Tracking the Flows

Every passage, on the record.

1. 00:00Quote

   We've got a little cheat code. And the little cheat code is we have discovered that it is all about energy. It's an energy game.

2. 00:31Quote

   He who has the energy is winning.

3. 00:31Claim

   You want as much energy as you can possibly control, in the densest form it can be in, as accessible as possible at any time no matter where you are geographically, because if you can make use of it you can make yourself less vulnerable to the unpredictable nature of the universe.

4. 01:01Claim

   Once we know it's an energy game, we can analyze opportunities from a bottom-up point of view: where is the energy actually flowing, who gets it, what's the best outcome for the individual, and what does that mean for the extended order, which dictates the incentives.

5. 01:31Claim

   If you are better off and the extended order is better off, everyone wins. If you are better off and the extended order is worse off, that's good for you short term but probably not great long term.

6. 02:02Claim · condensed

   Every time you sold Bitcoin, that was the worst energy allocation decision you could possibly have made at the time, even if you quote unquote took profits on a trade. You still lost.

7. 02:34Analogy · condensed

   There's so little friction to participating in trading that the barrier to entry is low and most people get swept up in it. You've got a caution, contents hot warning label on cups, which should hint you're probably not in a place that's going to beat the hive mind of the extended order at a game of information access.

8. 03:16Reference

   The probabilities of you and your friends being smart are almost zero. Maybe one of you in your little 150 Dunbar circle of acquaintances is going to be intelligent, and even then statistically the odds aren't great.

9. 03:50Reference · condensed

   Anytime I start to get the feeling that I should time my Bitcoin buys and carve out a little ten percent bump by strategically reading the market, I queue up a video of Jim Simons talking about the Medallion Fund and his returns.

10. 03:50Analogy · condensed

    Watch a talk of his and very quickly you'll decide it's probably better to just buy Bitcoin and wait, because people like him, out there trying to take advantage of people like you, are always and everywhere.

11. 04:30Quote

    You don't want to sell the best thing for the shittier thing. You want to hold the best thing at all times.

12. 05:01Quote

    Rich people don't sell the good stuff or else they wouldn't be rich.

13. 05:33Claim

    In the modern world it is more important to allocate energy than to transform it yourself, which is the leverage the information age provides. Decisions are just as impactful as physical actions: how you direct your excess reserves matters more than physically transforming the energy yourself.

14. 06:38Claim · condensed

    Bitcoin lending: no tax on it, you hold the underlying collateral, you get exposure as Bitcoin rises, and you can roll over the debt in perpetuity. Bitcoin is the world's greatest collateral, which means over time interest rates will be lowest for Bitcoin holders.

15. 07:09Claim · condensed

    We're taking our Bitcoin, not selling it, and pledging it as collateral; someone gives us dollars now and we agree to pay them back later, plus a percentage each month on interest. This sounds like a good plan, but there are issues like control and counterparty risk.

16. 08:41Prediction · condensed

    At today's price of 60,000 dollars and a 3.125 Bitcoin block reward, a block is worth about 187,000 dollars.

17. 09:23Prediction · condensed

    In 2032, assuming no further adoption, a block will pay 78 million sats, 0.78 Bitcoin. If that block is still worth about 187,000 dollars, that implies roughly 240,000 dollars per Bitcoin, which isn't astronomical, some people have predicted far higher, you could even call it conservative.

18. 11:05Claim · condensed

    You acquired that Bitcoin by generating more order than existed when you started and providing utility to those around you, then wanted to store the resulting energy in the most liquid, unencumbered form, with the least impedance possible, while making it hardest for anyone else to attack, so that you and only you could use it when you wanted.

19. 12:49Claim · condensed

    If after 2024 you keep generating order and don't need to access the energy you already unlocked, a surplus begins to form, which is the starting point for asking whether Bitcoin lending is positive sum for the extended order.

20. 13:19Claim · condensed

    The smooth-brain objection is that Bitcoin lending can't be positive sum, because if Bitcoin is scarce and hodlers won't sell, aren't they preventing others from gaining access to the network and maintaining an advantage over people who got in later.

21. 13:54Analogy · condensed

    Imagine the entity on the other side of the exchange is as rational as possible: adoption is still nascent, so to buy a capital good that makes them more productive at generating information, they have to exchange Bitcoin for dollars, because the tool's manufacturer will only accept dollars.

22. 15:07Claim · condensed

    If the new tool actually works, the seller becomes more efficient, generates more excess energy, and refills the Bitcoin system with those new reserves, effectively going out into the real world to capture energy that was outside the system and bringing it back in.

23. 15:07Claim · condensed

    This is very risky at the individual level: if you're selling Bitcoin for a tool, you have to be very sure it will work, and work fairly quickly, because you never know when the gradually part of the adoption curve turns suddenly.

24. 16:16Analogy · condensed

    It's the musical chairs, the music will stop, someone will be left out because there just aren't enough chairs, and you don't want that to be you if you understand the benefits Bitcoin gives you.

25. 16:54Claim · condensed

    As the buyer, you get a claim on whatever fraction of the total accessible energy supply your contribution represents at the time you enter the system. That share stays fixed, but the total amount of energy you control rises if more energy flows into Bitcoin over time, and falls if it doesn't.

26. 17:28Claim · condensed

    The incentives for investing outside Bitcoin drastically change because the hurdle rate keeps rising: not many projects can outcompete Bitcoin over five years, which is how you get significantly less garbage and way more quality in a Bitcoin economy.

27. 18:03Claim · condensed

    Innovation doesn't get diluted by a rising hurdle rate; it increases as trust in the system builds, because you know you can own the fruits of your labor in the future, so you're willing to invest more.

28. 18:37Claim · condensed

    Holding Bitcoin means you're contributing the most benefit possible to those around you, it's the ultimate act of charity to the extended order: you're offering your energy to anyone happy to take it, with no barriers, and letting the person who believes they can steward it better tell you in price how much of the Bitcoin system they're willing to give up for it.

29. 19:37Claim · condensed

    As of August 2024, to get a Bitcoin-backed interest-only loan, you pay somewhere between 15 and 20 percent APR, and you have to be over-collateralized, meaning to access 120,000 dollars of energy you'd need to put up 240,000 dollars in future energy guarantees.

30. 20:47Claim · condensed

    Compared to a house or a stock portfolio as collateral, Bitcoin exposes glaring holes in the alternatives: my biggest risk as a lender is default, getting zero, and I have to account for that possibility no matter what the collateral is.

31. 21:21Claim · condensed

    If I'm over-collateralized in the world's largest market, trading 24 hours a day, 7 days a week, 365 days a year, with a contract that can execute orders off live price action, that's significantly less risk than any traditional collateral option, even though nothing is ever fully guaranteed.

32. 21:53Claim · condensed

    Houses are not fungible and extremely costly to exit; a stock portfolio is a little better but still carries plenty of counterparty risk if you're liquidating it as collateral. Every piece of friction should increase the required over-collateralization or interest rate, because you're being charged to take that risk.

33. 22:32Claim · condensed

    Rates are high now mostly because nobody understands Bitcoin yet, and the people who do understand it know that lending dollars to Bitcoiners for 20 percent gives up enormous upside compared to just buying Bitcoin themselves; couple that with banks not being able to touch this stuff yet, and the need for dollar liquidity is very underdeveloped.

34. 23:52Claim · condensed

    This underdeveloped need is a huge opportunity for early frontier folks who understand Bitcoin to stake a claim in a little exchange market that has opened up and won't stay open long.

35. 24:59Claim · condensed

    The single action in the physical world right now that requires the least energy input for the most energy output is money printing: you just need to find someone, a bank, willing to enter the digits into an Excel spreadsheet for you.

36. 26:38Claim · condensed

    Somewhere someone printing money is screwing you out of the energy value of your future transformations, taking that energy now for jobs you haven't even done yet. You want to make sure you're the one inflicting that dynamic on your adversaries rather than the other way around.

37. 27:10Claim · condensed

    Worked numbers: a 120,000 dollar fiat loan at 10 percent means 1,000 dollars a month, 12,000 dollars a year, in interest, but if all your income is already going into Bitcoin, you can't cover that coupon yourself, which leaves you with less Bitcoin.

38. 28:12Claim · condensed

    The move isn't lending your own dollars to Bitcoiners, since your dollars are better off just buying Bitcoin for yourself; it's lending someone else's borrowed dollars to Bitcoiners, using their 120,000 dollar fiat loan and its 12,000 dollar annual coupon as the vehicle.

39. 29:49Claim · condensed

    What if you became a bank yourself: no background checks, no default risk beyond the collateral, jurisdiction agnostic, no need to converse with borrowers, just agree to lend dollars against Bitcoin you can liquidate automatically if the price falls below a set threshold, guaranteeing you're reimbursed.

40. 30:58Claim · condensed

    The market will realize this is way easier than traditional banking and institutions will flood in once the gig is up, because plenty of people are independently working out the same how-do-I-get-more-Bitcoin-for-less-energy trade, which is exactly why these windows close so quickly.

41. 31:29Quote

    You are basically the micro strategy of your own little village.

42. 31:29Claim · condensed

    This works because the quality of your information is superior to the quality of others', which is how you take advantage of it before the mispricing closes.

43. 32:04Claim · condensed

    The real question under the hood is whether Bitcoiners lending against their reserves is a net benefit to the extended order or leads to less than ideal outcomes for the hive mind, because we know the hive mind is going to win out over time, so anything working against it is probably going to get run over.

44. 32:40Analogy · condensed

    You take the 120,000 dollar loan and buy a Rolex: the energy sunk into that watch, through the watchmaker, the retailer, and all the way down to the miners extracting the metal, means each participant in the production hierarchy is rewarded with energy for the knowledge and know-how they contributed, and none of them would have made the exchange unless they were better off.

45. 33:49Claim · condensed

    For the Bitcoin borrower to come out ahead, Bitcoin's value has to keep rising while the loan is outstanding; if it stays flat, the interest payments eat away at the principal, and if demand for Bitcoin drops, the worst case is a margin call: the lender recoups the energy they put in, and the borrower keeps the watch but loses ownership of the TASOE, their future claim on the system's energy output.

46. 34:53Claim · condensed

    The system self-sorts: other Bitcoiners win because a poor allocator, the worst-case example, gets automatically removed from their ownership position on the board once they default, which is exactly what you want, since you don't want irresponsible actors controlling something everyone needs to use and benefit from.

47. 35:24Claim · condensed

    If Bitcoin's price rises 50 percent instead, say from 240,000 to 360,000 in the loan scenario, the borrower can extract the excess collateral or expand the loan to include the new capacity, and that doesn't stop anyone else from entering the system, even if it means less circulating supply.

48. 36:37Claim · condensed

    The entity actually losing here is whoever is funding the loan: they think they're out-competing the fed funds rate by charging 7 or 10 percent, but they're being out-competed themselves, trapped by the moat they built, because raising rates just gets undercut by someone else willing to lend cheaper.

49. 37:07Claim

    This isn't hypothetical, it's the current situation: if a large Bitcoin holder doesn't manage this process carefully, they and they alone are punished, left with less ownership of the communal whole.

50. 37:39Claim · condensed

    Early hodlers laid the foundation for future information generation precisely by not clawing that energy back, letting it stay in the system and get built upon, which is why everyone, not just early adopters, is better off because of hodlers.

51. 38:27Claim · condensed

    Future generations will have to generate a tremendous amount of utility to get a very small portion of Bitcoin, but that's still the best allocation decision available to them individually, because there's no alternative.

52. 38:58Analogy · condensed

    Fiat dollar liquidity providers will eventually stop once they realize they're the ones being drained, but that will take a very, very long time, because it's a very, very big swimming pool.

53. 40:04Open question · condensed

    Can this loan-and-hold dynamic work forever on a Bitcoin standard? Yes, it can, but I'm going to have to do another podcast on what that actually looks like.

54. 40:04Claim · condensed

    Selling in 2032 to take the capital gains hit and lose ownership of the TASOE seems like a less than ideal play, given the extended order has been transforming more energy into information every day since the dawn of life.

55. 41:10Quote

    The bank is taking from the rest of the body. No one can shield themselves from the printing that is part of that dollar economy.

56. 41:10Claim · condensed

    The difference is that instead of the government being the sole beneficiary of printing money, the individual running this loan strategy is now using the printing of money to their own benefit.

57. 41:43Prediction · condensed

    As a thousand, then ten thousand, then a million people run this strategy, it won't be good for the stragglers and latecomers, all of their milkshake will be drunk, and it will happen faster and faster while rates on Bitcoin-backed loans go lower and lower, closing the opportunity to get Bitcoin for almost no energy input.

58. 42:22Quote

    All right. These are too easy.