Oddbean

I finally watched the famous Saif-Saylor interview, at normal speed and in one sitting, so I can opine about it. The tl;dr is: I agree with all that Saylor says, except the "yield" thing, which I think is unclear in the way he explains it. To the point, the Bitcoin-24 scenarios Saylor presents are in my opinion a lot more solid and realistic, and most importantly, more useful as an analytic and decision-making tool, than Saif's theses. If anything, BTC as 7% of the total global wealth by 2045 even seems utterly optimistic to me, since Saylor himself says that he's basing it in Western governments *not* going full Pol Pot on us all, which I think is a 50-50 chance... Anyway, the yield thing. I think Saif, like most of us, interprets Saylor's words as lending BTC, and *getting interest in BTC*. That's simply impossible for reasons perfectly known by all here, and anyone offering sats on your sats is either trying to steal your stack, or gambling it away, full stop. But as the discussion progresses, I think it becomes clear that what Saylor is saying is that what he sees is BTC holders sending their BTC to a system-level custodian (JP, City, etc) and that bank paying them back a portion of *the interest in fiat* obtained by lending the BTC to people who want to borrow capital. My problem with this is in Saylor's own scenario. He is saying that BTC's return in fiat terms will eventually converge towards stocks, staying above it due to greater volatility. Say, 18-20% yearly price increase. I fully agree. He also says that this will push interest rates on government and private debt up. I fully agree too. So how much are people going to have to pay to borrow BTC? And for what purpose would they borrow it, of they can always borrow fiat, which will always depreciate against BTC? It simply makes no sense whatsoever. When gold was the reserve asset, it could make sense to borrow gold to invest it on a business venture, because you didn't have to convert it into national currency to invest it, and you could beat gold's appreciation rates relatively easily. Say, borrow 1 million in gold at a 5%, and invest it in a business that yields 10%. Whatever the math. But even if we envision BTC as being accepted without converting it to currency, what are you going to invest it in that yields more than BTC's own appreciation in fiat terms, if that's 20% *yearly*, plus the risk premium of your investment? I simply don't see it. But I'd like to know it if anybody understands it. Then again, at some point Saylor does let it slip "you either get yield *or borrow against it*", which is a completely different animal, and in fact what I think will happen in the end. https://www.youtube.com/watch?v=k7XhzXMSAPo

Also of course, Saylor recognizes too that depositing your BTC with a bank for that hypothetical "yield" is a riskier proposition than holding on to it in self-custody "not earning anything". In which case BTC is "only" good as a store of value and you will eventually have to liquidate it if you want to realize that wealth (and Saif not only concurs but in fact says that's exactly "what it is for"). My opinion as I've said on other occasions is that I can see both scenarios: one in which borrowing fiat against BTC is possible and liquidation is not necessary, and the other one in which we never develop such tools and we eventually have to liquidate to live off our savings. The good thing is that in both cases the short and medium term procedure is the same: BUY MORE BITCOIN. And let it sort out itself.

Maybe I'm misinterpreting you, but I don't follow the reasoning behind "getting interest in BTC" is simply impossible. For example, if I loan 0.5 BTC to someone who wants to use it to buy a car, would it be impossible (or even unreasonable) for that person to be able earn and pay me back 0.6 BTC over the course of 5 years? Sure, there's always a risk that the borrower ends up defaulting; but that doesn't necessarily mean it was inherently a scam or irresponsible in any way from the start.

If Saylor's base scenario is correct, and I think it is, BTC's average yearly appreciation *between now and 2045* will be 29% year on year. That means, if you borrow 0.5 BTC when the price is 50k, in 5 years time it can be expected to be 210k. So, to borrow 0.5 BTC worth 25k, you have to come up with 210 * 0.6 = 126 k in 5 years. If that's financially possible, I want to know how because I want to do it too. Not to mention, for me to lend you 0.5 BTC worth 25k that will be worth 105k in 5 years, risk free, you would have to pay me a hell of a lot more than that. I don't see how any rational actor, be it a lender or a borrower, could do any of this. Especially if instead of borrowing 0.5 BTC at 30-40% interest, you can borrow 25k of fiat at a much lower interest. Even if rates really shoot up as in Saylor's medium-term scenario.

Sorry, in the end I got distracted with work and I didn't even make my actual point: Even if you can somehow turn 25k into 105k in 5 years, it's still better to do it by borrowing fiat at a much lower cost. Borrowing BTC never makes any sense at all based on Saylor's own base case. I admit it may be me missing something. That's why in my original note I said I found Saylor's explanation unclear.

Seems to me this is the value proposition of a hard money lender. Think of it from the lenders position. He fully expects for you to fail. He wants the money and/or the collateralized asset that is hopefully a cashflowing asset. If the lender sets his terms well enough, he could end up with all of his money back plus some and a cash flowing asset that continues to strengthen his position. Saylor strikes me more and more like a monopolist.

OK so what about the borrower? It's still an irrational decision. If BTC is going to beat fiat (because it will remain forever more volatile), it will always be better to take loans in the cheaper depreciating asset. Not to mention, in the example nostr: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 mentions the purchase of a car, which is a liability, not an asset, and even less a yield-bearing asset (unless you're telling me that you use it for work or something and so on, but that's splitting hairs)

And by the way, that's exactly what I keep saying I hope BTC becomes: collateral to borrow against and buy capital goods that produce cash flow. That's the only possible "yield" that BTC can generate.

Never make value judgments on why someone would want something. Only care about the fact that they do and what you can do to profit from it. Borrowors make lots of dumb decisions. Does the pawn shop care? Negative. Just structure the deal correctly.

I'm not making value judgments. We're just trying to figure out what scenarios are probable between now and 2045. Obviously there are always individuals making all sorts of bizarre decisions, but sticking to the discussion in the video, we're talking about a $100 - 300 T asset class and a whole global banking system attached to or built around it, not some rando nutjob making bizarre financial decisions for unpredictable and uniquely personal reasons.

OK but you don't sustain a 300 trillion dollar market, 7% of the world's wealth, with that. It can't be something that exists among the general public with the cooperation of "systemic banks", which Saylor is saying will be the lenders.

We're getting into the weeds. I'll need to listen to the interview. I'm talking about the general concept of lenders creating a system that allows them to scrape off the top. No, it rarely makes sense for the borrower who carries the vast majority of the risk. But I think we're talking passed each other because I'm completely lost on your post. Sustain a 300 trillion dollar market on what? Lending? BTC? Lending BTC? I've lost track of what we're talking about. Let me listen to the interview and get back.

Ah, I think I see where our interpretations of Saylor differ. I think Saylor was trying to make a distinction between "risk-free" yield in fiat - which as he said "isn't going away in the next 10 years"; and an eventual non-fiat Bitcoin standard future. (I think he was having difficulty clarifying this distinction because they were talking past each other so much). I believe Saylor's overall point was that there will always be willing borrowers and willing lenders of capital in exchange for a yield (I agree). In a fiat world that offers cheap money backed by a money printer, I agree that borrowing and lending 'risk-free' fiat will likely continue to make the most sense. However, as the world moves on to a Bitcoin standard - and pricing BTC in fiat terms becomes obsolete - borrowing BTC subject to counter-party risk will become normalized. It seems Saif's position is that in this future, otherwise would-be lenders would necessarily receive shares of equity in exchange for their capital rather than yield. I don't really understand how that would work for someone who just wants to buy a car with capital they haven't yet acquired.

To reiterate what I say in the other note, it's important to understand that Saylor's analysis doesn't go beyond 2045, and by that date he contemplates BTC being just a 7% of global wealth, and mainly by demonetizing a range of asset classes a lot more diverse than just "money", as Saif insisted. In fact, Saylor says at one point that he doesn't even believe BTC is actually competing against the USD and US Government-backed debt. So it can hardly be that he is talking about a future in which BTC is the unit of account and fiat a relic of the past. We all agree that there will always be lenders and borrowers. But just as nobody generally speaking would borrow a piece of real estate if I want to fund my startup, they wouldn't borrow BTC.

On multiple occasions, Saylor refers to the non-fiat gold standard of the 1800s, or 200 years ago, etc. Then, at one point, Saif frames the conversation as "In a world in which you only have 21 million, and you don't have a lender of last resort, I don't see how this model survives." to which Saylor responds by again referencing the gold standard of the past - this time with the emphasis of "before fiat" - followed (eventually) by "the idea that I would get interest on a sound money asset, I don't think is unreasonable in the future because it wasn't unreasonable in the past." To me, this can only be interpreted as analogizing Bitcoin's eventual fiat-less future to gold's fiat-less past. This, btw, does not contradict the notion that Bitcoin is not currently competing against the USD nor will it for the foreseeable future.

Wchih takes us back to my initial comment: if Saylor's meaning is that you lend BTC and get BTC + interest *in BTC*, he's taking the piss. It's impossible. And if he means that you get interest *in fiat*, well, it's a fiat standard.