The United States faces a $39 trillion debt spiral with no viable escape route other than default, which will likely manifest as gradual currency debasement rather than sudden collapse. This fiscal crisis coincides with a broader global trend toward multipolar currency systems, where nations are diversifying away from the US dollar through alternative payment rails, gold accumulation, and bilateral trade agreements. This transition is gradual but represents a fundamental shift in global economic power dynamics, with implications for assets like Bitcoin that may benefit from the transition as a portable, liquid store of value.
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Lyn Alden: $39 Trillion Collapse Has Already StartedAdded:
We're at the looting the treasury phase.
Congress people almost day trading while they're governing the country. The best traders in the world. They're trading on information that is not really known. 20 minutes before a major announcement.
Very large set of contracts placed.
You've kind of reached almost maximum cynicism. No real accountability. And people feel like they have to cheat to get ahead. The number of people that approve of Congress extremely low. The number of people that approve of the media extremely low. Gold had a lot of fast money in it whereas Bitcoin by that point had already had kind of a two-phase down bare market. A lot of the fast money was already out. I think the world is headed to be toward a more multipolar type of setup. More diversification of reserves and more diversification of payment channels.
>> Big gorilla in the room is the 35 trillion of debt. Lyn, is there any way out of that for the United States?
>> Well, it's up to 39 trillion now. Uh it's going up by something like 2 trillion a year. The fiscal spiral that the US is in is at least going to go into the 2030s. I think it's only going to keep spiraling. There's really no way out other than default. All the fast money is out out of Bitcoin. A lot of the indicators look really good. I mean the funding rates, the onchain stuff, technical indicators, the weekly numbers, they're kind of rolling up. My base case that Bitcoin has seen the bottom and I think this is an accumulation phase.
>> Lyn Olden, welcome.
>> Uh thanks for having me.
>> It's uh it's a pleasure. It's something that I've wanted to interview you for the longest time, but you know, I sometimes uh I place too much pressure on myself to get like the perfect moment with the people I I admire the most. And like Sailor's one of them. I've interviewed him twice on spaces, but I'm like on the podcast, I just want it to coincide so we're in the same place and we can sit down face to face. You know, that may never happen, but I was hoping to do the same with you, but you know, it didn't work out. But this is just as good. I'm really happy we're doing this.
>> Yeah, we almost made it work in London, but you know, we'll we'll I'm sure we can have a great conversation here, too.
>> Yeah, I think because of the fact that we did get to meet face to face, you know, it was a good let down. Yeah, it was a good let down for [laughter] me.
Hey, um there's a lot happening in the world right now and I couldn't think of anyone better I'd like to speak to about um than you. Um in particular, we're seeing a lot of sort of alleged insider trading going on, you know, with a lot of uh geopolitical minations that are swinging the markets wildly and some rather mysterious moves ahead of time.
And now we're seeing Bitcoin suddenly in the last four weeks develop a kind of resilience in the face of um war and um what's happening in the straight of horses with respect to oil that's expected to have a lot of downstream implications. Can we get your view on um some of the insider trading um alleged moves before we move on to some of the broader stuff?
>> Sure. Yeah, we can start with that. And I think um I mean this is almost like a capstone of a very long history of especially in the US but I mean elsewhere too sometimes of US politicians like Congress people almost day trading uh while they're ostensibly governing the country. Um and you know there I mean there's been analysis on this. I mean some of them are like you know basically the best traders in the world. Uh it turns out uh they they clearly chose the wrong calling. But of course I'm being facitious because the the clear implication is that they're trading on information uh that is not really known. Um I think and even attempts that uh some Congress people uh to to bring up kind of like restrictions on you know frequent trading of Congress people have kind of not not passed. I mean Congress hasn't wanted to impose this on themselves. Uh it's even got to the point there's like ETFs and like accounts that kind of track some of the moves they do because of how lucrative they ironically are. Uh which is I mean the whole thing is that's kind of a travesty. Uh and then yeah more recently I mean there are just tons of of instances where like 20 minutes before a major announcement regarding uh Iran, the US military, the trader uh and so forth. Uh there'd be like a very large set of contracts placed uh which you know you you'd think would be investigated pretty heavily. uh that's generally how these things are done. If there's a very large unusual move before news breaks, you kind of go back and and you know that the regulators kind of poke around and see what happened there.
So, um but it it's one of those things that when that's happening at such a large scale, the problem is it's already some say been happening and getting worse over time. It's kind of like we're we're at the looting the treasury phase of uh of the economy. [snorts] I think that's the most curious aspect about it is uh the total uh lack of appetite to even investigate what looks like like uh events that are just too frequent to be coincidences. And incidentally, just today, I think the first person who's been charged for insider trading >> was a soldier. Not a politician, not an insider, not an administration relation or anything. It's an actual soldier who took a I think um a prediction market bet um on the Maduro raid to abduct him.
I mean, you know, and as he should be, right? any kind of insider trading should be investigated in charge um and you know those charges should be um laid but it's just really curious that they find some person outside of the administration outside the powers of uh circles of power and we don't get any real accountability of course you know it's an ongoing meme on Twitter about uh Nancy Pelosi she even has her own tracker accounts and >> and and some people have built businesses around tracking political >> trades because they're so profitable.
It's it's probably the number one source of alpha out there that's um or you know open sourced. Um you you mentioned something interesting just now which is you know the final stages of of almost like [snorts] the final stages of empire. It's a it's a time to loot the empire like is that a narrative and a view that you hold is playing out right now? Uh in a way, yeah, I think we've kind of reached uh almost maximum uh cynicism or nihilism in a way uh from a political standpoint, from a kind of cultural standpoint uh in a lot of metrics. Um uh it's kind of the same thing you see in ironically in places with failed currencies where you just kind of resort to gambling almost. Uh but we see that in this case without the failed currency or at least you know without the the dramatically failed currency uh which is just that you know when there's kind of no real accountability uh and people kind of increasingly feel like they have to cheat to get ahead uh and I mean it's a time when trust in institutions is already you know most institutions is already near like low so for example the number of people that approve of congress extremely low the number of people that approve of the media extremely low um and no wonder when congress is like a trading for for years and years and years and kind of making these like unusually profitable moves uh you know with the information that they have uh and then whatever kind of press to you know maybe put more restrictions on that they don't the ironic thing for example let's say someone works for the Federal Aviation Administration they're like a accountant or like a low-level engineer uh they are barred from owning a whole bunch of like airline stocks even sometimes like aluminum stocks like things that can kind of feed into uh aviation and and any sort of tangential though they can own less whereas is people with like the most power in the world uh like Congress people and other other very high ranking officials they have no such kind of restrictions uh in many cases just historically uh it was there was like a self-p policing where they put some of their assets into a blind trust if they're in a position of of extreme power and that's just not been the case lately it's so it's it's kind of reached sort of it it's kind of lowest point so far I would say >> there's a selective accountability about it almost like a show trial what's going to happen with these soldiers which, you know, he's not an innocent party by any means, but like what we don't want to see is selective justice to be to be meed out.
>> Um, I look at the Bitcoin chart and I'm like, you know, it's it's suspicious that this downward spiral started, you know, probably around the time when these conversations around starting a war were really gathering momentum. And I'm not sure, you know, it it holds um that that was happening. But then we've seen this resilience appear just out of nowhere four week four weeks ago 3 weeks ago. We've certainly had a really strong month. What do you make of that?
>> Yeah, it's a good question. I mean sometimes it's hard to say exactly what happened. Um but I would say that from my perspective because people were surprised that for example from the start of the war bitcoin outperformed gold which you know if you pulled people ahead of time you know we have a straight straight forum closer war with Iran it's ongoing. um which one outperforms the vast majority of people would probably say gold. Um I think a really big factor was that going into that gold had a lot of fast money in it.
It had a very good like 18-month period.
It was like you know gold and silver were kind of going vertical. Uh and you know they were they were correcting a little bit ahead of time but in general there was still a lot of fast money in them. Uh and whenever kind of you know war or or unexpected things break out there's often deleveraging um and and just kind of a little bit of like a liquidity squeeze here and there.
Uh whereas Bitcoin by that point had already had kind of a a kind of two-phase down bare market had been kind of rolling over for months. Um and a lot of the fast money was already out uh and a lot of the leverage was already kind of liquidated from some of those really big down moves that that preceded it. So by the time the war brokes out, it's mostly held by really strong hands uh at that point. Uh in addition when we look at kind of um you know uh just global met like measures of liquidity uh they're not amazing at the moment but they're not as bad as you'd expect from almost 8 weeks of of a straightforward close or an energy crisis and war. Uh they've actually kind of held up better than one might expect. Uh and while it's not always the case I mean Bitcoin tends to correlate with liquidity pretty closely. at least it's one of the major input variables among a few others uh that tend to kind of correlate pretty well. Um and that's been holding up. So I think the combination of fast money is already out. It's already kind of washed out. Um and then we have you know decent liquidity conditions and then strategy has been kind of tuning their uh stretch product. Uh so they've been able to kind of raise they they had trouble buying much Bitcoin in the prior bare market.
Uh so for anyone kind of following that they you know they bought a lot in 2021 but they didn't really buy much in 2022.
And it's not because they didn't want to it's cuz they they didn't really have the mechanisms to do so. Uh but they've been able to kind of tune the knobs differently uh this cycle. So they've they've actually been kind of more rapidly accumulating recently which you know all being equal does put some upward pressure on the price. It's interesting that we've had two moments of uh what you might call systemic pressure um or near contagion with the the banking crisis of about two or three years ago uh Silicon Valley, Signature Bank and the like where Bitcoin suddenly out of nowhere gained a lot of strength and started surging and now we're seeing that in the middle of a war. Do you think that you know sometimes it takes an event or two before narratives shift and they suddenly take on uh a strength of their own? Do you think we're in the process of witnessing Bitcoin forging a new narrative as a safe haven or is it still business as usual for for Bitcoin where it just it's still a speculative um asset and it still more or less trades in line with um with other tech stocks.
>> I would be hesitant to talk about kind of a new narrative. Um, I mean, it's one of those things like it had because it's a self-custodial portable liquid, you know, money. Um, it does have riskoff characteristics, but just because it's, you know, it's a 17-year-old technology, it's still not widely understood by traditional finance. It's still small in the grand scheme of things, many large pools of capital still treat it as riskoff. There's a couple caveats around like and I've had discussions with with some institutions actually on this about why uh most crises Bitcoin tends to not do great for the next couple weeks. It tend you know it tends to be a riskoff asset but a handful of crises it does well and the kind of the main one they would point to is that regional bank crisis of of spring 2023. And my kind of point there uh again comes down to liquidity which is that there are certain types of crises that when they occur are very negative for liquidity.
Uh and you can see that for example in say the dollar index spiking that that's like a sign especially when it happens very quickly that there's a sign of global kind of dollar shortage. Um and so I mean a key example was really early in the in the COVID lockdown selloff. uh you have the dollar spiking, even the treasury market went illquid, you know, stocks, precious metals, bitcoin, everything straight down until uh basically hyper stimulus came in. Um whereas when we had the uh spring 2023 regional bank crisis, uh it was actually like it was a prolidity crisis in the sense that as soon as it broke, all marketer participants understood that the Fed was going to basically come in that weekend. Um, and that there there's really like there's a little bit of um, Bitcoin weakness in the in kind of the days or maybe the week leading up to that. And that's because that's actually when a little bit of the like liquidity was drained was happening. Uh, and then once it actually happened, there was ironically like a pro liquidity event.
Basically, the entire market reset its expectations of what rates are going to be cuz like, oh, the Fed is kind of trapped now. They can't really continue being as hawkish as they were with this going on. So there was more dovish expectations immediately priced into the market. Uh and they expected and they were right about getting very quick Fed and Treasury action. So that was ironically a pro liquidity event. Um and normally uh if you if you ask people, okay, we're going to attack Iran and close the trade of her moves, most people would would expect that's a negative liquidity event. And you know, in in past cycles, that possibly could have been the case. And this time it wasn't. there really was no spike in the dollar index. Uh there's no major sign of dollar liquidity shortage of of kind of the various indicators that I track.
Uh and so while there has been obviously some turbulence, you know, the stock market went down for a little bit and it kind of rolled back up even though the straight is still closed. Um uh overall liquidity conditions are fine. There's not a lot of kind of forced selling. Uh, I guess that's that's kind of how I would describe a liquidity squeeze squeeze that there's often forced selling and usually Bitcoin does really bad in that environment, especially if it happens over a weekend because if they expect that they're going to have to sell on Monday and you're a large pool of capital and you're kind of stuck, well, if you have you can you can short Bitcoin, you can sell any Bitcoin you have 24/7. So, you can you can sell it on a Sunday evening if you want to or have to. Um, and so I think it's it's often kind of like the it kind of has the unfortunate role of like the biggest thing that trades 24/7. Uh, and that is, you know, perceived as risk off, but in some of these exceptions, it's it's because liquidity conditions kind of held up better than one might expect. So in a in a pro liquidity crisis, it actually does pretty well more often than not.
>> Do you think that had anything to do with oil? well some people who want to move or some nations who want to move oil through the straight of Hormuz um paying in Chinese yuan and other uh currencies and so that it didn't create a drain on or a spike in demand for US dollar >> not necessarily in the near term but I think in the multi years leading up to this I mean especially ever since uh Russia invaded Ukraine and then kind of the US and Europe kind of sanctioned and and kind of froze some of their reserves there has been this kind of broadening of of different payment structures for things. Um, you know, like Russia's had to do business large outside of dollars, for example. Um, China's obviously a very big um, you know, economic partner with with Russia because they have kind of opposite economies. You know, one's very energy and commodities focused, one's very tech focused and and consumer products focused and needs those those energy and commodity inputs. Um, so they've done a lot of non-dollar trading. Um, and so even though I don't think there's like a proliferation of it so far in this kind of, you know, multi-week period, um, a lot of the groundwork's already been laid, uh, and a lot of large, uh, economies already have big reserves. Um, so they're not as susceptible to dollar shortages. Uh, and most of the ones that still are are generally smaller countries from like a GDP perspective. So for example like Egypt was showing some some degree signs of maybe a dollar stress uh but they're not big enough to to you know impact things at the kind of the global macro level. It's it becomes more of a local problem and rather than something that can trickle up affect global macro kind of liquidity indicators or bitcoin uh to to that kind of degree.
>> Lyn, we've seen some nation states develop their own block literally blockchain payments uh rails and then integrate them. We've seen China, Russia do that. I'm not sure if Iran has also done that, but we've se also seen some pilots in some some other Asian countries as well. Do do you think that has a realistic prospect of um I I don't want to use, you know, unseating uh the US dollar as as the hedgemonic um currency, but certainly like we're starting to see some cracks there with technological innovations making these sorts of moves more possible. And then we also saw um Saudi Arabia for example not renew their their petro dollar deal with the United States. Um so we're starting to see like countries becoming more confident to find alternative arrangements to to transact with one another in a direct fashion.
>> Yeah. Well, since 2020, I've been writing about that I think the world is headed to be toward a more multipolar type of setup, which is, you know, that's economically and military, but but in that particular context was especially currency-wise, which is that there's going to be more diversification of reserves, uh, and more diversification of payment channels. Um, not to say that any one other currency just kind of displaces the dollar, but there just it broadens out. Uh, and so far we have gradually seen that. I mean some of the big kind of multinational organizations you know for example the bricks alignment that they have the Shanghai cooperation organization uh these various countries are kind of just seeking ways to move around payments and infrastructure in ways that are outside the dollarbased system um and there's even like Embridge uh like the the the um uh the bank for international settlements was involved in a couple of these kind of payment tests that was kind of blockchain like uh and to your I mean as technology improves over time uh more alternatives become easier even before recent technology I mean they can form these kind of federations or agreements uh to to kind of move capital around. The problem is a lot of those structures rely on some degree of trust.
Um, and so they have to have have at least a moderate amount of trust with each other. Uh, as that kind of works out. And then two, they're against the uphill battle of network effects. Um, so it's like really easy to there's actually a famous comic from a while ago uh that was kind of like, you know, there's there's 13 protocols to do the same thing. I'm going to make a protocol that's just like the best one. It's going to replace all of them. And it's like fast forward now there's 14 protocols, right? It's really, you know, you can kind of pencil things out on paper and say this is a clean sheet of paper. This is how it should be like, but when you try to get all these countries to agree, it's kind of like hurting cats to do something. It it's very hard in practice. Especially, for example, in the BRICS nations, a lot of them don't like each other. They just have a shared goal of wanting to be a little bit more sovereign in their payments.
>> Um, uh, you know, like India and China aren't exactly on the on the friendliest terms and many other kind of, you know, groups within that are just not particularly friendly. uh you know they're certainly further apart a apart than for example many many Eurozone countries are from each other um in terms of kind of how much they had oppose each other for one reason or another. Uh and so it's it's a very difficult kind of situation. Uh one of the things kind of staring him in the face is like Bitcoin because you have this kind of open-source you know asset storage liquid like liquid asset storage and settlement network that just kind of works for 17 years. It's open source. It's a pretty big scale. Obviously, they're worried about the heat of account, the volatility. Uh they'd prefer to have something they can control more as well.
Um kind of the irreversibility of it is both a feature and sometimes a bug depending on what they want to do with it. And so they have done all these kind of alternatives. I think that they will be successful in the sense that for example, Chinese like settlement volumes are growing over time. Uh they're still small compared to Fed Wire, but they're growing. Um I think some of these attempts that kind of place China at the center. uh will have some momentum at least in the east. So among China, their big trading partners um that is kind of just this source of of a backup way of of doing things. Prior to Russia invading Ukraine, there was more and more trade for uh uh euros for natural gas uh between Europe and Russia. That obviously got very derailed. But then kind of even more rapidly there was a big buildup in um you know Russia and China doing kind of local currency payments for uh that energy arrangement.
And so I think that that that kind of whole block that kind of eastern focused block is probably going to continue making some degree progress on their kind of non-dollar approaches. Um and then you know as gold's gotten larger over time as central banks have kind of said okay we're not going to you know we're not going to store as many as much value in treasuries. So we're going to around the margins add more tonnage of gold uh and then as gold goes up in price by extension a bigger percentage of their reserves end up being in gold.
Uh and so the combination of using a neutral reserve asset and then broadening to some degree the currencies that they use as kind of intermediate or longer term storage um does kind of slowly grow the these alternative methods. Uh but I think it'll it'll be very hard to kind of settle on one big one that does you know half the world's trading volume though.
>> Do you think it's going to be a gradual process much like um I guess uh the waning of the British Empire for example with respect to the US dollar hedge money or is there an event horizon beyond which things just accelerate?
>> I I think for the most part it'll be gradual. Um a lot of gradual things you can kind of highlight with like little mini periods of acceleration. And so if you say okay when is the moment that the UK lost the global reserve currency status. I mean it kind of started with World War I. Uh it really I guess the peak was probably World War II and when you had Brett Woods uh that was kind of the biggest one but then another big hit came during the Suez crisis um when it was kind of just shown where where the power is. Um, and when you look at at kind of UK um, currency and bonds as a share of reserves, you know, there's a pretty kind of gradual period of of it losing that status over time. Um, and my expectation is kind of the same and it's it's often it's the the ch why these things tend to happen over time, especially I think the current one is because the network effects are often stronger than you think. Like for example, you mentioned the petro dollar agreement and and while that's relevant um the biggest kind of self-reinforcing aspect of the system is the crossber debt I would say. So depending on what year you're looking at um kind of what you know whether or not you're including derivatives or not but just kind of from from loans and bonds there's something like 18 trillion in crossborder dollar denominated debt uh in the world. Um and most of that's not even owed to the US.
It's mostly owed to other countries ironically like you know like an entity in Brazil will owe dollars to an entity in France or China for example some of the really big creditor nations like especially China more recently with the belt and road initiative is they have all these kind of crossber liabilities and all of that like call it 18 trillion in debt is basically inflexible demand for dollars because you need dollars to you know service your debts and you know that when you compare how much those obligations are compared to how many dollars exist. Uh that's what kind of keeps that flywheel in place pretty strong. And it takes a it takes a lot to kind of slowly work your way out of that kind of web of of liabilities and therefore entrenched inflexible demand.
>> Yeah. When I when I think back to recent history, it feels like the starting gun to the move away from dollar was the 2008 financial crisis. I think China quickly, very quickly recognized that it needed to slowly diversify away from US treasuries, US dollar trade. Um, and now we're seeing that technological innovation that's enabling that. But you mentioned trust between nations um, is still a barrier. But if you if you're trading directly with one another on your integrated blockchains that that are sovereign to you, wouldn't that sort of mitigate some of those risks?
>> It would depend on how that is structured. I mean, if you have, for example, a federated network, um, you know, you you still have to trust the the the quorum of those that are operating it. Um, when they try to set up things like a bricks bank, for example, you know, it's like if if let's say they're trying to tether something to gold or or a collection of commodities, anytime you have a a connection to something physical, for example, you're still trusting whoever has it this kind of chain of of legal credit uh to be kind of maintained. uh and if it's if it's entirely ledger-based uh then you're still you say okay what is the organization doing this what are the members of that organization how many would have to go rogue for it to break down and just kind of like even setting that up it's like you know China will say we want it this way and Russia will say we want it this way and India will say we want it this way and it's like how do they come to an agreement that can really last for decades uh is I think one of the hardest parts so you kind of get this like patchwork of solutions where it's like okay these you have almost like a bunch of kind of bilateral agreements. It's like, okay, China and Russia are using this and then India and Russia are using this and Brazil and China are using this and sometimes they, you know, can combine use the same one and other times they're different systems and you have that that kind of patchwork thing which makes it hard to build a network effect.
Uh, and you don't really have that debt situation either. So, you have less kind of entrenched and forced demand for a given unit. The 20th century was pretty much the themes that I sort of identify.
Industrialization, economies of scale, global trade, liberal liberalization pretty much, you know, you're at an advantage if you were an export exporting economy and so now how do you see the 21st century trends on a global scale? What do you think the the dominant trends will be in that regard?
>> I still think a lot of those are big factors. I mean one of one of kind of China's biggest um attributes is that one they have a ton of energy production. Uh and then two they have a huge industrial base and network effects matter at multiple different scales and types. So for example in New York it's got a very strong network effect around securitized finance basically issuing different types of securities investment banking and all that. Uh it's got a massive hub there a lot of expertise. Um and then say Silicon Valley has got a very big hub around startups uh uh you know uh VCs that fund those startups, lawyers that that you know um specialize in startups and it's like this very big kind of network hub. Well, China's got that going on in manufacturing. You know, there are just there just tons of workers that are heavily trained in manufacturing, tons of businesses that have very long-term relationships with many other types of companies in the space. kind of a very dense area of suppliers uh and manufacturers and then all the energy needed to to do that. Um not just electricity but also for example just direct heat generation which is really important for heavy industry like like uh making steel for example. Uh and so while you can do trade deals and tariffs and all sorts of stuff, the actual act of moving a multi-t trillion dollar industrial base to somewhere else is inherently like a multi-year and and realistically like decade plus long process to to take all that electrical and heat generation infrastructure, all that manufacturing facilities and importantly the human capital, the knowhow, uh all the supplier relationships and just kind of find a new hub. it's very hard to kind of artificially create a new hub that becomes self- sustaining and really big.
Um, and so I still think that that a lot of those physical things that industrialization still really matters.
Um, still massive thing. And of course in in the current era of AI compute very much matters. So moving up the the tech chain in terms of having uh either leading edge or at least kind of near leading edge semiconductor capability uh you know especially for the major powers like the US and China um that becomes very relevant um and then of course you know there's been other technological shifts like for example throughout the 20th century the aircraft carrier group was like the biggest um you know the most efficient way to project power right so in in a world of kind of mutually short destruction where no one's nuking anyone. So the biggest the biggest weapons off the table for most practical purposes, the aircraft carrier is the is the power projection. But when you have either hypersonic missiles, so if you have things that can shoot that can't be blocked, uh or if you have asymmetric swarm attacks, um it can change um just the the effectiveness of that technology that was really dominant for, you know, the better part of a century and is maybe less dominant going forward. Um uh and then you know there's obviously there's multiple other trends but I would say yeah industrialization is still a giant one and then now the new one is is AI and compute and advanced technology. Some analysts have suggested, you know, Trump's moves into um into Venezuela and um his his proposed takeover of Greenland as well was this sort of land grab for resources in preparation for what would come in the 21st century, which was which would be speculatively some kind of reversal of some of those trends that I just mentioned in particular uh global free trade that trade would be much more uh locally constrained. And and while you know I I accept what you said that you know some of these things will take decades to reverse if if at all if there is an appetite for that at all. Um but I I do wonder whether or not this is in fact what we're seeing play out and it's just the opening stages of a reorientation. And if that's the case what are the implications for I guess um uh foreign currency policies for each country. Would that have any implications for their policy with respect to, you know, a stronger or weaker currency? Cuz my my thinking right now is that if we have less free trade, more self-reliance, well, then we move away from a sort of weak currency where a weak currency is an advantage in an export um dominated environment to more of an import uh where you want your currency to have greater purchasing power. Do you do you think I'm I've got an accurate read on that um on on Trump's intentions or the United States's uh intentions? And if that's the case, what would be the implications for foreign currencies?
>> Well, I think it's on a country byc country basis. There's a lot of moving parts there. So, for example, if you leave if you read uh Steve Meyer's paper on restructuring restructuring global trade, uh that was basically Trump's chief economist uh going into this administration. He eventually got put on the on the Fed for a little while uh after that job. But so he published a paper in um November 2024. There's basically I forget the exact title, but it's like if you were to structure global trade, here's how you do it. And it kind of laid out like the more intellectual playbook of of what the Trump administration then tried to follow to some degree. And what they kind of assumed was that first they'd run really strong dollar policy uh and they would do tariffs and that combination of of tariffs would kind of create dollar shortage. They would drive up the cost of the dollar. It would squeeze a lot of our, you know, potential competitors and put them in a disadvantaged negotiating position. Then we would negotiate all these really great trade deals and then we would devalue the dollar. Uh it didn't really play out like that because as soon as we did this flurry of tariffs, we actually got a weaker dollar. uh and a lot of the countries didn't really play ball in terms of like we we kind of over like the the I think we didn't have as much cards uh as we kind of expected we we we might have at least in those that wrote the paper and those that kind of tried that trade. Um, as far as Venezuelan Greand go, I mean, I would separate their strategic kind of allocation from currency at first, which is to say, uh, there has been this kind of shift toward, at least until the the Iran situation, it's been this kind of a a shift toward our backyard to some degree, uh, to basically just to say we want more influence locally. Um, there has been footholds of many other countries in Venezuela. Uh, of course, the challenge with Venezuela is the type of oil they produce. It's like oil sands. It's not like Saudi Arabia where it's like a really big swing producer where they can just turn on and shut off a lot of oil. In order to get more oil out of Venezuela, you need kind of longer infrastructure development. And then what we saw from from many energy companies, the big super majors, uh, as soon as we kind of went in, you know, kind of minor regime change in Venezuela, not not even really because it's still kind of the same party, but at least a more collaborative one. A lot of these like uh energy majors were like, in order to uh make long-term investments, we need more assurances.
And it's just we don't have those asurances right now, so we're not really in a position to provide a lot of capital. Um, and so I think that the main thing would have would would be to establish some sort of more stable situation that makes a company confident to invest with a 20-year time horizon, which is often what you need for kind of, you know, heavy heavy materials and assets for Greenland. I mean, one of So, one of the issues with rare earth, so actually the main issue, of course, I'm not the first person to say this, is they're not rare. The issue is that the whole kind of extraction, processing, uh, refining and all that, uh, is is pretty environmentally damaging uh, compared to many other types of things.
And so a lot of developed countries have not wanted that in their borders. Uh, and so a lot of it is has wound up in China and a handful of other developing countries. Uh, and so China's kind of taken on that burden which comes with with certain privileges when they have 90% of the the rare earth supply chain in many cases. and and you know they produce you know they produce so much energy they produce so much heat they produce you know 90% of the world's solar panels and stuff like that they kind of get these locks on things that are you know literally bigger than the lock that OPEC has on oil um and so there has been an attempt to diversify rare earth supply chains which I think is really important uh but when you have like the US and other countries have kind of nimism not in my backyard it's like in the US it's very hard to build a refinery like an oil refinery it's very hard to have a new rare earth you know like mine and and processing facility and all that. Um and Greenland anytime you have a really big, you know, like there's a reason Russia has has so many commodities. It's a very large area. Uh Greenland, uh is is very, you know, expected to have a significant amount of resources, uh and it's not near population centers. And so I think it is strategically useful. It's also useful for either missile defense or missile launching uh as well. And so I think there has been this kind of push uh uh by the United States to kind of broaden its kind of sphere of influence in its own hemisphere where currencies come into play. I think it's more about fixing imbalances. So the the biggest issue in China at least one of the biggest issues is they've kind of emphasized exports so much and they have so much industrial uh capacity but they don't have a ton of local demand.
They're very kind of imbalanced toward exporting. uh and a stronger currency would would actually help them kind of realign a little bit more toward consumption, kind of consuming some of what they produce. Um in the United States, we have the opposite fact, which is that in order to be the world reserve currency, we have to supply the world with units of that currency. That's why they can all use it. And the mechanism for how that works is that the whole world kind of has excess demand for our currency compared to other currencies.
Uh so normally currencies trade on things like interest rate differentials, trade balance differentials, uh perceptions of the economic strength of that of that country and that currency and ours the dollar trades for all those reasons as well. That's why you have fluctuations. But then on top of that, we have this structural demand for dollars that is just above and beyond that because of the network effect and because of the global reserve currency status. So what it does is it kind of artificially strengthens our dollar uh boosts our import competitiveness and then reduces our export competitiveness.
So we have a lot of importing power but it's hard for us to make uh kind of lower margin stuff in the US. And so we run these structural trade deficits with the rest of the world. We're kind of the opposite of China in this regard. We're over consuming. We're underexporting. Uh and I think that if we if we kind of over time shift toward a more multip-olar world, those kind of major imbalances have to be resolved with with kind of US and China representing some of the some of the most extremes. Uh but a number of other countries around them may be realigning as well. And I think currency is only one part of that. Um and [snorts] so I think that you know in in that kind of world uh the yuan gets stronger which is not you know from an American perspective that's not a bad thing. it just it's it's China kind of realigning their consumption and exporting. Uh and ironically, the the United States probably needs a weaker dollar if we're going to have any hope of of reshoring some of this uh and having something closer to balanced trade. um which is not the target of every country. But when you have a trade deficit for 40 plus years um these uh accumulative issues build up and that's why you get a kind of a lot of political polarization and kind of demand for for change.
>> You mentioned about um uh rebalancing uh the trade deficit. But one of the other things, you know, big gorilla in the room is the $35 trillion of debt. Well, it was 35 trillion when I last looked anyway. Lyn, is there any way out of that for the United States? Well, it's up to 39 trillion now. Uh it's going up by something like 2 trillion a year. Um and the short answer is there's really no way out other than default. Uh but a country doesn't default in its local currency almost ever. And so default happens through purchasing power. It it basically is a debasement that happens.
Uh and I would say it's already been happening. I mean really ever since co uh currency and bonds have underperformed virtually everything. uh and that's what happens during kind of financial repression fiscal dominance scenarios. The the biggest question I think is not how we get out of it but can we get out of it in a stable way like can you default and debase in such a way that you do it and then you kind of stabilize afterward like for example in in the 1940s major developed countries rapidly debase their currencies. Uh but then when it was all kind of said and done, they they then shifted toward austerity and then they kind of grew their way out of it combined with that devaluation, debasement, financial oppression. Um in a much messier, more polarized environment, you're you're much less likely to do that. So instead of kind of, you know, let's say in the 40s they kind of rip the bandit off, have a massive devaluation, then shift toward austerity, instead we're more likely in a long kind of slow spiral, which is that it just kind of keeps debasing.
It's never as bad as like the sensationalists will say or like rarely that bad. They always think it's kind of, you know, two years away from blowing up entirely and it just keeps not doing that. But then it also never really corrects itself and it takes years and potentially even decades. It's like I I I think the current kind of fiscal spiral that the US is in is at least going to go into the 2030s. Um and from there I mean you after about a decade there's not much further you can see out because all sorts of crazy stuff can happen in in the course of a decade geopolitically militarily uh nonlinear breakdowns and legal structures. But at least from a kind of a a an economic or macroeconomic standpoint over the next 5 10 years, um I think it's only going to keep spiraling. Uh and ironically, I don't think it'll be much higher public debt to GDP in the US. It'll be much higher nominal debt, uh much higher nominal GDP and kind of a flat to mildly up uh debt to GDP. Uh and so that that kind of those fiscal deficits don't just don't just mount into more and more debt to GDP. They instead mount in terms of increasing costs uh kind of inflation that stays above the baseline. Um and you kind of get this this K-shaped economy that we're in where you know if you um own assets and or if you're on the receiving side of deficits you're generally doing pretty well. Uh whereas if you're on the tight side of monetary policy and or you don't own a lot of assets you're generally struggling. And I think that's unfortunately probably going to keep widening for years to come.
>> So the analog that I've long had in my mind with respect to what what is lies in store for the United States is essentially what Japan has been through for the last 354 years which is just multi-deade malasum that you know over the economy but you know like you go to Japan and like there's no signs of a disintegrating country over there. I know financially there's a whole they and they've got a lot of structural issues society, economically, financially. Um, is that the proper analog for what LA is in store for the United States? I mean, I see some obvious cultural differences with respect to sort of entrepreneurialism, risk-taking and being far more sort of uh innovative in in that regard. or is it going to be something like Turkey where you know I think in the last 50 years they've they've defaulted three times or reset their currency three times and you know things aren't that bad in Turkey either. They've only you know they've only improved over the last 20 years, right? So like is it necessarily going to be as bad as we fear either way?
>> Well, it's funny. I mean I I when people often ask me about the dollar collapsing or how bad it could get, I remind them that I I spend part of each year living in Egypt and you know we're sitting there with at the you know at the time I was answering a question I was like well where I am now there's like 35% inflation and uh it's still life as usual. I mean it's not great. People are struggling. People are kind of getting rugpulled. Uh but life still goes on. Um it obviously depends. it's more about a political breakdown or a massive disruption to kind of economic uh production more so than just the currency. Um so in Japan's case, I would I would say that they're obviously further ahead in terms of aging and fiscal dominance than other countries, although some are catching up. Um but they also have a handful of really really big strengths. So one of them is they spent decades building a like they they have a very large current account surplus which has accumulated over time into a very positive net international investment position. Meaning that they own um billions and billions of dollars of uh really trillions of global assets uh more so than the rest of the world owns of Japanese assets. like they they own equity and credit and commodity deposits and infrastructure around the world and so they get a steady stream of of dividends, interest and and materials kind of flowing into their country. Uh and so even though they have very high public debt, um it's offset by how productive they have been in the decades that led up to this. So it's kind of like a wealthy person retiring in a way.
Uh so that draw down is is tends to be pretty gradual. you know, they they've also been pretty pragmatic about energy.
So, you know, when they had the crisis, they shut off the nuclear plants, but then over time they started getting them back on. Um, and then the other thing is they have a very um low level of kind of political polarization compared to many other countries. They're they're homogeneous in many ways. Um, it's still very safe, polite, clean society. uh and that actually matters because a lot of this kind of spirals which is that when you have a problem and then you get polarization and that polarization kind of breaks down the trust and then leads to more problems and that of course spirals into even less trust and more polarization and so far Japan has kind of avoided all the other things that could go wrong when you have this topheavy demographics and debt. Um so I would say they're kind of uniquely protected in a way or at least they have been so far. Um whereas in the Europe's case or the United States's case, we're more fractured in terms of polarization.
We've got more infighting. Uh and then in the US's case, especially, you know, Japan went into their situation with a structural current account surplus. The United States goes into the situation with a structural current account deficit. Uh and it's only offset by the fact that we have the global reserve currency. Um, but that's kind of like a like a balanced economy is kind of like a person standing upright. Whereas the US is like a really strong person like pushing against the wall. So we're really imbalanced and we're you know we're held up by the fact that we're up against the wall. But if that wall collapses then we just fall right over.
Uh and so I I think we're kind of by many metrics different than Japan. Uh where we're stronger is that there's more entrenched demand for dollars. So, we have a really long kind of runway to mess up. Uh, but the problem is we're we're also kind of addicted to that. Uh, and our economy is way more imbalanced than Japan's is if that were to like drop off is is the problem. Let's talk about Bitcoin. And there's no better way to segue from macro to Bitcoin than to talk about gold, silver, their massive bull runs. Now, when when I've I've I've seen a few charts posted by analysts and I've looked at it myself. Whenever gold has had a massive bull run and then plateaued, Bitcoin suddenly energizes and goes parabolic. Have you seen that correlation? And do do you think we're approaching that moment now?
>> I have seen that correlation. I would say, you know, the sample size is not super big. You know, when when Bitcoin's a 17-year-old asset and you say, okay, well, the first seven years it was tied, let's say, a decade of correlation. Uh that's not a that's not a ton of sample size to go on, but there it makes some intuitive sense that you have kind of the hard money folks. There's they're there's fraction into a couple different camps. You know, there's Bitcoin, there's gold, there's silver, there's like altcoins. Um and you know, when one is doing really well, it tends to suck some of the capital out of the out of the room for everyone else. Um uh whereas when one is stagnating, allows the other ones kind of a chance to to do well. Um, and so, you know, because there was a pretty big um central bank bid for for gold. Uh, in addition, it was just kind of it, you know, a lot of us in the, you know, I I'm one of those people that's bullish on both Bitcoin and gold. So, I've been I've been tracking gold. I've been bullish gold since 2018. And, you know, a lot of times things happen all at once. Like I, you know, I would have expected gold when gold was like 2,000. I expected it to be more like 3,000. And but then suddenly it goes from like 2,000 to like 5,000 way quicker than I would have guessed. like when it was 5,000, I would have thought that it would have been 3500 or 4,000. So the these moves tend to happen very quickly. Uh in my view, um you know, the sentiment in precious metals has probably topped. Not to say that the prices have topped. I'm kind of on record saying I don't think that they're in a bubble, the gold and silver. I think they rapidly revalued from kind of structurally undervalued to something closer to resembling fair value. So, I'm less interested in them because they're they're less asymmetric than they were several years ago. Uh when they were kind of close to their mining cost and they were kind of super cheap based on many metrics I look at.
Um they've revalued higher. I think we probably have not seen be high, but you know, I think the the speed with which they they go up there is kind of probably behind us. Uh and I think, you know, uh all like I said, all the fast money's out out of Bitcoin. Uh a lot of the indicators look really good. But I mean, you know, the the the funding rates, you know, if you're getting paid to short it or go long it, uh the onchain stuff, uh the the kind of the technical indicators, like if you look at say the weekly numbers, they're kind of rolling up. Um and so in my base case, you can always be wrong in these things. My base case that Bitcoin has seen the bottom. It's already up pretty significantly from the bottom. Uh and I think this is an accumulation phase. I quite often hear the question being asked, you know, where is the money going to come from to get Bitcoin to tens of trillions in market cap and then we see, you know, uh, an asset like gold add like you go from 10 trillion to 30 trillion in the space of about what 3 and a half years. There's clearly the world is a wash in cash. It's just it needs a narrative and a reason to to allocate to Bitcoin. Where do you think the money will come from? uh where sorry what kind of investors will will um will allocate to Bitcoin next?
>> Good question. I mean so there's there's hundreds of trillions of liquid uh assets in the world. Uh and so you know 30 trillion like gold starts to get kind of big but it's still actually a pretty small percentage. Uh something like Bitcoin when it's a trillion or two trillion that's it's tiny. uh you know a lot of it is in the bond market and a lot of it's in the currency market and then a lot of it's in the equity market that those are kind of the biggest pools of of liquid uh capital and then of course the illlquid real estate market is massive so when you add everything together I mean you get estimates that are kind of around like a quadrillion dollars of kind of total dollar denominated capital out there and it doesn't take a lot of that to want to flow into an asset to to make it go up I mean another example along with gold is like Nvidia you know a single stock going up to like a 5 trillion market cap for example. Um and and so you know things can absolutely move quickly. Uh my my kind of base case where demand is going to come from I think it's going to largely come from the high net worth and corporate side. Um I I think there has to be ongoing kind of education and um companies and technologies making it so that retail can access it because I think I mean from a kind of a a cultural standpoint that's the most important people we want accessing it. Um, but what actually is going to move the the needle in say the next 2 3 5 years? Um, I I think it'll be corporations continue to buy it. I think it'll be, you know, you do the math on how many billionaires there are in the world and how many of them have any meaningful amount of Bitcoin. Um, I think that'll increase over time. Um, I I think kind of the appreciation of one portable capital uh portable liquid potentially self-custodial capital is really attractive. Um it gives the holders optionality to make permissionless payments. Um and then when they look around and say, "Okay, equities are kind of expensive. Bonds and currencies are gradually melting down everywhere. Uh gold and silver just ran up a ton." Um the other really big option is is Bitcoin. So I think it kind of over time continues to slowly gather just a little bit from many different types of larger assets. And it doesn't, you know, if it takes a couple percent from multiple major asset classes, that's how it can go up something like 10x over a long period of time. So, Bitcoin has now got stamp of approval from Wall Street and from the White House. We saw the most successful ETF launch of all time and we're now almost 3 years uh into that.
Um, tens of billions of dollars. At one point, I think it was over hundred billion dollars. I'm not sure what the current count is. And uh very recently we've seen the next sort of financial innovation that's sucking in capital from traditional finance and that's the perpetual preferred innovated by Michael Sailor's strategy. you you made comment about um how they found it much easier through this bare market to buy Bitcoin and notably you know a number of um plus billion dollar purchases and I think the most recent one was over $2 billion and that was really what they were doing in the last bull market and so now to be able to do that in a bare market it looks like they've definitely hit the sweet spot for product market fit. Who do you think is buying that?
And what do you think the upside is for demand in in a bull market for for an instrument like that just through strategy? Let alone all the other Bitcoin treasury companies which we'll talk about in a minute.
>> I mean a lot of retail investors are buying it but also you know many other types of just kind of uh pools of capital that say okay so I can get paid 11%. Um with low volatility. So most most kind of credit products uh or in this case preferred but it's kind of like credit like uh basically a yield product. Um if you get higher rates usually one or two things is happening.
One is you're taking on more credit risk. So you're buying like a junk rated company for example um or um you're uh taking on a lot of duration risk. You know you're lending for 20 years and so you're demanding a higher yield to do that and that means you get a lot of volatility uh in in the price of the the underlying principle. um whereas this is a kind of unique one because you're taking >> uh very low duration risk. Uh they're trying to factor out almost all the duration risk and then two uh in a you know you're over collateralized with assets. So it's a little bit different than a normal kind of junk rated company and so you're not really taking on acute credit risk or duration risk. Instead what you're taking on is Bitcoin risk.
Uh so uh it doesn't really work if someone is like structurally bearish on Bitcoin. Um then their stretch preferred is unattractive because you're saying okay that that's how someone will view it as like basically a Ponzi scheme.
They'll say well Bitcoin is going to be flat to down um and they're paying out dividends from current expected issuance of their various securities. And so they'll say okay that's going to probably blow up in a couple years. But if someone is structurally bullish on Bitcoin, um, then they say, "Okay, well, here's a here's a company that owns a lot of Bitcoin. It has a pretty moderate amount of leverage, the type of leverage they have can't be just liquidated, it's not so it's not really callable leverage. Uh, instead, it's the type of leverage that you need kind of a slow motion train wreck for it to go bad.
like you just you over time if like the MNAV collapses to one or below uh and uh um kind of faith in uh the kind of the the dividends of the various preferred dries up maybe because Bitcoin let's say Bitcoin falls to 20,000 and they're no longer like say over collateralized the market says I don't really want to keep buying stretch um so it can it can certainly implode that way uh but if someone is a bull on Bitcoin they can say well I can own Bitcoin that's actually what I recommend is just own spot bitcoin unlevered. Um uh but where their products come into play is that micro strategy is basically levered Bitcoin. So someone has say a 12 to 24month bullish view on Bitcoin. Uh if you started at a reasonable MNAV, you know, not like 3x but like 1.2 or something, uh you're likely to outperform Bitcoin in a bull run. Uh, and then for the for the preferred, especially for stretch, it's saying, well, if you're if you want to hold some cash for volatility reduction and buying dips and stuff, um, you can put some in stretch and earn a higher, you know, twice the yield or more that you would earn on any other kind of like short duration thing with the major caveat that there's a Bitcoin tail risk in there that's not there for T bills. It's not there for money markets. Um, but if for for those that are Bitcoin bullish, it's kind of a it's kind of a near-term storage uh that pays better and and that you know they put up with the tail risk.
>> Yeah, it certainly pays better. I think there's some there are some misapplied analogies to um to this perpetual preferred. One of them is the whole sort of Luna thing. Oh, it's going to unpeg and and that'll lead to an unwind. I think I think that's clearly wrong. And the other one is I think the the terminology Ponzi adjacent. I think I think both words are first of all Ponzi is is misapplied and the adjacent word is doing a whole lot of heavy lifting in that instance. But I'm really interested in um your views on both of those scenarios and and what you think of that.
>> Well, so so Luna is an example like I actually I wrote about Luna breaking before it broke >> uh in like my my research reports. Uh for anyone who kind of wants to Google it, Google digital alchemy uh and they can see kind of my my postmortem on it that includes some of my art my content before it broke. Uh the problem with that is Luna is basically like an emerging market central bank, but instead of like an enforced monopoly of its own currency, it didn't have any of that. It didn't even have the the tools that emerging market has. So they basically they mostly collateralized their kind of dollar pegged, you know, fake stable coin with their own chitcoin. uh they tried at the end stage to start backing it up by Bitcoin, but they didn't get anywhere near enough of that. So, they're mostly collateralized by this thing that can be that's, you know, can lose confidence very quickly like like all, you know, most all coins end up doing in a pretty short period of time. [clears throat] What Micro is a little bit different on is one, it doesn't operate in a regulatory gray zone. It has more, you know, it's a it's a NASDAQ listed company. It goes through the SEC. Um there's there's more disclosures and auditors involved. So one is just the kind of the trust levels higher uh and then two it's it's it's basically backed up by bitcoin on the balance sheet uh rather than its own strategy coin for example which doesn't eliminate the risk again if someone is bearish on bitcoin um over like a longer period of time it is it is possible that micro strategy could kind of implode on itself in a similar way that that that did just less overnight um uh but I mean at that point we're talking about a 17-y y old asset Bitcoin uh that is much larger, more liquid, more secure than anything that that Luna was doing. So I don't think the direct comparison is is great. Um Ponzi adjacent I mean the problem is so almost any type of leverage ends up being kind of Ponzi adjacent um because if you kind of even like a major corporation if you just kind of um they're often like paying off older debt with newer debt. Uh the reason why micro strategy is kind of a bigger uh take there is because it's not really it's it's not really cash flowing a bunch of cash. Uh meaning that it's not really like a lot of corporations will you know make income and as long as you expect operations to continue they should be able to keep paying their liabilities even if they have trouble rolling the debt over uh at least some trouble. uh risk strategy because it's it's more of that it's more based on issuance. Um you know something I I think it's right to be somewhat critical of it even though I I I mean I've been a long-term owner of Micro Strategy and I still am. Uh I I do think it's important to kind of acknowledge the risks and how it differs from a normal company that they are inherently a pretty levered Bitcoin play. Um and you know one of like one of the the you know recently they had the I think one of the stronger things they did was they established a a USD reserve ironically. Uh so it's a levered Bitcoin play but they have a USD reserve and what that does is it gives them resilience if the MNAV just let's say tomorrow just the market decides they don't like it anymore and they drive the MNAV all the way down to 0.9 uh so it can't issue new shares uh profitably.
uh and then let's say it doesn't want to buy any more of the debt. Um it's got, you know, this like runway of of where it can keep paying itself to kind of get through that negative sentiment shift, right? And so I I look at at kind of those types of of situations. Now, currently they've dipped to about a year and a half of dividends worth in their USD reserve, which is below their 2 to threeyear prior guidance. So I'm I'm curious to see on the next earnings call if they update their their views there.
Um but basically there are risks to the company. There are risk mitigants they can do. Um and I think it's important that they're what makes a Ponzi a true Ponzi is that the risks are obscured, right? That you're you're basically lying to investors. You're saying okay like in say the maid off thing is like they think they're in a bunch of investments but really they're being paid off by you know prior prior uh pools of capital. Um, and this is basically transparent risks laid out there. And so it really comes down to what is someone's perception of what Bitcoin price is going to do over a 3, five, 10 year period. Uh, and then is the is the company taking the right procedures to kind of protect itself enough against intermediate price risks.
if MNAV, you know, dries up and if, you know, demand for their securities dries up, are they taking enough risk mitigance to kind of reduce, you know, some of the worst case scenarios if if it has that intermediate term dip?
>> Well, well, the key thing is a Ponzi has no underlying asset. It's it's just entirely reliant on a rotation of new investors and old old investors being paid by new investors. So, in that regard, you know, there's there's quite a clear uh distinction. The the way I look at it is, you know, strategy is just borrowing from a bunch of investors. They think um Bitcoin will go up at 30% and they're willing to pay what is it now 11.25%.
And they're banking the difference. So, you know, and and the other thing I wanted to just flesh out a little bit when you're talking about sort of um how it could potentially unravel or bring pressure upon um strategy is that if there was a prolonged bare market that saw um you know, Bitcoin price subdued for an extended period of time um and they ran out of their um their reserves to pay dividends and the MNAV was lower than the Bitcoin backing then that could develop into a bit of a spiral situation. Not quite with the same level of urgency as um Terral Luna because you know they do have an underlying asset.
Um um so that that could happen but you know strategy has access to capital markets in a way that Teral Luna did not and they have an underlying asset that is uh independent of them uh valued at at you know 1.5 trillion as we speak right now. So, um I I I when I watched um Michael Sailor's interview with Danny Nolles, I was I won't say I was taken aback, but it felt like there was quite a bit of frustration in in Michael's um uh voice. We we saw him in a way that we haven't really seen before um in his defense of other Bitcoin treasury companies. And I want to talk about other Bitcoin treasury companies now because I have been sort of a little bit cautious about the long tail of those Bitcoin Treasury companies. Not so concerned with the top two. Um they've kind of proven themselves in a short space of time. Um at least Strategy has.
Metaplanet is doing some wonderful things there. But you know the management companies of all the rest of them we don't know anything about. I haven't been through a bare market. You know, they've barely been through half a cycle. So, we don't know whether or not they've got the conviction to hold on to their Bitcoin or whether or not they're going to get into a sort of doom loop of selling the Bitcoin, pressure on the bitco on their share price, which then leads to more selling of bitcoin because financially many of them have already admitted that's what would make sense for them to do. We've already seen one prominent uh Bitcoin treasury company, shall we say, I think it was just yesterday, they sold some and a few weeks ago another Bitcoin treasury company sold. You know, we're talking in the tens of millions. Not enough to bear any pressure on on the market, but what what is your view of um I guess the longer tale of Bitcoin treasury companies?
um should we be giving them a little bit more leeway and breathing space to evolve and develop new and innovative business models? Because at the moment it does it does seem to me that we've got sort of one icebreaker in Michael Sailor's strategy and they've hit product market fit and it feels like they're all about to just follow the same playbook now which is there's nothing wrong with that but is there anything more in this space beyond just following the sailor playbook >> right so I think I I would separate two types of treasury companies one would be kind of the almost pure play treasury companies where their their operations are tiny compared to their Bitcoin holdings and and leverage on their Bitcoin versus a company that has a bunch of operations and then also happens to put Bitcoin on its balance sheet. Um, in terms of the pure play, um, I do think that there's a limit to the longtail. Like I don't find the longtail very attractive either. Um, I I would kind of segment that by market, which is that um, you generally want to be one of the biggest ones in your currency jurisdiction, right? because you're you're if you're in a non-dollar one, you're doing something unique relative to strategy. You're providing that to a different market, different currency that's being used as kind of the the leverage for it. Um, and there's really only, you know, a handful of capital markets in the world that are kind of big and liquid enough to be interesting uh at this scale. Um, but you know, there's over a dozen of them, right? So if you say, okay, there's a dozen really liquid capital markets and maybe you can have room for two or three in each one, that gives us a handful of dozens that might might in theory be interesting. Uh when you get outside of that, if if you're like the the sixth biggest one in your currency jurisdiction, the problem is that there are some liquidity network effects. Uh it's kind of like how you know you can have three ETFs for something uh that you know three gold ETFs but once you get into like if you're the six biggest gold ETF um you're not you're likely not very liquid and then and liquid liquidity gets even more important in the options market because the options market is is fragmented by you know the the different durations and the different strike prices of options. So it's like a bunch of little mini markets. So you have to be really liquid in your underlying shares to also have a liquid options market which strategy does. Uh and you have to have a certain amount of scale generally to issue preferred uh as your as your source of amplification. Um and so there is a a situation where kind of being bigger is better uh at least the the biggest in your particular market or the one of the top two in your market.
You know there's room for maybe differentiation of how much risk someone wants to take on. and you can be, okay, we're the big blue chip with lower leverage and and more liquidity and okay, this other one is a little bit more of the wild card, the one that's a little bit more leveraged, the one that you bet on if you're a little bit more bullish on Bitcoin as kind of a trading vehicle. There's maybe room for that.
Um, I I think beyond a certain point, that's where to go to kind of the second one I talked about, which is companies that do other things and happen to stack Bitcoin as well as a reserve asset. I think the runway for that is almost unlimited. um which is to say hey we we you know we sell um widgets you know we we sell industrial products we produce electricity we sell pharmaceuticals we sell you know consumer product uh food for example and we happen to stack Bitcoin as you know maybe 10% of our assets or 20% of our assets or you know we put 30% of our profits into Bitcoin whatever the case may be I think the you know the recipe for that is huge over the course of 5 10 years and so are it's not a lot of companies have bit on that strategy.
>> Please correct me if I'm wrong, but that's just essentially operating companies who've got viable businesses simply allocating the Bitcoin as part of their treasury rather than a Bitcoin treasury >> strategy in and of itself, right? Sure, you can have you can pull that lever to the max if you want and say we're 100% allocated, but you're still focused on your primary operating >> Yeah.
>> business, which is not Bitcoin. I think where and and I hope I'm not getting this wrong. I think where Sailor's defense of other Bitcoin treasury companies was rooted in the fact where I think he took umbrage to Danny's characterization of them being only what they are in this instance without having the potential scope to innovate new ways new Bitcoin business models but I'm I'm at this moment I don't see other business models in this space emerging I see them all essentially following the leader I agree with you. I mean, I don't want to put words in his mouth. Um, it's been especially it's been a little while since I saw that clip. Um, but yeah, I would say that one, I do think it's true that Bitcoin companies are not necessarily in competition. They can be, but they don't have to be, especially again if they're in different jurisdictions.
>> I agree on that.
>> And if they're in the same jurisdiction, I mean, it's it's certainly possible that they could target different risk audiences, for example, with their with their, you know, different security mixes or different strategies. Some of them might try to generate income on their Bitcoin by selling options or something like that and that you know that comes with different risks or different you know caps on prices and stuff. Um so I think there's some degree of of room for differentiation. I think I just think that that overall space does have a limit to it in terms of pure play treasure companies. Um, but that more broadly, I mean, because especially from the beginning, like all the going back to like 2021, you know, strategy's been kind of an advocate for just companies in general putting Bitcoin on their balance sheets and it's offered kind of the playbook on how to do that.
And where I would I certainly agree with them is I think the long-term opportunity for that is huge because right now if you're a company uh you know holding cash is liability uh over you know more than a certain amount because you're just getting diluted over time and so they end up decapizing themselves. they buy, you know, they they deplete their cash, they buy back their own shares or they pay out dividends, which is all great, but if they purposely are doing that and then they get hit with something unexpected, you know, something uh you know, maybe you're an airline, you get hit with a pandemic or you're a tech company and you get hit with a a major new competitor. Uh you already decapized yourself and so you have fewer options.
Uh and really there's been and they've all been punished for holding things. uh and you can only hold so many securities until you run into uh you know you get treated more like a investment vehicle rather than a corporation. There's kind of limits on uh you know that kind of thing. Uh and so really Bitcoin is this kind of opportunity to hold a scarce liquid asset uh at least alongside any other you know it doesn't mean you can't also buy back shares or pay dividends or hold some cash but it's a whole another thing that they can choose to store up and it's volatile so many companies won't put all of it in like a pure play would u but they can hold some aside and say here's another lever that we have as a corporation uh to to retain profits uh and I think the runway for that is massive even though it's I think it's it's slow to form. Do you think demand for perpetual preferred um will be similar to the distribution of demand for Bitcoin ETFs where you see the top IBIT essentially dominate? You've got Fidelity next. I struggle to remember who's third. Is it Bitwise might >> Bitwise and ARC? Bit Bitwise and ARC were up there >> and then it's just a long tale from there. you know like you know they might be viable in their own right as ETFs but when you look at the distribution of funds in terms of what they're pulling in um do you think that we we will see a similar kind of distribution of demand what do you think besides volatility will determine that like have they got much room to compete and differentiate >> they can potentially again target different risk groups but I I I do think that there is a liquidity network effect which is that let's let's say your market cap's only half a billion and your daily trading volume is is, you know, some percentage of that. Um, that means giant institutions don't really even look at your product because they might want to move five billion in a day and they can't with your product. Uh, on the other hand, if if you're 10 times bigger, right, and you got, you know, five billion outstanding and and much higher trading volume, some of those larger entities might start looking at it. And if someone can get even bigger, if they can become a $20 billion one, then some really big pools of capital can start to take notice. So it's like almost like you have to graduate to a certain size before even bigger pools of capital even notice you and then can start using you. And that that's why there's like a self-reinforcing network effect if you're the top one or the top few um in a given jurisdiction. Uh so you know again you might do it in yen, you might be able to do it in Brazilian currency, you might be able to do it in euros or or pounds. Um but you know there's you know a handful of major markets and just like I think just like ETFs just like the underlying treasury companies themselves I think that their preferreds uh also have kind of you know liquidity needs. Uh luckily they're they're generally not trying to build options as much around those because it's more about yield than price. Um so ney have that issue. uh but they but they still have issue of just large pools of capital wanting to be able to buy or sell large amounts of it without moving the price uh without running into any sort of issues uh in in the near term.
>> Lynn, do you think crypto is over? And I mean that in the sort of disparaging non- Bitcoin sense because when when I have a look at, you know, I've only been in this space for um 5 years now. You know, I allocated to Bitcoin. I went all in in um in late 2020. And in that time, you know, there's been one major narrative and one sort of semi-narrative emerge. You know, we we we had the the NFT sort of thing um rise and fall, but there there doesn't seem to be anything right now that's a an alternative narrative to Bitcoin to sort of puff up that sule. And it feels like when I have a look at what's happening in the marketplace with respect to the exchanges, they've all pivot they all seem to be pivoting towards u merging with um uh the the prediction market space and making offerings in that regard. So is is that whole sector the whole crypto sector over?
>> I think so in the sense that I define over as stagnating now not meaning it obviously goes away tomorrow but that it it's not it's no longer a growth industry. uh it never really was. It's just that now it's kind of being marked to market. Um and so if you kind of look at I think the you can kind of measure this in terms of narrative exhaustion.
So the really early wave of altcoins was like alternatives to Bitcoin. They're saying hey you know the steelman case to them is hey did we get the block size right? Did we get the speed right? Did we get the privacy settings right? Let's try let's throw let's throw some alternatives at the wall and see what the market picks. Right? That's kind of the the early phase. Then there was the ICO one basically saying, "Oh, we can just go around the SEC and issue our own securities and then get potentially sued." Uh, so that was like the second wave. Then there was the DeFi wave, which is still a really big narrative, but it's actually remarkable how compressed the initial one was. So it kind of really emerged at scale in mid 2020, DeFi summer, uh, and then by late 2021, it hit its peak total locked value and still hasn't quite reclaimed that figure. um 5 years later, right? So, it's really only had a year and a half bull market and then it's just been, you know, four and a half, 5 years of stagnation. And as NFTTS, as you mentioned, were another narrative that kind of came soon after. That was kind of a flash in the pan. They still trade obviously, but they're nowhere near the liquidity and and size that they were.
Then there's been a little bit of a resurgence in privacy coins for a while, um which you I think that's kind of over now. Uh we'll see if that you that that could have another round of legs to it.
Uh memecoins had a couple attempts. Uh and and kind of this last cycle there really was no narrative. The narrative was kind of memecoins. Um and I think that's that's almost like the final cycle. Uh where it's like you don't even pretend that there's something innovative here. It's just like let's it's basically player versus player uh competition. Uh, and I think just now people rightly kind of associate crypto with scams or scam adjacent. Um, kind of like Ponzi, scam adjacent. Um, and I think that the just the overall kind of value of that space is minimal. I think Bitcoin is valuable. I think stable coins are doing something for a lot of people that they want dollars. They want pay digital payment rails and dollars.
Um, I think there's some legs for tokenization, meaning that, you know, if you can tokenize gold, which people have been doing since at least 2018, um, you can, it's kind of like a global ETF in a way, you know, it's an ETF that you can have almost regardless of what country you're in. um tokenizing major stocks, you know, for people that want to just it's harder for them to get access to their own country and they want either an S&P 500 token or an Nvidia token or, you know, uh but I I think beyond either t, you know, tokenizing a handful of those kind of real things. Um and Bitcoin, yeah, I'm not really bullish. It's not really else I see that I'm bullish on, nor have I been bullish on. I think it's going to continue to stagnate. I I think a lot of people were pushing the narrative that you know when corporations come when Wall Street comes that they will adopt the uh the cryptonative blockchains for their own ends but what we're actually seeing is that uh a company like Black Rockck JP Morgan building their own blockchains and and um for their own purposes. So that that use case is not even even bearing fruit. We we Larry Frinks made the the the comment quite a few times that he wants to tokenize everything. I don't I don't quite understand what the benefit of it is. Is it geographic and jurisdictional unlock or what? Like is it additional liquidity because of um you know the smaller unit uh to which you can you know tokenize an asset? Uh like what's what's going to be the benefit? What's going to be the value unlocked there? I don't understand it. Uh >> often it's either faster settlement. So securities will often historically took days to settle and and over time that's that window has diminished to some degree. And then some rappers are just more efficient than others. Like for example ETFs have gained a lot of market share compared to mutual funds because they're just a much more efficient rapper. They're even more tax efficient.
Um and so kind of like how stable coins I mean anyone who sends international wires on a regular basis and how opaque and slow and even expensive that process can be. It's like hey here here's some stable coins or something. Um there there's certainly innovation unlocks you can do with some of this technology, but like you said, I mean a lot of them can do it in-house. Um a lot of them don't like the top the idea of irreversibility. Kind of the whole point of a fiat payment is that a lot of them are reversible should you need to. Uh that's kind of the whole point of a custodial or just it's all fake money anyway. It's all fiat. So you can just kind of reverse stuff. Um and they don't really want irreversible payments uh in in things they have any degree of liability or control over. So, you know, to the extent that they use blockchains, they might just mean they want federated networks, uh, things that, you know, have that kind of it's almost just like a database, it's like a little bit more auditable or a handful of players can all kind of see parts of it more so than just kind of internal analog systems.
But yeah, I don't I don't think it means like a given crypto token takes off because, you know, 30 different financial institutions decide to use it.
um anytime um value acrews on one uh I think like banks are going to try to capture that wherever they can and only really big network effects can keep them away like for example the stable coins have certain given network effects because again liquidity liquidity begets liquidity so really other than liquidity network effects or in proof of works case security network effects uh or like device or other types of kind of like you know like tech network effects Um, I just don't think there's really much legs to it anywhere.
>> Yeah. I mean, when I when I had a look at some of these um so-called crypto networks or blockchains, what a lot of people don't seem to understand is just because you have a network doesn't mean you have defensible network effects like there those are two separate things. And all I saw was, you know, the users who were uh who were buying assets on these uh blockchains, they were totally indifferent to where which uh which network these assets were sort of tethered to, so to speak. And so, how do you how do you defend a business model like that where they're like, I'm buying this NFT. Okay, you can you can say it's worthless, but they don't really care whether or not it's on minted on this blockchain or that blockchain. The only time the blockchain it was minted on actually had any kind of cultural cache was when they did it on Bitcoin and that was actually the sole reason why they suddenly had a surge. And so like it's important I think one of the things that they don't do is make the distinction between a network and network effect. And I just couldn't identify that in and you know I listen to some people I don't want to name who who but you know I listen to some people in the early days and they're talking about network effects.
I'm like this is not defensible. like you've got to do a full 360 analysis before you attribute any kind of strategic advantage. That's just that's just basic analysis and uh just it just seems the whole space was completely oblivious to that.
>> I agree.
>> I brought up prediction markets before and I find them completely fascinating.
Um and I want to get your view on what they are. Do you do you think it's a mechanism for information uh to force information efficiency through the market mechanism or is it just you know another scamming mechanism there?
>> Could be both.
>> I think it could be both. Uh there's a recent case of people were betting on the temperature and it was all reliant on one sensor. So someone just went over and heated that sensor and won the bet.
Right? So uh the problem so one thing I do whenever I look at a contract I I for example in my research reports I have cited big betting markets on a certain outcome. I would you know I kind of say okay well polls only come at a certain interval. We can watch almost in real time what betting markets are saying about this thing. Of course I I limit it to one it's not perfect. Uh and two you only want to look at ones with high high volumes. If you look at like a very low volume betting market, that's I mean that's it's not really anyformational value there. It's easily gameable. The the larger more liquid uh harder to game ones probably have some degree offormational value. Um now then the question is is it is it is the is it like is it negative health for society despite giving us some informationational value? Like do we if we turn everything into something you bet on um is that healthy, right? Uh I would say in general no. Uh there's always again like you know whenever you remove gatekeepers it does there's like a freedom element to it which is hey if you want to make your own little custom security or custom market or a custom betting arrangement who am I to say no? Um it's not something I would um you know encourage too much of other than again maybe some some liquid ways of hedging and and kind offormational value. I also think that um uh uh uh the CEO of River, Alex Leechman, put it well, which is that if you're going to make these things, you you probably shouldn't put it in a kind of a serious financial institution. Meaning that when you go into your bank, you shouldn't have like a roulette table right next to the teller, right? It's just like you shouldn't be marketing that kind of stuff I I think to >> savings, standard investments, payments, that kind of stuff, right? I think it's more of that casino type of environment.
Um, so again, but again, when when money's weak, that's when people bet on almost everything and technologies kind of re kind of reach maximum technology for being able to bet on almost everything now, which I don't think is super healthy, but um I think it's where we find ourselves.
>> There's so much more I want to ask you.
Uh, we didn't get to speak about AI and um maybe the audience, most of the audience should know if they're Bitcoin is that you've just released a book. Can you tell us a little bit about that, where they can find it, and uh also your newsletter and and Twitter handle as well?
>> Sure. Yeah, new sci-fi books, The Stogard Incident. Uh it's a near feature sci-fi. Uh so far it's well rated and selling well, so people can check it out. Um and uh people can go to lynalden.com. Uh they can, you know, see my research there. They can check out Broken Money. And uh if we didn't cover everything, I mean, maybe we can do it again sometime. Thanks for having me, >> Lyn. Uh it's uh it's absolutely my pleasure. you know, you don't need to ask twice. There's you have a standing invitation whenever you want to speak about anything. I'm more than happy to have you. It's been a pleasure. I feel like I can talk to you about so many things and you give uh such welloughtout answers as well. Um yeah, so we the thing that we've got in common is I've also I've been writing something for quite a while and the um I've gone back and um because I didn't have a backstory to my main character. So, I've gone back and put that in and we have a similar starting theme, but completely different genre.
>> Awesome. Well, good luck on it. Let me know when it's out so I can >> I'm not sure if it's ever going to be out, but it's something that I I I'm doing for myself as like I'd love to talk to you about writing someday. Also, um the whole AI thing, I think, is um is not really getting a proper play. I think people are using very >> uh an old political and economic framework to sort of play out what's going to happen. I'd I'd love for that to be the basis of our next chat given, you know, you've spent some time writing about sort of a AI in your novel. Um because I look at it in a very sort of it's not doomerism. It's just a very different way to what we're seeing on the timeline at the moment. And because I'm not ideologically mored, I feel like I have that flexibility to do that. Um, and and I'd love to sit down with you at some point at your convenience to to sort of flesh that out because I' I I know you you've you've thought about it already.
>> Sure. Sounds good. Happy to. Uh, >> Lyn Alden, thank you so much for your time. It's been a pleasure. You >> as well.
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