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What would cause a recession now?

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Defaults, financial crisis, central bank bailouts, the whole system does collapse.

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People lose their jobs and they still have a mortgage, they still have credit card debt.

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I can't see a way that it's not catastrophic.

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5 to 10% is going to cause immense damage.

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When cash flows stop at the margin, everything collapses because of leverage.

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At some point, does it break? Does the US dollar dominance break?

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I can see the path to the United States trying to direct capital into Bitcoin.

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Bitcoin is leading. The bounce that Bitcoin is showing is foreshadowing volatility coming down.

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Roll it back up and trigger a buy signal sometime in the next few months.

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Nick Bhatia, welcome back on What Bitcoin Did, man.

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Thanks, Danny. Great to see you.

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I'm the macro world.

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The world in general is a bit of a mess right now.

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And one of the questions I've had for you

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that I've been thinking about a lot before this show is,

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you've always been the guy who is pretty balanced,

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pretty nuanced about your takes.

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You think that strong economic growth is likely.

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You think sort of tamed inflation has been likely going forward.

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And then war with Iran.

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Does that flip everything on its head now?

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Do we have to reassess the entire macro picture?

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I think it's wise to take a clean slate. And that's what I've done over the past couple weeks.

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You have to take price as truth. And if prices are moving that don't agree with your narrative,

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don't agree with your bias, then you have to take a second look. And with the volatility

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we've seen over the past couple weeks, both in stocks and bonds, so the VIX and the move index,

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things I watch very closely, they are telling me that you can't just assume we're in a strong

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economic growth, oil will stay fair, rates will stay fair, and stocks and risk will do well.

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You have to throw everything out and start over. So stocks are looking weak in terms of

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a multi-year trend line that I'm watching. That's another thing that, okay, stocks have now broken

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down. Volatility is very elevated. So don't just assume everything is going to be good.

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And that's what I've basically done over the past week or so. Clean slate. I'm not changing my

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every bias because of what I've seen over the last week. I'm also trying to understand a lot

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about the war. That way I can make some baseline expectation of what I think oil will do and

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then volatility and then the rest of the markets from there.

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So what are you watching most closely now?

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I did a show with Luke Grohman recently,

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and he was talking about the price of oil being a very key signal

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and was basically saying oil over $100 for any kind of sustained period of time

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is a real bad situation where it can have an impact on the treasury market

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and global recession becomes very, very likely.

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Is that the most important thing to watch right now?

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Well, oil is at $100 today.

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Oh, is it?

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Yes. So oil opened up tonight at around 100. It was near 100. And Brent and WTI have both been near 100. Now they're both above 100 as of tonight. So instead of thinking, well, if oil goes above 100, what will break? The price is telling you.

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So you look at oil today at 100, and you look at the treasury market, four and a quarter on tens, more or less.

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Stocks starting to break down.

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Four and a quarter, give me some context.

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Where was it, say, two weeks ago before this war?

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Yeah, 10-year yields have flirted with below four a little bit earlier this year.

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And they've been basically in the four to four and a quarter range for several months.

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And so that's this tamed inflation, stable rates, everything going along well.

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It's been there.

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Now, it's back up at the higher end of the range, but it's not even close to six-month

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highs or 12-month highs.

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So that is the truth.

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So if oil was breaking the stock market, we would see it lose bullish momentum and lose

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some trend.

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It is doing that.

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So oil is affecting stocks.

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negatively right now. It is not affecting the treasury market in anywhere near the same sort

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of way. And so that's enough information for me. Like I don't see the treasury market breaking down.

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It is affecting the dollar a lot. So dollar is getting very strong right now. That's also

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dangerous for risk and it's bad for the stock market. And so dollar right now charging up

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is affecting stocks.

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It's not, the treasury market is actually hanging in.

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That's how I would describe it.

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So the interesting thing is that,

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and there's probably recency bias in this,

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but this feels like the most chaotic time

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we've had during Trump's tenure as president.

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But that's not, again,

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what the markets are necessarily saying.

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Like the volatility was higher, I think,

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with tariff announcement.

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Has that surprised you?

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That's a great point, first of all,

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seeing where volatility was during Liberation Day

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and comparing that volatility episode to this one.

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What's interesting to me is I was more certain

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that things would calm last year than I am right now.

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Because war is a blind spot and it really is unpredictable.

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Not that I was 100% able to predict that Liberation Day tariffs

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would blow over in terms of not causing an inflation chaos

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and not causing a global recession.

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It didn't either.

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And I was right about that prediction. So, you know, I would laugh and make fun of these people who went, not your show, Danny, but a show like we're entering the new dark ages. That was my favorite one. So in our, you know, in our team chat all year, I would, I would, you know, say dark ages, all caps, when the stock market would do well.

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So volatility was higher then, but I was more certain it would come down.

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This time it's lower, but I'm not certain it's going to come down because of the blind

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spot of war.

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And that's why I've been doing a lot of work on the war and Iran over the last week plus,

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because if that's my blind spot, then that's where I have to go do the work.

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And I'm very quick to admit what I'm good at and what I'm not.

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And like, what's my market?

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What is my expertise and what's not?

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The money markets are my market. So when I'm looking at repo, I don't need to read anybody.

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I don't need to read anybody. I just look at the market. I look at the rates every day,

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and I make my own judgment. And yes, I do read the street, people that I trust,

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and I do compare my notes against theirs for sanity, but I don't need to. But when it comes

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to oil or war in the Middle East, these are things that I have to admit where my limits are,

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and that's where I go spend the work.

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Can you explain, first of all,

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why the volatility index is so important to watch

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and what the different dynamic is from Liberation Day?

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Because if you were, in your case,

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sort of bearish on the spike in volatility

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during Liberation Day,

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you can become a volatility seller.

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Yes.

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How is that market different now to that spike?

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Okay.

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Let me tell you theoretically about volatility and the VIX and what it is so that people that don't really follow vol can understand it.

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Volatility is insurance and it's protection.

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And so it's the price of it.

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Volatility on a realized basis is what did the price move yesterday and last month.

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That's called realized volatility.

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Volatility index, VIX, and move, these are implied volatilities.

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It means it's the price to protect.

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so it's that's why they call it the fear index because it is literally the price of insurance

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for your portfolio so last year how does that actually work sorry to sorry to interrupt you

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put options okay you buy a put and when you buy a put what you're what you're what you own

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is the option to take the position that you have if you're already long you take that position

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and you can hand it over at a pre-agreed upon price.

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That's, you know, if you're exercising that option,

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it means the price has gone below your insurance level.

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So you have to pay a premium and you have a strike price

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and below that strike price, you're protected.

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That's your insurance.

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And the put option is gonna be priced off

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of how far it is from the current price,

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the time to the expiration,

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but then this hidden factor,

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which is the demand, like how much demand is there for this option based on the amount of

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sellers of that option. And when the market, meaning the banks who are the option sellers

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mostly and market makers, when the option sellers say, hey, the price of insurance is more today

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than it was yesterday. And then the next day it's more today than it was yesterday. That is the VIX

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going up. So it's the premium price that you pay for insurance. So last year, Liberation Day,

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the price of insurance went to the moon. There was a great uncertainty as to what

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President Trump was doing. I felt like I had a grip on what the plan was, right? I read

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Stephen Myron's speech. I read every Besson's speech. I was able to gather the signal

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of what this would do. And my prediction was that it wouldn't cause the global economy to seize.

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It would not stop global trade. That was the assumption that the put buyers made,

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that everything is going to seize. We have to buy puts. Profits are going to go

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to zero and it's going to be a recession. You want to bring it back to today and maybe your

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question of comparing the two, there is less of a worry right now in the market for some reason

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that the whole global economy is going to cease. But the fear is that $100 oil, $120 oil, $150,

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that that will choke off margins. It'll choke off the ability for some countries to grow,

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some companies to profit, and that should slow down marginal economic activity.

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But it's not like a war in Iran causes ships from the coast of China to the west coast of

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the United States to stop moving. In fact, Asia has now come to the United States and said,

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by the way, all that oil that you're producing, we would like you to ship some of that to us

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because we're getting everything through the strait and we need to diversify.

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So maybe there's an aspect of less fear that we're going into an environment where you can't generate profit.

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And that was the fear with Liberation Day, I believe.

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Okay, so when you said you understood the plan at Liberation Day or you thought you understood

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what they were trying to do. Is that when it was Bessent's idea of Main Street, not Wall Street,

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and a weaker dollar? Was that sort of the core of the plan there?

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So a weaker dollar, they were able to get that last year. Dollar is coming back as we talked

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about, but they were able to get that. But it wasn't actually that. It was addressing this idea

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of a dual public good. The dual public good is the United States provides the world with

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a navy to protect shipping lanes. And it provides the world with the global reserve currency.

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So it's a free riding problem there on both sides. It's a free ride for a country in Asia to ship

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to any part of the world without having to worry that their ship is going to get attacked

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because the US is patrolling open seas or they're that security force. The dollar system is a free

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ride because Brazil and China can trade in dollars and the U.S. doesn't really accrue any benefit.

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And it's not like U.S. banks are financing all of that trade or collecting fees or anything like

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that. So it's a free ride for the world. Whether you agree with either of those things or not,

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it was clear to me that the plan was to address this dual public good. On the dollar side,

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What was the proposal to address the public good? It was to impose tariffs, and it was to prevent non-tariff cheating. That was a key. So that's the dollar. Stop manipulating your currency, and that's the non-tariff cheating.

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And you use tariffs basically as the stick and the carrot. So the stick is the tariff. And if they say, okay, we're not going to weaken our currency to account for this tariff, then everything is good. And let's go to the table and hammer out a deal.

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and yes there are great alliances between the united states and europe even though there's a

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lot there that we can unpack there is a great alliance between united states and the uk united

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states and europe united states and japan united states and the middle and the gulf coast countries

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the arab countries of the middle east and there are great alliances with countries in south america

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some that are getting stronger. And the United States has very strong alliances. So what was it

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my projection that all of these allies would come to the table and say, no, we're not going to do

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this? No. And so that's what I understood last year, that the global order wouldn't, the global

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trade, sorry, I should say the global trade would not break down, that global trade would continue.

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Somebody would pay the price.

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I didn't think it would come that much into CPI.

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Which it didn't.

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Which it didn't.

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It's funny that the studies from the Fed are saying that 90% of tariffs are passed on to the consumer.

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I found that interesting.

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I don't know if that's empirically backed.

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And it's also hard to know because you don't know.

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Like everything is multifactorial.

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So you don't know how much it did go in.

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But then other things brought it out.

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So when everyone was panicking then, VIX spiked and people were calling for recession. You faded that. And I think it's clear in hindsight that you were right. We didn't have recession until the end of last year. But there's a lot of people now saying that the Iran war will cause a recession. Again, going back to like oil prices and just the sort of uncertainty in markets now. Do you think that is likely?

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That's, I mean, that's the question.

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And that's what I have to, that's what I have to face as a researcher is that to what extent

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is the oil price going to stay high?

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How long and which countries does that affect?

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And how much is it going to impact the global economy and sink it into a recession?

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Outside of the United States, Danny, I don't know.

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Inside of the United States, I don't think so.

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That's my base case right now.

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Okay, so that'd be worth breaking down

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because that's something I've been thinking about a lot

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and have no answers for,

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is like the oil price in the US

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isn't really dictated by the straightforward moves.

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Like all the oil in the US is generated in the US.

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I think some comes from Canada.

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So why would the oil price that is going up in this,

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I guess the oil price is global though,

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even though the supply is not necessarily global.

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That's right.

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It's about global.

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I mean, it's about arbitrage.

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So you can source oil from anywhere.

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And of course, there are lots of different types of oil. That's also important. So what are different

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oils used for and different like the North Sea Brent, the WTI price, West Texas Intermediate,

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the US price, actually a landlocked price. The delivery is in Oklahoma. It's not connected

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to the Gulf of America via a pipeline. So it's a landlocked price. And that's why

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Brent price and the WTI price and the Dubai price can all be different at times. But yes,

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it is a global price. There is arbitrage. There's this whole shadow fleet, right? There's millions

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of barrels of oil just floating out on different container ships around the world. So even that

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shadow fleet itself is a way to arbitrage.

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Or oil system.

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Exactly, euro oil.

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Okay, so what would cause a recession now?

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Like if you had to try and sort of make the argument

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for both recession and not a recession,

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what are the things that would lead us

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into recession from here?

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And what do you think would mean

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the economy can keep on ticking along as it is?

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This is, I think, what's interesting

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about the US right now.

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The US has a very strong economy and strong internals.

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It also has a lot of backing from the government to keep the growth up.

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So that's a fiscal deficit.

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But that fiscal deficit now is being I won say whether it going up or down that we don know especially with the war now But the fiscal deficit itself is going more and more into production That is without a doubt that we know to happen So the United States very consumer economy

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70, 75% is consumer-driven. The balance of the economy is what the government spends,

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what our net exports are, and we are a net importer. Of course, we have a trade deficit,

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but also how much we invest. So money can either be, when it's earned, it can be spent

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and consumed, or it can be spent and invested on something. So if the United States, that's your

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Wall Street versus Main Street thing. Don't just finance consumption, which ends up

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financializing things and the money just goes into finance production.

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That's the shift the United States has made. I think that's what keeps the United States economy robust. $100 oil is a tax on the consumer, and gas prices going up will marginally hit the consumer.

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But you see if the GDP is C plus the investment, plus the government, the C going down, if we have a strong pattern of government spending and strong investment patterns, which the evidence, Danny, is the CapEx $500 billion announcement from the Mag7, the hyperscalers the past few months.

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$500 billion they're going to be spending on data centers, XYZ, and all the stuff.

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that stuff is that all those plans will happen. You can't slow that down. And it's a national

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security. I mean, it's a national necessity now for the country. You see all these guys show up

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at the inauguration. If that's not a coincidence that they're going to then fund the guarantee of

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positive GDP growth. And you see how those data centers basically on a mathematical level,

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they guarantee that GDP growth. No matter how much the consumer gets hit, and we can bring in

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the AI labor situation, no matter how many people at the margin get laid off from the current AI

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wave of firings, even with all that, it will balance out. That's my opinion.

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Investment is deep in the United States. It's deep rooted. And the shift now is enough where

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if it happened 10 years ago and the United States had this AI wave and millions of people got fired,

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guaranteed recession because people stop spending, the economy goes into recession.

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But we didn't have the fiscal deficits that we have now back then. And we didn't have this shift

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toward AI, data center, electrification, energy, drill, drill, drill, deregulation, and all of that.

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So that's what I think keeps the US economy very robust.

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And I cannot say the same thing for the rest of the world.

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And we'd really have to go country by country then to see what countries are really negatively

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affected by high oil prices.

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India, Japan, at the margin, these are some of the ones.

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Now, these are very large economies.

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If they go into recession, what are the knock-on effects there?

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And then how long does all of that take to filter back into the United States and maybe cause a recession because the rest of the world, like we catch the rest of the world's cold?

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Yeah. And you can imagine you'd bundle almost all of Europe into that apart from some of the Scandinavian countries because there's no oil production in the most or very little oil production in the rest of Europe.

293
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Yes. Europe is, I would say, more sensitive to the gas price. Russia being added back into Swift at the margins because of this war.

294
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Yeah, how convenient. So it's funny. I'm not even thinking about Europe.

295
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How far we've fallen, hey?

296
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Yeah. Okay, there's a dynamic in there that I really need you to explain because I don't get it.

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you said in years past

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if we have millions of jobs laid off

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guaranteed recession

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I don't understand why that's not the case

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in this new AI world

302
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what stops

303
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because millions of people get laid off

304
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they stop spending into the economy

305
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economy struggles, recession

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if millions of people get laid off

307
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GDP continues to go up

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because of AI data centers or capex boom

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there's still millions of people

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not spending money into the economy

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So do you end up with just fewer people propping up the economy?

312
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And does that not get even more sort of house of cards-y?

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Now I'll tell you my opinion on the AI labor, which is that companies are laying people off because of AI improvements.

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But broadly, I think the US economy will be well positioned to adjust, capitalize on the changes, and move on.

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Now, there is the comparison to when United States got deindustrialized, people lost their jobs. But the United States labor participation rate over the years has gone up and down. But people retrain and they get new jobs and they enter new sectors.

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So I genuinely believe that the US economy will figure it out.

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Even though people will lose their jobs as companies optimize, they will hire again.

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There's a lot that needs to be done.

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AI can't do everything.

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We still need managers for AI.

321
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We still need, I was just thinking about roadside construction.

322
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What if in five years, all the roadside construction is just being done by robots.

323
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You don't think there's going to be a few guys there with the tablets talking to these robots and making sure they're doing the right thing.

324
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So I'm not a fatalist with the AI that we're just going to get, you know, UBI guaranteed because everybody gets fired.

325
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I'm just not there.

326
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I think that the economy will adjust.

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Labor market will adjust.

328
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people will learn AI also.

329
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Yeah, I want to get into that more though,

330
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because I skew more to the fatalist viewpoint.

331
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And it's not because I want to,

332
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it's just because I don't necessarily see the alternative.

333
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Like it seems like AI is almost going

334
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through specialization phases.

335
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Like programming seems to be the first one.

336
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It's now just like,

337
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if you're not using that as a computer programmer,

338
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you're just dead in the water.

339
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So again, like you're saying,

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it will get to the point

341
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and maybe it is already at the point

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where people using AI to make their production better

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is already happening.

344
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Like if everyone's vibe coding,

345
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so you become a prompt engineer essentially

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and you're making AI do your work.

347
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So then there's a team of developers

348
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that might be more junior developers that get laid off

349
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because you just don't need them anymore.

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But then as it goes through the workplace

351
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and it takes out accountants jobs

352
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and the junior lawyers jobs

353
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and all these different white collar jobs

354
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that end up getting disrupted.

355
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If you're a 40 year old accountant,

356
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50 year old accountant,

357
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Are you going to retrain to work on like road construction?

358
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Like these are the things that I find really hard to just say, yes, people will do that.

359
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And even still, like if you look on a road construction site now, there might be, you

360
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know, 10, 15 workers, whatever on it, on one particular road site.

361
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If that becomes one or two, like what happens to the other 12 or 13?

362
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I just, I really struggle with thinking the retraining thing is going to work because

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that's what people were told to do during COVID.

364
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And that didn't really work out.

365
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everyone became computer programmers and now they're losing their jobs to AI.

366
00:28:20,375 --> 00:28:22,795
Yeah. You know, I can't argue with you, Danny,

367
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because we don't know what's going to happen.

368
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And I don't have a fatalist thesis on AI because

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when AI has replaced, let's say, 50% of the accountants,

370
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the accountants that, you know, the 1 million accountants that have lost their job

371
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are all 100% of them going to fail to retrain?

372
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That's where I see, that's where I push back.

373
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So every marginal thing, like I have a couple friends who are attorneys.

374
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One of my friends, he's using Claude all the time,

375
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but Claude can't go into the courtroom.

376
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Claude can't do some of the stuff, so he's amplifying what he's doing.

377
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And yes, I have friends that are entrepreneurs that are laying people off

378
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as well. So there will definitely be an adjustment, but I, I mean, it's just, you know,

379
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what you believe. And I do believe that there will be jobs like who's going to make all the robots.

380
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So people say, well, the robots will make the robots, right? Tesla's especially in their factory,

381
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but you still need people to do things. And, um, you know, like Elon says, if everyone's just going

382
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be infinitely wealthy. We'll all have all of our time and everything will be free. I mean,

383
00:29:46,815 --> 00:29:51,615
I don't see that future either. Yeah. And I don't even like he paints that as a sort of utopian

384
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future. I understand why, but I also fade that as a narrative. I think people without meaning is

385
00:29:57,215 --> 00:30:05,295
a very strange world, but I just, I struggle to see if AI is as disruptive as you think it's

386
00:30:05,295 --> 00:30:08,555
going to be. And timeframe doesn't really matter. At some point, I think this is going to happen

387
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where it replaces the vast majority of jobs.

388
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What I don't understand is what happens to all the externalities.

389
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Like in the interim, even if people decide to retrain,

390
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even if people decide that they want to become a musician or a painter

391
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or do something creative,

392
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like there's going to be an interim period where people lose their jobs

393
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and they still have a mortgage, they still have credit card debt,

394
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they still have a car loan.

395
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Like what happens to the economy in that interim period?

396
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And I can't see a way that it's not catastrophic.

397
00:30:41,615 --> 00:30:46,755
You know, you make a good point because in the end, the defaults are what trigger a financial

398
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crisis.

399
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So if you can't pay back, not only do you default on the debt, but the bank that is

400
00:30:54,295 --> 00:30:59,755
issued to you or the mortgage-backed security holder that owns part of that mortgage is

401
00:30:59,755 --> 00:31:01,235
going to suffer impairment.

402
00:31:01,235 --> 00:31:09,275
That's why the Federal Reserve bought so many mortgage-backed securities between 2008 and 2012.

403
00:31:09,975 --> 00:31:19,235
Because if there were defaults in the system and the banks were going to take those defaults, then the whole system does collapse.

404
00:31:19,635 --> 00:31:26,275
We are in a $350 trillion debt-based system.

405
00:31:27,035 --> 00:31:29,355
$350 trillion in debt.

406
00:31:29,355 --> 00:31:30,575
Just numbers you can't comprehend.

407
00:31:31,235 --> 00:31:33,915
And, you know, my students have to think in trillions.

408
00:31:34,075 --> 00:31:34,575
It's what we do.

409
00:31:34,575 --> 00:31:42,335
Every single class, we show charts and we're comparing this 7 trillion line item to this

410
00:31:42,335 --> 00:31:45,775
38 trillion line item to the 64 trillion line item.

411
00:31:46,135 --> 00:31:52,675
The euro dollar system, 15 trillion in offshore dollar deposit claims, but another 60 trillion

412
00:31:52,675 --> 00:31:54,315
in FX swaps claims.

413
00:31:54,975 --> 00:31:56,835
These numbers are large.

414
00:31:56,835 --> 00:32:03,155
350 trillion the quarterly number that comes from the international institute of finance

415
00:32:03,155 --> 00:32:12,895
it's a very large number but the system is built to roll over that debt that's where the liquidity

416
00:32:12,895 --> 00:32:20,955
framework comes from what is the capacity for the system to roll the debt over and when that gets hit

417
00:32:20,955 --> 00:32:27,955
defaults, financial crisis, central bank bailouts, you go back up. That's just the system that we

418
00:32:27,955 --> 00:32:33,715
live in. And because we know that banks are incredibly levered, what percentage of people

419
00:32:33,715 --> 00:32:39,115
do you think need to lose their jobs and start defaulting on loans before it becomes an issue?

420
00:32:39,115 --> 00:32:44,095
Because I don't think the number is as high as 50%. Is it as low as 5%? What kind of range are

421
00:32:44,095 --> 00:32:51,135
looking at? You know, right now we have a banking system that's leveraged about 10 to one, but that's

422
00:32:51,135 --> 00:32:58,655
in, that's what we can see. There's the private credit crisis that's going on right now. The

423
00:32:58,655 --> 00:33:03,795
leverage there is harder to see because the banks lend into the private credit operators than they

424
00:33:03,795 --> 00:33:11,235
lend out into the market. That is a leveraged play between the banks and the private equity,

425
00:33:11,235 --> 00:33:18,055
but less levered or less obviously levered between the private equity and the ultimate

426
00:33:18,055 --> 00:33:30,575
borrower, 5% to 10% is going to cause immense damage. That's what the nature of the system is.

427
00:33:30,835 --> 00:33:36,575
When cash flows stop at the margin, everything collapses because of leverage.

428
00:33:36,575 --> 00:33:46,235
And I know you're not a fan of the sort of inflammatory statements of like a big prince coming, like, but in that scenario, a big prince coming, right?

429
00:33:46,475 --> 00:34:02,255
Sure. Yes. You can, you can understand from the Fed's framework that that's what they will do. But the key to understand is that it is the government that does it.

430
00:34:02,255 --> 00:34:25,795
The central bank is simply the financing apparatus when the going gets tough. It's the government. So when, let's say, 5 million people lose their job, the government is going to put a UBI sort of program or unemployment insurance, right?

431
00:34:25,795 --> 00:34:31,035
Even during COVID, we had five years of unemployment insurance, four years of unemployment insurance.

432
00:34:32,295 --> 00:34:34,015
You'll get that type of program.

433
00:34:34,335 --> 00:34:37,135
The government is who borrows and spends that money.

434
00:34:37,895 --> 00:34:47,295
And if the interest rate is punished to the degree where it starts breaking the system, that's where the Fed comes in for financial stability.

435
00:34:47,815 --> 00:34:51,475
So the Fed is reactionary.

436
00:34:51,995 --> 00:34:55,675
They don't actually control anything.

437
00:34:55,795 --> 00:34:58,535
and they're really just there to serve the government.

438
00:34:59,515 --> 00:35:03,935
The Fed, when it started to do QE,

439
00:35:04,595 --> 00:35:05,955
it was in response to what?

440
00:35:06,355 --> 00:35:08,115
The bank bailout.

441
00:35:08,235 --> 00:35:10,375
The bank bailout came from where?

442
00:35:10,995 --> 00:35:11,595
Congress.

443
00:35:13,415 --> 00:35:16,035
I mean, and Citi's bailout, they came from Congress.

444
00:35:17,155 --> 00:35:20,415
And so it is the government who spends the money

445
00:35:20,415 --> 00:35:23,055
and the Fed will just be there.

446
00:35:23,055 --> 00:35:26,255
Do you want to pay less in taxes and stack more Bitcoin?

447
00:35:26,635 --> 00:35:27,355
Of course you do.

448
00:35:27,735 --> 00:35:29,815
Well, by mining Bitcoin with Blockware, you can.

449
00:35:30,395 --> 00:35:32,675
Under section 168k of the US tax code,

450
00:35:32,995 --> 00:35:36,035
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451
00:35:36,535 --> 00:35:38,155
This means every dollar you spend on miners

452
00:35:38,155 --> 00:35:40,495
can directly offset your income in a single year.

453
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And that's true for both business owners and W2 earners.

454
00:35:43,835 --> 00:35:46,235
If you have $100,000 in ordinary income,

455
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456
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457
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Blockware's mining as a service does all the heavy lifting,

458
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459
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460
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461
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while drastically shrinking your tax bill.

462
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463
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464
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465
00:36:13,675 --> 00:36:16,455
If you haven't tried out Club Orange yet, then now is the time.

466
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It's my go-to place to find Bitcoiners whenever I'm traveling.

467
00:36:20,135 --> 00:36:24,335
Club Orange is a social app built for Bitcoiners where you can find meetups and events in your area

468
00:36:24,335 --> 00:36:26,275
and find merchants that are accepting Bitcoin.

469
00:36:26,955 --> 00:36:30,535
There are over 19,000 Bitcoiners on there, and whether you're at home or traveling,

470
00:36:30,755 --> 00:36:33,855
it's a great place to keep in touch with Bitcoiners from all over the world.

471
00:36:34,535 --> 00:36:37,815
I've been using Club Orange since it was Orange Pill app, and it really is awesome.

472
00:36:38,255 --> 00:36:40,175
So if you're on there, drop me a DM and say hi.

473
00:36:40,175 --> 00:36:42,435
And if you want to find out more and download the app,

474
00:36:42,695 --> 00:36:46,215
just search for Club Orange on your app store or go to cluborange.org.

475
00:36:46,215 --> 00:36:49,835
If you already self-custody Bitcoin, you know the deal with hardware wallets.

476
00:36:50,235 --> 00:36:54,735
Complex setups, clumsy interfaces, and a seed phrase that can be lost, stolen, or forgotten.

477
00:36:55,515 --> 00:36:56,575
Well, BitKey fixes that.

478
00:36:57,115 --> 00:37:00,615
BitKey is a multi-sig hardware wallet built by the team behind Square and Cash App.

479
00:37:00,955 --> 00:37:04,115
It packs a cryptographic recovery system and built-in inheritance feature

480
00:37:04,115 --> 00:37:08,035
into an intuitive, easy-to-use wallet with no seed phrase to sweat over.

481
00:37:08,775 --> 00:37:11,735
It's simple, secure self-custody without the stress.

482
00:37:12,295 --> 00:37:14,855
And time named BitKey one of the best inventions of 2024.

483
00:37:14,855 --> 00:37:23,415
for. Get 20% off at bitkey.world when you use the code WBD. That's B-I-T-K-E-Y.world and use the code

484
00:37:23,415 --> 00:37:29,575
WBD. I've been told off in the comments for constantly saying I think UBI is inevitable.

485
00:37:29,975 --> 00:37:35,155
And I really hope you're right in this scenario, but I just can't see a happy ending to,

486
00:37:36,215 --> 00:37:41,515
or maybe not even, I think there's going to be a hard interim. And I do think UBI is probably the

487
00:37:41,515 --> 00:37:45,675
most likely outcome. It's definitely not that I think that's a good idea. I just, I think in a

488
00:37:45,675 --> 00:37:50,195
situation like that, where 5 million Americans lose their jobs, like the government has to do

489
00:37:50,195 --> 00:37:54,315
something. And that seems like the most obvious option. So here's how I'll push back on that.

490
00:37:54,715 --> 00:38:02,755
The government already spends most of the money that it earns via tax revenue on social security,

491
00:38:03,295 --> 00:38:11,035
Medicare, and unemployment insurance and welfare, welfare payments, transfer payments.

492
00:38:11,515 --> 00:38:20,955
So, the government and the tax base of the United States is massive in the $5 to $7 trillion range.

493
00:38:21,595 --> 00:38:25,875
Three and a half goes right out the door on these entitlement programs.

494
00:38:26,755 --> 00:38:30,775
You might not call it UBI, but it's a transfer payment.

495
00:38:31,435 --> 00:38:36,395
So, transfer payments are already completely dominating our tax base.

496
00:38:36,395 --> 00:38:42,375
doesn't matter what you call it going forward.

497
00:38:42,535 --> 00:38:46,935
Maybe we'll dial up the unemployment insurance segment of it.

498
00:38:47,555 --> 00:38:51,735
But you can't stop paying Social Security.

499
00:38:52,655 --> 00:38:57,955
And the government does have to figure out on a budget basis,

500
00:38:58,475 --> 00:39:00,875
Medicare spending, because it's out of control.

501
00:39:00,875 --> 00:39:08,795
and it's caused the US economy to bloat to almost 20% of the GDP as healthcare.

502
00:39:09,235 --> 00:39:10,335
And that's way too much.

503
00:39:10,455 --> 00:39:15,575
So Medicare is a problem, but not in the fact that they're going to continue transfer payments,

504
00:39:15,795 --> 00:39:17,475
just that it's incredibly inefficient.

505
00:39:18,055 --> 00:39:23,435
But surely the impact on the real economy is different between Medicare, Social Security,

506
00:39:23,435 --> 00:39:27,355
and UBI, because UBI is money going into people's pockets that they then spend in the economy.

507
00:39:27,355 --> 00:39:31,395
Social security is money going into people's pockets and spending into the economy.

508
00:39:31,695 --> 00:39:32,635
It's the same thing.

509
00:39:32,795 --> 00:39:34,655
That's exactly what social security is.

510
00:39:34,775 --> 00:39:38,655
The government pays seniors and then they go and then they spend it.

511
00:39:39,075 --> 00:39:41,235
So it is the same thing.

512
00:39:41,995 --> 00:39:43,875
Unemployment insurance is the same thing.

513
00:39:44,235 --> 00:39:48,055
Food stamps are also the same thing.

514
00:39:48,175 --> 00:39:50,695
It goes to the person, then it goes back into the economy.

515
00:39:51,055 --> 00:39:53,475
So these transfer, that's why I'm calling them transfer payments.

516
00:39:53,995 --> 00:39:56,995
The healthcare money comes to the patient, goes to the doctor.

517
00:39:57,355 --> 00:40:20,035
Everything is a transfer payment. My point is that if two thirds of our tax base is already going to transfer payments, is another one third of it, like let's say now all of it gets eaten up via transfer payments. And then on top of that, you have defense and basically discretionary. It's like the last thing left. And of course, interest.

518
00:40:20,035 --> 00:40:25,755
well it doesn't like you could say that all of the transfer payments plus the interest is the

519
00:40:25,755 --> 00:40:30,535
tax base or you could say all the transfer payments plus the military is the tax base

520
00:40:30,535 --> 00:40:36,755
whatever it is we're at a deficit the deficit is between one and three trillion depending on what

521
00:40:36,755 --> 00:40:44,015
year you pick in the 2020s so and here's and here's the ironic thing about it all the market

522
00:40:44,015 --> 00:40:50,835
doesn't care. And by the market doesn't care, I mean, interest rates are at 4%. They're at 3%

523
00:40:50,835 --> 00:40:55,835
in the front end of the curve, three and a half percent. They're at 4%, four and a half percent

524
00:40:55,835 --> 00:41:11,190
at the very longest end of the curve Where the crisis Where is the bond vigilante Where is the where is the market forcing the hand of Congress to stop spending the money or to stop signaling that it all be okay

525
00:41:11,190 --> 00:41:13,830
because we'll do some transfer payments at the margin?

526
00:41:15,230 --> 00:41:17,030
This is an impossible question to ask

527
00:41:17,030 --> 00:41:19,930
because the market is not just one person,

528
00:41:19,990 --> 00:41:21,350
but why do you think the market

529
00:41:21,350 --> 00:41:22,590
isn't seeing this as an issue?

530
00:41:22,750 --> 00:41:24,450
Do you think it's that they don't see this

531
00:41:24,450 --> 00:41:25,590
as a likely outcome?

532
00:41:25,590 --> 00:41:25,910
Yeah.

533
00:41:25,910 --> 00:41:29,530
And is the bond market always right?

534
00:41:30,090 --> 00:41:30,210
Yeah.

535
00:41:32,310 --> 00:41:35,350
Generally, yeah, I do believe the bond market is right.

536
00:41:35,630 --> 00:41:39,950
And this is actually why I got into Bitcoin in the first place.

537
00:41:41,330 --> 00:41:43,810
My market is the repo market, as we talked about.

538
00:41:43,950 --> 00:41:46,910
That's the market I started, cut my teeth on.

539
00:41:46,910 --> 00:41:58,730
When you trade repo and you see the size, for example, right now, the SOFR volume is about three and a half trillion, three and a third trillion.

540
00:41:59,370 --> 00:42:15,790
That means that every night, three trillion, just to simplify it, three trillion in money market fund cash goes to the dealer balance sheet to fund their treasury inventory every night.

541
00:42:15,790 --> 00:42:17,310
The cash goes to the dealer.

542
00:42:17,470 --> 00:42:18,790
The next morning, it comes back.

543
00:42:19,310 --> 00:42:22,970
When it comes back the next morning, some of that cash is spent into the economy.

544
00:42:23,950 --> 00:42:28,670
Some of it that's spent in the economy somewhere else comes back in, and then it goes back

545
00:42:28,670 --> 00:42:29,970
to the dealer and it goes back.

546
00:42:30,590 --> 00:42:34,730
Three and a third trillion, Danny, is about two to three times the Bitcoin market cap.

547
00:42:35,890 --> 00:42:41,390
The whole Bitcoin market cap is half the size of the overnight repo roll of the dealers.

548
00:42:41,390 --> 00:42:50,490
people don't understand how large the wealth of the world is

549
00:42:50,490 --> 00:43:00,410
when i traded treasuries you learn one thing everybody needs them and it's not that whole

550
00:43:00,410 --> 00:43:07,650
thing of everyone needs them it's like they need water danny it's not like everybody needs stocks

551
00:43:07,650 --> 00:43:17,810
or everybody needs, you know, Toro Belly, or everyone, you know, needs oil.

552
00:43:17,970 --> 00:43:23,670
In fact, not everyone needs, in fact, not everyone needs oil.

553
00:43:23,810 --> 00:43:26,670
Yes, oil is an input to almost everything in our economy,

554
00:43:27,170 --> 00:43:35,930
but even oil on a macro scale, or let's say at least in an investment portfolio,

555
00:43:35,930 --> 00:43:48,450
Nothing is like treasuries. It is so needed that the US government can spend anything it wants

556
00:43:48,450 --> 00:43:55,690
and its interest rates don't go above the companies in its own domicile

557
00:43:55,690 --> 00:44:03,770
with much better economics. Meaning, do you expect Apple with all this debt to default?

558
00:44:04,230 --> 00:44:11,390
Well, no, if you look at their cash flow and you look at how many iPhones they sell, you know that there's always going to be money.

559
00:44:11,390 --> 00:44:15,130
I say always, but in the next five years, you can project it out.

560
00:44:16,450 --> 00:44:19,010
Still, Apple's bonds get purchased 30.

561
00:44:19,570 --> 00:44:21,430
And who did the 100 year?

562
00:44:21,530 --> 00:44:22,530
Google did the 100 year.

563
00:44:23,470 --> 00:44:25,190
And then Amazon did a 50 year.

564
00:44:26,510 --> 00:44:30,610
But those interest rates are still higher than the United States Treasury borrows at.

565
00:44:31,390 --> 00:44:32,450
Why does everyone need it?

566
00:44:32,450 --> 00:44:41,770
you said like they need water? Because of layered money. Everything else is a lower layer.

567
00:44:42,830 --> 00:44:50,590
Everything else has a degree of counterparty risk that cannot compare. We, you know, you think about

568
00:44:50,590 --> 00:44:57,010
gold and gold for 5,000 years of having this store of value and first layer money principle.

569
00:44:57,010 --> 00:45:06,070
all of that got transferred to treasuries. And yes, gold is, if you measure it, gold is now

570
00:45:06,070 --> 00:45:12,610
in the $40 trillion range as a market cap, which is larger, the same as treasuries.

571
00:45:12,950 --> 00:45:20,450
So you can make that argument that now gold is of that similar value. But not everyone needs gold.

572
00:45:20,510 --> 00:45:25,570
In fact, most people in the financial system don't need it. They like it and they want it

573
00:45:25,570 --> 00:45:32,070
and they're buying it, and the price is going up, the price is going up because of this treasury

574
00:45:32,070 --> 00:45:38,390
dynamic also, which is that the treasury doesn't get punished. So you have to, other things like

575
00:45:38,390 --> 00:45:43,690
real estate gold have to go up in response to the fact that the treasury is going to be able to

576
00:45:43,690 --> 00:45:52,590
continue to do things, and just borrow and borrow, and not get punished by the market. Now, there is

577
00:45:52,590 --> 00:46:04,470
a point at which that stops becoming true. And 2022 is a great look at that. Because when we

578
00:46:04,470 --> 00:46:10,270
talk about tame inflation, that being part of my thesis, it's part of my thesis, because in 2022,

579
00:46:10,270 --> 00:46:20,230
it became untamed. So we have this recent example, and two year window of complete chaos in the

580
00:46:20,230 --> 00:46:25,350
treasury market, basically some of the smartest people I'll say, Jeremy Grantham, for one,

581
00:46:25,490 --> 00:46:32,450
I know this because somebody I like a lot sent me this article in 2022, Jeremy Grantham said,

582
00:46:32,830 --> 00:46:37,850
Hey, we're going to a 1970 style inflation. So you had some of the pros of the industry.

583
00:46:38,170 --> 00:46:43,650
I faded that too, but you know, it was funny. Cause I remember that, that it was really a

584
00:46:43,650 --> 00:46:49,330
game of two narratives. Then it was people saying it's either going to be like the 1940s or it's

585
00:46:49,330 --> 00:46:53,870
going to be like the 1970s. And maybe it's worth explaining the different dynamics there and what

586
00:46:53,870 --> 00:47:02,630
actually has played out since. The 1970s was a demand shock and this was a supply shock. That's

587
00:47:02,630 --> 00:47:12,070
basically the main difference. The 40s with the war spending is much more similar to the demand

588
00:47:12,070 --> 00:47:21,230
shock and that fiscal, basically the fiscal engine behind the inflation. And that's what I,

589
00:47:21,690 --> 00:47:26,810
about the Fed to go back, the Fed isn't really in control. It's the government that spent the money

590
00:47:26,810 --> 00:47:33,230
that caused the inflation. The Fed is the reaction and the Fed enables. The Fed is the enabler.

591
00:47:33,230 --> 00:47:39,690
We don't have to diminish that. The Fed is the enabler, but it's the government that does it.

592
00:47:39,690 --> 00:47:46,910
And that fiscal deficit marginally faded, and then inflation marginally faded.

593
00:47:47,750 --> 00:47:52,610
So what would cause the world to stop needing treasuries in the way that they do today?

594
00:47:55,350 --> 00:47:57,010
That's my point.

595
00:47:57,170 --> 00:47:57,810
There's nothing.

596
00:47:58,470 --> 00:47:59,290
There's nothing.

597
00:48:00,010 --> 00:48:04,830
You can go to option A, option B, option C.

598
00:48:04,910 --> 00:48:06,050
We can go through all of them.

599
00:48:06,050 --> 00:48:13,070
We can talk about gold, Chinese government bonds, German government bonds, Apple's bonds.

600
00:48:13,230 --> 00:48:16,570
I mean, whose bonds do you want or what asset do you want?

601
00:48:16,650 --> 00:48:17,330
Whose deposit?

602
00:48:17,450 --> 00:48:18,250
Whose counterparty?

603
00:48:18,570 --> 00:48:19,570
There is nobody.

604
00:48:19,830 --> 00:48:28,950
There is no structure of the dollar system without treasuries at the center.

605
00:48:29,690 --> 00:48:32,850
And it just doesn't exist.

606
00:48:32,850 --> 00:48:35,950
But if we went out 50 years, you think this is still the case?

607
00:48:36,050 --> 00:48:41,770
I mean, that's really, you know, a really long time.

608
00:48:42,930 --> 00:48:43,870
That's a really long time.

609
00:48:43,870 --> 00:48:49,250
My point is like, you seem to be super bullish on this idea,

610
00:48:49,370 --> 00:48:51,950
but like, does it, at some point, does it break?

611
00:48:52,050 --> 00:48:53,750
Does the US dollar dominance break?

612
00:48:54,550 --> 00:48:55,970
Like, even if it's the last fiat currency,

613
00:48:55,990 --> 00:48:57,870
this is like the dollar milkshake thing.

614
00:48:57,910 --> 00:48:59,150
Even if it's the last one to break,

615
00:48:59,210 --> 00:49:00,590
does it still break at some point?

616
00:49:01,850 --> 00:49:04,350
Instead of looking 10 years in the future of 50 years,

617
00:49:04,630 --> 00:49:05,590
let's look at now.

618
00:49:06,050 --> 00:49:20,770
And the United States, the last 10 years have been filled with the BRICS narrative or the digital Renminbi or cross-border trade between China and Russia, China and India, all of these things.

619
00:49:20,990 --> 00:49:21,830
Those are the narratives.

620
00:49:22,070 --> 00:49:25,270
So what is the system in which it changes?

621
00:49:25,370 --> 00:49:26,370
Maybe a Chinese system.

622
00:49:27,630 --> 00:49:31,810
Maybe an SDR system.

623
00:49:31,810 --> 00:49:33,430
So that was a special drawing, right?

624
00:49:33,490 --> 00:49:34,730
The IMF, it's a basket.

625
00:49:35,490 --> 00:49:43,570
So you tell me, are we going more toward a dollar dominant system, more toward a basket system, or more toward a Chinese currency system?

626
00:49:43,810 --> 00:49:47,970
I would argue the dollar system has gotten stronger over the last year.

627
00:49:47,970 --> 00:49:59,390
And I would also argue that there were the Chinese system and this idea of BRICS cross-border settlement, a lot of momentum since 08, 09.

628
00:49:59,390 --> 00:50:14,510
The first headline I remember reading, China and Russia traded currency for oil or currency for energy. And that was 2010, 2009, 2010. I remember that. So it's 15 years ago.

629
00:50:14,510 --> 00:50:22,870
But the United States dollar is still 90% of global transactions, 90% of FX pairs.

630
00:50:25,050 --> 00:50:32,070
The Basel system, Basel III, is getting deeper and deeper ingrained.

631
00:50:32,070 --> 00:50:38,550
the breakdown of world the world trade organization

632
00:50:38,550 --> 00:50:45,990
disrupts any momentum that the multipolar system was trying to work toward

633
00:50:45,990 --> 00:50:56,630
so the only thing left you have it to challenge it is china so if you i mean that's why list out

634
00:50:56,630 --> 00:51:02,110
the potential challengers. There's gold, there's Chinese government bonds, there's German government

635
00:51:02,110 --> 00:51:09,170
bonds, there's Euro bonds, which don't really exist yet, right? Euro, EU denominate, like EU

636
00:51:09,170 --> 00:51:17,170
issued Eurozone bonds. I mean, they've done some, but it's not really a market or like a BRICS

637
00:51:17,170 --> 00:51:28,090
bond or like a bricks gold back token or tether gold, right? And so that's why Bitcoin is so

638
00:51:28,090 --> 00:51:34,130
exciting, Danny, is that when you think about what is the base for future collateral and future

639
00:51:34,130 --> 00:51:44,510
banking, Bitcoin has a role there. And you can see it, like I can see the path to the United

640
00:51:44,510 --> 00:51:51,690
States trying to direct capital into Bitcoin instead of into treasuries to make it less

641
00:51:51,690 --> 00:51:57,090
vulnerable to the rest of the world owning treasuries. But that doesn't mean that treasuries

642
00:51:57,090 --> 00:52:02,410
will not take the same place within the financial system.

643
00:52:03,210 --> 00:52:06,130
So when you look at the things that are going to strengthen the treasury market,

644
00:52:06,930 --> 00:52:11,650
people always talk about stable coins here. They're still pretty small, but they're substantial.

645
00:52:11,650 --> 00:52:17,070
um how much of a role do you think i'll play i know you've just written a piece on this yes

646
00:52:17,070 --> 00:52:23,890
stable coins are going to be very important because take the simple example of i know you

647
00:52:23,890 --> 00:52:31,270
travel a lot us dollar paper cash is good most places like if you go to europe people won't

648
00:52:31,270 --> 00:52:38,090
really want your dollar your dollars you're in africa right yeah so so you know this and and

649
00:52:38,090 --> 00:52:42,450
you know on the ground that this is the case. People always want dollar cash. Why? Because

650
00:52:42,450 --> 00:52:49,770
they want this store of value. They want dollars. And paper dollars are the easiest way that

651
00:52:49,770 --> 00:52:59,330
normal people abroad can actually hold dollars. So imagine now that they can hold stable coins.

652
00:52:59,330 --> 00:53:05,710
It's similar without paper. That's like a good starting point to see how large the market could

653
00:53:05,710 --> 00:53:16,370
be. If you just unlock that type of demand with stable coins, you create a few hundred billion

654
00:53:16,370 --> 00:53:23,050
or a trillion or two trillion in new treasury demand that stable coin issuers will funnel

655
00:53:23,050 --> 00:53:30,450
into treasury, treasury repo markets, T-bills, and that should help the market. But I believe

656
00:53:30,450 --> 00:53:37,690
it's the vision is much greater than that. And this is what's exciting. I feel like I was behind

657
00:53:37,690 --> 00:53:43,730
the government on this. Because now that I understand the genius act better,

658
00:53:44,290 --> 00:53:49,590
what I can understand is that somebody knew, somebody knew this was going to be the plan,

659
00:53:49,590 --> 00:54:09,930
which is that you have to get stable coins into the collateral base of the world and the world's banking system so that they can also use stable coins, not just treasuries, to basically borrow against.

660
00:54:10,910 --> 00:54:17,170
Why do they care about using stable coins as opposed to the sort of euro dollar shadow banking system that we have today?

661
00:54:17,470 --> 00:54:23,110
And just really briefly, for anyone that doesn't know what the euro, like we shouldn't go into this in too much detail because it's a whole rabbit hole.

662
00:54:23,310 --> 00:54:25,010
But just very quickly, what the euro dollar is.

663
00:54:25,010 --> 00:54:30,130
Sure. U.S. banks, if you have a checking account in the United States, you have a dollar deposit.

664
00:54:30,130 --> 00:54:41,450
You can also have a dollar deposit in London, but the United States government and the Fed don't have any regulation or jurisdiction over that.

665
00:54:41,690 --> 00:54:48,170
So you have this whole dollar system going on outside of the United States, and all these banks are banking people in dollars.

666
00:54:48,490 --> 00:54:52,930
Dollars are being sent from country A to country B. United States not involved.

667
00:54:53,070 --> 00:54:55,370
This is the free riding also that we talked about.

668
00:54:55,370 --> 00:55:01,990
free riding off the dollar system outside of the United States is commonplace. Everyone just uses

669
00:55:01,990 --> 00:55:08,130
it. That's the Eurodollar system started really in the 50s because the Russians didn't want to

670
00:55:08,130 --> 00:55:14,490
bank in New York, right? And because they didn't want that risk. And this just grew completely

671
00:55:14,490 --> 00:55:21,370
organically and is a huge market. It's very hard to know how big the Eurodollar market is exactly.

672
00:55:21,370 --> 00:55:23,210
Do you have any kind of idea of the scale?

673
00:55:24,530 --> 00:55:29,230
We do know that there's 10 to 15 trillion in deposits.

674
00:55:30,050 --> 00:55:31,650
So those are easier to see.

675
00:55:32,470 --> 00:55:38,610
What we have a more difficult time seeing is the FX swap market, which is how many dollars

676
00:55:38,610 --> 00:55:42,270
are lent out against existing foreign currency.

677
00:55:42,790 --> 00:55:49,470
So a foreign currency holder can post that currency and borrow synthetic euro dollar

678
00:55:49,470 --> 00:55:57,550
funds against that currency. And we have some numbers, 58 trillion is one. It's really tough

679
00:55:57,550 --> 00:56:01,870
to measure. Yeah, it's really tough to measure. But there's a whole dollar system outside the

680
00:56:01,870 --> 00:56:08,330
United States. By the way, they also use treasuries. Because when they get dollar deposits,

681
00:56:09,130 --> 00:56:15,950
they have to have something in reserve against that. So owning a deposit at a New York bank is

682
00:56:15,950 --> 00:56:21,930
one way to have some of it paper in their vault, paper currency is another way, but might as well

683
00:56:21,930 --> 00:56:27,650
just own some treasuries, especially because the treasuries can they can post as collateral,

684
00:56:27,650 --> 00:56:32,890
and then free up liquidity if they need it. So it's a very large system. It is still anchored

685
00:56:32,890 --> 00:56:40,530
in treasuries. But the United States doesn't really have any governance over the system.

686
00:56:40,530 --> 00:56:48,550
And that's the subject of my paper is how the United States can reassert governance over the offshore dollar system with stable coins.

687
00:56:48,970 --> 00:56:51,230
Okay, so let's get into that. How do they do that?

688
00:56:51,230 --> 00:57:19,430
Okay, so the paper will have a lot of the details, but the simple explanation is that if you can get stable coins into the hands of companies that export goods to the United States, so we pay for our imports with stable coins, you actually start circulating.

689
00:57:19,430 --> 00:57:31,370
tokens that have United States governance. That's the key. And that's what I saw the Genius Act

690
00:57:31,370 --> 00:57:35,970
laid out. It's not in there, which is interesting.

691
00:57:36,550 --> 00:57:37,030
Between the lines.

692
00:57:37,030 --> 00:57:43,610
It is between the lines. But if you can see that, and that's part of the reason that

693
00:57:43,610 --> 00:57:48,670
the Bitcoin Policy Institute had me write this paper, because I have advantage of the offshore

694
00:57:48,670 --> 00:57:55,890
dollar system. And I also have advantage of the treasury market, the TBO market, the repo market.

695
00:57:56,090 --> 00:58:03,070
So I can see the relationship between the fact that the United States imports a lot and the fact

696
00:58:03,070 --> 00:58:07,130
that the euro dollar system is robust. There's a direct relationship between these two things.

697
00:58:07,130 --> 00:58:13,070
So if we can insert stable coins in the middle of that, you have the chance to really change the

698
00:58:13,070 --> 00:58:18,550
ballgame. So what is the actual difference for the US government in that situation? So on one

699
00:58:18,550 --> 00:58:20,950
Inside you have the Eurodollar shadow bank,

700
00:58:21,050 --> 00:58:22,990
no real insight into what's happening there,

701
00:58:23,070 --> 00:58:24,770
no real governance control over that.

702
00:58:25,230 --> 00:58:26,930
What changes with the stablecoin,

703
00:58:26,990 --> 00:58:28,290
and what does that allow the government to do

704
00:58:28,290 --> 00:58:29,810
that they can't do with the Eurodollar system?

705
00:58:29,950 --> 00:58:31,390
So you said it when you said

706
00:58:31,390 --> 00:58:33,490
when we don't have oversight over it,

707
00:58:33,510 --> 00:58:34,650
we can't really see it.

708
00:58:34,850 --> 00:58:37,470
So if you put dollars into a system that you can't see,

709
00:58:37,470 --> 00:58:39,390
you can't see what they're using it for,

710
00:58:39,570 --> 00:58:41,130
you can't see how much they're leveraging it.

711
00:58:41,830 --> 00:58:42,650
I see.

712
00:58:42,790 --> 00:58:45,570
That itself is a massive risk to the country.

713
00:58:45,570 --> 00:58:56,770
Think about the national security implications of two companies engaging in trade between each other in dollars with their local banks.

714
00:58:57,430 --> 00:59:05,410
And let's pretend that that activity is going against the national security of the United States.

715
00:59:05,410 --> 00:59:14,810
We would have no idea and no control over it and no way to say, hey, Russian bank, stop transacting with this other bank in dollars.

716
00:59:14,810 --> 00:59:34,610
We don't have control over that. And it is fair to say that stablecoins are a way for the United States to exercise governance outside of the country where it hasn't been able to.

717
00:59:34,610 --> 00:59:42,910
Do stablecoins fix structural over dollar valuation or trade deficits?

718
00:59:43,250 --> 00:59:43,410
No.

719
00:59:44,210 --> 00:59:45,950
By themselves, they cannot.

720
00:59:46,110 --> 00:59:47,150
That's not the tool.

721
00:59:48,290 --> 00:59:57,510
It is revolutionary to get a token into the world's hands that the United States has some governance over,

722
00:59:57,510 --> 01:00:06,850
that at the margin can eat away from the euro dollar system's ability to multiply and fund

723
01:00:06,850 --> 01:00:12,050
activity that is counter to the United States. That's the free writing problem. That's what,

724
01:00:12,170 --> 01:00:18,850
as an American, that's what I can see is a problem. When I wrote about the euro dollar

725
01:00:18,850 --> 01:00:26,310
system in both of my books, I was writing about the fact that we don't have any, it's outside of

726
01:00:26,310 --> 01:00:31,850
the purview. That's the term I used, I think, in layered money. The offshore dollar system,

727
01:00:31,970 --> 01:00:37,350
it's outside of the purview of the Fed. Well, who cares if it's outside of the purview? That's not

728
01:00:37,350 --> 01:00:47,430
the point that I see anymore. That's the key. It's that you're using it for things that are not

729
01:00:47,430 --> 01:00:57,770
aligned with the United States objectives. And so it is a very US focused idea. It does challenge,

730
01:00:57,850 --> 01:01:02,450
you were asking like, how does the world work without the Eurodollar system? The truth is it

731
01:01:02,450 --> 01:01:09,170
doesn't. So you can't just kill the Eurodollar system, but you have to find a way. You can

732
01:01:09,170 --> 01:01:15,470
slowly bleed it. You have to find a way to mitigate the risk. It's funny because like when you look at

733
01:01:15,470 --> 01:01:18,470
where it came from and where it is today are very different.

734
01:01:18,470 --> 01:01:22,470
But if the US government were going to do this intentionally

735
01:01:22,470 --> 01:01:25,470
from the very start, I don't think they'd have picked the team

736
01:01:25,470 --> 01:01:26,470
at Tether that they have.

737
01:01:26,470 --> 01:01:28,470
Like, because Tether's full of Bitcoiners.

738
01:01:28,470 --> 01:01:41,225
I know they do their stablecoin thing but Paolo a Bitcoiner And I wonder how much they feel their hands are tied to Tether And that like this has become almost too big to fail for them

739
01:01:41,285 --> 01:01:42,865
So they have to bring it into the system,

740
01:01:42,865 --> 01:01:45,385
even if they maybe wouldn't necessarily want to.

741
01:01:45,505 --> 01:01:46,765
You're talking about the US government?

742
01:01:46,925 --> 01:01:47,225
Yes.

743
01:01:47,285 --> 01:01:47,445
Okay.

744
01:01:47,565 --> 01:01:50,865
So Tether is part of the problem in that

745
01:01:50,865 --> 01:01:56,005
Tether has popularized stable coins more than half the market.

746
01:01:56,125 --> 01:01:59,465
And it's the original and it has the best network effect.

747
01:01:59,465 --> 01:02:02,325
but it's part of the problem because outside the government.

748
01:02:02,545 --> 01:02:04,805
So you have USAT, right?

749
01:02:04,865 --> 01:02:08,225
Their new Genius Act focused token.

750
01:02:08,225 --> 01:02:14,725
What are the odds that USDT market cap slowly bleeds into USAT over the coming years

751
01:02:14,725 --> 01:02:16,625
as just like part of the plan?

752
01:02:16,765 --> 01:02:17,905
I would say decent.

753
01:02:18,285 --> 01:02:18,985
It's non-zero.

754
01:02:19,665 --> 01:02:20,785
You might not agree.

755
01:02:21,305 --> 01:02:22,345
No, I was just thinking about it.

756
01:02:22,345 --> 01:02:26,445
I don't know if I disagree, but I think the thing that I always struggle with

757
01:02:26,445 --> 01:02:29,005
is why anyone in America would want to use a stable coin.

758
01:02:29,465 --> 01:02:32,165
it's not for Americans.

759
01:02:32,325 --> 01:02:32,685
Exactly.

760
01:02:32,845 --> 01:02:34,045
So in that scenario,

761
01:02:34,205 --> 01:02:36,525
if like the vast majority of adoption of Tether

762
01:02:36,525 --> 01:02:37,945
is going to be in the global South

763
01:02:37,945 --> 01:02:39,185
where people are trying to escape

764
01:02:39,185 --> 01:02:40,245
hyperinflating currencies

765
01:02:40,245 --> 01:02:42,085
or even just like high inflation currencies,

766
01:02:43,085 --> 01:02:45,305
does USDT not still grow faster?

767
01:02:45,505 --> 01:02:46,825
So here's the thing.

768
01:02:48,185 --> 01:02:49,505
USDT has,

769
01:02:50,005 --> 01:02:51,325
man, you're making me like give away

770
01:02:51,325 --> 01:02:52,125
the whole paper today.

771
01:02:52,385 --> 01:02:53,205
Here we go.

772
01:02:53,885 --> 01:02:54,645
Sorry, guys.

773
01:02:54,645 --> 01:03:07,025
Yes. USDT has established somewhat de facto genius coin properties, meaning it owns a ton of treasuries.

774
01:03:07,925 --> 01:03:14,585
It owns it. It's participating in the T-bill market and short term collateralized obligations, repo, etc.

775
01:03:14,585 --> 01:03:19,145
It is participating in the repo market to a very heavy degree.

776
01:03:19,145 --> 01:03:27,265
so it's already trying to act like what the genius coin stable coins will be

777
01:03:27,265 --> 01:03:35,465
and if it can if it can act like that it can maintain its market but it can also maintain that

778
01:03:35,465 --> 01:03:43,305
uh hey we're trying to be we're trying to be on the cutting edge because if genius act stable coins

779
01:03:43,305 --> 01:03:52,265
have certain aspects of backstops or regulation or, you know, regular disclosures,

780
01:03:52,605 --> 01:03:56,445
they're going to be more legitimate on the market than Tether.

781
01:03:56,685 --> 01:04:00,705
How long has the Tether FUD, they're not back, they're not back, always gone on?

782
01:04:00,705 --> 01:04:05,165
Now they've done their best to, you know, self audit and disclose.

783
01:04:05,405 --> 01:04:07,045
But how much do we really know?

784
01:04:07,685 --> 01:04:11,905
And how much can we disclose in the United States court regulatory operation?

785
01:04:12,265 --> 01:04:13,125
We don't know.

786
01:04:13,305 --> 01:04:21,085
So the United States has to respond to Tether. Genius Act is basically the Tether Act. I mean,

787
01:04:21,125 --> 01:04:26,485
that's basically what you can call it. You can't hide from the fact that Tether won the first

788
01:04:26,485 --> 01:04:33,585
part, right? Clear victory for Tether. How does the United States respond? Does it

789
01:04:33,585 --> 01:04:40,005
enable a system to grow Tether or does it try to create something to challenge Tether?

790
01:04:40,005 --> 01:05:02,145
So I would argue the Genius Act is there to challenge Tether. How long will it take for Tether to fall below 50% of the global stablecoin market cap? 40%, 30%? I don't know. But I would argue that it will diminish as the United States is able to kick this thing off.

791
01:05:02,145 --> 01:05:12,125
Do you think there's a chance that at some point the U.S. government decides that this private company is too big to fail, cannot remain a private company?

792
01:05:12,325 --> 01:05:15,945
Maybe there's some kind of economic shock and it becomes part of the U.S. government.

793
01:05:16,785 --> 01:05:16,985
Tether?

794
01:05:17,345 --> 01:05:17,565
Yeah.

795
01:05:17,665 --> 01:05:19,285
So Tether's not a U.S. company.

796
01:05:21,745 --> 01:05:23,585
Or U.S. AT.

797
01:05:23,585 --> 01:05:24,105
Right.

798
01:05:24,105 --> 01:05:32,925
So is there a path to the US forcing Tether to do in-kind to USAT?

799
01:05:34,225 --> 01:05:35,025
Yeah.

800
01:05:35,885 --> 01:05:39,085
I mean, there's absolutely a possibility.

801
01:05:39,585 --> 01:05:46,245
And there's no way to know whether Tether hasn't already planned to do this.

802
01:05:47,305 --> 01:05:50,005
So I would watch USAT closely.

803
01:05:50,005 --> 01:05:54,385
and I would guess...

804
01:05:54,385 --> 01:05:57,085
I just don't know what the incentive for Tether to do that would be

805
01:05:57,085 --> 01:05:58,925
when they print so much money.

806
01:05:59,065 --> 01:05:59,225
Okay.

807
01:06:00,205 --> 01:06:07,725
This also has to do with the alliances we were talking about earlier

808
01:06:07,725 --> 01:06:09,525
when we were talking about Liberation Day.

809
01:06:10,325 --> 01:06:13,545
What is the incentive for Vietnam

810
01:06:13,545 --> 01:06:16,225
to raise the middle finger to the United States?

811
01:06:16,225 --> 01:06:20,465
it's similar to Tether's incentive to do it.

812
01:06:20,745 --> 01:06:23,945
There's not, meaning there's not much incentive.

813
01:06:24,325 --> 01:06:25,425
It's only downside risk.

814
01:06:26,765 --> 01:06:27,225
Yes.

815
01:06:27,425 --> 01:06:31,785
And I mean, you have to think about

816
01:06:31,785 --> 01:06:34,905
how these countries just laid down,

817
01:06:35,665 --> 01:06:36,965
including the European Union.

818
01:06:36,965 --> 01:06:40,205
I mean, you know, most neutral people in Europe

819
01:06:40,205 --> 01:06:44,205
were like, good God, this deal has nothing for us.

820
01:06:44,205 --> 01:06:47,685
and you just laid down to the United States.

821
01:06:48,225 --> 01:06:51,885
But the only country who hasn't is China.

822
01:06:52,225 --> 01:06:53,645
And if you look at the rare earth,

823
01:06:54,945 --> 01:06:56,865
look at what happened with the rare earth.

824
01:06:57,245 --> 01:06:59,645
You can make the direct comparison to Tether.

825
01:06:59,745 --> 01:07:01,005
I know it doesn't seem like it,

826
01:07:01,365 --> 01:07:03,325
but United States put tariffs.

827
01:07:03,485 --> 01:07:05,885
China said, we're going to stop rare earth exports to you.

828
01:07:05,885 --> 01:07:09,965
The United States says, oh my God, this is going to kill us.

829
01:07:10,145 --> 01:07:11,425
We need the rare earths.

830
01:07:11,425 --> 01:07:15,125
So they called them back and they said, please.

831
01:07:15,125 --> 01:07:19,505
And then China said, okay, we'll keep it going for a year.

832
01:07:19,585 --> 01:07:20,525
Now, what happens in a year?

833
01:07:21,125 --> 01:07:23,825
I don't know, but everyone needs each other.

834
01:07:24,345 --> 01:07:28,445
The United States needs the rare earths, but China needs our consumer.

835
01:07:29,225 --> 01:07:30,385
They need each other.

836
01:07:31,345 --> 01:07:37,005
So, I mean, what if you sanction Tether, right?

837
01:07:37,005 --> 01:07:50,205
If Tether is owning treasuries, it means they are using a custodian or a banking partner that is custodian treasuries at DTC, the depository clearing.

838
01:07:51,565 --> 01:07:54,925
The United States has governance over that.

839
01:07:55,505 --> 01:07:59,625
And so the question is, what is Tether's incentive?

840
01:08:00,105 --> 01:08:01,985
It's not a market incentive.

841
01:08:02,545 --> 01:08:03,825
That's the answer to your question.

842
01:08:04,165 --> 01:08:05,665
It's not a market incentive.

843
01:08:05,665 --> 01:08:16,665
It's a survival incentive. And I have been feeling myself getting more and more.

844
01:08:21,305 --> 01:08:33,665
Along, let's say, in the early QE era, I was sure that the United States treasury market would eventually collapse, that this can't go on forever.

845
01:08:33,665 --> 01:08:52,405
And as I age and see years go by, what I can see is that the soft power and the hard power of the United States is probably the highest it has ever been in history and heading higher.

846
01:08:53,085 --> 01:08:57,145
And that is my base case.

847
01:08:57,425 --> 01:08:58,265
That's my thesis.

848
01:08:58,705 --> 01:09:00,885
It's gone more that way.

849
01:09:00,885 --> 01:09:09,065
and it's not to defend everything that the U.S. does either but if I look if I just observe power

850
01:09:09,065 --> 01:09:15,665
and I observe the way liberation day went and this Iran thing is going to be a big test

851
01:09:15,665 --> 01:09:22,245
for that soft and hard power and who knows in six months

852
01:09:22,245 --> 01:09:29,365
this conversation might not age well if Iran goes really really poorly everything falls apart

853
01:09:29,365 --> 01:09:37,425
and the United States loses a bunch of power because of decisions that it's made,

854
01:09:38,465 --> 01:09:43,425
which is part of my goal, which is, you know, thinking about this war,

855
01:09:43,525 --> 01:09:46,665
just wiping the slate clean and really just looking at the markets.

856
01:09:46,785 --> 01:09:47,905
What is the price telling you?

857
01:09:49,045 --> 01:09:57,205
But yeah, I have noticed myself observing the power continue to increase

858
01:09:57,205 --> 01:10:00,225
and just being a realist about it.

859
01:10:00,345 --> 01:10:03,205
I think that there's a heavy degree of realism

860
01:10:03,205 --> 01:10:05,625
that I always knew I had,

861
01:10:05,805 --> 01:10:08,585
but it's getting stronger and stronger.

862
01:10:09,745 --> 01:10:11,985
To take this back to the very start of the conversation,

863
01:10:12,565 --> 01:10:14,405
we were talking about Bersent wanting a weaker dollar.

864
01:10:14,885 --> 01:10:16,545
Everything we've spoken about in the last hour

865
01:10:16,545 --> 01:10:18,165
says he's not going to get that.

866
01:10:18,725 --> 01:10:21,065
Do you think that is out of the window now?

867
01:10:21,065 --> 01:10:24,705
The dollar is a big challenge to the United States.

868
01:10:24,705 --> 01:10:27,965
and going stronger and stronger and stronger

869
01:10:27,965 --> 01:10:31,205
is going to damage plans.

870
01:10:34,305 --> 01:10:37,885
It will damage the United States plans

871
01:10:37,885 --> 01:10:40,265
to reshore production

872
01:10:40,265 --> 01:10:42,705
because it won't really be feasible

873
01:10:42,705 --> 01:10:44,205
at a very expensive dollar.

874
01:10:45,845 --> 01:10:47,665
Even if that production is all robotics?

875
01:10:48,445 --> 01:10:48,625
Yeah.

876
01:10:49,545 --> 01:10:53,365
Because somebody else can do it cheaper

877
01:10:53,365 --> 01:10:55,385
if the dollar is too expensive.

878
01:10:56,545 --> 01:10:59,125
It's not just the US or just China.

879
01:10:59,385 --> 01:11:02,565
It's the third country that has to pick between the two.

880
01:11:03,185 --> 01:11:04,765
So they're going to pick the cheaper one.

881
01:11:05,105 --> 01:11:06,305
Obviously, quality matters.

882
01:11:06,925 --> 01:11:11,145
But a strong dollar is going more and more.

883
01:11:12,525 --> 01:11:17,305
Or let's say, if the dollar gets 10% to 20% stronger,

884
01:11:17,305 --> 01:11:23,565
a lot of the agenda around the margins is going to crumble.

885
01:11:24,405 --> 01:11:28,145
So it's going to become a lot less feasible.

886
01:11:29,885 --> 01:11:32,005
And the dollar is going stronger now.

887
01:11:32,205 --> 01:11:37,925
You have a rush flight to safety in the dollar.

888
01:11:38,065 --> 01:11:39,505
This is another example.

889
01:11:39,765 --> 01:11:41,825
The treasury market didn't really get a bid to safety

890
01:11:41,825 --> 01:11:47,265
because oil, inflation, higher interest rates.

891
01:11:47,305 --> 01:11:52,285
but the dollar has done incredibly well. As is Bitcoin. And Bitcoin is doing great. Listen,

892
01:11:52,405 --> 01:12:01,065
I'm very bullish on Bitcoin. I started stacking again. Let's go. You know,

893
01:12:01,345 --> 01:12:07,205
not to overshare, but like as a business operator, I've been investing in my company

894
01:12:07,205 --> 01:12:12,685
and I haven't been investing the marginal dollar in Bitcoin for a couple of years.

895
01:12:12,685 --> 01:12:15,365
So it feels really good to buy Bitcoin again.

896
01:12:17,205 --> 01:12:19,065
I think it's positioned really well.

897
01:12:19,545 --> 01:12:20,565
These prices are just too good.

898
01:12:20,645 --> 01:12:20,805
Yeah.

899
01:12:21,485 --> 01:12:24,725
It's one of those things where you just kind of have to smash.

900
01:12:25,605 --> 01:12:28,045
But Bitcoin has done well during this war.

901
01:12:28,385 --> 01:12:30,745
I'm very hesitant to get too far ahead of ourselves

902
01:12:30,745 --> 01:12:33,185
because I think there's probably multiple reasons.

903
01:12:33,325 --> 01:12:35,265
One, that it dropped 50% just before it,

904
01:12:35,345 --> 01:12:37,445
which I mean, how many sellers were really left?

905
01:12:37,585 --> 01:12:40,265
But is it even a sign that it's becoming

906
01:12:40,265 --> 01:12:43,985
more of a safe haven asset in these sort of big geopolitical events?

907
01:12:44,305 --> 01:12:47,105
No, I don't know.

908
01:12:47,405 --> 01:12:49,365
What I think is that it was just leading.

909
01:12:50,865 --> 01:12:54,365
I think it's still very macro-driven.

910
01:12:55,365 --> 01:12:57,065
I think the correlation, well, I don't think.

911
01:12:57,065 --> 01:12:59,265
The correlation with the stock market is still very high.

912
01:13:00,025 --> 01:13:03,045
But now you see Bitcoin going up, stocks going down.

913
01:13:03,125 --> 01:13:05,405
So people are like, well, how is it still correlated?

914
01:13:05,525 --> 01:13:07,425
Because there's a little bit of decoupling.

915
01:13:07,425 --> 01:13:11,765
the way that correlation is calculated is you look at daily returns and you compare them to

916
01:13:11,765 --> 01:13:16,165
each other. So on days where one goes up and the other goes up, that's a positive correlation.

917
01:13:17,545 --> 01:13:26,965
If you look at each day of Bitcoin's down move, it did match a lot of the stock move,

918
01:13:27,065 --> 01:13:33,425
only that stocks, when it went back up, stocks stayed flat and Bitcoin was going down. Now

919
01:13:33,425 --> 01:13:39,425
stocks have come down a little bit. So I really believe that Bitcoin is still macro driven.

920
01:13:40,425 --> 01:13:46,865
And our liquidity index gave a sell signal on January 14th. That applies to both stocks and

921
01:13:46,865 --> 01:13:55,925
Bitcoin. Bitcoin reacted right away. It's down about 20% from that January 14th level. And

922
01:13:55,925 --> 01:14:02,605
stocks stayed flat. But now they're going down and showing more weakness. So I do think Bitcoin

923
01:14:02,605 --> 01:14:10,385
is leading. And that's why I'm, my bias right now is to believe that the bounce that Bitcoin is

924
01:14:10,385 --> 01:14:18,865
showing is foreshadowing volatility coming down, which will boost TBL liquidity, our index,

925
01:14:19,545 --> 01:14:22,585
roll it back up and trigger a buy signal sometime in the next few months.

926
01:14:23,245 --> 01:14:27,945
So I've seen some of your recent videos and you were saying that you think equities are ready to

927
01:14:27,945 --> 01:14:32,705
roll over, but you're feeling sort of neutral to maybe ever so slightly bullish on Bitcoin.

928
01:14:32,925 --> 01:14:37,345
If you still believe they're correlated, how is that the case? Is it just the fact that it's a

929
01:14:37,345 --> 01:14:43,465
leading indicator? Yes. Yes. It's a great question. And the correlation, those are numbers that don't

930
01:14:43,465 --> 01:14:51,165
lie, right? If there's 60% correlation, you know, between these two assets, that is statistically

931
01:14:51,165 --> 01:14:59,225
a fact. Now, that's part of my framework, but also part of my framework is the price analysis.

932
01:14:59,225 --> 01:15:05,505
So when I look at the price of Bitcoin, it looks like it's making higher lows from the low 60s and

933
01:15:05,505 --> 01:15:11,445
looks decent. And I look at the stock market, it is rolling over and has just lost a support line.

934
01:15:11,845 --> 01:15:18,365
So on a pure price basis, stocks look weak and Bitcoin looks decent. Not strong, but decent.

935
01:15:18,365 --> 01:15:27,125
not bad. Stocks do not look good and they look not great. They look bad. And so how do I tie

936
01:15:27,125 --> 01:15:33,325
these two? It's maybe a little bit of the leading thing, but also knowing that Bitcoin, there's two

937
01:15:33,325 --> 01:15:41,645
sides to it, that Bitcoin can go up and on up days, it can go up a lot where stocks go up and

938
01:15:41,645 --> 01:15:46,065
they go up a little. And then on the down days, stocks go down more and Bitcoin goes down a little.

939
01:15:46,065 --> 01:15:51,385
So Bitcoin can actually massively outperform stocks, even if correlation stays high.

940
01:15:52,185 --> 01:15:58,865
Or, and this is equally as likely, we look at time series of correlation.

941
01:15:59,065 --> 01:16:01,965
So we see correlation go up and down over time.

942
01:16:02,065 --> 01:16:03,005
And we watch that.

943
01:16:04,725 --> 01:16:08,765
Bitcoin's greatest runs, the correlation goes high or low?

944
01:16:08,825 --> 01:16:09,845
What do you think with stocks?

945
01:16:10,425 --> 01:16:10,645
It's great.

946
01:16:10,865 --> 01:16:10,885
Low.

947
01:16:10,985 --> 01:16:11,925
Yeah, it drops.

948
01:16:12,025 --> 01:16:13,085
It goes to zero, basically.

949
01:16:13,925 --> 01:16:14,745
It doesn't go to negative.

950
01:16:14,745 --> 01:16:15,705
It loses all correlation.

951
01:16:15,705 --> 01:16:19,245
It loses correlation when it goes crazy to the upside.

952
01:16:20,125 --> 01:16:23,845
So in that case, then correlation will drop

953
01:16:23,845 --> 01:16:25,825
and Bitcoin will get to some escape.

954
01:16:25,925 --> 01:16:26,845
Now, I don't, I'm not.

955
01:16:27,505 --> 01:16:28,365
So I see.

956
01:16:28,425 --> 01:16:29,825
So it's not the inverse of stocks.

957
01:16:29,885 --> 01:16:31,925
It's just not even correlated at all.

958
01:16:32,025 --> 01:16:32,265
Correct.

959
01:16:32,585 --> 01:16:34,745
So in your scenario,

960
01:16:34,745 --> 01:16:37,305
I'm thinking about conversations I've had with Checkmate now.

961
01:16:37,405 --> 01:16:39,185
And he thinks we're probably in for like a period

962
01:16:39,185 --> 01:16:40,725
of what he calls chop solidation.

963
01:16:40,725 --> 01:16:44,105
That would make sense while equities maybe roll over

964
01:16:44,105 --> 01:16:46,425
and have to figure out where their actual support is.

965
01:16:46,565 --> 01:16:48,825
And then when we move higher, we really move higher.

966
01:16:48,825 --> 01:16:49,145
Yeah.

967
01:16:49,425 --> 01:16:50,365
So that gets on.

968
01:16:50,725 --> 01:16:51,885
Do you remember last time we spoke,

969
01:16:52,145 --> 01:16:53,325
we were talking about the four-year cycle

970
01:16:53,325 --> 01:16:54,665
being potentially over.

971
01:16:54,865 --> 01:16:58,345
And I think you weighed a 51% chance that it was over.

972
01:16:59,405 --> 01:17:01,985
Do you think that the four-year cycle is alive and well,

973
01:17:02,025 --> 01:17:03,205
or do you think we could still prove

974
01:17:03,205 --> 01:17:04,345
that this time might be different?

975
01:17:04,565 --> 01:17:06,065
You know, it's a great question.

976
01:17:06,305 --> 01:17:09,785
I'm actually, since the 51,

977
01:17:09,905 --> 01:17:12,085
I moved a little bit higher that I think it's over

978
01:17:12,085 --> 01:17:13,825
and I'm still there.

979
01:17:13,825 --> 01:17:38,945
I still think it's over. And I have a friend who's like, you know, the October high is like literally the exact date. How can you say that? But also a 50% drawdown is not really close to the 70s and 80s that we've seen in previous. And then it would also mean that we won't get an all time high until 2029.

980
01:17:38,945 --> 01:17:46,305
I can't see that. And so that's where I have a real problem with the thesis. And, um,

981
01:17:47,265 --> 01:17:53,005
I, I, I do think it's over and I, it's very empirically, you know, too early to call still,

982
01:17:53,125 --> 01:17:56,765
which is, which is fascinating. We can keep having this conversation for like two more years.

983
01:17:56,985 --> 01:18:01,065
Well, maybe not. Maybe we get a new all time high this year and it's, it's officially over.

984
01:18:01,225 --> 01:18:05,545
But I like that. I like the idea that check said about, uh, you know, stocks going lower and kind

985
01:18:05,545 --> 01:18:09,885
of dragging Bitcoin flat until stocks can bounce and then they will both go up together.

986
01:18:10,305 --> 01:18:14,865
I think that's a, I mean, I think that that's a sound take and maybe, you know, how I'm also

987
01:18:14,865 --> 01:18:21,985
seeing it. And I love how people use his word chop solidation. Yeah. He's memed that into

988
01:18:21,985 --> 01:18:27,205
existence. Yeah. He invented it. So it's a good one. All right. Last thing I do want to talk to

989
01:18:27,205 --> 01:18:34,005
you about is the Fed. Cause we've spoken about the Fed a lot in the past. It's the job that I envy

990
01:18:34,005 --> 01:18:39,325
the least. Like, it must be terrible to be the chairman of the Fed. And we've now got a new one

991
01:18:39,325 --> 01:18:44,985
coming in who's dealing with war, stronger dollar, stable, all the dynamics that we've spoken about

992
01:18:44,985 --> 01:18:51,405
today. What's he going to do? You know, I don't think that they can do much. The market is what

993
01:18:51,405 --> 01:18:57,085
leads. We've talked about that for a long time. The treasury market will eventually tell the Fed

994
01:18:57,085 --> 01:19:03,425
what to do. And it tells the Fed where inflation is and where inflation expectations are. Is the

995
01:19:03,425 --> 01:19:06,085
Treasury market going to tell the Fed or is Trump going to tell the Fed what it does?

996
01:19:06,405 --> 01:19:09,005
The Treasury market will absolutely tell the Fed what to do.

997
01:19:10,785 --> 01:19:19,165
You know, presidents have actually for a long time gotten the Fed to do what they want or

998
01:19:19,165 --> 01:19:21,505
tried to get the Fed to do what they want.

999
01:19:21,505 --> 01:19:28,485
But the mandate is not to just go with the flow of the White House.

1000
01:19:28,485 --> 01:19:32,285
it's to support the functioning of the U.S. economy.

1001
01:19:33,285 --> 01:19:40,785
And when, you know, the reason why Trump has not been able to get the Fed to lower rates

1002
01:19:40,785 --> 01:19:44,925
in the last six months, or when was the last cut?

1003
01:19:46,185 --> 01:19:47,645
Toward the end of last year.

1004
01:19:47,865 --> 01:19:52,065
So the last few months, the reason that he hasn't been able to get them to move lower

1005
01:19:52,065 --> 01:19:54,525
and at a pace that is more aggressive

1006
01:19:54,525 --> 01:19:59,905
is because the Fed doesn't have to respond to the president.

1007
01:20:00,605 --> 01:20:03,525
And so it does have to respond, though, to the treasury market.

1008
01:20:03,825 --> 01:20:06,905
When the treasury market gets skittish, the Fed does come.

1009
01:20:07,865 --> 01:20:10,725
And right now, the treasury market is saying

1010
01:20:10,725 --> 01:20:13,185
that the Fed doesn't really need to cut rates.

1011
01:20:13,805 --> 01:20:15,465
But Powell doesn't have to respond to the president.

1012
01:20:15,945 --> 01:20:19,005
It feels like Walsh is coming in to respond to the president.

1013
01:20:19,005 --> 01:20:21,845
You know, Trump put Powell in there, though, also.

1014
01:20:22,065 --> 01:20:30,525
in his first term. So it's kind of like Supreme Court justices too. They have a long term and

1015
01:20:30,525 --> 01:20:37,225
they can be, you know, political and reward the president that put them there, but they can also

1016
01:20:37,225 --> 01:20:43,885
not. We look at the Supreme Court decision on tariffs. I think two judges that he appointed

1017
01:20:43,885 --> 01:20:49,805
voted against his emergency powers. And I mean, that's proof in the pudding there.

1018
01:20:49,805 --> 01:20:58,045
it is no matter how much people like to think otherwise it is still a system of checks and

1019
01:20:58,045 --> 01:21:04,945
balances uh he's going to get creamed in the in the midterms um but it's also not going to stop

1020
01:21:04,945 --> 01:21:11,825
him from doing the things that he still has the power to do yeah do you think at some point they

1021
01:21:11,825 --> 01:21:16,465
have to get rid of the jobs numbers if ai does what we think it might potentially do and stop

1022
01:21:16,465 --> 01:21:22,225
worrying about jobs and just worry about inflation? No, I, no, I don't. I mean,

1023
01:21:23,265 --> 01:21:30,545
employment is still, it's still central to an economy. So the United States is,

1024
01:21:32,385 --> 01:21:37,625
has a lot of trouble with labor data. I'll say that, right? We see the revisions that they've

1025
01:21:37,625 --> 01:21:42,625
done those March to March revisions that we've gotten two years in a row where they were like,

1026
01:21:42,625 --> 01:21:47,865
by the way, there were a million extra jobs that didn't ever get created.

1027
01:21:48,205 --> 01:21:53,965
So the government already has a lot of trouble with labor statistics itself,

1028
01:21:54,145 --> 01:22:01,445
but the obsession of over labor and job cuts and job hires and, uh, job listing

1029
01:22:01,445 --> 01:22:06,865
quits and all that kind of stuff is going to persist and shareholders care about it too.

1030
01:22:07,105 --> 01:22:07,405
Mm-hmm.

1031
01:22:07,451 --> 01:22:10,491
So they care about how many people are employed at companies.

1032
01:22:10,731 --> 01:22:14,051
They also care about how many people are employed in the economy

1033
01:22:14,291 --> 01:22:16,571
because that's how people buy those products.

1034
01:22:16,771 --> 01:22:26,211
So, um, listen, the government is a disaster in terms of, I mean, so many

1035
01:22:26,211 --> 01:22:31,291
things, efficiency, um, just being late to things.

1036
01:22:31,291 --> 01:22:32,851
The government is a disaster.

1037
01:22:32,851 --> 01:22:37,091
Thankfully, the United States has a very robust, robust private sector.

1038
01:22:37,091 --> 01:22:38,691
We have deep capital markets.

1039
01:22:38,691 --> 01:22:43,211
And part of the free riding problem to just bring that back one more time.

1040
01:22:43,331 --> 01:22:50,231
Part of the free riding problem is that everyone uses the dollar because of our legal apparatus

1041
01:22:50,231 --> 01:22:59,211
and how, how sophisticated our capital markets are and how sophisticated the investor base

1042
01:22:59,211 --> 01:23:06,511
is to get transparency out of cashflow generators so that we know which ones to buy and which

1043
01:23:06,511 --> 01:23:15,091
ones to not buy. And you still get fraud and you still get all these things, but we do it pretty

1044
01:23:15,091 --> 01:23:19,651
well in the United States. And we don't really need the government to tell us how many people

1045
01:23:19,651 --> 01:23:35,001
are employed Fair Nick this has been awesome Thank you for letting me steal your Sunday afternoon Of course You need to tell everyone where to go to see the Bitcoin layer It is one of the newsletters that I just don miss I think it one of the best in the business

1046
01:23:35,181 --> 01:23:36,321
Tell people where they can go and check it out.

1047
01:23:36,381 --> 01:23:36,761
Thanks, Danny.

1048
01:23:36,841 --> 01:23:38,161
Yeah, thebitcoinlayer.com.

1049
01:23:38,681 --> 01:23:41,161
If you go to thebitcoinlayer.com slash subscribe,

1050
01:23:41,321 --> 01:23:43,681
you get right to our newsletter page.

1051
01:23:44,381 --> 01:23:47,601
We put out research articles.

1052
01:23:47,761 --> 01:23:48,661
I'm writing every Monday.

1053
01:23:49,361 --> 01:23:51,561
I want to get people started on the week.

1054
01:23:51,561 --> 01:23:53,721
I wrote this morning, actually,

1055
01:23:53,721 --> 01:23:58,001
And I'll go home and work on it tonight, publish that for people tomorrow.

1056
01:23:58,241 --> 01:24:03,761
On Thursdays, I do a video that's my global macro updates behind the paywall now.

1057
01:24:04,281 --> 01:24:08,421
I still have the YouTube channel interviewing people and doing shorter macro updates there.

1058
01:24:09,021 --> 01:24:15,641
But really focused on trying to give people signal, give them a buy-sell indicator that's

1059
01:24:15,641 --> 01:24:16,201
quantitative.

1060
01:24:16,461 --> 01:24:17,121
It's not me.

1061
01:24:17,641 --> 01:24:22,001
I was way more bullish on January 14th than my indicator told me to be.

1062
01:24:22,001 --> 01:24:23,281
But that's part of it.

1063
01:24:23,281 --> 01:24:26,041
You want some human opinion.

1064
01:24:26,341 --> 01:24:27,981
You also want a quantitative framework.

1065
01:24:28,441 --> 01:24:31,461
So we're delivering that to our readers, thebitcoinlayer.com.

1066
01:24:31,741 --> 01:24:32,141
Awesome.

1067
01:24:32,361 --> 01:24:33,401
Thank you so much, Nick.

1068
01:24:33,441 --> 01:24:33,741
Thanks, Danny.

1069
01:24:33,741 --> 01:24:34,621
I will see you soon.

1070
01:24:34,741 --> 01:24:34,981
Thanks.