Responding to Peter Mallouk's Bitcoin Critiques

Andy Flattery & Zach from Casa respond to the bitcoin comments of Creative Planning's Peter Mallouk:

- BTC is "Palm or Blackberry..." but blockchain will revolutionize everything?
- "Too speculative" to be a currency?
- But "anyone can create their own cryptocurrency?"
- Investors in the S&P 500 will benefit anyway (from companies who hold it on the balance sheet)?

Show Notes: https://simplewealthkc.com/responding-to-peter-mallouks-bitcoin-critiques/

Interlude & Outro: https://www.youtube.com/watch?v=w9qsDgA1q8Y

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Andy Flattery is the Owner of Simple Wealth Planning, a Registered Investment Advisor. All opinions expressed by Andy and guests are solely their own opinions and do not reflect the opinions of Simple Wealth Planning. This podcast is for informational and entertainment purposes only and should not be relied upon as investment, tax, or legal advice. Clients of Simple Wealth Planning may maintain positions in bitcoin and the securities discussed in this podcast.

Transcript

Responding to Peter Mallouk's Bitcoin Critiques
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Andy Flattery: 

Hey, everyone. Welcome back to the podcast. I have got Zack with Casa on the show today, Zach is a former financial. Advisor turned a Bitcoin or. And we're going to be talking about the things financial advisors say about Bitcoin specifically. We're going to be talking about the things Peter Luke says about 

Peter is probably the most, um, let's say visible financial advisor in Backyard here in kansas 

So i hope you enjoy my conversation with zach from casa my journey is, uh, is not the normal one. So I graduated college, uh, from Louisiana state and then I was a on the, the cycling team and was a Jimmy John's delivery guy as like a side job during college. And when I graduated, I didn't have a job completely lined up and delivered sandwiches. And I happened to deliver downtown to Merrill Lynch.

Value Stack Zach: And I had taped my resume to this sandwich, uh, and it happened to be to the branch manager and he was like, kid, you've got hustle. You know, I was like 21 at the time. He's like, you know, I want to want to come bring you in for an interview. Uh, and so they got me licensed and, uh, really just like spent a couple years learning.

How brokerage in the financial world worked or rather rather into the, the old financial world, because that's what really stood out to me was like how antiquated it all felt right here. I am fresh outta college economics major. And so I knew that I couldn't stay there forever. And part of me wanted to leave the south.

So I 

joined personal capital, which was this like FinTech firm. And they were far more, uh, you know, open to technology and using that to optimize. Financial planning process. They would take these retirement cash flow modeling and give you a, you know, a probability of like what your success would be based on your withdrawals and your, your portfolio, uh, compound annual growth rates.

And so this was cool, but I became like the. Uh, anyway, fast forward, I became the Bitcoin guy there and people would, 

you know, kind of jest, uh, when it was not doing well and, and, and sort of look with envy or, or discredit when it was doing well. And so, you know, in 2020, I mean, I worked at personal capital for, for several years.

And then at 2020, I. You know, the, the money printing, like it just became so hard to deal with. And that's when the Bitcoin industry was like, you know what? Like if there's ever a time in life that you're gonna make a big change, that pandemic thing felt like the time. Uh, and, and so, you know, I had sort of knew that this Bitcoin world needed, uh, some, some financial advisor love and kind of dumbing it, not, not dumbing it down, but, but simplifying.

And taking something like a private key, uh, and making that, you know, as normal as logging into your Schwab account. Um, so yeah, it was a long path, but, um, you know, here we are,

Andy Flattery: Yeah. What is your perspective? From your seat today on, you know, the Merrill Lynches of the world, cuz in some respects it seems like Merrill Lynch should be all about Bitcoin. Like it seems like they should want to sell that sizzle. Like it might, in some respects it sort of fits their brand of like the aspirational investing.

Like what, what's your perspective on that world as it stands today?

Value Stack Zach: Yeah, I think that there's a conflict of interest problem. If I could put it simply, um, you know, financial advisors and financial advisors make their money on an annual fee basis normally, and they should be fiduciaries, brokerage firms like wirehouses, like Merrill Lynch, make their money on commission trading and structured products that they charge fees on.

And I think that Bitcoin sort. By design doesn't fit into that revenue model because the really the goal of Bitcoin at least is to, I understand it is you, you buy it. You withdraw it to a wallet and then you hold it until you're ready to exchange it for a good. Now right now, the opportunity cost is such that I wouldn't ever exchange it for any good, but you know, give it 10, 15 years.

Maybe I will. Uh, but, but, so that's like kind of like, what does a financial advisor do with Bitcoin, right? Like nothing, you just hold it or like, what does a brokerage house do? I mean, they wanna transact volume. And so that's why you see exchanges like coin base. Like their whole business is based upon trading volume and fees on, on the commission.

So I think there's a sort of struggle with the Merrill Lynches of the world. I mean, you saw BlackRock. Get into their private trust, but that's a, a they're charging a recurring fee. If I, uh, recall correctly on that kind of like gray scales, uh, trust is so there's a revenue conflict, uh, in my mind. Um, but it will, it will, it will come.

Uh, it's just a bit slower.

Andy Flattery: Yeah, that makes perfect sense. So it's a good segue into, um, maybe not the wire house channel, but in the RA channel, I want to pick on Peter Malo today. he, he's sort of like. The the, the face of financial advice in where I at here in the Midwest, in Kansas city. And, and the reason why I wanna pick on Peter ook is he's a financial advisor that talks about Bitcoin all the time.

He, he, he has had many appearances on podcasts. He tweets all the time about his sort of views on Bitcoin. And so I thought you and I could have a conversation about Peter because not only is he making, , critiques of Bitcoin that you and I could easily rebut, but he's sort of making critiques that are very common.

First of all, Zach, do you know who Peter ook is? Have you heard of him?

Value Stack Zach: Oh, yeah. Yeah. He's uh, the CEO of creative planning, you know, I, I remember selling against them at personal capital. Uh, and, and it was tough to do because they're a fiduciary. Right. And they by law are supposed to have the client's best interest in mind as Zeny registered investment advisor. Right. So, uh, I think like I wanna preface with, I believe.

That he believes he's acting in his client's best interest. 

Uh, but hopefully after he listens to your podcast, uh, you know, we'll, we'll educate him.

Andy Flattery: Well, yeah, I mean, hopefully this goes without saying, but there is an open invitation for Peter if he ever wants to come on this podcast and actually talk about this in person. And, and I, yeah, I wanna preface this by saying, um, there is a lot to like about Peter Mallu. Um, he's, uh, he's, he's got a good brand here in Kansas city.

He gives a lot of money away. He gives a lot of money to the Catholic church, which I. Um, he's built a pretty impressive business, with creative planning, it's got a good brand and I he's sort of like a classic example to me of like, do what Peter ook does, but don't necessarily do what he says.

Like, you should try to build a massive business by copying him, but like, don't listen to his financial advice 

Value Stack Zach: Right. Well, I, yeah, I mean, he, he, creative planning helped push the idea of putting your client's interests ahead of your own. And wow. What, what a revolutionary idea, uh, that you should do the, the right thing for

Andy Flattery: Yeah, well kind of what's what's happened. What's happened since the, the rise of creative planning though is now. You have the only planners that, um, have tried to get beyond the conflicts of interest that even happen at, at creative planning. So what, what creative planning does is they do everything in house.

So if you want an estate planning attorney, guess what they're gonna do, they're gonna refer you to their in-house estate planning attorneys. If you want an insurance agent, they're gonna refer you. To an in-house insurance agent. I don't exactly know how they manage assets, but my guess is there's probably a conflict of interest in the way that they manage assets.

That affects the way that Peter Malo talks about Bitcoin for the very, oh, for the very reason that they, they probably don't have a way to allocate, right? Like they don't have a way to charge their management fee on top of, of a Bitcoin holding. So.

Value Stack Zach: you know, and it's, and Annie's not different in bank of America, right? Like they have the us trust, which is their trust department. They've got the banking de mortgage department. They've got the me brokerage department. So they're all, I mean, of course any company is incentivized to, you know, vertically integrate and, you know, 

so, uh, call it operational efficiency.

Andy Flattery: Yeah, I, I, you know, I have a friend who, um, the way he describes the, the creative planning and Peter ook phenomenon is he says, you know, there's always gonna be that person in retirement that has saved their life savings and they want to retire and they want to go to someone who's just gonna make them feel warm and fuzzy that it's gonna work out

Value Stack Zach: Yeah, 

the relationship management's important.

Andy Flattery: And it's all in house and there's gonna be a good relationship person on the other end, and they're gonna have their 60, 40 managed portfolio and they're gonna pay their fee and it's, it's gonna be fine. 

Value Stack Zach: 60, 40 dead Eddie. Come on. that's what they say, right?

Andy Flattery: Well, that's why we're here. That's why we're here. That's why we're here to talk about Bitcoin. So, so anyway, that's, that's why I want to, to dig into Peter Mau. Um, again, he's the CEO and founder of a firm called creative planning. If you're not familiar, it's a massive registered investment advisor based outta here in Kansas city.

But, but now they're all over the country and so again, there's a lot to sort of admire about Peter, but we're gonna separate the wheat from the chaff here as it stands with his takes on Bitcoin. So, so Zach, should we jump into.

Value Stack Zach: Let's get it.

Andy Flattery: So this is Peter's appearance on the, uh, the investor's podcast. And here Trey Lockerby is interviewing him and he gets into his, um, his questions on Bitcoin.

So here we go.

Peter Mallouk: You've got on record, dismissing gold and Bitcoin, and you gave this great overview on the Tim Ferris show a while back discussing that. So we won't rehash it here, but that interview was in 2019 and that was before a global pandemic and all of the things that have happened since. The government has now proceeded to print over something like $11 trillion.

Yeah. And Bitcoin has 10 X in value since then as well. I'm sure the two are correlated. Has anything in the last couple of years made you reconsider at least the use case of Bitcoin. So I'll start with cryptocurrency, right? So I think if you look at the case for cryptocurrency is, Hey, the blockchain, when you say, why does, uh, cryptocurrency as value?

You know, people will tell you that there's the blockchain, but the blockchain isn't really have anything to do with it. Other than it's the template that you have the cryptocurrency on. Right? So lots of things run on the, on the blockchain. It's like saying, uh, you. Google cuz of the internet, the internet can work out great and have excite and LICOs not work out or saying, I love the iPhone because it, you know, uses this mobile technology.

Well, Palm didn't work out and neither did Blackberry. So I accept blockchain from day. One is gonna revolutionize everything.

Andy Flattery: All right, Zach. So I accept blockchain is going to revolutionize everything, but that doesn't mean anything about Bitcoin. I mean, come on softball right off the. What what's the problem with this?

Value Stack Zach: Come on, you gotta make it harder for me here, brother. Uh, well, you know, I think like first off blockchain is not the invention. He's got this completely backwards. Um, because Bitcoin didn't create blockchain. Um, right. The first blockchain was New York times in 1995 and it's the longest running still is archive of all articles.

And so I. know, people conflate these a lot, but the, the truth is that Bitcoin isn't even the first cryptocurrency either. Like there was Eagle and B money and hash cash, and Eagle in particular had up like right before it was shut down. And the finance before leading up to the financial crisis over $2 billion in volume traded that that year.

So, um, yeah, I don't, I don't really think that blockchain. Necessar blockchain doesn't revolutionize anything on its own, right? It's just like a database that can't necessarily be deleted from, but tying the, the different factors together. Um, the proof of work from Adam back's hash cash and the difficulty adjustment, which was unique to Bitcoin that, uh, essentially will self-correct the supply issuance.

Um, combining that with the blockchain and then you take apart the, you know, sort of the organic initial distribution that happened. That is what's important in my mind, not blockchain because you can create a private blockchain, you can create a public blockchain. Um, that doesn't mean that it's valuable,

Andy Flattery: Yeah. I don't even know what he's talking about because he's, he's sort of putting the straw straw man out there. Like

Value Stack Zach: yeah. 

Andy Flattery: everyone says the blockchain is gonna revolutionize everything. Nobody says that anymore. Like that, that, that is such

a, ah, I remember, I remember back in when I was at, um, I was at BMO back in 2016.

And I remember going to an event where our, our chief strategist was talking about blockchain, not Bitcoin. And at the time in my naivete, I sort of, oh, like, oh, that sounds smart. Cuz that literally was the thing that everyone used to say to sound smart when they had no one understanding of what they're talking about.

And as you point out, yeah. Okay. Blockchain is one of the technologies that went into Bitcoin, but there's, there's many, many things that had to happen for Bitcoin to be possible. Um, yeah, you mentioned proof of work. Um, the having mechanism and, and, and what Satoshi's brilliance was, was not inventing bro blockchain, but putting all these elements together that had been in the works for decades.

And

Value Stack Zach: And then disappearing. 

Andy Flattery: and then disappearing. So, so Peter, I mean, you just, you laid an egg right off the bat. That was not a good start, but maybe he's got something better for us here in the second clip. So here we go.

Peter Mallouk: So the argument for, well, what makes Bitcoin worth something is there's only 21 million of it. Well, anyone today could create any cryptocurrency and only have 21 million of it. That's not what makes Bitcoin special at all. So it drives me. When people make that argument, I could come out with my own cryptocurrency by an hour from now.

Andy Flattery: Okay. So the problem with talking about the 21 million Zach, is that anyone could create a cryptocurrency that has a finite amount. So,

Value Stack Zach: Yeah, we were. We were just talking about this, but the first clip, I mean, it, it, anyone can create a cryptocurrency and that's exactly why blockchain is not what's revolutionary. And you know, what we had led up to is about the organic distribution and sort of the disappearance, right? So tohis Bitcoin are unspent, uh, these, this sort of Al you know, I'm careful to call it altruism.

You know, it, it it's, this it's spent over a year as far as I know, trading without a price. And so there wasn't this same monetary incentive, like creating the private blockchains and, you know, ICOs, uh, that we were, you know, I'm sure that we remember, uh, there it's not the same, so yeah, I think that, that he he's right.

Anyone can create a cryptocurrency. But that is an argument for exactly why a Bitcoin is special, not blockchain.

Andy Flattery: Yeah. Yeah, I agree. Nobody's claiming that it's just, it's the scarcity itself that makes is the only reason why Bitcoin is valuable. Um, the scarcity is, is necessary, but, um, a lot of things are scarce and we don't recognize them as. As the perfect monetary. Good. So there's, there's many reasons why we think of Bitcoin as being sort of like the perfect monetary.

Good. And. You know, in the same respect anyone could, could copy Wikipedia. Like I could, I could create my own Wikipedia today by, by copying the website and creating my own version of that. But that doesn't mean anyone is gonna use Andy flattery's version of Wikipedia. There there'd be no incentive for anyone to do that.

And it would fail because Wikipedia has the network effect. It's got the brand. Um, I, I'm not gonna compete against Wikipedia anytime soon in the same respect that, you know, anyone could copy the Bitcoin code. And by the way, it's been done many times. Um, there have been, there have been forks of, of Bitcoin people have copied the code and they've tried to make sort of their version of Bitcoin with a, like, like one more bells and whistle whistle.

And none of them have. Yeah, exactly light coin and none of them have worked out. And so, um, I, I think it's another straw, man. I don't think people are really making that argument for.

Okay. So here here's a clip and Peter's gonna tell us why speculators are bad.

Peter Mallouk: So Bitcoin is still speculative. Once it actually becomes a currency, it can't keep. Because for a currency to work, it has to be relatively stable. If it's gonna go up 20% in value or down 20% in value, you're probably not gonna sell me your car, your house. Like if, if I was using dollar bills and they were changing in value 20% week to week, that's not a currency.

So what we have now is a bet that Bitcoin will become the currency and it might be the currency that might be what happens, people that are doing it just need to know. It's just speculating.

Andy Flattery: So the, the problem that I have with this clip is. And, and I've noticed this with, in other interviews with, with mall, Luke is he always likes to pit this idea of speculating against this. Like, you know, which by the way is bad. Like in his mind speculating bad with like this perfectly, um, virtuous idea of investing, which in hi in his mind is like owning.

You know, the S and P 500 companies or something like that. And he sort of pits those two things against each other as if like there's a real market difference. And, you know, in my mind, it, it's not that obvious, like me Mees talks about how really everything is a speculation, right. At the end of the day.

Like if you own apple, um, That's a speculation. You're speculating that Apple's gonna continue to be apple and continue to, to bring out, you know, world changing products and things of that nature. And that is a speculation. Now he can say, well, there's, there's dividends and there's earnings and things like that, but you're still speculating in some regard that Apple's gonna be around in 5, 10, 100 years, whatever the case may be.

So it always drives me nuts when everyone tries to talk about speculation as if it doesn't exist in any other. In any, in any other world, besides Bitcoin, when in fact everything is a speculation.

Value Stack Zach: Yeah. Yeah. I mean, the, I agree with him in some regard in that Bitcoin is a speculative asset. Uh, but that doesn't mean that it's not a currency. You know, his comment about the 20% month over month inflation. You know, tell that to Venezuela that their currency is an currency. Like 

what I, I think that's sort of an ignorant comment that he made there.

Um, especially given today's, you know, high, exceptionally high, multi decade, high nominal, uh, inflation rates. Um, but. You know, the he's right. That Bitcoin is speculative and it was more speculative than it is today. I think the odds of it succeeding are increasing given what the Fiat currencies are doing and money printer Gober eventually, uh, you know, the, the fed, what you see is the fed, trying to taper their money printing and, you know, stimulus, but, you know, look how the markets have reacted.

And I mean, granted they've. Hiked rates in an unprecedented increase in money supply. Um, but I, I think it's a, it's a foregone conclusion in my mind, Andy, that Fiat currencies will continue to lose value. Uh, and so the finance supply doesn't necessarily give Bitcoin value. Uh, it requires demand, uh, in order for the finite supply to have any sort of reflexive property to it.

However, Given that the Fiat currencies will likely continue to. I mean, basically mathematically will continue to devalue over a period of multi decades. Then it stands with, to believe that if Bitcoin is still existing and then it will, because it has a finite supply, uh, attract demand. And if it attracts demand, given a finite supply, it's gonna go up in value when you quote.

In the Fiat currency,

Andy Flattery: Yeah. And one, one of the things that they do in this critique, uh, not just Peter, but of course, you know, a lot of folks is they sort of, they want Bitcoin to sort of be like, um, the perfect stable. Hyper Bitcoin eyes, world currency from day one as if like it would just appear. And it would immediately act as if like we live on a Bitcoin standard.

Right. But in reality, that's not the way that this. That any emerging money would ever work. Like we could imagine that thousands of years ago, gold was probably more volatile right before it was established and, and widely owned. And so it's only natural that this is gonna be the speculative phase of this emerging currency.

And my, so my question is like, so what's the problem. Like that's, that's pretty natural that this would happen. And, and, and, and in the speculation phase, it's not like. like sometimes the way they make it sound like the volatility is like so erratic that there there's no, um, there's sort of no payoff.

It's like one day it's a hundred thousand and then the next day it's 2000. Then the next day it's five bucks. And then the next day it's 80,000. Like they make it sound like the volatility is like makes no sense at all, but really it's, it's short term volatile, but over the long. what Bitcoin has gone up until the end of the right.

Value Stack Zach: , I think I learned this from a friend of mine, Eric Ys, who if. Arm from, yeah, he highly recommend you try to get him on the show. Uh, he, he, he's incredibly smart, man,

Andy Flattery: Yeah. I, I peed next. I peed next to Eric at Bitcoin day at Kansas city. So I know, I, I know Eric. I know I.

Value Stack Zach: Maybe too well, well, uh, yeah, I think he, uh, he had taught me that, you know, money evolves in four stages and the first stage is speculative asset, which is low and behold where Bitcoin came from. And then it becomes, you know, sufficiently. Enough people speculate that it becomes valuable a store value the second stage.

And then that is this volatile sort of monetization process that Bitcoin's undergoing currently. And then eventually when, you know, 80, 90% the, of the population have adopted it beyond the curve, then. It no longer is volatile because it's distributed to the entire population and then it moves to stage three, that medium of exchange.

And then once you start using it as a medium of exchange, well, I'm already trading things for it. I might as well quote my wealth in it, right. The fourth stage, the unit of account. So, uh, I would say like, no, we don't need to fix anything. We just need to be patient and build.

Peter Mallouk: Well, I mean our largest positions S and P 500, and Apple's the biggest position in the S P 500. Most of our clients have more apple than they realize as Bitcoin's going mainstream. It's all over our client's portfolio. Right. They own Tesla stock. They own square stock. They, I mean, they, I mean, it's in all of these things.

So this idea that they don't have have exposure. I reject that idea, right? They have exposure to it and they have exposure to other cryptocurrencies. They're probably gonna go to zero as they work their way under the balance sheets of these companies. And so if you look at the waiting of the types of positions we use at creative by far the biggest sector, creative planning, clients are invested in as technology and in the us.

And that's where you see the most exposure to cryptocurrencies is through these companies. So I think most of our clients might, even if they really knew what they owned might feel like they have more than they bargained for in their portfolio. And is it, do they directly own it? No, but at the end of the day, there's not really a difference.

You own Berkshire Hathaway, you own the company, Berkshire Hathaway owns, right? If you own Tesla square, whoever happens to have some of these cryptocurrencies on their balance sheet. You own those as.

Andy Flattery: So I can sort of appreciate this, cuz I, I feel like I have said things like this in the past with regards to any other sort of groundbreaking emerging technology that could influence S and P 500 companies. So like if it's, you know, nanotechnology if any of these technologies really take off, they're gonna show up in, in businesses that you may own in your public traded portfolio.

So I sort of get what he's saying, but what's, what's the problem with it, Zach.

Value Stack Zach: Well, he's correct that, you know, square stock is highly correlated with the price of Bitcoin as is coin based stock and Tesla stock and all these other, you know, even the NASDAQ itself. But I think what maybe he's not appreciating is the ability to self custody and infinite amount of individual wealth you with on your own.

Confidently, and this is completely different than the risk profile that holding equities that, you know, hold Bitcoin have. So you cannot self custody, you know, the, the wealth in the same way when you hold these structured products or would you hold Bitcoin derivatives or companies that hold. The very first block of Bitcoin said chancellor on the brink of bailout for banks, which was a sort of homage to the nature of, of the failure of custodians.

Uh, and so I think like he, maybe isn't realizing that the ability to self custo assets particularly. In an environment where there's future uncertainty of liquidity, which we've seen in all of these crypto custodians, or even in traditional finance custodians. So, um, yeah, self custody is important. If Tesla gets all their Bitcoin seized by the S E C or the, or FINRA or the Fe, I don't know you name your three letter organiz. If you hold Tesla stock, that affects your wallet, that affects your personal balance. Whereas if you hold Bitcoin in a wallet, personally, that sort of tail risk is not present. So I think Kiki's appreciating

Andy Flattery: It's just better. Yeah. So you would rather hold the thing in, in as a bear asset than hold a, uh, paper claim on a financial asset of a company who owns Bitcoin on the balance sheet. Right? Like there's all the steps in between. You would just rather hold the, the bear asset. I think that's, and that's like, I think what's coming out there is like, , His, uh, stock market bias.

Like he's, maybe he's saying like, just the only, the only valid investment is in the stock market.

And. 

Value Stack Zach: forgotten, Andy, I think like, and to be honest, it's not just Peter Malo. We've the whole population has forgotten the importance of bear assets and self custody. The only reason we started using debt claim assets like redemption for gold was because gold is so. You can't carry it with you and confidently protect it.

And so they started putting the golden banks, banks issued receipts, and they started trading those which were more convenient. So the, like that compromise was only made due to the physical nature of gold. Now that we have Bitcoin. We don't need to compromise and use these debt based, you know, receipts for money anymore.

We could just use a bear asset and we can also, by the way, settle it instantly anywhere 24 hours a day.

Andy Flattery: and I think there's a natural, um, there's a natural way to think about this from like a financial planning point of view. That is like, it is very natural, like in a financial planner might say, well, sure, you can own some stocks. That's fine. But you know, maybe you want to invest in your own business.

Maybe you want to own some real estate. Um, maybe you're gonna hold some physical cash because there might be, it might be, you know, worthwhile to have a thousand dollars physical cash like that. That's kind of like a Dave Ramsey thing. 

All right. Here's my last clip here with Peter.

Peter Mallouk: Right now in our country, we have a wealth gap that is, you know, 0.1% of the people hold as much as the bottom 90%. So we have these ideas. UBI higher taxes, things that close the wealth gap, but UBI could, you know, lead to higher inflation that we already have. So I'm just asking with all these things kind of in consideration, Peter ook, if he were the wealth manager of the us what would you do to fix these pieces of our economy?

In terms of the wealth gap, you know, I think we make this way harder than it needs to be in the United States. We've politicized it so much. It's very frustrating to watch. And I think that it really can be simplified just through the tax code. So, if you look at the billionaire class, the Senti millionaire class, you get there by owning things, right?

You own a bunch of real estate or you own businesses, or like Warren buffet. You're really good at owning a bunch of stocks. And the United States, we used to tax those things at 28% or more. The Bush administration lowered that tax to 20%, which was just remarkably low. No one would ever thought it would stay there.

And here we are, right. It's still at 20%. If you're a lot of people like my dad who was a doctor for many years, they do really well in the United States and they make six figures. And many of those people who make several hundred thousand dollars a year, they're paying 35, 37 to the federal government.

You start to pay your state and you're losing, you know, 40 to 50%, some states more of your income, you know, to the go. And then you have obviously the poor who don't pay, or even to say the working class, we don't even have to go to the level of the poor. They might be paying, you know, between five and 10%, but on a very small base.

But the difference, the real issue with the wealth gap is really simple. It's the difference between the capital gains rate and the income tax rate. If you just tighten those up.

Andy Flattery: Okay. So he might be right on that. Like he might be dead right on what he's saying, but he, his view is, so he's got such a minute view on the big picture that he's missing the big point. And, and the broad point is that the money is broken. The money is broken and, and, and the poor can't save.

the, the, the poor can't save their money cuz as you point out cash is trash and, and the wealthy are at the very top of, of the Cantillon effect and they can borrow at perfect rates and buy these assets that, that Peter's talking about because, because money printer Gober and that's the issue. But with, with, with someone like Peter here, and I'm not just picking on Peter, but it's it's him and it's everyone else like him, you know, he he's saying the problem.

20% taxes instead of 30% taxes or whatever and there's no mention to the federal reserve and there's no mention that the Mon the money is broken and that's my big issue with it.

Value Stack Zach: Yeah. Gosh, I have so many thoughts on this man. Uh so, I mean, you know, taxation is theft in my mind. Um, it's a form of inflation, uh, and they're really one and the same, um, the idea of in increasing any tax. Especially, like, I think the reason you may have cut this part of the clip out, but the reason he, like there was tax cuts for capital gains that were never repealed.

And this was done to incentivize investment into the us economy. And this is, I think, going back to what you were saying, this is the problem, because if you have to. These incentives constantly, uh, whether it's like the PPP loans that happened a few years ago or. You know, whether you have to lower interest rates to get companies, to actually inve uh, you know, buy back their own stock or something like these.

If you're creating these incentives inorganically, then there's a problem with the systems. It's the system itself. And so, you know, there's like you already get taxed every which way, or you look, you know, it's like, You pay income tax. If you're in that high tax bracket, you pay the NAI NII, you know, the 3.8 net, uh, tax that's on top of it.

You, you know, you pay death tax above a certain amount. You pay sales tax, you pay property tax, you pay it's come on. Like. The problem is like the poor people already spend a larger percentage of their income on consumption and keep a larger percentage of their income in cash. So they can't invest it and outgrow the pace of inflation.

And, you know, they spend the same, you know, as a, in taxes, uh, but like a higher percentage relatively. So it's, it's a regressive system that keeps the poor, poor and enriches the rich at the top. It's the Cantillon effect. I I'm sure you've talked about that on the show before.

Andy Flattery: Yeah. And, and I guess, uh, to your point, he, he was, he wasn't saying that we need to bring everything down to the favorable 20% capital gains rates. He was sort of implying that no, we need to actually raise. Capital gains, cuz they need to, they, they need to be as high as a doctor's, uh, you know, W2 income.

Right. So he in his mind, that's the plan. And so, and I disagree with that, but I also just disagree with the overall premise that if you just tinker a little bit with the tax code and you know what a, a little tinkering here and a little tinkering there is gonna fix everything. Like that's, it's missing the point entire.

Value Stack Zach: Andy. Do you know how long ago the United States introduced the income tax?

Andy Flattery: Is it? Well, I, uh, did it, was it Lincoln did it originally and then it went away and then like a hundred years ago they brought it back. Was that what it was?

Value Stack Zach: Yeah, it was the, yeah, it was about a hundred years ago in the early 19 hundreds, 

the 16th amendment, 1909 and 

then ratified in 

Andy Flattery: Right. 

Value Stack Zach: So that means that for more of the United States history than not, we haven't had income tax, man. I've just like, I, it it's. The more you tax, the more you discourage investment, we already have a PR a problem of incentives in this country, and we already have a deficit spending problem.

So in my mind, like you cannot increase tax without further hurting the demand of the economy. And even if you do increase tax, it's still, uh, not enough. To satisfy the entitlement obligations of social security, Medicare, military spending, and all the other infrastructure that the government provides. So if you're, if you're me, what do you, I mean, not the, the, I think like, I don't think any, there is no smooth outcome go looking 30, 40 years down the road.

And so. The goal. I don't, I think rather than dilute ourselves in that this can be fixed. We need to focus on how can we land the most smoothly. Right. I watched this docu, uh, this YouTube video from Chris Martinson about. Exponential growth and predicaments versus problems. And he essentially, you know, summarizes it as a problem.

And a predicament are, are different in that a, a problem is something that can still be solved. A predicament is like, it's you it's like a, if you're hanging off a cliff, 

With by one finger. That's a problem. If you can still climb up, 

but you also might fall. That's a problem. But if it's a predicament you're falling, you're already in free fall.

And now the option becomes, do I roll? Do I land on my feet? Do I, you know, scream for help? Do I flat my wings? Like it's, there is no changing the final outcome. It's just you. How do you handle it? So I think that's what we should focus on is. The United States dollar and the spending of a government's deficit, especially when the baby boomers retire in millennials like us can't support the tax base entitlements even more so, like we can't fix it.

So it's like, how do we, how do we make sure that like, there's not just chaos, like, because look like I want Bitcoin to succeed. But I recognize that physical safety is number one when it comes and protecting your family and your friends and, and yourself. Like, so, you know, I, I don't have a great answer for like, how do we get our way out of this mess?

And, you know, although I'm sort of a anti-government person for the most part, I do appreciate the significance and sort of the insurmountable problem that our Congress and our policy makers are up against because there is. Like easy way out.

Andy Flattery: Yeah, well said, and I like, I like the framework of the predicament and not the problem. So how,, how does Casa fix this or how , how does Bitcoin fix this? And, and Casa has helped, helped bring that solution

Value Stack Zach: Yeah, man. Well, you know, Casa bakes holding your own Bitcoin in self custody, which means you hold it. Like, it's kind of like the cash in the mattress, uh, example, uh, but like a cash in a mattress with Bitcoin. There's no do overs. So if the house burns down, you know, you lose your cash and the same is true with Bitcoin.

If you lose your key. Uh, and so Casa creates redundant wallets, uh, and holds a backup key. And so if you lose a key, you don't lose your coins because as long as you don't lose the majority of the keys. And so I think this is like a no brainer for adoption that has to occur, uh, because. Like you can't like, imagine Andy, imagine if you got lost your house key and like you, the bank said, okay, repossessed your home now.

thanks. You know, that that's absurd. Right? So, um, the idea of like key management not being scary is important for Bitcoin's adoption. Uh, and, and Bitcoin in self custody itself is important. If all the Bitcoin are held under Coinbase custody, it's really no different than, than any other Fiat system, because it can be coerced.

So the more Bitcoin that are in your individual wallets, the more nodes that are running in each person's home, uh, the more decentralized and attack resistant the Bitcoin protocol becomes from, uh, you know, tech.

Andy Flattery: Right, right. Yeah. I don't, I don't want my, my money in a place where, um, the government can reign down stimulus checks in that account. that, that will never happen. That will never happen in my Bitcoin vault. And that's fine. I I'd prefer that. That's not the case.

Value Stack Zach: Yeah, you, I mean, you'll never get more Bitcoin holding 

Bitcoin in a wallet, right? The only way to get more Bitcoin is to trade your time for it or invest, you know, I don't even really look at Bitcoin as an investment. I look at it as an alternative currency to cat to us dollar. I don't look at it as an investment.

Um, being that, like I measure my investments returns on the opportunity cost of buying and holding Bitcoin, just like you would cash. And so there will be a time when I think the opportunity cost will exist. That it'll be low enough that I will wanna invest in companies that generate positive Bitcoin cash flows.

I'm hesitant to call it a cash flow, but, uh, you know, companies will, you know, buy a hamburger for, you know, 0.1 Bitcoin and sell it for 0.2. You know what I mean? And, and like, they'll make a 0.1 Bitcoin profit margin. That'll be a great way to generate more Bitcoin for yourself by investing in that type of company.

So it's nothing like this is not a revolutionary idea. It's just a different money. The only difference is there's no centralized issuer and you don't have to send it through a centralized issuer, um, in order to do, to, to send it like with, with current Fiat, with Fiat currency today, the only way to send money to you. When you're in Kansas city and I'm in Colorado is to use private infrastructure, uh, for this publicly traded, you know, publicly issued currency, you have to use private infrastructure, Venmo, chase, bank, Zelle, whatever, right? Like Bitcoin allows you to send public on the public infrastructure, the public blockchain to anyone, anywhere in the world. It's huge. It's a simple idea, but it's a really huge, profound 

effect that it will have 

Andy Flattery: I love it. So, Zach, Hey, thanks for helping me scratch an itch and. Rebut, our friend, Peter ook. Um, 

yeah, maybe the next time we do this, Peter will have come around and maybe he's allocated to, to Bitcoin. And we could talk about that, or maybe he's gonna want to come on the podcast and do round two where we can sort of take him on for, uh, his FUD and I'm, I'm open to either way

Value Stack Zach: Yeah, I believe he will buy Bitcoin. Uh, you know, he'll buy it at a million 

dollars and he'll be, 

Andy Flattery: he'll deserve 

Value Stack Zach: happy and he, and 

that's fine. Great. Like the whole point is like the people who can, the people who need to adopt it first are the ones who face the highest Fiat inflation domestic. 

And those are the people who stand to gain the most by its adoption.

So good. It is working out exactly as planned, where you see countries like El Salvador and the Central African Republic countries that are desperately in need of some kind of help, you know, purchasing power preservation. Let them adopted first, Peter ook will be fine, whether he buys it at a million, 10 million, or if really, probably even if he never buys it, it'll be all right.

Andy Flattery: That's right. That's right. I don't feel, I don't feel sorry for Peter. So Zach, where can the listeners go to learn more about you and the podcast?

Value Stack Zach: yeah. So, uh, I host the value stack podcast. We do like have some similar conversations like this, particularly around behavioral investing. How Bitcoin is sort of, uh, affecting and spreading through the entire investing world. Uh, so you could check that out at value stack podcast on Twitter or the website is value stack dot X, Y, Z, uh, in my, uh, day job, uh, like we talked about, uh, I work, uh, for Casa where we make private key management accessible, and I really believe that.

Uh, private key management will help empower individuals, uh, over, over, over the next, you know, 10 to 20 years. I think it's gonna be huge adoption for what private keys can do and what they can control. Uh, and so our, you know, I think your recent guest, Nick, our CEO, like, I think you might have talked about that.

So, um, Love to be a part of that team and helping that vision become reality and spreading via the word of Satoshi, uh, as some of the more hardcore Bitcoin people say. Um, but yeah, man, it's 

been fun. 

Andy Flattery: Yeah. Yeah. Well, Hey man. Thanks for joining the podcast and great stuff. I appreciate it.

Value Stack Zach: All right, Andy, we'll see you at a million of coin.

Andy Flattery: Yeah. Sounds.