Why Investing in Gold Is So Critical & the Future of Money (w/ Grant Williams and Josh Crumb)


Grant Williams: All right.
Josh Crumb, co-founder and chief strategy
officer of Goldmoney.
Welcome back.
Josh Crumb: Thank you.
Good to be back.
You and I keep bumping into each other in
strange places.
Yeah.
It was Toronto last time.
And then we bumped into each other in Hong
Kong a couple of months ago, right?
And now New York.
And here we are in New York.
Yeah.
Yeah.
I wanted to bring you back and talk with you
because you and I had sat in a coffee shop
in Hong Kong, just had a fascinating conversation.
And I really want to get the chance to kind
of pick over it with you for Real Vision audience.
And so you and Roy have been on before.
There’s a great think piece that the two of
you did previously.
People should go back and watch that and find
out a little bit about the background.
Could you give us the quick and dirty for
those of you that haven’t seen it.
And then we’re gonna talk about religion.
Yeah, that’s probably the best way to start
it.
I’ll try not to say the G word for the first
15 minutes of the interview.
Well, you’re OK with the four-letter G word.
It’s the three-letter G word.
Just leave that out of it.
OK?
OK.
So I can say God.
I just can’t say Gold– Shh.
All right.
Well, we’ll continue.
So give us the really quick background, just
so people get a sense of where you come from.
And then we’ll go down some path or other.
Yeah, sure.
So I’m an engineer by background.
So naturally, not that good on camera or any
of that.
So if I start wandering and the complexity
of my head’s not coming out right– I’ll rein
you back.
Don’t worry.
–just bring me back.
But yeah, so I have an engineering background.
I also have an economics background.
And I came from doing– well, quantitative
political risk was actually my Master’s work,
and how you try to quantitate political risks,
particularly in the extractive resource sector.
And for me, I’m, I guess in general, more
of just a systems guy, whether it’s financial
systems, geologic systems, economic systems.
Me and my co-founder and CEO, Roy Sebag, were
just those annoying kids that just keep asking
why?
Why?
Like, why does that work?
Just never accepting the given answer or the
accepted answer.
So my background is really engineering, worked
in the mining industry, and then I worked
at Goldman Sachs.
So try not to hold that against me.
But I was the senior metal strategist in the
global economics department.
So I looked at the way things like copper
and gold moved relative to, obviously, oil
and the rest of the commodities, but also
macroeconomics and fixed income macro assets
in general.
So I guess that’s my bias and background.
And so thanks to the complete lack of any
political risk out there today, this is a
great area for you to be in, right?
Yeah.
So you and I sit and chat in Hong Kong.
And we get around to talking about religion.
But we’re talking about religion as relates
to the precious metals complex.
And both of us, I think, struggle with the
same question, which is what is it that people
have against gold?
What is the visceral revulsion to it?
Yeah, exactly.
And that’s how I actually usually try to start,
whether I’m talking to mainstream media or–
I try to defuse this religious tone of, like,
we want to debate the theories of money.
We want to debate the view of whether it has
value or not, subjective, objective, the money
veil.
All of these issues, you can debate them theoretically
all you want.
But the way that I came to gold was actually
through that path of not really understanding
or not liking gold because of the same religious
context of does it have value?
Objectively, it does.
So I came to it realizing, OK, no matter what
people are saying, there’s a market.
And this is what the market is telling us.
So if you look at the market as it’s telling
us, then you have to figure out why.
So you see the correlations.
You see the price movements.
And you’re always comparing relative assets.
Gold has this particular path and performance.
Why?
We know that it doesn’t pay yields, and it
doesn’t do anything.
If you hold gold for 100 years, it’s still
just gonna be an ounce or a gram of gold.
That’s the old Warren Buffett adage.
But actually, that’s probably one of the most
important things to understand, is after 100
years, you’ll still have an ounce of gold.
Tell me one other asset in the economy which
is the same.
Even if you have an ounce of copper, is it
the same 100 years from now?
Certainly if you have a loaf of bread, it’s
not going to be the same 100 days from now.
If you have a company, it’s likely not going
to be the same 100 years from now.
So that quality of actually lasting is actually
one of the most important qualities.
And so this is the first thing that you kind
of have to figure out.
And this is what sort of Roy Sebag– Roy and
I both came from these questions from very
different perspectives, him being in finance
and a real Warren-Buffett-trained value investor
and trying to understand the fundamentals
of value and why things get off the path of
fundamental value.
And then I came from an engineering systems
standpoint.
And I tried to understand the macro economy–
so he’s very micro.
I’m very macro– and trying to understand
how these major, complex systems work to create
price.
But what Roy came to in his analysis was the
physics of gold.
He ultimately reconciled, through a microsystem,
that gold is going to be the same 100 years
from now because of the physics.
It’s this one element out of the periodic
table that seems to resists entropy.
So that’s kind of the way he came to it.
And so I think that’s where we have to start
with, is just the fundamental truths that
you can’t question.
Well, so let’s talk about those truths because
you spend a lot of time talking to people
who understand it.
And they accept those truths for what they
are.
But naturally, you also speak to a lot of
people who are skeptical or downright displeased
with it.
And neither you or I are trying to convert
anybody.
I just think it’s a very interesting conversation.
There will be people watching this who are
long gold.
There’ll be people watching it who hate gold.
So I would love to just have this discussion.
Pick a side.
It doesn’t really matter to me.
But I just think it’s an interesting discussion
to have just because of the different ways
that people come at it.
So when you talk to people who think gold’s
a worthless pet rock, what’s generally the
view that you get thrown at?
Yeah, it’s a great question.
I think the pet rock view is that somehow,
we’re hoarding and wasting opportunity to
be investing or doing something else.
And I think there’s two aspects to that.
There’s the investor that wants an outsized
return.
And they tend to forget that risk and return
are typically two sides of the same coin.
And then the different side is the economic
doctrine crowd, which hates the gold standard
and wants to be able to control the economy
through some sort of mathematical levers and
be able to control it.
So they don’t like gold because it’s a system
they don’t believe they can control.
Whereas the investor doesn’t like gold just
doesn’t like the boring returns or the fact
that it doesn’t do anything.
So there’s no real story to tell around it.
I think those are probably, if I’m gonna read
the why.
One of the stories I like to tell– again,
getting back to the objective reality versus
the theoretical views or debates– is I was
having a conversation with a European Central
banker.
And he basically said– again, right when
I introduced myself, I said I’m from Goldmoney.
And again, the religious alarm bells go off.
And it’s like, oh, I have my views on gold.
And I think my– I don’t know.
I was just particularly confrontational that
day.
And I just told them right back, you know
what?
You That’s great.
There’s a market that has a view right back.
It’s called price.
And so whatever your views are, there’s a
price.
That’s what I’m trying to understand.
I’m interested.
Did he go into what his views were, or did
you not actually have that conversation?
You can’t go very far down the track.
You start quoting all these theories and doctrines
and mathematical models.
But again, you’re just, just kind put that
all aside.
Let’s get back to what money is supposed to
be– store a value, medium of exchange, and
the unit of account.
And I’ll kind of go through all of them.
But the very first objective metric when it
comes to valuation is store a value.
So let’s look backwards.
We can’t do anything about looking forwards,
not yet.
Maybe Elon Musk will solve that.
But looking backwards, what we do know is
that gold works as a store of value back to
the– we’ll put that aside a second.
9.13 But we did a report for Back to the Futures.
Marty McFly, 30 years from 1985 to 2015.
And of course, during that time in 2015, there
was all sorts of talks about hoverboards and
automatically lacing shoes and all of the
different predictions- – Cubs winning the
World Series.
All of these things were happening in speculation
in the media.
But people forget there’s a few other concepts
like money and the $50 for a bottle of Pepsi.
So we actually looked– how did money actually
change during that 30-year time period?
What did price levels change during that 30-year
time period?
And we basically gave Marty three options.
He could take an ounce of gold with him in
the DeLorean into the future.
He could take a $100 bill.
Or he could let money compound in a bank account
for 30 years.
And what does he have at the end of 30 years?
So again, this isn’t theory.
This is what objectively happened looking
backwards.
And what we found is if you measure– so we
started with the Big Mac Index, The Economist’s
famous index for prices and currency values
around the world.
And we looked at the Big Mac Index through
time.
So if Marty brought his dollars, he could
only buy one third of a Big Mac 30 years from
now.
If he let money compound in a bank account
for 30 years, this socalled management by
central banks of the store of value, he would
have got– let’s say he didn’t even have to
pay tax on interest.
Remember we used to have interest?
And so if he let it compound for 30 years,
he would have got about– I can’t remember
the exact numbers, but it was, like, 89% of
that Big Mac he would have got back.
And then if he would have used gold, gram
for gram, he could have bought the Big Mac.
So we’re like, OK.
Well, that’s very much a commodity good.
So as a store of value, a Big Mac for gold,
it works the test of time.
Let’s go through other aspects of the movie,
other aspects of the economy.
And we went from, like, his pickup truck,
which, obviously, there’s a lot of IP.
There’s a lot of engineering.
There’s a lot of manufacturing.
But at the end of the day, a pickup truck
or white goods, there’s still a big bulk commodity
component to it.
His Toyota pickup truck 30 years in the future,
same price.
Measured in gold, same math when it comes
to the dollar.
Buy a third of a truck.
Same math when it comes to compounding interest
in a bank account for 30 years.
And then we get all the way down to a pure
service economy, like a movie ticket.
You know the 3D Jaws from the movie.
And if you look at the movie ticket over 30
years– everyone complains about this, too.
Movie tickets.
It’s so expensive to go see a movie with a
family.
No kidding.
Gram for gram, gold price, movie ticket, same
30 years later.
So we see objectively that the math, this
works.
Now, will this work over a two-year time span,
a three-year, a five-year?
No.
When you’re within an economic cycle, there’s
all sorts of backwardations, contangos.
There’s shortages and surpluses.
It’s information we’re always trying to refine
and figure out price levels.
So it doesn’t work on a short-term period.
But with gold, prices revert.
And a lot of the economics and models has
always believed in these mean reversions.
That’s why we take out volatile food and energy
prices from the CPI because when gold backed
money, it used to mean revert.
The problem is that doesn’t happen anymore.
So anyways, that’s another topic.
But one more story about this.
And we can pick all sorts of items in the
economy.
But one of my favorites was I was at a hedge
fund retreat, about a year ago from today.
A lot of my former Goldman colleagues.
Don’t use hedge fund and retreat in the same
sentence these days.
Yeah, exactly.
It’s just a bad connotation.
But the funny thing is we had a former Treasury
Secretary there that is one of the advisers
and talking about various things.
And even this crowd was complaining about
a $165 lift ticket at Vail.
And I said, you want to make a bet that measured
in gold, the lift ticket price is actually
the same as the day it opened?
So as I’m there, on Slack on my phone, I message
my analyst.
And he runs the numbers.
OK, so 1965, Vail opens.
$5 lift ticket.
Measured in dollars today, that’s $165 dollars.
So the math works.
And again, as you stretch it over time.
It doesn’t work within a cycle it works through
cycles.
So the store of value in a function of money,
that’s checked off.
And I think, again, that’s back to the physics,
which we can or can’t go into later.
But the store value function works.
Medium of exchange, unit of account– anyways,
I’ll let you get some questions in.
No, listen, you keep going.
I always figure the less I talk, the more
value the viewers get.
So you keep talking.
Sure.
So the medium and exchange and unit of account
functions– medium and exchange, I think,
is probably less important in today’s world,
particularly with technology.
Now there’s things like Bitcoin, which is
probably the world’s greatest medium of exchange
that’s ever been created, just absolutely
very, very interesting exchange technology.
It’s got different store of value functions.
Let’s put that aside for the second.
But the point is, in this economy, with so
much communication and all of these innovations
around medium of exchange– whether it’s the
paper check or the ATM machine, the Visa or
MasterCard networks, Paypal– all these are
not changes in money technology.
They’re the changes in how we message and
communicate a settlement or medium of exchange.
So I think the medium of exchange is less
important now as long as you can get liquidity
and fungibility in any currency.
I can take my Canadian credit card, spend
it here at a local merchant.
No one cares that it’s Canadian dollars.
No one cares if it’s Bitcoin backing it or
gold or maybe an ETF stock index.
And there’s companies trying to do that.
So the medium of exchange, as long as there’s
a settlement mechanism to go from one asset
to another, I think is less important role
of money in today’s economy.
The third one, unit of account– so again,
gold can be used as a medium of exchange objectively.
We do it at our company, Goldmoney.
We allow people to use gold as a transactional
medium.
And again, this is choice.
We’re not saying it’s going to be the only
one.
Again, coming back to religion, there’s always
got to be this one right path.
It’s either got to be Federal Reserve, Central
Bank management.
It’s got to be Bitcoin or cryptocurrency or
gold, like one’s just gonna win.
No.
We live in a world of choice and different
preferences.
And they all have different utilities.
They all have different ways of working.
And so we just created gold to be a transactional
rail, as well.
And I think also interesting about that aspect
is I think still, if you go to seven billion
humans on planet Earth and try to settle a
trade, and you have the choice of any of these
mediums, I still think on an absolute population
number, more people will accept that gold
to settle a trade than anything else.
Obviously, that’s weighted towards India and
China and Southeast Asia.
But it’s medium of exchange function is not
going away.
And so that, I think, can be ruled out objectively.
The last one is the unit of account, which
I think we already talked about, as well,
in the store of value and how things revert
to the mean.
And I believe that’s actually, of the three
qualities of money, that’s probably the one
that gets the least time, is the measurement
quality.
But I think gold’s unit of account is probably
its strongest quality and probably the one
that the world needs more than anything right
now because we have this completely subjective,
manipulated measurement called fiat currencies,
which they used to have rules.
They used to have, we’re going to try to manage
them with the interest rate.
We’re going to try to control all the things
that we can control so they maintain their
store of value.
Just as good as gold, as I think Milton Friedman
once said with this new model.
Meanwhile, it’s lost 98% of its value since
that time.
But the unit of account is so important because
that’s the price when the physical economy
clears.
And that’s the invisible hand of the economy
that we want to be hearing what it’s saying.
If you go back to Adam Smith and moral sentiments
and what the invisible hand was all about,
it wasn’t trying to justify the moral view
of capitalism.
What it was trying to say is there’s a moral
sentiment in humans that they’re gonna do
this no matter what system you try to force
them into.
So the invisible hand is a philosophy that
decentralization call it, using some more
modern terms.
It’s a philosophy that the decentralization
works, and it tells you something.
But if you don’t know how to measure it–
imagine trying to build a house that the unit
of inches or feet or meters or whatever changed
every board meeting of the Central Committee
on measurement.
And maybe to stimulate more construction,
we want to build buildings that are gonna
fall down faster, just can rebuild them.
So the central management of measurement is
going to change the unit of a meter every
month or every quarter.
That to me is a real problem because people
think their wage contract is $1.
They think that dollar is something universal
because it’s in the denominator of the equation–
price divided by the unit.
So if you don’t have a good unit of exchange,
all sorts of things go off track, which I
think is actually the core problem in our
entire economy and society right now.
But again, that’s another religious discussion.
But it’s interesting because this unit of
account thing– I want to dig into this deeper
because there’s two ways you can read that,
right?
You can read it in a pure accounting way,
and you can read it as in holding somebody
to account.
And that to me is the reason why central banks
dislike gold, because it holds them to account,
to your point about what it does.
You have this unit of account.
And that’s arguably the most dangerous thing.
And there are 1,000 conspiracy theories about
gold.
Some of them are interesting.
Some of them are ludicrous.
Some of them it’s harder to argue, it’s really
difficult to argue that they’re not correct,
but you kind of have to do it anyway.
But it’s this antagonistic relationship between
central banks and gold that I find so fascinating
because of exactly what you’ve laid out just
there.
It basically proves the damage that’s been
done to savers, to the middle class, to whoever
by fiat currency, by wholly fiat system.
So do you think, when you look through this
through your engineer’s eyes, you at it
through the eyes of your Goldmoney position,
do you see– what do you see the future looking
like in terms of gold’s role in a monetary
system which feels to me like it’s on its
last legs.
Yeah.
I think whether we get some democratic consensus
that gold or Bitcoin or some other alternative
money is going to be the replacement, I think
the history is that inevitably, these fiat
currencies always fail.
It’s got a 100% track record of failure.
And again, this isn’t theory or belief.
I’m not trying to offend anybody.
That’s just what’s happened.
And so I think that yes, naturally, as more
people recognize these physics, these sort
of first principles qualities of gold, it’s
always because of that role.
It’s always going to have some reversion to
it.
And whether that’s in a decentralized manner,
where people simply vote with their feet–
which is obviously our business model.
We’re not trying to force people on a gold
standard.
We’re not trying to force some sort of central
coercion.
We’re just saying, gram for dollar, whose
product is better?
If the central banks want to have a better
product, have at it.
Build a better product.
But right now, you don’t.
You don’t have a better product for savers.
For someone that wants to borrow and has the
access to borrow, fiat’s great.
You actually get paid– so this is another
aspect of central banking that a lot of people
don’t realize.
And you can easily see the inequality in our
economy because of this.
So if you’re rich, you get paid to use money.
You get airline points.
You get cash back.
As long as you can access credit and the unit
of that credit is decaying, you are getting
paid by the rest of society to use money.
And you get your free points.
You get to use it.
Meanwhile, if I’m paying cash, that merchants
paying 3% processing fees, which is going
back to pay you money.
So the cost of goods are higher.
So it’s a monetary waterfall.
The people closest to the center have less
purchasing power decay from the system.
They get paid to use money.
And then people at the bottom, who are just
wage earners, particularly if it’s cash, have
higher cost of goods, and they have to pay
to use money.
So the inequality’s built into the system,
whether they like it or not.
And so that to me is a big problem.
So getting back to the future of money, there’s
a lot of thought and a lot of writing about
the history of money.
But really, it’s kind of the future of money
that is important right now because we’ve
been through these regimes before.
I don’t think we’ve ever had a purely fiat
world monetary system, but we have one now.
But unfortunately, it’s the one that everybody
has spent their entire lives in, essentially.
And so this idea of a change of any sort from
that is such a huge leap for people to make,
which is perfectly understandable.
So when you have these conversations with
people, what’s the closest argument you’ve
ever heard that’s made you think, oh, you
know what?
He’s got a point.
Or have you not even got anywhere close to
that yet.
I don’t think I’ve gotten close to that point.
Again, I think the future’s choice.
The future in just about every system seems
to be more complexity and more choice.
And whether it’s social values, whether it’s
goods on the shelf at a grocery market, whether
it’s investment products, choice and proliferation
and more complexity and chaos seems to be
the order of everything.
So I actually think that people that want
to legally and rationally and in some safe
system use gold or Bitcoin or dollars or maybe
you like the Canadian dollar, and you want
to run around New York using the Canadian
dollar– I think that that’s the future until
some of these key ones finally give in.
And that world looks very different.
And I don’t want to necessarily speculate
it and take it down the goldbug route.
But I do think that choice is going to be
a key part of this going forward.
But we find ourselves in the middle of what
people call the central bank bubble, the confidence
bubble, the everything bubble, the mother
of all– we’ve heard them all.
People seem to recognize that we’re in some
sort of bubble here.
And generally speaking, when those bubbles
burst, it takes away choice, and it takes
away complexity.
It takes away chaos.
It creates it, but the response is, OK.
We need to suck all that out of the system
because of this chaos.
We can’t let it loose, which says to me when
this bubble bursts, the control that’s going
to try and be exerted, the forces that are
gonna be brought to bear to try and control
that chaos, that complexity you talk about,
will have to be of a magnitude far, far greater
than we’ve seen at any point.
I think so.
But what is– and again, I don’t want to take
this down an overtly negative or political
path because I’m totally speculating here.
But I think in some ways, this information
economy, call it, is hopefully improved the
situation where I think if something would
have gone down that route in 2007, it probably
could have been controlled through nationalism
or some police state or military.
And I’m talking about the West here.
And by the way, I don’t think that would have
happened.
I think actually, the economy would have healed
itself much better.
But let’s say that all hell did break loose
post-Lehman and letting them all fail, AIG
and the rest.
I think society would have been at a place
where they maybe would’ve accepted some sort
of new system of control.
I think the difference this time is they’re
rapidly losing that power.
They’re rapidly losing trust in all institutions,
whether it’s political or rule of law, legal,
or just this perception of everything being
corrupt, this cynicism.
I just don’t know if someone is gonna obey
this new dictate that, no, you know what?
You’re not allowed to have this element owned
in the piece of earth.
It’s not backing our monetary system anymore.
But I’m just not gonna allow you to own gold
anymore.
And you can’t own trees anymore, either.
I just don’t think society will accept that
now.
Uber, for all of the things they do wrong
with breaking the rule of law, they blast
an email to their community in a small town,
they can vote out the mayor.
Right?
So I think people, when something provides
utility to them, I think today, I hope– again,
this is probably more of the hope hat than
maybe necessarily the rational path.
But I do think that people will embrace choice.
And hopefully views like ours or some from
the Bitcoin community or elsewhere will have
a seat at that debate without being ridiculed
and belittled by some of mainstream economists,
as they like to do, and just actually have
a debate about these things.
Well, let’s talk about your business because
you guys are in a unique position to really
understand how sentiment’s changing, how acceptance
is changing.
What are the trends that you’re seeing in
people’s adoption of– now you’ve given them
this ability to use gold in a transactional
way.
How are you seeing that be adopted?
Yeah.
I mean, I think people that recognize it kind
of have an open mind to it– and it’s growing
every month.
Our payments, our transactions– we’ve got
clients– I think I’ve told you this story
before– the client in Singapore, that his
son goes to school in Canada.
He buys with Sing dollar.
He buys gold in the morning, sends the title
of it to his son, who sells and redeems to
his Canadian bank account, same day.
We have the time zone advantage there.
But same day, he can go from one bank to another.
And these are the kind of promises of the
Bitcoin economy, as well, is that you have
this sort of cross-sovereign asset that can
be held and owned in both sides.
And so it makes clearing happen a lot faster.
So that one is gold just being a bridge.
And that one works well.
I use it.
People do it.
It’s so much easier for me to buy gold and
then sell it for moving from my Canadian bank
account to my US bank account.
It’s just easier than using the federal bank
wire system.
And again, Bitcoin can do all these things.
So I think there’s that aspect of it.
And then there’s also the peer-to-peer side.
That one’s slower to be adopted, truth be
told.
And I think that’s the same with the Bitcoin
economy.
What they’re seeing, as well, is people want
to buy and hold it or maybe borrow it.
At least in our case, you can borrow against
it and spend US dollars or something like
that, like a line of credit.
So there are other ways people use it.
But again, we’re not really forcing anyone
to do anything.
We’re just building the tools so that they
can be used.
And so we are seeing that people that find
them and use them, people are taking off.
But what trends are you seeing geographically?
Because you’ve got, as you said– your earlier
point– you’ve got a big chunk of the global
population who are positively inclined towards
this asset.
They’re saving it for millennia.
They use it transactionally.
They gift it.
It is a currency to them.
And then you’ve got this side of the world
where people just aren’t using it.
Are you seeing that adoption?
I presume it’s pretty solid out in Asia and
China and India.
But are you seeing any changes in central
and the West.
That’s a slow ship to turn.
And I will say that we have– I’d say that
most of the people that are on our platform
typically knew gold or knew cryptocurrency.
I think we created an accessibility layer
that– we did have lots of feedback when we
sent out sort of a blast email to our early
adopters.
And there were a good percentage that had
never used or never owned gold before because
we made it very easy and safe and great UX,
UI, all the technology aside, to actually
sign up an account, buy $100 worth of gold
or set a recurring payment to just deposit
$100 a week or month or whatever.
We built all these tools, so we made it very
accessible.
I mean, if you were only saving $100 a month
in the past, it would’ve taken you a year
to buy an ounce of gold.
So having those tools, I think, has made it
more accessible.
But the knowledge barrier is still very high.
So it is still– for as fast as we’re growing
by just getting people onto the platform,
it’s getting some of my friends and Facebook
colleagues or whatever just to sign up and
use it, just trust me.
This works.
The math works.
It’s a slower sell.
But you’ve been talking about this stuff for
a long time, as has Roy.
And you talk very eloquently about it.
And this is what brings us back to where we
started with this thing.
There are a lot of very, very smart people
in the gold space who are gifted communicators
telling a positive story that’s held true
over millennia.
And we come back to this religion thing.
We come back to this wall that goes up where
people just say, no.
Don’t even bother talking about it.
I mean, how do you try, when you talk to people
about this– we’ve talked a little bit about
it at the beginning.
But how do you try and break that wall down?
Things like this.
And also, I think the very important thing
is we’re not telling you ever that gold is
going to 5,000.
We’re not promising you riches.
Although we try our hardest, we’re not telling
you that the government and society is going
to collapse, even though most people generally,
I think, are starting to believe that, even
in the mainstream.
That’s not our sales pitch.
And that’s the one that still works, by the
way, in a lot of these alternative assets.
But we’re trying not to do that.
We’re trying to just say, look, you’re always
even.
And always even in this world is a pretty
good place to be.
Yeah, it’s a good starting point.
So that’s what we’re always trying to tell.
And it’s not an easy way to get people to
sign up right away.
But I think it’s the truth.
And so if we want to be building this business
for 10 years, 20 years, 50 years, that’s what
we need to do.
We can’t take any shortcuts and try to promise
something that we can’t deliver.
Now, your business started– when I first
met you and Roy in Toronto more years ago
now than I care to remember, you were BitGold.
You started in the Bitcoin and gold world.
And this is another big debate that people
go on.
We’ve now not only got the people that prefer
money over gold, it’s Bitcoin over gold.
To me, gold and Bitcoin can coexit perfectly
happily.
But talk a little bit about the nexus of those
two worlds because you guys were right there.
Yeah, that’s what Roy and I recognized.
So we actually started on this system, I think,
before we were really interested in Bitcoin.
I mean, Roy particularly was buying in Bitcoin
very early, just diving into everything alternative
and just, again, the contrarian.
And so he was very early.
And I remember him telling me about it.
And I was like, yeah, that’s really cool.
Mathematically, that sounds like it makes
sense.
And of course, I didn’t act on it.
He did.
But at some point, we were also talking about
just having this gold custodian business.
It had nothing to do with Bitcoin.
So just, why isn’t there one financial institution
backed fully by gold?
You’ve got Canadian-dollar-backed ones, USdollar-backed–
why isn’t there one that just says, the math
of gold works.
Let’s make a gold-backed institution?
That to us seemed really odd, that there wasn’t
one doing it.
So then we asked, how could we do it?
And how do we build it?
Is this some marble column bank and secrecy
and all of that?
But what we saw with Bitcoin– and this is
what really inspired the idea for BitGold.
We were always about gold.
But it was the use cases of Bitcoin.
It was the nature of decentralization and
distributed technology and trying to have
more pieces and not just having, like, marble
columns hugging all the customers.
Don’t go there.
Just stay in our realm.
I think that idea of Bitcoin really inspired
us.
And then not only that, the use cases, we
looked at it.
And we said, OK.
All of these things– the example I gave before
about gold being the bridge between two currencies,
whether you need it or not, it’s a more logical
system than OTC correspondent banking netwebs
with some manipulated fix in London and a
wire that goes missing for four days.
Using a bridge sovereign asset is a better
way to transact internationally.
So we said, oh, well all that cool stuff that’s
happening in Bitcoin and the technology space,
that’s around, at the time, a billion-dollar
asset class.
In gold, you got a $7-trillion asset class
with no innovation, no technology.
So why don’t we not necessarily copy the technology
of Bitcoin, but the use case and the business
model?
And so that’s really where it got started.
But we also had this other key sort of– the
Canadian expression, you know you want to
skate toward where the puck is headed.
The other view that we had is whether the
world goes into this crypto decentralized
currencies, I’m really not smart enough to
know.
I like a lot of things about it.
There’s things I don’t like about it.
But I’m not smart enough to know where we’re
going.
But what I do know– again, back to the physics–
gold will be a store of value no matter what,
in whatever world, whatever economy.
And it’s going to be demanded no matter what.
So I want to be part of the interoperability
between Bitcoin and gold.
So that was another thing that we focused
on very early.
And then that was another reason why the name
BitGold.
I think it turns out that the BitGold name
just really didn’t achieve what we wanted
to do.
People thought, oh, is this a Bitcoin backed
by gold, which we think is actually illogical?
And obviously, Nick Szabo’s white paper on
Bit Gold, there was a lot of pushback for
using the name BitGold.
So there was many reasons why it just didn’t
make sense.
So when we acquired Goldmoney, we just took
the name Goldmoney.
But yeah, we were inspired.
And I think the world is learning a lot about
money and the properties of money and the
fundamental properties of sovereignty because
of Bitcoin.
So I think that’s a good thing, no matter
what happens.
OK.
So we began with religion.
We kind of got back to religion.
You showed us that the whole thing works.
So just lay out and explain why it works.
Why does this system work?
That’s the hard part.
And I think that’s where we’re really getting
into some new theory that Roy and I have been
building, sort of independently, and then
together for the last decade.
But going back to this physics– and for me,
it was recognize the energy component.
So probably the best way to explain it is
maybe just walk through the path of how I
questioned currency and everything else.
So back to my political risk days and quantitative
political risk, I like to take the first principles
of valuation of any asset.
So let’s talk about a mine in Zambia.
So a mine in Zambia, your first principle
starts with the geology.
What is the geologic inventory?
And obviously, what’s the uncertainty from
all the drill holes?
What are the mathematical models to quantify
that uncertainty?
That’s the first principle of what your inventory
is.
Then you have to look at your fixed costs
and your wages and your labor.
But the other major component in any extractive
industry is energy.
What is the energy to put into the ore, to
blast, to haul, to mine, refine, all of that?
So any material coming from the earth has
an energy input.
So I’m not even talking about capital yet.
I’m just talking about first principles, things
that you can’t change.
It’s quantitative.
It’s physics.
So then you get that.
And then you go line by line through your
costs and all of this.
And you can generally map it all out as an
energy.
There’s one thing in the entire model that
I actually have no understanding of the fundamentals.
And that’s what is the value of the Zambian
kwacha?
So that’s the part where I started really
questioning currency.
That’s the one thing I can’t use first principles
to figure out.
And even my political risk analysis and how
I want to create a discount rate or an effective
tax rate or however I want to quantify the
political risk, you can actually map out human
systems and the risks of too many tax payments
going to one agency.
And you need to separate it.
So there’s all of these ways to mitigate your
geologic risk, your energy risk, your political
risk.
But how do you mitigate the currency risk
other than a big hedge or a swap?
That’s the one fundamental.
So then I’m like, OK.
Now I’ve got to figure out this currency thing.
So I think that’s where it all started.
But to me, it goes back to those first principles
of the economy, that– and Roy came to the
same conclusion– everything that we touch,
feel, consume, all of the tools for our information
economy, all of it still comes from the ground.
All of it has some cost of energy– the energy
input in versus what’s the yield and what’s
the product coming out.
So I like to map the entire economy based
on these thermodynamic concepts of everything
has a energy cost of production.
And then everything has an entropy, or call
it a rate of decay from a financial standpoint.
And if you look at the contango in a commodity
price curve, it’s the same thing.
So you’re anchored by a marginal cost of production
or expected marginal cost of production.
And then you discount today’s price by the
cost of storage and decay.
So if you go through the economy– again,
before we get into tertiary industries, let’s
start at the commodity economy.
You have rates of decay in things that decay
fast.
You have electricity, natural gas, oil, grains,
coal, and then you have base metals, precious
metals.
And funny enough, those rates of decay also
is their financial volatility.
So you look down that whole spectrum, and
the highest volatility is in natural gas.
The lowest volatility is in gold.
So then I start thinking, OK.
There’s some physics, there’s some thermodynamics
to this whole economic system.
And then we started trying to layer in, OK,
so in this segment or this industry, how much
is intellectual property?
How much is IP?
And what is the fundamental– what’s the first
principle cost of labor?
And the first principle cost of labor is still
feeding yourself, shelter.
There’s still a very high energy component.
So you’ll talk to economists, and they’ll
say, we’ve moved way beyond the natural resource
economy.
Well, no, not really because most people–
and economies work in power laws.
They don’t work in normal distribution.
So this is a Pareto concept.
But most of the people are still closer to
the commodity.
Their main cost of living is very commodity-driven,
whether it’s going out to eat or putting a
roof over their head, the cost of utilities
and bills.
It’s still a high percentage, which is why
they work.
So labor still has a very high energy component
in it, as well.
So you’ve got energy and labor.
You’ve got energy, obviously, in the natural
commodities.
So what is the decay of the services they
create?
What’s the dissemination of information on
their IP?
So all of this, I still get back to these
same models of rates of decay versus the replacement
cost and energy.
So I just model the entire economy that way.
And gold is very interesting in that of all
of the things you can create in the economy,
it’s got the highest percentage of energy
cost because of its scarcity.
Because it’s so small and so value dense,
because you have to mine so much rock.
You have to crush a ton of rock to get a gram
of gold, and then all of the refining and
everything else.
So it’s got about a 70% energy replacement
cost.
So it’s very tied to what’s the value of oil
in the economy and always will be because
of that.
But unlike any other commodity, it lasts forever.
So it has zero rate of decay, but it has a
70% energy cost of production.
So that anchor, that value anchor, will be
constant, particularly as you stretch time
and everything else decays.
Then all that’s left is the energy component,
and then it’s going to be constant 30 years
later.
So that’s the model.
That’s the theory that we came up with why
this works.
And we’re trying to mathematically, systematically
prove that and falsify other theories.
We’re trying to do that while running a business,
so it becomes– You be careful going down
that rabbit hole, my friend.
There’s a lot going on here.
But that’s why we found that gold always works.
And we think this is a first principle.
We don’t think this is subjective.
We think this is a very objective view of
money.
Roy has actually written some very good papers
on medium, the natural properties of money
and a number of others, as I have.
And then we have our research that we’re starting
to put on your platform.
It’s on Bloomberg, at GMIR, Go, Goldmoney
Investment Research.
So we try to make all this accessible.
But we are trying to wrap this into a bigger
theory.
Well, as I say, you and I met in Hong Kong
and had a similar conversation to this one,
that the first time I sat down with you and
Roy, and I made a point to come in to see
you when was in Toronto one time, was because
I’d read the stuff you’ve written.
I thought, these guys, they look at this a
different way.
So I’m just really happy that a lot more people
are going to get a chance to sit down and
listen to the way you guys think about it.
Because it’s an archaic commodity.
But that doesn’t mean there aren’t new ways
to think about it.
And I think what you guys are doing in terms
of getting these new ways to think about it
across is an incredible service to people,
hopefully.
Whether we change anyone’s mind or not, we
just want– No, I appreciate it.
We just want to make people think, right,
and say, OK, let me open my mind.
Absolutely.
And that’s the best part.
Roy and I both love the dialectic.
We’re out there picking fights on Twitter.
And you know what?
That’s how I learn the most.
And when I am proven wrong, it humbles you,
right?
And so you refine your– but we’ve got this
society that doesn’t seem to want to do that.
So you can debate theories and uncertainty
and unprovable things.
And again, that’s the religious view.
But you can’t debate objective facts.
If I say gold’s a store of value, and you
say, no, it isn’t, you’re just wrong.
And that’s sort of– particularly when it’s
in the context of financial advice.
And I see this on the media all the time.
Gold is this.
Gold is that.
No, that’s wrong.
Gold is purported to be a store of value,
but it doesn’t hold up very well.
That’s wrong.
That’s bad financial advice, and that view
needs to be punched in the face.
That’s how we need to frame this.
And again if I’m wrong, right back at me.
And so I think that’s the approach we’re taking
because society needs to solve these problems.
But while we’re on this subject, let’s quickly
throw this in here.
Jeremy Siegel’s book, Stocks for the Long
Run, he’s the guy who said, over all this
time, you’ve owned stocks.
You were way ahead.
You owned bonds, you’re a little bit ahead.
If you owned gold, you were down.
Right.
How do you debunk that?
Is it just a question of timeframes?
That’s actually very easy.
And I’m not sure if Roy’s published it yet.
I know he wrote this, actually, a long time
ago, I think even before BitGold.
But there’s a lot of mathematical tricks,
just like the CPI index, in that.
So if you actually owned– so Warren Buffett
uses this, too– if would have bought the
Dow at the turn of the century.
Actually, of those 100 companies, I think
three exist still.
Well, that’s the problem with the Dow.
So no, you bought an index.
An index has to be managed.
It has to be bought and sold.
You’ve got to throw out your losers.
And that takes fees.
That takes friction.
There’s losses there.
There’s a decay.
That’s not a constant that just goes up.
If you just own these companies, most of them
die.
And that’s probably the biggest trick of the
financial industry.
And I’ve been asked the question, too, I can
understand maybe if central banks got this
all wrong.
But why do finance guys get it wrong?
And the incentive is to promise that unachievable
spreadsheet index that you actually can’t
own.
It has to be managed.
And what happens when you manage it?
You get paid.
So the incentive is to get paid to manage
that index.
And I’m not saying that’s good or bad.
I still think that’s a good thing.
That’s capital allocation.
All of this is a good thing in the economy.
But gold is boring because you actually don’t
really have to manage it.
And maybe I’m giving away a business secret
here, but it’s not that hard to store gold.
There’s very good rule of law.
I mean, you’ve got to understand the good
providers and who’s got good systems for risk
mitigation and insurance and all of these
things.
But gold does not cost 40 basis points to
hold like it costs in the gold ETF.
That’s a total friction and a loss of money.
With us, it’s– well, under a kilogram, it’s
actually free.
So that’s the best storage, particularly for
someone that can’t afford a lot of financial
friction.
But even above that, we’re talking about sub-20
basis points.
So this isn’t an expensive hold.
And so that to me is a natural decay.
Now, a barrel of oil, that’s a much more expensive
hold.
A warehouse full of aluminum, that’s a more
expensive hold.
So all of these things are fundamental.
Well, look, I enjoy your Twitter dialogues,
you and Roy.
And if you’re going to pick one fight on Twitter
about gold, do me a favor.
Just tweet @realDonaldTrump, gold is a store
of value.
Let’s just see what happens.
Yeah, yeah.
Maybe he’ll come back and pick a fight with
you.
Actually, this administration, I think, is
probably biased that way.
And I wouldn’t say they necessarily have this
deep understanding of it.
But they do understand that it has worked
historically.
And that’s the other part that I just don’t
understand, is when people just want to just
kind of forget actual history and math and
just call you a goldbug.
Yeah, but it’s hard– I totally agree with
that.
But I think it’s hard to forget history you
never learned in the first place.
And I think that’s the big problem.
Yeah.
Josh, we’ve run out of time.
I love talking to you and Roy.
It’s just so much fun.
You guys just have a unique way of thinking
about this.
So thanks for taking the time in New York
to come and talk to me.
Great.
Thank you.
Yeah.

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