Bitcoin Or Bust: Lyn Alden Warns Of Fiscal Doom

I'm curious if you found anything that could possibly slow this trend.

When it was done in the 1940s, it was World War II. Uh so nobody was looking, nobody was looking at treasuries. They're all looking at what's happening in the Pacific, what's happening with, you know, Europe. You probably get a weaker dollar. Uh you probably get a boom in emerging markets because they have all that dollar debt that that gets relieved.

Time-based capitulation. My my favorite thing to watch when people lose their mind at the same price as it was 6 months ago. You know, you loved it six months ago, you hate it now. It's literally the same price. If you've listened to my interviews with Lynn Alden in the past, or any interview with Lyn Alden, you know that nothing stops this train. So, I started with a simple question. Does anything slow this train? That started an incredibly interesting conversation about fiscal dominance, the path of United States debt, the approach our government and the Fed are taking to the economic situation in the United States, and of course, where Bitcoin fits into it all. You can never miss an incredible conversation with Lyn Alden. That's dope.

[Music]

So, you've gone and remained viral for saying nothing stops this train. I'm curious if you found anything that could possibly slow this trade. This episode is brought to you by Binance, the world's number one crypto exchange, trusted by over 270 million users worldwide. Start your crypto journey with Binance at binance.com. Binance is not available in prohibited countries, including US. Check its terms for more information. www.binance.com/en/terms.

Uh, there are certainly things that could slow it. we saw attempted to be slowed pretty heavily in 2022 for example when the Fed started their initial very hawkish uh activities and it started to reacelerate uh roughly by the end of the year and especially in early 2023. Um one of the things I've been highlighting in my research is that one of right now one of this the levers that does somewhat slow it are the tariffs that basically represents at least at a current kind of monthly basis the biggest tax increase in a very long time. uh and so that actually does somewhat reduce the the near-term deficit uh not not by cutting spending but by increasing taxes. Now the numbers are still smallish even though we're talking giant numbers here. So when you look at say you know the US economy is $30 trillion GDP uh roughly annual spending by the federal government is over like 7 trillion uh you know their income is like over 5 trillion so you're talking about a $2 trillion deficit delta uh and the tariffs are raising hundreds of billions of dollars uh at an annualized basis uh we'll see how long that is sustained if if volumes kind of change based on some of those numbers uh but you know I think it's not necessarily that they train accelerates every year. Uh it's more about the unrelenting nature of it. So sometimes it slows down a little bit, sometimes it reacelerates. Uh for example, the the big beautiful bill uh kept it going pretty strong. Uh if anything, it gave it a minor extra push. Uh but then the tariffs kind of pull it back a little bit. And so uh the main point is that deficits as a percentage of GDP remain historically elevated. Uh, and while they can go up and down a maybe a couple hundred basis points, they're pretty locked in. There's very little that can actually stop it.

And we're paying a tremendous debt service on it, which inevitably makes it continue to increase even if you end up in a small budget budget surplus or neutral.

Right.

Yeah. The interest expense is one of the key levers that changed. So, a lot of people ask what changed? I mean, people have been talking about the debt and the deficit for for decades. It's kind of infamous at this point. people, you know, in the in the late ' 80s, early 90s. It kind of reached a crescendo in American politics. That was kind of the peak zeitgeist for it. For example, the the famous like uh national deck clock went up in the late 1980s. Ross Perau ran the most successful independent president presidential campaign largely on this topic in the early '90s. Uh and that was kind of the peak period. And if you look at it up, that was actually the peak level of interest expense as a percentage of GDP. uh because they still at that time had pretty low debt to GDP but it was combined with very high interest rates. Uh now what they didn't really foresee and the reason like a lot of these people were like 30 years early uh in their alarmism is not because the problem didn't happen but because it happened slower than they thought and one of the main reasons was they opened up China to the rest of the world starting in the 80s. Uh the the Soviet Union fell in the early 90s and that whole block opened up to the world. So you took western capital, eastern labor and resources, combined it together, very disinflationary. Uh that was beneficial for interest rates to continue falling. So we had this 40-year period of falling interest rates. Uh which really kind of minimized interest expense. If you double your debt, but you cut your interest expense in half and you keep doing that, it's sustainable. And the problem is we we roughly, you know, the whole western world hit zero. Um, you know, in some places it went negative. Uh, yeah, in the US it went borderline zero depending on what part of the curve you're looking at. Uh, and so now if we're if we're merely in a choppy sideways pattern going forward which which is you know uh less extreme than that kind of negative or zero yielding environment uh because now the the bond market is more demanding of some yield and because the uh realities of this fiscal situation are understood. Um that's one of the key levers that changed along with demographics uh and some other factors that make this this kind of the past five years or so uh different than the past you know 40 years that came before.

So you mentioned tariffs obviously slowing the train a bit. I love how you aptly named that attacks right which is sort of the opposite of the rhetoric we've seen about lowering taxes and of course the inflationary effects of the big beautiful bill. And we had Doge and talk of austerity and cutting from the beginning. It seems like the current administration is all over the place as to how they view the debt versus everything else or how big of an issue they see it as. I mean, we've clearly seen a pivot to we're going to grow our way out of this, not we're going to cut our way out of this.

Yeah. I think I mean, like any administration generally has different voices in it is the typical thing where there's a king and a bunch of advisers trying to get the king's ear. uh you know this this administration had more of the protariff side versus more of the the the the more free trade and cut side which was kind of the the Musk side of it. Uh obviously uh you know Doge I I've been kind of vocal from the beginning that Doge would be ineffective at doing major cuts because they weren't going after the main areas. They didn't really have the authority to go after the main areas which are interest expense, social security, Medicare, uh defense, uh veterans benefits. You can kind of add that to defense. uh that alone represents the the by far the biggest piece of the pie chart. The everything else they were going after was like the other 15 to 20%. So even if you were to somehow meaningfully reduce that 15 to 20% uh you know let's say you cut a quarter off of that um there's really not a ton uh you're you're kind of picking up nickels in front of the steamroller. Um, so yeah, they have pivoted more toward that runin hot, keep interest rates low environment, which is what we saw the last time the US was in fiscal dominance, which was the 1940s. That is kind of the main thing going forward. And I think right now, I guess one of the surprising things to me is the speed of the pivot toward tariffs, uh, which is that they got a pretty significant chunk of people to be really happy about tariffs. Uh, so you know, when when the government says, "Hey, look at look at all the hundreds of billions of dollars we're raising from tariffs. this is winning. It's like, well, if you actually look at who's paying this, it's it's mostly Americans so far. And it it's challenging because we're in a very politicized environment. Uh so if you're just trying to analyze just nonpartisan what, you know, what what's happening with the numbers? If you're just trying to look at the numbers, uh you'll, you know, people can have it colored by, you know, people are against it, we'll we'll look toward one type of source and people for it will look at another type of source. But we can look at things like for example um you know uh import prices are measured pre-tariff. They're not down in aggregate so far. We have you can look at for example consumer prices around the margins uh for goods are inching up is somewhat complicated by the fact that there was import front running. So businesses rightfully uh you know in quarter 1 when they saw these tariffs coming they were like well let's just import double our amount this this

get everything into a bonded warehouse and worry about it later and get it to Mexico or Yeah. Of course.

Yeah. that gives them a few months of trying to keep prices low, see if they can weather through it, you know, because they they have other competitors and nobody wants to raise prices first obviously if they can help it. Um, uh, you know, to keep market share. And so there are a lot of complex variables, but right now uh, you know, the majority of it is being paid by the combination of American consumers and businesses, you know, offset by some front running and, uh, around the margins some lower volumes. The nothing stops his train thesis really had two layers to it. one is that there's so much political gridlock that it's very hard to meaningfully raise taxes or cut spending. Uh and then the the next layer below that is that the US is so financialized that even if you somehow did do austerity for a period of time, it would likely slow down the economy and or cause the stock market to have a flatter period, which because our tax receipts are so financialized and thus tied to ever rising stock prices starts to hurt you on the income side. And what tariffs are interesting is that they kind of found a way to pierce through that first layer, uh, which is that by calling it a national emergency, they were able to kind of bypass that, you know, polarized congressional environment and actually just do a major tax increase. Uh, which, you know, if you asked me a year ago, would not have been my base case. Uh, so that's why it does somewhat slow the train around the margins. Uh, but then it starts running into that second layer. Uh, and that's why I think it'll be if we are having this conversation three years, five years from now, we will still be in a very high deficit environment even though the numbers can can go up and down a little bit.

I've had multiple conversations with people about tariffs who believe that the country the other country is paying them still. So I don't think you can even have a baseline conversation. I wonder if when Trump started floating them, it was really about raising money or about unfair trade trade deals or if he just quietly knew this was a way to tax people without that narrative spreading.

Yeah, I I have trouble speculating about that because I I don't know. I it's hard to read what people think. I can only look at the numbers of what's happening. And if you think about it, I mean, it it costs like trillions of dollars to rebuild a manufacturing base somewhere else. Uh so we we import trillions from the rest of the world. Uh we spend something like the baseline was 80 billion annualized rate of uh manufacturing construction spending in the US. That was kind of the maintenance cost of a flat industrial base. Uh there was a little bit of subsidies over the past couple years to build semiconductor uh uh facilities. So they they you know increased that by temporarily 160 billion or so. Uh that's actually currently rolling over. So we're actually gradually spending a little less on manufacturing construction. Uh even though ostensibly to offset these tariffs, you'd have to build stuff locally, uh we don't see some like giant new um bursts of new spending, at least compared to the past 2-year baseline. Uh and we don't really see a reduction in aggregate import costs. Now, generally speaking, you'll see kind of people that are that are more in the camp that the foreigners are paying it. They'll they'll show like anecdotes like, hey, look, you know, uh Japan had a reduction in auto export volumes or something. uh you'll see these individual cases uh but you know obviously any sort of investing thing is is you know what's happening especially we're talking macro what's happening in the grand sense not what's happening with this one company this one industry what's happening across the board and some month into this the answer is uh import price is roughly flat tax is being raised it's not really being paid by uh foreign exporters uh and it's somewhat spread between American consumers and businesses and that front running that happened

makes perfect sense. You and I have talked at length in the past about fiscal dominance. I assume that your base case is still that we are in a fiscally dominant environment and not in a uh obviously looking to the Fed, but everybody's still looking to the Fed. It seems like people don't get it. The main headlines are still Trump's berating pal and when will Pal leave and who will be the next Fed chairman. Are you still of the opinion that rate cuts will do very little even if Trump gets what he wants?

Uh so I think that any given FOMC meeting is not that relevant. So a 25 or 50 basis point change is not particularly relevant. Now if we start talking you know replacing a Fed chair and and other parts of the committee and getting like a 300 basis point cut or something like that I mean that that starts to become meaningful. So magnitudes matter. uh you know if we're running at 1 to 2% interest rates that's a that's a different environment than than 400 uh basis points and change. Now if you look at kind of the purpose of interest rates like what the central bank's trying to do you know they're they're obviously their mandates are unemployment and inflation but then the question is what are they hoping to do with interest rates? Why why does that matter? Um and what they're what the Fed mainly does is impacts bank lending. That's kind of the whole you know purpose of of the interest rates is is in theory higher interest rates would slow down bank lending uh by making borrowing more expensive uh whereas uh cutting rates makes borrowing more attractive and you kind of restart the credit cycle. Now the problem is that when you're in fiscal dominance bank lending is not the main source of new money creation. So for example, back in the 70s when um you know baby boomers were entering their home buying years which is peak credit formation we had the highest historical rate of bank lending in the country and so the money creation was largely led by bank lending with some fiscal on top of it. Obviously you had the Vietnam war you had great society programs uh these were adding to it but there was more money coming from bank lending. So when Vulkar jacks up interest rates, uh he did meaningfully slow down bank lending. And the problem is that this entire cycle uh starting before COVID, during COVID, after COVID, none of this was really caused by excessive bank lending. It was all that really large fiscal stimulus that was monetized. So the Fed is is trying to kind of slow down bank lending, which is just not really the key thing here. So their handful of industry changes don't make a huge difference in that sense. uh where it shows up. If they do a massive cut, you probably get a weaker dollar. Uh you probably get a boom in emerging markets because they have all that dollar diamond debt that that gets relieved. Uh that can cause a you know kind of more demand for commodities in general, including energy. Uh which could be somewhat inflationary. Uh around the margins, they can restart lending to some extent. Um the challenging thing is that we see them talking as though short-term rates and long-term rates are the same thing, which they're not. So the Fed primarily controls short-term rates and what we saw is that just because they trim short-term rates doesn't necessarily mean that like say mortgage rates go down.

The bond market didn't buy it at all. I mean we saw yields go up, right?

So they didn't buy it. So it it it and now maybe if they let's say they cut 300 basis points, they just completely kill the short end. You know, there's two outcomes that could happen. One is if if people are not getting interest rates on short-term paper anymore, maybe they will bid for the longer end. They'll buy longeration treasuries mortgages. maybe they will drive those down to some extent or they could say, "Well, this Fed's not serious about inflation. Why would I want to own the long end of the curve and they could sell it off you?" So there it's actually unclear how that would play out uh in in fiscal dominance. It wouldn't necessarily lower actual borrowing costs and and it well it didn't last time. Yeah. The the small sample we have so far this cycle is it didn't uh now whether a bigger one or a second one would I mean market conditions could change. If you have tariffs and the economy slows down, then maybe you get a different result. I wouldn't want to uh fully say it wouldn't do it. Uh but they're just not the same thing is the point. Uh the longer end is more set by the market, especially when the Fed's not actively buying and selling uh a ton of securities. If anything, right now they're they're they're trimming their longer end uh securities and mortgages. I think the Fed is less relevant. It's not irrelevant, but it's less relevant than probably the market thinks. The size of the fiscal deficits is more relevant and the tariffs are more relevant. Basically, if you're going to if we're going to have, you know, 400 plus billion in new taxes this year, that's a bigger variable, I would say, than 50 or even 100 basis points from the Fed. You have to get into a lot bigger or cuts to really start having an impact of of that scale.

This all seems like it yields that was a 48 slip. This all seems like it heads towards yield curve control, right? when the the Fed effect effectively accepts that we're in a fiscally dominant situation and just falls prey to that. I mean, this the the train to use, you know, your words might not be at the yield curve control station yet, but it seems like it's heading that way rapidly.

Uh I think so. Um there's different types of yield curve control. I mean during the the height of the pandemic, the lockdowns, uh the Fed openly talked about yield curve control in their meeting minutes, uh when they were kind of stabilizing the bond market. You know, they they dropped that. They didn't have to go that route. You know, right now we see kind of talk about politicization of interest rates. That's not new. I mean, for example, in the in the prior uh administration, you had Elizabeth Warren uh she was on the Fed's case about trying to get rates down. Now we have the Trump administration on on the Fed's case trying to get the rates down. So everybody in power,

she she's still on it, too, I think. So one thing they can agree on somehow.

Yeah, they both want Yeah. Um and but I do think that as so one of the outcomes of fiscal dominance is you tend to get less separation between the government and the central bank uh because the the central bank whether they like it or not generally has to step in and put out fires. An example of that is when when the Bank of England had the guilt crisis in 2022. So they announced a budget that had a bigger than expected deficit. They're not the reserve currency, so they and they have a parliamentary system, so they're a little bit more volatile with some things that happen. And basically their their guilt market sold off. They had uh leverage in the market that kind of resulted in more sell-offs. And so the Bank of England, they actually, it's kind of comical. They had so inflation there was like 10% of the time. they they were going to start balance sheet reduction, quantitative tightening, and they had to cancel a a conference about balance sheet reduction to instead go and buy guilts uh to put out the fire. Now, once they put out the fire, then they eventually got to, you know, a period of quantitative tightening as they planned. But the point is they had to like drop everything they were going to do and buy government bonds with with new kind of temporarily printed money to put out a fire. Um and that's that's generally what happens when you start to get more toward fiscal dominance. Um and in in the US's case, we have a situation where uh the Treasury has been more active uh in what they're doing. So you know, people have called this like uh activist Treasury uh and other uh things. It started under Yelen. So far it's continued uh under the current administration, which is that they can do things like shorten the average duration of their debt. they can issue a higher percentage of their debt as T bills, which is where there's more demand for it rather than term out their debt. They can refill their cash balance uh less quickly than they might otherwise would. Um they have different levers they can pull that are in some cases roughly equivalent to a a handful of of um industry cuts or a little bit of quantitative easing, for example. But basically, you get less independence. The Fed, if you look at the New York Fed's like annual report uh on the state of their kind of securities book, they plan in roughly a year to go back to gradual balance sheet increases. They probably wouldn't call it QB at the time unless there is a recession. Um but they'll they'll be ending their period of quantitative tightening and go back to gradual uh increases uh in that whether we get outright yield curve control. I mean that's a that's a very politicized thing to happen. And it's also it's hard to do without a major acute crisis. So for example, when it was done in the 1940s, it was World War II. So nobody was looking nobody was looking at treasuries. They're all looking at what's happening in the Pacific, what's happening with, you know, Europe and everybody there was a a very kind of we're all in it together culture at the time. It was it was a very centralized culture in a way. Um when you just we don't really have a reason. It's like, well, decades of kind of bad decisions have caught up to us is the answer. And we just kind of gradually build up this really big debt burden with with interest rates that aren't going down anymore. So we need to do yield curve control. That gets really sloppy. So, I think they're going to try to push it off, but I do think that there could be various kind of yield suppression techniques that keep it somewhat below what the market might otherwise settle at.

What do you think PAL should be doing right now in context of everything we've discussed with tariffs? Obviously, they're supposed to have a dual mandate, unemployment and labor, right? So, in theory, none of this should be their problem, right? Excuse me, and inflation. None of this should be their problem. And we have a historically high stock market. We have until last week's revisions, we thought we had a strong labor market. I mean, until that point, wasn't he effectively right to stop cutting? Maybe they shouldn't have even cut at all.

Yeah. So, I think the problem is that like I said before, when there's fiscal dominance happening, there's really no right answer by the Fed. If they cut interest rates too much, it causes problems. If they keep interest rates high, they're just blowing out the fiscal deficit more than if they had it low. So, they don't really, it's not bank lending that's the problem. Um, I think the best thing they could do is be transparent and just say, "Look, this is primarily a fiscal issue. uh we we're going to try to make bank lending happen at a moderate pace with the tools we have, which is what we're doing now. But we don't really have good answers here. That's why I mean I would I would hate to be in that role. There's no amount of money you could pay me to want to even if I was even qualified to run the Fed. I I absolutely not. Um, so until recently uh with stock market all-time high, Bitcoin all-time high, gold all-time high roughly uh and unemployment running uh within their target band of of low 4%. Um, it's it's not really screaming we need cuts. Um, uh now the the recent uh weakness in the job reports uh certainly increases the odds of a of a trim. The whole global economy is kind of sluggish. Energy prices are kind of low. um you have some degree of deceleration uh that is uh that argu for a cut. I would also generally say tariffs like that's a different type of inflation than inflation from money supply growth. So they generally should look through tariffs per se. Uh just because that's that's that's more of a tax increase than a than a you know debasement driven price inflation. It's just very different type of thing. Um, so I I do think they should look through that and mostly just think, you know, are are we controlling bank lending at the rate we're targeted to? Now, we can have a whole separate discussion. Should they should the Fed even set interest rates?

Of course not.

I'm in the camp that they shouldn't. But

even exist. So, it's like if Yeah. If if they have this algorithm that they're supposed to roughly follow, which is keep unemployment, you know, as low as possible, keep uh long-term interest rates moderate, uh keep inflation in check. They're kind of in a position where there's no right answer right now. But leaning somewhere toward moderately hawkish makes sense given the tools they have.

So then let's say Trump gets what he wants. He puts in a more politically favorable Fed chairman and we get 300 like you said, you know, we we really start heading back towards ZER. Does inflation just fly?

I think we get an uptick in inflation. Partly will depend on what happened with tariffs. I think what happen is you get a weaker dollar. Therefore you get a little bit of a boom in emerging markets and the mechanism for that is that they have dollar dominated debts. And also they're trying not to have their currencies devalue relative to the dollar too quickly. So if the Fed's kind of hawkish it forces a bunch of central banks around the emerging world to be somewhat hawkish. So if the Fed cuts, it allows a bunch of them to cut uh and therefore kind of multiple economies can get a little bit of a a lift uh which uh increases the demand for commodities including uh generally energy. So you could get like another round of of energyled inflation uh and just you know kind of higher commodity prices. Um and so I think that that's the mechanism for how it would show up. uh I I wouldn't still necessarily expect like a 2022 level of inflation uh because that was I mean we had like a 40% money supply growth in two years then we had of course the the shock in energy prices because of the war uh in Ukraine uh so absent some sort of huge energy shock um I wouldn't expect say 9 to 10% headline inflation and whatever you know true inflation was saying at the time uh I would expect lower than that but but probably above the the current level.

Yeah, that that makes sense. So, let's pivot obviously to Bitcoin and its current role, how it can be used as a hedge for individuals, governments, or where it really falls in your mind at this point considering all of that?

Yeah, I don't call it a hedge per se because a hedge generally something that pays off at the moment you want it to. So, if you wanted to hedge against the stock market going down, you you buy certain types of puts, for example. It's more just like as an alternative. It's a it's a parallel system that has many desirable attributes. So, as we live in a world with 180 currencies and they're all generally devaluing at a variable pace, I mean developed market currencies historically grow in supply by 6 to 8% per year. Developing market currencies historically grow at double digit percentages on average, some of them much higher. you have Bitcoin which is this this global alternative that people have with no long-term dilution just you know currently very low supply inflation as it reaches its you know total coins issued and more broadly I put it in the camp of having solved a fast settlement so one of the things I've argued in in broken money and elsewhere is that for about a century and a half ever since the invention and deployment of the telegraph we lived in an age where you can you can make a transaction globally rough at the speed of light. But there was no way to send final value in any sort of fast way. And so we became reliant on these big centralized ledgers to kind of arbitrage and maintain the difference. And Bitcoin for the first time since the deployment of the telegraph kind of closes that gap where it says now we have this this decentralized ledger backed by energy and backed by code and distributed ways of enforcing it that allows you know nearly instant global settlement. and so rather than being relying on a big central bank or a big you know set of commercial banks there's this alternative and it doesn't debase at at any sort of the same way that fiat currency systems do. So I think basically Bitcoin's going through this period where I mean it started at zero now 16 years in we're at a two trillion plus market cap is still 2% of of global assets. Gold is 2%. I you know gold I think is is already kind of reasserting itself to some extent. And I think Bitcoin at a tenth of the size is playing catch-up. And so I think this is increasingly recognized global alternative that's been tested technically. It it's gotten to a scale of liquidity where institutions are obviously interested now. They're they're the main drivers this cycle. And so I think that's it's basically just this this, you know, side thing you can play in, which makes a lot of sense in in fiscal dominance.

With that instant settlement in mind and your point about obviously this being the first time that's possible since the telegraph, why do you think that so few people are actually using Bitcoin for that purpose? I mean, are you speaking about in a future world where things are denominated in Bitcoin and it becomes a global reserve currency or even an alternative to the other system that you think people will start heavily utilizing it for transactions as a settlement layer? Because right now we know that most people just want to keep their Bitcoin, right? Rightfully so.

Yeah, I think so. It's a good question. I think so. Right now, everybody in the world has a problem of how to store liquid savings in a way that doesn't get debased. So you know people for long-term store value I mean they can turn to real estate and other imperfect things. Sometimes they solve needs they have like you know where to live. You know people invest in equities and gold and fine art. But especially on the liquid side everybody has you know everybody in the world to some extent has a store of value problem whereas fewer people wake up every day and think I really have too many payment frictions in my life. Some people do you know Africa has 40 currencies or

not here not here but yeah definitely in other places.

Exactly. So so there there's some percentage of people that wake up and say I I just my payment options are so bad. A lot of us don't especially in the developed world. And and so instead now if you're like like Walmart has you know something like 3% net profit margins or something right? So if you're if you're doing these crazy volumes, then you might actually think, you know, if if I can trim some basis points from payment processing, then maybe this could actually be meaningful. But for the average person, it's more about my wages are getting devalued, my savings are getting devalued, I'm kind of running on a treadmill. If you're if you're anywhere in the developed world, it's twice the speed or more. um you know and so I think that's the that's the killer app in say the first quarter century of Bitcoin's lifetime which is when you go from zero to several trillions there's capital gains tax frictions against payments there's the fact that volatility is an issue and you need upward volatility to grow if you get upward volatility it's going to come with leverage euphoria and it's going to come with then periods of inevitable downside volatility which prevents people using it as like their threemonth working capital, right?

Uh it's also it's too volatile at that time to denominate most things in it. So your landlord is not going to denominate your rent in Bitcoin. They might let you pay it in Bitcoin relative to dollars, but they're not going to denominate in Bitcoin because they have expenses. So basically, there's an existing network effect that Bitcoin's growing into where people have their liabilities denominated in in dollars or whatever their local currency is. they've you know they they need some degree of kind of near-term stability in their working capital to meet their liabilities. And so I think the current era is that it serves as portable capital with the option of you know enthusiasts and and people with that find various payment frictions can can turn to it. U I've used it as a medium exchange at times. Also there's alternative stable coins, which, uh, again, if you're just if you're just thinking hold it for three months, you know, pay, receive, and anytime you get a meaningful excess, you put then put it into Bitcoin or other longerterm stores of value. That that's solving a problem for a lot of people, especially if they're not in like a totally sanctioned area where even stable coins would are more likely to be shut off for them. So if they're not kind of personally running into the fact that stable coins are centralized if they don't it's not that's not really affecting them then they're more likely to keep using them. And so I think right now it's just a very crowded market for payment options. And uh I think Bitcoin is the best long-term one because it's like the most unstoppable one. But in this kind of period of growing into the network and being volatile, it's kind of portable capital first. That's like the biggest killer app. And then as it gets bigger, less volatile, I think that payment aspect starts to become more and more interesting over time.

Yeah. My next question was going to be then why does everybody use stable coins and do it on Tron? Because it's faster, cheaper, and they don't care, right? Because it's still a step up from probably what they're used to or have access to. But as you describe it, it almost starts to sound like in the short term you have a savings and a checking account. your bitcoins your savings account and stable coins are your checking account and together they solve most of your problems.

That's pretty much yeah that and that's how a lot of the world is is treating it. Um, which is that you know any Bitcoin, stable coins, even some other cryptos can solve a near-term payment problem. You can just pay it and receive it and sell it for whatever you want. And really the the the the differentiator is what do you what do you what do you perceive as secure enough to want to hold for 5 years? And that that's what I would say Bitcoin is solving. And you know if someone you know people get deplatformed from from financial payments they get debanked. You know historically Bitcoin could solve that for them. You know some of the early use cases was people wanted to get like say money in or out of Argentina for example where it's not like illegal per se it's just hard because all these capital controls went up and it's like well I can use this technology to do it. Stable coins do provide this kind of near-term alternative, which is, you know, you're paying a debasement tax as you do it. But if you only are doing it with one month or three months of your of your capital and you're just kind of moving around and and using that for high velocity stuff, people don't overthink it.

Um, and

if you're and if you're on the peso as your standard or the boulevard, it's not a debasement tax to you. So, I guess it's all relative.

Yeah. It's holding up relative to your expenses. Um, I mean I I always use the anecdote that I know like physicians in Egypt that will buy physical US dollars on the on the basically the black market and like hold them in their apartment as like a kind of intermediate term store value. And and basically what what stable coins do is they're like a offshore bank account for the middle class. So instead of just for the rich, they basically say, "Okay, here's an offshore bank account. We compress the overhead with technology so anyone with an internet connection can have access to it." um you know and and for for some people that that works as a as a you know kind of checking account and just sending uh value but it's not something you want to hold long term with any sort of meaningful amount of capital. And that's where something like Bitcoin comes into play.

Yeah. Years ago I had a guest who told me a very similar story about Argentina and I literally can't remember the conversation but confirmed it with a friend of mine who lives in Argentina. At that time before the proliferation of stable coins, people would literally go on the black market, pay, you know, three times what they should for dollars or the full story was they would receive dollars maybe even into their bank account or receive money into their bank account, go get dollars on the black market, come back and put the physical dollars into a safety deposit depos. in the same bank instead of into a bank account, which is I mean, it's exactly the same thing, but they're going back to the same bank to store it, but not in the bank's system. Yeah. Because it's all centralized. If you go to pull dollars out, they can either say no, or they can say, well, here's the fake uh government exchange rate that we're going to use rather than the actual exchange rate that is being set by the market by people's ability to actually acquire and sell dollars. And so and stable coins kind of make that easier because before if you're bringing dollars through a port of entry, there's restrictions on how much you can bring. It can often it can just be taken for no good reason. Whereas stable coins there's just basically infinite density at at ports of entry and also just you know like we could you know hold up phones in this call and and send Bitcoin or stable coins. We can't do that with gold or physical dollars like other than just using credit rails, things like stable coins like you know there's even gold back stable coins if you wanted to send those around. And yeah, it's this new technology that reduces the the frictions across borders. And so I think you know again we're in a world with like 180 different currencies. And a lot of pe there are billions of people that prefer they want more of a choice of what assets they can have. It could be the dollar, it could be liquid gold, it could be Bitcoin. And they, you know, that this technology gives them that access. And, you know, even though Bitcoin is now 16 years old and stable coins are 11 years old, they really only reached kind of serious liquidity more recently. So I mean, stable coins didn't crack the 50 billion or 100 billion mark until kind of last cycle. And and so you know as as these things are now big and wellknown they're starting to actually sort of be used and and impactful.

So obviously the path to global reserve currency passes through Wall Street and governments and large financial institutions. I got in a lot of trouble for a poorly worded tweet that I had recently where I believe I said unfortunately co-opted. I said Bitcoin is amazing, something to the effect of, but it's been largely co-opted by the institutions that it was meant to, you know, rage against and a lot of early whales are basically disillusioned with this and that's who's been selling. So, I think co-opted was the wrong word because it triggered a lot of people that I was implying that the code had been co-opted or the network, which was not my intention. It was more a narrative being co-opted. I I still regret using that word, but what do you make of the institutional adoption and the fact that obviously some who were libertarian or here early may be a bit disillusioned with seeing what it's become at least in their mind. How do you frame that?

So I think it's inevitable that as it gets big and liquid large pools of capital are going to want to buy some which can include corporations, can include funds, can include governments. there's never a world there's never a reasonable path where only retail you know people own it and no large pools of capital want to own it even when it gets big and liquid. It's just it's not how things work. And what I would kind of point out is there between something being co-opted, captured and therefore made worse for the small users than something that is and right. So if if large pools of capital want to own it, but the underlying network keeps functioning very well and is designed to function in that environment, small individual users can still send it around and still use all of its cipher punk properties despite the fact that large entities are owning it. And if we go back to the prior discussion of of why aren't people using it as a medium exchange, I mean, one is because it's so volatile. And part of it becoming less volatile is for tons and tons of people to own it. either directly or through proxies that that you know some some institution owns it for a million of their investment clients for example. And as kind of large pools of capital own it becomes a non-trivial percentage of global assets. That starts smoothing out the volatility. There's like less one whale that can just move the price for example. It becomes less uncertain in terms of politics like you know people just wondering if it's gonna be banned or something and you know large large pools of capital wanted to to not touch it. as those things diminish, it reduces the volatility and therefore can allow Bitcoin to be used for more short and intermediate term needs in addition to just longer term needs. Which actually makes some of the the cipher punk properties better. And I mean so I I'm a general partner at Ego Death Capital and and we focus on investing in Bitcoin startups that that try to make Bitcoin usable. So people, you know, having people buy it and put it in self-custody, building the payment rails, the liquidity rails for payments, all these different things rather than just holding an ETF wrapper or a Bitcoin Treasury

wrapper. Not that there's anything wrong with those approaches, but, uh, there is, I think, two parallel things happening. Uh, they don't really compete with each other, per se. Um, and if anything, they're they're just they're both paths that have to happen if you're going to become a multi-trillion dollar asset and stay there.

I think I should be hired as the Eco Death marketing department. I just had Nico, I think two weeks ago, and Jeff five weeks ago. I think it's a testament to just uh what an incredible team you've put together and how successful it's been. And congratulations on that raise uh by the way. But yeah, all of that said, would you assign the same narrative to Bitcoin as you do to, you know, the fiscal situation we talked about, nothing stops this train? I mean, do you think that Bitcoin also inevitably continues to rise and goes to a million? Is there anything that you see that's a tremendous risk to that?

So, I I think for the most part, and some people because I'm active in both the macro and Bitcoin spaces, when I when I say nothing stops his train, even though it was originally meant for the fiscal deficits, people will often apply it to Bitcoin. uh which I I think has some degree of sense to it because one kind of fuels the other to some extent. The way that I I I and this is where I would generally agree with Jeff Booth is he'd phrase as as long as Bitcoin remains decentralized and secure then I think the rest kind of works itself out. I think basically the network effect at this point has reached critical mass. uh you know it's it's a communication protocol along with like Ethernet USB simple mail transfer protocol internet protocol kind of a more foundational thing like or even like the English language like languages the these kind of network self-sustaining network effects uh and ways of communicating is basically the dominant communication protocol for value uh it's achieved that kind of liquidity security and scale uh and so unless something can outright disrupt it uh I I think that that process will continue and there's not much I see on the horizon that could disrupt it.

Um I I do pay attention to the whole quantum thing uh the you know the whole quantum development. Um and I talk to people that are like working on solutions and saying how you know how can we uh you know make signature types more quantum resilient what is the time frame that we potentially have to do that is is is this a near-term thing? Is it an ever thing? Is it a you know one or two decade thing? Um so I don't really see a near-term problem from that um from everything I've studied. Uh but it is certainly one of the things that might eventually have to be addressed. Uh and there are people working on it with with solutions to potentially address it. So outside of something actually damaging Bitcoin's ability to function as we know it as the leader of its category, I think that the category itself is at least a 10x from here in the in the long arc of time. Uh and that it's growing into that almost inevitably.

From a market perspective or price, is there anything that you could see that could derail this cycle or this momentum right now? A lot of people obviously pointing to treasury companies taking on leverage. I've talked about that a lot. Friends have talked me off the edge a bit uh because my first take was there's going to be treasury company number 97 and 113 and they're just going to be hedge funds taking on more risk to try to beat everyone else. And maybe that, you know, turns the next 30% correction into a 50% correction. I don't know. But do you have any particular thoughts? Do they worry you at all? I mean, how how do you view all the things that are happening at this level of adoption and how fast they're moving?

So, they don't worry me, but I do pay attention to them as a market participant. So, um, this cycle so far has been characterized by less extremes. Uh and so uh as I mentioned before, anytime you have Bitcoin needs upward volatility to grow. Anytime you get upward volatility, you're going to get people saying, "Well, if I leverage it, I get even more gains." Uh and then people and then emotions kick in and people can get euphoric. And now in in the past in in Bitcoin and and broader crypto, this would happen to to extreme levels uh and you get like a multi-year draw down and wash out. Um, so far this cycle and and we we could later have a blowoff top, but so far this cycle, we've been having kind of more moderate levels of euphoria. So, for example, when the ETFs were approved, uh, and the month or two that followed, uh, we had kind of mild euphoria in the market and then we ended up getting a seven-month consolidation in Bitcoin uh, because of it. Uh and then when when the election happened and we were we were perceived as having a much more pro bitcoin pro crypto uh administration policies in play uh we got a really big bump uh in November uh and that that gave us kind of again another like seven-month uh correction. Uh I think that's pretty healthy when you kind of have this step up and then big choppy sideways of kind of letting off steam and another big spike up and another big uh choppy uh I I generally expect something like that to keep happening.

Uh the latest one is is you know you have some froth around like altcoin treasury companies which I don't think is particularly healthy development. Um uh and as you even Bitcoin treasury companies if there's too many of them too quickly and some of them are not managed well they are potential yeah they're potent yeah yeah they're potential sources of liquidation as soon as you have any sort of severe stress or prolonged mild stress uh in the market where the market kind of closes on them and they don't really have the cash flows to support their debt obligations so they end up having to liquidy I do think we'll get some liquidations uh you know last time last cycle was over 75% correction I don't know if we'll get that again. Depends on how extreme of this gets fundamentally concerning any prior cycles. So far, I would say less than other cycles. Yeah.

Um and I but I but I do think we're going to keep going through, you know, mild euphoria, wash out. Mild euphoria, wash out. You can either wash out in in terms of price or time. You can just go choppy sideways for half a year, full year, get all the interest out, get the, you know, compress all the MNAVs and

Time capitulation. My my favorite thing to watch when people lose their mind at the same price as it was 6 months ago. You know, you loved it 6 months ago, you hate it now. It's literally the same price.

Exactly. Uh it it is really wild to watch. I asked Jack Mers the same question right when 21 was announced when we were in Vegas. And he said, "Good. I hope they wash out the bigger and well capitalized ones that are managed. Well, we'll just buy it." You know, they're just the bigger ones will eat the smaller ones and we'll see who wins in this doggy dog dog world. And it does feel like, at least in the current iteration, there's just so much buying and there's so much capital on the sidelines waiting to buy that it should cause more upside for now than downside, at least in the shorter term. I mean, it's just crazy how much buying interest there is and how transparent it is. For the first time, we literally know exactly who's buying when and how much.

Yeah, I continue to be bullish longterm and then even in this cycle, I don't think the cycle's over yet. Uh I I've like the fact that we get these kind of mini cycles of, you know, slightly euphoric and then seven months of of sideways chop and another like spike up. Uh I expect that to continue at least for, you know, we'll see what happens the rest of this year. Uh but I I still think we'll see higher prices before we hit some sort of longer correction.

And how about the governments starting to talk about strategic Bitcoin reserves? I think we had an announcement of Brazil's having a meeting on it, Indonesia having a meeting on it. We also know obviously the United States still pending an announcement and sort of an audit of how much the United States already has. Uh how does that play into the game theory I guess of this cycle?

So I I on average I view it more as a next cycle thing most likely uh at least for numbers that really matter. So for example when we saw like you know when Micro Strategy started the Bitcoin treasury strategy they immediately started marketing the idea to other corporations they they would hold a conference like you know uh Bitcoin for for treasuries uh and really no one followed them anytime soon.

I think that was because of GAP accounting rules or at least that's how I cope.

Yeah. Well, there yeah, there were accounting issues and also just not many people were in the position of Michael Sailor where he had such a strong ownership level of the company was able to think in terms of years and decades rather than quarters and maybe a couple years. Uh so instead of being like a career executive like someone who could get easily fired or just trying to optimize their near-term pay package, he was an owner uh and able to kind of make uh these long range moves. That's pretty rare. But we started to see this cycle finally after a cycle delay, better accounting rules and like a lot of Bitcoiners saying, well, if the if existing companies are not going to do it, we'll we'll basically start new companies and do it. So it took more time than many people thought, but it kind of followed. And I think the same thing happens with sovereigns. I mean, obviously El Salvador was an early mover. The Kingdom of Bhutan was an early mover. um you know you see like uh you know UAE at the sovereign level makes some mining investments and ETF investments and things like that. There's you know a handful of entities out there. Generally speaking the smaller uh ones can can it kind of execute faster on average.

Um I I think we'll continue to see talking about it uh more so than like you know someone kind of just like jumping in and want to buy half a half a million coins from some big country and kind of doing the full Micro Strategy playbook. Um uh but I do think that over time this will continue to leak into sovereigns. They'll own it indirectly. Like you'll see a sovereign wealth fund own Micro Strategy for example or own ETF or potentially buy some Bitcoin around the margins. Um and it just kind of keeps trickling in from there as it becomes a bigger, more liquid, more understood network. I think that one of the bigger things this cycle is is increasingly understood at the sovereign level that at least it's here to stay.

Um with like the SEC kind of losing their court case and having to let the spot ETFs come to market and then this this kind of pro bitcoin pro crypto administration uh which is that even it you know I think the market's going to reach the point of scale and acceptance where even if say say this you know elections down the line we have a less favorable administration it's hard to roll back all of it you know even if you take you know three steps forward one step back it's still two steps forward uh and and especially when you're looking at a global scale um where you know one admin one country could you know pull back another country can say well then come to us you know bring your businesses and your capital and and you know here uh so I think uh this cycle is kind of marked more by it's here to stay at the in institutional scale uh and and allowed by you know most at least semireee countries uh and over time as more cycles play out and as the asset hopefully stays big and liquid you'll get more sovereigns that actually maybe want to buy it and hold it at scale.

I guess the question you brought up Michael Sailor, obviously he's unquestionably the biggest, the best. He's figured this out. He's going to own a meaningful percentage of the Bitcoin supply, but trading actually at a relatively conservative multiple to NAV. While some of these others launch in their eight or nine or 10x, you know, NAV, I haven't looked of late. I know some of those have sort of uh compressed, but why should a Bitcoin treasury company trade at a multiple? I understand why Micro Strategy should because I truly believe that he's going to become a Bitcoin bank and offer a full suite of financial services and much like you value a JP Morgan at a multiple to their net asset value because of their services. I think you can look at Micro Strategy through that lens. But a lot of the rest it seems like conjecturous to what they'll actually do besides buy Bitcoin.

Yeah, I think it's a good question. And I think so to start with I think to have the early ones trade at a premium makes sense because they're offering Bitcoin to pools of capital that couldn't really buy Bitcoin before. So if if you're bullish on Bitcoin and you're and your mandate is to only own stocks or only own bonds and you can't own a commodity or in some case you can't even own an ETF. If some company issues equity or bonds that give you Bitcoin price exposure that fits in the mandated fund, uh you've now opened this really big pool of capital and there's plenty of capital to say, well, I mean, if I if I have to pay 1.2x for it, it's still Bitcoin. Uh so, sure, give me that. And then if you the the next layer is, you know, corporations have better leverage than most of us have access to. So, you know, we can take out loans, but they could be callable, for example. uh whereas like Micro Strategy was taking out like 5-year convertible debt for example which is a much better way to get through a full cycle. Now they shifted more into preferred which generally require even more scale and liquidity to be able to access something like that. And so part of what they can do is they build a moat and they basically say this is the better type of leverage Bitcoin than most other types of leverage Bitcoin and and therefore people are willing to pay somewhat of a premium for it.

Um, and so if you're the if you're the leader in your jurisdiction, so in the United States that's Yeah. Met Planet for example. I I think those make sense. I I think when you when you get into like Bitcoin Treasury Company number 17 and you the people can't name the CEO, what are you doing differently in some cases or what market are you going after? That's where I think people start to say, well, why why should this one have an MNAV that's above 1.1 or whatever whatever the number might be? Um uh but I do think that it's not irrational for for the the ones that are considered to be wellexecuted uh and leaders in their space uh to to trade at a premium.

Yeah, I 100% agree with that. You sort of mentioned the froth of altcoin treasury companies. I've been kind of putting myself through mental gymnastics trying to figure out in my mind where all these fit. Like I'm a big fan of Bitcoin balance sheet companies as I like to call them. You know, just taking 15% of your cash and buying Bitcoin, right? really obvious. No leverage. No, I think it's very hard to beat Bitcoin with Bitcoin for other treasury companies as you s somewhat articulated. Actually, as nonsensical as altcoin treasury companies are, because I don't think they should be called Treasury companies because those are not treasury assets. I think it's actually easier to beat ETH or Salana if it is your benchmark than it is to beat Bitcoin because they have native yields with staking or you can go into DeFi and earn a larger yield. It's just much easier to beat those assets as your benchmark. So, I'm trying to like mentally figure out they're hedge funds, right? But but where they fit because that actually makes a lot of sense to me the more I've thought about it. if you believe those assets will rise. I just can't see the argument for having a Salana Treasury in 30 years as your like you know as your cash.

Yeah, I view them more speculations because the problem is that a lot of these you know they offer a service basically the services compete on price. Like stable coins want to go to whatever is cheap and scalable for example. There's not a lot of huge differentiation there. the winners from one cycle are rarely the same winners of the next cycle. They all tend to have a long-term rollover relative to Bitcoin after one or two cycles of of kind of their initial action. So I think there's some of inevitability that you know people are going to look at the top 10 assets and say well why why shouldn't I try to lever this up or why shouldn't I try to make this available to capital markets and you know there's a pop there's there's a speculation there where they can say look we're going to get the staking yield on top of the asset and you don't have to worry about that we'll just do it and we'll attach a little bit of leverage to it and I can see why there's a market for that the problem is that the way that these bull markets tend to end is that capital just gets fractured everywhere so it goes into Bitcoin And then they think well Bitcoin rose let me let me buy altcoin number 82 and that so it gets split 100 different ways and then last cycle was like NFTs and you had as long as NFTs are a thing people are going to keep issuing you have memecoins and now it's kind of like okay let let's have more and more treasury companies come to market in all these other assets and eventually just that you exhaust demand you fracture the narrative and then we we talk about we talked about wash outs before either in terms of price or time where you have 6 months or 12 months or I mean depending on how how euphoric and then severe it is. You just have a period of time where anything that's not actually of long-term value starts to drain back into Bitcoin and even Bitcoin can temporarily drain from euphoria back and basically into the dollar until that long tail of of weaker assets is is largely washed out and then that can set the stage for the the next up cycle. And hopefully it doesn't have to be one of those multi-year bare things.

Yeah. uh because you hit hopefully you get less euphoric in the first place and then less uh crazy in the downside it it could still happen. Um but basically I think either way you still go through some degree of cyclicality that washes out anything that's not worth being here for 10 years.

Yeah. I mean every time someone says to me like when alt season you know I say have you looked at stocks because we're having alt season it's just crypto equities in a different market but it's the same fundamentally the same structure as you mentioned. I know we've only got like two more minutes. You said you don't think that the cycle is over. Do you have any thoughts on I don't even know if you believe in the four-year cycle or what the cycle means at this point, but when you would potentially see a top being put in before one of those even long periods of consolidation. Do you have a premise or thesis on that?

So, I think that as uh mining rewards are now a small percentage of supply uh that the four-year cycle uh is is much less relevant than it was for maybe the first three cycles. I think global liquidity is a really big uh metric to monitor uh for the overall cycle as well as levels of euphoria. So I'm thinking less in terms of time and more like that there's a certain set of flags I look for. Um and the things that give me pause for like say a 6 month or 12 month period is signs of euphoria. Um and my my favorite metric for Bitcoin is uh onchain like it's it's market capitalization uh compared to onchain average cost basis. basically the value of all coins last time they moved, which is often to and from exchanges. Um and that metric might become less relevant over time as as more volume happens in in other environments. So far it's not really the case. So right now that's not a very euphoric marker. If that becomes rather euphoric, I would become concerned because that's more indicative of a big pause. Then I look at I I do look at things like, you know, what are the what are the premiums on Bitcoin Treasury companies? How many altcoin companies are coming to market? just signs of froth because the more signs of froth you get the more it is like yeah we're probably gonna have like six months of of you know correcting in time or or price to wash some of this out and kind of reset you know there there are signs that you get 3 month or six month corrections at times nothing's really kind of warning me about a multi-year correction at the current time which is why I think this cycle still has legs and where I would become more concerned maybe on a multi-year basis would be more extreme signs of euphoria leverage average dislocation from cost basis and that sort of thing.

Yeah, if we go full like 2021 I mean 2022. Yeah, that would be bad. If we search the FTX Voyager Celsius type block by situation, so we'll all maybe know better this time and thank you so much for your time. I know we we went right up there to the last minute. Always really an honor, pleasure to speak with you. Thank you.

Thanks for having me. Always happy to be here. That's dope. [Music] [Applause] Let's do