Latest / What Bitcoin Did / Bitcoin & the $40 Trillion Debt Reckoning | Nik Bhatia

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Bitcoin & the $40 Trillion Debt Reckoning | Nik Bhatia · What Bitcoin Did

• 0:00
  There is a reckoning. There is a point at which something has to be addressed. If the Fed raises
• 0:10
  rates, they'll be able to issue the debt. It'll just be all in bills. The bills will crowd out
• 0:15
  the money market. There'll be a repo crisis and the Fed will have to buy bills. The UK,
• 0:20
  UK, France, and Japan are much more likely to see some massive central bank and or slash
• 0:31
  government intervention over the next six to 12 months than you are to see out of the
• 0:36
  treasury and the Fed.
• 0:37
  What you basically just asked is, are we really at financial war?
• 0:41
  And who are we at financial war with?
• 0:47
  Great to have you back on the show, mate.
• 0:50
  So much has happened and so much of what has happened is right in your wheelhouse in the
• 0:54
  treasury market. Bitcoin, obviously, what was it, a week or two ago, ripped 20% in a week,
• 1:00
  up to like 80k. We're now sat just below 80k. And everyone was claiming that this happened off the
• 1:07
  back of the treasury announcing they were going to double the number of buybacks they were doing.
• 1:11
  Do you think that's what actually caused this move?
• 1:13
  the treasury buyback announcement is a suppressant of volatility at the margin so from our liquidity
• 1:24
  perspective it's going to help because rates maybe come down a little bit volatility comes down
• 1:30
  because people are less worried the treasury has some backstop there and so at the margin yes
• 1:38
  there's a positive liquidity move.
• 1:41
  It ends up in Bitcoin
• 1:42
  and there's some behavioral follow-through.
• 1:45
  Then you get the short squeeze
• 1:47
  and a few levels get taken out
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  and Bitcoin does its thing.
• 1:52
  So yes, zoomed in, Danny,
• 1:56
  where there was an impact there.
• 1:59
  But zooming out a little bit,
• 2:02
  I think Bitcoin in the grand scheme of things
• 2:06
  is going to seek the price where the whole market is.
• 2:10
  So the last eight months, the market has been bearish.
• 2:15
  And over the last month or so,
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  you can see the seller exhaustion in the market.
• 2:23
  The dips are not as intense.
• 2:25
  All sorts of momentum indicators.
• 2:27
  There are a bunch of ways to measure it.
• 2:29
  Even the most common on-chain indicators
• 2:34
  or the most frequently used on-chain indicators
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  throughout cycles showed that capitulation had pretty much exhausted itself in the 60s.
• 2:44
  So then that sets up the next wave, which is Bitcoin resuming some bullish price action.
• 2:53
  What are the trigger points and how they can move? Honestly, it's anybody's guess.
• 2:58
  And my background is as a bond trader and a bond trader that became fascinated with Bitcoin.
• 3:05
  then I started writing about the relationship between macro and Bitcoin. But I'm here guessing
• 3:13
  just as much as I'm analyzing. And I think it's important to admit that nobody actually knows how
• 3:21
  these things are going to go. And that's why the majority of fund managers underperformed the S&P.
• 3:29
  So I want to get into the bond market a little bit because with this move, people have called it
• 3:33
  like not yield curve control, yield curve control.
• 3:37
  There's obviously, they're putting in a bigger backstop.
• 3:40
  But how do you assess it?
• 3:42
  What do you think this is?
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  Do you think it signifies anything deeper
• 3:45
  than just $4 billion of buybacks?
• 3:48
  The buyback program has been active for many years
• 3:52
  since gone across administration.
• 3:54
  So when I think about the latest announcement on buybacks
• 3:59
  from a dollar for dollar basis, very small.
• 4:02
  and is it really a change?
• 4:04
  Not necessarily.
• 4:05
  The buyback program is targeting off-the-run securities,
• 4:09
  so it's targeting a better functioning of the market,
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  not necessarily yield curve control.
• 4:16
  With that being said,
• 4:17
  they're going to be issuing bills to do this
• 4:19
  when they get involved.
• 4:21
  So it is dollar for dollar also a yield curve flattener
• 4:27
  because you're issuing bills to buy longer-term securities.
• 4:30
  But the Treasury doing the buyback program, and actually this is part of Druckenmiller's critique of Besant in his Wall Street Journal op-ed, that you can't paper over what the truth is, which is how much debt there is, how much issuance there needs to be digested by the market.
• 4:56
  It really comes down to supply and demand.
• 4:58
  So the demand is its own dynamic, but the supply is what the Treasury has control over.
• 5:04
  And when you think about the Treasury supply and Scott Besant he has no power basically no power to lower the deficit It means that the amount of bonds he has to issue whether they bonds notes or bills
• 5:22
  and what part of the curve, he's going to have to issue everything to make sure
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  all the payments get made to the bondholders and all the government contracts and government
• 5:33
  employees get paid every single day and week that the government spends money. That, he can't change.
• 5:40
  He can't do anything about it. The only thing he can do is dance around the yield curve,
• 5:48
  try to issue more bills than bonds so that you're not increasing the supply of bonds.
• 5:53
  You can call the managed long-end supply, meaning the fact that he hasn't raised the size of 30-year
• 6:03
  bond issuance, you can call that yield curve control as well because you're not issuing,
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  you're not increasing the supply pro rata with the debt and the deficit. As they continue to
• 6:16
  skyrocket, you're basically stuffing all that in bills. That by itself is a much bigger yield
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  control, yield curve control de facto or pseudo than anything to do with the buybacks. The buybacks,
• 6:31
  This is the bond trader in me speaking.
• 6:34
  The buybacks themselves are actually smart because these 26-year bonds that are 30-year
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  bonds, four years aged, nobody trades them.
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  They have no liquidity in the market.
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  And so in any period of disruption, they will gap lower in price, higher in yield.
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  They'll trade sloppy.
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  The reason we know they will trade very sloppy is 2020, February and March.
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  that we bond traders had never seen a uh a chair you know a rug pull on the bond market like that
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  and it wasn't like yields were crashing meaning people were just dumping money into treasuries
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  as the pandemic was happening then at the first sign of you know yields got too low and there was
• 7:23
  there needed to be a liquidation. The off-the-run treasuries, like 26-year bonds and
• 7:30
  eight-and-a-half-year bonds, these things traded, I shouldn't actually say the eight-and-a-half,
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  it was really the long end. These 20- to 30-year bonds, they traded so poorly that
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  it caught everyone by surprise. So when we think of, not to do too much of a sidebar,
• 7:48
  But when we think of the standing repo facility, it is a response to the 2019 repo crisis so that if we ever get it again, we have the standing repo and it will cap repo yield so they don't go to 10% for any particular bank or dealer.
• 8:04
  The buyback is a little bit like the emergency response from the March 2020 price action in off-the-run treasuries.
• 8:14
  You can't let it happen again. So you have to do something to mask this illiquidity in those parts of the curves. But the buybacks themselves are much less material to me. And I do agree with the common sense, which is that you can't hide from the deficit.
• 8:35
  it. And the last thing I'll say before I pass it back to you is that at the G20 on Monday,
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  Besant specifically said, the equilibrium interest rate is not in my control. He told the market,
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  it was my favorite soundbite of the day. And it's honestly my favorite soundbite of the year.
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  because if you want credibility,
• 9:04
  you want it in the market,
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  like for treasuries.
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  The U.S. Treasury needs credibility.
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  It needs the market to understand
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  it's not going to just ask the Fed,
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  hey, Fed, can you print $10 trillion tomorrow
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  and dilute the dollar market
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  and backstop the government
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  because we can't get our...
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  our shit together. We can't, you know, stop spending. So we need somebody to buy the bonds.
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  We're going to have the Fed bail us out. That's what the market, you know, half the market is
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  worried about this. And when I say half, I mean, you know, that's the balance between buyers and
• 9:45
  sellers. Always the sellers think, yes, that's going to happen. The buyers think, you know,
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  no. And Besant saying that I can't control yields is the best thing he could do. And that tells me
• 9:58
  when he does the buyback program, it's not, and even the bills issuance and that type of yield
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  curve control, which it is a type of yield curve control. You're flattening the curve by doing this.
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  You're preventing these 10s, 20s, and 30s from hitting the market. They should be hitting the
• 10:18
  market but they not They keeping them in and they keeping it rolling short He is manipulating the yield curve where he can but there is a point in which he cannot There is no QE going on right now Actually
• 10:36
  the Fed had to increase bills at the end of 2025. That was because the repo market was tight. The
• 10:43
  repo market isn't tight. There's no tightness in funding. Funding is fine. The reason bond yields
• 10:51
  are going higher all around the world is because the time value of money is structurally higher.
• 10:59
  Interest rates go up and down and have for hundreds of years. The period in which they
• 11:06
  were going lower. It was a 40-year period. It put everyone to sleep. Now, whether or not they're
• 11:14
  going much higher from here, the move from zero to five is, in the grand scheme of things,
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  to be expected, and it is a result. It's a direct result of global behavioral change in the economy.
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  15 years ago, it was sleepy money.
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  Everyone was just sleepy with their money.
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  There were no opportunities.
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  There was no inflation, so there was no rush to get involved with anything.
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  So you just hide out in treasuries.
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  Now you get the pandemic.
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  It triggers this global supply chain disruption.
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  It triggers inflation.
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  Then you get government response.
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  It increases the inflation.
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  Then you get an AI boom and an investment boom.
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  and all of a sudden the rates of return offered by investments are very handsome and secured by
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  excellent cash flows and nvidia chips now or you throw those into the mix then if if a great company
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  is offering you seven percent on your money for a cash uh backed by a cash flow that you are
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  almost certain is going to come, why would you ever own a treasury in that environment? And
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  that's what you see. The slow evolution of getting out of sleepy money, putting it to work,
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  and then Warsh, my favorite soundbite from him yesterday, was that he said the global savings
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  glut is over. And that was a term that was thrown around my whole career. And even by Bernanke,
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  this global savings glut money was hiding it's no longer hiding it's no longer asleep it's active
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  the global savings glut has turned into an investment boom and warsh has said it and and
• 13:04
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• 13:09
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• 16:03
  that there's like great investment opportunities elsewhere? Or is it the fact that people just have
• 16:07
  far less trust in the treasury market with the huge amount of debt the US government now has and
• 16:11
  like the ever growing amount of debt? No, because it's always a relative game, Danny. So when you
• 16:16
  talk about a yield of Amazon at 6% and the yield of treasuries at 4.8, that is the market telling
• 16:25
  you Amazon is a higher risk to the treasury. The treasury yield going up is a response of
• 16:30
  people selling the treasuries. The price goes down. They sell the treasury to buy Amazon.
• 16:36
  It's not a, Amazon is a better risk than the government, then the yield would be lower.
• 16:41
  And so the corporate spread is the market telling you exactly what the relative risk is.
• 16:51
  But is that risk shrinking in favor of those mega cap companies?
• 16:56
  Well, corporate spreads are very tight and they're not going...
• 17:01
  Tech has had waves of credit spread widening, meaning some increased risk coming into the market over the past few months.
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  that comes with a lot of bonds being issued.
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  Nevertheless, on aggregate,
• 17:16
  corporate spreads are near the lows.
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  They're not on the lows.
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  They're near the lows and they're not widening,
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  meaning we're not getting to the end of the credit cycle.
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  You are in a period where confidence is high,
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  credits are issuing and spreads are not widening to the point that anybody is alarmed by it of
• 17:44
  course like there's oracle oracle has really struggled they've issued a ton of bonds and
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  uh some of their corporate spreads are wider i'm not a corporate bond uh trader by nature i watch
• 17:56
  spreads in general and the averages and right now corporates are doing well there's no there's no
• 18:04
  big reversal in US government risk versus credit risk. There's still a spread. It's not on the lows,
• 18:12
  like I said, and it's not gapping higher. The thing that I can't quite figure out is the US
• 18:18
  debt is now around 40 trillion. They obviously have to roll that debt over as well. And the 10
• 18:23
  year, I'm just having a look now, is just under 5%. When does that become an issue? Those high
• 18:29
  the yields become an issue for the like, and at what point, um, how high can this go?
• 18:36
  Yeah, it's already, it's already a massive issue because the interest itself eats into the tax
• 18:44
  revenue to a point that it's already a big issue. So the plug, by the way, is with bills. So just
• 18:55
  more and more bills onto the market. And the bill supply will increase such that
• 19:04
  you will necessarily get a repo market shortage because there's only so much cash to buy those
• 19:12
  bills and there's almost only so much cash to finance them in the overnight market.
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  So at a certain point, the bills that are issued by the treasury will end up in a repo
• 19:24
  market tightness. And that repo market tightness will have to be addressed by only one player,
• 19:30
  that's the Fed. And that's when you'll see this not QEQE that we got at the end of 25,
• 19:35
  where they bought bills into 26 a little bit, then they didn't need to because they grew the
• 19:40
  balance sheet enough. They addressed the repo market, repo market stabilized. So we'll watch
• 19:47
  the repo market for when they are unable to fund it via cash, but the crazy thing is that it's not
• 19:59
  on a deficit basis by itself, meaning that even if interest costs go up and up and up,
• 20:08
  they plug it with bills, the bills get sold only up until the point where it causes repo market
• 20:13
  tightness than it forces the Fed to buy. So maybe a little bit of a repeat of 2025.
• 20:19
  And we'll watch, you know, we watch the repo market every day. But the repo market is one
• 20:24
  that sometimes you just can ignore it for years at a time. And then all of a sudden,
• 20:28
  oh, the crisis is coming. It's building up. You can see it's widening. And then boom,
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  the Fed comes and does what they did at the end of 2025 with their repo.
• 20:38
  So, but let me also say, Danny, that there is a reckoning.
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  There is a point at which something happens.
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  to be addressed. There are a few. There are really only four moving parts here that can be addressed
• 21:04
  to fix this enormous problem of the United States debt and the interest costs. The debt by itself
• 21:11
  is fine. 125% of GDP is bad, but it's not death. Japan is much higher. It's the
• 21:20
  percentage tax revenue that's going to interest, which is at like a quarter now.
• 21:27
  That's the thing that's bad. Okay. So forget the $40 trillion. It's the $1.2 trillion out of the
• 21:37
  $5 trillion of tax revenue that's going to interest.
• 21:41
  That's the number to focus on.
• 21:44
  So you have, let's call it a trillion in interest cost,
• 21:49
  $5 trillion in tax revenue.
• 21:52
  You have $3 trillion plus in Medicare and Social Security.
• 22:02
  You have a trillion in defense, but you can't assume
• 22:07
  you have to move that way to the back of things that could change.
• 22:13
  So essentially, what are the things that you can do to address this?
• 22:18
  The interest has to come down.
• 22:20
  The rate has to come down so that the roll is cheaper.
• 22:23
  Because the roll at a trillion is really, really painful.
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  But if the roll goes to $500 billion,
• 22:29
  that's a lot easier for the government to summit
• 22:32
  because that's a collapsing amount relative to your tax revenue.
• 22:37
  So how can you get a lower rate? You have to have a recession, meaning people go back to sleepy money, they hide out and they drive rates lower. The Fed cuts in response to a recession and all of that. You have to have inflation come way down so that the compensation for inflation goes down, meaning the demand, people's demand for compensation goes down.
• 23:04
  They just are willing to take 3% and then 2% because there's no inflation.
• 23:11
  We don't have any of that.
• 23:12
  We don't have signs that we're going into disinflation or deflation.
• 23:16
  Inflation isn't raging, but it's not coming down.
• 23:20
  That's very clear.
• 23:22
  And we're not in a recession.
• 23:25
  There's an investment boom.
• 23:27
  Even the employment levels are quite good.
• 23:32
  and so you don't have anything there so the only way to get rates down is for there to be a managed
• 23:42
  meaning the the all of the 1940s the fed coming in and capping the yield on treasuries and they by
• 23:55
  the way they didn't really have to buy they just said we will buy at this level to to keep the
• 23:59
  yields. The reason why is because the United States spent so much money on World War II,
• 24:04
  and they had to manage the interest costs. And that break in independent monetary policy
• 24:11
  lasted for nine years until the 1951 Treasury Fed Accord. So my point here is that unless you get
• 24:20
  some grand agreement or some closet agreement also that actually gets the Fed to
• 24:29
  drastically cut rates, that interest portion of the tax revenue, that is not going to go away.
• 24:38
  The rest of it, we can get into like, what's the Medicare solution? Because there is one there. It's
• 24:44
  not necessarily feasible tomorrow, but there is one. That's something important. And then on the
• 24:49
  tax side, can the United States raise its tax revenue, not via economic growth, which they're
• 24:56
  trying to do, but via increased tax rates, politically, that might be feasible after
• 25:03
  2028.
• 25:04
  So we're still a couple years away from that tax revenue line item conversation.
• 25:11
  So then you're basically left with Medicare reform in some way or Social Security reform.
• 25:19
  Those are also politically very unlikely.
• 25:23
  like I can get into specifically how we might address the Medicare. That's not in the political
• 25:30
  conversation. So it's a waste of my time to for us to have that, you know, how to fix Medicare.
• 25:35
  I think we've even talked about this once on the show before. You know, I have a whole rant about
• 25:40
  how you could fix that. It's not feasible. So the only the only thing they can do right now is
• 25:47
  something very drastic, like a managed interest rate cut by the Fed. And last thing, Danny,
• 25:56
  if you allow me there this other scenario in which the Treasury creates this new separate style Treasury bill which is explicitly for stablecoin reserves And they artificially keep that rate
• 26:15
  near zero. And they use that to finance a little bit of their debt on the margin.
• 26:23
  but that's
• 26:25
  like again a long shot
• 26:27
  and it doesn't really address
• 26:29
  the
• 26:31
  it doesn't address the
• 26:33
  40 trillion
• 26:34
  which is already averaging
• 26:36
  in the threes and is rolling in the
• 26:39
  fours. It's getting worse
• 26:40
  every single day at these yield
• 26:43
  levels and so they
• 26:45
  have to do something
• 26:46
  on the interest side
• 26:49
  or else
• 26:50
  there will be some
• 26:53
  other force function to get it more in check of all those options you outlined there none of them
• 27:00
  really seem likely like i think the only one that that that does is actual yield curve control from
• 27:06
  the fed um like that one seems like potentially doable i don't know if it would work i don't think
• 27:11
  it necessarily be a good thing but it seems doable at least but they couldn't really cut rates now
• 27:16
  with inflation way above target like you'd imagine inflation then runs up even higher
• 27:20
  So what will they do, do you think?
• 27:24
  My guess right now is a managed situation between the Treasury and the Fed.
• 27:31
  What does that mean?
• 27:32
  I mean, it means that Kevin Warsh, if he were to hike rates sometime over the next three months,
• 27:42
  he is going to cause a bond market disruption.
• 27:49
  I don't want to call it a crisis. He's going to cause something bad. If the Fed raises rates here,
• 27:57
  that's not good for the US fiscal picture. In the end, if the Fed raises rates, remember what we
• 28:04
  said about what will happen. They'll be able to issue the debt. It'll just be all in bills. The
• 28:11
  bills will crowd out the money market. There'll be a repo crisis and the Fed will have to buy bills.
• 28:15
  so they're
• 28:18
  they're gonna
• 28:18
  shoot themselves in the foot
• 28:21
  by doing this
• 28:23
  and so
• 28:24
  Besant and Warsh on the plane together
• 28:27
  they have to be
• 28:29
  talking about how do we
• 28:31
  address this like you and I
• 28:33
  having this conversation
• 28:35
  we are not the only ones
• 28:37
  talking about what are we gonna do
• 28:39
  Besant and Warsh are trying to figure
• 28:41
  out what are we gonna do
• 28:43
  and
• 28:45
  And let me also say something from the bullish side, because we've been quite bearish on treasuries.
• 28:51
  There is a yield at which money stops pouring into the data centers and comes back into treasuries.
• 29:00
  Because right now, repo is funding below four, and treasuries are carrying at above five in part of the curve.
• 29:12
  And that one, let's call it 1.5% carry can get multiplied by 30, 40, and 50 in the repo market through leverage. And all of a sudden, you're talking about an extremely attractive leveraged carry opportunity for bond investors because leverage is quite cheap in treasuries.
• 29:36
  And so any yield curve steepness will bring buyers. So you should be worried about Europe.
• 29:47
  You should be really worried about Europe. You should be worried about the UK,
• 29:52
  worried about France. France can't print its own money. These are the places that you should be
• 29:58
  expecting massive money printing before the Fed is forced to do it. I honestly believe that.
• 30:07
  I'll say it again. The UK, France, and Japan, not so much Germany, but these three,
• 30:20
  are much more likely to see some massive central bank and or slash government intervention
• 30:31
  over the next six to 12 months than you are to see out of the treasury and the fed
• 30:37
  they are in some ways the conspiracy because conspiratorial side of me thinks that
• 30:45
  Warsh and Besant are fine with yields going up as long as somebody over there breaks first
• 30:52
  and that the ECB maybe has to do some sort of reverse course QE. But the ECB is hiking rates
• 30:59
  to respond to this higher time value for money. But what do you think the US would do in that
• 31:04
  situation if Europe does start printing money start falling Because presumably they would open swap lines and try and help Like that that what has happened in the past around the world Do you think that would happen again That wow That the best question because that what I been writing about Danny
• 31:25
  You know that the Eurodollar system is at the core of my framework here.
• 31:31
  And so is the United States trying to attack the offshore dollar system deliberately, break something, and then not provide the swap line because you didn't play ball, you didn't send a ship to Hormuz, you didn't do the stablecoin thing?
• 31:50
  that is a very possible yes.
• 31:54
  I think that that's where things are going.
• 31:58
  I wrote a paper earlier this year for policymakers, my first one.
• 32:05
  It was, if you want a stablecoin adoption,
• 32:09
  you have to address the fact that they are free riding on the Eurodollar system,
• 32:15
  which is not asset backed by stablecoins.
• 32:19
  It's leveraged on correspondent banking.
• 32:22
  And now take that bit of information and go listen to Scott Besson's 17-minute press conference on occupation economic outcast.
• 32:33
  And listen to it with a euro-dollar lens.
• 32:35
  And what you hear him saying is we're going to prevent you from dollar banking in ways that don't agree with us.
• 32:43
  And we're going to cut you off if you do it.
• 32:46
  So the question you just asked is the granddaddy of them all.
• 32:53
  What you basically just asked is, are we really at financial war?
• 32:58
  And who are we at financial war with?
• 33:02
  I have big theories about this and I absolutely don't know the answer.
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• 33:51
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• 33:53
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• 33:57
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• 34:43
  get started that's anchorwatch.com so what what's your big theory though because like if you if you
• 34:49
  say who we hit financial war with like china's the obvious one and i think china are squeezing
• 34:54
  the us i think they're trying to i think that's a at least a reasonable part of the air the ai
• 35:00
  battle that's going on right now and the open source models coming out of china like they see
• 35:03
  the AI, the open AI is the anthropics of the world. And they're essentially cutting them down
• 35:08
  at the knees. So China is an easy one, but being at sort of economic war with Europe is,
• 35:14
  is that unprecedented? Like certainly in our lifetime, like that's crazy.
• 35:18
  Yeah. So let's, let me be a little more specific. I don't believe we're at financial war with China.
• 35:25
  we're in a a cold war of sorts a tech war a tech race and actually china is an ally in many ways to
• 35:36
  the united states so we are in a race with them we are in a defense build-up that's not financial
• 35:45
  war does china launch financial weapons at the united states sure and and but they're actually
• 35:52
  more China's more of a deliberate, slow moving society. They're trying to play for the long game.
• 36:01
  And they still have this shame of the opium wars that they're still trying to get rid of. So
• 36:08
  China thinks more in decades and centuries than we might want to give them credit to.
• 36:14
  So I don think the U and China are firing direct financial weaponry at each other China leverages the euro dollar system which is an international banking system
• 36:33
  It is
• 36:34
  housed in Europe,
• 36:36
  but Europe is not the only
• 36:38
  place where the banks operate.
• 36:41
  They operate
• 36:42
  in London, Paris,
• 36:44
  Zurich,
• 36:46
  Singapore,
• 36:49
  Toronto,
• 36:50
  and the first bank to be sanctioned
• 36:55
  in Operation Economic Outcast
• 36:57
  was a United Arab Emirates bank.
• 37:02
  All of these banks use the euro-dollar system.
• 37:07
  They all facilitate China,
• 37:10
  or I shouldn't say they all,
• 37:12
  they facilitate China, Iran,
• 37:16
  and Iran is the, you know,
• 37:20
  It's the avenue to launch this. I'm not saying that they're, I don't actually think that Iran
• 37:25
  itself is the main target. It is the euro dollar system. And it's this, it's about US power. So US
• 37:32
  and China are in a power game. They are in a war for power. They are in a global dominance fight.
• 37:41
  I'm not ignorant to that. But I don't think the United States and China are the one, when I say
• 37:46
  financial war, I'm not talking about China. I'm not talking about Europe either. They're not at
• 37:53
  war with Europe. European banks are the architects of the euro dollar system.
• 38:02
  And so maybe the puppet masters are mostly in Europe. That's not, I mean, it's not my game to
• 38:09
  try to get too much into that. But I don't want to say the United States is at financial war with
• 38:14
  China. It's not a financial war with Europe. There is a international dollar system that works to the
• 38:21
  disadvantage of the United States. As per the U.S. diagnosis, go back and read the Stephen Myron
• 38:28
  speech days after the Rose Garden speech. I believe Rose Garden was on the second Liberation
• 38:34
  Day, second of April last year. And then the Myron speech to the Hudson Institute was on April 7th
• 38:40
  of last year. That is your instruction. The current administration views it like a free ride.
• 38:51
  Myron called it the dual public good. We provide, and I mean America, United States of America
• 38:58
  provides a Navy to the world for free for them and provides a dollar system for free for them.
• 39:08
  both are going to be addressed by this administration.
• 39:12
  It's in their speech.
• 39:13
  I covered it the day it came out.
• 39:15
  If you don't read the speeches from Besant, Myron, Warsh,
• 39:23
  you're going to miss what they're doing.
• 39:25
  I'm trying to figure out what they're doing.
• 39:27
  When I see what they're doing with Operation Economic Outcast,
• 39:32
  Iran wasn't mentioned by Dr. Stephen Myron in April of 2025.
• 39:37
  okay it but you can see the trail you can see the crumbs being laid out for you where they want to go
• 39:46
  with this the genius act here's the last thing i'll say before i pass it back to you the genius
• 39:52
  act it was the first thing that they did one big beautiful bill and the genius act they got the
• 39:59
  genius act i wrote a paper about the genius act several months after it was passed into law
• 40:05
  fully law already in the past. And I'm thinking how the government can use the Genius Act to its
• 40:12
  advantage. And what was my conclusion, Danny? What I'm writing, they already know this or else
• 40:17
  they wouldn't have passed it. Like if you read the language, what they're trying to do,
• 40:21
  they don't need me to tell them, use this as a tool of statecraft to wrestle some control back
• 40:30
  over the euro dollar system and get it on shore again and take some now it's where it affects
• 40:37
  china take some firepower away from china at the margin by damaging this system and bringing it
• 40:44
  back they did not need my paper i'm telling you the truth i wrote this i spent i spent months on
• 40:51
  it and halfway through writing when i had my aha moments the aha moment was they already
• 40:57
  freaking know this. They passed the law last year. They know what they're doing.
• 41:04
  And what is that? So for a layman, this can all sound like financial plumbing.
• 41:10
  What's going to happen here? If the UK fails or if the UK has to start printing a lot of money,
• 41:16
  same with Germany, same with France, what does that mean for the world? What does that mean for
• 41:20
  the US, what happens? I don't know, Danny. I mean, what I know is that they're trying to
• 41:28
  wrestle back power. I, you know, the last financial true collapse that we had was in
• 41:39
  2008. And the one that we briefly touched up against in 2020 was arrested very quickly by
• 41:48
  policymakers in a very unprecedented way that had a lot of ramifications. But we didn't lose
• 41:54
  the system. We didn't lose countries. We didn't go into revolution anywhere. We didn't. And so
• 42:02
  I don't know if these actions bring some big next crisis. I see it more as part of the power game,
• 42:14
  diminish the ability at the margins where you can, and try to live for the next 250.
• 42:21
  So I really don't know. And I try to stay in my lane. I mean, I'm just being honest with you.
• 42:32
  And when you ask me the questions, when I have an answer or an opinion, I tell you. And when you ask me a question that, you know, I would have to pause, take your question, write it down, think for a week, bullet it out, and come back to you and spec it out.
• 42:48
  I think that Bitcoin is the best representation of what you would want to own, not knowing what's going to happen with all of this stuff, because it can't be printed.
• 43:03
  And so the big thesis is Bitcoin, and people have liked gold for many years. I was one of them before I liked Bitcoin, or I was aware of Bitcoin. They like it for this reason. They understand.
• 43:17
  but they also they also know they don't really know how it's going to play out they know they
• 43:23
  need to own something scarce and so that's the best answer i can give you is what do i do not
• 43:31
  knowing i i think bitcoin is the play and if i thought it was gold i would be in gold but i'm not
• 43:40
  the the last thing on this because i do want to get into bitcoin is in 2007 2008 which was the last
• 43:48
  like real global global financial crisis like covid was quite short-lived like you say um
• 43:54
  policymakers stepped in really quick and and we had high inflation but it wasn't the same as 2007
• 43:59
  2008 but that started in the us and then there was obviously contagion all around the world it
• 44:04
  definitely hit europe very hard as well it sounds like what you're saying is this might be a european
• 44:10
  crisis that the US manages to distance themselves from and not be as impacted by?
• 44:18
  So I think that there will be something that happens in Europe to the extent, what extent
• 44:24
  it impacts the United States. I don't know. To say that it won't come back home, I think that's
• 44:31
  naive, but I do want to correct you. The crisis started in August 2007 with BNP Paribas.
• 44:41
  It did not start in the United States. The mortgage insanity was U.S. underwriting,
• 44:50
  okay? So the bad assets were American. That's for sure. You can check out The Big Short.
• 44:58
  the first fund to say we can't mark a price on our assets was French.
• 45:08
  And it was a crisis in funding
• 45:13
  because in the end there weren't enough euro dollars to go around.
• 45:18
  But 2007, December, is when the first euro dollar backstopping central bank swap line
• 45:27
  was issued to the European Central Bank and Swiss National Bank. December 2007, August 2007,
• 45:37
  four months before that, was when the LIBOR spread to onshore rates started to widen.
• 45:43
  And that happened the day after BNP Paribas said, we can't publish marks on these assets.
• 45:49
  they were subprime mortgage derivatives of some sort. So it actually didn't start in the United
• 45:58
  States. The financial crisis itself started in Europe. There's some history. I got that wrong.
• 46:05
  Let's do the Bitcoin part then. This is why we're here. So like you say, Bitcoin is the best bet
• 46:11
  here with all the uncertainty going on around the world. But looking at this in a sort of very
• 46:16
  a Bitcoin specific way. How are you looking at the market right now? Do you think the bottom's in and
• 46:22
  we sort of in the next bull market? I think the bottom is in next bull market. No, you can't say
• 46:29
  that yet. There's not enough momentum at all. You haven't even really cleared 82, 83,000, which is
• 46:38
  the local high post-bear drop.
• 46:42
  So no, not in a bull market yet.
• 46:45
  Yes, I think the bottom is in.
• 46:47
  I was picking up the seller exhaustion over the summer and yes I think the bottom is in
• 46:59
  But Bitcoin is still very reactive to global liquidity.
• 47:07
  And so even if I think the bottom is in at 60, and now Bitcoin closer to 80 than 60,
• 47:15
  could it leak lower, stay flat, not get any escape momentum over the next several months
• 47:25
  because rates go up, volatility goes up, the dollar strengthens back after a period of several
• 47:32
  weeks of weakness post USD JPY intervention, again from Scott Besson's name coming back in here.
• 47:40
  that that's all quite possible so what we have done at the bitcoin layer is we've tried to strip
• 47:48
  out my opinion for the short term and so we're fully quantitative in our approach in the short
• 47:58
  term it makes my job a little bit more relaxed because i can think about what is happening over
• 48:05
  the medium term. Like think about what Warsh and Besant were discussing on the plane and what that
• 48:12
  means for the next year, not what it means for markets today. TBL liquidity is designed with
• 48:19
  four pillars, banking assets, interest rates, treasury volatility, and the dollar. And together,
• 48:27
  every day we get a read on what's happening in liquidity. And then for the math people,
• 48:32
  we go into the rate of change and then the first derivative of our cyclical wave.
• 48:40
  And we try to basically isolate for people, are we in a buy zone or a sell zone?
• 48:46
  Is it green or red?
• 48:47
  And with that green dot, red dot approach, Danny, we've tried to make it really simple,
• 48:53
  like what's happening in the short term.
• 48:55
  We got a green dot on August 13th.
• 48:57
  It was about a week before Bitcoin's pop.
• 49:02
  so we were in a red dot before that um we we captured the up move we also captured a couple
• 49:11
  of the large down moves with the red dot earlier this year it's led to some pretty large out
• 49:16
  performance if uh with our active strategy versus just buy and hold bitcoin so we're trying to offer
• 49:22
  valuable signal to people especially people that are making portfolio decisions more often than not
• 49:30
  We're not really for this indicator itself.
• 49:33
  It's not really for the long-term DCA people or the buy and hold people.
• 49:39
  If you want to be more active in your DCA or more deliberate in when you buy,
• 49:46
  then this is a tool to help them.
• 49:49
  For people that like to hedge on both sides,
• 49:52
  this is a tool to give you a sense of, hey,
• 49:54
  the market is leaning against us right now.
• 49:58
  So I've taken my opinion out. We're full, you know, in this methodology. We back tested it. It's worked so far this year. We're going to continue to publish our track record. People get the indicator the second that it flips that are signed up with us.
• 50:15
  Okay. So this is, we've got the liquidity cycle. We've got the index relative returns. Okay. So talk me through it. What am I looking at here?
• 50:23
  Yeah, so this right here is available to everyone for free. This is our TBL liquidity index, and you can catch that at thebitcoinlayer.com. This is available to everyone. This tracks those four pillars I was telling you guys about. This is the index, and this is basically synthesizing what we're doing. So you can see here, liquidity peaked at the end of January.
• 50:46
  and this is by the way has nothing to do with bitcoin the inputs here are rates vol and the
• 50:53
  dollar uh this is the peak of liquidity and and then the bottom somewhere at the end of march
• 50:59
  and you can see since then we've basically flatlined so bitcoin has kind of mirrored it
• 51:07
  right i mean uh bitcoin peaked around here at the end of the year and then and then saw a big
• 51:13
  draw down, it's bounced, and it's kind of been flat since it first hit 60, except for that little
• 51:20
  pop that we've had. So this is what we publish every day. Then we've taken this data, and we've
• 51:27
  applied a cycle, done some math. We don't have to get into it. This is what the cycle looks like.
• 51:34
  So right now we're cycling up. And then we've taken this information, and we've given you our
• 51:39
  indicator. So these diamonds are when we send our signal, hey, we've gone from buy to sell,
• 51:46
  or we've gone from sell to buy. So this is our last diamond here, confirmation green dot on
• 51:52
  August 13th So that what we provide And that a look at it just on a raw basis Now I show you relative to Bitcoin so that you can get a better sense of what we talking about here Okay TBL liquidity performance I come back to this performance chart in a
• 52:13
  second, but you can see here a little summary of what is going on with the trades. And then
• 52:20
  here you have our dots lined up on the chart. And you can ignore these little circles here. It's the
• 52:28
  diamonds that matter. Those are confirmations. So you can see, this is when we started,
• 52:33
  by the way, Danny, in we started in 2026, which is right here. So no position,
• 52:39
  a sell in January, a buy here, a sell here, a buy, sell, buy. So you can see that's the
• 52:46
  dots on the Bitcoin price itself. And you can see them on the stock market if you're
• 52:53
  interested in that too. We test everything versus both the S&P 500. This is the track record line
• 53:00
  by line, basically the trade history of the year. Now, the chart I shared with you was this one. This
• 53:06
  is the relative performance. So the orange line is Bitcoin. So Bitcoin now down 11.3% on the year.
• 53:15
  The purple line is us. So selling here this period, it's leaking higher because we own bills.
• 53:22
  so accrue a little interest.
• 53:23
  Then we buy here.
• 53:25
  So then you can see from this period to this period
• 53:27
  we're the same as Bitcoin.
• 53:29
  Then we got a sell.
• 53:30
  So then we're flat.
• 53:31
  Bitcoin went down.
• 53:32
  And then we buy.
• 53:34
  So then we're tracking with Bitcoin again and so on.
• 53:36
  So you can see our active strategy again.
• 53:39
  And this is reflecting perfect timing,
• 53:42
  no tax, capital gains tax implications.
• 53:46
  Listen, guys, we are not a hedge fund.
• 53:48
  We don't manage outside money.
• 53:49
  We're a data researcher.
• 53:51
  and we're trying to help people.
• 53:55
  We're trying to help your portfolio.
• 53:56
  We're trying to help our own portfolios here as well, actually.
• 54:01
  Spoiler alert, some of us are trading TBL liquidity
• 54:04
  more actively than we were before we had our, you know,
• 54:09
  dots published to everyone.
• 54:11
  So anyway, you can see that here we have
• 54:13
  over 60% outperformance versus Bitcoin
• 54:16
  and it does compound every trade
• 54:18
  because when we avoid those losses,
• 54:21
  and we buy again those gains compound
• 54:24
  as opposed to having the high watermark in Bitcoin
• 54:27
  where if you're down and then you go back up,
• 54:30
  you're just getting back to where you were.
• 54:33
  So it's worked well.
• 54:35
  We don't want to pat ourselves on the back ever,
• 54:39
  but not even with this green dot
• 54:41
  that we got a week before the pop
• 54:42
  because unless we get a red dot before it goes down,
• 54:46
  it's not a closed trade.
• 54:47
  It's an unrealized gain.
• 54:49
  And so we're thinking of this current one
• 54:50
  as an unrealized gain. We think, and we can see, we've done a lot of work on this, that macro
• 54:58
  drives Bitcoin and that you can actually use macro to trade Bitcoin or to get a sense of
• 55:06
  if it's a bullish or bearish impulse. This is the short-term look. This is what I've removed
• 55:11
  myself from. This is purely quantitative. A lot of R&D has gone into this and that allows me to
• 55:19
  you know, do more zoomed out thinking and also teach, like, why does this work?
• 55:25
  So I spend a lot of time writing and recording about why it is that this is actually happening.
• 55:32
  Why is macro affecting Bitcoin like this? And now we've added all sorts of stuff like back
• 55:37
  testing it against other assets here. You can play around. So a really powerful tool that we've
• 55:43
  built called TBL Pulse, and people can start for free at thebitcoinlayer.com.
• 55:48
  I mean, that's impressive outperformance. And obviously, so you're never going short Bitcoin
• 55:52
  here. You're just going getting out of your position. Correct. We're not insane, Danny.
• 55:58
  We don't want to advise people, recommend people to do that sort of thing. What people are doing
• 56:08
  are, you know, they're putting bearish bets on versus bullish bets on as the indicator moves
• 56:15
  around. We've gotten some fun messages from people saying that they have been using it to
• 56:20
  their benefit. So we do want to help people. We need people to understand that we are not
• 56:26
  an investment advisor and that we don't provide that money management service.
• 56:34
  What we're doing is research and we hope that people will do their own research in addition to
• 56:40
  using our tools. So, I mean, it's very impressive. Outperforming Bitcoin is hard. Trading Bitcoin is
• 56:45
  hard. And for me, like I don't bother trading Bitcoin. Like obviously you've done incredibly
• 56:50
  well. And this is like a very short term view. What's your more medium term view and how are
• 56:54
  you looking at that? I, you know, the financial war is there, is there haunting me kind of it's
• 57:04
  in the background, it's haunting me.
• 57:06
  And what is behind the next move from these people?
• 57:12
  It hard to know Bitcoin remains my play Like you know people talk their book Danny We know that
• 57:24
  And so, you know, my book reflects what I'm saying,
• 57:30
  which is that I think Bitcoin is the right place to be positioned looking out.
• 57:36
  So I'm a young person with a young family.
• 57:39
  I can take risk to the point where I think Bitcoin is still the place to be allocated for me.
• 57:49
  And that's my view over the medium term. Now, I think Bitcoin can catch
• 57:58
  back up to maybe even some of its more recent levels. Bitcoin was at $120,000 not that long ago.
• 58:08
  So I think even that is a nice little 50% pop from where we are today. Those are massive gains, and I think that's out there for Bitcoin. I can just go back here for a second to TBL liquidity. Just look at the raw index that everyone has access to. We can zoom out here a little bit more.
• 58:32
  liquidity trended down during 2022.
• 58:37
  This is the rate hiking cycle.
• 58:38
  I'll zoom out even more.
• 58:41
  This is the rate hiking cycle, the inflation wave.
• 58:45
  Since 2022, at the end, liquidity had been supportive.
• 58:50
  It clearly has topped in January, February of this year.
• 58:55
  The moving averages are heading south.
• 58:58
  We are below the moving averages.
• 59:00
  and it doesn't look like it's popping.
• 59:06
  Zoomed out at all.
• 59:07
  It doesn't look like it's popping.
• 59:08
  So is there a lid on liquidity
• 59:11
  that is preventing the bull from getting going?
• 59:16
  Possibly yes.
• 59:18
  Possibly yes.
• 59:19
  So I'm not very short-term bullish on Bitcoin.
• 59:22
  There is a green dot.
• 59:23
  Maybe a lot of that gain has already been captured
• 59:26
  as rates have gone a lot higher this week
• 59:30
  to open September. Volatility spiked yesterday in the bond market.
• 59:38
  There is clearly a move out of fixed income in Europe, all around the world,
• 59:46
  that damages collateral values that directly affects TBL liquidity. So I like now having this
• 59:55
  purely quantitative side where I can just look to the chart and say, hey, it doesn't look
• 1:00:01
  supportive. This doesn't look supportive. The fact that this drop has not been even flirted with
• 1:00:11
  is good. The fact that this peak is not being tested is not very good. I mean, it's not anything
• 1:00:20
  to celebrate. And liquidity does cycle up and down, but we don't yet have a cycle approach to
• 1:00:30
  liquidity. It's one of the things we're working on in our research and development so that we can
• 1:00:35
  maybe identify that this peak was in fact something to mark as a turning point in the market and
• 1:00:43
  maybe something that you don't want to get back into Bitcoin until you get some sort of much larger
• 1:00:49
  swing higher on the medium to longer term of TBL liquidity, we're still working on that. And
• 1:00:56
  there's probably great answers there that we'll just have to wait until we get to. But that's what
• 1:01:03
  we enjoy doing. We enjoy the work. And I think our TBL pros are enjoying it as well, Danny.
• 1:01:10
  So just to close out on the liquidity thing, because I had Michael Howell on the show,
• 1:01:13
  who you actually introduced me to a few months ago, and he was saying the same thing,
• 1:01:17
  that liquidity had already peaked
• 1:01:19
  and that we were in basically like the downtrend
• 1:01:21
  at this point.
• 1:01:22
  How long do you think that will last?
• 1:01:24
  And is there no way that Bitcoin has a, you know,
• 1:01:27
  a very sustained long rally while liquidity is down?
• 1:01:31
  We've learned a lot from Michael Howland.
• 1:01:32
  This is where I would suggest that he and I differ
• 1:01:35
  a little bit, but maybe it's because we haven't done
• 1:01:38
  that cycle work that I just mentioned.
• 1:01:40
  So that's, my answer is actually the same.
• 1:01:43
  We don't have a cycle approach to liquidity.
• 1:01:47
  in the sense that he has this 65-month cycle, I believe it is, if I remember, and it's a sine wave
• 1:01:55
  and he lines up his cycle against that. We don't have one of those. We're doing the work to see
• 1:02:01
  if there is something that we want to establish there, but we don't have a 65-month sine wave,
• 1:02:07
  so we don't have any anchoring in what he's talking about, meaning that something could
• 1:02:12
  happen in the next week that turns the dollar lower, turns rates lower,
• 1:02:17
  quiets volatility, and sends liquidity higher, and we want to ride that.
• 1:02:23
  We'll get a green dot or we'll maintain our green dot, and we'll want to ride that.
• 1:02:27
  So we don't anchor
• 1:02:29
  a cycle. Maybe we should. Maybe that's our inexperience. He has 40 years on us. And by the
• 1:02:39
  way, the reason why we read him and why I made that introduction, he's a great teacher and he
• 1:02:49
  brings a school of thought that isn't well known to the masses so that we can consume it. I've
• 1:02:58
  tried to do that in my own little way with repo because, you know, I traded repo. So I want,
• 1:03:05
  I want people to know what I know. I know repo because I traded it. Well, Michael Howell worked
• 1:03:11
  at Solomon Brothers and watched Flow of Funds data and witnessed this school of thought from
• 1:03:16
  the inside. I did not. I have actually learned this from people before I got to Michael Howell.
• 1:03:24
  my mentor's mentor is harley bassman the creator of the move index bond volatility
• 1:03:30
  and so my mentor worked for harley on the street and i was very lucky to get that liquidity school
• 1:03:38
  of thought you know taught to me when i was on the desk but then when i read howell then i learned
• 1:03:44
  so much more and a shout out to my friend joe consorti joe was the one who said hey you got
• 1:03:48
  I interviewed Hal. Joe interviewed Hal on TBL before I ever did. So everything happens for a
• 1:03:57
  reason. And I'm really glad that people are learning from Hal because I'm one of them. And
• 1:04:06
  we tried to do right by his teachings and really really learn it and do all the math from Everything we do is our math It not copied from hell We didn lift anything from him We just read his stuff interviewed him a ton of times
• 1:04:24
  and built it ourselves. Another shout out to Augustin Carrasco from the Bitcoin layer. He's
• 1:04:30
  our lead statistician and our head quantitative analyst. He's the architect of the numbers that
• 1:04:38
  you see that have come from what I have learned from Hal and others over the years.
• 1:04:46
  So I'm interested, though, in terms of like Bitcoin performance while liquidity is dropping.
• 1:04:50
  In Bitcoin's sort of short history, has there been a time when liquidity has been dropping
• 1:04:55
  and Bitcoin's performed well, or does that not exist?
• 1:04:58
  It's a good question.
• 1:04:59
  it absolutely exists, Danny. And what we have seen is that post 2022, Bitcoin has responded to
• 1:05:12
  liquidity a lot more than it did before. And that would make sense to the casual observer.
• 1:05:18
  Bitcoin was a more of a hobbyist asset until, until 2017, to be very honest. And, uh,
• 1:05:26
  And then during 2018, big boys started to arrive and you didn't get ETFs coming online till 2023. So now Bitcoin is much more intertwined with the markets. I don't want us to over anchor in the past data.
• 1:05:44
  Since 22, 23, Bitcoin has responded nicely.
• 1:05:49
  There are always false calls or calls that aren't,
• 1:05:56
  that it doesn't work 100% of the time, of course.
• 1:05:59
  And but what we want to express is that when liquidity leans positive that when Bitcoin can really achieve great things
• 1:06:15
  And when liquidity is negative, that is when to not expect the runaway moves and to have huge down moves as part of your realm of expectations, your probability distribution.
• 1:06:34
  So it's never going to be 100%.
• 1:06:38
  And maybe the signal runs out, right?
• 1:06:42
  Maybe it stops working.
• 1:06:44
  And we have to be open to that as well.
• 1:06:48
  We can't just, we can't over-anchor.
• 1:06:52
  And you know that I don't do that.
• 1:06:53
  I don't over-anchor in narratives either.
• 1:06:56
  Like, clearly, the world is in a different place after Trump 2 and Liberation Day. And that was only a year and a half ago. So, you know, how can you anchor in like a Biden era CARES Act, you know, way?
• 1:07:18
  that narrative has to shift in some way.
• 1:07:23
  And some of them stay the same,
• 1:07:25
  like the fact that the U.S. is,
• 1:07:27
  the deficit is still what it is.
• 1:07:31
  Actually, the CARES Act
• 1:07:32
  and the $2 trillion fiscal deficits
• 1:07:35
  that we started getting during the pandemic,
• 1:07:37
  that by itself is its own regime shift.
• 1:07:41
  So a lot of moving parts.
• 1:07:46
  And we actually identified about 25 of them in global macro that we trying to assemble for people to again just take that teaching and understanding to the next level Because even people that spend all day every day
• 1:08:01
  on this are not able to juggle every moving part all the time. There's just too much. But again,
• 1:08:08
  that's what makes my job fun. I love it, man. So to distill your ideas, it sounds like you think
• 1:08:15
  the bottom's in, but you think there could be time until we see a real bull market again.
• 1:08:19
  the dollar, the financial war,
• 1:08:25
  these are keeping a lid on things.
• 1:08:30
  And until there's some more clarity,
• 1:08:32
  like the USDJPY Scott Besson intervention of a few weeks ago,
• 1:08:38
  that felt like a shift.
• 1:08:41
  That was like, okay, maybe the dollar is going to stop going up now
• 1:08:45
  and it's going to trend lower.
• 1:08:47
  Those are the shifts that I look for. And even with that, the path to some grand pump in liquidity isn't there yet. So I'm a little cautious as we go. And I'll, again, remove myself and my opinion as I'm seeing the markets digest what's coming out of Washington, New York, and the rest of it.
• 1:09:15
  I love it man
• 1:09:16
  well thank you very much Nick
• 1:09:18
  I'll make sure I include all these links in the show notes
• 1:09:20
  so people can check this out
• 1:09:21
  but always good to speak to you
• 1:09:23
  thanks Danny appreciate you