ASH BENNINGTON: Welcome back to the Real Vision Daily Briefing, everybody I was scheduled to be joined today by Ed Harrison. But due to the price action in Bitcoin, we wanted to cover that story for you today. I'll be reunited with Ed shortly. But now, today, I'm extremely pleased to be joined by Diego Parrilla. Diego, welcome to Real Vision.
DIEGO PARRILLA: Thank you so much for having me.
ASH BENNINGTON: I should say, welcome back to Real Vision. You've been on the platform several times in the past. With Raoul, you've done some expert views. I personally have been incredibly impressed by the depth and the rigor of your work. And it's really such a pleasure to have you here.
DIEGO PARRILLA: It's my pleasure. Thank you so much.
ASH BENNINGTON: So let's talk a little bit first about your background. You have an extensive background in trading, working at banks. You've been at Goldman Sachs, JP Morgan, Merrill Lynch. You have a very deep and wide background on Wall Street and back row in traditional capital markets in trading. And I think it's so important to bring a different view here to Real Vision today to talk about what's happening in Bitcoin.
DIEGO PARRILLA: Yeah. Look, I think you guys are extremely savvy and well-known for the depth on the crypto. I've been probably more skeptical. And I think it's a good balance to bring different perspectives. You mentioned my background. Yeah, I'm an engineer by background. And I think that really shaped the way I look at the world.
I did my Masters in Mineral Economics. I was lucky to join investment banking on the macro sales and trading side, which I did for a while between London, New York, and Singapore. And then, I was also very blessed to work on the buy side with very large micros.
And in addition to that and what brought me to a Real Vision is I'm also a best-selling author with two books, one on the energy space and other one on the macro-- and both very conservative pieces. So if I was to write the third book, potentially it could be about this exciting world of obviously gold, but also the crypto space and a little of the action that's happening, which is fascinating.
ASH BENNINGTON: Yeah. One of the things that really resonated with me about your work is your work on bubbles and anti-bubbles. Give us a little bit of a framework for understanding how you think about it because it seems so incredibly relevant to what's happening in the digital asset space right now.
DIEGO PARRILLA: Yeah, I think, best to start with definitions. And when you think about bubbles, I always like to borrow George Soros definition or my interpretation of his definition, which is, bubbles are effectively assets that are artificially expensive based on a belief that happens to be false. It happens to be what he calls the misconceptions. So it's a situation where really the emperor has no clothes.
So what I did as an engineer is to generalize the framework. And I said, well, misconceptions can distort reality, but not only through artificially expensive valuations, which we call bubbles. You could also have artificially cheap valuations, which is what I call an anti-bubble. And here there are three dimensions at least. The first one is this idea of assets that are grossly artificially cheap based on a misconception. So it's effectively a matter of when, not if, that they will be priced higher.
The second dimension is the idea that bubbles and anti-bubble are distorted mirror images of each other. They're true reflections of the same process, the same misconception. As a result, the bubble/anti-bubble move occurs exactly at the same time with the exactly the same catalyst. So it acts in a way as a hedge.
And the third dimension has to do with risk premium, with being a contrarian. And I think the typical bubble/anti-bubble relationship, the one that I like to use, is the relationship between the S&P and the VIX, for example. I would argue that artificially low volatility can actually contribute to artificially high equity prices. This is both true qualitative reasons, such as complacency and the perception of no risk, as well as quantitative reasons, such as auto-correlated processes due to trend following, [INAUDIBLE], and others.
I think when it comes down to the bubble and anti-bubble debate, therefore the question is really, tell me the belief, tell me the misconception, and I'll tell you what the bubble is. And I think that's beyond the ratios and the stuff that's really about those beliefs or misconceptions, which effectively create these distortions. And that's what happens. Once these beliefs become fallacies, they become better understood. Then these bubbles implode.
And so that's where I spend a lot of time focusing on. And obviously, I don't have a crystal ball. I'm not in possession of the truth that are very complex dynamics. And so for example, I wrote this piece, which some of you may have seen in a Bitcoin bubble or anti-bubble. And it's not a black-and-white argument, although my conclusions are very skewed-- 80-20 to the bubble, versus the anti-bubble.
ASH BENNINGTON: But even still, it is such a rich and nuanced perspective. Even though you tend to land in the bubble cap, the idea that it could be an anti-bubble that's mispriced to the downside at some fundamental level.
I know that your views about debasement of Fiat currency, central bank intervention, MMT, some of the anything-but-Fiat arguments will be music to the ears of some of the folks who are in the Bitcoin space and people who are true believers in what's happening in digital assets, true believers in the store of value function, the digital gold function, the digital pristine asset function. Tell us a little bit about that view.
DIEGO PARRILLA: Sure. I think this is what I would call the problem. So I think the problem is fairly well understood. And the issue becomes when you jump from the problem to solutions that may or may not be. But looking at the problem itself, as I discussed in my second book in The Anti-Bubbles, there is really a situation where I would summarize the last decade in one sentence. It's the transformation of risk-free interest into interest-free risk.
So what we've seen all from 2008 is a situation where in response to a crisis-- interest rates, once upon a time, were at 5%, and that was considered to be normal levels. And what we've seen over the last 12, 13 years is the relentless process of monetary policies without limits. That first brought interest rates to zero, then we started to print money, then that brought-- even in Europe and Japan-- negative nominal interest rates.
Then, we started buying beyond basically government bonds. And in places like Japan, central banks have been printing money to buy equities. We know this dynamic, where we're not really solving problems. The going back to the bubble/anti-bubble, the belief is you can actually solve problems by printing money, and the bad news is, you're not solving any problems.
You are in one way kicking the can down the road-- which brings us into the second big issue, which is, first was monetary policy without limits. The second one is fiscal policy without limits. So you effectively have central banks that are printing an infinite amount of money to effectively give it to the government. It's a process where left pocket lends the right pocket.
And this dynamic leads to my beloved country Spain being able to finance itself in 10 years at negative nominal rates. This is not a new normal. It's not necessarily a reflection of fundamentals. It's 100% artificial. You can finance yourself in negative interest rates because of a highly distorted world of-- and so this dynamic effectively, it's gone to a point.
And this is what makes the current market very interesting-- that by creating artificially low interest rates, by creating this financial bullying of investors being penalized, something has to give. And as I mentioned earlier, we're not solving problems. We're kicking the can down the road. We are transferring these problems in the form of currency wars and trade wars. We are transforming these problems into inequality, and inflation, and bubbles. And unfortunately, we are enlarging these problems.
So we have these fallacies, these ideas, where central banks and governments are just trying to print and borrow their way out of the problem. And what they're doing is, they're really delaying, transferring, transforming, and enlarging them. And we're now at a point where the distortion in asset valuations, let alone the currencies-- it's equities, it's fixed income, it's everything-- we have created these bubbles that are by now too big to fail. They are systemic.
So the big issue now as the central bank is, you were theoretically mandated with the financial stability, which historically meant inflation. Today, the risk of financial stability are the bubbles that you have created through this abuse. And basically, we're caught in this corner with central banks if they try to normalize things and the bubbles implode it, it would be game over. It would be systemic.
And so we are in this new paradigm shift where if I had to summarize the next decade in one line, it would be the transformation of bubbles into inflation. It's as simple as that. And unfortunately, it's not even inflation. It's likely to be stagflation. This brings us into the debate of healthy inflation or reflation versus more unhealthy driven by money printing.
And so within this environment of abuse on the monetarY and fiscal side of bubbles without precedents and too big to fail, we find ourselves as investors and savers looking for alternatives, looking for exits. And so there's no surprise, if you combine this with technology, that people are looking at the new world, at the exponential world, or whatever I'm looking for some of the alternatives in the digital space.
But I think here, there's a number of fallacies, and threats, and misconceptions, and narratives that really worry me in that logical jump from, oh, my God, I have this huge problem. Therefore, Bitcoin's the solution is a big gap and one that people need to understand better.
ASH BENNINGTON: Right and that brings us precisely to where we are today. Let's just set this up a little bit. Obviously, big announcement from Elon Musk last week, late in the week, that Tesla would no longer be accepting Bitcoin as a form of payment for Tesla vehicles. Over the weekend, additional news coming out some static, I guess you could say, on Twitter-- Elon Musk going back and forth diving in with some members of the Bitcoin community.
And the scuttlebutt is that there is the potential, still an unconfirmed rumor-- that Mr. Musk may begin to liquidate or already has liquidated some of his position at Tesla, the $1.5 billion in Bitcoin held in treasury at Tesla. Again, this is a speculation. This is rumors fueled by Mr. Musk on Twitter over the weekend. And just to put a little bit of a framework around this, some numbers around where we are right now, we're now trading at about 44,250.
This is off the day's lows of about 42,000. To put that into context, the high, all-time high this cycle, and all-time high period, 14 April about 64,700, depending upon which index you look at. Of course, there's no national best bid, best offer in crypto. So these numbers will vary a little bit from one side to the next. But the bottom line is, it's about a 31% sell-off from the highs.
With that said, let me chum the waters here just a little bit and read a Tweet from you from last Thursday. Our own Raoul Pal had tweeted regarding Elon Musk-- I know it's crazy. But I don't think he's joking. If you want to go to Mars, you are the kind of guy that flaunts his own currency. And he talks about how that would be beneficial to Mr. Musk to have access to unlimited funding.
To which, you have replied, I think very trenchantly, Maduro in Venezuela also understands the benefits of Ponzi and created Petro cryptocurrency in 2018. Doge, Petro, evidence of BTC scarcity fallacy. Quote, "there are only 21 million BTC, but we can print 21 million cryptocurrencies out of thin air. Key misconception supporting the bubble."
Now, I know there are going to be a lot of people on Real Vision who are big fans of crypto who are going to disagree. They're probably screaming at their computer screens right now. Tell us a little bit about your thought process in that because you have this ability to fold in not just the capital markets, but a really deep understanding of macro. Tell us a little bit how you reached that conclusion.
DIEGO PARRILLA: Look, I think-- I come from the commodities world, right? And the physicality of commodities, we always say, you cannot print commodities. It's a fact. You could print equities. You can print debt. You can print currencies. You can print whatever you want. But you can't print physical oil or gold.
The interesting dynamic with the when we jump from the problem that we discussed is the debasement of the currencies, is inflation, is many things-- I think one of the key, beliefs or misconceptions behind the value of Bitcoin is scarcity.
And I'm very skeptical about this because-- and I've had this discussion with incredibly smart people, where the argument is, look there's only 21 million Bitcoins therefore we can really print any more. They're scarce. And demand will be infinities. The ability to supply them also declines exponentially. Therefore, blah blah blah.
My argument is simple. Look, there might only be 21 million Bitcoins. But you can actually have 21 million different cryptos. And Doge is just-- or Doggy, or however you pronounce it-- it's just one example of yet another competitor that comes out of thin air, in this case with the gentleman behind it that is supporting this. And this goes very closely into what I call the highlanders. There can only be one, right?
In some ways, Bitcoin's success relies on being the only crypto. The minute you have literally in the thousands. I lost count. It might be 10,000. It's almost like a joke, right? You could do-- on the private side, we could do Ashcoin, Diegocoin, Applecoin, whatever you want coin. And so the big jump in the argument that people use against this is, yeah, of course, Diego, you can have 21 million different cryptos.
But for example, my good friend and fellow co-author of the best-selling book The Energy World Is Flat, Daniel Lacalle, who is extraordinarily smart, would come back to me when I said this, and say, yeah. But they have different uses. It's a bit like comparing gold and silver. And into that, I argued, look, in our energy book-- this is a book we wrote in 2014-- we were challenging the status quo of crude oil as the king of the energy market and challenged the monopoly.
And I said, look, people don't need oil per se. We said this in the book. Nobody needs oil per se. Ash, you don't use oil. What we need is, we need reliable, cheap, clean, abundant energy sources for transportation. But nobody needs oil per say. We need that product. So when you think about alternative uses that can compete directly-- call it Doge, call it whatever else-- you have a bit of a problem because the scarcity fallacy, as I call it, effectively tells you that there is no scarcity in the sector.
The second argument that I get all the time is, yeah, Diego, but look at Google. You could create 1,000 Googles, 1,000 searches, or 1,000 Facebooks, which is true. You could do that. And the question is a first-mover advantage. And then, we move into the discussion of both network effects and Metcalfe's law.
ASH BENNINGTON: Yeah.
DIEGO PARRILLA: And for those who are not familiar with this, the network effects basically demand economies of scale. So supply's side economies of scale are easy to understand. The more you produce, the cheaper it is per unit. Demand economies of scale is sort of the opposite. It's the more demand there for something, the more you're willing to pay for it from the demand side. And that goes with Metcalfe's law-- which for those who are not familiar-- says that the value of a network is proportional to the square of participants.
And the big fallacy, in my opinion here, is that people confuse the value of a network with price. It's a huge jump. Let me give you a simple example. OK, let's say we have a telephone network with a million users. And we now introduce user number million and one.
According to Metcalfe's law, the utility of the network grows exponentially because each one person can call so many more people. But that doesn't mean that me, as the user, I'm willing to pay exponentially more for using the telephone, or that the telephone company will be worth exponentially more.
So these fallacies, these jumps with the scarcity fallacy, the value fallacy-- I think a friend of mine years ago said, Diego, someone came to me and offered me to do my own crypto for 25 grand. And this is the kind of dynamic. It's a bit like printing money from the central bank. So the scarcity fallacy, the value fallacy-- the value fallacy being I didn't anticipate Doge to come out, but I did anticipate something like Applecoin.
Come on, guys. If Apple came out tomorrow and said, look, you can only buy Apple products with Applecoin, it would probably be worth, I don't know, how many billions. It would just go immediately overnight. This is just an intermediary step into your work and your product. And so I think there's lots of things in this process that when you go a little bit deeper and you think through, they're lost in this logical flaw.
And I've written about this. I get a lot of comments back. Generally, those are the main themes. This is my answer to them. And as I said in the article in LinkedIn that I published, I think, in January, I opened the article with Frida Kahlo's lines. I said, "I don't want you to think like me. I want you to think."
And so all these arguments which are many in both directions are to be thought. And you can't take these things-- just because Metcalfe's law sounds very scientific, or adoption, or many things to be relationships that will basically go to the letter. And this will be worth infinity. I don't think so. And there are hundreds of other threats and considerations to this. But this is very much at the core, I think, of the dynamics of Bitcoin.
If you only have one, the scarcity fallacy might be perhaps more real. In a world where you start to have this competition, everything falls apart. And it's what I call the famous hodol, the H-O-D-O-L. It's a very simple prisoner's dilemma. This is exactly what all the Bitcoiners are experiencing now. And they're looking at it, and saying, oh, shit. Do I sell, and I bring this thing lower? Or do we all hodol up? This is the prisoner's dilemma.
And unfortunately, I think that are some extraordinarily emotional people around this. You just need to see the exchanges. People take it almost beyond religion. And they are probably very upset