The End of Fed Control? Bitcoin & Macro Outlook | Checkmate, Joe Carlasare, Matthew Pines - What Bitcoin Did

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
For as long as I've been in Bitcoin, this idea of the four-year cycle has been this sort of ball

(00:09):
and chain, I think, on the Bitcoin price. If you can get rid of that narrative, I think that has
very profound implications for how Bitcoin will trade into the future.
The one lesson I have from Bitcoin is when a bunch of hyper-autistic nerds become obsessed
with an early part of an exponential curve, don't fade them. The impact of transformative AI is
going to be hard to underappreciate. And it's going to have downstream effects on everything

(00:34):
else, right? Everything in terms of how we measure inflation statistics, how we measure GDP.
And that will become, I think, the defining conversation of our political lives in the
next few years. Plan A is just the system as it is, continues indefinitely. The question is,
what's plan B? Governments have to have plan B. Monetary regimes tend to change on generational
timescales. And if you're looking out for the national interest over 50, 100 years,

(00:56):
you got to think about, okay, what's our backup plan? We belong at 150. And the journey is we've
kind of proven a trillion dollars back in 2024 market cap. I think we've now proven 2 trillion.
In my view, 3 trillion is kind of the next move. And then it's just a question of how many more
trillions. Let's get going. We've actually, we've got Joe to thank for this interview happening.

(01:18):
After we spoke in Vegas, Joe was saying we should put together like a round table conversation.
and we've got Joe here on the macro side, Checkmate on the Bitcoin side, and Matt Pines on the everything
geopolitics side. So I think this is going to be a good one. But I think we've got to start with
Bitcoin. We're over 114k again. Checkmate, are we back? Yeah, it's an interesting dynamic. So

(01:42):
the thing that I've been looking at the most right now, here's some stats for you above the 95k level.
So 95K is a real important line in the sand.
I've been describing it as like the hodler's wall.
Because if you look at the distribution of supply, 30% of all Bitcoin have a cost basis
above 95K.
But that 30% of supply, if you price it based on when it was last moved as like a dollar

(02:05):
is invested, it's more than 60% of the total wealth that's been invested in Bitcoin above
95K.
So if you think about that from like a sentiment standpoint, first thing, we've had a stack
of sell side, right?
the amount of sell side pressure that this thing has absorbed above 95k big money has come in to
absorb it if you drop down below 95k 60 of your wealth invested is now looking at their portfolio

(02:27):
and saying did i just buy the top so it's actually a pretty important level i think to keep those guys
in profit and if we go back and look at most of the start of like nasty bears very very similar
structure 30 to 60 of the wealth and the coins uh this is kind of the dynamic we are so at the
moment we're holding like and from many levels there's like first line of defense second line of

(02:50):
defense short-term cost base about 111k and until you go below that my rule is just be a bull and
we got down like 109 and here we are at 114 so when the bears have enough juice to get us down
below short-term cost basis and then 105 it starts to tip over 95 is that line in the sand it's like
guys you haven't even taken out the first line of support yet so uh i'm certainly cautious because

(03:13):
it's not a big move, price move from $114 to $95. That's not a significant move, but the damage it
could cause is pretty significant. But the damage hasn't happened yet. That's my kind of broad
picture view of things. It's funny how quickly the sentiment is shifting both directions,
this bull market. Because I think on one side, I'm guilty of this. It doesn't feel like a normal

(03:34):
Bitcoin bull market where I've not had the dopamine hits and the euphoria. And then all that has to
happen is Bitcoin dropped like 4% and everyone's calling for the end of the cycle. Joe, how are
you feeling about it now? And do you think the idea of Bitcoin cycles might be over?
Yeah. I mean, to be honest, and I've said this publicly for well over a year and a half now,

(03:55):
I think it is a mistake to attribute the peak and subsequent drawdown in late 2021 and 2022
as a Bitcoin idiosyncratic feature, okay?
To me, it's not simply coincidence
that Bitcoin peaked in November of 2021
alongside numerous other risk assets,

(04:15):
that it was coincident with the telegraphing
from the Federal Reserve that they would begin,
well, that they were behind the curve
and that it would be in one of the fastest
rate hiking cycles in history,
dealing to the rapid onslaught of inflation,
rolling off their balance sheet, QT, et cetera.
So I just think it's simply implausible
suggests that that was a Bitcoin idiosyncratic feature. It just happened to line up with the

(04:37):
majority of macro chaos that we had to go through through most of 2022. So my view has been that
even predating the 2021 cycle, I think the cycles were dead if they ever were a thing driven by some
halving supply demand dynamics. I think that it wasn't a coincidence also that alongside Bitcoin

(04:58):
ripping. You had many other risk assets ripping through most of 2021 that were drunk on the high
of the stimmy checks and the ZERP and massive central planning easing. So my view is that
these are sort of ex post facto the narratives we sort of develop to justify why price action
develops. And to me right here, I think it's very simple. If the economy remains robust,

(05:20):
potentially re-accelerates, I expect Bitcoin to do well. I expect most major risk assets to do well.
And the opposite is also true, right? If the economy continues to decelerate, if some of these weaker segments of the overall economy start to get worse and potentially bleed over into other sectors, I expect the greater risk asset complex to struggle alongside Bitcoin.

(05:41):
I don't know. I'm curious what, if anything, I said there that Matt or Chad could disagree with.
No, I fully agree.
And I think I've had this line I've been floating around recently.
People are going to hang on to past cycles well past their use by date.
And they're also going to throw out certain patterns thinking that, oh, it's already broken.
So I'm living in a very, very flexible world in terms of how I bring data into my system.

(06:05):
Because if you look at the past cycles, really, there's been two major regime shifts.
I wouldn't really call them cycles, but a period in time where market structure absolutely changed.
The first one was the 2017 top.
after that 2017 top it stopped looking like this retail very just like organic type dynamic
stable coins come in derivatives come in leverage comes in that 2018 through to 2022 period

(06:29):
it for those of you who lived through it bitcoin was like i call it schroding is bitcoin it was
both alive and dead the regulators were going to kill it tradfire had written it off there's a
bunch of hodlers who still believed in it there's degenerates gambling on this thing with leverage
then we got the stimmy checks and everything in 2021 and when ftx collapse on 2022 you can look at
any metric you want whether it's price relative to the 200 day any on-chain metric they all change

(06:54):
pattern at the 2017 high from a very organic retail driven thing that middle period boom bust
just straight up straight down and then from 2023 onwards super stable super structured looks a lot
more like 2016-17 but things take a lot longer to play out and they don't have the big as big
drawdown. So they're the kind of zones where market structure changed. And there's a lot of

(07:16):
different components to that. But I generally agree with Joe. People like to fit a narrative
to explain it. But yeah. I'll just tell you, when I say this, people tend to hear, oh,
it's a super cycle. Bitcoin will never go down. There'll never be a correction. I'm not suggesting
that at all. Bitcoin can obviously pull back and it can have drawdowns, right? But this sort of

(07:37):
predictable, like four year boom bust cycle that we have to go on that's coincident with the halving.
I think that's kind of always been sort of more of a meme than anything else.
The thing that I've just been paying a lot of attention to is the thing that doesn't get paid
attention to, which is like Bitcoin's volatility. Right. And I'm not a I'm not a trader. I don't

(07:58):
kind of look on chain, but I sort of pick up like the zeitgeist and the zeitgeist to first order is
just like Bitcoin's moves, right? That's usually when the mainstream media reports on it, like it
drops 5% or it goes up 10%. And Bitcoin has just been in this unprecedented period relatively of
low volatility. And so it just kind of becomes like less interesting to kind of most Bitcoiners
when it's just like a thing you DCA. And that's maybe a sign of its overall maturity as an asset

(08:23):
class, where most folks are just treating it now as a thing to kind of, you know, nibble in as part
of their portfolio now that it's been kind of blessed by the US government and blessed by the
ETFs. I just think we're just in a different regime where like those heyday cycles where it's like
memes driven, sentiment driven. It's sort of maturing as an asset class and it's coming into

(08:47):
like 20, 30% annualized vol. And that just means that it's just fundamentally like behaving
differently than most Bitcoiners that have gone through these different cycles. That's kind of my
more like layman's observation here. But I think it has a lot more kind of far-reaching effects on
kind of how you think about its adoption cycle, right?
Because most people's unit bias that have come in
in the last few months has been the ETF, you know, share price.

(09:09):
And so, you know, you probably pay attention
to what the Bitcoin price was when you bought it,
but when you check your brokerage account,
you sort of see, you know, a much smaller number, right?
And so people just have a different psychological orientation
to the Bitcoin price than, you know, most of us, right?
And we're sort of checking it like, you know, every hour, right?
People just see it as a thing that they were convinced
to finally buy a slug of,

(09:31):
and now it just sits in their portfolio as an ETF.
And that means they're not going to trade as much.
It means that they'll probably be a bit more resilient
to sort of swings,
but its overall sort of placidity
has been the most sort of novel feature of Bitcoin
in the last few months to me.
Yeah, I think the two things
where people log into their brokerage account,
they see iBit in an uptrend

(09:51):
and they see over the default view is one year,
like, oh, cool, I'm up 100%.
That's great.
How awesome is that?
And the other thing I think is really important to note
is options, like IBIT options.
I think that this is the one story
I haven't heard anybody talking about,
talking about the volatility profile.
They went live in November 24.
They've now overtaken Deribit in terms of size
and only took, you know, whatever that is,

(10:13):
the shortest part of a year.
They have like, you know, $40 billion.
There's 40 cents of options contract
written per unit of IBIT,
which is an incredible number.
But if you look at GLD,
that gets up to like 120%, 100%.
So you'll get a dollar for every dollar that's in there.
So that is a volatility extraction tool, but it cuts both ways because all these folks and they can write covered calls and they can write covered puts, but there's points in time where the market does just move and suddenly all those options writers are on the wrong side of the trade.

(10:43):
So you get a broader slowdown in volatility and then you get these tail events that just blow everything up.
So, you know, you've got to keep all those things in mind as well.
so is that is that why we've not seen bitcoin be as volatile because obviously we've had ets buying
a shit ton of bitcoin at all the treasury companies like sailors buying everything that's out there but
price hasn't moved that much and you hear people come up with these narratives around like price

(11:06):
depression and stuff like that but is that really down to the these uh derivative markets um they
have a fact they have a role but the the beast that no one likes to talk about is just there's
a stack of hodlers selling like you can look just in the on-chain space you just look at coins moving
and people can debate and say, oh, it's just UTXO consolidation
or I'm just moving it into an ETF.

(11:27):
You know, when we look at the amount of money flowing into the ETFs,
it is five times smaller than the amount of profit being taken
by coins that move at the peak.
So, you know, you rally to 73K,
suddenly you've got $50 billion worth of Bitcoin moving a month.
That used to be like one, two, three years old.
They all move around the top and then the top seems to just stop

(11:47):
and be the top.
And then it happens again at 100K and then it happens again at 124K.
So yes, everybody might do their UTXO management at the all-time high, but it's just sellers.
Based on that, though, I'm curious if any of you have thoughts on the causality.
Why are they selling?
What is the driving force?
Is this just people that were sitting on piles of Bitcoin and say, you know, now it's time

(12:08):
you only live once.
We're going to celebrate and buy our yachts.
I mean, what is driving this, if any?
They've got to fund the treasury companies, Joe.
Yeah, treasury companies.
Well, the thing with the treasury companies, a lot of those treasury companies are left
pocket to right pocket as well, right?
Some old holder or some old entity has got a stack of coins.
They move it to their right pocket, change the legal entity, you know, suddenly you've

(12:30):
got a treasury company.
So, you know, there's a lot of that going on behind the scenes.
But, you know, it depends who you talk to, right?
In terms of these whales, I mean, we saw Galaxy cleared 80,000 Bitcoin trade for one guy.
How many 80,000 clips has that guy got?
I met a dude who's been around for a very, very long time since the Satoshi era, like mining the
CPU type level. And I did a presentation where I was talking about sellers. And I said, look,

(12:53):
the next most likely zone, this would have been six months ago. The next most likely zone we get
a lot of sell side coming was 120K. And at the end of the presentation, this guy put his hand up
and goes, I've got sell orders in at 120. So it's just like this number that people have in mind.
And I also think there's a lot of estate planning going on.
If you think about some of these guys

(13:14):
have got thousands of tens of thousands of coins,
you need a legal team to try and sort out your inheritance.
And suddenly you've got ETFs you can move into.
You're not going to get your bank frozen
for moving that kind of money around,
like being associated with Bitcoin.
I think it's just a lot of those dynamics,
which it makes sense after such a long time
and massive price moves.
Well, it's anecdotal,

(13:35):
but I've had a few of these conversations as well,
right, with some OGs.
And Bitcoin's an interesting market, right?
which is it's such a large market, right?
$2 trillion plus market cap.
But like the largest single cohort of holders
are like very much idiosyncratic, right?
Relative to other asset classes, right?
They have a unique, I would say, psychology.

(13:55):
They are all kind of similar age bands, right?
Like obviously there's going to be exceptions,
but like they tended to be, I'd say,
highly correlated in terms of their cognitive phenotype,
their age, their gender.
And so like people go through life events, people go through, you know, maturation as like when you go into your 20s and your 30s and you start thinking about things a little bit differently.

(14:17):
And so you have an entire cohort of kind of OG Bitcoiners that are kind of all hitting these life events while Bitcoin is reaching all time highs.
And so it just seems like a natural psychological kind of effect that you would see kind of also like cascade where you they all know each other, too.
Right. And so they also kind of hear from the rumor mill that, oh, yeah, I've got ladder.
I've got ladder sale orders at 120.
And it's because a relatively small group of these folks,

(14:40):
that gets around and then it kind of,
it sort of, it becomes self-reflexive, right?
And then everyone realizes
that's the level I should sell at, right?
And so it doesn't actually take like kind of,
you know, gigabrain kind of algo traders
to kind of drive this.
It's like a handful of people and their signal chats.
And, you know, they're reaching different life milestones.

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i'm curious to know what you all think about yeah so let's let's say joe's right and the the green
green green red theory isn't true sorry hodl um and we're just entering a different world now
um why do you think this happened like gold has been ripping this year bitcoin's done really well
for the last couple years maybe we'll continue to do well it's just this just the world searching

(17:12):
for safety um and mixed in with all the like the deficit spending the debt like is this just the
the world waking up to these problems?
In my view, in gold's case, yes.
When you look at, I like to price everything in gold
because gold is like, I know that as Bitcoin,
as we say, Bitcoin is the meter of value.
Gold is the meter of value, right?

(17:33):
Bitcoin might become the meter of value, but it is gold.
So over the long arc of time,
you correct the stock market by gold
and you can actually see these 10 year, 20 year cycles
where, you know, why is an inert yellow metal
doing better than the best performing stocks in the world?
something's wrong with the world right that's that's generally what the signal being sent there
inflation debasement whatever it is so the fact that gold is moving the way it is it's quite

(17:56):
clearly central bank demand you can look at the etf flows they're only just starting to pick up
and i actually pulled the the world gold council data the other day and i was looking at which
just at a regional level in terms of official holdings and through like the 2000s the europe
in particular was just selling gold, selling, selling, selling. 2008 happens and suddenly the

(18:19):
Eastern countries, you know, China, Russia, they just start buying gold like crazy. And then as of
2024, we started seeing Europeans stepping into buying gold, right? And you can go back and look
at when the Australian government sold their gold. It's the exact bottom on the Aussie dollar
gold chart. So, you know, it's one of those things I just think a lot of, you know, they wrote gold

(18:39):
off it's a barbarous relic and now it's coming back into the fold and for me that's actually
quite exciting because when you think about how much market cap gold is adding it's it's trillions
of dollars and my long-term price target for bitcoin has always been the same it's 10.8 kilos
of gold which is parity the higher the gold price goes the higher the bitcoin price goes at a
relative basis so it's just lifting the floor of where this thing's going i mean i just had a lunch

(19:02):
with an individual who's a pretty well-connected hedge fund guy um travels to china often and
He described how he had met with the senior officials at the People's Bank of China.
And they were very clear, to him at least, that they've been massively ramping up their
gold purchases in the last six months, accelerated in the last three months.
And the sort of narrative that they gave him, again, you know, take it for what it's worth,

(19:26):
was that Trump's political actions with respect to the Fed were perceived by senior leadership
at the PBOC as a regime shift.
And so the firing of Lisa Cook, you know, appointment of Steve Moran, who's a G, has sort of fundamentally shifted the vibe among the People's Bank of China.

(19:47):
And so that's just a step change. And when you have, you know, the People's Bank of China just to say, like, we're just going to keep buying gold hand over fist, it's up 45 percent in a year.
Right. That's not a surprise. And they decide, OK, if this administration wants to weaponize the global trade system, wants to essentially.
you know, go toe-to-toe in a total economic and financial war, which has been ongoing,

(20:10):
a bit more sub-rosa for the last several years.
Gold is sort of the natural international unit of account that will reflect
that rising sense of instability and that risk premium.
I definitely agree with the central bank, and I'll defer to Matthew and check on the
sort of geopolitical element of it.
But one thing I will note is that if you look at copper, since the beginning of the year

(20:34):
and pre the tariffs that I think were announced at the end of July, if memory serves,
copper was up 45%.
Okay, copper is not like the store of value of choice for central bankers.
So I think you're clearly seeing the market sniff out what many in Bitcoin circles have
been talking about for a long time, which is higher structural inflation that speaks
to the issues in the larger, broader economy.

(20:56):
You're entering, again, you're continuing on a rate cutting cycle from the Federal Reserve
where inflation is, by some metrics, nowhere close to target.
And this is not to suggest in any way hyperinflation. I generally fade almost every hyperinflation call in the United States I've ever heard. But I will tell you that you can have a middle ground between, you know, the let's get back to 2%, the hyperinflationistas and somewhere with higher structural inflation, which is going to bleed through to commodities. And in this higher structural inflation regime, I expect commodities to do generally well, right? They kind of go one and one. They're correlated very much so.

(21:29):
So to me, I think that's a huge element of it, too. I think you see this across the broader commodity complex, excluding oil, which there's some, again, idiosyncratic features of the oil market that are going on here. But to me, that's a broad takeaway. I think you need to add into everything Matthew and Cech said.
what do you think about what the fed just came out and did uh joe in terms of cutting rates looks

(21:52):
like they're going to cut again going into the end of the year like i almost feel a little bit
sorry for drone powell because like in because i just feel like he's stuck in a hard place
but like if all he can do is either cut rates which is going to be potentially good for jobs
but bad for inflation or keep them where they are which is going to be bad for jobs and maybe
better for inflation like what is he meant to do do you think he's doing the right thing

(22:14):
Well, that's a wholly separate question, but let's go to the first part of that, okay?
So, you know, a lot of people, and I always think this is fascinating, they will, I actually
was DMing with Lynn Alden about this.
A lot of people will sort of like, they'll parrot the fiscal dominance regime without
really understanding the implications of what that means.

(22:34):
If you are truly in a fiscally dominant regime, by definition, right, the monetary policy is
indominant, less dominant, whatever you want to characterize it. Meaning that, does it really
matter? Like, does it matter if the Federal Reserve cuts 25 bps, 50 bps, 75 bps? They have
a communications channel, right? They have an expectation setting channel. There are clearly

(22:55):
segments of the economy that are desperate for lower rates. You've seen that for years now,
the weakness in those parts of the economy that are well documented. But to your, you know,
sort of broader question, they're cutting rates here in a dynamic where they're also continuing
and you roll off their balance sheet.
That seems at cross purposes,
but I think they're dealing with a lot.
They're dealing with the political pressure.

(23:16):
Obviously there massive implications for the erosions of Fed independence and without casting a judgment on it you have to accept that it is on the table right You know less Fed independence But the question for me that is important to focus on is that you know what is the implicit
message that is being sent when you are cutting rates in an environment where you still have the

(23:40):
inflation metrics, the Fed's own metrics running far too hot? And I think it is an implicit
sort of suggestion that, you know, our rate hiking, rate cutting policy isn't perhaps as meaningful
as it once was. And I truly believe that. I think that, you know, is it going to really amount to a
whole lot? No. I don't think it structurally changes very much cutting 50 or 75 bps. You'd

(24:01):
have to cut substantially more than that, I think, to trigger some more of a credit impulse in the
economy. So that's the broad takeaway. I mean, it's almost like an admission to some extent,
a tacit admission that their rate hiking policy isn't going to bring us closer to target.
We have to rely on the rates naturally.

(24:22):
Well, we have to rely on the inflationary pressures naturally abating.
You know, there's an interpretation out there that we probably would have gotten through,
you know, the pig of Python of stimulus and seen that natural roll off of inflation in
2022, even if the Fed hadn't have hiked.
You know, if the Fed had kept the neutral, kept it, you know, let's say, you know, somewhere
in the low threes or something like that.

(24:44):
There's arguments out there
that those inflationary pressures
driven by the lockdowns
and driven by the excess stimulus
would have naturally abated,
regardless of what the Fed did.
You can't really test it.
It's not quantifiable, right?
But to me, I think the reason
they're doing this,
which is the whole long and variable lags
and we want to do these sort of insurance cut.
I mean, Powell used the term

(25:04):
risk mitigation front, right?
Risk mitigation cut at the last presser.
I thought that was fascinating
because he's basically saying,
Like we're just as worried about the labor market now.
They've come into better balance or parity,
whatever you use the phrase,
as the inflationary pressures.
Well, your inflationary numbers are still far above target.
So how is it that, you know,

(25:24):
maybe it's just an acknowledgement
that the broadsword of the cuts or the hikes rather
are not gonna be sufficient
to actually bring down the pressures.
So all of that's a long-winded way of saying,
I think they're recognizing that the policy
where it's at right now,
which they claim is slightly restricted
or moderately restrictive,
is not really meaningful.
Yeah, the way I'd sort of,

(25:44):
we're in 2025, right?
And a lot of things are different.
It's not just fiscal policy.
We also have trade policy and statecraft policy.
And so you have an environment
where like the effective tariff rate on China
is like 54%, right?
And then you've got like almost every other country
is facing a structurally higher tariff rate.
You have still the backdrop of, you know,
67% of GDP and deficits.

(26:06):
And then you have an entire new like CapEx boom
being driven by the private sector, now in like hundreds of billions of dollars of, you know,
per deal sizes for building, you know, massive data centers, right? Which are very, you know,
commodity resource intensive. And so you have these massive distortions that all came at the
same time while you have like what the Fed likes to have is like these smooth, you know, long and

(26:28):
variable lag based kind of forecasts. And fundamentally, they just are kind of in the
backseat, right? It's not just they're in the sort of the passenger seat, like all of these other
perturbations in the global macroeconomic environment are much more significant than
a 25-50 basis point cut. And I think the most significant feature of the curve that matters
politically is basically the long end for mortgages, right? Ultimately, there's just

(26:52):
millions of Americans that are trapped in their houses and feel that they can't climb the ladder
and home prices are still stuck very high, and yet to refinance would be prohibitive.
And so there's just a political pressure to bring down the long end while the government knows that
They need to keep refinancing at the short end and they can stuff T-bills into stablecoins.

(27:12):
So this is like very much a political necessity to sort of distort the yield curve and to
ensure that capital flows for the most strategic and like politically conducive purposes.
And the Fed as like a, you know, as an institution is very resistant to being used as a tool
for any of those other purposes.
And that's why we see this political conflict play out, right?

(27:33):
when the federal government and the commander-in-chief and the executive agent in charge of running the country
decides that there's a certain set of statecraft and trade and economic policies they want to pursue.
History tells us usually the Fed gets subsumed, but we're sort of in the middle of that process playing out,
and the Fed's heavily resistant to that.

(27:54):
But ultimately, the Fed becomes less and less of the story and more,
okay, like how much of a resistance are they going to put up to what seems to be like a
structural shift in how the U.S. government is attempting to wield a much more command-driven
economy? Yeah. So Danny, if I can jump in, because I have a question for Matt in this. So

(28:14):
if, what I don't understand is this, there are very bright people in the administration,
and surely they must understand that the overnight rate set by the Fed doesn't amount to a hill of
beans compared to the all-long end rate, right? I mean, you pointed out there, that's the most
politically sensitive part of the curve that really matters for people, matters for households,

(28:35):
matters for mortgages, et cetera. So what is driving in your mind the emphasis on the overnight
rate, which to me, I think, at least from the rhetoric, they seem to suggest that you're
conflating those two things, that if the Fed were to somehow cut tomorrow by 150 bps, that that
necessarily would bring down that long end rate. And I'm not so sure that's true.
What we have seen is that the long end goes up when they cut.

(28:57):
Yeah.
Yeah.
It might even be counterproductive.
I think that's a bit of, I mean, whether it's just like they brief Trump and Trump gets told the rates are too high because Powell's not cutting rates.
And so he just tweets rates are too high.
Whereas the real, like, quote, technocrats just want to capture the Fed and they want to be able to use these other tools, swap lines.
They want to basically do much more strategic cooperation with buybacks.

(29:19):
Right.
So, like, ultimately, control over the long end has been shifting over the last several years to the Treasury versus the Fed, right?
This got started under Yellen with activist Treasury issuance, strategic use of buybacks.
That's only going to increase.
But the sort of effect of that is blunted by moves the Fed can do in terms of how it manages its balance sheet.
And then obviously now, like, Besson comes out and says, we're going to give $20 billion swap lines to Argentina.

(29:44):
Like, a swap line is actually a Fed facility, right?
Like, he can give loans through the Exchange Civilization Fund to another country, but, like, a swap line is an instrument that the Fed has control over.
So, like, there's just a de facto subsumption and a sort of irrigation of a lot of the capabilities of the Fed.
And I think they're just sort of using the short end, like, pressure as, like, a rhetorical tactic.

(30:06):
Because I agree, like, if you just jam short rates down, that doesn't mean anything for a 10, 30 year.
In fact, it might, you know, be counterproductive, but it's a rhetorical cudgel to try to, like, jam the Fed into submission.
And that seems to be their strategy, right, to get to sort of stack the board and squeeze.
So the complaint about the front end is pretext in your mind.
I mean, it could be a mix of both, like, underlings that have, like, you know, a 5D chess and then political apparatchiks that just want to, like, say the line and believe what's, you know, what's convenient for them to believe.

(30:36):
because I agree, like there's no like immediate stimulative effect really from bringing down
short rates except for the, you know, the refinancing of the government, right? If we
have to issue whatever, 25, 30% more on the short end, maybe more now. Well, again, that starts to
add up more for the government's borrowing capacity. Is this not where this sort of quiet

(30:58):
third mandate comes in? I know it was mentioned in the, or I think it was mentioned in the last
FOMC meeting that they want to try and influence the long end. Do you think they will try and
do something akin to yield curve control? I mean, I think they have to, right? If you really run the
numbers, at some point they have to. And I think this is what makes this time in economics. I mean,
for me, I consider myself a macro tourist, right? I kind of try to study it because I find it

(31:22):
fascinating. We're at this point in time where they have to do it, but the path from here to
there, the path dependency, if you just say to the long end, oh, by the way, we're going to yield
curve control, who's going to want to own bonds? And I think Luke Groman does a good job. He
basically says like they have to anesthetize the the bond market lull them to sleep boil the frog
whatever your analogy they that's the path they're going to but if they say it outright and if they

(31:46):
say it explicitly this is why they say it's not qe but it's qe it's some bank funding program it's
some you know adjustment to a regulation over here there's ways that they do this to keep this the
wheels on for as long as possible and i often like i wonder because you know my engineering background
and I look at this and I go, of course, this is what they have to do.
Like, this is the machine, there's sand in the gears.

(32:08):
You've got to get sand out of the gears.
This is how you've got to do it.
But the average bond trader, they still have to plug in CPI.
We all know that the CPI number is bullshit,
but that's the number they have to plug into their bond models
because they know that's what everyone else is using.
So it's like a shelling point.
It's like, I know I've got my own inflation number,
but I know that this guy's going to trade off CPI
and this guy's going to trade off CPI.
So everyone gathers around the room and watches

(32:30):
as the CPI numbers come out,
knowing that it's complete shit
and they change the basket of it all the time
and it's super core and it's magic core
and it's special core
and it's all these different versions of inflation
and we all know it's much higher.
So it's just part of this kind of fugazi game.
Kayfabe, I think people call it.
I think it's gonna be a mix of things.
It's gonna be a mix of, you know,

(32:51):
creative use of national accounting.
But it's also gonna be, I think,
more clever use of geopolitical instruments
of kind of soft coercion
for other allied pools of capital
because you ultimately, to first order,
you want to extraterritorialize your financial oppression.
You don't first go after your domestic political constituencies
and your donors.
You go after the folks at the periphery of the dollar imperium

(33:12):
and you make them take as much pain as you can.
And so you see these headlines like South Korea was committing
to invest $350 billion in AI, semiconductor energy, et cetera,
but they said, we don't actually have the money for it.
And we'll basically give them a backdoor swap line.
So we'll sort of, you know, that's effectively,
like in a certain sense, like geopolitical yield curve management. You're taking these foreign

(33:33):
surpluses, you know, that are oftentimes like managed by, you know, sovereigns, whether it's
explicitly or implicitly, and you're sort of directing their, like their choices of where to
allocate those portfolios into, you know, US-based securities on conditions that we impose, right?
Where we can either get that capital deployed for strategic, you know, national reshoring,

(33:56):
technology purposes or to help fund our deficits.
And that's easier said than done because it requires a joint integrated state craft.
It requires actually being able to cajole slash twist the arms of the Taiwanese and the Japanese
and the South Koreans and the folks in the Middle East.
And it's sort of what was the plan that Zoltan drew up last summer that Steve Moran put in his white paper.

(34:17):
But they're like the whiteboard technocrats.
In practice, you have to get Lutnik to cooperate with Besant to cooperate with the State Department
in Rubio and it actually requires a high degree of state capacity and competence to sort of wield
these different instruments to, you know, steer capital and suppress the long end. And I think
they've like, they're not like, I think they're learning how to do that more effectively. And

(34:38):
then there's like these moments after Besson comes out after Liberation Day in the, you know,
30 years spiking to 5% and it's like five long fire and then it generates a coordinated reaction.
And then everyone just goes back to the normal beefing where, you know, Besson's going to punch
Pulte in the face, right? And so... What's the coordinated reaction? Is this rhetorical?

(34:59):
Well, I think when push comes to shove, right, the sort of allied network, you know, kind of the
Five Eyes Alliance plus kind of NATO plus, at the end of the day, everyone has a mutual interest in
the dollar-based system not just blowing up overnight, right? And so, you know, at the same
time that they also want us not to renege on our security commitments. They also want us to give

(35:20):
the max is to cutting edge GPUs and our frontier AI models.
They want us to like continue servicing the, you know, crappy F35s, et cetera.
So there's like lots of, you know, other sort of carrots and sticks that the government
could use in like a, you know, optimal bargaining strategy with say Japan or Taiwan.
And that's really hard, right?

(35:40):
And actually how do you price each leg of those different, you know, carrots and sticks
requires like a lot of state capacity.
And when push comes to shove, maybe they can do it well on like a handful of deals, but
then other deals get lost in the cracks.
Yeah, but Matt, that buying doesn't even account for 40% of the treasury market, right?
I mean, like the external, ex-United States.

(36:00):
I mean, the bulk of treasuries are owned by U.S. institutions and entities and individuals.
I think there's buying time.
I think it's just like Besant doesn't want the 30-year to blow up on his watch.
And so he's looking at like a quarter to quarter basis to see how much do I have to issue?
How much will be taken down by domestics versus foreigns?
How much can I sort of, you know, play this game of activist treasury issuance that Yellen started?

(36:23):
And, you know, he only needs like an extra $20, $30 billion to prevent an auction from going bad, right?
And so he's just playing, I think, the game to last to the end of the term.
I don't think this is like the one weird trick, strategic game changer for the government's fiscal position.
But it's sort of like they're looking around and they don't want to have a 30-year go above 5%.

(36:45):
And so they're just going to try to pull the different levers to bring it back down.
And that doesn't require hundreds of billions of dollars.
It requires, you know, Japan coming in with 20 billion on a Sunday night or something.
Got it.
I mean, to me, the original question about the yield curve control, I continue to believe we're far way away from that, a long way away.
I mean, I don't really see that.
I think there's far more softer measures that you can do before you can get to something remotely close to that.

(37:11):
That's what strikes me as sort of an extremist measure.
and everything Matthew's talking about, and I think would come first. And to me, ultimately,
a huge factor in the long end discussion is the implications for inflation and for economic growth
generally. So if your view is economic growth is going to remain robust, then yeah, I could see an
argument for how the 10 year and then 30 year continue to sell off. I mean, they're driven

(37:37):
primarily historically by nominal growth rates and inflation. So what's your forecast for the
economy. What I don't understand, Danny, and this is what frustrates me, we talked about this in the
last interview we had, you can't have it both ways. You can't say growth's going to collapse,
we're going into some hard down recession, and yields are also going to skyrocket. I've never
understood that logic. I can think of some sort of tail events that could possibly trigger that,

(38:03):
but those are tail events. They shouldn't be your base case. Because that's emerging market
behavior, right? Where people sell the long end or they don't own your bonds when you go into a
recession. So I think that would be the case against that is if we do have some kind of a
recession and the market goes, okay, so you're running 8% deficits in the good times, those
deficits go to 14, 15%, right? They shoot through the roof in a recession. So the reason someone

(38:27):
would sell the long end and your long end would go up is actually emerging market type behavior.
Now, whether the US is going to get there, I think there's always going to be that just like
built-in response where they bid the dollar, bid the bonds. But the fact that we're seeing this
cut rates long end up, gold up, all of these things are just starting to US equals EM. We're

(38:48):
not full emerging market, but we've got the initial flavors of it. Well, I mean, we cut rates
last fall and we cut rates just recently, right? And the long end 4.70 as of today. I mean, we were
In October of 23, we were at 4.14.

(39:09):
So, I mean, you're 40 bps lower, 45 bps lower roughly in change.
From October of 23, we've run structural deficits,
67% deficit GDP for the last two years.
So if it was purely a supply issue, if it was purely a –
now to Matt's point, it's like, well, we've been relying increasingly on long end,
so you don't have a supply catalyst to cause that.
So that's another compounding variable there.

(39:31):
but I don't know I'm not as convinced that cutting at the front end is necessarily going to trigger it
to sell off aggressively I think it would the more likely scenario Jack is in my mind it's to
stay structurally higher I mean regardless of all these efforts that Matthews is talking about you're
stuck in the fours say you know the higher fours that that that seems like the base case higher for

(39:52):
longer yeah yeah yeah no 100% and I think the other thing to bear in mind is if you look at
it's the US is the cleanest dirty shirt. Look at the UK. I mean, look at Japanese bonds,
look at any other market. Now, granted, a lot of those, you know, Japan are as much lower than the
US. So you could argue there's a bit of a normalization going on there. But if you look at
UK, for example, they are trading like an emerging market. They're above the list trust moment. So

(40:16):
it could just be that the US being the, you know, the privilege of the global reserve asset and
currency, it's going to take longer to lull that bond market to sleep. But over time, it's going
to happen. But I agree. I don't think these things are going to happen straight away. There's going
to be a whole process. And coming back to the original Bitcoin conversation, I just think a lot
of people miss how glacially macro moves. We can see a lot of these things coming down the pipe.

(40:41):
I looked at when I started really grokking Bitcoin, 2019 is where it properly clicked for me.
i didn't really understand anything about macro but i understood that the debt situation was a
problem and a lot of the things we're seeing playing out now i couldn't have described that
to you back then i wasn't experienced enough with it but i had this feeling that it was going to look
something something like this there was a reason why you wanted to hold hard assets so i made that

(41:05):
decision back then so it's one of those dynamics where it's going to take a long time for this
stuff to play out you can see it years in ahead but pricing then into the next daily candle is
where a lot of people get stuck because they think, but hang on a second, why doesn't everyone
else see this? Because there's a thousand and one incentives that cause them to not see it,
or there's regulations, there's mandates, there's all this other stuff going on in the background.

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(44:02):
Joe, I know one of the things that frustrates you about like the Bitcoin macro conversations
is the fact that no one really talks about growth and productivity.
If we are going to see a lot of that, where will it come from?
Is this going to be like AI robotics type stuff?
Well, I would argue you're seeing it for the last, like one of the reasons why the recession
eases have been consistently wrong is what Matthew alluded to earlier with this CapEx

(44:25):
boom.
I mean, this is a massive deal.
There's some forecast.
I can't remember what the note it was, but, you know, it's still in the pipeline.
We've got, you know, maybe you saw this note.
It's on the tip of my time.
Three trillion.
Is it two trillion?
Yeah.
I think it's three.
Three by five.
Three trillion dollars are coming in over the next couple of years here.
Into the, in terms of capex, you know, those are jobs.

(44:46):
Those are, you know, those are private sector stimulus.
That money's been secured.
It's not.
From where?
Where's that money coming from?
Well, some of it's just cash reserves of these mega caps.
I mean, they're flush with cash and they're spending in a very smart, intelligent way.
They're trying to build out this, you know, industrial revolution type moment here.
And that money is going to flow through and it will have a multiplier effect.
Private sector spending has a greater multiplier effect than government sector spending.

(45:09):
I mean, there's some studies that say the money multiplier is declining to really sad levels when it comes to government spending.
Right. So but the private sector, you're not seeing that you're seeing massive, I think, investment here.
And that will continue. And that this was specifically alluded to during the last FOMC.
We don't know exactly when the CapEx boom is going to end or come to a halt here, but we do know that there's at least stated intentions for the next couple of years now, at least, to put trillions of dollars into the economy to do this build out, which is essential.

(45:39):
It's non-negotiable.
I mean, it's for winning the next couple of decades, potentially, in the AI race.
So I don't think that's going to be deferred.
I don't think no matter what the economic conditions are, I think that money gets spent into the real economy.
So in terms of growth, right, that's a ton of private sector capital that's going to propel.
And I mean, this is a Matthew question, really, if you're going to get the return on the investment.

(45:59):
I don't know. I can't forecast that. I'm not smart enough to figure that out.
But I do know that I think it is a big mistake to just say, no, you're never going to get any growth from this.
This is another tech bubble like 2000. None of these companies are going to make money off that.
I think if you make that calculation without doing perhaps the homework that Matthew or others have done on this call, you're potentially committing a catastrophic error.

(46:21):
So can I throw a question here?
Cause this is something that like the one thing I have been looking at is just like the concentration
of stocks on this AI boom.
Yeah.
You look at all the indices, you've got the hyper-financialized economy.
If Nvidia falls, cause if you look at really the, it's all the same customers.
Nvidia trading product chips with Microsoft and they paying open AI It kind of this big circle of like you know 12 15 firms And you can kind of look at that and go look there a couple of like left paying the right type dynamics Is the ROI there

(46:51):
Matthew, I'd love your views on like how sustainable is this thing?
Because like I get the statecraft element.
I understand that the administration wants to win this AI boom,
but there's only so far I can imagine companies running non-profitable strategies.
And I almost think about it in the world of Bitcoin mining,
where you've got the subsidy,
which is all these models getting trained,

(47:12):
guaranteed massive load.
And then you've got to move to inference costs
where people are actually using it,
it's getting built into businesses.
That's kind of the fee model.
And I would imagine that we've got to kind of hit
that critical mass where people are really integrating
in everything that they do.
But I'd love to know your thoughts on like how,
how this sustainable, this inverted commas bubble is.

(47:32):
We're moving from like a regime of analyzing AI
where it's kind of a firm specific ROI analysis.
to a point where you're understanding, is it going to have macroeconomic effects and could create a financial bubble?
And it's like, well, just that fact alone means that if you're trying to analyze the next few years of your macroeconomic forecast,
and you don't take very seriously what's already in the pipeline and what the folks making these trillion-dollar investment decisions believe about the future,

(47:58):
then you're just kind of in denial or you're going to get smacked in the face, right?
Now, those people might be wrong. Their assumptions might be ill-founded.
but like they're the ones going to be in charge of borrowing trillions of dollars and deploying
that into the economy and so like whether you like it or not like that's just going to be a
baseline feature and now from like the perspective like an individual um firm's uh best use of a

(48:19):
particular you know uh capital structure whether it's going to pay pay back their investors i don't
know right there's like idiosyncratic business decisions that could lead to failure the the
overarching feature of this uh new era that we're entering to is going to be accelerated creative
destruction where you could have like a absolute unicorn darling pop out of nowhere get 10 billion
dollars at arr and then go bankrupt the next year because somebody else figured out how to basically

(48:42):
automate their business model so you could have enormous amounts of capital destruction you know
equity and debt losses people pick the wrong horse right and so yes very clearly i think there are
going to be business models that everyone falls in love with that are the next big thing that
absolutely blow up um and people will point to those as the direct analogy to like pets.com or
or whatever is like, there's hype, there's froth, there's massive capital misallocation,

(49:05):
people are just trying to ride the wave, meme, hype, etc. Right? Typical story. I think though,
there's something fundamentally different. The folks deploying this capital now, as Joe mentioned,
most of them are deploying it out of their existing balance sheets. They just have huge
amounts of capital and cash flow. So Google, Microsoft, these hyperscalers are cash flow
generating machines. And they can take pretty healthy leverage on that without really getting

(49:28):
their balance sheet upside down.
And there's other folks like OpenAI that have to do
these really creative sort of deals with Oracle and NVIDIA
to try to bootstrap the scale of this investment.
But it's not fundamentally different
than just taking somebody else's massive cashflow
generating balance sheet to deploy
into the next generation of models.
Then the ultimate question is like,
okay, well, where's the beef?
Like in the internet in the late 90s,

(49:50):
it was kind of like e-commerce wasn't a thing.
Like it was just all a belief system, right?
Right now, like people are paying for tokens, right?
Like they're economically valued
and they're generating massive amounts of revenue
at a pace that like no other technology has ever generated.
And so it's like,
there actually is a huge amount of demand
for these things, right?
Now, the real macroeconomic question
is then the productivity,
you know, downstream effects of that, right?

(50:12):
You know, right now people have lots of different ways
of trying to measure that.
I think they're terrible.
Like we don't really understand how to measure,
you know, productivity, you know, with these tools
just because the rate of change is going so fast
that like most,
by the time you do like a good economic study,
it's like 12 months out of date.
And if you just look at the scaling curves for most of these different benchmarks, their doubling time is like six to eight months.

(50:35):
So like the median task that a model can perform is doubling about every seven months.
And so by the time you feel like you've got a really good econometrics analysis of the effect of these things, it's kind of out of date.
And so you're principally just relying on trust in the scaling curves.
Will these scaling curves continue to go up?
and that's what's convinced most of the capital in the world

(50:56):
to deploy the marginal unit of their holdings
into something related to AI.
So I think there will be massive amounts,
there'll be unprecedented amounts of capital destroyed
in this AI boom, right?
Just because the amount of money that's going to be deployed
will be unprecedented in scale.
I think Joe put it right.
This is an industrial scale transformation, right?
Compressing maybe 100 years of industrial revolution

(51:16):
into maybe 10 at most.
And we're not even at the point of seeing the downstream implications of what sort of this order of magnitude step change in intelligence gives you, right?
When, you know, you get to an era of, okay, people can book tickets more easily through, you know, whatever, Stripes, OpenAI integration.

(51:37):
Great, right?
But like secretly, they're all working on trying to solve fusion, trying to solve room temperature superconductors, trying to create like breakthroughs in quantum computing.
trying to like unlock what would be separate trillion dollar you know sort of breakthroughs in
in uh in uh our sort of economic substrate who knows like those could be just figments of the

(52:00):
imagination but if you draw out these curves like these frontier math benchmarks these like you know
very very difficult uh areas of human um knowledge and skill are like quickly being reached by these
models. So I think you're going to enter a much more volatile regime where just the amount of
investment will distort the GDP statistics, right? Could actually kind of turn what would

(52:23):
otherwise be a soft recession into positive GDP just because of just the capital investment.
But then if you think about effects on total factor productivity, if that goes up by just
a few percentage points over the next few years, well, that's going to have a pretty significant
you know, fiscal effect as well.
But I think in the CPI statistics,
you're probably going to see

(52:43):
like very kind of conflicting inputs.
You're probably going to see, you know,
cost deflation in a lot of services
as you get more things like automated
that will have labor and political effects.
But then you're going to have
bottlenecks in the economy,
like, you know,
anything connected to energy,
essentially energy and commute
is going to go up.
So like, you know,
power prices are going up,
you know, whatever, 15, 20% per annum,

(53:05):
which is like unheard of.
So you're going to see different parts of the economy be sort of strained differentially and sort of aggregate statistics will not really capture that.
You're going to have unemployment at the bottom.
You're going to have a lot of people that can just be massively more productive and capture lots of different value.
So it's just like it's a massive shock to a system that normally likes to be in like a few percentage point kind of change every year.

(53:28):
And when you have something that changes things like, you know, like we saw the pandemic, when you like all of a sudden third of the workforce is like not working anymore.
where you get massive ricochet effects.
I think we're going to see something like that
instead of over the course of like three weeks
during COVID,
it's probably going to be over the next three years.
So it'll be a bit more smoothed out,
but the scale will be just as significant.
So I would say, you know,

(53:49):
anyone who picks a particular forecast
for like by X date,
you know, we'll all be driving,
you know, sort of flying cars
and a robot will be doing my laundry
is just kind of picking a dot on the wall to throw.
But I just say like, do not,
you know, the one lesson I have from Bitcoin
is when a bunch of hyper-autistic nerds become obsessed with an early part of an exponential
curve, don't fade them. And there's a whole cohort of our most gigabrained autists are

(54:17):
looking at, they're spending all day just plotting new lines on this exponential curve.
And they're like, yeah, this is where it's going to go. And so in general, the same thing we started
during COVID, a bunch of hyper-autistic people were drawing dots on a map and being like, oh,
okay, this is a curve. Now, there's no such thing as a true exponential, right? Ultimately,
it becomes a logarithm, right? The question is, you know, how far are we from that curve?

(54:41):
So anyway, that was a bit of a soliloquy. I would say, yeah, the impact of transformative AI is
going to be hard to underappreciate. And it's going to have downstream effects on everything
else, right? Everything in terms of how we measure inflation statistics, how we measure GDP,
how we think about the labor market, how we think about the political effects in starting as soon
is the next election. And that will become, I think, the defining conversation of our political

(55:05):
lives in the next few years. Yeah. So just, Danny, just hearing all that, just real quick,
you know, I cannot help but think you've got these paradigm shifting, transformative,
I mean, even go as far as to say revolutionary effects that are coming in from the private sector
with these tools. And then you've got how much digital ink spilled over whether the Fed is going

(55:26):
to cut 25 or 50 or hold steady. I mean, it just seems, you know, the old Chair Eccles comment
about pushing on a string in the 1930s, like wondering if monetary policy has any effect to
revive a depressed economy. I mean, I think it holds true here in sort of a similar way, right?
Like you've got these massive forces coming into play, and then you've got people fixated on whether

(55:47):
Jerome Powell's going to cut or hold. I mean, it just seems so misguided. It's like you're not even
focusing on remotely what was close to being important here. Yeah, I totally agree with that.
But one thing that that did make me think is if we're going to see massive capex, potential
positive growth in GDP, but at the same time, we'll see potentially a lot of job displacement.

(56:07):
How would you calculate what that actually means for the economy?
And do you think this is just like another turbocharger on wealth inequality, essentially?
Yes.
I mean, yeah, like the short answer is it will lead to more wealth inequality.
It will lead to higher structural unemployment, but it will also potentially lead to higher
tax receipts because asset prices are absolutely going to moon. Like high-end wage earners will

(56:30):
see their incomes disproportionately go up. And so you'll see the hourglass economy becoming even
more of an hourglass. And I think that's the real risk is that it stretches too far and the rubber
band breaks. And then you get a massive political reaction, blow up the data centers, you know,
sort of expropriate Elon's wealth. And kind of, you know, the political system we're sort of
evolving into is one where you have these techno-feudal sort of oligarchs controlling their

(56:53):
own like full stack estates like they're getting to the point where they're sort of seceding from
the normal public goods world where they want to build their own you know uh fully integrated
ecosystems from their own power right to their own to their own uh to their own chips to their
own you know distribution centers to like you know again like their own e-commerce platforms
where they can take the vig it looks like okay the government's gonna have to actually use a lot of

(57:17):
power on that really hyper concentrated techno capital stack in order to try to get something
out of the surpluses to then redistribute to the folks that are massively displaced.
That's going to be basically UBI or an AI dividend.
How we approach that is going to be a very contentious, I think, issue, right?

(57:37):
Because I think these disruptions are going to come, right?
I talked to these folks at Frontier Labs, and they're literally like they have entire
teams with mass amounts of resources trying to automate as many jobs as they can.
They have a whole list of them and they're paying billions of dollars to try to like get people to train their models on how to do all of those tasks.
Everything from like, you know, health insurance claim automation, DMV processing, you know, like you name it, kind of like white collar labor back office functions.

(58:05):
They're like pouring billions of dollars to try to automate as much of that as possible.
And that will happen to kind of in a nonlinear phase transition.
Like you want to have someone do your QuickBooks.
You don't just take someone off the street or give a college student that job because it's important that the numbers be right.
And so you're going to try to get these A models to do QuickBooks for you.
And it's not going to be good enough right now.
So you're going to like, nope, not going to do it.

(58:27):
But as soon as it hits the point where it can do your QuickBooks reliably, everyone in the economy is going to, you know, fire the person doing their QuickBooks for them.
And so you don't just get this like incremental kind of attrition.
You get like an entire new job class just gets eliminated.
Right. In a matter of months.
And that we haven't really seen that yet.
but i'll say like people are worried about bitcoiners being the subject of like five

(58:49):
dollar rent attacks and like the hyper bitcoinization scenario right which could be still a thing um
but like you know that like when you have just like entire occupations just kind of being
like iced out like overnight and people are not ready for that um yeah is this why the ai tells
people who are clearly wrong that they're absolutely right just to maintain social fabric
is that what this is all about well it's an interesting lesson from bitcoin of like um

(59:12):
you know, a really niche kind of out in the wilderness subculture that had very
idiosyncratic beliefs about the future. This sort of transformative technology was going to come in.
It was going to be really significant. And then there was, you know, the laughing, you know,
chattering classes sort of sneering and saying, no, no, no, you're just a bunch of anarcho-capitalist
nerds. And then we're like, okay, well, now the president thinks, you know, we're like legit now.

(59:35):
And the government is holding their Bitcoin and it's like a thing. But like that transition was
very, very awkward and it still isn't quite complete. I think with AI, it's like the PR for
AI is like very much a, you know, wherever you sit. And I think that like, you know, you talk to
an early career graduate, you talk to, you know, somebody who's, you know, too old to be retrained,

(01:00:00):
you know, folks like us, they're like professional, you know, talkers or like we've got like a niche
client base and like, well, I think we're feeling pretty, pretty relatively confident in our,
economic mode of being. I think there's a lot of people that are feeling really, really anxious
and uncertain, and they don't like change. Bitcoiners think we are used to change,
reach the volatility. It's kind of the whole, you know, what we sort of signed up for.

(01:00:21):
The average person does not like that. The average person wants, you know, predictable returns. They
want to send their kids to the same college they went to. They want to retire. They want to go on
vacation. And when the outside forces just like, you know, can't be contained by the government,
they look for someone to sort of provide that stability.
And I think that's just something we have to deal with.

(01:00:43):
Well, and that's how you get to deal with that.
That's the core of the issue here, Nanny, because to me, and my view is consistently
that despite all of the hand-wringing about economic collapse and catastrophe of the monetary
and fiscal authorities, I still think that the biggest threat that we have to overcome
is this wealth and income inequality issue because it transfers into a political dispute.

(01:01:04):
OK, and if the type of disruption that Matthew is talking about does come to effect, that's going to be massive, have massive political implications.
It could lead to the rise of, you know, very pronounced socialism in the United States, even more radical views.
And I think that should be on everyone's radar.
If even if you're just following markets, right, you have to understand the disruption this is going to cause is going to be felt by certain cohorts, the population more so than others.

(01:01:28):
And they probably outnumber the ones that are going to benefit from it and profit from it.
But I will note, which I completely agree with Matthew on this, is that I think it's so funny that we go into these rooms a lot and talk to people on Twitter and other spaces about the overvalued of the tech stocks, how the tech stocks are so significantly overvalued and how if you're buying the S&P, you're concentrated in those few different names, right?

(01:01:50):
The reality is, though, if those games and they have the type of integration Matthew's talking about, if they continue to reap most of the benefit and they exacerbate that income inequality that you're talking about, I can't see that the argument that those stocks are all going to collapse coexisting with an argument that, well, these are going to dominate and transform the planet through AI.

(01:02:12):
Right. Like one of those things has to not be true.
Either this is all just fluff, which I tend to fade pretty hard, that it's not going to be as transformative as Matthew was saying.
I think that it will be.
Or if it is that transformative, you should expect those things to just rocket, that those things have those assets, those securities are probably undervalued significantly.

(01:02:32):
I see this as like, yeah, kind of hyperbolic equilibrium, right?
Like either they maybe there's like three scenarios.
One, it's like it's complete, you know, over the skis hype, you know, the debt that's being built up will never be paid back and there'll be billions of dollars of losses and it'll be like a black eye will never recover.
I think that's like less than 5% scenario, but it's like you can't eliminate it.

(01:02:55):
But I think there's also a failure scenario where like they hit takeoff, but then there's a political reaction that like caps your return, right?
There's nationalization, there's, you know, forced breakups.
There's, you know, I think that's also why you see so like a hundred million dollar like super PAC being raised by the AI companies, you know, taking a page out of the crypto playbook to realize, oh, oh, crap.

(01:03:17):
Like we are about to hit this inflection point.
Everyone's going to see like our asset prices absolutely run.
And everyone, you know, Elon's going to be a trillionaire and Oracle, like everyone's going to be so much wealthier that holds Nvidia stock.
They're bracing for the political counter reaction because they know that that's one majority vote away from being taxed out of your hands.

(01:03:37):
And so I think that we're in a very weird dynamic where if you do see these exponential returns, if they happen too fast, that was also the concern Bitcoiners have.
Like if we do get to this like, oh shit moment and like there's like a veto on the US government
for whatever reason and, you know, Bitcoin's gapping up $100,000 in a night.
Well, like that's almost too fast because the political reaction to that could potentially

(01:04:01):
like stop it in its tracks and, you know, you maybe never recover.
So I think there's, I think folks at the top of these capital stacks and tech stacks are
now positioning themselves politically to try to like, you know, mitigate that, that
counter reaction so they can kind of protect those rents.
Ultimately, you're talking about these techno feudal states where they've got essentially a monopoly to a certain extent between, not a monopoly, but they've got like a hyper concentrated set of very competitive, but ultimately like a handful of companies owning all these, all this compute and they can charge, you know, a ton of money for that.

(01:04:34):
And the question is, how does that massive surplus get distributed to the rest of the society?
I'm really interested what Joe and Checkmate think of what Matthew said just before in terms of UBI
because ever since like the last few years when AI has become apparent it's going to be
insanely disruptive like UBI is the only thing I can see happening here like I don't know how we
get to this AI world without it like ideologically I don't really agree with UBI but I don't see

(01:04:58):
how they'll have another option do you think that is probably coming? I think so I mean when you
really just look at how this plays out you almost end up with like a permanent underclass like we
already have the the bones of this now and if the wealth inequality keeps going which it sounds like
it certainly is you kind of just end up with these folks who are almost unemployable in many ways if

(01:05:19):
you start wiping now yes there will be jobs that get created but you know it's kind of higher level
you know your electrical engineers and things like this it's it's a not a you know something you can
go from working in quickbooks to suddenly being electrical engineer right these things are hard
to retool in. So very, very challenging. And I do think that's probably where it ends up.
It's also where a lot of these things end up if you just look through history, right?

(01:05:42):
Periods of inflation, regime change, it tends to end up in these more social policies because
people feel left behind and they feel left behind today. So if that's going to accelerate,
you can expect it to accelerate. Yeah, I agree. I think politically,
I'll start with the stipulation that I think we have in many countries UBI light already

(01:06:04):
through various different social programs through tax credits, et cetera. I think that only has more
mission creep and trickles towards more proposals. Whatever you want to call it, right? And politically,
you might not call it UBI at first, but I can see various efforts to sort of curb the
overnight influence of the forces that Matthew's talking about. And they will be increasingly

(01:06:26):
creeped out in any form, whether you call them a tax credit or other transfer credits or
displaced workers' credits. I mean, this is not new. And in many ways, it's an older playbook
that has to be recycled and probably to a larger degree. So I think it is inevitable. It's just a
question of the sequence and how it gets rolled out. Joe, I have a question for you. So connecting

(01:06:48):
to the Fed, right? So if you're briefing the Fed and you're like, hey, there's several trillion
of capex coming in um assume baseline several percentage points increase in in total factor
productivity say that means like the r star which is like they're kind of like shibboleth they're
like you know their internal target say that means that that structurally is going to rise
several should be higher yes several several percentage points meanwhile you have potentially

(01:07:14):
like white like increasing structural unemployment because of you know the labor displacement of of
of ai so like ai both causes long-run growth to increase you are you know going to be running the
economy really hot you get nominal gdp is really high tax receipts are great maybe the government
can even cover some of its deficit now because you know it can just tax capital gains um but the

(01:07:34):
unemployment figures are also skyrocketing right so like you have well define skyrocketing well i
mean say that you know if you know a mass and also maybe like it's it's contrary in certain cohorts
maybe like the the under under 30 cohort is reaching you know 30 percent unemployment 40
percent unemployment. It's like a Great Depression for some parts of the economy. It could even be
in like a lot of blue cities, right? Where it's kind of most PMC class jobs just get like,

(01:07:59):
just decimated. And like Accenture and Jolloy just announced 20, 30 percent across the board
cuts. And all of a sudden you've got people in relatively wealthy, you know, congressional
districts being like, what the hell, right? Like I could see this happening. The Fed is like,
okay, they're potentially coming into the bottom of a cutting cycle next year when this starts to
kick in. Like, what do you see the Fed like doing in that environment where our star is higher,

(01:08:20):
unemployment's also going up, you're heading into an election. It seems like everyone says that
they're in the worst of all possible worlds right now. Like, I can see it's only going to get 10
times worse for them next year. And then Trump's just going to have his guy in there. Yeah, I just,
like, wherever the conversation about the Fed is today, I just see that conversation is getting
more insane in the next 12 months. Yeah, it's going to get more insane. I think, to start off,

(01:08:42):
I think they should revisit all of their models, right?
All of their models are broken, as we like to say, because they are.
Let's be honest.
First of all, the R-star discussion is, I think the R-star is, you know, they'll say they're still sufficiently restrictive.
I'm not so sure about that.
I think R-star is going to be structurally higher moving forward.
But to answer your question more directly, you know, comparing the labor market dynamics to the inflation dynamics and the neutral interest rate dynamics,

(01:09:10):
what they have said and what Paul has said repeatedly,
and they've actually analyzed this
and looked at this a couple different times
with their mission statements or equivalents.
And they said, look, if you had to take the two targets,
you got to figure out which is more out of whack.
Are we farther from the inflation target
or farther from the labor market target?
To me, I think it's an easy call currently.
I think they're much further from the inflation target.

(01:09:30):
Now, the problem why I started off with like,
let's check your models is because is the 2% target,
given the forces and dynamics you're going to talk about
with growth and inflation expectations,
is that a realistic target, given the rate of our economy, given the rate of growth,
given the rate of government spending? I don't think it is. I think that the most likely scenario
is sort of a, they'll never admit it actually, but a realistic abandonment of the 2% target in

(01:09:54):
favor of three. And I think that's mostly how they're going to square it. They're going to say,
look, this is beyond our control. We're dealing with things that are outside of our ability to
effectively cajole or influence So we can prevent us from collapsing the labor market further So when push comes to shove I think they going to take the structurally higher inflation
for a variety of reasons, one which is government debt and burning away the debt, the running hot

(01:10:16):
narrative, et cetera, in favor of keeping unemployment to the modest degree they could
influence unemployment, a lid on it. Now, all bets are off if you're, that's why I sort of
interrupted you rudely with the like, what is runaway inflation, right? Or runaway unemployment,
Because if you're at 10% unemployment, that's drastically different than 5 or 5.5.

(01:10:37):
To me, run away, let's get above 5% on unemployment.
But then you've got folks that say, look, the unemployment rate is being confounded by this mass exodus of retirees and the boomers live in the job market, workforce participation, immigration.
So again, structural issues beyond which the Fed has control.

(01:10:57):
And going back to Danny's earlier point, like I still, for the life of me, I know there's political justifications for it, but I don't understand all the ire that Powell is drawing here.
Like, I mean, look, like we all know behind the curve, misforecast inflation, the transitory rhetoric was awful.
Let's stipulate all that.
But what do you want the guy to do with some of these forces that he's having to deal with here?

(01:11:19):
One of which is the constant, you know, berating from the president on this rate issue.
So I guess in summary, my view is I think they're going to have to sacrifice our star in favor of the labor market.
I think that's ultimately how push comes to shove when they have those two goals and they're in conflict with one another.
And I think that's the choice they'll make every time.

(01:11:41):
Which is effectively grow your way out of it, which is another euphemism for inflated away.
Yeah.
And at the end of the day, they can pound the table as much as they want about Fed independence, Fed independence.
We know they're not truly independent.
I mean, they have to, it's similar, you know, and I kind of learned this with the court system, right? And I have a profound amount of respect for justices and judges, so I don't mean to besmirch any of them. But I'll just tell you, like, I think it's very naive for people to completely say they're objective in every regard when they're put into places by, you know, a political party or partisan, and that is in the back of their mind.

(01:12:18):
At a minimum, it has an appearance of potentially tainting their views or tainting their decisions.
And there are very noble people that try to disabuse themselves of any influence.
I get all that, but it still has an effect, I think, in my view.
They're human beings.
They're not computers.
They think about these things.
They think about their career.
They think about their legacy.

(01:12:38):
They think about their friends.
So I think that's an influencing factor that people discount, no matter how much they say they want to be objective.
i i mean i i think you're absolutely right to say we don't really know how independent the fed is we
know it's not so it's certainly not completely independent but if trump gets his way here i'm
sure you all saw the meme yesterday of him saying he's going to fire powell he's obviously been

(01:13:01):
ramping up the pressure as much as he possibly can but if he brings in moran or someone else who
is essentially just a stooge for the government like are there severe negative impacts from that
But, you know, I'll start with that. So first off, I will note, it's kind of an interesting thing. This challenge to Lisa Cook as being briefed in the Supreme Court, you had every living Fed chair sign off in support of Cook's position, as well as, I mean, I don't know, was it over two dozen Nobel laureates in economics?

(01:13:34):
I mean, it was a huge number, and I'm double counting some of them.
But the point is that I think that the mainstream view would be that the erosion of Fed independence is a systemic risk to the economy and to the monetary system.
I do believe there is strong arguments that historically we have gone through periods where Fed independence has been undermined.

(01:13:59):
It has been much less independent or central bank independence.
The United States more broadly has been less independent than it is currently.
So I'm not so sure that I can draw an easy conclusion on that.
My general view is that I think it's a more stable feature consistently across history to have an independent central bank.
However, I question whether they have been independent for the last 20, 30 years.

(01:14:24):
I think they have had significant political forces thrust upon them and political influence that has been asserted on the Fed really since the GFC, perhaps before that.
So I guess I question whether this is really just an acknowledgment of sort of the current status quo, but people finally are being forced to admit it.
I mean, the PBOC is not an independent central bank.

(01:14:50):
And if you model the decision environment for national leadership as one of acute and only increasing strategic competition between U.S. and China,
and the U.S.'s way of prosecuting the conflict is trying to emulate China as much as possible,
which seems to be our strategy of industrial policy, subsidies to critical industries,

(01:15:11):
and picking national winners and losers,
forging national champions that hew to our strategic interests,
then the monetary independence of the central bank
is, from that perspective, seen as a luxury of peacetime
that is sacrificed in order to prosecute geopolitical competition,

(01:15:34):
just like we did in the 40s and 50s.
And that, you know, the hope would be,
okay, well, that doesn't do permanent damage to the institutional DNA,
and that when those exogenous geopolitical conditions relax,
then the kind of inherent kind of structural division of responsibility
between the Fed and the Treasury.
But like we haven't declared a war.
So we kind of live in this ambiguous Schrodinger state of,

(01:15:55):
you know, political polarization where all of President Trump's moves
are viewed as essentially political actions against his domestic adversaries.
But at the same time, the president is the executive agent,
commander-in-chief. And so his actions are also strategic moves in at least nominal defense of
the national interest. And in many cases, it's hard to tell which is which. And so the political

(01:16:19):
subsumption of the Fed could be viewed as just his henchmen going over to take over the one
entity that hasn't bent the knee. But from another perspective, it's, hey, we need to have all the
tools at the president's disposal to fight essentially a total economic war with China.
I think you could have a fair view of that, and it's probably a mix of both.
Yeah, I don't know. I agree with everything you said there. I'll just note that I think that the way to defeat if you're if you're in a geopolitical sense and an economic war, the way to defeat the people's role of China is not to emulate them. I think there are other avenues.

(01:16:53):
I agree with you. That's been my main criticism for the past year is like, you're not going to out totalitarianize China. You're not going to like out state capitalism China. Like, it's just like our ace in the hole has always been our ability to weld relatively free capital markets, innovation, the most high density talent clusters in the world, and like turn great ideas into like world dominating businesses that like preserve our competitive advantage, drive, drive GDP growth, and better quality of life.

(01:17:21):
Like that's kind of been our whole thing.
If we're like, oh shit, we need to like bail Intel out and like pay above market price for a rare earths mine and like distribute friends to our cronies that come to the White House.
Like you quickly get to more like Argentina style model.
So it's like we're kind of on a knife's edge here, right?
You could do like really good industrial policy that's like you're picking your spots and it's like well calibrated and it's like, you know, ultimately fair.

(01:17:46):
or you can just do like ham-fisted, you know, handouts to your capitalist cronies and you don't
get the strategic advantage, you know, or the competitive advantage. You just kind of get
money going into different pockets. I want to get onto like the US and Bitcoin. Matt,
when you were consulting for the government a few years ago, you've talked about working on these
low probability, high consequence things, one of which was Bitcoin, one of which was AI.

(01:18:10):
Are they no longer low probability? How has that changed?
uh yeah i mean i guess they went from objectively like less than one percent to like the probability
for example of gold reaching of bitcoin reaching parity with gold by say 2030 if that was a scenario
i think you know when i was doing that you know four or five years ago i would say it was like
less than one percent right i would say that's more like 10 to 20 percent so like a 10 to you

(01:18:34):
know 20x increase of the relative likelihood of a pretty strategic shift in the you know the
distribution of monetary assets in the global system. And I think that's probably like a
reasonable estimate of what some people think inside the DoD as well. I think, you know,
just to give the TLDR, like right now and across the federal government, there's like different
views of Bitcoin of like a policy as a policy instrument. Some folks view it as like a handout

(01:18:58):
political kind of favor, right? That's owed to them because of campaign contributions.
Some view it as a, as a, as a, you know, oh, this is now an established financial instrument.
it's normalized, regularized, we need to have all the right regs, we need to sort of right the
wrongs of the previous administration's kind of heavy-handed, you know, somewhat punitive
approach to the industry. And then you have other folks that see it as like a true strategic ace in

(01:19:21):
the hole for the United States. And you have all those- How would you break those down?
Yeah. I'm just curious. I would say White House, some political appointees,
more like the former. The Treasury Department, SEC, CFTC is more like in the middle camp, right?
It's just a new instrument. You know, it's now legitimized. We need to like, you know,
make it safe for mom and pop and their 401ks.
And then there's the folks in the Pentagon, the CIA,

(01:19:42):
that are looking in the next five, 10 years
and realizing the strategic vulnerabilities
of the current system.
And they're like, okay, well, Bitcoin,
we have about 33% of it.
Relative to gold, we have maybe 8%
of the total above ground gold stock.
So if you just assume gold and Bitcoin
are gonna move up relatively in tandem

(01:20:02):
over the next five or 10 years,
then we have a four to one advantage
by having Bitcoin monetized relative to gold.
And it happens to advantage us
relative to our Eurasian adversary.
So like Pentagon is very much pro Bitcoin.
CIA likes to use it,
but they don't make government policy, right?
So Treasury makes a policy on the SBR
and CFTC, SEC are involved

(01:20:23):
in all the clarity market structure stuff.
So you're in kind of this ambiguous zone
where it's not like the government has one view of things
and this political priorities,
it was clearly stable coins, clarity,
and then maybe SBR, depending on what happens.
I'll just point to the fact that the current new Bo Hines
in the executive director position
at the president's working group on digital assets

(01:20:44):
at the White House,
the top crypto policy advisor to the president,
is a gentleman named Patrick Witt,
who is still dual-hatted in his acting director
of the Office of Strategic Capital at the Pentagon.
So he comes out of the Pentagon,
he's got a lot of sort of NATSEC bona fides,
and he's now leading the crypto policy role
at the White House while also having strong connections into the Pentagon.

(01:21:04):
So he's getting his sea legs under him.
Obviously, the political system inside D.C. has put all their chips on market structure.
Obviously, BPI, we're trying to get the Blockchain Regulatory Certainty Act linked into that bill.
So we have a Save Your Wallets campaign.
Check out our website.
We want to get that protection for open source software riding along with that bill.

(01:21:28):
And then, yeah, we'll see 2026 what happens with the SBR.
I'll just do one last little political update.
Yeah, so like the executive order required the Treasury Department coming up with like budget neutral means of acquiring additional Bitcoin.
We haven't heard anything about that, right?
Now I know I've had a number of conversations.
I've written a few memos laying out all these different ideas.

(01:21:50):
Again, it's their job to come up with a final legal analysis.
And nothing I've heard has been like a legal objection.
It's more of a matter of like political will, whether and how far do they want to go.
And from this menu of options, like which ones do they feel comfortable going forward with?
And someone at the top has to kind of do this.
I mean, the deputy secretary of the treasury was involved in those meetings, Falkander, and then he got fired.

(01:22:14):
And so it's like, OK, you know, you're kind of back to square one sometimes, whereas like you think you're moving and then the guy gets bounced.
Right. So there's a lot of like contingency here.
I'd say like the SBR is kind of like Chekhov's gun.
It was like put on the table in Act One and it's just kind of forgotten about.
and we'll see like maybe they don't complete the story but usually you know it's it's a non-linear

(01:22:35):
thing when the government decides to like buy bitcoin if they ever decide to do that it's not
going to be because like oh they just had to like do that it's it's going to be like a strategic
decision i've always been of the thought sorry just riffing off what we were saying before about
the u.s emulating china china's been which is ironic for a capitalist government they've been
saying to their citizens to buy gold for a long long time and i've often thought like for me the

(01:22:57):
SBR, it's a fun narrative, but I'm not that convinced of how actually useful government
buying Bitcoin actually is. Sure, there's a signaling there, but okay. I've always thought
it to be far more powerful to... The SBR is just Americans' balance, whether it's in the ETFs,
whether it's just private holdings. You're actually better off having Americans owning Bitcoin and

(01:23:19):
then monetizing than the government owning. Because what's the government going to do with it? Leave
it in the vault? Aren't you better off having the capital gains taxes, the wealth effect,
all of that of Americans owning it. So I've often wondered if a much more strategic option is just to
kind of green light and say, hey, we actually want you guys to own this, allow Americans to
get access to it, which is obviously happening. In my view, that's actually a far more effective

(01:23:42):
and probably productive means of generating the same effect. I guess it's a policy judgment of
what's the role of a reserve asset on the national balance sheet? If the government's going to pursue
a policy of making Bitcoin a global reserve asset just like gold is already.
Well, we have about 5% of the total above ground gold stock international reserves.

(01:24:05):
If you add up all the ETFs, it's maybe 8% to 10%.
So you'd be like, all right, well, if we are by policy going to create a world where Bitcoin
is going to be the new gold, then as a matter of national strategic positioning, you should
have a proportional share of it as you have of gold, right?
Now, you could obviously get all the collateral effects by encouraging Americans to hold it
as well if you also want to pursue that as like a strategic shift and you can get a lot of the

(01:24:28):
benefits out of it. I think the real benefit though of holding Bitcoin in the national balance sheet
is actually to ensure, it's actually kind of a socialist policy in a certain sense of like
the right, you know, people that are tracking Bitcoin can buy ETF, but like not everyone can.
So if the government's going to, as a matter of national policy, encourage the adoption of Bitcoin,
it's like, okay, we'll hold some on the national balance sheet to ensure that every American has
some sort of upside exposure to it and not just people that have the wherewithal to buy in an ETF.

(01:24:52):
And there's others outside the box ideas like BitBonds, et cetera.
Andrew Hohn's this great idea of like how maybe you could engineer actually a pay down of the national balance sheet a bit more speculative kind of if then, right?
But yeah, that's like a policy choice.
It's a question of the government.
If they decide to make Bitcoin into a national strategic asset that they actually want to be monetized, disproportionately relative to gold in the holdings of other countries, well, then like you should like, you know, make good on that, right?

(01:25:22):
If you don't think that's your policy objective,
you just want it to be adopted as a financial instrument,
you know, another commodity-like synthetic digital asset
that you don't want to displace gold
or you don't want to reach parity with gold,
well, then you should not adopt it in your national reserves.
But those are, like, different objectives.
If you're like, we only really want Bitcoin
to kind of slowly go up to $5 or $10 trillion
and we never want to live in a world

(01:25:44):
where Bitcoin is, like, surpassing gold,
well, okay, then that's fine, right?
But if you're assuming that that's a world
that you have to prepare for or even engineer,
you want to make sure that your balance sheet
is well positioned for that scenario.
And you don't think that's accomplished
with the currently held, finally resolved coins
that are in the US government's possession?

(01:26:04):
You think it has to be combined
with a signal of additional acquisition?
I actually think it should be one of two things.
I think there should be no...
I think you should ultimately have
a proportional share of Bitcoin as you hold of gold
if you're preparing the country for a future scenario
where Bitcoin is basically parity with gold.
So that's like the end state I think you should get to

(01:26:27):
if that's the world that you're preparing for.
So given that, the kind of like-
Why is that?
Why does it have to be proportional to gold?
Well, it's kind of your gold's function
on the national balance sheet
has always been this kind of backup plan, right?
Not really, because we hold, as a percentage of our GDP,
I think we're at an all-time low
with our gold holdings, right?

(01:26:48):
We have about 800 billion if you add it all up.
you know, maybe depending on the valuation,
you know, now maybe it's closer to like a trillion.
So, you know, that's been kind of steady.
But relative to GDP, it was substantially higher,
I think, in the 80s, our gold holdings, right?
Yeah, and we've been, you know,
aggressively trying to neg hard assets
as like a national policy for the past 50 years, right?

(01:27:09):
So if we expect the next 50 years
to be like the last 50 years
and the treasury dollar standard
to just be basically unscathed,
then you don't need to have any change
to your National Reserve policy, right?
Like plan A is just the system as it is,
continues indefinitely.
And you can just like keep,
just like let it ride, right?
And so like plan A is plan A.

(01:27:30):
The question is what's plan B?
You know, always governments have to have plan B.
Monetary regimes tend to change
on generational timescales.
And if you're looking out for the national interest
over 50, 100 years,
you got to think about,
okay, what's our backup plan?
As a reason why we haven't sold off our gold.
Why countries don't sell off their gold.
It's not because it's some barbarous relic.
They just haven't gotten around to it.
It's because countries think about generational shifts and wars.

(01:27:53):
And it's like the thing that, you know, it's the old standby.
They don't really want to give it up.
And so if gold still plays that kind of, again, we don't like to talk about it, kind of, you know, back of house plan we've really underinvested in.
China, meanwhile, has been dramatically investing in their backup plan for the current dollar system.
Okay, what's our backup plan for a shift in the global dollar system?
We don't really want to talk that shift into existence, right?

(01:28:16):
So you don't really want to talk too much about your Bitcoin acquisitions, right?
So I wouldn't recommend they do like a bunch of symbolic buys, which are just kind of like, you know, pump the price, but actually don't change the strategic position of the country.
I would actually prefer they just quietly acquire as a matter of national policy over the next several years, just like we did with gold.
And it just becomes like a new architecture that we have, you know, bought a relatively cheap option.

(01:28:40):
Or you don't do it at all, right?
It's kind of because, yeah, kind of like signaling just to pump the price would kind of just, you know, would be seen as like a payoff to serve your donor base without actually moving the strategic needle for this downside scenario.
So I see this as kind of like a binary.
I just like hold what you've got and just like let it ride.

(01:29:01):
It's good.
Right.
We've got maybe 10, 20 million dollars worth of Bitcoin on the balance sheet.
That's fine.
um i wouldn't expect that to like provide much of a of a strategic uh insurance policy for a world if
if uh we really mismanage the dollar system um we got that number from besan too didn't he say 20
20 billion on a like a news show or something i thought he was interviewed right yeah and it came

(01:29:24):
it was something when you did the math it was less than the 200 000 that people
talk about right so they've either they've either lost some coins or there's a few missing keys or
yeah well that's the other thing is like as a matter of public transparency we should know how
much Bitcoin we have, right? Like, it seems, and I know that the, I know, like, there are lots of
other, like, couch cushion pockets of Bitcoin that have been sitting there when it was like

(01:29:45):
5,000 Bitcoin when Bitcoin was $1,000 and it wasn't like that much money sitting somewhere in
the CIA or the FBI or whoever, and now it's worth a lot of money. And now the treasury comes knocking
and goes, hey, guys, like, we need you to give us all that, all that juicy coin. And they're like,
I don't know about that.
So I actually think that the real number is kind of a mystery.

(01:30:07):
And it's probably classified reasons why they don't want to talk about it.
It's also logistical reasons, right?
Like, because there's individual.
All those different offices and, yeah.
Yeah, there's individual U.S. attorney's offices that probably have Bitcoin.
And like, you know, is it finally resolved, right?
Have victims been paid their restitution?
I think the government doesn't have as much as you would expect a sort of a uniform database that's sitting out there with all the Bitcoin.

(01:30:32):
Like that's not how they're constructed.
There's branches and regions and localities.
And I think that is a tall order probably to gather all that information.
And one of the most like just good housekeeping reasons to do an SBR is just to clean that up, right?
There are people with like manual spreadsheets with private keys on like sticky notes.
and like you'd want you want the nation's bitcoin to be like custodied and secured and like a just a

(01:30:55):
a well-managed fashion so like at a minimum i think everyone should be in favor of the sbr just
so we don't like have some you know random u.s marshal service guy like you know delete delete
a key with a billion dollars of bitcoin on it to checkmate's point earlier though like i do i do
agree with him that it would be good to see americans hold as much bitcoin as possible rather
than or people from anywhere in the world rather than the American government.

(01:31:18):
And this is one of the reasons I really like the BitBond idea, because I think if you did
BitBonds at every level from sort of like mortgages to city and municipality level and
then the treasury, like and then a shared upside in Bitcoin gains, that seems like the
biggest win win.
Do you think that we'll actually see BitBonds within sort of Trump's administration?
I mean, actually, I prefer the BitBond idea to the straight SBR idea, right?

(01:31:41):
It just requires it's a bit more involved, right?
requires a lot of arrangements and the Treasury developing all sorts of studies.
Because it'd be them issuing a new debt instrument that Congress would have to authorize.
So they would have to pass the law.
I don't see that likely obtaining unless there's crazy majorities.
Now, maybe there's some clever way of interpreting statute that would allow them to issue

(01:32:02):
some experimental bond.
I don't know.
It seems a bit of a tall order.
But the prospect of other government entities issuing something like that might actually be more realistic, right?
So states and local governments could get in the action.
The basic principle, right, is there's kind of a way to kind of arbitrage the risk and distribute that risk to different people that want to have a different exposure to Bitcoin.

(01:32:30):
and, you know, leverage existing debt markets
that are otherwise quite liquid
and can't hold government instruments,
but they want exposure to Bitcoin.
And so here's like a way the government could kind of,
you know, create a kind of win-win,
kind of the sailor style strategy,
but in sort of public finance.
So I think it's definitely a great idea, right?

(01:32:52):
It is, you know, it's like for the stack of things
you have to buy into, right?
It's like at the top of a pretty tall stack.
And so I think Andrew Homes has done a great job of laying out the math and even within
various assumptions, why this is at least worth exploring as a pilot, but could have
a lot of benefit because it puts Bitcoin in the hands of lots of people that wouldn't
otherwise maybe be able to get it and help defray public expenses.

(01:33:15):
So I actually like it.
It's a great idea.
Realistically, though, administratively, legally, there's higher hoops for that to go through.
The SBR can be established to a certain extent with executive authority up to maybe 20
using the funds and the external
Civilization Fund. That requires just like political will, doesn't require new legislation.
Doing like the Bitcoin Act, the Lummis Bill, that will require like, you know, majority in the

(01:33:38):
Senate, which could happen, but is a much higher, much, much, much higher left.
Last question on this stuff. When Trump came in, obviously there was a ton of momentum. He signed
the SBR executive order. There's some, and he's been very sort of open to Bitcoin businesses in
the US with the huge caveat that he's still putting privacy developers in prison. Maybe not
directly him but that's still happening um do you think the momentum's waning or do you think

(01:34:04):
there's still positive stuff going to come out of this administration for bitcoin um i don't think
momentum i think well the brca right getting the president uh or just getting the white house to
um really vocally support that uh it's not just good for bitcoin it's good for everyone that
digitalizes its ecosystem it's good for you know folks that want civil liberties it's already got
co-sponsors in the house um but it requires you know strong support right to make sure it gets

(01:34:27):
through. So we'd love to see more of that come. I think people are definitely in support of it,
but, you know, there's always more they could do to make sure that it passes. People have said that
if they get clarity passed, you know, then the SBR will come up for discussion as the, you know,
the third of the sort of sequence of three major crypto legislative priorities from the White House.

(01:34:52):
We'll see if they make good on that next year. But then we'll then we're quickly going to run
into the political calendar, summer 2026 elections that fall, and then everything's basically
a crapshoot depending on what happens in those elections.
I think the politicization of crypto policy is definitely a risk, right?
Kind of, you know, his personal family involvement in it is going to be like a major feature of

(01:35:16):
the campaign.
And if the Democrats take back the House, they'll have hearings, they'll subpoena, you
all the different folks involved in Trump's crypto businesses,
it be a thing that they keep whacking on over the course of the rest of his term So that environment would be kind of not that conducive for many more like pro Bitcoin things So it like a window of time I think between now and the summer of next year where if

(01:35:42):
there's going to be big moves, they're probably going to happen then.
After that, you know, unless he can keep the Senate and the House majorities, then it's
probably going to be, you know, stasis.
Yeah, I think it's even my view is even earlier than that.
You really have to like the late spring, right?
Or April-ish, May, maybe perhaps, but that's it.

(01:36:04):
And, you know, if we punt until next year on the Clarity Act, right, you get that across
the line, it's going to be really tight to get a turnaround to something like, you know,
getting authority for bit bonds or anything like that through Congress.
I just think it's going to be too tight.
Now, obviously, that can all change, right, without the midterms roll out.
If the midterms are a Republican sweep, they retain both houses, then that gives you more

(01:36:29):
runway to make good on some of these other promises.
If not, obviously the opposite.
All right.
Before we close out, is there anything else that you guys want to talk about before I
do my last bit?
Checkmate.
What's the price in 12 months?
That's literally my last question.
The CIA is always watching you, Danny.
Come on.

(01:36:49):
Look, I mean, no one knows.
but look honestly like my view has been so i can't remember when it was about six maybe eight
months ago um i wrote a piece it would have been around january february and it's when we just hit
100k we're kind of starting that chop around 95 100 and uh i've got this this model that i use and
how much capital needs to flow in in order to justify each market cap move now my my case back

(01:37:15):
then was i think we justified 100k but i wasn't sure we had the juice to get that extra 50 to get
to three trillion, which is 150K.
And my base case was we probably have to see the ETFs approximately double in size because
the I won go through all the numbers but that would approximately be the amount of money because the ETFs are about 20 25 of the demand profile That means if you multiply that by four that kind of the amount of money that we need to see come in to justify

(01:37:43):
150. If you take the amount that just strategy has bought and the ETFs, you now have that doubling.
So in my view, if we had gone in January from 100 to 150, we'd be exactly where we are right now.
We would have come back down because we just didn't have the real capital coming in to absorb
that sell side we didn't actually belong at 150 we kind of belonged at 100 i think we now have the

(01:38:06):
juice to not only go to 150 but stay there honestly so that's my base case um now as i said at the
start i think that just being very aware like at the moment the bears haven't even cracked the first
line of defense if we get down to 105 things start to get a little bit hairy just in the amount of
people who are going to be underwater you go below 95 it's it's it's a hard shot to get past there's

(01:38:27):
in every single previous bear market that is more or less being that tipping point now we're not
there yet so that's really the way i'm looking at it path dependency if there's some kind of crack
and that's really why i want to pick uh pick minds on the ai was there any risk that this thing
bubbles out and implodes because that's the kind of dynamic where suddenly you're below 95 and now
you've got a bear market in play if that doesn't happen we belong at 150 and you know the journey

(01:38:53):
years we've kind of proven a trillion dollars back in 2024 market cap i think we've now proven
two trillion does bitcoin belong above silver yes where's silver going up so you know in my view
three trillion is kind of the next move so um and then it's just a question of how many more trillions
so uh 12 months from now at least 150 there we go i'm gonna call it by the end of the year but um

(01:39:16):
listen i really appreciate this joe thanks for pushing us to do it i think we should do this i
I mean, Matt's going to take a step back from podcasting potentially.
So maybe we should do this every quarter or so and we can have a rolling guest instead
of Matt.
Yeah.
Happy to.
Let's do it.
Before we go, I just wanted one comment on this.
Okay.
For as long as I been in Bitcoin this idea of the four cycle has been this sort of ball and chain I think on the Bitcoin price And Bitcoin is extremely sentimental as we all know right Up 5 we all going to make it

(01:39:49):
down 5%, we're headed to Goblin Town. If you can break the back of this four-year cycle,
I'm just telling you, I think that changes fundamentally the market structure in Bitcoin.
It changes investor allocation. I mean, even right now, anecdotally, I'll tell you how many people,
I was playing poker the other night, and a guy who's owned Bitcoin said, yeah,
I'm probably going to sell a little bit going into the Q4 of this year because it's a halving cycle and Bitcoin is going to tank next year.

(01:40:13):
If you were able to rid this sentiment of the market and push it more towards like an equity mark where I don't hear that at all in traditional finance.
Nobody talks about like a four year cycle for the S&P.
Obviously, there are liquidity cycles and recessions, etc.
But if you can get rid of that narrative, I think that has very profound implications for how Bitcoin will trade into the future.

(01:40:34):
So we talked about that earlier a little bit in this podcast, but that's going to be fascinating.
And the most fascinating thing is it comes against the backdrop of that Fed independence potentially weaning or the curtain being pulled away from in the early part of next year.
That's not that far away.
It'll be into the early part of next year.
You'll probably be getting an announcement of a new Fed chair.
I mean, Besson said it was potentially November or December that they were going to give that name out there.

(01:40:59):
And then the confirmation hearings will start, obviously, and you're going to have somebody taking over for Powell in May.
So, I mean, that is almost like a poetic backdrop for Bitcoin and where it's had in its cycle.
So hopefully we can crack that.
Yeah, the four-year cycle is already broken.
People just aren't aware of it yet.
I hope you're right.

(01:41:20):
Buy and hold.
Cycles are dead.
Bitcoin's going to a million.
Let's fucking go.
All right.
Thank you, guys.
Appreciate the time.
Thanks, Danny.
Later.
Thank you.

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The End of Fed Control? Bitcoin & Macro Outlook | Checkmate, Joe Carlasare, Matthew Pines

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}The End of Fed Control? Bitcoin & Macro Outlook | Checkmate, Joe Carlasare, Matthew Pines