common sense assertion that the central bank was going to be pre-disposed to corrupting the money.
Robert Breedlove: (05:02)
That's right.
Anthony Scaramucci: (05:04)
But after the panic of 1907, there was a huge liquidity crisis in the American banking system and so a guy by the name of John Pierpont Morgan stepped in. He was the only bank that had the liquidity and capital and he stepped in and liquified the other banks and of course, this pissed off the government because it made J.P. Morgan arguably the most powerful person in the United States, if not the world. And so they moved themselves off of the coast to Jekyll Island to build this central bank.
Robert Breedlove: (05:37)
Yes.
Anthony Scaramucci: (05:37)
You take it from there. Go ahead, Mr. Breedlove.
Robert Breedlove: (05:39)
Yeah-
Anthony Scaramucci: (05:40)
[crosstalk 00:05:40] How have I been so far? Am I doing all right?
Robert Breedlove: (05:42)
... No, you're... I really appreciate the fine detail because I tend to describe things in broad strokes, so I think it adds a lot of context. But to your point, so the implementation of the Federal Reserve was the third attempt at a central bank in the United States. It was done in a very covert fashion. These men were transported to Jekyll Island in a very secretive manner. They were carrying hunting rifles, so that was kind of a cover story for the trip. And long short is they basically passed... They developed the legislation that would become the Federal Reserve Act that would be passed, I think it was either on Christmas Day or the day after Christmas in Congress. And it was basically pitched as a resolution to the banking crisis that you just mentioned. It's like hey, we're going to implement this central bank. We won't have anymore of these liquidity crises. Like any state measure it was pitched as a resolution to chaos, when in fact it is a mechanism for control.
Robert Breedlove: (06:49)
So accurate to Andrew Jackson's foresight, the Federal Reserve was implemented. There's a great read too, Rothbard wrote a piece on America's Great Depression, which actually describes how instrumental the Federal Reserve was in creating the Great Depression, which is contrary to a lot of Keynesian belief, that it was actually gold somehow that caused the Great Depression, or going off of gold. So it is an institution that is the ultimate rent seeker, if you will. They just control the medium through which we all interact and interface in the commercial environment. It was done in secret and it was done... The wool was pulled over an unwary public's eyes, because they did not by this point understand the evils and failures of central banking that people had endured in England. A lot of the reason this country was founded as a decentralized federal model was because it was intended to resist a central authority like this, like a central bank coming to power. And I think that's why people like Andrew Jackson were so resistant to it.
Robert Breedlove: (08:10)
And we've seen the experiment run, right? We've seen this experiment run several times before. 1971 we went off the gold standard and it's hard to find a socioeconomic metric that has not become worse in the past 50 years. We're sitting here now in 2021, 50 years after breaking the peg to gold. So I think this is what my show and my work attempts to go deeply into, is that I think the corruption of the money and the unmooring of the money from the discipline and honesty that gold enforces on political actors and socioeconomic development more broadly is the reason we're seeing so much crisis in the world, cultural crisis, economic crisis, debt crisis, currency crisis. Now, we're starting to see the effects of inflation. I think the next 10 to 15 years are going to be really brutal. We're already seeing labor shortages. I think you're going to see price controls and capital controls coming to the fore over the next 10 years as well.
Robert Breedlove: (09:21)
So we're deep into the consequences of corrupt money and I think that's why many of us in Bitcoin are so passionate about what we do because we think it's the only viable alternative to have a functioning global economy.
Anthony Scaramucci: (09:36)
Okay, so let me test some things out on you and I want to get your reaction to it because obviously, we're in intellectual agreement and I think we see the world very similarly. You probably got there ahead of me. I'm more of a Wall Streeter if you will, more of an institutionalist, so it took me a minute to assess the landscape and get to where you are. But I want to test some things out on you because I think we're having something happen right now that's contemporaneous and very weird. We have asset inflation and we have inflation spiking on some goods and services like oil, fuel, some consumption oriented things, food prices. But at the flip side, we're having some deflationary forces at the same time where the long bond is going back down, the two, three, five year treasury of the United States trading about 100 basis points, let's just call it roughly there, there's a flatness there.
Anthony Scaramucci: (10:34)
Robert, in the 1970s we had something called stagflation and you had high unemployment, but you also had inflation at the same time. They couldn't figure it out. We have in-deflation right now, I'm coining that term right here on the SALT Talk, we have contemporaneous inflation in certain parts of the society and deflation happening at the same time. Am I right about that? And if I am right about that, why is that happening?
Robert Breedlove: (11:06)
Yeah, these are two of the most confusing terms in finance I believe. I'd like to first, I realized I didn't answer your first question about the eureka moment. So I had this broad understanding of central banking that led to my discovery of Bitcoin and I would just add this for the audience, it's a deep intellectual journey, I think, to understand Bitcoin. You need to answer the question what is money, you need to understand why gold became money, then you understand why Bitcoin is better. The eureka moment for me I will say is in the study of game theory though. I think the realization that money is really just a reflection of time or a tool for trading time that every market actor will voluntarily adopt the most inflation resistant money. That is what the free market will naturally select for. That's what gold was.
Robert Breedlove: (11:56)
And then when you come to understand that Bitcoin is the only money with zero percent terminal inflation, the self interest of every market actor globally will zero in on Bitcoin as money. So I think that, just to answer the eureka moment, I think if you can compile your hours of studying the multiple disciplines necessary to understand Bitcoin, but you cap it off with some game theory and you realize that, that functions at every level. That's individual, corporate, and nation state level.
Robert Breedlove: (12:24)
To get to inflation, stagflation, deflation, I think you're absolutely correct. The term inflation is typically used ambiguously. People don't know if you mean consumer price inflation, which is how the government typically identifies it. Clearly, asset inflation, which is going to be the nominal price increase in assets is another definition. And then the term that I... When I use the term inflation, I specifically refer to arbitrary increases in the fiat currency supply. So this centrally planned market manipulation that induces the first two forms of inflation, both asset and consumer price, that is what I think needs to be eradicated from the world and from our lexicon. We don't even need this term inflation to exist because basically what it represents is theft implemented directly into the money.
Robert Breedlove: (13:25)
We have systemic theft implemented directly into the medium, which is intended to be the trust minimized asset for commercial engagement. Right? We actually have a backdoor built into it, a tech backdoor if you will, that central banks use to siphon wealth and arbitrarily misallocate, they would say allocate, I would say misallocate capital. The deflationary forces that we are facing, these are specifically price deflation, typically in the consumer price realm, and this is the byproduct of exponentially advancing technology, right? There's a reason the zero marginal cost distribution of Netflix allows the price to get lower although, they're actually increasing their prices which is funny, probably because they're a monopoly.
Robert Breedlove: (14:18)
The ability to distribute these software products, whether it's Microsoft, Netflix, Amazon, with basically no cost of distribution is something that adds to the deflationary pressure of prices and the things being distributed. So you have this confluence of factors, we have the digital age emerging where exchange is being conducted much more frictionlessly, the cost of distribution is collapsing in many sectors, all of this would pull down prices. Additionally, there's essentially more economic surplus being created in the private sector, but you have that converging with this force of additional fiat currency supply inflation so that the central bank is actually using monopolized money to harvest the economic surplus being created in the private sector, which is growing exponentially in the digital age.
Robert Breedlove: (15:21)
So I guess the short answer would be, you would expect to see wild fluctuations and distortions. Energy intensive items will tend to go up in price, right? No matter how much we innovate, we're not going to get any better at making rib eye steak, for instance, necessarily much more efficiently or more quickly. I think that monetary inflation is just going to create a lot of confusion in the world. I tweeted out this quote from Henry Hazlitt yesterday from Economics in One Lesson, and just the last line of the quote was, "Inflation tends to create a thousand illusions." So I think that's what we're going to be suffering from over the next 10 years is that it will be very difficult for market actors to make sense of pricing because of so much policy intervention. It will be difficult to disentangle that from supply and demand fundamentals.
Anthony Scaramucci: (16:21)
Very well said, I didn't want to interrupt any of that because I think it's a brilliant analysis of what's going on. So make the case for Bitcoin and make the case for your thinking about Bitcoin, because you're a long-term investor. Obviously, Bitcoin has oscillated a little bit, it had... I think this time last year it was probably $8,000.00 or $9,000.00, it's trading at $29,000.00 right now. That would be a phenomenal return to anybody, except for the psychology, Robert, where people saw it at $64,000.00.
Robert Breedlove: (16:50)
That's right.
Anthony Scaramucci: (16:52)
Of course there are some people who bought it up there, and so they're bruised by it. So tell us about the near term, the intermediate term, and the long-term case for Bitcoin.
Robert Breedlove: (17:02)
Sure thing. So I would say the near term, in my perspective, is that I still believe the supply and demand fundamentals of Bitcoin are what is currently driving its price cycles. So as we all know, we have an inflation rate having pre-programmed into Bitcoin every four years. Historically, we've seen price run-ups, U.S. dollar Bitcoin price run-ups. The peak typically occurs, I think it's 510 days average post halving, so the general theory is that every time you constrict the new issuance of Bitcoin by 50% at the halving event, holding demand neutral or constant, that creates upward pressure on the price. The market tends to get out over its skis quite a bit. There's a lot of hype, a lot of FOMO, people pile in, it does a large parabolic move, and then it has sharp corrections downward.
Robert Breedlove: (18:05)
I am of the belief that, that pattern still holds until proven otherwise. Now, that said, that would have a price peak occurring, I think, mid October 2021. We would expect to see a new all time high, which would be above the $64,000.00 local peak. That said, we have this sort of anomalous event in China where there's been massive crackdown on Bitcoin mining, and a lot of those miners have been boxed up and shipped elsewhere. The hardware itself was... The market was soft, let's just say, there was kind of a duress liquidation of a lot of this mining equipment, so there are macro factors playing into this cycle that we haven't seen previously. This could either break the pricing cycle, if $64,000.00 proved to be the peak and we saw Bitcoin continue to draw down over the next 12 months, then I would have to throw out my theory of the halving cycle purely driving its price going forward. We'll have to start to account for more of these extraneous factors.
Robert Breedlove: (19:19)
Mid-term, say medium term, five to 10 year, I think Bitcoin is going to perform extremely well. The simple elevator pitch I give is Bitcoin is a non-counter party insurance policy on central banking. The more dollars or fiat they print, the more valuable it becomes. Clearly, we are printing money, we're expanding the money supply at an accelerating rate. I would expect that insurance policy to do really well over the next five to 10 years. And then longer term, I think it's the most important asset you can hold, frankly. It is the only asset in the world that no one, no singular interest can control, manipulate, regulate, change the rules of, assuming you custody it properly, cannot even be confiscated. It's really an evolution in property rights.
Robert Breedlove: (20:19)
This country again, was founded on this core natural law thesis of the right to life, liberty, and property. We've replaced that third one with pursuit of happiness, which I think is a big mistake. I don't think you should pursue happiness in life, I think you should pursue responsibility as Jordan Peterson teaches us. Happiness is a nice byproduct if you lead a responsible life. But that third one, property, that is the basis of civilization. If we don't have property rights that we know we can go and invest our labor into projects, and creating value for others, and reap the value that we create, store the fruits of our labor in something secure that we can then redeem for help from others, for services from others, then civilization breaks down. Then we're all just going to be out here... It regresses you to a caveman like state. If you don't have property, how do you create civilization?
Robert Breedlove: (21:23)
If you read a little bit of Ayn Rand, this is the basis of civilization. There is no other fruitful, or peaceful, or cooperative action among humans without property, and inflation is a violation of private property rights. We are arbitrarily allocating wealth from the hands of some into others. So long-term, I think Bitcoin is the solution to this dissolution of civilization through the violation of property.
Anthony Scaramucci: (21:55)
So you said a lot there. I'll probably steal that from you, Robert, because it's such a good line.
Robert Breedlove: (22:03)
It's a free market for ideas, take it away. [crosstalk 00:22:05]
Anthony Scaramucci: (22:05)
It's okay, it's no problem, because I'm not going give anybody footnotes. I still a lot of my ideas from John Darsie, I might add as well.
Robert Breedlove: (22:11)
All good.
Anthony Scaramucci: (22:11)
So I'm a plagiarizer, but I think it's a brilliant statement that inflation is property theft, because it's your time and your labor and the government is devaluing... You're using your time and your labor in exchange for fiat currency and the government is devaluing the fiat currency, so it's thieving your time and your labor.
Robert Breedlove: (22:31)
That's right.
Anthony Scaramucci: (22:31)
I think it's very well said. It can't be overstated. Ben Franklin, obviously Jefferson wrote property, you may remember this. John Adams and Ben Franklin proofread the Declaration of Independence and it was Franklin that suggested the pursuit of happiness. This was a John Locke idea. Remember, he was another philosopher in the great Enlightenment. And Franklin said that if you have life, and liberty, and you're pursuing happiness, the property itself would take care of itself, was what his point of view is, and they inserted that. So there's been a big debate over the 245 years about property and happiness, but I am in agreement with you that property is a central element for all of us because it gives us a sense of ownership in our temporal world, but also it's something we're holding, and we worked hard on, and we can transfer to our children.
Anthony Scaramucci: (23:28)
That bring me to another very, very big question, which is about Bitcoin and Bitcoin's ability to continue to be the apex predator in the space. Is that something that you're fully confident in? Do you think something like Ethereum can creep in? Is there room for other digital currencies that have fixed supplies? What's your opinion there?
Robert Breedlove: (23:53)
Yeah, so I draw a pretty bright line in the crypto asset universe and that line is between Bitcoin and all other alternative crypto assets, endearingly called shitcoins by many Bitcoin Maximalists and others. And the analogy I use is that Bitcoin itself is more akin to the internet. The internet itself actually is a set of open source protocols, so some of them you've probably heard of, TCP/IP, HTTP, SMTP, et cetera. It's this stack of open source protocols for moving information without asking anyone permission basically and they interlock, and they inter-operate in a way that essentially no one entity controls. And that's what... The open, permissionless nature of the internet is what allows it to render so much value to the world.
Robert Breedlove: (24:55)
There was a time back in the mid-90s when we were struggling to get our language around the internet, the information superhighway, and all these other terms. And at that time intranets were a competing force, that people thought these private, permissioned intranets would be the wave of the future, that the open permissionless internet would not have as much of a place because corporations would just insert their large, privately controlled intranets in its place. So that model clearly played out to the favor of the internet and I don't think there's any intranets hardly around today. And the reason is, is because an open network inherently out competes a closed source network.
Robert Breedlove: (25:44)
So in a closed source network, you have a smaller development team, you have boundaries, and security cost, and rules to develop and enforce. There's a lot of cost with protecting that private turf, if you will, that the open network does not incur. It has... Anyone can participate, the rules are voluntarily adopted, if you don't like the rules of it you can fork it and do your own thing, so it's very open and permissionless. It does not accrue these regulatory and enforcement costs that a closed source network does. That's why the internet out competes intranets and I view Bitcoin as essentially the latest layer in the internet. It is... Just like the layers of the internet allow us to move information without permission, we now have the Bitcoin layer that allows us to move economic value without permission. It sits right on top of the internet protocol suite, augments it, and complements it in many ways.
Robert Breedlove: (26:45)
All of the alternative crypto assets I view more through the lens of intranet, that they've actually gone, copied and pasted Bitcoins code, modified it, and they are using it to either attempt to compete directly with Bitcoin as money, which I think is a failed value proposition for reasons I've outlined in a lot of my writing. Or they're trying to address other market niches, there's 10,000 of them out there. So I don't think the flipping of Bitcoin, Bitcoin as digital gold, which is a very apt analogy once you understand the importance of gold in the world today, I don't think it is being threatened by any alternative crypto asset whatsoever. I see Bitcoin as competitive to gold, sovereign bonds, fiat currency, other stores of value. I think it will absorb monetary premium from real estate, oil, et cetera.
Robert Breedlove: (27:44)
Alternative crypto assets I consider today as liquid venture capital subjected to little, if any due diligence. So some of them may succeed in some market niches. I would say that all of the value propositions that I have seen in the alternative crypto asset space remain theoretical. I haven't seen anything quote unquote prove itself. You could marginally argue Ethereum has succeeded but again, these are really good questions because we don't even know the criteria. How do you define success of an alternative crypto asset? I'm not even really sure about this. So one number I like to look at is the realized cap, which is... It's basically the cost basis for all the long-term holders of a crypto asset and the realized cap for Bitcoin just crossed 100 billion back in August 2019, I believe. So if we use that as our threshold metric, then really Bitcoin just became quote unquote market proven about two years ago.
Robert Breedlove: (28:54)
Today, Ethereum it's well below that now, it's probably in the 40, 30 to 40 billion dollar realized cap range. If you use that as your threshold, if we see Ethereum trade above 100 billion realized cap and hold that, then maybe my arguments bust and we've seen one successful alternative crypto asset. But again, these questions are very nuanced and it comes down to your framework for evaluation. How do you determine success in the marketplace? So no [flippiting 00:29:27] I think would be the short answer, but there is the possibility that some of this other venture capital could succeed.
Anthony Scaramucci: (29:36)
Before I turn it over to John who's got a series of questions for you, Robert, what are the greatest true long-term risks to Bitcoin?
Robert Breedlove: (29:44)
Yeah, the greatest known unknown, to use a Rumsfeld term, is the state response. Right? We know that Bitcoin is engineered to be an enemy of the state effectively. It is something that demonopolizes the tool that has been most monopolized throughout the history of government. I think it was Kissinger who said that if a state controls the money, the food, and the energy that they basically control the population in its entirety. Money is one that historically was easier to control because gold had these natural centralizing tendencies. Right? There were a lot of economies of scale by centralizing the custody of gold and issuing paper redeemable for gold, so this gave governments an attack vector to control the money.
Robert Breedlove: (30:49)
So I think that... I'm sorry, I may have veered from the original question. What was the original question?
Anthony Scaramucci: (30:55)
Just the long-term risks [crosstalk 00:30:57].
Robert Breedlove: (30:57)
Long-term risks. So the state response in what we're seeing in China today, are we entering that now they fight you phase. I think Bitcoin has been somewhat disregarded up until this point as a joke, or not quite a threat, but when it got to a trillion dollar market cap it seemed like a lot of people started to pay much closer attention. That is when this latest Chinese response against miners and people participating in the financial ecosystem seemed to ramp up as well. So in the long run I think states ultimately have to... They are incentivized to interact with the Bitcoin network and support it so that they can generate essentially a tax base from the economic activity that it will usher in. But in the short run, I do think you're going to see more of these attempts at governments cracking down or controlling Bitcoin.
Robert Breedlove: (32:08)
That's in the sphere of the known unknowns. The unknown unknowns, which are just pure black swan events, which by definition I can hardly talk about because if I could describe them in detail they wouldn't be black swans. I think that is the greatest threat to Bitcoin, and as someone looking to make a risk adjusted bet on something that's actually what you want to see. You want to have identified all the possible risk vectors and be left with nothing but an unknown unknown possibility of hurting your investment. So in that camp I would put a technical flaw of some kind that we have not foreseen, some breaking in elliptic curve cryptography, which would break the commercial internet itself by the way. So it's not like just Bitcoin is singularly vulnerable here. You could say some broader cosmological event, I don't know like an EMP burst or a supernova that affected things. So I guess, we know the state's going to do something about it.
Anthony Scaramucci: (33:19)
The alien announcement and the UFOs landing, you're okay with that one?
Robert Breedlove: (33:22)
The alien announcement I would think is more in the bucket of the known unknowns at this point. I think the state may actually... It seems like they're kind of warming people up to that idea, that will be the next lockdowns we go into, alien lockdowns, or global warming lockdowns. Just if I zoom way out, I see an antiquated organizational model called the nation state vying to maintain its relevance in the digital age where we just don't need... We don't need the organizing influence of coercion nearly as much as we used to because we have voluntary networks like the internet and Bitcoin. That's the larger transition I think taking place and yeah, the risks to Bitcoin for me are minimal enough relative to its upside that I do believe it is the best risk adjusted bet still in the world today.
Anthony Scaramucci: (34:25)
John Darsie.
John Darsie: (34:26)
I want to ask you a couple quick questions before we go, Robert, one's about Bitcoin mining. So obviously China's crypto ban has had this big negative impact on hashrate, and whether it's causation or correlation hashrate traditionally has been correlated with Bitcoin price and we're continuing to see these downward adjustments. Obviously, Bitcoin rewards have gone up commiserate with that. Do you think that China's ban and this downward pressure on hashrate is a long-term concern? Or where do you think the trajectory of Bitcoin mining geographically and directionally is going?
Robert Breedlove: (35:04)
Yeah, I think long-term it's a benefit actually to have so much hashrate leaving China. I think the numbers were upward of 70% at one point and were all within just the Chinese jurisdiction, so that's actually reducing the risk overall in the long run. Short run though, hashrate, I believe, the last I looked, it's been a few months, it tends to precede price a little bit. There's a bit of correlation there. As far as whether hash rate and price are causative or correlative, I actually think it's a feedback loop where the... It's programmed into Bitcoin essentially, but as the hashrate increases the network is essentially becoming more secure so that the store of value properties of Bitcoin are increased, which in theory would increase demand for its utility as a store of value. So I do think they have this reciprocal interaction.
Robert Breedlove: (36:07)
Yeah, so long term I think it's a boon, short term could be very depressive to price and could contribute to a breakdown in this pricing cycle, which I still believe in until I see otherwise.
John Darsie: (36:22)
And in terms of government, let's say the United States government comes through and decides they don't like Bitcoin. Elizabeth Warren wins out, Janet Yellen, and the Federal Reserve, and all the other financial regulators got together on Monday, we're talking about the stable coin market, but generally people in the Biden administration don't love Bitcoin. If they were to come out and say, you know what, we're going to either tax it very punitively or ban it in some shape or form, do you think Bitcoin survives? And what form does it survive?
Robert Breedlove: (36:54)
Yeah, punitive taxation would definitely contribute to the incentive to hold long-term. So I think that would be positive for creating pressure on existing holders to continue to hold, but it would also likely delay further institutional adoption or other larger capital pools coming into the space. I think if there was a hard crackdown in the United States you're... Again, every time one jurisdiction presses down, as China's doing now, they're creating incentives for other jurisdictions to both tolerate and accept mining and build out additional financial services infrastructure into Bitcoin. And you could say that you're seeing some of that in the likes of El Salvador where they've said enough of this and have decided to make it a legal tender.
Robert Breedlove: (37:50)
So long run I think Bitcoin is going to continue to do its thing in the free market. We're basically seeing Gresham's Law play out. Again, initially at an individual level and that game theory percolates itself up due to corporate and ultimately nation state, central bank, sovereign wealth fund level. But there's going to be... They're going to fight back, they're going to press back as well, so that might be what we're starting to see. I forget, what is the Gandhi progression where it's like first they laugh at you, then they something, then they fight you, then you win. We might be going into that fight you stage. That might be what the beginning of this is.
Robert Breedlove: (38:34)
But then the other thing about the U.S., at least today as we still have this decentralized model, so we have people like Greg Abbott in Texas that are vying to get hashrate into Texas. There's a lot of surplus energy production there, which means that energy producers are basically leaving money on the table and I think as this realization dawns on them that they can just monetize a lot of this currently curtailed energy production, that you're going to see the market continue to defuse and enhance the Bitcoin hashrate globally.
John Darsie: (39:12)
All right, Robert. Well, we're going to leave it there. I wish we had three hours to do sort of long form conversations the way you do on your What is Money podcast, but we try to keep these at about 40, 45 minutes. But this has been fantastic, we hope to have you on again soon to pick up the conversation maybe a year or so down the line.
Robert Breedlove: (39:31)
Sure thing.
John Darsie: (39:32)
[crosstalk 00:39:32] But keep doing what you're doing. We love your podcast. Whatismoneypodcast.com, you can find Robert's fantastic work there. Again, we highly recommend it. Anthony, you have a final word for Robert before we let him go?
Anthony Scaramucci: (39:43)
Well, listen, I think that... I applaud you for your vision, Robert and I want to stay close to you and follow what you're doing because I know that you're seeing around the corner with those laser eyes that you have on Twitter. I put the laser eyes on as well, it's not coming as quickly as you and I both thought, but I do think what you're saying about this trend and the phenomena of having permanency of capital in things like Bitcoin is something that I think we're moving towards. That standard is something that's coming.
Robert Breedlove: (40:13)
Yeah, agreed. It's gradually then suddenly, right? So I hope to continue to establish some vision for us to work towards because a lot of people are struggling in the current structure at every level. So I hope to at least paint a picture of where we could be versus where we are today.
Anthony Scaramucci: (40:34)
Well, we appreciate it. Thank you for joining us.
Robert Breedlove: (40:37)
Yep.
John Darsie: (40:38)
And thank you everybody for tuning into today's SALT Talk with Robert Breedlove. Just a reminder, if you missed any part of this talk or any of our previous SALT Talks, you can access them on our website on demand at salt.org/talks or on our YouTube channel, which is called SALT Tube. We're also on social media, Twitter is where we're most active @SALTConference, but we're also on LinkedIn, Instagram, and Facebook as well. And please spread the word about these SALT Talks, but on behalf of Anthony and the entire SALT team this is John Darsie signing off from SALT Talks for today. We hope to see you back here again soon.