Latest / What Bitcoin Did / The Dollar Changed. Bitcoin Is the Endgame | Matt Dines

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The Dollar Changed. Bitcoin Is the Endgame | Matt Dines · What Bitcoin Did

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We're moving from an era of Fed dominance and Treasury subservience to an era of United
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States Treasury dominance.
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What we're doing away with is this forward guidance mumbo jumbo.
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What it really is, is backstop.
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It's ammunition for the Fed to do all of the things we talked about, QE, ZERP.
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The game has changed and it's very clear.
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All of the players who were cooperating around this old business deal,
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you know, that lasted for 75, 80 years.
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They're now like, maybe it's too far to say they're at war with each other,
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but they're not seeing eye to eye.
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And they're definitely not cooperating anymore.
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Capital markets are war by another means.
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So when we say nothing stops this chain, right?
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It's like, well, there's another chain.
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And it's like, you know, that's what Scott Vesnick represents, all of that.
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So we'll see how this plays out.
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Matt Dines, good to see you, man. It's early in the morning here in Australia,
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and I woke up to a bit of a bloodbath in Bitcoin and stretch is down another nearly 8% today.
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What on earth has happened overnight? It's not too bad in Bitcoin yet, but
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we're fighting the downtrend of a bear market in the Bitcoin dollar, FX rate. Stretch and
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the perpetual preferreds yeah this is a long story i think it it touches on the bigger picture
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um that we'll talk about as as this conversation goes on but there's massive change going on and
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and the dollar at the structural level if you think about america we're about to be 250 years old
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we've gone through several iterations of the dollar right and when we say the u.s dollar
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It's meant different things structurally, like at least four or five key different ones over the course of this great nation's short history. I'm American, so I'll show that bias, right? Just to wear it on my sleeve.
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but in in my framework we just went through a big one 2022 was a a key acceleration and i think a lot
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of us are still operating under you know let's say the offshore dollar or euro dollar or some
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some of us in you know the bitcoin space influencers they call it the the petrodollar
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standard right i'll stick to the term offshore dollar but big inflection uh going on and there's
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a major transition. And this is one of the most important ones I think we've seen in American
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history. All right. So we'll start there. All right. Stretch. If you think about all credit
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in the world, we'll talk about this offshore dollar credit bubble. The whole strategy is built on
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we access dollar credit capital in the U.S. brokerage, like, you know, the stock market
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liquidity pool. So we tap dollars in these perpetual preferred instruments at, let's say,
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11%, 12%, 13%. That's a liability. That's how we source dollars. I'm saying we, it's not me,
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I'm not doing this, but just whatever, royal we. And then we go long on the asset side, Bitcoin,
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right? And so if you think about the strategy as a dollar strategy, just turn it on its head.
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The upside down of the Netflix show, Stranger Things, right? It's not a Bitcoin strategy.
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think about it as a dollar strategy you're tapping onshore dollar liquidity at you know 11 to 13
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with these perpetual preferreds and then you go long uh dollar liquidity in bitcoin which is it's
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a global market right bitcoin trades you know spot market every nation state has their um their
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exchange um but largely like if you look go to one of these websites coin market cap whatever i think
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something stands out here obviously the dollar is the biggest liquidity pair and the bitcoin to
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dollar fx rate but very few exchanges of like actually support a bank deposit dollar like an
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onshore federal reserve regulated or similar uh united states regulated financials exactly
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usdt yeah so the main liquidity pair is actually bitcoin to offshore you know tether uh dollar
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liquidity right all right so just think about it that way it's it's it's really built around
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that infrastructure you're sourcing liquidity onshore and then your uh long uh bitcoin dollar
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liquidity in this offshore pool now we had a massive um act of congress in the u.s last year
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the genius act uh besides this one big beautiful bill it's the most consequential piece of
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legislation that's come out of this, uh, 200 and I think it's the 225th Congress. I can't remember
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just off by one, uh, 226, 225, whatever. Yeah. Thereabouts. Um, it's like computer science,
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right? That started zero for indexing that off by one error. You get it, right? It's been the
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most consequential piece of legislation. And G what I'm talking about here is genius act,
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uh, with the dollar stable coin regulation, which what it, what it technically did. And we'll talk
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about structure because because the structural definition is key it pulled in these stable coins
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which have been proliferating for over a decade and it's a growing market right over i want to say
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186 roughly billion dollars of tether circle has you know a lower market cap it's not quite a
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trillion dollars yet let's just call it you know half a trillion that type of ballpark
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for money supply of this new stablecoin dollar that is emergent.
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With Genius Act passed last year, and this is a big change in the future of the US dollar
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itself, the direction we were going to take, because Biden and that administration was
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taking us one route, which was going down a CBDC road.
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And with the Trump election and Scott Basant as kind of the architect here, we're going down a separate road with the Genius Act stablecoins and a private issued stablecoin dollar that ultimately anchors back and is reserved one to one with U.S. Treasury debt.
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So treasury bills, short term maturity IOUs from this legacy credit based dollar system where your dollar is a liability.
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What this has effectively done is pulled the dollar into like an asset based definition and a roundabout way.
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and this change has basically steered power, control, the operating nexus of the dollar
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away from the old offshore standard, which was centered out of London. We can get into
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that whole architecture of global capital markets, foreign exchange, all of that,
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and this dollar standard as the global reserve currency that I think Bitcoiners really understand
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pretty well. But you've moved the nexus and the operating kind of center of gravity for the dollar
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away from London and all these money center banks and this global patchwork, and it's moving to
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Washington, D.C. and New York. And if you kind of view everything through that framework, there's
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this major transition going on from this offshore dollar to this new stablecoin dollar.
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a lot more will make sense. I think about, you know, the geopolitics, credit markets,
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the tech play, the AI bubble, all of that. And then at the very frontier of that,
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when I say a frontier credit, what do I mean there? Like you, and credit, like start with
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like the highest quality IOU and an IOU based dollar system where everything's a liability.
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everybody in the world wants to get closer to that center of gravity like the like federal reserve
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deposits right for a regulated bank or um if you can't get access uh to the fed like if you're not
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a domestic uh commercial bank in the u.s the next best best option is treasuries right the u.s treasury
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bill and so in a roundabout way we re when i say we now i talking about u treasury Washington D power brokers ultra net worth families who are the ones who are moving and shaking and making these decisions
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They're pulling in the dollar one way and moving in one direction.
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And then everybody else on the rest of the world on this old offshore dollar standard, they're left to scramble.
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They're being left out to dry.
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and where you see this in policy, right?
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We've gotten used to this in Bitcoin
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where the policy path from Washington, D.C.
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and like the Federal Reserve and New York,
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the center of financial gravity,
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it was really built over the last like four or five decades
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or it really started post-World War II,
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Bretton Woods, all that.
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We don't have to go back that far down into the weeds.
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But Bitcoiners, in 2020,
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we locked on to something very clear, like the whole what happened in 1971 narrative,
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where we broke the gold redeemability for international capital transfers, where banks
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could redeem their dollars to the United States Treasury or the Fed and run off with the gold.
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Same thing happened domestically, 1967, with the dollar and the domestic US economy. It was
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actually pegged to a redeemable weight in silver, and the dollars in your pockets were actually
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silver certificates from the United States Treasury, you had the Federal Reserve notes
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intercirculation at the same time. It's a similar analogy to where we were, where we had two competing
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dollars and they trade at par with each other one-to-one and everybody treats them as the same
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thing. Stablecoin dollars and Federal Reserve note dollars. We still treat those as one-to-one,
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but they're two dollars competing. And one of them's coming and one of them's going.
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right all right and in that period where they're competing can they hold different values even
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though they are tradable one-to-one uh great question yeah so from an arbitrageurs standpoint
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uh the answer is yes they do have different values and the the the difference is is pocketed
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by the financial players who have scale and the ability to do so i'll go through a few examples
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who did that with these silver certificates.
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But for everyday, you know, run of the mill,
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you know, economic transactions,
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say you're going out to eat or let's say,
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I don't know if you've ever used a stable coin dollar
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to pay for anything.
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I don't think I have, you know,
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I've used it on like Bitcoin back loans.
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I've been paid out in stable coins,
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but I think that's the only time I've ever used them.
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Yeah, I know for World Cup tickets,
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FIFA made us pay for early advanced tickets
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and stable coin dollars.
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That was the one example.
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And, you know, granted it's FIFA,
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of course they're going to be involved
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in milking everything they can out of it, right?
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Of course, the most corrupt organization.
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forward slash WBD. All right. So the answer is like for every day, you know, if you're paying
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your neighbor to mow your lawn back in the 1960s and uh you showed one dollar uh like you paid him
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maybe you'd do the job for a buck back then like just the inflation who knows but if you gave him
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the federal reserve note which is like everybody recognizes those today like they're the greenish
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tinted ones they got the green seal or if you gave him the treasury silver certificate which
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was like a much more whiter background uh it had a uh a crisp blue seal he might not have like
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paid any difference he wouldn't charge you like a 10 premium for one versus the other right he'll
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take your dollar uh one way or the other for mowing your lawn but the people who recognized
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what was going on and they recognized that the redeemability window for silver on those silver
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certificate dollars was closing. You had really clever guys like Henry Jarecki is a story,
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if you want to look this guy up. He advertised in all the newspapers around the US like,
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bring me your silver certificate dollars. I'll collect them here, every major city,
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and just brought them in. He'd even pay people a little bit of a premium.
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And this is in the 1960s and 1970s. If you've looked at a long-term silver chart, it's going
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like it looks like bitcoin the last 10 years yeah um um and famously peaked at like that 50
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level back in 1982 right so this like there were a few figures who who pulled these silver
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certificates out of the economy and then they went to the treasury redeemed them for the you know
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silver uh billion and uh sold that into a you know a market captured that risk-free profit
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it. I've done some calculations on what it amounts to, but basically like that transfer of,
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or that transition from $1 to the next, I think it nets out to like the arbitrageurs probably
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captured 10% of the total silver certificates outstanding. So it was basically a tax. The
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government was forced to devalue, right? You get these things from time to time, right? That famous
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story of uh uh george soros and scott besant was there famously uh you know now in the you know 30
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years later uh type of history playing itself out uh breaking the british pound i remember that
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story back in the early 90s right so yeah the big hedge funds or the people with capital or access
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to dollars yeah they'll they'll profit off of the transition and yeah those same things will go around
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go on this time around right all right but back to like these perpetual preferreds
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I've
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just been warning about this
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environment, what's going on with interest rates
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and potential for
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credit spreads to widen
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and go into that backdrop on
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like a 2025, 2026
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story, all that. But
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when we get into like a late innings of a credit cycle right You get into a dynamic where the money supply these boards these figures
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you know, these men in suits and dark rooms, right?
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They can contract money supply.
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They'll, you know, raise it, they'll lower it
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on the cycles that work for them.
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and in the late innings or the late stages of the credit cycle or the economic cycle as well,
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where you don't want to be when the musical chairs start getting taken away from the party,
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you don't want to be further and further out on the risk spectrum.
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So if you think about it, the riskiest, most frontier credits,
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like if you move from credit quality, the ratings agencies,
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like AAA, that's your safest thing.
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Keep going down notches.
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like everything down to triple B minus that's technically investment grade. Some of those,
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like there's a lot of private credit stuff up out there that I would still consider frontier
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as a fixed income portfolio manager. Um, you know, everybody follows these stories,
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the Blackstones, all of that, private equity, private credit, insurance codes,
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all of this stuff going on. Um, that's definitely frontier, but then there's whole other level,
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levels of frontier you can get into like high yield rated issuers who are doing things like
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subprime auto lending like those those stories are out there um and when the musical chairs go
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away that's where um it's it's harder and harder to you know get like climb that uh that elevation
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to get to safety like when that when you know tides washing out that type of thing so
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edge of the frontier in credit right now uh for better or worse is these new perpetual preferreds
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that have been uh issued this trade we talked about think about don't think about it as a bitcoin
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strategy flip your mindset go live in the upside down and think about it in terms of a dollar
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strategy it's basically a frontier outpost in the credit world right now that's where you see all
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right? Standard and Porce. They gave strategy and issuer level rating,
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you know, widely publicized. It's a B minus. It's the rating that they can get based on the
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hard rubric. These teams, they have very well-established defined criteria.
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Can I just ask you a question on that quickly? Because like, obviously I don't live in this
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world. So you have like junk bonds, you have investment grade bonds. This is somewhere in
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the middle. So what kind of, sorry, you were going to, you want to jump in? No, go finish. Sorry.
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It's not even junk. Sorry, go ahead. Oh, this isn't even a junk bond.
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It's, it wouldn't even, yeah, you can't call it a junk bond. It's not rated as junk.
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Okay. So I guess the question was like, who is this aimed at? Because one of the things that
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like Saylor and, and I guess like Fong's, the strategy guys have been saying is that they want
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of like attract institutional type capital to this market. But I know they've also said that 80%
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of the people that are buying this is still retail. So is this kind of a mismatch? Is this why the
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sort of big money isn't necessarily going into this in droves at the moment?
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I think there's a lot of reasons. We could go down a deep rabbit hole on this topic.
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It depends who you're talking to, right? Could you get a pension to buy this? So if you're
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looking at a pension, it sits on a giant pile of assets. It has different buckets. It has a fixed
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income bucket, a fatality into it as an equity bucket. It has a, they call it alternatives
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buckets, which would be like a non-exchange traded, non-public investments. So yeah, maybe
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a pension, you can find a risk bucket for anything. They have a multi-asset framework. You can find
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something in the allocation model to you know plug it into um for different investments say
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it's an endowment something like that where they have much stricter criteria they have to hit
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certain total return targets and not miss them by a very wide degree what's what like they might say
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hey we have a five percent total return target we need to hit five percent like hit the dartboard
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right on the bullseye every time don't miss the dartboard well if you take a 20 loss on say a
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perpetual prefer like equity um and you allocate it into it in size you're like well we shot for 13
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we're minus 20 right now like we're all over that dartboard but we really needed those shots right
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on the target so there's some investors like it just may not fit into their target objectives you
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know just individual criteria stuff like that but um if you go look at like fixed income allocations
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it's it's going to be very specific um what type of credits are within the mandate right so
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there's all kinds of you know fixed income boutique managers out there there's a lot of
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different accounts but like the most popular is going to be you have to have an investment grade
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Like that's, that's going to be the bulk of all fixed income assets. Like just guessing shares,
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I would say probably at least half it'd be the majority of all fixed income or just dollar IOUs
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and that old offshore dollar framework, right. That we're coming out of, they have to get an
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IG rating. If you're managing a big pool of, of, uh, IOU money type of assets. All right. So
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I just getting into the weeds a little bit. So strategy has an SMP, uh, rating at the,
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corporate issuer level, but that's just the outlook on the corporation and its ability to
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service its existing debt. Now, it's very specific here. The only debt outstanding are these
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convertible bonds. If you look at the prospectus, it fits the definition of a debt security or a
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debt offering. It's got a specified maturity date, a contractual rate of interest, all kinds of these
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things that collectively you look at the thing it's like does it walk like a bond does it talk
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like a bond okay that's a bond so the the s&p 500 or the s&p standard and porous uh corporate
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issuer that b minus um that's just talking about that that's an assessment of strategy as an issue
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itself now the rest of these bitcoin treasury codes um they don't have that it's actually a
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pretty high cost to you have to pay um standard and porous or one of the ratings agency like an
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annual, it's like a subscription fee. And they just charge you like for their team within your
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given sector to maintain coverage against you. Right. Then when you go make a debt offering,
23:46
like one specific bond, you can have the ratings agency rate that thing individually.
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And then if you're trying to like get your like bond placed, like to raise capital from,
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from let's say it's a fixed income fund, like an ETF, or it could be an insurance company,
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or it could be a firefighter's pension, whatever.
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Each one of those may have a mandate
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where they need to see certain things
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to include that security in their portfolio.
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So the convertibles, as far as I know,
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or as far as I'm aware,
24:20
those were not rated,
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that it'd just be a non-rated security.
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If you look it up in Bloomberg or whatever,
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they'll just say NR, not rated.
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But if they wanted to get these rated
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at the individual level,
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like yeah you can you can pay a ratings agency the team will tell you what it is it's a very
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strict rubric of like a credit box uh that you had to fall into as an issuer terms of the uh
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terms of the deal like um what type of like cash flows are backing this all of that um and so when
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S&P did that B minus rating what they're really looking at like Bitcoin is like it's not even in
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the world like it's not even in their framework they're looking at the debt uh outstanding and
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that's just the convertible bonds at this point and then the existing analytics the software
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business what those cash flows look like and then they're looking at the you know the the cash flows
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the projections all of that and they say all right how how uh you know credit worthy or how
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you know
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so they not even looking at the Bitcoin sort of no okay interesting so would it be fair to say then that rating is probably low considering they have all those assets on the balance sheet
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What do you mean?
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Is it low?
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Like, is it sandbag?
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Is that what you're saying?
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Is it rated worse than it is in reality?
25:44
Well, okay.
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So if you're thinking about Bitcoin,
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you're trying to put it into dollar terms.
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Like, we're trying to plug a square peg into a round hole here.
25:52
Yeah.
25:54
with these two things. So you've got two things here, your dollar liabilities,
26:00
like think about strategy, but most of these Bitcoin treasury companies are doing very similar
26:05
things. Your, your liabilities where you have a, um, like say the perpetual preferreds, right? You
26:14
have a, um, uh, conditional promise, but it's not an obligation, right? Uh, to pay these monthly
26:22
distributions or now they're they're trimming it down now it's semi-monthly or daily or you know
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you know maybe they'll get us down to the minute next you know who knows um but uh it's not a
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like it's not a contractual interest payment obligation and the the lender has or the security
26:43
owner because i don't even know if you're holding these uh perpetual preferreds if you'd be
26:47
considered a lender in, say, a courtroom if the situation ever got there, if you could even take
26:53
it there. But those daily cash flows or semi-monthly cash flows at this point, those are at the
27:02
discretion of the board. So my point there, you've got short-term cash flow obligations. You can turn
27:10
them on or off. If you turn them off, well, that's going to have implications from the
27:16
capital markets, uh, because it's the same thing as a rug pull, right? If I tell my kids, I'm going
27:23
to get them ice cream this evening and I don't get them ice cream. Like number one, my kids are
27:27
going to hate me. Uh, but, but I'm also, I'm also like setting them up to not trust me at all.
27:34
Like it's just not a recipe as a parent, right? You want to get into all right.
27:39
Different analogy, bringing in my own life there. Always. If you tell your kids, you're going to get
27:43
ice cream go get you gotta do it yeah you have to do it yeah um so if you want it's yeah it's
27:49
behavioral response right if you want the behavior hey keep buying my securities right i have to buy
27:54
them i have to give them the ice cream all right so they've got a daily um liquidity obligation
28:00
or semi-monthly right they don't have any maturity date though like there's no there's no tenure you
28:07
know there's no 80 year and you see like banks frequently issue perpetual preferred or not
28:12
perpetual, but they'll put like a 2088. I can go into Bloomberg right now and find you a ton of
28:18
Morgan Stanley, Goldman Sachs, all kinds of similar issues. To make the hybrid security look
28:25
a little bit more debt-like, they'll put a maturity date on it. But by look and feel,
28:31
it's a very similar thing to what these Bitcoin treasury codes are doing. All right. So my point
28:36
there you've you've got short-term liquidity obligations now with bitcoin you do have a cash
28:42
flow right but it's as the owner of the bitcoin you can create a cash flow by selling your bitcoin
28:49
um but it's of unknown you know nominal value like nominal amount and also like so you can control
28:56
the time you sell and the most part unless you're forced liquidated uh like a secured borrowing
29:01
That's not the case here. But they could, you know, they do have that ability to create a cash flow, a dollar cash flow with their Bitcoin. But right now, like the credit agencies, I don't think that's part of their framework. We went through this. I went through this process for a private credit fund that focuses on Bitcoin back lending. We got we got a preliminary rating, all of that.
29:24
Let's just say like you can qualify for IG. They can definitely qualify Bitcoin back lending for IG at this point. Or you could. I don't know if you could anymore. So it is possible. But yeah, so the timing here, you've got some problems because a lot of these companies like to keep paying these distributions, right?
29:52
and I'm very specific, I don't use the word dividends. Dividends on an equity are, you know,
29:58
think of them as like, it's not a return of capital to shareholders. You're paying, you know,
30:05
generally financing that out of the retained earnings of the business, like for the most part.
30:11
If you're not doing that, then your dividend is by definition not sustainable. These treasury
30:16
because the management has made very clear they're not they're not that their return of capital
30:21
distributions uh so very specific there but um i don't know just to bring this back home what we
30:28
were talking about like we're talking about like a frontier credit here like this is like tip of
30:33
the spear it is the it is like within dollar credit itself you're talking about a strategy
30:43
that is novel, unique, not historically.
30:47
You've seen perpetual prefers.
30:49
We've got a lot of iterations in history
30:51
where they've been important instruments
30:54
in capital markets,
30:55
with the British consuls being the most famous one.
30:58
But this strategy, doing it,
31:02
selling perpetual prefers,
31:06
flowing that into Bitcoin,
31:08
promising uh you know an interest rate on you know that that ability with which at the end of
31:17
the day all boils down to your ability as a company to access liquidity and capital markets
31:23
that's that's what's uh new and novel here and and my opinion right so i think um you know if
31:32
you just take the zoom out view and we can start talking about this big dollar transition that's
31:37
underway, like in these big transitions of history from one dollar to the other, or just
31:43
monetary transitions in general, those like inflection points are where it's very hard to
31:50
see when you're leaving an old world behind and moving into something new. And that's where you
31:54
can get wrong footed, right? So if you build up a strategy, and this doesn't mean, you know,
32:00
the Bitcoin treasury companies and that those strategies are alone here. If you're building
32:04
like a credit strategy or a carry trade strategy for an old world, this offshore dollar world
32:11
that's being left behind, you can have problems if you're not along with the Scott Besant
32:17
framework, in my opinion. So just kind of know or just seeing this all play out and realize what
32:25
was happening. This is fourth turning stuff, right? This is like what it looks like in capital
32:31
markets you don't want to be caught off sides like i'm gonna make an american football analogy
32:36
i don't off sides and soccer right same thing you don't be off sides when the ball is in the air
32:41
uh in american football it's like you don't want to be across on the wrong side of the line of
32:45
scrimmage when the ball is snapped um it's it's that sort of thing don't be over don't be uh
32:50
too far ahead of your skis when when that liquidity pullback starts to happen the tightening in the
32:56
system um and and a lot of it's like just manufactured out of the the developments we're
33:00
seeing Venezuela, Iran, those are dollar liquidity events. The tariffs of Liberation Day, April 2025,
33:07
those were dollar liquidity events. And it's all coming from the policy of this White House and
33:13
then the broader capital markets, power factions who were ultimately the straws stirring the drink,
33:20
in my opinion, pushing this transition ahead. It's really that I've been trying to call attention to
33:27
people doing this like saying things like hey borrow on margin on your robin hood account then
33:34
buy this uh you know perpetual preferred at 11 12 percent like guys that's that's actually um risk
33:40
on risk probably more dangerous than you think uh and it was very hard to see what was going on to
33:47
the like the the dollar hopefully i will explain it here as i drone on a little bit it's a it's a
33:53
It's a much more interesting topic, I think,
33:55
than I'll lead you to believe here.
33:58
But that's what I
33:59
is worried about. And I think we're in that world. Like we're just in the thick of it.
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That's bitkey.world and use the code WBD. So I definitely want to get into your sort of broader
36:35
dollar thesis, but just quickly on stretch and strategy. I like the business model that strategy
36:42
started with when it was basically turning cashflow from the business into Bitcoin and
36:46
put on the balance sheet like that is awesome and it's essentially what block have done it's what
36:51
tesla and spacex and like that makes a load of sense to me um i've kind of stopped trying to
36:56
rationalize like the whole the whole sort of uh strategy behind it has got so sort of complex and
37:02
convoluted that i've stopped trying to rationalize it and i've kind of just put it put into the
37:06
bucket of like my gut just says i don't like it um and my question really is like is this an
37:12
existential threat to that business or is it something that they'll get through and be okay
37:17
like how bad is it because it's very easy to say like it's an existential threat when
37:20
stretched at 81 or whatever it is right now but do you think it actually could be i'm not gonna
37:26
go out and say you know hey this is gonna be the end of it i i just don't know we'll see um
37:34
they're in a street fight though or an alley fight uh this isn't where i would want to be
37:39
right now if if i'm a manager um so they're gonna have to you know figure out a way to punch their
37:45
way out of this um but yeah you you raise a good point there so you think about strategy as a
37:52
business before august 2020 and um you know i come at this from kind of a i've been i've been
38:02
aware of michael strategy as business and we were actually a customer so rob hamilton at anchor watch
38:06
um ceo there we actually worked at the same business uh for a little stretch i think rob
38:13
actually overlapped a little bit after me but uh we ran an ad exchange or worked at a small startup
38:19
and basically what that amounts to i don't want to go too deep into it um basically think you know
38:26
how uh commodities you know oil exchange right uh you buy oil on exchange it gets delivered
38:31
etc um these businesses like when your ad advertisements load like when we were doing it
38:38
it was just desktop and mobile was big and now it's smart tv it's pretty much everything is
38:43
running through these exchanges but you get your supply your you know your media site espn you know
38:49
whatever when you load the page they send their supply over to the exchange they say hey we have a
38:53
we we have a unit of inventory we have some eyeballs here put an ad up the cookies come
38:58
through all that stuff you get your audience segments and then the demand side comes in toyota
39:03
all right show this guy a car um we were in that business model you had massive amounts of data um
39:09
just tons of activity and we we actually use micro strategy like their analytics business
39:14
uh so yeah we were customers of that product rob and i uh this goes back over over a decade now
39:20
but prior to bitcoin standard era like i find it very interesting like this company like
39:26
you see how ai played out right like 2023 was really when the the the llms all of those products
39:33
the chat gpt it really hit public release right and the industry in the background was building
39:39
up and preparing for that and like the insiders knew right that's when the world woke up to it
39:44
for sure yeah but strategy if you go back and look at their earnings calls right or their annual
39:49
reports they're talking about like baking in you know uh artificial intelligence like exactly what
39:55
we're talking about today into their business intelligence like data analytics stacks like the
40:00
product terms right like they had this all trademarked there was a product offering back
40:04
then as a hyper intelligence all one word and uh they called that the future of the company and
40:09
this was going to be the hyper intelligence decade and what it was like it was the like they were
40:14
taking the company into ai right and they still like they still have ai product offerings if you
40:20
go search for them. But they're just not pushing them hard. And if they were getting the traction
40:26
in that market, it'd be a different story. We'd be talking about a different company today
40:30
than the one we have. But I think, yeah, as you were going into it, that initial,
40:40
the micro strategy version of the Bitcoin company, right? It was an analytics company.
40:44
we are the treasury i keep using the word we today when it's not me but yeah um the the management
40:51
the board all of that the the this the bitcoin strategy then was hey we take our treasury reserve
40:57
which we talked or a cash reserve which was a melting ice cube like direct quote when we move
41:01
it into bitcoin problem solved right and the the idea was if you go back and read the press releases
41:08
hey we're still bullish we're excited about growing this analytics business hyper intelligence
41:13
blah, blah, blah. All right. Whatever happened over like a Bitcoin bear market happened in 2022,
41:19
the AI trend happened in 2023. And there was still some effort there on, you know, the AI,
41:25
you know, product route, but somewhere was it like 2024 was kind of their year of convertibles.
41:32
And then before the November elections in the U S you got the 21, 21 plan or, you know, whatever,
41:38
We're going to raise $21 billion of common equity and $21 billion of credit strategies.
41:44
And that's where they did the equity first, cranked it up, massive issuance.
41:47
And it started on late October 2024.
41:52
Saw the top on the strategy share price and the euphoria after the Trump election win
41:56
and what we thought that meant for Bitcoin.
41:59
Maybe in hindsight, we might have got ahead of our skis a little bit.
42:04
But then we got the perpetual preferreds, all that.
42:07
But I think it's not just one company, right?
42:12
Like you transition from this BI analytics and then it was like, we're also doing BI plus AI.
42:17
And then it's those two things plus Bitcoin.
42:20
And then it's like, hey, what happened to the AI story?
42:23
And now it just all perpetual preferreds Yeah Like if you thinking narratives here it like uh have you seen the movie the prestige the christopher nolan film with that great it like yeah i love it it
42:36
it's crazy like when i was like mom you got to watch this movie i watched it with my mom she's
42:40
like i hated it i was like why these people like they they live their whole life to take each other
42:47
out it's insane but yeah i was thinking about that it's like all right a narrative uh framework
42:52
right it was uh you start with the pledge right you present this thing then you get the turn it
42:58
was like oh you you you uh make that transition right something happens or you kill it you make
43:04
it go away well i think that's kind of where we're at right now it's the uh something's going away
43:10
and then it's like all right well you're waiting here the prestige is coming next something's
43:15
gonna happen uh the bird will you know come back in front of the audience we'll present it but
43:19
you know the the little girl in the movie right what is you know she sees like no no no that's
43:24
not the same bird right it's kind of the same way with this dollar transition going on right it's
43:28
like here's here's a dollar here's a bird it's like no it's a different it's a different thing
43:31
that's how i see something coming out of this right this is going to be there's going to be
43:36
something important happen here you don't have you know almost 850 000 bitcoin out of 21 million
43:42
and you know if you look at the actual uh recoverable supply it's it's uh a much bigger
43:48
share, like on a lower than $21 million number, right? So there's no way in, you know, snowball's
43:54
chance in hell that this thing isn't not important as this world plays out in the next few years.
44:00
I just like, I don't know what it's going to look like. It could like the range of outcomes are
44:04
very broad. But the point, like the risk I raised here when these things were priced at par,
44:09
like par is perfection, right? You can't, if the market starts pricing these things at,
44:16
101, 102, 103, what are they going to do on this variable rate, especially like stretch, right?
44:20
They're going to cut your interest rate, right? So your upside is capped if you're buying stretch
44:25
at par or much of these other offerings. The downside was, all right, the ability to maintain
44:32
these distributions, right? For a lot of these treasury co's, the ability to service debt is,
44:39
it's coming from, if you look at the financial reporting, the cashflow from operations doesn't
44:46
cover say the the operating expensive to just keep the core business that i mean the core business is
44:52
selling securities at this point and that's kind of your that's your tell um but to keep that thing
44:57
up and running um you don't have enough to make these distributions on your preferred equities or
45:04
your digital credit right plus your operating expense for for a lot of the situation these
45:09
companies in without that ability to raise capital to sell securities in to the capital markets and
45:15
return for those dollars and that's uh cash flow from uh financing cff if capital markets pull back
45:24
for whatever reason and it i was arguing it's probably going to be a dollar story right um
45:30
it's a much we're still swim on like we talk about bitcoinization uh and all of this and i
45:35
i do uh believe that's happening over the long term long term here is you know probably a decades
45:42
multiple decades type of time i i expect this to take the rest of my life right is kind of how i am
45:47
prepared for this to play out um but um the waters we're swimming in it's a dollar liquidity world
45:54
right so if you're if you're if your strategy requires that dollar liquidity your upside is
46:02
limited as an investor you have no margin of safety if you're coming in at say par
46:07
there was only downside so the only thing that could happen is that adverse outcome we're in now
46:14
now could these things recover back to par yes that's in the range of outcomes but now you've
46:18
got to dig yourself out of a hole as say like say your say your timing right if you wanted to pull
46:26
your principal out of your holding that you're parking this into the brokerage account you're
46:32
dependent on secondary market liquidity so when that's not there um you may not be able to get the
46:38
price you want or you thought you wanted uh for your credit um so yeah we'll see how this plays
46:43
out it's not a it's not an alley fight like the best way to stay out of an alley fight or a bar
46:48
fight is like don't get in one right um but we're past that now we're i say we i'm not in this alley
46:54
fight but uh everybody involved in this i guess i kind of am long bitcoin just you know cold store
47:01
definitely going to affect us all yeah but i mean you know don't don't uh store next month's rent
47:07
money and bitcoin right it's generally good yeah good advice without giving any financial advice
47:12
here um but yeah we are like if you're attached to bitcoin in any way like you're you're going to
47:19
be caught up in in the blast radius of of what's going on here it's certainly going to be interesting
47:25
to see how this plays out um let's get more into your sort of dollar thesis here because one of
47:30
things you said earlier is like 2022 was a pivotal moment the world kind of started shifting away
47:34
from this petrodollar offshore dollar system and i'm curious to know exactly what you mean and what
47:40
was the catalyst there okay so this you know world war ii i'm just going to start history of world
47:45
war ii right now um what we do we come out with like the allied powers they form an economic block
47:51
and it's the largest trade block in the world like we talk about global trade right um see it in the
47:59
headlines almost every day that is the most important business in the world that trade
48:06
franchise it there's no public equity that that foots to it but if you think back in history right
48:11
like the dutch voc or british east indies companies like these are the largest market cap
48:18
firms and like those transitions that happen like which nation state owns it or who who or which
48:24
nation state do they own yeah or yeah exactly exactly like india like the entire nation like
48:31
exactly or nation states um but uh yeah that so that trade block is the i mean it's bigger than
48:39
spacex bigger than google all of that and then the the flip side of that right when you move a
48:44
shipping container from let's say it starts in hong kong loads up the goods delivers in i don't
48:51
know, Rotterdam, right? If you're in Europe or you're in Australia, I don't know where your main
48:55
port is. I'm going to guess Sydney or something like that. Yeah. Your counterpart of that is like
49:01
flip it. Transaction is, or sorry, money is one half of every transaction, right? So when those
49:07
goods move from A to B on the ocean, your financial centers, like your network, this offshore dollar
49:13
network, dollar just became coin of the realm, right? It replaced the British pound, which,
49:19
you know replace the you know spanish silver dollar which replaced blah blah blah um but
49:24
that global dollar network that offshore dollar was actually tied to this post-war like post-world
49:32
war ii architecture that got set up right and it's still holding together today like nato um
49:39
your bis member banks right these the all of these federal or central banks like the nation states who
49:45
opt into this system and settle, let's say, between themselves at the Bank of International
49:52
Settlements, all of that, that's part of this business franchise, right? All right. So what
50:00
you've slowly seen since 2008, right, in this system is over time, you've started to see the,
50:08
let's say there's cap table partners on this franchise. And before World War II, let's say that
50:13
you know, London firms were the, you know, the senior partners and the New York firms
50:20
were the junior partners or the American capital was junior.
50:24
It's become very clear at some point that role has flipped over the 20th century.
50:30
And in the last, let's say, 10 to 15 years, ever since we've gotten through the GFC, the
50:36
GFC was like the starting gun.
50:38
Oh, this offshore dollar bubble thing.
50:40
This is not long for the world anymore.
50:42
we need to move on to some other thing uh some other framework and it's been in process like
50:50
moving gradually then suddenly but in the last i say you could say sofer the launch like the go live of sofer and roughly 2017 2018 was your was a key seminal event But it went even further than that Obviously we can talk about COVID and its role in this
51:09
But 2022, like when the bond market was selling off, what the Fed did, like we saw the inflation coming.
51:15
We raised interest rates. We sacrificed the U.S. dollar bond market.
51:21
We let the price depreciation hit to account for the purchasing power loss from inflation and all of that.
51:30
At the same time, what we did is we moved the venue for the marginal dollar in this credit-based dollar system from London, which was set by the London Interbank Offering Rate, or LIBOR, where all these capital market banks, mostly firms based in the UK.
51:50
but it included american banks as well like they have a they have a presence in london um just like
51:57
you know hsbc standard chart etc jp morgan's in the game there but you move from this venue where
52:03
all the banks you know with libor would get together at the end of every trading day and set
52:07
the overnight um cost of you know short-term dollar funding um in a mechanism that was not
52:14
there was no market-based transaction to it all you did was reply to an email or you know something
52:20
like that. Report your number of what you would lend to your best customer on an unsecured basis
52:27
for a short-term dollar loan. You just report that into a spreadsheet. There's a statistical
52:33
process. You cut off the top. I can't remember. It's like the top four and the bottom four,
52:37
and you take the middle. I don't know, take average of those or whatever. Oh, that's LIBOR.
52:42
And that's the reference rate for all of the dollar credit outstanding. Your adjustable rate
52:49
mortgages, your auto loans, like credit cards, like anchored to the LIBOR in this process. And
52:56
very easy in that statistical process, you have no economic skin in the game, right? There's
53:01
nothing you're not going to lose. It's pretty easy to manufacture or like massage the number
53:09
that comes out of that process. If you're one of, let's say the 15 or 16 money center banks,
53:14
who is a contributor or has a vote in that process. So you can see in that framework,
53:19
how that's more important than the Federal Reserve, right?
53:23
And people talk all the time about the Federal Reserve
53:24
being like 12 people in the room that get to pick the rate.
53:26
And this is essentially the same.
53:28
Yep.
53:29
Well, more so, right?
53:30
Because the Fed had to respond to them.
53:32
All right.
53:32
So this is where I could say,
53:34
I wrote a piece on Substack,
53:35
maybe put it in the show notes,
53:36
but I explain it in terms of in this era.
53:40
So think about it's an offshore dominated era.
53:44
The whole point of this system is you've got,
53:46
all right, you've got this block coming out
53:48
of the the western side of the allied powers um you know west of the iron curtain um post-world
53:55
war ii they've got a financial system and the economic model was hey we're going to build up
54:01
credit dollar credit uh we're at the beginning of this framework you start at breton woods you
54:07
started with all of the uh local currencies like in fx markets were all pegged to the dollar
54:13
and then the dollar would be pegged to gold and that's for cross-border capital transactions
54:18
and then domestically your dollar was pegged to silver uh for you know households businesses in
54:23
the u.s over you know 20 years after world war ii you know we broke that that metallic peg uh
54:32
we you know famous nixon 1971 window and then after 1971 we allowed like think about nixon what
54:39
he did is defending the the u.s gold vaults we'll start there i'll just not go any deeper than that
54:44
but um once we got off of that um metallic like redeemability or anchor to the uh to the dollar
54:54
now you're on the credit standard and in the in the kind of the economic framework for this trade
55:01
block the idea was okay well if you just expand credit like money is credit right they're the same
55:07
thing you print dollars into thin air it's debt but it's you're printing the dollars what you were
55:13
doing is you're you're generating incremental economic activity like you're moving a um a
55:21
shipping container of hdtvs from you know china to rotterdam right you raise the the amount of
55:28
dollar credit outstanding and uh that just it's a one-way train up for for you know money supply
55:36
And this is how you get an offshore dollar credit bubble plus onshore dollar credit.
55:42
It's hundreds of trillions of dollars.
55:45
And in that framework where credit has to increase, you can't let that thing contract.
55:52
Otherwise, the whole thing just deleverages upon itself.
55:56
The U.S. has to be subservient to the rest of the world.
55:59
and then you have to have a u uh inside the u.s you have to have a like a dominant a framework
56:07
where the central bank is dominant so i call this era like once we get into 1981 you know volker
56:12
raises rates to 20 squeezes out the inflation of the cpi inflation uh right of the 1970s um
56:20
you get a a policy framework in the u.s where the fed dominates right and what it's doing is
56:26
every time that the global economy wants to, like it goes into recession, the US, like the
56:33
onshore institutions had to bail out that offshore bubble, right? And it's increasingly every time,
56:40
right? So let's say in 1987, we get into the flash crash, right? What do we do? Oh, we cut
56:47
interest rates, right? Then once we get to the next version in the late nineties, you got the
56:52
Southeast Asian financial crisis taking place. Russia's defaulting, all that stuff. LTCM is
56:58
collapsing with all of its Nobel laureates, the hedge fund operating out of New York. What do we
57:03
do? Oh, we start to do the typical lower interest rates, but then you're starting to add in QE,
57:11
which is like main and main facility, central banks coming in as the, not even lender of last
57:17
resort they're like like reliquifying the system they're sopping up all of the excess credit that
57:22
exists um and then it like monetizing it issuing it out and that's what qe is in like uh each cycle
57:31
like 2008 gets worse covid gets you know more so that's why you know we all recognize it right and
57:36
bitcoin we we all nailed it and everybody came around the table listened to the podcast 2020
57:42
2021 and we got that and then we just extrapolated that story and said this thing's going to go on
57:47
to infinity. All right. So you had a rule where, all right, it's Fed dominance. And then you also
57:52
had Congress as well, right? You had the Keynesian approach where, what do we need? We need more
57:56
fiscal stimulus, right? You just, just fiscal spending acts that don't make any sense. Like
58:01
they're just boondoggles. There's diminishing marginal returns on this, these same projects.
58:07
Like I make the analogy. So fiscal spending in the 1950s, what did we get for it? You got the
58:12
Eisenhower interstate system in the United States, which is awesome, right? I've been to a lot of
58:17
countries in the world. And like our highway system is, is pretty great. I haven't seen the
58:21
German Autobahn though. So maybe that's, you know, I'm not, I haven't seen the best of the best.
58:25
But by and large, the Eisenhower interstate system, like it did wonders for the U.S. economy.
58:30
It was great, right? Clearly a good use of credit and federal government spending.
58:38
But by the time we get into 2008 with the American Recovery Act, you get into things like,
58:42
I can't remember exactly the size of it, like just ballpark it trillion dollars. Um, what we got out
58:48
of it was like, like my city where I came from and growing up in Missouri, like we got one more
58:54
interchange on our, on our highway. It's like whoop-dee-doo, right. Didn't make a bit of economic
58:58
difference to anybody. Like just, there's just one more stoplight on my way home. Um, and I think
59:03
most cities in America, there are probably thousands like that. And then by COVID it's like
59:07
cares act uh you're we're going in we're we're taking on these trillions of dollars of debt um
59:15
placing it on the public tab right and we were literally just paying people not to go to work
59:22
so like you just it like the the we just make less sense over time yeah it into absurdity and decadence and you know all of the above All right So that the fiscal route And we just had a Congress that
59:34
would go along with it. And, um, I don't know how much time or we can beat this dead horse,
59:39
but I view Congress as just a total deadbeat organization in the United States. And we don't
59:43
have any way out of this. Like we can't, um, you know, unlike a European democracy or constitutional
59:48
structure, like most of them have the ability, like the, the King or the prime minister or
59:52
something they can disband congress send them home hold snap elections all that u.s we can't do
59:57
that so we have a congress that's compromised bought and paid for all of that um and they'll
1:00:02
they'll pass any fiscal spending bill up until i mean maybe modern day but we we still do it
1:00:08
right i haven't seen a congress yet who has um turned down um uh um like a fiscal stimulus bill
1:00:16
um so i called that era like the era of fed dominance like from a u.s uh framework and
1:00:25
what that was like you had fed chairs like alan greenspan who just passed away this week age 100
1:00:30
um ben bernanke janet yellen and i'd include jay powell in this bucket where they're willing to
1:00:39
just keep cutting like doing what needed to be done to bail out this offshore dollar credit
1:00:44
bubble and you kind of had to write the guns to your head you can't just change the system
1:00:47
you know on a whim they put people in these roles who would do what the system needed them to do so
1:00:53
what do you do you cut interest rates every cycle lower lows lower highs till we got to zurp
1:01:00
uh europe japan they try to do nerp negative interest rate policy qe rinse repeat um but
1:01:08
2022 was that moment where, all right, there was a tug of war. And at the end of the day,
1:01:13
all of this offshore dollar bubble is parked on the economic potential. And you could just say
1:01:21
the existing economy itself as well of the domestic United States. The system requires
1:01:27
the United States treasury to go into ever increasing amounts of debt. Like I said,
1:01:34
If you're offshore, you don't have access to the Fed.
1:01:38
So your next best IOU is that U.S. Treasury security, right?
1:01:42
It's the Treasury's IOU.
1:01:44
That's the highest quality dollar you can get with minimum credit risk.
1:01:48
That's as close as the money printer as you can get in this framework.
1:01:51
So this system requires not just a Fed that'll dominate domestic policy, but it requires a
1:01:59
United States Treasury that is subservient to the central bank and then also subservient to the rest
1:02:06
of the world, the other, you know, G7 countries or, you know, whatever. And if you think about it
1:02:12
in that mindset, that's how you get the America first kind of seeds springing up in the 2010s,
1:02:18
and it starts to make a little bit more sense. But your Treasury secretaries in this Fed dominance
1:02:23
era, or I'll call it equivalently, the other side of the coin is treasury subservience.
1:02:31
You get treasury secretaries who will just do whatever that system needs. They're guys like
1:02:37
Larry Summers, Timothy Geithner, Hank Paulson, Jacob Blute, like we just named Janet Yellen.
1:02:47
And they'll do whatever that offshore system needs them to do, which includes running up a
1:02:52
debt to $40 trillion every stop of the way. The seeds of this transition from this offshore dollar
1:03:01
to the stablecoin dollar, which we've seen materialize that I've talked about, it didn't
1:03:07
happen overnight. It was in the works. I worked at Citigroup back in the early 2010s. I came in
1:03:15
post-GFC and had no idea what I was getting into. Let's just say that. It's shocking.
1:03:20
like a balance sheet like we were looking at like a couple trillion dollars in subprime uh
1:03:26
like asset exposure on the balance sheet and that was a time when like i didn't even know what a
1:03:31
trillion dollars was um just seemed like an insane amount of money back in 2011 you know 2012 era
1:03:38
and our team was publishing um like basically the rate card of city groups mortgage rates uh for
1:03:45
like all of its branches in the united states it was like well that's right a lot of a lot is
1:03:50
riding on the line of us getting these numbers right uh you know people's mortgage payments for
1:03:55
the next you know 10 20 30 years potentially all right so even in those meetings and i was just like
1:04:02
an analyst starting out we were still talking about replacing libor and moving to something
1:04:09
else we knew libor had to go away and sofer was already on the table i'll explain so for a little
1:04:14
bit as early as those days. And most of us, like at the non-executive level, like we didn't even
1:04:20
understand what the heck was going on. Like coming through university, I did a master's in finance,
1:04:25
very quantitatively focused. We didn't go through any of this, like how the dollar structure worked.
1:04:30
Like it's just not there, right? You're learning quantitative formulas, number crunching, all of
1:04:36
that, like pricing exotic derivatives. How the system actually works isn't taught to you or isn't
1:04:43
a focus. Maybe that's changing. Who knows? Actually, it's the podcast circuit. Now that it's talked
1:04:48
about, people can find this. And that's made all the difference, in my opinion. All right.
1:04:53
But this was going on at least since the early 2010s. And that transition to SOFR, we spun up
1:04:59
that system in, I think it went live for scale in 2018. And those dynamics, let's just say COVID
1:05:09
showed up at a very opportune time for this transfer away from london-based pricing uh with
1:05:17
the libor model to new york-based pricing the sulfur model and the key thing about sulfur right
1:05:25
we talked about the banks like you literally just make up the number you don't need that much uh
1:05:30
evidence to support your submission at the end of every business day um with sulfur it functions
1:05:37
differently. It's actually published by the Federal Reserve Bank of New York. They're operating as a
1:05:44
middleman, a custodian. Call it a tri-party lending relationship. Three players involved here.
1:05:51
Think about the Federal Reserve Bank of New York is like the house, and then you've got a borrower
1:05:56
and lender showing up. Borrower needs dollars on a short-term basis. Lender has dollars that they
1:06:02
can, you know, deploy into that loan. But the borrower and so for has to post collateral,
1:06:09
right? And for the most part, like most popular collateral, it's going to be treasuries.
1:06:13
So now the skin in the game.
1:06:14
Exactly. You can lose your highest quality credit, the risk-free rate in this system's framework,
1:06:21
right? So, or your risk-free asset, right? So, so if you mess up, you over lever yourself,
1:06:26
you've actually, yeah, there's consequences now.
1:06:29
Which is obviously how it should be. Like that makes total sense.
1:06:32
hundred percent right and in a perfect world that hope i mean there's no such thing but as we move
1:06:39
along like notice here your skin in the game is just another iou on this treasury debt that keeps
1:06:46
ballooning but moving from nothing to something like it actually is a massive step and then you
1:06:52
know eventually hopefully it'll be like a real uh economic asset uh like let's say gold or bitcoin
1:07:00
right uh where you lose something of consequence and the private sector households businesses they
1:07:06
have a say as well if you zoom out in the bitcoin story right now it's starting to make sense like
1:07:11
genesis block chancellor's on brink of second bailout of banks right what was that saying like
1:07:16
when bank of england or the fed or you know whatever central bank when when they come in
1:07:25
qe what they're actually doing like think about it like think about it like a poker game right
1:07:31
you've got your players who are who are playing this game shrewdly wisely they're building up a
1:07:36
chip stack and then your counterparties your other players at the table who don't calculate
1:07:41
the risks correctly or take too much risk they get off sides um you know take too much risk at
1:07:48
the wrong time in the cycle you get you get rinsed um as you know maybe is going on right now in
1:07:54
the frontier credit topic we mentioned earlier.
1:07:59
like chancellor on brink of second bailouts of banks being in the genesis block was
1:08:02
when you change the reserve money or you can just you know willy-nilly inject more chips if you're
1:08:08
the house at that poker tail table so that the short stacks get reliquified every time the the
1:08:15
the big the big stack is about to take someone out um send his break exactly so that's what
1:08:21
bitcoin does it's a it's a reserve money um unlike gold it's a ledger money um and it's an
1:08:29
even playing field for everybody who chooses to play at that poker table is not the right
1:08:34
analogy here never bring the casino games into a financial analysis is is uh what i've been taught
1:08:40
to do in speaking with clients but it that it makes sense to me though yeah um so in terms of
1:08:46
this transition then i guess this is this isn't something that's just happened in the last couple
1:08:50
years it's been a long thing which maybe started or you know started in 2007 2008 you then have
1:08:56
the sort of 2017 libel switch to sofa then the sort of 2020 to 20 it wasn't switched yet in 2017
1:09:03
2018 yeah we'll get into that transition starts i guess and then 2020 2022 is you have covid and
1:09:10
it's also like the end of the 40-year bond bull market which i imagine is a part of this
1:09:14
oh absolutely yeah the end of the 20 or end of the 40-year bond bull market was your yeah it was
1:09:20
like one of the three worst uh returns for u.s dollar denominated credit in the nation's history
1:09:29
i think like 1929 30 like you had one by the great depression maybe one by the civil war you know
1:09:35
something like that but that you know we talk about the fourth turning framework right as a way to
1:09:40
understand this um you know like 80 year type of transitions it's like oh that was that was that
1:09:46
we're we're in we're in it yeah exactly uh so yeah exactly so so for spends up it's your
1:09:54
competitor like now you're like whatever you were running your little scheme you know on
1:10:01
lombard street in london your end of day process like well that's cute but uh over here this is
1:10:08
where you actually have to go for dollars and we're going to set our interest rates with triparty
1:10:12
collateralized repo and uh that's where the puck is headed at the end of the day we're it's the u.s
1:10:20
dollar we're talking about here right we own this or it should be our you know real estate to own
1:10:26
and um we spent like four years like with that processing contest but 2022 uh the the hiking
1:10:34
is was kind of the last straw but uh right when the hike started march of uh 2022 putin invaded
1:10:42
uh ukraine created the commodity um spike similar to what we saw in iran with epic fury here
1:10:48
uh in the first quarter of 2026 that created um you know the final uh the alley fight right
1:10:58
someone had to tap out and and we we uh stopped pricing the marginal dollar in libor and we
1:11:06
started pricing it in SOFR. And at some point in the last year or two, we just stopped even printing
1:11:14
LIBOR as any reference rate. Because there's all kinds of old credit outstanding that was
1:11:20
benchmarked to this thing. Someone's home loan from 2001, those loans are still out there.
1:11:28
Someone's paying based on LIBOR. We figured out what's the number, how many basis points do we
1:11:33
add to convert this over from LIBOR to SOFR. It's a business negotiation. Same way that these
1:11:40
ceasefires or these deals between Iran and the United States, I view them at the end of the day
1:11:49
as a business negotiation. It was that process. So 2022 was that moment where that kind of power
1:11:56
struggle, the tug of war, what was formerly like a cooperative partnership, like the cross-Atlantic
1:12:03
framework, right? NATO being the military front, but then you have like WTO for the trade,
1:12:10
that framework. And then you add this offshore dollar cartel, think about it, BIS, IMF,
1:12:16
all the central banks opt in. You've got the Basel III framework, which are still in open
1:12:22
negotiation and implementation. 2022 was that moment where if it was an arm wrestling match,
1:12:29
like yeah u.s just like other side's fist hit the table so that's kind of like the uh last remnants
1:12:35
of the old world power giving the baton over to the u.s that's how i view it exactly yeah and then
1:12:42
okay and then on a separate front domestically this is where you get into all right the fed
1:12:46
was responding to its its interest here like the fed its shareholder its public private institution
1:12:55
right it's got some public oversight has to report to congress all of that the president gets to
1:13:00
elect or nominate uh board of governors members all that process so you do have some public input
1:13:09
into the management of the organization but the shareholders are the domestic uh u.s fedwire banks
1:13:15
and so fed chair you know pushing this thing along ultimately you have to have the backing of the
1:13:25
capital, for lack of a better word, behind you to push this ahead. So that's what I think when
1:13:31
Jerome Powell was doing this, like you can view like Jerome Powell will go down as a very
1:13:35
interesting transitionary figure because he was doing all these things that a Fed dominance era
1:13:42
Fed chair would do. He he QE the crap out of the market. He he zerped the market and didn't say
1:13:52
anything wrong with the fiscal state like he wasn't opposed or didn't raise his hand to cares act
1:13:56
american recovery all this stuff um but then he also did these things for you know moving from
1:14:03
libor to sofer so i view him and you know the decision recently like after his term ends we
1:14:08
were in the wars fed now uh he chose to stay on i kind of view him as like he's your transitionary
1:14:14
figure he's kind of like in history i think of him as like a man for the last war but you have
1:14:21
him in place as a general to like just maintain institutional integrity it's like all right very
1:14:27
interesting figure complicated complex figure is how i think he goes down all right but in the
1:14:33
meantime now you've got a political process we still have to get through like the white houses
1:14:39
say and congresses say on what direction this domestic dollar is going to take and that's where
1:14:45
the difference between the Biden White House and its Treasury Secretary and National Economic
1:14:52
Advisor, Lael Brainard, and the direction they wanted to go down are the polar opposite of what
1:14:58
we got coming out of the November 2024 elections. So in the big picture of United States monetary
1:15:05
history, the November 2024 election, in my opinion, will be about the fork in the road
1:15:13
that the U.S. voters chose.
1:15:16
And what they were actually voting on
1:15:17
was the future of the U.S. dollar.
1:15:19
So I'll explain this.
1:15:22
Same time that the Fed started hiking in 2022
1:15:25
and we were going through this transition
1:15:27
from LIBOR over to SOFR,
1:15:29
strangulating it to death in the bathtub, right?
1:15:32
All that.
1:15:33
Gruesome analogy, but capital wars, right?
1:15:36
That's kind of what happened.
1:15:39
And the Biden White House
1:15:41
and those players involved,
1:15:42
Yellen and Brainerd, there was an executive order that was like the standing memo to all
1:15:48
of these governmental agencies that basically said it was paving the way for the CBDC.
1:15:55
They instructed the Fed, OCC, all the agencies, all these technocrats, these bureaucrats,
1:16:02
all of that.
1:16:03
They were tasked with figuring out this path to get the future of this dollar system from
1:16:11
the United States framework onto a CBDC. What do I mean by CBDC? It's a good Bank of International
1:16:18
Settlements paper today on this exact topic I just TLDR BIS and this legacy framework call it offshore dollar framework which is dying They don have that anymore You call it Davos man that type for globalists They don like Bitcoin and they don like the genius X stable coins
1:16:41
they want something else and that that that something else they want is they want the base
1:16:49
money or the the money that banks use to transact and settle between themselves to be central bank
1:16:56
money that sits outside of the private sector so you as a household you as a business you can't
1:17:05
interact with the fed right you need a bank charter to do that you need a piece of paper
1:17:08
um that's how it works in the united states uh current standard and most central banks in the
1:17:14
rest of the world as well so they want to gatekeep they want to retain control yeah the term for that
1:17:19
would be outside money versus bitcoin if bitcoin emerges as an as a as a base money that would be
1:17:26
an inside money which means the private sector has the ability to own hold transact and um
1:17:33
basically market make we talked about this up front at the conversation right and the old days
1:17:39
of the federal reserve dollar versus the silver certificate dollar and the contests that worked
1:17:43
between it with the with the dollar that's redeemable into silver what that does is an
1:17:48
acts it acts as an arbitrage mechanism where the central bank or the state can't direct the central
1:17:55
bank to go out and uh issue too many credit claims like if they if they were doing that what you would
1:18:01
do as a household or business would be, I'm going to put my dollar to you. I'm going to redeem it
1:18:05
for the silver. That's right. So if we had an inside money so we could redeem for gold or redeem
1:18:10
our dollar for Bitcoin, that would be like a check on the monetary power of, you could say,
1:18:19
the state, but also the private banking interests. This is the definition of sound money that
1:18:26
everybody talks about what they're actually asking for is that that ability as a like a private
1:18:32
sector entity to hold your your banks which are you know that intermediate layer between the the
1:18:38
public sector which is the state and the private sector right and then also hold your state
1:18:43
accountable from uh committing monetary tyranny right so what the biden administration was instructing
1:18:52
with this executive order for all of these agencies to go out and do was figure out,
1:18:57
you know, legally, how do we do this? Technically, how do we custody? We're going to need some
1:19:04
blockchains, go hire the ETH bros, the Solana devs, all of that. They'll build this thing for us.
1:19:11
And that was the standing management policy directive under the Biden administration.
1:19:19
we were marching down that path. We still have the EU marching down this path. That's what the
1:19:24
digital euro is. They just made an announcement today. This digital euro is going to have a pilot
1:19:29
test at the end of 2026, and they're shooting for a 2028, 2029 launch because they're going to need
1:19:35
it at the end of the day to do what they want to do, like prosecuting a broader war with Russia,
1:19:42
let's just say, or industrializing or monetizing private sector savings to prosecute said war.
1:19:51
They will need this CBDC, this digital euro as the base money to go out and do what they intend to do.
1:20:02
All right. So Biden administration was on those grounds. What happens? November election happens.
1:20:07
day one we get uh an executive order uh or it's like thursday right if inauguration was like a
1:20:15
monday or tuesday it was in that first flurry of executive orders what did it do it the first one
1:20:20
uh on like the monetary roadmap for this new administration the trump administration um
1:20:26
it repealed that standing executive order that said hey let's go down let's figure out
1:20:32
what's the project management you know roadmap the gantt chart all of that to get us the united
1:20:38
states onto a cbdc first executive order pulls that rescinds it like it that that's dead in its
1:20:45
tracks no cbdc from from uh from a white house uh directive standpoint next you get um this is
1:20:56
where I say we're moving from an era of Fed dominance and Treasury subservience to an era of
1:21:02
United States Treasury dominance. And then Fed is going to be reformed. It's going to play a
1:21:07
totally different role. It's not going to be used as in this era we're heading into. It's no longer
1:21:15
going to be used as this behemoth to keep bailing out the offshore dollar or everybody else's
1:21:20
monetary systems that are squatting on the U.S. economy, in my opinion, or have been
1:21:27
for the better part of a century, at least.
1:21:35
We're moving to an era of treasury dominance. And so the next executive order that after
1:21:40
repealing what Biden was doing with the CBDC, the next one, and this is how I view it as key,
1:21:45
you had a lot of Bitcoin in custody that had been like, let's say, criminal asset seizures or civil
1:21:50
asset for forfeiture, all that. Say it's sitting in different branches of this government bureaucracy
1:21:57
that is Washington, D.C. It's in some U.S. Marshals file cabinet, some Bitcoin's over there,
1:22:04
some is in the FBI file cabinet over in Virginia. It's just scattered all around.
1:22:10
The next executive order gave a directive. All of that Bitcoin that is technically within
1:22:16
like the ownership of a US or an agency that reports into the federal government chain of
1:22:24
command, all of that now needs to move to the treasury, right? So now the treasury is the
1:22:30
United States treasury is the custodian and holder of the Bitcoin that the federal government
1:22:38
has, you know, claim to title ownership, all that stuff. All right. That's huge. Like we,
1:22:43
We were looking for, as Bitcoiners, we were looking for the strategic Bitcoin reserve.
1:22:49
Like, when are we going to get it?
1:22:50
When are we going to get it?
1:22:51
It's a sequence of events.
1:22:52
Like, there's a process to get there.
1:22:54
And if you look at these little steps along the way, you're like, oh, now the Treasury
1:22:58
is asserting dominance.
1:22:59
It's not just going to be the bottom in this relationship and do what the rest of the world
1:23:08
needs and keep racking up this $40 trillion of public debt.
1:23:12
The number is still going to go up, but we're asserting dominance and saying, no, no, no, those Bitcoin are over here. And then gradually you're going to start seeing all of these steps implemented to ultimately, like if you look at Scott Besson's statements, what he's telling you is this Bitcoin reserve is coming.
1:23:29
um it's just going to take um more time like to do it the right way you got to follow parliamentary
1:23:36
procedures um figure out custody all of these things that need to be taken into consideration
1:23:42
to do it the right way make sure someone's not just going to walk your bitcoin out the door
1:23:47
um like an intelligence community hack or nation-state attack all that stuff like do it the
1:23:51
right way that'll take time but series of events i'm trying to think of other executive orders but
1:23:57
But I guess just quickly on that, the question I would have is, I obviously saw the strategic
1:24:03
reserve executive order go through and like a lot of Bitcoiners probably expect it to happen
1:24:08
quicker than it has.
1:24:10
Do you still think it's likely to happen?
1:24:11
And then as a part of that question, what do the Treasury want to do with it?
1:24:15
Like, why do they want it held in the Treasury?
1:24:18
Okay.
1:24:19
All right.
1:24:19
Let's answer the timelines here.
1:24:22
it's not a there's no probabilistic guarantee that we're going to get a strategic bitcoin
1:24:27
reserve there's still a lot of milestones that we need to hit uh to get to that end game
1:24:33
so think about it like a couple weeks ago we had um representative baggage from alaska
1:24:39
united states introduced the american reserve monetization act which is it's an updated version
1:24:44
of the Bitcoin Act that Senator Lummis introduced about a year ago.
1:24:50
And my answer to that is I don think we have a Congress to get it done at this point So same thing in November 2024 what we were actually voting on was which fork in the road we were going to go down CBDC route with Biden or
1:25:05
a Bitcoin route with Genius Act stablecoins. I didn't get into specifics why the backing one-to-one
1:25:11
of stablecoins with T-bills is important. We'll get into that in the second part of my answer to
1:25:18
this question. But I don't think right now we have a Congress that would pass the ARMA, even
1:25:23
though it had like 22 sponsors like can we get the majority like 215 votes i think it would take to
1:25:30
pass congress i i think speaker johnson would introduce this um if if he knew he had the votes
1:25:39
to get it done i i think what we don't know is do we have the votes to get it done with this congress
1:25:45
so that's an important thing i think we're voting on this november um i get it bitcoiners were
1:25:52
confused about what's going on geopolitically with Iran. Maybe I can put that into context,
1:25:57
how I think about it. But there's going to be a lot at stake in November, what we're voting on.
1:26:03
And if we want that strategic Bitcoin reserve, we're going to have to send a Congress to
1:26:07
Washington, D.C. that gives it to us. So full stop there. So not guaranteed it's going to happen.
1:26:13
I do think in the Besant framework, he was in congressional testimony, I want to say two weeks
1:26:17
ago, he got asked a question by Tim Scott, senator from South Carolina, I believe, who
1:26:25
asked about progress or are we still working on this?
1:26:29
And Scott Besson's answer was like, we're working on it with all deliberate speed, right?
1:26:33
And that just goes to the order of operation.
1:26:36
This isn't something you can just spin up overnight.
1:26:38
Like there's no precedent for this.
1:26:40
It's a big change to have a Bitcoin reserve, have a treasury stockpile, all that stuff.
1:26:46
It's not something you just ask chat GPT, how do I do this and press a button?
1:26:51
And it's like, does this work?
1:26:53
Like, no, a lot goes into this.
1:26:55
So what's the end game here?
1:26:57
All right, let's think about this.
1:26:58
And this is where I'll get into maybe a little bit of speculation because I don't know how
1:27:03
this is going to play out.
1:27:04
What I'm thinking about, though, is prior iterations and these dollar transitions where
1:27:09
we move from one definition of the dollar, say it's an asset-backed dollar, like silver
1:27:15
certificates, for example, we move to a credit dollar, and then we move back towards that
1:27:20
asset-backed dollar.
1:27:22
The one I like to think of is during the American Civil War, the greenbacks.
1:27:29
Very similar time, like thinking about the fourth turning kind of framework, it's like
1:27:33
all the institutions are going through a big transition.
1:27:36
We have to find a new steady state equilibrium for all the social order, financial order, all of that to reestablish stability. Civil war was kind of that. There were also military conflicts all around the globe at that time too, all of them playing into each other.
1:27:57
But you had a dollar that was on a silver standard, gold standard, biometallic standard, coming out of a financial panic with the panic of 1857, kind of an analog of the financial crisis of 2008, if you think about what we're going through currently.
1:28:18
But that just wiped out credit.
1:28:20
And the president at the time, Buchanan, didn't bail out the banks.
1:28:25
And so you got replaced.
1:28:26
We got Lincoln as president. We had the war. Now, the United States Treasury was in a position where we didn't have the financial resources, like we didn't have the gold to fund the soldiers, purchase the armaments, all of that for the union to get what it needed to win the war.
1:28:47
and what we did is we by roundabout way created a dollar the greenback that was a treasury issued
1:28:58
iou no interest rate no maturity this was the precursor to the federal reserve note you know
1:29:05
legal tender dollars redeemable for nothing only payable like legal tender for credit you know
1:29:12
arrangements, all of that. Once the US, like once it was clear that the union was ultimately going
1:29:21
to like persevere in the struggle, like probably 1864, the discussion around like Washington,
1:29:27
D.C. and within the capital markets in New York started to switch to, all right, instead of this
1:29:31
massive proliferation of like, literally that was like money printer, right? We just printed green
1:29:35
backs like off the press the the discussion in capital markets and policy circles started to
1:29:42
shift to oh actually we're going to win this thing and we can start to rein in money supply
1:29:46
and within the the span of civil wars you know coming to its conclusion in 1865
1:29:54
and then by 1875 that discussion of oh we're going to re-monetize we're going to re-peg
1:30:01
to some base money and this won't just be you know funny money paper script anymore the dollar won't
1:30:06
be you know paper script anymore you had the gold remonetization act of 1875 and we were back on the
1:30:13
gold standard pecking like pecking to the the the base money that the world was choosing at the time
1:30:19
gold uh in the the second half of the 19th century so this can go quickly if you think about it like
1:30:26
we're going through the same thing um like an american re-industrialization right now we're in
1:30:31
the very early phases of that it's built out on this um ai trade right all of the capital flowing
1:30:37
into that as part of this massive energy investments like all the above but um you can
1:30:44
see a world like it's fuzzily coming into existence where all right think about this
1:30:48
we we're already in a world where that liability-based iou dollar that's gone with the wind
1:30:56
right it's a prior era we're moving on like trains left the station we're moving to these stablecoin
1:31:03
dollars they're backed by a treasury bill one-to-one like that's genius act 45 days or less
1:31:10
maturity interestingly right like what's the collateral for sofer to get a marginal dollar
1:31:15
in this credit-based system.
1:31:16
Ooh, it's also more and more just a treasury bill, right?
1:31:22
It's the most common favored collateral
1:31:24
and repo markets, lowest haircuts, all of that.
1:31:30
And you see this world,
1:31:32
now that we're moving from that liability-based
1:31:34
offshore dollar to this asset-based stablecoin dollar,
1:31:38
give this thing enough years,
1:31:40
let these trends keep right,
1:31:42
just keep extrapolate them.
1:31:45
I can see a world where we're just calling someday these stablecoin dollars.
1:31:50
We're just going to call them dollars the same way after the silver certificates were pulled from circulation and all we had was the Federal Reserve notes.
1:31:59
We just have their dollars from the private sector.
1:32:02
We'll just call them dollars.
1:32:04
They're technically backed by treasury bills.
1:32:07
So they're backed by an IOU in the old system.
1:32:09
What we're seeing as this offshore dollar bubble, as we're reining it in, what's happening, the capacity for lending further and further out.
1:32:18
So if you look at, let's say, for example, the 30-year treasury bond, right?
1:32:22
It's like $15 billion is the auction size, and they hold it once a month.
1:32:27
If you look at the treasury bills, these things might be for the four-week bill.
1:32:31
It's like $80 billion, and they do a new issue every week.
1:32:34
and they have not just one 30-year once a month or one 20-year month once a month or a 10-year
1:32:39
once a month, which are like $10 to $20 billion, that type of size or scale. These treasury bills
1:32:44
are like $80 billion each auction. They hold a new one every week, and there's a four-week,
1:32:52
an eight-week, a 13-week, a 26-week, a 52. So the maturity of the debt profile has this
1:32:59
offshore dollar credit bubble, the old post-World War II framework that's kind of transitioning to
1:33:06
its next state. It'll be a major upheaval, right? We can all sense it. The maturity profile of the
1:33:13
debt in that system is just coming smaller and smaller. And so I can see a world where let's say
1:33:18
five to 10 years of letting these trends play out more and more of the liability dollar and those IOUs like the credit stack it naturally shifting more and more so T heavy right And you can see it in the treasury debt outstanding right It
1:33:38
becoming more and more treasury bill heavy. And is that intentional? Because I remember when
1:33:44
Scott percent, before he came in, he was criticizing Yellen for doing everything
1:33:48
like on the short end, but it has then continued to kind of do the same thing. So, so it, that's
1:33:53
an intentional move rather than it's just a force of the market. No, it's a force of the market,
1:33:58
as you put it. Yeah. It's, um, if there were a better, like people like, Oh, you idiot. Why
1:34:02
didn't you, uh, why didn't you lend all of, why didn't you extend all your debt out at 30 years
1:34:08
back when it was a 1.25 coupon in March, 2020? It's like, because you couldn't, the capacity
1:34:13
wasn't actually there um the treasury bills is the direction like the system is is telling you
1:34:19
what it needs to do and as the operator here at the helm you just take what you what you get at
1:34:25
the end of the day you can play the poker hand very well right you can be a good player or a bad
1:34:30
player but at the end of the day like the dealer is just going to deal you the cards you get so
1:34:35
that that's how i view it um so naturally that debt profile is is just shrinking shrinking shrinking
1:34:44
um uh credit maturity so you can think about this like the in the u.s right we have we recognize this
1:34:51
is a problem that longer term uh or like longer maturity financing it's it's going away when we
1:34:58
can feel it so earlier this year remember that um feeler tweet i think trump sent it out it's like
1:35:05
what do you guys think about a 50-year mortgage, guys? Yes, I do remember that.
1:35:09
That's part of that. We're trying to figure out how to extend maturities longer or get more people
1:35:15
into housing or underwrite mortgage loans that borrowers can qualify for. We're trying to extend
1:35:22
it out, but there's just no capacity there. You're squeezing all the blood you can out of the rock,
1:35:28
and after 70 years of doing this, there's nothing left, really, is what's happening.
1:35:33
So as that maturity profile shrinks, we become more and more treasury bill concentrated in that treasury debt stack.
1:35:45
As this stablecoin, like Genius Act proliferation really kicks in and that old offshore dollar, like if you're looking at all the dollars outstanding and the stablecoins start to grow their market share, eventually there's a tipping point.
1:35:57
but more and more of like we talked about the arbitrage incentives where can you generate the
1:36:03
most bang for your buck on one dollar of capital that same way that henry jarecki all those fellows
1:36:09
cleverly arbitraged away walked away with 10 of the purchasing power on another dollar transition
1:36:15
the way i see this more and more of those treasury bills are going to find their way
1:36:20
into stable coin issuers like genius act regulated they'll become stable coin dollar rails and then
1:36:26
that what's happening here, Venezuela, Iran, all of the, like Cuba coming soon to a theater near you,
1:36:34
Greenland, like what's happening is we are re-architecting like the dollar payment rails
1:36:43
and all of that kind of orbit. And we're bringing in the commodity suppliers and the trade of those,
1:36:50
the base layer goods in the economy, right? Your energy resources that everybody needs,
1:36:55
those will increasingly settle in stablecoin dollars and if you think about this from the
1:37:03
like venezuelan perspective or iran's perspective you no longer like if you participate in this
1:37:10
version of the dollar which is more new york less london um this time around you no longer have to
1:37:18
pay the one extra hop through the whole foreign exchange, swaps, all of this offshore dollar
1:37:26
credit kind of big transaction costs that is just paying this financialist cartel at the end of the
1:37:34
day. They're sucking off whatever the share is, what is it, 10%, 20%, who knows, of the actual
1:37:41
real growth on all those ships moving through the Suez Canal, moving through the Panama Canal,
1:37:46
moving through the Strait of Malacca, crossing the Pacific Ocean, all the above. Now to get the
1:37:51
dollar you need, which is like the coin of the realm to buy your energy resources or minerals,
1:37:57
critical minerals, right? Headline keeps showing up in the papers, right? You no longer have to
1:38:04
cross through all these middlemen, you know, foreign exchange counterparties. And you go
1:38:11
straight to what you need, which is that treasury bill counterparty risk, that dollar settlement rail.
1:38:19
And you get, at the end of the day, you get wholesale pricing, or sorry, you get retail
1:38:26
pricing for your commodities and you aren't selling your goods at wholesale pricing anymore.
1:38:30
Or deep discounts, say, on the black market to, let's say, Iranian oil going to China,
1:38:36
for example, at deep discounts or Russian oil being sold into India at deep discounts.
1:38:42
So what's happening, like this system is all, you know, we're transitioning from an old
1:38:48
offshore dollar system onto this US like centered stablecoin dollar system.
1:38:56
There's economic incentives for the resource producing countries to do it and go along
1:39:00
with it.
1:39:01
That's where if you look at the MOU that was just signed with Iran, the most important
1:39:05
thing is like, oh, you're going to reenter the SWIFT system first. But really what you're coming
1:39:11
into is the stablecoin system. Same thing with Venezuela selling its oil, right? They settled
1:39:16
through, I think it's like Qatar. But you're now going to be on these stablecoin rails.
1:39:22
There's going to be lower transaction costs, all the above. You're going to get better,
1:39:26
more transparent market-based pricing for your commodity exports that your economy relies on.
1:39:32
And over time, what this is doing is we're replacing that old post-war, the last vestiges of the Bretton Woods system with this new, I don't know what it's called, Genius Act system.
1:39:43
All right.
1:39:43
So next, what happens?
1:39:44
What happens once this stablecoin dollar becomes like they're all the dollars, right?
1:39:48
Well, at some point, if your stablecoin money supply is bigger than the $100 trillion or multiples of that that's in this offshore dollar system, and you're backstopping with treasuries, eventually you need something else to re-peg your stablecoins to.
1:40:08
And that's where the Bitcoin reserve.
1:40:10
this was going to be my question because like i i see the transition that you're talking about
1:40:14
from the petrodollar to this onshore dollar system that's stable coins backed by treasuries
1:40:19
what i wasn't sure is where bitcoin plays a part but this is where bitcoin plays the part well so
1:40:23
think about this so what happens when stable coins supply and this is why i go into coin market cap
1:40:28
or whatever like the majority of liquidity as in right now it's old tether usdt tether tether's in
1:40:36
process of transition. Another key highlight, we talked about the executive orders, the 2024
1:40:41
elections, the fork in the road in monetary history. I want to say, was it December 2023,
1:40:48
where Tether made the announcement that they were cooperating with, I want to say it was the FBI,
1:40:57
for enforcement of the United States Treasury's OFAC sanctions. That was a huge tell. Now Tether
1:41:04
is on board with what was happening when we talked about the United States, the American
1:41:10
capital base moving in one direction and over the 2010s, that event, and I don't know, Tether guys,
1:41:17
I've never met them. I don't have any inside information, but looking in hindsight,
1:41:20
that announcement from Tether, which preceded, I want to say, the election result, that was a huge
1:41:27
directional tell that they were going to cooperate with this new version of the dollar that was
1:41:33
being pushed through. So if you think about that quote,
1:41:36
2020 taught us nothing stops this train. We're all
1:41:41
stuck in this mindset that this whole system is still
1:41:44
running on the architecture, the blueprints, the
1:41:48
players involved, the incentives. It's just what we saw in the past
1:41:53
like we had 2001, then
1:41:56
2008, then 2020.
1:41:58
We're just going to get more QE, more ZERP, more stupid fiscal spending from Congress.
1:42:05
I think the game has changed, and it's very clear.
1:42:09
All of the players who were cooperating around this old business deal that lasted for 75, 80 years,
1:42:21
they're now like, maybe it's too far to say they're at war with each other,
1:42:25
but they're not seeing eye to eye and they're definitely not cooperating anymore. And the U.S.
1:42:31
is definitely now asserting itself on the international stage and not just geopolitically,
1:42:41
what we've seen during 2026, but it's now an extended story that they're asserting themselves
1:42:47
in the international capital markets arena, which is just one plane, right? Capital markets are war
1:42:54
by another means. So when we say nothing stops this train, it's like, well, there's another
1:43:02
train and it's like, that's what Scott Besson represents, all of that. So we'll see how this
1:43:08
plays out. What does it mean for monetary policy? Because either domestically or globally,
1:43:15
whenever there's a problem, it's either stimulus, money printing, swap lines, whatever it might be.
1:43:20
how do they do that in this new system oh well did you notice like how much of a uh fit that the
1:43:26
legacy you know institutional media uh politicians like is elizabeth warren you know that camp
1:43:32
um christine lagarde at the ecb everybody is like with from the establishment from this prior
1:43:40
business order who was like an elite who benefited from being at the top of the system did you notice
1:43:46
how much of a fuss they raised about kevin warsh and his nomination not really no oh maybe i wasn't
1:43:54
following it close enough though oh it's a tell oh central bank independence like danny this is
1:43:59
terrible we need central bank independent i did see that yeah yeah yeah uh this guy is going to be
1:44:04
donald trump's sock puppet like the framing of what kevin warsh and uh like his germanship like
1:44:11
you haven't seen anything like from uh from a bo like a fed board of governors nomination
1:44:19
um until going back to like the the judy shelton nomination i want to say that was 2019 thereabouts
1:44:27
um in trump's first term they raised a huge fuss about that right for judy shelton's
1:44:33
uh i would just say more austrian austrian uh leanings and monetary policy it's like no no we
1:44:39
can't do that we got to stick to the keynesian consensus we can't take any uh you know non-orthodox
1:44:44
views here at this uh around this boardroom right we do group think um but yeah so kevin warsh
1:44:51
what he represents so notably right kevin warsh was nominated to the board of governors back in the
1:44:57
2000s by george w bush um and he was very anti-money printing then wasn't he exactly he resigned uh i
1:45:05
want to say 2011 or 2012 once he saw the gfc response like he's like i i'm out um so this
1:45:14
whole i talked about this era of fed dominance right like federal reserve was going to dominate
1:45:19
monetary policy uh public policy as it relates to money itself um within the domestic united states
1:45:28
and it was going to cooperate in a subservient world to the to everybody the this global offshore
1:45:35
standard that have proliferated. Kevin Warsh was the opposite of that. He's not a Keynesian.
1:45:43
He's a monetarist. And you saw that at his first press conference. It was almost two weeks ago now.
1:45:51
But he came out and he said, we're getting rid of all these things, the dot plots, forward guidance.
1:45:57
We're getting into jargon here, but forward guidance is this monetary, it's a central banking
1:46:02
policy framework it's it's a 2000s era development like this wasn't handed to us like on the stone
1:46:10
tablets at mount sinai right this did this is new we we literally made this stuff up in very recent
1:46:15
history uh but the idea is if you if the central bank communicates to capital markets what it
1:46:24
intends to do with short-term interest rates.
1:46:30
The rest of the livings out there, the private sector, banks, etc., but also households,
1:46:38
businesses who make credit borrowing decisions with their real economic activity.
1:46:46
If the Fed can just be up front and telegraph with these dots what the interest rates are
1:46:50
going to be for the next three years and then longer term um it'll be a self whatever reinforcing
1:46:58
reality and we'll just spin this into like well it'll it'll the castle will just build itself up
1:47:04
in the sky is kind of the framework it's it's it's truly just wizard of oz uh bs um but it it
1:47:12
really is like part of your central bank dominance framework like you really believe that if you as a
1:47:19
central banker if if your economic models and your you know dsge econometrics all this stuff
1:47:28
what you say gdp is going to be what's what's unemployment going to be all this stuff they're
1:47:32
all wrong by the way they never they never play out their their track record is terrible for the
1:47:38
you know 10 10 or so years that we've been doing this these were bernanke inventions uh the dot
1:47:44
plots I'm talking specifically, but it's all like Tinkerbell clapping for fairies. If we all believe
1:47:52
in her, this will work out. Kevin Morse comes in on day one. So think of him as the new manager
1:47:59
coming into an existing operation or a new coach coming in to coach a sports team.
1:48:05
That's the way I framed it on my podcast after we saw that first press conference.
1:48:12
what you come in to do if you if you want to instill change in like an organization that
1:48:17
maybe used to be great or was a winning or functional organization and it's gradually
1:48:21
slipping and and losing it's uh like like you know is it good to great framework well you're
1:48:27
not even great anymore you're you're slowly just figuring out ways to uh explain away your your
1:48:34
lack of success or you know losing um if you're coming in as like a new manager into that environment
1:48:41
it if you just try to trade like change processes whole hog cold turkey all of that almost guaranteed
1:48:48
you're going to run into resistance right the the people staffed around the building are from that
1:48:54
old organization so if you come in and try to change things and tell them what not to do they're
1:48:59
going to reject you right so what he does is he comes in he says number one we're not doing forward
1:49:04
guidance anymore. We still did the dots. Everybody submitted a vote, but I made it clear I didn't
1:49:12
submit a vote or I didn't submit a dot, which is a leader, what you're doing, you're modeling
1:49:17
behavior and you're telling people, say there's 11 other people who are voters at this meeting,
1:49:23
you're literally showing them as time goes on. It's like, well, if you don't want to do it,
1:49:28
I'm the manager around here. I'm the one who would hold you accountable. So if you don't do
1:49:33
but what I'm telling you is like,
1:49:35
you're not going to be punished for not doing this.
1:49:37
And then over time,
1:49:38
same way,
1:49:38
like sports rosters or like they'll,
1:49:41
they'll,
1:49:41
they'll transition over time.
1:49:43
Same way.
1:49:44
Like you're going to see new people come in who are more aligned with the
1:49:50
view of like where the dollar is going that we talked about and this reform
1:49:54
that's happening down to the structural level at every level of the dollar.
1:50:01
And you'll get new staff in place,
1:50:02
right?
1:50:03
So the players playing with Victor Wimbanyama this year go through an off You going to bring in new players that play with him and do what the coach wants to do And so it a slow process But what we doing away with is this forward guidance mumbo which is really what it really is is backstop It ammunition for the Fed to do all of the things we talked about QE ZERP and then accommodative fiscal stimulus to support this offshore dollar framework That all being thrown on the wayside And then slowly you going to see a less Fed monetary system within the United States
1:50:48
and it'll get back to being a lender of last resort, specifically for money markets or short
1:50:54
term, you know, commercial paper markets or so forth or enforcing these policy interest rate
1:51:00
corridors within, yeah, those overnight capital markets that we talked about that were so important
1:51:06
with LIBOR to SOFR, all of that. That's interesting. So your take is they've kind of
1:51:11
brought Walsh in, they're going to build the team around Walsh and it's not that he's going to
1:51:16
necessarily like end the Fed, it's they're going to drastically reform the Fed and its sort of
1:51:20
powers. Yeah, exactly. Exactly. So it'll be a totally different, like the Fed has changed.
1:51:25
We talked about the dollar going through all these different metamorphoses over the history
1:51:32
of the United States. The Federal Reserve Act of 1913, like the Fed we had in those eras,
1:51:38
it's not the Fed we know today, right? All you had was the regional banks with the Federal Reserve
1:51:43
of Act, you got this, you know, the Washington, D.C., like the mothership Fed in the 1930s under FDR.
1:51:53
And then it just became this centralized behemoth that it is today. But that was a process
1:51:59
to get there. So we're going through one of those processes. So as we change this,
1:52:05
as we just re-architect, restructure this dollar financial system, the Fed's role will change. So
1:52:12
the way i think about it there's three dollars right now there's all right the easy one for
1:52:18
bitcoiners to understand is the stable coin dollar but then there's also two flavors of the stable
1:52:23
coin dollar right there's genius act compliant which are going to be backed by t-bills and
1:52:27
there's going to be non-genius act compliant which is like old tether that's going away
1:52:30
yeah um but stable coin dollars with genius act they're anchored into this onshore system through
1:52:38
the treasury bill. So that's key. And then you've got the onshore dollar. That's our US commercial
1:52:45
banking system. It's your Fedwire members. You could also say credit unions in the United States.
1:52:52
There's some other entities involved, but the Fed is the king of the hill. And then the offshore
1:52:57
dollar is this hodgepodge of just purely liability-based dollars where your dollar is only as
1:53:06
good as the credit worthiness of your counterparty so like let's say your hsbc hong kong or something
1:53:11
like that or you know whoever like and you've got all these money center jurisdictions like the big
1:53:19
ones tokyo london frankfurt uh i mean new york would be the western hemisphere sponsor and you
1:53:27
got all these secrecy jurisdictions like the cayman islands panama gibraltar dubai uh which
1:53:35
are like part of that that network um but that offshore dollar so what you're what you're actually
1:53:41
doing here if you read if you read the history all of this you're actually like the name of the
1:53:48
game is to be able to enforce par like enforce your hundred cents on dollar your claim same way
1:53:54
that stretch is trying to defend par measuring hundred dollars right on its uh perpetual
1:53:59
preferreds all of these dollars are going to be tasked with um maintaining their hundred cents
1:54:05
on the dollar so if you think about the stable coin genius act you're you're defending par
1:54:12
by anchoring to the treasury bill right which is a short duration um you know treasury bill and
1:54:20
they limit you got to be backed one for one stable coins outstanding with uh treasury bills
1:54:26
in custody onshore so there's a good mechanism for depending defending par versus like algorithmic
1:54:34
stable coins would be an example let's say you you want to try to make a dollar you want to try
1:54:38
to make a u.s dollar but you're not going to interact with uh the the american banking system
1:54:43
well good luck we've already seen what algorithmic stable coins do you can't defend them it's very
1:54:48
hard um you got to over collateralize all this stuff but at the end of the day it's it's a very
1:54:54
tough game. You're fighting a losing battle. Okay, so the onshore dollar, you got the Fedwire banks.
1:55:01
They have a very robust mechanism. This is why your JPMorgan dollar, your Wells Faro dollar,
1:55:08
your 100th smallest bank in the United States, if they're a Fed member, because you have the
1:55:13
Federal Reserve System, they've got a defensible mechanism for defending par their 100 cents on
1:55:18
the dollar. Now, if you're offshore, you don't have access to the Fed. This is where you need
1:55:23
your treasuries, right? You need that dollar flow, which is draining out. The US is exporting
1:55:30
treasuries to the rest of the world, but what it's actually doing is it's leaking economic value
1:55:36
from its own real economy to the rest of the world to prop up the offshore dollar.
1:55:42
So if you're, let's say, some Cayman Islands bank, you've got to reserve a whole bunch of treasuries
1:55:48
to backstop all those IOUs, those liabilities you've underwritten on your own balance sheet
1:55:54
to keep your money good. And it's a vicious market. If these arbitrageurs can spot weakness,
1:56:06
like if you've got a $100 billion prize just sitting there like a sport animal,
1:56:16
like these people hunt this and they'll go and they'll attack you and they'll they'll they'll
1:56:21
extract your hundred billion dollars of of weakness and and they'll put it on their wall like i'm not
1:56:27
kidding this is this is how these this is how the game works it's a poker game you lose the hand
1:56:32
there go your chips right so the offshore dollar they now have to defend par right and that's where
1:56:39
it gets hard and that's why you like follow the tick reports all this stuff you see like all right
1:56:44
who's buying treasuries. And yeah, so that's going to be the name of the game these next few years,
1:56:49
especially as what this administration is doing. And we say that the Trump administration,
1:56:55
it's also the military, right? Like, if you think about this thing as like a giant game of risk,
1:57:00
I don't think Trump is like the only one playing like, what is he announced, like 4D,
1:57:06
5D chess or whatever. And he's just the only one playing this game. It's like, no,
1:57:09
the generals the war planners they're they're the ones actually like organizing strategy and like
1:57:16
the president has to get it and understand it and ultimately as commander-in-chief like make the go
1:57:21
no-go calls but there's there's generals in the playbook yeah there's a war college all of that
1:57:28
and then the same thing for the capital market side like there's definitely like the astute players
1:57:34
they they know how this money game works they've designed this strategy they've been doing it since
1:57:39
before trump even you know came down that escalator in 2014 um so there there's yeah there's a lot
1:57:47
backing this i guess we'll just stay that say that so there's a totally different train and and
1:57:53
that's where i think the framing is like i don't can you stop this train like if you're the offshore
1:57:57
dollar you've got to defend against this train and uh i i mean if if you have to you know place
1:58:04
chips on the table like you've got the onshore dollar they've got robust mechanisms to defend
1:58:09
and also like a military a capable military um they've got they've got the stable coin
1:58:16
architecture set up ready to go you don't just pass a major piece of you know legislation that
1:58:23
that changes the dollar framework and you're just going to say like as history plays out like is this
1:58:29
thing going to be important or not it's like no it's not that's generally how that's generally not
1:58:33
how this works like another famous act like when i flip to that the history of the dollar pieces of
1:58:37
eight by uh edwin vr jr for anybody listening that's that's like your seminal book on the legal
1:58:43
architecture and structural framework of the dollar changes uh of the united states history
1:58:47
but in general like if you see something of that important or like that scale coming out of congress
1:58:53
like Genius Act was in 2025 and all these other developments we been following along since the 2010s but really kicking up with the November 2024 elections
1:59:04
It's like the line when you're looking at screenwriters, right?
1:59:08
If you introduce a gun as a prop in Act 1, it has to show up in Act 3.
1:59:15
So if I'm placing bets here, it's like, all right, this is the way the dollar wants to
1:59:20
move.
1:59:21
so you want to organize your behavior your like your portfolio allocations i'm a fixed income
1:59:28
managers like you want to build along that because like that's the that's the the tides that's the
1:59:34
oceans and like it's the big picture those are the forces you can't change same thing with let's say
1:59:40
bitcoin treasury company so we haven't really heard this like enter the zeitgeist or the
1:59:45
communications but it's like guys your your dollar strategy here has to foot to the big picture of
1:59:51
what's going on and um you know maybe i i think we're getting that yeah the really interesting
1:59:58
thing to me here is like i've had a lot of people on who talk about how like the the dollar ponzi
2:00:04
can't continue like there's going to be a big print and and it's really like can it survive
2:00:07
how many more big prints can it survive all this kind of stuff and it sounds like you're saying it
2:00:12
doesn't matter the dollar's already changed yeah exactly so same way the greenback are like well
2:00:17
yeah can the can the union just keep printing greenbacks what's like well it that's that's not
2:00:23
the right uh question to ask it's can they can they print and procure the resources they need
2:00:32
to win this competition right versus you know the confederacy or you know the same thing in other
2:00:40
conflicts, World War II, can the US and the UK procure through the financial system, can they
2:00:47
raise the capital they need to defeat the Nazis and also defeat the Japanese imperialists in the
2:00:56
Pacific theater? That's the question. And I think, yeah, if you're like, Matt, this isn't World War II
2:01:01
or the Civil War. It's like the Secretary of Defense just gave you a huge signal. They changed
2:01:08
their name to the, or the Department of Defense is now the Department of War. I think that's your
2:01:13
tell. That's your, that's your PR. Like they view themselves as at war. Oh man, it's so interesting.
2:01:20
How are you for time? Cause we've been going for the only two hours, but I have, I do have more
2:01:23
questions. I'm good. I'm good. Cool. Cause like I, I kind of sidetracked it before a little bit
2:01:28
when I was asking you the role that Bitcoin plays. And I want to get that a little bit more concrete
2:01:32
in my head, like how Bitcoin plays its part in this, this new system. Okay. All right. The way I
2:01:37
view it all right bitcoin is like it just wore it on its sleeve in the genesis block right the
2:01:44
chancellor's on brink of second bailout of banks published in the times of london right like
2:01:49
printing presses are literally down the street from uh you know lombard street uh and where this
2:01:55
problem originated from libor all of that subprime mortgage uh originations in the united states
2:02:01
anchored to like variable rate LIBOR was the reference rate uh what we realize there is oh
2:02:10
gosh we can't just squeeze all this you know blood from the rock that is the United States
2:02:16
economy it's like there are limits to this system we're gonna need a new framework all right so
2:02:21
what was Bitcoin like in my mind like we've heard it described it's a solution to the Byzantine
2:02:28
generals problem it's like okay dive deeper for me because that's just jargon in my mind like it's
2:02:34
what it simplifies down to is it is a level playing field as a money where any participant
2:02:42
who comes in um cannot change the rules of of the monetary protocol so what it does enable
2:02:51
is a fair playing field for two unaffiliated or disinterested parties to come together for an
2:03:02
economic transaction and settle together in that base money. And so who are these two participants,
2:03:09
right? Well, think about it. It's like, oh, the oil is leaving Iran and it's headed to China.
2:03:13
What are you going to pay in? Well, you got to settle in a money. So at the end of the day,
2:03:17
You got the businesses, an oil refiner in China importing from the producer in Hong Kong.
2:03:24
Within the financial endpoints of that transaction, you got a bank at both ends.
2:03:29
Prior to this, they were dealing, the world was on this global dollar standard, which was
2:03:34
running through centralized intermediaries.
2:03:37
And what we realized is those centralized intermediaries over the course of 100 years
2:03:42
or longer, they become corrupted.
2:03:44
they fail to like political influence or capital influence or whatever it is that the playing field
2:03:52
could definitely be tilted from one counterparty away from the other all right and so that's what
2:03:57
like my mind that's what bitcoin showing up in 2008 arrives right at the Lehman collapse it's
2:04:03
like problem solution right um but what it is is it's it's that level playing field money that
2:04:09
allows for economic trade to take place without or by bypassing these centralized intermediaries
2:04:21
that have become corrupted over time. So if you think about what's going on, this adoption of
2:04:27
Bitcoin as a reserve asset doesn't happen overnight. It starts off, as we know, like early
2:04:32
days, it's hobbyists, it's anarcho-libertarians, and then it moves into, I don't know, crypto bros,
2:04:39
whatever and then at some point we get into like u.s public equity markets um the non-operating
2:04:47
companies like you talked about this before like block is actually running a business and
2:04:51
accumulating bitcoin spacex is running a real economic business accumulating bitcoin strategy
2:04:56
does have a real economic business and is accumulating bitcoin but the tilt has gone
2:05:02
very clearly with management's focus like in my opinion on the matter or reading this as
2:05:09
a third-party observer. It's definitely skewed more towards just pure play financial
2:05:15
financialization type of player versus running a real operating business.
2:05:19
But I think that what these Bitcoin treasury companies represented for capital markets
2:05:26
integration in the 2020 to 2025 era, that was part of the process of moving towards more
2:05:33
mainline adoption so um what's a signal like in bitcoin you'd be looking for if this is getting
2:05:39
deeper ingrained into the financial system well it's like well first blackrock launches the etfs
2:05:44
and like it's like the the ibit bitcoin like it's it's it's single largest uh product revenue line
2:05:52
or like an individual uh revenue line at this point so they see it they're like oh well we got
2:05:58
to get a bitcoin uh income statement revenue line uh for all for the future of our company
2:06:04
same thing morgan stanley then is like oh we're doing a uh an etf uh this is in like the 2026 era
2:06:11
and like things like this week you see schwab like a legacy brokerage which itself at one point was a
2:06:18
disruptor of the uh stock market brokerage industry the way the way um uh equity trading used to work
2:06:26
it was basically limited to your high net worth ultra high net worth families and
2:06:32
huge commissions for shares to trade so it was like it was a it was the wealthy man's game like
2:06:40
you you wouldn't see your uber driver today you know giving you stock picks uh back in 1960 or
2:06:47
whatever like charles schwab when they came in they were the disruptor uh what what he did is
2:06:52
He said, oh, we're going to use mainframe technology and get rid of or eliminate back
2:06:59
office, pen and paper, ledgers, all of that stuff, processes for execution and settlement
2:07:06
of trades for our clients.
2:07:08
So instead of $100 per trade, we're going to charge seven.
2:07:11
The industry was like, you idiot, you're going to kill the golden goose.
2:07:17
What are you thinking?
2:07:17
No, they hated him.
2:07:20
And he did it.
2:07:21
and what he actually shows
2:07:22
is by bringing cost down you actually get more trade and you expand your market as you know instead of just wealthy business owners in your town or maybe a few people in every city having access to you know buying
2:07:35
stocks on the New York Stock Exchange. You now have Robinhood. Well, that's where we go as the
2:07:39
logical end point. There's a whole different geopolitical bag of worms to unpack there. I do
2:07:44
have a take on that, but let's not go there. Cut it down to seven, but you get this massive market
2:07:49
and boom like it's just wow the pie is way bigger and it's like yeah i brought you 10 golden gooses
2:07:54
where you had one before but um charles schwab um in the last like few weeks they opened up um
2:08:02
trading of not bitcoin etfs like for their client base now they're letting uh their customer base
2:08:08
buy utxos directly i don't i haven't i haven't piloted their product but um i don't you know i
2:08:15
don't know if you can withdraw to like a self-custodied wallet but that's a huge step right
2:08:20
so you're cutting you're cutting middlemen like exposures in that hot between the actual beneficial
2:08:27
owner now there's no um there's no blackrock there's no etf wrapper that you have to buy
2:08:35
like if you're a charles schwab client to get access to your bitcoin and that's a huge tell
2:08:41
on where the u.s securities market is going uh for the years ahead so this went kind of under the
2:08:49
radar and and um financial media but it's a big deal in the back end like the back office side of
2:08:57
the financial industry so the way corporate bonds used to work like settle prior to 2022
2:09:04
they settled t plus two so if i bought a bond today on wednesday june 2024th we would actually
2:09:11
not settle the transaction until friday friday morning open a business right so and this is the
2:09:18
way it'd been forever it's like this podcast this is podcast t plus two t plus two yeah it'll be out
2:09:24
on friday yeah awesome um but in uh 2022 we shrunk the time for back office settlement of corporate
2:09:32
bonds and basically all non-us treasury bonds used to trade t plus two we shrunk that to t plus one
2:09:37
this um april and may you saw all the leading exchanges in the the u.s securities markets so
2:09:47
nyse nasdaq cme they said they're going 24 7 trading with real-time settlements so you can
2:09:55
see where the puck is going here um so the the whole tokenization uh trend right this idea so if
2:10:02
you look up like the real world assets tracking like what uh what is what does davos man want to
2:10:08
do he wants to tokenize everything like that timberland and you know the canadian whatever
2:10:14
alberta british columbia all that tokenize that um that becomes the collateral for this offshore
2:10:21
system which won't be an offshore dollar system anymore so instead of treasuries we need something
2:10:26
else that's being taken away we need your timber we need your commodities or it could be we need
2:10:31
your equity so if you go to the the trackers right well the number one tokenized security is actually
2:10:37
stretch uh by total assets then behind that it's actually your ai plays like tokenized micron um
2:10:44
but what's going on is it's that same way you know in my framework that anchoring of um
2:10:51
like the offshore capital market system want to anchor to the u.s dollar and then kind of squat
2:10:58
on uh that real value being created by the domestic economy same thing so let's say we
2:11:04
want to tokenize tesla shares tokenize mstr tokenize spacex whatever like if you look at the
2:11:11
the graphs on on um uh just total capital outstanding in that it's the offshore bucket
2:11:19
shop of uh crypto tokenization um it's the it's it's the it's the replacement plan for this
2:11:26
offshore dollar uh and and my understanding of what's going on what the u.s capital players are
2:11:33
saying is like no no no no no no you're not going to disrupt us here nasdaq nyse cme they're going
2:11:40
to match you feature for feature on liquidity so they're going we'll allow 24 7 trading uh we'll
2:11:47
allow you know near real-time settlement so your brokerage coming on on bitcoin what do you get
2:11:53
with bitcoin like bitcoin is your it's not it's not yet your base money we have to work up to that
2:11:59
it'll take at least i mean like think i'm thinking decades to get there but if you're thinking about
2:12:03
24 7 trading and liquidity pairs you need that that like you need satoshi's solution to settle
2:12:13
frictionlessly on that level playing field in real time to accommodate that um i mean tokenization
2:12:22
but what it really means is like 24 7 near real-time settlement of uh securities and trading
2:12:29
liquidity, all of that. And then the other thing you see is this adoption of prediction markets,
2:12:35
right? So Calci, Polymarket, all that stuff. There's also huge developments there with the
2:12:42
CFTC. And you can see this like a few weeks ago, the CFTC, the US regulator for commodities,
2:12:50
gave Calci the approval to launch their own Bitcoin perpetual futures product.
2:12:56
and that actually like hit the the stock prices of the legacy players in the u.s so cme
2:13:04
intercontinental exchange they were down like eight ten percent on that on that news
2:13:09
my read on on what happened there is the kind of the legacy incumbents their shareholders realize
2:13:17
like oh we don't have a moat anymore the disruptors now are going to encroach upon this territory so
2:13:25
we're going to have to respond and they have equity exposures like they're investors in polymark
2:13:30
calcio they see where the puck is headed but um you can kind of see slowly this thing coming
2:13:37
together and it's going to go extremely fast because like the 24 7 trading for um commodities
2:13:42
like in july um comex is going to start um settling gold futures 24 7 uh for the micro
2:13:51
contract and then oil starts like the next month so those are your two biggest uh commodity pools
2:13:56
for for liquidity most important um commodities and hard commodities in the real world um cme is
2:14:03
already there and uh what you see with these like uh what do you call like prediction markets
2:14:09
whatever which are just starting to really like the growth is huge like if you just look at the
2:14:14
chart the assets involved in all this complex it's just like like you can see it's like oh this
2:14:19
is like the internet in the 1990s and this is this is where capital is going um if you look under the
2:14:26
scene at how polymarket works right they're binary contracts it's 100 cents each the the person with
2:14:34
the long they own yes the other counterparty owns no they add up to 100 cents on the dollar that's
2:14:41
all there is and uh the way polymarket works i found this very interesting like their funding
2:14:46
in stable coins uh not the u.s the u.s app is just a sports betting app it's very early on but what
2:14:52
they do for the the global market for polymarket you fund in usdc and then each counterparty in a
2:15:01
given contract is fully collateralizing their position let's say it's um what is it 100 cents
2:15:09
for yes no i don't know big event england wins its next world cup match right yes maybe they put
2:15:16
in 60 cents no puts in 40 cents that's 60 cents of stable coin adds up to 100 the exchange here
2:15:23
just takes a fee they're not like as opposed to cme which is fractional reserve right you put down
2:15:29
could be like 10 cents of margin right and this is where you get the basis trade all these carry
2:15:33
trades you post your treasury as collateral you buy 10x that you lever up and you you ride the carry
2:15:40
money, magic money tree, right? With the poly market world and where prediction markets are
2:15:47
going, stable coins, all of that. Think about this. The long and the short, the contract is
2:15:51
fully collateralized. They're funding in a Genius Act stable coin, which is reserved one-to-one with
2:15:58
treasury bills so if you think about like the the the hoops that uh these positions like where does
2:16:05
the counterparty go start off long or the short you got 100 cents on the dollar that's in sitting
2:16:10
in circle usdc behind that is a treasury bill and there's some yield generated on that like
2:16:17
I don't know, 3.6% today. And that yield is being passed to all of the participants up this value
2:16:31
chain. So if you go look at Polymarket, what they're actually doing to incentivize the build
2:16:36
out of volume, they have these special contracts or events like 2028 elections or Bitcoin prices,
2:16:45
is one of them, where they'll pass through the interest on those T-bills to grow liquidity
2:16:51
and build up the market share.
2:16:54
So it's part of this stablecoin adoption story.
2:16:57
And I just want the audience to know, hear me out.
2:17:00
It's like, am I a stablecoin maxi?
2:17:03
No.
2:17:04
It's IOUs all the way down.
2:17:07
but um what i'm talking about here is a system like a framework that gets us to
2:17:14
that end stage i think that everybody on the what bitcoin uh did audience wants to see which is a
2:17:20
like a financial system if it's not hyper bitcoinized and we're not all settling in sats
2:17:26
well at the at the next best thing would be a financial system where your counterparties
2:17:32
at the end of the day have to reserve in a sound money they have real skin on the game
2:17:37
and for like for a base money behind their swaps their collateral all of that if they get it wrong
2:17:44
or they try to bend the rules and steal purchasing power from the rest of the market
2:17:50
uh that that they're not entitled to that there's no bail out coming and uh they'll have to post a
2:17:56
hard collateral and risk losing something of dear important, which is your UTXOs.
2:18:05
So Bitcoin ends up just being sort of the base layer of everything, the base layer of the
2:18:10
financial system. Yeah. And then the answer is like, what timeline are we thinking on?
2:18:15
Because if you're thinking about a dollar order and you can't cold turkey this post-World War II
2:18:21
system and this framework and just move straight to, hey, we're fully on Bitcoin and all of that
2:18:26
value tied up and stored in the hundreds of trillions of dollars has just evaporated overnight.
2:18:33
That's really like read when money dies about what happens to a society when that happens.
2:18:37
You probably have it on the bookshelf.
2:18:39
I actually recently bought it.
2:18:40
I've not read it yet.
2:18:41
Okay.
2:18:41
It's not a good tale.
2:18:43
So you don't want to live through that.
2:18:45
You want to work through this.
2:18:47
I mean, it's like the Indiana Jones scene where he's swapping out the idol he's after
2:18:54
with the bag of sand.
2:18:54
It's like you want to do that to the best degree possible because there's a lot of people counting.
2:19:00
They've saved their purchasing power in this system.
2:19:03
And if they get rug pulled, go look at Weimar Germany.
2:19:07
I did a big deep dive on Bismarck because I was looking into Social Security.
2:19:13
Otto von Bismarck in Germany created the first nation-state level public pension scheme or mandatory retirement savings scheme.
2:19:22
I asked, okay, well, it's probably not in survival anymore. How did it fail? Because everybody who's
2:19:28
looking for Social Security is like, all right, how does it fail? You look at what Bismarck did.
2:19:33
It was actually the loss in World War I and then the Weimar hyperinflation. It didn't actually
2:19:42
totally kill the pension system, but for that generation, they rents their claims. They wiped
2:19:49
out their purchasing power. And what you ended up with was like your grandmothers all lived their
2:19:55
end of life period and complete destitution. It's just not good for societies to go through
2:20:01
that social breakdown. Once you get in that state, if you look at the Russian Revolution,
2:20:07
like the October Revolution, it almost happened in Berlin coming out of World War I as well.
2:20:14
That's where the Bolsheviks come in, the disorderlies.
2:20:17
If you think this Mamdani situation is bad in New York right now, just, oh, wait and see
2:20:24
what happens if you have a complete monetary breakdown.
2:20:28
It is very difficult to defend City Hall all of the governance institutions away from what are ultimately i think most of society would agree the people we don want holding the keys to the car all right so if you
2:20:44
can if you can like do this and preserve broad system stability over the course of let's say
2:20:51
like decades or conduct this handoff over you know a generation or two you can get through like your
2:20:58
society your civilization we can get through this process without face planting and um the problem
2:21:06
like the the entire global economy like talked about this starting as like the western allies
2:21:14
coming out of world war ii running this coalition the other the other side of that was the russia
2:21:20
the ussr that's collapsed right we've incorporated china japan the whole world is in this basket
2:21:28
right so if this old system just base plants here and we're like oh dollar's gonna hyper inflate
2:21:33
tomorrow it's like okay but you do realize that it's going to be extremely costly disruptive
2:21:39
chaotic random uh good luck defeating the marxists the bolshevists all of that uh versus if you can
2:21:49
do it and maintain stability we can actually get to that world we want and we actually don't have
2:21:54
to go through a century of humiliation, like a wasted century, something like that. So the way
2:22:00
I'm seeing this play out, this dollar transition, like it's happening. Like I'm not a fan boy,
2:22:06
like cheering for this. It's like, no, I can, my take reading, reading the players,
2:22:11
like genius act stable coins. Um, we're going that way, that transition away from the offshore
2:22:17
dollar towards the stable coin dollar. And then the reformat of us onshore regulation,
2:22:23
all of that is happening and at the same time from these same figures like scott vicent i mean not
2:22:28
just in his testimony to congress like he was at the pub key washington dc opening night like
2:22:33
someone spotted him in a photo it's like oh there's signal there kevin warsh also i mean he does some
2:22:38
crypto investments all that stuff but i understand that he's he's uh favorable to bitcoin as as well
2:22:44
uh with his other shit coiner bags as i understand it that he that he uh has uh capitalized and made
2:22:52
investments into. But yeah, the way I see it, and congressmen, we have a ton of congressmen
2:22:58
who are supportive of Bitcoin. And 10 years ago, that number was probably exactly zero.
2:23:06
And we don't have 215 votes at this point, I don't think, but we have more than
2:23:10
22 sponsors on that bill, I think was the last I saw. So this is that process playing out. It's
2:23:17
not a guarantee that we get Bitcoin in this process. We may end up, I don't know, stablecoin,
2:23:23
shitcoins, all of that. And we short circuit ourselves. We have to actually go out and make
2:23:28
it happen. So this is a global audience we're talking to, but this November election, we're
2:23:34
two hours and 17 minutes in, and this is the payload. I know it's hard right now to see what's
2:23:40
going on geopolitically. We thought we were getting out of forever wars. What are we doing
2:23:45
in Iran? What are we doing in Venezuela? It's part of this fourth turning. But the biggest thing
2:23:51
we have riding on this is like, we need to, if you want that strategic Bitcoin reserve,
2:23:59
and you want the dollar system to go this way and lean into Bitcoin, we have to elect the Congress
2:24:05
to make it happen. And that is the straw that stirs the drink at the end of the day.
2:24:10
like it's uh it's a united states uh like we're living in a multipolar world but the united states
2:24:17
is um i mean maybe it's going above the line i don't want to offend anybody and say like it's the
2:24:25
it's the biggest most important player but it is it is yeah yeah so if we do that then it will be
2:24:32
a uh it'll put us on that trajectory towards that uh bitcoinization end game that i think
2:24:39
most people listening here to WBD would agree they want to see in the world.
2:24:46
Matt, this has been unbelievable. This is the best explainer of the transition to
2:24:51
this potential new future that I've ever heard. It makes me so bullish on Bitcoin,
2:24:55
the fact that we're sat at $60,000 right now. We're still so early. There's so much winning to do.
2:25:00
I agree.
2:25:01
At the very start of the show, you were talking about how you really don't want to position
2:25:06
yourself during this transition you don want to be like way out on the risk curve Bitcoin by the market is still perceived as being very risky I think if you understand what Bitcoin truly is you don necessarily see it as risky as that But how do you think it will
2:25:20
sort of perform through this transition? What do you think happens to Bitcoin?
2:25:24
So the name of the game here, you got to realize, back in the 2010s, I was young,
2:25:30
had no capital. I was selling Bitcoin for, let's just say, payoff student loans,
2:25:36
things like that like things i wish i didn't have to do and could have held those early stage
2:25:42
bitcoins that i i no longer have those cost basis so what i would say so early on in those days i
2:25:48
realized like capital was dear but i didn't have the ability to hang on to those utxos
2:25:53
those decisions if you're young right now like you realize if you're parting with your bitcoin
2:26:00
or if you're buying a credit claim on Bitcoin or someone else's IOUs and they'll pay you some
2:26:08
percentage of the Bitcoin and they'll reduce the volatility for you. I think over this whole
2:26:13
process, what we're learning, we're all fighting over those 21 million UTXOs. And I mean, fighting
2:26:19
literally in some sense, right? Iran, if you look into it, like their cost of energy, right? I don't
2:26:26
know if this is accurate or not but once when their oil was sanctioned their uh access to the
2:26:32
dollar system shut off oil was trading at the equivalent of like 12 cents a gallon in iran so
2:26:39
they just had like dirt cheap energy at that price like plug in your bitcoin miners doesn't
2:26:46
matter if it's 60 000 or you know down 50 percent on a drawdown it's still the most like the highest
2:26:53
and best thing you can do with your stranded energy resources at that point at any price of
2:26:58
bitcoin is plug them in mine the bitcoin get a hold of those utxos um so i think like yeah we
2:27:05
talked about what do you do as an individual here name of the game it's still i know it feels hard
2:27:10
in this cycle and i think whatever happens to these treasury company a lot of people got caught
2:27:15
up in that uh if it gets worse from here this is this is june 24 or june 24th when we're recording
2:27:24
this it was a bad day on um the equity or the common equity the preferred shares uh across the
2:27:32
complex so i don't want to kick any any of these management teams while they're down they've got a
2:27:36
knife fight in the alley they need to get out of but um what whatever happens here
2:27:43
people should like realize those bitcoin you own you hold custody of and it like even if you can't
2:27:52
manage your keys yourself like if you don't want to manage a hardware wallet there are other
2:27:57
collaborative custodians out there who can give you access to keys and make sure what you own is
2:28:06
not paper bitcoin at the end of the day so as this process goes on it's going to take years
2:28:11
we're going through one of those other one of those bear market valleys for a lot of people
2:28:15
this beating we're taking is going to be extremely hard to hold on to your utxos through and that's
2:28:24
the definition of bear markets like if it were if it were easy to hold for the long term um
2:28:31
we'd all you know we'd all be in yachts and all that stuff right so i think yeah just that that
2:28:40
mindset. I know some of our friends say at Matt O'Dell, stay humble, stack sats. It's going to be
2:28:45
an extremely volatile geopolitical process as well. I know we have that MOU signed between the US and
2:28:50
Iran. What it really is, it's 60 days. We have to get to the next stage of this. And it's over,
2:28:57
like the nuclear question, like that has to be settled. I don't see that getting done by 60 days.
2:29:03
so all of this volatility all of this chaos um i i hope it's i hope it's resolved but i'm
2:29:11
preparing like my base cases like we're not through it yet um so yeah batting down the
2:29:16
hatches everybody uh plan for the plan for the long term and at the end of the day um yeah you
2:29:22
see in the like the bear markets the drawdowns go on x like all of the non-bitcoiners they're
2:29:26
dunking on us right now um but uh i think one of my friends uh parker lewis put it well like back
2:29:34
when ftx collapsed like day of we were at a conference uh pacific bitcoin down in southern
2:29:39
california conference that no longer exists right just tells you how how fast these things move like
2:29:44
how much how much happens in a short amount of time but i was down there we were working on a business deal and ftx collapses i go this is this is terrible This is this is so bad This sets Bitcoin back for years And Parker like no no no no I see a different totally different way This is fractional reserve
2:30:01
Bitcoin. We're getting liquidated at all points in times. Uh, the way he thinks about it,
2:30:07
someone has to own those 21 million units. And we're all just, you know, trying to get our claim,
2:30:13
maintain our claim own as many of those as we can over time and be able to hold on to them too
2:30:19
because defending uh is also part of the game so yeah that's what i would i would say as as the uh
2:30:25
the end state to this and then also there's agency i know you had simon dixon on and uh recently and
2:30:32
he went deep into this and yeah he has some coverage um you know intelligence community
2:30:38
all of that stuff. I don't get down in the weeds to the full degree, but I think where I would say
2:30:46
I disagree with him is in his framework, he just kind of puts it aside that there's no,
2:30:55
you can say the sovereignty movement for each one of these nation states, but even more important is
2:31:00
the American sovereignty movement, which I think is going on. And any given leader,
2:31:06
Like you can say if Trump is your figurehead, he may be he may be compromised. He may not. So don't don't ever put all your chips in one man. We have yet to have a George Washington arrive on the scene or an Abraham Lincoln arrive on the scene.
2:31:20
in my reading of what's going on.
2:31:25
But this idea that we as the electorate,
2:31:30
the people, we have no control over
2:31:33
or no agency in this process,
2:31:36
I think we're actually a lot more powerful
2:31:38
than you think.
2:31:39
And what we've seen take place
2:31:42
in the pull of the center of gravity
2:31:47
of the U.S. dollar
2:31:50
away from that offshore dollar, away from London, towards the domestic United States.
2:31:55
And it sits in New York now as the center of power.
2:31:58
But within the United States itself, that power center is also decentralizing.
2:32:03
You have Dallas spinning up the Texas Stock Exchange.
2:32:07
You have Miami spinning up as a major capital market center.
2:32:12
A lot of the finance industry is moving down there.
2:32:15
Citadel, everybody's setting up their offices down in Miami.
2:32:19
So even within the US, the capital markets, the center of gravity is distributing as well. So my point there for people, I do think Americans, you have agency. You've got the most important government structure in the world where the people are the sovereign.
2:32:39
like no other constitution has that uh like framework at the base level and i think yeah
2:32:47
this is this is the time to not just lose lose um conviction in bitcoin but don't lose your
2:32:55
conviction in you know america itself you know we're celebrating the 250th anniversary um i know
2:33:01
i know you're not an american but like we have work to do so let's let's get out there and go do
2:33:07
it so yeah it's a bear market amazing i love it man this has been awesome um before we close out
2:33:14
though just tell everyone where they can check you out on substack podcast everything that you're
2:33:18
doing all right on x my handle is levered usts it's just a play um just took the handle it's
2:33:25
free real estate can't believe it but yeah the offshore dollar system it's just levered usts all
2:33:29
the way down um that's you that's where you can find me day to day and then um my business partner
2:33:36
Cameron, Atsuka and I do a weekly podcast where we just take the biggest news stories of the week.
2:33:41
We crunch them into one update, try to get it done in 30, 45 minutes and give you the real time
2:33:47
update on all these things and try to get an audience the core of what's going on in the
2:33:53
big picture developments. And that podcast is Mindprint Hash or YouTube channel Substack.
2:33:58
You should be able to find us just about anywhere on that one.
2:34:01
Awesome. I'll make sure all the links are in the notes. One of my favorite episodes is done in such
2:34:05
a long time. Thank you so much, man. We'll have to do it again at some point. Maybe I'll come over
2:34:09
and we'll do it in person next time. That sounds awesome. Thanks, Danny.