Twitter Spaces Transcript: The Intrinsic Value of Bitcoin with Greg Foss

Synopsis: ‍

Former hedge fund manager Greg Foss joins Will Szamosszegi and Kent Halliburton to discuss the intrinsic value of Bitcoin, why Bitcoin serves as insurance, and why Bitcoin is the most asymmetric trade he's ever seen.

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Link to Audio:

https://twitter.com/i/spaces/1eaKbryYDzQKX?s=20

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Transcript:

Greg Foss (00:04:45):

Guys? How are you doing?

Logan Chipkin (00:04:48):

Hey, doing well. Hope yourThanksgiving weekend is going well. Uh, before we start chatting, I just wantedto kind of reset the room here. Uh, thank you for everyone who's joining. Myname is Logan Chikin. This is SAS Minings weekly, uh, Twitter spaces. Normallyit's Thursday, 3:30 PM Eastern, but of course it's Thanksgiving week. So wemade a bit of an exception and we very much appreciate, uh, Greg Fossflexibility with us, and he is our guest this, uh, week. But before weintroduce Greg, um, will, do you wanna introduce yourself and who you are?

Will Szamosszegi (00:05:22):

Yeah, definitely. Thank you Logan.And, uh, thanks again, Greg, for coming on. I know that this is gonna be areally fascinating conversation. Um, I feel like you're pioneering a lot ofvery interesting and important ideas in the world today. So, um, I'm excited todive right into it. Um, also for everyone listening, uh, we run these weeklyTwitter spaces, but we also have the SAS Mind podcasts where we'll speak withguests about what's new and, uh, everything related to Bitcoin, new ideas andnew events happening around the world, and have the chance to speak with somebig industry leaders on that as well. I'll pass it off to you, Ken.

Kent Halliburton (00:05:58):

Yeah, hi, um, Greg, really excitedI've, uh, to have you on this particular spaces. Your work has had a biginfluence on my thinking about Bitcoin in the future and, and what's gonnahappen, uh, with adoption here. So glad to have you and thanks for joining uson a Friday, uh, afternoon here. Uh, I am the president and c o o here at SASMining and run the internal operations. And Logan Chikin is our gracious host.Don't forget to introduce him. Uh, he is, uh, just an incredible guy. If youhave a chance to get to spend some time with him, I, I highly recommend it. ButLogan, I will, uh, turn thanks to you, man.

Logan Chipkin (00:06:39):

Yes, thanks Kent. So, Greg, do youwanna kind of introduce yourself, uh, who you are, how you got into Bitcoin,and since it's Thanksgiving weekend, uh, I'm just wondering, did Bitcoin or atthe FTX controversy come up at your Thanksgiving dinner table?

Greg Foss (00:06:55):

<laugh>? Well, thanks forhaving me, guys. Um, yeah, I'll start by saying I'm a Canadian, so, uh, as ithappens to be, we love the American Thanksgiving, uh, college football and, uh,you know, some N F L games and whatnot, but, uh, uh, we don't celebrate it, um,here on the same date as you guys do. So, no, Bitcoin did not come up at myThanksgiving, uh, dinner. That being said, uh, I can appreciate it came up at afew Thanksgiving dinners because last year at this time, uh, the price ofBitcoin was a little higher than it is today. Uh, that being said, the value ofBitcoin today is far higher than it was a year ago. And a year ago it wasstupid cheap. So today it's extra stupid cheap from a valuation perspective,and we're gonna get into that. But, uh, yeah, just a a bit of background.

(00:07:53):

I'm, uh, almost 60 years old. Uh, Iam Canadian, but I've spent my life trading with Wall Street. Uh, even though Iwas physically located in Canada most of the time, I did, uh, do 95% of mytrading with the Wall Street counterparties and, uh, maintain a very goodrelationship with a lot of the big houses on, uh, on Wall Street, uh, tradinghouses. Um, and I formally retired from the hedge fund business in 2016. Uh, Ihad, uh, completed, uh, some, some quite, uh, um, well, let's just say theywere exciting trades. Uh, they came out of the great financial crisis. Theywere restructured debt products, primar primarily. Um, but in 2016, I wasstruggling with some personal issues, um, uh, pressures in life. And after 30years of trading other people's money and managing other people's money, Ithought it was a good time to, uh, to retire.

(00:08:58):

And I, uh, plan to ski a lot and, uh,do some surfing and, uh, you know, golfing and all the good stuff. Butwouldn't, you know, I found Bitcoin and I feel that I've been looking forBitcoin my entire professional career, but, uh, never found the product. Thereason I say that is because, uh, I've always believed that fiat money, papermoney or money based on trust, backed by nothing but the full faith andconfidence in a institution not to debase your money. Um, I always believe thefiat system was a bit of a Ponzi, and I found Bitcoin in 2016. And once you knowthat, um, even though I still am formerly retired, um, I'm involved in a bunchof, uh, endeavors that seek to, uh, increase the adoption of Bitcoin around theworld because I believe Bitcoin to be a technology that will change the livesof many people, most importantly, people who are not part of the, uh,privileged elite from Wall Street.

(00:10:14):

Yeah, I'm looking right at myselfwhen I say that because, um, I feel that the people that need Bitcoin the mostare people who are from less privileged, uh, parts of the world or society. Ijust got back from El Salvador, uh, visiting that country. So we can talk aboutthat if you want, but, uh, I've been in Bitcoin since 2016. I bring my credit,uh, lens, if you will, to the evaluation, the intrinsic value of Bitcoin. Um,I'm excited to share that with the world. I I've had some pretty good feedback,uh, because most people have never sat in a credit focused risk chair. Uh,anybody who manages their own portfolio generally focuses on equity risk beforethey focus on credit risk, which is, uh, unfortunate because credit runs theworld. So if you don't know what's going on in credit markets, you're playingit a disadvantage, uh, as everyone knows or should know, credit has a priorclaim to equities in the event of a restructuring. So if you don't understandwhat the credit markets are telling you, you're playing at a disadvantage. So Ibring that to the table, um, happy to answer some questions and help, uh, youknow, further the progress of, uh, the Bitcoin adoption around the world. It's,uh, important for myself, but mostly important for my children and, you know,the children of future generations. So over to you.

Logan Chipkin (00:11:48):

Yeah, thanks for that, uh, excellentintroduction, Greg. And this is why I was really interested in having you on isbecause, um, you come at it from this kind of risk oriented kind of credit marketperspective that I haven't heard, um, in a lot of, from a lot of differentpeople. So having said that, uh, I know you've done a lot of work intoexplaining the relationship between sovereign credit, uh, default swaps and,uh, the intrinsic value of Bitcoin. So before we get into your work and theintrinsic value of Bitcoin, what is sovereign credit default swaps? What arethey and how do they relate to Bitcoin?

Greg Foss (00:12:24):

Okay, um, well start by thinking of acredit default swap, a c d s contract that can be, um, written if you will, ortraded, uh, on a reference asset. That is typically a bond that will implyinsurance on that reference asset defaulting. So the event that you were buyinginsurance on is the physical default on a reference obligation. It's aninsurance contract where the seller or the insurance provider receives apremium, much like in an insurance premium that you buy annually for your houseinsurance or a fire insurance on your house. The purchaser who is buying theinsurance pays the seller a premium, an annual premium that's set as apercentage of the value of the, uh, contract. Much like your house insurance,let's say the value of the house is a million dollars, and you buy annualinsurance at x percent of the value of your house.

(00:13:42):

That is your annual insurancepremium. Same thing applies in credit default swaps. Now, that credit defaultswap can be written on a corporate borrower. It can be written on a mortgageproduct. So much like we saw the meltdown in the, uh, great financial crisisthat was DR driven by credit default swap obligations on mortgage product. Itcan be written on any, uh, counterparty that is prone to default. So obviouslythat includes sovereign debt issuing nations, and you can go on the internetand see the various, uh, prices that people are paying to ensure their debtagainst default on various sovereign nations around the world. Now, thosedefault swap obligations, uh, get priced according to probability of default asinterpreted by the market. And those default probabilities change on a dailybasis. But they are a function of, amongst other things, the wealth of anation, the total debt outstanding of the nation, the ability of the nation todraw on different forms of funding, if you will.

(00:15:19):

Uh, so everything that would go intoa credit evaluation of an individual such as your annual salary, your networth, your ability to tap various forms of funding, uh, that's the same thingthat goes into a country credit analysis. And all of these get distilled downinto a market evaluation of a probability of default. Now, everybody alwayssays the USA can never default on their financial obligations because they canprint money. Well, that's sort of true, except there's definitions that I wouldinclude as hard default and soft default. For example, I will categoricallyclaim that in 1971, the USA defaulted on their obligations by taking the USdollar off of a gold standard. Okay? That was a, they broke a contract. Whenyou break a contract, that is a form of default. Now, everyone will say, well,that wasn't a formal default. You know, this is where we get into a little bitof the subjective nature of what would determine what would determine a softdefault versus a hard default.

(00:16:43):

But don't overthink things. If the sa were truly default risk free, there would be no buyers of insurance on theirpaper. And the re fact of the matter is, there are buyers of insurance on theprospective default of the USA at prices greater than zero, which implies thereare people in the world who are concerned about the potential default of theUnited States, and rightly so because the credit quality of the United Statesis absolutely horrendous. Yes, they have the ability to print money, but thereality is the finances of the United States, if the usa everything else beingequal, if the USA was rated with the same credit quality metrics as a corporateborrower, the USA would be rated triple C. Okay? Why do I say that? It's verysimple. The S USA does not even cover its interest expense one times, whichmeans the US debt burden is growing organically because they do not even takein enough revenue to cover their interest expense, their growing interestburden.

(00:18:07):

One turn, again, if it was acorporate equivalent, that rating would be triple C. And to make it even moreclear, that's what s and p defines as a zombie corporation. Well, apples toapples, the U S A is a zombie sovereign debt borrower, yes, they can printtheir own currency, correct, but so can Venezuela, so can Argentina andincidentally Argentina, which is a G 20, which means it's one of the top 20economies in the world, has defaulted four times in my career. So don't tell methat fiat printing countries cannot default. You need to own insurance againstthat low but not zero probability event. And that's why I view Bitcoin as beinginsurance, because Bitcoin is anti anti-fat. Bitcoin is not centralized. Youcannot print more Bitcoin. Bitcoin is the scarcest harsh hard asset defended bymathematics and code that will ensure that there's only ever 21 million Bitcoinin supply for the entire world. So I like to come at the intrinsic value ofBitcoin viewing it as default insurance, not just on the United States, but ona basket of fiat currencies.

(00:19:44):

As such, I think Bitcoin is extremelycheap, and I could run through the mathematics of a typical calculation thatwould show you how stupid cheap Bitcoin is compared to its implied insurance onthe outstanding debt of not just the United States, but of the entire fiat globalsystem. So to summarize, Bitcoin is an insurance policy, much like you own fireinsurance on your house, and let's say you live in a valley, or how about youlive on a ridge and there's a forest fire approaching from the other side ofthe valley, much like the global financial crisis that we are currently goingto experience for the fifth time in my career. You see this fire approachingyour back porch. That's the potential sovereign credit defaults that areembraced or in engrossing the world. And that fire is getting closer to yourporch. Yet the price of insurance that being marked by the fiat price ofBitcoin in US dollars has actually gone down, whereas the value has gone upbecause the fire is getting closer.

(00:21:07):

You should look at that and bethankful because if you don't have fire insurance, you can purchase it atextremely cheap valuations. And I'd be happy to run through those valuationswith you unless you have more, you know, questions on the, uh, the intrinsic orthe implied anti-fat, pure hard asset metrics and characteristics of Bitcoin. Idon't think you should. There is no other asset like it in the world. Peoplecan say, well, what about gold? Well, we can debunk and, uh, you know, know whyBitcoin is a superior form of insurance than gold. But we can get into thoseconversations as well if you want. I will just tell you, I am not telling youto sell your gold and buy Bitcoin. I am not telling you that you can't ownother hard assets beside Bitcoin. What I am telling you is Bitcoin is the bestform of insurance against the collapse, inevitable collapse, in my opinion, ofthe fiat system.

(00:22:16):

And you need to own insurance, muchlike you should own insurance on your house. You don't want your house to burndown, but you still own fire insurance in case it happens. I don't want the USAto burn down, however, they're doing a darn good job of making it happen. Soyou should own fire insurance on the United States. And by the way, just towrap this up with a nice little bow, I live in Canada, Canada is in far worseshape than the United States. I've said this before. Canada will fail many, atleast a decade, if not 20 years before the USA fails. So this is not impendingdoom of the United States, I'm just saying when these dominoes start to fall,things tend to pick up speed and unravel quickly. So don't wait until the fireis right at your porch to buy fire insurance. You're supposed to buy your fireinsurance when things are cheap. Right now it's silly cheap. I'm trying to laythat out for you. I'll do it in pure mathematics if we wanna go there over toyou.

Logan Chipkin (00:23:26):

Yeah, Greg, that was, uh, that was anexcellent, uh, lesson. So yes, if you could please dive into the mathematics,you know, you don't have to get super technical or anything, but as if you weretalking to a well-informed, but maybe not super mathematically inclinedaudience, that would be great.

Greg Foss (00:23:42):

Okay, so I wrote my paper, uh, it wastitled, uh, why Every Fixed Income Manager Should Own Bitcoin as PortfolioInsurance. And I'm used to talking to credit managers of, uh, a certain, I,I'll use the word pedigree. I don't, I, I hope I don't sound, uh, spoiled orwhatnot, but, you know, credit guys are a different breed, okay? Uh, first ofall, we we're pessimists. Why are we pessimists? Well, nothing good happens tobonds. The best thing that can happen to a bond is you lend money to someoneand they pay you back and you earn your interest or your contractual return onthat, on that obligation. That's about the best thing that can happen. Theworst thing that can happen is you lend money to someone and they don't evenmake one interest payment and they default on their loan. Uh, that means youwere a pretty poor credit guy, but, uh, that's not the first, uh, time thatcould happen in the event of fraud and all the other stuff you see happening inthe world.

(00:24:49):

But the point is, equity people tendto be optimist. You know, trees grow to the moon, growth never stops. You know,something will grow at a hundred percent forever. I mean, equity guys tend tobe optimist, but they also tend to be buffoons, okay? Equity guys really don'tunderstand how the world works that well. And credit guys understand how theworld works, but they can be pretty, uh, negative. They can be, uh, doom andgloomers. Again, they're the pessimists. Why? Because you have to protectagainst, uh, the downside rather than, uh, dream about the upside. They don'tincrease the interest coupon on a contractual obligation when things are goingreally well. Uh, those incremental gains accrue to the equity holders, theydon't accrue to the bond holders. So bond guys only get the downside equityguys accrue the upside. But the flip side to that is in the event of arestructuring credit, guys have a prior claim to the equity guys.

(00:25:53):

So here's what I know. The realityis, credit default swaps on a basket of fiat issuing nations exist. You canlook up the credit default swap markets for Canada, uh, Italy, you know, allthe G 20 nations, all the European nations, Australia, et cetera. But let'sfocus on United States and there's a very well defined credit default swapmarket. I'm gonna make the math easy around 20 basis points per annum for afive year credit default swap obligations. What? Which means for a price of$20,000 per year, you can ensure 10 million of US government debt againstdefault over a five year term. Okay? Again, 20 basis points equals $20,000 on10 million worth of debt. It's not a huge amount, but it's a non-zero amount,which means there is a risk of default. It's very low, but it's not zero. Andthe way I come about this without looking at a basket, or I don't wanna get toogranular, let's not take all 20 nations.

(00:27:20):

Let's just run through the math forthe United States and then realize why Bitcoin is so cheap even compared to theprice that the market should be paying for the United States. So 20 basispoints is the five year cost of default protection. Now the reality is we needdefault protection over the next 20 years, okay? So what you have to do isadjust that five year term, which is four basis points per year, right? 20basis points divided by five years is four basis points per year. If you wereto guesstimate what a 20 year default swap contract on the USA would be, in myopinion, it's called a tenor calc, t e n o r tenor calculation. It would bereasonable to estimate that a 20 year default swap obligation on the U S Awould be at least 80 basis points, 20 times four basis points per year.

(00:28:28):

So let's start with that 80 basispoints, cost of protection and evaluate how much debt the United States hasUnited States government, this is only the U S A government, it does notinclude state debt, and it does not include corporate debt below that. Well,the U government owns owes 31 trillion of funded debt. That's the amount ofoutstanding government debt on the s a. But the big, uh, anvil in the room isactually the unfunded obligations of the US government. Unfunded obligationsare Medicare and Medicaid entitlements going forward, and they are worth $170trillion. You guys can look this up@usdebtclock.org. This is a running, uh,calculation of the US outstanding funded and unfunded debt. So 31 trillionplus. So 170 trillion equals 200 trillion worth of funded and unfunded u s Adebt. Now take 80 basis points and multiply it by 200 trillion. And what do youcome up with? You come up with a number of a hun, excuse me, $1.6 trillion.

(00:30:01):

So 1.6 trillion is the value ofdefault insurance on the United States. What does Bitcoin trade for? What isthe market cap of Bitcoin today? It is under 400 billion, which is to say, inother words, you are buying default protection on the USA for one quarter ofits value of only the United States, right? We calculated that the value was 1.6trillion and it trades for 400 billion. Well, oh my god, as far as I'mconcerned, you are getting default protection on the United States in real timeat one quarter of its value, or 25% of its price plus. And here's the kicker,you are getting default insurance on all other fiat issuing countries in theworld for free. Now, if you don't see that as a deal, I'm afraid I can't walkyou through the math in any other way. You're gonna tell me the USA will neverdefault. And I'm gonna tell you, were you alive in 1971?

(00:31:24):

And you'll probably say, no, Iwasn't. And I'm gonna say, well, I was. And I will term that at default andnever say never. It's a question of playing risk and probabilities. That's all.Risk management is, is a calculation of expected values versus potentialoutcomes. And in my opinion, the price of Bitcoin is silly, cheap relative toits value. Some of you may listen to Warren Buffett and Charlie Munger whocompare it to rat poison. Well, if it is rat poison, then fiat is the rat,okay? Because they don't, and they are paid not to understand why fiat is therat. Charlie Munger and Warren Buffett own tons of shares in Wells Fargo andBank of America, examples of the Fiat Ponzi, which benefits from the ability ofthe United States to print money. And without going too deeply, I'll just saythis, when you do risk ama at management and risk assessment, there's only onething that is a hundred percent certain in any financial that I've ever seen.

(00:32:41):

And that one thing that's a hundredpercent certain is that fiat money will debase with 100% certainty. I can tellyou they need to print money to solve the debt spiral. So if you don't owninsurance against that 100% certainty, you are not managing risk properly. Andmy little shot at Charlie Munger is, as I always say, he should not buy greenbananas. Okay? What does that mean? Charlie Munger, as a good risk manager,should not buy green bananas cuz there's a chance of, there is a chance, andGod forbid that he won't be around to see those bananas when they ripen anddon't listen to people who have benefited their entire lives by basicallybleeding and playing the Fiat Ponzi for their benefit. This is about people whohave been captive to the Fiat Ponzi. These are people who will benefit storingtheir value in an non fiat based products.

(00:33:51):

So again, third world or lessprivileged people who will benefit by storing their value because their fiats,the fiat of countries like Argentina or Turkey. Turkey, incidentally is a G 11country, even Canada, a G seven country. Our, our citizens will benefit byholding their stores of value in a hard asset, which will default, excuse me,whose currency in the case of Canada will default before the s usa. In the caseof Canada, I've estimated to be at least 10 years. But don't think that theimpact on the USA will be de minimus if Canada defaults. Why Canada is still atop trading nation. It used to be number one, it's now number one or numbertwo, depending on the statistics as a trading partner with the U s A. If theUSA's top trading partner goes bankrupt or defaults, do you think there wouldbe no impact on the economy of the S usa?

(00:35:00):

I'd say there would be. And that'scalled contagion. So you need to have insurance regardless of what country youlive in. Even if you're lucky enough to live in the United States, which hasthe strongest currency and the strongest military and the strongest economy inthe world, you are still at risk. So happy Thanksgiving, but don't overthinkthings again. Insurance is a must own product in a risk management portfolio.And I believe Bitcoin to be the most beautiful, decentralized form of insurancecontrolled by math and code that you can own. So if you own zero, you're toosmart by a half. And if you own zero, because Charlie Munger tells you to ownzero, try and look at things through the lens of Charlie Munger and understandthat he is concerned that Bitcoin will disintermediate his holdings in Bank ofAmerica and American Express and all these rent-seeking tradify institutions.

(00:36:01):

I'm not telling you to own a hundredpercent in Bitcoin. What I am telling you is if you own zero, I think you arein a far riskier position than if you own a proper allocation to Bitcoin. I saystart off zero to 5% of your portfolio, or call it one to 5%. As you getcomfortable learning and understanding the technology, you can move it higher.I'm higher, but I am not at a hundred percent allocation to Bitcoin. And that'sthe beauty. You don't have to be, because Bitcoin's the best asymmetricinvestment opportunity I've ever seen in 35 years, which is to say even if Iown for a number 10% of my net worth in Bitcoin, the potential for that 10% togo up a hundred times or more from today's price makes it unnecessary to own ahundred percent of your net worth in Bitcoin. That is the beauty of a, anasymmetric investment opportunity. And I'll just summarize by saying asymmetricinvestment opportunities define careers. I've only seen three of them in myentire 30 years of managing risk and Bitcoin is the best one I've ever seen. Soover to you

Kent Halliburton (00:37:23):

Greg. Thank you so much forexplaining that So clearly I feel like I was at a, uh, college professorlecture and was taking notes seriously, but one of the things that came to meas I was, um, writing my notes is, you know, uh, is there gonna be a point, orin your conversations do you see this occurring where the credit guys arestarting to get it as it relates to Bitcoin? And do you see the potential forthe credit guys getting Bitcoin and starting to purchase it as insurance, aspotentially one of the narratives to move us out of a bear market?

Greg Foss (00:38:00):

Yeah, you know, I, I believe that tobe the case. I think the credit guys will get it. Uh, as far as a portfoliomanagement, uh, team, I've seen some of the smarter credit guys in the world,um, uh, who have embraced it at various points of their careers. Uh, they getit because they understand the credit default swap narrative. Um, insurance issomething that is much, uh, you know, is more of a, uh, topic, topic ofconversation within the credit community. Cuz again, bonds are asymmetric tothe downside, right? You lend a hundred, you lend, uh, bonds, or excuse me, youmake a loan at a hundred cents on the dollar. That loan never goes to 500 centson the dollar. It may go up to 140 cents on the dollar due to interest ratechanges in credit quality changes, but it never goes up fivefold like an equitycan.

(00:38:58):

Now, excuse me, the important thingto remember is, uh, a bond is a contract. It is the fulfillment of anobligation that you have risk if that contract is not fulfilled. And that's whythe concept of insurance resonates with the credit guys much more than it does withthe equity guys. Again, some equity guys will buy equities because of the noncontractual dividend. Don't forget, a dividend is not contractual. It is a obnot an obligation. It is a promise that can be broken at any time without thedefault of a contract. You can change the dividend on a common stock at anytime without there being an event of default. So p uh, equity holders don'ttypically buy, uh, equities for the dividend income. They consider it as one ofthe paybacks, but they don't buy it. They will always be a component of growththat goes into an equity valuation, and that is a subjective evaluation.

(00:40:02):

There's no contract that is linked tothe growth of an equity, but as equity guys are optimists and you know,something can grow at 25% annualized for the rest of time, well, I callbullshit on that because if you grow something at 25% annualized forever, itwill become the biggest tree in the universe. It'll grow to the moon and treesdon't grow to the moon. But credit guys understand the insurance concept.Credit guys will, uh, uh, embrace it. I've seen some very, uh, sophisticatedcredit managers who have done this already. Uh, it gives me hope. Now it won'thappen all at once. But what typically happens is that one credit guy willembrace it and another one will see that their clients are moving to thecompetition because the competition is offering Bitcoin. But you might not beoffering Bitcoin. And if you continue not to offer Bitcoin, you will losebusiness to your competition.

(00:41:11):

So it's a process, it takes time.Let's understand that Bitcoin is only slightly over 13 or 14 years old. It'sstill in the early innings. And this is a process. You have investment policycommittees that take time to change their investment policy guidelines. Yougotta get rid of some of the old blood that lives on investment policy, uh,committees, uh, you know, the green bananas, uh, adage will, uh, will applythere. As new and younger blood comes into these investment policy committees,you'll see more people embrace it as a form of insurance. Uh, as a technologylayer two and layer three technologies that are being, or, uh, protocols thatare being built on the base layer. It's, uh, pretty exciting stuff. And I'm nottelling you I see the future all as I'm telling you is that I've seen the past.Okay? I started work at Canada's largest financial institution in 1988, theRoyal Bank of Canada.

(00:42:14):

I was working directly for the cfo Fo and the big problem then was the Latin American debt portfolio and the RoyalBank of Canada was insolvent, which is to say if you mark to market their loanbook, included in the loan book was the Latin American debt problem. If youwrote those loans down to the trading value or the trading prices of the loansin the secondary market, the book value of equity of Royal Bank of Canada wentnegative. That's termed insolvency. Yet nobody knew this. And when I brought,when I said to the C F O, we have a big problem, he said, I know, don't tellanybody. Now, this was 1988 and this was my first job out of school, and Icouldn't believe that I was working in a Ponzi and I wasn't supposed to tellanybody. So I finally found Bitcoin.

(00:43:12):

Bitcoin solves all the fiat Ponzi.Bitcoin solves the Bank of Americas. It solves the Charlie Mungers, it solvesthe Warren Buffets, who I'm not knocking. Warren Buffet has been a tremendousinvestor for the s a and the confidence of capitalism in the usa. The problemis he's very close to the money printer and he has benefited from the implicitmoney printing of the US Treasury to back up his investment in the Bank ofAmericas of the world and the so Solomon Smith, Barneys, and the otherinvestments he's made within the Fiat Ponzi world to enhance his, uh, you know,investment portfolio. So he knows how to play the game, but don't listen to hisevaluation of Bitcoin because he's scared that Bitcoin will eventuallydisintermediate his traditional finance investments. And I believe that to bethe case as well. So, own insurance, don't listen to the equity guys, listen tothe credit guys and try and understand that you need to own insurance in anyrisk situation. Insurance is a risk mitigator. It doesn't add to risk, itmitigates risk. And that, in my opinion, is what is so beautiful about Bitcointhat is not understood by the equity guys, particularly the credit guys alittle bit, but more and more it's the credit guys that are gonna get thesolution. Long-winded answer. I hope that helped.

Will Szamosszegi (00:44:47):

Yeah, Greg, that was, uh, incredible.I feel like you've got a tremendous amount of knowledge here that, uh, we couldspeak about for hours. Uh, just to start unpacking some of these concepts, oneidea that I really wanted to get your take on was your thoughts on M M T. Andso maybe what you could do is outline exactly what m t is and how you thinkabout mm m t now that we live in a world where Bitcoin has really started togrow and capture the hearts and minds of people around the world. And it wouldbe really interesting as well to hear about how you think that mm, m t and Bitcointie into this idea of Bitcoin as insurance.

Greg Foss (00:45:36):

So I'm not sure if, uh, if if youwere breaking up for other people out there, um, you, you were breaking up alittle for me. Uh, did one of the other, uh, hosts hear that the question andperhaps repeat it a little, uh, for me and anyone else who didn't hear it asclearly?

Logan Chipkin (00:45:52):

Yeah, sure. I got it. So, um, willwas basically asking, um, if there's any connection between, uh, your view ofBitcoin as an insurance policy and basically the kind of dominance of MMT as aneconomic ideology amongst people who say like debt, debt doesn't matter andthings like that. Um, I, yeah, yeah. And uh, particularly I think Will wasasking because we had, um, a Bitcoin or Margot Paaz on, um, recently, and shewas saying a lot of her Bitcoin, her friends are actually also proponents of mmM T. So we were wondering how, uh, what you think of M M T in general and whatyou think of the relationship between mm M T and your views on Bitcoin.

Greg Foss (00:46:36):

Okay, um, let's start by saying that,uh, the Bitcoin community does not always have to agree with every each other.And, uh, that's a good thing because as, uh, general George Patton said, ifeverybody is thinking alike, then somebody isn't thinking, right? So I'm notgonna take issue with, uh, those M M T people that, uh, also believe inBitcoin. Um, but in my opinion, it's sort of like sucking and blowing at thesame time. Um, the M m T crowd are a bunch of armchair economists that havenever traded risk in their lives. Uh, the lead band leader is an absolute, uh,math illiterate. Um, Stephanie Kelton, uh, who wrote the book, um, uh, theDeficit Myth without Ever Having Managed Risk in her Life. Uh, it's, it's anembarrassment to, uh, risk management. It's an embarrassment to, uh, commonsense. That being said, it's only my opinion.

(00:47:34):

So you can call up with the hatemail, uh, send it to you guys. I, I I don't care. Uh, m t is an absolute balderdash the thesis. Um, that's my opinion. Uh, but if it wasn't Balder Dash, thenwhy is the, uh, the system responding like it has to, uh, all the moneyprinting that has taken, uh, taken place over the last three years. Uh, allthose take those feces and understand that they were written in the chair of aneconomist, an armchair economist that is never traded risk. And now we are, uh,we are experiencing the, uh, we're experiencing the punishment of themismanagement of a theorist versus a practitioner. So Bitcoin is beautifulbecause it's not a hostage to armchair economist, it is based on mathematicsand code and mathematics is the base, base layer of language. And why do I saythat?

(00:48:38):

Well, as an engineer, which MargoPaez is a physicist, if I'm not mistaken, uh, and she never lets me forget thatI'm only a lowly engineer. But at the end of the day, uh, mathematics is thebase layer of language. And the beautiful thing about mathematics is you don'tmess with math, okay? It's non-negotiable as to whether a debt spiral exists ornot, and whether you have to pr print money to solve that debt spiral when youare in a organic debt spiral, because the interest expense on your debt isgrowing faster than your economy can grow and the tax base of your economy cangrow to keep up with those interest expense. That's the definition of a debtspiral. And that's what we are in, not just in the United States, but globallybecause total global debt is four times the size of global G D P.

(00:49:39):

So if it's four times the size of thetax base, what is an average coupon you need to put on that debt, whichincludes all debt, not just government debt, but all debt, corporate, etcetera. If we put a 3% coupon on that debt, that means your numerator, yourtotal debt is growing at 12%, four times 3% relative to your denominator, yourG D P. Do you think global GDP d is gonna grow at 12% annualized for the restof time to keep pace with the organic growth of your debt burger? I'd saythat's almost a hundred percent certain to not be the case.<affirmative>, which means you need to solve the debt spiral with anerror term. And the error term is printing fiat money. Printing fiat moneytherefore means you are debasing your currency. That's why it's a hundredpercent certain that fiat money will debase.

(00:50:45):

And you can look at me and say, oh,don't worry, we're gonna do yield curve control and we're gonna inflate our wayout of the debt. Guess what? That's a form of a default, and that's what Japanis currently experiencing. So if you don't own insurance against that and youbelieve in the mo modern monetary theorists, go ahead. But if you believe in mt and you also believe in Bitcoin, well, I guess you're sucking and blowing andI prefer not to suck and blow. I'll just say, mm, M T is garbage. But if youwanna believe in m t and believe in Bitcoin, at least you have half theequation, right? Because believing in m t means you are believing in currencyde basement, which I guess is accelerating the debt spiral. I don't choose toaccelerate the debt spiral, I try and pay back my debt.

(00:51:36):

So I'm part of a 60 year old cohortsof the boomer babies who feel that we've taken advantage of the system longenough, but a lot of these MMTs feel entitled that they should continue andtherefore we should continue to dease the currency and pull forward gains atthe expense of our children. I'm not of that ilk, that's fine. Let's talkBitcoin. All paths lead to Bitcoin. I don't care if you're an MTR or if you'rea Y Y C R or sorry Y C C R yield curve controller. If you are a combination ofone of the two, it's all fine. All paths lead to Bitcoin, pure simplemathematics, grade 11 math. Don't overthink it,

Logan Chipkin (00:52:17):

Don't overthink it. And if you're aBitcoin and an M M T, you're sucking and blowing at the same time. These arethe lessons we bring to you on the SaaS mining Twitter spaces. So Greg, thankyou very much. In all seriousness, that was a great answer. Um, I wanna open itup to the audience now and I see, uh, freedom. You had a question? You're uphere. Uh, or yes, uh, do you have a question for Greg?

Speaker 5 (00:52:38):

Greg? Can you talk to us a little bitabout paper Bitcoin and the impact that has on the price value of, of actualBitcoin and how long will it take for, you know, full adoption to justoverwhelm paper Bitcoin? Thank you.

Greg Foss (00:52:53):

Yeah, great question. Um, I don'tknow, but very simply, it has been greater than zero, hasn't it? That beingsaid, uh, you can always be thankful sometimes, uh, for something that hassuppressed the price of Bitcoin to allows other people to get in at extremelycheap valuations. The people that need it most, I would say have the opportunityto buy it at suppress valuations. Cause the Ft Xs of the world, uh, have beenselling Bitcoin they didn't own. Now, the beautiful thing about Bitcoin beingheld in self custodys is you control your keys, you control your Bitcoin. Theproblem is we've all known is that Bitcoin that hasn't been held in selfcustodys, but eventually the world will understand this. The amount of Bitcointhat's being withdrawn from exchanges is monumental. But here's a cool thing. Iwant to compare it to the amount of bit of fiat that has been withdrawn fromother tra fi platforms such as credit suis.

(00:54:00):

Okay? Bitcoin gets withdrawn fromexchanges in held in self custody. The mathematics never change. The 21 millionBitcoin defended by math and code is written in the protocol. And, you know,without a 51% attack will never be changed. It will not be changed. It's athing of beauty. The, uh, the players, the that have sold Bitcoin, that theydon't own the Sang bank, Bankman Frees of the world that should be in cri, thatshould be in prison and you know, hopefully is he is sent to prison, uh,because of the fraudulent activities. This is part of the growing pains becausewe have designed a crypto ecosystem based on the fiat ecosystem, the amount ofwealth assets that have been drawn from withdrawn from credit suis, 88 billionworth of assets that have been lost by Credit Swiss because people are worriedabout a run on that bank should make you more worried than the situation of FTXselling Bitcoin that they don't own to people who actually think they ownBitcoin, but don't actually own it.

(00:55:18):

If you think you own Bitcoin and youdon't, it's like your fire insurance that you don't own, you need to go out andcover that fire insurance. There'll be a bid in the market implicitly for thatfire insurance over time. It'll just take a matter of time to figure out ifthat obligation to your counterparty is a obligation that can be fulfilled ornot. It's like when I grew up during the financial crisis in 2008, 2009, and Iowned default protection on, I'll just pick a name. Uh, let's use Credit Swissfor example. I own default protection on Credit Swiss, but I owned it fromLehman Brothers. The, I purchased the insurance from Lehman Brothers. Holymoly, my insurance company is about to go bankrupt. Now in order to ensure myinsurance policy on credit suis, I either need to go out and buy more insuranceon credit Swiss, or I need to buy insurance on my insurance provider, which isLehman Brothers.

(00:56:19):

This is why contagion in the traditionalfinancial system explodes so quickly, whereas in the Bitcoin world, with 21million fixed supply of Bitcoin forever and ever, this will wash through thesystem. There's no question it has suppressed the price of Bitcoin, but this isgrowing pains that you expect, I can't say expect because this has been morethan I've expected, but the system is still working. There is a price ofBitcoin where people are going to need to figure out do they actually ownBitcoin or is it paper? And I think more of the world will be open to a rootshock that they actually don't own Bitcoin, they own a paper claim against acounterparty who is not good on that obligation. This over time will workitself out. I'm not happy that the FTX thing uh, happened, but I will tell youit's better that it happened now than if it had happened five years down theroad.

(00:57:21):

Um, the only thing that I can tellyou is I believe Bitcoin has stood in there like a champ, okay? It stood therein there with the Terre Luna situation. It stood in there with Celsius, itstood in there with Elon Musk selling part of his Bitcoin from the, uh,treasury, from the, uh, Tesla Treasury. It stood in there when F T FTX wentdown. It stood in there when Genesis has been rumored, it stood in there as G BT C has been rumored. All of these things make Bitcoin stronger and more robustand show you the beauty of the system that relies on mathematics and codeversus paper claims. Not a great answer, but Ila would say is if you look atthe positives, it's the positives in the way that TikTok next block stillworking every 10 minutes.

Logan Chipkin (00:58:13):

Yeah, well said Greg. Um, I prettymuch agree with all of that. Uh, and yeah, I think the right way to look at itis, um, you know, p now that Bitcoin's cheap, a lot of people have anopportunity to get in that couldn't have gotten in before. Uh, so dead hedge.We only have a couple minutes left, but I see you're up here. Do you have aquestion for Greg?

Speaker 6 (00:58:32):

Yeah. Hey Greg. Uh,<inaudible>, um, I have two questions. Uh, what are your thoughts about,um, Jeff Schneider and, uh, his thoughts about, about, uh, collateral shortageand, um, balance sheet expansion being a big part of the problem, and what arethoughts about his, um, um, comments about in elasticity in Bitcoin becoming aproblem in the future?

Greg Foss (00:59:06):

Um, so

(00:59:09):

Firstly, I believe Jeff, Jeff Snyderto be a coiner. He just doesn't realize it. Uh, his whole euro dollar thesis isneat, but when he tries to explain it, there's a lot of dead ends there. Um,and over time I think that he will understand that relying on a math protocolversus a eurodollar system where you can't measure anything, it just feels likesmoke and mirrors. I'd much rather def, uh, rely on a, uh, math protocol andthe dollar shortage in the world. Yeah, you can live with that, but that's afunction of being a global reserve currency. Uh, bitcoin will become a globalreserve asset, potentially a global reserve currency, but I don't think thatthat needs to be the case. It will just become a global reserve asset and itwill replace US treasuries is the global reserve asset. Uh, as far as yoursecond question goes, I'm not familiar with his arguments.

(01:00:07):

Again, the against the inelasticityof Bitcoin, but I will say this if I understand it correctly, let's compare itto gold, okay? Um, if the price of gold were to double overnight, so it goesfrom, let's just say 2000 bucks ounce to 5,000 bucks ounce, do you think thesupply of gold would remain at 2% annually, approximately? Or do you thinkthere'd be a ton of, or deposits go gold or deposits that that would now becomeprofitable to bring to the surface and therefore the supply of gold wouldincrease above 2% annually? Excuse me. I think that certainly you would arguethat the supply of gold would increase how much we don't know. But thebeautiful thing about Bitcoin is if the price of Bitcoin doubles overnight, thesupply of Bitcoin does not change. It's a mathematical protocol and that's whyBitcoin scarcity and supply written with math and code is so much morebeautiful and the beautiful solution to supply demand economics in the worldand inelastic supply or inelastic pricing, not quite sure where he was goingwith that.

(01:01:25):

I'm not interested in getting in anargument with Mr. Schneider. I think we agree on more things than we disagreeon, and I'm not interested in saying, you know, that the US dollar won't be thebest horse at the glue factory. Okay, yes, the US dollar can be the best horseat the glue factory. The reality is it's still a fiat and all feats are meltingice cubes. It's just that the relative rate of decay of fiat money depends uponwhether you're measuring it against the US dollar or measuring it against someor other shitty form of fiat money. Cuz everything single FX rate in the worldis a cross rate and you're measuring one piece of shit against another piece ofshit. I'm not interested in measuring pieces of shit against pieces of shit.Okay? They're all melting ice cubes. Don't overthink things. You need a definedsource of supply, a scarce protocol or scarce asset hard asset. It is defendedby mathematics and code. It's called Bitcoin one B T C equals one B T C.There's only 21 million of them. I hope that answers your question and if itdoesn't, well it was my best shot. Thanks.

Logan Chipkin (01:02:41):

Thanks Greg. Uh, I see we have a fewother questions we'll just, we'll just ask, um, we'll get one more from uhdots. Uh, one moment. It looks like dots is connecting. We'll give 'em a fewseconds dots. Uh, I think you're good. Can you speak?

Speaker 7 (01:02:57):

Yeah, I can. Hi everyone. Thanks forthe opportunity, opportunity to speak. Um, I got a question from Mr. Foss. Mr.Foss, uh, big fan here. Uh, I wanted to pick your brain on something. Uh, we'retalking a lot about the elasticity of Bitcoin. That's not something to beproven for sure, but what I'm wondering about is paper Bitcoin. So my questionrelates to what's your view on the ability of exchanges to basically printpaper Bitcoin and sell those kind of iuss to, to normies who, who would believethey would be buying Bitcoin but they wouldn't be, and the effect on pricedilution that it has on the real price of real Bitcoin. If you have anythoughts on that, that'd be greatly appreciated. Thanks.

Greg Foss (01:03:47):

Yeah, I think, you know, I, again, itwas the same question was posed. There's no question that there has been acreation of paper Bitcoin, and that's because fraudulent activities by, uh, badactors like, uh, Alameda research and what happens when you are a hedge fundand having sat in that chair, you always become short the index, okay? Youalways become short, the king of the hill. So if you're an equity hedge fund oryou're trading equities, what tends to happen is you own single name equitiesand you are short the index. And that's how you define to your clients that youare delta hedged or risk neutral against an equity index. The same thing willhappen with alt coins versus Bitcoin, okay? You can pretend that you are deltaneutral, uh, to the, to the crypto space by being long these shit coins andshort the King of the Hill or Bitcoin to the extent that you are delta hedged accordingto some mathematical, uh, formula.

(01:04:52):

Now, that mathematical formula tendsto change as people realize that shit bitcoins go to zero and bitcoin may godown, but it is unlikely to go down at the same rate as your shit coins godown. So what happens is you end up shorting more Bitcoin, uh, and mostly inthe form of paper and you're shorting them to people who think they are buyingBitcoin, but they're really buying paper. And your shit coin is going fasterand faster to zero and your models are telling you uhoh you better short moreof the king and you're creating more of these paper obligations. The problemagain is that people buying these, uh, uh, IUs believe they own Bitcoin, whenin fact they don't own the keys and therefore don't own the Bitcoin. There's noquestion that the price gets suppressed. It also gets suppressed by cashsettled futures like the B I T O structure and that that is endorsed by, uh,the S e C.

(01:05:50):

All of this will settle out over timepeople, okay? But it takes, and some people can argue it's painful and I'm notgonna argue with you that it's painful for people who bought Bitcoin at higherprices to see it go down to these levels. But that's why you don't blow yourwad all at one time. You always keep some powder dry to be able to buy if theprice goes lower. So that's why I argue to set a Bitcoin target in your modelportfolio for your risk. And when you achieve that target readjust yourportfolio as the information changes. So maybe this is a great way to end thisconversation. It is my opinion that while the price of Bitcoin has gone down,the value of Bitcoin has actually gone up and accelerated to the upside. Suchthat even if Bitcoin was trading at all time highs right now of $70,000compared to the Shitcoin called the US dollar 70,000 compared to the ShitcoinUS dollar is still stupid cheap relative to its intrinsic value as portfolioinsurance.

(01:06:59):

What's that mean? It means you arebuying insurance extremely cheap today compared to even if it was at all timehighs. Even if it was at all time highs, the price of Bitcoin is still only 25%of its value at a minimum. Another way of saying that is until Bitcoin hits$250,000 per Bitcoin in US dollars, it's, in my opinion, that is stupid cheapand you're supposed to buy it with your eyes closed. But don't do it all atonce. Dollar cost average, change your position as the information changes.Don't be like Peter Schiff, don't be like Charlie Munger. Be like the youngkids who know how to manage risk in a new environment of digital assets. Andunfortunately we have to get through the bad actors like Sam Bankman Freed whocreate paper Bitcoin versus owning your keys, putting in his steal custody. Andby the way, don't trust your banks.

(01:08:05):

Your banks are actually way morerisky than f FTX was cuz why banks are levered 25 to one. Think about that. 25to one is your commercial bank, which is to say they only have $4 of equitycapital for every a hundred dollars of loans they make the other $96. That'sdepositor's money. <laugh>, that is a depositor who has lent money to thebank, much like people who kept their Bitcoin with FTX lent money to SamBankman freed so he could recreate the fiat Ponzi self custodys drive on ownthe most perfect form of insurance that ever existed. It's called Bitcoin andit's insurance against the Fiat Ponzi. Try and give thanks that the price iswhere it is now. It allows other people to buy it at extremely cheap prices,the people that need it most. So hopefully that answers your question. Uh,

Speaker 7 (01:09:07):

Mr. Fas? Yes sir. It it do, it does.Thank you very much. But like, uh, what about withdrawing, withdrawing yourBitcoin from the exchanges? That is something we haven't touched on

Greg Foss (01:09:17):

Yet. You have to do it. You have todo

Speaker 7 (01:09:19):

It. What's your thought? What's yourthought

Greg Foss (01:09:20):

On that? Well, you gotta do itbecause it's like holding an insurance policy with, uh, Lehman Brothers, whereLehman Brothers is gonna go outta business. You don't wanna hold an insurancepolicy with an insurance provider that's gonna go outta business. So you holdyour insurance policy where with your own keys, secure it in your head so thatyou can use that insurance policy whenever you need it. It's that simple. Buyinsurance from a decentralized counterparty, what's that called? The Bitcoin blockchain.There is no other. There's Bitcoin and then there's crypto. So you knew theanswer. I know you were baiting me, but yes. Own your own keys store. I had tosir yourself count. No, it's good. It's, I love it. Are we good guys?

Logan Chipkin (01:10:05):

Yeah, we're good. Greg, thank youvery much. Uh, I know you stayed a couple minutes over. Uh, so thanks Greg.Thanks. Will. I know Kent had to go, but on Kent's behalf, Greg, uh, we alljust wanted to thank you both for participating and for continuing to orangepill, uh, the creditors and the credit industry and the traders out there, sowe all appreciate it. Everyone, thank you very much for joining. If you'reAmerican, I hope you're having a great Thanksgiving weekend friendly reminderthat SAS Mining hosts these Twitter spaces every week, usually Thursday at uh,three 30, uh, pm Eastern. Next week we'll have Brandon Quim on from SwanBitcoin and we'll talk about his ideas about Bitcoin as a pioneer species. Sowith that, I won't hold everyone else. Once again, happy, uh, Thanksgivingweekend, everyone, and thanks once again, Greg. We really

Greg Foss (01:10:47):

Appreciate it. Yep. Thanks for havingme. Brandon's a great guy. Swan. Bitcoin's a great platform. Open to criticism.I listen to criticism. Why? Because I'm not a hundred percent cen certain, andI'm right, but I'll tell you what, I didn't use this math. Bitcoin to make themath easy is trading at $20,000 when I think it should be. Have a value ofclose to $2 million per Bitcoin in today's dollars. That means the market istelling me I have a 1% chance of being right. I'll tell you what, I'm not ahundred percent certain I'm right, but I'm way more certain than 1%. So it'slike going to the horse track when you know a horse has been giving the wrong,given the wrong odds. What are you supposed to do? You're supposed to bet onthat horse. And sometimes, like this year at the Kentucky Derby, an 82 to onelong shot wins the race. Well, Bitcoin's a better risk adjusted return than theKentucky Derby, and it's actually cheaper. Don't overthink it. HappyThanksgiving. I'll talk to you guys later. Thanks for having me.

Logan Chipkin (01:11:49):

Thanks Greg. Talk to everyone later.Take care. Have a good weekend. We'll see you next week. Bye.