What do you think about the roll up?
These guys are lit. You want to get rich? This is the roll up.
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All right, Arthur. Singapore Token2049. Last day of the week. Busy week, F1 this weekend.
Yeah, it's been great. It's good to host everyone into the great hazy city of Singapore.
Yeah, I don't think it's ever been like this before. It's great.
This is really bad. I mean, this happens every year, but not this bad.
Yeah. And then, of course, we get a conference dump on the market. I mean, what's new there? You got Justin Drake tweeting about quantum at all. I mean, classic. Come on. Oh, it's still in 2049. Of course, the, you know, 10%.
It didn't go down that much. Bitcoin went down like two or three percent.
Are you de-risking on quantum news or speculation?
Okay. What in particular?
My analyst is researching RWA stuff. I think it's a good narrative after the Citrini report overnight, and you know, Wall Street guys are muppets, and so these guys have given them a playbook, so you might as well get in the sandbox and start playing.
Yeah, I agree, man. I think, I mean, like one question that we've been asking, and I'm just going to ask you straight up, is if the tokenization thesis is correct, who's going to win the most? What company will benefit the most? Right? And I think that's kind of what Citrini just answered, and that's quite literally the, I mean, it's a multi-trillion dollar question in terms of market cap that's going to come into this industry. How do you think about that?
I don't think about what company's going to benefit the most. I think about what is most misunderstood that could re-rate because of RWA tokenization. We've all been talking about this for 10 years. Like, it's not new. And there's, you know, different tokens or public equities have been spewing this nonsense for a long time. And maybe some of that's already reflected in the price, and they're not the best investments from an asymmetric risk-return profile. But my analyst is looking at, you know, what are his picks for the RWA narrative. Okay, is it misunderstood? And then most importantly, like, I want a busted chart, like something that's completely, because that's how you generate like 5x in a few months without putting a lot of capital at risk. So there's like the, you know, new coin, good coin, old coin, bad coin saying, but when you say busted chart, you're talking about things that have been around for a long time. Like old coins.
Or like, it doesn't have to be a long time, but like something that's down 75, 80% from some local level. Like that's, I want to be in that rather than mess with like new launches.
Yeah. Because still I think unfortunately most projects have the high FDV, low float nonsense. They have a lot of pre-sale investors, and so you got to be really careful about when is unlock, how much are they unlocking, like game theorying that out in terms of when you want to get in and when you want to get out. And so I want clean charts.
So okay, you know, let's give some context on this Citrini article, this tokenization supercycle, right? And then we'll get into the macro today. We'll talk about the kind of broader picture for Bitcoin and crypto as an asset class. But let's just fix it here because this just dropped, and I think it's important to understand the context there.
Yeah, and the name of the article was Breaking Down the Wall, which is kind of a different paradigm of looking at it. Like we talked about the convergence of DeFi and TradFi, maybe it's converging to RWAs. The term that we've just been kind of thinking through as of recently is this financial singularity where it all becomes finance. How do you see that? Like when you think about what is most misunderstood, it still sounds like RWAs are relatively misunderstood. What in particular do you think is most misunderstood about the financial singularity?
How much money are you actually going to make, right? Is it, oh, I just put, I transferred the stock that was sitting in DTCC in some sort of like paper digital receipt, and now it's sitting on some blockchain, whatever it is, doesn't really matter. Like how much money can you actually make doing that? I know a lot of founders will tell you, 'Oh my god, that's like a super win,' whatever. But like, okay, you're doing better bookkeeping. Thank you.
But like, where are you actually going to make money in tokenization? I think that has been the issue with this narrative for a long time. But again, that's a secondary concern. If the standard bearer of contrarian thinking for Wall Street muppets says it's time to buy some tokens, then you buy the tokens. They don't think about that.
A lot of the fundamentals, the improvements that they tout are, you know, 24/7 markets. It's, you know, the added utility of being able to use some of these things as collateral or leverage. And then it's the composability that maybe some of these things get with one another. And like, how I take it, that's not really that important. It's more the perceived notion of that that's important. So when you're thinking through the benefits of that, we've had guys like Santiago Santos come on and be like, hey, it's not really those themselves, it's more who's going to benefit from them, like, you know, for instance companies or...
Yeah. So like Robinhood, you know, it's better to invest in Robinhood because they're the ones implementing the technology rather than like buy the meme coins on Robinhood.
Well, you know, and I spoke to Vlad, you know, at his conference last week and just talked to him for, you know, five, ten minutes, and, you know, his whole thing is this kind of democratization of access. And, you know, when I think about that, I think about we're just exporting the US equities market and the US assets globally as our next big export, if you kind of put your macro hat on, you know. And so when you think about that lens of exporting the US capital markets, what I think about is we're just going to dump on the rest of the world, you know, but what I think is actually happening is we're actually just opening up the doors for more liquidity to come into capital markets that is going to flow on-chain and eventually flow into protocols and capital, you know, and assets. So, I guess just to kind of round out the thought and question here is since you put this piece out, obviously Wall Street's coming on-chain, they're going to feel way behind. You know, is it, do you just buy Robinhood? Do you go all the way down and buy like, you know, an L1 blockchain like a Plume? Do you go to Derive in their options layer? Do you go to the perp platform? Just kind of give us a sense on like how you think about the trickling of the capital as it pertains to this broader kind of investment thesis.
So I think at the high level, I want to be able to tell a very interesting story, and I think the best story I want to tell is AI agents will run all of your financial services. How are they going to access these financial services? Because if I can tell that story about whatever it is in the RWA vertical, then I could talk about, you know, trillions of agents doing all sorts of things and super cheap 24/7 rebalancing your portfolio, like all these discrete transactions creating all these fees, right? I want to tell that story. It doesn't really matter what it is that they're actually doing because if I can tell that story with a straight face and people can nod their heads and believe me, then that's just going to pump because everyone believes that there's going to be lots of agents, that compute's getting cheaper, they're going to become more ubiquitous, they can do more things better because they have more power behind them with the compute that's cheap. There'd be like, you know, Facebook is going to manage your financial services, right? Whatever narrative, right? If I could tell that story and then whatever it's a token, it's a company, whatever their technological solution plugs into that and benefits from the agentic wave rather than loses out, then I want to go long that stuff.
You mentioned that you have your analysts looking into the categories. Is it an agent or an expert?
I like analysts because they're, well, he's younger, right? So he's going to be more degen thinking. Like, I don't want to, okay, cool, yeah, you can make another like 30% on some $10 billion market cap stock or crypto. Like that's not really going to move the needle, but I want the 5x return in a few months kind of thing. And I'm willing to take a bit of risk.
So what are you looking for? You know, degen thinking is one component of it. What else are you looking for out of your analyst?
Tell a story. Tell me a story like about why this is a good investment or why you think this is going to do what you think it's going to do. And does the story make any sense? And does the story pick on things that people already intrinsically believe in other verticals around the economic and financial sphere.
So revenue, founders, growth story, just broadly, just put together a thesis that is believable, that has kind of different components, but you know, it's kind of a vast array of different components.
Yeah, and make it sound sexy. Like there's obviously, I think the agent thing is the best part about the Citrini piece, right? Because that's what I think where they're really saying is it's not going to be a wealth manager who's going to use any of this stuff. It's going to be your autonomous AI agent. You're going to give it a set of rules and objectives.
It's going to figure it out, and you're never going to know that you traded on Derive or Pendle or whatever, right? Or Robinhood. Like you don't care, right? At the end of the day, you just, you know, set your agent loose. They have guardrails, and then they trade and they manage your money, and you don't know what they did.
Yeah. And so I got to ask, man, we kind of went through a multi-year, last four years. It's been kind of a punch to the face for the industry. I mean, we had a bull market. Bitcoin went what, 125? We had a little bit of an echo bubble in some very select tokens. I mean, Hyperliquid did well last bull, but I mean, other than Hyperliquid and a couple others, I mean, alts were a letdown. Ethereum was a letdown. But why is this, Arthur? Because we kind of had this era where everyone, first of all, kind of, we took the clothes off and was like, we're all swimming naked here. None of these tokens have value. None of them have any revenue. None of them are making any money. Investors are just dumping on us. It's just a complete, I mean, it's just a complete bear market for like 90% of the token market. But now with the Citrini piece, the fabled alt season feels like it's coming because what do we have now? We have a real narrative with a real kind of Wall Street institutional backing. So there's capital that's going to come into the market, but we have on-chain businesses that there's a clear growth story to tell because of this agentic finance use case compiled with this tokenization wave. You've got businesses on-chain that I can now look to allocate capital in. You might want a 5x in three months. I might want a 50x in 10 years or five years. You know, I look at Hyperliquid today, and maybe you think it's already overvalued or valued at its fair price. There's other assets though that you can look at and be like, hey, if tokenization happens and this whole agentic finance thing happens in five years, this thing could be making billions of dollars of revenue a day, doing buybacks, etc., and be like a real company. And so I think people are starting to believe again. And I'm not sure that there's even a question there as much as it feels like we've achieved the same level of like quote unquote utility that we had in 2017 when it was like, oh, Ethereum smart contracts. Like it feels like there's like this breakthrough kind of financialization trend happening that will push the market a lot higher due to this actual belief. We had, you know, we did a pod with the Mr. Memecoin from your ad, right? And it was financial nihilism was like nothing else matters, altcoins are terrible, buy memes. That feels like it flipped. I have a thesis for NEAR, for Hyperliquid, for Derive, for Pendle, for Lighter, for whatever the hell, right? Zcash. Just talk to us about that collective belief returning to markets and why that's so powerful for the reflexivity of this market.
What I think is belief grounded in cash flows. We've been burned so many times. You started with ICOs, was complete, there's nothing behind it. Then we said, okay, we can't raise money that way, then we're going to go to this VC thing. There are some good things that got funded. Now, we just went to the other extreme. Nothing good gets funded. They just, you know, spend the money on the parties and they don't come back. You can walk around Token and KBW and there's not a lot of people here because they spent all the money and the founders retired when they're so like, we've done that. And so, now who's left, right? It's people with real clients spending real money and they're handing back money to token holders. Those are the only projects that can survive because it is expensive to run one of these things. So, the agents are going to use what's Lindy, right? What's been around since 2020, DeFi summer, right? There's a lot of primitives that have been around since then. They don't have the same sort of price-earnings multiples in the crypto sense that some other things do. It's beaten-down stuff that's really well used, right? And I'm sure you can rattle off a bunch of names of tokens that are like, everyone uses them.
You know, the PE ratios are very reasonable and they're composable. Lego blocks, all those sort of things we've all been talking about. And so just look for the things that have Lindy, that's been around since DeFi summer, that are still here making money. Maybe they just started giving money back to token holders because their lawyers let them or whatever, they felt more confident to do. So use that. I don't think this is going to be a wave of people starting new projects and those doing really, really well. I'm sure there's going to be lots of copycat stuff, but like, you know, the stuff that's going to 10x is going to be already tradable right now. I'm not looking to do any deals and investing in token to RWA. We've been building this stuff since 2020. We don't need any new stuff. We got it all here.
It's already Lindy, and it was Lindy based on the crypto-native tokens that made it Lindy over the last few years, and now it's ready to re-rate in terms of the TVL, AUM, and the TAM, addressable market that is now coming on-chain as a result of all of the other asset classes that are getting tokenized.
150 billion now. We're talking trillions on-chain. We're having a multiple 10, 20, 50x of capital, and that flows into the protocols that have established themselves through the years. And I was at this OKX event and Vitalik was speaking, and he was kind of talking about how the evolution of agents and bots on-chain, and how, you know, we've kind of all probably traded with a bot as a counterparty up until now, but eventually we're going to get to a point where it's all bots, it's all agents, and there's no applications and everything's headless. And it kind of now I'm realizing that like, we've kind of called these protocols, but it kind of, I realize now why we're calling them protocols is because even if there are no applications, they still can work. Like there's, yeah, they're smart contract protocols that can still establish like some utility for bots or humans, and it doesn't have to be, you know, an app with a UX. And so, you know, that is sort of one part of the thesis, and we've been kind of preaching this barbell. On one hand, it is the smart contract applications and protocols that are, you know, real on-chain businesses, have real revenue, real product-market fit and activity. And now token economics, buybacks, and actually sharing that revenue with the users or the token holders, and they're getting legitimized by regulators in the US and President Trump shaking hands with, you know, the leaders of some of these protocols. And then on the other hand, you've got hard money, scarce assets, you know, Bitcoin, Zcash, that sort of benefit from accommodative macro monetary policy. Now that I think it's somewhat consensus, as long as you don't believe the quantum fears right now, we'll absorb that in a matter of weeks or months, and people are starting to come around to the idea that we've bottomed. It is the bull market. Now, I think people are starting to think about outperformance and where to place the chips for the next few months and years in this cycle. What do you think outperforms, the hard money scarce assets side of the barbell or the on-chain businesses benefiting from the legitimization of the industry?
I mean, it really depends on the price that you pay. Price is what you pay, value is what you get. So again, I don't know, if you bought Coinbase or Bitcoin, maybe Bitcoin outperforms Coinbase because Coinbase is already a large situation. But if you're talking about, I don't know, a sub-1 billion market cap shitcoin that now has been re-rated because agents will use my protocol and spend a bunch of money, then that could, you know, do 20x and Bitcoin does 5x, right? So, I think it really depends on what it is you're trading, you know, the relative size of the things that you're trading, how much risk that you want to take in terms of, you know, protocol risk and smart contract risk and all these types of things. So, it really depends.
So, just to add to that, you mentioned you have a big ETH position. What is your portfolio allocation with regards to that barbell? Are you heavier into like, you know, I put ETH in the store value category. You know, I probably wouldn't put SOL in there or Avalanche for example, but I put ETH, Bitcoin, Zcash, gold, etc., you know, and then you got these kind of on-chain businesses in this Citrini report and also crypto equities. What are you heavier in?
I mean, we're so big in Bitcoin. Nothing else is even relevant. So we just trade other stuff to make money to buy more Bitcoin. That's the game. That's the name of the game of the fund. And so even if we have a large position in ETH or, you know, all these other coins, it's like, okay, we harvest profits and then we buy more Bitcoin.
Bitcoin seems the most at risk of this quantum thing. Are you worried at all?
I think what Drake was really, this isn't what he was saying, but the practical implications of what he was advising was proper address hygiene, which is something that people have been preaching since I've gotten into crypto, which is do not reuse addresses. Okay? Right? Use the most up-to-date signature type, right? So, like, you know, obviously you shouldn't be using wallets that are using the protocol of the Satoshi coins, right? Those are the most at-risk coins from this theoretical quantum encryption issue, right? So, I think it's like, you know, you and your friend are in the forest and a bear is chasing after you. You don't need to be the fastest. You don't need to be Usain Bolt. You just need to be faster than your friend.
Right. So if there is a, you know, Q-day or encryption break or whatever it is, you know, ECDSA signatures get broken, right, there's going to be a certain subset of things that get taken down first, and you'll know when that happens. You just don't want to be in that first wave. So practice good hygiene. You know, don't reuse addresses if you don't have to. If you're trading, okay, whatever you're trading is obviously more at risk than what's in your cold storage and hasn't been used before. Like these are all things that we all have heard about. We don't properly internalize them until something happens. An example would be sort of the Coldcard hack, right? Do we really think we all needed to roll 100 dice? Well, guess what? You did, which is unfortunate, right? So like this is crypto, right? These are the things like we know what we're supposed to do, we just don't do them. And another metaphor I think to think of is like think about people who live in Dubai and Abu Dhabi, right? I talk to people all the time at the conference. Oh, you live in this place. It's like, you know, it's a war zone. He's like, yeah, the first day was kind of whatever. Then, you know, we saw the missile go over. We heard the alert on our phone. Oh, it got intercepted, and we went back to sipping our drinks, listening to house music on the beach, right? Like this is what's going to be this cute thing. Even if it is real, and I don't know if it is or isn't, it doesn't really matter. We're humans, and if Bitcoin doesn't go to zero in the next week or two weeks because the encryption's been hacked, there'll be something else in the news that catches everyone's fancy, and we'll forget about it, and it'll be irrelevant. So like this is how we act with wars. We're going to act this way with this encryption stuff. So I think my advice and what I'm practicing myself is good address hygiene, and there's extremely intelligent people who are looking at this problem. It's not as if we're not aware of this risk. It's a known risk.
Yeah. Unknown unknown here.
And so on that note, you know, I recently had a chance to speak to Naval in person and just talk to him kind of about how he thinks about his writings and his work. And, you know, he's all about timelessness, right? He's all about kind of emanating, you know, words and lessons that can stand the test of time. And, you know, one of the core properties of a store value asset is to stand the test of time. You know, you put gold in a bunker underground, you bury it, you come back 20 years, that gold bar hasn't changed form, shape, or whatever. It's still one gold bar regardless of the price. So when it came to kind of like the financial surveillance conversation, which is kind of aligned with this address hygiene take, he was like, look, you know, on Bitcoin the issue is that you can have 10 wallet addresses, mix your things, SEC, exchanges, yada yada yada. But there, you know, chain analysis exists. You know, I mean, it always has. Even now in this age of AI, we've already had chain analysis. In this age of AI, you know, the ability for big corporations, governments, etc., to practice financial surveillance has increased dramatically and has gotten a lot easier. And so obviously he's got this whole like Zcash is this hedge to Bitcoin. Bitcoin is a hedge to the monetary system. Zcash is a hedge to Bitcoin. And so I just wanted to kind of understand if you align with Naval's kind of privacy-oriented theme and just really about, you know, Zcash, but also about privacy's returning to the cypherpunk kind of roots that we've had and also in the narrative game. Just curious kind of like generally if you think that there's some substance to what he's saying there.
Yeah, absolutely. There's substance. You know, Naval red-pilled me on Zcash at a dinner last Token, and yeah, made a lot of money for my fund based on that conversation. I think at the end of the day, it's a spectrum, right? There is super privacy and then there's convenience, and you kind of have to see where you are on that spectrum, right? Gold in a bunker, great. But like, if you need to actually move a million dollars of gold, it's fucking heavy, right? So, like there's a reason why Bitcoin is better than gold in some circumstances. But then gold does not require activity to exist. Bitcoin must be moved, must be transacted for miners to earn transaction fees at a fundamental level. So if Bitcoin doesn't move, it's worth zero, right? But gold cannot move. You know, atomic physics keeps its value what it is, it's gold. So again, it's all, there's no such thing as safety. It's all a spectrum and a probabilistic spectrum of what you can accept versus what you're really willing to give up.
With that being said, so we're kind of, you know, talking about these store value assets and private money, Bitcoin, etc., Zcash. You know, macro has changed quite a bit. So quantum is obviously a thing, but I think what's going to happen is we're going to have some macro news. We're going to have some other kind of, you know, news from the SEC that's going to, you know, as you say, bring us back to this kind of collective amnesia. That's crypto. It's collective amnesia. We do it all the time. So you're still heavy in Bitcoin. You know, so you're steering more towards like the hard money scarce asset side of this barbell. And so, you know, one of the things that you said, I think last year when we were doing this podcast, and it stuck with me, was that the only option politicians have is to spend money. They have the option not to spend money, but then they get voted out of power. It's like realistically the only option is that they do spend money. And so when you see, you know, the bond market doing what the bond market is doing and the macro environment and Bessent claiming that he's the house in your mind, does that tell you that we're going to have to fix something? And does fixing something mean printing money? Like when you see the 30-year bond upwards of the 10-year and the 30-year, five and a half, upwards, like does that tell you we're going to accelerate the pace of printing fiat dollars?
Nominal bond yields are a combination of real growth plus inflation. Right? So you have to determine why are bond yields rising. So what is the nominal GDP of a particular country? US nominal GDP is, let's call it 5, 6%. So then a 5, 6% yield on a 10-year is pretty reasonable. So these yields aren't unreasonable based on the nominal growth of the US economy. But the question is whether that's more inflation or is that more real growth. And that's a question that you have to make. But I think the bond yields have to be put in the context of, you know, there's a guy named David Dredge. I'm an LP in his fund, Convex Strategies, OG derivatives trader, and he coined the term the Hunger Games. So there's only so much capital around, right? And there's all these different people, governments and sovereigns and companies competing to borrow money. At the top of the heap we have AI, right? So the AI companies are building God. And therefore, they do not care what the interest rate is because if you're going to build God, God's infinite. And so I will pay infinite money to build God. 10, 15, 20, they don't fucking care how much they pay on the interest rate because they know they're going to bail out anyways when they fuck up. So like it's great that they're crowding out the sovereign debt markets. Next on the list is, you know, US government. The US government will borrow every single dollar that it needs to borrow. Period. End of sentence. Right? And so this whole consternation about the yields and hyperinflation, it's not happening. Like everyone will buy a 10-year, 10% coupon 10-year bond if it gets to that level. Whatever, they're going to get theirs. The problem is for everybody else. The problem is the French. The problems are like, they're the number one problem right now. Like why would you buy a French bond? It's fucking, it's nonsense.
They spend so much money as a government. They're externally financed by the Germans and the Japanese. They're in this fucked up thing called the euro. They have no energy. They have riots in the streets, like, and yet they're saying, 'Oh yeah, please come buy my 10-year bond at I don't know, four and a half, 5%, whatever it is,' right? So they are fucked. The US government's not fucked. They'll be fine. So I think people have to sort of put things in perspective. And they say these bond yields are, you know, going crazy and like it's going to do stuff. I mean, yes, they will print money at the end of the day, but in the US's case, it might not be because of five and a half on the 10-year.
On that note, we had, you know, you mentioned this 'I'm the house' thing. Warsh comes out, hikes rates, you know, a couple weeks back, and the bond yields jump higher, right? Like they don't even blink. They go higher. And people are calling a bullish hike and calling for potentially one more hike. You know, I was out at Jackson Hole prior to our last show, and, you know, we had spoken about how kind of Warsh is kind of like a bit of a puppet right now, and, you know, there's other forces at play. Rate hike happened, crypto pumps, yields pump. It feels like the situation's gone out of control. Like it feels like if the rate hike didn't do it, what, you know, what's next? Is there another bigger hike? Like is the situation out of control in your lens? What is actually happening with regards to why the bond yields have kept rising? Oil is still at an elevated rate, right? We got one hike, we may get another in December after the midterms. Like is the system, are we experiencing like the first very obvious to the kind of mainstream investor that the system's completely broken? Like what's happening?
So I think first of all, I don't believe that the price of money is more important than the quantity of money. So the bond yield told you the price of money, and I think people focus too much on the price of money, like, oh, what's the yield on the Fed funds, what's the yield on 10-year, whatever, right? Like yes, it is important, it definitely has an impact on discount rates and all that kind of stuff, but what's more important for us as crypto investors, as scarce asset investors, is how much fiat is there in the world, how has that changed. And so if you take a look at the Fed hike, right, Fed hikes 25 basis points, 0.25%. So how much or little or none or negative liquidity did that create in the system, right? So the Fed has the interest on excess reserves. Banks hold $3 trillion with the Fed, and the Fed has to pay them an interest rate that's within the upper and lower bound in order to peg rates at that level. Right? So the Fed raises rates 25 basis points, that creates $7.5 billion of extra income, unearned income for banks. And the second part is Treasury bills. So T-bills essentially are cash that yield Fed funds. And so if the Fed raises rates 25 basis points again, that's another, what is it, 17 or something billion dollars of income because about $7 trillion of T-bills outstanding. So I estimate that for every 25 basis point hike, you generate 20, 25 billion of extra liquidity. And it's not extra liquidity going to impoverished plebs. It's going to banks, financial actors. The banks don't eat, right? They just consume more financial assets with more money or pay dividends to rich people who consume more financial assets. And when you pay more money on T-bills, people like myself who've got a lot of T-bills and make yields, great. I don't need to buy more food. What do I do? I buy more financial assets. I buy more gold, Bitcoin, real estate, you know, watches, wine, whatever it is that floats your boat to maintain purchasing power. You go and buy more of it because you just got a raise from the Fed. And this happens because when you have a highly indebted economy that has most of its borrowing at the short end, when you raise rates to supposedly fight inflation, you actually create more inflation.
And this is a study, I forgot the name of the economist. He wrote about Brazil in the 1980s, and he has, you know, empirical evidence, and you can see, you know, the central bank of Brazil starts raising rates. Brazil's heavily indebted, most of the borrowing is at the short end, and you see inflation ticking along higher as they raise rates, and so because there's more quantity of money being created by those excess reserve interest.
And this is why Bitcoin ripped when they raised rates. So a question based on this, like, correct me if I'm wrong, the people and departments that are in charge of the financial system, call it the Fed or the central bank all around the world, is it true that they use the quantity of money to fight the price of money? Meaning like everyone's screaming about bond yields, like the tool in their toolbox is to change the quantity of money, and that is the way that they try to solve the price of money.
It depends on the philosophy, right? So Volcker in 1980, what was it, '79, '81, '82, his radical thinking at the Fed at the time was, okay, we are no longer going to target the price of money. We're not going to target the discount rate anymore. I will restrict the amount of credit in the system. I forgot exactly how he did it because it was a bit different in the '80s than it is today. He basically targeted the money supply, the total amount of money, and that was how he got interest rates to behave. Very, very powerful. But now the theory, the thinking at the Fed is all about the price of money. We adjust these rates, these policy rates that we have, and this is how we tinker with the economy. And then obviously if we need to, then we go, we start printing money. We talk about the quantity of money, but we don't analyze the impact of our price of money decisions based on how much money it will or will not create, which is more important in my view.
In the lens of the bond yields being at the highest rate in however many years, I think since '07 or something like that, you know, do we need to see that come down for the broader scarce asset markets to do well, or is this just kind of like, basically what I'm trying to get at is that there was a way of thinking that was like, you know, this is the range for bond yields that's appropriate. We're now above that range, and in people's minds, that's where the '08 crisis happened, in that like we are in that range, right? So, you know, I always get scared of 'this time is different,' right? This time is never different. But like, is this an okay state of the financial system as it pertains to specifically in the US to still enable a larger crypto bull market? Like what would you want to see or need to see to validate the crypto bull thesis into 2027 or perhaps invalidate that based on these macro factors?
Well, I guess look at how much money is being created. So right, if you look at the price of money impact, so you know every 25 basis point hike is $25 billion of extra liquidity that's going to go into financial assets. And the quantity of money side, you take a look at Fed plus banking balance sheet. So while the Fed has essentially stopped reserve management purchases since October, August 14th, the banking system has taken up the slack. And this is the direct policy of Bessent and Warsh. They both have talked about the banking system needs to be the engine of credit creation in the United States, not the central bank. And so the central bank balance sheet basically been flatlined. But if you take a look at the total balance sheet assets of the US commercial banking system, it's up about $200 billion since October 14th. So that is why financial conditions are great. If the banks are going to increase their assets, whether that's by creating more loans, and when a bank loans money, it creates money.
A loan creates its own deposit, or it does securities financing, or buys stocks, or buys treasury bonds, or whatever, right? It increases the size of its balance sheet. It is increasing the amount of credit and liquidity in the system. And so if you look at the combination of both, this tells me that we are looser and looser and looser. And the banking system is doing exactly what they've been told to do, which is create more assets, lend more money. We don't want to do it at the central bank because, you know, people got pissed off that supposedly we were creating inflation. It should be in the commercial bank's hands.
The question becomes, what's the trade? And so the last Satrini article was the Fed Treasury Accord and was talking about this creative financial engineering that they could do to unlock a whole slew of new liquidity. Then you've got this other fun, creative financial engineering going on in the crypto world where it's like more the tech side than the financial side, but these are ultimately both kinds of financial engineering. And so again, the question becomes, what's the trade? Where's the outperformance? Would you rather buy the banks, like the bank equities, because they're going to be implementing this technology and potentially have a lot more like liquidity to work with, or would you rather buy the infrastructure and like buy the crypto tokens that are going to be the protocols that the banks are going to use?
Depends on the price. Yeah.
Tell me ticker, entry, and exit.
Target, and don't dump on me after 30%.
All right. You know, one of the things, Rob, that I think is important though is that if you take this to his fullest extrapolation, the extreme, right, with this bond yield happening, what's happening is, you know, Scott Bessent's going to come out in...
Yeah. November 5th quarterly refunding announcement.
Announcement. They're going to buy another, what, four to eight billion dollars of these long-dated bonds. But what's happening here is there's now a need for a structural bid for short-term T-bills in the US to kind of even out this imbalance.
Not really. Again, T-bills are great. Everyone in the world wants T-bills. He doesn't need to sell T-bills. He needs to sell 30-year bonds. That's why, you know...
Okay, so perhaps there's not a necessary demand, but there is a reality that stable...
With the Hunger Games, I think going back to my analogy in the Hunger Games, the rate on the 10-year, 30, or 20-year bond to the United States government is irrelevant, right? They will spend regardless of what that is.
Now, every other sovereign yield prices off of the United States. If US rates, if I can get 7% on my 10-year United States, what do I get to France? 8 on the 10?
That's the problem. It's not the United States that's the problem. It's everyone else who has to price off of that. Who isn't the reserve currency, yeah.
Who doesn't have energy self-sufficiency, food self-sufficiency, two oceans with no enemies, right? Everyone else has other issues where their finances matter a lot more, but the investor says, 'Okay, well, I will give 7% to the US, so I'll charge you eight and a half.' And at eight and a half, it breaks a lot of people's back.
And is printing their way out of it the only way out of like France at 14%? Like...
Yes, France will implicitly leave the euro. If you are a French depositor or you hold French bonds as a foreigner, they will say, 'You no longer have access to your capital. We're going to bail you in and we are going to create banking reserves in France to buy French stuff.'
Which essentially breaks the euro.
And so there's kind of like this broader trend of repatriating capital. Like you've written stuff on France potentially, but then you've also written stuff about Japan Inc. and how they're also repatriating capital. And so Japan, France, well, France has no capital. Japan finances France, Germany finances France, China finances France, right? And so they're saying, you know, let's put our money in for our people.
Okay, I need to sell something. What do I sell? Well, I can't sell the US stuff because I have a military base, got a security agreement, whatever, right? So I sell the French stuff. Like, who am I going to sell China or Japan?
Yeah. Yeah. Exactly. So I guess what I was trying to kind of get at through what you've answered is that there's not this like structural demand required for the US because the US is kind of, we're all right, it's okay. But what is happening is stablecoins are growing and they obviously under the Genius Act they have to be T-bill backed for like 95% of them, less than 93 days I believe is the exact duration requirement. And so there's this kind of exporting of the US dollar dominance happening in the digital form and with agents it's going to just accelerate to be just everywhere. I mean obviously in the cryptoverse, you know, stablecoins are US dollar, you know, that is what stablecoins are. And so I guess is there a way in which the US government is incentivized to grow stablecoin total outstanding supply to extend its kind of hegemony of the US dollar across the world and its reserve currency while also, you know, at the same time then building that structural demand for the short term, which then if you extrapolate that even further, which I'll probably get hate in the comments about this, is like the US government is then incentivized to really pump crypto because, you know, in crypto bull markets, you get stablecoin expansion, which helps their goals. Is that too far of like mental, you know?
I mean, is there a correlation whether or not it holds this time around? I don't know. We'll see. Like, does it hold to the extent that it generates enough demand to move the needle? I think the big issue with the stablecoin narrative in terms of acquiring US bills is you have to have other countries allow these US tech giants to operate in their countries. Like it's not clear to me that, you know, the large other countries with larger populations, that they're going to let Facebook and X and Amazon and all these large US companies bank their people because they don't let JP Morgan just come in there and do whatever they want. Why would you let Elon and Zuck and these guys essentially be the back door to destroy your ability to control your money supply? Now, we'll see how stupid these people are who run these countries if they're going to let that happen. But that's what Bessent is trying to do. He's saying, 'Okay, great. I need T-bills.' I don't know how much demand that will create, but great. Okay, Facebook, we're not going to slow you down. Go and allow WhatsApp. You can now have banking and someone can send this like, you know, it could be a Facebook dollar, whatever, right? Tether, it doesn't matter. You could send this around to people. This would be great in the Philippines, Indonesia, a lot of places around the world that have weak domestic currencies, very high penetration of social media run by US companies, and now all of a sudden you've disintermediated the central banks of these countries that have 100-plus million people. Like that's what Bessent's trying to do. Ultimately the question is whether or not these leaders are that dumb and they're going to let him do it.
Yeah, and so that's kind of the hole in the stablecoin, you know.
Well, it's not. I don't think it's necessarily a hole in the stablecoin thesis because there could be a regional play to these stablecoins and the dumb or not sovereign leaders that see the US dollar coming for their local currency could go and create a stablecoin themselves.
Nobody wants any stablecoin of like...
You only want the only stablecoins, and this is something that we practice in terms of our investment. I don't want to hear about your non-dollar stablecoin. Nobody wants it. So like, don't pitch me.
People don't even want dollars.
I love it. Let alone, I mean, we're in the US, so like I'm all for the US dollars. I mean, it's not about whether you like it or not. It's just like nobody wants it. If you talk about fiat currencies, the best of the worst is the dollar.
Yeah.
I mean, even if they gave you some sort of like, even if at the central bank or the sovereign level, they gave you some perks like some income.
I mean, like take Singapore, Hong Kong, a lot of these Asian countries, maybe these aren't the right example, but like the domestic banking system is very efficient in most countries, even developing countries, because they leapfrogged all of their legacy, right? They have mobile payments, you bank on your phone, it's instantaneous, right? To bank in local currencies is extremely fine. The issue is that like there's high inflation, you have very low ability to generate returns to outpace that, and so you want, you know, foreign dollar-based assets, and that's what is restricted. And so that's why you want the Tethers and the USDCs, and that's why your authorities in the banking system don't want you to have them because they want your capital in rupiah, in peso, and all these other things.
That undermines their entire thing. So is the theory when it comes to like France or any other country that this could happen to, when you know these other bigger ones that finance these countries try to repatriate and then they sell the assets in France and the others, is the idea not so much that like the central bank of France is going to print their way out of it, but more so that like they need, if you're in a France banking system and you want to like retain ownership over your capital, you want to like buy Bitcoin so that you don't get your funds locked in?
At a very simple level, if I was a depositor, I would move my euro to Germany. That's the first step. Don't even talk about...
Yeah. Don't even talk about crypto, right? I do not want to hold a euro in a French bank. That is risky. Whether you're a foreigner or not, I do not want to own a French bond, especially as a foreigner. And the leader of the finance ministry of France basically came out and said like, France doesn't have a debt problem. Other people have a French debt problem. Like it's your problem that you own mine because I'm going to make sure that you can't actually realize that. They said this legit straight up last summer.
What's the impact on Bitcoin of that?
So I wrote through this in my article, and the impact on Bitcoin is, okay, we're talking about money printer go burn. We want it to really burn, right?
