Sam and Shaan sit down with Anthony “Pomp” Pompliano to break down Balaji Srinivasan’s viral bet that Bitcoin will reach $1 million in 90 days. Pomp walks through the banking crisis mechanics — SVB’s collapse, the hold-to-maturity accounting loophole, and why 333 community banks are underwater — and explains Balaji’s argument that government backstops will trigger hyperinflation. The episode ends with each host giving their 90-day prediction.
Speakers: Sam Parr (host), Shaan Puri (host), Anthony Pompliano (guest, investor and Bitcoin advocate)
Cold Open: The Bet [00:00:00]
Shaan: So Balaji comes out, he says, “I will take that bet. You buy one Bitcoin and I’ll send one million dollars to an escrow.” To be clear, this is 40-to-1 odds. He’s basically saying not only is this unlikely to happen — if this was even odds, it would have been like, “Dang, Balaji is going to lose a million dollars because Bitcoin’s not likely to be worth a million dollars.” Then he added “in 90 days,” which is already a radical move. And by the way, the million dollars versus one Bitcoin — Bitcoin is currently at $26,000 at the time he made this bet. He goes, “That’s 40-to-1 odds that I’m laying you.”
Introducing the Episode and Pomp [00:00:30]
Sam: We got an episode here with Pomp — Anthony Pompliano — who you may know as the Bitcoin guy. He’s huge all over YouTube and Twitter. He came on, and we’re actually going to do this as a two-part episode. At the beginning it was all business — we were business in the front. We were talking about this crazy million-dollar Balaji bet, where he’s betting that Bitcoin is going to a million dollars in the next 90 days. We talk about that, why Balaji thinks it, what we think about the bet, and Pomp does a kind of Econ 101 where he explains what’s going on with the banking system from his perspective. That was good.
Sam: Here’s the thing though — the whole episode is about something that’s going to happen inside the next 90 days. So it is a little fearful listening to it. Actually listen to the whole thing, and do it now, because we’re talking about something that’s happening in 90 days.
Sam: The second episode was way more fun and it was pretty wild. We talk about his business empire — what he’s building and why he’s building it that way, why he gave back all the money from his fund and shut it down, why he turned off all his advertisers worth millions of dollars, what he’s doing instead. So we talked about that, and then we got into some absolutely wild stuff.
Sam: So just go ahead and do it — click subscribe on YouTube, and then do that on Spotify and iTunes too, because the more you do that, the more our volume goes up and we get more downloads and we can keep doing this type of stuff. Pomp ain’t gonna come on to episodes like this if we don’t have a big listenership — same with all the other guests. All right, enjoy.
Getting Started: Pomp Joins Live [00:03:00]
Sam: Pomp, we’re live. By the way, we always just jump right into this thing — no small talk. Let’s go.
Shaan: What do you guys want to talk about?
Sam: Dude, I’m so glad you’re here. You are the Ryan Seacrest of the industry. You are the hardest working man in content and entertainment. I’m so glad you’re not doing your 5 a.m. show anymore. I’m sure you’re also pretty glad you’re not doing that every morning. How does it feel to get some sleep?
Pomp: I’ve always slept pretty well. But the content stuff — it’s the best way in the world to learn. You put information and ideas out there, and the people who agree, or have things to add, they’re super constructive. They respond to emails, tweet at you, all that stuff. And then the people who vividly disagree make their voice heard very well. So you quickly figure out good ideas from bad ideas. And then you get all these rabbit holes to go down.
Pomp: I think that’s probably the reason why YouTube, myself, and many other people we all know spend so much time talking — we enjoy it. The internet is this amazing thing we all get to use every day, and creating content is this great way to find like-minded people and to learn.
Pomp’s Background: Hustle and Hard Work [00:05:00]
Sam: Pomp, we have a lot to talk about and we’ll do a proper intro in a second. But I was talking to my friend Jason Yanowitz — who you guys used to work together. He works for you, now he has his own company. Jason works pretty hard. He told me you were the hardest person he’s ever worked for.
Pomp: He and his partner Mikey Polito — they were the two guys who helped me start the podcast initially. They tricked me. They literally came to me and said, “Hey, you should have a podcast.” And I was like, “What’s a podcast?” They were like, “You know, like all these other examples.” I said, “I don’t know how to do that.” They said, “Well, we do.” And little did I know they had no clue what they were doing. They convinced me to do a podcast and then DM’d — I’m pretty sure — Gary Vaynerchuk’s podcast guy, asking what equipment they needed. Kudos to those guys. It was pretty good hustle. Now they have a media company that does tens of millions of dollars in revenue, so it worked out.
Sam: Jason told me you’re the hardest working person he’s ever been around — that they used to work at your office seven days a week, nonstop. But then when I went out to dinner with you recently, your schedule didn’t sound that hard at all. It sounded just normal. So which is true?
Pomp: I think it’s probably both. One of the things I always use as a framework is there’s gas and brakes in life. At certain points you need to hit the gas, other times you can let your foot off the gas and coast, and other times you need to hit the brake. Knowing when to hit the gas, when to hit the brake — that’s pretty important. You don’t want to be hitting the gas when there’s a wall in front of you.
Pomp: The second thing is you’ve got to last. You can’t Sprint all the time, no matter how athletic you are. You’ve got to have some level of endurance. That’s probably one of the things I’ve really learned to do over the years. I wasn’t great at it in the beginning; now I’m probably pretty good.
Pomp: We’re recording this on Monday. Yesterday was Sunday — I recorded a podcast Sunday morning at 11 a.m. after a two-hour meeting with a friend at 9 a.m. A lot of people would be like, “That sounds crazy.” But I’m like, what did you do — go do your hobbies? I have no hobbies. I literally hang out with my family and I work. And I do it because I enjoy it. So if you enjoy doing it, it’s not hard. I’m looking forward to today because I’m like, you know what, they’re probably going to be ridiculous, probably going to have a lot of fun, and we’re going to learn something from each other. How lucky are the three of us — two out of three ain’t bad.
Who Is Pomp? Background and Career [00:08:30]
Sam: So let’s get to this crazy Balaji bet. But first, we need to set the stage — do you need a little empire intro?
Shaan: Who Pomp is, right. Let’s start with who Pomp is.
Sam: Okay, so I think you’re known as the Bitcoin guy. That’s kind of how you built your brand. You’ve obviously done a lot more than that — before that, I think you worked at Facebook and even Snapchat for a bit. You worked in tech, started to build a big following on Twitter around crypto and Bitcoin, built one of the bigger newsletters and brands in that space, and since then launched a bunch of businesses around it. You had a VC fund, you launched your own fund, you have a crypto jobs company — a bunch of things in that ecosystem. Since then I think you’ve made some changes, and I want to hear about those in a bit. But then we have this Balaji bet.
Sam: Pomp, why don’t you give us the quick 60 seconds on who Balaji is, and then we’ll frame what this crazy bet is. And I have some inside info also.
Who Is Balaji? Setting the Stage [00:10:00]
Pomp: All right. I don’t want to be a spokesperson for Balaji, so everything I say is my opinion — my description of him, my description of the bet.
Pomp: Balaji Srinivasan is probably best known now for being one of the more public figures to have predicted a lot of what happened with COVID. He was very early calling out, “Hey, this is a risk. If this risk becomes a reality, here’s how bad it could get.” And as with predictions, a lot of it was right, some of it was wrong. But generally, people point back and say, “Man, we should have listened to that guy.”
Pomp: He then went on like a two or three year heater where he kept making predictions and kept being right about a lot of things. The internet rallied around this idea that the worst words to ever hear were “Balaji was right.” When you build that kind of following and that kind of reputation, people put a lot of weight on what you say. His latest thing is that Bitcoin is going to hit a million dollars in the next 90 days — which sounds absolutely insane. Bitcoin’s trading at $27,000. That’s like 40x from here, and to do it in 90 days — we’ve never seen an asset ever do that before.
Pomp: I don’t agree that that is highly likely. I would put it at maybe five percent, which is actually much higher than most people would put it. But to me the most interesting part is the reasoning behind why he’s saying this. Balaji’s bet is the best meme of 2023. He was able to create a meme that has caused millions of people to now talk about this idea of hyperinflation, bank failures, and Bitcoin. I think that’s ultimately what he was trying to do.
Pomp: So if you ask him in a private room, “Do you really think Bitcoin’s going to be a million dollars in 90 days?” — he’s putting two million dollars on the line, so he definitely thinks there’s a chance. But I don’t know if he’s at 99.999% confident.
Sam: What is two million dollars to him? Is that a big deal or no?
Pomp: It’s hard to tell. So Balaji, before he became known as the “Balaji was right” guy, he built and sold a number of companies. I think at least two had nine-figure exits — he’s a real entrepreneur. He worked at Andreessen Horowitz for a while, he was CTO at Coinbase. He’s done well for himself financially. But I don’t care how rich you are — you don’t go publicly bet people two million dollars on Twitter unless you have some degree of confidence. Because in some way, two million may or may not be a big number, but your personal reputation is priceless. That’s basically what he’s staking here. He’s using the money to draw attention to what he’s saying, but really he’s staking his reputation on something a lot of people think is absolutely insane.
How the Bet Started [00:13:30]
Pomp: The bet started because this guy Medlock — I forget his first name — basically tweeted something saying hyperinflation is not going to happen. Balaji replied and said, “I actually think it will happen, and in fact I’ll take your million-dollar bet that hyperinflation is going to happen in the next 90 days.”
Shaan: And this is related to Bitcoin? Or is that another bet on top of the Bitcoin one?
Sam: Then you wrote this post, and you had one line — you had a couple lines in there that I hated. I mean, it stung me. One of them was you quoted Lenin: “There are decades where nothing happens, and then there are weeks where decades happen.” You said that, you had a few other lines, and I started reading this and I got scared. Like, I was legitimately scared. I texted you and was like, “Is this real?” And you were like, “Maybe, maybe not.” I forget exactly what you said. But you wrote this in such a way that I was fearful.
Pomp: I definitely don’t want to fear-monger. But I do think that there have been two points in the last three years where it’s kind of a “shake people and wake them up” moment. The first was during March of 2020. I wrote a couple of different pieces and people had similar reactions. One of the pieces was basically me arguing that unemployment was going to be double digits and millions of people were going to lose their jobs. People were privately emailing me like, “You are insane. Please stop fear-mongering.” And then the next week, 6.6 million people filed unemployment claims.
Pomp: If Balaji is like A-plus, I’m like D-minus analyzing some of this stuff. But at least what I want to do is call attention to, “Hey, this is serious and you should pay attention.” Because if this goes the wrong way, it could be catastrophic — not only for people’s personal finances, but as a nation.
Pomp: And I think it’s important to call out: most people don’t want this stuff to happen. The United States of America is this amazing place. Millions of people around the world try to come to this country because we have democracy, capitalism, stability — all the things that make this country great. If we were to lose some of that, this isn’t about a financial product going up or down in price. If there is complete chaos in a country, people don’t care what currency they’re holding — they want guns. That’s not a world we want to live in. So it’s much more about, “Pay attention to this serious situation.” I think that’s what Balaji’s doing with this bet, and that’s what I tried to get across in the piece I wrote last week.
Bodies Keep Floating to the Surface [00:17:00]
Sam: You also had this other line where you said, “A friend yesterday told me bodies keep floating to the surface” — meaning Silicon Valley Bank is just one body and we’re going to keep seeing more.
Sam: You used language that stung me. And when I see people who, like you, write like that — this is how I describe Malcolm Gladwell when I read his books. They’re so convincing. Tucker Max is another guy who does this. They’re so convincing because they’re such good writers, so good at just explaining their points, that I have to remember — when I read a Malcolm Gladwell book, like, this is all just a theory, and I could probably find lots of examples of why he’s wrong. He’s so good, and you are so good at writing about it, that I begin to believe you. And I have to pinch myself sometimes: wait, this is just his opinion, and there are probably people equally smart and equally experienced that have a different opinion. I find that very confusing and unsettling.
Pomp: It’s this viewpoint that you want to argue ferociously for one point of view so that the response — both the critiques and the support — is as ferocious back. If you write a piece and people are just like, “Ah, whatever, I’ve heard this a hundred times,” nobody even takes the time to respond. But on the internet you kind of have to go all in and really argue a point. Then hopefully, if you’re intelligent, when you get new information or you see a critique and you’re like, “Oh, that’s actually a great point,” you can change your mind and iterate your way closer to the truth. It’s hard to always get to the truth, but I think that’s why I write that way — argue ferociously and you’ll get the ferocious response, and that helps you get to the truth faster.
Shaan: Let me ask one more question about this. What’s the best argument — and the best person you like to read — that takes the opposite stance from you? Someone you’d say, “If I’m wrong, I think this could be true”?
Pomp: So it’s not on every topic. Even in individual situations, I have friends who I agree with on 95% of stuff, and then there’s that one thing they vehemently disagree with me on. And I actually pay more attention when they disagree than to the person who disagrees with everything. Once somebody has shown they’re a clear thinker — that they don’t just succumb to, “Sam and I are friends so I should just agree with him on this new topic” — I want to surround myself with people who are very clear when they agree and very clear when they disagree.
Pomp: What you want to look for is volatility in agreement. The more somebody agrees with you, the more weight you put on when they disagree. And the more somebody disagrees with you, the more you want to pay attention when they actually agree. That volatility away from the mean ends up being important.
Shaan: But who are those people in this case? Is there anyone who could be right and you’d be wrong?
Econ 101: How We Got Here [00:21:00]
Pomp: It’s less about specific individuals — there’s a whole cohort of people with slightly different views. Let me explain first what’s happening, and then I’ll explain why there could be a counter-argument.
Pomp: If you go back to the beginning of 2020, the economic and financial system was pretty good. Unemployment was low, inflation was under two percent, we’d been in a decades-long bull market. Everything seemed fine. Then COVID happens. The first big shock to the system was all the government lockdowns. Across the world, people said, “Go sit in your homes.” When you do that, what’s called the velocity of money — the amount of commerce — goes down. If you used to go to the bar, used to buy stuff at the store, you’re now locked in your house and you’re not spending as much money.
Pomp: When velocity of money goes down, people get scared. When they get scared and they’re fearful, you get something called a liquidity crisis. The best way to think of a liquidity crisis is: you look at your portfolio and you’re like, “I want dollars. I want safety.” So you just sell everything you can to try to get dollars. People didn’t care if it was stocks, bonds, cryptocurrency, real estate, commodities — they just sell everything and want dollars. If you go back to March of 2020, that literally means cash in a checking or savings account.
Pomp: And if you remember, during March and April of 2020, people didn’t know what was going on. I went to the ATM and pulled out a bunch of cash. People were literally pulling physical cash out. They were also buying toilet paper and doing all the crazy stuff because fear takes over.
Pomp: When these liquidity crises happen, all assets go down and the dollar becomes stronger. Central banks and governments have to make a decision: they can say, “Hey, we believe in the free market, we’re just going to let this play out — it’ll be painful in the short term but the free market will figure it out” — or they can do what they normally do and step in. Of course, politicians and central bankers are very short-term optimized because there’s pain that millions of people experience on a day-to-day basis, and it’s hard to sit by and watch people suffer. So it makes sense from a human viewpoint why they would step in, although I disagree that many times they probably should not step in.
Pomp: That’s what they did. They dropped interest rates to zero percent, which made it incredibly attractive to borrow money. People borrowing money means they’re going out and spending it — buying houses, all that stuff. And then they also pumped trillions of dollars into the economy between the central bank and the politicians.
Pomp: One key thing a lot of people missed, including myself initially: regardless of how the money got into the system, the money ended up in the banks. If they gave $1,200 checks to individuals, if they bailed out the airline industry, if they created stimulus packages — when people received the money, whether they spent it or held it, someone — an individual or a company — put that money in the bank. So the deposits of these banks exploded. Silicon Valley Bank is a great example: they had about $60 billion of deposits to start, they ended up with about $190 billion. About 3x growth, 130 billion dollars or so.
SVB Mechanics: The Hold-to-Maturity Trap [00:26:00]
Pomp: But what does the bank do when all of a sudden people show up like, “Here’s $190 billion”? They’re in the business of making money. In a zero interest rate environment, they can’t buy short-term debt — buying treasuries that are three months, six months, nine months, 12 months, two years — because all of that basically has no return since interest rates are at zero. So instead, what Silicon Valley Bank did is they bought 10-year bonds. They’re going to buy a bond today, hold it for 10 years, and get back their principal plus whatever the return on the bond is. That bond had about a 1.5% return. Super safe, super conservative, backed by the U.S. government. Everyone looks at treasuries and says that’s the safest thing to buy.
Pomp: That is all good and fine if the environment continues as it is. What ended up happening is that all that money got pumped into the system, inflation exploded — we had the highest inflation in 40 years. The central bank’s like, “Oh boy, this is not good. We have to bring inflation down.” Because inflation doesn’t hurt rich people — rich people make money on inflation because they own assets. It’s the poor people, the bottom 50 percent, who get hurt by inflation.
Pomp: So to get inflation under control, they jacked up interest rates from zero to about 4.5%, and then they started selling assets off their balance sheet. They sold about a trillion dollars of assets. They had about a $900 billion balance sheet coming out of the global financial crisis, they ten-bagged it — literally went from $900 billion to $9 trillion between the global financial crisis and 2022.
Sam: What do they sell?
Pomp: The central bank expanded by buying all sorts of debt, treasuries, various assets. That’s how they get money into the system — they exchange the dollars for these assets. When they contract or try to tighten financial conditions, they sell a good portion of those assets to pull liquidity out of the system.
Pomp: When they did this, the banks were basically left holding the bag. Silicon Valley Bank took that $130 billion — about $80 billion of it went into bonds earning 1.5%, which is great in the zero interest rate environment. When they’ve now raised interest rates to 4.5%, that bond you bought previously is no longer good. It’s actually cheap, and so it trades lower. If you spent $100 on the bond, now you might be able to sell it for $0.80 — you’d lose 20%.
Pomp: The reason why that doesn’t matter historically is that banks get special accounting treatment. Let’s say Shaan has a portfolio and he bought a stock for $100. If he goes to the bank now and the stock is trading at $80 and he wants to use that as collateral, they don’t give him credit for $100 — they say, “It’s worth $80.” But banks have special accounting treatment where they can take some assets on their balance sheet, put them in a special area, and call it “hold to maturity.” Hold to maturity basically means they get to count what they bought it for, not what it’s worth today. The reason they’re allowed to do this is because they can hold the bond until the 10-year maturity period and they’ll get the principal plus the return.
Pomp: The only time this does not work is if all of the depositors want their money back at the same time. Now the banks have to sell all those assets at a loss to give back to depositors. That’s what happened to Silicon Valley Bank. There was a bank run. The bank run caused the bank to sell assets at a loss, which scared more depositors — who then said, “Give me my money back.” It just became this reinforcing cycle. In 24 hours, $42 billion was drained out of the bank, which caused them to eventually be insolvent and the government took it over.
The 333 Banks Problem [00:33:00]
Shaan: Ultimately a great explanation. That was awesome.
Sam: Balaji and a few other people are betting that’s going to happen to other more consumer-based banks in the next 90 days. Is that right?
Pomp: It’s already happened. This isn’t just a Silicon Valley Bank thing. A lot of politicians had a softball served up to them — they were like, “Oh great, the crypto and tech companies are the bank customers, it must be their fault.” But Silvergate Bank, Silicon Valley Bank, Signature Bank, now Credit Suisse — these are not crypto banks or just tech banks. This is a complete global financial system issue. There are reports coming out that hundreds of banks are actually underwater in terms of holding these assets. That’s why you’ve seen central banks and governments around the world step in and say, “We will backstop these deposits,” because they don’t want people to be so scared that they try to take their money out of the banks.
Shaan: I can add a little color on what you just said. There was something Balaji tweeted out — a memo from the Kansas City office of the Federal Reserve. It said something like: at year-end 2021, only four community banks were below the key ratio threshold we’d be worried about. Fast forward to today — that’s now 333 community banks in the United States. Basically insolvent, or could be, if there was a bank run on any one of them.
Shaan: We would have the same problem we had with Silicon Valley Bank. And then what happens to the next tier, who knows. Also overseas, because the dollar is the reserve currency, there are a bunch of banks that hold dollars and are worried about what happens if there’s a bank run on the U.S. Just last night — on a Sunday night — working on a Sunday night to make announcements, they established what’s called a swap line. A swap line is basically: “We’ll bail you out too. If you need dollars, the Central Bank of the United States will give it to you” — to the European Central Bank and all these other places. So they basically established this overnight back channel that says, “If you need dollars because you’re going to get hit with a run, we’ll backstop you.”
Shaan: That’s to Balaji’s credit — I think he correctly identified, just like he did with coronavirus, that this might be a lot worse than you think. And there’s data to support that the conditions are worse than you think.
Balaji’s “Bit Signal” Campaign [00:37:00]
Shaan: What’s funny is Balaji actually did this twice. He had a V1 of trying to spread the word. Sam, I don’t know if you saw this — the V1 was, he goes, “The bit signal.” He says, “How do you ring the fire alarm on the internet? How do you show it’s not a false alarm? I’m putting up the bit signal. I’ll put a million dollars in Bitcoin to alert people about this stealth financial crisis. I’ll give a thousand dollars to the best thousand tweets that show a reply with a graph, a stat, a meme that will bring attention to what’s happening, because the central bank of the banks and the big regulators have bankrupted us — they’re trying to hide the insolvency of the banks from you, the depositor.”
Shaan: This was a pure giveaway — not a bet. He said, “I’m giving away a million dollars — $1,000 to the thousand best tweets that will spread the word.” This tweet did pretty good — 13,000 likes. He tried, but then he hit you with just a bunch of things that Balaji considers light reading, but to the rest of us it’s like, “Oh man, I gotta hook up to an oxygen tank just to intake this amount of information.” He’ll tweet this crazy table of like 45 currencies that have done hyperinflation, some random meeting minutes from the Fed in 2022 that showed they knew something — all these data points. But it wasn’t going viral.
Shaan: Until this guy James Medlock comes out and goes, “I’ll bet anyone a million dollars the U.S. does not enter hyperinflation.”
Sam: James Medlock, by the way — I think he said “within 90 days” also. Or was it first just a general bet?
Shaan: First he just said, “I’ll bet anyone a million dollars hyperinflation doesn’t happen.” That was just his tweet. Balaji just takes this random — by the way, who is this guy?
Sam: I don’t know who he is.
Shaan: I think he’s a “market socialist in the streets” — I don’t know what that means. It looks like a meme account. He’s got a picture — the email is at mastodon.lol. Okay, so like, what’s going on there?
Sam: A million-dollar bet from that guy. Yeah.
Balaji Takes the Bet [00:40:30]
Shaan: Balaji comes out, he says, “I will take that bet. You buy one Bitcoin and I’ll send one million dollars to escrow.” To be clear, this is 40-to-1 odds. He’s basically saying not only is it unlikely to happen — if this was even odds it would’ve been like, “Dang, Balaji’s going to lose a million dollars, because Bitcoin’s not likely to be worth a million dollars.” Then he adds “in 90 days,” which is already radical.
Pomp: And then this tweet goes viral. This one gets 11 million views because it’s more provocative. The first wave of tweets — including mine — was like, “Balaji is nuts, he’s gone crazy, this doesn’t make any sense.” Because not only was the bet unlikely to prove in his favor, it was a perfect bet for Mr. James Medlock over here. All he had to do was buy two Bitcoin — one he’s putting up for the bet, and if he’s wrong and Bitcoin hits a million dollars, all he had to do was buy a second one. For $52,000 he could guarantee himself a million-dollar payday. It was an absolute no-brainer. The poker player in me was like, “Balaji, what are you doing? You’ve given this guy a no-lose bet.”
Pomp: So I messaged Balaji and was like, “Hey, this is crazy, what are you thinking?” Here’s what he replied — I think I can share this because he’s tweeting all this stuff out anyway. He just replies: “All the banks are insolvent.” That was the first reply. Then he goes, “Have you seen The Big Short? Where one guy figures something out early and everybody else thinks he’s crazy? That’s what’s happening here.” He goes, “People think this is a single bank issue like Silicon Valley Bank. It was a central bank issue. All the banks are dead. Ten days ago there were no dead banks. Today there are five. And if people realize this and start to pull their money out, they’ll realize the banks don’t have it. It’s Uncle Sam Bankman-Fried, not Uncle Sam” — basically what happened with FTX, people realized the money wasn’t in the bank and that caused the extreme crash.
Pomp: Then he goes, “I’m not doing this to make money.” I pointed out that the guy could just hedge and win the bet. He goes, “Yes, I’m not doing this to make money. If I had the beliefs that I do and was just purely selfish, I would simply take the million dollars and buy 40 Bitcoin. I would take another million dollars and buy another 40 Bitcoin. And I’d do it quietly, because I believe that the million dollars is going to be worth zero in 90 days. I’m doing this to alert innocent people, and to send a message: get to the exits.”
Balaji’s Pajama Presentation and the COVID Parallel [00:45:00]
Sam: There’s also this other thing — around this time, there’s a picture of him. Balaji has this picture on the YouTube video. He’s got the stereotype of the forgetful scientist — this guy who only cares about being brilliant, and oftentimes he’s right. There’s a picture of him that looks like he’s giving a seminar at a university, and someone tweeted, “Balaji is saying ‘get the f--- out of the U.S.,’” and it’s very scary — and he’s sitting there giving this presentation in front of a class wearing pajamas. Like a pajama-looking hoodie, basketball shorts, Nike Air Jordan flip-flops, with his laptop sitting on top of two cardboard boxes.
Sam: If you needed any more of this stereotype of this brilliant, like — the image we have of Mark Zuckerberg just sitting in a hoodie coding, eating pizza and drinking Red Bull — Balaji is going all in on that image. And it almost makes it worse when I see this picture.
Pomp: But I think a lot of why he has so much credibility is that he’s been able to identify a number of these exponential situations. If you really think about what he’s saying here, it’s almost an exact overlay to COVID. He saw very early on a couple of data points and was able to extrapolate: “Hey, this isn’t a linear line — this is literally an exponential curve. And the top of the exponential curve is really scary. Let me go yell, scream, and call attention to it.”
Pomp: He’s doing the exact same thing here. And I think that’s what Shaan was reading about — “Ten days ago there were no dead banks, now there are five.” He’s just trying to put a couple of data points out there and say, “If this goes exponential, this is really bad.”
Pomp: One component that’s important to call out: most Americans don’t know that if you deposit your money in the bank, it’s not your money anymore. Just that alone — the lack of financial education of the average American is astonishing. Yes, there’s FDIC insurance that covers up to $250k, but the FDIC does not have enough money to backstop every bank in America.
Sam: I think 20% of it was used to help Silicon Valley Bank.
Pomp: Yeah, and Silicon Valley Bank is like the 20th largest bank in America. Not very big compared to the big ones.
The Digital Catastrophe Concept [00:49:00]
Pomp: One other thing I think is important to understand about these situations — this idea of a “digital catastrophe.” It’s a concept I struggled a little to come up with a good name for, but I think it really articulates what’s happening. You need to understand this because it is going to become very common in our lives over the next 20 to 40 years.
Pomp: The way I define a digital catastrophe: it’s an event that occurs that is negative, usually plays out in the analog world, but is drastically accelerated by the speed of communication and action online. Silicon Valley Bank is the prime example. On Wednesday afternoon they made an announcement. By Thursday morning people were scared. By Thursday afternoon, $42 billion had been withdrawn from the bank. By Friday morning the bank was dead. In 48 hours it became the second-largest banking failure in U.S. history.
Pomp: But in the old days, what you’d have to do to have a bank run is — Shaan would walk over to Sam’s house and say, “Yo, Sam, did you hear? The bank’s probably not doing so hot.” Then Sam would say, “That’s kind of crazy,” and would ride a horse or get in a car, show up to the bank physically, wait in line, and when you get to the teller window ask for your money back. That takes a lot of time, effort, energy. Now you can literally open a new tab on your browser, click a couple buttons, and move your money.
Pomp: When the speed of information occurs the way it does on the internet, millions of people — whether you’re a Silicon Valley Bank customer or not — Twitter knew the bank was insolvent by like noon on Thursday. That’s how you get $42 billion withdrawn in a day. That is a digital catastrophe. The speed of information, the speed of action online has real-world consequences. The internet was weaponized to create the second-largest bank failure in history — in response to the knowledge of an insolvent bank caused by a fractional reserve banking system and rising interest rates that left the bag with the banks.
Shaan: Yeah, it was kind of amazing. Thursday morning, I remember waking up and in our group chat, Sam, somebody posted that Silicon Valley Bank stock was down like 30 or 40 percent. I thought, “Must have had a bad earnings call.” By 11 or noon I’m scrolling Twitter and I start to see — and this is just a general truism — if you scroll social media and you see four or five different sources talking about the same thing, your brain is wired to say, “This is a big deal.” Marketers use this to their advantage. That’s why influencer marketing is a big deal. But it also works organically. Five people say the same thing in one Twitter scroll, and you know something’s up.
Shaan: I remember being on the phone, and basically within 15 minutes it was like — I’m on the phone, we’re not even sure what to do, let’s just be safe, take it out, sent an email saying we’re taking it out, opened a new tab, clicked “wire the money,” took a screenshot of the wire, sent it to six group chats, then went ahead and tweeted about it. In 15 minutes I had propagated this more than I could have done if it had been my full-time job 20 years ago.
Sam: And the funny thing is people are mad about that. They’re like, “Well, if there wasn’t a bank run there would have never been a problem.” It’s like the example of screaming fire in a movie theater. But the reality is, there actually was a fire. I don’t know how the blame gets shifted to the people who successfully got out of the fire, versus pointing out that somebody caused this thing to catch fire. Which is kind of Balaji’s point.
The Balance Sheet Goes Vertical [00:55:00]
Sam: Balaji tweets out this graph of the balance sheet — goes up, up, up during the money printing era, then last year it’s been trying to tighten and going down, contracting. Then overnight it just goes straight up vertical — like no graph you’ve ever seen — because two trillion dollars of liquidity was basically added to the market.
Sam: Some people say it wasn’t really put into the supply — that it’s just there as a borrowing facility in case the banks need it, to prevent panic. And other people say that’s the same thing. Do you have an opinion on that?
Pomp: You know when you’re in high school and there’s the “but actually” kid in class? No matter what anyone says, they go, “But actually,” and try to tell you about something they read? Those people on the internet — same thing. They’re the same people during COVID who were like, “But actually…” while the government locked us in our homes and literally printed trillions of dollars and created 40-year-high inflation and absolutely screwed millions of people. I don’t care what “but actually” you have to say.
Pomp: They were like, “But actually, inflation will be transitory and it will come back down.” No, that’s not how this works. Ultimately what you end up with — and this makes markets so interesting, this is part of capitalism — is theory meeting reality. Sometimes theory is a great primer on reality. Other times it’s not. And what I’ve learned is that the more complex the system, the less likely it is that the theory overlays perfectly on reality. There is no more complex system than the economic system of America, let alone the world. All these people saying, “Oh, inflation will come down because the Fed will do this or that” — the Fed isn’t the only thing that contributes to inflation. There are supply chain disruptions, geopolitical war, all these different components. You’ve got to be very careful just looking at theory and trying to impose it onto reality.
Pomp: The other thing I’d say throughout this whole cycle — man, are we lucky we have the internet. The internet is the greatest place in the world. Imagine being in the 1950s or ’60s: you could read the newspaper, maybe watch the nighttime news, and you had to listen to the talking points from the public narrative — from the government or the Fed. Today, there are things said by those who set the public narrative, and within seconds people on the internet destroy the narrative. They’re like, “Nope, that’s not true, here are these five points.” I don’t care necessarily who’s right or wrong every single time as much as I want both sides — what the people in charge are saying, and what the people who think the people in charge are idiots are saying — and then think for myself. But the internet is what’s empowered that. Literally two generations ago, what were you going to do — go to the encyclopedia and look up “what is a bank run”?
90-Day Predictions [01:02:00]
Sam: I think we should wrap this segment up. I want to wrap it up by each of you saying in just a couple sentences: what do you think is going to happen in the next 90 days? And are you guys doing anything?
Sam: Shaan, you go first.
Shaan: Okay. Two things. I basically think Balaji is correct on everything except for his 90-day point, because that’s too hard to know. He might end up being correct that something happens in the next 90 days, or it might take 900 days. Either way, the important part is he’s right — it’s just the time window that makes it impossible to call. But the good news is you don’t actually need to know the time window to act accordingly.
Shaan: I’ve said this for a very long time, and I think what Balaji is saying is a much louder, better version of what I’ve said: for a long time, people thought if you’re buying Bitcoin you’re trying to make a buck. From the beginning, once I started to understand what it is, I was like, “Oh, this is not about making money. It’s about saving money. It’s a savings technology.” Which is basically to say — even when inflation was only two or three percent, if you look at two or three percent over a 40- or 50-year period, the money you have in the bank will still look like a hundred thousand dollars, but it will only have the buying power of something like sixty thousand dollars. So why would you ever save your money in something that’s designed to lose purchasing power?
Shaan: The core value of Bitcoin is it’s a savings technology — a currency whose one big feature is it doesn’t inflate. If you wanted to save your money, you’d rather save it in something that can’t inflate versus something that inflates slowly or quickly. I don’t want any inflation if I’m saving my money.
Shaan: Anyway, I think Balaji is correct that if you’re going to save money, you should do it in a hard currency that’s not going to inflate. I’ve already been on this bandwagon — obviously been the crypto person that’s a believer in crypto, created Milk Road because I believe in crypto, still believe in crypto. Nothing has really changed there. In the next 90 days I would guess that Balaji looks like a fool because people are going to point out that it didn’t happen in that time period. But in the next 900 days, I think he will be proven correct.
Sam: Pomp, 60 seconds. What do you think?
Pomp: I think Balaji is correct — similar to Shaan, the timeline is hard. I will put a higher probability on the 90-day timeline than most, because I do think there’s tail risk. Mainly it’s because when hyperinflation happens, it happens very fast. In episodes of hyperinflation, everything’s fine, then 90 days later there is hyperinflation. So it’s less about whether this has ever happened and more about whether it’s going to happen. I’m at maybe five percent, because I do think there are very systematic problems in the global financial system. I do think the banks and central banks, when faced with “save the bank or save the dollar,” will save the banks — which will lead to inflationary pressures. But I would not bet a million dollars that Bitcoin will be a million dollars in 90 days.
Sam: Whew! Are you guys hyped up or what? I’m ready to go get another fight.
Sam’s Position and the “Self-Interested Bet” Angle [01:07:00]
Shaan: We should say — there’s the other take that people have on this, which is that if Balaji has like a hundred million dollars of Bitcoin, he doesn’t need to be right for this to be a profitable bet for him. If he’s got $100 million of Bitcoin and Bitcoin moves up by three percent, he would only need it to move up by three percent to be profitable even if he loses the $2 million. I suspect he has $100 million of Bitcoin — he said he’s moved 99% of his net worth into crypto. So I think he can be directionally right, lose the bet, and still make money. And be doing what, to his beliefs, is the right thing to do: alerting people that the banking system is currently broken. He is the Michael Burry of our industry. We’ll see if he’s correct.
Sam: Dude, I just feel like I drank a liter of Mountain Dew. I’m just like — people want to understand: when Pomp tweeted that he was coming on, people wanted to know, “How are you going to sit in a room with the two of us and still be sitting there in cash ETFs and not own any crypto at the end of this segment?” Are you in? Are you gonna go buy Bitcoin?
Sam: Hold on — I own Bitcoin. I own it from 2015. I’ve made purchases. And I don’t have cash — I have real estate and equities.
Pomp: But here’s the thing — in hyperinflation periods, equities go up. But to get to a million dollars, Bitcoin is at $27,000 right now. That’s like 50x. I don’t know if equities will 50x. But also all those businesses run in dollars and all their earnings are in dollars. If dollars are not useful anymore—
Sam: Right. The whole system.
Shaan: That’s the thing — I’m a Bitcoin bull and you don’t want to see this happen. Because the world will be chaotic — absolutely chaotic. It will be bad for a lot of people. Even the biggest Bitcoin bulls — you said this yourself, Pomp — you’re not rooting for it to happen this way. A slow transition is really the only thing you want. A fast transition would create a lot of damage. So you don’t really want that to happen.