🎙️ 69 - Asking the Questions: BTC & ETH | Preston Pysh

welcome to bankless where we explore the frontier of internet money and internet finance this is how to get started how to get better how to front run the opportunity this is ryan john adams i'm here with david hoffman and we're here to help you become more bankless david this is the episode ethereans and bitcoiners have an adult conversation that's the goal what do you think did we achieve it yeah preston pish is a bitcoiner uh and he's he's he often finds himself very much on the

opposite side of the argument very much in the twitter sphere uh to and it's kind of it's very much emblematic of like the the bitcoin versus ethereum fights that you see on twitter and uh i think this episode does a very good job as as then when you get in front of these people and you look at them face to face and you're in the same room with them those those twitter fights do not represent reality at all this was a fantastic conversation with preston pish who is a very informed investor in the in the both in the legacy world and also now

highly uh in on bitcoin and he's also a content producer and he's so that's always a fantastic time to get another content producer on the podcast it makes podcasting very easy yeah i always find with these conversations david that's like we agree on 90 of things right it's like we started there with all of the things that we uh agree with we talked about um fiat and late stage credit cycles we talked about many money printing we talked about the value of self-sovereign money and decentralization um and then

we talked about some of the things we actually disagree on so that other 10 right so some of these famous debates uh proof-of-work versus proof-of-stake what were preston's thoughts on proof of work and our thoughts on proof of stake we talked about monetary policy because we can't not talk about monetary policy we got into a really interesting discussion because preston values scarcity to the nth degree he thinks that is why numbers go up for bitcoin well guess what there's some pretty extreme scarcity

properties coming to ethereum in the next 12 months we had a good discussion on that um yo i think listeners will have to to um i guess come to their own conclusion on this um there's a certain element i feel dave and you and i have talked about this that sometimes whether you're attracted to bitcoin or ethereum is is more up to like personality more up to disposition and preston is kind of like our reminded me of the conversation most with lynn alton where she was just like yeah what you're saying could be true and i can

understand what you're saying but it's still too early to me i want to see all the execution risk boiled out of this thing before i'm willing to give it another look but i will give it another look so i almost david want to uh bring back preston in 12 months or so or 18 months when ethereum has shipped even more and some of these major changes go through and and talk to him then and get his opinion uh from that perspective but all in all really interesting discussion i

hope this is the discussion that listeners wanted again that conversation open-minded conversation between two groups that are more aligned than they seem but often appear so tribal on uh social media and maybe over the long term like as ethereum calcifies and as as bitcoin just chugs along hopefully we come together as a as a community rather than uh splitting further apart i i think you know if if preston uh you know comes in

and the plan is for him to come and look at ethereum in 12 months time and see all that execution risk in the rear view mirror and uh according to what he said that he would be much more open to an ethereum with minimized execution risk uh and then and i that's more or less what lynn alden said uh and so maybe the the time for a decent amount of risk-averse cohort of people to come to ethereum is just not now now is the time for people who are willing to take on that execution risk and uh you might be that might be you as a listener of

this podcast like maybe you you're cool with execution risk uh preston is not and he explains his rationale and he explains his reasoning and that's kind of like the core fundamental difference between a lot of like the the bitcoin um bitcoin only types of people absolutely guys i think you are really going to enjoy this before we get to the podcast we want to thank the sponsors that made this episode possible bankless is proud to be supported by unit swap uniswap is a new paradigm in asset exchange infrastructure instead of a

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to change the collateral you have backing them check out the power of ave at ave dot com that's aave.com all right bankless nation we are super excited about this next conversation with preston pish preston is an investor with a strong understanding of macra but maybe most relevant to today's conversation he's a bitcoiner that we feel like we can have a great conversation with and that's what you're here for is a fantastic conversation between ethereums and bitcoiners preston

co-founded the investor podcast network number one ranked on itunes we study billionaires is what it's called he also hosts the bitcoin fundamentals podcast just an awesome podcast i enjoy quite a bit he is one of the leading bitcoin advocates and has a very firm footing in the legacy finance world as well preston welcome to bankless it's great to have you guys great to be here looking forward to this looking forward to learning perfect i'm so glad you said this

because i think this is what listeners really want to hear preston is an adult conversation between ethereums and bitcoiners uh where they listen to each other they're not just rattling off talking points on on twitter they're trying to understand each other where maybe they share values where maybe the points of difference are and i hope that um we're able to have that today yeah absolutely you know where i think would be great to start actually for for bankless listeners who who haven't heard sort of

your story a little bit is kind of how you discovered bitcoin and when you discovered it what about bitcoin resonated with you so i mean i was a lot of people that listen to my show know my my background as far as just being a warren buffett person and um they've heard the journey because we've been doing it for a very long time doing the show for a long time and um you know from it it got really strange where you know i'm doing these discount

cash flow models and really kind of just a stock investor purely really nothing else the bond market never really interested me as as far as being able to outperform equities um we were studying ray dalio in particular and we were studying ray dalio's long-term debt cycle and we were studying uh just how he invests which is really kind of very unique and way different than the way that warren buffett invests

and so that was for me really uh kind of a fascinating piece to it because here you have a guy who's pretty much a stock buffett is pretty much a stock investor um if you if you plowed into like geico and things like that he was doing a lot of fixed income stuff at very strategic times and you're in your typical like seven to eight year credit cycles but outside of that i mean it was really straightforward didn't really mess around with commodities definitely didn't really mess around with uh currencies other than just hedging

currency risk from an operational standpoint within its businesses and so i start studying ray dalio and here's a guy who 15 percent of his portfolio around that that amount is purely dedicated to currencies and commodities you have pretty much the rest of his portfolio that's making up this mix between equities and bonds and not only that but he's levering a bond position and just like the whole the whole portfolio construction was just so different than buffett and then he

starts explaining and and in some of his material he starts talking about these long-term debt cycles and i'm like holy hell what is this this is so different i gotta understand this and his performance was exemplary yeah um you know he blew up and i think it was like the early 80s but ever since that point his performance was just like you know similar to buffett's uh close to 20 percent kind of numbers i know in the 2008 2009 crash the market was down 60 and ray and in one of his you know

more premier funds he was up positive like nine percent for the year and so um i'm looking at this and i'm analyzing it i'm saying there's something here i need that i'm totally missing from a macro standpoint and you come out of like the uh the value investing hardcore buffett uh style of investing in and the mindset is just ignore macro it's not even worth your time it's too complex can't understand it so just ignore it and just focus on the micro and do your valuations and try to find the the highest irr for

internal rate of return relative to you know whatever stocks you're kind of looking at so long story short i uh i'm studying dalio and he has gold in his portfolio and i'm saying you know anybody in the bucket community is like saying gold is just a useless rock it's a useless rock that doesn't kick off any cash flows and so why in the hell would you own it well because buffett's rationale is is basically like if you want an inflation hedge preston go buy stocks right because that's an adequate

inflation head so what are you doing mess around with gold yeah and he even gets into there's some really neat shareholders letters from like the early 80s where he because you know you go back into that time and you look at what inflation was doing back then it was you know 16 on the 10-year treasury and things like that in 1981 and so he has some really interesting comments about inflation is particularly with equities and how you want to own a company that has a lot of intangible assets and not tangible assets because of the turnover and the cycle rate and

you're buying things that are losing value when you're holding a lot of inventory and just a really kind of a fascinating discussion so he he addresses it and it gets to your point um you know own that instead of a pet rock that's not doing anything productive so dalio changed the way i see that in a dramatic way like very dramatic and this is like all through our show right so like we're doing the show and like people can hear how like like our opinion thesis is

changing our minds are warping and and it was like learning in a very public kind of way and um so in in short i mean the reason rey has gold in the portfolio like the basic thesis is really kind of for currency collapse or for like severe currency debasement it protects against that it's kind of the ying and the yang to the currencies and that's why uh commodities and currencies kind of have this inverse relationship inside of his all-weather portfolio and that's why they're equally

weighted i want to say it's about seven and a half percent for each one of them um because his opinion is as as one's doing performing well the other would be not performing well and then he's trying to find where would i want to own when would i want to have the heavy weighted currencies and then which currencies would i want to be heavyweighted in in comparison to that to balance it out so uh long story short i'm sorry to keep kind of going on about it but in short gold made a lot of sense for currency the basement in the portfolio

and then you know i'm a millennial barely a millennial uh some might argue i'm not but i think i'm right there maybe the last year of a millennial and uh you know gold made sense to me at that point and naturally bitcoin made sense as well and so this is in the 2015 time frame we did a show about bitcoin back probably first or second quarter of 2015. uh it's kind of funny to listen to because we're like what the hell is this who is the person that like how in the world can something that uh

you know doesn't have a known founder possibly like set on a global stage and people take it seriously you guys are just figuring it out on the show yeah as you went on we were figuring out on the show but you know what was interesting is even back then uh and at the end of the show i tell people i took a position in bitcoin and the reason why i bought it back then is because for me it had such a massive asymmetric upside because of how sick and broke the traditional markets are

specifically the fixed income market in traditional markets um you know i i was of the opinion back in 2008 2009 that nothing was fixed from that so as we went into the because you know i was i was invested in the market during that period of time and uh everything that they did from a central banking standpoint after 2008 2009 for me did not make any sense whatsoever i was like well this is a short-term fix right all the qe um and then they did

more and then they did operation twist and now they're buying the longer end of the bond now it's normal it's not even that's right no one even questions it and so i'm looking at this and saying okay so what's the end game here like there's no way we can keep doing this without there being some type of repercussion and so come 2015 gold was starting to make sense i see bitcoin i'm saying i'm going to own a little bit of this because if this is if this would play out because i don't see the end state um this could become extremely valuable stuff

um and the settlement can can take you know back then it was only you know every 10 minutes you could settle so that was that was a major challenge and kind of a setback at that point in time to own it um because of the settlement time and there was a scaling concern back at that period of time when we covered it and a lot's changed since but um yeah that's what got me in okay so i i think i see sort of your path here right so coming from from buffett right and then you absorb that world and your long-term time horizon all of the things like he

preaches and says and then dalio is is all about the the credit cycles and you know what at the 70 to 90-year sort of cycles yeah and within those cycles somebody like warren buffett can be completely right and thrive yes but when those cycles change and dalio argues that we're in the late stages of a fiat credit cycle when those cycles change the buffets of the world can be really really wrong and you have to be ready for those stages so you saw that and i get that um what's interesting to me preston and

you've probably been studying dahlia for longer than i have though is dalio hasn't yet fully made the connection to bitcoin and maybe that is the millennial in you coming out because he sees what's going on right with with you know like he's like you should hold the gold as a result you know non-sovereign wealth stores are your friend commodities gold these sorts of things but he hasn't yet connected that to the digital and i wonder at some level whether that's just a product of

when he was born like the generation he didn't grow up with computers in the digital being a fundamental part of his life so maybe it's just harder for him to make the connection i know he was at the coindesk conference he's kind of coming around a little bit so he's maybe getting close and if anybody can change their mind on some something it's someone like dalio who's very rigorous very analytical but that seems to be the additional step that that you took is just jumped into the digital and i'm curious if you think that's kind of just a

product of what the time period in which you grew up i i think the thing that's really kind of held ray back is he it appears through some of his writings that he has been very concerned about uh government shutting it down and just if if it really did start to run that somebody was going to come in and be able to stop it i think in your like you said he's down there at the conferences talking about he recently made an announcement on cnbc that he doesn't see the dollar continuing to be the global reserve

asset just like stan druckenmiller um the other thing that he said recently that i think is uh what i feel like i've been screaming about for a while which is uh he he made the comment uh to the tune of like i'd rather have bitcoin than have bonds yeah and people on cnbc were kind of scratching ahead like everyone keeps talking about bitcoin versus gold but no one's talking about bitcoins versus bond what he's getting at is um if bitcoin starts to become

the new store of value globally what does that do for debt in general and i don't think too many people can have connected these dots as to what it means for the impairment of debt because your interest rates and boy i'll tell you and i've been i've been saying this on a couple different shows what if these stable coin interest rates that that you can get in defy that you can get on centralized uh

exchanges um i know when you go peer-to-peer on like a usdc token like it's like 20 percent right what if what if this is the big what if that i'm trying to propose and put out there to people what if that is the real risk-free rate right what if what if the cost of capital is double digits we won't even say 20 let's just say it's 10 we could say it's 5 because when you look at asset prices

specifically like equities in real estate or whatever it all comes down to interest rates and if they're priced and i'll be generous and just say it's it's two percent or three percent today is where the equity markets priced but let's just say that the real risk-free rate is 10 like the amount that they have to come down the the equity prices have to come down if those stable coin interest rates are the real new risk-free rate i mean you're watching equity markets

sell off by like 80 from where they're at right now in bitcoin terms in in in that new emerging global currency that is basically taking over from fiat currencies as we know it and so that for me is the big like really mind-blowing scenario at play globally uh that i just don't think anybody's talking about i don't think anybody looks at that as being like real risk-free rates but think about it like who's stepping in and saving anybody

with these rates like nobody's yeah and that's what's interesting about crypto right so another headline on cnbc is always talks about the uh the volatility of crypto um but but but sometimes i wonder if like a crypto is maybe the more free open market maybe crypto is the last free market on the planet everything else is just artificially suppressed or like pushed down and certainly interest rates are so that has a an effect on

every single other asset class and maybe like our world is the real world it's just like it back that's totally what a matrix mean like like we're in the real world cnbc is in the fake uh synthetic world and like we're seeing all of the raw volatility and craziness that is a free and open market i mean just think and that's totally how i feel but just think how insane it is for people to think that the 10-year treasury is not manipulated right like they're

they're printing a bunch of money they're going straight into the bond market they're buying the bonds and they're shoving that cash into the system and they're clawing those bonds off the market which is either pegging the yields at whatever percent or lower and so now they're talking about yield curve control like uh it looks like the 10-year treasury's kind of cooled off but like if that thing got up near two percent they were going to step in they were going to do yield curve control which means we'll print whatever amount of money that's needed to ensure the

yield doesn't go higher than two percent and we're just going to keep shoving it into the system and clone those bonds out of the market right that's manipulated that's not the cost of capital is not real at that point it's just imaginary land so i'm glad we're kind of starting this with um the things that we we all agree on right yeah like the reasons we're in crypto and i think we hit on two just just then uh as we went through kind of your background and introduction your story one is i think um all of us agree that we are in this late stage fiat cycle

fiat monies are probably doomed and by doomed i mean i don't think it's the end of fiat but there's going to have to be a jubilee a reset a money printing event and i think we also both agree back to your back back to your comment that like money printing does suck because um a small group of bankers should not have the ability to decide who gets freshly printed money and when they could print it i mean that is an unfair

uh we use the term often on bank less credibly neutral this is the antithesis of credible neutrality right a small group of individuals have controls over the buttons to print their money and they could they can print it however they want over the last 10 12 15 years it's gone primarily to the banking class and the wealthy right now it's maybe it's shifting to to labor but that's probably not a good system to uh to base our monetary system on so those two things we agree i want to get

to a third that i think we agree on and that is this concept of self-sovereign money that individuals rather than faceless governments and banks should have more power in our financial system and for self-sovereign money to happen we have to have decentralization decentralization is necessary for anti-fragility is that something that you deeply believe as well preston absolutely

yeah and then i'll also also follow up with uh some sort of belief that you know markets and monies should be out of the hands of top down control and more of a bottom-up emergent phenomenon um i think i think uh preston you you might also agree with that statement too yeah i think for anybody who believes in freedom and free markets and the power being at the lowest level within within the individual like which you would read in the constitution of the united states um i don't know how anybody could see it any other way

right because what it does is it is it forces upon elected officials to make decisions reasonably they're not just going to go to war with another nation state when there's extreme repercussions for the cost the real cost that that it takes to do something like that and so when when money is free or i should say currency is free that whole incentive structure and that decision making that's being made at the

highest levels gets totally warped almost like you know somebody who's on it who's on a drug how their brain and their their rewards and uh um penalties of their decision making get warped how important to you preston i'm curious back on this self-sovereign topic is the the peer-to-peer nature of crypto or something like like bitcoin right so like really high okay okay so let's talk about that because i feel like there are two elements of decentralization in

something in a system like bitcoin one is like hands-off decentralized issuance right you're like no one has the ability to print the algorithm controls the printing of new bitcoin but the second piece of decentralization is anybody can transfer bitcoin peer-to-peer from one person to the other and it strikes me that some in the bitcoin community value one and not the other some value both some value one hot more highly than the

other of course we have the bitcoin cash fork we all know like about that yeah but but the reason i'm curious too is because like some who only uh value the the issuance side of things might say things like oh it would be really great if we had like um a paper like a a a government fiat that was uh bitcoin backed right like a paper sort of fiat that that but like you've removed the ability to have the peer-to-peer sort of

nature almost like a bitcoin standard but we're not necessarily using the bitcoin network itself how do those two line up to you is is the peer-to-peer nature of bitcoin as important as the hands off the issuance policy side you know for me that was this was just an argument that was much more of a debate back in like the 2017-2016 time frame i mean really anything before the bitcoin cash fork it was a big debate within the community but i would i would say now

um i don't really see within like you know hardcore bitcoiner community i don't see that really kind of being much of a concern because um at the base layer you got your sound money your issuance hasn't been changed the security hasn't been compromised by like anybody can run a full node it's super easy to do um but yet you're still being able to to step into layer two with the lightning network and and conduct transactions instantaneously at sizes that make sense

for the amount of fees that you're being charged so like if i want to send somebody 500 bucks on lightning it's it's not too hard to use those rails to do it um so uh you know i i don't really see too much of an issue in the space with with respect to that you know piece right now so preston i think that's our base right so like there's a lot here that we agree on right and and the last one being sort of self-sovereign money i might add um digital because neither david or myself

or anybody who listens to bankless is really excited about non-sovereign uh physical assets like gold right i mean because we do skew more millennial we think the world is going digital like for sure don't bet against that i mean i just don't know how anybody in this day and age could think that we're going to go back to trading rocks and and paper currencies on top of that that makes sense to me either yeah so let's talk maybe we're going to get

to some topics maybe that are kind of the crux of disagreements uh between the bitcoin and ethereum space and we have a few i'm gonna just like throw them out here uh as a table of contents we won't get on them now but i think one of the things we probably want to talk about preston is proof of work versus proof of stake in the trade-offs of those two things um another thing that seems important is uh monetary policy so fixed supply of bitcoin versus the security trade-offs that ethereum might make um the third is

bitcoiners often don't think of eth as a store of value where ethereans do and increasingly do think of eth as a store of value monetary asset a money as we might say we should talk about that another thing i think bitcoiners and ethereans can disagree about is the importance of decentralization and when we say decentralization what aspects of decentralization like most matter and maybe that's less a disagreement and more sort of a a

conversation or like a mutual back and forth learning um and then the last the last piece i'd like your thoughts on is um i guess the the the holiness of bitcoin right so there is this idea that hey bitcoin was first and when bitcoin was made it was made well and there's no need to tinker it with it right that that mean like hey i'm here to fix bitcoin like nobody fixes bitcoin it was it was made and you shouldn't tinker with it and there's