 This time is different. It's kind of the phrase that you say just before you have to eat your own words, especially in financial markets. As 2022 kicks into gear, many of us are wondering what's in store for Bitcoin and the broader crypto markets. Our lives, although our own, are governed by cycles, which are often outside of our control and create the environment, the conditions in which we each try to find happiness and success. And that environment can have radically different characteristics and opportunities presented to us based on where we are and whatever particular cycle that we are. But we can't see the cycles, at least not until they've come to pass and we can't tell if this time is different, although it may feel that way or the same. So on this episode, we're going to talk about it. But before that introductions, my name is Adam B. Levine, and this is Speaking of Bitcoin. This time, as always, I'm joined by the other host of the show, Andreas M. Antonopoulos. Hello, Jonathan Mohan and Stephanie Murphy. Hi. So on today's show, we're going to talk about the cycle of innovation as at least I've seen it in the world of crypto projects and why the future rarely looks like the past. So this is a topic that we have talked about before a number of times. But I feel like it's worth revisiting as we enter this period of is this time different about sort of the crypto cycle, right? Crypto cycles have tended to go in three to four year increments where you have a strong, you know, bull market where everyone is very excited and, you know, things overheat and the price goes way, way up. And then they have multi-year bear markets where the price is down and people are very dour. And although there are many people who stick around and continue working, sort of the FOMO kind of all comes out of the thing for a while until the next round comes along. But that's not actually what I want to talk about today. What I want to talk about today is the cycle that we have seen kind of repeat over and over again of how projects emerge and sort of from the first days of Bitcoin emerging, right? Came out of a white paper, came out of a piece of software that was released as the reference client. And it came out at a time when nobody believed that what it wanted to do was possible, much less interestingly viable. So when Bitcoin did that, it created the preconditions for then other projects and other people who might have been interested in creating something like Bitcoin, but who didn't think it would be worth the time because it didn't work to now look at this project and say, wait, if Bitcoin can do this, I could change this and this and this, and I could do an even better version of Bitcoin. Now, in practice, that didn't go so well for the vast majority of projects that are out there. And what we saw was sort of the emergence of Ethereum eventually, which was like Bitcoin in some ways, but very not like Bitcoin in many ways, namely that it didn't have the word coin in the name, right? Every project that came out, it seems like from fry coin to, you know, name coin, feather coin, 42 coin, master coin. Well, NXT and counterparty, though, did beat the Ethereum to the punch on a noncoin based name. Yes. NXT, I think, was arguably the first one to do that and do something entirely different around the name. And even that didn't work. Turns out it wasn't the name that was the thing. And NXT did have a lot of precursor features, but it still didn't take off. It really took the Ethereum project, which was actually created in public for a fairly long period of time. Jonathan, as I don't need to tell you, before there was actually any technology behind it, it managed to capture that zeitgeist. It managed to sort of bootstrap itself into the position that we see it still in today, which is as the dominant smart contract platform and the sort of Bitcoin of its category. Now, in the current environment, we're seeing lots and lots and lots of projects not trying to be the next Bitcoin, but trying to be the next Ethereum. They're taking different approaches to it. Some of them are very well funded. And the question is, what are the changes that will be enough? But again, that's not even what I want to talk about. Sorry, I keep changing the topic on you here. But broadly, it's that it's these cycles, right? It's these cycles and how oftentimes the past, as we've seen it, and as we try and learn all we can from it, doesn't actually lead us to making the right decisions. I think my personal theory is that this is because when we're working in this area of new technology and really anything where we really don't know what we're doing, whenever anybody has a success, it is viewed by kind of the community at large around it of people who might create subsequent projects as a best practice, right? When in reality, what it is, it's a first practice that was successful. We've been talking about this for a lot of years now and I've said this a bunch of times, but I think that that kind of remains true today. And in the current market, I'm looking around at NFT projects and I'm looking around at sort of DeFi projects, and I'm wondering if we're not going to see the same cycle repeat in each of these places, where sort of the low hanging fruit has been picked. And now it's really a question of, you know, who is going to come up with the next idea that is able to break through and set that next first practice? I think it's inevitable that we will see more and surprising innovations in this space. Anytime I felt like things have gotten a bit stagnant or it doesn't seem to be changing much, something comes completely out of left field and you have a new innovation, a new wave, a new craze often. And very often you have the same story repeat again just in a slightly tweaked version and almost always a bigger scale. Yeah, so I think something else is going to happen to repeat that cycle. And I think this time is different is kind of the phrase that you say just before you have to eat your own words, especially in financial markets, because the fundamental ingredients that go into these cycles are the same ingredients. And those ingredients are human nature and time. Put those two ingredients together and you'll get the same types of cycles repeating themselves, the same templates, the same patterns will repeat themselves just slightly different. Okay, so let's zoom in a little bit more from the kind of abstract that I've given us here. So we're not making predictions here, but we've been talking about inflation a lot. And the December numbers for inflation officially in the US came out earlier this month. And we saw that the official number again, we've discussed why the official number is something of a troubled number is at 7% year over year, which is the highest number since 1982. So we are now officially before I was born. We have never seen official higher levels of inflation than today. And that's not good. And so on the one hand, again, like Bitcoin is viewed pretty commonly as an inflation hedge or at least discussed in that way. It's not really behaving like one, but I kind of don't even care about that. It depends when you got in though. Well, I just mean broadly, like the way that I look at Bitcoin and I see Bitcoin in terms of its inflation hedginess is not transitory to use that word. It's not day to day inflation, right? It's systemic disruption actually. Inflation is one of the ways that systemic disruption manifests, but it's actually systemic disruption that it is protecting against because Bitcoin is for all the things that are good and all the things that are bad about it is just different. It's outside of the current system. And we live in a world that is ever increasingly sort of linked to this. So the conditions that we're talking about today, as we're looking at Bitcoin and we're looking at the crypto sector and NFTs and we're saying, okay, well, is this going to be a repetition of that cycle? Are we actually going to see a prolonged multi-year bear market versus are we going to see it continue to go up to prices that would indicate that it is continuing to fulfill the vision that I think many of us have for it, which is that as sort of the traditional financial system continues to fall apart, it will become the obvious choice simply because it is not part of the traditional financial system. So I mean, the thing that I'm increasingly wondering is, is that catalyst enough? Is it actually different this time because we are in such an unprecedented situation? Or is this just the latest round of unprecedented situation that still results in the same cycle repeating? Now, it looks different, but we're finding out more and more every day, I am anyway, that a lot of the systems that we thought we could trust and count on and rely on and all the traditional hallmarks of a stable society, they're actually really dysfunctional. And Bitcoin is outside of those dysfunctional systems offering an alternative. And so I think it's the same in that there's always been dysfunction. Now it's being highlighted and brought out a lot more. It looks different in different situations, but fundamentally, it's about an unhealthy core, I guess, of these institutions. I think they're fragile too. And that's another thing that's becoming more and more evident. They have the semblance of being robust, but that's only because human memory is really rather short. People don't remember the last hyperinflation event in the United States, even though it was in the 70s, not that long ago. What's hyperinflation actually? When can you call it hyperinflation? Are we in it now? I'll look up the official definition, but I'm pretty sure it's 40%. So there wasn't hyperinflation. There was very strong inflation. I think the height of it was something around 15, something like that, the peak of it during the OPEC crisis. So nobody even remembers that or remembers the impact that had today. Well, at least certainly no one in our generation remembers that. The previous generation might, but maybe they've also decided to ignore that reality or believe that this time somehow is different. And if you see what people are talking about with regards to inflation, there's a very, very big effort to add the words transitory or temporary or passing or various nice euphemisms in front of it, so as to pretend that this isn't actually really happening and happening in a very extreme way. And the thing is, this isn't just in the US. This is happening all around the world triggered by and exasperated by supply chain crisis and coming out of the pandemic and various other things, but also because of the monetary policy of the last 30 or 40 years. Yeah, these systems are fragile. And I think that's something that we're going to have to learn the hard way. And I hope that Bitcoin proves to be more robust in that way. I will agree with you, Adam, when you say that it doesn't behave as an inflation hedge yet. And I think the real hallmark would be when we see currency devalue and Bitcoin increase in value, or when we see markets go down and Bitcoin go up, when it becomes counter correlated, not just this correlated. And right now it's actually tightly correlated, very, very tightly correlated. You need a rather long time horizon to determine that form of correlation, because if you look at the hyperinflation and airy cycles in Venezuela or in Germany, if you were long gold, but took out a leveraged position on gold, you actually would have been wiped out multiple times in both Venezuela and in the Weimar Republic, because the volatility in a currency collapse isn't just it went down, it radically goes up and then radically goes down and then radically goes up. And so even if you had like 20% leverage on gold, you would have been liquidated even though you were right that a bar of gold was a hedge against the Weimar Republic inflation. And so I think if you look at like a two-year moving average of Bitcoin against a hyperinflationary currency, that would make sense. But even gold in the previous examples where it was a hedge would rapidly lose value, because hyperinflation isn't just a trajectory, it's a high volatility period. We've also got to remember that Bitcoin does not have the words inflation protection in the name. I'll give you a tip here. And the tip is Treasury inflation protection, and that does have inflation protection in its name. And after all, it comes from the very official sounding Federal Reserve and Treasury. So maybe we should be betting on that instead. What do you think? In 2021, we talked with John Williams, who is the economist buying shadow stats. And what he said is that like, here's the official number over here, and then here's what the man on the street is actually feeling. And so again, tips are the inflation hedge brought to you by people who don't want to admit that there's inflation. So to the extent that they're willing to admit it is to the extent that they're willing to actually give you some protection against it. But as we've discussed before, kind of the whole thing about Bitcoin is that they don't want you to have protection. That's why when you see a country like Zimbabwe go into hyperinflation, real hyperinflation that has compounding month over month significant inflation that goes well beyond what we're seeing here, even as this is at record highs, that's why one of the first things that they do is they clamp down on any sort of alternative or any sort of escape mechanism that would allow their people to take their money out of the failing system. They need the people in the failing system. And so these things like tips really just wind up being a trap. If you believe that the people who are lying to you about inflation are going to allow you to protect yourself against inflation based on the metrics that they provide to you, you have fallen into the trap. And it's a very unfortunate thing, but we continue to see it. So I don't think the tips are going to be the solution here. I guess it's the short version. Oh, boy. Okay, I have to go rebalance my portfolio now. It's in the name. I was fooled. Exactly. I mean, but that's the point with all of this stuff, right? Is like, Andreas, you mentioned the word fragility a bunch of times when you talked about this system. And that is an apt word. Because again, systems that are not allowed to be challenged systems that do not have to compete have no reason to become anything other than fragile, fragile works for them. And again, if when you're playing poker with a certain group of friends, and every time you bluff, they all fold, well, you're just always going to bluff, right? Why wouldn't you always bluff in any situation? But then that makes your strategy incredibly weak. Because if somebody calls your bluff, then congratulations, you've just lost, right? And that loss again, like that confidence that bluffing is going to work, probably is leading you to try to maximize your benefit each time with a very, very large bet. So it's the same thing, right? The thing about Bitcoin, it doesn't have that luxury. And that is what it is, is the ability to exist in a world without competition is a luxury that is an artificial luxury for the most part. And so when you look at something like Bitcoin, we talked on the last episode about Kazakhstan, right? And how Kazakhstan, like China before it, had been a significant source of mining power and that mining power had been suddenly shut off due to things that were outside the control of the actual people mining. So in a fragile system, that would be damaging to Bitcoin. But what we've seen actually is that Bitcoin gets punched, but it's actually anti-fragile, which is one of my favorite concepts, which is to say that what doesn't kill you makes you stronger. And so Bitcoin has that continued impact, impact, impact, impact. If there's some way you can hit it, then people do hit it. And as a result, so long as it doesn't fail, it actually gets stronger. And there's less uncertainty in the market because people are like, okay, well, but it survived that. So it probably could survive this. And then we see that, right? There's never this like hypothetical where, well, we don't know if it could survive that. Somebody could really get a lot of money out of the system, right? No, if they can break the system, they will break the system because why wouldn't you? Because you are allowed to compete. I'm sorry, I'm going off on a rant here, but this fragile versus anti-fragile concept I think is really kind of core to this discussion. Oh, it was a pretty good rant. I mean, I had my lighter above my head here. It was rock ballad of the ages. It was awesome. We encourage rants on the show. Yeah, especially when they're pro-Bitcoin rants and we're all just, you know, reliving our early enthusiasm. This is one of those things where honestly, I hope that things are not going to play out the way I think they're going to play out. Because if they do, this is going to be very painful for a lot of people who are absolutely not ready. And I think this idea that the way of life as we know it is not sustainable that people, especially in the United States have been waking up to over the past couple decades at least, I think that's now becoming more of an accelerating phase in this cycle. And I very much hope it doesn't play out the way I think it is. I hope to be proven wrong. Because if I'm proven wrong, then, you know, Bitcoin fails to do what it's supposed to do and my portfolio suffers, I guess, you know, whatever. The problem is, if we're right and things go the way I think they're going to go in terms of inflation, a whole lot of people are going to get hurt. And that's a really, really scary possibility. Yeah. On the last show, we talked about watching what people do versus what they say. And so I'm just going to go ahead and say what I'm doing, which is developing more sustainability or self-reliance. I guess you could say self-sufficiency in my own life. That means producing food, you know, becoming independent from many of the systems that people depend on in many ways. Yeah, this whole planning for disaster thing, I have really mixed feelings about, right? Like, on the one hand, clearly, it's the right choice. On the other hand, the implications of it are not good, not good at all. And again, the chances of it resolving itself, it feels like without having some type of meaningful collapse, simply because it seems like a collapse won't be allowed until it's like so bad that it can't be stopped. Like, that's real. And so, yeah, I mean, the actions that you can take today are really to take this seriously. You know, Jonathan mentioned it on a previous episode, but, you know, like, what is the line in the sand at which you either have to disconnect from the system or you have to do something, something, something, and kind of what is it that you'll do? It might not be something that you need to do today, but you should be thinking about it. And certainly we all are. Yep. Everyone laughs at the preppers until they're right. The beauty of it is that there is a pretty good degree of, if you want to call it prepping, that you can do in every aspect of your life simply to be more resilient, more flexible, less in the rut of your expectations and more open to the possibility that things are going to play out very differently than you expect and being welcome to that change and open to that and being more independent, more self-sufficient, having multiple different ways of achieving your goals so that if the first one doesn't work out, you have more than one option, all of these things you can do without really that much cost, without having to make enormous sacrifices. You don't have to necessarily make use sacrifices to be a little bit more flexible than the majority of people around you. So I think you can do healthy prepping. It doesn't have to be the heavily ridiculed bunker with the 25 years worth of food. With the iodine tablets. But yeah, but people like to take an extreme to dismiss the concept of doing anything. It's like, you don't have to want to become Arnold Schwarzenegger to go for a 10 minute jog on a treadmill, right? Yeah, that's a great way to look at it. I like what you said about adaptability, Andreas, because yeah, that is actually our strength as humans. We're very adaptable to a wide variety of conditions and we have to grow and strengthen. We have to like exercise our adaptability to develop it more and that just helps us in any circumstance in life because really the only thing that's certain is that things change and you got to be able to adapt in order to thrive. So speaking back of cycles and kind of bring this full circle pun intended, you know, it's very easy to see the cycles that are short that have repeated within your recent memory and that mimic the existing pattern close enough that you can immediately recognize them. The ones that are trickier are the large radius or long duration cycles or those that look sufficiently different that you can't immediately recognize them as something you've seen before, but especially the long cycles. The long cycles are trickier because in the time when, you know, the comet is on the other side of the Oort cloud, it's as if it doesn't exist. Never has existed. Last time it was here, you know, the Babylonians were scratching clay and it's out of sight out of mind quite literally and we don't need to worry about it, but that's still elliptic orbit. It's a very big elliptic orbit, but it sure as hell is coming back to the inner system soon. Those cycles are harder and a lot of the cycles we're dealing with, especially in economics and, you know, if you want to look at it also with things like infectious disease, you know, the last time we had a pandemic, 1980 Spanish flu, it was sufficiently long ago that most people have forgotten about it or dead. And the same thing with financial crisis. The disadvantage that many Americans have is that they've had a more or less stable functioning economy and stable functioning institutions for long enough that instability is now unthinkable. It has always been so, it will always be so and that's when complacency sets in. So that's the long cycle and it's much harder to recognize. I think the complacency will be even more pernicious than that. I think just, I mean, the dollar has failed multiple times. They just do their Orwellian trick of redefining terms and then have people believe that it never failed. I think we're going for an even, you know, scarier time, which is that the dollar will have literally collapsed and there will still be people believing that nothing has happened. What are you talking about? We've always had bizollars. Jeff has been printing bizollars from the beginning of this country. Yeah. So the dollar is literally a brand name to a product and people think it's been the same thing all the time. And so Orwell, right, wrote about, you know, we've always been at war with Oceania. So I like to say like, look at the definition of the term and then apply that term to the product to see if it passes it or not. Right. And so for a couple hundred years until 1970, the definition of a dollar collapse was that we had more liabilities than our ability to repay in gold. And in 1971, the government acknowledged that they had more liabilities than they had gold. Now in 1970, if they made that statement public, that would have been the definition of a dollar default and a collapse of the currency. But in 1971, that wasn't the definition of a dollar default and a collapse. And so I think what's going to happen is the dollar will default. They will just redefine the term defaulting. And then 95% of Americans, just as in 1971, will perceive nothing had happened, except they will be poorer than they will ever have been in their life. Yeah, it's really interesting how language shapes thought. It reminds me of a lot of definitions that have changed recently, which I won't go into, but yeah, there have been a lot of changes of definitions going on recently. And yeah, it can be difficult to keep a long term perspective, especially when you're dealing with that kind of stuff that destabilizes your understanding of things and makes you sometimes question your own observations about reality. I mean, that's a tactic of abusers all over the place that they destabilize your perception of reality and they make you not trust yourself that what you see or experience is real. And then you're easier to control and easier to abuse. What do you mean, Stephanie? Clearly, I'm a failure and it has nothing to do with the fact that the homeowner's equivalent has nothing to do with rent, right? They're basically telling a generation that they're failures rather than just admitting that there was 15% inflation. Yeah, I mean, if you would just stop buying that avocado toast every morning, maybe you could save up for a house. Yeah, you know what, Millennial, maybe if you just didn't have that Netflix account because you live in your parent's basement and it's the only thing that you own is a subscription to Netflix, maybe if you just saved that, you would have been able to pay for the 15% increase in rent to get out of the house, right? Like that's your fault. To tie this episode to the previous episode, that would be a really revolutionary way to do proof of work mining as if we could somehow harness the energy of gas lighting. Yeah, that's the cheapest form of natural gas, all hot air, 100%. And the US is one of the world's biggest producers of gas lighting. So I don't think we've come to any answer about cycles. I think that cycles continue to be an interesting thing. And I think as Andreas said, you know, some of these cycles that affect us and that again, very much have a large impact on our ability to live our lives, what we do in terms of really everything, you know, a lot of these cycles are simply older than we are. And, you know, when you look at those multi generational things, it's pretty hard to internalize those types of lessons because we build ourselves and our understanding of the world around the world that we see in the world that we're in, not the world that came before. So anyways, it's a topic that we will definitely be revisiting as we get deeper into it. And certainly I am very curious to see if this time is different, as I know that we all are. But that is all the time that we have for this episode of Speaking of Bitcoin. Today's show featured Stephanie Murphy, Jonathan Mohan, Andreas M. Antonopoulos, and myself, Adam Elavine. If you've got a Bitcoin related topic that you'd like to hear us discuss on a future episode, go ahead and send me an email at adam at speakingofbitcoin.show with the subject set to topic suggestion. This episode featured music by Gertie Beats, and our theme is by Jared Rubins. Thanks very much for listening. We'll be back next week with another episode of Speaking of Bitcoin.