Welcome to The Wiggin Sessions. I'm Addison Wiggin, I'm your host. I have with me, my good friend, James Altucher. We've spoken many times, but today we're going to focus in on some of James's recent thoughts on cryptocurrencies. And I want to focus, at the moment of this recording, Russia has just invaded Ukraine. I want to talk about cryptocurrencies in the context of a wartime economy.

Let's start about things that we do know about, economic ramifications. I was just writing this morning about a piece that Bill Bonner wrote that said we're looking at $7 gas, which is going to have a drag on the US economy. And then there are supply chain issues already. And when people start re-gearing their factories or whatever for war, that further drags on the supply chain. So there are going to be implications. I mean, it depends on how long the conflict lasts, but we should be prepared for things that are going to ripple out from a war in central Europe. I mean, that's a big deal.

And the price of oil is still lower right now than it was in 2005 or 2006, for instance, it went up to $150 a barrel. The US has been on and off a net exporter of oil and gas. And there's other discoveries of oil now happening in the North Sea, near the UK. There's a lot of oil. Given that we have new technology for finding oil, this 3D seismic technology and new ways of drilling for oil, I'm not that worried about the price of oil. There's plenty.

Let's say the world reached peak oil in the 1980s, but now it's no longer at peak oil because of new technologies that have discovered oil. And of course we have more oil efficient cars and so on. So I'm not that worried about it. Although of course oil is up because of the panic and the uncertainty, that of course leading oil up. So I'm not quite sure I buy into how this is going to have more effect on the price of oil than going to war with Iraq or Iran or other parts of the Middle East having chaos. That would have more effect on the price of oil and it didn't really have that much effect.

So I think really more the issue here is, and this is just a political thing and we want to talk about the economy, but we have to look at who promised who, what. So we don't want to get into an accidental war because let's say, I'm just going to make this up, let's say Poland promised Ukraine they would help them, France promised Poland, we promised France, and then in a domino effect, we all get into a war. That's sort of like how World War I erupted.

And it doesn't look like that's happening because our first response and second and third response has not been military, but has been financial. So now we're talking about removing, not only have we put on very hard sanctions on Russia at this point, but now there's a lot of talk about taking Russia off the International SWIFT System, which is the way of messaging bank wires. So if I want to wire money to Russia, or someone wants to wire money from Russia to me, the wire transfer is confirmed using the SWIFT systems, the international messaging system for bank wires.

And that would have a significant impact on Russia and dollars in Russia itself has been trying to build their own backup plan just in case they're removed from the SWIFT System. But of course what's the ultimate backup plan that already exists and already works is Bitcoin and Crypto. You can transfer as much money as you want without using any system just transferring cryptocurrencies through these digital wallets. So right now, the day the Ukraine was invaded, Crypto fell like 10 or 11%. But now, Bitcoin is higher than it was the moment Russia invaded. It quickly bounced back because I think in general, and by the way, this is going to be related to what's happening in Canada as well. I think political uncertainty and crisis have two stages.

There's the chaos stage where we have no idea what's going to happen. It's just crazy. Everything. We don't know what's going on. We don't know how it's going to end. It's just uncertain. So Ukraine has been like that for a few weeks where clearly something was going to happen, but we didn't know what and we were scared. Were we scared because we didn't want Ukraine to be invaded? That was a little part of it. But I think we were just scared because nobody knew how markets would react. So when you don't know how markets are going to react, the first instinct is to pull your money out of all the markets. So what we saw was the stock markets all went down. Like every stock went down, Crypto went down. Just everybody was going to cash. And by the way, gold went up. But since then, Crypto has gone up more than gold.

This really is a generational thing. For an older generation, gold is a flight to safety. For a younger generation now, and ongoing, perhaps, Bitcoin is a flight to safety. So at first, Bitcoin was being swept up in the uncertainty. It was going down. But now, we're getting more and more certain about what's happening. Doesn't look like military involvement from the US.

If anything, what's happening in the Ukraine and the effects on the stock market is almost serving as a rate hike, so this might even alleviate concerns the Fed is going to hike rates too quickly. Again, we have to look at the fundamentals. Okay, if countries are going to be thrown off the international wiring system, like Russia might be, crypto is a potential backup plan, or crypto's infrastructure is a potential backup plan.

So whether Russia uses it or not, I'm pretty sure crypto influencers or countries that are interested in crypto are definitely viewing what's happening and saying, "Hmm, maybe crypto should be my backup plan as well." So similarly in Canada, we have this outrageous situation. I'm sure a lot of people are looking at Russia or Ukraine, and saying, this is outrageous and correctly so. It is outrageous. But for me, it's almost inconceivable that Canada of all countries would essentially declare martial law against its own citizens.

I personally know people who have had all their bank assets frozen, their credit cards canceled by the Canadian government because the Canadian government declared Martial law. These people had donated some money to the trucker protests. That begs the question, what is Canada even thinking? This Emergency Powers Act that Canada passed in 1988 says that if there's a threat of serious violence, the prime minister could declare emergency powers for a 30-day period. There was no threat of serious violence. These protests have been peaceful as far as I could tell.

I'm not an expert on them, but they seem to be peaceful. Then he invoked a similar law allowing him to seize all their money. This is like the slippery slope that every authoritarian government in the world starts to take, and now we're seeing it in Canada. So what's the first thing people think? Well, if you own cryptocurrencies and they're stored outside of Canada, if your wallet or whatever is in hard storage or if you're on a decentralized finance exchange as opposed to a centralized exchange, you can't have your assets frozen.

So a way to protect yourself, if you're even a peaceful protestor in a peaceful country, you have to start thinking of crypto, because Canada, as far as I know, is the most peaceful country and these are the most peaceful protests and the most peaceful people. Right? It's almost a joke.

So I don't know what they're even thinking, but in the long run, or even in the short run, this should be a very good thing for the price of crypto. It's a very bad thing for the people involved, but it's a very good thing for the price of crypto because all these situations are underlining the reasons why money itself had to evolve into crypto. The world is very global. We interact with other countries. There's lots of reasons why we need an international currency where you're not affected by any one central bank, you're not affected by any one government, the risk of forgery is lower, it's easier to transfer money around without six middlemen taking fees.

If I transfer money to you and you're in Korea, say, I've got to transfer through my bank, my local reserve bank, the federal reserve bank, the Swift system, and then all the way down to you in Korea, whatever banks have to go through in Korea. There's human error every step of the way, there's fees every step of the way, and that's the inflation of the financial system.

So even in a normal society, crypto avoids all those. But now we have this extra risk, which is that Canada might seize our money. It's ridiculous. It's almost a joke when you say the words. Of course, Russia as a country might need, again, an alternative to the centralized wiring system between international banks.

Yeah. But anyway, I had this in my office and my partner was playing. We were all frustrated because all our investments were down, and then he lost the game and he hit the screen, smashed it, and then he said, "This effing internet thing is just a fad." He walked out and quit. I never saw him again because he thought it was just the whole internet, he gave up his career on Wall Street to be an internet VC fund and he said, "This internet thing's a fad."

People still thought it even then. It was 10 years after the web developed and 30 years after the internet was developed, so it takes a while. It took a while for people to enter credit cards into e-commerce sites because they were worried, and I get it. It takes a while for our human psychology to accept a new, even life changing system like that. So are we still going through that with crypto? A little bit, but let's compare.

You and I started talking about crypto in mid 2017, and we thought of it then as a great idea because it's this evolution from money. But there weren't a lot of users, and that was a big problem. So it really did feel a little more speculative. You couldn't tell. But now look at 2021. I don't know the exact numbers, but let's say $10 billion worth of transactions on the Ethereum network between NFTs being sold, DeFi exchanges exchanging cryptos and other assets. There's hundreds of millions of dollars of transactions a day now, and this is only getting bigger.

So 2021 was a good year to see real usage on Ethereum and Bitcoin powered networks and other powered networks like on Binance. Now in 2022, what I expect we'll start seeing is not just dollar transactions happening, like huge numbers of transactions and users using it, but I expect to see real world use cases. So I don't want to just go on an NFT marketplace and buy a JPEG. That to me is not a real world use. But I've even talked to sports teams' owners about this. I said, "When are you going to use NFTs as tickets?" So I'll explain what that is.. If the New York Knicks sell me a ticket for $100, the New York Knicks makes that $100. If I then sell that ticket to a scalper for $200 and the scalper then sells that ticket for $500, the Knicks makes no money. The New York Knicks only made the money on the first transaction. But if you make every ticket an NFT, the Knicks would get a royalty on every secondary sale. By the way, anyone who makes the Ticketmaster NFT, knock yourself out. A company that does this, it's going to be a multi-billion dollar company, whoever does it. Steal the idea for me, go knock yourself out. But there's going to be lots of real world use cases like that.

Or imagine DeFi exchanges where McDonald's stock is traded. Instead of there being all sorts of middle men on the New York stock exchange and all sorts of fees and so on, I expect these DeFi exchanges to start trading stocks. Or even the US Central Bank, the Federal Reserve, is talking about making a digital or a crypto version of the dollar. So when every country has their own crypto version, we're going to need a crypto exchange as the Forex, as the currency exchange of all these crypto stable coins. That's probably going to be powered by Ethereum or something similar to Ethereum.

Once we start seeing that, the sky's the limit. We could predict prices, but it's just going to be ongoing, more and more uses of crypto. The financial world will get bigger because there's going to be more asset classes than ever before. You could IPO, for instance, part of your house. Ten percent of your house, you could say, "Oh, I'm going to turn it into a token and have a trade on an exchange," and it'll be valued what people estimate 10% of the value of your house is at this point. They could bet if it's going to go up or down.

So there's suddenly going to be brand new asset classes, hundreds of billions of dollars of entrepreneurial opportunities, which is why you're seeing so many VC funds raising money now. They weren't raising them in 2018. They're raising the money now because now is when the real world use cases will start. If they don't start, then I would agree that crypto is still speculative, but I'm seeing the beginnings of it this year, that real world use cases will happen.

Yeah. I think it's really interesting because a lot of people get very agitated one way or the other about the possibility of the Fed making a crypto version of the dollar. For me, it's actually an exciting thing in that I think it'll make some decentralized finance exchanges that are built on top of crypto. It'll make some of them very huge because they'll start trading in the currencies of all these stable coins.

There's one coin right now, which actually I'll give it away. We recommend it in our portfolio, it's called Terra LUNA. They basically allow for very fast, international e-commerce. So I could buy something in Japan and the transaction happens instantly because the yen would get converted into a digital yen, which will then get converted into Terra LUNA which will then get converted into a digital dollar, and all the transactions happen instantly at very low fees. You're not going through all these wiring systems.

So what is that? But it's in effect, it's basically a currency exchange. It's intended to help with e-commerce, but in reality, it's a currency exchange. So I think that's the positives. They're definitely not going to outlaw any other cryptos because they need the crypto ecosystem to keep working if they're going to have a crypto-based dollar. Now, they could be nervous about crypto, but if they want to keep being the reserve currency of the world, they have to compete favorably with all the other cryptocurrencies that are out there.

Countries are accepting Bitcoin as legal tender, like El Salvador, and there's going to be more countries. So the US is not going to go the way of China and Russia and say, "Hey, we're thinking of banning crypto," because they're not going to go the way of the most authoritarian countries in the world. They're going to hopefully do the opposite. They'll do what Bill Clinton did in 1995 where a lot of people wanted to outlaw the internet because we couldn't control it, but it was already a global thing. So Bill Clinton said, "Look, we're going to keep an eye on this, but in the meantime, we're not going to do any taxes on e-commerce transactions."

That really helped companies like Amazon, boom, and the internet itself, boom, after that. It's probably the best thing Bill Clinton did as president. I think a similar thing will happen here where we will stop doing capital gains taxes on Bitcoin transactions lower than $200 so you can start using Bitcoin as a currency. Hopefully they will say they want to regulate the use of crypto and crimes and they'll build a crypto crime agency or whatever, and that's a good thing for crypto. It means that it's being acknowledged like a real currency. It's being regulated like the dollar is heavily regulated, and that's the best the US could do.

If the US bans it, it doesn't mean anything. It's still going to be used. It's still going to be used in the US because most of the exchanges, other than Coinbase and a few others, are decentralized all over the world. You can't control the flood of crypto that's out there. By the way, a very important use of crypto is let's say you're a protestor right now in Russia or in China. How do you get money to support your cause.

So right now in Russia or in China, how do you get money to support your cause? Well, I was recently at a big human rights conference, organized in part by Gary Kasparov, who's a former world chess champion now turned human rights activist. And maybe half the discussions were about how Bitcoin can better be used to fund social activists in these authoritarian countries. So the US doesn't want to put a stop to that. That's how they're going to be able to fund US supporters in these foreign countries. And who's the biggest user of the dark web on the internet? The United States. It's how we get things to people in places that are hard to get to. So there's not going to be anything severe, but this is causing a weight on crypto right now until Biden really announces what his plans are, but this is not going to be a cause of concern in the long run.

Or an option, or the way you would buy dollars. You could buy a savings bond and put your money in there and get 2% interest. Well, I could buy Ethereum at Coinbase, which is a US centralized exchange. You could buy Ethereum. And then I could say, "Hey, Coinbase, I'm going to do what's called staking my Ethereum. You could hold it for six months. I won't touch it. And I want 5% interest a year." That's like when you put dollars in a savings bond. "Hey, Chase Bank, you could hold my dollars. I'm going to stake my dollars for a year. And then I want 2%." Well, with Ethereum, you get 7%, and with dollars you get one half of a percent. So I could do a similar thing in the crypto world that I could do with a bank.

There's also a platform set up where I could borrow against my Ethereum or Bitcoin or whatever. Once I'm in the system like that, I could buy other cryptos. I could use Bitcoin to buy other cryptos. Now, why would you buy other cryptos? Well, again, back in 2018, you'd buy something if it seemed like a good idea, but there were no users, but now there are users. So what if I could buy crypto, I could use Bitcoin to buy some of the currency like Terra LUNA, which I mentioned before, which powers essentially a cryptocurrency exchange.

Well, I might do that because I think about the fundamentals of that other currency, like I might think the fundamentals of McDonald's are good, I might think the fundamentals of a particular crypto are good. It's not just a good idea anymore. There are actual users and use cases and profits. So you could start to really value these other currencies. You couldn't do that a few years ago. Now we're at the beginning of being able to do that. And you buy things because you think, as an investment, it might be interesting. So Ethereum is plagued by two problems. One is that it's slow. The other is there are high fees. Oh, there's a third problem, which is that the amount of Ethereum that could be issued is unlimited, but Ethereum introduced some changes in the past few years that are going into full effect this year, which is going to reduce the number of Ethereum in supply, and at the same time, speed up the scalability of the number of transactions that could happen per second and lower fees at the same time.

So already there was a lot of demand for Ethereum with its current supply, because that's why Ethereum price has gone up over the past year or two years, but now demand is going to go up because it's going to be better, it's going to be faster and cheaper, but supply is going to go down, because there's going to be this thing called burning. Ethereum is going to burn some Ethereum tokens after every transaction. So supply's going to go down, demand's going to go up. So for me, I don't use Ethereum for anything, but I might buy it because I see other people using it, so I can look at the fundamentals and I could also say, "Oh, well supply is going down, but demand's going up," so price will go up. So that's kind of getting closer and closer to the characteristics of why I would buy a stock. It's exactly why I would buy a stock, for instance. So it's not as speculative as it once was.

Yeah. So it's a little complicated, but essentially, in any cryptocurrency like Bitcoin, every transaction has to be validated. So if I send some Bitcoin to you, the transaction hasn't happened until a validator validates it. So somebody might be validating it because they get paid in Bitcoin to validate our transaction. Their computer is running all day. That's why they say Bitcoin has huge energy usage. Their computers are running all day and they solve these complicated math problems associated with R2 wallets, and they validate our transaction. And as a reward, they get Bitcoin. That's what mining is called.

Now, Ethereum is moving to something called proof of stake, where they have to stake their own Ethereum in order to validate our transactions, but it happens much faster because they don't have to calculate anything. Now, if they do a bad job validating though, they have to burn, they have to lose, and that's actually called slashing. They have to lose, they have to give up some of their Ethereum, but after every transaction also, they have to burn a small piece of that transaction. And since burning has started to be rolled out, there's actually fewer Ethereum tokens out there than in the beginning of this process. So that's another reason why prices in general have gone up over the past year, but that's going to escalate much faster over the following year and year after that.

Yeah. And first I'll make a comparison to something that's been around for 20 or 30 years. Do you remember, or it still exists, the SETI, the Search for ExtraTerrestrial Intelligence? So the way SETI works is that people all over the world volunteer. Basically there's huge photographs taken every second or minute of all the stars and galaxies and everything. Not photographs, but I guess whatever it is you need to do to hear if there's a signal coming from any part of the universe. And it's too much work for one computer to process, so people volunteer their computers to help. It's this gigantic parallel processing idea to search for signals from all over space. So hundreds of thousands of people volunteer their computers to help out with SETI. That's the analogy.

So there's a token RNDR. Just got listed on Coinbase, actually. We recommended it before it got listed on Coinbase. There's a token called RNDR, which with the rise in virtual reality and metaverses, 3D processing is a very complicated thing to process mathematically. To build 3D graphics, when you even turn around in a virtual reality, there's tens of millions of mathematical computations that have to happen in order for you to always see the right thing. And computers can't handle it. It's an exponential problem. But with RNDR, anybody who has RNDR tokens on their machine can do mining of more RNDR tokens by allowing companies or people to render 3D graphics using the tiny pieces on their machine that the entire world will be contributing to rendering 3D graphic computations.

So this is a real world use case that's necessary. It solves a serious problem. And guess what? They have deals with Disney and Sony. So these are not just ideas. There's actually businesses behind them. I don't know how many users there yet are on RNDR, but I do know they are doing real world business ideas, because they solve important problems that these companies have and can't currently solve. So that's another real world use case.

Like where ... in the beginning of the internet or the beginning of the web. Let's say 1991, 1992, everyone was really resentful that there was one day when AOL decided they were going to let all of their users use the internet message groups instead of just AOL message groups. And everyone was all upset. We were all really nerdy and upset, like, "Don't let those scumbags from AOL onto our internet." And the crypto world is still like that. And I feel like they kind of hide the information because they're so smart and genius or whatever. But regular people don't own crypto yet. We're still a ways from that, even though the use cases are here and are being used by crypto users. So I think a book like the Big Book of Crypto kind of helps bridge that gap. I basically researched, again, I'll use an example of the internet. In 1995, I pitched a book to a publisher called Your Second Book of the Internet. I felt like everybody knew what the internet was, everybody had their first book, but I called this one The Second Book of the Internet. Because I wanted to explain some of the more sophisticated ideas, but it wouldn't get published because everybody was like, "Oh, this internet thing's a fad." And so now though, I got a chance to finally do this in the next big digital revolution, which is what's happening now with crypto. These real world use cases are not going away. Here's an idea, and no one's done this yet. Let's say you graduate, you're 22 years old, and you have $200,000 in student loan debt, which is not unusual.

And how are you going to get rid of that debt? Well, what if I can make a coin, like JamesCoin, I'm 22 years old, I could make a coin that represents 10% of my next 10 years of future income. So all my income will go into a black box, and then 10% of it will be issued out, pro rata, to the owners of this coin. So people could basically invest in me. And let's say then they see, "Oh, he just got a promotion," so the value of the JamesCoin could go up, and maybe James gets a royalty on that, maybe not. And maybe it gets traded on an exchange. But there's going to be new asset classes created with these types of entrepreneurial ideas. The beginnings of entrepreneurship in crypto haven't even begun yet, other than just the investing back and forth that's going on.

Yeah, no, I agree, but look, it's going to take time. The car maker Alfa Romeo just announced they're going to use NFTs to keep track of the supply chain of all their products, so they know where all the parts of a car, so they know where each part comes from, and I don't even know what they're going to use it for, but they've announced this. So clearly some mainstream industries are starting to use it. And again, I always try to be as skeptical as possible. I never want to be religious about investing because that's how you could go broke, which I've done several times before. So I'm used to being religious. And I'm always skeptical.

So for me, I've told myself over and over again, "2022, I need to see real world use cases. Not just people using crypto to buy more crypto on a crypto exchange." That was fine in 2021 because we needed to see money, we needed to see users, and we needed to see people trust the ecosystem. But now I do think we need to see people not just playing around with crypto, but really using it to improve their businesses or improve their lives, like in the examples I've given. I want to see people making 3D virtual worlds using this render token for instance. Or there's FileCoin, which is like the crypto of Dropboxes. I want to see people storing real files, not just crypto files, on a network like FileCoin. Things like this I need to see or I will be skeptical again.

Well, again, I'm invested in a lot of different coins. I've actually sold all my Bitcoin, but I have a lot of Ethereum and I have some other coins. I personally like where Ethereum's at, this is just us talking about what's a good investment and what's not. Personally, if anybody offered me Ethereum for anything, I would take it, because I think Kathy Wood from Arc has predicted, $180,000 price for Ethereum by 2030. That seems high, but even the Winklevoss brothers have predicted a million dollar Bitcoin in the next few years. And they give really strong arguments, they're not just looking at the charts, they're giving really strong arguments.

Ethereum, because of the dynamics I explained earlier about what's happening this year and the changes of proof of work to proof of stake, that could easily see 10 or 20,000 this year. I think it's going to be decoupled ultimately from Bitcoin though. These things are going to have value on their own, just like McDonald's, sometimes in a period like this where there's so much uncertainty, McDonald's stock, Exxon stock, and Microsoft stock all go up and down together, whether people are panicking or not. But eventually the market settles down and Microsoft goes up, McDonald's stays the same, Exxon might go down if oil starts to go down. So eventually they get decoupled. And I think eventually Bitcoin and Ethereum and other coins get decoupled from each other and then you just have to decide which ones you think have the best fundamentals. But like you said, the land in Nicaragua could be risky too, or it could be a boom. If things stabilize there, people start moving there and retiring there, and that's a boom.

Yeah, we spend a lot of time talking to everybody in the space, whether it's crypto hedge fund managers, or the programmers in charge of crypto products, or the users of different crypto projects. We gather a lot of information and then we try to pick tokens that have good fundamentals, so regardless of anything else, the number of transactions on them will continue to improve. The number of users will improve, the real world will benefit, and so on. And we do a little twist on that, we try to find, at least right now, this strategy could change down the road, we try to find tokens that don't yet trade on Coinbase, but for various reasons we think will trade soon on Coinbase. Because once you're on Coinbase, that's another 76 million users who could potentially buy your crypto. So we try to recommend some cryptos right before they go on Coinbase, it's kind of a catalyst for them to go up. But they always have good fundamentals, real users, that's very important to me. No BS tokens, no fad tokens.

Once again, like anything, 90%, 95% of businesses fail, so 95% of tokens are not going to work out. We want to avoid those, and you do that by finding real world use cases.

But history doesn't repeat, it rhymes. It's always the irony that everyone expects one thing and then the opposite happens, particularly in markets. So we'll see. But what was also very interesting to me, and this is related to your other point about will too many people be speculating? They mentioned Coinbase on the Super Bowl. Coinbase's site crashed minutes later. Now, Coinbase has 76 million users, they can handle a large amount of traffic. So the traffic that was going to Coinbase must have been so enormous within seconds of that ad, and that tells me that nobody is really invested in crypto yet. They say 10% of the US. I don't believe that, it's probably more like 1/10 of 1% of the US has cryptocurrency of some sort. And so people are desperate to find out about this stuff and invest because it's real, or at least they suspect it's going to be real.

And so, yes, when E-Trade made internet stock speculation widespread in the late 90s, that created kind of a bubble. But Bitcoin's been through its bubble phase as well, so I don't know. I think it'll be a good thing when more people have access to an asset class that everybody says, "Let's have less wealth inequality." Well, some people are getting rich on crypto and others aren't, because quite frankly it's complicated to buy crypto in most cases. And I think Coinbase is doing the best job to make it simple, but it needs to be even simpler. But people are eager to get involved in it, and I think you will see a lot more speculation but also a lot more long-term investing, because there's real fundamentals there, which didn't exist on the internet for the first 10 years of the web, or 15 years of the web.