Bitcoin is the Answer
Just after the Pacific Bitcoin Conference, Peter McCormack interviews Preston Pysh for his What Bitcoin Did podcast . The result is show 581 - Bitcoin is the Answer. Their conversation highlights the value Bitcoin brings to people who struggle with fraud perpetrated under the fiat standard.
If Bitcoin is the answer then what exactly is the question? There are two. The first question is obvious. Can the problems of government spending and currency debasement be fixed. Yes, Bitcoin is the answer there. The second question is harder to answer. What is the transition and how is it made?
The start of this podcast interview (almost 20m) covers the massive crypto scam that Sam Bankman-Fried perpetrated at FTX. Near the end of this intro Preston drops the mic with his shout out to Bitcoin. "I've slept really well this past week. There's a reason why. I know no one can take the coins that I've got."
Next, we hear Preston's disdain for fiscal appropriators. A government may spend beyond its means but its central bank must print the money to pay for it. This accelerates currency debasement, which is coming to a head in late 2022. When incoming UK Prime Minister Liz Truss played the no tax card, she exited quickly.
Preston looks back to the trends from 2008 to present. Artificially low interest rates caused companies to be gobbled up by larger actors, removing diversity from the system. You may see thousands of slightly different products on the grocery shelves, but they all come from a few companies.
Why does business diversity matter? Supply chains with fewer suppliers leave us with less choice, higher prices and lower reliability. Systemic decay (supply chain destruction) creates more fragility. When the pandemic hit, the inevitable supply chain shock led to higher prices. The resulting inflation blew up the bond market.
The Fed's response to inflation is to destroy demand, but they don't understand the real issue because they don't build products. This is what ultimately frustrates Preston. The people managing the economy do not address the core problem of fiat currency, which is misallocation of capital. People don't talk about it. They should.
Can unbridled government spending and the resulting currency debasement be fixed? Preston starts to say, "Well, forest fires solve the ... It's going to naturally work itself out, and it's Bitcoin that steps in." That's not the most optimistic take.
Peter McCormack steps in to tell his story of how Bitcoin steps in to fix the problems of global payments. He explains how easy it was to set up a system to accept Bitcoin as payment for merchandise at the Pacific Bitcoin conference - no delay for set up, immediate payment. It overcame friction in the system.
Now, Preston gets to the core of his message. A foundation of sound money allows a free and open market with a correct discovery of cost of capital. Fiat money passed to the wrong people creates misallocations and reduces overall productivity. Bitcoin replaces fiat as that sound money foundation.
What are the markets that could drive a transition to Bitcoin? Preston speaks to three early adopter opportunities.
First, company owners in developed nations will sweep free cash flows of their businesses into Bitcoin for long term savings.
Second, unbanked persons in developing nations can immediately use it as a transaction layer via the Lightning Network.
Third, alert investors will fund new sources of renewable energy. These businesses have Bitcoin mining as the buyer of last resort, which lowers their cost of capital.
Preston then speaks to the bigger market disruption. Visualize the net producers who make real stuff. Net consumers want to pay for their real goods with paper. If that paper loses its value the producers will tell the consumers to take a hike. That's when the violence starts. Coming out of that will be a new system.
With such a threat of violence, Preston and Peter discuss how a peaceful transition might occur. Is it possible to move slowly, disrupting fewer people, less abruptly, minimizing the potential violence? No answer yet, but these two talk in public regularly. We'll just have to see what emerges.