They’re calling it “one of the greatest houses in New York.” It’s on sale for $17 million dollars. AND Roy Niederhoffer (the homeowner) is willing to accept an all Bitcoin payment.
Roy is a super investor.
He came on my podcast and told me all of his thoughts about Bitcoin:
- Why bitcoin is his top investment
- How it’ll work in the future
- Why he keeps buying more and WHY he thinks you should, too (you’ll see below)
Here’s his house:
And here’s what he said about Bitcoin (this video will take you straight to the part about bitcoin):
(Also scroll all the way down to see the view from his apartment)
James Altucher: Let me ask you this. Take a new asset class like crypto. What’s your stance on that?
Roy Niederhoffer: I have a lot to say about the crypto market.
RN: Interestingly, it actually all ties into what we’ve been talking about. What has been the action of the Federal Reserve? What’s been the government response to periods when the markets need liquidity? Well, they’ve essentially printed money.
RN: They’ve created liquidity out of nowhere, particularly since 2008 when they began quantitative easing. The government essentially is falling to the trap that has happened every single time a government has issued currency in human history.
RN: There’s a couple of fun examples. I think the first one that’s really, really clear is around the turn of the first millennium, year zero. If you were a Roman soldier and you’re going to take your buddies out for a drink, you’d throw down a coin called the denarius that was an ounce of almost pure silver, and you could buy a couple drinks for your one denarius.
RN: Fast forward 240 years later under an emperor called Peter the Arab. The same Roman denarius had .05% silver instead of almost a hundred percent silver. They devalued it by 99.95%. By the fall of the Roman Empire, it was .02% so they went even further. Of course we see this in Venezuela. Literally as we speak it’s happening. In Iran it’s happening. It’s just a matter of time.
JA: Do you think if they never did that devaluing Roman Empire wouldn’t have fallen in some way?
RN: I’m sure there’s a case to be made. That the devaluation of people’s assets was one of the causes of the fall of the Roman Empire. I’m not a classicist but I certainly would make that bet given how it’s happened every single time in history. By the way, I’m going to come back to crypto. This is all going to lead somewhere. Don’t worry.
RN: Another little fact that I love to talk about is that if you were going to go on a date in 1900 in New York City, you would take your girlfriend to an oyster bar. You’d probably been to the oyster bar in Grand Central Station. That’s one of the remnant few but there used to be hundreds of them. Every one of them for 5¢, you got all the oysters you could eat and they were big oysters, the size of a dinner plate and all the beer you could drink. Fantastic deal for 5¢. If you could find that today, it might be hundred dollars or something. Again, 120 years, devalued. The dollar, in oyster terms, is down 99.95%.
RN: I was in Zimbabwe in 2007 and I got hundred trillion dollar bills as change for my lunch.
JA: Were you vacationing?
RN: Yeah, I was at safari at the end of it. Anyway, the vice of governments is to print money, and I believe we’ve made in social security, Medicare and Medicaid about a $120 billion worth, sorry, $120 trillion worth of promises to our people that we don’t have. I believe the US government is going to print money to meet those obligations.
RN: When I heard about bitcoin back in 2011, I remember exactly where I was. It was like I was hit by a bolt of lightning. I was at my kitchen aisle and I opened the copy of Wired Magazine. There was an article called The Rise and Fall of Bitcoin. It had gone to $20 and back to three at that point. I read about this thing that was money that had a fixed supply and I said, “Wow, this is the solution to the great vice of fiat currencies and even asset backgrounds.” It’s like the denarius in Rome. Governments always reduce the value except if the supply is fixed.
RN: 21 million, that’s it. No more bitcoin. I bought early and I have been a tremendous proponent of bitcoin since. I think there is something very special about cryptocurrency. I love block chain, too. I think that’s a revolution in itself. But cryptocurrency has a very specific quality. If you think back to the oysters, what would have happened if you kept your money in oysters? Well, Indians used to keep wampum. That was literally oyster shell. They had some inkling of it having a fixed value.
RN: What about if you kept your money in gold from 1900? You basically have the same amount as you had in 1900. They say for 2,000 years gold has purchased a good suit of clothing and that’s basically the case for the last 120 years. But if you’d invested in the stock market in 1900, you’d be richer than Warren Buffett. How do I reconcile these two things? I’m talking about a fixed supply asset like gold and oysters or bitcoin as a good investment. Yet, you would have done much better to be in dollar fiat currency. Even with the 99.95% devaluation, you’re still one of the richest people in the world. The difference and the reason that bitcoin is different from any other fixed supply money that’s ever been created is that it has associated with it a financial ecosystem as robust and powerful as a fiat currency. You can buy stocks with bitcoin. We call those ICOs. You can lend bitcoin. You can lend at 9 or 11% and there’s a forward rate just as the yield curve. You can trade futures. Soon there will be a full-fledged derivatives market and options market.
JA: Could you argue gold was always like that though?
RN: I’m not so sure. I think for most people if you have ingots, you’re stocking, sitting on them with your shotgun or keeping them in a volt. Of course, transporting them, if you do the math, a suitcase worth of gold is about a million dollars. But if you’ve got $10 million to transfer, they’re not going to let you on a plane so you’re stuck. Bitcoin has this fungibility aspect where you could send it from place to place for almost nothing these days in almost zero time, few tens of minutes.
JA: Do you ever get worried that blockchain as a technology is starting to be used by almost every bank, Walmart, UPS? Even the Federal Reserve Bank is looking at uses of blockchain. Do you ever get worried about that the underlying technology could be separated from the use of blockchain as money which is called bitcoin?
RN: I do.
RN: I think the digital currency is different from cryptocurrency. I think US dollar-linked cryptocurrency would be an interesting policy tool because it would enable negative interest rates. If you think about the problem of the government wanting to stimulate the economy by having not 0% interest but negative rates of interest where if you put your money in the bank, they’d give you 1% or 2% less every year. Well, people would say, “Why do I put my money in a bank? I’ll just keep my cash in my safe and I’ll just sit on it. I’m not going to earn -1%. I’d rather earn zero just by having it in my safe.”
RN: Well, if all your money is in cryptocurrency, they can actually just take it away from you. Having a US dollar or reserve currency that’s in a digital currency format allows central banks and the government to do that. There may be a reason that they haven’t.
RN: The problem is they’re still subject to the same vice of all governments which is making too many of these negative interest rates, a bit dollar or whatever one would call them. It becomes very dangerous to hold them because they can just make as many as they want. Bitcoin and the other major cryptocurrencies are algorithmically not going to be … There will be no more extra supply.
JA: The reason often the Federal Reserve devalues or the government in general is in favor of devaluing is, like you say, pay for obligations that they made in the past whether it was Nixon trying to pay for the Vietnam War or the bail out with Bernanke and government officials then. How would you manage monetary policy with a central bank linked to cryptocurrency?
RN: Well, that’s a very interesting question. How would a government behave if it had to behave like any other business? The answer is they probably would spend a lot less money and make a lot less promises, and it would probably change who people vote for. To me, again, what interested me in the beginning was, wow, this is really a different way of thinking about money and governments, so I think the world would be a very different place and it might be a better place.
RN: Governments in general, countries in general have a tendency almost to trend negatively. The Roman Empire was around forever but ultimately they trended in the direction of their money and I think every country throughout history has done that. Do you think there is a way for them to say, “Oh, let’s look at this new type of monetary policy. Spend less money which is different than we’ve ever done in every year of American history.” Do you think that mindset is possible?
RN: I think in a democracy it may not be possible because it would be very easy to vote for people that are going to make promises that are more easily understood like, don’t worry, we’re going to make good on all this obligation that we told you we would do. The person saying, “No, no. There’s not enough money to do that.” No one likes a negative candidate so I think there’s probably a structural reason why we will never have that in the United States or in any democracy. It’s too painful.
JA: Are you guys investing it? Are you looking at patterns in bit crypto the same way you looked in patterns in other systems?
RN: Interestingly, we have done a lot of work in many different facets of crypto ranging from mining and arbitrage and HFT, position trading, ICOs. Then we have our existing models which we’ve never seen in cryptocurrency and we found something very interesting. That our existing models worked at the same cognitive biases that people have when they trade soybeans and Google and US treasury bonds are present in the way people trade crypto.
JA: Just as a final thing, what books could people read to learn more about these cognitive biases that you’ve been modeling?
RN: I have two books I love to recommend and give to people. One is Thinking, Fast and Slow by Daniel Kahneman. In it, he really goes … I think it’s the greatest book on trading, doesn’t have much to do with trading until you start thinking about it as a metaphor for trading and then every single page has something to do with trading and living more effectively as well. I’d recommend that.
RN: Another book that I love which interestingly was written by another Harvard neuroscientists, he preceded me in the lab I was in which was ran buy a guy named Steve Kosslyn. The most famous grad student when I was there in the ’80s was this guy named Steven Pinker.
JA: Even now as most recent.
RN: Exactly. Exactly. Even back then Pinker was a superstar and he’s one of the smartest people I’ve ever met in my life and his book, The Blank Slate, also has some very interesting ideas that I think are worth thinking about and Counter-Consensus.
