#689 Bitcoin Mining Deep Dive w/ Nic Carter

Nic Carter is a Partner at Castle Island Ventures and a Co-Founder of CoinMetrics. In this conversation, we discuss bitcoin mining, renewable energy, Texas, inflation, and debunking FUD. ======================= If you haven’t started building your crypto portfolio on Okcoin, there’s no better time. They’re one of the fastest growing global exchanges around and they have some promotions happening right now to help even more people be part of the future of finance. If you have an account already, you can split $100 in BTC with a friend when you invite them to sign up for Okcoin if they buy $100 of crypto in the first month. The more friends who sign up and buy, the more BTC you get. And I always recommend dollar-cost averaging as a way for investors to have more control over their average price when building their portfolio. Now you can automate dollar-cost averaging with completely fee-free daily, weekly, or monthly recurring buys on Okcoin until November 1. That’s no fees at all on your purchases until the holidays. Get started on the web or on their new super easy-to-use app at okcoin.com/pomp =======================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Nick Carter is a partner at Castle Island Ventures and a co-founder of Coinmetrics. In this conversation, we discuss Bitcoin mining, renewable energy, Texas, inflation, and debunking FUD. I really enjoyed this conversation with Nick, as always, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. If you haven't started building your crypto portfolio on OKCoin, there's no better time. They're one of the fastest-growing global exchanges around, and they have some promotions happening right now to help even more people be part of the future of finance. If you have an account already, you can split $100 in Bitcoin with

• 0:45Anthony Pompliano?

  a friend when you invite them to sign up for OKCoin if they buy $100 of crypto in the first month. The more friends who sign up and buy, the more Bitcoin you get. And I always recommend dollar-cost averaging as a way for investors to have more control over their average price when building their portfolio. Now you can automate dollar-cost averaging with completely fee-free daily, weekly, or monthly recurring buys on OKCoin until November 1st. That's no fees at all on all your purchases until the holidays. Get started on the web or on their new, easy-to-use app at okcoin.com/pomp. Again, okcoin.com/pomp. Alright, let's get into this episode with Nick. I hope you guys enjoyed this one.

• 1:21Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 1:45Anthony Pompliano?

  Alright, we're gonna talk mining first. You gave a presentation at the Texas Blockchain Summit, I think it was called? That's right. And you, uh, one, gave like a State of the Union on mining, then you explained Texas and the US energy grid, and then you talked a little bit about what makes Texas so special. You don't know this, but we already pulled some of your slides, and we're just gonna go through them. Oh yeah? A couple of them. The first slide that we have are the easy ones. I think we're gonna pull them up here in a second. And basically what you highlight is just how much electricity is actually used. So just maybe help us understand, like, it's not nearly as much electricity as most people think it is.

• 2:27Speaker 02

  I mean, you know, it's all relative, really, you know, and so this is taken from a paper I wrote with Night Egg called Bitcoin Net Zero. And so we set out to sort of really robustly quantify the electricity consumption and also allow people to sort of give them the tools to predict the future electricity consumption because the only people that have done that historically have been like wacky academics that get the numbers wrong by like a factor of a thousand. So like, there's this one paper from the University of Hawaii in 2018 that said Bitcoin was going to warm the earth by two degrees.

• 3:05Anthony Pompliano?

  We appreciate your confidence in us, but we're not that.

• 3:07Speaker 02

  I know. They really like really Bitcoin maximalist to the core, right? And their model was premised on Bitcoin having this per transaction electricity cost, which is not how it works.

• 3:17Anthony Pompliano?

  Yep.

• 3:18Speaker 02

  And also on Bitcoin transactions scaling up to hundreds and hundreds of billions per year. Also not really possible. So we want to present alternative models that actually make sense.

• 3:28Anthony Pompliano?

  Okay, so we have that first one that if we pull it up here, it's simply just explaining that it's only 0.2% of all global electricity generation and it's 0.04% of global primary energy consumption. What's the difference between global primary energy consumption and global electricity generation?

• 3:46Speaker 02

  So the world produces a lot more energy than it does electricity because there are non-electric sources of energy like combusting fuels for transport and, you know, heating stoves.

• 4:01Anthony Pompliano?

  Yep.

• 4:01Speaker 02

  That you might be burning firewood or coal or something like that. And so the amount of energy we produce actually outstrips electricity. So I don't know, you know, it's sort of up to you where you want to compare it to, whether you want to compare it to the electricity that's produced on grid or like the total, you know, energy this world is producing, which is a lot. But either way, it's, you know, I think it's relatively minimal for, you know, a monetary system that stores, you know, a trillion dollars as of today and settles, you know, tons of billions of dollars a day.

• 4:35Anthony Pompliano?

  So really, it's small regardless.

• 4:38Speaker 02

  It just depends what you want to compare it to. And I don't think the country level comparisons make any sense, because most of the countries Bitcoin is typically compared to are like small, like pretty agrarian countries that have like exported their industrial sector to places like China. And so, given that we live in a globalized economy, no one country, if you look within their geographic borders, the like emissions factor of their GDP, a lot of that's going to be externalized to like industrial centers like China, right? So what you should be doing is just looking at the industrial impact of like whole industries. And so that's another thing we did in the paper, is we compared Bitcoin to certain industries, certain sources of load,

• 5:19Speaker 02

  certain metal extraction. So we found that it was kind of in the same universe as zinc extraction.

• 5:25Anthony Pompliano?

  We have that slide. Next slide. Yeah, look at this. Yeah, I think we got that one.

• 5:30Anthony Pompliano?

  I came prepared.

• 5:31Speaker 02

  You know, finally, once. Has anyone ever protested over like the, you know, electricity associated with the zinc extraction?

• 5:37Anthony Pompliano?

  Somebody, somewhere, probably once, but that's it.

• 5:40Speaker 02

  You know what? Stupid question. I'm sure someone's upset about it.

• 5:44Anthony Pompliano?

  Stop the zinc manufacturers!

• 5:46Speaker 02

  I mean, to be clear, zinc is a great metal. Like, you know, supplementing zinc is like a good idea, in my opinion. But, you know, I don't see anyone getting like apoplectically upset about it. And then, of course, Bitcoin is actually generally less than gold, kind of probably less than copper, the emissions. And then, of course, aluminum and steel are like massive. But yeah, so like it compares with kind of like niche metal extraction. So it kind of is what it is.

• 6:13Anthony Pompliano?

  Okay, if we go to the next slide here, we have this idea that it's not digital gold, or your opinion, digital aluminum. So explain this.

• 6:21Speaker 02

  Yeah. So I don't know if, have you guys visited any of the big Bitcoin plants?

• 6:26Anthony Pompliano?

  No.

• 6:27Speaker 02

  There's this, so there's one in Rockdale, Texas, which is a really big one. And then there's this other one, I have a picture here, is in Massana, New York, on the St. Lawrence River, upstate New York. It's just, it's hard to get to. We like chartered a little plane to get there. Those are former all-co smelting plants and aluminum, you know, has the highest embodied energy in the refining of the product of any metal. So for whatever reason, smelting bauxite and turning it into aluminum takes a ton of electricity. And so because of that, you had the smelters would actually go to locations with really abundant energy. So they would kind of chase the energy. And so that's why you'd end up with plants in like upstate

• 7:10Speaker 02

  New York and things like that with abundant hydropower. And aluminum ended up being this way to export energy through the commodity. And now the amazing historical parallels, the Bitcoin is kind of like that. Bitcoin mines are now taking up residence in these old smelting plants. And so, you know, I just really like that historical parallel, like aluminum used to be this way to soak up excess energy. Now Bitcoin does that.

• 7:35Anthony Pompliano?

  Yeah. And Bitcoin does it better.

• 7:37Speaker 02

  Much more efficiently because Bitcoin's modular. You can have one shipping container with 500 ASICs out there on the oil field, you know, soaking up excess wasted gas. You can obviously do it with hydro. You can, you know, and you can interrupt the process, which is very important. We'll get into that. So yeah, it's just as a synthetic metal, basically, it does it in this sort of like highly efficient, you know, highly granular way.

• 8:03Anthony Pompliano?

  Next slide. And then it's big. Like people don't realize how big it is. And actually, I think this number has been growing pretty rapidly, right? In terms of how much people are actually being paid to secure the network right now?

• 8:17Speaker 02

  It's bigger than this already. I made these slides, you know, $10,000 ago. Yeah, it's a big industry though, for sure.

• 8:27Anthony Pompliano?

  So right now, if I just look quickly, approximately $51, $52 million over the last couple of days is the mining reward that globally is being paid out. For those that don't understand or don't know what that means, the Bitcoin block subsidy, the thing that is given to miners every 10 minutes or so in exchange for them helping to secure the network, there's adds up to 900 Bitcoin per day. You take 900 Bitcoin per day and you multiply it by the price. And so over the last 24 hours, that's $52.6 million, according to casebitcoin.com. All right, let's go to the next slide. By the way, your title today on the show is the most violent man in Bitcoin.

• 9:05Speaker 02

  That's apt. I really need to live up to that.

• 9:08Anthony Pompliano?

  Do it when you leave here. Don't be violent right now, other than with your words. All right. So with this, I've now seen multiple differences in this chart. We don't have the other one, but there's a chart that just came out that shows that the US took majority of the market share and China has zero. We can talk about why, maybe China doesn't have zero. But definitely US has gained a ton of market share. China has lost a ton.

• 9:31Speaker 02

  I know. And my regret is that I gave this presentation a week before the new Cambridge data dropped. So I have the old chart on here. But yeah, suffice to say, the US is 35% of the network today. According to Cambridge, China is apparently zero, not actually zero.

• 9:47Anthony Pompliano?

  Cambridge couldn't wait to wipe them out. Cambridge is like, oh, China is zero.

• 9:52Speaker 02

  You're out of here. Yes. So China's not actually zero. But yeah, as I was pointing out here, look, Bitcoin mining, US is the number one country in the world. We knew this even before the Cambridge data dropped. Now we know it for sure. Number one country in the world for Bitcoin mining. That's a good thing.

• 10:08Anthony Pompliano?

  Before the China ban of miners in May, I think it was, what was the split between the US and China? Do we remember in terms of what the US market share was at that time?

• 10:18Speaker 02

  I mean, it's on here, the historicals. I mean, the US was single digits for a long time. Okay. So very, very much not material. China just dominated. They had, you know, 60, 70%, you know, market share and the US was for a long time, under 10%.

• 10:34Anthony Pompliano?

  Okay. Today, US has 35%, which is the most out of anyone. So it doesn't mean that the United States has majority. It just means that no other country has more than the United States. US has 35%. Now, the two things that you call out here that I think is really interesting. One is the new ASIC deliveries. And what I want you to explain is, I don't think people understand the lead time for the machines and how basically when somebody makes an order, you know where those machines are going. And so you can start to forecast out a little bit of where hash rate is going to come online, you know, three, four, six months, whatever it takes for them to actually plug the machines in.

• 11:07Speaker 02

  Yeah. So knowing a little bit about what the miners are doing, you can forecast. The hash rate of the Bitcoin network in 12 months' time. And you can forecast where mining will occur because you the miners like to, you know, announce that they've bought X many units. And that's promotional for them. So you just have to stitch all those little pieces of data together. And you get a sense for where the where the Bitcoin network will be in 12, 24 months' time. Obviously, there's some uncertainty in there. So basically, you know, a lot of the, I think, the best projections I've seen have the Bitcoin network being at 300 X of hashes by the end of next year.

• 11:45Anthony Pompliano?

  By the end of next year, and right now we're at like, what, 140?

• 11:49Speaker 02

  150, yeah, so doubling at least, but north of 300. If you looked at where the, you know, new machines were going, they were all been bought by US buyers. And a lot of the buyers are public companies, so they're providing those disclosures on an ongoing basis. We also know what installations they're building in terms of megawatts. So we can get a pretty good sense of where, you know, the industry is going to be in a year's time. And, you know, it's the build out is happening in the US.

• 12:16Anthony Pompliano?

  Where are they buying most of the machines from? Is it still Bitmain or are there other players that are now big suppliers?

• 12:21Speaker 02

  Bitmain and what's miner, MicroBT, are the two big ones.

• 12:25Anthony Pompliano?

  Okay, and of those, neither one are based in the United States. Do we have concerns that there is no actual like fabrication done in the United States for the machines?

• 12:34Speaker 02

  Yeah, I think that's a concern. The foundries are in, I want to say, Korea and Taiwan. Obviously, that's a big geopolitical question if Taiwan is going to stay independent. There is a foundry being built by TSMC in Austin, I believe. And so they're trying to diversify away. I think they understand the writings on the wall with Taiwan. They want to kind of ship a lot of that over. It's going to take a while, though.

• 12:59Anthony Pompliano?

  Yeah, and I guess part of this is if you can get a fabrication facility built in the United States, you can one, serve US customers. There's all kinds of logistics that get solved there. But really, it's probably the geopolitical risks that they're solving for.

• 13:11Speaker 02

  Yeah, I mean, there's a lot more important things than than making Bitcoin chips. You know, like GPUs, I mean, it just like it's a critical industry. The US just doesn't have a homegrown one right now.

• 13:24Anthony Pompliano?

  Okay, let's go to the next slide. This is the United States and in Texas. Now, I'll let you defend yourself, but I don't want you pandering to Texas because you're not in Texas anymore. If you were giving this presentation at the Texas Blockchain Summit, I'm assuming that they were expecting you to say nice things about Texas. But explain why Texas is so interesting.

• 13:45Speaker 02

  Well, yeah, this is a Texas, that was the topic they asked me to talk about. So I wasn't going to talk about Bitcoin mining in Florida.

• 13:51Anthony Pompliano?

  When I saw this, I literally, I saw somebody responded online and they were like, oh Dan, Texas is going to be huge. I was like, well, yes, but this is also a Texas specific conference.

• 14:03Speaker 02

  Look, let's not write Miami and Florida off. We can still win this. We have currently approximately zero amount of mining here in the great state of Florida.

• 14:12Anthony Pompliano?

  And Texas has a lot.

• 14:14Speaker 02

  They have a huge amount. I mean, I think it's probably close to one gigawatt. Keep in mind, the whole Bitcoin network is approximately 10 gigawatts of power.

• 14:22Anthony Pompliano?

  So one tenth of the entire network is in Texas right now.

• 14:25Speaker 02

  Now, that might be an aggressive assumption, but there's a huge amount of build out happening in Texas right now, in particular, West Texas, where there's an enormous amount of renewables. And like, the amount of renewables that are coming on to the grid in the coming years in Texas is unbelievable. I mean, unbelievable. The Texas grid, I think, is around 80 gigawatts ERCOT. And you're looking at, you know, maybe 20, 30 gigawatts of wind and solar, just in the next two years.

• 14:53Anthony Pompliano?

  You think that 25, tell us called 40% of the Texas grid is going to be used for Bitcoin mining?

• 15:00Speaker 02

  Oh, no.

• 15:01Anthony Pompliano?

  Or is this net new addition?

• 15:02Speaker 02

  Those are new renewables. My projection is like two to three gigs for Bitcoin mining in Texas by the end of next year.

• 15:10Anthony Pompliano?

  Got it.

• 15:11Speaker 02

  Which I think is, is actually reasonably conservative based on what's happening. But yeah, I mean, so that would be, you know, five-ish percent of the grid, maybe.

• 15:18Anthony Pompliano?

  Wow, that's still a lot.

• 15:20Speaker 02

  It's helpful, though. It's, it's, you know, it's a very interesting source of load. It's a very kind of unique and different source of load. So there's, you know, there's nuances there.

• 15:29Anthony Pompliano?

  Okay. All right, let's go to the next one. I feel like we're playing a game of like, what's next? Because I forget what we put in here. Okay. All right. So it's becoming the heartland of US mining. Let's go to maybe the next one.

• 15:41Anthony Pompliano?

  And then this is how they're aggressively expanding. Now, most of this is coming from publicly traded disclosures?

• 15:48Speaker 02

  Yeah, a lot of these are public companies. Not all of them are. Blockstream is not public. But yeah, CoreSci is about to go public with a little SPAC. Probably the biggest, they'll be the biggest publicly traded miner in the US. Riot is active in Texas. They're, you know, pretty big. You know, Compute North is building down there in Texas. I mean, like, there's just a huge amount of activity in the US right now. You know, if you're using, you know, modern hardware, you're mining your coins at, so like, five to $10,000 right now. You sell the coin at $58,000, so.

• 16:20Anthony Pompliano?

  So you think that's the price of sophisticated miners is five to $10,000, depending on the energy costs and labor costs and what you buy your machines at?

• 16:27Speaker 02

  Yeah, but keep in mind, you have to depreciate the value of the hardware. I mean, you have to include the amortization of buying the S19s and things like that. But yeah, like, just on the pure, you know.

• 16:37Anthony Pompliano?

  I mean, or that doubles the price of the Bitcoin, you know, including every single thing you possibly could. And now you're mining at 20, 25,000. You're still selling it at 58,000.

• 16:45Speaker 02

  Yeah, the margins are obscene for miners right now. It's unreal. And, you know, the China crackdown created a huge kind of surplus for the US miners. China gave a subsidy to US miners because it was a big, it's a single market.

• 16:59Anthony Pompliano?

  Yeah.

• 16:59Speaker 02

  You know, it's not like some commodities where they sell for different prices, like natural gas in the US is much cheaper than natural gas in Japan. But Bitcoin sells for a single global price. And so if one country bans the mining activity, that's a subsidy to the miners elsewhere. It's incredible.

• 17:18Anthony Pompliano?

  So this is really interesting to me. What you're explicitly talking about is that China shut down mining in their country. And that kicked off, I don't know, let's say 90 to 95% of all the miners in the country. When they did that, we saw hash rate go down, I think, more than 50% is when it bottomed.

• 17:32Speaker 02

  Yeah.

• 17:33Anthony Pompliano?

  And they had to literally unplug their machines, move elsewhere. We, at that time, saw a bunch flow to the United States, also elsewhere, but the United States was definitely the biggest winner from that. When you get that drop in hash rate, the difficulty adjustment was pretty significant. It was, I mean, it was pretty breathtaking just how quickly it recovered and was able to kind of withstand what many people would think of a normal computer system could potentially be fatal, right? If 50 to 70% of all of your computing power went offline in pretty much a moment's notice, there's not many systems that are just chilling, right? And so the mining difficulty, what did that do to the profit margins of US miners? Like, how severe was the impact to the profitability?

• 18:15Speaker 02

  Well, it just made it much easier to create a unit of Bitcoin. I mean, 50% easier. And so that drove up their margins enormously. And so that was like a truly exogenous shock. Like, people weren't really expecting that. And of course, it resulted in the destruction of property of, you know, tens of billions of dollars of Chinese miners, because frankly, not all of them could get their monies out of the country.

• 18:40Anthony Pompliano?

  Yep.

• 18:41Speaker 02

  A lot of them are just sitting fallow in warehouses in Malaysia and places like that. So, you know, they weren't necessarily, as a cohort, able to plug them in elsewhere. I mean, you know, many, like, the capacity in the US is pretty tight in terms of hosting capacity. So there just wasn't that much ability to absorb, you know, miners from Situ on into the US.

• 19:01Anthony Pompliano?

  Yeah.

• 19:02Speaker 02

  And so there was a destruction of their property, and that's unfortunately the nature of living in a, you know, command and control economy, where things can change like that.

• 19:10Anthony Pompliano?

  Yeah.

• 19:11Speaker 02

  But, you know, it benefited the US miners enormously, like, a huge, huge amount.

• 19:16Anthony Pompliano?

  Let's go to the next slide. So why Texas? Is it just that, hey, they love oil and gas and they've built it out?

• 19:24Speaker 02

  No, I mean, Texas has some, like, pretty unique features. So the governor is pro Bitcoin. Both senators are now pro Bitcoin, so we learned. Ted Cruz is incredibly smart about this stuff. I don't know how he gained so much expertise in the energy grid, but he did, and it was very impressive.

• 19:41Anthony Pompliano?

  Okay, so hold on, before you go on from that, most people, I think, have this view of Ted Cruz, which we got a sense during the infrastructure bill stuff. He started to say some stuff that people were like, wait a minute, like, I agree with Ted Cruz. Like, that's not what I thought he would be in position. Then this conference, I read, you transcribed some of his, uh, his comments. He sounds like he's actually more informed than some people in the Bitcoin community. Like, he was pretty legit. Do we know where that came from?

• 20:10Speaker 02

  I don't know, frankly. I mean, I haven't been in contact with him, to be clear. But his expertise, his level of command of the nature of ERCOT and the Texan grid, and the specific interactions miners have with the grid, which I guess we can get into, was like PhD level.

• 20:27Anthony Pompliano?

  Really?

• 20:27Speaker 02

  And this guy has to have a position on like hundreds of different issues. So I'm like sitting there wondering like, wait, how did he like get to that?

• 20:35Anthony Pompliano?

  The thing that most people would say doesn't really matter that much, but obviously he thinks is a really big thing for Texas and the energy grid.

• 20:41Speaker 02

  Yeah, I mean, it's striking that he's put so much time and effort into like really deeply understanding this, like what's a demand response program? What's a controllable load resource? Like, how does the supply-demand balancing operate on a grid? How do the miners, you know, come into that? He understands all that stuff. And so I was pretty shocked by that. I spent years trying to figure it out. And Ted, you know, just like coasts to the front of the pack.

• 21:04Anthony Pompliano?

  All right, so deregulated grid with real-time spot pricing. It kind of walk us through like, why is Texas so suitable?

• 21:10Speaker 02

  Yeah, so ERCOT's actually a pretty capacious grid.

• 21:12Anthony Pompliano?

  Well, you keep saying ERCOT, people don't know what that is.

• 21:14Speaker 02

  Sorry, ERCOT is shorthand for like the Texas grid, basically. They have a ton of excess renewables. And I have a few slides. I don't know if we're going to do the whole presentation.

• 21:24Anthony Pompliano?

  We're not.

• 21:24Speaker 02

  There's 30 slides.

• 21:25Anthony Pompliano?

  I, so I pump faked you, like we go to like slide 13, and then I just skipped like three other ones.

• 21:31Speaker 02

  This is an important one.

• 21:32Anthony Pompliano?

  Okay.

• 21:32Speaker 02

  You see that wind corridor going from West Texas, north to up to Canada?

• 21:37Anthony Pompliano?

  Yep.

• 21:37Speaker 02

  That's the best area in the US to, you know, mine your wind power, right?

• 21:44Anthony Pompliano?

  Why?

• 21:44Speaker 02

  Because it's windy.

• 21:46Anthony Pompliano?

  Okay, shocking. That is, that is an amazing insight.

• 21:50Speaker 02

  I know, it's really key. Don't forget that. That comes, that'll be on the test. So then we have the southwest of America has the best solar resources, right? And wind and solar, like, you know, the capacity factor is in the uptime is like kind of low for both those resources. But in West Texas, you have this congregation of it's very windy and it's very sunny. And that means- Means wow, amazing like suitability for renewables. That's why 30% of the Texas grid today is renewable. And that's grown from like 5%, 10 years ago. And so this problem is you've got 35 gigawatts of renewable presence on the Texan grid. And it's all in the northwest corner of Texas, but all the load, all the demand for energies in kind of the southeast.

• 22:35Anthony Pompliano?

  Yep.

• 22:35Speaker 02

  Austin, Houston, Dallas, and energy doesn't travel that well. That's the thing people don't get about electricity. You can't teleport it. You have to put it in these high voltage transmission lines, right? And they only have 12 gigawatts of high voltage transmission lines from West Texas to the load centers. So those are full. And then what happens the rest of the time, and there's only five gigawatts of load locally in West Texas, which is mostly associated with oil extraction. So what do you do with the remaining like 15 gigs?

• 23:05Anthony Pompliano?

  So timeout for a second. I just want to say this so that people at home understand. Oil or wind and solar, they suck in most places because you can't do it 100% of the time.

• 23:17Speaker 02

  Not remotely close to 100% of the time, 25 to 40%.

• 23:21Anthony Pompliano?

  Okay. In the west part of Texas, very specifically, it's hot and sunny and it's windy. So you basically can do wind and solar much more than you can do other places. But the problem is that the people who need the electricity are far away in the other part of the state. And so the ability to transport it there, you basically can't put any more through that transportation because it's already full. And then we say, well, why don't you just use it right there on site? All of the normal uses for electricity, that's also spoken for. And so now you basically have created all this additional energy, but you don't know what to do with it.

• 23:55Speaker 02

  And keep in mind, they're going to be doubling the quantity of renewable energy produced mainly in West Texas in the coming years.

• 24:03Anthony Pompliano?

  This is the part of the conversation where like Bitcoin shows up with like a Superman cape and is like here to save the day because it can do what?

• 24:10Speaker 02

  I mean, it can, it can absorb that excess of stranded energy. And like, if you don't use the energy, it just gets pumped into the ground, you know? And actually. You see this, if you look at a map of prices in Texas, the left, you know, the western half is often negatively priced. The energy producers will pay people to take the energy away from them. And the right half, you know, is where it's actually expensive. So Bitcoin is kind of this sponge which soaks up the excess. And, you know, that's incredibly useful for these renewable producers because now they have a second buyer of energy. Initially, they just had one buyer, which was the grid, and the grid would only buy it on its own terms.

• 24:54Speaker 02

  Now there's a second independent, you know, uncorrelated buyer, which means they can monetize these assets. You know, interesting times and they have the choice who they're going to sell to. So that makes the economics of their core business much, much better. And so, you know, some people say like, okay, well Bitcoin is not an incentive to build new renewables. You know, maybe that's, that's fine, but like, it's certainly a way to monetize existing renewables and make their payback cycles much faster. And that really matters in the energy landscape.

• 25:24Anthony Pompliano?

  And it feels like we're just talking about renewables and there's persistent demand from Bitcoin. Which is a huge piece of this and that's where you're getting into, well, sometimes I actually want to sell to the Bitcoin network because I know what I'm going to get paid there. But also there may be a spike in need on the energy grid or ERCOT. And I may get paid more than I would even make with Bitcoin and so I may offload. But I now have choice and when I have choice, it allows me to better optimize my business based on the current factors.

• 25:52Speaker 02

  Absolutely. And what's more is the miners opt into these programs where the grid operator tells them, hey, you want, you want to turn off your machines for a little bit? So that all the power can go to households that need it the most. So when you have scarcity on the grid, the miners turn themselves off. They actually get paid to do this. And so they are not depriving anyone of energy. They are actually monetizing the energy assets most of the time. And during an energy crisis or period of scarcity, they're off. And so all of that energy goes to households and hospitals, you know, to whatever, run air conditioning. So, you know, that's a really important thing. They are formal programs on the Texas grid that miners are perfectly suitable for and other

• 26:36Speaker 02

  industrial centers of load are not because virtually nothing else can turn itself off at short notice like that. Bitcoin miners can turn themselves down or off within seconds. So they can deal with the interruptibility. Aluminum smelting, you know, factory can't, or, you know, a grain processing facility can't turn itself off. You know, commercial real estate can't just turn itself off like that. So miners are this unique, flexible load that's really suitable for a grid like that, where if the grid's really in high demand, there's energy scarcity, they can just be off.

• 27:13Anthony Pompliano?

  Okay, let's go to the gas flare capture. If we keep going, Matt, to next one here. Explain what gas flare capture is and why this is so powerful for the miners and also from an environment standpoint.

• 27:29Speaker 02

  So this is truly off-grid mining. So in the case of mitigating flared gas, you're actually just not on the grid at all. And so the way oil extraction works is whenever you get oil out of the well, it comes up in a mixture of oil and gas. So you're actually not just getting oil, you're getting oil and gas. Oil is the thing you want. Gas is generally treated as kind of a waste product. And oftentimes, with a lot of these wells, you're not connected to pipelines. So you don't have a way to take the gas away. There's no economic use for it. So what they actually do is, because methane is pretty bad for the environment, they combust it, which has the output of carbon dioxide, and the carbon dioxide is what is released

• 28:13Speaker 02

  post-combustion. So that's the flaring. Like, you know, if you look at an image of like, oil derricks, like, you'll see the flares, right? The flaring is like, pretty inefficient, doesn't burn that well. Some of the methane isn't combusted. So what the miners do instead is they take this waste product, natural gas, they put it in a generator, and they burn it in a more complete combustion process, and they mine bitcoin with the electricity. And so like, that is a dramatic improvement over the status quo. And so people look at this, they don't like it because they see miners that are using natural gas. But the thing to understand is the natural gas was going to be combusted anyway. There was no economic use for it onsite. There was no way to get it to a

• 28:55Speaker 02

  market, right? It just wasn't worth it. Natural gas is pretty cheap in the US, really, really cheap. So it's not worth building a pipeline infrastructure to take it away. And I guess the other last thing to note is like, when you do what's called initial production on an oil well, so you sort of initially start it up, there's oftentimes like a six month burst of natural gas. And there typically wouldn't be the ability to accommodate that gas and get it to market. So the Bitcoin miners in this case come in, take advantage of that, and they might leave in six months' time. So it's a remarkably flexible and potentially short-term relationship.

• 29:36Anthony Pompliano?

  Most of the companies I know that are doing this are Bitcoin mining companies going to the gas flare companies, the companies that are flaring gas. Have we seen the reverse? Have we seen any of those companies say, hey, why don't we just become the experts and like vertically integrate?

• 29:49Speaker 02

  Yeah, so I believe upstream data do not actually do the mining themselves. They create the gen sets and the units for energy asset owners to mine themselves on a proprietary basis. So I think you'll see more of this too, frankly. I think we're going to see in the next few months, energy companies actually get into this space on a primary basis as opposed to contracting out with miners.

• 30:16Anthony Pompliano?

  Agreed. And if we go to this slide right here, we're talking about the gas flare, carbon negative. This to me, puts us into the realm of Bitcoin is preventing climate change? Is it solving climate change? Is it having a hand in presenting a solution or a potential solution? Like, how do you think about Bitcoin, gas flare capture, and then this whole climate change debate and kind of effort that's underway?

• 30:43Speaker 02

  I mean, it's certainly in the context of the flare gas mitigation is making climate change no worse.

• 30:49Anthony Pompliano?

  Okay. So it's not contributing more to the problem at a minimum?

• 30:53Speaker 02

  Because the gas is flared regardless. That's just a byproduct of hydrocarbon extraction. And we still need oil for cars and airplanes and boats and things like that. So we're not going to be able to wean ourselves off of that anytime soon. So during this transition phase where we still use hydrocarbons, You know, there's going to be this externality of natural gas. That's unquestionable. The miners can deal with it in a way that has a lighter climate impact than the default way, which is flaring or venting, frankly. And if you're flaring on a windy day, most of it's vented anyway. So by controlling the reaction, by coming in, piping the oil into a generator,

• 31:34Speaker 02

  and, you know, combusting in a more controlled way, you're mitigating the emissions. That's the chart I have here with Crusoe Energy. And so, you know, that's a net improvement.

• 31:44Anthony Pompliano?

  For sure. I'm gonna let my brothers ask questions about mining in a second. But if you have to think about how important this is for the United States moving forward, what we see going on in Texas, obviously, is pretty impactful. Is this something where other states and cities will start to replicate this in a material way? Or is it specific to that environment because Texas has the renewables, it has the kind of energy grid aspects that we've been talking about?

• 32:07Speaker 02

  No, I mean, I think we're going to see it being relevant for nuclear. We're already seeing nuclear providers partnering up with Bitcoin miners. Because, again, just having an uncorrelated buyer improves your core economics. And, you know, nuclear runs all the time, but the grid demand is like a sine wave, right? And so, at night, you know, energy might be really cheaply priced. And so, what if you could monetize your nuclear output at night by selling to Bitcoin instead of selling to the grid? And, you know, that would improve your economics, it would improve your payback periods, you know, that might give you a better incentive to build more nuclear. So it goes far beyond just wind and solar. We know Bitcoin is mined with hydro as well. But yeah, it's a pressure,

• 32:50Speaker 02

  it's an economic pressure on the grid, which I think, you know, liberates some of these like stranded or underutilized assets.

• 32:57Anthony Pompliano?

  What questions you guys got about Bitcoin mining? Mining, just where it's going to go, right? Like, the US overtook and kind of has the largest percentage now. Like, how do you think this trends over time? Is it good for us to have a large percentage? Should it get larger? Should it stay kind of relative to where it is now? Like, say, five, 10 years from now, where do you think it should be?

• 33:16Speaker 02

  So I think the Middle East is going to get more important in Bitcoin mining, because they actually have a ton of flared gas, which is a, you know, waste resource. And so it's one way to turn your natural resources into like a sovereign wealth asset, right? And so I think we're going to see that. Wouldn't be surprised to see UAE or the Saudis start to mine. And they don't really have much of a footprint today. If we got over 50%, you know, some people are gonna start to worry. They're gonna say, oh, well, the US is too big. The US could commandeer all the miners and, you know, change something about Bitcoin. I'm not really as worried about that. China, I was a bit worried. I mean, China is a one-party state.

• 33:59Speaker 02

  It's authoritarian. In the US, we have a rule of law and we also, you know, segment, we have local governance, like the states have some power, and energy policy is made at the state level. So the US government would not have the legal ability, or really the authority, to, you know, commandeer everyone's miners and then initiate some sort of government-driven hard fork. It's just not possible. So, you know, I do expect the US to keep growing because we have the cheapest cost of capital. We, you know, the US is something like 25% of the world's GDP, but 40% of the world's publicly traded equity. So we punch above our weight when it comes to capital markets.

• 34:39Speaker 02

  And all these miners go public and then they subsidize themselves by effectively issuing stock to the public markets. And so far, the markets have accepted that. So as long as the miners in the US are able to do that, they're gonna keep growing. They're gonna keep growing their footprint. And, you know, the US is an energy-rich country. So we're gonna keep, you know, keep growing our, our share of the mining network.

• 35:04Anthony Pompliano?

  John, what do you got?

• 35:05Speaker 03

  I'm glad you brought up all these issues. They're, uh, they're crazy. I am curious, how does an individual like myself, I own no mining equipment, how do I get involved in this? How can I make money off of, uh, off this mining going on in Texas and around the United States?

• 35:18Speaker 02

  I think we should plug one in, in the studio.

• 35:22Speaker 03

  We could do that.

• 35:23Speaker 02

  The problem is, we might have to do it in the other room because they're very loud. They sound like a hornet's nest. I don't know if you guys have ever visited, you gotta use some like ear probe because they are very, very loud and they get hot, too. So actually, maybe we reconsider that whole.

• 35:38Anthony Pompliano?

  We'll put it in another part of the building so that we don't have to deal with it or hear it or see it, but we can get the money from it, John.

• 35:44Speaker 02

  But there are hosted mining providers that can give you an allocated unit at a host. I think Compass Mining is probably the best-known one. And so, like, you can absolutely start mining today as a regular individual if you wanted.

• 35:58Speaker 03

  Can I get involved in the Texas situation at all?

• 36:01Speaker 02

  Probably, I mean.

• 36:03Anthony Pompliano?

  I'm sure there's hosting in Texas. And I think I read a while ago, like Compass's demand picked up a lot, right? Over the last six or 12 months.

• 36:11Speaker 02

  They've had a blockbuster year. Turns out everybody wants to mine themselves. I think it's a good feeling.

• 36:17Anthony Pompliano?

  It's cool. Are you want to go to Texas, John? No, we should go check out a facility. We'll send Joe from there.

• 36:22Speaker 02

  You guys should visit Rockdale. That's like the biggest facility in Texas, I think.

• 36:26Anthony Pompliano?

  Will they let us film a show from there?

• 36:27Speaker 02

  Yeah.

• 36:29Anthony Pompliano?

  It's a little loud, but.

• 36:30Speaker 02

  Also set it up.

• 36:31Anthony Pompliano?

  Joe, Joe, what'd you say? That's fine.

• 36:34Speaker 02

  Yeah, you might have to ask them to turn off a couple hundred.

• 36:36Anthony Pompliano?

  Do you want to be part of our union, by the way? We unionize the guests. No, get out of here. Yeah, we're recruiting.

• 36:41Speaker 02

  He's like, oh, yeah, I missed the first part of the show.

• 36:43Anthony Pompliano?

  Yeah, no, we unionized, John and I, and we're recruiting. So if you want in, you're in.

• 36:47Speaker 02

  I'm in, I'm in.

• 36:48Anthony Pompliano?

  There we go. They're mad because I told them I was going to bust their union and now they're recruiting for. We want higher pay, better medical care.

• 36:55Speaker 02

  Well, see, I don't even get paid.

• 36:58Anthony Pompliano?

  We're going to work that in. You're going to be part of the union. We can change that, Nick. We can change that.

• 37:01Speaker 02

  I get summoned here like on short notice.

• 37:03Anthony Pompliano?

  This was the longest notice I've ever given you. It was like two days.

• 37:06Speaker 02

  I know. It was great.

• 37:07Anthony Pompliano?

  Power of numbers. All right, let's talk inflation. The official numbers came in 5.4%, core is at 4%. I don't think anyone believes the real, you know, the official numbers. And then on top of that, they keep saying it's transitory. You and I have talked in the past in March, April, May, June, July, August, and probably into September of last year. They kept saying, don't worry about inflation. We're not worried about inflation. Inflation's not coming, etc. Maybe somewhere in the like August, September, October, November, December timeframe, they started to say, well, maybe there might be inflation, but we're still not worried about it. Then like in Q1, it turned into like, oh, there's going to be a little bit of inflation, but it's going to be transitory.

• 37:49Anthony Pompliano?

  Actually, our goal is to run hot for a couple of months.

• 37:55Anthony Pompliano?

  And then we got 5% CPI and it's been four months of CPI above 5%. That last time it happened was in the 08 crisis, uh, before that was in the mid 1990s. What's your read on the inflation that we have? Should we be worried or does this fit in like the transitory camp?

• 38:12Speaker 02

  I mean, we should definitely be worried and to be clear, like transitory doesn't mean your purchasing power is going to go back to what it was.

• 38:18Anthony Pompliano?

  Correct.

• 38:19Speaker 02

  If you, if they were truly transitory, we'd have deflation to compensate for the burst of inflation. We will never have compensatory deflation. We did in the 1800s. If you had an inflationary period, you would actually then have a period of sustained deflation, healthy deflation. That was actually really, so you had a hundred year period where prices started and ended the same in the US. That's never going to happen in the modern fiat economy. It's just that the rate of you losing purchasing power is accelerating. That's what they mean by transitory. It's not very comforting. Yeah, I mean, obviously they're trying to massage the narrative and, uh, you know, uh, the Fed kind of tends to believe that, uh, expectations drive inflation.

• 39:00Speaker 02

  So consumer and employer expectations are key drivers of inflation. That's sort of the orthodox view. And so that's why they expend so much effort giving speeches all the time, trying to manage our expectations. And if we, uh, you know, poke a hole in the narrative, we're actually altering expectations and thus making inflation more likely. So that's why they are constantly in the press, like trying to say, you know, talk us down, be like, no, no, no, you know, don't worry about it. It's, uh, it's going to, you know, abate. Uh, but I don't think it will. I mean, look, we're on the cusp of a bit of a global energy crisis. There's a lot of headlines about energy scarcity. Uh, if you have scarce energy, prices go up and energy is the key input into everything.

• 39:45Speaker 02

  So, you know, fundamentally, energy is like the, the main sort of unit of account. If the world is short on energy. Everything is impacted. So notwithstanding, you know, the supply, the supply side issues, which all the commentators are now blaming for inflation, we've embarked on this energy policy whereby, you know, fracking has been banned in much of the world, leading to much more structurally more expensive natural gas. You know, for better, for worse, you know, we can debate the merits of the policy, but we're going to have an energy shortage situation. ESG mandates and attacking, you know, the, the oil majors, you know, the way Exxon's been attacked, Royal Dutch Shell's been attacked through the corporate governance lens, that

• 40:30Speaker 02

  just means that the world is less adept at producing actual effective energy than it was kind of 10 years ago. So that's going to, you know, continually cause pressure. Yeah, and there's, there's a lot more to cover. I mean, there's the base effects thing that we can talk about.

• 40:47Anthony Pompliano?

  So let's do, let's do base effects first, and then I want to talk about like the normalization of it in the public conversation. But the base effect argument was basically, hey, we had a global pandemic and everyone was ordered to go sit inside their home. Of course, everything comes down. And so, yes, we will see a high rate of change over a 12 month period, but that's simply because we were coming off of that lower base. I think you believe that now we're back to where we were before the pandemic from a base effects standpoint 12 months ago, but we saw a really high rate of inflation.

• 41:17Speaker 02

  Yeah, so we had disinflation during the early days of the pandemic because demand dropped off a cliff. And so the rate of, yeah, so effectively, we didn't have deflation, but we had disinflation. So inflation was low. And then there are all these articles written in sort of April 2021 saying, well, actually 12 months ago, because we had disinflation, that's going to make inflation look really high today, but don't worry about it. That's just a mathematical quirk. That's because you're looking at year over year data and a year ago, the inflation rate was really low, which makes today look really high. However, the base effects, in my view, expired in July of this year. So that's no longer a plausible explanation. Lo and behold, we're still running really, really hot. So.

• 42:02Speaker 02

  This whole story that was cooked up for us about why inflation looks hot, you know, all these economists like, like explaining to us, oh yeah, this is just because like you suck at interpreting the data. They were wrong. Okay. And they're not acknowledging that. Now, like inflation, you know, now they've pivoted to saying, okay, no, there's supply chain reasons. But what are they not mentioning when they talk about the supply chain? It's like just this abstract thing. Why is the supply chain stressed? Because the government printed trillions and trillions of dollars and handed it out directly to households for them to go on a spending spree, right, during the depths of the pandemic. And they started buying tons of consumer electronics and everything else.

• 42:46Speaker 02

  And so the supply chain became taxed because of that injection of cash. Right. And so like, that is a big part of the explanation. You know, because consumers change their spending patterns because all of a sudden they had thousands and thousands of dollars just deposited in their bank account from the government. So, you know, that is the government injection of cash into the economy, causing inflationary effects is just processed through the lens of the supply chain. But it's still ultimately inflationary.

• 43:14Anthony Pompliano?

  I don't think I've ever heard a monetary policy related position. So a central banker, one of somebody from the treasury, even I think globally, but definitely in the United States. I don't think I've heard a single one of them say that the monetary policy had an impact on the inflation.

• 43:33Speaker 02

  Of course not. I mean,

• 43:34Anthony Pompliano?

  I don't think I've heard one time somebody say that.

• 43:36Speaker 02

  And you know, it's the same thing during Weimar. They steadfastly refused to acknowledge that the rate of money issuance might have an effect on inflation. So they refuse to admit that the quantity of money might affect the price of money. That's every government going through an inflationary episode ever. But, you know, I, I believe that central bankers actually do understand what's going on. I do believe that. And I believe that, you know, Congress understands as well. It's just right now inflation is actually politically convenient. That's what doesn't get talked about. Because we have such a high debt load as a country, the only way to reduce our debt to GDP. Barring some sort of productivity miracle where GDP grows, you know, through some exogenous shock, maybe we discover nuclear fusion or something.

• 44:21Speaker 02

  Barring that, the only way we're going to reset our debt to GDP level and get our debt service down is through inflation. And so we're going to have a soft default. So inflation is actually really politically convenient. So when policymakers say they want to inhibit inflation, they want to ratchet it down, don't believe them because it's politically necessary now to to actually have an inflationary burst, which was the exact same thing we had in the 1940s, after the wartime expenditure.

• 44:49Anthony Pompliano?

  So when that occurs, we're at 5.4%, you know, give or take over the last couple of months. Do we go higher from here? Do we stay at around 5%? Or do you think that we come back down to like a 2%? Let's say our next year or so.

• 45:02Speaker 02

  So the thing about inflation is that it's not just a structurally high rate of inflation. It's just that the loss of purchasing power is also volatile. So if you look at other inflationary episodes, whether it's the 40s, the 70s, it's very volatile. And that's actually the worst part because it means businesses cannot project what what resources they're going to need a year from now or two years from now.

• 45:24Anthony Pompliano?

  And we saw this in the construction industry when like the lumber prices all exploded. Literally, people just said, hey, we're not agreeing to build anything because we know that there's a three to six month lead time and we can't project what the price of lumber is going to be. And therefore, we can't tell you what the house is going to cost because we may be underwater or we may make a bunch of money, but that uncertainty doesn't allow us to do it. You're now talking, it's not just one specific commodity and one industry. You're saying across an entire economy, that's true.

• 45:49Speaker 02

  It's the allocation of resources in the economy. So that's why Bitcoiners talk about time preference. There's a very real connection to inflation and time preference. As inflation cranks up, you lose the ability to plan for the future. A great example of this would be Venezuela. You can't get a mortgage, right, in Venezuela because the thing would be denominated in Bolivars. It's completely impossible to know, would it be worth 30 years from now? And so you can't engage in sort of long term, you know, acquisition of capital assets.

• 46:22Speaker 02

  You can't really debt doesn't work, right? So, you know, obviously less extreme version of that now. It's hard to know where your cost of capital is going to be. You know, if you're in an inflationary burst where you don't really know what the rate of change of purchasing power is going to be 12, 24 months from now. And so your time horizon comes in. And that's why, you know, a lot of people connect it to, you know, the ability to build longer term projects when you're on the gold standard, which was because the money supply growth was always sort of one to 2%. And interest rates were generally pretty stable. Whereas now we have structural instability.

• 47:04Anthony Pompliano?

  Yeah, when you think about what this does to an individual, we know that 45% of Americans have no investable assets. 55% have some assets, but really it's the top, you know, one, maybe 10% that are kind of benefiting from this. Is it as simple as, hey, people should just go invest regardless of the market? And they're going to end up benefiting? Or are there other things that you think folks who understand what's happening are doing to protect themselves? Whether it's changing their consumer purchase behavior or something else?

• 47:31Speaker 02

  The problem is you do have to change your behavior when faced with inflation because it affects everything. It actually affects equities too. Periods of rising inflation, very negative for equity prices, by the way. So, you know, if you look at the, you know, the difference, how they trade during different epochs of disinflation versus high inflation. The problem is you have to spend an increasing amount of your time being tactical and determining your asset allocation. Of course, it's possible to escape inflationary bursts with your assets intact. You know, if you go to commodities or, you know, precious metals or things like that. But it's just a lot of work, right? It's a drag and normal folks should not be apportioning too much of their mental energy to like

• 48:16Speaker 02

  determining how to, you know, allocate their assets, right? They would just love to be able to save normally and just live their lives. But the problem is you get forced into becoming speculator, right? And that's why we see with all these inflationary episodes, speculative surges. You see speculative surge. And so regular folks have to start thinking, okay, well, do I want to own big tech here? Do I own cyclicals? Am I going to own currency? Am I going to hold cash? I can't hold cash, you know, like, what am I going to hold now? And it just becomes this whole thing. And so, you know, that's one of the worst things about high inflation is that it just, if it, you know, forces everyone to question the value of their savings and, you know, plow into, you know, potentially higher yield assets.

• 48:57Anthony Pompliano?

  Yeah. And how does it end? Right? Is it that inflation just naturally kind of tapers off? And yes, we don't get a return back to a normal prices. So Chipotle puts their menu prices up 4%. We're not going back, but we just stopped the rate of change going up so aggressively. And so it goes back to kind of like a 2% rate of change. Or is there have to be some sort of external, um, you know, force? Is it a policy decision change? Like, what drives the kind of end, if you will, of higher inflation?

• 49:25Speaker 02

  I mean, inflation ended in the seventies when, uh, the eighties, when Paul Volcker cranked up interest rates to like 20%. And that was called the Volcker shock. And that sent the economy into a very steep recession. But so the government had to do that to prove that, you know, they could take short term pain and effectively destroy some of the quantity of money, certainly inhibit the rate of growth of money by cranking up interest rates. Cause when you increase interest rates, lending, you know, declines. Uh, and so that was like their nuclear weapon against the sustained high inflation that we saw in the seventies was the willingness to take that medicine. Now, what would Paul Volcker do if he was in charge of the Fed today?

• 50:09Speaker 02

  He would quit. He would resign because he cannot raise interest rates. Because our debt to GDP is so much higher. When he did the Volcker shock in the eighties, debt to GDP was like 30%. But today it's like 120, 130%. So if you raise interest rates to that level today, the government would default. The corporate sector would default. No one can stand debt becoming expensive like that. Uh, and so I think really the only way this ends is after a sustained long Period of very low interest rates and high inflation. You know, we we we ratchet down the the size of the debt, generally speaking.

• 50:53Speaker 02

  And then we can sort of get to a new equilibrium. But it's going to be a damaging and difficult sort of couple decades, probably. And if if you look at what happened in the 40s, if you held government debt.

• 51:05Speaker 02

  You know, you held dollars, you lost in real terms. And so that's sort of what has to happen here. But the question is like, how does the central bank regain credibility after they've lost it? Because inflation is a loss of credibility for the central bank. I don't know if they're ever going to get their credibility back.

• 51:22Anthony Pompliano?

  I tend to think that's going to be hard, right? I don't I don't know if we know yet, will they get it back or will they not? But it's definitely in question. What do you think about the Bitcoin ETF? Is it likely to get approved, not get approved? Do you think it matters?

• 51:35Speaker 02

  Well, the ETF that Gensler has signaled he wants would be the futures-based ETF, which would be an inferior product in my mind. You know, might have an additional 10% drag in there because of the cost of rolling futures. Spot ETFs work fine. We've seen them work in Canada. We see them work in Europe. There's nothing unexpected or complicated about them. You're just literally holding Bitcoin, then you have daily liquidity and it equilibrates. So it tracks the price really closely. A futures-based ETF is an inferior product. It's just less efficient, right? But that looks like what we're going to get. I wouldn't be surprised. I think the first deadline is the 18th of this month. And there's a whole bunch of pending applications.

• 52:17Speaker 02

  I think we probably will get a futures-based ETF. And I think we're going to continue to be stonewalled on the spot ETF side, which is what we all really want. And that would be the blockbuster product that would see hundreds of billions in inflows. That would have more inflows than GLD did within its first week, which I think was the hottest ETF launch ever, so.

• 52:39Anthony Pompliano?

  So we're on the 14th now, so Monday basically is when the they have to give an answer on the futures. Can they kick the can down the road or do they have to make a decision?

• 52:47Speaker 02

  Um, that's a great question. I think that might have to be like a resubmit your application type thing.

• 52:53Anthony Pompliano?

  Yeah, if they if they it's a reject or accept, it's not a, hey, we postpone our decision.

• 52:57Speaker 02

  Yeah, I mean, they've had like six months already to kind of say something about it. So.

• 53:02Anthony Pompliano?

  Okay. Uh, so if you had to guess now, you think it gets approved was the futures?

• 53:07Speaker 02

  Yeah, and it's just, you know, ultimately not a very compelling product. You might see a couple billion in inflows, but that's just not what investors deserve. I mean, and the weird thing is you're allowed to have like a Forex inverse levered. Uh, you know, natural gas tracking ETF that like mathematically will decline by 95% a year. Um, and that's permissible. And a spot ETF tracking one of the largest commodity markets in the world traded in hundreds of jurisdictions. Very sophisticated market infrastructure is not allowed.

• 53:38Anthony Pompliano?

  Why do you think that is?

• 53:40Speaker 02

  Politically, I'm certain at this point. I mean, it like most, most of your like ETF analysts at Bloomberg will will say the same thing. That there's a political gating factor for the ETF, uh, which is simply that, uh, you know, they they don't want Bitcoin to gain uh, the sort of authority and the blessing of the SEC. Because like all of the challenges the SEC has made to the sponsors of those ETFs have been met. There's no question about that. And if you look at the standards being applied to other commodity markets where price manipulation does happen. I mean, hell, the biggest market in the world, uh, LIBOR was manipulated, right?

• 54:22Speaker 02

  But that doesn't mean you can't have financial products tracking interest rates, right? Uh, silver had an infamous episode of price fixing. That doesn't mean there isn't a silver ETF, right? So riding off Bitcoin by saying, oh, we don't like the market structure, you know, there's episodes of manipulation. That doesn't make sense. It's not the standard. Uh, so they're applying some sort of uneven standard Bitcoin versus all other commodities.

• 54:46Anthony Pompliano?

  What do you think happens to the Bitcoin price by the end of the year? We're at 58,000 or so. If ETF gets approved, it takes off. If it doesn't get approved, it doesn't. Or like, what's your thought process on like, end of year price of Bitcoin?

• 54:58Speaker 02

  Well, I, earlier this year, I thought, well, we're going to see whether the base effect story plays out by the fall. We're going to see whether the transitory story is real. I think it's become clear now that the whole developed world, not just the US, is engineering kind of a soft default of their currencies. They are in synchrony devaluing them altogether. And it's kind of like swimming downstream, you know, like, no one currency is going to swim against the current, so they want to appreciate relative to the others. They're all going to devalue at the same rate, or, you know, roughly the same rate. So, people won't necessarily notice it if you're looking at DXY, the dollar index. But yeah, I mean, you'll notice it if you go to the gas station or, you know, buy a steak. And so I think there is this realization setting in, oh, wow, like, the government

• 55:43Speaker 02

  is going to hold interest rates down, and they're going to crank up inflation, and that's, they're going to engineer a soft default. How tactically do I, an asset allocator, deal with that? I don't want to hold treasuries. I probably don't actually want to hold equities, because they generally do bad during periods of rising inflation. What am I looking at? And, you know, some of those allocators are looking at Bitcoin.

• 56:06Anthony Pompliano?

  How many, how much of the portfolio do you think they can put in? Right? Because I always go to, if you reach that conclusion, then the natural end state is, I have to get allocated. But if I'm buying it because I'm scared of inflation, I think inflation's going to continue, I think it's going to be persistently higher, and I really don't have that many other places to put it, then the question almost becomes not, should I do this? It's, how much can I do it within my kind of investment mandate? Right? Like, what's the upper bound? And so is that like a 2%, a 5%, a 10%? Can people do 20%? Like, what do you see is kind of that upper bound?

• 56:41Speaker 02

  I mean, it just depends on, like, the nature of the allocator. And, you know, you talk to institutionalists all the time. Like, I would see family offices can do, like, a really material amount. We see, like, you know, some degen family offices out there, for sure. They just have full discretion. You know, pension funds, I've generally found, are like, less willing to consider it, because sometimes they don't even have a commodities allocation. Hedge funds, of course, can kind of do whatever they want within their mandate.

• 57:10Speaker 02

  I'd be interested to see sovereign wealth. And I think, you know, maybe this will be the year or next year where that, you know, they start to dip their toes in, whether indirectly through mining, expect that or directly through exposure. So it really just depends on sort of the nature of the allocator.

• 57:27Anthony Pompliano?

  Yeah. And if they do start to allocate similar to what we saw in October, November, December of 2020 into the Q1, it felt like people who started to open their eyes to inflation. We saw Paul Tudor Jones come out publicly and say, hey, you know, I want to own the fastest horse, et cetera. They all kind of front ran the inflation, right? We didn't get the 5% prints until the summer, but they had all pretty much allocated to the asset. It was a asset that at the time had 80 to 90% of the circulating supply was held by long-term holders. A bunch of new demand shows up, price exploded upwards. It feels like now we're back are from a market structure standpoint, 85% of Bitcoin hasn't moved in 90 days. And so that component of like the supply constraint is back.

• 58:09Anthony Pompliano?

  If demand kind of gets a second leg here, do you expect there to be like a very material kind of price increase again? Or is this something where we're more in this like grinding up and you'll just kind of every day get more and more people capitulating and buying?

• 58:22Speaker 02

  Yeah, so like on the one hand, you know, it seems similar in some ways to the double bubble in 2013, where the second leg up was completely explosive. On the other hand, you know, you have to think about who owns Bitcoin. And so there's a lot of firms that own Bitcoin as part of a target allocation. And as Bitcoin appreciates, they rebalance. And so that actually eliminates some of the volatility on both the downside and the upside volatility, you know, because you see this sort of just targeted selling as Bitcoin, you know, into the rally and also dip buying activity. Because if you want a 5% target allocation, you have to be, you know, strategic like that.

• 59:07Speaker 02

  So I think that will attenuate some of the volatility.

• 59:12Speaker 02

  All that said, I'm very optimistic about. Where Bitcoin is, I mean, ultimately, you know, I think the modern central banks have lost their authority. And, you know, that even more so than inflation is the main thing that's going to drive people into the asset class.

• 59:27Anthony Pompliano?

  Yeah, I tend to tend to think that's right. What about the regulatory regime in the US? So we've got the SEC with Bitcoin. It's a weird thing because they've said it's not a security, which kind of de-teeths, I think, a lot of the regulatory concerns. At the same time, all of the corporations and some individuals that support Bitcoin specifically also support other assets. And so they have regulatory pressures that might not be directly because of Bitcoin, but because of the industry. Is that a concern in terms of like serving as like a headwind for Bitcoin? Or do you think that some of that other stuff, it'll kind of get a bifurcation or like a decoupling? And Bitcoin will kind of be blessed in terms of that'll continue on, but some of this other stuff may get caught up.

• 1:00:09Speaker 02

  I mean, Bitcoin is definitely present in, you know, industry sectors like DeFi. Like there's definitely Bitcoin that circulates there. Generally speaking, I think it would be largely insulated from a crackdown on, you know, on your DeFi's that where the SEC has kind of suggested they would really go after it. There's, you know, strong regulatory clarity as to what Bitcoin is. It's kind of considered a commodity, depending on the regulator, property. So there's no questions there. It's pretty institutionalized. So, I mean, you know, the worst that could happen is the OCC, you know, puts us a step back, says banks can't touch Bitcoin, which, you know, I kind of expect to happen. But, you know, regardless, like the SEC,

• 1:00:53Speaker 02

  they have a real big bark and the question is like, how big will the bite be? And it appears to me that they'll need fundamentally more resources to actually fulfill their ambitions that they're openly stating.

• 1:01:07Anthony Pompliano?

  To crack down on the long tail because you're basically making the argument that if there's thousands of various coins that are out there and they're saying, hey, you're not allowed to do this. At some point, it's like jaywalking, right? Like you're allowed to jaywalk, but can we actually stop everybody? No. So in some weird way, it's almost decriminated by lack of enforcement. And so they have to pick their spots in terms of where they do it based on the resource they have today.

• 1:01:30Speaker 02

  Well, that's like certainly the dominant view, I would say is that there's kind of like a DDoS on their ability. You know, there's just so much out there. It's hard for them to tackle things. I think they could go after choke points with the exchanges probably being primary and then maybe even the operators of some of these DeFi protocols. They could probably try and find a way to coerce them. So I think they probably do have the ability to find leverage in their enforcement. But regardless, you know, they will need more resources to do that. And that might require Congress, you know, increasing their budget or something like that. So a lot of this, I think, does come down to Congress and their ability to act. The midterms are coming up. I don't know if we're going to have a fully

• 1:02:14Speaker 02

  blue government after the midterms, you know, it could be split. So I think it's quite possible we get gridlock, which inhibits a lot of the government's plans to sort of tackle the crypto industry.

• 1:02:25Anthony Pompliano?

  What's fascinating to me is we have Senator Lummis, we have Congressman Davidson, we now have Ted Cruz kind of raising his hand and saying, hey, I'm really educated on this stuff. There's a number of other congressmen or senators who appear to be either one, very educated on this stuff, or two, are being supportive and kind of saying, hey, look, we need this in the United States. But there's also a lot that aren't, right? And we've seen everyone from the Brad Chermans of the world, etc., who are even Elizabeth Warren, they're just outright against it and they would love to see the industry go away. Is that just politics as normal? Or do you think that there is competing agendas? Like, I read a lot online and people are like, oh, you know, the Brad Sherman's biggest

• 1:03:08Anthony Pompliano?

  donors are the credit card companies. And I'm like, maybe. Or like, are they really that smart? Like, is there really this big kind of conspiracy? Or is it literally just know some people are open minded about innovation, other people aren't? And so that's Where they kind of fall in line.

• 1:03:22Speaker 02

  Yeah, what's funny is I think the banks are gonna eventually be big supporters of Bitcoin. Because, you know, it ends up bringing more vibrancy to their business model. There's more things they can do. You know, they're, you know, they'd like to get active in the industry. It's like an interesting way to to earn new sources of revenue. So. I don't think the bank lobby would really ultimately be that hostile to the industry. I think where the where the split actually does fall is in terms of the ideology of how much authority and insight the government should have into our transactions. And so we kind of see a split developing between people that think, well, maybe like, you know, the Bank Secrecy Act was an overreach and maybe we ended up with a structurally unconstitutional level of surveillance.

• 1:04:05Speaker 02

  That's obviously my stance. And so, you know, those folks tend to be more sympathetic Bitcoin. And then the opposing camp is, actually, we should use finance to project political ambitions into the economy at large. So use financial rails to actually impose kind of government mandates. And there's a whole other camp that believes that. They tend to be hostile to Bitcoin because Bitcoin gives you transactional freedom and some measure of privacy. And they tend to be in favor of a CBDC. And so that is kind of the split that I see, which is a genuine and non-contrived ideological divide. And I I don't see anyone on the CBD side, CBDC side,

• 1:04:47Speaker 02

  ever, you know, crossing over to Bitcoin regardless of how well we explain it to them.

• 1:04:51Anthony Pompliano?

  Yeah, it it, we talked yesterday about the Janet Yellen interview on CBS News and they asked, you know, about peeking into Americans' pocketbooks. She's like, that's not what we're trying to do here, whatever. And the first thing that I went to was, look, again, right now they have to ask. They either have to change the policies, right, and get like regulation here, or they have to use the courts. And so there is some checks and balances that are in place. Now, again, you could say that it's kind of like that that one video where the guy is outside as a security guard, he basically is like not really checking folks, right? There's an element of like, you just go to the court, like, hey, we think they're doing bad things, right? Like, okay, here, here you go, get their financial information. But at least in theory, there is something. But the central bank digital currency, like, it's over.

• 1:05:33Speaker 02

  Yeah.

• 1:05:34Anthony Pompliano?

  Right. And now it's all of a sudden you operate on my system. I can see everything. And to me, that is, in some weird way, an argument that is very pro Bitcoin from a sense of once you digitize all the currencies, there's no technology competition. Value is free to flow with very little friction or cost to kind of the soundest money. And so, you know, if I have a good currency inside of the American economy and the US dollar, and I want to go to Mexico to the peso, it's really hard with the switching cost. If I could just do that on my phone, now all of a sudden, where's the competition go to? It goes like a monetary policy competition. And I think we're all pretty much in agreement that like Bitcoin is different. Now, is it right or wrong? We'll find out in the market. But because it is different, the switching cost goes down.

• 1:06:17Anthony Pompliano?

  By digitizing the other currencies, everyone gets digital wallets. Like now you're going to just see more capital flow in some weird way. It's like that savings technology, whereas right now the friction is really high. Is that sound right?

• 1:06:28Speaker 02

  I buy that. Yeah. I mean, the other thing is, I think the growth and existence of a CBDC would more strongly motivate people to seek out alternatives. Because at that point, they're realizing, oh, we have a borderline social credit system in this country. Because it's not like the US government doesn't have a history of using banks and bank policy to control what regular people can do. There is a well-known operation called Operation Choke Point, where the FDIC and the DOJ instructed banks to instruct payment processors not to service certain industries. And, you know, it doesn't really matter what industries they were, frankly. Many of them were completely legal industries.

• 1:07:09Speaker 02

  So, you know, we've seen through this kind of, you know, kind of really indirect, non-disclosed, untransparent approach. We've seen government trying to make policy through the bank sector. Now, if they have the direct ability to do that with a CBDC, it would just give them a huge amount of control over who can make money and how. And so I think that'll cause a lot of people to do a bit of soul searching, realize, okay, do I want this system or do I want like this other system that actually seems more American?

• 1:07:41Anthony Pompliano?

  Yeah. Oh, I don't. Let's not go down that path because I completely agree. I guess it's been hours talking to you. You guys got any other questions? I'm all good. People in the chat also continue to say, uh, the most violent man in Bitcoin. So you're, uh, you're, you're living up to your, uh,

• 1:07:54Speaker 02

  I gotta do something about it.

• 1:07:56Anthony Pompliano?

  You got some more street cred for joining the union too.

• 1:07:58Speaker 02

  Yeah.

• 1:07:59Anthony Pompliano?

  Oh, yeah. Dude, fuck the, you already forgot?

• 1:08:01Speaker 02

  Oh, yeah, no, no.

• 1:08:03Anthony Pompliano?

  It sounds like the union dues are, are ready. We'll send them over.

• 1:08:09Anthony Pompliano?

  Is this the pitch is you ask them to join, then you hit them with the dues? Well, it depends on what the benefits are. We'll talk.

• 1:08:14Speaker 02

  But we should launch a general strike over here.

• 1:08:19Anthony Pompliano?

  The first time, by the way, that, uh, they said they were gonna create a union. I turned to John, I said, hey, John, I'll pay you not to join the union. He goes, well, how much? I said, there might not be as much. Everyone's got a price. I'll split it with you guys.

• 1:08:29Speaker 02

  The problem is you can't bust the union because there's no substitutes for your brothers. So.

• 1:08:34Anthony Pompliano?

  Ooh, facts. Well, we have two other brothers, but they won't come on camera. So, no, no, but they won't come on camera. So we're good. Unless there was like a big paycheck and then they probably would immediately. The union knows what we're doing. Don't worry. Who's in charge of the union, by the way? John and I co-heads. Now we got an advisor as well.

• 1:08:54Anthony Pompliano?

  Before I know you guys have all-star lineup of folks. All right.

• 1:08:59Anthony Pompliano?

  Where can we send people? Let's send people to, uh, your Twitter. Anywhere else that, uh, that you want people to go?

• 1:09:04Speaker 02

  Twitter is number one. Uh, if you want the full archive of my content, that's my personal website, nickcarter.info.

• 1:09:09Anthony Pompliano?

  All right.

• 1:09:10Speaker 02

  That's where everything goes.

• 1:09:12Anthony Pompliano?

  Follow Nick on Twitter. You've been, you've been coming after some FUD recently, I've seen. Tell them what you said before you got here, John. If there's FUD, you'll find it.

• 1:09:25Anthony Pompliano?

  That's a compliment. He said, Nick, he said, Nic Carter will find FUD anywhere on the internet. He'll take his task.

• 1:09:30Speaker 02

  I was trying to try and tackle some FUD tonight, actually, about, you know, the, some of the stuff I said about the Texas grid, you know, some, uh, some PhD environmental science came at me yesterday.

• 1:09:40Anthony Pompliano?

  Really?

• 1:09:40Speaker 02

  You hate to see it.

• 1:09:41Anthony Pompliano?

  What, what did they say?

• 1:09:43Speaker 02

  They said that the math was wrong, but his math was in fact wrong. So.

• 1:09:47Anthony Pompliano?

  Let's go. See, this, this is where, uh,

• 1:09:53Anthony Pompliano?

  the best part about the FUD busting is that it always goes back to like super provable things like math.

• 1:10:01Anthony Pompliano?

  If you're gonna create all this flood, just stick to things that aren't provably like it's like transitory. Like it's the greatest flood in the world. Cause you say transitory, nobody can measure. Yeah, it is transitory. It's not. Nobody can disprove you. Nobody gets to be the judge. There's nobody who's like, well, if it hits 5.6%, like, no, it's just transitory. And literally, if we have high inflation of over 5% for three years, the transitory camp will say, see, it went down. It was transitory. Like, like it's the ultimate flood.

• 1:10:30Speaker 02

  But the, you know, one of the beautiful things about Bitcoin is we can actually retire one of the FUDs. Like the FUD can be over, which is the China FUD.

• 1:10:37Anthony Pompliano?

  Yeah. Oh, wow.

• 1:10:38Speaker 02

  Well, actually not quite.

• 1:10:39Anthony Pompliano?

  There's one, there's one person that still is gonna hold on to it, but other than him. Someone said, uh, FUD busters in the chat. FUD busters?

• 1:10:48Speaker 02

  I mean, the China FUD is almost over, but now we have the USA FUD. Too much hash rate in America, which I am not going to apologize for. I'm proud of America being the number one, USA.

• 1:11:01Anthony Pompliano?

  Well, it always comes from very interesting people. And I think ultimately, if you strip away the like nuanced, uh, micro arguments and just say, hey, are you just anti Bitcoin? They're always gonna find something.

• 1:11:16Speaker 02

  Yeah.

• 1:11:17Anthony Pompliano?

  Right? And it's like, oh, you guys are taking renewable energy and you're acting as a sponge, right? And then it'll be like, well, we think that, uh, it shouldn't be windy. And you're like, what? Like, they'll just continue to find it.

• 1:11:28Speaker 02

  Yeah, people actually complain that Bitcoin uses renewable energy, which would otherwise be used by the grid, which is actually just not the case.

• 1:11:34Anthony Pompliano?

  Not true.

• 1:11:35Speaker 02

  But, you know, the problem is the critics don't invest the energy in learning about how the grid works. So, um, I can't get them to learn.

• 1:11:43Anthony Pompliano?

  I can't believe I'm gonna bring this up real quick as we're ending, but I'm gonna do it. Did you watch any of the clips of Sanjay Gupta going on Joe Rogan's podcast?

• 1:11:51Speaker 02

  I saw some, yeah.

• 1:11:52Anthony Pompliano?

  Okay, so I watched three clips. They're each two minutes. They were the ones that were going viral online. And my biggest takeaway was actually a correlation back to Bitcoin, which is, uh, the people of which the media puts the most, um, kind of validity on their commentary.

• 1:12:10Anthony Pompliano?

  Who only exist in that world, become exposed when they leave the controlled environment.

• 1:12:16Speaker 02

  Totally.

• 1:12:17Anthony Pompliano?

  And like, I don't know much about Sanjay Gupta. He's always seemed like a smart guy to me. You know, very medical focused, not kind of politicized, whatever, from what I could tell. And that was my biggest takeaway was wow, I'm watching a clip of him in like a longer form conversation, very different than the guy that you see on TV in 30 seconds. And I think that the Bitcoin critics are very similar. They're very good at, what's the 30 second hit? But if you get them into a nuanced conversation, it's a massacre.

• 1:12:44Speaker 02

  And that's why we need alternative media. BBB. That's why you gotta keep growing the show. I mean, like you really do, because there's a crisis of confidence in our, our media elites and our authorities. We need alternatives.