Episodes

Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value, published by Stansberry Research. Today we'll talk with my friend, Stansberry colleague and crypto expert Eric Wade. In the mailbag, feedback on our previous guest Gautam Baid and a question about bitcoin that I can actually answer. And remember, you can call our listener feedback line at 800-381-2357. Tell us what's on your mind and hear your voice on the show.

For my opening rant this week, falling in love with inflation, as it seeps into our souls. That and more right now on the Stansberry Investor Hour.

People must be in love with inflation because it came in at 8.5% for July, and the market took off, the Nasdaq took off. It was up more than 2% on the news. So, I think, if we're cheering 8.5% inflation like that, maybe we're getting a little bit ahead of ourselves because I continue to assert against everything you've seen in the stock market over the past week especially, really past three, four trading sessions here, that inflation is a sticky phenomenon, period. It's a stickier phenomenon than what markets are now discounting. And the proof of that, really, is just in past episodes.

You remember... well, you may not remember because some of you maybe weren't born yet, and I really don't remember it, but I was alive, and I have studied it a bit. Inflation in the '70s did not begin in the '70s. It started in the late '60s and then, of course, it got a really big shot in the arm when the Arab oil embargo happened. That didn't help the situation. But inflation is different from supply shocks. And I feel like what we've seen now, we've seen a supply shock called COVID lockdowns, but we've also, as a result of that, seen real inflation. And it makes you wonder, well, what the heck is inflation anyway? And I think that's a part of the problem here.

I don't think most people understand what inflation is. If I ask you what inflation is, you'll say, "Oh, well, that's when prices all go up," or something like that. Or even you might say, "It's too much money chasing too few goods, and it forces the prices to go up." But it's really the rising prices that everyone tends to focus on. And I think it's helpful to separate these two. You should separate inflation from its effects. Inflation is an increase in the supply of money and credit.

Now we tend to use the term inflation when the increase in the supply of money and credit does get into the economy and cause prices to go up. But technically speaking, I'm comfortable just saying it's an increase in the supply of money and credit. For example, the supply of credit goes us just when the Fed prints... It prints money, but it tends to use it just to buy securities from banks, and that makes bank reserves go up. And that doesn't necessarily make the price of anything go up because if that money is not lean and spent again and again, you don't get the rising prices. There is not that demand surge.

And so, for a long time, we had central banks printing money, especially... let's just focus on the Fed... printing money. And the Fed assets quickly doubled from $1 trillion to $2 trillion during the financial crises, and then drifted higher up into the $4 trillion range. And then, of course, since COVID, it's like from $4 trillion to almost $9 trillion.

So, we got this massive increase in Fed assets, but inflation showed up when the government got involved. Inflation comes from the government. It doesn't come from oil prices, it doesn't come from supply shocks, it doesn't come from war. It doesn't come from anywhere but the government because only the government can be the big spender, and only the government can increase the supply of money, is really it.

But you don't get the effect, I don't think, until the government prints a lot of money, which in our case means borrowing. Our money is borrowed into existence by the Treasury. And then they've spent it. They used it to try to fix what happened during the COVID lockdowns. And that has created real inflation. There's lots more money out there than there was, and you can quickly increase the supply of money. You can't quickly increase the supply of goods and services.

So, that's why I say inflation tends to be a stickier phenomenon because the money doesn't go away. The government's not calling the money back, and you can't just that quickly increase the supply of everything. So we get rising prices due to inflation. And CPI inflation – the Consumer Price Index, the most widely acknowledged, used, referred-to inflation gauge – was at 9.1% in June, then it went to 8.5% for July.

And people will say, "From 9.1% to 8.5%, hey, that's great." And month over month, the CPI was 0%, it was flat. So people way, "Oh, there was no inflation in July." Well, that's not right. Looks like 8.5% to me. And I'm sure you can point to the price of a lot of things that went up.

And I think people might wind up being sorry about saying that gasoline prices and oil prices are going down at this time because the fundamentals behind that... talk about not being able to make a lot of new supply real fast. Boy, I want to tell you what, a lot of new supply in oil is not easy to come by. And this time around, we're not getting the response that we normally get when oil prices are in the $90, $100 range, which is for oil companies to just invest like crazy.

In fact, there was an article recently in, I guess it was Barron's, where they were saying oil companies, the big five oil companies – and that's like Shell, and ExxonMobil, and Chevron, and I forget the other two... Total is one of them – they're investing in about half the rate they did the last time oil was a hundred bucks because they're afraid. The world's governments are coming after them and saying they're going to shut them down. So oil prices might be kind of higher for longer than anyone suspects, just on that supply issue alone. And inflation, I believe, is a stickier phenomenon then people really are acknowledging.

So, I think you should be careful in that regard, and I don't think you should be complacent, I will say, complacent about the Nasdaq being back in a bull market. The Wall Street Journal said this. In fact, they ran a headline recently... "The Nasdaq Composite Is Back in a Bull Market" because it's "risen more than 20% since mid-June." And I made a chart in a recent issue of the Stansberry Digest on Friday. So the official definition of a bull market is up 20%, and the official definition of a bear market is down 20%. I want you to go make a chart of up 20% then down 20%, then up 20%, then down, and just keep doing that. You're going to have what's called a downtrend in front of you.

So that can't be the definition of a bull market. A bull market has to be a new high because that's the only way that you're going to get a trend that goes up and to the right... by the market making new highs. If you just get up 20%, down 20%, that looks like a downtrend. So, it looks like a bear market with a bunch of 20% rallies in it. So I think this is premature. And admittedly, these definitions must be backward looking. You're always looking in the rearview mirror to define them. So they may lack usefulness for prediction purposes, but there's no law of nature that says a definition has to do that.

So I think we're getting ahead of ourselves here with this whole, "Hey, inflation's only 8.5%. Let's all pour into tech stocks again." And there are some other things I've seen on Twitter where people, of course, when they pour back in, they pour back into the biggest garbage in the market... the money-losing, share-printing, untested, unprofitable technology stocks.

So, that's my message. Don't get ahead of yourself, don't get too excited about this "inflation is over" kind of a thing. John Authers in Bloomberg is a pretty sharp guy. And he actually has the right quote on this, maybe, maybe. And even then, I think he's getting ahead of himself, but after the battle of El Alamein, in 1942, Winston Churchill – that was the first battle that the Allies won. Before that they didn't win one battle, after that they didn't lose one. And he said that it was not the end, not even the beginning of the end, but possibly the end of the beginning of the war. So I don't even know if I'd go end of the beginning, but it's the beginning of trying. It's the beginning of trying to get out of inflation with the Fed continuing to raise interest rates. But I think it'll take them more raises than anyone thinks, and I think inflation is stickier than most people acknowledge.

Why don't I just leave you there? That's a good spot. That's my message, all right? Let's go ahead and talk with Eric Wade right now. Let's do it right now.

One of the most successful entrepreneurs in America over the past 50 years is going public with his fourth and final prediction about a scenario he calls "America's nightmare winter." Whew. You've probably never heard of Bill Bonner. But in addition to owning an interest in businesses all over the globe, he also owns more than 100,000 acres, with massive properties in South America, Central America, and the U.S., plus three large properties in Europe. And I've been to one of them. It's gorgeous. Gorgeous château. And I've known Bill for many, many years. He hired me into this business. And he says we're about to enter a very strange period in America which could result in the most difficult times we've seen in many, many years. And he's made three similar predictions in his 50-plus-year career, and each time it proved to be exactly right – although he was mocked each and every time. And I remember all of them.

This is why I strongly encourage you to read about Bonner's fourth and final prediction totally free today. It's all spelled out in a free report that we've put together called "America's Nightmare Winter." Get the facts yourself. Go to www.nightmarewinterscenario.com to get your free copy of this report. Even if he's only partially right, it'll dramatically affect you and your money. So again, go to www.nightmarewinterscenario.com for this free report.

Eric, welcome back to the show. It's been a while.

Eric Wade: It has been. It's been too long, but I'm always happy to get to have a conversation with you because I never know what you're going to ask next.

Dan Ferris: Good. I think that's good, anyway. The reason I wanted to have you back is because I feel like crypto's been through the wringer in 2022, and it's being tested. It's like that period in 2001, 2002, all these dot-coms were falling apart, and we were finding out what was real and what wasn't about all the excitement about the Internet. And I think we're going to find out what's real and what isn't in the crypto world. Some of these things fall apart, they go away. There's thousands and thousands of crypto currencies. They can't all be great. I certainly expect bitcoin to be around for the rest of my life or some long period of time.

And so I wanted to get a feel – in light of things like the collapse of Terraform, stablecoin, and other unfortunate events, it's been a series of unfortunate events – and see what you think about what has happened lately. I just want to generally know where is crypto? It appears to be going through a really rough time.

Eric Wade: It is. And, I guess fortunately and unfortunately at the same time, crypto, as a broad industry, has built up a tolerance for a cycle that looks a lot like this... build as fast as we can and push things as far as we can, and then stomp on the gas and see what parts fall off. And I don't know if you saw the newest Top Gun, where the amazing opening scene is they have a plane that they're testing. And they have some criteria that they have to hit. I don't want to spoil it for anybody, but the idea is, it's an exciting scene because they need to do something that's never been done with this airplane piece of equipment.

And the way the movie is put together, you just know they're going to push it, and the character. You've got this Maverick character. He's not named "Mushroom," and he's not named "Calm and Serene." He's not named "Chamomile"... he's named "Maverick," and he's going to push it.

And apparently the crypto currency industry takes the notion of "Well, will it break?" very, very, very seriously. And with no bailouts, with no do-overs, with no Mulligans. And that can come at us from any side because we don't know... are we about to be hacked, or is this just a really bad idea that's worth multiple billions of ideas? I'm sorry, billions of dollars. Both of those are allowed to exist in the crypto currency space of "Let's push this, whatever it is, and gather up as much money as we possibly can." And if it works, we're solving problems. And if it doesn't work, we figure that out.

And you brought up Terra. It worked beautifully. For a long time it was a very good blockchain, but they built a stablecoin based on the strength of the blockchain. And the strength of the blockchain was holding up this stablecoin and vice versa, until they weren't, until something went bad, and the value of stablecoin immediately disappeared, and in a fashion that, in retrospect, people say, "Well, it was maybe bound to happen." Well, it hadn't been bound to happen until it did. So a lot of people got hurt really badly. And then follow that up with big hacks, and we've got regulators that are poking around, and yeah... I'll go back to what I started with is that the crypto industry knows this is possible, and knows, if we don't do things right, this is coming. And yet, a trillion dollars of whatever of value is wiped off, and not one hand, out asking for a bailout.

So, as much as you can say, "Wow, this is terrible when it happens," but even the IMF even put out a report, literally their quarterly report saying, "Boy, we really were worried about digital assets, crypto assets. And yet this massive implosion happened," and I'm paraphrasing, "but this massive implosion happened and there was no contagion." Imagine that. Trillions of dollars wiped out and no contagion. And so, I think that's the other side of the coin, is that yes, you're absolutely right. Terrible things. Lots of money lost, a lot of people that are counting on the stability of the stablecoin, and yet it stopped there.

Dan Ferris: Yeah. That's an excellent point, isn't it because –

Eric Wade: You could make the argument that it pushed the market down, etc., but it stopped within our borders.

Dan Ferris: Yeah. And it's a great point because when stuff happens to the regular banking system, which people say "crypto solves this, bitcoin solves this" whenever you refer to a problem in the regular banking system, but it's true. The impetus to bail out there, it's like instant. "Oh, big problem. Bail them out." And crypto, in general, seems to be a bit more robust. Or at least there's a different set of expectations around it, let's put it that way. People expect the banking system to be hypersafe and hyperdependable and reliable. I think people expect crypto to be volatile, to say the least. They know that there's risk there.

Eric Wade: Yeah. And OK, we've had a year, past few months, of finding something that we didn't think were as breakable to be more breakable than we thought. And the old adage of "Don't put money in that you're not willing to lose," I think it had lost a little bit of its teeth until recently. And it's still true. Position size, manager risk, even if you think you're taking a less risky option because there are no bailouts, there is no Mulligans and do-overs. And it's built to accept that. So I would think, in time, that would become an admirable quality. Yes, we're paying for it. The users, the believers and the users are paying for it unlike banking, where the citizens and the taxpayers who never set foot into a Lehman Brothers office were paying for it.

Dan Ferris: Exactly.

Eric Wade: Did you have a Lehman Brothers account? Doesn't matter. You're still paying for it.

Dan Ferris: That's the one that they refused to bail out, but the point remains.

Eric Wade: Yeah, OK, you're right. Good call. That was the one that came to the top of my mind because... yeah, you're right. Everybody else that did get bailed out, didn't matter if you were a customer or not.

Dan Ferris: No.

Eric Wade: I'm glad you caught me on that.

Dan Ferris: Hey, look. You picked the one. All the other ones. Lehman and WaMu. But certainly, the point is well taken. The traditional banking system gets bailed out. You pay for it. You have nothing to say about it. But crypto has not required any such thing, and there is no contagion.

So what I want to know next is, or the other topic that I really wanted to get to with you, and we talked about this before, was these enormously high yields that people are earning in crypto, it always struck me as really dangerous. We didn't talk about it very much before, but what is the state of that, nowadays? Are people still earning huge, double-digit yields and not yet blowing up doing it?

Eric Wade: Yes. And everybody who's listening to this is wise to have the attitude that you just shared, which is, "Is this real? Is this possible? How so?" Because, by asking that question, and that's one of the things we do, actually, is we look for the source of the yield. And what surprises a lot of people, I think, is that we're in a world where most of us expect that most yield comes from being the other side of someone else's transaction, someone else's debt. Most yield, if I'm earning something, it's because I loaned money to somebody else, and they're paying me back with yield. That's the presumption, whether it's a bond or a mortgage or anything. That's the presumption of where the yield is coming from.

But in the crypto space, we've managed to monetize that, of course. We lend each other money and we lend speculators money, and we collect a yield on that. Of course we've done that because it's a good system. It allows people who wish to take risk to take risk. And allows people who wish to avoid it to avoid it. But there's a lot of other sources of yield that we've uncovered in the crypto space, one being a market maker. And let's imagine I set up a market where I sell apples and oranges, and I'm willing to exchange them for coconuts. And yet every time anybody makes a transaction, they have to pay a tiny fee of a grape, let's call it. And in time, I can accumulate grapes. I'll take in your coconut and I'll hand you an apple, but you've got to give me a grape as the fee.

And I know that sounds like an oversimplification, a ridiculous notion of it, but if I set up the fruit stand and I said, "I'm always open for swapping apples, oranges, and grapes," that's what we're dealing with now, decentralized exchanges. Well, OK. I broke my own analogy by saying I set up a fruit stand. But if I have fruit-stand-type technology, and if every time someone wants to swap one for another, I allow that to happen, I'm not necessarily reliant upon apple and oranges and coconuts going up in value if my business really is collecting grapes. And that's a yield. There's no lending going on there at all.

I'm throwing out an oversimplified example of that so that you can understand it. Sometimes the yield is grapes that I am being paid just for being in the middle of people. And we think about stock exchanges with the spread between the bid and the ask, and it's somewhat like that, other than because there's a gap between the buyer and the seller. So with crypto, we make a market where there isn't necessarily a gap, and yet we charge a fee for being there. So that's one place that we can get yield from it.

Dan Ferris: So when you say there's no gap, you're saying you're not making money off of the spread, it's just a fee for transaction.

Eric Wade: Exactly. So there's what we call a liquidity pool, where I would say, "I'm going to put in two coconuts, two apples, and two oranges," and you come up and you want to swap me out something for something. I'll start accumulating more of one side and less of the other at the exact exchange rate that they're at, at that time, as long as you have a grape to pay me. And that's one source of yield.

Now another source of yield is just pure staking yield. And I'll use another oversimplified example which is, imagine you have a herd of cattle, and you own them outright. And then some of the cattle create calves, new cows. You could consider that yield. It's not lending. So some of the cryptos that are out there, they say if you own a piece of this, like Ethereum, it's switching over to Proof of Stake, could be as soon as August 31, more likely it's going to be a couple of weeks into September, but just owning some Ethereum will entitle you to more Ethereum as transactions happen on the Ethereum network. Similar to owning a herd of cattle entitles you to the calves that come out of your herd of cattle, whatever you want to do with them. Or the milk.... that's your yield, and you're not lending anything to anybody. It's just the asset that you own produces something new out of value.

Dan Ferris: OK, Eric. To me, the cows having more little cows, that is a very specific thing. To me what this sounds like is just that you own Ethereum tokens or whatever, and then you can get more of them, depending on what happens. It sounds very similar to the operation of splitting shares, and some companies call them "share dividends" because they say, "Well, you have 10 shares today. Starting on this date in the future you'll have 11." Just because they split the stock that way.

Eric Wade: It's not dissimilar to that. When we build the different blockchains and cryptos and coins, when they put them out, they do have the ability to write in, this is what's going to happen, over time. We're going to pay out more coins. They're trying to solve a lot of problems with that, which is you also have the option of just releasing all of your coins on day one, like a stock might issue out an IPO and say, "Here's a million shares, and there will never be any more than that." Those million shares float, if you have an IPO."

On the other hand, a lot of cryptos don't want to throw everything out in the market on day one. They want to say, "Let's start off with a thousand coins, and every day, we'll put one more coin out." So we'll pay the people who own them a yield, a staking yield, or something like that. And then every day the supply goes up. And I'm drastically oversimplifying. That's the bitcoin model that we have... 19 million, and every day there's 900 more, for example. Or Ethereum, and this is actually getting really important because Ethereum, in due time, over the next month or so, is expected that the new coins that are coming out won't keep up with the number of coins that are being earned because of transactions... where that's part of the new upgrade of technology that Ethereum is rolling out is that they expect, "Yes, we'll be paying out new coins, but we're also going to be slowly burning them with every transaction, and therefore we expect the burns to outweigh new issuance," which makes Ethereum possibly deflationary, where you could be getting paid Ethereum for owning Ethereum, while it's deflating. If that makes sense.

So there's more yield for you. You asked about "Are these yields sustainable?" was the question. And we're going to... I'm trying to get the point across of yes, in a lot of different ways. One of them is lending. Another one is market making. We also are selling options against Ethereum to generate yield. We're selling options against bitcoin... covered calls and selling puts to generate yield.

Dan Ferris: Like against the future?

Eric Wade: Yeah, exactly. There's a very robust market built up for options on bitcoin and Ethereum because people need to lay off risk... for the exact same reason that you would maybe sell a put on stock, or sell a call on stock. You want someone else to shoulder some of the risk. No, wait. You buy puts... OK. It's the same exact market, but by selling it, you get the income off of it. You're shifting your risk to – and a put, if it plunges in price, then your put the Ethereum or the bitcoin. If you sell a call and it rises in price, then you lose.

Yeah, there's a robust market building up for, I think right now there's something paying 30% to 40% yield on covered calls against Ethereum and bitcoin. And that's very healthy because if you remember about when you're dealing with options, the more volatility behind the options, the more value you can get out of them.

Dan Ferris: Right. Well, the prices become inflated. It actually gets harder, depending on which side of the trade you – but I suppose you're right. If you get volatility, and then your call premiums go way up, let's just say, and you sell at the right moment, you get a bigger premium to sell. So sure.

Eric Wade: So what they're doing is, instead of just waiting for the right moment, they have a routine, a smart contract that, every Friday, retires one call, and they're using European calls for this, so there's no mid-cycle risk on it. But every Friday, they'll sell more calls, and every Friday the old ones expire. So it's a week-by-week selling calls for income, and yes, the underlying can be Ethereum and bitcoin, so you've got the volatility of that. But there's also programs where you could take a stablecoin, deposit that, and then the way they generate income is selling calls against Ethereum, selling options against Ethereum to generate income on your stablecoin. So your principal shouldn't fluctuate. But obviously, if you get acted on, if you're "in the money" on an option you sell... Anyway, I wish I had a fruit or livestock example for selling options. I don't. I'm trying to be more whimsical today.

Dan Ferris: That's OK. But there's risk in that. You have to do it right, and you have to have good timing, too. If you're trying to make money based on that volatility in the options market, man, you can't afford to –

Eric Wade: Yeah. And that's why the two-year Treasury isn't paying 34%. It's because it's not taking that risk. So the premise of the question was "Are these sustainable?" Well, yes, they are, but know what you're getting into. And if you're selling options, that's a sophisticated strategy. You need to know what your risks are on that.

Dan Ferris: Right. So I feel like what we're really saying is, sustainable, sure. For how long, who really knows, but probably longer than you think, but risky. It's not even that it's unsustainably risky, it's just risky. There's a lot of volatility. And you must accept that. And it even... Eric, the thing that gets me, though, is when I hear the word "yield," I think people hear the word yield and they're like, "Oh, finally. Income." Well, yes, but it's like you say, it's a lot different than buying 10-year Treasurys or two-year Treasurys or even junk bonds or even a well-chosen portfolio of high-yield bonds or something. It's just different.

Eric Wade: Let me say something that will maybe make people who are listening now happy to hear this, that the industry, the crypto industry, whenever someone as smart as you, Dan, says, "OK. I hear what you're saying, but," they take that but as a challenge. "OK, how can I fix that? So, if the risk of lending margin and leverage, etc., if the risk is being liquidated, then is there a way that I can make money off of that liquidating? Can I be that part of the transaction?"

And there's growth in that direction right now, that you're absolutely right... this is risky, and people do need to know what they're getting at. So of course, someone in the crypto world thought, "Well, let's take that, take the side of that. If someone goes too far, overextends and gets liquidated, how can I get paid on that?" So there is a yield product out there that's paying you on other people's liquidations if you want to participate in that. So that's one of the other ones that we're looking for when we're seeking yield because as our Crypto Cashflow... yeah, go ahead.

Dan Ferris: Is it just bankruptcy dynamics? You buy the assets that exist now and liquidate?

Eric Wade: No, it's really not. It's... You lend something out to... now this one is lending. You deposit assets and allow someone else to leverage themselves, but you have a very tight stop on that. And if they ever get stopped out on, you get a profit on it. Let's say you allow someone to have leverage, but if they ever get down to where they're only 110% collateralized, that's the trigger. So at 109% collateralized, you liquidate them, and you take their collateral and sell it, and you make a 9% profit.

Dan Ferris: I get 9%. OK, gotcha.

Eric Wade: Yeah, off of a smart contract, right... only on the portion that was liquidated, of course. But my point being is that if leverage and if liquidations is a problem, then the crypto industry looks at that as "OK, how can I get paid for that? How can I get paid for either fixing that or assuming that or sharing it," and "Let's build something that does that." And those are out there.

So if, to answer your question of "Are these yields sustainable," then I would say, "Well, do you think people will keep leveraging themselves? Do you think people will keep borrowing more than they should? Do you think underlying Ethereum will stay volatile enough that someone might get stopped out?" Yes. All of the above. Yeah. So if that's sustainable, it is because human nature is – we're going to keep lending and borrowing, and we're going to keep leveraging and trying to capitalize on that, and eventually getting stopped out of something so that, yes, there is a fee to be collected on that. So some of your yields comes from fees from other people's mistakes.

And that monetization is, to me, that's what the blockchain and crypto industry has as a secret weapon... any strategy or tactic that anybody has deployed in the financial industry, we can monetize it now and track it and you know what you're getting into. It's still risky, it's still new days. We know that. But anything that's been built under a system that is obscure – private venture capitalist or hedge fund or something – it may have a system that they do the same exact thing. Well, it can be done out in the open on the public blockchains and collect cash from it.

Dan Ferris: And we're not being too specific. If you want to know specific deals, you're going to have to read Eric's newsletter. That's why I'm not pressing him for specific examples. Just so you all know.

Eric Wade: Yeah. We take a lot of time researching out "Does it sound like a good idea, or is it a risk worth taking?" because there's a bit of a gap there. I get excited about what the technology can accomplish. And then you have to figure out "Is this a risk worth taking?" And that's where the real research takes place because there's a lot of great ideas out there that the real research comes in with. Let me take this great-sounding idea and turn it into – determine if it's a risk worth taking, that's going to pay us enough to take the risk.

Dan Ferris: Right. I'm a stock picker, you're a crypto picker, and you pick them... I guess, I assume that these yield plays are in your Crypto Cashflow product, and then –

Eric Wade: Exactly. Yeah. And we... I appreciate you bring that up because we've made a really strong commitment to don't just be lenders. That's the easy one. That's the obvious and the easy one. And that's why when your question was
"Are these yields sustainable?" I immediately want to talk about "Well, it's not just lending" because that's the easy one... that's a bit of a trap in it. It's human nature that everybody knows there's borrowing out there. There's been borrowing from the beginning of time, and there always will be. But, if you can find something else to generate cash flow, then you're not as dependent upon the wins and losses of borrowing and leveraging, overextension, etc.

Dan Ferris: All right. So we've been talking for a little while, but I have one more thing that I want to – before I do my final question, we've got one more topic that I wanted to throw at you. And that is, when I think about bitcoin, I can't tell you, I want this to be money. I want the world to work this way. I really do. I want to skip the middleman. I want to skip the banking system. I really do. But to me, at this point, it still looks like bitcoin is just this kind of speculative-technology thing that you can buy and sell and trade, and hope it goes up in value. I'm not getting that this-is-banking sort of feeling from it. It doesn't feel like a currency or a store of value to me. Can you help me? Where is bitcoin? Where are we? Am I thinking of it all wrong? Maybe that's the question.

Eric Wade: No, I don't think you are. I have a favorite little picture that I bring up in some of my visual reports sometimes. Think of it like ayin and yang, where on the top of it I have technology and on the bottom I have currency. And you just have to keep reminding yourself that within bitcoin and crypto currencies, broadly speaking – not all of them – but they come across to me as a technology that can be used as a currency, a currency that can provide this great technology. And so if you're looking for – well, which one is it? You're never going to be more than half satisfied on either of the – although the technology side of it is growing quickly and adapting very fast.

But I think calling the yin and yang is even not doing it as every service because it's probably more like a six-sided die, that there's so many other facets of this. We used to say bitcoin feels like "gold 2.0," a digital gold. What makes it not digital real estate? What makes it not just paying for transactions in the future on a network? And they're building other networks on top of bitcoin and using bitcoin for other things.

And then, when you get into Ethereum, does Ethereum have the possibility of being a global currency? Possibly, because you can wrap real gold inside Ethereum. You can either wrap bitcoin inside Ethereum, and therefore "Is Ethereum going to take over where the dollar is because Ethereum has all of these capabilities that the dollar never even dreamed of?" And you can use the dollar for them, but only if somebody else lets you. And so yeah, your frustration's not unfounded in that myth.

Sometimes I almost think, "Let's just think of it like a butter knife in the kitchen drawer that, yeah, I can drive a screw with that, but it's not the best tool for it." I'd like to think of it as a currency, too. And then it drops from $69,000 to $17,000 in the course of a year, and you think, "Well, there goes my idea of it being currency." And then you meet someone who says, "No, it doesn't bother me." Slowly, we're accumulating people who think, "I still have the same number of bitcoin that I used to, and therefore it's accumulating value for that person."

I guess the challenge would be is, if we were all using just that because the dollar does the same thing. Dollar's gone from, what, $90 to $120, if you're looking at DXY, or something, or whatever it is. I got the numbers wrong, I'm sure, but it moves, the dollar moves. We don't think of it as moving because it's still a $100 bill in my wallet. But it's moving, and sometimes dramatically, at its scale. So, 100 years from now, a 10% move in bitcoin will probably feel like a 10% move in the dollar does today.

Dan Ferris: And most people don't encounter the DXY index, but they encounter rent and food and all those other things. And that inflation is the movement in that in your pocket. So, it's well taken. It's a point well taken.

So, I guess... it's still an experiment. Bitcoin is still an experiment, isn't it? We just... I always feel like I just don't ever completely know what it is. And you've explained versions of it on this show, and other people have explained, "No, here's what it... It's this... No, it's this... No, it's that." And I think it's still an experiment is what that tells me. It's going pretty well, actually, but it's still an experiment to me.

Eric Wade: No. You mean like one of Einstein's theories or something, that 60, 70, 80 years later, we're still calling it a theory?

Dan Ferris: No, no. Because in a way because you have to test a theory in reality. But this thing was tested from day one, whatever date it was... I think in January 2009, or something. As soon as this thing was born and started trading in the world, as soon as the guy bought the two pizzas for whatever, however many millions that is now, the experiment was on. And it was real. And it didn't have to be theoretical anymore. And here we are, and it's still got billions in market cap, and it's still out there, and people are still buying it, and people still hold it. Most people don't sell it, is what I'm told.

Eric Wade: Yeah, most people don't. Most people who come across it, I think it's something like 86% of them, that just don't... no matter what the price does. I hope this doesn't come across like snarky because it's not... Maybe we're the experiment. Maybe the human side of this is because bitcoin is what it is. It doesn't even know we're here. It doesn't care, doesn't know we're here, doesn't know if you're lending or borrowing or trading or swapping or lightning. Bitcoin doesn't care. And so therefore the human experience surrounding it is the experiment. I'll give you that, is that we're figuring out what we want to do with it. And it's multifaceted.

If you're in a community, your currency's the Argentine peso, you might think, "Well, I'd rather lose 80% on bitcoin than 100% on my pesos," or something like that. And then somebody else somewhere else thinks, "No, I never hold it long enough to lose money. I just use it to move dollars to my family in Lebanon," or something. I think what we do with it is the experiment. I'm going to call you out. I think this is a shtick that you're pulling with the "Oh, I don't get it. Everybody explains it to me, but I don't get it." I don't think so. I think you get it. I think you know.

Dan Ferris: I want to think that I get it, but every time like maybe it's just I'm still having a learning curve. So, somebody frames it a different way or something. I wish I could think of an example.

Eric Wade: It's because they're all true. All the different ways it's framed, they're all true. It's like a mirrored sphere, that depending on what angle you're looking at, you're going to see something different, right? What does a mirrored sphere show you?

Dan Ferris: A mirrored sphere. I'm processing mirrored sphere right now. I'm like, "OK. All right." Because that mirrored sphere –

Eric Wade: It's just a little program that moves bitcoin from one unspent transaction to another unspent transaction. And the fact that humans want to keep track of them, like we do with our shells and baubles and Federal Reserve notes, etc... we like to keep track of things... and bitcoin says, "Fine, whatever. I'll keep keeping track of things for you, and you try to make things out of it." So. Did I just make you – we're overthinking –

Dan Ferris: Well, yeah. I think we're sort of talking in these abstract terms, so I'm not sure where we are. Maybe that's a good moment to move on.

Eric Wade: It's a little program. That's all it is. It's just a little program, and a ledger with a constantly increasing number. And we try and build... I've heard people say, "All it is, is a clock. It tells us when 10 minutes has gone by." And yes, there's little chits of every time someone proves that the clock is still working they get a reward for it. But so, hey, does that help you understand what it is, by me likening it to a clock? No. That doesn't help you understand. The clock goes by every 10 minutes.

Dan Ferris: Right. That makes it worse. Congratulations. You've just piled on the ideas. Now there's another way I don't get it.

Eric Wade: Right. Because then the next thing you'll say is, "But it's not 10 minutes. It's close to 10 minutes." But if it's a clock, it's supposed to be perfect. And no, it's not. It's not a perfect clock either. It's a really good clock, but it's not a perfect clock. But, what's not changeable about it is when an event happens, at a certain time, it can't be undone, can't be changed, can't be manipulated. So that's where the clock analogy has a little bit of staying power because people say, "Oh, once it happens it happens. I'm watching. Can't be erased, copied, changed, moved, etc." So, yeah.

Dan Ferris: So in a world where everybody seems to want to rewrite their own and other's history because they've unfortunately plastered it all over the Internet, something that you cannot rewrite, is potentially of greater value, perhaps, than anyone thinks. But the other part of that is that, and one of the great things about it is that it's anonymous as well, right? It's tracked, but maybe you're not tracked, we hope, right?

Eric Wade: OK, so I'm hoping to end on that very brilliant point of erasing because nothing needed to be added to that. But treat it like it's not. Let's say this, treat it like it's not anonymous because bitcoin doesn't care who you are, but there might be some people oversee your jurisdiction who do. And bitcoin being a ledger, it's almost like saying your checking account doesn't tell your neighbors anything, well, until they find your check register. And then it tells them everything they want to know. So if they can pin you to a certain address or something, it becomes a lot less anonymous. It doesn't have your name attached to it, but it is very trackable.

Maybe let me throw one – let's hope I can do this quickly... a very brief mention that the Department of Justice seems to think that this is a great tool for criminals, and criminals thought that for about a year or two about a decade ago until they realized just how trackable everything that happens on blockchain is. And so I think the U.S. dollar is the tool of choice for criminals because yes, bitcoin blockchain can be somewhat anonymous, until that anonymity is broken. And then everything floods open that they can track everything you've done.

Dan Ferris: So you've made the point. I was questioning my own original point. But you've just said essentially, no, no, no, not that anonymous. So in other words, this really is a way to keep track of something that will not be – a history that won't be changed. The original point stays.

Eric Wade: Right.

Dan Ferris: So we can end there. All right.

Eric Wade: Yeah. Let's end on that.

Dan Ferris: So then my final question is all that's left, which is always the same for every guest no matter what the topic, and that is simply, if you could leave our listeners with a single thought today, what would it be?

Eric Wade: Get a piece of paper, write down everything you own, mentally sell it all, and then look at that paper and decide "What would I buy back, right here and right now, if I had the cash in hand?" And if you can't do that on paper, start doing it in reality. Start looking at what I have, can I sell it, and once I have that cash in my hand – and I'm not saying cash is the best investment... boy, we could talk another hour about that. So, mentally sell everything. "What would I buy back?" What would I buy back right now, in this market?

Dan Ferris: Yeah. Fantastic idea. I love that to death. And it's so straight and to the point, so simple, a simple, doable exercise, an actionable thing you can do right now. Love it. Thank you for that. Yeah. Well, thanks for being here, man. It was really... it's good to get back with you.

Eric Wade: Yeah, thanks for having me back and asking insightful questions and, yeah. I always learn something getting to talk to you. I appreciate it.

Dan Ferris: All right. So do we. And so do the listeners. And, of course, you will be getting another call. You'll be getting lots of calls from us every several months. So, hopefully you'll be able to come back and share some more with us.

Eric Wade: Can I make a shameless plug?

Dan Ferris: Make your shameless plug, yes.

Eric Wade: Yeah. We have a promotion going on right now that I want to share with everybody, that I don't know I you have a specific web address that we're supposed to mention tied to the show, but if you don't, then they can do to www.cryptocutoff.com, and learn about why we think this is a watershed moment in Ethereum's development that we're right on the doorstep of. We talked a little bit about it earlier in the conversation, but www.cryptocutoff.com, go check that out, and it should teach people a lot. They may not know why Ethereum's been in the news a lot lately, and what's coming very soon.

Dan Ferris: All right, cryptocutoff.com. Thank you. I urge everyone to check it out.

Eric Wade: Thank you.

Dan Ferris: All right. Thanks a lot, man. We'll talk to you soon.

Eric Wade: All right. Take care.

Dan Ferris: Right. Bye-bye.

Eric Wade: Bye.

Dan Ferris: It's always a pleasure to talk with my friend Eric Wade, who's the smartest crypto guy I know. And I hope that you found the – we always try to keep the discussion as simple as possible because crypto, just... you go down a rabbit hole when you start talking about the technology. And Eric does, I think, a very good job of keeping everything on a very simple plane. If you want to get nitty-gritty, you can read Crypto Cashflow, or is other newsletter, Crypto Capital. If you want specific recommendations about specific coins and specific income strategies, go to those sources. And check out www.cryptocutoff.com, as Eric suggested. That's his latest. Whatever is in that video that you'll see there, is all of his latest best ideas for investing in crypto.

Well, that was fun. I enjoyed it. I enjoy getting insights about things that are still really new to me. Crypto is still really new to me. Bitcoin is still really new to me. Eric said it was a shtick that I pretend not to know what it is, but maybe it's less of a shtick than he thinks. And I appreciate anything he can help me out with in that regard.

All right. That was fun. Let's do the mailbag. Let's do it right now.

Look, I think you know by now, I'm always trying to tell you the really hard truths, especially when what I have to say is unpopular. Today, the hard truth is that your wealth is in danger. Everything you may have made in the bull market of the last decade could disappear very quickly. Some of it's probably gone already. This process has already started. And even if the financial markets somehow avoid a devastating crash from here, inflation is still eating 8% of your money every year. I've spent 20 years helping people prepare for extreme market shifts, just like the one we're going through right now, in my role at Stansberry Research. I've recommended 24 triple-digit winners, and I called the collapse of Lehman Brothers with near-perfect timing.

Well, today I'm issuing my biggest warning ever. If you want to preserve your retirement and your lifestyle in the coming years, you need to act. I recently went on camera to lay out a simple, one-step plan for what to do. You can set yourself up in minutes, and likely forget about inflation, rising prices, or the worst effects of a market crash for years to come. This plan does not involve options, shorting, crypto, or anything complicated, and it doesn't require perfect timing.

The perfect time to act is right now, and you could see triple-digit upside in the coming years. To watch my full interview with the brilliant financial journalist and hard-asset expert, Daniela Cambone, simply go to www.crashprotection2022.com. Again, that's www.crashprotection2022.com, to watch our full interview for free.

In the mailbag each week you and I have an honest conversation about investing, or whatever is on your mind. Send questions, comments, and politely worded criticisms to [email protected]. I read as many e-mails as time allows, and I respond to as many as possible. You can also call our listener feedback line at 800-381-2357. Tell us what's on your mind, and hear your voice on the show.

1. Sarah S. is first up this week, and she says, "This is for Dan Ferris. Hi, Dan. I am Extreme Value subscriber." Well thank you, Sarah. She continues, "I chose Extreme Value because I appreciate your sound thinking and common sense approach of prepare, don't predict. Thank you. Question. Bitcoin price has gone down substantially. Do you think it is worth investing in for a short-term gain? I realize this is not a prepare strategy, but to make money in the short term quickly. Thank you, Dan. Sarah S."

Oh, Sarah. I hate to throw a wet blanket on you here. Actually, I won't even say that you're wrong. Bitcoin is volatile, and volatile assets are ideal for short-term trades. So if you're a good short-term trader, you're probably hanging out in bitcoin anyway. So, having said that, if you're asking me whether or not it's a good idea for a short-term gain, you might want to pump the brakes a little bit because just the idea... like the whole way you phrase this is a bit of a red flag. You said, "Do you think it is worth investing in for a short-term gain?" And then you said, "It's not a "prepare" type strategy, but just a "make money in the short term quickly."

My late father used to ask me these types of questions. He said, "I just want to make $5,000 real fast." And I said, "Well, wanting to make it real fast is your first problem." Having a specific dollar target is another one. The market gives you what it gives you. You don't get to say $5,000 or $2,000 or $10,000 or anything else. And wanting to make it quickly, it makes you vulnerable. And I'm comfortable saying this to you because you're asking me if it's good for short term. I'm going to tell you that if you're asking me if you should trade for the short term, I'm always going to say no because if it is a good idea for you to trade in the short term, you ain't going to be asking me. All right, Sarah?

Next is Lynn C. And Lynn C. says, "Monday's Investor Hour broadcasts are intellectual candy to start my week. Gautam Baid's session was delightful and inspiring. The American dream is alive and well." Then Lynn says, "Do you have a published financial book reading list? Seems each week you recommend some reading, but a list would be helpful. Thanks, and keep up the great conversations. Lynn C."

Lynn, I have threatened to put a reading list on the Investor Hour website, and I do not think that we have done it. But I really need to do that, and I can tell you – you've heard me address some of my favorites. I have recommended and referred to Howard Marks' book, The Most Important Thing, many, many many times. And I've also referred to Joel Greenblatt's book, The Little Book That Beats The Market. I almost forgot the title. I haven't looked at it in a long time. The Little Book That Beats the Market. And then he's got an updated version called The Little Book That Still Beats The Market, by Joel Greenblatt. So those are two of my core recommendations. So that's the short list. You can start there, but yeah, you're right. I should get a list up onto the website. And thank you for making that request. I'm not going to commit to doing it by any certain date, but you're right. It's something I should do.

Finally this week, we have Jason L. And Jason L. says, "Hey Dan, I hope this will sound like a politely worded criticism. I listened to Episode 270 with your guest Gautam Baid. About 25 minutes in, he quoted Charlie Munger and said, 'You have a duty to take less than you deserve.' I suppose it's a nice sentiment, but I disagree with it. There is no shame in being paid everything you have earned. And if you earned it, you deserve it. We live in a capitalist society, at least for now, and we are compensated when we produce value for others. In capitalism, the more value we produce, the more we earn and deserve. And there's no limit to how much we can earn and deserve, all the while producing value for others. I think what Mr. Baid and Charlie Munger really mean to say is that you shouldn't be greedy. And since greed is wanting what you haven't earned and therefore don't deserve, I would agree with that. Stansberry Alliance member, Jason L."

Jason, we get one of these every now and then where you ask a question or state a criticism, and then you answer it yourself. You answered it. It's about greed... But it's about more than that because with greed, as you point out, it is wanting what you haven't earned, and therefore don't deserve. But Munger said you have a duty to take less than you deserve. So he acknowledges that you deserve whatever you deserve, but he says you have a duty to take less than that.

And I don't know. Maybe he's a more honorable man than the rest of us. I suspect not. I suspect Charlie Munger is, to me, he's a little bit over hyped. I think people only pay a whole lot of attention to him, and he's only famous because of his association with Warren Buffett and Berkshire Hathaway. And I think he is often said to be wiser than he really is. That's probably going to get me in trouble with all the value investors and Munger fans... And this idea of having a duty to take less than you deserve, I think I understand it a little bit. I don't think it's about what you said about not being greedy. It's about not trying to, I want to say, maximize your ability to extract value from your fellow human beings.

I'm not saying I agree with it, but I think that's it, and I'm saying that because this is a theme. If you've been to a bunch of the Berkshire meetings, Berkshire Hathaway annual meetings which are attended by tens of thousands of people, it's a huge event every year in Omaha. And I've been to several of these. This comes up just like almost every year, this idea of extracting value, and Warren Buffett talks about accumulating credits, claims on your neighbor's assets or whatever, which is money. He's talking about accumulating a lot of money and getting rich. And it's a viewpoint that is used to justify things like bigger estate taxes, and an idea about fairness that I do not share. I think I'm more in your camp than in theirs. But I think it is a slightly different issue than what you frame. It's not quite about greed. Or it's about greed, and then some. A little bit more. And I'm probably not even representing it as well as Munger and Buffett can certainly represent themselves.

But that's the ballpark. That's my interpretation. But I'm glad you pointed that out. I think Gautam is a fantastic guy, and there's just... I don't know. There are a lot of people like that I meet who... I don't know. They're more, maybe they're more generous with their fellow man, I want to say. What I really want to say, what I'm trying hard not to say and explain around, I just want to blurt out I think they're better people than me. I just think they're better than me. They must be because they're thinking about taking less than they deserve because they're not thinking about themselves. They're thinking about their relationship with all their fellow human beings.

Mostly, when I think about that, I think about not infringing on anyone's person or property, and I don't want them infringing upon mine. That's my base. That's my baseline for human interaction. And this is a different baseline, though. This goes a little bit farther. It's an interesting topic. I could blather on about it for a while and probably not get anywhere, but I'm glad you brought it up, obviously that's why I read your question. And thank you very much, Jason. Good food for thought here, as we often get in the mailbag. And that's another mailbag, and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did.

We provide a transcript for every episode. Just go to InvestorHour.com, click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy.

If you liked this episode, and know anybody else who might like it, tell them to check it out on their podcast app, or at InvestorHour.com. And do me a favor, subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts. And while you're there, help us grow with a rate and a review. You could follow us on Facebook and Instagram. Our handle is @investorhour. On Twitter, our handle is @investor_hour. Have a guest you want me to interview? Drop me a note at [email protected] or call our listener feedback line at 800-381-2357. Tell us what's on your mind and hear your voice on the show.

Till next week, I'm Dan Ferris. Thanks for listening.

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