The Last Trade E046: Bitcoin Fixes Real Estate with Leon Wankum

Brian Cubellis (00:00.11) Good morning. Jesse. Oh, we're live. Just like that. Logan just gave me the we're live. It's just about to comment on your bookshelf. Jesse looks it's nice to see it growing. It's growing. I found a few more boxes. It'll keep growing. I still haven't found my Bitcoin book box box. Box it. It's not just one box. That's why so bearish. Only one box of Bitcoin books. I guess one of the problems with once you're into Bitcoin is it becomes a big decision to buy a Bitcoin book because you know you could just hold on to sats instead. And read a read a neat book, you know, save some money. This week, we're joined by Leon Wancombe to talk about Bitcoin in real estate. It's a really fascinating topic that gets me excited because a lot of what we talk about here, particularly on the macro side, is this. Seemingly insurmountable debt issue unfunded liabilities issue a lot of what's going on with central banks and government spending Indiscriminately leads to a lot of dismay people are saying how do we fix this? How do we solve this massive gap between the liabilities and The amount of money that people are bringing in on a month -to -month basis and Leon. I think what you're working on to imbue Bitcoin as collateral and credit products, particularly in the real estate market, paints a picture and a path forward to create a soft landing, at least for individuals that use these types of products. So before we jump into the nitty gritty of the products, why don't we start with a little introduction of yourself, what you've been doing for the last few years and how you got to focus particularly on this subject. Yes, sure. I'm going to try to keep it short. Thank you guys for the introduction and for the invite. I appreciate having the opportunity to discuss these important topics with such brilliant minds. So thank you for that. Personally, I've got involved with Bitcoin some time ago in 2015. I wrote my master's thesis about Bitcoin. And then shortly after I joined the real estate business. And the real estate business allowed me to understand the potential of Bitcoin because as one of the biggest... Brian Cubellis (02:29.102) asset classes in the world, you either, there's debt and there's real estate. Both are two of the largest asset classes and depending on how you view debt, it could be larger than real estate, but as a store of value, real estate is the largest in the world. And that allowed me to see the potential of Bitcoin because actually real estate is not a particularly good store of value. It just became a store of value due to the monetary policies that happened after the Nixon shock in 1971. Once money was inflated at such a fast rate, people were forced to invest in scarce assets and real estate has turned into the preferred store of value that has a few reasons, mainly its scarcity and the ability to finance real estate purchases through loans, which banks like to grant because they make money by creating new money and then flooding the economy with that new money through loans that usually go into real estate. And over the past four years or the past three and a half years, I've really focused on finding strategies that help real estate developers smooth the transition from a fiat money standard into a Bitcoin standard. Because if we move onto a Bitcoin standard, which I believe we will do, real estate will lose its appeal as a store of value because Bitcoin as a near perfect store of value does not require high maintenance costs. and perpetually increases in value over time with relatively easy security and relatively cheap self custody, real estate is going to lose its appeal as a store value and will also drop in price. So now the question is, how can real estate developers survive and make this transition smoothly? So yeah, I'm happy to be here to discuss that with you guys. Yep. One of the things I love about your story is it came from a first principles, perspective, how did you solve your own problem? Which you generally, I think is generally provides the best solutions, right? When you're trying to solve your existing real estate conundrum that you're in and how did you infuse and how do you protect yourself from the downside? And then you can kind of like scale that out and come to the conclusions that you're coming to. The other thing that has been interesting, it's been this theme of like, maybe we end up with a smoother transition. Brian Cubellis (04:53.998) than everybody expects. And when I listened to your previous pod with Preston, who I think is a great for anybody listening, it's interesting to learn more about these topics to check that out is it seems like a pretty streamlined process, maybe not streamlined, but that there is a path to coming out of this situation by adopting or holding Bitcoin as part of like credit financing, which is just a fascinating idea in itself. And I would add one thing to what you said earlier, Michael's. solving your own problem, Leon, but also having the humility to recognize that real estate has this systemic problem now that Bitcoin is in the market and being able to internalize like, all right, we need to solve this problem and not try to do what a lot of real estate influencers on Twitter are doing, which is no, Bitcoin's crap, real estate's good. It's maybe we have to combine the two. Yeah, absolutely. I personally have long grappled with understanding that Bitcoin is a superior store of value to real estate because I was involved or I am involved in real estate development. And I have to be honest, it was my ego that did not allow me to understand that Bitcoin is superior store of value to real estate. And Michael also commenting on what you said, this transition phase. I believe, generally speaking, people like real estate because of its cash flow. But the cash flow thesis in an inflationary environment has to be rethought because it becomes very difficult to outperform the level of monetary inflation with cash flow. Right. So the first step that I would just suggest to real estate developers to continue operating smoothly is to funnel cash flow into Bitcoin. That is the first step and it's very simple. So to be able to take part of the cash flow, the rental income. And funnel that into Bitcoin allows also to build maintenance reserves in order to perpetually increase or be able to have the same value in your real estate development portfolio. So to tease that out a little bit, though. So like, what do you view as like a typical yield in nominal percent for rental income from in real estate? And then? Brian Cubellis (07:17.101) At what inflation levels does that get eclipsed by inflation? Yeah, that is a very good question. I'm just going to quickly roll out one example from 2021, November of 2021, when we did our last deal because over the past three years, we have not acquired new property because it has become unprofitable over the past three years. In 2021, when interest rates were below 2%, It was still profitable to buy real estate in order to store value. And I quickly explain the rationale behind it. So we sold a property and the insurance company that bought the property, they were calculating with 2 .3 % year on year growth. And that 2 .3 % year on year growth was more than the cost of borrowing money. And after in 2022, when interest rates went up to four, five, six percent, it became unprofitable to invest in real estate because the year on year growth rate on the money invested in real estate was below the cost of borrowing money. So the cost of borrowing money usually is sort of the unit by which I measure if putting money into real estate to store its value is profitable over time or not. I hope that was... Answering your question. Yeah, absolutely. Yeah, the hurdle rate. Yeah. I love this analogy in this representation because I think about it from just like a like physical idea of like tenant improvements. When you refinance, you include tenant improvement so you can have larger amount of cash flow or higher price to offset. And it's like you're taking a digital asset that doesn't exist in the real world. But it's like in my mind. I think about this like putting a helipad on top of the piece of real estate or a pool or just something that consistently grows the cash flow or the value from an inflation perspective, outpacing whatever the interest and all the liabilities for that piece of real estate. And that's how like, I know it's not the same, but that's how I think about like how a real estate developer would grow its portfolio and the long -term like dollar value. Brian Cubellis (09:38.861) And this is like actually not putting any, whether it's the cashflow into direct tenant improvements, it's just storing it as a reserve. And I guess that could translate to tenant improvements, which would increase the value of the property or refinancing and parking it in Bitcoin with this idea that year over year, you're increasing the purchasing power of the overall note or debt, the debt, because you have this asset that's appreciating higher than the cost of living and what you can charge your tenants. Absolutely, I totally agree with you. And I think also, Jesse, to answer your question a bit further and comment on what you said, Michael, it's very important to differentiate between speculative investment in real estate to all -perform inflation and real estate development. So the first, the speculative investment part, that is basically debt, since Bitcoin exists. There's no reason to invest into real estate to maintain your purchasing power. because people can just save in Bitcoin and near perfect money by default and they will outperform anybody that invests into real estate even if people invest with borrowed money on leverage because the deflation, the increase in purchasing power in Bitcoin will outperform the growth rate of real estate even if it's bought on credit. So real estate development, that's the second part that will continue to exist. Why? People always need a place to live and they always need a place to work. the commercial real estate part will change also because the digitalization process that Bitcoin, generally speaking, is part of, because the world around us is being digitalized. It started with information purely with the internet, and then with Bitcoin, now we also digitalize in value, right? And because of remote work and trends like COVID, people need less offices, right? So commercial real estate, is being disrupted both by trends in the workforce and by Bitcoin and residential property. So housing that will continue and that will continue to thrive even on a Bitcoin standard. So now the question is how do you manage that transition? And maybe quickly, Marty, you mentioned credit products. So maybe quickly I touch on that. So what I believe is very important is Brian Cubellis (12:06.221) that if you construct new real estate, it's important to include Bitcoin in the financing process. If you guys want to touch on that already, maybe you want to talk about it later. No, I think it's a great time to touch on this because that will allow us to get into the meat of what is a really optimistic message, which is there is a way to manufacture a soft landing. The best part about it is it's not going to be via the central planners, the central banks or federal government stepping in, simply the free market recognizing a better form of collateral that you can imbue in these credit products. So how do you envision these products working? Let's just run to the example of a refinance of a current or maybe not a refinance considering where interest rates are, but a financing of a new project where you would blend credit and Bitcoin. Sure, I'll just quickly make a comment on what you said because you said something that is very important. If you are into real estate development, there's a high interest rate sensitivity because real estate is usually both bought and constructed on credit. That creates an issue because as a real estate developer, you become very, very dependent on the central planners, right? You are very sensitive to changes in interest rate. Long -term Bitcoin also gives the opportunity to operate independently of that, which is very important. And to answer your question, in order to be able to do that, I suggest the following. And if I would be a bank, right, this is what I would do while financing a new real estate project. If a real estate developer requires, let's say, 10 million dollars for a new real estate project, I would finance 11... 12 or 13 million dollars and with that additional 10 20 30 percent I would require the real estate developer to buy Bitcoin and hold it in the same entity that Develops the new project and I quickly explain why I would require that in order to do two things number one Hatch against the monetary premium that sits in real estate right now because the most part Brian Cubellis (14:28.333) of the value of real estate sits in there not because of its utility value, but it sits in there because real estate has been priced away from its utility value and it acts as money as a store of value for people to save their purchasing hour from eroding fiat currencies. So as Bitcoin comes into the equation, it will most likely drain real estate of its monetary premium. So if you hold Bitcoin in the same entity that develops a new real estate project, you are hatched against that process. You are hatched against the monetary premium being drained out of real estate. And now the second part is, as a real estate developer, even if we will move on a Bitcoin standard, it is a very debt -intense business because you need a lot of money to construct new properties. If you hold Bitcoin in an entity that constructs real estate, let's say a real estate construction process takes five to six years. Once you're finished constructing the real estate, you hold pristine collateral, which is Bitcoin, which will have most likely has already risen in price because five to six years usually includes a cycle, a halving cycle, which historically speaking leads to an increase in price because of a reduction in supply. So you are able to then refinance your project and also perpetually borrow money in order to maintain the property. and offer a service to the market because what real estate really is, it's a service, right? You provide housing to the market and you receive money in return, what Ludwig von Mises called, a visionary interest, which is the difference between capital invested and the return of an investment. And in real estate development, that is the rental income that you receive by providing the service or providing housing to the market. I love this example, it was Leon, I don't know if I shared with you when we were at dinner, I worked at WeWork in the days of like, and I was just looking up to confirm. So WeWork raised $22 billion over the course of, you know, its history before going bankrupt. And imagine just one billion of that going into Bitcoin to offset that. And what's funny is Adams up to, you know, same, same tricks in Miami, they're doing some stuff like commercial, I'm sorry, residential real estate and similar concept. Brian Cubellis (16:49.645) We work where they're I think they they obviously took out debt, but then they raised I think 300 million from a 16 Z One of my friends went over to help for a bit and left but he took me of a tour the last time I was in Miami and I went and looked at this high -rise and you could just see them burning the money again because they're setting up the You know amenities to attract the younger younger kids whether it's the pool the gym But you can see how that's just not gonna outpace the cost of living and where they have to keep up on the debt that they owe. And so you can just see the writing on the wall, how it's naturally going to end up in the same situation, but it didn't have to, or it doesn't have to, if you're able to think about real estate as that utility, as that marketable good given to the end user, while also protecting yourself by holding 20%, whatever the number is on Bitcoin. And I think it's important because I think most people will listen to this and think it's all insane because you're looking at physical real estate and all of that. But the end, it's just math. It's just the way this whole situation plays out. And I think it's been refreshing to hear you talk about it because Jesse and I know at least one real estate developer that's a mutual friend. And there's probably others that I think naturally like still hold on to the real estate. And I've always been kind of like, I think naturally real estate investors have always been like apprehensive, generally to Bitcoin. And it's always kind of like, perplex me because it's the idea of scarcity. But I think the idea also of It's physical versus this thing that's not like has a mental barrier for allowing them to kind of see through, you know, the forest or the trees. But that coming back to like the particulars of the product, I think many people in Bitcoin have been trying, have been thinking of Bitcoin as super collateral and like what is the first type of credit product that you put Bitcoin into that makes sense. And I think from a duration, matchup standpoint, there's nothing better than real estate because these loans historically are longer duration loans for commercial real estate commercial real estate side 10 years residential 30 years and so it makes a lot of sense intuitively to me that you would start with these longer duration credit products and imbue bitcoin with them because it gives you the ability to partake in bitcoin's monetization phase you're essentially forced. Brian Cubellis (19:11.757) to hold it within the structure for a long period of time where the likelihood that Bitcoin will accrue in value significantly increases. Yeah, absolutely. I 100 % agree with you. And another good aspect of the interplay of Bitcoin real estate is that you do not have to pay attention to Bitcoin's volatility that is natural to a new form of money that is finding its price on the market. because you can use the rental income to pay back the debt. So the volatility of Bitcoin does not play a role. And the duration of the loan, as you said, and especially in residential property development, is 20 to 30 years. So it is a perfect asset to be matched with real estate development. I agree with you. Yeah, that's a really interesting point. The duration of these loans is a perfect match with Bitcoin. But... If you'll allow me to play devil's advocate a little bit here of like, I'm trying to think about a scenario where an asset paired with Bitcoin isn't supercharged. Right. Like you could do you could put anything with Bitcoin like if you if I don't I'm not very bullish on on bonds. I think bonds will destroy value in real terms over the next decade or two. But if you if you bought bonds and then with 10 % of that money bought Bitcoin and put that together, that portfolio would perform very well. But that's true with absolutely anything, I think. Also, you could buy Beanie Babies and if you put 10 % of that into Bitcoin, that portfolio, 90 % of it would go to zero, 10 % of it would 20X and suddenly you're doing pretty well. So, Leon, I guess the question is, Is it that Bitcoin makes it like a tolerable, a palatable transition? Like by incorporating that into real estate, you turn real estate from something that is a net losing proposition into something that is a well -hedged, net winning proposition because of Bitcoin's properties. In other words, is this about making an asset that no longer makes sense, still makes sense? Brian Cubellis (21:35.501) or how do you view that? Yes, I would frame it slightly different. I would say what you said would apply to bonds, for example, because if you think about bonds, you'd say, like, let's say a bond, and I could very well imagine that will happen in the future, that a bond has 1 to 10 % in Bitcoin. But then the question is, why buy a bond with 10 % of Bitcoin in it when you can just buy Bitcoin, right? So with real estate, it's a bit different, a little bit different though, and it's something that Marty also said at the beginning. As central banks and governments lose their grip on the economy, there are certain services and certain assets that the free market has to provide to prevent societal collapse. And housing is one of them. So I believe that, yes, what you said is true, speculative investment in real estate has lost its appeal because of Bitcoin. But people still need a place to live, right? And also on a Bitcoin standard, having a business with a regular yielding cash flow, which real estate is, is very attractive. In order to be able to continuously provide housing to the market to prevent a societal collapse under hyperinflation, it's important to include Bitcoin in real estate development, even though just buying Bitcoin would outperform. buying real estate, but I want to make a nuanced differentiation between the speculative investment in real estate and the actual development of housing and office spaces and manufacturing facilities. That's why I love a great point there. And I think that's, I guess that's extremely important that you make that differentiation between speculative and what society needs in real estate. And that this is a formula for making things that are necessary, investments that are necessary, make sense in a Bitcoin world where Bitcoin is monetizing. And what's great about that is that that applies to any sort of capital investment formula. Like you could do this for a property plant and equipment for some new manufacturing heavy business as a way to make sure that you're hedging. Brian Cubellis (23:58.189) against the rise of Bitcoin during the duration of that business plan. If it's like a 10, 20 year business plan to prop up a new factory that's going to produce widgets and you need to make sure that that's hedged against losing value in Bitcoin terms, this is the formula for doing that. So it's interesting that it expands beyond just real estate, real estate being the most important and by far the largest, I think, application of such a a hedged model for capital investment. But hopefully we see this play out in real estate and in any other sort of business plans where people are considering how to deploy capital. Well, it's. It's beautiful, number one, really, because because it really there's there's two things that I want to bring out one, because one of the laziest tropes that's trotted out by people who. to ride Bitcoin is, oh, you're just gonna hoard Bitcoin, you're not gonna invest in the economy and productivity is gonna go down. And this provides a mechanism where it's like, no, that's not true. You can actually use Bitcoin to become more productive. And so at 1031, we've invested in battery finance, which is doing something very similar. And Andrew Hones, founder of battery, has this really simple example, which is like, you own, you have somebody who owns a pizza shop. and they want to reinvest it in an oven to basically increase their production at the local pizza shop. You can see them taking out a loan like this on their property, getting some cash, getting some Bitcoin, using the cash to reinvest in a pizza oven, which allows them to increase their revenues, which they can either reinvest in the business, maybe buy Bitcoin with, but in the long run, like their... they're essentially a stronger business. They're able to provide more pizza to the market more efficiently, hopefully increase their margins, maybe reinvest in Bitcoin, and they're just in a bunch better spot. And so the whole idea of Bitcoiners just aping into Bitcoin and hoarding it to accrue the value of its, during its monetization phase, not do anything with it. I think it's lazy and Leon, what you're building, Brian Cubellis (26:19.085) and others are focusing on in the credit market is a prime example of no, you can actually use Bitcoin to accelerate productivity in certain markets. Yeah, it's to the point you said beautiful in the sense of where it's exciting is everybody knows we talked about all the time. Real estate is a huge, there's a huge problem. This gives the picture vision of how you can have a smooth transition to that and other assets. But then the other ideas that There's a natural thought with Bitcoin community or individuals that hold their keys like multi -institution, maybe doesn't matter. What does it use for custody? And outside of heritage or inheritance where most individuals in Bitcoin take significant trade -offs because they have to leave the treasure map with a hardware device or multi -stake provider, or you have to leave it on an exchange which historically won't outlive you as we've seen the past 15 years. This is the second version or second thing I've seen that's like clear example of why it would exist because when you layer on risk of the bank, the financing and the execution, you still have to execute on this to be able to make sure that you can actually pay back the note and all the things associated. The custody should be bulletproof or as close to bulletproof where something happens, there's fault tolerance or redundancy into it. because if you're layering in 15 years of hacks and exchange and solvencies and all the things, you can't actually execute on a vision like this. I mean, you could try, but it's probably a fool's errand because historically the exchange you left your Bitcoin at wouldn't work and you need to leave it somewhere. You can't take the Bitcoin and the money. And so this was something that came up with Leon at dinner when we were chatting. And so, Leon, I'd be curious your thoughts on it because I think to Jesse's point, this plays outside of just real estate. It's how we think about the transition where people have dollar liabilities that will be stronger or the pace of inflation, they'll need to offset that by holding Bitcoin. But then the reality is you have to have the financial products and financial institutions that deliver this in a way that like makes sense for them as well. Yeah, no, I agree with you. So the perfect base case for having Bitcoin, for example, included, let's say in our financing would be that a bank works together with somebody like you guys and they say, hey, we'll provide financing with you. Brian Cubellis (28:37.165) will give you additional 10, 20, 30 % in Bitcoin. And we hold it in a collaborative custodial way without adding unnecessary third party risk because you don't know in the future that say five or 10 years, if an institution that financed your Bitcoin purchase will still exist going forward into the future. And I also understand that a financial institution does not want to finance Bitcoin that are just held in the single sick. wallet by the real estate developer because they want to have some insurance that if the real estate developer defaults, they won't lose out on the Bitcoin. Because if you think about it from the perspective of a bank, it's also very smart to include Bitcoin into the financing because if the real estate project fails, they still can hold on to the Bitcoin as collateral. Even if the real estate project was not finished, the financial asset does not exist yet. The asset Bitcoin does exist. So this is also, I think, a great way. for financial institution to hatch against the creditor defaulting on the loan and going bankrupt. It's funny to think about how far banks are from viewing Bitcoin as the pristine collateral that they should view it as, like that it actually is. But, you know, I think if you walked into any large bank today and propose this sort of model of let's do, you know, let's finance a real estate deal, but to make it extra safe. we're going to put 20 percent into Bitcoin, you'd be laughed out of the room, even though that is the reality. And then, you know, I guess, Leon, it's a compliment to you that, you know, once you go deep enough down the Bitcoin rabbit hole and you see it for what it is, then your whole worldview about every other asset has to shift, has to flip, really. And then you're you're now existing in a world where you're accommodating the realities of Bitcoin. and how attractive it is and how important it is over the coming decades and incorporating that into your mental models, your business models for what makes sense in that world. And what makes sense in that world is the diametric opposite of how the traditional banking system views Bitcoin relative to other assets. Yeah, that's true. They'll get there. Brian Cubellis (31:05.325) Yeah, they'll get there and until they do, it's an opportunity for Bitcoiners to pioneer that. That's what I think. Yeah, I think private products like there's something interesting to collapsing what battery does with an actual like leveraging, holding the key or participating because that's like the core like the private market will do at first to show the financial institutions how it's done. The crazy part is there's an equilibrium point where they just start buying Bitcoin because they they're like, why? you know, versus letting the dollars out for whatever interest. It's like, why don't they just buy Bitcoin? So it kind of like accelerates it. But I think as like just we look at a space for too long, that probably takes a longer time. So they'll just take their nice interest rate. But that's always been the thought with credit facilities and Bitcoin. It's like, once they understand it and they're willing to give their dollars up, why don't they just buy Bitcoin? Yeah. And that's part of the it's sort of messed up. Like when if you if you really dig into Bitcoin deep enough, And you have the epiphany moment and you realize I should sell my chairs like I should sell everything and liquidate it and turn it into Bitcoin because nothing is going to outperform Bitcoin. And, you know, that's the conclusion that you end up you end up at. But that's just unrealistic. It's also incompatible with like a civilization functioning. And, you know, Leon's point here is great that people are not going to stop doing real estate development. It's a necessary thing. There's money to be made. And yet how do you accommodate the reality that each incremental dollar pointed towards real estate would generate a better return if it was pointed at Bitcoin instead. And so you have to balance those things out. And I hadn't heard of a working model, a good formula for how to do that until Leon here. But here's the question, Leon and Marty, is like, let's say you're battery. I'm battery. Why don't I just buy all Bitcoin? Like I have the strategy. is like, if I understand this that deeply to go and lend the money, I don't want to like take the risk of Leon and figuring this stuff out and holding the Bitcoin in multi -sig. It's like, I'll just buy the Bitcoin. Yeah, that's like the conundrum that I still haven't fully wrapped. And I think like, it'll I don't I think we're too close to it. So I think it'll be figured out because people aren't thinking like this. But the reality is like that the smart move is just to buy all Bitcoin, not to lend the dollar. Exactly. But then the problem is like, Brian Cubellis (33:30.157) people who have been working their whole careers operating an industry, they're not going to stop trying to do that and trying to make money by doing that. And so even though the strictly speaking, probably the best thing to do is sell your chairs, sell all your real estate, sell everything, put it into Bitcoin. People won't operate that way. And then instead the best that they can do is incorporate Bitcoin into their industry. And this is that approach, I guess. Because, Leon, I'm sure you're, the loans that you're underwriting are in your locality, similarly with battery. I think they're underwriting loans that are, they're places that they can see and touch. And when you get down to it, it's like you want to live in a society that's actually functioning. And Bitcoin is a mechanism to keep it functioning. Like, yes, you could sell your chairs, take all the dollars, buy all the Bitcoin, hold the Bitcoin. wait for it to monetize and benefit from that monetization phase. But then you, you walk outside your office and you can't go buy a slice of pizza. You can't go to it. They could lend against that Bitcoin for dollars to invest. Like they could get, they could do stuff with the asset. Yeah. Go ahead, Leon. No, you go. I'll go after you. No. I mean, you're the expert on this. I'm, I'm opining. Okay. No. Yeah. I was just thinking. battery, for example, they would not be able to raise that amount of money if they say, hey, we just want to buy Bitcoin. But because they are having an approach to Bitcoin that is easy to understand for existing institutions that hold large funds of capital, they are able to provide the capital for them to then lend it out and buy Bitcoin. So I think it's actually a better business move, if you want to say, to buy more Bitcoin, having this more traditional approach because of what Jesse said, it fits in. to people's mindsets because people generally still operate under the fiat premise. If they know it or don't know it, maybe they've been subconsciously programmed to it or they're just being accustomed to it. So I believe by having this approach, overall, they'll be able to buy more Bitcoin if there were other than saying, hey, please give us money to just buy Bitcoin. Yeah, I think that nails it. I think there's a really interesting approach to Bitcoin that we Brian Cubellis (35:58.125) tend not to think about very often, but I think it's very powerful. And that is, how do you create a Bitcoin exposure product that is more palatable, perceived as less risky, and therefore people can make a larger percentage allocation to that versus just holding Bitcoin? And obviously, this is with regard to traditional investors who view Bitcoin as risky. But if you're talking to a baby boomer who's very wealthy and they are thinking about an allocation to Bitcoin, maybe they can tolerate a 1 % allocation to just holding spot Bitcoin. But maybe they could tolerate a 5 % allocation to something that is a less risky version that still gives you exposure to Bitcoin, but perhaps dampens down the volatility. And so long as the returns are not diminished by 5X, you're better off getting them into that product that allows for a larger exposure, even if it takes away some of the amplitude of the upside of Bitcoin, if that makes sense. It makes complete sense. But the thing that I always struggle with is like, the historicals will always look back and... tell that person that they should have just bought Bitcoin. At what point do we reach that point? Yeah. What point do we reach that where they're just like, that's why I've always struggled to wrap. Like I get it and it will work, but there's just like, it basically just accelerates everything that we know is going to happen simply because at a certain point you have all the data points. It's like just by the thing. And here's where we get into the interesting part. So Leon, when I'm curious to get your perspective on is at what point, let's say, that you're successful going out and underwriting these loans and viewing them with Bitcoin. At what point would you know that the strategy is successful? And the point I'm trying to get at here is I could easily we've been talking a lot, particularly over the last 10 months about the demand for Bitcoin that is being driven by the ETFs. When you think about these products and the size of the real estate market globally, Brian Cubellis (38:17.645) and you begin to imagine a state of FOMO that can be induced where managers like yourself are successful in deploying the strategy and you see other people from the outside looking in saying, oh crap, this is probably a good strategy to go after for us. And you're taking Bitcoin, you're locking it up for 10 to 30 years. Like in terms of like what that would do. on the supply side of Bitcoin for an extended period of time and thinking about the price reaction to that supply being locked up in these credit products. When would you know that these, how long would it take to know that this strategy is successful on your end? And how much Bitcoin could you see being locked up in this type of loan structure within the next five to 10 years? Yeah, good questions. Answering your first question will tie in to what you said, Michael. It will help people to understand that Bitcoin is repricing the world and outperforms every asset out there. I think the moment that let's say somebody wants to finance a new real estate project with $10 million, but the bank says, I require you to buy an additional $1 million worth of Bitcoin. So the whole loan is $11 million, $10 million for the real estate projects and $1 million for Bitcoin. I think the point when the one million dollar in Bitcoin will be worth more than the entire real estate project, which will happen usually after two to three cycles, that will be the moment when people will understand, oh wow, Bitcoin is the superior store of wealth and the superior asset class. So that will be somewhere between eight to 12 years from today or from the moment these products exist, because these products don't exist yet, because I believe we need another cycle. for banks to trust the ability of Bitcoin to retain value over time. And then the second question you ask, how much money will be locked up in these products? That is a great question and also a question I'm asking myself and I'm currently looking into with a friend of mine to find some statistics or at least build some statistics to see the possible impact of two things, Bitcoin being part of real estate, Brian Cubellis (40:43.149) financing products and Bitcoin draining the monetary premium of real estate. I don't know how much money will be locked up in Bitcoin through incorporating Bitcoin in real estate financing projects. But let's say I suggested having 10 % of the financing in Bitcoin. So out of 11 million, right, out of 10 million, 1 million in Bitcoin, 10 million overall. So that's like 10%. And if you say, The real estate market is 330 trillion taking reference to one of the charts, Jesse, that you shared in one of your newsletters that I really enjoyed where you talked about the possible valuation model for Bitcoin going forward. If we say that 10 percent, so 300 out of 330 trillion, that would be 33 trillion will be locked up in Bitcoin with a multiplier of let's say four to five. We can do the math on our head. So. It will be multiple trillions going forward. And because of the supply shock and Bitcoin and Hotless not selling the Bitcoin, there's less Bitcoin to be bought than in existence. The effect of that 33 trillion on the market, cut off Bitcoin will most likely be immense. It will be not alike, but probably similar to what the ETFs are currently. doing to the Bitcoin market price. I could imagine that at least. And I love like, you know, the idea of counter positioning, you know, when you're like the early entrant in this idea of that too much debt, not enough dollars, they have to consistently deploy more liquidity, which means as a strategy gets evolved, like they naturally have to give more dollars to lend against the asset. However, it's deployed is up to the individual. It just like further accelerates the whole thing. Yeah, I love how this is basically like a pathway to hyper bitcoinization is sort of what you're presenting here. And thank you for referencing that article, which for people listening, if they want to read the same article, you can get it at onrampbitcoin .com slash FPV, full potential valuation. That's that piece that dives into all that. And yeah, I got that $330 trillion global real estate market. Brian Cubellis (43:04.429) data point from a Bain & Company report that an old coworker sent me. So that was a pretty solid number that I've seen some alternative numbers on recently in the Bitcoin community. But I think I stand by my 330 because it comes from Bain & Company's pretty awesome analytical rigor. Yeah. And so, Leon, it's interesting that this applies to real estate. This applies to Also to bonds, you talk about how we're going to take away the monetary premium from real estate. We're also going to take the monetary premium from bonds as people realize that it doesn't make sense to hold bonds in an inflationary environment where they're generating negative real returns. And if you think about that whole global asset landscape chart that includes that $330 trillion in real estate, all of those assets, You know, every single one of them gold, the stock market at record PEs, every single one of those asset buckets will underperform Bitcoin as Bitcoin monetizes. And that monetization process is the demonetization of all existing assets that we have turned to have made de facto store value buckets, real estate stocks, bonds being the big ones. in an era where you can't rely on storing value and fiat money because it's inflationary. And so it's just like all roads point to hyper bitcoinization when you look at it from that lens. And you've focused on the real estate segment, which is the biggest bucket in the global asset landscape. And yeah, you talk about eight to 12 years for people. to realize that this is the winning formula. But I also at the same time can't help but think that eight to 12 years from now, people will think that you got lucky. You're like, oh, that was a lucky and risky bet you shouldn't have taken, not realizing that it was well -informed and wise to be taking. What are your thoughts on that? Brian Cubellis (45:23.885) You could you could be true. It could be very could be true. Absolutely Because if you think about it, that's what people say today about people that bought Bitcoin in 2010, right? Yeah, maybe maybe have a tunnel vision because I'm so involved in in Bitcoin and I read about Bitcoin and listen to podcasts all day Maybe my view is a bit subjective. So you could be right you could be right but the banks that do give out these loans and the real estate developers that do take out these loans, they will start individually to realize that. So I think that on an individual level, maybe of the individuals that are giving out these loans and the individuals that are taking these loans on that level, it will most likely take eight to 12 years. And for the mainstream, as you said, it's either going to take longer or they never understand. Yeah. And on this note, too, just curious, I'm sure you've been having this discussion with people in your industry. How has it been received? Is there anybody that you've spoken with in the real estate development community that you're involved with that is picking up what you're putting down, or do people think you're crazy? Does anybody get it? I think that people think I'm a bit crazy, to be very honest with you. I've learned also to be very selective with who I discuss these topics because it's not worth putting my time and effort into explaining these intercess if somebody just thinks I'm crazy. Sometimes they think I'm crazy in a good way, right? Not everybody thinks that being crazy is bad. But to answer your question, since the last, I'd say three to four months, people have become very open to what I say and receptive for what I say. Before, people were almost a little bit aggressive. They almost felt like I'm attacking them on a personal level, which I'm not doing at all. I'm just looking at it with a bird's eye view, so to say. So I'm not attacking people that are developing real estate. I'm also not attacking people that invest in real estate. I'm just trying to help people being aware of the market environment. Brian Cubellis (47:48.813) and disruption that Bitcoin as a near perfect store value represents to the real estate sector which is used as a store value. Yeah. Again, independent of us, I really think helps is the, uh, the ability to like make the, the underlying bulletproof from a getting to five to 10 years on the outside, right? Cause it's very crazy if you layer risk on risk, but if you can take the underlying and know it's, will be there in five years, it takes that assumption away. Cause you can look at the numbers and the 15 year historicals are there. If you take away that the asset will be there and then it just becomes the strategy. And then once you prove the strategy out, but. it, people need that, like taking out that risk and the assumptions. Um, or I think it just becomes a harder bill. And that's where this next cycle I think will work because the price will come, the tools will be there, the information's there. And then once it's developed, people will be able to look at that and say, okay, now there's a playbook as we grow into the rest of this decade. Yeah. And I've got to run here in five minutes. Do not end the conversation. It's not ready in five minutes, but before I leave, I do want to touch on this one. topic because Leon, I know you were here in Austin for the Bitcoin Urbanism meetup last month. And I think this type of credit structure could enable something like a renaissance in the architecture, the physical landscape of our urban environments. Because when you think about it by imbuing these loan products with Bitcoin and if Bitcoin continues to appreciate and value the owner, of that loan, whether it's an individual homeowner, a real estate developer, and then use the Bitcoin in the loan to maybe take out more cash to begin developing, reinvesting in that particular property or building new properties. Like in terms of supercharging development and the quality of development, you see these products as being a vehicle towards a more beautiful future? 100%. Brian Cubellis (49:49.581) And I'll quickly go back into the 70s and roll out my answer from there. Because what happened in 1971, the Nixon shock, President Richard Nixon, the US president, decoupled the US dollar from gold. The US was living on a quasi gold standard since 1944, since Bretton Woods. And what happened in the 70s then was inflation kicked in and the capex or the capital expenditure to maintain real estate grew significantly. What did people do? They just passed on the cost to the tenants. So they just increased rents. But in the 80s and in the 90s, what happened, especially in Europe, governments then put rent caps on rent because real estate owners who were faced with continuous increase in capex were just continuously raising the rent to be able to deal with the higher cost of maintenance and construction. There is a problem with putting rent caps. Problem number one. it creates a shortage of housing because if I can't raise the rents and construction costs have risen significantly through inflation, it becomes unprofitable to provide housing. So it creates very distorted price signals. But now, as real estate developers, we don't necessarily have to pass on increased construction costs due to inflation to the tenants. Now we have the opportunity to do what you said, Marty. We can take part of the rental income, we can save it in Bitcoin and that will allow us to then perpetually maintain the property. And I'll give you an example. So I moved to Berlin some time ago. Berlin is a great city. It's a metropolitan city, but Berlin created rent caps that are so drastic that the real estate owners that I know in Berlin, I talked with someone three years ago, he said to me, Leon, listen, I'm not going to invest a single cent in my house. because it's not worth it, because I can't raise the rent. So why would I invest into a house to maintain it if I can't make any money off it, right? So the price signals and the market have become so distorted that real estate owners are not interested in maintaining their own product, which is the house that they built. And that's completely crazy to me. It's a rational market decision by a rational actor that's being penalized by the fiat system. But it is bad as a tenant because... Brian Cubellis (52:16.909) your property is not maintained. And now through Bitcoin, we have the opportunity to act independently of central banks, take some of the cash flow, put it into Bitcoin. And then in five to 10 years, we have the capital to maintain the properties. Yeah, and you layer in, you accept your rent in Bitcoin. Now you're really cooking. Yes, that's a part of it. This is what gets me. This is the white pill I think people people need right now. There is. That's that's again why I keep saying it's beautiful because I've first recognized this in the Bitcoin mining and energy sector where the energy sector has a lot of problems. central planners have been trying to fix by throwing subsidies and debt at it. And Bitcoin mining just fits into the energy stack beautifully to provide a free market solution to solve a lot of the problems that are inherent throughout the energy sector. And now you're just seeing this applied to real estate. And it's the same exact fire in my belly, the epiphany of, oh, this can happen here as well by injecting Bitcoin into this market. into this capital stack, you are accelerating and providing a free market solution to a problem that's been attempted to be solved by central planners for decades now. And this is what gets me excited. And it's the type of narrative that we should be really be putting out to the market where it's not necessarily driven by fear of things devolving into chaos. It's no, we've found a solution to lessen the blow as the that situation continues to spiral out of control. Brian Cubellis (54:05.613) Yeah, we should have Leon on with Andrew because I think like they've looked at this problem for so long that I think like what Jesse alluded to early is very interesting. You go start a real estate because it's a big hairy problem, but there's a bunch of other assets that we can think about in the world that are probably actually easier to get credit against from a capital market's perspective or private credit where you can put the strategy against. And so for anybody listening or thinking about it, there's probably a lot to discuss and like play with. Yeah. And that topic. I agree, Marty, the white pill of one of the things that brings me a ton of optimism about the Bitcoin future is how it switches the flywheel of degrading quality into improving quality and craftsmanship in all goods. You know, by having a deflationary monetary standard where you have to improve the quality of your products in order to command the same price, which is the flip of what we've had, where you have to make your product worse and worse and worse in order. to keep your prices the same and still make money. So, yeah, we have to get into that conversation later. I know we just we Marty's Marty's got to go here. But, Leon, we should have you back on the show to dig into that whole big topic of Bitcoin urbanism and how and how this sort of model, the real estate and Bitcoin corporation and the other tenets of Bitcoin urbanism. can create the kind of brighter future for societies that people have been grasping for and chasing and trying to top down model for the last hundred years. And Bitcoin creates this bottom up flywheel for creating those outcomes that people have been dreaming of. Yeah, I'd be happy to for sure. Awesome. We'll appreciate you coming on Leon. We'll get some in on the books. Do you want to share any kind of... parting thoughts or where people can find your reach out. Yes. Um, if you would like to get in touch with me, you can find me on Twitter at Leon Vancom and I write a newsletter that is focusing on Bitcoin and real estate called the Bitcoin newsletter on Substack. So if you like, you can subscribe to that. And hopefully, uh, by the beginning of next year, I have a book finished, um, with the working title of digital real estate. Brian Cubellis (56:33.933) It's taking me a long time to read because I go very deep into these topics. So I spent hours looking into data, going back into the Roman period of the use of land to store value. So it will take me a bit longer than expected, but hopefully at the end of this process, I'll have a quality product that will help real estate developers to maneuver this shift. That's awesome. I look forward to reading that. Yeah. Thanks for joining us, Leon and sharing your thoughts and look forward to getting you back on. Thank you for having me. Thanks.