Bitcoin & Ethereum Predictions: How Crypto Will Affect Business w/ Matthew Tremolada

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Everyone, welcome to the show. On today's episode, we're going to be chatting with a friend of mine who has gone deep down the cryptocurrency rabbit hole. His name is Matthew Tremalata and I've asked him to come on the show because I have been catching up to speed on bitcoin, cryptocurrency and blockchain technology. I don't want to be my parents or my grandparents who were resistant to the Internet, resistant to social media, and doubtful that it was ever going to be anything. I want to be ahead of the curve, and for the last year I felt very behind the curve. So I've been catching up by listening to talks and podcasts and also studying a couple of people who are thought leaders in this space. The one that I trust is my friend Matthew because we've had a relationship for five or six years. He was actually a member of our back room here@capitalism.com and I helped him in his e commerce journey. He is now basically full time in cryptocurrency and is ahead of where the puck is moving. In this conversation, Matthew uses a lot of big words and so my role is to play translator. Matthew is incredibly smart. He's always been incredibly smart and so you might enter into periods into this conversation where you don't know what he's talking about. Wait for me to translate, because I think that I did a decent job of bringing it down to be easily understood. If you get a few minutes into this podcast and you realize that you're behind or you don't know what we're talking about, I invite you to skip to halfway through this conversation. At about the midway point, we bring this into practical application. I ask the question, what does this mean for business? I asked the question, where is the top of this bull run in cryptocurrency? I asked him to make some picks about what cryptocurrencies we can pay attention to. And we talk about the difference between a bubble and a bull market, meaning what's the difference between a coin or a stock that is going to burst versus something that is going to be around for a long time. So about midway through we get more practical in this conversation. So feel free to skip to the midway point if you're feeling a little bit lost in our speculation and my deeper understanding of this world. But I think it's really important that we get up to speed on this conversation. Regardless of what happens in the cryptocurrency markets, the technology is going to make or break some companies. And my own personal fear is that if I don't get a good grasp on this now, then my businesses are going to be irrelevant in a few years. I think about Amazon from a few years ago. I think about how I made the decision to sell products on Amazon back in 2013 and 14 still when there weren't a lot of people selling on there still when retail was the biggest player. Well, that obviously has changed by me understanding the market and the business. And going into that early, I had a first mover advantage. I made millions of dollars. I took the skillset that I had being an affiliate marketer, the skill set being an Internet marketer, a search engine optimizer, and I applied that to E commerce back when there weren't a lot of players in that game. The result was that I got rich and I taught that model and I still teach that model. It's still the best way to build a business today. Investing the profits though, is going to be interesting over the next few years. So that's why I want to be ahead of this trend. I feel like I'm playing from behind, but I'm catching up to speed really quickly. And so I hope that you make it through this entire conversation with Matthew Tremolata. Even though we get a little technical and we go into the weeds. Wait for my translation. And we make it really practical towards the End enjoy.

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All right, Matthew, the way I want to start with this is I feel like I'm late to the game in crypto. I feel like I'm late to the game in understanding all of this because if you open Twitter, if you open any discord, if you open up, if you go to any coffee shop, there are people having conversations that I do not understand. And one of the reasons I wanted to have you on, besides the fact that I have known you for years and trust and respect your opinion on this and have learned a lot from you and is I know that you started down this rabbit hole a little bit late to the game too and you've caught up and I want to catch up. So would you tell me a little bit about how you got so well versed in this world so quickly and how you kind of caught up to speed to get to the place of knowledge where you are now?

Definitely. So my bitcoin or crypto journey started in 2013 when I bought my first bitcoin off of Coinbase because my friend had told me that it could be the money of the Internet, which I figured could be the money of the world eventually. So I was mesmerized by it at that point, but I only dipped my toe in and I also wasn't an investor by any capacity at that point, because I hadn't launched a business and this and that. By the time it came to 2020, I was actually becoming an investor because I had excess capital that I had kept on the sideline all throughout 2019. And so people who I had listened to throughout my entire life had told me that cash is king and I respect them entirely. And I did what they said and I kept my cash on the sideline throughout all of 2019. And I just felt like I missed out on the Tesla that I wanted. I missed out on the Nvidia that I wanted to. And 2020 came. And by my luck, so to speak, it's maybe tough to say that, but when you're a Cash's King guy, you're kind of betting against the market. So what happened was the market crashed and I got excited and so I started thinking to myself, how can I deploy my cash right now? That this is what I was waiting for. There will be no better moment for somebody who's thinking cash is king to strike right now. And so I looked around and I thought to myself, you know, what has the highest upside? And I had been dabbling in crypto for the longest time and at this point I saw a tweet and it's always triggered by something really simple like that. And I went down this rabbit hole of somebody mentioning the stock to flow model, saying bitcoin is about to go way past its all time high. It's going to go to $100,000 and it's guaranteed by the math. And I was like, math? Did you just say math? Are you telling me something I can research myself and come to the same conclusion by deduction?

That's an interesting moment because most people, like, I can tell you what stocks I think are going to go up and, and I can come up with my models for why. But it's very rarely a science because the market is irrational. The market doesn't usually follow logic. So I'm very interested to see where you went with this.

Yeah. And so I looked at the model and I'm like, okay, I want to put my cash into bitcoin because this model seems very compelling. I want to look at this. It's a supply and demand model, but it's a.

And again, this is 2020, right? This is like, this is like mid-2020, when the market has melted and there's a lot of uncertainty going on in the world. Right. So this isn't five years ago. This is the year 2020. And you were Fortunate enough to be in a position where you had held your cash, you were in a position. And that is the benefit to being in cash, is when an opportunity presents itself, you can go really hard. The downside to being in cash is that you miss whatever upside is happening right now. Neither is necessarily better or worse. But in your case, you were waiting for a time to strike and you had your moment. And using some formula, you discovered that for you, Bitcoin, which you were not super well versed on, ended up being your best opportunity at that time. Is that a fair summary?

Yes, exactly. And partly I felt like I missed out on Tesla and Nvidia because they did not crash below when I would have been able to get them in 2019. And I was shocked by that. I was like, I couldn't get a lower cost basis even if the market crashed. Unbelievable. And so I felt kind of like, oh, cash isn't king anymore. So I felt betrayed by that strategy. But then I also started go shopping for things that weren't as adopted. And so Tesla was far along. I felt like I missed the boat. And so I was looking for things that were more asymmetric because I wanted high upside. So I was keeping my cash on the sideline, but I also wanted extremely high upside. And Tesla and Nvidia took off without me and I couldn't get lower than I was in 2019. So Bitcoin was the least adopted that I felt had a decent S curve adieu from my prior understanding. And then the stock to flow model solidified my investment thesis by putting numbers and math to it, specifically a special kind of supply and demand.

And Matthew, forgive me for insulting anyone's intelligence, but the stock to flow model is the stock is the amount that is available versus the flow, the amount that is in demand of being used. So if you look at gold or oil, you're looking at the amount that is in supply versus the amount that is being actually used and consumed. And so when you talk about the stock to flow model with Bitcoin, you're referencing how much Bitcoin is available versus how much Bitcoin is being used for its proper purpose. Is that correct?

Perhaps not for its proper purpose, but being used nevertheless. And that's where people might actually get into a decent debate, a credible debate, something that needs to be debated as to how is Bitcoin currently being used, by whom and for what reasons? And does that map onto the sound economic thesis that folks like Michael Saylor and I find so compelling? This is a reasonable debate that should be had, in fact.

And I think that debate is based on whether or not the flow or the use of Bitcoin continues to go up, or if it will be priced out, if it will end up being. If it'll be a different cryptocurrency that replaces it. And this is my hang up a lot of people. I was a crypto and bitcoin bear for many years for this question and I'd like for you to speak to this, which is I still have this concern over I get the utility now and the need for bitcoin. I think 2020 changed my mind on it too. It opened up my eyes to the need for a decentralized currency. But it doesn't have to be bitcoin. It can be anything as long as people are using it. And that is still my hesitation to.

Going as aggressive into Bitcoin as you or as a Michael Saylor, because.

I still believe that it could be replaced by just about anything. How would you respond to that?

In terms of Bitcoin being the king of all crypto, the first mover's advantage manifests mostly as it having the most network effect, by what call Metcalfe's Law, which posits that the network with the most connections between users is the strongest, most reliable network and therefore the most useful.

Sure.

In the case of Bitcoin, there's a two pronged use in utility. The network effect applies to both. The network effect applies to the miners that secure the network and the network effect applies to the users that use the network. And so far as Bitcoin is the king of all crypto, it has garnered the most network effect in both areas. The network effect of the miners and the network effect of the users, of which one of them is being jeopardized. The network effect of the users, however, not the network effect of the miners. The network effect of the miners is what presents the use case, namely the security. Therefore, in order to flip Bitcoin's utility into create a more useful cryptocurrency, you would need to first and foremost compel the miners, who are by game theory dictated to gravitate towards what they've already been mining. And therefore Metcalfe's law holds in that area of Bitcoin's adoption, the mining, the creation of the security for the network. And so that is next to impossible to displace by Metcalfe's law. Much like you haven't seen a social network defeat Facebook, to which I would reply, MySpace did not achieve network effect.

Yeah, yeah, makes Sense. So let me ask a question about this and then I want to move on.

But.

If miners were better compensated to mine something else, and just theoretically, if they were all priced out and there were no more miners or a limited supply of miners, and forgive my ignorance, I don't even know if that's possible, but assuming it was, would that hurt and or disrupt the use of Bitcoin and the network itself?

Could I have you describe what you mean by miners being priced out so that I can understand the question if.

The cost of mining bitcoin was higher than the compensation that they received for mining Bitcoin and therefore were priced out.

I see what you mean. This happens and it happens in the bear markets, Right. And so when this happens, I believe they take on some sort of debt and they rely on the stock to flow being the eventual catalyst for the price to come up again.

Theoretically, if that debt didn't play out, those miners could be out of quote business. So if you don't have miners, do you disrupt the network? Meaning is bitcoin still usable? If you don't have miners, no, you don't. So that concerns me.

That's where I feel like there's this big gaping hole in the model where I say, okay, if the price goes up too quickly and then you have a crash and you have a lot of use on the network, but you don't have the miners to be able to secure the platform, secure the network, I feel like that's a big open hole in the network. Is my thinking and logic wrong on this?

It's valid, but I think the premise is that the miners will not sustain and therefore the network, insofar as they cannot continue to secure, they won't get rewarded proportionately. But in my opinion the way it works is that if they stay steadfast in their mining, doubling down, the disinflation of the available supply made to them is eventually going to make them whole as it has cycle.

I see. So it's a valid concern. But you think that the odds of it playing out are low. You think that it is more beneficial to hold on in the long term. As a miner, I understand what you're.

Saying because it's self defeating to not take on that debt and bank on the stock to flow coming to fruition by the supply constraint, making your pass rewards come because they hold Bitcoin as well.

They hold their bitcoins. So they're also betting on bitcoins right now.

I understand.

Yeah, that's helpful.

Thanks, Matthew. So I want to get out of it. We're in a little bit of a bitcoin rabbit hole right now, I'm afraid. We've lost a few noobs. So I want to bring this back to something that affects all of us. And it was something that you turned me onto the last time we talked, and it was you made mention of how the crypto industry could affect business over the next few years. Now this is where I really started paying attention because I started trying to catch up on crypto because I don't want to be my grandparents who said that they would never own a computer, and I don't want to be my parents who said they'd never have a Facebook account. So I don't want to be the old guy that doesn't understand crypto. And so I started to ask the question, how's crypto going to affect business? Because I want to start getting ahead of that. And you told me about the autonomous business that in theory, and not even theory, like it's starting to play out a little bit. You could have businesses that don't have owners and CEOs and, and managers. They're run essentially by the customers, in effect. Would you please explain that a little bit? Yeah.

And out of abundance of caution for sounding like it's a sci fi movie, I want to paint it as if it's more in its infancy. Because the level of governance that's available specifically on the Ethereum network, which is, I believe, where most of these types of things are being built. Ethereum is a world computer. And right now people are building decentralized applications on top of this world computer. These decentralized applications have a main functionality to them, namely governance. And this feature interacts with the native token of the protocol that's built on top of Ethereum. So this protocol, an application that's built on top of Ethereum, has its own native token. And these native tokens that are for these protocols, their functionality often has interoperability with the governance.

Okay, so just to translate a little bit, the Ethereum network is the Apple computer and people are building apps on the Apple computer. And when someone builds an app on Apple computer, they're not transacting in Apple dollars, they're transacting in their own currency. Am I translating you correctly within the protocol?

Yes. And then when a developer builds on the computer, they need, in this case, Ethereum tokens to build on the base layer. And then these native tokens, let's say we have a protocol like aave, which is a decentralized application, they have AAVE tokens, and that's the token for that one. And that one actually does have a governance feature where people can use their AAVE to vote on these proposals. But insofar as these proposals are not governed themselves by a further framework that dictates which proposals even get brought to the table, how that works. Let me close Discord real quick.

I can hear your crypto. Discord is open right now.

I'm about to.

Matthew lives and breathes this stuff.

Sorry about that.

But anyways, I was talking about the governance features and how they're somewhat primitive in that I feel. My opinion is that we're creating somewhat of an autocracy of developers that do and say what they want. They say, here you go, vote on the color of the logo and how the website looks while we build whatever we want.

Yeah, yeah. So that was the big takeaway right there. So the idea that what is being developed right now could, in theory, and it's already starting to have some practice to it, when someone develops a product on the Ethereum network, the users, meaning the customers, the owners of the coin, can vote about all kinds of things that go on with the business. The best example that I can think of, Matthew, is Reddit. Reddit is essentially a decentralized business. Yes, they have an ad platform, but it is run by the customers. It's run by the users. Users can report ads, users create the content. So users are the ones running the entire platform. But you have a board of people who are making the final decisions about the design and the logo and all of this. What I hear you saying is that the next stage of the Internet is for Reddit or the Reddit of the world to simply be a program, to simply be a protocol, and that the users will be the people who are determining what the color scheme is, what the logo is. And you may even be able to change the logo that you use on your end. And so it's a completely decentralized platform. Is that a correct example to bring this into reality right now?

Yeah, Reddit's a good example. It is currently, I believe, hosted on centralized platforms. There's a degree of centralization that we're always trying to circumvent. Right now they're building the interplanetary file system so people can host websites without centralized places like hosting services.

Who is they that is building that?

Oh, sorry, groups of people, open source developers working together through GitHub, an open source place where they can push code to each other and decide if it gets pushed. So ultimately, what we're working. What it is, what's this happening is from people who are developers, they are the developers. So that's why I point towards the it being problematic that we have this almost autocracy forming of developers that although it's idealistic to say the users will govern the protocol only if the developers give them a governance feature that allows them, you know, and, well, I feel.

Like that will win out. I mean, like, if that is what people want, then that will win out. If that is the demand, then that's where it will play. Now, you just said that this mysterious. They are building interplanetary.

Cloud, essentially. Yeah. So I have not heard of this. Essentially what you're saying is, I'm guessing there's satellites where files are being stored rather than being Centralized in Amazon S3, which would completely open up storage and speed. And when we colonize Mars, you now have the ability to have a literal cloud, a satellite cloud. That's what I'm hearing. And you're nodding. So is that correct?

It might not be so much underpinned by satellite hardware at this moment, but the aspiration is certainly that. I don't know which companies that actually have satellites have adopted this for that purpose, but currently it's users like myself who would host something for other people would be like, hey, do you want to host our service on your computer? On the interplanetary file system? It's a decentralized system so that you can run our business so it can't be shut down by anyone. It's not bluehost.

It's not this.

It's just, you know, it's you hosting it partly. So that is what it is right now, but it can certainly achieve interplanetary, as in the name.

Okay, so that's decentralized hosting, essentially. So you would have a hosting company where Ryan Moran and Matthew Tremolata can each have an external hard drive in our bedroom, and we can be hosting decentralized files on there and be getting paid in the hosting token. And a billion people around the world are hosting files. Is that where you're going with this?

That is.

Space sharing, and that is like filecoin that exists. Okay. And so that is similar, although a little bit different from the interplanetary file system. I'm not sure the interplanetary file system has a reward mechanism, I think.

But, like, conceptually, I'm getting what you're talking about.

Yep.

Okay, so can you give us some other examples about how this might play out? Because I immediately go to, like, I'm gonna have to rethink business entirely.

Over five years. If that is the trend for businesses to be mostly autonomous, then the business play is going to be developing good protocols and getting the hell out of the way at that point. So how does this play out if autonomous businesses become normal over the next 10 years?

So there are companies that ought to be centralized, that work better as centralized that quicker, and they will continue to exist and serve customers. And then there are entire sectors built on.

User data that when blockchain technology becomes more adopted and the users grow on the Ethereum network, for example, a lot of these business models that depend on monetizing user data, their business model will be on the chopping block, which includes some of the biggest, highest value tech companies. And insofar as they even supply hardware, eventually. Far out. You can imagine how an autonomous company could even garner the ability to purchase assembly line level technology, deploy it at that level. And so there's no saying that this won't only be digital, it can be as well real companies that do real things that deliver you a physical, tangible product that's run by an autonomous organization. So that's entirely possible.

Could we go into that a little bit? Like how might this affect E commerce, for example?

So to me E commerce is, I guess it's, let's see, they deliver physical products, but there's also heavy data ancillary, right? So I think first, because it's digitally native, it's going to affect a lot of the ancillary aspects of E commerce first. So let's say data attributes.

Could you say that at a third grade level? Could you say that sentence at a third grade level? Pretend you're Donald Trump, please.

Okay, yeah, yeah, yeah. There are businesses that branch out of certain industries and in the case of E commerce you might have software as a service, help people in certain cases get their customer data. Right? And so if a bunch of users go on the Ethereum network and it becomes more regular to log in with your Ethereum wallet opposed to email credentials. When you shop on an email platform, what happens is you get the ability for frictionless data capture via attribution of the wallet without annoying somebody with some sort of cookie policy or this or that because it's pseudo anonymous as is, so you don't know the name that applies or is attributed to the address. But who knows, maybe some aggregator data company would have that information. You can find it downline now.

I understand. So instead of logging to my Amazon account with my email, I might log in with my digital wallet. And when I purchase a low carb snack, and it's now recorded on blockchain, there's a permanent record that this wallet likes low carb snacks. Yeah. And that data is essentially public. It can be used, and I may even be able to control how that is used to some extent. But it's now based on my digital wallet, which is public, but also anonymous. No one can see that it's Ryan Daniel Moran, but they can see that it's this shopping address. Is that correct?

Yeah, that's exactly correct.

That's really interesting. That's really interesting. And then ad platforms.

And all kinds of ads would be built around your wallet rather than your browsing data. That's really, really interesting.

Yeah. And it will invert the ability for centralized services to capture data insofar as people use the Ethereum network, opposed to credentials to log in, and so more data will become pseudo anonymous, opposed to directly attributable to your email credentials.

Right.

But you don't need it to be attributed to your person, you need it to be attributed to your digital identity. And when you have a digital identity and that a lot of these things are attributed to, they can layer these other protocols that allow you to service those to give view permissions to them in certain instances. Like a protocol could say, let us use all of it for this purpose and we'll reward you for it. Whereas they could use it in certain ways if they didn't have your permission, but they couldn't use it with you, for instance. So you do have ways to monetize it. If you actually can go to a protocol and say you use it in this way, but reward me for it.

In other words, you could take all that data from your digital wallet, all your purchasing behavior from when you bought on Amazon and when you went to Starbucks and you used your credit card, which was tied to your digital wallet, you could now essentially sell your own data versus other people selling your data so they can run advertising to you, so you can be, you can be rewarded for it.

That to me is like the ideal. Now, nothing like that exists. The best thing that exists, like that exists at the browser level. And so what they do is they say, you browse with our browser, we'll serve you push notifications that are targeted to whatever website you're visiting. And so while we're not getting on that website and serving you targeted ads that way, we're serving you ads at the browser level, but then rewarding you for your attention in like tokens.

Is that bat Coin basic attention Token, that's very primitive.

Right. So I would want something more enmeshed into the Ethereum network that could supply a full spectrum monetization of my past history.

I got you. I got you. What I want to do now is that's a great transition for us to bring a lot of. We're talking about early stage stuff that might happen over the next five to 10 years. So let's talk about right now.

I have an easier time wrapping my head around all of this when I think about it in business, when I think about it in its use and how it is being used and could be used over the next few years. So if I had to put all my money into one company right now, I would put it into Square, because I think that Square is in a unique position to take advantage of this trend. It just requires for Square to allow individuals to have bank accounts, if they have bank accounts at Square, and you're also buying through Square technology and you have a Square credit card, they own all of this, in my opinion. They have Bitcoin on their balance sheet. They have the technology to basically make all of this real very quickly and it be seamless for the user. What companies do you see are in a unique position to actually take advantage of the evolution of crypto right now?

So what I view Bitcoin as, and I know you're asking about the companies that are building on top of it, but to make it kind of a whole answer, Bitcoin, to me, what it is is it's a base layer, monetary application layer, it's the settlement layer. It is slow, but it's very secure. So it's supposed to be slow, but secure. And I believe that the companies that are going to make Bitcoin work for the world are going to build out not the settlement layer, but the application layer. And the application layer is going to be comprised of Square, Apple, PayPal, potentially Google, maybe Visa. Right. And these are all essentially layer two applications on top of the Bitcoin settlement network. Because when people interact with their Bitcoin products and services, their Bitcoin applications, they could do it at light speed, at Visa speed. At these layer two speeds, however, these enterprise companies can settle bulk transactions on the settlement layer using Bitcoin as the secure network that it truly is. While we all continue to trust these big companies, we've already trusted for decades with settlement, with our faster settlements of Bitcoin. So Bitcoin is scalable because it has the ability to be the settlement layer for the application layer, the visas, the paypal's the squares, the Googles and even more applications. These are almost derivatives in a sense. When you get these ETFs, those are layer two. If you have somebody trading a Bitcoin ETF, they can trade it this and that within the brokerage. They probably trust the brokerage as a centralized authority to make those transactions and clear them in the old way through the old payment railways. But at the end of the day that ETF can settle it on the Bitcoin blockchain or hold the real bitcoins in the holdings.

If that's the case.

Where Square, Apple, Visa can be that extra layer on top of Bitcoin.

If anything.

Where is there use for USD and fiat at that point? Because at that point you are then transacting in cryptocurrency. Is there any need or do you take a lot of control out of the central banks at that point I.

Feel there is a need for fiat because Bitcoin is a crypto asset. So while all these payment rails are going to be accessible and built on top of the bitcoin settlement network, there will still be need for fiat to price goods in. Because you don't price goods in gold right now because it changes in terms of price and inflate. You can't inflate the gold to control prices. We need the Federal Reserve with their dual mandate to be able to manipulate the price of fiat relative to goods so that we can have stable pricing in goods and services. However, that's a separate conversation from Bitcoin being a crypto asset that people are investing in but nevertheless may want to use at a higher capacity than the network currently allows for. Therefore, the layer 2 applications do become practical in that sense.

I actually understood that. Otherwise I'd have you come back and say that again at a third grade level. But it's so funny. Matthew, you're the one person that I like, I have to. You use such big words that I have to pay laser attention to and somehow I'm able to understand everything you said even though you're light years ahead of me on this. So thank you for that. You said something once that I thought was really interesting, which is that we're in a four year cycle, we're in a four year run in crypto. I don't remember when you said that, but it caught my attention because I've never heard anybody be able to put a timeline on.

This expansion that we see right now. So would you explain to me what you meant by this being a four year cycle and tell Me where we are in that cycle right now.

Yeah. It all stems from when I saw that Twitter post about somebody talking about the stock to flow, saying that every four years the available supply experiences disinflation. And people always ask, if there's a capped amount of bitcoin, a fixed supply, how can people mine them? Well, the distinction there is that there is a fixed total supply and there's not a fixed available supply. When the miners mine, they mine it from a fixed supply and then they increase the available supply. When they mine it, it's now available because they can sell it.

Every four years, the miners, their rewards get cut in half. And so the rate of inflation of the available supply is cut in half. Every four years, the available supply experiences disinflation. And so that in and of itself creates the supply side crunch. If met by just similar demand, if demand just coasts, the math dictates that the price does an order of magnitude up on a log.

That is the opposite of something like a dogecoin, which inflates, there's an increased supply over time. I believe it's 15 million every year.

Since dogecoin has no limit to.

Increases in supply. 15 million every year, Bitcoin, it's never higher than 21 million. And the amount that is being mined is being halved every four years. Is that a correct summary?

Yes. Yeah. Dogecoin inflates their total supply.

Yes. And in case you are listening to this and wondering, no, I don't think you should buy dogecoin.

So please keep going. We're in a four year cycle and you're basing this based on that four year halving or are there other things that you're putting into that?

The halving for the most part is the exact model that I'm finding most useful for determining where we are in terms of the price cycle.

And when was the last halving?

Let me look that up. I think it was last September. I'm pretty sure you'd have to check me on that. Last year. It was definitely last year, Maybe last July.

Okay, so now without you knowing when the last halving was, how were you able to make the statement that we're in a four year cycle? Help me understand how you are seeing this crypto cycle.

Yeah, what I do is I pull up the plan B model, I just pull it up on my screen. And so what I see is I have a red line somewhere around in the middle of 2020. I think it was around September or July. Right. So this halving coincides with the constraint of supply. So I see on the graph it goes that the ticker available supply has a stagger there, it just stair steps so it has a decrease. And therefore what happens is the projected price is. Then when I look years back, when I look years back, it always has to adjust back to this stock to flow model. And currently right now, when I pull up the stock to flow, regardless of whether it was in July or September, I see where the stock to flow is currently in. And we're just now tracking, meeting up to it and we tested it. And now historically we're supposed to continue along the pattern per the math, which is based on the supply and the demand. But the ability.

So what a fair way to put that is that when bitcoin halves there is a new price floor that is established because of the stock to flow ratio. Is that a right way to interpret that?

Well, price floor is an interesting debate because we're talking about maybe how much it costs to mine a bitcoin in certain cases. When we talk about price floor, which is much lower than the stock to flow model or much lower than even the total transaction value measurement, which is yet a third way to measure the price of a bitcoin.

Right.

The total amount of transactions, the fees that it's taking, it's almost like the income of the protocol. If you look at it like that, like a company, it's earnings, so to speak.

I follow. That makes sense to me. So basically the price becomes the.

I don't want to use the term dividends, but it's the earnings for the miners. And so when it halves, the price kind of in a way has to go up because you have to compensate those miners. That's interesting. I hadn't thought about it like that, Matt. So where are we in this four year cycle then? If the last halving was a year ago, and that's what you're basing it on, are we 25% of the way through this bull run? Where are we in the cycle?

The graph that I just look at all the time tops out at around September, January. But there's also a game of 2021. Yeah. So December 2021, January 2022 is where it kind of tops out at if it goes along the same trajectory as past years. So this is dubious because what we're dealing with is two data points, namely a bull cycle period from 2013 and a bull cycle to 2017. Right. And so this fourth year would be completed this year in 2021. Right. But it's an extrapolation. That's based off two data points here. So we could be cautious in many ways. But the way I'm seeing it is that the math doesn't poop out because the stock to flow model keeps going. The concept of there continuing to be demand at certain prices might be where people get hung up on. But that to me is somewhat a function of them being fixated on price instead of market cap. And what I see is $500 trillion of store value in the global economy that could just simply splash into this $1 trillion asset and make it go boom. So that to me is just basic understanding of here we have a very small pond and a very big pond. And insofar as I believe Bitcoin does have the principles of hard money backing its utility as a store of value over time, it deserves its demand. And so because it deserves its demand and because of its relative market capitalization to the rest of the world's current store of value holdings, I believe it should garner, if not just a small percentage along the way. People shouldn't be so distracted by the price because.

That'S not very well shown. It doesn't show the price, doesn't demonstrate how small the asset class is to its competitors, that it's better than namely gold.

Okay, so.

If I'm understanding you correctly, you think that the top of the bull market that we're seeing right now is in December or early 2022. Where we are right now is that as we're recording this, bitcoin prices are fairly stable and everything else is just exploding. I mean, like if, like if a cryptocurrency hasn't at least tripled, it's behind. It's absurd what has happened over the last few months. And I'm curious from your perspective if that is sustainable or if at the end of this bull run, if we see an elimination of 80% of those tokens, kind of like you saw in the Silicon Valley bust, what is your opinion on this?

The leaving Bitcoin aside, I believe the market capitalization for a lot of these tokens is not justified by the use or the earnings, so to speak. However, you could classify those earnings.

That's a fancy way of saying you think a lot of them are overpriced.

Yes, yes, a lot of them are overpriced. Bitcoin to me is underpriced. Ethereum is underpriced because I believe they can capture enough users and that their user base and use cases have yet to be actually even achieved. They can grow their users and use cases a thousand times over at Ethereum. And so I believe it is underpriced to this day.

So in other words, you see users and utility to these currencies, to these tokens, versus again, something like Dogecoin, which people are buying it, expecting it to go up. People aren't actually using it. There aren't users of Doge. So you think that something like that, and I'm not asking directly for your opinion on Dogecoin, but something like that would be overpriced versus the things that have utility and a, quote, customer base would be underpriced.

Yeah, I think there's a lot of projects in the top 100, including Doge, that are severely overpriced based on speculation of eventual users.

I know I poke at Cardano a little bit sometimes, and I'm recently.

What do you mean you poke at it?

I make fun of it a little bit. It's not developed so much. I'm not invested in it. So I have a little bit of fun with people who are. Because it's not a project that I'm super bullish on for any reasonable. I can't think of good reasons to believe that users could exist there in its current state. Got it. So it's a speculation.

Okay, so in your opinion, the top two, Bitcoin and Ethereum are underpriced even after their massive bull run, But a lot of the top 100 are overpriced because they don't have real use for them. So is there. You said at the beginning of this conversation that you were in cash and you went shopping and you said, what's an asymmetric bet? Where is there upside? And way more upside than there is potential downside. Now that we're in the middle of this crazy bull run where everything has 3x5x10x, sometimes more. Where do you go shopping? Now.

I see what you're saying. The risk adjustment for these other cryptocurrencies needs to be taken seriously. Whereas I believe the dovetail for an outcome of bitcoin going to zero has been taken off the table. So I believe it's responsible for me to stay hedged in Bitcoin and continue to be the bitcoin boomer, so to speak. You know, I don't mind. I don't mind it. You know, I think it's an insound.

Is that a term? There are people who are all in on altcoins and therefore look at people like you as bitcoin boomers. The purists. Yeah, yeah, that's funny how fast the world changes.

Yeah.

Okay, so in other words, you're saying it is. It's risky right now to enter the crypto market and to be buying a bunch of altcoins.

But certainly.

But we're late in the game on the altcoin boom. And in your opinion, it is responsible to take profits in that area versus something like you think bitcoin and Ethereum are underpriced even for where we are in the market right now?

Yeah. And I'm not immune to drawdown. I mean, I think I can have a little bit more of an honest conversation about drawdown given I don't have shareholders that I'm holding bitcoins for. You know what I mean?

What does that mean, drawdown?

When you're in a trade or in a position in an investment, what can happen is the price can go down between the time of your.

I guess, your horizon.

Right.

And so my current horizon for most of my bitcoin holdings was through the year. And then I even took on some leverage that given that my horizon was like about a year. And so I'm reanalyzing.

The purchases, the biggest purchases into bitcoin over the past year, looking at the reasons for those purchases, and seeing that people are in earnest, concerned about runaway inflation eating away at their ability to preserve earnings that they are selling products in fiat for. So they're concerned that if they cannot outpace the rate of real monetary inflation, that their cost of goods might go up the next time they order product. And they're basically chasing this thing that if they were not storing value in this accretive asset throughout the entire time, that their business couldn't function as if it wasn't profiting more than monetary inflation. This is their fear, this is their logic. And to me it sounds reasonable, but I've experienced it myself. In my business, my cost of goods went up. My cost of goods went way up because the dollar weakened. And so I had profited a certain amount and all of got taken away because my next order of goods was more expensive. People in e commerce are going to feel this, they're going to know this personally. Then they look at people like Michael Saylor and think to themselves, okay, so what he did was solve that problem. And if this continues to be a problem, that's no longer just a nuisance like, okay, 2% inflation this and that. If it becomes a problem, then I believe the solution is bitcoin. While my initial investment horizon was based off of the stock to flow, that was a technical Analysis based on the supply with just steady demand. Then I look at the reasons for all the purchase and I see that the demand is justified by these current economic climate, namely the monetary policy that's in place and that these people, they're doing the biggest purchases and they're saying that's the reason for it. This is alarming to me. These are smart people. These people, they're not nobodies when it comes to recognizing macroeconomics.

So what I'm hearing you say is that even though the Fed says there's no inflation bs, we all know that there's a ton of inflation happening right now. And what you're saying is it makes sense for large and small companies to have their profits stored in Bitcoin as a hedge against inflation because as the price goes up in US dollars, as inflation goes up, there'd be price pressure on Bitcoin to go up, which would allow companies to.

Protect their profits and also to make purchases at.

The adjusted price. That was a complicated way of saying it allows companies to stay in business and hedge against inflation because the cost of goods is going up so quickly.

Yes. And it's practical for that reason because it's liquid enough. And Tesla proved that by selling some. And so now the strategy is complete. Everyone knows it's liquid enough. Everyone knows they can move in and out of it, and then it can serve as a practical store of value in periods of high monetary inflation like we have right now.

So if you are correct that our bull run hits a top around December 2021 or early in 2022, what does that mean for the overall market? What does that mean? That people who are in cash or looking to, looking for opportunities, what should we look for or pay attention or expect? Assuming that you are correct.

So I didn't even complete what I was saying there, but it answers what I'm about to say. Answers your question here. It's more so of a question of what the Fed's going to do. In my opinion and in my analysis when I was looking at the biggest bitcoin purchases, they seem to be convinced that the Fed's going to need to solve money printing with money printing.

You know, I mean, this is the thesis of which all of these people are operating on. And it's a concern Michael Saylor's all in and other people have dipped their toes. And I think more people will continue to dip their toes out of an abundance of caution, just in case the monetary policy becomes to solve printing with printing. And this is kind of shown my Concerns are somewhat validated when I look at how treasury bonds are performing. And I just don't see them as a store of value anymore. They don't work. And so people have to choose other options. Either they're going to choose equities, which are super sky high and very risky because you're dealing with a CEO, product launches, moving pieces. What are you going to become a trading expert just to store your wealth? No, you're supposed to be able to just store it in some sort of instrument. Right. That's what Bitcoin is.

True.

That's true.

When reading the Bitcoin standard, which was.

I liked the book because it was written from the perspective of an Austrian economist. We're usually the black sheep of the economic dinner table. We're the third party, if you will. When people are talking economics, no one likes us. The Austrian school. But in the Bitcoin standard, there was one argument that I thought was really interesting, which is where the author said that in places where there's sound stores of money, you have increased time off and productivity and creative projects. And the reason for that is because if you can put your money in gold or if you can keep your money in the bank and it doesn't lose purchasing power, you don't have to hustle all the time. You can make your money and you can rest and you can make your money and you can rest. But since we live in an inflationary environment, as you make money, it goes down in value and you go back to work and you make more money and it loses value and you go back to work. And we're kind of in this treadmill with the Federal Reserve because our money is losing its value. And what I'm hearing you say is that it's supposed to be the first way where you can make your money and have a store of value. Make your money and have a store of value. And Bitcoin could be that opportunity.

It has been that opportunity. But people could see that opportunity over the next year or so if the Fed continues to solve money printing by printing more money.

Yes. And I want to answer your question because it's always like, when's it going to top out? When's it going to top out? And I understand that probably the most relevant question. People want to know, your listeners want to know. And I don't have the answer, and I'm sorry about that. But if I had the answer to things like that, my time horizon would be completely solid. But the initial time horizon was just the stock to flow. That's just the technical analysis. The fundamental analysis is the monetary climate, which I'm listening to the educated opinions on people about. And I'm thinking that I watch all the Fed meetings and this is my fundamental thesis. Right. There's the technical analysis is just the supply and demand, the stock to flow. This is just the technical analysis after the fact. I believe the technical analysis can be invalidated to the upside in the event that the Federal Reserve solves money printing with money printing. And so I wouldn't put a top on this at all. If I look at the amount of store value.

In bonds that don't work and that people are kind of. They know it's risky, you know, it's sky high. But here we have an asset that's only a trillion dollars. Only. Only. Right. So let's not get distracted by the price because of the amount of units in supply.

Right? Sure.

It's 50,000. Right. But if it were based on the satoshi, the one single unit, everyone could see it going to a dollar all of a sudden. And here we have dogecoin all over again or something.

So what Matthew is saying is that bitcoin can be split into micro units of. I believe it's up to 1/10 millionth of a bitcoin. Is that correct?

I believe so, yeah.

Yeah. And we call that a Satoshi, 1/10 millionth of a Bitcoin. If we started measuring it in satoshis rather than bitcoin, the price would be fractions of a cent. And we might have more increased adoption if people started doing that, which I actually agree with you. I could theoretically see the case in which we start pricing things in satoshis. If a satoshi goes to a dollar, and that would mean bitcoin was at 10 million or something. But if we were to start pricing things in satoshis.

You then have an interesting case in which bitcoin is universally adopted. And that's super speculative.

But it's possible. So, Matthew, speak to the person who made it through this conversation and is like, all right, but tell me what to do with my money. This is not investment advice. We're two idiots on the Internet who are just flapping our gums. This is for entertainment purposes only. But you went shopping a year ago and discovered bitcoin.

What do you do now? Where do you look for value? Where do you pay attention in the event that we have a pullback, a bust in the market at the end of January 2022? Where does one pay attention for potential value?

I'm watching bitcoin until the Fed changes its strategy. Okay, I'm all in on Bitcoin until the Fed changes its strategy. If I listen to the Fed one day and all of a sudden Jerome Powell says we're no longer focusing on the bottom quartile unemployment. We've decided that we're leaving them behind and we're going to focus on general employment like we used to.

And also that, you know, prices are too high and it's no longer from base effects or supply crunch and now people are taking all their money and pushing the prices up. So you know what we're going to have to do? We're going to have to pull the rug on your whole market. So sorry. And I'm going to listen to them very carefully.

It did happen once. I mean Paul Volcker did it in the 1980s where he raised interest rates and we did exactly this. So it's like it's happened before. I think it's unlikely to happen again. But it has happened before.

Yep, yep.

If that happens, you're watching that like a hawk. Yes. And so that's where you would go, I'm out of Bitcoin. If that were to happen.

Yeah, I think there'd be such significant drawdown. Where would I look? Cash.

I would look at cash again because I would think we would go into a secular bear market. I wouldn't want to try and beat something by taking on all this frickin real estate and become this landlord deal doing this flipping house.

You'd go to cash?

Yeah, I just go to cash and wait for my time again and strike when the iron's hot.

I think that's wise. Now, besides Bitcoin, just for fun, what other coins do you like? Right now I'm thinking long term. I mean 3, 5, 10 years.

Ethereum, definitely chainlink. Certainly.

You said to 10 years.

Sure.

Because most of these other than Bitcoin, I can't go beyond 5 because the space is moving so fast. In such.

Then go five years, that's fine.

So in the next five years. Yeah, it's like Ethereum Chainlink.

Let's see. I would have to believe that Polkadot could achieve some level of user base and by extension Kusama, therefore its cousin network. Kusama is like a cousin to Polkadot.

And just so I understand, is Polkadot another platform like Ethereum?

Yes, it's similar, however not directly a competitor because it's slightly different.

So it's the Microsoft to Ethereum's Apple Kind of. Yeah. Okay, got it. So Ethereum link Polkadot Kusama, which I'm not familiar with. Anything else?

Well, there are basket of Defi blue chips decentralized finance applications where people can borrow and lend using peer to peer money pools.

This is interesting to me.

The basket of applications includes maker aave, Compound, Yearn Finance, Curve Finance. Those last two are aggregators for liquidity.

These applications are native to the Ethereum ecosystem. Insofar as the Ethereum ecosystem remains the dominant smart contract platform, these decentralized applications will have a central role in decentralized finance going forward. And so I put a.

These are almost like the ETFs of decentralized finance.

Yeah, I would say so. I mean, you're going to own the native token for these protocols and you get. I think your earnings would be proportionate to the user growth of those protocols.

Matthew, where would you suggest someone get up to speed onto this? I mean, if you actually made it through this conversation and this was your intro into this conversation, you're catching up quickly. But where would you suggest that people start? Where did you catch up? Where did you start to learn about this world?

I watched a debate between gold bugs and bitcoin bugs, but I had a introduction to Austrian economic theory by being a gold bug for just like.

Me too. Me too.

Yeah. So if you're not already a gold bug, maybe start looking into why people want to own gold first. And so educate yourself in gold, Austrian economic theory and then see why bitcoin is better than gold for all the reasons people think gold is good.

And I would just add in there. Watch some interviews with Michael Saylor. That was what tipped me over the edge. I was on a plane coming back from my first trip since quarantine and listened to an entire conversation with Michael Saylor. And I went, oh my goodness, I've been wrong all this time. I'm going to have to rethink my understanding of where blockchain technology, bitcoin and cryptocurrency will affect my life. And that was when I went, crap, I got to catch up. And that's when I started paying attention to the work that Matthew's doing as well. Matthew, is there a place where you are publishing content right now? I know you have a couple groups that you participate in, but is there any place that people can can actually follow along?

Right now, the best place to get content from me about Bitcoin is a private group that I run called Moonshots. And it is so private that you cannot find it on Facebook. You have to message me to get in because I guard it carefully from spam or any strangers or weird folks. And so this is my group.

When you message me, I will let you in and then you'll have access to all of my content, which includes my shit posts, all of my rants, and my training course that has videos that are very neatly organized.

Yeah. And it's actually very well done. Well, Matthew, I am really enjoying learning from you. It's been a great adventure because we met, because you were learning E. Com from me. And I know you are exiting one world to go into another world. And I am your student as you exit into that new world. So thank you for helping people like me catch up. We really appreciate it. Thanks for hanging out with us.

Thanks, Ryan.

And that's a wrap. That was fun.

Yeah, that was good.

I like it. That was good. There might be a separate conversations time about defi because that's what I'm catching.

Up on right now.

Yeah.

There's so many different sectors of crypto. Like, we skim the surface, but I think the general conversation about bitcoin and monetary policy is like a good starting point. But the rest of this is all speculation. So getting people on these other things, it's like.

I sometimes question the fact that my group does a lot of altcoin research, but it's that I am a bitcoin boomer. I'm mostly in bitcoin and Ethereum. And I try to reiterate over and over that 5% of my portfolio is doing this. I'm having fun with it, but I'm having fun with 5% of my portfolio. So I try to reiterate to people, but I think people should be careful in general about altcoins.

Yeah, I got you. All right, my friend. It's good to see you. Appreciate you. All right, see you next time. Hey, if you enjoyed this episode, if you made it all the way here and you enjoyed what we talked about in terms of investing the profits and you want more of this. What should I do with the profits that I make in my business? How do I invest this to ensure that my purchasing power stays strong? Where do I invest my money for upside wealth and passive income? I invite you to come join us inside the 1%. This is our mentoring group where we're talking about building businesses and investing the profits. And people like Matthew are in there sharing what they are studying and where they're going. So I invite you to join us inside the 1%. And you can do that over@capitalism.com one and that's where we're talking about what businesses are growing right now, how to grow the businesses you have, and where to invest the profits. And we follow a three stage process. The grind, the growth, the gold. The grind is getting clear on your vision and launching your business. The growth is growing it until it's a seven figure business. And the gold is investing the profits for wealth and passive income. And we walk you through each of those stages. Inside the 1%. The goal of the 1% is to put you on a path to having a 1% net worth, to allow you to stay ahead of all trends so that you are building, growing and protecting wealth so you can live life on your own terms and live a life of service and creativity to be able to do what you want with this time that we have here on earth. So come on and join Matthew and myself inside the 1% over@capitalism.com 1.