1
00:00:00,000 --> 00:00:09,820
For as long as I've been in Bitcoin, this idea of the four-year cycle has been this sort of ball

2
00:00:09,820 --> 00:00:15,040
and chain, I think, on the Bitcoin price. If you can get rid of that narrative, I think that has

3
00:00:15,040 --> 00:00:18,680
very profound implications for how Bitcoin will trade into the future.

4
00:00:19,040 --> 00:00:22,820
The one lesson I have from Bitcoin is when a bunch of hyper-autistic nerds become obsessed

5
00:00:22,820 --> 00:00:29,540
with an early part of an exponential curve, don't fade them. The impact of transformative AI is

6
00:00:29,540 --> 00:00:34,640
going to be hard to underappreciate. And it's going to have downstream effects on everything

7
00:00:34,640 --> 00:00:38,440
else, right? Everything in terms of how we measure inflation statistics, how we measure GDP.

8
00:00:39,020 --> 00:00:43,520
And that will become, I think, the defining conversation of our political lives in the

9
00:00:43,520 --> 00:00:47,600
next few years. Plan A is just the system as it is, continues indefinitely. The question is,

10
00:00:47,640 --> 00:00:51,920
what's plan B? Governments have to have plan B. Monetary regimes tend to change on generational

11
00:00:51,920 --> 00:00:56,240
timescales. And if you're looking out for the national interest over 50, 100 years,

12
00:00:56,240 --> 00:01:02,080
you got to think about, okay, what's our backup plan? We belong at 150. And the journey is we've

13
00:01:02,080 --> 00:01:07,400
kind of proven a trillion dollars back in 2024 market cap. I think we've now proven 2 trillion.

14
00:01:07,580 --> 00:01:11,020
In my view, 3 trillion is kind of the next move. And then it's just a question of how many more

15
00:01:11,020 --> 00:01:18,600
trillions. Let's get going. We've actually, we've got Joe to thank for this interview happening.

16
00:01:18,720 --> 00:01:23,360
After we spoke in Vegas, Joe was saying we should put together like a round table conversation.

17
00:01:23,360 --> 00:01:29,280
and we've got Joe here on the macro side, Checkmate on the Bitcoin side, and Matt Pines on the everything

18
00:01:29,280 --> 00:01:34,920
geopolitics side. So I think this is going to be a good one. But I think we've got to start with

19
00:01:34,920 --> 00:01:42,160
Bitcoin. We're over 114k again. Checkmate, are we back? Yeah, it's an interesting dynamic. So

20
00:01:42,160 --> 00:01:48,540
the thing that I've been looking at the most right now, here's some stats for you above the 95k level.

21
00:01:48,540 --> 00:01:51,580
So 95K is a real important line in the sand.

22
00:01:51,960 --> 00:01:54,040
I've been describing it as like the hodler's wall.

23
00:01:54,180 --> 00:01:58,800
Because if you look at the distribution of supply, 30% of all Bitcoin have a cost basis

24
00:01:58,800 --> 00:02:00,520
above 95K.

25
00:02:00,860 --> 00:02:05,720
But that 30% of supply, if you price it based on when it was last moved as like a dollar

26
00:02:05,720 --> 00:02:10,500
is invested, it's more than 60% of the total wealth that's been invested in Bitcoin above

27
00:02:10,500 --> 00:02:11,160
95K.

28
00:02:11,620 --> 00:02:15,560
So if you think about that from like a sentiment standpoint, first thing, we've had a stack

29
00:02:15,560 --> 00:02:16,420
of sell side, right?

30
00:02:16,420 --> 00:02:20,900
the amount of sell side pressure that this thing has absorbed above 95k big money has come in to

31
00:02:20,900 --> 00:02:27,420
absorb it if you drop down below 95k 60 of your wealth invested is now looking at their portfolio

32
00:02:27,420 --> 00:02:32,780
and saying did i just buy the top so it's actually a pretty important level i think to keep those guys

33
00:02:32,780 --> 00:02:39,480
in profit and if we go back and look at most of the start of like nasty bears very very similar

34
00:02:39,480 --> 00:02:46,280
structure 30 to 60 of the wealth and the coins uh this is kind of the dynamic we are so at the

35
00:02:46,280 --> 00:02:50,300
moment we're holding like and from many levels there's like first line of defense second line of

36
00:02:50,300 --> 00:02:57,220
defense short-term cost base about 111k and until you go below that my rule is just be a bull and

37
00:02:57,220 --> 00:03:02,900
we got down like 109 and here we are at 114 so when the bears have enough juice to get us down

38
00:03:02,900 --> 00:03:08,740
below short-term cost basis and then 105 it starts to tip over 95 is that line in the sand it's like

39
00:03:08,740 --> 00:03:13,300
guys you haven't even taken out the first line of support yet so uh i'm certainly cautious because

40
00:03:13,300 --> 00:03:20,280
it's not a big move, price move from $114 to $95. That's not a significant move, but the damage it

41
00:03:20,280 --> 00:03:24,260
could cause is pretty significant. But the damage hasn't happened yet. That's my kind of broad

42
00:03:24,260 --> 00:03:29,300
picture view of things. It's funny how quickly the sentiment is shifting both directions,

43
00:03:29,400 --> 00:03:34,420
this bull market. Because I think on one side, I'm guilty of this. It doesn't feel like a normal

44
00:03:34,420 --> 00:03:39,480
Bitcoin bull market where I've not had the dopamine hits and the euphoria. And then all that has to

45
00:03:39,480 --> 00:03:44,420
happen is Bitcoin dropped like 4% and everyone's calling for the end of the cycle. Joe, how are

46
00:03:44,420 --> 00:03:48,900
you feeling about it now? And do you think the idea of Bitcoin cycles might be over?

47
00:03:50,120 --> 00:03:55,560
Yeah. I mean, to be honest, and I've said this publicly for well over a year and a half now,

48
00:03:55,560 --> 00:04:03,400
I think it is a mistake to attribute the peak and subsequent drawdown in late 2021 and 2022

49
00:04:03,400 --> 00:04:06,940
as a Bitcoin idiosyncratic feature, okay?

50
00:04:07,540 --> 00:04:09,700
To me, it's not simply coincidence

51
00:04:09,700 --> 00:04:13,200
that Bitcoin peaked in November of 2021

52
00:04:13,200 --> 00:04:15,360
alongside numerous other risk assets,

53
00:04:15,600 --> 00:04:18,660
that it was coincident with the telegraphing

54
00:04:18,660 --> 00:04:20,700
from the Federal Reserve that they would begin,

55
00:04:21,120 --> 00:04:22,220
well, that they were behind the curve

56
00:04:22,220 --> 00:04:23,640
and that it would be in one of the fastest

57
00:04:23,640 --> 00:04:24,840
rate hiking cycles in history,

58
00:04:25,040 --> 00:04:26,940
dealing to the rapid onslaught of inflation,

59
00:04:27,140 --> 00:04:29,140
rolling off their balance sheet, QT, et cetera.

60
00:04:29,660 --> 00:04:32,580
So I just think it's simply implausible

61
00:04:32,580 --> 00:04:37,240
suggests that that was a Bitcoin idiosyncratic feature. It just happened to line up with the

62
00:04:37,240 --> 00:04:44,180
majority of macro chaos that we had to go through through most of 2022. So my view has been that

63
00:04:44,180 --> 00:04:51,080
even predating the 2021 cycle, I think the cycles were dead if they ever were a thing driven by some

64
00:04:51,080 --> 00:04:58,020
halving supply demand dynamics. I think that it wasn't a coincidence also that alongside Bitcoin

65
00:04:58,020 --> 00:05:02,980
ripping. You had many other risk assets ripping through most of 2021 that were drunk on the high

66
00:05:02,980 --> 00:05:09,580
of the stimmy checks and the ZERP and massive central planning easing. So my view is that

67
00:05:09,580 --> 00:05:15,220
these are sort of ex post facto the narratives we sort of develop to justify why price action

68
00:05:15,220 --> 00:05:20,840
develops. And to me right here, I think it's very simple. If the economy remains robust,

69
00:05:20,940 --> 00:05:25,380
potentially re-accelerates, I expect Bitcoin to do well. I expect most major risk assets to do well.

70
00:05:25,380 --> 00:05:41,140
And the opposite is also true, right? If the economy continues to decelerate, if some of these weaker segments of the overall economy start to get worse and potentially bleed over into other sectors, I expect the greater risk asset complex to struggle alongside Bitcoin.

71
00:05:41,700 --> 00:05:48,200
I don't know. I'm curious what, if anything, I said there that Matt or Chad could disagree with.

72
00:05:48,880 --> 00:05:50,100
No, I fully agree.

73
00:05:50,180 --> 00:05:52,440
And I think I've had this line I've been floating around recently.

74
00:05:52,840 --> 00:05:56,460
People are going to hang on to past cycles well past their use by date.

75
00:05:56,560 --> 00:05:59,920
And they're also going to throw out certain patterns thinking that, oh, it's already broken.

76
00:06:00,280 --> 00:06:05,200
So I'm living in a very, very flexible world in terms of how I bring data into my system.

77
00:06:05,760 --> 00:06:10,780
Because if you look at the past cycles, really, there's been two major regime shifts.

78
00:06:10,780 --> 00:06:15,140
I wouldn't really call them cycles, but a period in time where market structure absolutely changed.

79
00:06:15,480 --> 00:06:17,100
The first one was the 2017 top.

80
00:06:17,100 --> 00:06:23,140
after that 2017 top it stopped looking like this retail very just like organic type dynamic

81
00:06:23,140 --> 00:06:29,580
stable coins come in derivatives come in leverage comes in that 2018 through to 2022 period

82
00:06:29,580 --> 00:06:34,320
it for those of you who lived through it bitcoin was like i call it schroding is bitcoin it was

83
00:06:34,320 --> 00:06:38,260
both alive and dead the regulators were going to kill it tradfire had written it off there's a

84
00:06:38,260 --> 00:06:42,180
bunch of hodlers who still believed in it there's degenerates gambling on this thing with leverage

85
00:06:42,180 --> 00:06:49,000
then we got the stimmy checks and everything in 2021 and when ftx collapse on 2022 you can look at

86
00:06:49,000 --> 00:06:54,620
any metric you want whether it's price relative to the 200 day any on-chain metric they all change

87
00:06:54,620 --> 00:07:01,020
pattern at the 2017 high from a very organic retail driven thing that middle period boom bust

88
00:07:01,020 --> 00:07:07,120
just straight up straight down and then from 2023 onwards super stable super structured looks a lot

89
00:07:07,120 --> 00:07:11,800
more like 2016-17 but things take a lot longer to play out and they don't have the big as big

90
00:07:11,800 --> 00:07:16,640
drawdown. So they're the kind of zones where market structure changed. And there's a lot of

91
00:07:16,640 --> 00:07:20,580
different components to that. But I generally agree with Joe. People like to fit a narrative

92
00:07:20,580 --> 00:07:27,600
to explain it. But yeah. I'll just tell you, when I say this, people tend to hear, oh,

93
00:07:27,660 --> 00:07:31,400
it's a super cycle. Bitcoin will never go down. There'll never be a correction. I'm not suggesting

94
00:07:31,400 --> 00:07:37,440
that at all. Bitcoin can obviously pull back and it can have drawdowns, right? But this sort of

95
00:07:37,440 --> 00:07:44,040
predictable, like four year boom bust cycle that we have to go on that's coincident with the halving.

96
00:07:44,520 --> 00:07:49,460
I think that's kind of always been sort of more of a meme than anything else.

97
00:07:50,360 --> 00:07:54,280
The thing that I've just been paying a lot of attention to is the thing that doesn't get paid

98
00:07:54,280 --> 00:07:58,860
attention to, which is like Bitcoin's volatility. Right. And I'm not a I'm not a trader. I don't

99
00:07:58,860 --> 00:08:03,740
kind of look on chain, but I sort of pick up like the zeitgeist and the zeitgeist to first order is

100
00:08:03,740 --> 00:08:07,500
just like Bitcoin's moves, right? That's usually when the mainstream media reports on it, like it

101
00:08:07,500 --> 00:08:13,080
drops 5% or it goes up 10%. And Bitcoin has just been in this unprecedented period relatively of

102
00:08:13,080 --> 00:08:18,860
low volatility. And so it just kind of becomes like less interesting to kind of most Bitcoiners

103
00:08:18,860 --> 00:08:23,900
when it's just like a thing you DCA. And that's maybe a sign of its overall maturity as an asset

104
00:08:23,900 --> 00:08:30,320
class, where most folks are just treating it now as a thing to kind of, you know, nibble in as part

105
00:08:30,320 --> 00:08:35,900
of their portfolio now that it's been kind of blessed by the US government and blessed by the

106
00:08:35,900 --> 00:08:41,260
ETFs. I just think we're just in a different regime where like those heyday cycles where it's like

107
00:08:41,260 --> 00:08:47,240
memes driven, sentiment driven. It's sort of maturing as an asset class and it's coming into

108
00:08:47,240 --> 00:08:52,180
like 20, 30% annualized vol. And that just means that it's just fundamentally like behaving

109
00:08:52,180 --> 00:08:55,040
differently than most Bitcoiners that have gone through these different cycles. That's kind of my

110
00:08:55,040 --> 00:08:59,740
more like layman's observation here. But I think it has a lot more kind of far-reaching effects on

111
00:08:59,740 --> 00:09:02,000
kind of how you think about its adoption cycle, right?

112
00:09:02,620 --> 00:09:05,060
Because most people's unit bias that have come in

113
00:09:05,060 --> 00:09:09,120
in the last few months has been the ETF, you know, share price.

114
00:09:09,600 --> 00:09:11,180
And so, you know, you probably pay attention

115
00:09:11,180 --> 00:09:12,840
to what the Bitcoin price was when you bought it,

116
00:09:12,880 --> 00:09:14,440
but when you check your brokerage account,

117
00:09:14,800 --> 00:09:17,280
you sort of see, you know, a much smaller number, right?

118
00:09:17,300 --> 00:09:19,320
And so people just have a different psychological orientation

119
00:09:19,320 --> 00:09:22,900
to the Bitcoin price than, you know, most of us, right?

120
00:09:23,640 --> 00:09:26,700
And we're sort of checking it like, you know, every hour, right?

121
00:09:26,740 --> 00:09:29,160
People just see it as a thing that they were convinced

122
00:09:29,160 --> 00:09:30,960
to finally buy a slug of,

123
00:09:31,080 --> 00:09:33,660
and now it just sits in their portfolio as an ETF.

124
00:09:34,400 --> 00:09:36,460
And that means they're not going to trade as much.

125
00:09:36,500 --> 00:09:38,000
It means that they'll probably be a bit more resilient

126
00:09:38,000 --> 00:09:39,660
to sort of swings,

127
00:09:39,780 --> 00:09:43,060
but its overall sort of placidity

128
00:09:43,060 --> 00:09:46,140
has been the most sort of novel feature of Bitcoin

129
00:09:46,140 --> 00:09:47,020
in the last few months to me.

130
00:09:47,460 --> 00:09:48,440
Yeah, I think the two things

131
00:09:48,440 --> 00:09:50,240
where people log into their brokerage account,

132
00:09:50,300 --> 00:09:51,700
they see iBit in an uptrend

133
00:09:51,700 --> 00:09:54,460
and they see over the default view is one year,

134
00:09:54,540 --> 00:09:55,620
like, oh, cool, I'm up 100%.

135
00:09:55,620 --> 00:09:56,060
That's great.

136
00:09:56,120 --> 00:09:56,800
How awesome is that?

137
00:09:57,280 --> 00:09:59,000
And the other thing I think is really important to note

138
00:09:59,000 --> 00:10:02,100
is options, like IBIT options.

139
00:10:02,520 --> 00:10:03,760
I think that this is the one story

140
00:10:03,760 --> 00:10:05,220
I haven't heard anybody talking about,

141
00:10:05,280 --> 00:10:06,480
talking about the volatility profile.

142
00:10:06,580 --> 00:10:08,060
They went live in November 24.

143
00:10:08,800 --> 00:10:11,280
They've now overtaken Deribit in terms of size

144
00:10:11,280 --> 00:10:13,180
and only took, you know, whatever that is,

145
00:10:13,340 --> 00:10:14,680
the shortest part of a year.

146
00:10:15,520 --> 00:10:17,240
They have like, you know, $40 billion.

147
00:10:17,700 --> 00:10:19,660
There's 40 cents of options contract

148
00:10:19,660 --> 00:10:21,520
written per unit of IBIT,

149
00:10:21,640 --> 00:10:23,020
which is an incredible number.

150
00:10:23,220 --> 00:10:24,540
But if you look at GLD,

151
00:10:24,600 --> 00:10:26,680
that gets up to like 120%, 100%.

152
00:10:26,680 --> 00:10:28,980
So you'll get a dollar for every dollar that's in there.

153
00:10:29,000 --> 00:10:43,860
So that is a volatility extraction tool, but it cuts both ways because all these folks and they can write covered calls and they can write covered puts, but there's points in time where the market does just move and suddenly all those options writers are on the wrong side of the trade.

154
00:10:43,980 --> 00:10:50,160
So you get a broader slowdown in volatility and then you get these tail events that just blow everything up.

155
00:10:50,300 --> 00:10:52,600
So, you know, you've got to keep all those things in mind as well.

156
00:10:52,600 --> 00:10:57,820
so is that is that why we've not seen bitcoin be as volatile because obviously we've had ets buying

157
00:10:57,820 --> 00:11:02,320
a shit ton of bitcoin at all the treasury companies like sailors buying everything that's out there but

158
00:11:02,320 --> 00:11:06,120
price hasn't moved that much and you hear people come up with these narratives around like price

159
00:11:06,120 --> 00:11:11,800
depression and stuff like that but is that really down to the these uh derivative markets um they

160
00:11:11,800 --> 00:11:16,240
have a fact they have a role but the the beast that no one likes to talk about is just there's

161
00:11:16,240 --> 00:11:21,760
a stack of hodlers selling like you can look just in the on-chain space you just look at coins moving

162
00:11:21,760 --> 00:11:24,300
and people can debate and say, oh, it's just UTXO consolidation

163
00:11:24,300 --> 00:11:26,340
or I'm just moving it into an ETF.

164
00:11:27,020 --> 00:11:30,440
You know, when we look at the amount of money flowing into the ETFs,

165
00:11:30,880 --> 00:11:34,380
it is five times smaller than the amount of profit being taken

166
00:11:34,380 --> 00:11:36,280
by coins that move at the peak.

167
00:11:36,440 --> 00:11:38,420
So, you know, you rally to 73K,

168
00:11:38,560 --> 00:11:41,480
suddenly you've got $50 billion worth of Bitcoin moving a month.

169
00:11:41,680 --> 00:11:44,320
That used to be like one, two, three years old.

170
00:11:44,440 --> 00:11:47,540
They all move around the top and then the top seems to just stop

171
00:11:47,540 --> 00:11:48,340
and be the top.

172
00:11:48,680 --> 00:11:51,620
And then it happens again at 100K and then it happens again at 124K.

173
00:11:51,620 --> 00:11:57,080
So yes, everybody might do their UTXO management at the all-time high, but it's just sellers.

174
00:11:58,260 --> 00:12:02,840
Based on that, though, I'm curious if any of you have thoughts on the causality.

175
00:12:02,980 --> 00:12:03,780
Why are they selling?

176
00:12:04,300 --> 00:12:05,820
What is the driving force?

177
00:12:05,860 --> 00:12:08,960
Is this just people that were sitting on piles of Bitcoin and say, you know, now it's time

178
00:12:08,960 --> 00:12:10,360
you only live once.

179
00:12:10,440 --> 00:12:11,880
We're going to celebrate and buy our yachts.

180
00:12:11,960 --> 00:12:14,520
I mean, what is driving this, if any?

181
00:12:14,660 --> 00:12:16,240
They've got to fund the treasury companies, Joe.

182
00:12:17,260 --> 00:12:18,340
Yeah, treasury companies.

183
00:12:18,340 --> 00:12:21,460
Well, the thing with the treasury companies, a lot of those treasury companies are left

184
00:12:21,460 --> 00:12:22,820
pocket to right pocket as well, right?

185
00:12:22,880 --> 00:12:26,180
Some old holder or some old entity has got a stack of coins.

186
00:12:26,260 --> 00:12:30,320
They move it to their right pocket, change the legal entity, you know, suddenly you've

187
00:12:30,320 --> 00:12:31,100
got a treasury company.

188
00:12:31,220 --> 00:12:33,120
So, you know, there's a lot of that going on behind the scenes.

189
00:12:33,620 --> 00:12:36,280
But, you know, it depends who you talk to, right?

190
00:12:36,280 --> 00:12:41,660
In terms of these whales, I mean, we saw Galaxy cleared 80,000 Bitcoin trade for one guy.

191
00:12:42,140 --> 00:12:43,940
How many 80,000 clips has that guy got?

192
00:12:43,940 --> 00:12:49,140
I met a dude who's been around for a very, very long time since the Satoshi era, like mining the

193
00:12:49,140 --> 00:12:53,680
CPU type level. And I did a presentation where I was talking about sellers. And I said, look,

194
00:12:53,980 --> 00:12:59,300
the next most likely zone, this would have been six months ago. The next most likely zone we get

195
00:12:59,300 --> 00:13:04,020
a lot of sell side coming was 120K. And at the end of the presentation, this guy put his hand up

196
00:13:04,020 --> 00:13:10,020
and goes, I've got sell orders in at 120. So it's just like this number that people have in mind.

197
00:13:10,020 --> 00:13:13,420
And I also think there's a lot of estate planning going on.

198
00:13:13,500 --> 00:13:14,500
If you think about some of these guys

199
00:13:14,500 --> 00:13:16,860
have got thousands of tens of thousands of coins,

200
00:13:17,360 --> 00:13:19,600
you need a legal team to try and sort out your inheritance.

201
00:13:19,600 --> 00:13:21,860
And suddenly you've got ETFs you can move into.

202
00:13:22,360 --> 00:13:23,900
You're not going to get your bank frozen

203
00:13:23,900 --> 00:13:25,400
for moving that kind of money around,

204
00:13:25,520 --> 00:13:26,600
like being associated with Bitcoin.

205
00:13:26,720 --> 00:13:28,260
I think it's just a lot of those dynamics,

206
00:13:28,780 --> 00:13:31,780
which it makes sense after such a long time

207
00:13:31,780 --> 00:13:33,020
and massive price moves.

208
00:13:33,960 --> 00:13:35,060
Well, it's anecdotal,

209
00:13:35,120 --> 00:13:36,880
but I've had a few of these conversations as well,

210
00:13:36,920 --> 00:13:37,720
right, with some OGs.

211
00:13:37,800 --> 00:13:39,640
And Bitcoin's an interesting market, right?

212
00:13:39,640 --> 00:13:41,120
which is it's such a large market, right?

213
00:13:41,160 --> 00:13:42,560
$2 trillion plus market cap.

214
00:13:42,740 --> 00:13:46,840
But like the largest single cohort of holders

215
00:13:46,840 --> 00:13:49,360
are like very much idiosyncratic, right?

216
00:13:49,380 --> 00:13:51,660
Relative to other asset classes, right?

217
00:13:52,280 --> 00:13:54,740
They have a unique, I would say, psychology.

218
00:13:55,280 --> 00:13:58,200
They are all kind of similar age bands, right?

219
00:13:58,280 --> 00:13:59,540
Like obviously there's going to be exceptions,

220
00:13:59,700 --> 00:14:01,640
but like they tended to be, I'd say,

221
00:14:02,420 --> 00:14:06,440
highly correlated in terms of their cognitive phenotype,

222
00:14:06,780 --> 00:14:08,640
their age, their gender.

223
00:14:08,640 --> 00:14:17,580
And so like people go through life events, people go through, you know, maturation as like when you go into your 20s and your 30s and you start thinking about things a little bit differently.

224
00:14:17,920 --> 00:14:24,860
And so you have an entire cohort of kind of OG Bitcoiners that are kind of all hitting these life events while Bitcoin is reaching all time highs.

225
00:14:24,900 --> 00:14:32,040
And so it just seems like a natural psychological kind of effect that you would see kind of also like cascade where you they all know each other, too.

226
00:14:32,040 --> 00:14:35,860
Right. And so they also kind of hear from the rumor mill that, oh, yeah, I've got ladder.

227
00:14:35,860 --> 00:14:37,460
I've got ladder sale orders at 120.

228
00:14:37,840 --> 00:14:40,020
And it's because a relatively small group of these folks,

229
00:14:40,640 --> 00:14:42,320
that gets around and then it kind of,

230
00:14:42,420 --> 00:14:45,780
it sort of, it becomes self-reflexive, right?

231
00:14:45,780 --> 00:14:46,780
And then everyone realizes

232
00:14:46,780 --> 00:14:48,620
that's the level I should sell at, right?

233
00:14:48,680 --> 00:14:50,880
And so it doesn't actually take like kind of,

234
00:14:51,080 --> 00:14:53,440
you know, gigabrain kind of algo traders

235
00:14:53,440 --> 00:14:54,580
to kind of drive this.

236
00:14:54,620 --> 00:14:56,620
It's like a handful of people and their signal chats.

237
00:14:57,620 --> 00:15:00,540
And, you know, they're reaching different life milestones.

238
00:15:01,560 --> 00:15:04,140
This episode is brought to you by the massive legends,

239
00:15:04,140 --> 00:15:09,660
IREN, the largest NASDAQ listed Bitcoin miner using 100% renewable energy. IREN are not just

240
00:15:09,660 --> 00:15:13,780
powering the Bitcoin network, they're also providing cutting edge computing resources for AI

241
00:15:13,780 --> 00:15:18,120
all backed by renewable energy. We've been working with their founders Dan and Will for quite some

242
00:15:18,120 --> 00:15:21,880
time now and have been really impressed with their values, especially their commitment to local

243
00:15:21,880 --> 00:15:26,400
communities and sustainable computing power. So whether you're interested in mining Bitcoin or

244
00:15:26,400 --> 00:15:31,660
harnessing AI compute power, IREN is setting the standard. Visit iren.com to learn more, which is

245
00:15:31,660 --> 00:15:36,880
I-R-E-N dot com. If you're already self-custody of Bitcoin, you know the deal with hardware wallets,

246
00:15:37,140 --> 00:15:41,820
complex setups, clumsy interfaces, and a seed phrase that can be lost, stolen, or forgotten.

247
00:15:42,380 --> 00:15:47,280
Well, BitKey fixes that. BitKey is a multi-sig hardware wallet built by the team behind Square

248
00:15:47,280 --> 00:15:52,460
and Cash App. It packs a cryptographic recovery system and built-in inheritance feature into an

249
00:15:52,460 --> 00:15:58,200
intuitive, easy-to-use wallet with no seed phrase to sweat over. It's simple, secure self-custody

250
00:15:58,200 --> 00:16:03,920
without the stress. And time named Bitkey one of the best inventions of 2024. Get 20% off at

251
00:16:03,920 --> 00:16:12,040
bitkey.world when you use code WBD. That's B-I-T-K-E-Y dot world and use code WBD. One of the things that

252
00:16:12,040 --> 00:16:16,380
keeps me up at night is the idea of a critical error with my Bitcoin cold storage. This is where

253
00:16:16,380 --> 00:16:20,760
AnchorWatch comes in. With AnchorWatch, your Bitcoin is insured with your own A-plus rated

254
00:16:20,760 --> 00:16:25,420
Lloyds of London insurance policy and all Bitcoin is held in their time-locked multi-sig bolts.

255
00:16:25,420 --> 00:16:29,780
so you have the peace of mind knowing your bitcoin is fully insured while not giving up custody

256
00:16:29,780 --> 00:16:33,760
so whether you're worried about inheritance planning, wrench attacks, natural disasters

257
00:16:33,760 --> 00:16:36,700
or just your own mistakes you're fully protected by AnchorWatch

258
00:16:36,700 --> 00:16:39,960
rates for fully insured custody start as low as 0.55%

259
00:16:39,960 --> 00:16:43,660
and are available for individual and commercial customers located in the US

260
00:16:43,660 --> 00:16:48,520
speak to AnchorWatch today for a quote and for more details about your security options and coverage

261
00:16:48,520 --> 00:16:52,600
visit anchorwatch.com today, that is anchorwatch.com

262
00:16:52,600 --> 00:16:57,680
i'm curious to know what you all think about yeah so let's let's say joe's right and the the green

263
00:16:57,680 --> 00:17:03,000
green green red theory isn't true sorry hodl um and we're just entering a different world now

264
00:17:03,000 --> 00:17:08,280
um why do you think this happened like gold has been ripping this year bitcoin's done really well

265
00:17:08,280 --> 00:17:12,460
for the last couple years maybe we'll continue to do well it's just this just the world searching

266
00:17:12,460 --> 00:17:18,840
for safety um and mixed in with all the like the deficit spending the debt like is this just the

267
00:17:18,840 --> 00:17:21,340
the world waking up to these problems?

268
00:17:22,580 --> 00:17:24,500
In my view, in gold's case, yes.

269
00:17:25,020 --> 00:17:27,920
When you look at, I like to price everything in gold

270
00:17:27,920 --> 00:17:30,040
because gold is like, I know that as Bitcoin,

271
00:17:30,140 --> 00:17:31,760
as we say, Bitcoin is the meter of value.

272
00:17:32,400 --> 00:17:33,700
Gold is the meter of value, right?

273
00:17:33,760 --> 00:17:35,820
Bitcoin might become the meter of value, but it is gold.

274
00:17:36,100 --> 00:17:37,420
So over the long arc of time,

275
00:17:37,740 --> 00:17:39,940
you correct the stock market by gold

276
00:17:39,940 --> 00:17:42,600
and you can actually see these 10 year, 20 year cycles

277
00:17:42,600 --> 00:17:45,540
where, you know, why is an inert yellow metal

278
00:17:45,540 --> 00:17:48,400
doing better than the best performing stocks in the world?

279
00:17:48,840 --> 00:17:52,200
something's wrong with the world right that's that's generally what the signal being sent there

280
00:17:52,200 --> 00:17:56,620
inflation debasement whatever it is so the fact that gold is moving the way it is it's quite

281
00:17:56,620 --> 00:18:01,760
clearly central bank demand you can look at the etf flows they're only just starting to pick up

282
00:18:01,760 --> 00:18:07,560
and i actually pulled the the world gold council data the other day and i was looking at which

283
00:18:07,560 --> 00:18:14,180
just at a regional level in terms of official holdings and through like the 2000s the europe

284
00:18:14,180 --> 00:18:19,020
in particular was just selling gold, selling, selling, selling. 2008 happens and suddenly the

285
00:18:19,020 --> 00:18:26,100
Eastern countries, you know, China, Russia, they just start buying gold like crazy. And then as of

286
00:18:26,100 --> 00:18:31,080
2024, we started seeing Europeans stepping into buying gold, right? And you can go back and look

287
00:18:31,080 --> 00:18:34,720
at when the Australian government sold their gold. It's the exact bottom on the Aussie dollar

288
00:18:34,720 --> 00:18:39,520
gold chart. So, you know, it's one of those things I just think a lot of, you know, they wrote gold

289
00:18:39,520 --> 00:18:44,380
off it's a barbarous relic and now it's coming back into the fold and for me that's actually

290
00:18:44,380 --> 00:18:48,280
quite exciting because when you think about how much market cap gold is adding it's it's trillions

291
00:18:48,280 --> 00:18:53,120
of dollars and my long-term price target for bitcoin has always been the same it's 10.8 kilos

292
00:18:53,120 --> 00:18:56,840
of gold which is parity the higher the gold price goes the higher the bitcoin price goes at a

293
00:18:56,840 --> 00:19:02,280
relative basis so it's just lifting the floor of where this thing's going i mean i just had a lunch

294
00:19:02,280 --> 00:19:07,600
with an individual who's a pretty well-connected hedge fund guy um travels to china often and

295
00:19:07,600 --> 00:19:12,840
He described how he had met with the senior officials at the People's Bank of China.

296
00:19:12,840 --> 00:19:18,320
And they were very clear, to him at least, that they've been massively ramping up their

297
00:19:18,320 --> 00:19:22,240
gold purchases in the last six months, accelerated in the last three months.

298
00:19:22,240 --> 00:19:26,160
And the sort of narrative that they gave him, again, you know, take it for what it's worth,

299
00:19:26,160 --> 00:19:32,280
was that Trump's political actions with respect to the Fed were perceived by senior leadership

300
00:19:32,280 --> 00:19:36,980
at the PBOC as a regime shift.

301
00:19:36,980 --> 00:19:47,080
And so the firing of Lisa Cook, you know, appointment of Steve Moran, who's a G, has sort of fundamentally shifted the vibe among the People's Bank of China.

302
00:19:47,080 --> 00:19:57,380
And so that's just a step change. And when you have, you know, the People's Bank of China just to say, like, we're just going to keep buying gold hand over fist, it's up 45 percent in a year.

303
00:19:57,440 --> 00:20:06,280
Right. That's not a surprise. And they decide, OK, if this administration wants to weaponize the global trade system, wants to essentially.

304
00:20:06,980 --> 00:20:10,360
you know, go toe-to-toe in a total economic and financial war, which has been ongoing,

305
00:20:10,540 --> 00:20:12,600
a bit more sub-rosa for the last several years.

306
00:20:13,660 --> 00:20:17,340
Gold is sort of the natural international unit of account that will reflect

307
00:20:17,340 --> 00:20:19,880
that rising sense of instability and that risk premium.

308
00:20:20,880 --> 00:20:27,680
I definitely agree with the central bank, and I'll defer to Matthew and check on the

309
00:20:27,680 --> 00:20:29,620
sort of geopolitical element of it.

310
00:20:29,780 --> 00:20:34,680
But one thing I will note is that if you look at copper, since the beginning of the year

311
00:20:34,680 --> 00:20:38,680
and pre the tariffs that I think were announced at the end of July, if memory serves,

312
00:20:39,220 --> 00:20:40,420
copper was up 45%.

313
00:20:40,420 --> 00:20:45,740
Okay, copper is not like the store of value of choice for central bankers.

314
00:20:46,160 --> 00:20:50,400
So I think you're clearly seeing the market sniff out what many in Bitcoin circles have

315
00:20:50,400 --> 00:20:54,320
been talking about for a long time, which is higher structural inflation that speaks

316
00:20:54,320 --> 00:20:56,180
to the issues in the larger, broader economy.

317
00:20:56,660 --> 00:21:01,040
You're entering, again, you're continuing on a rate cutting cycle from the Federal Reserve

318
00:21:01,040 --> 00:21:04,400
where inflation is, by some metrics, nowhere close to target.

319
00:21:04,680 --> 00:21:29,800
And this is not to suggest in any way hyperinflation. I generally fade almost every hyperinflation call in the United States I've ever heard. But I will tell you that you can have a middle ground between, you know, the let's get back to 2%, the hyperinflationistas and somewhere with higher structural inflation, which is going to bleed through to commodities. And in this higher structural inflation regime, I expect commodities to do generally well, right? They kind of go one and one. They're correlated very much so.

320
00:21:29,800 --> 00:21:46,480
So to me, I think that's a huge element of it, too. I think you see this across the broader commodity complex, excluding oil, which there's some, again, idiosyncratic features of the oil market that are going on here. But to me, that's a broad takeaway. I think you need to add into everything Matthew and Cech said.

321
00:21:46,480 --> 00:21:52,160
what do you think about what the fed just came out and did uh joe in terms of cutting rates looks

322
00:21:52,160 --> 00:21:55,760
like they're going to cut again going into the end of the year like i almost feel a little bit

323
00:21:55,760 --> 00:22:00,100
sorry for drone powell because like in because i just feel like he's stuck in a hard place

324
00:22:00,100 --> 00:22:06,080
but like if all he can do is either cut rates which is going to be potentially good for jobs

325
00:22:06,080 --> 00:22:10,040
but bad for inflation or keep them where they are which is going to be bad for jobs and maybe

326
00:22:10,040 --> 00:22:13,420
better for inflation like what is he meant to do do you think he's doing the right thing

327
00:22:14,420 --> 00:22:20,040
Well, that's a wholly separate question, but let's go to the first part of that, okay?

328
00:22:21,040 --> 00:22:25,760
So, you know, a lot of people, and I always think this is fascinating, they will, I actually

329
00:22:25,760 --> 00:22:28,120
was DMing with Lynn Alden about this.

330
00:22:28,440 --> 00:22:32,720
A lot of people will sort of like, they'll parrot the fiscal dominance regime without

331
00:22:32,720 --> 00:22:34,940
really understanding the implications of what that means.

332
00:22:34,940 --> 00:22:39,660
If you are truly in a fiscally dominant regime, by definition, right, the monetary policy is

333
00:22:39,660 --> 00:22:44,660
indominant, less dominant, whatever you want to characterize it. Meaning that, does it really

334
00:22:44,660 --> 00:22:50,840
matter? Like, does it matter if the Federal Reserve cuts 25 bps, 50 bps, 75 bps? They have

335
00:22:50,840 --> 00:22:55,340
a communications channel, right? They have an expectation setting channel. There are clearly

336
00:22:55,340 --> 00:23:00,140
segments of the economy that are desperate for lower rates. You've seen that for years now,

337
00:23:00,420 --> 00:23:05,060
the weakness in those parts of the economy that are well documented. But to your, you know,

338
00:23:05,060 --> 00:23:08,720
sort of broader question, they're cutting rates here in a dynamic where they're also continuing

339
00:23:08,720 --> 00:23:10,260
and you roll off their balance sheet.

340
00:23:10,260 --> 00:23:11,860
That seems at cross purposes,

341
00:23:11,860 --> 00:23:14,460
but I think they're dealing with a lot.

342
00:23:14,460 --> 00:23:16,860
They're dealing with the political pressure.

343
00:23:16,860 --> 00:23:33,627
Obviously there massive implications for the erosions of Fed independence and without casting a judgment on it you have to accept that it is on the table right You know less Fed independence But the question for me that is important to focus on is that you know what is the implicit

344
00:23:33,627 --> 00:23:40,187
message that is being sent when you are cutting rates in an environment where you still have the

345
00:23:40,187 --> 00:23:45,287
inflation metrics, the Fed's own metrics running far too hot? And I think it is an implicit

346
00:23:45,287 --> 00:23:50,727
sort of suggestion that, you know, our rate hiking, rate cutting policy isn't perhaps as meaningful

347
00:23:50,727 --> 00:23:55,827
as it once was. And I truly believe that. I think that, you know, is it going to really amount to a

348
00:23:55,827 --> 00:24:01,527
whole lot? No. I don't think it structurally changes very much cutting 50 or 75 bps. You'd

349
00:24:01,527 --> 00:24:07,167
have to cut substantially more than that, I think, to trigger some more of a credit impulse in the

350
00:24:07,167 --> 00:24:12,487
economy. So that's the broad takeaway. I mean, it's almost like an admission to some extent,

351
00:24:12,487 --> 00:24:18,027
a tacit admission that their rate hiking policy isn't going to bring us closer to target.

352
00:24:18,447 --> 00:24:21,607
We have to rely on the rates naturally.

353
00:24:22,287 --> 00:24:24,767
Well, we have to rely on the inflationary pressures naturally abating.

354
00:24:25,707 --> 00:24:29,487
You know, there's an interpretation out there that we probably would have gotten through,

355
00:24:29,607 --> 00:24:35,287
you know, the pig of Python of stimulus and seen that natural roll off of inflation in

356
00:24:35,287 --> 00:24:37,087
2022, even if the Fed hadn't have hiked.

357
00:24:37,627 --> 00:24:41,687
You know, if the Fed had kept the neutral, kept it, you know, let's say, you know, somewhere

358
00:24:41,687 --> 00:24:43,407
in the low threes or something like that.

359
00:24:44,007 --> 00:24:45,327
There's arguments out there

360
00:24:45,327 --> 00:24:46,907
that those inflationary pressures

361
00:24:46,907 --> 00:24:48,587
driven by the lockdowns

362
00:24:48,587 --> 00:24:50,087
and driven by the excess stimulus

363
00:24:50,087 --> 00:24:51,127
would have naturally abated,

364
00:24:51,507 --> 00:24:52,607
regardless of what the Fed did.

365
00:24:53,027 --> 00:24:54,047
You can't really test it.

366
00:24:54,107 --> 00:24:55,347
It's not quantifiable, right?

367
00:24:55,687 --> 00:24:58,467
But to me, I think the reason

368
00:24:58,467 --> 00:24:59,147
they're doing this,

369
00:24:59,207 --> 00:25:01,487
which is the whole long and variable lags

370
00:25:01,487 --> 00:25:03,247
and we want to do these sort of insurance cut.

371
00:25:03,347 --> 00:25:04,247
I mean, Powell used the term

372
00:25:04,247 --> 00:25:06,587
risk mitigation front, right?

373
00:25:06,587 --> 00:25:08,627
Risk mitigation cut at the last presser.

374
00:25:08,727 --> 00:25:09,607
I thought that was fascinating

375
00:25:09,607 --> 00:25:11,547
because he's basically saying,

376
00:25:11,687 --> 00:25:14,107
Like we're just as worried about the labor market now.

377
00:25:14,187 --> 00:25:15,727
They've come into better balance or parity,

378
00:25:15,807 --> 00:25:16,547
whatever you use the phrase,

379
00:25:16,867 --> 00:25:18,267
as the inflationary pressures.

380
00:25:18,407 --> 00:25:21,467
Well, your inflationary numbers are still far above target.

381
00:25:22,327 --> 00:25:24,387
So how is it that, you know,

382
00:25:24,427 --> 00:25:25,427
maybe it's just an acknowledgement

383
00:25:25,427 --> 00:25:29,227
that the broadsword of the cuts or the hikes rather

384
00:25:29,227 --> 00:25:30,547
are not gonna be sufficient

385
00:25:30,547 --> 00:25:31,927
to actually bring down the pressures.

386
00:25:32,187 --> 00:25:34,187
So all of that's a long-winded way of saying,

387
00:25:34,187 --> 00:25:37,407
I think they're recognizing that the policy

388
00:25:37,407 --> 00:25:38,187
where it's at right now,

389
00:25:38,247 --> 00:25:40,087
which they claim is slightly restricted

390
00:25:40,087 --> 00:25:40,867
or moderately restrictive,

391
00:25:40,867 --> 00:25:42,267
is not really meaningful.

392
00:25:42,887 --> 00:25:43,927
Yeah, the way I'd sort of,

393
00:25:44,667 --> 00:25:46,627
we're in 2025, right?

394
00:25:46,667 --> 00:25:47,747
And a lot of things are different.

395
00:25:48,607 --> 00:25:49,987
It's not just fiscal policy.

396
00:25:50,247 --> 00:25:53,267
We also have trade policy and statecraft policy.

397
00:25:53,647 --> 00:25:54,327
And so you have an environment

398
00:25:54,327 --> 00:25:56,227
where like the effective tariff rate on China

399
00:25:56,227 --> 00:25:57,927
is like 54%, right?

400
00:25:57,947 --> 00:25:59,727
And then you've got like almost every other country

401
00:25:59,727 --> 00:26:01,227
is facing a structurally higher tariff rate.

402
00:26:01,587 --> 00:26:03,727
You have still the backdrop of, you know,

403
00:26:03,787 --> 00:26:05,907
67% of GDP and deficits.

404
00:26:06,447 --> 00:26:10,527
And then you have an entire new like CapEx boom

405
00:26:10,527 --> 00:26:14,747
being driven by the private sector, now in like hundreds of billions of dollars of, you know,

406
00:26:14,827 --> 00:26:19,687
per deal sizes for building, you know, massive data centers, right? Which are very, you know,

407
00:26:19,807 --> 00:26:24,127
commodity resource intensive. And so you have these massive distortions that all came at the

408
00:26:24,127 --> 00:26:28,527
same time while you have like what the Fed likes to have is like these smooth, you know, long and

409
00:26:28,527 --> 00:26:33,867
variable lag based kind of forecasts. And fundamentally, they just are kind of in the

410
00:26:33,867 --> 00:26:38,607
backseat, right? It's not just they're in the sort of the passenger seat, like all of these other

411
00:26:38,607 --> 00:26:42,907
perturbations in the global macroeconomic environment are much more significant than

412
00:26:42,907 --> 00:26:48,227
a 25-50 basis point cut. And I think the most significant feature of the curve that matters

413
00:26:48,227 --> 00:26:52,727
politically is basically the long end for mortgages, right? Ultimately, there's just

414
00:26:52,727 --> 00:26:58,207
millions of Americans that are trapped in their houses and feel that they can't climb the ladder

415
00:26:58,207 --> 00:27:03,627
and home prices are still stuck very high, and yet to refinance would be prohibitive.

416
00:27:03,727 --> 00:27:07,987
And so there's just a political pressure to bring down the long end while the government knows that

417
00:27:07,987 --> 00:27:12,667
They need to keep refinancing at the short end and they can stuff T-bills into stablecoins.

418
00:27:12,767 --> 00:27:19,287
So this is like very much a political necessity to sort of distort the yield curve and to

419
00:27:19,287 --> 00:27:23,667
ensure that capital flows for the most strategic and like politically conducive purposes.

420
00:27:23,807 --> 00:27:29,647
And the Fed as like a, you know, as an institution is very resistant to being used as a tool

421
00:27:29,647 --> 00:27:30,687
for any of those other purposes.

422
00:27:31,067 --> 00:27:33,707
And that's why we see this political conflict play out, right?

423
00:27:33,707 --> 00:27:39,667
when the federal government and the commander-in-chief and the executive agent in charge of running the country

424
00:27:39,667 --> 00:27:45,007
decides that there's a certain set of statecraft and trade and economic policies they want to pursue.

425
00:27:45,767 --> 00:27:51,267
History tells us usually the Fed gets subsumed, but we're sort of in the middle of that process playing out,

426
00:27:51,327 --> 00:27:53,067
and the Fed's heavily resistant to that.

427
00:27:54,027 --> 00:27:59,087
But ultimately, the Fed becomes less and less of the story and more,

428
00:27:59,087 --> 00:28:04,667
okay, like how much of a resistance are they going to put up to what seems to be like a

429
00:28:04,667 --> 00:28:10,427
structural shift in how the U.S. government is attempting to wield a much more command-driven

430
00:28:10,427 --> 00:28:14,107
economy? Yeah. So Danny, if I can jump in, because I have a question for Matt in this. So

431
00:28:14,107 --> 00:28:18,907
if, what I don't understand is this, there are very bright people in the administration,

432
00:28:19,307 --> 00:28:25,947
and surely they must understand that the overnight rate set by the Fed doesn't amount to a hill of

433
00:28:25,947 --> 00:28:29,647
beans compared to the all-long end rate, right? I mean, you pointed out there, that's the most

434
00:28:29,647 --> 00:28:34,887
politically sensitive part of the curve that really matters for people, matters for households,

435
00:28:35,087 --> 00:28:41,127
matters for mortgages, et cetera. So what is driving in your mind the emphasis on the overnight

436
00:28:41,127 --> 00:28:47,027
rate, which to me, I think, at least from the rhetoric, they seem to suggest that you're

437
00:28:47,027 --> 00:28:51,347
conflating those two things, that if the Fed were to somehow cut tomorrow by 150 bps, that that

438
00:28:51,347 --> 00:28:54,487
necessarily would bring down that long end rate. And I'm not so sure that's true.

439
00:28:54,987 --> 00:28:57,187
What we have seen is that the long end goes up when they cut.

440
00:28:57,807 --> 00:28:57,987
Yeah.

441
00:28:58,267 --> 00:28:58,447
Yeah.

442
00:28:58,527 --> 00:28:59,447
It might even be counterproductive.

443
00:28:59,567 --> 00:29:08,147
I think that's a bit of, I mean, whether it's just like they brief Trump and Trump gets told the rates are too high because Powell's not cutting rates.

444
00:29:08,147 --> 00:29:09,907
And so he just tweets rates are too high.

445
00:29:09,947 --> 00:29:15,987
Whereas the real, like, quote, technocrats just want to capture the Fed and they want to be able to use these other tools, swap lines.

446
00:29:16,207 --> 00:29:18,847
They want to basically do much more strategic cooperation with buybacks.

447
00:29:19,087 --> 00:29:19,447
Right.

448
00:29:19,447 --> 00:29:26,107
So, like, ultimately, control over the long end has been shifting over the last several years to the Treasury versus the Fed, right?

449
00:29:26,147 --> 00:29:30,927
This got started under Yellen with activist Treasury issuance, strategic use of buybacks.

450
00:29:31,067 --> 00:29:32,187
That's only going to increase.

451
00:29:32,567 --> 00:29:38,587
But the sort of effect of that is blunted by moves the Fed can do in terms of how it manages its balance sheet.

452
00:29:39,087 --> 00:29:44,087
And then obviously now, like, Besson comes out and says, we're going to give $20 billion swap lines to Argentina.

453
00:29:44,567 --> 00:29:46,867
Like, a swap line is actually a Fed facility, right?

454
00:29:46,867 --> 00:29:56,167
Like, he can give loans through the Exchange Civilization Fund to another country, but, like, a swap line is an instrument that the Fed has control over.

455
00:29:56,427 --> 00:30:01,967
So, like, there's just a de facto subsumption and a sort of irrigation of a lot of the capabilities of the Fed.

456
00:30:02,167 --> 00:30:06,067
And I think they're just sort of using the short end, like, pressure as, like, a rhetorical tactic.

457
00:30:06,267 --> 00:30:10,447
Because I agree, like, if you just jam short rates down, that doesn't mean anything for a 10, 30 year.

458
00:30:10,447 --> 00:30:16,007
In fact, it might, you know, be counterproductive, but it's a rhetorical cudgel to try to, like, jam the Fed into submission.

459
00:30:16,907 --> 00:30:20,747
And that seems to be their strategy, right, to get to sort of stack the board and squeeze.

460
00:30:20,747 --> 00:30:23,267
So the complaint about the front end is pretext in your mind.

461
00:30:23,907 --> 00:30:36,727
I mean, it could be a mix of both, like, underlings that have, like, you know, a 5D chess and then political apparatchiks that just want to, like, say the line and believe what's, you know, what's convenient for them to believe.

462
00:30:36,727 --> 00:30:42,047
because I agree, like there's no like immediate stimulative effect really from bringing down

463
00:30:42,047 --> 00:30:46,247
short rates except for the, you know, the refinancing of the government, right? If we

464
00:30:46,247 --> 00:30:52,667
have to issue whatever, 25, 30% more on the short end, maybe more now. Well, again, that starts to

465
00:30:52,667 --> 00:30:58,367
add up more for the government's borrowing capacity. Is this not where this sort of quiet

466
00:30:58,367 --> 00:31:02,107
third mandate comes in? I know it was mentioned in the, or I think it was mentioned in the last

467
00:31:02,107 --> 00:31:06,707
FOMC meeting that they want to try and influence the long end. Do you think they will try and

468
00:31:06,707 --> 00:31:12,567
do something akin to yield curve control? I mean, I think they have to, right? If you really run the

469
00:31:12,567 --> 00:31:17,387
numbers, at some point they have to. And I think this is what makes this time in economics. I mean,

470
00:31:17,427 --> 00:31:22,587
for me, I consider myself a macro tourist, right? I kind of try to study it because I find it

471
00:31:22,587 --> 00:31:28,327
fascinating. We're at this point in time where they have to do it, but the path from here to

472
00:31:28,327 --> 00:31:32,067
there, the path dependency, if you just say to the long end, oh, by the way, we're going to yield

473
00:31:32,067 --> 00:31:36,327
curve control, who's going to want to own bonds? And I think Luke Groman does a good job. He

474
00:31:36,327 --> 00:31:40,507
basically says like they have to anesthetize the the bond market lull them to sleep boil the frog

475
00:31:40,507 --> 00:31:46,667
whatever your analogy they that's the path they're going to but if they say it outright and if they

476
00:31:46,667 --> 00:31:52,327
say it explicitly this is why they say it's not qe but it's qe it's some bank funding program it's

477
00:31:52,327 --> 00:31:57,467
some you know adjustment to a regulation over here there's ways that they do this to keep this the

478
00:31:57,467 --> 00:32:03,107
wheels on for as long as possible and i often like i wonder because you know my engineering background

479
00:32:03,107 --> 00:32:06,367
and I look at this and I go, of course, this is what they have to do.

480
00:32:06,467 --> 00:32:08,207
Like, this is the machine, there's sand in the gears.

481
00:32:08,247 --> 00:32:09,267
You've got to get sand out of the gears.

482
00:32:09,647 --> 00:32:10,547
This is how you've got to do it.

483
00:32:11,067 --> 00:32:14,667
But the average bond trader, they still have to plug in CPI.

484
00:32:14,747 --> 00:32:16,287
We all know that the CPI number is bullshit,

485
00:32:16,747 --> 00:32:19,287
but that's the number they have to plug into their bond models

486
00:32:19,287 --> 00:32:20,847
because they know that's what everyone else is using.

487
00:32:21,207 --> 00:32:22,227
So it's like a shelling point.

488
00:32:22,327 --> 00:32:24,307
It's like, I know I've got my own inflation number,

489
00:32:24,307 --> 00:32:26,667
but I know that this guy's going to trade off CPI

490
00:32:26,667 --> 00:32:28,087
and this guy's going to trade off CPI.

491
00:32:28,247 --> 00:32:30,227
So everyone gathers around the room and watches

492
00:32:30,227 --> 00:32:31,907
as the CPI numbers come out,

493
00:32:31,907 --> 00:32:33,327
knowing that it's complete shit

494
00:32:33,327 --> 00:32:35,307
and they change the basket of it all the time

495
00:32:35,307 --> 00:32:37,667
and it's super core and it's magic core

496
00:32:37,667 --> 00:32:38,467
and it's special core

497
00:32:38,467 --> 00:32:40,647
and it's all these different versions of inflation

498
00:32:40,647 --> 00:32:41,767
and we all know it's much higher.

499
00:32:41,947 --> 00:32:44,847
So it's just part of this kind of fugazi game.

500
00:32:45,307 --> 00:32:46,547
Kayfabe, I think people call it.

501
00:32:47,887 --> 00:32:49,107
I think it's gonna be a mix of things.

502
00:32:49,147 --> 00:32:51,147
It's gonna be a mix of, you know,

503
00:32:51,247 --> 00:32:53,927
creative use of national accounting.

504
00:32:54,927 --> 00:32:56,107
But it's also gonna be, I think,

505
00:32:56,167 --> 00:32:58,207
more clever use of geopolitical instruments

506
00:32:58,207 --> 00:32:59,587
of kind of soft coercion

507
00:32:59,587 --> 00:33:01,367
for other allied pools of capital

508
00:33:01,367 --> 00:33:03,447
because you ultimately, to first order,

509
00:33:03,507 --> 00:33:05,667
you want to extraterritorialize your financial oppression.

510
00:33:06,067 --> 00:33:09,087
You don't first go after your domestic political constituencies

511
00:33:09,087 --> 00:33:09,607
and your donors.

512
00:33:09,867 --> 00:33:12,867
You go after the folks at the periphery of the dollar imperium

513
00:33:12,867 --> 00:33:14,707
and you make them take as much pain as you can.

514
00:33:15,127 --> 00:33:18,027
And so you see these headlines like South Korea was committing

515
00:33:18,027 --> 00:33:22,807
to invest $350 billion in AI, semiconductor energy, et cetera,

516
00:33:22,907 --> 00:33:24,527
but they said, we don't actually have the money for it.

517
00:33:25,047 --> 00:33:27,347
And we'll basically give them a backdoor swap line.

518
00:33:27,707 --> 00:33:29,867
So we'll sort of, you know, that's effectively,

519
00:33:29,867 --> 00:33:33,967
like in a certain sense, like geopolitical yield curve management. You're taking these foreign

520
00:33:33,967 --> 00:33:39,987
surpluses, you know, that are oftentimes like managed by, you know, sovereigns, whether it's

521
00:33:39,987 --> 00:33:45,747
explicitly or implicitly, and you're sort of directing their, like their choices of where to

522
00:33:45,747 --> 00:33:52,387
allocate those portfolios into, you know, US-based securities on conditions that we impose, right?

523
00:33:52,467 --> 00:33:56,947
Where we can either get that capital deployed for strategic, you know, national reshoring,

524
00:33:56,947 --> 00:34:00,227
technology purposes or to help fund our deficits.

525
00:34:00,427 --> 00:34:04,447
And that's easier said than done because it requires a joint integrated state craft.

526
00:34:04,547 --> 00:34:09,767
It requires actually being able to cajole slash twist the arms of the Taiwanese and the Japanese

527
00:34:09,767 --> 00:34:12,127
and the South Koreans and the folks in the Middle East.

528
00:34:12,127 --> 00:34:17,467
And it's sort of what was the plan that Zoltan drew up last summer that Steve Moran put in his white paper.

529
00:34:17,627 --> 00:34:20,487
But they're like the whiteboard technocrats.

530
00:34:20,627 --> 00:34:25,207
In practice, you have to get Lutnik to cooperate with Besant to cooperate with the State Department

531
00:34:25,207 --> 00:34:30,047
in Rubio and it actually requires a high degree of state capacity and competence to sort of wield

532
00:34:30,047 --> 00:34:35,267
these different instruments to, you know, steer capital and suppress the long end. And I think

533
00:34:35,267 --> 00:34:38,627
they've like, they're not like, I think they're learning how to do that more effectively. And

534
00:34:38,627 --> 00:34:43,527
then there's like these moments after Besson comes out after Liberation Day in the, you know,

535
00:34:43,607 --> 00:34:50,227
30 years spiking to 5% and it's like five long fire and then it generates a coordinated reaction.

536
00:34:50,767 --> 00:34:54,047
And then everyone just goes back to the normal beefing where, you know, Besson's going to punch

537
00:34:54,047 --> 00:34:58,527
Pulte in the face, right? And so... What's the coordinated reaction? Is this rhetorical?

538
00:34:59,247 --> 00:35:04,587
Well, I think when push comes to shove, right, the sort of allied network, you know, kind of the

539
00:35:04,587 --> 00:35:11,367
Five Eyes Alliance plus kind of NATO plus, at the end of the day, everyone has a mutual interest in

540
00:35:11,367 --> 00:35:16,127
the dollar-based system not just blowing up overnight, right? And so, you know, at the same

541
00:35:16,127 --> 00:35:20,267
time that they also want us not to renege on our security commitments. They also want us to give

542
00:35:20,267 --> 00:35:22,867
the max is to cutting edge GPUs and our frontier AI models.

543
00:35:23,247 --> 00:35:28,387
They want us to like continue servicing the, you know, crappy F35s, et cetera.

544
00:35:28,487 --> 00:35:32,547
So there's like lots of, you know, other sort of carrots and sticks that the government

545
00:35:32,547 --> 00:35:38,407
could use in like a, you know, optimal bargaining strategy with say Japan or Taiwan.

546
00:35:39,187 --> 00:35:40,807
And that's really hard, right?

547
00:35:40,827 --> 00:35:43,927
And actually how do you price each leg of those different, you know, carrots and sticks

548
00:35:43,927 --> 00:35:45,587
requires like a lot of state capacity.

549
00:35:45,927 --> 00:35:50,027
And when push comes to shove, maybe they can do it well on like a handful of deals, but

550
00:35:50,027 --> 00:35:52,287
then other deals get lost in the cracks.

551
00:35:52,447 --> 00:35:58,327
Yeah, but Matt, that buying doesn't even account for 40% of the treasury market, right?

552
00:35:58,407 --> 00:36:00,807
I mean, like the external, ex-United States.

553
00:36:00,967 --> 00:36:05,807
I mean, the bulk of treasuries are owned by U.S. institutions and entities and individuals.

554
00:36:06,627 --> 00:36:07,547
I think there's buying time.

555
00:36:07,727 --> 00:36:10,827
I think it's just like Besant doesn't want the 30-year to blow up on his watch.

556
00:36:10,827 --> 00:36:14,667
And so he's looking at like a quarter to quarter basis to see how much do I have to issue?

557
00:36:14,967 --> 00:36:18,327
How much will be taken down by domestics versus foreigns?

558
00:36:18,327 --> 00:36:23,207
How much can I sort of, you know, play this game of activist treasury issuance that Yellen started?

559
00:36:23,607 --> 00:36:29,687
And, you know, he only needs like an extra $20, $30 billion to prevent an auction from going bad, right?

560
00:36:29,947 --> 00:36:34,187
And so he's just playing, I think, the game to last to the end of the term.

561
00:36:34,507 --> 00:36:39,687
I don't think this is like the one weird trick, strategic game changer for the government's fiscal position.

562
00:36:40,147 --> 00:36:45,527
But it's sort of like they're looking around and they don't want to have a 30-year go above 5%.

563
00:36:45,527 --> 00:36:49,027
And so they're just going to try to pull the different levers to bring it back down.

564
00:36:49,147 --> 00:36:51,407
And that doesn't require hundreds of billions of dollars.

565
00:36:51,487 --> 00:36:55,247
It requires, you know, Japan coming in with 20 billion on a Sunday night or something.

566
00:36:56,587 --> 00:36:56,747
Got it.

567
00:36:57,067 --> 00:37:03,007
I mean, to me, the original question about the yield curve control, I continue to believe we're far way away from that, a long way away.

568
00:37:03,207 --> 00:37:04,627
I mean, I don't really see that.

569
00:37:04,707 --> 00:37:11,267
I think there's far more softer measures that you can do before you can get to something remotely close to that.

570
00:37:11,647 --> 00:37:13,767
That's what strikes me as sort of an extremist measure.

571
00:37:13,767 --> 00:37:19,427
and everything Matthew's talking about, and I think would come first. And to me, ultimately,

572
00:37:19,687 --> 00:37:25,887
a huge factor in the long end discussion is the implications for inflation and for economic growth

573
00:37:25,887 --> 00:37:30,447
generally. So if your view is economic growth is going to remain robust, then yeah, I could see an

574
00:37:30,447 --> 00:37:37,007
argument for how the 10 year and then 30 year continue to sell off. I mean, they're driven

575
00:37:37,007 --> 00:37:42,187
primarily historically by nominal growth rates and inflation. So what's your forecast for the

576
00:37:42,187 --> 00:37:46,167
economy. What I don't understand, Danny, and this is what frustrates me, we talked about this in the

577
00:37:46,167 --> 00:37:50,487
last interview we had, you can't have it both ways. You can't say growth's going to collapse,

578
00:37:50,567 --> 00:37:56,147
we're going into some hard down recession, and yields are also going to skyrocket. I've never

579
00:37:56,147 --> 00:38:02,927
understood that logic. I can think of some sort of tail events that could possibly trigger that,

580
00:38:03,027 --> 00:38:08,927
but those are tail events. They shouldn't be your base case. Because that's emerging market

581
00:38:08,927 --> 00:38:13,507
behavior, right? Where people sell the long end or they don't own your bonds when you go into a

582
00:38:13,507 --> 00:38:17,767
recession. So I think that would be the case against that is if we do have some kind of a

583
00:38:17,767 --> 00:38:22,947
recession and the market goes, okay, so you're running 8% deficits in the good times, those

584
00:38:22,947 --> 00:38:27,327
deficits go to 14, 15%, right? They shoot through the roof in a recession. So the reason someone

585
00:38:27,327 --> 00:38:31,107
would sell the long end and your long end would go up is actually emerging market type behavior.

586
00:38:31,547 --> 00:38:35,327
Now, whether the US is going to get there, I think there's always going to be that just like

587
00:38:35,327 --> 00:38:41,247
built-in response where they bid the dollar, bid the bonds. But the fact that we're seeing this

588
00:38:41,247 --> 00:38:48,927
cut rates long end up, gold up, all of these things are just starting to US equals EM. We're

589
00:38:48,927 --> 00:38:54,807
not full emerging market, but we've got the initial flavors of it. Well, I mean, we cut rates

590
00:38:54,807 --> 00:39:03,427
last fall and we cut rates just recently, right? And the long end 4.70 as of today. I mean, we were

591
00:39:03,427 --> 00:39:08,247
In October of 23, we were at 4.14.

592
00:39:09,487 --> 00:39:13,307
So, I mean, you're 40 bps lower, 45 bps lower roughly in change.

593
00:39:13,687 --> 00:39:16,807
From October of 23, we've run structural deficits,

594
00:39:17,007 --> 00:39:19,227
67% deficit GDP for the last two years.

595
00:39:19,887 --> 00:39:22,727
So if it was purely a supply issue, if it was purely a –

596
00:39:22,727 --> 00:39:26,547
now to Matt's point, it's like, well, we've been relying increasingly on long end,

597
00:39:26,627 --> 00:39:28,707
so you don't have a supply catalyst to cause that.

598
00:39:28,767 --> 00:39:31,587
So that's another compounding variable there.

599
00:39:31,587 --> 00:39:38,127
but I don't know I'm not as convinced that cutting at the front end is necessarily going to trigger it

600
00:39:38,127 --> 00:39:43,027
to sell off aggressively I think it would the more likely scenario Jack is in my mind it's to

601
00:39:43,027 --> 00:39:47,187
stay structurally higher I mean regardless of all these efforts that Matthews is talking about you're

602
00:39:47,187 --> 00:39:52,547
stuck in the fours say you know the higher fours that that that seems like the base case higher for

603
00:39:52,547 --> 00:39:56,647
longer yeah yeah yeah no 100% and I think the other thing to bear in mind is if you look at

604
00:39:56,647 --> 00:40:03,167
it's the US is the cleanest dirty shirt. Look at the UK. I mean, look at Japanese bonds,

605
00:40:03,227 --> 00:40:07,167
look at any other market. Now, granted, a lot of those, you know, Japan are as much lower than the

606
00:40:07,167 --> 00:40:11,467
US. So you could argue there's a bit of a normalization going on there. But if you look at

607
00:40:11,467 --> 00:40:16,307
UK, for example, they are trading like an emerging market. They're above the list trust moment. So

608
00:40:16,307 --> 00:40:21,787
it could just be that the US being the, you know, the privilege of the global reserve asset and

609
00:40:21,787 --> 00:40:26,647
currency, it's going to take longer to lull that bond market to sleep. But over time, it's going

610
00:40:26,647 --> 00:40:29,487
to happen. But I agree. I don't think these things are going to happen straight away. There's going

611
00:40:29,487 --> 00:40:35,127
to be a whole process. And coming back to the original Bitcoin conversation, I just think a lot

612
00:40:35,127 --> 00:40:41,147
of people miss how glacially macro moves. We can see a lot of these things coming down the pipe.

613
00:40:41,587 --> 00:40:47,467
I looked at when I started really grokking Bitcoin, 2019 is where it properly clicked for me.

614
00:40:47,467 --> 00:40:51,967
i didn't really understand anything about macro but i understood that the debt situation was a

615
00:40:51,967 --> 00:40:56,207
problem and a lot of the things we're seeing playing out now i couldn't have described that

616
00:40:56,207 --> 00:41:00,807
to you back then i wasn't experienced enough with it but i had this feeling that it was going to look

617
00:41:00,807 --> 00:41:05,747
something something like this there was a reason why you wanted to hold hard assets so i made that

618
00:41:05,747 --> 00:41:09,547
decision back then so it's one of those dynamics where it's going to take a long time for this

619
00:41:09,547 --> 00:41:14,947
stuff to play out you can see it years in ahead but pricing then into the next daily candle is

620
00:41:14,947 --> 00:41:17,927
where a lot of people get stuck because they think, but hang on a second, why doesn't everyone

621
00:41:17,927 --> 00:41:21,747
else see this? Because there's a thousand and one incentives that cause them to not see it,

622
00:41:21,807 --> 00:41:25,687
or there's regulations, there's mandates, there's all this other stuff going on in the background.

623
00:41:25,807 --> 00:41:29,667
So things just move slower than you expect. Do you wish you could access cash without

624
00:41:29,667 --> 00:41:34,347
selling your Bitcoin? Well, Ledin makes that possible. Ledin are the global leader in Bitcoin

625
00:41:34,347 --> 00:41:39,027
back lending. And since 2018, they've issued over $9 billion in loans with a perfect record

626
00:41:39,027 --> 00:41:43,687
of protecting client assets. With Ledin, you get full custody loans with no credit checks,

627
00:41:43,687 --> 00:41:47,987
No monthly repayments, just easy access to dollars without selling a single sat.

628
00:41:48,707 --> 00:41:53,387
As of July 1st, Ledin is Bitcoin only, meaning they exclusively offer Bitcoin-backed loans

629
00:41:53,387 --> 00:41:56,667
with all collateral held by Ledin directly or their funding partners.

630
00:41:57,087 --> 00:41:59,167
Your Bitcoin is never lent out to generate interest.

631
00:41:59,587 --> 00:42:02,847
I recently took out a loan with Ledin and the whole process couldn't have been easier.

632
00:42:03,147 --> 00:42:05,427
It took me less than 15 minutes to go through the application

633
00:42:05,427 --> 00:42:07,867
and in just a few hours I had the dollars in my account.

634
00:42:08,087 --> 00:42:08,947
It was super smooth.

635
00:42:09,347 --> 00:42:11,667
So if you need cash but you don't want to sell Bitcoin,

636
00:42:11,667 --> 00:42:19,347
head over to leden.io forward slash wbd and you'll get 0.25% off your first loan. That's leden.io

637
00:42:19,347 --> 00:42:25,227
forward slash wbd. Bitcoin is absolutely ripping and in every bull market there's always a new

638
00:42:25,227 --> 00:42:30,027
wave of investors and with it a flood of new companies, new products and new promises. But

639
00:42:30,027 --> 00:42:33,947
if you've been around long enough you've seen how this story ends for a lot of them. Some cut corners,

640
00:42:34,107 --> 00:42:38,207
take risks with your money or just disappear. That's why when it comes to buying Bitcoin the

641
00:42:38,207 --> 00:42:42,767
only exchange I recommend is River. They deeply care about doing things right for their clients

642
00:42:42,767 --> 00:42:47,827
and are built to last with security and transparency at their core. With River you have peace of mind

643
00:42:47,827 --> 00:42:52,327
knowing all their Bitcoin is held in multi-sig cold storage and it's the only Bitcoin only exchange

644
00:42:52,327 --> 00:42:57,247
in the US with proof of reserves. There really is no better place to buy Bitcoin so to open an

645
00:42:57,247 --> 00:43:02,907
account today head over to river.com forward slash wbd and earn up to $100 in Bitcoin when you buy.

646
00:43:02,907 --> 00:43:05,927
That's river.com forward slash WBD

647
00:43:05,927 --> 00:43:09,547
What if you could lower your tax bill and stack Bitcoin at the same time?

648
00:43:10,007 --> 00:43:12,027
Well, by mining Bitcoin with Blockware, you can

649
00:43:12,027 --> 00:43:19,167
New tax guidelines from the Big Beautiful Bill allow American miners to write off 100% of the cost of their mining hardware in a single tax year

650
00:43:19,167 --> 00:43:21,267
That's right, 100% write-off

651
00:43:21,267 --> 00:43:27,207
If you have 100k in capital gains or income, you can purchase 100k of miners and offset it entirely

652
00:43:28,107 --> 00:43:32,747
Blockware's Mining as a Service enables you to start mining Bitcoin right now without lifting a finger

653
00:43:33,307 --> 00:43:36,787
Blockware handles everything from securing the miners to sourcing low-cost power

654
00:43:36,787 --> 00:43:39,047
to configuring the mining pool, they do it all.

655
00:43:39,567 --> 00:43:44,367
You get to stack Bitcoin at a discount every single day while also saving big come tax season.

656
00:43:44,967 --> 00:43:49,867
Get started today by going to mining.blockwaresolutions.com forward slash WBD

657
00:43:49,867 --> 00:43:53,947
and for every hosted miner purchased, you get one week of free hosting and electricity.

658
00:43:54,687 --> 00:43:56,187
Of course, none of this is tax advice.

659
00:43:56,187 --> 00:44:01,587
Speak with Blockware to learn more at mining.blockwaresolutions.com forward slash WBD.

660
00:44:02,187 --> 00:44:06,647
Joe, I know one of the things that frustrates you about like the Bitcoin macro conversations

661
00:44:06,647 --> 00:44:09,687
is the fact that no one really talks about growth and productivity.

662
00:44:10,427 --> 00:44:13,447
If we are going to see a lot of that, where will it come from?

663
00:44:13,547 --> 00:44:15,887
Is this going to be like AI robotics type stuff?

664
00:44:16,247 --> 00:44:20,547
Well, I would argue you're seeing it for the last, like one of the reasons why the recession

665
00:44:20,547 --> 00:44:25,107
eases have been consistently wrong is what Matthew alluded to earlier with this CapEx

666
00:44:25,107 --> 00:44:25,327
boom.

667
00:44:25,547 --> 00:44:26,787
I mean, this is a massive deal.

668
00:44:27,287 --> 00:44:28,367
There's some forecast.

669
00:44:28,367 --> 00:44:31,587
I can't remember what the note it was, but, you know, it's still in the pipeline.

670
00:44:31,907 --> 00:44:34,347
We've got, you know, maybe you saw this note.

671
00:44:34,647 --> 00:44:35,587
It's on the tip of my time.

672
00:44:35,767 --> 00:44:35,967
Three trillion.

673
00:44:36,227 --> 00:44:37,107
Is it two trillion?

674
00:44:37,547 --> 00:44:37,707
Yeah.

675
00:44:37,807 --> 00:44:38,427
I think it's three.

676
00:44:38,567 --> 00:44:39,527
Three by five.

677
00:44:39,707 --> 00:44:42,727
Three trillion dollars are coming in over the next couple of years here.

678
00:44:43,307 --> 00:44:46,187
Into the, in terms of capex, you know, those are jobs.

679
00:44:46,287 --> 00:44:48,847
Those are, you know, those are private sector stimulus.

680
00:44:49,447 --> 00:44:50,387
That money's been secured.

681
00:44:50,567 --> 00:44:50,847
It's not.

682
00:44:51,027 --> 00:44:51,527
From where?

683
00:44:51,767 --> 00:44:52,627
Where's that money coming from?

684
00:44:53,007 --> 00:44:55,607
Well, some of it's just cash reserves of these mega caps.

685
00:44:55,607 --> 00:44:59,067
I mean, they're flush with cash and they're spending in a very smart, intelligent way.

686
00:44:59,147 --> 00:45:02,607
They're trying to build out this, you know, industrial revolution type moment here.

687
00:45:02,747 --> 00:45:05,567
And that money is going to flow through and it will have a multiplier effect.

688
00:45:05,707 --> 00:45:08,807
Private sector spending has a greater multiplier effect than government sector spending.

689
00:45:09,587 --> 00:45:15,627
I mean, there's some studies that say the money multiplier is declining to really sad levels when it comes to government spending.

690
00:45:15,767 --> 00:45:20,327
Right. So but the private sector, you're not seeing that you're seeing massive, I think, investment here.

691
00:45:20,327 --> 00:45:25,587
And that will continue. And that this was specifically alluded to during the last FOMC.

692
00:45:25,607 --> 00:45:39,547
We don't know exactly when the CapEx boom is going to end or come to a halt here, but we do know that there's at least stated intentions for the next couple of years now, at least, to put trillions of dollars into the economy to do this build out, which is essential.

693
00:45:39,727 --> 00:45:40,967
It's non-negotiable.

694
00:45:41,127 --> 00:45:44,787
I mean, it's for winning the next couple of decades, potentially, in the AI race.

695
00:45:44,927 --> 00:45:46,307
So I don't think that's going to be deferred.

696
00:45:46,407 --> 00:45:51,407
I don't think no matter what the economic conditions are, I think that money gets spent into the real economy.

697
00:45:51,807 --> 00:45:56,007
So in terms of growth, right, that's a ton of private sector capital that's going to propel.

698
00:45:56,187 --> 00:45:59,827
And I mean, this is a Matthew question, really, if you're going to get the return on the investment.

699
00:45:59,947 --> 00:46:02,827
I don't know. I can't forecast that. I'm not smart enough to figure that out.

700
00:46:02,927 --> 00:46:08,327
But I do know that I think it is a big mistake to just say, no, you're never going to get any growth from this.

701
00:46:08,407 --> 00:46:11,807
This is another tech bubble like 2000. None of these companies are going to make money off that.

702
00:46:11,927 --> 00:46:20,867
I think if you make that calculation without doing perhaps the homework that Matthew or others have done on this call, you're potentially committing a catastrophic error.

703
00:46:21,407 --> 00:46:23,347
So can I throw a question here?

704
00:46:23,347 --> 00:46:27,807
Cause this is something that like the one thing I have been looking at is just like the concentration

705
00:46:27,807 --> 00:46:29,607
of stocks on this AI boom.

706
00:46:29,607 --> 00:46:30,607
Yeah.

707
00:46:30,607 --> 00:46:33,447
You look at all the indices, you've got the hyper-financialized economy.

708
00:46:33,447 --> 00:46:37,767
If Nvidia falls, cause if you look at really the, it's all the same customers.

709
00:46:37,767 --> 00:46:51,054
Nvidia trading product chips with Microsoft and they paying open AI It kind of this big circle of like you know 12 15 firms And you can kind of look at that and go look there a couple of like left paying the right type dynamics Is the ROI there

710
00:46:51,194 --> 00:46:55,094
Matthew, I'd love your views on like how sustainable is this thing?

711
00:46:55,134 --> 00:46:56,994
Because like I get the statecraft element.

712
00:46:57,294 --> 00:47:01,094
I understand that the administration wants to win this AI boom,

713
00:47:01,274 --> 00:47:05,854
but there's only so far I can imagine companies running non-profitable strategies.

714
00:47:05,854 --> 00:47:08,674
And I almost think about it in the world of Bitcoin mining,

715
00:47:08,674 --> 00:47:10,294
where you've got the subsidy,

716
00:47:10,454 --> 00:47:11,914
which is all these models getting trained,

717
00:47:12,114 --> 00:47:13,914
guaranteed massive load.

718
00:47:14,114 --> 00:47:15,894
And then you've got to move to inference costs

719
00:47:15,894 --> 00:47:17,034
where people are actually using it,

720
00:47:17,074 --> 00:47:18,314
it's getting built into businesses.

721
00:47:18,814 --> 00:47:19,954
That's kind of the fee model.

722
00:47:20,474 --> 00:47:22,234
And I would imagine that we've got to kind of hit

723
00:47:22,234 --> 00:47:25,154
that critical mass where people are really integrating

724
00:47:25,154 --> 00:47:26,094
in everything that they do.

725
00:47:26,154 --> 00:47:28,094
But I'd love to know your thoughts on like how,

726
00:47:28,214 --> 00:47:31,554
how this sustainable, this inverted commas bubble is.

727
00:47:32,494 --> 00:47:35,474
We're moving from like a regime of analyzing AI

728
00:47:35,474 --> 00:47:38,234
where it's kind of a firm specific ROI analysis.

729
00:47:38,674 --> 00:47:43,694
to a point where you're understanding, is it going to have macroeconomic effects and could create a financial bubble?

730
00:47:45,074 --> 00:47:50,934
And it's like, well, just that fact alone means that if you're trying to analyze the next few years of your macroeconomic forecast,

731
00:47:50,934 --> 00:47:58,574
and you don't take very seriously what's already in the pipeline and what the folks making these trillion-dollar investment decisions believe about the future,

732
00:47:58,954 --> 00:48:01,534
then you're just kind of in denial or you're going to get smacked in the face, right?

733
00:48:01,574 --> 00:48:05,054
Now, those people might be wrong. Their assumptions might be ill-founded.

734
00:48:05,054 --> 00:48:08,974
but like they're the ones going to be in charge of borrowing trillions of dollars and deploying

735
00:48:08,974 --> 00:48:12,614
that into the economy and so like whether you like it or not like that's just going to be a

736
00:48:12,614 --> 00:48:19,014
baseline feature and now from like the perspective like an individual um firm's uh best use of a

737
00:48:19,014 --> 00:48:23,594
particular you know uh capital structure whether it's going to pay pay back their investors i don't

738
00:48:23,594 --> 00:48:28,234
know right there's like idiosyncratic business decisions that could lead to failure the the

739
00:48:28,234 --> 00:48:32,554
overarching feature of this uh new era that we're entering to is going to be accelerated creative

740
00:48:32,554 --> 00:48:38,774
destruction where you could have like a absolute unicorn darling pop out of nowhere get 10 billion

741
00:48:38,774 --> 00:48:42,394
dollars at arr and then go bankrupt the next year because somebody else figured out how to basically

742
00:48:42,394 --> 00:48:46,614
automate their business model so you could have enormous amounts of capital destruction you know

743
00:48:46,614 --> 00:48:51,154
equity and debt losses people pick the wrong horse right and so yes very clearly i think there are

744
00:48:51,154 --> 00:48:55,254
going to be business models that everyone falls in love with that are the next big thing that

745
00:48:55,254 --> 00:49:00,574
absolutely blow up um and people will point to those as the direct analogy to like pets.com or

746
00:49:00,574 --> 00:49:04,614
or whatever is like, there's hype, there's froth, there's massive capital misallocation,

747
00:49:05,174 --> 00:49:10,654
people are just trying to ride the wave, meme, hype, etc. Right? Typical story. I think though,

748
00:49:10,654 --> 00:49:15,174
there's something fundamentally different. The folks deploying this capital now, as Joe mentioned,

749
00:49:15,314 --> 00:49:19,894
most of them are deploying it out of their existing balance sheets. They just have huge

750
00:49:19,894 --> 00:49:24,394
amounts of capital and cash flow. So Google, Microsoft, these hyperscalers are cash flow

751
00:49:24,394 --> 00:49:28,594
generating machines. And they can take pretty healthy leverage on that without really getting

752
00:49:28,594 --> 00:49:30,414
their balance sheet upside down.

753
00:49:30,714 --> 00:49:32,454
And there's other folks like OpenAI that have to do

754
00:49:32,454 --> 00:49:35,774
these really creative sort of deals with Oracle and NVIDIA

755
00:49:35,774 --> 00:49:39,194
to try to bootstrap the scale of this investment.

756
00:49:39,294 --> 00:49:40,234
But it's not fundamentally different

757
00:49:40,234 --> 00:49:42,454
than just taking somebody else's massive cashflow

758
00:49:42,454 --> 00:49:44,234
generating balance sheet to deploy

759
00:49:44,234 --> 00:49:45,894
into the next generation of models.

760
00:49:46,714 --> 00:49:47,634
Then the ultimate question is like,

761
00:49:47,694 --> 00:49:48,414
okay, well, where's the beef?

762
00:49:48,494 --> 00:49:50,314
Like in the internet in the late 90s,

763
00:49:50,334 --> 00:49:52,274
it was kind of like e-commerce wasn't a thing.

764
00:49:52,634 --> 00:49:54,254
Like it was just all a belief system, right?

765
00:49:54,274 --> 00:49:56,254
Right now, like people are paying for tokens, right?

766
00:49:56,254 --> 00:49:57,834
Like they're economically valued

767
00:49:57,834 --> 00:49:59,494
and they're generating massive amounts of revenue

768
00:49:59,494 --> 00:50:01,934
at a pace that like no other technology has ever generated.

769
00:50:02,254 --> 00:50:02,634
And so it's like,

770
00:50:02,914 --> 00:50:04,454
there actually is a huge amount of demand

771
00:50:04,454 --> 00:50:06,074
for these things, right?

772
00:50:06,534 --> 00:50:08,894
Now, the real macroeconomic question

773
00:50:08,894 --> 00:50:09,854
is then the productivity,

774
00:50:10,114 --> 00:50:11,994
you know, downstream effects of that, right?

775
00:50:12,414 --> 00:50:14,174
You know, right now people have lots of different ways

776
00:50:14,174 --> 00:50:14,954
of trying to measure that.

777
00:50:15,014 --> 00:50:15,734
I think they're terrible.

778
00:50:15,834 --> 00:50:17,354
Like we don't really understand how to measure,

779
00:50:17,474 --> 00:50:20,274
you know, productivity, you know, with these tools

780
00:50:20,274 --> 00:50:21,994
just because the rate of change is going so fast

781
00:50:21,994 --> 00:50:23,554
that like most,

782
00:50:23,654 --> 00:50:25,414
by the time you do like a good economic study,

783
00:50:25,434 --> 00:50:26,534
it's like 12 months out of date.

784
00:50:26,534 --> 00:50:35,034
And if you just look at the scaling curves for most of these different benchmarks, their doubling time is like six to eight months.

785
00:50:35,514 --> 00:50:39,154
So like the median task that a model can perform is doubling about every seven months.

786
00:50:39,274 --> 00:50:45,054
And so by the time you feel like you've got a really good econometrics analysis of the effect of these things, it's kind of out of date.

787
00:50:45,434 --> 00:50:48,294
And so you're principally just relying on trust in the scaling curves.

788
00:50:48,434 --> 00:50:50,594
Will these scaling curves continue to go up?

789
00:50:50,594 --> 00:50:56,054
and that's what's convinced most of the capital in the world

790
00:50:56,054 --> 00:51:00,214
to deploy the marginal unit of their holdings

791
00:51:00,214 --> 00:51:01,614
into something related to AI.

792
00:51:02,094 --> 00:51:03,154
So I think there will be massive amounts,

793
00:51:03,274 --> 00:51:05,594
there'll be unprecedented amounts of capital destroyed

794
00:51:05,594 --> 00:51:07,594
in this AI boom, right?

795
00:51:07,594 --> 00:51:09,654
Just because the amount of money that's going to be deployed

796
00:51:09,654 --> 00:51:10,874
will be unprecedented in scale.

797
00:51:11,154 --> 00:51:11,774
I think Joe put it right.

798
00:51:11,894 --> 00:51:13,954
This is an industrial scale transformation, right?

799
00:51:14,674 --> 00:51:16,434
Compressing maybe 100 years of industrial revolution

800
00:51:16,434 --> 00:51:18,094
into maybe 10 at most.

801
00:51:18,814 --> 00:51:28,674
And we're not even at the point of seeing the downstream implications of what sort of this order of magnitude step change in intelligence gives you, right?

802
00:51:28,674 --> 00:51:37,034
When, you know, you get to an era of, okay, people can book tickets more easily through, you know, whatever, Stripes, OpenAI integration.

803
00:51:37,174 --> 00:51:37,674
Great, right?

804
00:51:37,814 --> 00:51:47,634
But like secretly, they're all working on trying to solve fusion, trying to solve room temperature superconductors, trying to create like breakthroughs in quantum computing.

805
00:51:47,634 --> 00:51:53,814
trying to like unlock what would be separate trillion dollar you know sort of breakthroughs in

806
00:51:53,814 --> 00:52:00,474
in uh in uh our sort of economic substrate who knows like those could be just figments of the

807
00:52:00,474 --> 00:52:06,354
imagination but if you draw out these curves like these frontier math benchmarks these like you know

808
00:52:06,354 --> 00:52:12,854
very very difficult uh areas of human um knowledge and skill are like quickly being reached by these

809
00:52:12,854 --> 00:52:18,394
models. So I think you're going to enter a much more volatile regime where just the amount of

810
00:52:18,394 --> 00:52:23,234
investment will distort the GDP statistics, right? Could actually kind of turn what would

811
00:52:23,234 --> 00:52:29,534
otherwise be a soft recession into positive GDP just because of just the capital investment.

812
00:52:30,014 --> 00:52:33,974
But then if you think about effects on total factor productivity, if that goes up by just

813
00:52:33,974 --> 00:52:37,754
a few percentage points over the next few years, well, that's going to have a pretty significant

814
00:52:37,754 --> 00:52:39,954
you know, fiscal effect as well.

815
00:52:40,714 --> 00:52:42,734
But I think in the CPI statistics,

816
00:52:42,854 --> 00:52:43,754
you're probably going to see

817
00:52:43,754 --> 00:52:46,974
like very kind of conflicting inputs.

818
00:52:47,094 --> 00:52:47,834
You're probably going to see, you know,

819
00:52:48,074 --> 00:52:49,854
cost deflation in a lot of services

820
00:52:49,854 --> 00:52:52,054
as you get more things like automated

821
00:52:52,054 --> 00:52:53,954
that will have labor and political effects.

822
00:52:54,314 --> 00:52:55,114
But then you're going to have

823
00:52:55,114 --> 00:52:56,554
bottlenecks in the economy,

824
00:52:57,054 --> 00:52:57,714
like, you know,

825
00:52:58,074 --> 00:52:59,134
anything connected to energy,

826
00:52:59,234 --> 00:53:00,154
essentially energy and commute

827
00:53:00,154 --> 00:53:00,714
is going to go up.

828
00:53:01,114 --> 00:53:01,974
So like, you know,

829
00:53:01,974 --> 00:53:03,254
power prices are going up,

830
00:53:03,714 --> 00:53:05,774
you know, whatever, 15, 20% per annum,

831
00:53:05,854 --> 00:53:07,114
which is like unheard of.

832
00:53:07,114 --> 00:53:14,034
So you're going to see different parts of the economy be sort of strained differentially and sort of aggregate statistics will not really capture that.

833
00:53:14,214 --> 00:53:16,114
You're going to have unemployment at the bottom.

834
00:53:16,194 --> 00:53:21,274
You're going to have a lot of people that can just be massively more productive and capture lots of different value.

835
00:53:21,834 --> 00:53:28,814
So it's just like it's a massive shock to a system that normally likes to be in like a few percentage point kind of change every year.

836
00:53:28,814 --> 00:53:35,754
And when you have something that changes things like, you know, like we saw the pandemic, when you like all of a sudden third of the workforce is like not working anymore.

837
00:53:35,754 --> 00:53:37,794
where you get massive ricochet effects.

838
00:53:38,014 --> 00:53:39,434
I think we're going to see something like that

839
00:53:39,434 --> 00:53:41,434
instead of over the course of like three weeks

840
00:53:41,434 --> 00:53:41,914
during COVID,

841
00:53:42,014 --> 00:53:43,094
it's probably going to be over the next three years.

842
00:53:43,714 --> 00:53:45,414
So it'll be a bit more smoothed out,

843
00:53:45,534 --> 00:53:47,794
but the scale will be just as significant.

844
00:53:47,934 --> 00:53:49,294
So I would say, you know,

845
00:53:49,694 --> 00:53:51,474
anyone who picks a particular forecast

846
00:53:51,474 --> 00:53:52,694
for like by X date,

847
00:53:52,874 --> 00:53:53,814
you know, we'll all be driving,

848
00:53:54,034 --> 00:53:55,174
you know, sort of flying cars

849
00:53:55,174 --> 00:53:56,854
and a robot will be doing my laundry

850
00:53:56,854 --> 00:53:59,894
is just kind of picking a dot on the wall to throw.

851
00:54:00,514 --> 00:54:02,094
But I just say like, do not,

852
00:54:02,734 --> 00:54:04,014
you know, the one lesson I have from Bitcoin

853
00:54:04,014 --> 00:54:09,374
is when a bunch of hyper-autistic nerds become obsessed with an early part of an exponential

854
00:54:09,374 --> 00:54:17,214
curve, don't fade them. And there's a whole cohort of our most gigabrained autists are

855
00:54:17,214 --> 00:54:21,794
looking at, they're spending all day just plotting new lines on this exponential curve.

856
00:54:22,274 --> 00:54:27,434
And they're like, yeah, this is where it's going to go. And so in general, the same thing we started

857
00:54:27,434 --> 00:54:31,354
during COVID, a bunch of hyper-autistic people were drawing dots on a map and being like, oh,

858
00:54:31,354 --> 00:54:35,674
okay, this is a curve. Now, there's no such thing as a true exponential, right? Ultimately,

859
00:54:35,814 --> 00:54:40,254
it becomes a logarithm, right? The question is, you know, how far are we from that curve?

860
00:54:41,014 --> 00:54:45,394
So anyway, that was a bit of a soliloquy. I would say, yeah, the impact of transformative AI is

861
00:54:45,394 --> 00:54:50,514
going to be hard to underappreciate. And it's going to have downstream effects on everything

862
00:54:50,514 --> 00:54:54,294
else, right? Everything in terms of how we measure inflation statistics, how we measure GDP,

863
00:54:54,854 --> 00:54:59,154
how we think about the labor market, how we think about the political effects in starting as soon

864
00:54:59,154 --> 00:55:05,834
is the next election. And that will become, I think, the defining conversation of our political

865
00:55:05,834 --> 00:55:10,214
lives in the next few years. Yeah. So just, Danny, just hearing all that, just real quick,

866
00:55:10,414 --> 00:55:14,974
you know, I cannot help but think you've got these paradigm shifting, transformative,

867
00:55:15,694 --> 00:55:20,274
I mean, even go as far as to say revolutionary effects that are coming in from the private sector

868
00:55:20,274 --> 00:55:26,614
with these tools. And then you've got how much digital ink spilled over whether the Fed is going

869
00:55:26,614 --> 00:55:31,774
to cut 25 or 50 or hold steady. I mean, it just seems, you know, the old Chair Eccles comment

870
00:55:31,774 --> 00:55:36,294
about pushing on a string in the 1930s, like wondering if monetary policy has any effect to

871
00:55:36,294 --> 00:55:41,234
revive a depressed economy. I mean, I think it holds true here in sort of a similar way, right?

872
00:55:41,234 --> 00:55:47,014
Like you've got these massive forces coming into play, and then you've got people fixated on whether

873
00:55:47,014 --> 00:55:51,854
Jerome Powell's going to cut or hold. I mean, it just seems so misguided. It's like you're not even

874
00:55:51,854 --> 00:55:56,114
focusing on remotely what was close to being important here. Yeah, I totally agree with that.

875
00:55:56,114 --> 00:56:01,394
But one thing that that did make me think is if we're going to see massive capex, potential

876
00:56:01,394 --> 00:56:07,114
positive growth in GDP, but at the same time, we'll see potentially a lot of job displacement.

877
00:56:07,474 --> 00:56:10,234
How would you calculate what that actually means for the economy?

878
00:56:10,414 --> 00:56:14,114
And do you think this is just like another turbocharger on wealth inequality, essentially?

879
00:56:15,334 --> 00:56:15,574
Yes.

880
00:56:17,074 --> 00:56:21,214
I mean, yeah, like the short answer is it will lead to more wealth inequality.

881
00:56:21,694 --> 00:56:25,914
It will lead to higher structural unemployment, but it will also potentially lead to higher

882
00:56:25,914 --> 00:56:30,834
tax receipts because asset prices are absolutely going to moon. Like high-end wage earners will

883
00:56:30,834 --> 00:56:35,654
see their incomes disproportionately go up. And so you'll see the hourglass economy becoming even

884
00:56:35,654 --> 00:56:39,994
more of an hourglass. And I think that's the real risk is that it stretches too far and the rubber

885
00:56:39,994 --> 00:56:44,534
band breaks. And then you get a massive political reaction, blow up the data centers, you know,

886
00:56:44,634 --> 00:56:49,134
sort of expropriate Elon's wealth. And kind of, you know, the political system we're sort of

887
00:56:49,134 --> 00:56:53,414
evolving into is one where you have these techno-feudal sort of oligarchs controlling their

888
00:56:53,414 --> 00:56:57,774
own like full stack estates like they're getting to the point where they're sort of seceding from

889
00:56:57,774 --> 00:57:02,554
the normal public goods world where they want to build their own you know uh fully integrated

890
00:57:02,554 --> 00:57:08,774
ecosystems from their own power right to their own to their own uh to their own chips to their

891
00:57:08,774 --> 00:57:13,054
own you know distribution centers to like you know again like their own e-commerce platforms

892
00:57:13,054 --> 00:57:17,214
where they can take the vig it looks like okay the government's gonna have to actually use a lot of

893
00:57:17,214 --> 00:57:22,714
power on that really hyper concentrated techno capital stack in order to try to get something

894
00:57:22,714 --> 00:57:26,634
out of the surpluses to then redistribute to the folks that are massively displaced.

895
00:57:27,194 --> 00:57:31,534
That's going to be basically UBI or an AI dividend.

896
00:57:32,174 --> 00:57:37,734
How we approach that is going to be a very contentious, I think, issue, right?

897
00:57:37,734 --> 00:57:40,034
Because I think these disruptions are going to come, right?

898
00:57:40,534 --> 00:57:45,434
I talked to these folks at Frontier Labs, and they're literally like they have entire

899
00:57:45,434 --> 00:57:50,394
teams with mass amounts of resources trying to automate as many jobs as they can.

900
00:57:50,394 --> 00:57:57,214
They have a whole list of them and they're paying billions of dollars to try to like get people to train their models on how to do all of those tasks.

901
00:57:57,334 --> 00:58:05,354
Everything from like, you know, health insurance claim automation, DMV processing, you know, like you name it, kind of like white collar labor back office functions.

902
00:58:05,734 --> 00:58:09,914
They're like pouring billions of dollars to try to automate as much of that as possible.

903
00:58:10,294 --> 00:58:13,274
And that will happen to kind of in a nonlinear phase transition.

904
00:58:13,274 --> 00:58:15,394
Like you want to have someone do your QuickBooks.

905
00:58:15,394 --> 00:58:20,374
You don't just take someone off the street or give a college student that job because it's important that the numbers be right.

906
00:58:20,394 --> 00:58:23,574
And so you're going to try to get these A models to do QuickBooks for you.

907
00:58:23,854 --> 00:58:25,674
And it's not going to be good enough right now.

908
00:58:25,714 --> 00:58:27,054
So you're going to like, nope, not going to do it.

909
00:58:27,194 --> 00:58:33,834
But as soon as it hits the point where it can do your QuickBooks reliably, everyone in the economy is going to, you know, fire the person doing their QuickBooks for them.

910
00:58:34,174 --> 00:58:37,434
And so you don't just get this like incremental kind of attrition.

911
00:58:37,594 --> 00:58:40,254
You get like an entire new job class just gets eliminated.

912
00:58:40,614 --> 00:58:42,214
Right. In a matter of months.

913
00:58:43,014 --> 00:58:45,014
And that we haven't really seen that yet.

914
00:58:45,014 --> 00:58:49,174
but i'll say like people are worried about bitcoiners being the subject of like five

915
00:58:49,174 --> 00:58:53,654
dollar rent attacks and like the hyper bitcoinization scenario right which could be still a thing um

916
00:58:53,654 --> 00:58:57,854
but like you know that like when you have just like entire occupations just kind of being

917
00:58:57,854 --> 00:59:04,434
like iced out like overnight and people are not ready for that um yeah is this why the ai tells

918
00:59:04,434 --> 00:59:08,034
people who are clearly wrong that they're absolutely right just to maintain social fabric

919
00:59:08,034 --> 00:59:12,534
is that what this is all about well it's an interesting lesson from bitcoin of like um

920
00:59:12,534 --> 00:59:17,514
you know, a really niche kind of out in the wilderness subculture that had very

921
00:59:17,514 --> 00:59:21,794
idiosyncratic beliefs about the future. This sort of transformative technology was going to come in.

922
00:59:21,854 --> 00:59:26,154
It was going to be really significant. And then there was, you know, the laughing, you know,

923
00:59:26,194 --> 00:59:31,234
chattering classes sort of sneering and saying, no, no, no, you're just a bunch of anarcho-capitalist

924
00:59:31,234 --> 00:59:35,614
nerds. And then we're like, okay, well, now the president thinks, you know, we're like legit now.

925
00:59:35,614 --> 00:59:40,934
And the government is holding their Bitcoin and it's like a thing. But like that transition was

926
00:59:40,934 --> 00:59:47,194
very, very awkward and it still isn't quite complete. I think with AI, it's like the PR for

927
00:59:47,194 --> 00:59:53,594
AI is like very much a, you know, wherever you sit. And I think that like, you know, you talk to

928
00:59:53,594 --> 00:59:59,534
an early career graduate, you talk to, you know, somebody who's, you know, too old to be retrained,

929
01:00:00,134 --> 01:00:05,454
you know, folks like us, they're like professional, you know, talkers or like we've got like a niche

930
01:00:05,454 --> 01:00:09,814
client base and like, well, I think we're feeling pretty, pretty relatively confident in our,

931
01:00:09,814 --> 01:00:14,354
economic mode of being. I think there's a lot of people that are feeling really, really anxious

932
01:00:14,354 --> 01:00:17,994
and uncertain, and they don't like change. Bitcoiners think we are used to change,

933
01:00:18,094 --> 01:00:21,434
reach the volatility. It's kind of the whole, you know, what we sort of signed up for.

934
01:00:21,614 --> 01:00:26,614
The average person does not like that. The average person wants, you know, predictable returns. They

935
01:00:26,614 --> 01:00:30,194
want to send their kids to the same college they went to. They want to retire. They want to go on

936
01:00:30,194 --> 01:00:35,714
vacation. And when the outside forces just like, you know, can't be contained by the government,

937
01:00:35,714 --> 01:00:38,874
they look for someone to sort of provide that stability.

938
01:00:39,134 --> 01:00:42,774
And I think that's just something we have to deal with.

939
01:00:43,234 --> 01:00:44,934
Well, and that's how you get to deal with that.

940
01:00:45,074 --> 01:00:49,914
That's the core of the issue here, Nanny, because to me, and my view is consistently

941
01:00:49,914 --> 01:00:55,254
that despite all of the hand-wringing about economic collapse and catastrophe of the monetary

942
01:00:55,254 --> 01:00:59,974
and fiscal authorities, I still think that the biggest threat that we have to overcome

943
01:00:59,974 --> 01:01:04,314
is this wealth and income inequality issue because it transfers into a political dispute.

944
01:01:04,314 --> 01:01:12,014
OK, and if the type of disruption that Matthew is talking about does come to effect, that's going to be massive, have massive political implications.

945
01:01:12,434 --> 01:01:18,314
It could lead to the rise of, you know, very pronounced socialism in the United States, even more radical views.

946
01:01:18,714 --> 01:01:20,654
And I think that should be on everyone's radar.

947
01:01:20,874 --> 01:01:28,034
If even if you're just following markets, right, you have to understand the disruption this is going to cause is going to be felt by certain cohorts, the population more so than others.

948
01:01:28,034 --> 01:01:31,774
And they probably outnumber the ones that are going to benefit from it and profit from it.

949
01:01:31,774 --> 01:01:50,614
But I will note, which I completely agree with Matthew on this, is that I think it's so funny that we go into these rooms a lot and talk to people on Twitter and other spaces about the overvalued of the tech stocks, how the tech stocks are so significantly overvalued and how if you're buying the S&P, you're concentrated in those few different names, right?

950
01:01:50,614 --> 01:02:11,654
The reality is, though, if those games and they have the type of integration Matthew's talking about, if they continue to reap most of the benefit and they exacerbate that income inequality that you're talking about, I can't see that the argument that those stocks are all going to collapse coexisting with an argument that, well, these are going to dominate and transform the planet through AI.

951
01:02:12,074 --> 01:02:14,074
Right. Like one of those things has to not be true.

952
01:02:14,074 --> 01:02:20,034
Either this is all just fluff, which I tend to fade pretty hard, that it's not going to be as transformative as Matthew was saying.

953
01:02:20,074 --> 01:02:21,034
I think that it will be.

954
01:02:21,814 --> 01:02:31,034
Or if it is that transformative, you should expect those things to just rocket, that those things have those assets, those securities are probably undervalued significantly.

955
01:02:32,294 --> 01:02:35,394
I see this as like, yeah, kind of hyperbolic equilibrium, right?

956
01:02:35,474 --> 01:02:38,214
Like either they maybe there's like three scenarios.

957
01:02:38,214 --> 01:02:51,354
One, it's like it's complete, you know, over the skis hype, you know, the debt that's being built up will never be paid back and there'll be billions of dollars of losses and it'll be like a black eye will never recover.

958
01:02:51,474 --> 01:02:55,154
I think that's like less than 5% scenario, but it's like you can't eliminate it.

959
01:02:55,714 --> 01:03:03,354
But I think there's also a failure scenario where like they hit takeoff, but then there's a political reaction that like caps your return, right?

960
01:03:03,354 --> 01:03:07,514
There's nationalization, there's, you know, forced breakups.

961
01:03:08,214 --> 01:03:17,394
There's, you know, I think that's also why you see so like a hundred million dollar like super PAC being raised by the AI companies, you know, taking a page out of the crypto playbook to realize, oh, oh, crap.

962
01:03:17,394 --> 01:03:19,474
Like we are about to hit this inflection point.

963
01:03:19,554 --> 01:03:22,834
Everyone's going to see like our asset prices absolutely run.

964
01:03:23,274 --> 01:03:28,854
And everyone, you know, Elon's going to be a trillionaire and Oracle, like everyone's going to be so much wealthier that holds Nvidia stock.

965
01:03:28,854 --> 01:03:36,414
They're bracing for the political counter reaction because they know that that's one majority vote away from being taxed out of your hands.

966
01:03:37,414 --> 01:03:47,794
And so I think that we're in a very weird dynamic where if you do see these exponential returns, if they happen too fast, that was also the concern Bitcoiners have.

967
01:03:47,794 --> 01:03:52,854
Like if we do get to this like, oh shit moment and like there's like a veto on the US government

968
01:03:52,854 --> 01:03:56,454
for whatever reason and, you know, Bitcoin's gapping up $100,000 in a night.

969
01:03:56,614 --> 01:04:01,014
Well, like that's almost too fast because the political reaction to that could potentially

970
01:04:01,014 --> 01:04:04,214
like stop it in its tracks and, you know, you maybe never recover.

971
01:04:04,334 --> 01:04:08,874
So I think there's, I think folks at the top of these capital stacks and tech stacks are

972
01:04:08,874 --> 01:04:13,454
now positioning themselves politically to try to like, you know, mitigate that, that

973
01:04:13,454 --> 01:04:15,454
counter reaction so they can kind of protect those rents.

974
01:04:15,454 --> 01:04:34,594
Ultimately, you're talking about these techno feudal states where they've got essentially a monopoly to a certain extent between, not a monopoly, but they've got like a hyper concentrated set of very competitive, but ultimately like a handful of companies owning all these, all this compute and they can charge, you know, a ton of money for that.

975
01:04:34,694 --> 01:04:38,394
And the question is, how does that massive surplus get distributed to the rest of the society?

976
01:04:38,394 --> 01:04:44,094
I'm really interested what Joe and Checkmate think of what Matthew said just before in terms of UBI

977
01:04:44,094 --> 01:04:48,434
because ever since like the last few years when AI has become apparent it's going to be

978
01:04:48,434 --> 01:04:53,314
insanely disruptive like UBI is the only thing I can see happening here like I don't know how we

979
01:04:53,314 --> 01:04:58,574
get to this AI world without it like ideologically I don't really agree with UBI but I don't see

980
01:04:58,574 --> 01:05:04,254
how they'll have another option do you think that is probably coming? I think so I mean when you

981
01:05:04,254 --> 01:05:07,914
really just look at how this plays out you almost end up with like a permanent underclass like we

982
01:05:07,914 --> 01:05:13,974
already have the the bones of this now and if the wealth inequality keeps going which it sounds like

983
01:05:13,974 --> 01:05:19,234
it certainly is you kind of just end up with these folks who are almost unemployable in many ways if

984
01:05:19,234 --> 01:05:24,274
you start wiping now yes there will be jobs that get created but you know it's kind of higher level

985
01:05:24,274 --> 01:05:29,474
you know your electrical engineers and things like this it's it's a not a you know something you can

986
01:05:29,474 --> 01:05:33,674
go from working in quickbooks to suddenly being electrical engineer right these things are hard

987
01:05:33,674 --> 01:05:38,034
to retool in. So very, very challenging. And I do think that's probably where it ends up.

988
01:05:38,854 --> 01:05:42,234
It's also where a lot of these things end up if you just look through history, right?

989
01:05:42,494 --> 01:05:47,814
Periods of inflation, regime change, it tends to end up in these more social policies because

990
01:05:47,814 --> 01:05:51,934
people feel left behind and they feel left behind today. So if that's going to accelerate,

991
01:05:52,254 --> 01:05:57,034
you can expect it to accelerate. Yeah, I agree. I think politically,

992
01:05:57,034 --> 01:06:04,754
I'll start with the stipulation that I think we have in many countries UBI light already

993
01:06:04,754 --> 01:06:10,574
through various different social programs through tax credits, et cetera. I think that only has more

994
01:06:10,574 --> 01:06:16,414
mission creep and trickles towards more proposals. Whatever you want to call it, right? And politically,

995
01:06:16,414 --> 01:06:21,354
you might not call it UBI at first, but I can see various efforts to sort of curb the

996
01:06:21,354 --> 01:06:26,134
overnight influence of the forces that Matthew's talking about. And they will be increasingly

997
01:06:26,134 --> 01:06:31,594
creeped out in any form, whether you call them a tax credit or other transfer credits or

998
01:06:31,594 --> 01:06:37,254
displaced workers' credits. I mean, this is not new. And in many ways, it's an older playbook

999
01:06:37,254 --> 01:06:42,714
that has to be recycled and probably to a larger degree. So I think it is inevitable. It's just a

1000
01:06:42,714 --> 01:06:48,414
question of the sequence and how it gets rolled out. Joe, I have a question for you. So connecting

1001
01:06:48,414 --> 01:06:53,174
to the Fed, right? So if you're briefing the Fed and you're like, hey, there's several trillion

1002
01:06:53,174 --> 01:06:59,114
of capex coming in um assume baseline several percentage points increase in in total factor

1003
01:06:59,114 --> 01:07:03,734
productivity say that means like the r star which is like they're kind of like shibboleth they're

1004
01:07:03,734 --> 01:07:08,154
like you know their internal target say that means that that structurally is going to rise

1005
01:07:08,154 --> 01:07:14,034
several should be higher yes several several percentage points meanwhile you have potentially

1006
01:07:14,034 --> 01:07:20,114
like white like increasing structural unemployment because of you know the labor displacement of of

1007
01:07:20,114 --> 01:07:24,934
of ai so like ai both causes long-run growth to increase you are you know going to be running the

1008
01:07:24,934 --> 01:07:29,694
economy really hot you get nominal gdp is really high tax receipts are great maybe the government

1009
01:07:29,694 --> 01:07:34,974
can even cover some of its deficit now because you know it can just tax capital gains um but the

1010
01:07:34,974 --> 01:07:40,214
unemployment figures are also skyrocketing right so like you have well define skyrocketing well i

1011
01:07:40,214 --> 01:07:45,154
mean say that you know if you know a mass and also maybe like it's it's contrary in certain cohorts

1012
01:07:45,154 --> 01:07:49,194
maybe like the the under under 30 cohort is reaching you know 30 percent unemployment 40

1013
01:07:49,194 --> 01:07:53,934
percent unemployment. It's like a Great Depression for some parts of the economy. It could even be

1014
01:07:53,934 --> 01:07:58,614
in like a lot of blue cities, right? Where it's kind of most PMC class jobs just get like,

1015
01:07:59,054 --> 01:08:03,474
just decimated. And like Accenture and Jolloy just announced 20, 30 percent across the board

1016
01:08:03,474 --> 01:08:07,234
cuts. And all of a sudden you've got people in relatively wealthy, you know, congressional

1017
01:08:07,234 --> 01:08:10,854
districts being like, what the hell, right? Like I could see this happening. The Fed is like,

1018
01:08:10,974 --> 01:08:15,294
okay, they're potentially coming into the bottom of a cutting cycle next year when this starts to

1019
01:08:15,294 --> 01:08:20,394
kick in. Like, what do you see the Fed like doing in that environment where our star is higher,

1020
01:08:20,794 --> 01:08:24,974
unemployment's also going up, you're heading into an election. It seems like everyone says that

1021
01:08:24,974 --> 01:08:28,074
they're in the worst of all possible worlds right now. Like, I can see it's only going to get 10

1022
01:08:28,074 --> 01:08:34,114
times worse for them next year. And then Trump's just going to have his guy in there. Yeah, I just,

1023
01:08:34,414 --> 01:08:38,374
like, wherever the conversation about the Fed is today, I just see that conversation is getting

1024
01:08:38,374 --> 01:08:42,614
more insane in the next 12 months. Yeah, it's going to get more insane. I think, to start off,

1025
01:08:42,614 --> 01:08:45,814
I think they should revisit all of their models, right?

1026
01:08:45,914 --> 01:08:48,554
All of their models are broken, as we like to say, because they are.

1027
01:08:48,834 --> 01:08:49,554
Let's be honest.

1028
01:08:50,734 --> 01:08:58,134
First of all, the R-star discussion is, I think the R-star is, you know, they'll say they're still sufficiently restrictive.

1029
01:08:58,354 --> 01:08:59,454
I'm not so sure about that.

1030
01:08:59,634 --> 01:09:02,194
I think R-star is going to be structurally higher moving forward.

1031
01:09:02,614 --> 01:09:10,034
But to answer your question more directly, you know, comparing the labor market dynamics to the inflation dynamics and the neutral interest rate dynamics,

1032
01:09:10,034 --> 01:09:12,754
what they have said and what Paul has said repeatedly,

1033
01:09:12,974 --> 01:09:14,094
and they've actually analyzed this

1034
01:09:14,094 --> 01:09:15,454
and looked at this a couple different times

1035
01:09:15,454 --> 01:09:17,514
with their mission statements or equivalents.

1036
01:09:17,774 --> 01:09:19,774
And they said, look, if you had to take the two targets,

1037
01:09:20,254 --> 01:09:22,194
you got to figure out which is more out of whack.

1038
01:09:22,514 --> 01:09:23,834
Are we farther from the inflation target

1039
01:09:23,834 --> 01:09:25,334
or farther from the labor market target?

1040
01:09:25,674 --> 01:09:27,774
To me, I think it's an easy call currently.

1041
01:09:27,974 --> 01:09:29,994
I think they're much further from the inflation target.

1042
01:09:30,154 --> 01:09:31,734
Now, the problem why I started off with like,

1043
01:09:31,734 --> 01:09:35,194
let's check your models is because is the 2% target,

1044
01:09:35,454 --> 01:09:37,554
given the forces and dynamics you're going to talk about

1045
01:09:37,554 --> 01:09:39,314
with growth and inflation expectations,

1046
01:09:39,314 --> 01:09:43,454
is that a realistic target, given the rate of our economy, given the rate of growth,

1047
01:09:43,574 --> 01:09:48,054
given the rate of government spending? I don't think it is. I think that the most likely scenario

1048
01:09:48,054 --> 01:09:54,154
is sort of a, they'll never admit it actually, but a realistic abandonment of the 2% target in

1049
01:09:54,154 --> 01:09:57,474
favor of three. And I think that's mostly how they're going to square it. They're going to say,

1050
01:09:57,554 --> 01:10:02,374
look, this is beyond our control. We're dealing with things that are outside of our ability to

1051
01:10:02,374 --> 01:10:12,701
effectively cajole or influence So we can prevent us from collapsing the labor market further So when push comes to shove I think they going to take the structurally higher inflation

1052
01:10:12,701 --> 01:10:16,940
for a variety of reasons, one which is government debt and burning away the debt, the running hot

1053
01:10:16,940 --> 01:10:21,081
narrative, et cetera, in favor of keeping unemployment to the modest degree they could

1054
01:10:21,081 --> 01:10:26,641
influence unemployment, a lid on it. Now, all bets are off if you're, that's why I sort of

1055
01:10:26,641 --> 01:10:30,381
interrupted you rudely with the like, what is runaway inflation, right? Or runaway unemployment,

1056
01:10:30,381 --> 01:10:36,581
Because if you're at 10% unemployment, that's drastically different than 5 or 5.5.

1057
01:10:37,520 --> 01:10:41,861
To me, run away, let's get above 5% on unemployment.

1058
01:10:42,400 --> 01:10:54,801
But then you've got folks that say, look, the unemployment rate is being confounded by this mass exodus of retirees and the boomers live in the job market, workforce participation, immigration.

1059
01:10:55,261 --> 01:10:57,801
So again, structural issues beyond which the Fed has control.

1060
01:10:57,801 --> 01:11:08,641
And going back to Danny's earlier point, like I still, for the life of me, I know there's political justifications for it, but I don't understand all the ire that Powell is drawing here.

1061
01:11:08,781 --> 01:11:15,400
Like, I mean, look, like we all know behind the curve, misforecast inflation, the transitory rhetoric was awful.

1062
01:11:15,520 --> 01:11:16,400
Let's stipulate all that.

1063
01:11:16,541 --> 01:11:19,781
But what do you want the guy to do with some of these forces that he's having to deal with here?

1064
01:11:19,920 --> 01:11:25,181
One of which is the constant, you know, berating from the president on this rate issue.

1065
01:11:25,641 --> 01:11:34,381
So I guess in summary, my view is I think they're going to have to sacrifice our star in favor of the labor market.

1066
01:11:34,581 --> 01:11:38,841
I think that's ultimately how push comes to shove when they have those two goals and they're in conflict with one another.

1067
01:11:38,920 --> 01:11:40,420
And I think that's the choice they'll make every time.

1068
01:11:41,281 --> 01:11:46,440
Which is effectively grow your way out of it, which is another euphemism for inflated away.

1069
01:11:46,960 --> 01:11:47,141
Yeah.

1070
01:11:47,541 --> 01:11:52,241
And at the end of the day, they can pound the table as much as they want about Fed independence, Fed independence.

1071
01:11:52,741 --> 01:11:54,201
We know they're not truly independent.

1072
01:11:54,201 --> 01:12:18,001
I mean, they have to, it's similar, you know, and I kind of learned this with the court system, right? And I have a profound amount of respect for justices and judges, so I don't mean to besmirch any of them. But I'll just tell you, like, I think it's very naive for people to completely say they're objective in every regard when they're put into places by, you know, a political party or partisan, and that is in the back of their mind.

1073
01:12:18,001 --> 01:12:24,381
At a minimum, it has an appearance of potentially tainting their views or tainting their decisions.

1074
01:12:25,041 --> 01:12:28,681
And there are very noble people that try to disabuse themselves of any influence.

1075
01:12:28,881 --> 01:12:32,661
I get all that, but it still has an effect, I think, in my view.

1076
01:12:32,841 --> 01:12:33,721
They're human beings.

1077
01:12:33,821 --> 01:12:34,381
They're not computers.

1078
01:12:34,980 --> 01:12:36,060
They think about these things.

1079
01:12:36,161 --> 01:12:37,361
They think about their career.

1080
01:12:37,480 --> 01:12:38,181
They think about their legacy.

1081
01:12:38,301 --> 01:12:39,821
They think about their friends.

1082
01:12:40,541 --> 01:12:45,881
So I think that's an influencing factor that people discount, no matter how much they say they want to be objective.

1083
01:12:45,881 --> 01:12:53,001
i i mean i i think you're absolutely right to say we don't really know how independent the fed is we

1084
01:12:53,001 --> 01:12:57,221
know it's not so it's certainly not completely independent but if trump gets his way here i'm

1085
01:12:57,221 --> 01:13:01,041
sure you all saw the meme yesterday of him saying he's going to fire powell he's obviously been

1086
01:13:01,041 --> 01:13:05,121
ramping up the pressure as much as he possibly can but if he brings in moran or someone else who

1087
01:13:05,121 --> 01:13:11,361
is essentially just a stooge for the government like are there severe negative impacts from that

1088
01:13:11,361 --> 01:13:34,960
But, you know, I'll start with that. So first off, I will note, it's kind of an interesting thing. This challenge to Lisa Cook as being briefed in the Supreme Court, you had every living Fed chair sign off in support of Cook's position, as well as, I mean, I don't know, was it over two dozen Nobel laureates in economics?

1089
01:13:34,960 --> 01:13:38,501
I mean, it was a huge number, and I'm double counting some of them.

1090
01:13:38,940 --> 01:13:49,801
But the point is that I think that the mainstream view would be that the erosion of Fed independence is a systemic risk to the economy and to the monetary system.

1091
01:13:50,861 --> 01:13:59,101
I do believe there is strong arguments that historically we have gone through periods where Fed independence has been undermined.

1092
01:13:59,101 --> 01:14:02,440
It has been much less independent or central bank independence.

1093
01:14:02,541 --> 01:14:06,241
The United States more broadly has been less independent than it is currently.

1094
01:14:06,781 --> 01:14:11,541
So I'm not so sure that I can draw an easy conclusion on that.

1095
01:14:11,940 --> 01:14:18,601
My general view is that I think it's a more stable feature consistently across history to have an independent central bank.

1096
01:14:19,041 --> 01:14:24,361
However, I question whether they have been independent for the last 20, 30 years.

1097
01:14:24,361 --> 01:14:35,400
I think they have had significant political forces thrust upon them and political influence that has been asserted on the Fed really since the GFC, perhaps before that.

1098
01:14:35,940 --> 01:14:44,301
So I guess I question whether this is really just an acknowledgment of sort of the current status quo, but people finally are being forced to admit it.

1099
01:14:44,301 --> 01:14:49,541
I mean, the PBOC is not an independent central bank.

1100
01:14:50,121 --> 01:14:58,960
And if you model the decision environment for national leadership as one of acute and only increasing strategic competition between U.S. and China,

1101
01:14:58,960 --> 01:15:06,761
and the U.S.'s way of prosecuting the conflict is trying to emulate China as much as possible,

1102
01:15:06,881 --> 01:15:11,341
which seems to be our strategy of industrial policy, subsidies to critical industries,

1103
01:15:11,341 --> 01:15:14,841
and picking national winners and losers,

1104
01:15:15,560 --> 01:15:18,621
forging national champions that hew to our strategic interests,

1105
01:15:19,241 --> 01:15:22,581
then the monetary independence of the central bank

1106
01:15:22,581 --> 01:15:30,161
is, from that perspective, seen as a luxury of peacetime

1107
01:15:30,161 --> 01:15:34,121
that is sacrificed in order to prosecute geopolitical competition,

1108
01:15:34,501 --> 01:15:36,081
just like we did in the 40s and 50s.

1109
01:15:36,081 --> 01:15:37,900
And that, you know, the hope would be,

1110
01:15:38,020 --> 01:15:40,520
okay, well, that doesn't do permanent damage to the institutional DNA,

1111
01:15:40,520 --> 01:15:43,960
and that when those exogenous geopolitical conditions relax,

1112
01:15:44,361 --> 01:15:49,020
then the kind of inherent kind of structural division of responsibility

1113
01:15:49,020 --> 01:15:50,581
between the Fed and the Treasury.

1114
01:15:50,681 --> 01:15:52,101
But like we haven't declared a war.

1115
01:15:52,101 --> 01:15:54,960
So we kind of live in this ambiguous Schrodinger state of,

1116
01:15:55,201 --> 01:15:59,821
you know, political polarization where all of President Trump's moves

1117
01:15:59,821 --> 01:16:04,400
are viewed as essentially political actions against his domestic adversaries.

1118
01:16:05,020 --> 01:16:09,060
But at the same time, the president is the executive agent,

1119
01:16:09,060 --> 01:16:14,581
commander-in-chief. And so his actions are also strategic moves in at least nominal defense of

1120
01:16:14,581 --> 01:16:19,601
the national interest. And in many cases, it's hard to tell which is which. And so the political

1121
01:16:19,601 --> 01:16:24,861
subsumption of the Fed could be viewed as just his henchmen going over to take over the one

1122
01:16:24,861 --> 01:16:30,141
entity that hasn't bent the knee. But from another perspective, it's, hey, we need to have all the

1123
01:16:30,141 --> 01:16:34,321
tools at the president's disposal to fight essentially a total economic war with China.

1124
01:16:35,281 --> 01:16:38,020
I think you could have a fair view of that, and it's probably a mix of both.

1125
01:16:38,020 --> 01:16:53,281
Yeah, I don't know. I agree with everything you said there. I'll just note that I think that the way to defeat if you're if you're in a geopolitical sense and an economic war, the way to defeat the people's role of China is not to emulate them. I think there are other avenues.

1126
01:16:53,281 --> 01:17:21,761
I agree with you. That's been my main criticism for the past year is like, you're not going to out totalitarianize China. You're not going to like out state capitalism China. Like, it's just like our ace in the hole has always been our ability to weld relatively free capital markets, innovation, the most high density talent clusters in the world, and like turn great ideas into like world dominating businesses that like preserve our competitive advantage, drive, drive GDP growth, and better quality of life.

1127
01:17:21,761 --> 01:17:23,621
Like that's kind of been our whole thing.

1128
01:17:24,201 --> 01:17:34,020
If we're like, oh shit, we need to like bail Intel out and like pay above market price for a rare earths mine and like distribute friends to our cronies that come to the White House.

1129
01:17:34,341 --> 01:17:37,980
Like you quickly get to more like Argentina style model.

1130
01:17:38,161 --> 01:17:39,841
So it's like we're kind of on a knife's edge here, right?

1131
01:17:39,841 --> 01:17:46,920
You could do like really good industrial policy that's like you're picking your spots and it's like well calibrated and it's like, you know, ultimately fair.

1132
01:17:46,920 --> 01:17:52,241
or you can just do like ham-fisted, you know, handouts to your capitalist cronies and you don't

1133
01:17:52,241 --> 01:17:56,201
get the strategic advantage, you know, or the competitive advantage. You just kind of get

1134
01:17:56,201 --> 01:18:01,661
money going into different pockets. I want to get onto like the US and Bitcoin. Matt,

1135
01:18:01,661 --> 01:18:05,520
when you were consulting for the government a few years ago, you've talked about working on these

1136
01:18:05,520 --> 01:18:09,801
low probability, high consequence things, one of which was Bitcoin, one of which was AI.

1137
01:18:10,141 --> 01:18:13,281
Are they no longer low probability? How has that changed?

1138
01:18:13,281 --> 01:18:19,301
uh yeah i mean i guess they went from objectively like less than one percent to like the probability

1139
01:18:19,301 --> 01:18:24,141
for example of gold reaching of bitcoin reaching parity with gold by say 2030 if that was a scenario

1140
01:18:24,141 --> 01:18:28,460
i think you know when i was doing that you know four or five years ago i would say it was like

1141
01:18:28,460 --> 01:18:34,381
less than one percent right i would say that's more like 10 to 20 percent so like a 10 to you

1142
01:18:34,381 --> 01:18:40,001
know 20x increase of the relative likelihood of a pretty strategic shift in the you know the

1143
01:18:40,001 --> 01:18:44,141
distribution of monetary assets in the global system. And I think that's probably like a

1144
01:18:44,141 --> 01:18:48,601
reasonable estimate of what some people think inside the DoD as well. I think, you know,

1145
01:18:48,621 --> 01:18:52,501
just to give the TLDR, like right now and across the federal government, there's like different

1146
01:18:52,501 --> 01:18:58,161
views of Bitcoin of like a policy as a policy instrument. Some folks view it as like a handout

1147
01:18:58,161 --> 01:19:01,581
political kind of favor, right? That's owed to them because of campaign contributions.

1148
01:19:01,900 --> 01:19:07,841
Some view it as a, as a, as a, you know, oh, this is now an established financial instrument.

1149
01:19:07,841 --> 01:19:11,900
it's normalized, regularized, we need to have all the right regs, we need to sort of right the

1150
01:19:11,900 --> 01:19:17,980
wrongs of the previous administration's kind of heavy-handed, you know, somewhat punitive

1151
01:19:17,980 --> 01:19:21,741
approach to the industry. And then you have other folks that see it as like a true strategic ace in

1152
01:19:21,741 --> 01:19:25,400
the hole for the United States. And you have all those- How would you break those down?

1153
01:19:25,601 --> 01:19:28,181
Yeah. I'm just curious. I would say White House, some political appointees,

1154
01:19:28,181 --> 01:19:32,681
more like the former. The Treasury Department, SEC, CFTC is more like in the middle camp, right?

1155
01:19:32,741 --> 01:19:37,001
It's just a new instrument. You know, it's now legitimized. We need to like, you know,

1156
01:19:37,001 --> 01:19:39,940
make it safe for mom and pop and their 401ks.

1157
01:19:39,940 --> 01:19:42,001
And then there's the folks in the Pentagon, the CIA,

1158
01:19:42,001 --> 01:19:44,621
that are looking in the next five, 10 years

1159
01:19:44,621 --> 01:19:46,301
and realizing the strategic vulnerabilities

1160
01:19:46,301 --> 01:19:49,221
of the current system.

1161
01:19:49,221 --> 01:19:51,060
And they're like, okay, well, Bitcoin,

1162
01:19:51,060 --> 01:19:53,121
we have about 33% of it.

1163
01:19:53,121 --> 01:19:54,661
Relative to gold, we have maybe 8%

1164
01:19:54,661 --> 01:19:57,341
of the total above ground gold stock.

1165
01:19:57,341 --> 01:19:59,921
So if you just assume gold and Bitcoin

1166
01:19:59,921 --> 01:20:02,101
are gonna move up relatively in tandem

1167
01:20:02,101 --> 01:20:03,161
over the next five or 10 years,

1168
01:20:03,161 --> 01:20:05,281
then we have a four to one advantage

1169
01:20:05,281 --> 01:20:08,041
by having Bitcoin monetized relative to gold.

1170
01:20:08,041 --> 01:20:09,360
And it happens to advantage us

1171
01:20:09,360 --> 01:20:11,721
relative to our Eurasian adversary.

1172
01:20:11,721 --> 01:20:14,841
So like Pentagon is very much pro Bitcoin.

1173
01:20:14,841 --> 01:20:16,641
CIA likes to use it,

1174
01:20:16,641 --> 01:20:19,121
but they don't make government policy, right?

1175
01:20:19,121 --> 01:20:21,281
So Treasury makes a policy on the SBR

1176
01:20:21,281 --> 01:20:23,121
and CFTC, SEC are involved

1177
01:20:23,121 --> 01:20:25,541
in all the clarity market structure stuff.

1178
01:20:25,541 --> 01:20:26,980
So you're in kind of this ambiguous zone

1179
01:20:26,980 --> 01:20:29,681
where it's not like the government has one view of things

1180
01:20:29,681 --> 01:20:31,161
and this political priorities,

1181
01:20:31,161 --> 01:20:33,341
it was clearly stable coins, clarity,

1182
01:20:33,341 --> 01:20:37,181
and then maybe SBR, depending on what happens.

1183
01:20:37,281 --> 01:20:39,881
I'll just point to the fact that the current new Bo Hines

1184
01:20:39,881 --> 01:20:42,520
in the executive director position

1185
01:20:42,520 --> 01:20:44,141
at the president's working group on digital assets

1186
01:20:44,141 --> 01:20:44,801
at the White House,

1187
01:20:44,860 --> 01:20:47,301
the top crypto policy advisor to the president,

1188
01:20:47,641 --> 01:20:48,980
is a gentleman named Patrick Witt,

1189
01:20:49,060 --> 01:20:51,900
who is still dual-hatted in his acting director

1190
01:20:51,900 --> 01:20:53,940
of the Office of Strategic Capital at the Pentagon.

1191
01:20:54,360 --> 01:20:55,460
So he comes out of the Pentagon,

1192
01:20:56,101 --> 01:20:58,581
he's got a lot of sort of NATSEC bona fides,

1193
01:20:59,421 --> 01:21:01,860
and he's now leading the crypto policy role

1194
01:21:01,860 --> 01:21:04,341
at the White House while also having strong connections into the Pentagon.

1195
01:21:04,860 --> 01:21:06,761
So he's getting his sea legs under him.

1196
01:21:07,321 --> 01:21:11,400
Obviously, the political system inside D.C. has put all their chips on market structure.

1197
01:21:12,141 --> 01:21:17,041
Obviously, BPI, we're trying to get the Blockchain Regulatory Certainty Act linked into that bill.

1198
01:21:17,041 --> 01:21:19,520
So we have a Save Your Wallets campaign.

1199
01:21:19,821 --> 01:21:20,501
Check out our website.

1200
01:21:21,081 --> 01:21:27,900
We want to get that protection for open source software riding along with that bill.

1201
01:21:28,841 --> 01:21:31,301
And then, yeah, we'll see 2026 what happens with the SBR.

1202
01:21:31,860 --> 01:21:34,121
I'll just do one last little political update.

1203
01:21:34,281 --> 01:21:41,161
Yeah, so like the executive order required the Treasury Department coming up with like budget neutral means of acquiring additional Bitcoin.

1204
01:21:42,241 --> 01:21:44,560
We haven't heard anything about that, right?

1205
01:21:45,161 --> 01:21:47,041
Now I know I've had a number of conversations.

1206
01:21:47,360 --> 01:21:50,261
I've written a few memos laying out all these different ideas.

1207
01:21:50,261 --> 01:21:53,601
Again, it's their job to come up with a final legal analysis.

1208
01:21:54,761 --> 01:21:57,421
And nothing I've heard has been like a legal objection.

1209
01:21:57,661 --> 01:22:01,701
It's more of a matter of like political will, whether and how far do they want to go.

1210
01:22:01,860 --> 01:22:06,060
And from this menu of options, like which ones do they feel comfortable going forward with?

1211
01:22:06,501 --> 01:22:09,381
And someone at the top has to kind of do this.

1212
01:22:10,060 --> 01:22:13,921
I mean, the deputy secretary of the treasury was involved in those meetings, Falkander, and then he got fired.

1213
01:22:14,081 --> 01:22:20,581
And so it's like, OK, you know, you're kind of back to square one sometimes, whereas like you think you're moving and then the guy gets bounced.

1214
01:22:20,721 --> 01:22:23,421
Right. So there's a lot of like contingency here.

1215
01:22:23,860 --> 01:22:26,341
I'd say like the SBR is kind of like Chekhov's gun.

1216
01:22:26,440 --> 01:22:30,081
It was like put on the table in Act One and it's just kind of forgotten about.

1217
01:22:30,081 --> 01:22:35,101
and we'll see like maybe they don't complete the story but usually you know it's it's a non-linear

1218
01:22:35,101 --> 01:22:39,281
thing when the government decides to like buy bitcoin if they ever decide to do that it's not

1219
01:22:39,281 --> 01:22:44,221
going to be because like oh they just had to like do that it's it's going to be like a strategic

1220
01:22:44,221 --> 01:22:48,801
decision i've always been of the thought sorry just riffing off what we were saying before about

1221
01:22:48,801 --> 01:22:53,581
the u.s emulating china china's been which is ironic for a capitalist government they've been

1222
01:22:53,581 --> 01:22:57,841
saying to their citizens to buy gold for a long long time and i've often thought like for me the

1223
01:22:57,841 --> 01:23:03,621
SBR, it's a fun narrative, but I'm not that convinced of how actually useful government

1224
01:23:03,621 --> 01:23:08,900
buying Bitcoin actually is. Sure, there's a signaling there, but okay. I've always thought

1225
01:23:08,900 --> 01:23:14,440
it to be far more powerful to... The SBR is just Americans' balance, whether it's in the ETFs,

1226
01:23:14,480 --> 01:23:19,241
whether it's just private holdings. You're actually better off having Americans owning Bitcoin and

1227
01:23:19,241 --> 01:23:22,360
then monetizing than the government owning. Because what's the government going to do with it? Leave

1228
01:23:22,360 --> 01:23:27,541
it in the vault? Aren't you better off having the capital gains taxes, the wealth effect,

1229
01:23:27,541 --> 01:23:32,860
all of that of Americans owning it. So I've often wondered if a much more strategic option is just to

1230
01:23:32,860 --> 01:23:38,161
kind of green light and say, hey, we actually want you guys to own this, allow Americans to

1231
01:23:38,161 --> 01:23:42,501
get access to it, which is obviously happening. In my view, that's actually a far more effective

1232
01:23:42,501 --> 01:23:48,381
and probably productive means of generating the same effect. I guess it's a policy judgment of

1233
01:23:48,381 --> 01:23:54,460
what's the role of a reserve asset on the national balance sheet? If the government's going to pursue

1234
01:23:54,460 --> 01:23:59,581
a policy of making Bitcoin a global reserve asset just like gold is already.

1235
01:23:59,581 --> 01:24:05,621
Well, we have about 5% of the total above ground gold stock international reserves.

1236
01:24:05,621 --> 01:24:07,881
If you add up all the ETFs, it's maybe 8% to 10%.

1237
01:24:07,881 --> 01:24:13,181
So you'd be like, all right, well, if we are by policy going to create a world where Bitcoin

1238
01:24:13,181 --> 01:24:16,781
is going to be the new gold, then as a matter of national strategic positioning, you should

1239
01:24:16,781 --> 01:24:20,101
have a proportional share of it as you have of gold, right?

1240
01:24:20,520 --> 01:24:24,241
Now, you could obviously get all the collateral effects by encouraging Americans to hold it

1241
01:24:24,241 --> 01:24:28,781
as well if you also want to pursue that as like a strategic shift and you can get a lot of the

1242
01:24:28,781 --> 01:24:32,301
benefits out of it. I think the real benefit though of holding Bitcoin in the national balance sheet

1243
01:24:32,301 --> 01:24:35,741
is actually to ensure, it's actually kind of a socialist policy in a certain sense of like

1244
01:24:35,741 --> 01:24:39,921
the right, you know, people that are tracking Bitcoin can buy ETF, but like not everyone can.

1245
01:24:40,001 --> 01:24:43,661
So if the government's going to, as a matter of national policy, encourage the adoption of Bitcoin,

1246
01:24:44,321 --> 01:24:48,060
it's like, okay, we'll hold some on the national balance sheet to ensure that every American has

1247
01:24:48,060 --> 01:24:52,601
some sort of upside exposure to it and not just people that have the wherewithal to buy in an ETF.

1248
01:24:52,601 --> 01:24:56,261
And there's others outside the box ideas like BitBonds, et cetera.

1249
01:24:56,360 --> 01:25:04,921
Andrew Hohn's this great idea of like how maybe you could engineer actually a pay down of the national balance sheet a bit more speculative kind of if then, right?

1250
01:25:05,621 --> 01:25:07,181
But yeah, that's like a policy choice.

1251
01:25:07,181 --> 01:25:08,101
It's a question of the government.

1252
01:25:08,400 --> 01:25:22,560
If they decide to make Bitcoin into a national strategic asset that they actually want to be monetized, disproportionately relative to gold in the holdings of other countries, well, then like you should like, you know, make good on that, right?

1253
01:25:22,601 --> 01:25:24,381
If you don't think that's your policy objective,

1254
01:25:24,440 --> 01:25:26,601
you just want it to be adopted as a financial instrument,

1255
01:25:27,321 --> 01:25:29,860
you know, another commodity-like synthetic digital asset

1256
01:25:29,860 --> 01:25:32,681
that you don't want to displace gold

1257
01:25:32,681 --> 01:25:34,801
or you don't want to reach parity with gold,

1258
01:25:34,960 --> 01:25:37,560
well, then you should not adopt it in your national reserves.

1259
01:25:37,641 --> 01:25:38,921
But those are, like, different objectives.

1260
01:25:39,060 --> 01:25:40,900
If you're like, we only really want Bitcoin

1261
01:25:40,900 --> 01:25:42,541
to kind of slowly go up to $5 or $10 trillion

1262
01:25:42,541 --> 01:25:44,701
and we never want to live in a world

1263
01:25:44,701 --> 01:25:46,400
where Bitcoin is, like, surpassing gold,

1264
01:25:46,860 --> 01:25:49,921
well, okay, then that's fine, right?

1265
01:25:49,960 --> 01:25:51,581
But if you're assuming that that's a world

1266
01:25:51,581 --> 01:25:53,520
that you have to prepare for or even engineer,

1267
01:25:54,321 --> 01:25:55,881
you want to make sure that your balance sheet

1268
01:25:55,881 --> 01:25:58,641
is well positioned for that scenario.

1269
01:25:59,141 --> 01:26:00,161
And you don't think that's accomplished

1270
01:26:00,161 --> 01:26:02,641
with the currently held, finally resolved coins

1271
01:26:02,641 --> 01:26:04,480
that are in the US government's possession?

1272
01:26:04,960 --> 01:26:06,560
You think it has to be combined

1273
01:26:06,560 --> 01:26:08,960
with a signal of additional acquisition?

1274
01:26:09,360 --> 01:26:10,900
I actually think it should be one of two things.

1275
01:26:10,900 --> 01:26:12,301
I think there should be no...

1276
01:26:12,301 --> 01:26:16,101
I think you should ultimately have

1277
01:26:16,101 --> 01:26:18,281
a proportional share of Bitcoin as you hold of gold

1278
01:26:18,281 --> 01:26:21,541
if you're preparing the country for a future scenario

1279
01:26:21,541 --> 01:26:24,360
where Bitcoin is basically parity with gold.

1280
01:26:24,921 --> 01:26:27,501
So that's like the end state I think you should get to

1281
01:26:27,501 --> 01:26:29,101
if that's the world that you're preparing for.

1282
01:26:30,301 --> 01:26:32,181
So given that, the kind of like-

1283
01:26:32,181 --> 01:26:32,860
Why is that?

1284
01:26:32,881 --> 01:26:34,181
Why does it have to be proportional to gold?

1285
01:26:35,921 --> 01:26:38,560
Well, it's kind of your gold's function

1286
01:26:38,560 --> 01:26:39,440
on the national balance sheet

1287
01:26:39,440 --> 01:26:41,701
has always been this kind of backup plan, right?

1288
01:26:42,601 --> 01:26:45,301
Not really, because we hold, as a percentage of our GDP,

1289
01:26:45,480 --> 01:26:46,560
I think we're at an all-time low

1290
01:26:46,560 --> 01:26:48,041
with our gold holdings, right?

1291
01:26:48,221 --> 01:26:50,341
We have about 800 billion if you add it all up.

1292
01:26:50,341 --> 01:26:52,661
you know, maybe depending on the valuation,

1293
01:26:52,921 --> 01:26:54,221
you know, now maybe it's closer to like a trillion.

1294
01:26:55,480 --> 01:26:57,520
So, you know, that's been kind of steady.

1295
01:26:57,801 --> 01:26:59,761
But relative to GDP, it was substantially higher,

1296
01:26:59,881 --> 01:27:02,081
I think, in the 80s, our gold holdings, right?

1297
01:27:03,001 --> 01:27:04,560
Yeah, and we've been, you know,

1298
01:27:04,681 --> 01:27:07,141
aggressively trying to neg hard assets

1299
01:27:07,141 --> 01:27:09,541
as like a national policy for the past 50 years, right?

1300
01:27:09,581 --> 01:27:11,841
So if we expect the next 50 years

1301
01:27:11,841 --> 01:27:12,921
to be like the last 50 years

1302
01:27:12,921 --> 01:27:14,501
and the treasury dollar standard

1303
01:27:14,501 --> 01:27:17,341
to just be basically unscathed,

1304
01:27:17,400 --> 01:27:19,101
then you don't need to have any change

1305
01:27:19,101 --> 01:27:21,480
to your National Reserve policy, right?

1306
01:27:21,761 --> 01:27:23,841
Like plan A is just the system as it is,

1307
01:27:23,900 --> 01:27:24,560
continues indefinitely.

1308
01:27:25,020 --> 01:27:26,960
And you can just like keep,

1309
01:27:27,181 --> 01:27:28,360
just like let it ride, right?

1310
01:27:28,681 --> 01:27:29,801
And so like plan A is plan A.

1311
01:27:30,041 --> 01:27:31,161
The question is what's plan B?

1312
01:27:31,821 --> 01:27:33,641
You know, always governments have to have plan B.

1313
01:27:33,781 --> 01:27:35,141
Monetary regimes tend to change

1314
01:27:35,141 --> 01:27:36,601
on generational timescales.

1315
01:27:36,601 --> 01:27:38,560
And if you're looking out for the national interest

1316
01:27:38,560 --> 01:27:40,281
over 50, 100 years,

1317
01:27:40,281 --> 01:27:41,020
you got to think about,

1318
01:27:41,181 --> 01:27:42,801
okay, what's our backup plan?

1319
01:27:43,321 --> 01:27:44,841
As a reason why we haven't sold off our gold.

1320
01:27:44,960 --> 01:27:46,381
Why countries don't sell off their gold.

1321
01:27:46,460 --> 01:27:48,261
It's not because it's some barbarous relic.

1322
01:27:48,261 --> 01:27:49,421
They just haven't gotten around to it.

1323
01:27:49,681 --> 01:27:52,921
It's because countries think about generational shifts and wars.

1324
01:27:53,181 --> 01:27:55,980
And it's like the thing that, you know, it's the old standby.

1325
01:27:56,201 --> 01:27:57,301
They don't really want to give it up.

1326
01:27:57,741 --> 01:28:04,161
And so if gold still plays that kind of, again, we don't like to talk about it, kind of, you know, back of house plan we've really underinvested in.

1327
01:28:04,261 --> 01:28:08,241
China, meanwhile, has been dramatically investing in their backup plan for the current dollar system.

1328
01:28:08,921 --> 01:28:12,141
Okay, what's our backup plan for a shift in the global dollar system?

1329
01:28:12,681 --> 01:28:16,181
We don't really want to talk that shift into existence, right?

1330
01:28:16,181 --> 01:28:19,501
So you don't really want to talk too much about your Bitcoin acquisitions, right?

1331
01:28:19,501 --> 01:28:27,801
So I wouldn't recommend they do like a bunch of symbolic buys, which are just kind of like, you know, pump the price, but actually don't change the strategic position of the country.

1332
01:28:28,041 --> 01:28:34,621
I would actually prefer they just quietly acquire as a matter of national policy over the next several years, just like we did with gold.

1333
01:28:34,900 --> 01:28:40,101
And it just becomes like a new architecture that we have, you know, bought a relatively cheap option.

1334
01:28:40,801 --> 01:28:42,421
Or you don't do it at all, right?

1335
01:28:42,421 --> 01:28:55,641
It's kind of because, yeah, kind of like signaling just to pump the price would kind of just, you know, would be seen as like a payoff to serve your donor base without actually moving the strategic needle for this downside scenario.

1336
01:28:55,821 --> 01:28:58,421
So I see this as kind of like a binary.

1337
01:28:58,601 --> 01:29:01,641
I just like hold what you've got and just like let it ride.

1338
01:29:01,960 --> 01:29:02,381
It's good.

1339
01:29:02,560 --> 01:29:02,721
Right.

1340
01:29:02,761 --> 01:29:06,060
We've got maybe 10, 20 million dollars worth of Bitcoin on the balance sheet.

1341
01:29:06,141 --> 01:29:06,641
That's fine.

1342
01:29:06,641 --> 01:29:13,221
um i wouldn't expect that to like provide much of a of a strategic uh insurance policy for a world if

1343
01:29:13,221 --> 01:29:18,221
if uh we really mismanage the dollar system um we got that number from besan too didn't he say 20

1344
01:29:18,221 --> 01:29:24,560
20 billion on a like a news show or something i thought he was interviewed right yeah and it came

1345
01:29:24,560 --> 01:29:27,741
it was something when you did the math it was less than the 200 000 that people

1346
01:29:27,741 --> 01:29:32,081
talk about right so they've either they've either lost some coins or there's a few missing keys or

1347
01:29:32,081 --> 01:29:36,360
yeah well that's the other thing is like as a matter of public transparency we should know how

1348
01:29:36,360 --> 01:29:41,661
much Bitcoin we have, right? Like, it seems, and I know that the, I know, like, there are lots of

1349
01:29:41,661 --> 01:29:45,821
other, like, couch cushion pockets of Bitcoin that have been sitting there when it was like

1350
01:29:45,821 --> 01:29:50,601
5,000 Bitcoin when Bitcoin was $1,000 and it wasn't like that much money sitting somewhere in

1351
01:29:50,601 --> 01:29:55,360
the CIA or the FBI or whoever, and now it's worth a lot of money. And now the treasury comes knocking

1352
01:29:55,360 --> 01:30:00,381
and goes, hey, guys, like, we need you to give us all that, all that juicy coin. And they're like,

1353
01:30:00,381 --> 01:30:02,201
I don't know about that.

1354
01:30:02,721 --> 01:30:06,440
So I actually think that the real number is kind of a mystery.

1355
01:30:07,261 --> 01:30:09,721
And it's probably classified reasons why they don't want to talk about it.

1356
01:30:10,421 --> 01:30:11,841
It's also logistical reasons, right?

1357
01:30:11,940 --> 01:30:13,020
Like, because there's individual.

1358
01:30:13,321 --> 01:30:15,101
All those different offices and, yeah.

1359
01:30:15,161 --> 01:30:18,041
Yeah, there's individual U.S. attorney's offices that probably have Bitcoin.

1360
01:30:18,301 --> 01:30:20,400
And like, you know, is it finally resolved, right?

1361
01:30:20,440 --> 01:30:22,101
Have victims been paid their restitution?

1362
01:30:22,101 --> 01:30:31,940
I think the government doesn't have as much as you would expect a sort of a uniform database that's sitting out there with all the Bitcoin.

1363
01:30:32,141 --> 01:30:33,841
Like that's not how they're constructed.

1364
01:30:34,001 --> 01:30:35,921
There's branches and regions and localities.

1365
01:30:36,141 --> 01:30:40,041
And I think that is a tall order probably to gather all that information.

1366
01:30:40,460 --> 01:30:44,881
And one of the most like just good housekeeping reasons to do an SBR is just to clean that up, right?

1367
01:30:44,900 --> 01:30:48,341
There are people with like manual spreadsheets with private keys on like sticky notes.

1368
01:30:48,341 --> 01:30:55,501
and like you'd want you want the nation's bitcoin to be like custodied and secured and like a just a

1369
01:30:55,501 --> 01:31:00,581
a well-managed fashion so like at a minimum i think everyone should be in favor of the sbr just

1370
01:31:00,581 --> 01:31:06,101
so we don't like have some you know random u.s marshal service guy like you know delete delete

1371
01:31:06,101 --> 01:31:11,560
a key with a billion dollars of bitcoin on it to checkmate's point earlier though like i do i do

1372
01:31:11,560 --> 01:31:15,221
agree with him that it would be good to see americans hold as much bitcoin as possible rather

1373
01:31:15,221 --> 01:31:17,900
than or people from anywhere in the world rather than the American government.

1374
01:31:18,321 --> 01:31:22,321
And this is one of the reasons I really like the BitBond idea, because I think if you did

1375
01:31:22,321 --> 01:31:26,781
BitBonds at every level from sort of like mortgages to city and municipality level and

1376
01:31:26,781 --> 01:31:31,141
then the treasury, like and then a shared upside in Bitcoin gains, that seems like the

1377
01:31:31,141 --> 01:31:31,960
biggest win win.

1378
01:31:32,360 --> 01:31:36,221
Do you think that we'll actually see BitBonds within sort of Trump's administration?

1379
01:31:37,261 --> 01:31:41,020
I mean, actually, I prefer the BitBond idea to the straight SBR idea, right?

1380
01:31:41,201 --> 01:31:43,520
It just requires it's a bit more involved, right?

1381
01:31:43,520 --> 01:31:48,601
requires a lot of arrangements and the Treasury developing all sorts of studies.

1382
01:31:48,921 --> 01:31:52,480
Because it'd be them issuing a new debt instrument that Congress would have to authorize.

1383
01:31:52,681 --> 01:31:54,141
So they would have to pass the law.

1384
01:31:54,560 --> 01:31:58,301
I don't see that likely obtaining unless there's crazy majorities.

1385
01:31:58,781 --> 01:32:02,940
Now, maybe there's some clever way of interpreting statute that would allow them to issue

1386
01:32:02,940 --> 01:32:05,761
some experimental bond.

1387
01:32:05,900 --> 01:32:06,421
I don't know.

1388
01:32:06,421 --> 01:32:09,161
It seems a bit of a tall order.

1389
01:32:09,161 --> 01:32:18,641
But the prospect of other government entities issuing something like that might actually be more realistic, right?

1390
01:32:18,681 --> 01:32:21,321
So states and local governments could get in the action.

1391
01:32:21,400 --> 01:32:30,421
The basic principle, right, is there's kind of a way to kind of arbitrage the risk and distribute that risk to different people that want to have a different exposure to Bitcoin.

1392
01:32:30,421 --> 01:32:34,960
and, you know, leverage existing debt markets

1393
01:32:34,960 --> 01:32:36,741
that are otherwise quite liquid

1394
01:32:36,741 --> 01:32:39,701
and can't hold government instruments,

1395
01:32:39,860 --> 01:32:40,940
but they want exposure to Bitcoin.

1396
01:32:41,460 --> 01:32:43,681
And so here's like a way the government could kind of,

1397
01:32:44,121 --> 01:32:45,121
you know, create a kind of win-win,

1398
01:32:45,221 --> 01:32:46,681
kind of the sailor style strategy,

1399
01:32:47,020 --> 01:32:48,360
but in sort of public finance.

1400
01:32:49,421 --> 01:32:51,661
So I think it's definitely a great idea, right?

1401
01:32:52,321 --> 01:32:55,221
It is, you know, it's like for the stack of things

1402
01:32:55,221 --> 01:32:56,621
you have to buy into, right?

1403
01:32:56,681 --> 01:32:58,301
It's like at the top of a pretty tall stack.

1404
01:32:58,301 --> 01:33:03,801
And so I think Andrew Homes has done a great job of laying out the math and even within

1405
01:33:03,801 --> 01:33:08,041
various assumptions, why this is at least worth exploring as a pilot, but could have

1406
01:33:08,041 --> 01:33:11,821
a lot of benefit because it puts Bitcoin in the hands of lots of people that wouldn't

1407
01:33:11,821 --> 01:33:15,141
otherwise maybe be able to get it and help defray public expenses.

1408
01:33:15,261 --> 01:33:15,980
So I actually like it.

1409
01:33:16,101 --> 01:33:16,841
It's a great idea.

1410
01:33:17,781 --> 01:33:23,641
Realistically, though, administratively, legally, there's higher hoops for that to go through.

1411
01:33:24,201 --> 01:33:28,281
The SBR can be established to a certain extent with executive authority up to maybe 20

1412
01:33:28,281 --> 01:33:30,141
using the funds and the external

1413
01:33:30,188 --> 01:33:34,228
Civilization Fund. That requires just like political will, doesn't require new legislation.

1414
01:33:34,888 --> 01:33:38,648
Doing like the Bitcoin Act, the Lummis Bill, that will require like, you know, majority in the

1415
01:33:38,648 --> 01:33:42,048
Senate, which could happen, but is a much higher, much, much, much higher left.

1416
01:33:42,668 --> 01:33:47,828
Last question on this stuff. When Trump came in, obviously there was a ton of momentum. He signed

1417
01:33:47,828 --> 01:33:53,668
the SBR executive order. There's some, and he's been very sort of open to Bitcoin businesses in

1418
01:33:53,668 --> 01:33:58,348
the US with the huge caveat that he's still putting privacy developers in prison. Maybe not

1419
01:33:58,348 --> 01:34:04,068
directly him but that's still happening um do you think the momentum's waning or do you think

1420
01:34:04,068 --> 01:34:09,508
there's still positive stuff going to come out of this administration for bitcoin um i don't think

1421
01:34:09,508 --> 01:34:14,428
momentum i think well the brca right getting the president uh or just getting the white house to

1422
01:34:14,428 --> 01:34:19,208
um really vocally support that uh it's not just good for bitcoin it's good for everyone that

1423
01:34:19,208 --> 01:34:22,668
digitalizes its ecosystem it's good for you know folks that want civil liberties it's already got

1424
01:34:22,668 --> 01:34:27,748
co-sponsors in the house um but it requires you know strong support right to make sure it gets

1425
01:34:27,748 --> 01:34:32,048
through. So we'd love to see more of that come. I think people are definitely in support of it,

1426
01:34:32,428 --> 01:34:37,008
but, you know, there's always more they could do to make sure that it passes. People have said that

1427
01:34:37,008 --> 01:34:45,568
if they get clarity passed, you know, then the SBR will come up for discussion as the, you know,

1428
01:34:45,568 --> 01:34:51,428
the third of the sort of sequence of three major crypto legislative priorities from the White House.

1429
01:34:52,008 --> 01:34:56,268
We'll see if they make good on that next year. But then we'll then we're quickly going to run

1430
01:34:56,268 --> 01:35:02,368
into the political calendar, summer 2026 elections that fall, and then everything's basically

1431
01:35:02,368 --> 01:35:04,248
a crapshoot depending on what happens in those elections.

1432
01:35:05,088 --> 01:35:09,788
I think the politicization of crypto policy is definitely a risk, right?

1433
01:35:09,788 --> 01:35:16,788
Kind of, you know, his personal family involvement in it is going to be like a major feature of

1434
01:35:16,788 --> 01:35:18,408
the campaign.

1435
01:35:18,548 --> 01:35:23,948
And if the Democrats take back the House, they'll have hearings, they'll subpoena, you

1436
01:35:23,948 --> 01:35:27,248
all the different folks involved in Trump's crypto businesses,

1437
01:35:27,248 --> 01:35:42,525
it be a thing that they keep whacking on over the course of the rest of his term So that environment would be kind of not that conducive for many more like pro Bitcoin things So it like a window of time I think between now and the summer of next year where if

1438
01:35:42,525 --> 01:35:44,485
there's going to be big moves, they're probably going to happen then.

1439
01:35:45,045 --> 01:35:51,045
After that, you know, unless he can keep the Senate and the House majorities, then it's

1440
01:35:51,045 --> 01:35:53,945
probably going to be, you know, stasis.

1441
01:35:54,845 --> 01:35:57,725
Yeah, I think it's even my view is even earlier than that.

1442
01:35:57,725 --> 01:36:00,385
You really have to like the late spring, right?

1443
01:36:00,725 --> 01:36:04,005
Or April-ish, May, maybe perhaps, but that's it.

1444
01:36:04,125 --> 01:36:10,305
And, you know, if we punt until next year on the Clarity Act, right, you get that across

1445
01:36:10,305 --> 01:36:14,665
the line, it's going to be really tight to get a turnaround to something like, you know,

1446
01:36:14,705 --> 01:36:18,525
getting authority for bit bonds or anything like that through Congress.

1447
01:36:18,565 --> 01:36:19,765
I just think it's going to be too tight.

1448
01:36:20,065 --> 01:36:23,065
Now, obviously, that can all change, right, without the midterms roll out.

1449
01:36:23,065 --> 01:36:29,165
If the midterms are a Republican sweep, they retain both houses, then that gives you more

1450
01:36:29,165 --> 01:36:31,805
runway to make good on some of these other promises.

1451
01:36:32,205 --> 01:36:33,505
If not, obviously the opposite.

1452
01:36:35,285 --> 01:36:35,485
All right.

1453
01:36:35,545 --> 01:36:38,865
Before we close out, is there anything else that you guys want to talk about before I

1454
01:36:38,865 --> 01:36:39,645
do my last bit?

1455
01:36:40,225 --> 01:36:40,665
Checkmate.

1456
01:36:40,765 --> 01:36:42,745
What's the price in 12 months?

1457
01:36:43,105 --> 01:36:44,625
That's literally my last question.

1458
01:36:46,125 --> 01:36:48,105
The CIA is always watching you, Danny.

1459
01:36:48,245 --> 01:36:48,625
Come on.

1460
01:36:49,925 --> 01:36:51,665
Look, I mean, no one knows.

1461
01:36:51,665 --> 01:36:56,505
but look honestly like my view has been so i can't remember when it was about six maybe eight

1462
01:36:56,505 --> 01:37:01,945
months ago um i wrote a piece it would have been around january february and it's when we just hit

1463
01:37:01,945 --> 01:37:08,765
100k we're kind of starting that chop around 95 100 and uh i've got this this model that i use and

1464
01:37:08,765 --> 01:37:15,365
how much capital needs to flow in in order to justify each market cap move now my my case back

1465
01:37:15,365 --> 01:37:20,805
then was i think we justified 100k but i wasn't sure we had the juice to get that extra 50 to get

1466
01:37:20,805 --> 01:37:22,805
to three trillion, which is 150K.

1467
01:37:23,305 --> 01:37:29,685
And my base case was we probably have to see the ETFs approximately double in size because

1468
01:37:29,685 --> 01:37:43,643
the I won go through all the numbers but that would approximately be the amount of money because the ETFs are about 20 25 of the demand profile That means if you multiply that by four that kind of the amount of money that we need to see come in to justify

1469
01:37:43,643 --> 01:37:49,463
150. If you take the amount that just strategy has bought and the ETFs, you now have that doubling.

1470
01:37:50,083 --> 01:37:56,803
So in my view, if we had gone in January from 100 to 150, we'd be exactly where we are right now.

1471
01:37:56,863 --> 01:38:01,483
We would have come back down because we just didn't have the real capital coming in to absorb

1472
01:38:01,483 --> 01:38:06,863
that sell side we didn't actually belong at 150 we kind of belonged at 100 i think we now have the

1473
01:38:06,863 --> 01:38:12,223
juice to not only go to 150 but stay there honestly so that's my base case um now as i said at the

1474
01:38:12,223 --> 01:38:16,423
start i think that just being very aware like at the moment the bears haven't even cracked the first

1475
01:38:16,423 --> 01:38:21,103
line of defense if we get down to 105 things start to get a little bit hairy just in the amount of

1476
01:38:21,103 --> 01:38:27,943
people who are going to be underwater you go below 95 it's it's it's a hard shot to get past there's

1477
01:38:27,943 --> 01:38:32,883
in every single previous bear market that is more or less being that tipping point now we're not

1478
01:38:32,883 --> 01:38:37,803
there yet so that's really the way i'm looking at it path dependency if there's some kind of crack

1479
01:38:37,803 --> 01:38:42,523
and that's really why i want to pick uh pick minds on the ai was there any risk that this thing

1480
01:38:42,523 --> 01:38:47,323
bubbles out and implodes because that's the kind of dynamic where suddenly you're below 95 and now

1481
01:38:47,323 --> 01:38:53,183
you've got a bear market in play if that doesn't happen we belong at 150 and you know the journey

1482
01:38:53,183 --> 01:38:58,483
years we've kind of proven a trillion dollars back in 2024 market cap i think we've now proven

1483
01:38:58,483 --> 01:39:04,923
two trillion does bitcoin belong above silver yes where's silver going up so you know in my view

1484
01:39:04,923 --> 01:39:09,403
three trillion is kind of the next move so um and then it's just a question of how many more trillions

1485
01:39:09,403 --> 01:39:16,423
so uh 12 months from now at least 150 there we go i'm gonna call it by the end of the year but um

1486
01:39:16,423 --> 01:39:21,023
listen i really appreciate this joe thanks for pushing us to do it i think we should do this i

1487
01:39:21,023 --> 01:39:23,263
I mean, Matt's going to take a step back from podcasting potentially.

1488
01:39:23,483 --> 01:39:27,663
So maybe we should do this every quarter or so and we can have a rolling guest instead

1489
01:39:27,663 --> 01:39:28,043
of Matt.

1490
01:39:28,683 --> 01:39:29,043
Yeah.

1491
01:39:29,143 --> 01:39:29,463
Happy to.

1492
01:39:29,923 --> 01:39:30,403
Let's do it.

1493
01:39:30,503 --> 01:39:33,583
Before we go, I just wanted one comment on this.

1494
01:39:33,743 --> 01:39:33,923
Okay.

1495
01:39:34,163 --> 01:39:49,380
For as long as I been in Bitcoin this idea of the four cycle has been this sort of ball and chain I think on the Bitcoin price And Bitcoin is extremely sentimental as we all know right Up 5 we all going to make it

1496
01:39:49,440 --> 01:39:54,540
down 5%, we're headed to Goblin Town. If you can break the back of this four-year cycle,

1497
01:39:54,660 --> 01:39:58,120
I'm just telling you, I think that changes fundamentally the market structure in Bitcoin.

1498
01:39:58,560 --> 01:40:02,740
It changes investor allocation. I mean, even right now, anecdotally, I'll tell you how many people,

1499
01:40:02,740 --> 01:40:06,160
I was playing poker the other night, and a guy who's owned Bitcoin said, yeah,

1500
01:40:06,160 --> 01:40:12,860
I'm probably going to sell a little bit going into the Q4 of this year because it's a halving cycle and Bitcoin is going to tank next year.

1501
01:40:13,380 --> 01:40:20,780
If you were able to rid this sentiment of the market and push it more towards like an equity mark where I don't hear that at all in traditional finance.

1502
01:40:20,860 --> 01:40:23,560
Nobody talks about like a four year cycle for the S&P.

1503
01:40:23,880 --> 01:40:26,080
Obviously, there are liquidity cycles and recessions, etc.

1504
01:40:26,500 --> 01:40:34,460
But if you can get rid of that narrative, I think that has very profound implications for how Bitcoin will trade into the future.

1505
01:40:34,920 --> 01:40:39,000
So we talked about that earlier a little bit in this podcast, but that's going to be fascinating.

1506
01:40:39,000 --> 01:40:48,240
And the most fascinating thing is it comes against the backdrop of that Fed independence potentially weaning or the curtain being pulled away from in the early part of next year.

1507
01:40:48,300 --> 01:40:49,320
That's not that far away.

1508
01:40:49,420 --> 01:40:51,100
It'll be into the early part of next year.

1509
01:40:51,220 --> 01:40:54,120
You'll probably be getting an announcement of a new Fed chair.

1510
01:40:54,580 --> 01:40:59,200
I mean, Besson said it was potentially November or December that they were going to give that name out there.

1511
01:40:59,200 --> 01:41:04,720
And then the confirmation hearings will start, obviously, and you're going to have somebody taking over for Powell in May.

1512
01:41:05,280 --> 01:41:11,480
So, I mean, that is almost like a poetic backdrop for Bitcoin and where it's had in its cycle.

1513
01:41:11,640 --> 01:41:13,700
So hopefully we can crack that.

1514
01:41:15,120 --> 01:41:16,820
Yeah, the four-year cycle is already broken.

1515
01:41:16,920 --> 01:41:17,920
People just aren't aware of it yet.

1516
01:41:18,220 --> 01:41:19,520
I hope you're right.

1517
01:41:20,500 --> 01:41:21,080
Buy and hold.

1518
01:41:21,160 --> 01:41:21,880
Cycles are dead.

1519
01:41:22,440 --> 01:41:23,420
Bitcoin's going to a million.

1520
01:41:23,920 --> 01:41:24,660
Let's fucking go.

1521
01:41:24,820 --> 01:41:25,120
All right.

1522
01:41:25,140 --> 01:41:25,720
Thank you, guys.

1523
01:41:25,800 --> 01:41:26,580
Appreciate the time.

1524
01:41:27,480 --> 01:41:27,960
Thanks, Danny.

1525
01:41:27,960 --> 01:41:28,200
Later.

1526
01:41:29,200 --> 01:41:59,180
Thank you.