In recent years, cryptocurrency has become a global phenomenon, but there is still a lot to learn about this developing technology. Many fears and concerns surround the technology and its potential to disrupt established banking systems.
Tom Bilyeu’s podcast with Anthony Pompliano entitled “The Future of Money and How Bitcoin Will Change the World” talks about the rapid development of Bitcoin, the blockchain and NFTs, how they are currently being used, and what the future holds for this technology because it’s here to stay, and it’s causing a massive change in wealth and purchasing power.
Tom Bilyue and Anthony Pompliano at Impact Theory
Understanding Personal Finance
The wealth inequality is largely caused by a lack of education. 45% of Americans have no investable assets because they anticipate they’ll rise in value in the future. 45% of people live paycheck to paycheck, keep all of their money in a bank account, and aren’t quite as knowledgeable about how the system works which also leads to the discussion of generational poverty. However, it was said that 80% of millionaires inherited 0 dollars, 20% inherited something. Millionaires never made a hundred thousand in a single year which means that discipline is actually the key to having strong financial resources.
Cryptocurrency and Fiat Money
Bitcoin has become the most widely used technology in human history. Bitcoin competes with fiat currencies for use as a store of value, a medium of trade, and other functions. Fiat simply implies that it is supported by the government and is therefore under their control.
A fiat currency, often known as sound money, is a versatile form of money. All sound money is something that exists outside of the system and that no one can manufacture more of. Bitcoin, on the other hand, is a digital form of sound money.
Bitcoin’s Volatility Advantages
When it comes to thinking about volatility, there are two schools of thought.
The first is that something is volatile to the upside if it increases in value, and fragile to the downside if it drops in value. Volatility is neither good nor bad; in fact, if it’s working in your advantage, you want it to be erratic.
The second point is that over a five-year period, if you invested in a 6040 global portfolio (60 percent stocks, 40 percent bonds), you would have received a 7.2 percent annualized return, which is about average for the last few decades. If you had taken half a percent from stocks and half a percent from bonds, you would have had a 1 percent allocation to Bitcoin and 39.5 percent to bonds, you would have received a 7.2 percent annualized return, which is about average for the last few. As a result, your annualized return will improve by 200 basis points. You would have lost all of your money if that 1% Bitcoin allocation had gone to zero, but you would have simply gone from 7.2 percent to 7 percent.
It’s roughly a 200 basis point or 2% upside for a point two or a 20 basis point downside, or a 10 to one ratio. A percentage of a portfolio’s value is not a big chunk of money. For the most part, this is a speculative investment. However, because of its tendency to appreciate so quickly when a lot of people are excited about it, it can have a huge beneficial impact on a portfolio.
Tom Bilyeu and Anthony Pompliano
Breadcrumbs for Going Digital
Do not be afraid of price volatility. In fact, you should get excited in either direction. When it’s going up, think of earning more and when it’s going down, think of buying more because technology is a one-way street that will never go backward. We will ultimately become really tied physically to technology. Everything will ultimately get digitized so what we’re living through right now is a really fascinating moment where art is now being digitized. Money is being digitized like bitcoin.
Increasing Purchasing Power
It really just comes down to this idea of, the purchasing power increases versus the purchasing power of the dollar decreasing. And so when you look at Bitcoin specifically, it has a financial component that is unavailable in other assets. It is systematically built to continue to protect your purchasing power. It doesn’t degrade.
Censored Payment Systems And the Benefit of Open Payment System
When you deposit money into a bank account, it no longer belongs to you; nonetheless, Bitcoin grants you sovereignty. You are free to keep your money. Because you have possession of the asset, no one is holding it.
All of the technology we use is vulnerable, but Bitcoin’s payment network provides censorship resilience.
Because of the society we live in, the concept of an open payment system is unfamiliar to us, but anyone in the world can plug into this open system and send value to anyone else without asking permission. Anyone with an account has the ability to transmit money to anyone else who is connected to the system.
When it comes to Bitcoin as a unit of currency, the network acts as the payment rails, similar to a visa. As a result, you can send money across Visa’s network right in the legacy system.
You can send any currency, whether it’s dollars, euros, or Bitcoin, with near-zero, if not zero fees. When you reduce the cost of sending small amounts of money to zero and do it in a frictionless, censorship-resistant manner, you get what’s known as streaming payments.
Decentralized Tech Structure
The whole idea around decentralization is that no single person or entity controls the system. If we want to accomplish a lot of the things that have been great throughout this industrial revolution, we need a central order or central coordination of resources, both financial capital, human capital, and also plans and execution.
Sometimes decentralization is better but it is not always the case. Centralization is efficient in some instances, but now that we have decentralization with this technology, they are able to develop far larger networks. Rather than relying on that hierarchical structure, they built the world’s most powerful computer network in the last 12 years.
A network’s strength can be measured in two ways: one is purely qualitative, and the other is quantitative. The design of Bitcoin itself is the qualitative one. And that network, the quantitative one, which consists solely of financial or economic incentives, has far exceeded any hierarchical endeavor.
Predicting vs Observing Market
The more that you can be a market observer rather than a market predictor, you start to understand lots of things. A market predictor makes an investment on whether their plans line up with how they think the world is gonna move in the future while market observers adjust their strategy based on what’s currently happening in the market.
Digital Versions of Analog (NFTs)
The digital version of analog has a whole bunch of advantages over the physical version. First, there’s an accessibility advantage. This means that with an internet connection, you can sign it and immediately start to transact in it. Second, there is fractionalization so you don’t have to buy a full Bitcoin. The third is that there’s a portability advantage to it. You can carry it around really simply on your phone or on a laptop, rather than lugging around physical goals.
The same thing happens with digital art. It’s more accessible, more divisible, and more portable. It is fascinating because there is a level of wealth that is being created, but it’s not being exchanged. And whether it’s NFTs, whether it’s games, whether it’s something else, technology is really creating separate revolutions and one is the monetary revolution.
The Monetary Revolution
On a structural level, all Fiat currencies share the same monetary policy, which is that they are all inflationary currencies, meaning that more of them are constantly issued. It has a flexible monetary policy, which means it changes frequently. They may expand or contract at times, but the dollar will always lose value because they must continue to manufacture more of it. Same with the peso, Euro, and so on, so if you throw all the Fiat currencies in a bucket, you get a non-consensus or a different currency system, such as Bitcoin. So, if it turns out to be correct, it’ll be quite beneficial.
If the friction and cost of transacting between currencies suddenly change, the switching cost becomes zero, and you are now paid in dollars. And you may turn your dollars into pesos, Bitcoin, a digital Euro, and so on with a single click of a button. The technology is exactly the same now. The only distinction, and the only competition between the currencies, is that they’re all digital currencies in terms of monetary policy. In that constant state, the digital dollar, digital peso, and Bitcoin are all essentially the same in terms of technology.
Bitcoin as Global Reserve Currency
There are two perspectives on bitcoin’s potential as a global reserve currency. One of the most common is the legacy language of global reserve currency. The military essentially establishes the currency and then enforces it around the world. However, an economy has been established. It is the world’s largest, and it has no reserve assets. Bitcoin is gonna be a global reserve currency because it’s nearly as competitive as the Fiat currencies.
Why Pomp Chooses Bitcoin
We have to digitize our currency so it’s accessible to people around the world and so we can drive more adoption and more value.
Bitcoin specifically is valuable. If it goes head to head with the Fiat currencies, Bitcoin is valuable. According to Pompliano, if all of a sudden, every asset is a currency and you can interchange them freely, the least risky thing that he will do personally was to buy Bitcoin.
The thing that has a very attractive return compared to traditional assets is that Bitcoin compounded at 200% annually for a decade so if it’s durable and it has an attractive return compared to traditional assets, you’re going to get a lot of that.
Cryptocurrencies, particularly Bitcoin, have a very utilitarian, but also a disruptive quality that has begun to interfere with the existing financial system slowly but progressively.
Currently, Bitcoin is poised between being a store of value and a medium for daily transactions. By providing better access to finance and financial services, Bitcoin has the potential to enable social and economic growth around the world, even in underdeveloped countries.
You might also enjoy
Listen to Other Podcasts by Tom Bilyue