The Blockchain Debate Podcast

Motion: Bitcoin Halvening is Priced In (Jason Williams vs. Christian Keroles)

February 24, 2020 Jason Williams, Christian Keroles Episode 4
The Blockchain Debate Podcast
Motion: Bitcoin Halvening is Priced In (Jason Williams vs. Christian Keroles)
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The Blockchain Debate Podcast
Motion: Bitcoin Halvening is Priced In (Jason Williams vs. Christian Keroles)
Feb 24, 2020 Episode 4
Jason Williams, Christian Keroles

Guests:

Jason Williams (@JWilliamsFstmed) - debating FOR the motion
Christian Keroles (@ck_SNARKs) - debating AGAINST the motion

Host:

Richard Yan (@gentso09)

Today’s motion is “Bitcoin halvening is priced in.” Halvening, or halving, refers to the regularly scheduled reduction in the supply of new bitcoins to reward miners. This happens roughly every four years, and the supply is reduced by 50% each time. Halvening is built into the protocol and not a contentious topic. What is contentious, is whether the market for bitcoin has incorporated the effects of this upcoming activity. 

The guests we have for this episode are two bitcoiners. One works in bitcoin investment, and the other in bitcoin education and marketing. Turns out there are more areas where the two debaters agree, than disagree. And our listeners can trace the convergence in their arguments. For better or worse, I get involved in the discussion a bit more than usual in this episode. As a sample of topics, we discussed miner response to the halvening, the stock-to-flow model, institutional interests in BTC, and many more.

If you would like to debate or want to nominate someone, please DM @blockdebate.

Please note that nothing in our podcast should be construed as financial advice.


Source of select items discussed in the debate:

Show Notes Transcript

Guests:

Jason Williams (@JWilliamsFstmed) - debating FOR the motion
Christian Keroles (@ck_SNARKs) - debating AGAINST the motion

Host:

Richard Yan (@gentso09)

Today’s motion is “Bitcoin halvening is priced in.” Halvening, or halving, refers to the regularly scheduled reduction in the supply of new bitcoins to reward miners. This happens roughly every four years, and the supply is reduced by 50% each time. Halvening is built into the protocol and not a contentious topic. What is contentious, is whether the market for bitcoin has incorporated the effects of this upcoming activity. 

The guests we have for this episode are two bitcoiners. One works in bitcoin investment, and the other in bitcoin education and marketing. Turns out there are more areas where the two debaters agree, than disagree. And our listeners can trace the convergence in their arguments. For better or worse, I get involved in the discussion a bit more than usual in this episode. As a sample of topics, we discussed miner response to the halvening, the stock-to-flow model, institutional interests in BTC, and many more.

If you would like to debate or want to nominate someone, please DM @blockdebate.

Please note that nothing in our podcast should be construed as financial advice.


Source of select items discussed in the debate:

Richard:

Welcome to another episode of the blockchain debate podcast where consensus is optional, but proof of thought is required. I'm your host, Richard Yan. Today's motion is: Bitcoin Halvening is priced in. Halvening, or Halvening refers to the regularly scheduled reduction in the supply of new Bitcoins to reward miners. This happens roughly every four years and the supply is reduced by 50% each time. Halvening is built into the protocol and not a contentious topic. What is contentious is whether the market for Bitcoin has incorporated the effects of this upcoming activity.

Richard:

The guests we have for this episode are two Bitcoiners, one works in Bitcoin investment and the other in Bitcoin education and marketing. Turns out there are more areas where the two debaters agree than disagree and our listeners can trace the convergence in their arguments. For better or worse, I get involved in the discussion a bit more than usual in this episode.

Richard:

As a sample of topics, we discussed the miner response to the Halvening, the stock-to-flow model, institutional interests in BTC, and many more. Note That we had previously recorded three other episodes. Our first motion was Bitcoin will attain Global Store of Value status by 2040 with Jimmy song versus David Gerard. Our second motion was tokenization of real world assets and smart contracts are useful ideas featuring Emin Gün Sirer versus Edmund Schuster and our third episode is DeFi is deficient with Udi Wertheimer versus Haseeb Qureshi. So definitely check those out if you're interested in these topics. If you're interested in debating or want to nominate someone, please DM me at block debate. Please note that nothing in our podcast should be construed as financial advice. I hope you'll enjoy listening to this debate about a popular and important topic. Let's dive right in. Welcome to the debate.

Richard:

Consensus, optional proof-of-thought required. I'm your host, Richard Yan. Today's motion: BTC Halvening is priced in. The idea is that if the market has fully absorbed the fact that the block rewards are getting cut in half, then there should be no more price movement in relation to that event. Of course, prices can still move due to other reasons, just not that reason. Some also interpret this motion as: Between now and soon after the Halvening. Will BTC price move meaningfully barring any exogenous factors besides the Halvening?

Jason:

To my left is Jason Williams arguing for the motion. He agrees that BTC Halvening has been priced in. To my right is Christian Keroles arguing against the motion. He believes that BTC Halvening has not been priced in. Gentlemen, I'm excited to have you join the show. Welcome.

CK:

Thank you so much Richard.

Jason:

Yeah, good to be here. Richard. Good to meet you, CK.

Richard:

So here's a bio for the two debaters. Jason Williams is an investor and entrepreneur. He is co-founder of Morgan Creek digital assets, a crypto fund where he counts Anthony pump Liana or pump as one of his partners. He is currently CEO of PRTI, a company that provides services for disposing of whole car tires in an efficient manner and generating valuable commodities. Through that process. Interestingly, the energy released from the tire. The manufacturing process creates an independent ,off-grid source of power for crypto mines. Previously, Jason founded Fastmed, the second largest urgent care company in the US, and led the team through multiple successful exits. Christian Keroles, or CK, is a Bitcoin investor operator and media personality. He is a co-host on the popular podcast "P.O.V. Crypto" where he represents a Bitcoin centric view sparring with his partner David Hoffman, who is a staunch Ethereum advocate. He also does sales and partnerships at BTC Inc, a media company with assets including the Bitcoin magazine, the let's talk Bitcoin podcast network and the Bitcoin 2020 conference.

Richard:

As usual, the debate has three parts: An opening statement from both sides, starting with Jason. The second round is the body of the debate with me shooting off questions to the debaters. Both sides are highly encouraged to follow up with their opponent after hearing answers on the other side. The last round is audience questions selected from Twitter. And we will end with concluding remarks from both debaters. Currently our Twitter poll shows 20% saying Halvening is priced in, and 60% saying Halvening is not priced in. So three times as many people don't think Halvening is priced in. We will have a post-debate poll and whoever tips the ratio more to their side wins the debate. Okay. Let's get started with the opening statement. Jason, please go ahead.

Jason:

Yeah, so I mean, simply my conviction right now around the Halving being priced into Bitcoin, is really supported by two pillars of thought. The first being the Halvening being a known event. And we have all this kind of noise and information that the people who are participating in our world, whether it's mining or Bitcoin or trading, etcetera, they're hearing, they're doing independent research. And they're taking action on that. Now that world is a very small one when you look at all the potential market penetration globally, but that body of people has the information. So, you know, from my perspective you kind of buy the rumor, sell the news, that's a thesis that's played out in other investing. And you know, I fundamentally believe that the market has the information in it. Secondly, it's mining.

Jason:

So that second pillar of thought is around mining. And if you're mining right now, you have done that very actively and intentionally and you've made a significant investment around CapEx or capital expenditures. And if you're mining on legacy equipment, let's just use S9's. At the point of the Halving those could be antiquated pretty dramatically. The Halvening being an amazing change in difficulty. As you know if you look at the last two years, we can look at hash rate contribution in the mining of Bitcoin going up and to the right exponentially. And you see the same thing happening with difficulty, difficulty going up to the right exponentially. So you can, you can deduce that there has either been more miners coming into the network to support the increased hash rate that we're seeing. You've got the difficulty following that because every two weeks I believe the difficulty adjusts depending on the amount of hash on the network or you have people making an investment in new technology to continue to run their minds efficiently.

Jason:

So they're going to S17's or M20's and you're getting an exponentially stronger or more powerful computer. It's using more energy. And that could be the cause of this hash rate expansion that we're seeing. But all of that is being done along with those being thoughtful people, being thoughtful around energy expense. So when I look at the price of mining Bitcoin right now I think the average is around 6,800 bucks, give or take. And going through the Halvening it has to be priced in. Miners who are using S9's are going to hit the wall in May. They have to make a decision on what to do. And those decisions are being made right now. You either have invested in the future or you're gonna hit the wall, but that price is the price.

Richard:

Okay, sounds great. So it sounds like you have two pillars of thought. One from an investing perspective, the other from mining perspective, but because there's information has been known far in advance, therefore this information has been captured by both groups and therefore the price has incorporated all that information.

Jason:

That's correct. And I'm not saying that the price can't move because the price is going to be affected by information that is coming and noise that's coming. But it is what it is right now.

Richard:

Okay, great. Well thank you very much for that summary. CK your turn for the opening statement.

CK:

So I am here to argue that the Bitcoin Halvening is not priced in and I think that this is actually the easier position to have and the more popular position to have. The fact is that it is absolutely impossible to price in the Halvening because the Halvening is not known. My opponent will say that the Halvening is an known event and so are all future known events. But in reality the Halvening is actually more similar to something that could be related to as a quarterly earnings report. We know that they are coming, but we have no idea what the effect is going to be on the market and what that actual information is going to be. We all know that the Bitcoin supply schedule is going to change every four years and we know exactly how many Bitcoins are going to be released every four years.

CK:

But with that being said, the actual thing that is affecting the market is the downward pressure, that is coming directly from miners, and there's no way to know that until the Halvening actually occurs. And then there's no way for other market participants to then accurately react to that information until the information becomes known and, and actually, you know, affects the market. So this is a very volatile, fluid and dynamic market and there is no way for anyone to really fully know where the selling pressure of Bitcoin is coming from, and how much of it is actually coming from miners selling every single month in order to pay their bills. My opponent will argue that the market has perfect information, and that the market has metrics in which it can even measure Bitcoin. But the reality is that there is nothing to measure Bitcoin against.

CK:

There is nothing similar to Bitcoin in which to compare it to. And there is no event that is similar to the block reward Halvening. All block reward Halvenings in the past have happened under different circumstances and all block reward Halvenings into the future will happen in circumstances that we have absolutely no idea about. Beyond that, beyond that, if you look at the theory behind the efficient market hypothesis, that theory is really rooted in the information that we can gather from public equities. And like I said, there is nothing, there's nothing like Bitcoin, or there is nothing about Bitcoin that indicates that you can really compare it to public equities. There is no price-earnings ratio. There's no price-to-cashflow. There's no other kind of concrete ways in which for people to accurately measure what this thing is going to be and what this event is going to affect its price.

CK:

I love to look at this chart. It's really easy to find on coinmetrics.co (coinmetrics.io). But you can go inside their free service and you can look at the block rewards and then you can overlay ... you could look at the block of emission schedule and then overlay that on top of the block rewards denominated in USD. And what you see every single Halvening is that there is a sharp and dynamic decrease in the actual BTC that is released every single, every single block. And then immediately following the Halvening, you see this massive surge up in the USD value of the actual block reward. And really what you're seeing there is you're seeing one, the block reward gets cut in half; two, the downward sell pressure coming from miners gets cut, in, you know, in a way that we can't predict yet; And then three, all other market participants adjust to the block Halvening and the action and, and the downward sell pressure being adjusted. And it takes time. It takes several years. In order for the correct allocation to kind of settle in after the Halvening, and what we experienced in that is typically these Bitcoin-fueled run-ups where things go crazy. And like Jason said, tons of noises added, lots of hysteria. And again, just creating more and more confusion around this actual data point.

Richard:

Okay, great. Thank you. It sounds like you were talking about how there's no great valuation model for Bitcoin, and the efficient market hypothesis sorta came from a different world and doesn't necessarily apply here. And then you also talked about how when you overlay the past Halvening data on top of Bitcoin prices, you notice some pattern that basically says that there will be some kind of surge post the Halvening. So I don't think I did justice in terms of summarizing all your points, but wanted to sort of do that for the benefit of our listeners. And in any case, this is the opening statement round. Feel free to respond to each other in the subsequent round.

Richard:

So without further ado, let's start round two, where I'll be directing questions to Jason and CK in turn. And I'm sure both of you will probably want to respond to both the points made in the opening statement and the answer provided by the other person in response to my questions. So I'm going to start by asking the first question to Jason. So your business partner Pomp has stated on Twitter on multiple occasions that, "BTC Halvening is not priced in. One of the reasons he provided is that Bitcoin has risen approximately 40% in the last six weeks," This is a verbatim quote, "which started five months out from the Halvening.' I think he is suggesting two things. First, the rally is a result of investors' anticipation of the event. Second, such momentum will continue. So what are your thoughts there?

Jason:

Yeah, so the great thing about Morgan Creek is that we have a fair intellectual discourse. So I'm not I'm not obligated to agree with Anthony, or Pomp. And in this I don't agree. And you know, I, I think he actually makes, makes the statement that it is priced in because I, I would actually say that Bitcoin is like the most programmatic thing I have ever interfaced with in regards to an investment. And when you look back 11 years, you, you start to really see how this plays out and those who have been through multiple Halvings or multiple bull and bear cycles would sit here in full confidence and tell you what will happen. Now, I've only been through one bull bear cycle and this is my first Halvening, so you know, I started down the rabbit hole and investing in Bitcoin in 2016.

Jason:

But I would tell you if I was sitting here in front of CK and I laid out the stock-to-flow model it, it, it pretty much is in line with what CK was speaking to, in regards to -- you see the Halvening event happen, you see a dramatic increase in the difficulty and then you don't see an immediate price increase. You could even see a price decrease or flattening and that runs out about 150 to 200 days. Right now you've got noise, you've got the market machine turning, you've got all of the press cycle that will start to buy in and start to run. About the Halvening event Bitcoins had a very unusual year so far through January and February being up 30% plus. And I would say it's following the stock-to-flow model, scarily close and big ups to plan B out there.

Speaker 5:

Okay. CK, would you like to add to that?

CK:

I kind of find it funny that Jason brings up the stock-to-flow as why the Halvening is priced in, but theoretically if the Halvening is priced in, why, why is Bitcoin not trading at $100,000? Why is it not trading at $1 million a coin, right? If every future Halvening is priced in and the stock-to-flow model is so closely co-integrated with the actual price historically you know, that is a valuation method that seems to be legitimate -- so why aren't those Halvings priced in? I'm kind of confused how the market can be efficient for all known information and we know what Bitcoin's supply schedule is going to be like in a hundred years. Why is that not priced in?

Jason:

No, it's a, it's a, it's a great point CK and my position is that this is such a small market and most of the folks who are involved -- the, the, the people on crypto Twitter have a very small portion of their net worth in Bitcoin. It's just not moving the needle. It's a very small sample size. I'm not saying that the stock-to-flow model is up is perfect. It's a, it's a small subset. It's the history of Bitcoin. It's 11 years. But it seems to be predicting this and I'm very interested to see how it plays out in the, the fun thing is I'm going to be able to do that. I actually do think it's predicted the price pretty closely.

Richard:

So the interesting thing here is that if one believes that the price will go up in the future as a result of Halvening, then that person is essentially making the argument that the Halvening is not priced in, right? Because if the prices will go up because of Halvening, that just means...

Jason:

The prices, the prices go up because of scarcity and the effects of increased difficulty and the increased hash contribution if that all continues. You know, again, this is all information. Some of it is noise, some of it is research and it's being priced in.

Richard:

Okay. Okay.

Jason:

The price will change with new information.

Richard:

Right, right, right. Okay. So I'm going to move on to the next question for CK. And CK, feel free to revisit this point later on in the debate. So some people say that Halvening could drive down the BTC price. Could you speak to why some people think this way and the legitimacy of this reasoning? For instance, shutdown of unprofitable mining operations, aka miner capitulation, would temporarily slow block times, that frustrate users or induce pessimistic selling behavior in miners.

CK:

Yeah, so this is a very popular point amongst a lot of altcoin enthusiasts that want to justify their coin as being more secure than Bitcoin. I typically do not buy this, but at the same time, we currently only have two data points around this, this fact. So we will see if it is, if it is something that is proven wrong or if these FUD'ers per se are correct. The idea here is that if Bitcoin's price stays the same, demand does not change, but the block reward, the security budget to pay miners gets cut in half. Then logically the hash rate or the computing power that is incentivized to protect the Bitcoin blockchain will also be cut in half. The reason why this makes no sense is because it assumes that Bitcoin's price is going to stay the same.

CK:

And if Bitcoin's block reward gets cut in half, but the buying power more than doubles, then all of a sudden the actual budget in terms of buying power increases. And this is something that a lot of folks for some reason have a lot of cognitive dissidence against. So you know, just this year the buying power and block reward has increased significantly and that has enabled people that previously were running or, or not running old machines to pick up a lot of these S9's that Jason talked about, and bring them back online because it is more profitable. Ultimately mining is a industry of attrition. It is an industry of massive efficiencies and if you cannot be extremely efficient, if you cannot compete and lower your costs, then you will get put out of business. I don't see why that's a bad thing. I actually think that further entrenches Bitcoin in terms of being an extremely secure network by getting rid of, like almost like, the weak hands of miners. It's the inefficient, the weak miners that can't survive these Halvening events. And ultimately it's all about the dollar value, the buying power of Bitcoin, and that is what is going to determine the actual security budget of the network.

Richard:

Okay, great. By the way, another follow up question to this is that there're some talks about on Twitter about how people are expecting a BTC bull run as a result of the Halvening event. And if that momentum does not show, then there will be a huge disappointment and that can actually lead to a bear market for BTC. And that's another argument for why Halvening could drive down the BTC price - as in the hype was so severe that the price goes up so dramatically, and that eventually disappoints and leads to some kind of sell off. Do you have any thoughts on that?

CK:

I mean it's possible. I highly doubt it. I don't see anything that indicates that there is going to be less demand tomorrow for Bitcoin. It just seems like the meme is spreading, the fundamentals are spreading. The public awareness of Bitcoin is spreading. I think there's a very small community of people and investors that are involved in this space. And if the actual utility of a sovereign, independent, digital, hard money is something that is desired, then there's orders of magnitude new new users yet to be onboarded. And as long as that's the case I just, you know, I, I just don't see that the Halvening effect is going to not only shed you know, half the, the block reward, but it's also going to shed half the demand. It just, it doesn't line up with all the other contexts that I'm seeing.

Richard:

Okay, great. So this is actually a natural segue into the next question. You talked about additional users or investors that need to be onboarded. So this actually ties into the efficient market hypothesis a little bit as well. So this question is for Jason, it's going to be a little long. People that dismiss the effect of Halvening often cite efficient market hypothesis or EMH, the idea that all publicly available information has been captured by the market. So Kyle Samani of Multicoin capital has publicly rebuked this on Twitter. He says that EMH simply doesn't matter. It's no big deal, even if everyone is aware of the upcoming supply cut. His reasoning is as follows: the selling pressure will become less, but the incremental demand will not subside. The reason why the demand will not drop is due to structural limitations on the inflow of capital. Institutional investors will be allocating capital to this asset class regardless of timing because they're on mandates with decade+ timescales. These investors are not price sensitive and don't bother timing the market. Your thoughts on this?

Jason:

Yeah, I mean generally I agree with what, what Kyle's saying. The fact that institutional investors that will come to Bitcoin aren't, I think he was talking about price sensitive. So they're, they're not so interested in the price of Bitcoin today or tomorrow. Obviously they want to make a return on their investment, but they're really looking 10 years out and is the structure there for them to make the investment. And I actually think the Halvening event is just another news cycle that will bring more people to be aware of Bitcoin. Again, those that are here already that are out doing education understand it for the most part. But I, I think that the institutional investors are looking for the wrapper around this thing, the security, the insurance, the custody, etcetera. And you know, I tend to agree with what Kyle was saying there.

Richard:

Okay. Okay. By the way, CK, feel free to interrupt me if you want to chime in.

CK:

So I'm actually curious, like, Jason, it sounds like you are saying that this Halvening maybe priced in, but not future Halvening, are priced in, is that accurate?

Jason:

Yeah, so again, I'm not an economist. I'm saying that, right now, the first two Halvenings are hard to compare to what's happening right now. We can look back and we can deduce something, some information from it, but right now it's it's where we are in the evolution of the world and, and of Bitcoin. And so I can, I can look at the information that I have and I can say those are, that are involved in this space and are mining or investing the price is what it is, and it could change as more information comes going into the Halvening or after the Halvening. I've got the stock-to-flow models, which I think are really cool. There's some other very interesting models that are there. We can look at mining very specifically, you know, the change in hash two years ago to what it is now. We can look at difficulty, what it was two years ago and what it is now. We can look over 11 years at those things if we wanted to go all the way back. And we can draw information from that. It's very hard for me to believe that that this isn't priced into the market right now. There is no risk free investment. You, you can't put money to work right now or a few months from now and then sell after the Halvening and be guaranteed you're going to make money. I just don't, I just don't believe that.

Richard:

Yeah. To add to that, I feel Jason is basically saying, to answer an earlier question that CK raised, why Bitcoin is not trading at $100,000. I think it's because the market is pricing in something other than ... some other type of risk. For example, maybe people are worried that there's going to be some kind of security attack or some kind of state censorship or, who knows, maybe other altcoins overtaking its position.

Jason:

Richard, Richard, you have tailwind around the Halvening event right now, in all the good work that's being done, you know, not just Bitcoin lightning network, etcetera. Altcoins. The work of Ethereum is doing. DeFi. All of it is, is actionable. It's investible potentially if you're interested in the space. But you also have headwind. You've got the fed talking about, you know, mixing coins and money laundering and, and the, you know, they're pounding the table saying we're not going to allow for electronic Swiss bank accounts. And that's putting, I think the brakes are pumping the brakes on institutions and kind of some of the money on the sidelines from coming in. So again, you've got both of these effects happening.

Richard:

Right, yeah. So exactly. So that sort of adds to what I was saying, right? Which is basically that there's a good chance, I mean you guys are both BTC investors, I'm sure you're both bulls, right? You believe in the future of it, it's just that it's the question is the effect of Halvening that event alone, is that going to contribute to a price rally or a price change? And this is where we differ. So I think the answer to CK, why it hasn't gone into $100,000 is just because Jason simply doesn't think that Halvening is going to be the reason why it goes up to 100,000. It's something else.

Jason:

Yeah, like CK, I said this to Richard before we started that, you know, I have pretty strong convictions, but I hold them loosely. And if I learned something from these discussions, I win. You know, if we sit here and just talk to each other, it's just, you know, two idiots screaming at each other on a Friday. But you know, from, from my perspective, the, the Halvening event, the known Halvening event will potentially affect the price of Bitcoin and I think it has affected the price of Bitcoin. It's affected the price; it's in there now and it will continue to affect the price. I actually think that when we go into May, the headline's going to be the Halvening was a non-event. That's what the headline is. It'll be a big yawn and Bitcoin will chop sideways between 80 512,000. That's what it's been historically that then again, so if I'm, if I'm saying that and I'm saying there's no risk free return to be had if you invest two months before the Halvening and sell two months after that, you're truly just rolling the dice. You know, I have a low time preference on this investment. I just think it's there. And, and you know, again, I, I think that supports it being priced in, but I was gonna ask you like, am I literally arguing against myself with that position?

CK:

I feel, at least when I've been hearing some of your arguments, I think that you slightly argue against yourself, but at the same time like I guess I would ask you, is Bitcoin's stock-to-flow ratio going from greater than gold, to going to equal to gold, actually understood. Is that something that people are applying to their fundamental analysis? Maybe there's a small amount of people that are, but I just don't think that there is an understanding of how to evaluate this event. And then if you, if you couple that with the fact that any, any incremental adoption from here, most likely will have a magnitude, like will be an order of magnitude from existing adoption. It's just very difficult for people to calculate that in their heads. And I'm not trying to say that the market doesn't, is not processing information, it's just that this information is not perfectly distributed. This information is not perfectly understood. And even the people most in the know, like all of these people that Richard brought up that are predicting that the Halvening is actually detrimental. There's just too much confusion and misunderstanding of what this event actually means, let alone when the event happens, what information will be communicated to the market at that moment.

Jason:

But, CK, doesn't that very point you've made get priced in? And that's why we have kind of a chop sideways or down kind of potential because of that kind of, and I use asymmetry of information, meaning like we have information and then the rest of the world that's not per se participating in this event. That's where the asymmetry lies. I don't assume at all that everyone that's participating in in this world knows everything because I certainly don't, you know, I try to understand this stuff.

Richard:

Yeah. So I think what CK is saying is that in this little world, everyone understands that. So therefore that information might be priced in for this small group of people, but it has not been distributed to a lot of others. Right. And he's basically banking on others will be coming to the realization that the stock-to-flow ratio is going to be lower than even gold. Right. And make make Bitcoin...And so basically people are, it's going to dawn on others that Bitcoin's scarcity is even, is even more precious than gold. And he's basically saying more people will be coming to this fact and because this fact is not known by others, the market is not efficient and therefore this information is not priced in.

Jason:

Yeah, I mean I get it, but I think, I think right now the third Halvening is priced in because that's where we are. It is priced in. When you say all Halvenings are priced in, I don't know about the efficient market theory, whether it's loosely held, held in a very firm and, you know, way, I just don't know enough about it. But you know, it's, it's, I can stand here with a pretty strong conviction and say looking at the stock-to-flow model that the Halvening is priced in, and I'd be interested and I have asked plan B that question and he, he agrees.

Richard:

Yeah. I think, yeah, I think your position seems to be that the amount of people that are trading Bitcoin right now in the short term won't change. And because they're all smart, sophisticated investors that know about the mechanisms, therefore this information is fully, is already fully captured by them and expressed in the price. I think CK is just saying that there will be more people coming on board later.

Jason:

I totally, totally agree. I totally agree with what CK saying and that's what will cause the price to go up. Right? It's the scarcity. It's speculators, it's institutions. I totally agree with him that in that point, but that that to me doesn't invalidate my position that this third Halvening is priced in to the market right now.

CK:

So I'm kinda curious Jason, when you say that the third Halvening is priced in, what exactly are you talking about?

Jason:

Well, the, the event. So I'm saying like the event of the Halvening the, the, the changes that are going to happen in terms of the market, the rewards for mining, even mining those investments have been made. Like, you can't, you can't impulsively start mining two megawatts of power tomorrow with S17's you've got to order them, import them into this country or wherever you are, put interconnect agreements in place, negotiate a purchase power agreement, connect those rigs. Then you have to put them in a mining pool. You know, all of those things, you know, have to happen and they take intention. So from my perspective, if you buy an S9 right now it's 200 bucks. If you buy an S17, it's 2,500 bucks. That's priced in. That's priced in the power costs to mine right now is priced in.

Richard:

Yeah. Maybe another angle to tackle is: What do you think between now and say one month after the Halvening event, so say June, early June, mid June, between now and then, what do you think will happen to the price if no other information comes in such as threats from the government such as this you know, tumbler problem, right? Or you know, let's say no information about the Bitcoin ETF comes in, right? So strictly all the information we have is the fact that this Halvening will happen programmatically right between now and mid June. What do you guys think will happen to the price? I think that's another way to look at it.

CK:

Strangely here I actually, my anticipation is similar to what Jason anticipates. I think it's very much going to be a sell-the-news type of a situation. There's going to be a price pump, you know, leading up to the Halvening. So the news and then a little bit of sideways action. But where I think I would want to make a distinction with Jason is I don't consider the day of event to be the Halving, I consider Bitcoin pre-Halving and Bitcoin post-Halving to be the actual event and pricing in what Bitcoin is post Halving is, I think it's just nearly impossible. And part of the reason is just, it takes time for the market to even digest that data point that arrives to us the day that the Halving occurs.

CK:

And that data point is how much actual sell pressure is coming from the miners. And then once that data point starts to propagate throughout the network of, of participants, then other folks that are, that are contributing sell pressure also have to make adjustments. This is a dynamic market. And I mean, when I point to that graph that I discussed at the beginning where you look at the mining reward layered on top of the... Block reward layered on top of the mining reward in terms of dollars. You really do see this happening where it's almost like it goes down, there's a little bit of time where people digest and then all of a sudden the price explodes. And that's because the, the, the downward sell pressure from miners gets cut and then the downwards sell pressure from other network participants gets cut.

CK:

In order to kind of reallocate and you know, that has a lot of repercussions to you know, all of these other things that start to create noise and start to generate hysteria. So while I do understand what Jason is saying is that this is getting, this market is getting more and more efficient and you can see that in miner behavior, you can see that in liquidity across exchanges and, and just global liquidity in general. The reality is is that this is still not a very efficient market. There is still a massive amount of misunderstanding and confusion. And then ultimately the Halvening event itself, like I said, that data point only gets to only gets released to us when the Halvening occurs. So all of these miners, they're all speculating on what that data point actually is, but we just don't know until the Halvening occurs and those those, you know, market forces react to the information.

Jason:

Yeah. I agree with most of what you said, but I, I still think it's far more programmatic than, than what you're, what you're leading up to.

Jason:

Again, when I look at mining and the amount of hash that in the last two years has been invested into the network. Two years ago, we were mining 25 million Terahash per second. Now we're at 109 million Terahash per second. So you have an exponential increase. That is a real investment that is supported the price of Bitcoin. It's one of the things I use to actually kind of value this thing. And then you have the effect of that in the increase in difficulty. Two years ago we, I think we were at 4 trillion difficulty. Now we're at like 15 point 5 trillion in difficulty. The Halvening event is a massive difficulty adjustment on steroids and it will affect the price of Bitcoin as, as both of us have said. So I agree with how you're reading the price and I think it goes out 150 days or so post Halvening to kind of kill the weak hands, flesh out the inefficient miners, you know, kinda consume all of the news, et cetera. And then you, you get a new event in terms of price.

CK:

I honestly feel like we're arguing along the lines of semantics for the most part. I feel like we, we agree. It's just what are we defining as the Halvening, you know, what is that, what are we saying?

Jason:

I'm saying, I'm saying the price going into May whatever, May 9th, May 20th. Right. That Halving event when the, the adjustment occurs, it's priced in right now. That's, that's what my position is. Beyond that, news media could, could have something could happen, some events, some noise could change the price, but we know that that event is going to happen. We don't know exactly what will happen, but those that are involved you, you've got your chips. I would expect in the position you want them to be in right now.

Richard:

Okay. Maybe we switch gears a little bit and we can revisit this thread. Next question is for CK. How do you think the price history of other Halvening coins like Litecoin informed your thinking? We're now 80 days from the Bitcoin Halvening. If you look at the performance of Litecoin in the same time window prior to its August 5th, 2019 Halvening, LTC went from $90 to $140 in the first 35 days and then spend the next 55 days gradually back down to about 95 days on Halvening. So your thoughts in reference to the Litecoin behavior or is that even comparable to BTC at all?

CK:

I do not think that it is comparable. I do not think that Bitcoin cash is comparable. I don't think that any minority chain is comparable. Because they just don't have real economic activity. Most of these chains, you know, it's like pretty much Bitcoin and then kind of Ethereum, with Tether and then everything else is really just a speculative token. So the effect of the Halvening on Bitcoin lookalikes like Bitcoin cash and Bitcoin SV and Litecoin and FeatherCoin and all those other coins really like, it doesn't give you any information about Bitcoin because Bitcoin has the entire crypto ecosystem operating on top of it. It is the money clearing layer of the entire system. So looking at the Halvening events for them is, is just a completely different data point.

Richard:

Okay. So next question is for Jason again. So Kelvin Koh, the head of Spartan Capital stated on Twitter back in November, 2019 that there would be a pre Halvening rally and that has so far played out like he described. Obviously we don't know on the net basis what the price action would be between now and may. But one of his reasons is that unlike equities and other traditional assets, crypto is hard to value because the market does not know how to value BTC. They also don't know what the price at information equilibrium should be. And therefore the whole EMH argument doesn't apply. Your thoughts?

Jason:

It's a, it's a weird statement. Cause I think it's directionally correct, but again, I think there are models that we use to price Bitcoin. I mean people look at new wallets created total transactions per day, difficulty the hash, the network effect. Then you use kind of the news track. You know, I'm watching cloud Token and Plus Token and worried about the amount of ETH and Bitcoin they have, that they can dump on the network and support suppress the price; I'm using all that data and then all the data I can get my hands on and news to, to value this. But you know, I think he's generally generally correct, although I, I do think there are ways to, to kind of value Bitcoin.

Jason:

Okay. So the next question is for CK. Given the recent aggressive run up price, 30 to 40% year to date, do you still think the Halvening effect has not been priced in?

Jason:

I'm kinda confused by these statements. Like, I think that the Halvening is something that people will use as a reason to buy Bitcoin and it could be a reason why the prices running up. But is the actual true effect of the Halvening priced in, is it understood? No. So is this a something that's hype-able like Litecoin? Is this something that is going to drive speculation? Yes. Is this something that is going to accurately depict Bitcoin's value post Halvening? Hell no.

Jason:

CK -- aren't, aren't you confined to your imagination and what you know in regards to forming your opinion or your, your approach to an investment?

CK:

I guess I would say that. Sure.

Jason:

So I'm not trying to trap you. I'm simply just saying and because of that, that, that model, that's all there is. That's all there is. Like I totally get your point and I actually tend to agree with you said Bitcoin, Tina. Yes. Yeah. I mean we, we've gone a step further and, and, and actually compared, you know, Bitcoin to real estate, Bitcoin to, you know, to global real estate, Bitcoin to all global money. I mean it's wild. When you run those models, is that priced in right now? No, because we're not at a, you know, $5 million a Bitcoin. Right.

CK:

I do believe that Bitcoin will obsolete all other stores of value, but that's just my, that's just my bull case.

Richard:

To be honest. It sounds like there's actually a lot more agreement than disagreement here because it sounds like if we are evaluating, projecting the performance of Bitcoin from now till say one month after the Halvening, both parties agree that Bitcoin is going to follow some kind of upward trajectory and then selling the new sort of pattern where it just subsides, where it just comes down. But maybe the argument there is whether that particular understanding reflects that the information has been priced in or the information has not been priced in. It is a little bit of debate on semantics if you will. Do you guys feel that's the case? Am I describing your view accurately?

CK:

I guess I'll speak for myself. That's kind of what I'm, I'm seeing here. It seems like we agree for the most part. I think the biggest disagreement is really what exactly we're arguing about. Is it specifically like the value of Bitcoin post Halvening, slash, you know, with all future Halvenings priced in as well, or is it strictly the event that's gonna happen early may?

Jason:

Yeah, I, I totally agree with that. I totally agree with that. You know, my, my position is really just is the price of Bitcoin, excuse me, is the Halvening event this third Halvening event priced into Bitcoin and my, my position is yes, because I think it's following a very programmatic model right now. Have we priced in all Halvenings? No. You know, that's just, you know, I couldn't take that position because those events are beyond my conception right now. I've, I've got, we've got like assumptions and things, but they're so wild. They're there. They become difficult to prove. Just as you know, when he's in CK use the example that Bitcoin Tina brought up, it's your initial instinct. That sounds crazy, but it's not so crazy.

Richard:

So we can continue this debate on this thread a little bit later on. But right now I want to move to round three questions from audience members. So from 0.615, he asks, or she asks, do you believe that investors, institutional or individual are both willing and mechanically able to allocate capital to Bitcoin in a way that would price in the STF model, i.e., do either risks or lack of infrastructure limit or lack of infrastructure limit their ability to allocate capital. So my interpretation of this question, is this person wants to know whether there is a scenario that's happening right now, where investors somehow are not positioning their trades in anticipation of the S2F model, because of either a lack of infrastructure such as let's say a hedge fund, just not having the legal setup, right, the custody service and whatnot to actually trade this asset class. So yeah, so I think the right way to interpret this question is, are there infrastructural constraints that cause investors to, on the one hand believe what the stock-to-flow model was telling them. But on the other hand, unable to execute trades accordingly. And this question goes out to both. So whoever wants to answer first can go.

CK:

So I think what they're trying to say is - Like what you summarize - if even if all market participants believe in the stock-to-flow model, do they have the ability to allocate to it? I think that, you know, most people, they don't have the risk appetite in order to just allocate what Bitcoin, you know, what they think Bitcoin's worth all at once. Most individuals. And I think also institutions find themselves more in like a dollar cost averaging situation. You know, even me, like I look at the stock-to-flow, or I listen to Bitcoin Tina or any of these hyper bulls and, you know, I'm thinking Bitcoin's going to the moon. Like that's the only thing you need. But at the same time, I'm only slowly allocating. So even me just given my own personal personal circumstances, I cannot, you know, allocate to stock-to-flow you know, or to Bitcoin in a way that theoretically the stock-to-flow model is warranting. Like this thing is going to a hundred, you know, 200x.

Jason:

Yeah. And I appreciate that. CK. That was my point earlier, that although we have some programmatic models and some of us that really believe in what Bitcoin can and will do using will do people aren't really selling their house, selling their car, going all in on this investment. Because one that's not, that's not prudent or responsible. But two, they may not even have the resources to do that. Now stepping back to the institutions, I think they're way on the sidelines. I think. I think the smart money is sitting on the sidelines thinking, figuring out ways if they do want to get involved in this to accumulate large amounts of Bitcoin positions without running the price up. And part of that is like calling it fraud, fake Ponzi, you know, all the nonsense that we hear in terms of noise.

Jason:

in terms of infrastructure - I was, I may have read into the question differently, but I actually think we're in the best position that Bitcoin's ever been in terms of infrastructure, custody, transparency, chain analysis, understanding liquidity. So can you put positions on to take advantage of this? Yes, there are opportunities to use a 100x leverage to play out a thesis. Yes. but I just don't think there's a large amount of money actually flowing in now. It's more than it ever has been, but it's not it's not there yet.

Richard:

Okay. So my followup question to you, Jason: from your vantage point, what are some key things that need to happen for other money managers to want to get involved? Right now this is still a relatively small asset class, so maybe people are worried about slippage like you mentioned, and and maybe there's also a PR problem with some of these these these investment funds, but what would be some other things, other factors, and how would those factors need to change for more institutional involvement?

Jason:

Yeah, so from my perspective, when you're sitting down with it, you know, a CIO or CFO from an institution, you're talking about a small, at a small allocation in terms of their total allocation of their asset classes. And you're trying to get a percentage of that, that bucket. And you're asking that CFO, CIO, that allocator to take risk to put that investment on, and it's sometimes such a small amount of money from the institutional perspective that the risk outweighs the reward. If the, if that allocator's wrong, he just looks stupid. Does that, does that make sense? Versus letting the market mature, letting it run up. Let's say Bitcoin goes to a new all time high, 20, 30, 40,000. They're willing to give up the, the upside from now until then to feel like there's a more mature market. The regulation is clear. All of the custody, exchange, liquidity, all those things are very clear. Optically, they'll give up the upside so that they have the security to not get blown up on Monday when this thing wasn't what they thought it was. And they had put this highly speculative investment on and, and lost. Does that make sense?

Richard:

Yeah, it makes sense. It sounds like these institutional investors are reluctant to be the ones making...so, a couple of things...

Jason:

Richard, Richard, you know, pioneers get left in ditches with arrows in their back. Right. I think that's, that's the point, right? Then I don't think there's, there's not enough reward here to pioneer for some of the institutions. Those that do I think will look very smart.

Richard:

What do you think the market cap will need to be for all this to happen? I know that's a very crude measure, maybe give a range or what is the price of Bitcoin that will trigger this additional institutional interest?

Jason:

Yeah, I think it has to break through a new all time high and that will, that will get people following back in.

Richard:

So CK, unless you have something to add. I'm going to move on to the next question here.

CK:

I agree though. Yeah. It's a matter of price.

Richard:

So from Alfred_Bitcoin, this is for Jason. If this Halvening is priced in, then it naturally follows that all subsequent for Halvenings are priced-in as well. So what would be a good reason that BTC price will rise in the future? I know this is something you already addressed, but maybe we can revisit.

Jason:

Yeah, I mean the answer, the answer is scarcity. Scarcity. If Bitcoin does everything that we say, it does. Never gets hacked. We start to build layer two, layer three, layer four, whatever that is. This is the fundamental platform. It's what I believe all the transactions and cool stuff. And I can feed chickens you know, on Lightning Network, all that, all that really interesting stuff. If that all happens, that's where the price appreciation comes from.

Richard:

Okay. Right. So there are many exogenous factors for why BTC will rise in the future. Its utility, its, I guess robustness and general perception of it being a proper store of value and so forth.

Jason:

Yeah, and I think this, this technology actually gets applied across all the thematic kind of investment buckets. So it hits, you know, healthcare, oil, it, it's, it's hit everything that we deal with right now. I think we'll be affected by this technology. That's why I'm so bullish on it.

Richard:

Okay. So the next question is from Young Bitness. What other altcoins are interesting and why? And this is for both. Feel free to answer in whatever order you please.

CK:

Oh gosh, this is a tricky, this is a tricky question. Bitcoin is the next Bitcoin. Everyone other coins that, that I, I mean other altcoins that I actually pay attention to. I of course am forced to pay attention to Ethereum. It seems to continue to just be relevant. I don't know if the theory is going to be a good investment, but it continues to be relevant and in my opinion, this is an unpopular opinion. It continues to be a very good friend to Bitcoin. Outside of that DCR - Decred seems to be interesting, although it's extremely illiquid and extremely experimental. The reason I think it's interesting is because it follows kind of the core tenants of Bitcoin. There I'm sure there's other things that are gonna pump, but that's not really what I'm here to comment on.

Richard:

What do you mean when you say Etherium is a friend to Bitcoin?

CK:

I mean, I, I have an unpopular opinion here. A lot of hardcore Bitcoiners will think that Ethereum creates confusion. It takes away from Bitcoin. It wastes energy and resources that could be going towards Bitcoin. But I just think it's a lot more nuanced than that. And I just think that from an awareness perspective and engagement perspective even even just even just like getting people to have more assets to trade Bitcoin against, like Ethereum does add a lot to the, sorry, Ethereum does add a lot to the Bitcoin ecosystem. So that's my, my overarching perspective of, of Ethereum.

Richard:

Okay, interesting. I guess my interpretation there is that Ethereum draws in a crowd that would also be forced to look at Bitcoin. So from an investor's perspective, you like that, right? It's like if you are long gold and then there happens to be a group of people that really like silver, you're like, that's great because they would also be paying attention to gold somehow. So maybe that's the way I would look at it.

CK:

And they're talking to all the gold people too.

Jason:

How about you Jason? Are you only looking at Bitcoin? What other altcoins excite you?

Jason:

Well, I actually look at it more holistically. You know, I fundamentally believe that all stocks, bonds, currencies and commodities will be digitized. So that doesn't rule out any, you know, that doesn't exclude altcoins from participating in that world. You know, I think smart contracts are necessary for computers to talk to computers. And I think that's fundamental to this the core thesis here. And then we need digital accounting and that's with the, the invention of this of this triple ledger system. So you know, beyond that I like tokens that you can stake or bake. So I follow Tezos, DCR as well, probably been staking that for years. I like Raven coin. And Travis Kling - He's a big Gifto fan. So you may have to ask him why he loves Gifto so much.

CK:

Can't imagine why!

Jason:

CK you need to talk to Travis about Gifto.

Richard:

We've actually reached the stage of concluding remarks, although I feel there still might be some unresolved issues we could talk a little bit more about. So maybe this is an opportunity to do so. So feel free to mention what your takeaways are from this debate. Anything you have learned from the other side, you haven't considered that before and you know which part of your original argument you'd be okay with conceding, if any. And yeah, so, CK you go first.

CK:

So first and foremost, I greatly appreciate you, Richard, for bringing us on and greatly appreciate your perspective, Jason and the work that Morgan Creek does in general. You guys are fantastic advocates for the space and it's been an honor to hash this out against you. In general, my position has not changed very much. I think that there's a lot of semantics. I think that generally there is agreements when I interpret the the question is the Halvening priced in I don't take that as the day the Halvening occurs. I take that as what Bitcoin becomes post Halvening. And I just do not think that the, that, that can be known just because the data point is not there of, you know, miner sell pressure is well as the data points around demand and the data points around future demand and the data points around using Bitcoin as a store of value for what it's been proven to do, given Bitcoin's new stock-to-flow positioning.

CK:

So I would say like that is still my main position, if I could take anything away from Jason's perspective, is I really appreciated how he kind of based and and built a foundation around his perspective around miner activity. And I must admit when you do look at miner activity, it seems as though they are actually pricing in Bitcoin's future Halvenings because the hash rate has just been exploding. Granted, there's a lot of nuances there. But if anyone is pricing in future stock-to-flow it's most likely the miners because they're just so much closer to all of this.

Richard:

Okay, great. And Jason, your turn for your concluding remark.

Jason:

Yeah. Richard, thanks for having me on tonight. And CK, this was my first time getting to talk with you. And it's so exciting to to kind of get confirmation of how smart the people are that are in this world. So I, I certainly don't put myself in your in your brain space, and I appreciate the good work that you do every day and the events that you're putting on. And, and I look forward to more podcasts that you do. So, you know, when I was asked to do this, I was asked, is the Halvening, you know, as a known event priced in and my position is yes. And, and I, that hasn't really changed. You know, I will concede that all future Halvenings have not been priced in because it's easy for me to imagine what could be.

Jason:

But when you look at the hard facts of OpEx and CapEx associated with the network, that is Bitcoin, and you look at the, I'm just looking at the last two years. I won't even talk about the last 11 years. Difficulty, way up 4 trillion to 5.5 trillion. That did not happen because of anything other than the massive amount of money and compute power that was put into that network that drove the difficulty up. Your hash rate went from 25 million Terahash per second to 109 million Terahash per second over the last two years. Massive computing network power put in and that all came following Moore's law and that you, over the last four years, we antiquated very expensive machines. I personally paid 1.5 million dollars for 500 S9's back in the day. Those things are worth $200 right now. And if you have to upgrade your equipment and buy S17's, which you have to do, cause you're running off a cliff in May, those things are 2,400 bucks. You're getting way more terahash per second. It's going to cost you more because they, they take more power. I think there are about 2,500 Watts to the wall. And that's real money. That's real money and that's priced in.

Richard:

Okay, great. So maybe if I were to just add my two cents to help summarize, I feel that what is in agreement here is that the fact that the Halvening is happening is certainly known to the group of traders and investors that are relevant to this market. But what that means, what the implication is, there's some disagreement there, right? Jason believes that that information and the impact should already be known, but from CK's perspective, that impact, we just don't have the necessary tools and proper convincing analysis of history to conclusively say what's going to happen. But regardless of this disagreement though, there seems to be some consensus around the pattern of the price that will take place. It's hard to call the peak and the timing of the peak, but it seems to be the case that prices will increase to a certain extent and then there will be a selling-the-news paradigm kicking in where the price will come down and it's hard to say where that point will take place. But it sounds like this particular pattern is the general consensus that the two of you have reached today. And maybe it doesn't matter if the Halvening is priced in or not, as long as at the end of the day, the idea is that this is what will happen to the price because that's actually what people care about anyway.

Richard:

So great. Well, it was an honor to have both of you come on the show and debate. As you've pointed out, prices can move due to all kinds of reasons and sometimes for no clear reason, especially for a young less institutionalized and difficult to value asset class like crypto or Bitcoin. But now we have some arguments provided by both of you to think about how Halvening might play a role in effecting or explaining those price moves. So thank you for providing all that to me and our listeners. Last question is, how can our listeners get in touch with you?

CK:

All right, I'll go for it. You can find me on Twitter at CK_Snarks. You can listen to me on my Bitcoin versus Ethereum podcast at POV crypto pod. And then I highly, highly encourage you to check out Bitcoin 2020 conference. It's going to be the end of March. I'll be there in person running around with my head cut off, but it's going to be an absolutely fantastic event, amazing speakers, amazing sponsors, and really everyone from the Bitcoin industry will be there. So it's Bitcoin Twitter in real life and highly recommend Bitcoin 2020.

Richard:

Great. And Jason?

Jason:

Yeah, you can just follow me at Twitter. I'm at Jason Williams @JWilliamsFstMed.

Richard:

Well thank you both. So listeners, we would love to hear from you and to have you join the debate via Twitter. Definitely vote in the post debate poll. Also, feel free to leave your comments. We look forward to seeing you in future episodes of The Blockchain Debate Podcast. Consensus, optional proof of thought required. Thank you guys!

Jason:

Thanks guys. Have a great weekend.

CK:

All right. Thanks so much, Richard. Thanks so much, Jason. It was an absolute pressure, bye!

Richard:

I would like to express my appreciation again to Jason and CK. As you may have noticed from the debate, and this may be reflected in Halvening discussions you observe on Twitter or in real life, when someone says Halvening is priced in, they mean that all traders are well aware of this and prices won't move between now and shortly after the event. When someone says Halvening is not priced in, they mean that despite complete knowledge of this event, in the long run, the net buy pressure will keep pushing the price upwards due to increasing awareness and psychological acceptance of Bitcoin scarcity, a result of Halvenings.

Richard:

So both sides agree that prices will go up in the long run, but one side says not in the near term as the upcoming event is a widely known fact. The other says, well, they still can because for various reasons, the market isn't sophisticated enough to reach an equilibrium state even if everyone knows about the event.

Richard:

In any case, if you have low time preference and have your eyes on a longer horizon, then perhaps the market's reaction to this near term event isn't really a concern. Thanks for joining us on the debate today. I'm your host, Richard Yan, and my Twitter is @gentso09. Our show's Twitter is @blockdebate. See you at our next debate!