The Fed Regime Change That Sets Off Bitcoin's Biggest Rally Ever!

Added: 2026-05-07

[00:00:00]This is not a forecast. This is an inevitability.

[00:00:03]>> I think we were probably in the early innings of a structural decline in prices.

[00:00:08]>> Kevin Worsh takes over and he has to make a decision.

[00:00:10]>> We're setting up a massive supply shock.

[00:00:13]>> This is the most important macro setup Bitcoin has ever had. And it has almost nothing to do with Powell or War as people. It has to do with what AI is doing to the system underneath them and what that forces the next Fed chair to do. The system is forcing the Fed's hand. The incoming chair has been telegraphing for almost a year exactly how he plans to frame what comes next.

[00:00:33]And the only asset in the world AI can't replicate, dilute, or disrupt is sitting at the other end of that decision. The match is set. Are you ready for the regime change?

[00:00:50]We're 2 weeks out from the most consequential Fed chair handoff in modern history. Jerome Powell exits May 15th. Kevin Walsh is ready to walk in.

[00:00:59]Yesterday was Powell's last FOMC meeting, and the data underneath that meeting is wild. We'll get into that later. Bitcoin 2026 just wrapped yesterday in Vegas, and the supply shock thesis is getting louder and louder.

[00:01:12]Today, we're going through two tracks running in parallel, and they both, surprise, surprise, point to Bitcoin.

[00:01:17]But before we get to either of them, you have to start with the floor everything else sits on top of. Here's Jordi Visser on Bankless.

[00:01:24]>> Yeah. But let me give it a little bit more context than that so that people can realize this is not just a a guess.

[00:01:31]This is an inevitability. Um the digital economy has been merging with the traditional finance world and the old industrial economy now for a long time. I mean honestly since the Manhattan project, we started to have a visual on what technology would would look like. And so imagine something and you can use Bitcoin for everyone paying attention.

[00:01:53]Um the market cap of Bitcoin is still sub 2 trillion while the market cap of the fiat system is close to I don't know 750 trillion. So for everyone who's positive on it, you're looking for some kind of re reweing of dollars transferring from one to the other.

[00:02:11]Well, in the economy side, the US economy is now $30 trillion. Of that homebuilders is not a big portion of the growth. Um, car purchases are not a big portion of the growth. A big portion of the growth right now is semiconductors.

[00:02:24]It's artificial intelligence. It'll be robotics. It'll be all these different things, but these things don't involve labor and people as much as they used to in the past. And so, you've had this massive distribution of wealth problem that's been growing literally since the beginning of the personal computer. So, artificial intelligence gets into another realm. It gets into the disruption of the one advantage we have over technology, which is our brain. The other advantage we have over technology is our hands and our ability to move stuff. Well, that's going to be gone with humanoids. So, this labor verse capital um problem, which arguably is what got enough people to be angry enough to actually think of the digital currency and think of having some way to get outside the system and decentralize.

[00:03:10]That is what AI does is it actually speeds up the process that's been going on for a long time. And that's why I say this is not a forecast. This is an inevitability. Um it was only a question whether Bitcoin would be the end result.

[00:03:22]But it has been chosen by people. And I always like to say there are three moes in the world that have been decided by people that have not gone and they've survived the test of time. Uh gold, religion, and now Bitcoin. Um maybe there'll be something else that people say this is not the chosen store of value in the digital economy. But as of now between the users and it being the only one uh that is accepted as far as I can tell, I'll take Bitcoin as the inevitability.

[00:03:49]>> Visser's three moes line at the end there has to be my favorite so far this year. Gold, religion, and Bitcoin. He's saying these are the three things human beings across centuries have actually trusted to hold value when the systems around them are crumbling. Empires fall, currencies get debased, political orders break, gold survives, religion survives, and now against considerable odds, and by the choice of millions of people, Bitcoin survives, too. Visser has been one of my favorite voices this cycle.

[00:04:20]His Bitcoin IPO framing that what we just watched wasn't a top, it was a handoff from OG holders to ETF and treasury companies was the cleanest read of this market I've seen anywhere. Okay, now let's shift gears to the Fed regime change. Yesterday, Powell ran his last FOMC meeting as Fed chair. And two things happened that were interesting, and neither of them have anything to do with rate cuts. The first is the descent. This was the most fractured Fed vote since 1992. Steven Moran wanted a cut. Three of the governors wanted to delete the language in the statement that hints at future cuts. Three governors wanted the Fed to publicly state it isn't leaning toward easing, and they lost the fight. This clearly isn't a stable institution. It's a committee that knows it's about to lose its chair and it's already arguing about who controls the wording on the way out.

[00:05:05]The second interesting thing is the message Powell put on the record. He's not actually leaving the building. He's staying on as Fed governor through January 2028. And in his press conference yesterday, he said again that Fed independence is quote at risk. He isn't warning about the next rate move.

[00:05:21]He's warning about whether the institution can still do its job under the next chair. That's an outgoing Fed chair publicly telegraphing he's worried his replacement is being installed to do something the Fed isn't supposed to do.

[00:05:31]So the question is who walks in the door on May 15th. Here's the man that's almost certainly replacing Powell, Kevin W on CNBC last summer. And pay attention to the framing.

[00:05:41]>> What we call AI in a couple years we'll just call business. And AI is going to make almost everything cost less. And the US can be a big winner. And uh and it's a hugely exciting moment. If I were to step back for a minute, if I were the president, what I'd be worried about is a central bank that doesn't see any of that. A central bank that is stuck with models from 1978, governance from a prior period, and don't recognize we could be at the front end of a productivity boom. And if I were the president, I'd be worried that they might not see it. And they might think economic growth is somehow going to be inflationary. I think we were probably in the early innings of a structural decline in prices. Ken season on the front lines of real businesses and I think if you look over uh the period of the next year or two, it's a pretty special moment. Three things War said here that are worth slowing down on. AI is going to make almost everything cost less. That's the deflation thesis in a nutshell. He worries of a central bank stuck with models from 1978. That's leaning towards permission to do something the previous Fed wouldn't have done. And then he mentioned a structural decline in prices. That's the cover story. If you can convince the public that prices are structurally falling because of technology, you don't have to fight inflation even when inflation is running hot. You can hold rates while CPI is still well above target. And the framing isn't the Fed gave up. The framing is that the Fed is letting productivity work. That's an extremely useful sentence to have in your back pocket if you're about to walk into a job where the labor market is dying and the Treasury wants you to ease. The question is whether Wsh actually believes this or whether the system is forcing his hand and the AI deflation thesis is what he's going to point his finger at while he does what he was always going to do.

[00:07:21]Visser has been making the case it's the second one during that period of 2009 to 2020. I think people forget this. Why were rates kept at low levels? Well, we started that period after the great financial crisis with unemployment up around 10%. It took the entire decade to get it back down to where we are today.

[00:07:40]We are at a point now where the labor market has created zero jobs over the last 16 months. Zero. And if you take out healthcare, it's negative. So we have a weak jobs market. And the problem is the Fed has a dual mandate. It has to focus on inflation, but it also has to focus on the labor market. If you believe AI is going to accelerate, which I believe everyone does, it hurts labor in the future and it causes deflation in the future. maybe not today, but you believe that it will have deflationary pressures in the future. So, if you're a Fed chair and you're looking at these two, which is why it's critical for people to think about the fact that Donald Trump selected a Fed chair that would follow effectively what Scott Besson has said, which is we believe Allen Greenspan handled the 1990s the right way. We believe we should be looking through any inflationary pressures and be focused more on the productivity gains that are going to come from technology. That's all well and good, but that is the issue that comes up is it still goes. People are looking for another alternative where they can make money. So, I do believe there's more behind just the math. I think the narrative that'll come out is that we're going to have inflation. And I'll bring up one more thing. We talk about a lot Bitcoin and the importance of the ETF and it becomes very US- ccentric. I view be the true story for for Bitcoin to be a global asset. I believe it is the most important global asset in the world. The fact that Iran has said they'll take Bitcoin for oil, all of these things are important in the long-term trend of Bitcoin being accepted as an asset. Um, they're not doing it with gold. They're doing it with Bitcoin. Now, emerging markets that don't produce commodities are going to be in a lot of trouble if what we're hearing about fertilizer and food and all this is right. We're going to have inflationary pressures around the globe.

[00:09:32]That could lead to again pressure on the local currency these markets and the them needing to fight through rates and people looking to hide their money again from the system in these countries where a lot of them are the owners and the major owners of Bitcoin. It might be small amounts, but I bring that up just because I think the anger towards the way the governments of the world are dealing with things is running is is is running a muck. And I do think if we have inflation, people are underestimating what might happen to yields in Japan, what might happen to yields in Europe, what might happen to yields in the US. And we might get back into that. Can the global fiat system handle all the debt when we have inflation, but we can't raise rates? And the reason we can't raise rates is because interest as a percentage of GDP has gotten up to high levels. There's a whole narrative that I think is going to be created, which is not bad for stocks.

[00:10:21]It's not bad for the economy, but I think it's very, very good for Bitcoin.

[00:10:25]Now, a lot of the market is pricing as a hawk, which means they think he will keep rates high. Most of Tradfi is reading him that way. And I get it. He has been a public critic of QE for years. He said low rates were artificially depressed. His instinct is to shrink the Fed's balance sheet faster, not slower. But I think labeling him as a hawk is a misread for two reasons. The first one you just heard.

[00:10:46]The Fed has a dual mandate. Inflation, yes, but also employment. Worsh inherits a labor market that has produced zero net new jobs in 16 months. Negative if you take healthcare out. He simply can't raise rates into that without breaking the second half of the mandate. He doesn't have the room. So even if his instinct is hawkish, the data won't let him act on it. The second reason is the cleanest argument I heard all week, and it came from Arthur Hayes at Bitcoin 2026 a few days ago. Hayes points out that even if war succeeds in shrinking the Fed's balance sheet, it doesn't matter for liquidity. Why is that?

[00:11:18]Because the new banking rules that went live April 1st now let JP Morgan, City, and the rest of the big banks absorb the Treasury debt the Fed used to hold.

[00:11:26]Hayes pegs it to roughly $1.3 trillion of new lending capacity, multiplied roughly 3:1 through the banking system.

[00:11:33]That's bigger than whatever credit gets destroyed on the AI side. The net effect of dollar liquidity is neutral and probably positive. So intent and outcome are two different things. Worsh's intent might be hawkish. The outcome is dovish anyway because the system routes around him. The hawk or dove question assumes the Fed chair has a free choice and he doesn't. Not in this regime. This is where Visser put the historical record on it. I put a stat up in quadrants and I just said, "Show me the returns on Bitcoin in periods where we have negative real yields using year-over-year CPI relative to the Fed fund or three-month bills." So, when CPI is above the three-month bills, start with that and then go, is the Fed raising rates or is the Fed at ease, meaning they're not moving or they're easing. And the returns are all happened in Bitcoin since the launch of the white paper when we've had negative real yields. And I don't think most people in the community know that. But that's 100% of the returns. They've all come at times when CPI year-over-year has been above the Fed funds rate. And part of the reason for that is the majority of the returns have occurred during QE and when CPI was 2% and rates were effectively zero for that entire time period. Yes, there were times where they fell, but that was usually when either the Fed was raising or something else was going on. So, we're going to be in that quadrant very soon if I'm right. If inflation doesn't go above, maybe it takes a little bit longer. But I think once inflation gets above 3-month bills, I would hope that what happens is the employment situation is stable, GDP is still good, oil prices are still high, silver is going higher, and Kevin Walsh takes over and he has to make a decision. And if his decision is I'm betting on AI and I am not going to raise rates even though inflation is above three-month bills, that is the serious point in time where I think Bitcoin is going to go higher because I don't think the Fed chair can raise rates if the job market is not strong.

[00:13:34]>> Real rates are about to go negative. The Fed can't fight back and the historical record on what Bitcoin does in that situation is crystal clear. Every Bitcoin return that has ever happened since the white paper has happened here.

[00:13:46]But there's a layer underneath the macro that makes this regime change different from any other rate cycle. The Fed isn't only choosing to cut, it's being forced to. And the thing forcing it is AI. For 15 years, SAS companies or software as a service have been some of the most valuable businesses in the world because once a customer signs up, they're locked in. The lockin is the moat. AI is dissolving those moes in real time. When a model can build the same dashboard in an afternoon, the customer isn't locked in anymore. The market is already telling us this. Just look at what's happened to Salesforce, Adobe, and half the names that anchored the NASDAQ 5 years ago. So, here's what that means for the Fed. That whole sector is the collateral underneath the private credit market. Estimates put SAS exposure inside private credit anywhere between 25 and 50%. So, when AI eats those moes, it isn't just an equity story. It's the asset base of the credit system getting marked down from the inside. The Fed will talk about productivity. What's actually happening is that the assets the lending system is written against are repricing towards zero and somebody has to step in with liquidity to keep the apparatus standing. And that somebody will be wash. Which means the only asset class that doesn't have this problem, the only one AI can't replicate, dilute, or disrupt is the one Viser keeps coming back to. Real scarcity decided by people. That's what withstands the test of time. Now to the supply side. We covered this in detail in the Sailor Curve episode, so check that one out if you missed it. But here's Sailor restating it on the Nakamoto stage two days ago.

[00:15:16]>> And I think that the entire industry is going to accelerate starting now. I think there's going to be a Cambrian explosion. Just the past 12 weeks, I've seen more innovation in this space than in the previous 5 years.

[00:15:31]I think Bitcoin's going to rally. I I think there's a lot of capital flowing into Bitcoin right now and at the rate that digital credit is forming and at the rate you saw our buy this morning we bought the entire supply last week then Strive announced a massive buy then there's a massive bank credit coming online all the big banks JP Morgan City Schwab Morgan Stanley Barclays they're all coming online so I think the formation of You're talking about between 20 and hundred billion dollar worth of credit formation in the next 12 months. And there's only10 billion of Bitcoin naturally available for sale. So I think that we're setting up a massive supply shock. There ought to be a rally in BTC. I think that'll catalyze a rally in all the Bitcoin treasury companies. I think it will cause a rally in demand for digital credit. I think there'll be a rally in bank credit. I think the Clarity Act will go through and there'll be a lot of very constructive guidance from the CFTC, Treasury, and and the SEC. I think that will accelerate digital assets innovation. Okay, so let's put this all together. On the macro side, you have a Fed chair walking into a job with no room to raise rates, inheriting a labor market that hasn't created a net job in 16 months, telegraphing for almost a year that he's going to use AI deflation as the cover story for whatever he does next.

[00:17:03]Inflation keeps running, the Fed keeps holding, real rates flip negative, and that's the only regime Bitcoin has ever rallied in. Are you paying attention? On the structural side, the reason this regime change is happening at all is that AI is hollowing out the asset base of the fiat credit system from the inside. The Fed is being forced to cut because the collateral underneath is bad. I'm sure Wars sees it. He's just framing it as productivity. The honest version is that it's a system losing its grip. And on the supply side, we have tens of billions of dollars of digital credit forming this year against single-digit billions of naturally available Bitcoin. Strategy isn't selling. The ETFs aren't selling. The treasury companies aren't selling. The US government isn't selling. You and I aren't selling. Match meet fuse. Now, I'm not giving you a price target, but I'm giving you the framing. The setup is right now. Holders are already in position. The thing the system is forcing the next Fed chair to do is the thing Bitcoin has historically priced like air rushing into a vacuum. Three moes decided by people that have withstood the test of time. Gold, religion, Bitcoin. We're now watching one of them get chosen in real time. Two questions for you. Where do you stand on Worsh Hawk Dove or is he trapped? And if real rates are about to flip negative, are you positioned for the repric or are you still trading the cycle? Drop your thoughts in the comments below. And if this connected dots for you, smash the like button, share it with a Tradfi bro who thinks Worsh is a hawk, and subscribe to Simply Bitcoin so you don't miss the next one. That's it for me.

[00:18:35]stack accordingly and I'll see you next