Takeaways from Pomp’s interview with the Joe Buden Podcast
A few weeks ago, Anthony Pompliano, best known in investment circles as “Pomp”, appeared on the Joe Budden Podcast (JBP) to help spread the gospel of Bitcoin and present the case for why could it become the global reserve currency of the future.
As someone who’s new to Bitcoin and the world of cryptocurrency in general, the Pomp x JBP conversation was an extremely timely one because it featured Pomp patiently explaining the basics of Bitcoin — its founding, the mechanisms of the decentralized technology that supports it, how it’s different from standard fiat currency, etc. — to a group of guys who, like me, knew very little about it and simply wanted to learn more.
Below are two key takeaways from that conversation:
While Bitcoin can and does serve as a medium of exchange, its main attractive quality is that it’s a store of value with a fixed supply. Satoshi Nakamoto, the creator of Bitcoin, built a system that effectively limits the number of bitcoins to 21 million. Once all 21 million bitcoins have been “mined”, the supply is forever exhausted. And, because Bitcoin exists on decentralized blockchain technology, untethered to the control/whims of any particular government, the rules that govern it cannot be arbitrarily changed. These specific characteristics, plus a dose of optimism and belief in the discovery of a new form of money, help explain why investors have flocked to the cryptocurrency — they believe that Bitcoin can serve as an effective hedge against (1) inflation and (2) the devaluation of fiat currency via significant money printing. 2020–2021 renewed concerns about the the latter because of the (likely correct) decision made by governments and central banks to inject significant sums of money into the system — in the American case specifically, over one trillion dollars — in an attempt to counter the pandemic’s deleterious effects on the economy. While I do believe these actions did save thousands of companies and millions of households from falling into the abyss, I (and many others) also wonder how this incredible amount of fiscal stimulus will affect the purchasing power of the currencies connected to these central banks. The jury is still out on if/when the effects of this money printing will result in inflation. However, I believe the ease with which the Fed “flooded the system with money” — to use the literal words from Fed Chair, Jerome Powell — and the expectation of incoming inflation is why investors moved heavily into Bitcoin last year, causing it to appreciate by almost 170% YOY in 2020.
My second key takeaway is that “the establishment is starting to take Bitcoin seriously”. Joe Budden, a self-professed skeptic, asked a great question about how people could feel comfortable investing in a new form of currency, supposedly free from government control/manipulation, and not be worried about governments and large banks preemptively cracking down on Bitcoin. Pomp responded by sharing that if we look at what’s happening, the biggest players are exploring and tepidly deciding to invest in Bitcoin themselves, adding more credibility to it as an alternative gold-like asset and significantly impacting its network effect. Jamie Dimon, JPMorgan Chase CEO and a Wall Street titan, has gone from famously declaring Bitcoin a “fraud” in 2017, to begrudgingly admitting that while it’s not his “cup of tea”, his company will always support blockchain technology, as the future of finance. Not a ringing endorsement, but far from his previous outright rebuke. Ray Dalio, Founder and Co-Chairman of Bridgewater Associates, the word’s largest hedge fund with $138 billion AUM, recently authored a brief post on LinkedIn, weighing the pros and cons of Bitcoin. He landed on it being a “long-duration option on a highly unknown future that [he] could put an amount of money in that he wouldn’t mind losing about 80% of”. Again, not a ringing endorsement, but not a strong rebuke either. Alternatively, Paul Tudor Jones, another hedge fund manager ($9.19 billion AUM), is positively optimistic about Bitcoin, and revealed last year that he had put 1–2% of his assets into the cryptocurrency. There’s still a ways to go before Bitcoin is widely accepted, and institutional investors are still largely sitting out, but the level of interest and engagement with cryptocurrency as an alternative asset class is trending upwards.
There’s also a “game theory” element to Bitcoin that, according to Pomp, helps alleviate concerns that the American government would enact policies intended to outright ban the possession of Bitcoin. The theory is that essentially if Bitcoin did emerge as a viable option for the global reserve currency of the future, America would elect not to shun this innovation in fear of losing influence over other countries that more readily adopted Bitcoin. I’m not so sure about this theory, though, since China, which has the world’s second largest economy, has emerged as one of the world’s strictest countries in terms of crypto regulations and has outright banned cryptocurrency as money. In fact, China expressly forbids “activities that Bitcoin is engaged in as legal tender”. The only reason why Bitcoin-related activities have not been banned outright is that China does not consider Bitcoin to be “money” and allows it to exist as a virtual commodity. Perhaps this is a massive strategic error by China, or perhaps other countries will follow China’s lead, causing theBitcoin hype train to stop dead in its tracks.
I guess only time will tell.
Other quick points:
- Pomp dropped an interesting statistic that the bottom of 45% of Americans don’t own a single investable asset. The rich invest and the poor save.
- The code that governs bitcoin dictates that no changes can be made to the “rules” unless 51% of users agree to make the change
- The pseudonymous Satoshi Nakamto authored the bitcoin white paper and deployed bitcoin’s original reference implementation. No one knows who he/she/they are.