At the end of the day, Bitcoin and crypto will go higher because retail people will get involved. The disillusion because the price is going up and has nothing to do with institutional or not institutional. Institutions don't determine where the price is. If there's nothing useful being done for the average person, then this isn't going to go higher.
All right. I am with the chief investment officer of Maelstrom, Arthur Hayes, who just got off the stage for an expletive and meme-laden keynote speech. Thank you for doing this again, sir.
I really enjoyed that keynote. It was awesome. I did note the number of curse words used.
I'm assuming that was an intentional choice.
I mean, that's just how I talk.
I'm a trader. That's how it is.
Nice. Nice. Nice. Awesome. So, let me, I just want to go over some of the things that you said to start with and then you can correct me in my interpretation because again that just happened and so I'd love to have the immediate feedback.
To start with you said I think at the beginning one assumption was that oil will unwind itself. That's a paraphrase basically. Is that roughly correct?
Basically the Strait is kind of sort of open. Ignore the media propaganda from Trump and the IRGC stuff is going through there. Otherwise, the spread that I look at is WTI oil spread between the six and the one-month contract because Trump only cares about American voters. They only care about gasoline prices. That is the contract that's going to be most reflective of gasoline prices in America. So if backend prices are increasing faster than short end prices that means that this trade is more than we think it is and therefore okay maybe we should think about something else in terms of what this war means but in my view it's going to be very messy but there'll be some sort of negotiated peace. That doesn't mean people are going to stop dying or bombs going to stop flying but enough commodities will really get through for the world to muddle through until obviously people diversify in terms of how they get their oil out of that region.
So to me this seems like an important assumption. I guess you're going to keep tracking those spreads very carefully to see if it starts to change.
Yeah, I don't read the newspaper. I just look at the chart.
Okay, I see. I see. I see. Do you think that there's going to be an incoming oil shock? I mean thus far there really hasn't been that much of a disruption in the United States but in parts of the world very big like Australia 100% of their refined products come from China which is stupid to have 100% of anything coming from one location. China for obvious reasons said we want to keep everything at home and the prime minister of Australia had to fly to Singapore to beg them to sell jet fuel otherwise Qantas was going to shut flights. People were going to not fly to Australia because they didn't have any fuel. So there absolutely are massive shortages of things throughout the world. But if you're in an energy exporting nation like the United States, you probably wouldn't feel that, but in places near where I live, people are definitely feeling the implications of this war.
Yeah. I think one stat I saw about Australia was in the 1970s they had eight oil refineries and now it's down to two.
Bad bad energy policy. Okay. So, the one other note that you put on the screen was that Bitcoin has been down 50% while the NASDAQ has remained kind of basically flat or like at all-time highs. Could you just explain to me again what that means exactly? Like why is that happening? Why did that happen?
So my interpretation of that is that Bitcoin was following a theme that credit is going to be destroyed because of AI knowledge worker job losses. So obviously tech is a very monolithic term and when people say tech they usually mean like the big tech stocks Google, Microsoft, Amazon, Tesla but consumer software as a service companies are some of the highest valued companies. These are everyone wants to build a SaaS company. These stocks have gotten absolutely crushed as the new models of Claude and ChatGPT, especially for people who code for a living have come out. Like, well, I can create these products at a fraction of the cost. Why do I need a subscription at one of these SaaS companies and those stocks have gone down a lot. In my mind, that points to a possible credit deflationary event for the banking system. And if the central banks like the Fed believe that AI is a productivity miracle and will elevate growth without elevating inflation, they don't believe they need to print any money. They believe that the monetary system is adequately supplied with fiat liquidity. But the SaaS stocks are telling a different story and Bitcoin followed that story rather than following the big cap tech stocks.
Okay. And so that's where I get at least my theory that this is a credit deflationary event that Bitcoin was foreshadowing and the monetary system was not creating enough liquidity to sort of head that off. And so then do you think eventually you'll see the NASDAQ as a whole kind of turn down a little bit or will it just continue to remain elevated and Bitcoin will kind of...
So I think obviously then the war happened and so okay now we have an explicit wartime economy especially in the United States where they're going to spend more money in defense there's all these programs where people have guaranteed offtake agreements with the government they're considered strategic industries there's loans there's equity All these things are formed from the government and then the banking system I argue is going to provide trillions of dollars of credit to these strategic industries so that they can build more bombs.
Yeah. Yeah. Yeah. Exactly. Okay. All right. We'll get to the banking system a little more in a second, but you also said I think after that you said AI is the new subprime.
Could you explain a little bit to me what exactly?
Basically what I'm saying is that a small to say 10 to 20% pulling of the least productive knowledge workers across an economy like the United States can generate an outsized impact in terms of a credit event in a similar way that subprime was a 15% delinquency rate on a certain type of mortgage and you had a global financial crisis. Right. So it's a highly leveraged system. It doesn't take very much to destabilize it.
Yeah. Yeah. Yeah. Do you see it to be as destabilizing as the subprime thing or...
The chart I presented was not like half as destabilizing but still that's a big deal.
Okay. Yeah. Yeah. Yeah. All right. You made a point of talking about liquidity and how you believe liquidity is bottoming and is going to start to rise up. I've heard other macroeconomic folks talk about how the real economy especially in the US has not been doing well but is starting to do better and there are some signs that we're going to be entering this kind of productivity boom for non-financial assets and then that because non-financial assets will on a comparative basis do less well then liquidity will go from financial assets to non-financial assets which is in a way kind of liquidity leaving those areas. Do you disagree with that? And if that does happen, wouldn't that hurt things such as Bitcoin?
I mean, I don't really look too deeply on where the money is flowing. I try to take a bigger view because obviously you have to go to a bank loan officer like where are you lending? What type of company are you lending to? I just look at the past history and say, "Okay, well, if there's more units of fiat in the world, whatever they're being spent on then Bitcoin, which is literally just a derivative of how much fiat is there in the world, mathematically has to go up in price. So, I don't have to worry about where it's going." But yeah, if I'm an individual stock picker, then that makes a lot of sense in terms of trying to figure out what areas are going to be favored by banks.
Okay. Yeah. All right. And you also talked about you spent a bit of time talking about Bessent and how the game plan is basically a swap as you called it, which I like. I like this framing. It makes sense for crypto people at least. But basically to me what you were saying is swapping who is buying debt, right? Right. Right. Now it's mostly the government.
Oh, sorry. Who's buying debt? Right.
Or who's holding it at the end of...
Yeah. Yeah. Yeah. And it's going to and Bessent want to move it from basically the government to private banks.
Yes. And that's the swap. But it's neutral.
And yeah, that makes a lot of sense to me. I just wondered if you had an opinion on whether they're going to be successful or not at this thing. Do you think they're going to be able to do this or do you think trying to pull off this swap will be too disruptive and they'll have to go back to the way...
It's already working to a large extent. If you look at the largest banks' quarterly results they've increased the amount of treasuries they're holding they've increased the amount of intermediation they're doing in the markets on their trading and treasury books in terms of that they've increased how many repos they're sponsoring reserves are declining at the Fed so this is working right and so it's only going to accelerate with certain deregulation things that they're pushing at the Fed and other organizations in the US. And again, the Fed will shrink its balance sheet, but the commercial banking system will increase it at the same amount.
Okay. All right. Anyway, for those listening, I really enjoyed your keynote. I hope they watch it, short 15 minutes. Again, like I told you, I wish they had given you a little more time to let it breathe. But let me ask you some other questions if you don't mind.
So last time we spoke, we were talking about this stablecoin thesis. I think it was in Tokyo last year. And ever since then, I really bought into that idea. And I went to conferences in Hong Kong, Japan, Europe, Middle East, talked with people from Pakistan and government officials. They're all worried or thinking about these stablecoin things. They all have a plan to fight back against it. And I was wondering do you think that any of these countries are going to be able to stop this onslaught of dollar denominated stablecoins?
If they are going to ban social media?
Sure. But like unless they are going to be able to do something like China where for most people in China who are not extremely wealthy, they're not going to spend extra money on a VPN to get around these rules. You know, if Facebook is blocked to China, it's blocked to China. Yeah.
Right. And the Chinese firewall is very effective. They spend a lot of money and time on it. Right. So, if you want to be like China or in some parts of the Middle East, very restrictive in terms of Western social media usage and you're going to create your own homegrown alternative to that, then you have a chance. But if you're not going to ban the average person from using US big tech social media, you have zero chance against trying to dissuade them from using, at least in the fiat world, a better currency, the US dollar.
Well, for them, I don't know. It depends.
It's funny, too, like in Hong Kong, the business leaders there and Senator, they called it dollar colonization.
