September 18, 2024 • 1hr 10min

BTC200: Base Fiat Money and Bitcoin w/ Matthew Mežinskis (Bitcoin Podcast)

We Study Billionaires - The Investor’s Podcast Network

In this episode, host Preston Pysh interviews Matthew Mežinskis, an expert on global monetary base trends and bitcoin adoption. Matthew shares insights from his years of research tracking the growth of fiat base money supplies around the world and how this relates to bitcoin's rise. The discussion covers historical monetary trends, central bank policies, and projections for future monetary expansion.

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Key Takeaways

The global monetary base (M0) has grown at a compound annual rate of 12.7% over the past 50+ years, effectively halving purchasing power every 6 years
As of June 2023, the total global monetary base was $26.12 trillion, with the top 5 currencies making up about 80% of that
Bitcoin's market cap has already surpassed the 5th largest currency (British Pound) and is approaching the monetary base of the top 4 fiat currencies
Central banks appear to be approaching another expansion cycle for monetary base growth after recent tightening
Central Bank Digital Currencies (CBDCs) are likely overhyped, with private stablecoins potentially playing a larger role in expanding the monetary base
The Federal Reserve now owns about 20% of all US Treasury debt, up from near 0% when it was founded 100 years ago
Bitcoin's multisig capabilities provide powerful self-custody options that traditional assets like gold cannot match

Introduction

In this episode, host Preston Pysh interviews Matthew Mežinskis, an expert on global monetary base trends and bitcoin adoption. Matthew shares insights from his years of research tracking the growth of fiat base money supplies around the world and how this relates to bitcoin's rise. The discussion covers historical monetary trends, central bank policies, and projections for future monetary expansion.

Topics Discussed

Defining Monetary Base and Recent Trends (2:37)

Matthew explains that the monetary base, also known as M0, consists of physical currency in circulation plus bank reserves held at central banks. He notes that prior to the 2008 financial crisis, physical currency made up about 80% of the monetary base, but now bank reserves account for about 70%.

Key points:

The global monetary base is currently around $26.12 trillion
Of this, about $9 trillion is physical currency and the rest is bank reserves
The top 5 currencies make up about 80% of the total global monetary base
Bitcoin's market cap has already surpassed the 5th largest currency (British Pound)

"Bitcoin has already passed the fifth largest currency and it did that in February and that was the British pound sterling." - Matthew Mežinskis

Long-Term Monetary Base Growth Trends (21:03)

Matthew shares data on the long-term growth rate of the global monetary base:

The compound annual growth rate (CAGR) over 50+ years has been 12.7%
This effectively halves purchasing power every 6 years
The US dollar has grown at a slightly slower 8.1% CAGR
Recent tightening has brought growth below the long-term trend

"If you get the insulin down, you're not shunting energy to fat. You can lose weight. Your fat will give up the triglyceride stored in it as soon as the insulin goes down." - Matthew Mežinskis

Matthew notes that this growth rate far exceeds other economic metrics:

Population growth: ~1% per year
GDP growth: 4-6% per year
Stock market returns: 7-9% per year

Recent Monetary Policy and Future Projections (35:08)

The discussion turns to recent central bank policies and potential future scenarios:

Central banks attempted to "normalize" balance sheets from 2018-2020
COVID-19 led to massive expansion, from $20 trillion to $30.5 trillion in 2 years
Current $26.12 trillion monetary base is below the long-term trend line
Projections based on trend:
- End of 2030: ~$60 trillion
- 2033 (after two more Bitcoin halvings): ~$83 trillion

"I absolutely think this is going to change at some point. Of course the question is always when. But based on [the data], I don't see not printing in the near future." - Matthew Mežinskis

Bitcoin's Supply Dynamics During Price Stability (38:59)

Matthew discusses how Bitcoin's fixed supply schedule interacts with monetary base expansion:

Bitcoin has shown some correlation with fiat expansion in recent years
The next halving may coincide with renewed fiat expansion
Bitcoin's scarcity becomes more apparent as fiat continues to expand

"I find it very hard to believe that bitcoin would be pumping and the monetary base would be going down again. This is another thing, bitcoin's kind of colliding with these new waves." - Matthew Mežinskis

Central Bank Digital Currencies (CBDCs) (43:03)

Matthew expresses skepticism about the hype around CBDCs:

CBDCs would be a "third rail" of base money alongside physical cash and bank reserves
Commercial banks likely to lobby against CBDCs as they could make banks obsolete
Private stablecoins may play a larger role than CBDCs

"I think it's banks. I think there's hope here, frankly, because who are the biggest clients of the central bank? It is their banks and their constituencies in their systems." - Matthew Mežinskis

The Role of Stablecoins in Monetary Expansion (53:28)

The discussion turns to how stablecoins could facilitate monetary expansion:

Stablecoins provide a mechanism for expanding dollar liquidity globally
They offer a way for governments to find buyers for short-term debt
Tether's market cap ($118 billion) is still small compared to central bank holdings

"I think it's hilarious, though, that tether of all companies, like the one that was in the crosshairs for so long, this nebulous Caribbean entity with nefarious investors or whatever... Those are the narratives. Right. I just think it's so funny that the government's going to go after anything that it can to keep its golden goose clucking away." - Matthew Mežinskis

Federal Reserve Ownership of US Treasuries (1:00:25)

Matthew shares data on the Federal Reserve's increasing ownership of US government debt:

The Fed now owns about 20% of all US Treasury debt
This is up from near 0% when the Fed was founded 100 years ago
The all-time high was 28% in November 2021
Current holdings are $6.7 trillion out of $34 trillion total US debt

"We don't want to take the pain. We don't want to have a forest fire to clear out the underbrush, we want to just bail everybody out." - Matthew Mežinskis

Conclusion

This wide-ranging discussion illuminates the massive growth in global fiat money supplies over recent decades and how this trend is likely to continue. Matthew's data shows that monetary base expansion has far outpaced economic growth, effectively eroding purchasing power at a rapid pace.

As central banks approach another expansion cycle, Bitcoin's fixed supply and growing adoption position it as a potential hedge against fiat debasement. While CBDCs may be overhyped, private stablecoins could play an increasing role in facilitating monetary expansion.

Ultimately, the discussion highlights the power of Bitcoin's technology, particularly multisig capabilities, in providing financial sovereignty in an era of unprecedented fiat expansion. As Matthew notes, "Bitcoin is just, it's so incredible what you could do with it and the freedom that you have."