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Watch our Bitcoin Documentary, “Banker’s Worst Fear”

Transcript Greetings and thank you for joining us at I’m here with a good friend and a great guest of our show, of past shows, Mike Krieger. He’s an economist and he runs He posts daily; his articles get posted all over the web, including the very popular site ZeroHedge. Mike, thank you so much for joining us.

Mike Krieger: Hey Dan, great to be back on with you, and excited to talk. Alright, so today I invited you on to talk about Bitcoin, the state of the U.S. Economy, and a little bit about housing, but mainly because we disagree on it. So hopefully that will be a nice fun conversation. And for people to hear some differing views on it, as far as housing asset protection kind of strategy or why it’s a really bad idea. Okay, so let’s start with Bitcoin though. I think what people are missing, and this is what I came away from this conference I just came back from the past two days, is the infrastructure (that exists). A lot of people from the outside are like “this is just bubble trading,” but Mike, you’ve been on this way longer than I have and you certainly understand it more. Could you just share with people the kind of infrastructure there is. Are the businesses being built around Bitcoin? Is there big money involved in Bitcoin? Or is this just a bunch of speculators here in the States, on the blogs, and on YouTube.

Mike Krieger: Yeah, this is definitely one of the areas where I think people are misunderstanding about Bitcoin, and in particular that one criticism of “well, there’s now 45 crypto-currencies, and so its going to be diluting the whole pool, and what’s the difference between Bitcoin and all these others, and it’s going to divert money from Bitcoin to them and it’s all a speculative bubble. That’s the key thing people are missing, is that the first mover advantage is huge for Bitcoin in a lot of ways. Not just for stores and companies deciding to adopt it, but also because of all the venture capital money, the human intelligence that is going in to building companies around Bitcoin and then building up the infrastructure. And that’s the genius of Bitcoin. By being decentralized and open source, it allows layers and layers of different companies and services to pop up around it so in reality it’s actually really really good for the U.S. Economy. And we should be promoting it like crazy from a top-down perspective or just leaving it alone because it has such an unbelievable opportunity to create businesses that we can’t even imagine, using Bitcoin technology and the infrastructure. I think that’s huge and really important. And today a huge announcement came out, the biggest venture capital investment in the Bitcoin space to date, by a lot. It was 25 Million invested by Andreessen Horowitz, lead by them in to Coinbase. And Coinbase, for your listeners if they don’t know, is a San Francisco based company that is a wallet provider, where you can buy and sell Bitcoins, but it also integrates merchants in to the Bitcoin network. It helps them accept Bitcoin, so it’s sort of like BitPay which has been the leader in that area, but now Coinbase is also putting its stake in the ground in processing payments for Bitcoin. The size of the capital that’s being invested in Bitcoin from very smart venture capitalists is only getting bigger and bigger. It’s a huge part of the Bitcoin ecosystem. And it’s real. Mike, before you started to buy your first Bitcoins, what was your personal biggest concern about the currency and the payment system?

Mike Krieger: Yeah, so here’s the thing, and it’s interesting because I’m sure this is actually one of the concerns I’ve seen out there, and one of the concerns I think a lot of people have still, and that’s that we don’t know where it came from, and we also know that it’s in the powers that be, the banking elites, it’s in their best interest to have everything go digital and then be able to track everything and basically shut people off and shut people down if they want to. I mean we’ve heard all about this for a very long time. And so it’s been a fear in the back of the mind of a lot of paranoid, cynical people, including myself. You know I’m a pretty cynical guy in a lot of ways, so I had those concerns. I first heard of Bitcoins about two years before, I publicly endorsed it. And it’s not like I spent those two years just studying Bitcoin, but what held me back from getting involved early on, unfortunately, is that I did have those concerns. I was like “well, is this just a ploy? You know, is this a CIA thing? Is this a NSA thing? Is this a Federal Reserve thing that they’re just being tricky about? And because I had no technology background, and I have no way of, on my own, independently coming to a conclusion on this, where as with financial assets and other things I do have the expertise, I just decided to just let it be. Now fortunately for me, I over the course of those following two years, I happened to get to know several people involved in cryptography, technology, programming, code, all of those things on a very high level. And they became my friends. And as a result I was able to ask these people all of the detailed questions I had about Bitcoins. And these are very paranoid people as well. So after having a lot of those conversations and thinking about it, I decided to support it. With caveats of course, but I decided to support it. Now within August of 2012 is when I first publicly came out saying, “I like Bitcoin and here’s why.” So yeah, I mean I share a lot of the initial concerns, so that’s why when I read the concerns of a lot of people, or hear them, they were similar to mine, I kind of just say to myself, “well I wish something would think about it a little bit more, or at least not rush to judgement.” I mean, nobody knows who created it, I get that, so I can’t say for sure who did or didn’t, but neither can they. So that’s sort of my… Yeah, I’ve always been open minded to it because it was a free market solution, and Liked it because typically when people kind of figure out what’s going on and what a big fraud our whole economy is, then you kind of just go in to this defensive position. You’re like, “OK, after the collapse I’ll use my gold and silver or other assets to purchase things and I’ll thrive that way. But I like the digital currency because it is a way forward. It is a solution and I have to agree with you. Man, when I was at that conference it was entrepreneurs, it was geeks on digital crack. And I’m talking about the smartest people in the world. I mean I have no doubt that the next Steve Jobs was in that room yesterday.

Mike Krieger: Yeah, and I completely agree. Yeah, and then libertarians. You know so, as far as the demand, as people look at Bitcoin, a price chart, and it’s going parabolic. You know, if gold did that or a stock did that you would say this is an obvious bubble. Why would you say that Bitcoin is not a bubble if this chart is going straight up?

Mike Krieger: Yeah, OK, well this is how I look at it. So I take offense to the bubble thing in particular when it’s someone saying it that A) Doesn’t understand Bitcoin at all, which is most of the people calling it a bubble, or B) it’s people that aren’t calling other things a bubble, but are calling Bitcoin a bubble. So, I mean look at the stock market. It goes up every day with almost zero volatility. Look at the housing market, it is going up despite the fact that incomes are going down and we have record amounts of people on food stamps. So those are obvious, irrational, moves in these asset prices, yet Bitcoin is the one that’s irrational and those aren’t? Right? So that’s my thing, if there’s someone that says “I could be sympathetic, even though I wouldn’t agree to the argument if someone said OK, well I think stocks are a bubble, I think housing is a bubble, I think we’re going in to deflation. Bitcoin is just a data play on bubbly assets.” If someone said that I would disagree, but I could at least respect the consistency of the logic. Most people though are saying it just because they don’t like Bitcoin or because they missed Bitcoin or because they don’t understand Bitcoin, but if you put it in the context of, because it is a competing currency, asset, and it is a competing payment system. So if you put it to context with the money printing, I mean this is what I always say. Its about ten billion right now, the market capital in Bitcoin, ten billion, Bernanke creates eighty-five billion a month! Bernanke is still creating the equivalent of 8.5 entire Bitcoin markets every single month in new fiat, and that’s just the U.S. So I mean, in the current text of what, again is it in the expression of overly loose monetary policy? Perhaps. But, it would be that, it wouldn’t be the Bitcoin itself is a ridiculous thing, because as you’ve seen it’s very valuable, it’s very interesting, and as you point out which I don’t think a lot of other people realize, is that the core philosophy of a lot of the people involved in Bitcoin, most of the people by far, is very similar to the philosophy of what got people in to precious metals to begin with. Wouldn’t you agree? Yeah, no, definitely. The libertarians, and the anarchists. And even though I see the entrepreneurs, I mean I hate to say it but I just had to sit back there in my chair the other day and I was like, “these are the good guys. The DNA in this room, this is the cream of the crop.”

Mike Krieger: Exactly, and I got to tell you another thing. And I don’t mean to bash the precious metals community because it’s a big part of where I came from and who I still associate with. But you know when I’ve gone to let’s say more precious metals more focused conferences, and when I went to the Bitcoin conference. I tell you what, I’d rather be around the Bitcoin conference any day of the week. You know, and again I’m not trying to get you to say the same thing and I’m not trying to piss anyone off, but I got to tell you it’s like, rather than what I hear in a lot of the gold communities, is the same story over and over. I mean, you got to own Gold, got to hold on to it, and then you’re going to be part of the wealth transfer, and then you’re going to do well afterwards or you’re going to be protected. And that’s fine, and I’m not saying that’s not right and I’m not saying that’s bad. But there is a distinction between that and what the people at the Bitcoin conferences are doing. They’re not saying “oh, I’m going to hold some Bitcoin and then I’m going to be fine and rich.” They’re out there, every single day, working on the Bitcoin infrastructure to try to actually make this thing happen. Every single day of the year. It’s a revolution. Yeah, I was going to say I would compare it to when I went to Ron Paul rallies, there were a lot of people, with their own money and own time making bumper stickers and signs and knocking on doors. And a lot of the Bitcoin people, the community, they are doing things like that to try to help educate people. I guess kind of going in with the whole theme of Bitcoin and the U.S. Economy and since you brought up the precious metals. A lot of people are, a lot of their concerns, is that the banking cartel has pretty much just infected and plagued the whole world. With manipulating gold, manipulating technology, I mean our money, our individual liberties, I mean, everything. So what would protect Bitcoin, or does Bitcoin actually have the chance to kind of be like that silver bullet into the vampire that actually slays the cartel?

Mike Krieger: I think that one of the reasons why I originally said in that first article in August of last year, I said “even if it doesn’t work, if it is ultimately somehow destroyed; it’s still worthwhile to do it.” Look at gold and silver. It’s not functioning as an expression of peoples’ dissatisfaction with the monetary system; bitcoin is. I was part of the people that said ‘buy silver, make it go up’ to say something about the Federal Reserve. That was a good idea, but their ability to manipulate the markets has been shown to everyone. What’s wrong with having another asset created in a decentralized open source manner that people can buy and it can shoot up to the moon and we can say we’re buying it because we’re dissatisfied with the way things are. Even in that sense, as a clear expression of dissatisfaction in the status quo it is useful. There’s a lot of mainstream tech guys involved in Bitcoin. We’re talking Fred Wilson’s Union Square Ventures who I believe was an early investor in twitter and now we’re talking about Andreessen Horowitz. A lot of these big time players in the tech area, they weren’t in the gold and silver market. They don’t have that background. Let me ask you one more question about housing. I produced a video probably a month or two ago (Rental Boom) my goal was to buy with my personal net worth and I recommended others do as well. Buy houses in the Midwest or southern United States. You’re buying for about 50% of the value it costs to build them. My thinking is there’s going to be a rental boom because people are getting poorer and more are going to rent. I’m not looking for appreciation; I’m looking for a hard asset that is undervalued in actual cost to build it. I’m getting cash flow in the meantime. I think it’s pretty safe in my opinion because the landlord business should be very booming because of all the coming renters. You totally disagree, if you could just share your thoughts on why you think it’s a bad idea.

Mike Krieger: I wouldn’t go so far as to say it’s a bad idea, just that I wouldn’t do it. It’s not on the list of things I’m interested in whatsoever and I’ll tell you why. The caveat is that if the dollar is destroyed, which I think there’s a good likelihood it will be; housing will be a store of value. I don’t think you’re going to be wealthy but you will store some of your value for sure. It is a hard asset, real estate, but on the flip-side I do identify a lot of pitfalls. The interesting thing about so many people calling Bitcoin a bubble is that I’ve always, from my career on wall street, to now, I’ve been good at identifying bubbles and overvalued things. I do think housing is sort of bubbly again. I think the recovery is a manufactured false recovery; now that doesn’t mean it can’t keep going up. The state is clearly behind pushing up real estate. The demographics, a lot of people say yeah, you’ll have all these people coming out of college with no money that will have to rent. Well, why can’t they live at home? A lot of people are doing that; there’s no reason to think that trend is going to change. I think something like 30% of people 18-33 or so live at home with their parents. You can go ahead and say that’s going to change but what’s going to make that happen? We’re becoming like Spain. I lived there for a semester, the house I lived in had a 28 year old daughter who went to law school and lived at home. Every single person I knew in their late twenties were all living at home. The U.S. is becoming more that sort of economy. One step further, the baby boomer generation is the biggest generation we have, and the wealthiest. They’ve got homes; more than one home. A lot of them have vacation homes or second homes and they’re not going to live forever. My point is that if this biggest generation is loaded up on homes and they’re going to die, these homes are either going to go to the children who then don’t need to buy or the homes will be sold. I look at the housing market and the overall economy, student loans, kids living at home, baby boomers having houses, and I see an artificial ramp in the prices manufactured by the FED and private equity; I just don’t like the trade.

Taking it one step further as I’ve mentioned before, this is a crowded trade. That doesn’t mean it can’t go forward but people are calling Bitcoin a bubble when everyone is trying to buy and rent homes. When I sit at coffee shops in Boulder, Colorado, and half the conversations I hear have to do with that. On the radio here, all I’m hearing is this is the time to buy a home, rent it out; this is not an early days for this (trade). To me it feels like we’re very late in the game in this. Anything that has a return profile like this gets arbitraged. People buy it up, rent it out, they’re the first movers that do well and you can only have a certain number of people chasing the same trade. In my opinion it’s crowded. I’m not saying beware to someone who’s an expert in real estate, but for the average person, for the first time, considering buying a home to rent I don’t think it’s a good idea. It’s almost like everything you’re telling me I agree with, the prices are inflated, appreciation not going to happen, but we come to a different conclusion.

Mike Krieger: If the dollar continues to be destroyed, and let’s say minimum wages go up, housing could be okay. I just don’t think it’s a
tremendous opportunity by any stretch, but it may not be a disaster either. It’s just not for me. For me it is part of diversification because we’re going into such uncertain times; I’m just trying to diversify amongst my hard assets.

Mike Krieger: Many people can and have proved me wrong on my things; this could be another. I don’t want to just stop trying to accumulate cash flow because I’m waiting for the whole thing to unravel. I could buy oil MLP’s but those things went down 90% in 2008. It’s a rough situation everyone is in. Hopefully these things provide some type of protection and will be around in 50 years. Mike thank you so much for joining us, it was a great conversation on Bitcoin and I look forward to having you back in a few weeks if you have time. I know this is going to arise a lot of questions on Bitcoin. My audience, though we started talking about bitcoin when it was $13, not a lot of people are buying it. You and I talked about that before the interview that for it to be a bubble there has to be public participation but no one’s buying it, even a lot of people that know about it. If you could I’d love to have you back on by the first of the year.

Mike Krieger: Sounds good, always a pleasure.