PayPal Co-Founder Peter Thiel - Bitcoin Keynote - Bitcoin 2022 Conference

How do you move from these physical dollars to electronic dollars? I think the basic technology is going to take place on the Internet. I think the specific platform in the emerging world is going to be on a cell phone platform. If you look at the numbers, there are about 360 million, about 150 million online desktop-based accounts today. That number is projected to grow to about 300, 350 million in the next five years. However, with respect to cell phones, Internet-enabled cell phones are just getting rolled out right now. They already have some significant penetration in Japan, in Finland, in Sweden. They're getting rolled out in Western Europe, the U.S. next year. The numbers are projected to grow from about 10 million Internet-enabled cell phones today to about 1 billion in five years.

In five years from now, everybody who is a member of the middle class in the emerging world and in the developed world will have an Internet-enabled cell phone. And this sort of a cell phone, in China the numbers projected go to something like 300 million cell phones, most of which will be Internet-enabled. These people will have access to their bank accounts and it will be very easy for them to move money into an account in a safe jurisdiction where the banks are not politically controlled and they will basically be able to completely dollarize the economy. There will be no need to have any rubles or renminbi, and it will be non-traceable. No matter how illegal the Chinese Communist government says it is to hold U.S. dollars, you will have a password on your cell phone, and the only way to stop this process would be literally to shut down the telecommunications network.

And that's the kind of choice governments like China, India, some of these other countries are going to face. They will either have to shut down the telecommunications network and make it illegal for you to own a cell phone, or they will have to basically give up the kind of monetary sovereignty they've had and the enormous power that they've been able to wield as a result of this kind of sovereignty over the last many, many years.

Hello. Thank you so much for having me here. You know, there's so much I was wrong about in 1999, but I thought I'd reflect on some of the things I was thinking at the time, give some perspective on what it means for the world today of 2022. And when I was running PayPal, when I was getting it started, the standard way I'd start an investor pitch would, I'd hold up several hundred-dollar bills and would always get people's attention. It's kind of hypnotic, you know, even though, you know, it's really weird. What is—what is this? I mean, it's—it's probably not very good as toilet paper, it's not good as wallpaper, it's, um, it's sort of this crappy fiat money. It's a very mysterious thing. What is money? Is it a network effect? You know, um, you know, would the gentleman in the front row like to have the money? Just somebody come up and get it.

But I don't know how to throw it out at people. I thought you guys were supposed to be Bitcoin maximalists, you know? And so this is like, it's like kind of crazy that this stuff still works, you know? And when we were starting PayPal, we knew nothing about money, about banking, about payments, about any of this stuff. It was sort of all thought of from first principles. We probably got a lot very wrong. I'll mention the two slides that describe what we thought we were doing. This is the PayPal February 1999 seed round pitch. We were going to replace, we said the U.S. Treasury, we actually meant the central bank. We didn't know the difference between the two. It was going to be sort of a closed-loop system, a new form of money, new network effect, electronic 21st-century version of money.

By 2002, at the time of the IPO, the PayPal business model looked like a funnel, where the money went in and out fast. It was a payment system. And I wanted to suggest that those two pictures, a closed network versus a funnel, are two very different pictures. You know, in some ways this was a more practical business, but it was a decline. It was much less ambitious. Money goes in and out super fast. And I think one of the ways to think about all of these different things, this is not a perspective I had at the time, but if you think about these different forms that money can take, you can have forms of money that are high-velocity, where it moves super fast, but then you don't actually need that much in the form that it has.

It's just like maybe an accounting device or something like that. And if you have forms of money that are intrinsically low-velocity, then the quantity you need is much, much greater. And it's this inverse relationship that goes across many different forms of money. And so the PayPal 1999 was a closed loop where you'd have this enormous store of value that gets built up. The PayPal 2002 was sort of a high-velocity loop. And this is, of course, also analogous to something like gold bullion as a store of value, low-velocity money. It moves once every few decades in a central bank vault. Visa, super high-velocity, moves trillions of dollars a year, but Visa itself doesn't need to have very much money on its own.

And I think one of the reasons people always get these two different modalities confused—they're like radically different kinds of products—is that when we think of money, we are still always just thinking of the $100 bill that I presented you at the beginning. And physical cash, it's sort of the one very weird form of money that's actually sort of intermediate velocity and intermediate value. It's not really great at either. You can store money in a piggy bank, physical cash. You store it in a mattress. That's getting pretty weird. You can maybe use it to pay for a restaurant or club, maybe a used car. Probably gets hard to use physical cash to buy a house. So it's sort of both. It's not that great at either payments or store of value, but it's in between.

And because we always think of physical cash when we think of money, we tend to think store of value and sort of high-velocity things are the same, even though in practice, most things are at these two opposite ends of the spectrum. And then, you know, I want to obviously suggest that, you know, Bitcoin and Ethereum are at these two extreme opposite ends of the spectrum. Bitcoin, store of value, gold replacement. Ethereum, if it works, is going to be sort of the super high-velocity, fast-moving thing. And the thing that's sort of, I would say, fundamentally honest about Bitcoin is that it is just at this one sort of low-velocity, high-value end of the spectrum. And then if you look at something like Ethereum, they will say that it's high-velocity, it's going to be sort of a frictionless payment system, but then it's also going to have incredible amounts of intrinsic value.

And there's probably something about all those things that doesn't quite add up. By the way, I took this slide from Vitalik himself. And there's sort of a question: how do we compare and contrast them? And so if we look at the current market caps, $830 billion versus $386 billion of Ethereum. But if we map Bitcoin onto gold and Ethereum onto Visa, well, Ethereum's worth roughly as much as Visa, so it's fairly valued. If you have a seamless, frictionless payment system, it's worth $400 billion. For it to work, the gas fees have to go down. It has to become completely frictionless to work. And then, whereas gold is $12 trillion, and if Bitcoin is going to replace gold, the question is really: why is it so undervalued?

What is it going to take for it to go up to the 10x? I'm going to close on that a little bit later. Yeah, so there sort of are all these, all these different ways Bitcoin is going to—has every potential to replace gold. Question is why it has—why it has not done so yet. Now, I think there's, if we take one step further back, we can even ask a question: why is, you know, why is gold worth 12 trillion dollars? How much, how much should all the gold in the world be worth? And, and if we look at, say, the 1970s, gold did remarkably well. And, you know, stocks were kind of a crappy investment. And it's sort of very different from today. So if you look at all the gold in the world today versus all the publicly traded equities in the world today, it's about 12 trillion of gold, 115 trillion of equities, roughly a 10-to-1 ratio.

If you look at sort of the peak of the bull market in the late 70s, early 80s, where gold peaked at about $850 an ounce in nominal dollars, at the time, all the gold in the world was worth about $2.5 trillion, all the publicly traded equities were worth $2.5 trillion, and the ratio was actually one to one. And so one of the questions you have to ask is, Why is the ratio 10 to 1? Why can't it be 1 to 1? Maybe it should be 100 to 1. It can be all over the map. What defines these kinds of ratios? And I would say sort of one simple version is that in the 1970s, cash was trash, bonds were trash, but equities were pretty bad investments as well because in an inflationary world, In a high regulation, high inflation, high tax world, the effective capital gains tax rate goes well north of 100% because you don't set the basis on equities.

You don't adjust it to inflation. And so equities become an extraordinarily bad investment. In the world of the 2010s, gold did pretty well. Bitcoin did extremely well. But the real competitor for Bitcoin is not Ethereum. That's a payment system. It's not—you know, it's not even gold. It's something like the S&P 500. It's the stock market as a whole. And this is the way Bitcoin trades every day. If the stocks go up, Bitcoin goes up. It's like a highly levered Nasdaq stock on a day-to-day basis. And that is sort of, in a sense, the real competitor. And the question is whether we're headed towards a kind of 1970s-style world, where it's higher inflation, more regulation, and even being—you don't want to be in a stock or bond, but even being—sorry, you don't want to be in cash or bond, but even being in a stock, you're effectively in something that's like a government-linked entity.

Companies, woke companies, are sort of quasi-controlled by the government in a way that Bitcoin never will be. And in that sort of a world, I would submit that perhaps the way we should think of the benchmark for Bitcoin is not gold, but equities. And the question is, why can't there be parity between Bitcoin and equities? Why shouldn't we be talking about something more like 100 to 1? Which, of course, won't be as good as it sounds because the fiat money will be worth a lot less and it'll be taxed pretty heavily and whatnot. But I'm still hopeful that if Bitcoin goes up by a factor of 100, you'll make some money, a modest amount of money in real terms. Now, you know, there are sort of, at the very minimum, what I think, you know, it's always hard to know where Bitcoin goes from here.

It's $43,000 today. Where does it go? What I like to say is that Bitcoin is always the most honest market in the world. It's the most efficient market. And it was the canary in the coal mine. It was telling us that the inflation was coming in the last two years as it went from 5,000, 6,000 up by a factor of 10x. It is telling us that the central banks are bankrupt, that we are at the end of the fiat money regime. And that's sort of what it has priced in. I think the central bankers, Mr. Powell, people like that, should be extremely grateful to Bitcoin because it's the last warning they're going to get. They've chosen to ignore it, and they will have to pay the consequences for that in the years ahead.

But let me come back to this question. Why has Bitcoin not yet gone to $100,000 to $1 million a Bitcoin? Why has it not yet converged with gold or even with the equity markets more broadly? And what is it going to take for this to happen? And I know that the ways we often talk about businesses or technologies is how great the technology is, how great the code is, how great the math is, how it's sort of innovative. But I want to sort of suggest that we should maybe think of, we should think of it at least in one dimension as sort of a political question. And it's a movement and it's a political question whether this movement is going to succeed, or whether the enemies of the movement are going to succeed in stopping us.

And so I want to maybe end with an enemies list, a list of people who I think are stopping Bitcoin. And they all have, many of them have, there's sort of a lot of them, they tend to have this sort of nameless, faceless, bureaucrat perspective, which is, of course, one of the ways they hide. But we're going to try to expose them and realize that this is sort of what we have to fight for Bitcoin to go 10x or 100x from here. So, enemy number one. I think he's sort of... I think the sociopathic grandpa from Omaha is perhaps the most honest and the most direct enemy. And you have to sort of think of, it's of course, on some level, these people aren't always just talking their book. They have some sort of institutional bias.

He's long a list of woke companies. He's somehow long this fiat money system. And of course, there's always a sense if you're a money manager, you want to pretend that it's complicated to invest. And if all you have to do is buy Bitcoin, you know, that's like ridiculous. All these people are out of business. You know, I mean, there's a version that's also with gold. They never liked gold either because if all you had to do was own gold, that's something everybody can do. But there is something, there's sort of an institutional bias, sort of a center-left political bias. You know, there's of course, there's of course the, there's, of course, the New York City banker bias, Jamie Dimon, JPMorgan.

You can get quotes like this from any number of these people. And then I would say another one, even more obscure, Larry Fink, the CEO of BlackRock, where if you have these sort of large institutional investors, they need to be allocating some of their money to Bitcoin. When they manage state pension funds in the U.S. or they get trillions of dollars in assets, when they choose not to allocate to Bitcoin, that is a deeply political choice and we need to be pushing back on them. We need to say, you know, you have to get on board on this. And the Larry Fink quote is sort of representative, I think, of a whole genre of anti-Bitcoin things where, you know, you have to always put it in some context, but pro-blockchain...

Pro-blockchain is an anti-Bitcoin term, very typically. So it's like, "I love the blockchain, but, you know, not so sure about this Bitcoin. Don't need Bitcoin. We can move on to the blockchain. Move along. This is not, you know, not the currency you're looking for. Move along, move along." And, and, but, you know, if we sort of combine all of these things, you know, I would sort of put the label on the sort of, you know, on the sort of, the label they've come up with, and perhaps the real enemy is ESG. It's always sort of unclear what it means. You might think of it as not charitable for me to sort of name some enemies here, but I think that ESG is just a hate factory. It's a factory for naming enemies, and we should not be allowing them to do that.

Or that, of course, you can sort of always ask the question, what's the difference between ESG and CCP, the Chinese Communist Party? They are into social and governance. Environmental is sort of fake. It's probably also fake in a lot of these cases. But I always think when you think ESG, you should be thinking CCP. And there's some degree... ESG has been surprisingly inclusive. Basically, as far as I can tell, the only things that are sort of not liked are some of the carbon industries and then Bitcoin. And it's because most of the other companies, they are subject to political control, especially when your companies go public. I always advise CEOs when they take their companies public, there's some good things, you get liquidity, the early investors can cash out.

You can get some credibility, but it's basically taking a company public. It's a de facto government takeover where some people who are effectively government bureaucrats became more empowered. It's the CFO, the general counsel, the accountants, the lawyers, you know, the HR people, all these sort of extensions of the state are given more power. And we have to think of ESG as sort of this vast umbrella thing. And we're, you know, sort of one of the—one of the great features of Bitcoin, and it's always a question whether it's a bug or a feature, but I would submit that in the sort of more heavy-handed statist world, it is far more of a feature than a bug, is that Bitcoin is not a company. It does not have a board.

We do not know who Satoshi is. And in some ways, all these things seemed extreme in the world of the 2010s, where the inflation was low, the regulations were not the worst, and it seems extremely prescient for the world of the 2020s. And if we had to summarize this in one frame, it is the finance gerontocracy that runs the country through whatever silly virtue-signaling-slash-hate-factory term like ESG they have versus what I would call, what we have to think of as a revolutionary youth movement. And we have to just go out from this conference and take over the world. Thank you very much.

Welcome back. We're here at the Marathon News Desk at Bitcoin 2022, presented by Bitcoin Magazine. I'm Pete Rizzo, editor of Bitcoin Magazine. We're back with our panel: Mr. Mark Moss, Kevin O'Leary, and Nolan Bowerly. First, like and smash that subscribe button. You just watched a keynote by entrepreneur, investor, and philanthropist Peter Thiel, co-founder of PayPal. This was high production. He led with a video of himself as a youth saying things about money that we say about Bitcoin today, throwing money into the crowd, but also doing some other things: comparing Bitcoin to Ethereum, saying that Bitcoin is too slow, saying that the competitor to Bitcoin is the S&P, making a lot of statements here, also saying being pro-blockchain is anti-Bitcoin.

Where do you guys want to start with this speech?

Let me take a stab at it, go back to the beginning of the presentation. The one that I found most interesting was comparing Bitcoin valuation or total market cap to that of the S&P 500. Now, the reason that's a difficult comparison at this point is the S&P 500 is primarily owned by sovereign wealth and pension plans. When you have $250 million a day to put to work, the only place you can find liquidity of that size is the S&P 500. It's the largest market on Earth, represents the largest companies on Earth, and is a store of value, even in inflationary times. The challenge with his analogy in asking why Bitcoin is not a challenger, because he showed the analogy at a period in time, gold's market cap was equal to that of the S&P.

That was very interesting, that chart. But right now, there isn't a single pension plan or sovereign wealth fund that is allowed to buy Bitcoin. So if you want to see it compared to the S&P 500, which is what they buy all day long, 24/7, you have to set the playing field level, which means we need policy to allow pension plans, both sovereign wealth plans and domestic, to buy Bitcoin as an asset. You can't do that yet. And in order for that to happen, you will have to get the government to agree, and the SEC to agree, and the regulator to agree, and the infrastructure that provides compliance, and the ESG committees, and the, the ethical committees to agree to allow them to buy it. And we're a little ways off, but when that happens, you will see Bitcoin break out of its current trading range because it will be allocated, and then it'll start to appreciate. Kevin, are you taking a positive take? Bitcoin equity is a good comparison, Mark?

Yeah, I want to jump in. I mean, I would definitely agree with Mr. O'Leary on this, Mr. Wonderful. We're going to need a couple of changes to happen. And when that when that change happens, we'll be coming in. But I think the big thing that I saw in that comparison equities, one hundred and fifteen trillion Bitcoin, eight hundred billion. I think what we're going to see is that because we've been in this inflationary monetary system, there's nowhere good to park your money. As Mr. O'Leary points out, you have two hundred fifty billion dollars. What are you going to do with it? You have to put it in the S&P. It's only place that could take that much money when we have a better When we have a superior asset that we can put money into, it's going to pull monetary premium from other properties.

So, silver has industrial use; gold has a monetary premium. And I think we're going to see monetary premiums being sucked out of real estate, being sucked out of the equities markets as well, because Bitcoin will be that pristine asset.

We're running short on time here. We did say the dirty word, Ethereum. Reactions from the floor? What did you make of his comparison, Bitcoin to Ethereum?

I thought he got into trouble with those analogies. Analogies can be really unpersuasive because it's so easy to see the holes in them. Arthur Hayes, who I think is one of the best writers, entrepreneurs in this industry, he set that stage already for most of this industry, and for me in particular, when he mentioned that, okay, Ethereum has the potential to take the Wall Street piece. Bitcoin really is something for saving, something for people to put their store of value.

Again, I think it was an attempt to pigeonhole Bitcoin within this world of crypto assets. To the floor for remarks.

Well, what he got wrong in that comparison with Bitcoin and Ethereum is he pointed to Bitcoin as a place to store value, but Ethereum has more velocity, so it's better as a medium of exchange. And he's got that completely wrong because Bitcoin is a new technology that allows us to have the superior value storage properties of Bitcoin, but also has the velocity of instantaneous and free transfers. So it's both wrapped into one. We don't need two assets like we used to.

Before we wrap up, I just want to note, he did say a few other things that are positive. Central bankers should be grateful to Bitcoin, saying that Bitcoin has these enemies: the sociopathic grandpa from Omaha, Jamie Dimon, the gerontocracy.

There's nothing wrong with making that comparison. However, that's not what Jamie Dimon said. He's saying, 'My clients want this, and we're going to start to accommodate them. That's what we are. We're a bank. If they want to buy the asset, remember, Bitcoin is software. Ethereum is software. You can decide on your own which software provides more productivity, more cost savings, whatever you want, but it's just software. And if you're willing to invest in Microsoft or invest in Google, you're just investing in software, too. So at the end of the day, that's how you should look at it.'

Sure, but software is political, and that's where I thought he really found his pace in the whole talk. When he was really talking about it's a political choice, saying you're pro-blockchain is a political choice. It's not neutral. It's not technology. Bitcoin itself... You didn't agree with that? I certainly agreed with that. I think this whole thing is a worldview, and Bitcoin does offer a way to organize markets and see the whole world. It's not just about the asset.

Certainly a lot to unpack, a lot to discuss, but unfortunately, I have to throw it back to the main panel stage. We've got 'Bitcoin is Freedom' coming up, moderated by Alex Gladstein, author of 'Check Your Financial Privilege'. You can find that one on the bitcoinmagazine.com/store. Keep it tuned here. Smash that like button. We'll be here all day on YouTube, bringing you the best from Bitcoin 2022 Miami.