 CPI numbers came out and everything is looking pretty positive. But the question you have to ask yourself is, is this sustainable and how hard is the government going to come at us in the crypto and digital asset space? So welcome everybody. Today, I thought I would get a little bit more extra information from a gentleman who's more in traditional finance beforehand and now is over in the crypto and digital space. Simon Dixon, welcome back to the show. Alright, thanks for having me. What a wild time with banks failing and trying to blame it on crypto. So it should be fun. It should be fun. I don't usually have co-hosts, but I'll make an exception for Simon for sure. So we don't know who Simon is. He's got a little company called Bank of the Future. They've done some pretty solid investments that you can see, mostly securities. But also, Simon was an early investor in the Bitcoin way back in the day, 2011-12, somewhere around there. He also has a YouTube channel. I definitely want you guys to check out. Link in the description. So today, let's jump into it. CPI numbers come out. This is from Ben's Twitter account, CPI 6%, estimation 6%. Core CPI 5.5 in estimation. So in all honesty, the people nailed it. And we can just take a look here. CPI increased 0.4%. Seasonally adjusted. It rose 6% over the last 12 months. Next release will be in March. And if we can just take a look quickly, we can see that over the years, CPI, not just not core, but just regular CPI, has gone a nice little trajectory up. And if we strip out food and energy, take a look at the core CPI, we can see it's even gone up more vertically. And if we actually overlay that with the M2 money supply, we can see where things are going. And if we actually come down to a logarithmic, we can see just how much it is. Because we went from a nice M2 money supply of 15 trillion somewhere around there to 17, 18, 21 trillion. So what did this happen with the market? Well, you know already, we're almost at 1.2 trillion. Bitcoin's up 6%. Actually, over the last seven days, 15%. S&P 500 and NASDAQ is up today. So the question, this is why I got Simon here. Simon, is this sustainable? How far can we go? Or do you think that we're going to see more volatility for this year, just for this part? Yeah, so we got the 6% that the market was expecting. The market took that very well after having a real big panic about what's happening with the safety of people's deposits at banks. Right. And so typically, it's not something most people factor in, but a bank crash is something that you do have to factor in. It's probably one of the most deflationary effects you could possibly have. And so we've been debating that inflation has really driven the need to put interest rates to a point that they're more competitive of a free market after trying to solve the last financial crisis by putting interest rates down to the markets that we're used to, which pumps lots of money into the stock markets. And Bitcoin's only been around during a quantitative easing cycle where you've had low rates as well. So this was the first time that we got to see Bitcoin really crashed as a result of putting up rates to real markets after the inflation that came out. And now we got to see what Bitcoin was doing. And now because of the banking sector, we started to see real economics, real fundamentals that people... Bitcoin's always done well when people realize they don't own their money or they can't spend their money or their money's getting inflated away. So we started to see that real use case. But we returned right back to our usual Ponzi economics. So what this highlights to me is that there is no way of actually moving from a central bank market to a free market. And when this experiment over the last year of trying to do that, immediately caused these really big effects, which we'll probably cover in the next section, these unexpected breaking of things. And when they break, there's no choice. You have to bow down to the Ponzi economics because you have to keep the market going. And we will see that. So when the rates are about to be hiked and they're probably going to be hiked to a lesser extent because they got some deflation effect from the fear of banking. Gotcha. You know what? I just thought about some and you just said it perfectly. As time has gone on and we've seen now lately we've seen, you know, Bitcoin have a nice little rally. Everybody and everybody would say that you understand that the only time that crypto actually has gone up is because of during the times of quantitative easing in its whole existence since Bitcoin was created. It was only about that. Well, now we are in quantitative tightening. Are we not? And we've seen a little bit of a run. Now, can we hit the all-time highs? I'm not for sure. Simon, what are your thoughts? Yeah, and this is the test, by the way. I break Bitcoin up to into four-year tests. The first test was, can we survive centralization? Satoshi was mining a million Bitcoin and he had to try and get it decentralized. It went from, you know, mining on computers by one person to a decentralized network over a four-year period when it started moving over to graphic cards and A6. The second cycle was surviving all of the regulatory crackdowns that we got then. And FinCen came and said, came out and, you know, the Mt. Gox collapse led to Japan regulators and U.S. regulators and the China regulators. We survived that through the second four-year cycle. The third four-year cycle was surviving money printing within our own sector, which is the ICO beat. And so everyone was creating tokens and everyone was forking Bitcoin. And so the third cycle was, does Bitcoin still have 21 million Bitcoin? And the answer is yes. The fourth cycle, which is what we're coming towards the end of the third year or four, is the quantitative tightening cycle. So that's our big test. Can we survive quantitative tightening? And the reality is, as soon as you try quantitative tightening, you move back to quantitative easing. So we may not actually get our test and we may not actually ever get to experience that. The next cycle after that is what I call the CBDC cycle. We have to survive Bitcoin and CBDCs. And then the cycle after that that I predict is the AI cycle where central banking is done by AIs rather than humans. And Bitcoin proof of work is really the only force that can combat that. So that's what we've got to look for. So I think we are going to survive the quantitative tightening cycle and put an end to that attack on Bitcoin. That's true. And it's weird because it's all coming together because we talk about this. Bitcoin will always, about the money supply, but also they would say, Bitcoin's never been through a pandemic and we did just fine right there. And Bitcoin's never been through a war. Well, we went through the Afghanistan war for 20 years and that's just got over. And globally a war on Ukraine. But the thing is things are doing quite well. The next question is this will lead us to our next point, which is the recession. And this is from Jim Bianco. And we talked to him yesterday, President Bianco Research really does great, great detailed work. He talks about, look, if we're taking a look at when the next recession is coming, we always take a look at the 10 and two year, right? 10 and two year treasury yields. Look, just today, the two year note declined 61 basis points. This was the biggest one day decline since October 1st, 1982. And if we take a look here, this is what T-Notes or Treasury Bill is supposed to look like. It's not supposed to be an inversion. You're supposed to get more money or more interest on the 30 and the 20. But as time has gone on, it's become inverted. And now, of course, we look something like this where it's like Frankensteinville. And we're getting 5, 4% for, geez, three months and six months. That's crazy. And of course, over here, we're going to see how it's actually fallen off quite precipitously from 5% to 4 in the two year notes. So again, Simon, I'm not a traditional finance guy. You come from that area. And when we get into talking about banks, because I know you try to start up your own bank beforehand, what does this mean for us as the two years of the dropdown? Is it anything that we should be looking at as positive or negative? Or does it really matter in the long grand scheme of things? Yeah, I mean, this is what broke the banking system. The irony is that we're probably going to be told that banks were broken by crypto or high-risk venture capital with Silicon Valley Bank and Signature. But it was actually broken by the most risk-or-facet Treasuries. So Treasuries are essentially a way of lending to the government so you don't have to leave your money at the bank. You don't have to receive some yield on it because interest rates have been so low. It's been negative yield and really you're parking money there because if you leave it at the bank, you're exposed to what we're experiencing right now. What happened when the cycle that we have to live through right now after how we solved every financial crisis was you have to choose between inflation or recession. So you either put interest rates down in order to have a good market which causes more money printing, more debt, and eventually inflation. And once inflation comes along, you have to increase interest rates to send everyone that took on the debt bankrupt, to send everyone that borrowed on their mortgages, put them out of business to call the economy down. And what happened in this phase is they chose recession. And the central bank were choosing that. What that did is they spiked interest rates so fast they at a faster rate than we've seen for like 40 years that it started to mess with the bond market. And so what was happening are some of the banks that went bust and this is the inversion that you highlighted there is that when banks are getting more deposits faster than they can lend they end up like Silicon Valley Bank purchasing treasuries or mortgage-backed securities. But they had a very, very low interest rate. So when they issue new treasuries or new bonds and you're stuck with a 10-year bond with a very low interest rate and then suddenly you can get a three-month treasury with a much, much higher interest rate that crashes the price of the old bonds and you get that inversion. Which is okay if you can hold them till maturity. But if you're suddenly everyone's trying to take money out of your bank you need to sell those securities in order to meet their demand. And because that means that you have to sell them cheap at a discount because the only reason someone's going to buy a bond off you with a very low interest rate when you could have a no-one with a very high interest rate is if you give them a deep discount. And that locked in the losses which is what essentially moves a bank from illiquidity to insolvency. And so it's a big, big problem when you have these inversions it breaks things and it breaks banking. So yeah, it breaks things, it breaks banking. Do you see this as leading us into a potential recession or do you see it as something else? No, I think again the choice is recession or inflation. And it looks like by having this risk in the banking sector they were going to choose going back to inflation. But it looks like they'll roll over. There is a third choice between inflation and recession which is create the illusion of a market but take away people's freedoms more and more and more because more and more of the free market money ends up on the central bank and then you end up where we are today where the central bank dictates the whole economy because no one will invest in stocks or take risk until the central bank decides that they're going to push out cheap money or buy those assets through quantitative easing. So it looks like they were going for inflation and now they'll choose recession. That is interesting because that would lead us to our next topic which we covered this yesterday. And we know that Silicon Valley bank, they had an issue and it was around the bank, they did a lot just like you talked about getting in treasury bills which were low percentages but then of course they were a little bit inverted. This came out and I really want to talk to you about this because you've tried to start your bank as well. Say it's your bank. Was seized to send a message to other banks that we don't want you dealing with crypto this is actually former US rep Barney Frank said Monday on the board of the bank. He says, look, he believes the state officials behind the action were trying to make an example. This was just a way to tell people we don't want you dealing with crypto. Frank told Associated Press, Frank co-authored the Dodd-Frank Act. And there was also other tweets where other people other parts of the government were reaching out to different sectors of the banking institutions and asking them, you know, what is your balance sheet like? How much have you loaned? And the third question that was being asked. This is just, this is just hearsay. I can't prove it. But they were saying, do you have any exposure to crypto? So Simon, since you've been in this position before turning to your own bank, do you see this? And this actually just piggybacked what you just talked about, you know, the third option. So how dangerous is this right now? Yeah, so it's a bit of a, it's a bit semantics and it's a bit more complicated to make the connection. But essentially, well, essentially with what we were trying to create in banking is a non-fractional reserve bank, which you could call a trust bank. And a trust bank just means you hold people's funds in custody. And if they want to invest it, you treat it as a security. So people take risk with their money and they know what they're investing in. But when they don't want to take risk, they hold it, you know, as in custody, which means that you can't use it. You know, this is full reserve banking with traditional banking. You know, you have to actually rehypothecate and you have to use people's money and you have to have a risk management model to manage all these risks. And when those risks go wrong, you end up realizing that actually a bank deposit is not as safe as I thought. I didn't understand the risk. And, you know, that's why you have FDIC and the governments that come in and say, people shouldn't have to think about what the risks are behind this too complicated for people to understand. So we just guarantee it to a certain point so you don't need to worry about it. You know, that's the history. But what I think we have set up actually here is we have seen firsthand, which I always predicted was the playbook of how you implement a central bank digital currency when you have a central bank digital currency. Because what the government and FDIC have essentially done is they've said, right, all these banks are contributing to this insurance fund. And if those, you know, when we take actions, we put up interest rates very fast to control inflation, that breaks this particular bank. So it was that that broke the bank. The issue with signature is how did all these fear deposits come out? Well, in the case of a bank that was dealing with crypto, if you're dealing with all the exchanges when they want to withdraw en masse, that's what caused it. It wasn't anything to do with the crypto. So it wasn't like the bank had a bunch of traditional banking as you're managing your assets and liabilities. And you have to bring in more deposits in order to be able to meet those demand deposits because you're investing all the rest. And so what they did with basal requirements, they said is if a bank is using Bitcoin as an asset, so if you're holding it for your client, then you need to have more deposits. And so if you were engaging, if you were a bank engaging with Bitcoin, you'd be bringing in all this Bitcoin, the price of Bitcoin goes up, and that would mean that you'd have to have more deposits in order to meet those basal requirements, a bit technical. But it wasn't the crypto that broke banking. It was the management of assets and liabilities and treasuries and creating a unique risk model where people were wanting to withdraw fiat en masse. And so we're going to get a big blame for this and no doubt about it. That's why they decided to take those banks out. But more importantly, we've just, we've totally laid the foundation for how you would introduce a central bank digital currency into the economy. And imagine if we had a central bank digital currency right now. What you could do is you could do exactly what they've done, the Silicon Valley Bank signature in Silvergate, wait for them to go to under distress and then give every customer a digital wallet and say, right, here's now your balance. Let those banks go past. We'll auction off the assets just like they are right now to try and recoup some of those funds. And you can have essentially a central bank digital currency backed by the deposits of bankrupt banks. And that's exactly how you would implement and transition from a world where banks create money based upon debt to a world where central banks create money which isn't based upon debt. And that was actually what I covered in 2011 in the book and the importance of Bitcoin. And that's the reason why I found Bitcoin because we were trying to explain that transition that central bank digital currencies are inevitable, predictable, guaranteed. And therefore you need trust-based banking but we couldn't create it because of the crypto element. So we ended up just finding Bitcoin instead and Bitcoin just created an exit from the banking system. Ooh, scary resolutions. So Simon, you talked about, I mean, that's great response, a great answer. But talk to us real quick then is it inevitable then for CBDCs? Because it sounds like there is a group mentality. And when people realized they're like, wait, I can't get any of my funds out? Well, what do I do? Then the government steps in and goes, don't worry, we will assure every depositor we'll get their funds back. Okay, I like what I hear there, I get my funds back. Now is it just as simple as the government just keeping their foot on the throat of all the small banks until they collapse and then we just go into CBDCs and just bang bang boom, easy peasy? Or is there anything out of that? No, there is not any way out of this in the end. It's just how many cycles are you willing to go through? Eventually, if you think about what's going to happen as a result of this, they had to come in and guarantee the system even though it seemed like it was insignificant, small little banks. They had to guarantee the system because everyone else would start withdrawing. Now what would they do? They'd put their money in Treasury, they'd buy some Bitcoin, or they'd put their money in gold, or they'd just go to one of the very, very large banks. And really the beneficiary of that is if everyone starts withdrawing their deposits and buying Treasuries because they don't want bank risk, that's just a way of lending a load more money to the government from within your economy. And so the US government have found another way of rolling over their debt if that scenario were to roll out. But again, it is structured as a Ponzi scheme. And so eventually you end up with, in order to have more money, you have to have more debt. You can either get individuals to take on more debt, companies to take on more debt, governments to take on more debt, or you roll it over to the central bank. Now remember, the central bank had the same exposure. The Fed has the exact same exposure as Silicon Valley Bank. It is losing billions and billions of dollars every week. We've got about $1.3 trillion of losses right now. So it is actually in the same trade as Silicon Valley Bank, but it can roll it over. Eventually inflation kicks in and you end up at the end of a switch of a World Reserve currency. That's where it always ends, every single time. One way of holding on to that is just issue a debt-free currency, which is the central bank digital currency. The cost of that is you take away everyone's freedoms and privacy and everything that made America what it is today. Well, I got to tell you, if it wasn't for Bitcoin, where would we be? We'd be taking our cash out, putting it underneath our mattresses and hoping that they don't say, okay, that also becomes irrelevant. So, Simon, I got to tell you, that was scary. When I think about these things, there's only one way out of it for the people who want to opt out, and that's Bitcoin, and that's digital assets and crypto. Again, you can find Simon's channel here on YouTube, but Simon, that was excellent. Anything else you want to mention as you've scared us all pale? Well, it doesn't necessarily need to be too scary, because you're highly unlikely to lose your bank deposit. You're just going to end up with a digital currency. But the thought of what that digital currency can do is just a management, managing your expenses. But we are so fortunate for the one thing that protects us from everything, which is proof of work Bitcoin. If we didn't have proof of work Bitcoin, I can't imagine how much more challenging this scenario would be to manage, and I'm sure the stress that people outside of the Bitcoin world are going through is we've just got this blessing, and there's no greater motivation to really understand this than necessity. And so we've now got a bunch of people that are really understanding the three things that help people get into Bitcoin, which is when you realize you don't own your money, when you realize you may not be able to spend your money, and when you realize it's going down in value and your savings are depleting over time. And so we have Bitcoin, which was created to counter that. I can agree. And I think that's why maybe we're seeing a little bit of a price. Maybe people are finally getting it when there's max pain. All right, Simon, I think we covered everything, and we covered a lot, I would say, in 24 minutes. So guys, that is it. Again, you can find Simon Dixon's channel on YouTube. I highly recommend you take a look and check out the videos. But that's it for today. Simon, we got to have you back on. That was excellent. Okay, thanks for having me. Nice to meet you. Nice to meet you. All right, guys. Like and subscribe. All the good stuff, and we'll see you on the next one.