WBD280 Audio Transcription
The Case for Bitcoin with Dan McArdle
Interview date: Friday 20th November
Note: the following is a transcription of my interview with Dan McArdle. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
In this interview, I am joined by the creator of casebitcoin.com, Dan McArdle. We discuss the current bull market, comparisons to 2017, the current economic climate and how newcomers to Bitcoin can navigate the space.
“Bitcoin was born in the great financial crisis but was just a toy. Now, we have another crisis with similar monetary outcomes, and it’s not a toy anymore, it is the escape valve now.”
— Dan McArdle
Interview Transcription
Peter McCormack: Anyway, man, how are you?
Dan McArdle: Good.
Peter McCormack: This is long overdue.
Dan McArdle: Yeah, we talked about this a few months ago now.
Peter McCormack: Yeah, long overdue, man, but I'm glad to finally get you on. It's always crap having gaps, having people that haven't been on for a while. Anyway, let's go straight -- well, actually, first thing, because this is quite cool; as we started, literally as I called you, we went over $16,000.
Dan McArdle: Yeah, I saw that. I was looking at the -- I mean, we can talk about this when we start recording if you want, but --
Peter McCormack: We're recording, bro, we're on!
Dan McArdle: Oh, okay!
Peter McCormack: This is it; we're in.
Dan McArdle: Sure, then let's chat about it. I was looking at the 2016 comparison, and it's crazy. If we stay above $16k, a bit above $16k in 2020, then this run has gotten faster than late 2016 and going into 2017.
Peter McCormack: It's faster?
Dan McArdle: It will be if we hold above $16k for, you know, November, December.
Peter McCormack: Weird. It feels slower though?
Dan McArdle: Well, compared to late-2016, when things were starting to get going, I guess. 2017, obviously, it's when we went crazy. But, another thing to keep note of, when we finally tapped all-time high last time, which I believe was very early January, we didn't break it but we got within a few bucks of it, it then took another four months to really get through it sustainably.
Peter McCormack: Right. Was that the $1,200-ish?
Dan McArdle: $1,200-ish, I think, was the ETF; all that stuff with the ETF in March. I think we hit, like, $1,130 or something in January and the high was $1,173, if you look at Bitstamp.
Peter McCormack: Do you think it's going to be the same this time?
Dan McArdle: I mean, I've always had this, it annoys me when things are that similar, like is it really that easy; do you really just have to look at the past cycle and scale it to today? But, so far, it's playing out extremely similarly and about the same in 2016 too. 2012 felt similar to 2016; and early 2016, $400 was the new $4. And then, second half of 2016 played out just like the second half of 2012; it's crazy.
Peter McCormack: Yeah. I wonder how much during those periods, I mean you'll know more about this than me; how much, during each of those new all-time highs, or the way the patterns play out, is that it's controlled by whales, like fully understanding where highs should be? And, maybe this time's a bit different because the trading, it's a lot more complicated now. I mean, I don't understand how futures and things like that work, but we do have futures, derivatives; we do have a lot more players in the market. I just wonder if it's a different market this time?
Dan McArdle: Yeah, I mean, definitely. The market structure is quite different this time. It shouldn't be, at least, as dominated by retail. You have CME and instruments that traditional quant funds and other traditional market players are used to, and they can jump into this easily now; and they are. And yet, we're seeing very similar price action.
I mean, I said this in the last cycle too. The market is much more developed than it had been in the 2011 to 2013 era, but even though things develop substantially, the price action seems to feel similar.
Peter McCormack: Do you know what; it's a really interesting time. I was training with my personal trainer today. We're on lockdown, obviously. We've got another three weeks of lockdown and so, like with my last lockdown, I just meet my personal trainer. We go down into the park and he brings a bunch of gear and makes me hang off trees and drag big, heavy bags round the field like a fucking idiot. But, he's a bitcoiner as well; that's how we met.
Do you know what; for me, he is the guy who settles me on Bitcoin, he's the one who kind of grounds me with it all a lot of the time. So, when I put weird things out on Twitter and really fucking wind people up, it usually comes from conversations with someone like him, but he reached out to me through an accountant back in, it might have been 2018, it might have been 2017, I can't remember. He was looking to get into Bitcoin, he bought a little bit and he's been stacking all the way. And he's got a nice stack now; he's doing well.
But, he was saying to me this morning, he was like -- because, on his average buys, he's in profit because he had bought over £12k UK price, when he first put by.
Dan McArdle: That will be $14k, $15k, yeah.
Peter McCormack: I think the exchange rate was different back then, but he's been buying from the bottom as well. His average buy is, you know, it's a good place, but he's comfortably in the green on his average buy now, like, by a few thousand. And, it's a really nice position for him to be in. I think everybody who's bought in a high, when they get into the green, it's really good.
But he was like, "So, what are you going to do, Pete? If it hits 20k, are you going to sell a bit?" and I was like, "I don't think I am". Because, my real struggle with it, Dan, is like, I think every time I try and time the market, I'll get it wrong. So, if I try and sell at 20k, it might shoot straight through and go to 30k and I'll be like, "Fuck", so I'd better buy that back. And then it will drop again. I just play the strategy game.
So, I'm now in that place where the only number I care about going up is my number of sats; I don't want that number to go down. But, I don't care about my dollar/pound amount going up and down, because I'll just fuck it up; I will; I'll definitely do it.
Dan McArdle: Yeah, trading, obviously that's a game for professional traders. Even then, I think a lot of people who think that they're long-term profitable probably aren't, unless they're keeping extremely detailed records and actually know that. But, yeah, I would say have a plan for yourself going in and stick to it, because the swings will mess with your mind.
Peter McCormack: Yeah. After my massive fuckup where I had a load and then lost a load in mining and other things, all I've done is accumulate and Matt Odell, StackStats, keep growing; that's all I've done. I decided to go really long term. I mean, I spend a little bit here or there and give some away and stuff like that, small amounts, but my general primary stack, I said I'm going to do three halvings before I ever consider a solid sell, which is, we've done one.
So, I've got about another eight to nine years before I will consider it. My mind might change, right; my mind might change.
Dan McArdle: Yeah, I hear that. When I first got into Bitcoin in 2011, I said to myself it was a ten-year and a moon-shot position; I wasn't going to think too hard about it until 2021. It turns out I've thought hard about it for a lot of those in-between years but still, I think that it's a long-term position and I've never understood people who take these positions in Bitcoin for, like, a 20% or 30% gain, right; somebody who treats it like an ordinary stock trade.
The volatility is huge; why are you in it for 20% or 30%? You should be either swinging for the fences or it's probably not the play for you.
Peter McCormack: Yeah, fucking morons! Well, listen, I was on with Novogratz and Dan Morehead yesterday and we were talking a lot about the things that have changed this year, in that more than ever, right now, I feel like Bitcoin is definitely a credible investment now for very wealthy people and for businesses.
In some ways, it was happening anyway, but the Michael Saylor effect I think has been huge and maybe would have happened anyway. Maybe I'm just not sure if Square go in and buy $50 million without Saylor having done it first; I'm not sure if that was on the cards anyway; I don't know. And I don't know if these other rich billionaires who were talking about owning a bit of Bitcoin and buying Bitcoin would have been doing it anyway, but it feels like now, I'm beyond that point of worrying about the regulatory environment.
Yes, I think we should be concerned about being over-regulated in terms of our privacy, etc, but I don't think a ban's coming, so that doesn't worry me. There's not anything really. Before, I would have been thinking, I don't want to put too much money in this, because what if it dies in some way? That's just not on the cards for me anymore.
Dan McArdle: Yeah. I mean, I felt that way, I guess, out of the 2011 bubble; it screamed to $32 then was back down to below $2 and so that was a 94% drawdown. My feeling then was, I believe in the fundamental properties of this thing, but is it really going to catch on in the market; could it die; could governments ban it; could the mindshare just not be there and it takes 20 years for people to care?
Then, the 2013 run, you know, spring 2013, you started to see big name PCs get involved and that, to me was, okay, there's enough broad mindshare out that governments can't ban it without a bunch of political backlash. It's just harder for it to die once it gets that spark.
It's funny; I feel like everyone's first bubble in the bear market, they feel like it could die and they don't have as much faith in the resurgence. But, once you go through a few of them, the subsequent bear markets are easier to see that there's a lot of staying power and it's just a matter of time.
Peter McCormack: How did you get in, because you said 2011; that's super early? Where did you discover it?
Dan McArdle: I think I saw the Slashdot post with Bitcoin crossing $1 in, I think, February 2011 and I took a quick look and I was like, okay, this is probably trash. It reminded me of Beenz and Flooz from the early 2000's, you know, early internet money attempts. And then, when it crossed $6 two months later, I took another look and found the Bitcoin top forums and read some posts and, wow, this is totally different.
Remember, that was two or three years after the financial crisis, so I was looking into gold. Gold was on its run to all-time highs at the time and, I don't know, I wanted to be a gold bug, but I could never do it, just because, I'm going to buy this chunk of metal; why?!
Peter McCormack: Dude, I nearly did it this year. I was like, right, I've got enough Bitcoin; I've got a lump of cash hidden in a secure location in case there's a run on the banks and I need a bit of cash; what I don't have is gold. If the zombie apocalypse happens and we lose the power, I need a bit of gold. So, I looked into it. I did; I looked into it.
Firstly, I was trying to find where to buy it, how to get it delivered, and I was like, "Fuck this", and I just bought some more Bitcoin.
Dan McArdle: Well, exactly. I wanted to be a gold bug because of what was happening in markets and in monetary policy globally and all that, but gold was just disconnected from the real economy and so much difficulty with transporting and storage and all that; it just doesn't make sense in our electronic economy. I discovered Bitcoin while having those thoughts and was like, "Wow, this is perfect".
Peter McCormack: Well, do you know what the killer for me was? It was like, okay, I've got this gold and it's so obvious, right? Okay, I buy this gold, I have this value, this lump of metal which has value, and I was cool with that. But then somebody said, "Well, what are you going to do when you want to sell it?" I was like, "Okay, hmm. What do I do? Do I shave bits off and sell bits? Do I sell it to a company that I bought it from? What price will I get? How do I then get it to them?" I was like, "Shit".
This is the great thing about Bitcoin, is I can buy and sell it instantly; I can transfer it instantly. It makes so much more sense. Then somebody was like, "Well, you could just get a gold ETF?" and I was like, "Yeah, but I want the actual gold". I couldn't have both. With Bitcoin, I get both. I get the instant liquidity and I get to hold it.
Dan McArdle: Yeah, exactly. It's funny when people make the argument that you can just hold your gold in a gold money account, or whatever; they just don't get it. If you're holding an asset as fundamental insulation, or an escape valve from the existing monetary system, it can't be in the existing monetary system; it can't be held by those custodians; it can't be confiscatable by existing monetary sovereigns; and yeah, Bitcoin provides the escape that really nothing else does.
Peter McCormack: Yeah, and another thing came up. I was just talking to my brother about it the other night, because he still has some Bitcoin; a very, very small amount. But, back in the previous bubble, he had a little play with Bitcoin and Ethereum and made a bit and lost a bit, but he kept some. He was saying, because of his savings, he was like, "I was thinking about getting a bit more, maybe getting some gold".
He was telling me, he said, "The problem you have with gold is you don't really know how much there is, right?" He said, "I've heard rumours that some governments are lending gold to other governments, but holding on to it. And then, they're lending it to other governments. You don't really know who's got what or who holds it?"
I was like, "Let me tell you something about Bitcoin. If you run a node, you can run the numbers, dude", so he's convinced. It's always been that thing; I've talked about this before. It was like that migration from CDs to MP3s; I couldn't do it, Dan. For a couple of years, I still bought CDs. I've got a fucking cupboard there with over 1,000 CDs that have not been touched for years. I bought them, I carried on buying them for a couple of years and then eventually, I was like, "Okay, I'm going to MP3s".
I think, a lot of people with Bitcoin, the biggest leap of faith is this thing, that they don't know what it is, that is digitally representative, is worth money; they just don't get it.
Dan McArdle: Yeah, for sure. And, I think it's largely a generational thing. My dad kind of thinks the same way I do, broadly, on macro and monetary topics, but he is a lot more uneasy with the digital, intangible aspect of Bitcoin. Obviously, I and every bitcoiner thinks that's a kind of feature, recognises it as the strong feature it is that enables things like easy self-custody; or easy, but possible self-custody; encrypting and backing up your keys; obviously instant transportability. These are all key things for self-sovereign money. But, yeah, it definitely takes time to get there.
But it's like, okay, so this is a generational thing mostly, I presume; so, people who would be gold bugs if they were older are going to be Bitcoin bugs. It's just, this is a generational shift that's playing out.
Peter McCormack: You see, it's always the same arguments. Do you know what we need; we make a website which makes the case for Bitcoin, that covers all this shit?!
Dan McArdle: I've thought that for a while!
Peter McCormack: Before we go on to that, let's go back a touch, because you're proper OG if you're 2011. 2013 proper are OG; you're like proper OG. What's it been like living through it all, because I consider myself, what are we, 2020? I'm three-and-a-half years into this and it's gone quick, but it also feels like a decade.
It's been brilliant and bruising and emotional. So much shit has happened in my life relating to Bitcoin that it's hard to really comprehend and get my head around. But you have years before me; what's it been like for you living through it all?
Dan McArdle: It feels like forever. I don't know, it's all kind of burned into my mind at this point. I got married at $2; I had my first kid at $4, my second kid at $400. It's like that; the chart is burned against my life, for better or for worse!
But seeing, I guess, 2011 through early 2013 was a special time, because it was this thing that, like, it was mostly Bitcoin talk at the time and everyone was kind of discussing the same topics you discuss now, like where does Bitcoin sit in the monetary system; Bitcoin versus gold; is it really going to eat gold? At the time, it was like we were just hoping to get to price parity with silver! But, it was a small community and it was kind of a pipedream. We all believed it could happen, but it was five orders of magnitude away, or whatever, so the vibe was different.
Now, here we are kind of hitting those targets and kind of the same conversation, but now it's global, which is obviously very vindicating. Nobody cared about Bitcoin early on, like the big marketing effort. The Bitcoin talk in 2012, or something, was if we could try to get Zero Hedge to mention Bitcoin one time, that would broaden the horizons!
Peter McCormack: They mention it all the time these days. What were any key moments, because obviously 2011, you've got to put a lot of faith in something that's very new; that a lot of people were very dismissive of; that has a lot of risks? What were the key moments when you were like, holy shit, this is a big moment; this has really changed?
Dan McArdle: Well, it really was that 2013, that spring 2013 ramp. It suddenly hit below $1.91 in November 2011 and then doubled off that pretty quickly, and then hung around $4, in early 2012. 2013, we were finally breaking out above $10 and, you know, people were taking notice. This was Fred Wilson, Mark Andreessen, people who weren't just a nonce on Bitcoin talk were starting to talk about Bitcoin more positively and starting to realise its fundamental properties and talk about them, that it wasn't just some flash-in-the-pan trading instrument; that it really was an ideal form of money and obviously, there was a strong payments narrative at that time.
So I think, for me, it was like, okay, once it was clear that there was serious mindshare around Bitcoin in the broader world, I was like, wow, this is actually going to happen.
Peter McCormack: Did you do any of those regret purchases, like spending 10 Bitcoin on a burger, or crazy things?
Dan McArdle: I have my UPS on my computer right here, which I paid 1.5 Bitcoin for. That is one of them so, yes, I do have a few!
Peter McCormack: Yeah. That was again a conversation I had with my PT this morning. I was like, "My biggest problem is I'm scared to spend it now". I'm scared to spend it, because what if I miss something else? What if I spend it and it goes up more? So, in the end it's like, is it actually then worthless because I never spend it? My kids will get it and they'll be, "Dad, why the fuck didn't you sell this?" and they'll spend it all and buy a Lamborghini or something.
Dan McArdle: I wrote a quick piece on this with Chao Wang from Messari a couple of years ago just about Bitcoin's store of value thesis. Part of it, we asserted, was it has to credibly be spendable or, I guess, in the language of that piece, we said "convertible". So, you need to be able to trade it or spend it. Obviously, it can't exist in a vacuum without that ability, or else you get into these paradoxes like you just described.
All you really need is a trading market for it, and then it is convertible to the real economy with low friction. Then, it satisfies its kind of credible threat against the existing monetary system.
Peter McCormack: All right, man, well listen, let's talk about CaseBitcoin, casebitcoin.com. Anyone listening, go and check this out by Dan. It's brilliant, it's fucking brilliant. How long has it taken you?
Dan McArdle: Well, let's see. I guess I started working on it about a year ago, but it's been kind of off and on and then, early in 2020, obviously just accelerated the need to get this done. The genesis was realising just something that's bothered me forever, is that it's hard to get educated on Bitcoin. There are lots of rabbit holes to go down; each persona is different, you know; what kinds of arguments resonate with people are different, depending on where they're coming from.
There was also no resource that contextualised Bitcoin against the macro environment more broadly. So, CaseBitcoin tries to solve both those problems, so showing where Bitcoin sits against other macro assets and also putting various government stats on there: M2, Fed Reserve balance sheet; all these things that came to the forum in 2020.
Then, on the qualitative side, there's a library of currently 100+ great Bitcoin pieces from dozens of authors to really provide the resources for people to go down the rabbit hole in one place. Right now, the library is just a collection organised by topic of all of those pieces but eventually, that's going to become targeted to different personas.
If you're a fund manager or an academic, or even a journalist looking at how to get up to speed on this, well the best way is to read a number of the great pieces that people have put together over the last ten years.
Peter McCormack: Yeah. So, I really like the thing on the front page where you've got the days above a certain price.
Dan McArdle: Yes. So we're, let's see; I'll refresh here, because the price is moving. I guess we're at $16,066 as we speak and Bitcoin has spent only 14 days above the current price level. And so with that chart and, Bitcoin vs Traditional Assets up there on the home page, and then a deeper charts page where you can kind of play around with Bitcoin's ROI versus other store of value assets, it's funny; it just crushes every other asset on almost any timeframe.
Peter McCormack: Yeah, it's highly compelling.
Dan McArdle: When you put it into perspective, people think that there's still this narrative out there that, "Oh, Bitcoin was a bubble in 2017 and that's that". Well, no it's not; come look at the data.
Peter McCormack: What are the common arguments against that you're still dealing with?
Dan McArdle: So, for people who haven't looked into it, you get, "Bitcoin has no intrinsic value", or, "Governments will ban it", or, "It's too volatile". Those are probably the three biggest ones. Another thing I'll be releasing on CaseBitcoin soon is a critique section that kind of goes through these arguments one by one. I'll try to steel man the argument and provide the rebuttals. So I think, yeah, people just kind of need to go through this process of convincing themselves of the rebuttals to all these arguments.
Peter McCormack: I think of all of them, of the three you said, the volatility one I think is still relevant, because it is something that's hard to get used to. I don't care anymore, right; I'm used to it; you're used to it. Years of watching it, you get used to it. But I know, for example, if my brother put some money in, say he put 25% of his savings in, he's going to be looking all the time, dude. If he sees a 20% drop, he's going to panic and he's going to panic what his wife thinks. That is relevant.
But, I also think in terms of companies. What Michael Saylor did was truly incredible, but there was a period straight after, the price dropped again. And we're talking millions of dollars here and I wonder if other companies are a bit like, you know, if other companies start getting into Bitcoin and we peak at, whatever the price is, say it was $100,000 for the sake of the argument, and then we drop back to $30,000, and there are some companies buying in on the way up, they've got questions to answer to their board?
Dan McArdle: Yeah, and my take on that would be to view it definitely in the high risk, high volatility portion of your portfolio and position sizing is everything. If your position is such that you can't handle that volatility, then your position size is wrong. But, by the same token, the most salient kind of volatility-related argument is, "Okay, you're telling me this is a store of value, but its volatility is through the roof; that's not a store of value".
It's like, "Well, maybe I would class it as an up-and-coming store of value, or a store of value that's maturing; something that has the fundamental properties to be a store of value more durably once it is higher market cap. So then, that path from here to there is going to be volatile, so position this in your portfolio accordingly and maybe in ten years, when its volatility is a lot lower, you can look at it differently.
Peter McCormack: Have you got a price target for this run?
Dan McArdle: So, for every run, my kind of mental targets have been a lot smaller than reality. It was funny, I mean, earlier on I remember thinking, when I initially discovered Bitcoin, I was thinking, okay, by 2021 it would be awesome if it was above $1,500. I got to that target because I looked at it as, okay, you can either think of it as a medium of exchange, or as a store of value.
If you think of it as a medium of exchange, you can then look at the velocity of money and all that and calculate that if it took 10% of black market transactions, it would be worth $1,500 on the store.
Peter McCormack: 2021?
Dan McArdle: Yeah.
Peter McCormack: Dude, if we have a crash and we hit $1,500 in 2021, I'll be thinking of you, "You were right, dude"!
Dan McArdle: Anyway, for this cycle, even if you look at multiples of prior all-time highs, I think 2017, or rather 2013, was 30X the prior all-time high; 2017 was 20X the prior all-time high.
Peter McCormack: So, what are you going for; 10X?
Dan McArdle: I don't know. So, if it's 10X this time, I mean obviously that's a huge number. The counter argument is clearly that it's much bigger now. It takes a lot more money to really move it. But, that's always the counter argument; that was true last time too. So, I think there's a huge range of possibility here.
Peter McCormack: Yeah, I think $200,000 would be amazing; course it would be fricking amazing! Another thing I'm thinking about, and I don't know if this is relevant, but if we hit a crazy price like that, there are a lot of people suddenly sitting on a serious amount of money, even somebody with 1 Bitcoin. I wonder if people will be thinking, "Right, now's the time to get out", and we will see a lot of down pressure afterwards; or, is that the same argument every cycle?
Dan McArdle: Yeah, and it happens. You know, every cycle, we've gone down at least 80% once we hit the peak. But obviously, you never know where the peak is. This cycle's interesting though, because there are a lot more professional money managers involved, so traders, macro traders; and then, just people from traditional markets able to express their view via CME futures.
So, maybe that puts some downward pressure, relative to what would otherwise happen. Maybe we get a slower rise and maybe it's not quite as high as it otherwise would have been but, again, I've made similar arguments about prior cycles and been surprised.
Peter McCormack: Oh, man. I think it's going to be a very interesting 18 months, well let's say 14 months. I think this year and next year's going to be super interesting. I think the other thing is, so many things are lined up right now so, you know, we have a very mature environment, much more mature environment than we had before. We've got weird global issues going on.
The economic situation globally is really, really perilous. I don't know if you heard my interview with Lyn Alden, but it keeps sticking with me. She talked about this debt-to-GDP ratio of 130% and she called that the Event Horizon, where you can't come back from that. She said 51 of 52 nations that have reached that have seen a devaluation of their currency. The only one that hasn't has been Japan, which has their weird stagnation thing.
One of the things, I think it was Tyler or Cameron, tweeted it the other day that the US debt-to-GDP ratio is 130%, so the obvious way to pay it off is through inflation. And I think it's, what's his name; what's the Fed guy?
Dan McArdle: Powell?
Peter McCormack: Jerome Powell, yeah, who said, "They're targeting inflation 4%". Multiple years of 4% inflation could be coming, so a lot of things are lining up to support Bitcoin. Are you feeling that?
Dan McArdle: Yeah, absolutely. It's like Bitcoin was born in the great financial crisis, but was just a toy. Now we have another crisis with similar monetary outcomes, and it's not a toy anymore. It is the escape valve now. This can actually absorb the flows and people are broadly better understanding the arguments for Bitcoin in this environment. So, yeah, I absolutely feel like things are lining up.
To your point, or Lyn's point, about debt-to-GDP, I mean if you look at how the government's going to have to roll the debt, so issue more bonds to pay the interest on existing bonds, there's only one way out long term. You can argue about, will we get stimulus or not and how much it's going to be; it doesn't matter. The money printer has to go brr, no matter what! It was before COVID; this just accelerates things.
So, yeah, they can't let there be a deflationary crash; it's too far gone. You can't just default on the debt; you could get a 1930s scenario. The only other way out is through inflation. People are going to look to escape the inflation through hard assets. Bitcoin is one of the most liquid, frictionless, hard assets and it's tiny currently compared to other asset classes that absorb those flows. So, obviously that sets up a great scenario for Bitcoin.
Peter McCormack: And the default; you say they can't default. Do you think that's because the USD has to protect the dollar's reserve status, and you have downrate gradings and ratings of it; is it because of that?
Dan McArdle: Well, yeah. It's kind of a nuclear bomb to the financial system if the US defaulted on its debt. It's $14 trillion or something in bonds outstanding, because the debt is $27 trillion. So, yeah.
Peter McCormack: We had a weird thing this week. This guy, what's his name? Rishi Sunak, he's essentially -- hold on, I can't remember his bloody title; Chancellor of the Exchequer. He's kind of in charge of the numbers here. What he was saying, and I'm going to dig it up, but he's talking now about how we pay for COVID. Have you heard of the Chancellor of the Exchequer?
Dan McArdle: No, I haven't, no.
Peter McCormack: So, our Prime Minister lives at number 10 Downing Street and I'm pretty sure Rishi Sunak, the Chancellor of the Exchequer, lives next door. But, he's essentially in charge of the numbers for the country; the decision-making.
So, when we've gone into lockdowns, he was making the announcements in terms of furlough schemes and where the money's going to support businesses and such and such. We've had a massive investment of money going into the Arts, for example, because all the theatres are closed and they're all screwed because they're closed. So, they've just stuck millions into the theatres.
But, there's people needing money in every direction. There's all the lower league football clubs; below the Premier League, we have all these other football clubs that are struggling. So, everyone in every direction needs money. But, he came out and started talking about how we start to pay for this now.
The first policy rumour is basically, it's a middle-class raid. So, we have Income Tax bands, of which predominantly, the top band I think is 40%. But I think, if you earn over £100,000, you pay a higher rate. But, we have only 20% on Capital Gains. I don't know what it's like; what is it in the US? Do you have a different Capital Gains?
Dan McArdle: Yeah, depends on if you're short term or long term and what your income bracket is, but it basically ranges from 15% to what your ordinary income rate is.
Peter McCormack: Right, well they're thinking of lining it up with Income Tax, so basically with Capital Gains, there's no benefit outside of income. So, some people could end up seeing a massive increase in what they'll be paying in Capital Gains.
Dan McArdle: I think that's going to happen, yeah.
Peter McCormack: Yeah. And that's, again, fucked. There are a lot of people who've invested in things, you know, sensibly invested their money, whether it's Bitcoin, whether it's property, whatever it is; they've sensibly invested their money and now, they're going to pay a higher tax on their returns. It's as ever, the prudent people are the ones being punished. And I think we're just going to see more and more of this.
Dan McArdle: Yeah. Taxation is one way they're going to try to get out of it, but that whole "tax the rich", etc; that's more narrative, in my mind, than anything else. That's just not enough money to tax to solve the debt problem; you have to inflate it away.
Peter McCormack: Yeah. But I mean, I don't want to be selfish, because I don't want to see people go through difficulty, but I guess inflating away is good for Bitcoin holders, but higher Capital Gains is bad, so you probably get screwed either way?
Dan McArdle: Yeah, the Cap Gains, it's funny because you could look at that another way in that, if Cap Gains is higher, that just incentivises hodling for longer.
Peter McCormack: Yeah. Maybe we just need to find a way of -- I guess, for me, I'll just have to be better with my privacy and better with my CoinJoining, and finding a way to sell all my Bitcoin so that nobody knows!
Dan McArdle: Yeah, that's hard to do!
Peter McCormack: I mean, I wouldn't recommend that because that's illegal; everyone should pay their tax. No, fuck the government!
I'm also interested to know, just trying to track these kinds of messages that are coming out. Who's talking about "The Great Reset"; was it the IMF?
Dan McArdle: I believe so. I haven't read all the recent documents on that but, I mean, there's talk of Bretton Woods 2, obviously central bank digital currencies, so this is a time of transforming monetary policy globally.
Peter McCormack: Yeah. The Great Reset translates as, "We're about to fuck you"!
Dan McArdle: Yeah, I've looked at this a few times, but in, I don't know, 2013 or 2014, the IMF came out with a document where they're talking about how to deal with the debt situation. This was on the back of the Eurozone crisis and the Greek default and all that, and serious questions about whether the Eurozone would break up in response to its monetary stuff.
They came out with, they called it "An Option"; something they would potentially do in the next crisis. They called it "A One-off Capital Levy", where they would basically say, in central banker speak or bureaucrat speak, that they will just take money out of people's bank accounts suddenly, that this is one way to deal with the debt crisis; that they will basically shut the banks down suddenly, give everybody, they didn't specify a number, but a 10%, 20% haircut, whatever it is, just straight out of your account, and they theorised in this document that if they do that one time and if it's sudden such that people can't escape it, then it could work.
My attitude to that is, well okay, here's a fantastic reason to put some money in Bitcoin; it is the escape from things like that.
Peter McCormack: Well, there's a double reason: one, to protect it; but the day that happens, the day they do the haircut, the price of Bitcoin flies?
Dan McArdle: Yeah, that was the narrative in 2013 too with all the Greek stuff.
Peter McCormack: Yeah, what was that? Was it 50% of everything you had above 100,000 euros, they took; something like that?
Dan McArdle: Yeah, something like that. There was a guy who had something like, I don't know, 800,000 or 900,000 euro in a Greek bank account and he was a bitcoiner, and I remember this in 2013. He posted screenshots of his bank account and he got destroyed. They just took the money. They took the money and I think they converted it to shares of the bank, which I've actually seen Bitcoin exchanges to do exactly that in response to hacks.
Peter McCormack: Yeah, that's true.
Dan McArdle: But, yeah, a whole other thing when that's happening.
Peter McCormack: Well, I mean that's a slight difference. Bitfinex did that, didn't they? But, didn't they make everyone good?
Dan McArdle: They did, but for a time the equity in the platform that they gave victims of the hack was not as valuable as the money that was taken. So, there was a time when people were under water on that. But in the end, yes, that worked out quite well.
Peter McCormack: I'm pretty sure that Greece thing, I always get confused between what happened between Greece and Cyprus, because they were slightly different.
Dan McArdle: I might have misspoken; I think that was Cyprus, now that I think about it.
Peter McCormack: Yeah. But, what I do remember -- well, I remember the Greek stuff as well, because some stuff did come out. I don't know if you know about this, but I'm pretty sure the Greeks used to get 14 months' pay a year, so they used to get a double month in Christmas and a double month in the summer; so, an extra month to pay for Christmas and an extra month to pay for summer; something like that. That was a thing they had. But, I think it came down from the IMF.
The IMF were like, they were the terms of the loan; if you want this loan, you have to take a haircut. And it was just like, woah! I think something's going to go wrong over the next decade, whether it starts next year or the year after. I mean, I'm assuming it will start slowly, perhaps start with austerity programmes, which we've by the way had in the UK and they've not been popular and haven't really worked.
Then I think it will be a tax raid. Then I think potentially, they just still won't have enough money, because they're still going to be trying to stimulate; they're still going to be trying to spend on government programmes. I don't think anyone's come out and said, "Do you know what we need? You know what we need; we need smaller government"?
Dan McArdle: That seems obvious to me, especially when, in the US, you have this election where each side just hates the other side. Come on, guys, isn't it obvious that the solution is it shouldn't matter as much who the President is? Just make governments smaller so that's the case.
Anyway, picking up on what you just said about how to solve this and austerity and whatnot; I actually don't think the austerity narrative is there this time. I think this time, the narrative is MMT. It's like, "Actually, okay, we can get ourselves out of this by kind of taking a different view of how government money printing interacts with the economy and make it much more politically palatable".
Peter McCormack: Well, with the CBDCs, MMT becomes a little bit easier. But, some of that scares the shit out of me, because I was looking into the CBDCs. I was seeing people talking about it and I was like, "Oh, that's just some government stablecoin, etc, and I won't have to use it". What I didn't realise is actually, what the endgame is. The endgame is likely no physical cash; it's issued by the central bank; you don't ever actually own money; you have a representation of it.
But, it scared me in situations like, for example, say if you get a speeding fine or a parking fine, they just deduct it immediately from your account, which doesn't allow you to time it. So it's like, okay, that's pretty fucking scary. But then it's like, hold on, they can do anything then. They can take the money at any point; they can seize it; they can tax it; they can just do whatever the fuck they want and you never have any money of your own, it's always theirs.
Then, that is like some of those dystopian, socialist, and I don't like using the term "socialist", because I think it's used a lot and it's used in the wrong way, I think people misuse it; but, those kind of dystopian, socialist kind of ideas actually start to seem like they're coming. It freaks me out a bit, dude?
Dan McArdle: Yeah, it freaks me out too. I would be a lot more freaked out if Bitcoin didn't exist. It does feel like we do have this potential to escape. But, yeah, central banks want to do CBDCs to make monetary policy easier. That includes things like negative interest rates that can be easily implemented at the layer of the money itself, in your bank account itself, which is very attractive to governments when they've got these big debt holes to fill.
Peter McCormack: Yeah. So, let's add it up. So, we can have CBDCs where we never control the money; we're going to have health passports so that if you want to travel from one country to another, you have to prove that you've had the COVID vaccination, because they want to protect. But, somebody said to me, "Actually, you might even get that locally, if you want to go to the gym or the pub". They don't want people getting infected. So actually, you therefore have tracking for everywhere you go.
I'm not a conspiracy theorist. Most of the time, I'm like, "No, it's just bullshit", but we are seeing this push towards it. And it's funny you say, "Well, I don't know what I would have done without Bitcoin". The funny thing is, without Bitcoin, I would have just likely been one of those people who just went along with it and said, "Oh, that kind of makes sense". Bitcoin opened my eyes to this stuff.
Dan McArdle: Yeah, there's definitely a lot of that effect. I kind of agree with you. I'm not a conspiracy theorist either. I think most of the time, people are just acting on their local incentives and the simplest explanation is the correct one. In this case, with all the stuff you can see, it's just the evolution of these systems as they get bigger and bigger, they just have inertia; they keep getting bigger and bigger.
People think, "Now we have the capability to track everyone's health, or we have the capability to mess with everyone's money, so we should do this for the greater good". It's not some like top-down, we want to control the population, etc.
Peter McCormack: I don't believe in the big conspiracy idea that a group of people are sat round a table saying, "Right, let's control the people; let's control their money; let's control their access". I think what happens is, they deal with problems as they come in and they see benefits to them. I don't think they see the dystopian idea themselves.
Dan McArdle: Right, exactly.
Peter McCormack: The health passport thing makes rational sense. You can argue it in a rational way. I don't like it; I don't want it; I have not had the track and trace in the UK; I just don't like it. But, you can see the logical argument in that, outside of the bunch of people who think COVID is just a big hoax, it exists and people are dying; that's a fact. The numbers, you can argue over that.
But I, at the same time, don't like the idea of being told, to come in this pub you have to prove you've had a vaccination, you have to have a scan, for a couple of reasons. You know everywhere you're going is being tracked and I just don't like that idea; it's just a bit too much for me. But, I can see rationally how they make the arguments for it?
Dan McArdle: Yeah, totally. It's almost more insidious actually this way without the big conspiracy theory, because it is just like individual agencies, individual people even, making these calls on a one-off basis and it just is the natural progression of these systems when they get so large. So, that's one of the reasons why I would argue for smaller government.
But, it's hard to break this inertia once it gets going, because nobody's looking out for the system as a whole, you know, what this means if we do go down this pathway of everything being trackable and government having so much power. Eventually, you do get truly malicious actors in the mix and things can go haywire pretty fast.
Peter McCormack: Yeah. I think what's happening in the US right now is a good argument for it all, because this is where I'm like -- so, I always try and see both sides, Dan. I try and understand where left-wing people want to come in from; where right-wing people are coming from. I'm considered right of centre in the UK. I think from people who are right of centre in the US, I'm considered left of centre. But, I try and understand it all.
I can see why people who are more to the right are seeing these things happening and are trying to fight against it, and I absolutely support that. But, I also see what's happening with this fight in the US right now. I don't know. It's a perfect argument right now, like you've just said, for less government because, if nobody's making the argument for less government, they're just fighting each other and creating this bigger government anyway.
I mean, it's when people on the right, they talk about defending Trump or defending the right saying they offer more freedoms. They're still part of the same bullshit; still the same apparatus.
Dan McArdle: Yeah. I mean, if you want to just have one metric to look at, just look at how much the US budget is under any administration. It just keeps going up.
Peter McCormack: And up and up and up.
Dan McArdle: And that number obviously tracks how important government is in the economy and therefore, in your life. I think you want that number to be smaller, but neither party makes it smaller.
Peter McCormack: No. And that's a good argument, because when I talk to the libertarians, or start talking about anarchism, I'm like, "I just struggle with buying it. I just want smaller government", and they're like, "Yeah, but you never get smaller government". I'm like, "Okay".
I'm always trying to figure out what's the endgame here, because the endgame looks like it will be all the anarchists can turn round and go, "Look, fucking told you; we told you; we told you this was coming!"
Dan McArdle: Yeah, I don't know. Maybe the endgame is more Sovereign Individual-like, or technology does kind of make the state less important since more functions of government can be credibly done through tech, but who knows? I don't know if things get a lot worse before that happens or not.
Peter McCormack: I've got to read that book; I've got that book. I've got two books here that keep looking me in the face. I've got The Sovereign Individual and The Fourth Turning.
Dan McArdle: Oh, yeah. I haven't read The Fourth Turning; I'm re-reading The Sovereign Individual right now. I read it a long time ago. But reading it now that Bitcoin exists is a whole other view.
Peter McCormack: What, did you read The Sovereign Individual before it existed?
Dan McArdle: A while ago. I skimmed it at the time, but I read some of Neil Stephenson's work in the early 2000s after the internet bubble.
Peter McCormack: Okay. Well listen, look, let's get back to Bitcoin. We just dipped back under $16,000 as we got a little bit into the wheeze of politics, and now we're back over. I think we're going to get comfortably above that today; that's my prediction.
So, looking ahead, you obviously think about this a lot, Dan, especially with your website and your work and your day job. What are the things that are on your mind now with Bitcoin, because we've essentially got an evolving market; we're going to have a lot of new people coming into the market.
One thing, for example, is custody. Where are you on custody, because there is, I would say, a growing acceptance that allowing others to custody for you, you know, not custodying yourself, is a growing acceptance for some people that that's not always the worst scenario? I self-custody and I always will and I'd always recommend and try and help people to do it, but I can understand how some people don't want to. It feels like we have better and more trusted custodians these days that you could perhaps trust.
Do you give any weight to that, or are you like, "No, fuck that, everyone should custody"?
Dan McArdle: So, yeah, in an ideal world, everyone should custody, but we don't live in that world. People have a hard time with the tech that you need to understand and be very careful with to self-custody. Even though hardware wallets are a great solution, I would argue that anyone who's determined to take this on can do so with a hardware wallet with a reasonable risk profile.
But, if you're just getting into the space, you're probably not going to be that determined and you want to get a little bit of the exposure, which helps you have incentive to go deeper down the rabbit hole. So, buying Bitcoin and keeping it on some trusted platform, it makes sense in that environment.
And, yeah, the situation with custodians is much different than it used to be, so I'm okay with that. I think the key thing the Bitcoin ecosystem needs to maintain is the credible ability to take self-custody quickly. So, if there is a ton of Bitcoin on exchanges, you know, exchanges need to allow withdrawals to self-custody addresses.
Obviously, that's become a topic in the ecosystem lately with all the stuff around the Financial Action Task Force and the travel rule, whether exchanges will be pressured from governments to disallow withdrawing to non-KYCd addresses. I think we have to stay vigilant against that. The industry needs to fight hard if there is ever serious pressure to disallow withdrawals to self-custody addresses. So, for me, it's all about that credible threat that needs to exist.
Peter McCormack: Yeah. It might come, though, what you're saying. One of the things I've run through in my mind is that as much as we want, and people want, absolute privacy with Bitcoin, you know, they just don't want the government knowing what they've got, what their balances are; they want to be able to manage their addresses.
Is there a possibility that one of the trade-offs for not having Bitcoin banned is that it is fully tracked? I know that sounds awful and people don't want it, but is it just this digital gold? Okay, you might not have full privacy, but what you do have is this life raft from fiat money. Is that the trade-off that might end up happening?
Dan McArdle: Well, the trouble is that you do need privacy to maintain the digital gold thesis really.
Peter McCormack: Okay, explain that to me?
Dan McArdle: If you don't have privacy -- so, one of the scenarios you're insulating against is the government goes crazy with monetary policy and tries to ban all other financial life rafts. There are plenty of arguments as to why that's actually impossible for them to do currently, but that is one of the scenarios that you want to protect against.
If you don't have privacy, if the government knows where all the Bitcoins are, the real names of people that hold it, then obviously they have great power to compel you. You'll get a knock on your door one day, and that's pretty compelling. So, privacy is a component of this maintaining a credible escape.
Peter McCormack: Yeah. I don't know, I still think people can use it as a tool; it's just an inflationary hedge tool. The 21 million is still 21 million; obviously we want privacy. This travel rule thing; how serious is it; how close is it to coming; are people fighting against it?
Dan McArdle: I haven't seen strong fighting against it yet. Coin Center has produced some good commentary and I think people are gearing up definitely to fight if it gets more onerous. But, I believe that what's happening currently is exchanges are trying to comply, or are going to comply with the travel rule as currently stated which says, if a financial institution is transferring more than X amount of value to another financial institution, then the account at the other financial institution, the owner of that account, needs to be known and included in the transaction, actually shipped in the transaction data; so then, you can always track back the train of if you're sending from one institution to another, that money is fully traceable throughout its entire transaction graph.
But again, if you're sending money from Coinbase to Kraken, or Kraken to Bitfinex or whatever, then it would have those KYC built in. As far as I'm aware, there's nothing on the table preventing exchanges from allowing transfers to your own wallet that you control; you, as not a financial institution.
So, I think where we are right now with how the regulations are written is fine. Yes, exchanges will start KYCing when you're transferring out to another institution. But, as long as you can always transfer out to your own wallet, I don't think anything about Bitcoin's use cases or value proper merits a true threat.
Peter McCormack: Okay. What else is on your mind? Anything else before we close out; any big things you think people need to be thinking about?
Dan McArdle: Well, one thing, as these rallies get started, you may have a healthy amount of Bitcoin now and you're storing it in a way that makes sense for the amount of money it's currently worth, but if things go crazy, you can find that it's a lot more money and a much bigger percent of your net worth real fast. Suddenly, you have a very inappropriate storage setup and security setup; so, I would strongly advise people to get out ahead of that, such that you're not scared to turn on your laptop or something.
Peter McCormack: Well, there's another benefit to that. So, CASA are a sponsor, but before they became a sponsor, I signed up with them, because I was worried about something similar. But, one of the great things about that, for now I haven't shared how I've set my CASA up; but the only thing I would say is that if I want to move or sell any Bitcoin from my CASA, it's a multi-day operation now, like, I have to really plan it. So, that makes it really hard to spend.
So, the more people that do this, the more it restricts the play as well, which is kind of this added benefit as well. But, it's a fucking pain for me to actually move any of my Bitcoin now, which I think is a good thing for me.
Dan McArdle: Yeah, that can definitely save people from themselves.
Peter McCormack: All right, man. Some people need to get their security shit sorted.
All right, well listen, look, it's great to talk to you, Dan. I love these ones where I just shoot the shit with somebody. But, people should definitely check out casebitcoin.com. Was caseforbitcoin.com already gone?
Dan McArdle: No, I just liked the shorter url.
Peter McCormack: Okay, the shorter url, casebitcoin.com. All right, if people want to follow you as well, where do they find you?
Dan McArdle: Hit me up on Twitter; I am @robustus and that's the best way to get in touch.
Peter McCormack: Well, listen, the website's brilliant, I love it. I'm going to be sharing it out with some people, but I'll also share it in the show notes and I wish you the best, man, and loved chatting you, dude. Take care.
Dan McArdle: Thanks for having me. Good talking.
