Michael Howell: When Bitcoin Bottoms (The Signal Everyone Missed)

Bitcoin is probably the most liquidity-sensitive asset on the planet. This Bitcoin crash wasn't random. Oh no, no, the signal was there, and almost everyone missed it. Bitcoin is in freefall. Every chart looks broken. Everyone is asking the same questions: How much lower can it go? And when does it end? Traders are arguing over cycles. Analysts are guessing about support zones, but there's one man who doesn't need to guess because he tracks the data that actually drives every move. Michael How, CEO of Crossber Capital, the man institutions call "the godfather of liquidity." He spent three decades mapping how global money flows move markets as one of Wall Street's top researchers. And right now, that data is flashing.

Bitcoin is probably the most liquidity-sensitive asset on the planet. This crash has nothing to do with having cycles or sentiment. It's about global liquidity, and it's collapsing beneath the surface.

And it's explaining why it's not a four-year cycle in crypto. Why it may be something very different.

Because this time, the driver isn't retail. It's the debt liquidity cycle turning down, the same pulse that governs every boom and every bust in modern finance.

This is the real action in the markets, and it's saying that the markets are basically taking control of interest rates, and the Fed is losing control.

When liquidity evaporates, Bitcoin, the most sensitive asset on Earth—I mean, a real asset—it reacts first. That's why it's leading the crash, not lagging it.

It could lead to a deeper financial crisis. The pain that you see on this chart is more than another correction. It's a symptom of a global liquidity squeeze that could shape every asset. But beneath the fear, and it's bad, the longer-term signal is still clear.

In the last 25 years, from year 2000 to the year 2025, the stock of federal debt increased by about 10 times. A tenfold increase in federal debt. Right? Hold that thought. The S&P went up by less than fivefold over that time.

The system has only one way forward: more debt, more money printing, and more debasement. That next surge will come. The question is, when?

I would be very cautious about accumulating or chasing risk assets right now. Buying the dip too early can wreck portfolios. How's data shows exactly how to spot when liquidity flips before the rest of the market even sees it. So guys, stay locked in because this conversation could show you the real signal behind Bitcoin's collapse and, importantly, where the bottom truly lies. And guys, if you like these kinds of shows, do us a favor: destroy that like button. And if you get value from the video, make sure that you hit that subscribe button with notifications turned on. And again, remember, nothing in this video is financial advice. It's for educational purposes only. All right, guys. Without further ado, let's bring on Michael to the stage. Michael, welcome to the show. It's really good to have you here. Some call you the godfather of liquidity. Um, that is a very interesting topic right now, as at least folks in the crypto Twitter and cryptoverse bubble are really trying to figure out what the heck is going on. And you have some folks in the camp of, you know, the four-year cycle has always been the four-year cycle and therefore it's a rule that it must maintain the four-year cycle and saying that, you know, tops in, maybe we'll get an altcoin rally in the next month or something, and then, you know, like don't expect anything exciting for 2026. Um, but yeah. Uh, so the first question that I have for you is, you know, if you could define kind of what is liquidity and, you know, how, like, how has the shift to debt financing, refinancing, and the financial system made liquidity more important and interest rates, like GDP and CPI, and even the old, like, business playbook, or the business cycle playbook? How does that all work together? And, um, again, thank you for being on the show.

Okay, Carl. Well, it's, it's great to be here. I'm very thrilled. Uh, there's a lot to talk about, as you, as you suggest, and, um, quite a lot of ground to cover in what you just suggested. Um, I think the, the, the first thing to say is that maybe up front, that, uh, Bitcoin is probably the most liquidity-sensitive asset on the planet. So, we need to understand liquidity. Uh, I'm pretty skeptical about the fact that there's a four-year cycle, a sort of, uh, uh, set in stone four-year cycle that never changes. I think there are other things going on. I think one's got to understand macro. I mean, clearly, there is, uh, a four-year supply dynamic, but there's also a different frequency for demand, and we've got to understand that, and that really is a monetary phenomenon. And, um, you know, before we get into the weeds, maybe I ought to define liquidity. We're thinking about, uh, as liquidity, the flow of money through world financial markets. And I want to be careful with that definition because it's not really including what people think of as M2, which is much more money, uh, in resale bank deposit accounts. So, traditional M2 is a, is an economist's definition. It doesn't really embrace a lot of the, uh, modern architecture of finance, things like the repo market, things like shadow banks, uh, all these things are really important to understand, particularly right now, because that kind of derailing a bit, particularly if you look at the US repo market. And I think it's really people need, need to understand in many ways how the financial structure has changed, probably quite fundamentally since the global financial crisis, uh, what, 15, uh, well, just over 15 years ago, back in 2007-2008. And, you know, what we've got now at the heart of the system is a repo market, a refinancing market. And the point about that is that, you know, whereas prior to the GFC, a lot of lending was kind of done on trust, particularly between financial institutions, uh, it's now done, uh, through collateral. So, collateral is really important. And what we mean by collateral, you can think of a very straightforward example in terms of a home equity mortgage. Uh, people are familiar with that. That's clearly a collateralized loan. So, if you don't pay, then the, your real estate gets repossessed. But you can think of it in terms of the financial sector. The financial institution, say a hedge fund, is borrowing in the repo market against collateral. And that collateral is likely to be a treasury bond in some form, uh, and they can effectively borrow, let's say, for argument's sake, uh, 95, 98% of the value of that treasury bond, uh, and that is a, a repo or collateralized loan. And that's really important right now, uh, in terms of understanding the system. But the other thing to say in terms of, of understanding liquidity and the dynamics is that, you know, if you pick up a finance textbook, what it tells you is that the capital markets are here to raise, raise new capital for new investment projects. Uh, in other words, they're part of the whole capital investment cycle in the real economy. I mean, that is just no longer true. Uh, we're living in a world where there's huge amounts of debt. Uh, I mean, the whole debasement trade is clearly a, uh, a factor which is spurring interest in crypto and in gold. Uh, we've got to remember that. But that debasement trade is all about the debt pile that, uh, the world has taken on. And financial markets today are really all about refinancing the debt. Now, if you, uh, if you, if you think of an equity security, an equity security exists in perpetuity, but a debt security has got a finite life to it, uh, and typically, on average, in the world economy, uh, those debt securities probably have a term of about five years on average, maybe five to six years, something of that magnitude.

Can I ask you, if you, I just want to ask you a quick question, um, before we get too far from it. Um, if you could just remember where we left off. I'm just curious about the collateralization of the treasuries, uh, because you said like up to 97, 98% of the value, and, you know, you've got a lot of people with a lot of collateral of treasuries, you know, and I'm just curious because treasuries are supposed to be, you know, basically backed by dollars and they have interest rates attached. Has there been a time in history, or several times in history, where there's there's been a lot of, uh, like margin calls on those loans, or are they historically been very stable, and that's why they allow that high of leverage from margin on those?

Well, I mean, it's, it's a very good question, but the thing is, we haven't really been down this track before because, uh, if you think of before the global financial crisis, um, we didn't really have that degree of collateralized lending. This has been a new phenomenon because, really, through the financial crisis, banks realized that they couldn't trust another bank, uh, in terms of the quality of their loans. So, there was, there was an inte, an integrity problem. So, now most lending is done, uh, through collateralized means. There used to be an interbank market, and that interbank market wasn't collateralized, but it was based on trust, and that trust no longer exists, or, you know, it's, it's more, uh, it's more edgy. So, people need or demand collateralized loans. So, you've got a, a very, a very new market, uh, in that sense. So, have there been runs on that market? Well, I mean, there have been runs in the sense that there have been repo, there's been repo tension. I mean, the most recent, uh, occurrence was 2019, September 2019, where repo rates really spiked. But I think it's a question of understanding that process, and maybe it'd be kind of useful if I, if I put a slide up, and that may be a slightly, you know, educational, um, slide, and it would, um, it would, if I can just do this, it would basically enable us to sort of understand the process. Now, in fact, what I, I've got on the front page of this presentation, and hopefully you can read that, is it says, "The Debt Liquidity Nexus Breaks," and it's that debt liquidity nexus that's really the important thing. Now, I'm going to go through and start actually in the middle of this presentation, uh, which is at that slide, which is really trying to understand the financial system. Now, this is a little bit, uh, of an educational kind of finance 101, but just sort of bear with it because it, it shows really what the problem is, and, uh, maybe what the solution is, but it, it shows where we are now. And what you have right at the heart of this is two boxes which are called liquidity and debt. And we're living in a world where, as I said, um, basically debt needs to be refinanced, and that's done with liquidity. So, financial markets today spend most of their time, uh, rolling over debt. Something like 70 to 80% of transactions, as that right-hand side says, are now refinancing existing debts. They're not raising new capital. They're just rolling over debt. And you need balance sheet capacity in the financial system to do that. In other words, you need liquidity. Now, the paradox at the heart of the system is that debt needs liquidity for refinancing, but liquidity needs debt for collateral. It needs old debt for collateral. Uh, in other words, new, new liquidity sits on top of old debt, existing debt. Uh, and that maybe is the paradox. So, if you get a, if any of those two sides derail, then you've got a problem. So, financial stability requires some sort of equilibrium between debt and liquidity, which we'll see. Now, if you get a problem in terms of the refinancing or the rollover of debt, you get a problem on the right-hand side, and that is expressed in things like credit spreads blowing out. Okay. And there have been some concerns about that, particularly given the fact right now that credit spreads, particularly in the US, are at, have been paired down to, you know, remarkably low levels. There's been a great narrowing in spreads, uh, in the, in the US market, actually, in worldwide too. And then, if you look at the left-hand side, that's saying that this is the lake that is turning debt into liquidity. So, it's the collateral repo side, and as it says there, 77%—not our figure, that's a World Bank figure—of all global lending now is collateral-based, and that includes home mortgages. It includes real estate loans, but it also includes fundamentally, uh, repo money that is backed by US treasuries or German bonds or whatever. And what that says is, if you get a problem in the repo collateral markets, what you'll see is SOFR spreads, which are the interest rate in the repo market, a market-based rate, um, system overnight funding rate, that means, and that will blow out relative to what the Federal Reserve is targeting, which is Fed Funds. Or you get a change in something called the MOVE Index, which is essentially volatility, uh, in your collateral space. Now, if you think about this equilibrium, then we go on to this diagram. Now, this is, if you like, explaining the financial cycle, and it's explaining why it's not a four-year cycle in crypto, why it may be something very different. And what this is saying is this is looking at the equilibrium in the financial system between debt and liquidity. So, it's simply the ratio between all debt in advanced economies—so, it's government debt, household debt, corporate debt, etc.—divided by the pool of liquidity that exists to potentially roll that over. Now, when you get a very high debt-to-liquidity ratio, in other words, huge amounts of debt and not much money around to actually refinance, you get understandably tensions, refinancing tensions, and that's on the upper part of the diagram above the dotted line, which is seems to be the average at 200%. Now, that says that you can see from the annotations, lo and behold, that's where financial crises occur. And if you look back at the annotations, every time you get an elevated debt-to-liquidity ratio, you get a financial crisis. And then you go to the other side of that threshold, that dotted line, and you start going down the page, and you see that there's a very low debt-to-liquidity ratio, and that causes asset bubbles. There's abundant liquidity. Uh, you don't need so much liquidity in the system. So, the vent is rising asset prices, and you see things like the Y2K bubble, the US housing bubble, and the latest one is the everything bubble. Everything's gone up. Now, if you look at the degree of that displacement, that is huge. Uh, we've just come through an unbelievably, uh, loose period for liquidity. Now, why is that? It's basically because every problem that we've run into since the GFC, policymakers have addressed it by throwing liquidity at the system. Be it the 2019 repo crisis, the Fed opened the taps. Uh, be it the Bank of England gilt crisis, uh, they opened the taps. Be it the COVID crisis, they opened every tap there simply was and just poured money into the system. And what's more, what they did is they crashed interest rates down to zero levels. So, we had zero interest rates. Now, not only do zero interest rates, uh, they don't really cure the problem, they make it worse because what they do is they incentivize more debt. Uh, that's what low interest rates are all about. And what's more, they encourage, uh, borrowers to term out their debt. In other words, if you, if you're sitting on a, let's say, a 7% mortgage, uh, that is due to, you know, expire in a year or two, what you're going to do is to try and refinance that, and you're going to refinance it at zero interest rates, and it's going to term out in 2027, 2028. And that's why you've got a situation where that orange line is starting to move up into the danger threshold in the next two years. It's moving up now. Uh, and it's because first of all, liquidity growth is slackening because the Fed looks as if it's sitting on its hands. The Fed has been very reluctant to expand the balance sheet, and you've got debt coming back into the system, which I'll just show this chart, then you can ask, you ask a question about it. This is the debt maturity wall. This is the amount of debt incrementally that's coming back each year into the world economy, extra. So, there's an underlying base level of about $40 trillion, but these are the incremental bits every year that are deviating either side of that. And that's saying that if you look at the chart, there's a big bite out of that chart in '21, '22, '23 when rates were zero, and they're coming back where the red lines are.

That's the problem.

So, on the previous chart, that 220 was the estimate, uh, right? And so it shows right now. Right. Right now, I guess right now we're somewhere near 190, 195, something.

Yeah, we're sort of moving, we're moving back. It's becoming, you know, the, the temperature is kind of rising, if you think, if you think about it. And that's the problem. Now, if you look at the, the response of the markets, and this is the problem right now that is hitting, um, hitting the repo markets and affecting adversely affecting crypto, is this particular development. And what it's basically showing is the liquidity is tightening. And you can see that because in the repo markets, where you've basically got the interaction of debt, in other words, the collateral, and the need to roll that debt or borrow against that debt in terms of the repo borrowings, it's saying here that if you start to see a lack of liquidity across dealer banks or insufficient quality collateral from borrowers, you're going to get spreads blowing out. And this orange line is basically showing the spread between repo rates and Fed Funds. Now, bear in mind that the Federal Reserve, uh, discount interest rates by 25 basis points. But if you look at that spread recently, that spread, uh, has been up as high as about 37 basis points, uh, above Fed Funds. So, in actual fact, the Fed rate cut was completely wiped out in the repo market. This is, these is where the big borrowings are. I mean, there's trillions of dollars, uh, borrowed in this repo market, and there's something like, I think it's $85 billion borrowed in the Fed Funds markets. The Fed Funds market is tiny. This is the real action in the markets, and it's saying that the markets are basically taking control of interest rates, and the Fed is losing control.

And Michael, real quick question. Um, can you explain, uh, a little bit about what is the repo market and, and, uh, where does, um, like, what kind of tools that do that allow, I guess?

Yeah, I mean, the repo market is, is the, is the main financial market for, for borrowing now. So, banks will go to it, um, you know, banks will do a lot of their funding from this market. Uh, traditionally, banks were funded by bank deposits, but that's kind of, I mean, that's still important, but there's a lot of funding which goes through the repo markets. You've got hedge funds which will go into the repo markets to borrow. And what they will post each time, uh, is they'll basically post collateral, which is, uh, in the case of hedge funds, maybe will be, uh, government debt. So, you've heard about the basis trade that hedge funds are doing at the moment. Uh, the Federal Reserve estimated recently that that hedge funds were responsible for buying just over $1.5 trillion of US Treasuries last year, and that was financed in the repo markets, uh, through this collateralized borrowing. So, it's a really important market. What are the sources? What does repo mean?

Sale and repurchase. So, in other words, what you're doing is you're, you're, it's effectively done through a, through a bond. So, what you're doing is you're selling the bond. So, the hedge fund will sell the bond to the dealer bank and then we'll guarantee to buy it back again. So, it's a short-term loan, if you can think about it that way. It's done through, it's, it's security. It's done through a security rather than going to a bank and, you know, signing a document.

Right.

It's done in a different way, but it's exactly the same phenomenon. And what are the sources of money that comes into this? It's basically could be a whole host of things. It could be banks with excess deposits. Uh, it could be corporations who are basically, uh, got excess treasury deposits. They're depositing in the money market. It could be straight money market funds that are investing in this. It could be sovereign wealth funds. You get the idea. There's a lot of, uh, very short-term cash that needs a place to sit. And one of the issues that you've seen since the global financial crisis is because of all the regulations on banks, they don't really want to hold, uh, a lot of wholesale deposits now because it's, it affects their capital ratios. So, that wholesale money goes into the, into the repo markets. So, that's, so, that's what's going wrong. And you can see that you've got this problem here that repo is, is, is blowing out. And at the moment, this is an inconvenience for the Fed, but it could be a problem. And it could be a problem because it could lead to a deeper financial crisis. Now, what I want to show is this chart, which is basically looking at the growth of Fed liquidity. Now, Fed liquidity is a concept that we, uh, wrote about quite extensively, you know, about five or six years ago in a book called Capital Wars, where we, uh, looked at a lot of these global liquidity dynamics. And Fed liquidity is really a, a particular measure of the liquidity injections of the Federal Reserve, uh, as part of its balance sheet operations. Now, the Fed is very keen to quote its overall balance sheet at, you know, whatever it is, $6 trillion or whatever, but in actual fact, all the, uh, those elements on the balance sheet are not liquidity-creating. Only certain components are. So, only about half of that actually creates liquidity at any one time. So, what you need to do is to strip out the liquidity-creating components from the non-liquidity-creating components. And what you're seeing here is the bits that actually feed liquidity into the money markets, and this is the growth rate. Now, if you look at the growth rate, that growth rate is not, uh, dissimilar to the profile of what's been happening in the crypto markets. And you can see, uh, where we've come from, uh, 2021, a huge amount of liquidity injected by the Fed. '21, '22, that money was taken out. 20, late '22, it was put back in. Uh, you had early '23, the SVB crisis, etc., lot more money coming in, that's why that big spike is. Uh, then you see a blah, blah, blah, late '24. Then you see another surge at the beginning of '25. That was all connected with the, uh, debt ceiling where the US Treasury had to run down, uh, its balance at the Federal Reserve. That's now been rebuilt, which is why you've got that big drawdown in Fed liquidity. You've had the government shutdown, which has caused more liquidity to basically pile up in the Treasury General Account, and then they're, you know, ultimately, uh, they're going to have to restart QE. We've actually got that penciled in on the, in the chart in the prediction, but we've got a sort of modest, modest amount of about $250 billion, which is going in. So, that's the dynamic that, that we see. Now, uh, let me just roll on a little bit to say what the problem really is. And this is maybe getting a little bit in the weeds, but I'm just going to say this because it's, it's important to understand how the, how the system is interconnected and why it makes a big difference. This is the reserves of US banks, uh, held at the Federal Reserve. So, this is their, their reserve balances. And this is really critical because this is what determines, um, the amount of liquidity in the markets, and particularly in the money markets. And what this shows is the orange line here is the level of bank reserves. That is controlled 100% by Fed liquidity. So, if the F, what the Federal Reserve does in terms of injecting its money into money markets is what results in terms of bank reserves. So, the two are moving almost one for one. And what you see here is a drawdown in that orange line below the dotted line, the red dotted line. The red dotted line is my estimate of the minimum working balances that the banks need. Now, uh, in other words, adequate reserves, as I've labeled it there, and I've worked that out from where you get stresses in the, in the repo markets, even assuming that you get some rebuild in, in the Fed balance sheet. In other words, you get, uh, QE restarted, um, it's still not enough to take us back to those levels of com, their comfortable levels on the threshold. So, the Fed needs to do an awful lot more. And one of the reasons for that, which is a sort of technical point, but it's worth, it's worth spelling out, is that the Fed, under, uh, Treasury Secretary Bessent, has copied the Janet Yellen script of issuing an awful lot of debt at the short end of the market and issuing Treasury bills. So, they're funding the government through, uh, bill issuance. Now, there are two points to note about that, which are really important, uh, for investors in the crypto market. Number one is, in the long term, this is really bullish for crypto for the simple reason it's monetization. In other words, what's the difference between printing a US dollar bill and a three-month Treasury bill? Actually, not a lot. And in actual fact, the big buyers of Treasury bills and short-dated government debt are the banks. And the banks don't buy that with existing savings. They buy that by expanding their balance sheets. In other words, they expand money supply. And what that means is monetary inflation. That is inflationary in the long term. We know it never ends well, but that is the debasement trade. So, that's number one. The other thing that's important to understand is that in the short term, what that means is that Fed liquidity is going to be constrained. And that's what we're seeing right now. And the reason for that is is that if you're issuing so many Treasury bills, like three-month bills, you're going to have to refinance those pretty often. And so, every week now, the Treasury has to refinance about half a trillion dollars of Treasury bills. Now, what does that mean in practice? It means that they've got to have a big balance on their Treasury General Account because they need five days' working balance there. So, if you've got a process where you're having to refinance bills all the time, you need an awful lot of cushion on your bank account, which is why the Treasury General Account has been built up to about $800, $900 billion, and why it's going to stay there. So, that's, that's the backdrop. Now, what does that mean in terms of financial stability? Here is the gap between the red dotted line and the orange line, which is showing the shortfall of bank reserves in orange here, and the black line is trade fails among primary dealers. So, this is basically inability to settle a trade in the core repo markets, and that means that you've got growing, potentially growing instability. The black line is shown inverted on the right-hand scale. So, when that black line goes down, it's actually telling you that trade fails are jumping. And

A trade fail means that they can't?

Mean you just can't, you can't deliver. So, in other words, you, you've, you've entered into a transaction and you've said, "Okay, I'm going to, I'm going to deliver you this bond," or "I'm going to, uh, I'm going to pay you back, uh, the loan I've, I've, uh, I've just given." And you can't do it. So, it's a failure. And that causes potential volatility in the markets and it causes repo rates to spike. You may have to scramble for liquidity. Uh, you may have to push repo rates even higher. Uh, you may, it may mean that you're a forced seller of securities somewhere else. But it's not good news. In other words.

Yeah.

So, that's the backdrop that we're effectively looking at. And this chart, which is admittedly looking at the S&P in orange, is looking at Fed liquidity line in absolute terms. So, this is the amount of liquidity the Fed is pushing in, which is shown on that right-hand scale in red, and the S&P is in orange. And I've lagged the S&P by 25 weeks, which is six months, to try and show when you get big drawdowns of Fed liquidity, it's not good news for the stock market. And what's not good news for the stock market tends to be not great news for crypto, because as I said, Bitcoin is very, very liquidity-sensitive. Now, you can see historically what's happened, uh, but I want to just show a couple of charts just coming up, which are looking at the problem. This is looking at a systematic breakdown of the influences on Bitcoin that we did, uh, a few months ago. And this is a rigorous statistical analysis that, for those that are mathematically, uh, inclined, was a vector auto-regression model that looked at weekly data, uh, going back over, uh, six or seven years, looking at Bitcoin and various influences. And what we found is that there are some very key systematic influences on Bitcoin, and the pie chart shows those factors and their relative importance. So, what it shows is that global liquidity is by far and away the biggest influence on the price of Bitcoin. That's a systematic influence, which I'll show in a second. And that's just over, you know, uh, basically two-fifths of the, of the story. But then you've got other factors. One of those is investor risk appetite, which is about 20% of that, of that pie. And that's saying things like, well, you know, Bitcoin is affected by tech stocks, and if that's a good benchmark of risk appetite among investors, if NASDAQ collapses, then you're going to get a negative feedback on Bitcoin. And clearly, if NASDAQ goes up a lot, that's another factor. So, you can kind of think of Bitcoin as being, you know, partly a tech stock. The other thing is that look at the gold price, that figures quite noticeably. And what this is basically saying is that gold has, uh, an interesting relationship for Bitcoin. Now, if you, again, mathematically, uh, inclined, what you'll see is that the two factors that are there in the slices, one is the pure gold price, and the other is the ratio between gold and Bitcoin. And that illustrates what mathematically is called an error feedback system. Now, to cut a long story short, or a complicated story short, what that really means is that in the short term, Bitcoin and gold are negatively correlated. So, in other words, if the gold market's very strong, often Bitcoin goes down. Okay? In other words, investors switch from one to the other. Equally, if Bitcoin surges, it's quite common that gold is weak at that time. But in the long term, they both trend together. So, typically, Bitcoin and gold cycle apart, but they trend together, and that's an important element. So, what this really says, in many ways, is that Bitcoin is part commodity and part tech stock, and that's an interesting way to think about it. Now, what is the relationship? And we show here a diagram which is needs a little bit of explanation, but let me just explain. The orange line is actually a basket of three big cryptos. So, it's Bitcoin, Ethereum, and Solana weighted together. So, Bitcoin has the biggest weighting, Ethereum next, Solana the smallest, but it's a basket of those three, and it shows the six-week change in the prices of those assets. Now, why six-week change? Simple reason is that that strips out any noise, and we're trying to get signal here, not noise, to try and work out the relationship. And the black line is the equivalent six-week change in global liquidity, and that has been advanced by 13 weeks. So, in other words, three months forward. Now, given the fact that the S&P seems to have a relationship with Fed liquidity which is six months, this is a leading relationship with Bitcoin. So, Bitcoin is the most liquidity-sensitive asset out there, and it's, it's a bellwether of what's going right or wrong with liquidity. So, the fact that you've had the repo markets, you know, under pressure, showing tension, and Bitcoin is selling off is actually no, no coincidence. I mean, this is what you should expect. But you can see here the relative movements between, um, crypto in orange and liquidity in black is pretty good. Okay. Now, if you want a statistical relationship, that's, uh, for those of you that are statistically minded, that shows a simple regression, you know, since 2024 weekly of that relationship between the crypto basket and global liquidity. So, that's just saying you've got to pay attention to global liquidity. It may not be the whole story, but clearly, it's an important factor. And this is showing the effect of a shock to global liquidity on the price of Bitcoin. Now, the way to read this is to say, you know, where do you get the biggest impact? The answer is after about 11, 12 weeks, as I, as I suggested. So, it builds up to a sort of crescendo, and then it dissipates over time. But that's the time profile of what you, of, of what you're seeing. So, that's the, that's really the, that's really the story, uh, that you've got in terms of, of crypto and the relationship with liquidity. But let me, let me return to, you know, to you. I'm sure you've got some questions. I mean, so, I mean, the questions that I really want to know is, you know, based on all of these, this, this historical data and, and what we. So, first, I'd like to know, you know, what you believe, what kind of stage in the Bitcoin and crypto markets we're in right now. Um, and what's your strongest like indicator that suggests that that's true? And then based on those things alone, like, just what we know as fact, uh, where do you see us going? And then let's also make a different assumption that the things that we believe are coming, uh, do end up taking place. Like, uh, you know, maybe maybe it takes the new Fed chair coming in in May to drop those, you know, the interest rates down to, you know, zero or near 0% for, for some time. Um, you know, the big beautiful bill starting to actually start, uh, moving a lot of the that money around, I think starting early next year. Uh, we have, uh, yeah, and then, uh, so May, and then also the lagging indicators that we've seen too that haven't really kicked in. We've seen equities and gold skyrocketing. Bitcoin's been doing the kind of, uh, kind of well, not not nearly as reactive as they have been, uh, recently. But yeah, I'm just curious, really curious how you think this plays out, um, you know, between Bitcoin and altcoins. And this, to me, has seemed like a very, very different type of cycle. And so, you've got some that are in the, the four-year cycle camp for Bitcoin, same as it always has been. And then some who believe this is a start of a new era, um, of Bitcoin market and cycles. We need to look at it differently. And, uh, so I think you're in that camp. I'm in that camp. So, what are we looking at going forward?

Well, let me do the, let me do the bull case, and then I'll come back to the concerns near-term. Okay. Um, this is looking at the, uh, the bull case. Sorry. So, this is looking at, um, the fiscal deficit in the US, which is showing the, shown by the orange line.

So, this is what we call here the structural deficit. So, this basically comprises of four elements. So, it's Medicare, Social Security, the interest bill on the debt, and defense spending. And a lot of these numbers come from the Congressional Budget Office projections, which go out to 204, I think, right now, which is what you can see here. And the only difference really with the, uh, CBO numbers is we've taken a higher number for defense spending because we've basically said that defense is going to get up to the NATO target of 5%, and they've got a much lower percentage. So, that's the only difference. Otherwise, what you've got is a significant, uh, increase, you've got a significant increase on actually all the data showing that the structural deficit, this is, in other words, without discretionary spending. Discretionary spending, you know, things like infrastructure, parks department, etc. So, we, we don't have that in there, but we've got the structural elements, which there's kind of no getting away from. And this is showing the impact of demographics and more particularly the, the compounding effect of interest. You know, as, wasn't it Einstein who said that the eighth wonder of the world is compound interest? Well, now it's starting to haunt us. And what we show as the black dotted line there, which is scaled on the left, uh, right-hand side, is the percentage in terms of GDP of debt held by the public. Now, you know, that is a figure which is currently, uh, a tad over 100%, but it's slated to go up to well over 250% on our data, and actually similarly on the CBO data. So, you know, our figures are not, these are not wild figures. This is what pretty much everyone agrees. Okay. So, hold that thought for this is what's, this is what's happening. This is what's down the track. Now, this is an interesting extrapolation. And this is saying, well, let's take a look at this chart here. Again, is debt held by the public. And let's just assume that the debt is held constant in gold terms. So, in other words, the gold price keeps pace with the increase in debt. Okay? Uh, in other words, the, the debt stock is constant in gold dollars, put it that way. Now, what that shows is the implication for the gold price. And that's saying that, you know, now the gold price is, you know, wherever we are, $4,000, which you can see by the mid-2030s, that gets up towards about $10,000. And by the mid-2050s, it'll be, you know, testing easily testing $25,000. And that's the effect of debt on the price of gold. Now, if people say, well, that's fanciful, let me just take you back for the last 25 years. In the last 25 years, from year 2000 to the year 2025, the stock of federal debt increased by about 10 times. A tenfold increase in federal debt. Right? Hold that thought. The S&P went up by less than fivefold over that time. But everyone feels pretty comfortable with that, thinking that was a great return. But actually, it's scaled relative to debt. It's, it's, it's been poor. The gold price has gone up 12 times. Bitcoin's clearly gone up a lot more. So, if you think that gold is going to go up, then I think Bitcoin is going to go up with it because these are monetary inflation hedges. And the ratio between gold and Bitcoin has been, you know, over the, on average, what about 27 times or something? So, if you multiply the gold price by 27, you get the Bitcoin price. So, that's more or less what I would be saying. In the long term, you absolutely need these monetary inflation hedges. You've got to have them in portfolios. And, you know, people have thought about gold in the last 25 years and scratched their head and said, "Well, okay, it's volatile. We don't want to own it." But in the backdrop, it keeps going up and it keeps making people money. And this is why we need to avoid monetary inflation. Whereas the politicians, that's their only course. They've just got to inflate away the debt, and all they can do is print money. So, that's the bull case, right? And just to emphasize what's going on globally, this is the degree of monetization that all governments worldwide, or sorry, all, all, yeah, all governments worldwide are currently doing this. This is actually, these are the advanced economies, uh, plus China, but it basically shows what's going on. So, this is saying that, um, in terms of, of domestic liquidity, I mean, just think of that as money, if you want, in terms of domestic liquidity, how much, uh, is being contributed by government debt. In other words, monetizing government debt. Whereas, if you go back to the early, uh, 2000s, we're talking about 6% of global money was basically monetizing public debt, right? Uh, it's now 13% or up to 13%. So, it's double over that period. It's only getting, it's only getting bigger. So, what you're looking at is this trend towards monetary inflation. We know it never ends well. Uh, and that's the, that's the point. Now, Milton Friedman, if you remember him, will be turning in his grave looking at some of these numbers. Now, what about the, the cycle? Let me go back to the cycle. Now, or maybe I, I'm going to show you one more, one earlier chart, and that's this one. Now, this is looking at a chart which I, I snipped from Twitter, which is the pink area, which you can hopefully see. And that was somebody may have come out of the FT originally, but I, I can't read the label at the back, but anyway, it was a Twitter source. And what this says is it identifies all these past so-called bubbles. Okay? Uh, and it looks at gold, it looks at, uh, Japanese equities, it looks at US housing, looks at biotech, looks at what they call now disruptors. And over the top of that, on the, with the red line, is our global liquidity measure. This is the flow of money through world financial markets, shown as an index on a comparable basis. And what that's really saying is that all these bubbles are basically being fueled, uh, by prior increases in liquidity. Now, what I've just said is that liquidity has got a trend to it, and that trend is going up strongly, uh, over the long term. There's no question, there's no getting away from it. This is the new world we're in, right? But the trouble is, we've got to pay attention to the cycle, and the cycle doesn't always go up because, by definition, cycles go up and they go down. So, let's look at that cycle. And here is the cycle. Now, this is the cycle going back to the mid-60s. This is the same data we're just looking at, but it's shown here alongside a sine wave. Now, the black line is looking at the momentum or growth rate of liquidity, uh, through world financial markets, uh, on monthly, using monthly data since '65. And what you've got here is, uh, a sine wave that's showing a pretty regular cycle, which is 65 months, five to six years. Why is it five to six years? Because the average maturity of debt in the world economy is about five to six years. So, this is a refinancing cycle of debt, and it goes up and it goes down. And it bottomed last at the end of 2022. It's moving up. It looks like it's inflecting now. We don't, we can't be 100% sure of that, but it looks that way. But we've got to try and, you know, understand, uh, or look out for periods when it may be, uh, peaking and coming down, because the downswings can be quite nasty. Now, this is the average cycle since the 19, since 1970, as the black dotted line, and the red line is where we are now in the current cycle. Uh, and I put the trough of the cycle and lined it to the average trough. You can see months from the trough forward and backwards on the bottom. This is the average. The degree of tolerance looking at the range is about eight months. So, you know, the window is relatively small, plus or minus eight months either side, but, you know, you get the idea. We're sort of late cycle. That's what we've got to think about. And this has been a very normal liquidity cycle. It may be a very unusual economic cycle, but it's a very, very standard liquidity cycle. And this is how it tends to line up with commodities, equities, uh, fixed income, bonds, and cash. Now, the left-hand side of that chart is saying here is your liquidity regimes: um, speculation, turbulence, rebound, risk on when the cycle's going up, risk off when the cycle's going down. And then you've got on the right-hand side trying to overlay that with, um, different assets. So, the upswing is equities, uh, commodities around the peak, cash in the downswing, and government bonds, long-duration government bonds at the trough. Uh, and that's how it basically evolves. Now, the traffic lights here are basically showing you how to invest in each regime. And bear in mind that, you know, as I was saying, you know, crypto is sort of, uh, or certainly Bitcoin is maybe part tech stock, part commodity, so you can think about it that way, but it is very liquidity-sensitive. So, it's going to be sensitive to an upswing and a downswing. But here, what you've got is how you allocate your assets.

Through the cycle. So in rebound, you want equities and credits. Uh, in calm, you want to be pairing down your credits, uh, increasing your commodities. And by the way, I mean, these are traffic lights. So, you know, green says go, red says stop, uh, amber says proceed with caution, uh, etc. Uh, commodities do well in the calm and speculation phases, etc. Bonds do well in the turbulence phase.

And then you look at industry groups, and what it says is that this is groups within the stock market. So it says if you're in the rebound, calm, the upswing, you want technology that really always leads. Uh, by the midcycle, you want in the calm phase, financials. They've obviously been stellar in the last 15, 18 months. Energy commodities tend to come in, um, around the calm speculation phase, top of the cycle. So mining stocks have been on fire this year. Uh, you get the idea. And then defensive, was defensives, which have been really out of fashion. Uh, some of the big consumer staples have radically underperformed the market in the last, uh, two to three years. Uh, they do well as you start to get into the speculation and turbulence regimes.

Um, now we reckon that if you look at world markets, the US, uh, at the moment is in the speculation phase. Uh, that Europe and maybe emerging Asia is much more in the late calm phase, but we're all pretty much around this point, uh, of late, of late cycle. And that's pretty much how we read it. So, you know, we're looking for these signs. We're seeing it at the moment in the repo markets. Uh, you know, we haven't turned entirely risk-off yet, but I'm not really very bullish short-term looking out because I see a lot of problems. And, you know, I can't keep getting away from the fact that, you know, the Trump appointees, uh, on the FOMC, people like Steven Miran and actually even Scott Besson himself, uh, you know, are pretty much saying what we want is a smaller Fed balance sheet, but we want interest rate cuts. And to my mind, that's pretty much telling us, look, uh, you want Main Street, not Wall Street, to really benefit, uh, in the next 12 months because Main Street will benefit from lower rates. I mean, mortgage rates may come down further. Uh, it may, you know, help the dollar to stay down. So, it may help the real economy, help small business finance. And if the Fed balance sheet is a tad smaller, which is what they keep trying to say, that's what they want. May, may not be able to achieve it, but that's what they want. Um, that's basically going to, you know, that's going to make a lot of assets labor, but it's going to help to cure the wealth divide that, um, you know, is concerning politicians. And, you know, Governor Waller, uh, said, was it two days ago, you know, Wall Street can basically take a bashing, wary, however he, he phrased it. Um, and Scott Besson keeps saying, well, it's now Main Street's term. Wall Street's already benefited. So those are the things that sort of, you know, exercise our thinking.

So over the next, uh, so how do you think like if you could break it down from where we are today, you know, mid-November versus, uh, the end of the year and then into 2026, just like in specifically?

>> Let, let me sort of, you know, put my head on the block. I mean, what I would say is that I would be very cautious about accumulating or chasing risk assets right now. Uh, I would be pairing back, uh, and that's what we've been recommending to our clients for, you know, for for some weeks now. Just pair back, uh, a bit. Um, don't necessarily go fully risk-off yet, but start to do that. And, uh, then if you're buying sort of core positions in things like, uh, uh, equities, um, things like gold, or things like, uh, cryptocurrencies, you know, do that on weakness. By all means, I mean, that, that's that's the best thing to do. But don't, don't chase strongly rising markets because I think there's going to be a lot of volatility. But you, you got to think about having a core portfolio and a tactical portfolio. And I would be, you know, risk-off probably in the tactical portfolio, uh, right now. Um, and I'd be, you know, relatively neutral in the core portfolio, but I'd be looking to add to positions, uh, on weakness and trying to build up more of a monetary inflation hedge in the core portfolio. But I certainly wouldn't be chasing risk assets right now and I'd be looking to try and lighten up if I could.

And then when do you think that we see, uh, another strong run in Bitcoin? Uh, yeah, how, how long do you think this kind of cooling off period is? We know that we're coming toward.

>> Well, I think let, let me try and answer that directly. I think the thing that the, the question is, is that, you know, what is the, what do we face in '26? What, what are the, what are the key issues? I think the key issues are number one, um, the midterm elections.

>> Yeah.

>> And number two, what I've called the debt maturity wall. Okay. And it may be that those are incompatible or inconsistent, but those are the bogeys we've got, we've got to jump. And you've got an issue clearly with the midterms, but with the midterms, maybe it's Main Street that they want to, uh, they, they want, they want to benefit, uh, not so much Wall Street. And it may be, but everything, I mean, I, I can't believe that the administration hasn't thought this one out because they thought most other things out, I think pretty carefully. Uh, and I think they, they must have turned their attention to how they square the circle. So whether it's they feed tariff revenues back as tax cuts, or whether they do a lot more stimulus of the real economy through Treasury spending, I, I don't know. But I think what they want is a stronger US economy. And to my mind, I mean, we've got a 4% print at the moment, according to, uh, GDP Now from the Atlanta Fed. Uh, and I think the economy looks pretty robust, but I think it could go into next year, maybe stronger than economists are suggesting. So maybe there's actually scope for them to actually, uh, you know, win or get a decent result over the midterms. The problem on the other side of that is inflation. And that inflation problem, uh, I don't think is going to go away. And, um, that inflation problem is basically why everyone's got to own more precious metals and everyone's going to own more Bitcoin or crypto in the medium term. I mean, that, it's, it's as plain as that because I think inflation is a problem. And if you look at potential US money supply growth next year, it could be up at 7, 8% uh, because of all this monetization. And that sure ain't compatible with a 2% Fed inflation target. So that's the problem we've got now. And the other thing to throw into that is the debt maturity wall, which is going to be absorbing liquidity. So I think you've got next year a volatile market. And it may well be that what we get is a situation where the early months of the year are tricky because people are, uh, envisioning, uh, scarce liquidity. Maybe the economy picks up and there's more of an inflation thread whereby a lot more assets go to these monetary inflation hedges. So it could be a volatile year, but my view is that, you know, on any weakness, uh, you know, I'd be, I'd be moving back into these assets.

>> Yeah, that makes sense. Um, so generally, I mean, a takeaway, uh, if you could, without, without, you know, just, uh, in a very direct and easy way for my audience to understand, uh, you think that sounds like if you're, to me it sounds like if your, your best kind of assumption would be that we, in the, in the midterm, let's say at least until the end of the year or even in a Q1 next year, we have some extreme volatility, maybe continue, uh, some risk-off environment, see people taking out of, out of Bitcoin, out of crypto, but likely sometime next year, perhaps like Q2 or late Q1, we start to see that environment become more favorable and, uh, we start to see a stronger market back in Bitcoin and crypto.

>> Yeah, I think that that's entirely possible. Yeah, entirely possible. I think, I think we're going to see a vol, a more volatile period anyway for financial. We've had.

>> And then my last question is, uh, you know, just about Bitcoin's like structure right now. Do you think that because of all this adoption and institutions, um, you know, kind of the, you know, a lot, a lot of long-term holders selling and a lot of institutions and and individuals and sovereigns and pension funds and things like that buying Bitcoin. Um, do you think that it structurally has changed now how we look at, uh, the growth perpetuates Bitcoin? So, not, not like, not not extreme sell-offs, not extreme, uh, parabolic runs, but just more kind of linear up and to the right over the long period of time.

>> Yeah. I mean, look, I think without any question, you, you're going to, you're going to get a cycle. Cycles are clearly volatile, but it's going to be less volatile than in the past because you've got, uh, you've got, uh, let's, let's call it extensive growth in the asset class. It's a little bit like every technology, be it mobile phone or whatever. Uh, you basically, or the internet, you get an S-shaped growth curve. Uh, so we know that that's going to be, you know, that's that's extensive growth and that's going to power, uh, more and more people into this asset class. And this asset class ain't going away. And one of the reasons it's not going away is if you look at the structure of the international monetary system, it is moving towards, uh, a sort of duality, if you like, where we're moving towards, um, uh, a situation where you've got two major currency blocks. One which is China-based, uh, which is probably backed by gold, and the other one which is dollar-based, which is backed by stablecoin, which is effectively saying a digital wrapper, uh, around US treasuries. And I think those are the two competing models. So, in other words, uh, number one is saying the Chinese are saying, look, uh, trust our gold. And America is saying, trust our technology. And those are the two systems. Now, if stablecoin is so successful, in my view, they're going to be hugely successful. I think whether this is, whether the administration stumbled by accident upon stablecoin, I don't know. Uh, if they didn't stumble by accident, it's a brilliant, uh, concept, a great strategic move because it puts huge pressure on the Chinese and the Europeans, uh, because they will just lose control of their monetary systems unless they're careful, uh, because I think stablecoin will be so successful. And I sort of go back to, you know, somebody else who's done a lot of work on this, Brent Johnson, who's famous for the milkshake theory of the dollar. And, you know, Brent always talks about, you know, the, uh, the straw sucking up, uh, you know, capital from the rest of the world going into dollar assets. Well, my view is that actually this is a milkshake theory now with two straws. The second straw is stablecoin, and that's going to be hugely successful. Uh, the dollar is, uh, is going to benefit from that significantly. US assets, stablecoin are going to be important. And if stablecoin are important, crypto generally, US tech, etcetera, is going to get, you know, a huge, um, uh, win behind it. So I'm very, very bullish longer term of all these assets.

>> Awesome. Uh, anything else that you want to add that, uh, we haven't covered so far? And also, if you can let folks know, uh, how they can follow your work? It's obviously very impressive. You're maybe one of the most experienced folks in the whole liquidity and macro environment. So a lot.

>> I mean, this started, yeah, I mean, this, this started by observation when I was at Solomon Brothers back in the, um, late 1980s. And it was just a question of watching, uh, how markets were moved. And markets were moved by money. And that thought hasn't gone away. It's really important. If you want to follow what we do, the best way is via Substack. Um, we have a Substack called Capital Wars, which is named after a book I wrote about five or six years ago called Capital Wars. And, you know, the, uh, the theme is in the title. In other words, it's not about trade wars, it's about capital wars. Trade wars are a dis of veneer on top. The real action is capital. And we've got an institutional offering, uh, which is, you can get, uh, crossberc.com where we basically provide a lot of data, particularly to quant funds, but, um, it's data liquidity for 90 economies worldwide. If you want that detail. But anyway, Substack or institutional service, that's what's there.

>> You don't have a plan for like individuals that don't have the same kind of bankroll as an institution.

>> Substack. We'll throw both links in the description below. Michael, thank you so much for your time and all of that research and data is incredible. Uh, hopefully we can do it again soon.

>> Yeah, Colin. Much enjoyed it. Thanks so much for the opportunity.

>> Cheers. Bye-bye.