Ep. 159 - Ask Mattimore Anything
On Bitcoin, Taxation, Religion, and Optimism ðŸ’
In this episode, Mattimore answers some interesting questions...
Questions Answered:
Where are we in the current Bitcoin bull run?
Is taxing unrealized capital gains a good idea?
What are your personal thoughts on religion?
Are you optimistic about the next 6 months?
Thanks for tuning in ðŸ”
Episode 159 Transcript
Mattimore (00:13):
Welcome to Hence The Future podcast. I'm Mattimore Cronin. And today we're doing a special ask me anything episode where I'll be answering some of the most interesting questions I've received over the past few weeks while I've been in Spain. That means I'll be answering questions around the current Bitcoin bull run, the Biden administration's proposal to tax unrealized capital gains, my personal thoughts on religion, and my overall level of optimism for the future of the US economy over the next six months or so.
Mattimore (00:40):
And by the way, if you have a question you'd like to ask, feel free to email me at mattimore@hencethefuture.com, or message me on Instagram or Twitter, and there's a good chance that your question will be featured in the next AMA episode.
Mattimore (00:52):
All right, let's start with a question I received recently about the current Bitcoin bull run. Here's the question: "Where are we in the current Bitcoin bull run? Do you still think Bitcoin will hit $100,000 per Bitcoin by the end of 2021? Why or why not?"
Mattimore (01:10):
The short answer is yes, I do believe Bitcoin will hit $100K per Bitcoin by the end of this year. And as a refresher, I made a similar prediction in 2020. In 2020, I predicted that the price would surpass $20,000 per Bitcoin by the end of that year. And once that proved to be true, I made another prediction that we will hit $100K per Bitcoin by the end of 2021. And I'm now even more confident in this prediction than I was back when I made it at the end of 2020. And here are some reasons why...
Mattimore (01:40):
One reason is that, historically, Q4 has been a hugely positive quarter for Bitcoin. On average, Bitcoin has grown by about 64% in value in Q4. And I'll show on the video pod here. You can see where we are in the current cycle throughout the year in 2021 as compared to the 2013 and the 2017 bull runs. In 2013, we had the price decline in September and then increase by 60% in October and then 449% in November in 2017. We also had the price decrease in September and then increase 48% in October and 53% in November. And now in 2021, we've also had the price decrease in September, and now it's looking like it's going up in October. So very likely we will see the same sort of trend play out in Q4 of 2021 as we saw in Q4 of 2017 and 2013, I'll also show a chart showing the historic Bitcoin performance during Q4.
Mattimore (02:39):
The next reason is that long term holders have been setting the floor through the last several months. And if you look at the amount of hype around Bitcoin, it's pretty low compared to where we were at the previous peaks. Google search interest for Bitcoin is much lower than it has been in the past. And there's much fewer leveraged positions in the Bitcoin ecosystem, meaning people aren't investing with Bitcoin with loans, they're investing with actual dollars and actually buying the Bitcoin spot price.
Mattimore (03:10):
So it's unlikely that the price of Bitcoin would fall below the floor that's been set by long-term holders. It seems like that floor right now is around $45,000 per Bitcoin. But it is fairly likely that the price will go much above that level, because once retail traders, people who aren't thinking about Bitcoin all the time, start to get FOMO, they start to feel like, hey, wait a minute, I don't want to be the last person to buy Bitcoin. That's when you see the prices really skyrocket. So it's quite likely we will see that in Q4, there will probably be a blow off at the top sometime in 2022, and then we will find a new floor in 2022.
Mattimore (03:44):
The third reason I'm bullish is that Twitter just incorporated Bitcoin into their network. Now you can tip anyone in the world in Bitcoin / Satoshis instantly, permissionlessly, and for free. This is pretty massive for Bitcoin adoption because now, anyone who has a Twitter account can instantly and costlessly send value to anyone else around the world. So this is going to be huge for regular people adopting Bitcoin without having to join some new platform. Now you can do it all from your phone, from the social media apps that you already use.
Mattimore (04:19):
The fourth reason I'm bullish on Bitcoin in Q4 is due to the stock to flow model. The stock to flow model essentially looks at how much Bitcoin there is currently in total supply, and what the schedule looks like for increases to that supply. And Bitcoin essentially has these four year "halving" cycles where the amount of new Bitcoin added into circulation gets cut in half every four years. And by using this model, you can pretty accurately predict what the price of Bitcoin is going to be in any given year. This model already accurately predicted that in August, we would have a floor of $47K per Bitcoin, in September we would have a new floor of $43K per Bitcoin. So the next targets are in October, we will see $63K per Bitcoin. In November, we will see $98K per Bitcoin. And in December we will see $135K per Bitcoin. So far this model has been accurate. We'll see how accurate it remains, but it's certainly bullish to see what this is predicting for the future.
Mattimore (05:20):
The fifth reason why I'm bullish on Bitcoin right now is that whales have been accumulating heavily over the past few weeks. And historically, whales - that is people who own 1000 Bitcoin or more - tend to accumulate when prices are low. And then right after that accumulation period, prices skyrocket because regular people / retail investors start to buy it. And so, while the price of Bitcoin has dropped by about $5,000 in the last 30 days, whale holdings have grown by over 37,000 Bitcoin. That's $1.6 billion over that same period.
Mattimore (05:54):
The sixth reason I'm bullish about the price of Bitcoin hitting $100K by the end of the year is that massive government spending and inflation of the monetary supply fuels Bitcoin adoption. And when you look at the metrics for how much the monetary supply has really been inflated, it's pretty jaw dropping. We've seen 70% of all dollars in existence created since Bitcoin was invented. And in just the last year, in 2020, 40% of all dollars in existence were created. So if this trend continues, and it looks like it will with the spending bills and infrastructure plans that have been announced, we will see the price of Bitcoin go up precipitously.
Mattimore (06:34):
The last reason that I'm bullish about this next part of the Bitcoin bull run is based on country adoption. We've already seen El Salvador adopt Bitcoin as legal tender, and while they had a somewhat rocky day to start, it seems like they've been making some really good strides since then. Now there are more people in El Salvador using Bitcoin than there were using all the various banks that operated in El Salvador. One-third of the nation is using Bitcoin now in El Salvador. And it seems quite likely that one third of the world will soon be using Bitcoin. Also, El Salvador is a pretty small country. It's not on many international global leaders' radar. But if a G7 country like Japan, like Canada, like France, if one of them decided to adopt Bitcoin, that would be a massive bullish signal for the rest of the world. Because once a G7 country decides to exit the fiat system and enter the Bitcoin system, the game theory changes. Now, every other major leading country, every other G7 country, will have the incentive to join the Bitcoin system as quickly as possible.
Mattimore (07:43):
Because the later you join, the higher the Bitcoin price will be. And therefore, the smaller the amount of the total Bitcoin supply you can secure for your country if you come on at a later date. Now, there is an alternate argument here. And the alternate argument is that some countries may be quietly, stealthily, accumulating Bitcoin, while publicly sharing that they do not support people adopting Bitcoin in their country. So for instance, some have speculated that China might be buying up a lot of Bitcoin simply so that they have a hedge against a future where Bitcoin is the new standard, while also not allowing their citizens to buy Bitcoin or trade Bitcoin or transact with Bitcoin, as much as they are able to control that. And so other countries may be taking a similar stance where behind closed doors, they are buying Bitcoin. But I think once the full flood gates open when a major country now has it as legal tender and all the citizens start buying, that's when we're going to see this next part of the cycle absolutely rip.
Mattimore (08:42):
All right. The next question I received is about religion. Someone simply asked, "What are your thoughts on religion?"
Mattimore (08:48):
Well, I recently came across a tweet from Naval Ravikant that I thought expressed my own feelings very accurately and succinctly. He tweeted, "Two types of fools, those who take religion literally, and those who think it has no value."
Mattimore (09:02):
In my own life, I've been both types of those fools. When I was a kid in elementary school and growing up, I very much took religion literally. I was raised Catholic. I believed in heaven and hell and purgatory in a very literal sense. And then in high school and in college, I became a staunch atheist. So I became the other type of fool. I thought anyone who believed in religion is simply being fooled by their own fear of death, into believing these ridiculous propositions.
Mattimore (09:32):
But now in my adult life, I realized that every religion has a valuable teaching, just like how every scientific field of study has a valuable lens through which you can view reality. And really, all scientists and all religious believers are getting at the same concepts, the same abstract questions, only they're using different types of vocabulary.
Mattimore (09:57):
Even within science, two types of different scientists will have totally different vocabulary that they use to describe reality. So a biologist might focus on the trend of evolution, and they describe reality much through that lens of how we are always evolving, we are always becoming some newer, better, fitter version of our previous selves. Whereas a physicist might view reality through more the lens of energy and matter, and the transfer of energy and the conversion of matter, and how it's always conserved through the laws of thermodynamics.
Mattimore (10:31):
So similarly, within religion, you can have Christians and Catholics who view reality as this clay ceramic model of the universe, where God is this craftsmen. And he created this amazing universe that we're all experiencing, which is somewhat different than the Hindu view, where we are all part of this grand cosmic drama, and we're all equals in that sense, or the Chinese Taoist view that the entire universe is like a giant organism. And we're all just one part within that giant organism.
Mattimore (11:02):
So I think it's a mistake to view it as a binary of either religion is true or it's not, or this field of science is true or it's not. It's more that they are each a puzzle piece that gets at the greater whole of what we know. And they all provide a useful lens. As long as you acknowledge that it is just one lens through which you view reality.
Mattimore (11:24):
And there are many other lenses that may be more helpful to you at different places along in your own life. I would say that, currently, my three favorite lenses are Catholicism, because I grew up Catholic, and I think the example of Jesus is a really great example for how to live your life. I also very much like Buddhism, Zen Buddhism and Mahayana, Buddhism, as I think that probably has the most accurate description of reality, and it also doesn't use that monarchical language that I'm not a big fan of. And within science, quantum physics and wave-particle duality, where essentially everything is simply vibes and vibrations and different fields of energy and matter that interact with one another. That's my other favorite lens through which to view reality. But they're all valuable. They're all useful. And you should take all of them with a grain of salt.
Mattimore (12:11):
Now let's get into a question I received about the proposal to tax unrealized capital gains. The question is, "Is taxing unrealized capital gains a good idea? What if it only applies to billionaires?"
Mattimore (12:24):
The background for this is that the Biden administration recently announced a $3.5 trillion spending plan that would include a provision to tax billionaires' unrealized capital gains as a way of paying for that spending bill. And Biden specifically said, "Everyone needs to pay their fair share." And he also noted that, "The bill would pay for itself." So the first red flag for me is this notion that a $3.5 trillion bill can pay for itself without having any unintended consequences, such as higher prices from inflation and fewer investments in the private sector.
Mattimore (13:02):
And to put this amount in perspective, the entire us technology sector is around $1.6 trillion. So the government is proposing to spend twice that for a spending bill where it's unclear what the effects will be on the other side.
Mattimore (13:21):
Senator Lummis said it best when she tweeted, "More government spending = more inflation. More inflation = higher prices. Higher prices = less economic recovery." She also tweeted, "I wish I could tell you that the Biden admin understood the absurdity of taxing unrealized gains, but they need to turn $3.5 trillion to zero, so..."
Mattimore (13:42):
The second red flag is that there is a fundamental asymmetry in what's being proposed. The government is proposing to tax unrealized gains when your assets go up, but they're not proposing to compensate you for unrealized losses when your assets go down. So if I'm Elon Musk, and I am a billionaire who would reach the threshold where this tax would be applied to, I'm putting my blood, sweat and tears into building Tesla and building SpaceX for the good of humanity. And all I'm doing is holding onto my equity, holding onto my ownership, because I believe in the mission of these projects.
Mattimore (14:16):
And so if then if the government comes and taxes the growth of Tesla, and the growth of SpaceX, it does a few things. One, it slows down the growth of Tesla and SpaceX because you now don't have as much money to invest back into those companies. And it also disincentivizes growing above a certain amount. Lastly, it allows the government to capture the upside of risks that the entrepreneur takes without compensating them on the downside if the risks don't pan out. You might know that Tesla and SpaceX both almost went bankrupt multiple times in their history, and it's not like the government would then give Elon all the money that the companies were worth before they went bankrupt. So why should the government get the money when the companies are doing well, when all the risk is on the entrepreneur, it's not on the government?
Mattimore (15:05):
The third and biggest reason why it is such a bad idea to tax unrealized capital gains is that the government is a terrible capital allocator. I think it's generous to say that $1 out of every $3 spent by the government is wasted. It's probably more like $2 out of every $3 that the government spends goes to waste. And when you look at how much the US spends on the military, how much the us spends on healthcare, and how poor the outcomes have been recently in both of those areas, you can see the massive inefficiency.
Mattimore (15:35):
It's clear that the government doesn't have a revenue problem. It has a spending problem.
Mattimore (15:41):
The US literally has the ability to print infinite dollars as the global reserve currency. And yet every year there's a deficit. Clearly the money is not being managed well. So if the US government wants to take a greater role as a capital allocator relative to the private sector, they need to prove they're able to distribute capital efficiently first.
Mattimore (16:03):
That is clearly not the case. I saw one tweet that I thought put it really well, which says, "1. Print money. 2. Pump assets. 3. Tax unrealized capital gains." This is not a great scenario for anyone who hopes to live comfortably without total dependence on the government in the future.
Mattimore (16:21):
And finally, I would say that we do need to look out for people who fall through the cracks, for people who can't make it in our economy. But I would much rather give money directly to those people than to give it to some middlemen who are going to charge a ton and just try to extract as much money from the government as possible through lobbyists, through crony capitalism, and have a very small amount of that trickle down to regular people. I think regular people know what they should be spending money on. And so if the proposal was to directly stimulate people who need it, and give it directly to them with no middlemen, I would be more in support of that. But I'm not in support of these massive pork barrel spending bills where you're basically giving it to these special interest groups who take most of the profits and then trickle some down to the larger economy.
Mattimore (17:10):
Now let's get into the final question in this AMA episode. Someone asked me recently, "Are you optimistic or pessimistic about the next six months of the US economy?"
Mattimore (17:22):
My short answer is both. I'm pessimistic when it comes to the legacy financial system, state capacity, government spending, and inflation, but I'm massively optimistic when it comes to the burgeoning Bitcoin ecosystem, the crypto economy, and decentralized autonomous organizations. There is so much energy and developer talent going towards these open source projects that I feel we are creating a much better system for how to collaborate across the globe instantly without any permission being needed in a trustless paradigm that has never existed before in history.
Mattimore (17:59):
A tweet from Jared Dicker put it well. He said, "Everything in crypto is working towards living online. Games are work. NFTs are assets. DAOs are cities. See the forest for the trees."
Mattimore (18:13):
And it's worth noting that this new paradigm, this new cryptographically enahanced world, doesn't have to happen *after* a collapse of the legacy system.
Mattimore (18:24):
We don't have to reach Weimar Republic levels of hyperinflation in order for Bitcoin to be worth more by market cap than gold. British HODL put out a good tweet about this, where he said, "Bitcoin can get to $5 million a coin without bond market collapsed, stock market collapse, real estate collapse, gold collapsed, USD hyperinflation, US collapse. Anyone who thinks these things have to collapse before Bitcoin gets to $5 million coin has not done the math."
Mattimore (18:52):
Sometimes Bitcoiners sound too much like doomsayers, almost like Bitcoiners want the US government to collapse, and they want hyperinflation to occur. I think it's actually more true to say that as this crypto economy matures, it makes the legacy system better because now there's an alternate option that people have. You don't have to just go on the fiat system of banks and legacy finance. Now you can opt into this new crypto economy.
Mattimore (19:23):
And because of that, I think the legacy system will hopefully get better. And likewise, if the legacy system continues to deliver as it has for a long time, that allows for more people to take their fiat gains, put it into crypto, and help to fund this whole new economy that's emerging.
Mattimore (19:41):
And when you look at the total addressable market of Bitcoin, for instance, it is tiny what we have right now compared to what could be possible in the future. So right now Bitcoin's market cap is only $1 trillion. Compare that to the market cap of bonds at $130 trillion, stocks at $90 trillion, real estate at $220 trillion, and derivatives at $600 to $1200 trillion dollars.
Mattimore (20:07):
So I don't think it's necessary that there's some major collapse and catastrophe for this new crypto economy to emerge, mature, and become the norm. I think they kind of both can strengthen each other. So that's my optimistic take. And in the case where there is a hyperinflation event, there is some state collapse, then at least we have a solution already waiting in the wings.
Mattimore (20:31):
I think that's a good place to end it. Thanks for tuning in, and I'll see you next time.