1 00:00:00,000 --> 00:00:04,940 We're back for the 1031 timestamp recap. I'm joined by the real John Arnold. John, 2 00:00:05,240 --> 00:00:11,680 how was your weekend? As good as it can be when you're four weeks deep into a military mission 3 00:00:11,680 --> 00:00:16,540 with World War III level implications and an uncertain timeline. Beyond that, it was good. 4 00:00:16,900 --> 00:00:20,600 You had to stay off the timeline on the weekend, never doom, touch grass. 5 00:00:20,820 --> 00:00:25,520 Never doom. You go to Palm Sunday Mass. Exactly. Anchor yourself in what's going on, 6 00:00:25,520 --> 00:00:30,580 what's really important. Then we can come here Monday and reconvene and talk about the big 7 00:00:30,580 --> 00:00:35,980 thesis that you really touched on in the newsletter over the weekend, which is there's a lot of 8 00:00:35,980 --> 00:00:40,540 discussion about the Federal Reserve and whether or not they're going to hike. Probabilities 9 00:00:40,540 --> 00:00:47,480 across the board seem to be pointing at an increased chance of the Fed hiking at the end 10 00:00:47,480 --> 00:00:50,680 of this year, but you're drawing a line and saying, no, you don't think they can. 11 00:00:50,680 --> 00:00:57,520 why are you drawing this line? Yeah, I mean, to some extent, this week's newsletter is the result 12 00:00:57,520 --> 00:01:01,220 of me being tired of schizo posting about different things that could happen in the 13 00:01:01,220 --> 00:01:05,420 straightforward news. And I feel like everyone's tired of reading about that. So I tried to take a 14 00:01:05,420 --> 00:01:08,780 bit of a different tack this time. But I actually think this was maybe one of the more interesting 15 00:01:08,780 --> 00:01:13,420 and underreported stories of last week, as everyone stays focused on, you know, minute to 16 00:01:13,420 --> 00:01:19,960 minute updates out of Iran. Yeah, as you said, market increasingly looks to be pricing higher 17 00:01:19,960 --> 00:01:25,420 odds. And at one point late last week, basically coin flip odds of at least one, if not two rate 18 00:01:25,420 --> 00:01:28,840 hikes by the end of the year. You can see that on the chart here. This was taken from the CME 19 00:01:28,840 --> 00:01:36,160 FedWatch tool. And this is in response to an assumption, probably correct assumption that 20 00:01:36,160 --> 00:01:40,860 the amount of time that the straightaway news has been closed and the amount of disruption that's 21 00:01:40,860 --> 00:01:44,580 happened to global energy markets just in the last month, again, even if everything ended, 22 00:01:44,700 --> 00:01:48,860 you know, today, that's going to have a bullwhip effect and kind of flow through to inflation. 23 00:01:48,860 --> 00:01:54,680 and that'll put the Fed in a position where they actually have to hike rates and get more 24 00:01:54,680 --> 00:01:59,020 restrictive and less accommodative to kind of combat that. And you can kind of see that being 25 00:01:59,020 --> 00:02:07,280 priced in somewhat here in FedFund's futures. And I, you know, if you were on FinTwit at all 26 00:02:07,280 --> 00:02:11,100 over the last week, if you've been reading any mainstream financial press that, you know, 27 00:02:11,100 --> 00:02:15,800 this is a headline you're seeing trumpeted about a lot. And I have no idea, as I said, 28 00:02:15,800 --> 00:02:21,700 the newsletter, what different transmission mechanisms look like, what, you know, the Fed 29 00:02:21,700 --> 00:02:26,820 may be able to do on creating different alphabet soup facilities to offset a potential rate hike. 30 00:02:27,360 --> 00:02:32,700 But the general gist that I was putting out in the newsletter this weekend was, yeah, kind of 31 00:02:32,700 --> 00:02:39,640 drawing a line on there's less room than the market thinks, given the fiscal state of the U.S., 32 00:02:39,640 --> 00:02:45,720 us, particularly if we're going to, in Secretary of War, Pete Hegseth's words, 33 00:02:45,900 --> 00:02:50,340 allocate another $200 billion to kill bad guys on an already massive federal budget. 34 00:02:50,860 --> 00:02:56,260 Given where we're sitting with non-discretionary spend as a percentage of receipts, we can't have 35 00:02:56,260 --> 00:03:01,840 blended interest rates, blended interest expense on federal debt much higher than they are today. 36 00:03:02,080 --> 00:03:06,880 Right. And you can see that. And if you flip to like, I'll just flag the chart on page four, 37 00:03:06,880 --> 00:03:12,020 we've talked about it a bit on the show previously a couple months ago, but you know, 38 00:03:12,020 --> 00:03:17,700 it doesn't take a ton of crazy math to, to realize that that's the case. And yes, here, 39 00:03:17,760 --> 00:03:23,100 here just shows we're already kind of bumping up on the ceiling and you, you go much higher and you 40 00:03:23,100 --> 00:03:28,300 get into this pretty bad territory pretty quickly. Um, assuming you don't have the ability to, 41 00:03:28,300 --> 00:03:32,080 you know, make meaningful cuts elsewhere in kind of these, these non-discretionary items. 42 00:03:32,080 --> 00:03:35,460 And I just think that's for many reasons, politically untenable and not going to happen, 43 00:03:35,460 --> 00:03:40,360 especially in a world that's getting much more multipolar. So that puts us in kind of a rough 44 00:03:40,360 --> 00:03:45,520 position already. If you flip back though, to a slide two, you know, perhaps even more immediately 45 00:03:45,520 --> 00:03:50,400 concerning is, you know, the, the move index is now getting squirrely. So this is the kind of 46 00:03:50,400 --> 00:03:55,540 comparable to the VIX for treasury volatility. And, you know, we're now back to levels that, 47 00:03:55,540 --> 00:04:01,440 uh, we were seeing at liberation day last year. And this is, this is a big problem by itself, 48 00:04:01,440 --> 00:04:06,640 even outside of the multi-year kind of projections on federal interest expense, because if you look 49 00:04:06,640 --> 00:04:12,640 down to page three, we talked about this chart in the newsletter in previous months, but 50 00:04:12,640 --> 00:04:19,380 increasingly there's a lot of levered hedge funds that are deep in the treasury basis trade. You can 51 00:04:19,380 --> 00:04:24,220 see in that bar how much net issuance has been absorbed by such hedge funds, as well as other 52 00:04:24,220 --> 00:04:29,480 foreign private actors, which can mean a lot of different things. And there's a good amount of 53 00:04:29,480 --> 00:04:36,000 volatility sensitivity in those groups, right? They get the tap on the shoulder when regardless 54 00:04:36,000 --> 00:04:41,500 of the level of the 10-year yield, as volatility picks up and then it flows through to equity 55 00:04:41,500 --> 00:04:46,320 market volatility, there's a quick reaction function to degross, to sell positions, to go 56 00:04:46,320 --> 00:04:54,240 to cash. And that can quickly turn into a vicious cycle on the most important bedrock asset in the 57 00:04:54,240 --> 00:04:58,060 modern financial system. And so there are all these kind of factors conspiring that basically, 58 00:04:58,060 --> 00:05:04,920 to me point to, regardless of what happens with inflation and printed inflation, the Fed does not 59 00:05:04,920 --> 00:05:11,040 have the leeway to get substantially more aggressive or more restrictive across its 60 00:05:11,040 --> 00:05:16,800 different facilities and different tools on the strategy market and on rates. So I, you know, 61 00:05:16,880 --> 00:05:20,600 as I said in the newsletter, we're far from rates traders. I'm not making any kind of forecast on 62 00:05:20,600 --> 00:05:24,160 where anything's going, you know, month to month or quarter to quarter. But I think broadly, 63 00:05:24,160 --> 00:05:30,160 that's a theme that I would fade as we go forward this year, that the Fed's just going to, you know, 64 00:05:30,340 --> 00:05:35,480 practice fiscal rectitude or try to impose fiscal rectitude on the country and, you know, 65 00:05:35,480 --> 00:05:38,320 just respond mechanically to higher inflation with higher rates. 66 00:05:39,820 --> 00:05:44,160 Well, I mean, you said it in the newsletter to anyone who believes the Fed can't be accommodated 67 00:05:44,160 --> 00:05:48,540 for fear of inflation in the face of commodity shocks, your grandparents might beg to differ. 68 00:05:48,540 --> 00:05:56,740 I think another sort of parallel that people are looking at right now is the 1970s oil shock to today. 69 00:05:56,860 --> 00:06:16,028 But I think as you just described if we looking at all the debt and specifically the debt to GDP ratio that exists today in the United States compared to then it is far different And then we been talking about it who knows how systemic the private credit sort of contagion becomes I think it yet to be 70 00:06:16,028 --> 00:06:20,668 determined. I think there's other funds. I believe Morgan Stanley gated a fund, a private credit 71 00:06:20,668 --> 00:06:24,468 fund last week. It does seem like there are analysts out there who aren't worried about 72 00:06:24,468 --> 00:06:30,888 contagion, sort of breaking containment of this sort of retail oriented private credit vehicle 73 00:06:30,888 --> 00:06:33,848 or these BDCs that exist out there, but who knows? 74 00:06:34,008 --> 00:06:35,128 Maybe it does break containment. 75 00:06:35,268 --> 00:06:38,968 You do have a systemic contagion that triggers a domino effect 76 00:06:38,968 --> 00:06:42,568 of liquidity crunches within the financial system. 77 00:06:42,568 --> 00:06:45,928 And that's sort of been my MO, observing this 78 00:06:45,928 --> 00:06:49,808 and looking at people saying they're going to hike rates. 79 00:06:50,728 --> 00:06:53,228 Obviously, this disruption to oil and gas, 80 00:06:54,328 --> 00:06:56,828 global supply chain infrastructure is massive, 81 00:06:57,028 --> 00:06:58,388 but I think there's just going to be forces, 82 00:06:58,388 --> 00:07:04,208 whether it's the war itself or a potential liquidity crisis in the back end of the financial 83 00:07:04,208 --> 00:07:09,828 system here in the U.S. that spreads globally, that's going to dictate the Fed needing to be 84 00:07:09,828 --> 00:07:15,428 more accommodative. Yeah, right. That's a great point. It's certainly like, you know, there's 85 00:07:15,428 --> 00:07:19,848 debate right now on how relevant the private credit complex is to the overall system. It's 86 00:07:19,848 --> 00:07:26,788 relative size, it's overall leverage. And, you know, perhaps it's either not going to perform 87 00:07:26,788 --> 00:07:32,788 as poorly as some predict, or even if it does, that has less relevance than, you know, poor 88 00:07:32,788 --> 00:07:37,548 performance of the major commercial banks leading up to 08. So that may or may not be the case. But 89 00:07:37,548 --> 00:07:42,168 certainly you could say like, it doesn't help, right? So any kind of like massive squeeze in any 90 00:07:42,168 --> 00:07:48,268 pocket of levered pocket of the economy is not going to be received well. And, you know, we've 91 00:07:48,268 --> 00:07:55,608 seen not to compare the private credit complex to say SVB, but SVB was a large bank, but not a bank 92 00:07:55,608 --> 00:08:00,628 that a lot of people even heard of probably in the US, it was top 20 by assets, but in a couple 93 00:08:00,628 --> 00:08:05,128 of days, right, all very little needed to happen for that to become, you know, the most important 94 00:08:05,128 --> 00:08:09,688 story in financial markets and something that the Fed had to aggressively respond to that the 95 00:08:09,688 --> 00:08:14,028 parallels largely in there, you know, private credit is not the same as banking. But my point 96 00:08:14,028 --> 00:08:19,168 is just in a very challenged environment, anyway, the last thing you need is like a cascading daisy 97 00:08:19,168 --> 00:08:24,208 chain of liquidity crunches in those types of vehicles. And I think that will pile on to if 98 00:08:24,208 --> 00:08:27,928 that really escalates and accelerates in the coming months, like that, that piles onto the 99 00:08:27,928 --> 00:08:32,348 things that the Fed has to further respond to. And I think it's really like, the thing I was 100 00:08:32,348 --> 00:08:36,928 saying over the weekend was like, in, in a shock, it's often said like correlations go to one, 101 00:08:37,288 --> 00:08:41,248 you know, everything, just people, there's a scramble for liquidity, there's a scramble for, 102 00:08:41,348 --> 00:08:45,648 for dollars that you often see, you often see the Dixie, the dollar index rip when everything else 103 00:08:45,648 --> 00:08:51,108 is dumping in crisis environments, as people just kind of scramble for some level of certainty and 104 00:08:51,108 --> 00:08:53,548 kind of get out of whatever they can, you know, they sell what they can, not what they want. 105 00:08:53,548 --> 00:09:03,408 And I think there's an element that people need to start thinking through, which we haven't really seen in the last 50 years, 50 plus years of correlations going to one in government policy as well. 106 00:09:03,408 --> 00:09:16,848 Like there's this view that, you know, the Fed and the Treasury and Congress and different state governments and the military are all kind of these different organizations that have their own priorities and their own ways of operating. 107 00:09:16,848 --> 00:09:20,748 and definitely like in peacetime, I think that's very much true as you move into a higher and higher 108 00:09:20,748 --> 00:09:25,548 volatility environment, both in terms of financial markets, but also just globally and militarily. 109 00:09:25,788 --> 00:09:29,728 I think you see correlations go to one in all government institutions as well. And I think 110 00:09:29,728 --> 00:09:34,128 this is kind of what I was referring to in the newsletter, you know, with your, 111 00:09:34,268 --> 00:09:37,588 the way that your grandparents might beg to differ about what the Fed can and can't do. 112 00:09:38,428 --> 00:09:41,908 You know, if you, if you go back and look at, say people talk about the seventies, like you said, 113 00:09:41,948 --> 00:09:46,448 I think the forties is, is an equally interesting, if not more interesting kind of analog where, 114 00:09:46,448 --> 00:09:53,888 you had a radically expanding debt to GDP and in, and, uh, fed and treasury, uh, direct coordination 115 00:09:53,888 --> 00:09:58,468 to make sure that that wouldn't flow through to treasury yields and spike treasury yields. 116 00:09:58,828 --> 00:10:02,768 And you could normally, and you would say, well, that would just spike inflation, right? Like that 117 00:10:02,768 --> 00:10:07,728 we, we couldn't possibly do that again. Well, the, the way that that was managed, right. In the 40s 118 00:10:07,728 --> 00:10:12,428 was price controls and rationing, right. A huge amount of goods were subjected to with, with 119 00:10:12,428 --> 00:10:15,868 consummate US propaganda. You just, you gotta love the vintage propaganda here. 120 00:10:16,868 --> 00:10:22,428 We're subjected to rationing cards and anti-hoarding measures, quote unquote, for a wide 121 00:10:22,428 --> 00:10:27,368 variety of consumer goods. I think you literally saw the analog of CPI. I don't think it was CPI 122 00:10:27,368 --> 00:10:33,288 at the time, but we went from like early forties CPI was like double digits. I think like 14%, 123 00:10:33,288 --> 00:10:38,968 between 10 and 14% and then fell reported CPI fell to like 1% because you weren't actually 124 00:10:38,968 --> 00:10:42,348 seeing inflation, but no one could get anything or like not, not meaningfully. Right. At least in 125 00:10:42,348 --> 00:10:46,668 the consumer economy. And then once those were released, you saw reported inflation spike back 126 00:10:46,668 --> 00:10:51,788 up to like, you know, 15% like 1947. But all the while the 10 year was at like two and a half 127 00:10:51,788 --> 00:10:58,128 percent, like the entire time, even as death GDP went from 50% to like 120%. And so I think it's 128 00:10:58,128 --> 00:11:02,028 just worth thinking through. I don't even know if we could actually functionally do that today. 129 00:11:02,088 --> 00:11:06,348 I don't know if we have the political will, the political unity, and nor do I, nor am I calling 130 00:11:06,348 --> 00:11:10,448 for this, nor do I think it's like, would be a good thing for any of us to experience. But I think 131 00:11:10,448 --> 00:11:15,228 it's just important, like to, as you're positioning yourself to realize, like, there are times in 132 00:11:15,228 --> 00:11:20,328 history when correlations go to one in governments. And that means like the Fed and the Treasury and 133 00:11:20,328 --> 00:11:25,288 Congress and the military are all going to be very aligned on what needs to happen. And I think this 134 00:11:25,288 --> 00:11:29,228 book, Freedom's Forge, is a great one to look at. It's less about the rationing kind of price 135 00:11:29,228 --> 00:11:34,668 control side, but more about the complete industrial remaking of America in just a couple years to 136 00:11:34,668 --> 00:11:40,228 respond to the European and Japanese theaters up to World War Two. And we went from being 137 00:11:40,228 --> 00:11:46,108 extremely industrially unprepared to very, very prepared in just a few years with, you know, 138 00:11:46,268 --> 00:11:51,268 massive mobilization and government control of industries. Again, not recommending that 139 00:11:51,268 --> 00:11:56,368 necessarily. There are meaningful downsides to that. But I just think like this is the kind of 140 00:11:56,368 --> 00:12:00,968 thinking that the market is not yet really doing. And, you know, I think people price it at like a 141 00:12:00,968 --> 00:12:06,368 0% chance. And I think this is it. We're getting into a position where this is like 10%, 20%, 142 00:12:06,368 --> 00:12:09,868 30% type odds that you need to be thinking through on, you know, the scenario tree. 143 00:12:10,228 --> 00:12:26,876 Yeah I mean it funny that the market isn beginning to even price in a low probability of this coming in because you been covering it in the newsletter we talked about it too but this sort of light nationalization or industrialization of certain industries that we seen from the Trump administration going back to last 144 00:12:26,876 --> 00:12:32,976 year, buying stakes in heavy metal companies, in industrial metal companies, in energy companies, 145 00:12:32,976 --> 00:12:40,716 in a range of different companies that may prove to be integral in a re-industrialization 146 00:12:40,716 --> 00:12:46,176 during a wartime effort at some point in the next six months, potentially, if things don't 147 00:12:46,176 --> 00:12:51,576 turn in the other direction towards more peaceful reconciliation to what's going on in the Middle 148 00:12:51,576 --> 00:12:57,616 East. Yeah, absolutely. And I mean, you're seeing, if you flip to the next slide, we highlighted some 149 00:12:57,616 --> 00:13:01,476 headlines from this past week, but the unfortunate thing is you're seeing this already, 150 00:13:01,776 --> 00:13:06,576 versions of this already in parts of the world, many of which are actually our allies, the 151 00:13:06,576 --> 00:13:11,396 Philippines, South Korea, Australia, like this is already starting to bite in a variety of different 152 00:13:11,396 --> 00:13:15,496 ways. And there's been some good writing out there that we fly to the newsletter this week as well 153 00:13:15,496 --> 00:13:20,556 about the downstream impacts on wide variety of commodities. And, you know, refined goods that are 154 00:13:20,556 --> 00:13:25,396 maybe, you know, one level up from, you know, base inputs like oil, it hits everything in a variety 155 00:13:25,396 --> 00:13:28,356 of different ways that we're not even currently expecting. And like, you're already seeing 156 00:13:28,356 --> 00:13:33,296 governments respond exactly as governments always do in this case. And so I yeah, I think we should 157 00:13:33,296 --> 00:13:38,696 be probably we being the U S if you're listening from the U S you know, the, the classic dark joke, 158 00:13:38,696 --> 00:13:42,856 I guess, is that the U S sneezes and the rest of the world gets a cold. So there's some level of 159 00:13:42,856 --> 00:13:47,176 insulation for, you know, a net energy, energy exporter, that's relatively kind of independent 160 00:13:47,176 --> 00:13:52,476 on food supply. Although there are asterisks on that as well, the U S should probably fare better 161 00:13:52,476 --> 00:13:56,136 than a lot of U S allies. But the reality is like, it's flowing through already everywhere, 162 00:13:56,136 --> 00:14:00,816 even in places that, you know, are, are not only allied with, with the U S. So yeah, I think we, 163 00:14:00,816 --> 00:14:05,296 the market should increasingly be pricing in that something like this would be a response that we 164 00:14:05,296 --> 00:14:12,216 would see here, you know, as well. Yeah. And tying this back to the core thesis of 165 00:14:12,216 --> 00:14:17,656 this newsletter, being that the Fed cannot hike rates and they're probably going to have to be 166 00:14:17,656 --> 00:14:22,136 more accommodative than people expect right now. This should be a tailwind for Bitcoin, correct? 167 00:14:23,076 --> 00:14:28,636 Yeah, you would think so. I mean, admittedly, like the era of rationing, price controls, 168 00:14:28,636 --> 00:14:33,536 et cetera. And, you know, industrial mobilization was also the era of executive order 6102, 169 00:14:33,976 --> 00:14:40,196 which famously removed one of the major, which was the seizure of privately held gold or the 170 00:14:40,196 --> 00:14:45,776 banning of privately held gold under FDR, which famously removed one of the clearest kind of 171 00:14:45,776 --> 00:14:51,796 response valves and escape patches that you would have to deal with an environment like that. 172 00:14:52,756 --> 00:14:57,476 I think there are reasons to believe, and we've talked about it before internally, 173 00:14:57,476 --> 00:15:03,356 you've talked about it on TFDC, reasons to believe that Bitcoin has a greater level of resistance 174 00:15:03,356 --> 00:15:09,216 to something like that, or the government to try that. But I also think the pieces that are lining 175 00:15:09,216 --> 00:15:14,896 up right now suggest that that may or may not be the actual path that this administration wants to 176 00:15:14,896 --> 00:15:19,356 take. So maybe we can kind of move in that direction, because we got some, I think we got 177 00:15:19,356 --> 00:15:25,216 some really interesting headlines last week about Bitcoin and its increasing integration into a lot 178 00:15:25,216 --> 00:15:29,136 of different facets of the economy. I was going to say off the top of my head, I think probably 179 00:15:29,136 --> 00:15:36,656 the biggest announcement was Fannie Mae, Freddie, basically recognizing Bitcoin as an asset. I think 180 00:15:36,656 --> 00:15:42,916 officially now, and then Coinbase launching their 30-year mortgage with Better Homes, I believe, 181 00:15:42,976 --> 00:15:48,196 is the company that allows you to put Bitcoin up as collateral for a 30-year mortgage. And I mean, 182 00:15:48,196 --> 00:15:53,256 I tweeted it out and feel comfortable talking about it. I can't say exactly who I got my mortgage 183 00:15:53,256 --> 00:15:59,656 true, but I have a 30-year mortgage that is dual collateralized with Bitcoin. And this is something 184 00:15:59,656 --> 00:16:04,296 that we've been talking about internally at 1031. And I think you and I specifically have been 185 00:16:04,296 --> 00:16:10,636 waiting for this moment within Bitcoin, where it becomes a preferred collateral asset in credit 186 00:16:10,636 --> 00:16:15,476 stacks, in this case, a 30-year mortgage. And I think the most exciting thing about this not only 187 00:16:15,476 --> 00:16:19,876 is the validation that Bitcoin is pristine collateral that financial institutions are 188 00:16:19,876 --> 00:16:24,816 willing to sort of recognize and engage with for people who have built Bitcoin wealth and don't 189 00:16:24,816 --> 00:16:29,396 want to sell it, but want to tap into it. But I think the most important thing is duration really 190 00:16:29,396 --> 00:16:35,556 beginning to enter the Bitcoin credit market, for lack of a better term. Yeah, absolutely. I mean, 191 00:16:35,616 --> 00:16:42,676 like it's the, I think the really interesting piece of, you know, what really is unlocked by 192 00:16:42,676 --> 00:16:46,496 the fanny news to the extent that it really kind of continues to roll out, we need to see that it's, 193 00:16:46,496 --> 00:17:05,816 You know, there aren't gremlins kind of in the fine print or, you know, some, some effort to stop that. But the ability for those loans to, to be conforming mortgages that can be purchased by Fannie and Freddie and enter the secondary market brings a whole new level of potential liquidity to those loans and thus makes them much easier to, to originate. Right. 194 00:17:05,816 --> 00:17:15,356 So you could start to see over time the ability for a lot more dollar financing to come into Bitcoin back lending and bring rates down as that develops. 195 00:17:15,556 --> 00:17:18,916 Right. That's a huge backstop for all these loans. 196 00:17:18,916 --> 00:17:23,536 And I think a key blocker for the ability for them to really achieve like commercial scale. 197 00:17:23,676 --> 00:17:27,816 So that's, you know, I think that's a huge, huge piece of news. 198 00:17:27,816 --> 00:17:33,176 it would not insulate you from a 6102 type attack, obviously, to have a Bitcoin locked up in one of 199 00:17:33,176 --> 00:17:40,336 those highly centralized loans. But I think what it's telling you is that the government is not 200 00:17:40,336 --> 00:17:45,636 currently attempting to discourage, but rather to encourage more exposure to Bitcoin ownership. 201 00:17:46,156 --> 00:17:51,556 And I think there's an argument that you can say you want more people holding an asset that 202 00:17:51,556 --> 00:17:56,336 participates in an upward kind of liquidity impulse if you are indeed going to do a lot of 203 00:17:56,336 --> 00:18:01,616 the things that we described, albeit, you know, participation via heavily kind of controlled 204 00:18:01,616 --> 00:18:06,236 wrappers, but you want broader ownership and broader exposure to that kind of liquidity 205 00:18:06,236 --> 00:18:11,756 impulse and an asset that will meaningfully benefit from it to avoid and curtail political 206 00:18:11,756 --> 00:18:13,616 pushback that you might otherwise get. 207 00:18:13,876 --> 00:18:17,916 You could take the, you know, the hammer approach that has been taken in the past, or you could 208 00:18:17,916 --> 00:18:22,336 kind of take, you know, the catching more flies with honey than vinegar approach of bringing 209 00:18:22,336 --> 00:18:24,356 people into Bitcoin linked products. 210 00:18:24,356 --> 00:18:36,924 And I think like that an interesting confluence at this time as you seeing more and more need potentially for control of elements of the economy and a more a more creative relationship 211 00:18:36,924 --> 00:18:41,504 between the Fed and the Treasury, let's say, to have this greater institutionalization of a 212 00:18:41,504 --> 00:18:46,924 normalization of kind of Bitcoin oriented financial products. Yeah, I mean, a pressure release valve 213 00:18:46,924 --> 00:18:53,784 for the government, just use this neutral reserve asset that's floating on the free markets. And 214 00:18:53,784 --> 00:18:55,924 Yes, we're going to go do all these inflationary. 215 00:18:56,304 --> 00:19:04,724 We're going to go try to stimulate the economy where it's via the Fed being accommodated or the Treasury issuing more debt to support the war effort. 216 00:19:05,004 --> 00:19:13,024 Give the people a release valve that will benefit whether or not you can get to the ethics of having that there. 217 00:19:13,164 --> 00:19:14,364 I would say it's a good thing. 218 00:19:14,364 --> 00:19:19,444 But there's an external wealth effect that exists within Bitcoin. 219 00:19:19,444 --> 00:19:23,024 if you can integrate it into the traditional economy more and more, 220 00:19:23,204 --> 00:19:23,844 it's going to be massive. 221 00:19:24,104 --> 00:19:26,304 And so going down this line of thought, 222 00:19:26,404 --> 00:19:29,744 I mean, today as well, I don't know if you covered it in the newsletter, 223 00:19:30,084 --> 00:19:32,124 but I think you may have touched on it, 224 00:19:32,204 --> 00:19:35,924 but Square was just making Bitcoin payments automatically, 225 00:19:36,504 --> 00:19:38,924 just auto enabling them for the merchants. 226 00:19:39,084 --> 00:19:41,444 I believe all the merchants, except for those inside New York, 227 00:19:41,584 --> 00:19:44,124 I would imagine are the only ones who may not be able to 228 00:19:44,124 --> 00:19:46,644 accept Bitcoin as payment because of the BitLicense. 229 00:19:46,644 --> 00:19:48,644 I could be wrong there, but Miles Suter, 230 00:19:48,644 --> 00:19:52,784 head of Bitcoin product at Block across their family businesses. He was tweeting out 231 00:19:52,784 --> 00:19:57,404 earlier today that it was going live and they want to make Bitcoin everyday money. 232 00:19:57,844 --> 00:20:04,264 On top of that, we had some ETF news last week, both on the flows perspective and a new entrant 233 00:20:04,264 --> 00:20:10,304 into the market. ETF flows are almost flat on the year, despite massive volatility, which shows that 234 00:20:10,304 --> 00:20:14,624 the market is resilient. And no matter what the headlines are telling you about Bitcoin, 235 00:20:14,624 --> 00:20:20,304 despite the fact that it's down 48% from its all-time high. Last October, early November, 236 00:20:20,684 --> 00:20:26,884 there is still demand from institutional buyers and people who access exposure to Bitcoin via 237 00:20:26,884 --> 00:20:34,604 ETFs to get exposure. And then I think the big news, as Eric Balkunas from Bloomberg says, 238 00:20:34,784 --> 00:20:37,744 I think it was a bit of a shock. He's calling it a semi-shock. Morgan Stanley 239 00:20:37,744 --> 00:20:43,584 filed for a Bitcoin ETF. It looks like it's going through the approval process rather quickly in 240 00:20:43,584 --> 00:20:48,944 other marketing that they're going to charge 14 bps of fees, which undercuts BlackRock's 241 00:20:48,944 --> 00:20:51,064 IBIT ETF by 11 bps. 242 00:20:51,524 --> 00:20:55,284 And Morgan Stanley doesn't issue that many ETFs. 243 00:20:55,324 --> 00:20:56,144 And it was very interesting. 244 00:20:56,144 --> 00:20:58,504 I think they have maybe 17 or 18. 245 00:20:59,124 --> 00:21:00,664 And now the Bitcoin ETF is one of them. 246 00:21:01,204 --> 00:21:02,304 Yeah, I think it's fewer than that. 247 00:21:02,384 --> 00:21:05,324 I think it's like seven with the actual Morgan Stanley flagship branding. 248 00:21:05,464 --> 00:21:06,324 And this one will have that. 249 00:21:06,784 --> 00:21:09,304 So I think they filed a month or two ago. 250 00:21:09,304 --> 00:21:18,104 But the update on what they'll charge is just interesting because I think it tells you that the fees are obviously really low already. 251 00:21:18,244 --> 00:21:20,944 So it's not like they had a huge amount of cushion if they wanted to be competitive. 252 00:21:20,944 --> 00:21:35,604 But to go meaningfully lower than Ibit, I think suggests something interesting about what they view as strategically valuable here and how big they believe the AUM opportunity of this could ultimately be. 253 00:21:35,604 --> 00:21:42,124 and how much demand they are likely seeing from the wealth channel to get this out there, to put it under, again, the flagship branding, 254 00:21:42,124 --> 00:21:51,164 and then to price it so much lower to make sure that advisors, as Eric says, are not conflicted and feel comfortable channeling clients into it. 255 00:21:51,684 --> 00:22:01,844 Not trying to just price with IBED and go for slightly higher fees, but actually price meaningfully lower and just gather AUM into the vehicle. 256 00:22:01,844 --> 00:22:13,724 I think that's telling you something about, especially seeing that in the middle of this environment, like you said, where we're 50% off all time highs, a lot of kind of mainstream interest is, is, is, has moved on to other things. 257 00:22:14,144 --> 00:22:26,224 You know, this is not the kind of thing that we saw last, last time we had had price action like this, particularly in the middle of, you know, everything that we've talked about earlier on the show with, with semi World War III beginning. 258 00:22:26,384 --> 00:22:31,004 So that you would see something like this in this kind of environment is, I think, very telling. 259 00:22:31,004 --> 00:22:40,844 And again, it does not, to me, point in the direction of a government that wants to outlaw or avoid people channeling wealth into Bitcoin. 260 00:22:41,404 --> 00:22:46,304 And again, we can debate what the best way is to do that and the vulnerabilities that come with doing that through an ETF. 261 00:22:46,904 --> 00:22:54,604 But in any case, this happening to me, all of these things happening points in a very different direction than we might have been headed in just a few years ago. 262 00:22:54,884 --> 00:23:00,004 Yeah, it seems like just build the paths for people to get on the life. 263 00:23:00,004 --> 00:23:10,864 But as we do this crazy stuff on the reindustrialization and the wartime footing, as an American, it's like, okay, at least this stuff is happening in the background. 264 00:23:11,004 --> 00:23:13,524 Stuff that I care about, stuff that we focus on, it's good to see. 265 00:23:13,524 --> 00:23:32,804 To your point, which is just sort of reiterating my point, but I think it should be reiterated more and more as this happening in this type of price environment is very unique in terms of the tenor around Bitcoin right now is honestly pretty piss poor. 266 00:23:33,144 --> 00:23:36,604 Somebody who's been in it for 13 years almost reminds me of 2015. 267 00:23:36,604 --> 00:23:42,484 2015 was, I think, the worst from a sentiment perspective that I've ever experienced. 268 00:23:42,704 --> 00:23:45,324 These last six months are very close to that. 269 00:23:45,604 --> 00:23:49,864 But the fact that we have Fannie Mae, I'll just pull the headlines up here too, accepting 270 00:23:49,864 --> 00:23:51,664 the first crypto-backed mortgage products. 271 00:23:51,844 --> 00:23:54,124 We have Morgan Stanley putting their name on it. 272 00:23:54,164 --> 00:23:58,624 We have block enabling, auto enabling of payments and ETF flows. 273 00:23:59,324 --> 00:24:04,504 If you were just looking at pure flows with no knowledge of what the price is doing, you'd 274 00:24:04,504 --> 00:24:09,644 probably think the Bitcoin price has been flat for the last six months. But it hasn't been down 275 00:24:09,644 --> 00:24:16,084 48%. A long way to go. John, any final thoughts before we wrap up here? Just got to stay humble 276 00:24:16,084 --> 00:24:21,684 and stack stats and fade every tweet from or every true social post from our president and 277 00:24:21,684 --> 00:24:26,984 fade every response from the Iranian parliamentary members that are firing back at him on Twitter. 278 00:24:27,764 --> 00:24:34,304 Yeah, the meme warfare reaching the levels that it has. And we got Lego AI generated videos. 279 00:24:34,304 --> 00:24:37,024 We've got true social posts in the morning, tweets. 280 00:24:37,304 --> 00:24:38,324 It's crazy times. 281 00:24:38,644 --> 00:24:39,464 We'll be back next week.