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July 20, 2019 - Freedomain Radio - Stefan Molyneux
52:22
Bitcoin vs. Gold: The Future of Money - Peter Schiff Debates Stefan Molyneux
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Hi, everybody. It's Stefan Molyneux from Freedom Main Radio.
Hope you're doing well. I have Peter Schiff, the one and only Peter Schiff, a gold coin eater, a soul destroyer of Bitcoin currencies.
And we're going to have a chat about Bitcoin.
Thank you so much for taking the time today.
Well, thanks for having me on.
And by the way, my comments had no effect on Bitcoin prices.
As we speak, they're still trading hands at over $800 per Bitcoin.
So I certainly didn't hurt the market.
Well, I think that a lot of the people who are into bitcoins look at my bald head and your gray hair and say, what on earth could they have to say that would have value for me?
We might as well be challenging them in some TwitchFest video game.
The way I think that I look at the value of Bitcoin, I mean, there's some that are pretty obvious, which you know about.
And there's some that are more subtle that I've sort of learned about more recently.
And the obvious one is that it's kind of free, right?
So some guy just transferred six and a half million dollars using Bitcoins, and it cost him six cents.
Now, the PayPal fee, that would be $188,500.
If he'd done it over a bank wire, it would have been over a quarter million dollars.
Somebody also recently transferred $150 million worth of value for free.
So there's obviously that value, that the scarcity is for sure.
Sorry, go ahead. go ahead.
There's a spread. So now I buy the Bitcoins.
I can transfer them for free.
But now the recipient now has to sell the Bitcoins and buy dollars.
And there could be a big difference between what I pay and what he gets.
So I don't think it's fair to just look at the cost Of transferring Bitcoins.
If we were in a world where everybody had Bitcoins and nobody wanted anything but Bitcoins, and so if I was an online merchant and I was selling in Bitcoins and my employees wanted Bitcoins and my landlord wanted Bitcoins and my grocer, everybody took Bitcoins.
Then you would be right.
The cost would be negligible.
But in today's world, I think it's more expensive to use Bitcoins, given the fact that the guy that got them most likely needs to sell them, and there's going to be a cost there, and there's going to be some slippage.
And as more people want to sell, the price could be dropping, and you don't know what you're going to get.
That certainly is very true.
Of course, that is equally true for gold as well, right?
That if you want to convert it into dollars, there's an overhead spread between the buy and sell price.
And of course, this is a lot of the price of Bitcoin at the moment, sort of 800 and up, is predicated on future value, the future value as it spreads and so on.
Some of the other cool stuff that you can do with Bitcoins is there's a lot of features that are dormant in the architecture that people are beginning to To use things like escrow transactions, bonded contracts, you can get third-party arbitration.
So you basically can involve three people in a transaction, and two people have to agree for that transaction to complete itself, right?
So if you and I agree on the transaction, it's completed.
If we have a dispute, then a third party will be the one who sides with either one of us and so on.
Multi-party signatures as well.
So there's a lot of things more than just the transfer of Bitcoins.
You've, of course, talked about the public record Of everything that's possible, right?
And everything that's occurred from a transaction standpoint, from a negotiation standpoint, or at least a contractual standpoint.
Yes, sir? To actually have a long-term contract in Bitcoins that you'd look to enforce it, it would be so difficult because you can't just hedge your Bitcoin exposure.
So if you and I were to...
And arrange to do something, and I was going to, let's say, pay you in bitcoins or make a loan in bitcoins, to actually do that when neither one of us knows what the bitcoin will be worth.
And obviously, if it's a small difference, but I mean, bitcoins are 800 today.
I mean, how do we know a year from now they could be 5,000?
They could be 50. I mean, who knows, right?
It's such a wide difference.
It's not like a normal variance that you might expect.
You know, in a currency, like if we were going to do a deal in yen or Swiss francs, you don't know exactly what they're going to be worth, but they're not going to be worth double or triple.
I mean, you have some idea, but the variance and the variability in what bitcoins could be trading for is so unknown that you really can't have any kind of long-term value.
You really can't plan anything in Bitcoin.
It's like a highly speculative asset, you know, in quotes.
You have no idea what it's going to be worth from day to day to week to week as far as how wide the spread could be.
I mean, they could be worth zero, right?
Or, you know, they could be worth a lot.
You have no idea because, right, intrinsically they aren't worth anything.
They're just worth what people are willing to pay.
And who knows what they're going to be willing to pay?
Well, that certainly is true.
And, I mean, I certainly have heard your arguments around gold has been around for 4,000 years.
Of course, Bitcoin has been around for four years, and it's really over the last sort of 12 to 18 months that there's been any particular public interest in it.
So it is a very young currency alternative, which, of course, naturally is going to be volatile.
As you know, when the market cap of something increases, the stability tends to increase as well, which is why there's more variability in penny stocks than there is in the stock market.
Not necessarily. A lot of internet stocks had a lot of volatility on the way up, and then they just collapsed even faster on the way back down.
But it is a new currency.
I grant you that.
But it's not backed by anything, which that's the problem with fiat currency.
There's no backing. Here's what I would say.
Let's assume that a bank...
Maybe a Hong Kong bank, and I'm sure this might happen, were to issue a digital currency.
But like the same type of digital currency that banks used to issue.
Before the Federal Reserve in the United States, all the currency in circulation was privately issued by private banks, and it was backed by the gold.
Well, what if a bank, and it doesn't even have to be a bank today, it could be anybody, but a bank would certainly be a trustworthy counterparty.
But what if, let's say, a big Hong Kong bank were to issue a digital currency that was backed by gold and redeemable in gold?
So if that were the case, what would you rather have in your digital wallet?
A digital currency that was redeemable in gold, where you could take it to a Hong Kong bank and get your gold, or you can spend it, and the person who receives it can get the gold, or they can spend it, and it can circulate as a currency, but you know that you can always get the gold value anytime you want, or do you want to have a currency like Bitcoin that is only worth what somebody will give you?
And so you have no other standard behind it.
It's simply worth what the market will bear.
Where would you rather entrust your savings?
Currency backed by gold or currency backed by nothing?
Well, that's saying all other things being equal when, of course, that's not the case.
At the moment that you have something backed by something, it increases the transaction costs of that thing, right?
So if you want to spend a small amount of money, right, it costs about $1,500, at least according to the last thing I read.
It costs about $1,500 to produce a bar of gold, which is why a lot of gold mines are kind of going dormant at the moment, whereas it costs about $10 in electricity once you have the hardware to produce a Bitcoin.
So, the moment you have something backed by something physical, then your costs are going to go up.
So, it really depends on what it is that you want to do.
Gold obviously has its value, it has its hedge against inflation, and it has much more stability in terms of price.
Although, of course, it has gone up multiple times and down multiple times over the past, say, 10 or 20 years.
But Bitcoin is free as it goes wider in terms of adoption than its value goes up.
And you can spend, like, in 12,000 to 15,000 places.
You can actually buy things directly using Bitcoins.
And, of course, you can pay people directly using Bitcoins who want Bitcoins.
So it depends.
It's not all equal, right?
The moment you have something backed by something, the transaction costs and production costs are going to go up.
He said you can buy a ticket to space with your Bitcoins, but he also said the minute he gets those Bitcoins, he's going to sell them for dollars.
He can't risk holding on to them.
But in my example of a digital currency backed by gold, the bank would not have to mine the gold.
The way the currency would come into existence is...
Bank customers would deposit their gold in exchange for currency.
Or the bank could, you know, issue loans in its currency.
But once that currency was out there and it was floating digitally, the transaction costs would be zero.
I mean, just like if you take a $100 bill and give it to me, it doesn't cost anything.
If you had a currency issued by a bank that was digital, you could digitally transfer it to me.
The only time there would be a cost would be to the person who wanted to get their gold from the bank.
But to the extent that the digital currency were to circulate as currency online, the transaction cost should be no higher than the transaction cost with a Bitcoin, because all that's being transferred is the digital currency.
The differences in legitimate currency that's backed by gold It has a fixed value.
It's not going to fluctuate more than the price of gold.
Gold prices are not that volatile on an hour-by-hour, day-by-day basis.
But Bitcoins, I mean, they're going to wildly fluctuate.
You have no idea. And they're only worth what people are willing to pay.
If you get a lot of these Bitcoin millionaires that have a lot of these coins now, there's a lot of young kids who have millions and millions of dollars who are buying these things before anybody really caught on When they were basically giving them away, if they decide they want to buy some sports cars and some beach houses and they really want to cash out, is there enough people to take them out of the trade?
Is there a new enough interest in Bitcoins in the Bitcoin community to do it?
I don't think so. People are betting on all this new demand coming out of China.
Meanwhile, the Chinese government is about to let the Chinese currency go up.
They're going to stop buying dollars.
They're going to allow banks to pay higher interest on RMB deposits.
I think that the Chinese citizens are going to embrace that, and they're not going to be looking for alternatives.
They're not going to be looking for a hedge.
Meanwhile, I think the U.S. government, to the extent that Bitcoins are successful in gaining more use, they're going to be going after it.
I think a lot of the Bitcoin millionaires who have cashed out some of their holdings, I doubt any of them are paying taxes.
I think the IRS is probably watching everything that everybody's doing.
You know, on our computer.
They're going to figure out who's cashing in these bitcoins.
They're going to start monitoring the websites.
And they're going to start looking for people who are trading bitcoins, making money, not paying taxes.
I think there's also a lot of Patriot Act, anti-money laundering concerns.
I think the government will then make it expensive for legitimate retailers to deal in these currencies.
They'll have onerous reporting requirements.
You're going to have to get the identities, get the social security numbers, driver's license, passports.
All kinds of information that will run up the transaction costs for Bitcoin.
You know, I know from being in the banking business myself offshore, the governments are making it very hard.
They're not gonna like this.
I mean, that's one of the reasons that Bitcoin are popular is because of all the problems now with the money laundering rules that are hitting the banks with real currencies.
Well, the government's not gonna allow this loophole.
They're gonna find ways To make sure that if you take these Bitcoins, you know who is spending it.
And you do all your research and make sure they're not a terrorist.
Make sure they're not laundering money.
And all that's going to add to the costs of Bitcoin, but it's also going to lessen the appeal.
Once people realize that the minute they spend these things, all the information is going to the government, then they might not want them anymore.
Well, yeah, of course. I mean, anything can be regulated out of existence.
Bitcoin, of course, is particularly challenging because it is encrypted and you can put lots of firewalls between you and anybody watching what it is that you're doing, and I certainly would not trust the government to chase after very self-interested people who wish to remain anonymous online.
But back to your earlier point, so let's say that people want to start cashing out their Bitcoins.
Well, they're going to do it one of two ways.
Either they're going to buy the cars directly with Bitcoins, and there are some car dealerships who accept Bitcoins in return for a car, That assumes that the car dealer is going to keep the bitcoins.
I mean, if the car dealer has to pay his salaries, he has to pay his rent.
He has to pay his income taxes.
Everybody wants dollars.
So I think anytime someone is selling a car for Bitcoins, it's more of an advertisement.
Like, I think when Richard Branson said, I'll take Bitcoins for a ticket to space, it really was because he wanted a free advertisement for going to space for his company because he knew that it would make news.
And he owns a bunch of Bitcoins.
He admitted he bought them a long time ago and he's got a big profit.
So I think once you own some Bitcoins, so there might be a Bitcoin card dealer who wants to try to get the price of Bitcoins up and he knows that if he runs an ad that he's selling his car, but I doubt that that guy is actually keeping the Bitcoins at these higher prices.
I think they're selling them.
So the more people use their Bitcoins to buy things like cars, the more car dealerships need to unload those Bitcoins to get whatever currency they need.
And then you get the supply.
It still hits the market. What's happening right now is that most of the Bitcoins are not being spent because most of the Bitcoin millionaires think they're going to be Bitcoin billionaires.
I mean, they're so greedy that nobody wants to spend.
They're miserly holding onto their Bitcoins.
But when fear takes over, at some point, the price will start to drop, and the people who are hoarding the Bitcoins will start to worry about losing all the paper profits that they're already betting on.
I mean, I bet a lot of these guys are out shopping for Maseratis right now and looking at beach houses in Malibu.
And the minute they start to think, wait a minute, you know, if it's going down and everybody wants to get out, and the minute you get a collapse in the price, now you scare out all the new people that were just coming on, just discovered Bitcoin for the first time, bought their first Bitcoin at $900, they're really excited, hey, I'm part of the new era, and now the Bitcoin is $200, and they're like, I'm never going to buy another Bitcoin again.
How did I get scammed?
So now you've got a big PR problem right out of the gate.
All of that, of course, is certainly possible.
It is hard to predict the future.
Of course, as people do begin to buy things with Bitcoin, if they convert them to cash, then it reminds people that you can convert things to cash with Bitcoin.
So they're a good store for dollar value.
Hang on, hang on. Let me make a two-minute point before you go back in.
If they end up paying for bitcoins, then what happens is the bitcoins go out further into the economy.
And the wider they go into the economy, the more people will be comfortable with bitcoins.
Maybe the car dealerships employees want to have their bonuses in bitcoins because they're excited about that and the possibilities of that.
And therefore, they're going to buy. At some point, they're either going to hold them or spend them, right?
Of course, the majority of golds in stocks are held for value rather than for sale.
So the fact that they're being held...
Is not huge.
You can actually publicly check the velocity of bitcoins and that it is actually going up in terms of them being spent.
But if they spend a whole bunch of stuff, that's not bad.
It either means they're buying stuff directly, which is going to spread bitcoins further out into the market, or it means they're transferring it to dollars, which reminds people that bitcoins can be transferred to dollars and have value that way.
But it sounds more to be like a pyramid scheme than a monetary system because you have to count on more and more people coming in to buy out the people that are already in to keep the thing going.
But in the meantime, if it gets very popular, look, there are lots of digital currencies already on the market.
I don't know if they're the same as Bitcoin, better, not quite as good, but more and more digital currencies will be issued.
The more successful a Bitcoin is, the more people will want to copy it.
And see, then what's going to happen is, okay, let's say Bitcoins are $5,000 of Bitcoin.
And you know that they could go all the way down to 5 or 10.
I mean, who knows? But there's a lot of risk there.
But now if there's a brand new digital currency that just launched and you can mine them for next to nothing, and now they're the next Bitcoin, oh, let me buy that one.
I mean, you don't know. I mean, how many people are using MySpace today?
I mean, MySpace was there before Facebook.
Where's MySpace? Facebook?
Google wasn't even around when people were using Yahoo.
What about other search engines?
What about Ask Jeeves?
What happened to that one? There were search engines.
I can't even remember all the names of the early search engines.
They're not even here anymore.
They went to zero because somebody came up with something better.
I don't know what the barrier to entry is in a digital currency.
As far as I'm concerned, there isn't any.
Right now, all the Bitcoin proponents are saying, well, Bitcoin is first.
Bitcoin has more users.
So what? Somebody can come up with something better, or, like I said, they can come up with currencies backed by gold.
Somebody might come up with a currency backed by silver, backed by oil, backed by something.
But a currency backed by something has got to be better than a currency backed by nothing.
Well, again, once you back it by something, you have overhead, which Bitcoin doesn't have.
And are people going to be willing to pay?
Hang on. Are people going to be willing to pay for that overhead, right?
So you were talking about there could be a bank that issues digital currency backed by gold.
Well, the bank has to get the gold.
The bank may have to pay interest on its notes.
It's going to have to store the gold.
It's going to have to guard the gold.
It's going to have to transport the gold.
There is going to be an overhead to that.
Now, the businesses that you mentioned, Myspace and so on, this bad management and so on, Bitcoin is not a business.
Bitcoin is an architecture.
Bitcoin is like the internet.
It's not run by anyone.
It's not managed by anyone. So bad management practices are not going to run it into the ground.
It certainly is true.
And of course, you and I as the Austrian...
Slut economic heads.
We are going to be very happy that there is competition.
It's hard to be better than free, you know, as the Bitcoin sort of goes out.
It's hard to be better than free.
I imagine that if people want new features that Bitcoin doesn't have, they'll just build extensions onto the architecture.
It's open source. They'll build extensions onto it.
It's sort of like you probably know about in the, I think it was the 1920s or the 1930s.
A bunch of socialists came up with Esperanto, this language that was much more efficient than English.
All the workers of the world were going to learn Esperanto and create a communist revolution on its syntax or something.
And it never took on. It never took off because there already was such a wide and established user base.
People don't mess around with mail protocols.
They don't mess around with TCPIP. Cell phone carriers carry each other's signals because there's a standard.
Once a standard gets adopted, it's pretty hard to dislodge.
And the only way it would be dislodged is if there's some massive value that's better than free, better than open source, better than extensible, better than anonymous, and all that.
And that's really hard to conceive of.
But, you know, Stephan, there's an old expression, you get what you pay for.
So, you know, you're saying it's free.
You know, when we had banks before the Federal Reserve that issued currency backed by gold, they had all of those costs, but they were able to thrive.
There wasn't a bank that came out that said, hey...
We're going to lower the cost.
We're going to issue paper currency backed by nothing.
And because we don't have to have any gold in the vault, we're going to have lower costs.
Nobody would have wanted that currency.
But also, if a bank were to accept gold and issue notes, there would be a natural fractional reserve benefit to that bank.
Because let's say I'm a bank and I have A billion dollars worth of gold.
I might be able to issue two or three billion dollars worth of currency backed by that gold because I know all of my gold holders aren't going to come at once and demand their gold.
They're going to know that a lot of the gold currency is just going to circulate, which is exactly what used to happen.
There was a fractional reserve system in the free market.
It was dictated by market forces because banks wanted to have a large enough reserve to know that anybody who wanted their gold could get it.
But they never had a 100% reserve.
So that enabled the bank to get profit.
So if you get a reputable bank that invests in a storage program and absorbs those costs, and it produces a high-quality, highly desirable digital currency that is in use throughout the world, that gives an advantage to that bank in attracting capital and making loans.
And then when it does that, it can actually pay interest to its depositors.
So we can encourage you to take your digital currency, deposit it in that bank, and actually get an interest on that currency that is also backed by gold.
So if I have an interest-bearing digital currency backed by gold issued by a private bank that I can spend just as anonymously or unanonymously as bitcoins, That is a superior product.
So if Bitcoins comes out and creates a real demand for a digital currency, and now the market responds to that by giving them a better currency that you can trust, especially if Bitcoins goes really up high.
And you get, you know, the early adopters are making a fortune.
But now you've got people who are supposed to come to the party later and say, okay, I'm going to give you $10,000, $100,000 for Bitcoin that you bought for a penny.
I mean, I had a hard time buying a house from somebody.
I mean, I couldn't buy a house during the bubble because I wasn't going to give somebody, you know, $3 million for a house that they paid $1 million for.
I just rented and waited it out.
So I think people will wait it out, look for a legitimate currency that isn't going to just enrich somebody that bought them up, you know, when they were cheap.
And then when there's a better alternative, market forces, people want to get rid of their Bitcoins.
There's no buyers. Eventually, somebody is going to get caught holding the bag.
I think you're going to have some people that make a lot of money in Bitcoins.
Most of it they're not going to get out.
Most of it, the paper profits will be lost.
But some people will cash out and they'll make some money.
But that will equal the losses by, I think, a greater number of people who will come in at higher prices and will lose the money that the early adopters gained.
The question is, if you buy it now at $800, are you early or are you late?
I mean, you don't know, right?
I mean, obviously you're not early.
I mean, you can't be early. But can Bitcoins go from $800 to $8,000?
I mean, I guess. I mean, $8,000 makes as much sense as $800.
But will they? And will the Bitcoin millionaires sit there and watch it go up and not try to ring the cash register?
And then, you know, the more people that come in now while it's building, the more people who could decide to sell.
And then when the buying turns into selling, you know, the market implodes.
I mean, that's how markets work.
Absolutely. Now, let's go back to your argument about why wouldn't a bank just issue currency without any backing?
Well, of course, this goes into the scarcity argument, right?
The two main arguments for gold is one, that it has value other than currency, which it obviously does, jewelry and electronics and all this other kind of stuff.
And it's an investment, I guess.
But it has value other than currency.
And the same argument, of course, can be made for a lot of the Bitcoin features.
So people who want to sell $100 worth of stuff, it's not worth getting a lawyer involved and so on.
So you don't want to do that and therefore you can use the Bitcoin architecture to ensure that the transaction goes smoothly and you have recourse to dispute resolution if you don't.
If you want to leave your money to your grandson when he is 18, you can set a timed transfer into your account so that it only transfers when he's 18.
You can sort of go on and on.
You could buy insurance about your website being blacklisted by Google or getting hacked, which would be automatically invoked.
So there are lots of features in the Bitcoin architecture which aren't available to gold directly.
Let me just finish, and then you can take your shotgun to the arguments.
But the reason why, of course, banks in the 19th century got no traction offering paper money backed by nothing was because they could print as much as they wanted of it.
But the scarcity that gold represents, that you can't just make it, the same is true of Bitcoin and I would argue that scarcity in the Bitcoin environment is actually even better.
I mean, you can find new seams of gold.
You could go asteroid mine bunches of gold.
An asteroid could hit the world filled with two tons of gold.
I mean, Spain in the 16th or 17th centuries didn't have a lot of fun when they discovered all the gold in the new world.
So there is instability to the gold situation.
It's much more mathematically predictable with scarcity in the Bitcoin environment.
So they didn't have access to the scarcity statistic or the scarcity reality of bitcoins when they could just print money in the 19th century.
So I wouldn't argue that holds true.
But go ahead. The thing about it is, hey, I don't think anybody even floated the idea of issuing paper money back by nothing.
I mean, nobody would have come out and said something that foolish back then.
They were quite a bit smarter.
But certainly a bank could have limited the amount of paper money.
It could have said, we will issue no more than 21 million notes, and then we're going to break the mold, break the presses.
I mean, artists do this all the time.
They have a limited edition print.
You know, we're going to have 200, 300.
That's it. We're going to break the mold.
No more. So you can create Your own sense of scarcity.
But the difference is, you know, yes, bitcoins are scarce, but since they have no actual value other than your ability to transfer them, they might be abundant.
I mean, 21 million may sound like scarce if everybody wants them, but if nobody wants them, to me it sounds like absolute abundance because you've got them everywhere.
I mean, how many Beanie Babies were there?
I don't know how many they produced. They were scarce for a while.
People were lining up to buy Beanie Babies.
And then, you know, people were using them as insulation for their houses because they had so many.
They didn't know what to do with them. So they went from scarce to being abundant based on demand.
The thing about gold is it's scarce, but it's desired for itself.
I mean, people want gold.
Forget about money. People have used gold for thousands of years.
It's a sign of affluence.
It's a luxury good. People want gold.
They want to wear it. They want it in their house.
They want things made of gold, plated in gold.
It's used in dentistry.
If you want a really good filling or you want a crown, there's going to be gold in it if you can afford it.
They use it in cell phones and space.
It has real-world applications.
People want it. The only reason somebody wants Bitcoin is because they think somebody else will take it.
They want to buy something else.
They want to buy gold with Bitcoins or whatever they want to buy, a car or a television set.
They can't do anything with the Bitcoin.
So the scarcity or abundance all depends on whether people want it or they don't want it.
Right now, people want Bitcoins.
People are getting rich with Bitcoins.
There's an appeal to Bitcoins.
So people want them. So they want them.
The question is, and the gamble that people are taking is, will they want them in the future?
And you don't know that.
They might not. They might want a different digital currency.
They might not want any digital currency.
It can be a fad. You're buying the Bitcoin.
You're taking a big gamble.
And if you're buying it now, you're taking a much bigger gamble.
That a lot of people took a few years ago.
And also, I don't know what's going on behind the scenes.
You see all this volume in Bitcoins.
How do you know it's not being orchestrated?
How do you know it's like, you know, Wall Street firms painting the tape, trading amongst themselves?
There could be some Bitcoin holders from way back when that keep buying and selling these things to each other, maybe to themselves, to create extra volume, to make it look like there's interest.
They can be manipulating the markets, buying because they have a lot of it, trying to influence the price, trying to get it higher.
It could be a classic pump and dump.
You have no idea what's going on behind the scenes because you can't tell.
All you know is the price has gone straight up and there's a lot of people that have a vested interest in keeping it going and getting more people to party so they can cash out.
So all I'm trying to tell people is be very skeptical at this point about coming in.
I talked about it a year ago.
Hey, I mentioned it.
I didn't know what was going to happen.
But now recently, when you get all this press and you get this big run-up, people want to say, aha, this is the beginning.
This is the beginning of bigger profits to come.
A lot of times, when you finally make the papers, when there's finally a lot of discussion, It's the end of something.
It's not the beginning of something.
You mentioned, now we're hearing about it.
Why weren't people hearing about it two years ago?
Because the people who were mining them had no interest in letting you know about it while they were still building up their stash.
They want you to know about it so they can get out.
Well, that may be true.
I think you're guessing the motives of people pretty broadly there.
But, of course, a currency, you know, like the first, there's an old Dilbert cartoon about, you know, Dilbert's the first guy to buy a digital phone, and he just sits there, like he stares at that snowy screen, I think I saw something, you know, and like, of course, the first guy to buy a digital phone doesn't have, like a video phone doesn't really have any use for it.
Obviously, currency, the wider it becomes disseminated, the more valuable it becomes.
So I think there is that argument to be made.
As Bitcoin spreads, more people take it, more people are interested in trading it, more people will accept it as payment and so on.
And the government, of course, has recently come out and said, well, we're not going to interfere, at least for now, with Bitcoin.
All the arguments about regulation, government regulation of gold, has been significantly problematic.
I mean, there was a time in the 20th century where it was illegal.
To own gold for Americans.
And so this kind of stuff can happen as well.
Governments are major holders of gold.
They can sell gold like crazy and drive the price down.
So a lot of the arguments are also true for gold.
Sorry, go ahead. I said they could make it illegal to deal in bitcoins.
They can label you're a terrorist.
They can say you can't trade in this currency.
Now, obviously, the U.S. government can't ban somebody in another country from doing it.
But different countries, the European Union could come out And say, look, this is contraband.
This is enabling drug smugglers and terrorists and tax evaders, whatever they want to say.
And we're going to make honoring it illegal.
And they can certainly look at your transactions online.
They're monitoring the Internet.
They can see who's trafficking these sites.
So there are things that the government can do to shut it down.
I mean, right now, I don't think they're as concerned about it because it's not as widespread.
But if it actually were to get more widespread, but the other problem is you say the more people using it, you know, then the higher the price is going to be.
But that means the higher the risk is going to be.
Because the higher the price goes, the further it can fall.
And I think that, you know, as the price goes into higher and higher nosebleed area, I mean, you can't, there has to be a resistance.
Now, there are people that say, well, it's going to go way up, and then it's going to crash, and it's going to settle down at some price higher than it is right now.
Well, that's what people always have to say to get people to buy, right?
So, wherever it is, they're always going to say it's going to keep going up, and so buy it.
But you don't know.
I mean, maybe Bitcoins will work, but maybe at a much lower price.
But no, I see people saying, well, you know, there's 5 billion people, and if everybody owns a Bitcoin, this is what they're worth.
You know, this is the pie-in-the-sky argument that, yeah, just hold on to your Bitcoins, because, you know, they're going to, you know, just put a few hundred dollars in, you're going to be a multimillionaire.
Well, I think anybody who claims to know the future price of Bitcoin is talking out of their armpit.
I mean, there's no, you know, tell me what the price of Apple tomorrow is going to be and then, you know, maybe I'll believe you.
But anybody who can say that they know for sure where Bitcoin is going to go is absolutely incorrect.
I think the skepticism is important.
I think that simply to say it has no intrinsic value I think is a bit short-sighted.
That's sort of like saying that email has no value because it's not printed on paper.
You know, I mean, the fact that it's not backed by something physical is actually an advantage.
It is definitely a disadvantage, but it certainly is an advantage in terms of it being friction-free.
As it sort of grows in adoption.
So there is, you know, the fact that it's not backed by anything, absolutely, it is a negative, but it is also a positive in that it is, of course, a lot cheaper to use, and that is going to drive its adoption.
But I agree with you that we don't know.
I don't tell people to buy bitcoins.
Of course, I don't know. I don't know where it's going to go.
But I think to say that it's going to fall to zero because it's not backed by anything is to say that only the weakness of not being backed by anything is important, not the strength.
Sorry, go ahead. Well, I'm saying that, you know, digital content, I mean, I hear people tell me, well, do you think everything that's digital has no value because you can't touch it or you can't hold it in your hand?
But, look, if you send me an email, I can read it, and that conveys information to me.
You know, I can – there's all sorts of online programs that – Absolutely nothing.
Now, there are people that are going to say, well, you can't do anything with your bowl.
Well, yes, you can. There are things, worst case scenario, you can melt it down and you can wear it around your neck.
You have a nice bracelet or necklace or you can give it to your girlfriend and she'll smile.
There are things that you can do.
You can make utensils out of it.
You can eat with it. You can do things with gold.
You can fashion it into whatever you want.
People are going to like things made of gold.
People have liked them for thousands of years.
Is it possible they're going to stop liking them?
Is it possible that an asteroid made of gold can crash and there's gold everywhere?
Yeah, I guess those things can happen.
They haven't happened yet. It possibly could happen, but it's just probably not probable that it's going to happen.
There are so many things that might happen that make Bitcoins.
I mean, they can make Bitcoins obsolete.
I mean, I don't know what happens if there's a big power shortage or how easy.
People think that you can't steal these things.
I don't know. Somebody can crack.
I mean, the more valuable Bitcoins get, the more computer geeks are going to be trying to figure out how to steal them out of people's wallets.
And once they're stolen, I don't know if you can get them back.
And then somebody might come up with a way of counterfeiting them.
I know that people say, oh, they can't be counterfeited.
Well, they said the Titanic was unsinkable.
I mean, who knows what people are going to sync up?
But people have been trying to counterfeit gold for thousands of years.
They haven't been able to do it.
And so they've barely been trying.
I mean, Bitcoin has got to be easier to counterfeit than gold.
I mean, I'm not a computer guy, so I can't say.
But... I think?
For real transactions, no real retailers.
Retailers work on thin margins, 5-10% online.
I mean, the bitcoins swing in value by that much every day, if not more.
You can't really manage your sales in a currency that's that volatile.
And I know people say, well, in the future the volatility will go away.
You don't know that. It might be even more volatile in the future, not less.
Well, I absolutely agree with that.
I personally do buy things with Bitcoins, and so I may be the wrong guy to talk about it.
I'm not like the guy who basically spent 10,000 Bitcoins to buy a pizza once, which I think is $8.5 million.
I just hope that pizza was really good, and I hope it was topped not just with pepperoni, but with massive amounts of Krugerrands as well, because if they didn't get gold on that pizza, they'd just made a huge mistake.
Sorry, you were going to say? Is that a real story with the pizzeria?
Yeah, it's a real story.
Back in the day, somebody convinced a pizzeria to take 10,000 bitcoins for a pizza, which is an $8.5 million pizza.
Story about some guy, he bought $26 worth of bitcoins.
Now he bought a house for $850,000.
So there is, yeah, I will agree with you.
That kind of volatility makes for a great water cooler conversation, but it can be a little alarming.
And certainly to put your life savings into bitcoin, I would not consider it to be a very wise investment decision.
I wish I had bought Bitcoins years ago.
I mean, by the time I found out about them, you know, they were under 100.
I can't remember if they were 20, 30, 40.
And I looked at it and I thought that it was very interesting, a very interesting concept.
I mean, I knew people would be worried about fiat money because I knew about all the quantitative easing.
And so I knew people would be looking for alternatives.
Maybe I should have put a little money at that time.
something like this would happen, that they would manage to get some kind of a mania.
And who knows, would I be cashing out now?
Would I be pressing my luck?
Hopefully, I would be smart enough.
Hopefully, I'd be smart enough to take something off the table, which I would say.
Peter, if you have hindsight as an investor, you just simply will never, ever get out of bed because you just go insane with that kind of stuff.
So yeah, so my basic point is I absolutely agree that there is an advantage to gold in that it has some intrinsic value.
I think there is intrinsic value in Bitcoin's public record of transactions and escrow services that are free and timed services and dispute resolution.
I think there's value in that.
Whenever human labor touches something, it tends to go up significantly in price.
I think there are a lot of people who say, well, okay, maybe a bank will release some gold.
Maybe they're tweaking it.
Maybe they're releasing gold-backed currency.
The moment you start relying on people, individual managers and bricks and mortar and stuff like that, it's a problem.
We all know Amazon is successful in large part because they don't have...
So not having sort of physical presence has value.
Does it have as much value as gold over the long term?
Again, it's hard to say.
But I do think that there is a case to be made for Bitcoin having value which gold cannot provide.
And certainly there's no question that there's an argument to be made that gold has value that Bitcoin cannot provide.
But I think to simply say that Bitcoin has zero value outside of currency is not correct based upon all the things that the architecture can do.
I'm not saying that that architecture behind the Bitcoin has no value.
I don't know how much value it has.
But I don't know if there's any way to tell.
I hear people trying to say, well, let's compare it to PayPal.
But it's not PayPal, because PayPal is a profit-generating business.
There's no profit, per se, in the Bitcoins themselves.
Maybe there are some people running exchanges.
I don't know the kind of profits they make.
From what I can tell, most of the profits in Bitcoins come from cashing out your Bitcoins to the new buyers.
So I don't see how you can compare it to a business.
But I don't know what that infrastructure may be worth because there's no patents.
There's no barrier to entry.
There's nothing that stops somebody from saying, hey, that's great.
I'm going to do it, too. Here's my digital currency that has the exact same thing.
The people who are saying, well, they're here first.
We've got early mover status.
Look, sometimes early movers win and sometimes they don't.
But I don't even know how that value inures to the individual holder of the Bitcoin itself.
They're using the currency.
I don't know how the value of that transfers into the price of Bitcoins.
But I hear all kinds of crazy arguments people are making now.
I get all kinds of negative comments now ever since I've talked negatively about Bitcoin.
As if I went into a church and said there's no God and everybody's yelling at me.
It's the same kind of stuff I used to get during the tech bubble when I was saying negative things about internet stocks that people owned.
During the housing bubble, nobody wanted to be around me.
I was the person nobody wanted to invite to their dinner party because the subject was always housing.
Everybody was bragging about what they were doing and their new spec home.
All I was saying was raining on the party.
And I argued with everybody.
And people were so irrational in the things that they said.
But I was rational.
And so I see a similarity.
The way people who are invested psychologically in the success of Bitcoin tune out anything that's negative and how they react and lash out to anybody who's raining on their parade.
Because the people who are buying these dot-coms and people who are buying condos all believed they were going to get rich.
And they didn't want to hear anything that was going to interrupt that.
And so I see a lot of that psychological behavior and those patterns in people that own Bitcoins, that have a lot of paper profit, and that are very invested personally and financially in the success of Bitcoins.
And if anybody kind of questions that, they react very emotionally and very violently.
to try to shoot that down because they don't want any of that to sink in because psychologically it'll destroy this image that they've created and they want so much to believe in it you know a lot of people who started these dot-com companies you know even though they were millionaires on paper multi-millionaires on paper most of them didn't sell not because they couldn't sell because they didn't want to sell you know they got so emotionally invested in what they were doing they believed the BS themselves and they went down with the ship I'm not even questioning the integrity of some of the people that own Bitcoins because I have philosophically a lot in common with a lot of the people in the Bitcoin community.
I'm just saying they're letting the money cloud their judgment.
They hope it works.
They want it to work so much for so many reasons that they don't want to entertain the possibility that it's flawed and that it's not going to work.
Oh, I think that definitely emotional drivers.
You know, Bitcoin has gone up 2,000% over the last I don't know how many months.
And, you know, for most investors, 2,000% is, you know, that's a pretty good six months or eight months worth of work.
And of course, but then if you get starry-eyed and imagine trillions of dollars rolling your way from your current holdings of Bitcoins, I think...
Hey, it's possible. You know, I mean, never say never, but I think that that may be a bit emotional.
As far as, you know, government stepping in, well, as you probably know, like a third of the world's economy is black or gray market.
And so the idea that, I mean, governments can't even control paper dollars.
They can't control the kind of contracts that go on under the table.
And so, you know, I... People physically...
or sorry, the drug trade or the illegal drug trade or anything like that.
I mean, you can't even keep those things out of prisons, drugs.
So there's no way that they're going to be able to legislate Bitcoins away.
They can't even control anything like that.
People are physically handing each other drugs for cash.
So it's harder for the government Stuff that goes on the Internet, you can monitor the Internet.
They've got who knows how much money the U.S. government has.
We're spying on people all around the world.
That they can't simply search the internet with the right programs for bitcoins, where they are, who's using them, who's logging into various sites.
It's easier to do that than to figure out where a drug deal is going down.
I mean, there you have to actually find the people on the planet.
I mean, you just can't search the internet when people are meeting in a physical location.
It's a big planet.
There's a lot of places that people can be.
And so I think that when everything is online, you know, you're leaving some kind of a trace of what you're doing.
You know, as I said, I'm not all computer savvy.
I don't know. But, you know, sometimes, you know, people, you know, I'm even worried about the sites that I choose to visit.
You know, what if I Google this and then I get in trouble or something, you know, because I always think there's someone watching me everything I do.
Yeah. Yeah.
Again, I'm no expert in security either.
People in the know tell me that it's as anonymous as you want it to be.
And whether that's true or not, I can accept that to some degree.
If you get the best trained NSA brains on your trail, who knows?
But it does seem to be as anonymous and encrypted and hideable as anything can be.
Again, once you go online, there's benefits and there's drawbacks.
And So yeah, I guess my last point is simply to say that I recognize the drawbacks of bitcoins.
I think there's some great values in bitcoins.
We're all desperately looking for an alternative to the ass-wipe toilet paper of fiat currency.
And I think that something is driving that.
I think that young people in particular have a great deal of suspicion about people in charge of stuff and their own self-interest, you know, people who've gone through the housing bust and boom.
You were one of the few voices consistently speaking out against it.
I talked about it as well, of course not with quite the viewership that you did.
But I do think that people are skeptical of people in charge, and they like the open source thing.
They like the fact that it's friction-free.
Yeah, there is. If it hits a widespread adoption, then the value is going to continue to increase.
If people reject it, then the value is going to decrease, depending on how people...
Find value in it.
Certainly it's not going to be a free fall without intervention, right?
So if people find that there's a significant feature missing from bitcoins, people who have bitcoins will pay to have that feature developed or people will develop it just to make money off bitcoins.
It is part of an ecosystem now that it wasn't say a year or two ago where people are heavily invested in its value.
And if there's some way to make it better, given that it's open source, people will really work hard to maintain that value.
Is that going to be enough? I don't know, but I try not to bet against the combined genius of hundreds of thousands of geeks who are all interested in maintaining the value of something.
Sorry, go ahead. That is a valid point.
I mean, there will be a lot of people, there are a lot of people that have a vested interest in maintaining the value, not just as an exit strategy, but if they really want to be able to realize the total value of what they're holding onto, they have to find a way To try to make the value permanent if it's at all possible.
And I do have, look, I know that probably you can grab a flash drive and if you go to somebody's computer or you just, they transfer you some Bitcoins you can put in your pocket, get on an airplane, you know, maybe, you know, you can get around the currency reporting.
Probably, you don't probably have to report that you got Bitcoins in your pocket like you have to report that you have, you know, currency.
You can probably take it to a computer in another country and get the money.
I mean, there are, you know, right now, I mean, if you could do it that way, but most people aren't, you know, They're at home on their computer that is hooked up to the network, and anybody can track it, and they're going on and they're buying and selling their Bitcoins.
And to the extent that the government believes that people are going to use Bitcoins to circumvent their currency reporting laws, then the government's not just going to sit there and allow it to happen.
They're going to find a way to take away that particular advantage that maybe Bitcoin has.
But I think you would have that same advantage.
I mean, if there was, as I said earlier, a gold-backed currency that existed in a bearer form, then you could smuggle that just as easily as you could smuggle a Bitcoin once you were the owner of it.
And if the bank is not keeping track of the change of ownership.
I mean, some banks might do that.
Some banks might say, we're issuing a digital currency where we track the movement that in case it gets stolen, we know who owns it.
But they might have a bearer form where all they have is a serial number or something.
And whoever owns it gets it.
And if that's the case, then, you know, you can have all of the same, you know, anonymity.
Now, that's assuming the government lets it happen.
But it could be a government that does it.
What if the Chinese government itself issues Chinese digital currency, you know, backed by gold, issued by the People's Bank of China?
I mean, there's no government that's going to screw with them.
You know, so, you know, who knows what's going to happen?
It's wide open.
There are a lot of possibilities.
But I just look at, you know, when you have this Bitcoin, when you have all the other Bitcoin, you know, clones that can come out that will be very similar.
You know, you say, okay, there's only 21 million Bitcoins, but there could be hundreds of millions of other Bitcoins.
They could do the same thing.
Just like when you go online, how do you want to pay?
Visa, MasterCard, American Express, Bitcoin, and there could be a hundred different currencies.
Choose which one you want to use.
I don't know. And then if that's the case, then what's it worth?
What's the scarcity there when there's so many different brands being launched?
Well, of course, people probably wouldn't want 100 currency options, which is why they probably wouldn't support that from a market standpoint.
Okay, well, I think we've had a great chat about it.
I'm certainly clearer on your objections.
And I think if I can characterize your position, Peter, it's more like be aware of the downside, be cautious, and don't fill your head with trillion-dollar fantasies that are going to have you not make a rational decision for a possible exit strategy.
Don't become overly emotionally attached for ideological reasons.
We all kind of like the Bitcoin thing because it's kind of like a free market-y kind of currency that is developed technologically.
It's got all that shiny new technology kind of stuff to it.
So be aware of your own emotional attachment to things and be aware that there is...
A considerable downside risk.
Make your decisions accordingly.
We don't know whether the tertiary value over and above the exchange is going to be enough to keep it up.
We don't know if the add-ons that people can build to do dispute resolution and escrow and stuff is going to be valuable enough to keep it.
We don't know where its adoption is going to go.
We don't know what governments are going to do.
There are a lot of uncertainties, if I can sort of characterize your position that way.
I think that's, I mean, that all seems like completely reasonable advice to me.
A little different, tech bubbles, you know, housing bubbles are heavily involved with Feds and regulations and so on.
I think that Bitcoin is to some degree being driven by fears of inflation and fiat currency meltdowns.
Certainly, I think in China they may be having some interest in it, but it's not quite driven the same way by regulations.
The central banks, if this is another bubble, the central banks are still the source of it because the central banks provided all the liquidity to drive the stock market and the real estate market and it's because the central banks are being so reckless that people around the world are looking for an alternative.
They know that these fiat currencies won't work, that they're not getting enough interest and that the value is going to be destroyed because they're going to keep on printing them and so they're looking for an alternative and some people think they found one in Bitcoin And I think a lot of people are looking to it, but again, it's still central banks blowing bubbles because people are taking that excess liquidity or the anticipation of more liquidity, and they are acting based on those signals that are being sent to them by the central banks.
Right. And of course, it's essential to remember that anybody who holds any kind of investment, that the future value of those investments are always a challenge to predict, to put it as well.
If anyone could predict it, the market would immediately adapt to that knowledge and invalidate their knowledge.
So that's important to remember.
Thanks so much, of course, Shift Radio for my listeners.
If you want to go and listen to Peter talk on the radio and on the internet, and you have, of course, shiftradio.com, well worth checking out.
You've got tons of archives there as well.
If you publish this to your site, my website is freedomainradio.com.
As always, Peter, a really enjoyable conversation.
I appreciate the...
The brakes that you're putting on some possibly madcap tulip mania enthusiasm.
I think it's really important for people to remember that they say.
What do they say about bull markets?
That the only money made in bull markets is by people who've previously experienced bear markets.
And that may be something to remember.
They say bulls make money and bears make money, but pigs get slaughtered.
I think this may be right.
So thanks again as always, and I'll talk to you soon.
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