BTC Sessions - ‘Bond Market Fire Alarm’ The Next Financial Crisis | Bhatia & Consorti

Starting point is 00:00:00 We should be alarmed, but it's localized. My expectation on Friday was this could be a financial crisis. Global bond price action is concerning, particularly Japan. For the JGB, this is the highest in spend since 1996. That's crazy. The bond market is flashing a fire alarm. It's saying we should be on red alert. Repo markets are showing the opposite of crisis right now.

Starting point is 00:00:25 It really is an attack on the euro dollar system in many ways. Scott Besant said gold and Bitcoin fit this role last year. Iran, obviously, late last month, or early last month, they said, oh, we're going to be accepting a toll in Bitcoin. Five days ago, they announced that they launched a Bitcoin-backed insurance policy. This is perhaps the most important geopolitical Bitcoin development in history. If you're missing that angle, you're going to miss out on the next 10 years of Bitcoin. Quickly, guys, I'm not going to ask you to like or subscribe,

Starting point is 00:00:53 but if you do want to support the podcast, share it with one person you think might gain some value from it. Okay, so for today, we have fixed income. market legend Nick Batia and macro expert Joe Consorti. They have an amazing back and forth on whether or not Trump keeps chickening out as yields rise or if there's something else at play. They do a deep dive into how this might be an attack on the euro dollar system and why Bitcoin is in perfectly positioned to win. And we start the conversation by analyzing the current global bond market chaos and whether this could spiral into an all-out financial crisis and where. Awesome, Joe, Nick. Thank you so much for jumping on with me last minute. I had to get you guys on

Starting point is 00:01:28 here because Joe, you and I were talking a little bit in the back channels there, but it looks like there is a ton of chaos. The global yields are continuing to rise, and this is not my area of expertise. I need to bring the experts on to see what's happening right here. So we got the Japanese 40 years hitting all-time highs. I think I saw the Japanese bid went bidless at one point in time. G7 countries are the highest yield since 2004. I saw Scott Besant is also issuing 30-day licenses for Russian oil.

Starting point is 00:01:52 I thought that was pretty interesting. Basically, long duration is blowing out. So, Nick, you spent a lot of time before Bitcoin in the fix. income world. What are you seeing here? Is it anything reminiscent of stuff that you've seen in the past? Should we be alarmed or am I maybe blowing things out of proportion? We should be alarmed, but it's localized. And that's really the analysis that I'm trying to bring this week to the table. U.S. Treasuries are the largest single asset class in the world in terms of, you know, being one issuer. Obviously, the stock market is multiple times the U.S. Treasury market, but by itself,

Starting point is 00:02:30 the U.S. Treasury market is so enormous. So any movement in the Treasury market has ripple effects throughout the entire system. That is without a doubt. However, the price action in treasuries is much less concerning to me versus the price action in the rest of global markets, particularly Japanese bonds, as you mentioned, and UK bonds to a lesser extent, and German boons also to a lesser extent. The dollar is worrying me in terms of going after some of the emerging market currencies. So what happens there is essentially a flight to safety where you get people selling their emerging market assets and then go. and selling the currency that they get when they sell those assets and buying dollars

Starting point is 00:03:25 to escape their current risk exposure. So the dollar rallying is concerning. Global bond price action is concerning, particularly Japan. It's not that Japan itself the economy is collapsing or that the fiscal house is collapsing. It's that guarantee of more money creation. from policymakers, whether it's the government doing it or the central bank doing it or a combination, which we really see that combination consistent for the last 20 years. Sometimes it's hard to pinpoint what the inspiration for the save is and even where it's coming from, but it's coming

Starting point is 00:04:10 from that combination. It's government. It's policy. It's the big save. So long story short, I'm concerned globally. I'm less concerned on the U.S. front. I think the U.S. has proven that it can sustain four and a half percent treasury yields. I think it has proven that the, and I should say it, I mean the stock market and the economy. Labor market in the United States is relatively strong. The stock market is essentially at all-time highs. This is all with treasury yields at four and a half to five percent in the long end.

Starting point is 00:04:47 So inflation is a concern globally. It is really damaging global bonds because interest rates are a function of inflation and inflation expectations. You want a yield to compensate you for that growth in prices. So in the United States, though, the ability for the economy and the stock market to tolerate these rising yields and the government's ability, or inability to provide that policy response here in the U.S., I think, is pronounced. You're not going to see Besson and Powell slash Warsh run to do any big QE program, fiscal program, fiscal stimulus. You're not going to see it here in the U.S., I believe, in the short run.

Starting point is 00:05:41 There's nothing that warrants it. and that nothing is, it can be summarized by, hey, treasury yields in 10 year popped above four and a half and above 5% in 30 year. That should be a big deal. But guess what? Stocks not really not. And policy definitely not paying attention. I mean, even the populace in general worried about four and a half to five percent yields, they're just not. It's not in the mainstream. It's not in the forefront. So, and I'll pass it to you guys and Joe here,

Starting point is 00:06:20 but I really think that splitting it and not sounding the alarm in the U.S. or in any U.S. fiscal way today is important. And then on the global side, I'm very concerned about a few pockets here. Quickly before I pass it, Joe, I just want to unpack one thing quick or two things. In terms of the inflation expectations, if I understand, correctly, that's what we're seeing in the basically in the bond yields being priced in. Where is the inflation going to originate from? Is it purely just because of the supply constraint with the ongoing crisis in Iran? And secondly, you mentioned the dollar rising as a concern.

Starting point is 00:06:56 Why is the dollar rising as a concern? Yes. So where is the inflation coming from? The trigger, of course, is the Strait of Formu's closure and the oil price shock. So that is absolutely the trigger here. But one of the things that I just noted is that housing price inflation as a component of CPI has started to creep up trailing three months here, meaning that there is a demand component to the inflation wave.

Starting point is 00:07:32 And what is that demand component? It is a blisteringly strong U.S. economy on aggregate. And that U.S. economy that right now Atlanta GDP has at about 4%. That's a real GDP number. The nominal, if you add another 4, because CPI looks like it's going back to 4, you're at 8% nominal GDP growth in the United States. There is a CAPEX boom unlike we've ever seen. It's the largest capital cycle we've ever witnessed.

Starting point is 00:08:07 And that capital cycle, it can. guarantees GDP growth because that spending is all lined up and and those construction workers are all bid forward. The commodities, the inputs are all bid forward. And there are shortages on energy and compute several years looking forward. So my view on the U.S. economy is extremely bullish over that, let's call it, two to four year time horizon off of the back of this global capital cycle. So inflation is coming from demand as well as this oil shock, which is a trigger. And being able to tell what is the main contributor here or there, it's difficult when you get down the line. At the beginning, the price at the pump, it's obvious that that's the oil shock.

Starting point is 00:09:07 But it's also obvious to me that underlying inflation and, let's say, you know, prices paid in ISM surveys going back several months, it's been pretty strong. It's been, it's been, it's enough to show me that there's a strong economy which is leading to inflation. Because what is inflation other than more money chasing the things that are available? And so that more money comes from where? Well, it can come from policy, money printing. We haven't had any of that.

Starting point is 00:09:42 So it's coming from economic growth. So it's two places. And the dollar question, why is dollar concerning? Because based on our liquidity approach, we have our proprietary index TBL liquidity at the Bitcoin layer. It gives us a sense of what's moving markets. The dollar is a negative contributor in that. Apparently, we've studied it. When the dollar goes strong, it damages risk assets, including

Starting point is 00:10:11 stocks and Bitcoin. And that's also a broadly discussed financial condition is that the dollar itself is a financial condition on the world. When it gets strong, it tightens financial conditions abroad because foreign borrowers have a less easy time to pay back their existing debt, and it's more difficult to borrow going forward also because your forward revenues are unable to pay that interest that you are mapping out. So that's the answer to the dollar question. Beautiful. Joe, there is a lot to unpack there.

Starting point is 00:10:47 Where do you agree? Where do you disagree? What are you seeing right now in the credit markets and then everything that Nick just laid out for us? Yeah. So, you know, me commenting on treasury markets after Nick does is like, you know, me shooting right after Tiger Woods, right? That's it. You know, I can do my best year.

Starting point is 00:11:02 Look, one of the things that Nick brought up, which I think is very disconcerting, two things. Number one being what's happening with JGB yields. So obviously the Japanese yen is one of the most popular currencies for the carry trade, being able to borrow at a low interest rate to invest at a high interest rate, namely in U.S. financial assets and U.S. markets. The higher that yields creep up on JGB is the more difficult it is to execute that trade, and ultimately, positions have to be unwound at some point. So the stronger you see yields rise on JGBs and the stronger that the Japanese yen gets relative to the U.S. dollar,

Starting point is 00:11:39 it puts those who have a carry trade on in a bit of a hairy situation. So that's one thing to watch. And I can actually go ahead and share my screen here if you take a look at the magnitude of this move. It's kind of insane. You can see here, this is the entire price history. If you were to go over the last, you know, one month, doesn't look super disconcerting, right? A move up 38 basis points, not the end of the world. This looks a little bit worse, considering we were basically at zero, right?

Starting point is 00:12:06 We like to think that we had near zero interest rates here in the United States. Looking at Japan, they've trounced us for decades. Right now, on the 10-year yield for the JGB, this is the highest it's been since 1996. That's crazy, right? So you have arguably 30 years worth of equity trades that have been underpinned increasingly so by cheaply financing in the yen. you could see it mostly dropping following the 2008 financial crisis, and obviously since 2023. And it just has been creeping up relentlessly. So that's something I'm going to continue

Starting point is 00:12:38 keeping my eye on here, particularly looking at potential failed auctions and things like that, over the summer as it unfolds. That said, the current route in the bond market right now, not terribly acutely felt in the equity market. Obviously, we felt it last week, massive sell-off, on equities and by massive, I mean like a two or three percent of correction, which of course can't happen. And so we need to pump those numbers up. And so now we're only down 0.3% over the last five days. And so ultimately, what this is signaling to me is that number one, what Nick said,

Starting point is 00:13:13 the bond market crisis that we're experiencing right now isn't at an acute enough level for equities to massively sell off. They're not at a high enough level for everything downstream to reprise, for mortgage rates to hit 7% for the S&P 500 to take a 10% haircut. We're not there quite yet. And the second thing that the S&P 500 is telling me right now and that the NASDAQ is telling me too is that there's optimism around the war in Iran ending.

Starting point is 00:13:42 And Nathan, I don't know if I was on the show a couple of weeks ago, but I think we were discussing every single time that yields creep up, that the 10-year creeps up to 4.5%, that the 30-year creeps up to 5%, but mostly the 10-year, Trump tacos. So Trump tends to cave and say that we're talking, with Iran, and lo and behold, late yesterday and early today, we have new news about a peace deal. Who knows whether or not that will materialize, but ultimately, the market does love job

Starting point is 00:14:08 owning. And so we are sort of in this, we are at a critical inflection point in the sense that we're at a level where it's uncomfortable if the 10-year were to stay here for months or the 30-year were to stay here for months. But the way things are trending now, ideally it seems like the war is ending sooner than later. So this won't have as acute of a pass-through effect into the real economy. At least that's the ideal, right? I think Nick can agree where this starts to get hairy as if this continues for another three months, maybe six months, maybe nine months, you know, because we've gotten so used to cheat money as a country, not just consumers, but the country itself, we've gotten so used to cheap money that the cost of capital

Starting point is 00:14:47 being four and a half percent for the government, but also for consumers, is really bad for a sustained period of time, at least right now. But, That's sort of the way that I'm reading the tape here. It's, you know, the bond market is flashing a fire alarm. It's saying we should be on red alert. But ideally, the balance of risks are tilted in the favor of this resolving sooner than later. Ideally, bond yields creeping back down to earth. Hopefully, JGB yields cooling off sooner than later.

Starting point is 00:15:17 So a lot of action in the equity market doesn't get unwound. That's sort of where we are. And, you know, a lot of this does hinge, as I've been saying in my videos for the last, like, months, like a broken record, a lot of it just hinges on whether or not this war can end sooner than later, right? Because the longer this persists, the more inflation you get that the Fed can't fix, right? The Fed can influence rates higher in order to create demand destruction by constraining credit conditions when inflation is caused by too much credit, but they can't do it when inflation is caused by extremely high oil prices, right? Any rate raises that you do, any monetary

Starting point is 00:15:54 and fiscal monetary tightening that you do, all that does is create even more demand of structure, right, rather than destroying inflation. So that's sort of where we are right now. Very interesting. Nick, I kind of want to unpack that a little bit more. And I'm curious for sense, maybe I'm completely wrong, but it seems weird to me.

Starting point is 00:16:10 So you're right. We had Trump come out and say that they're in the final stages of talks and the tenure drop 10 bips. We also saw WTI drop down quite sharply as well, too. Not only that, I was watching the Canadian Treasury Market, because I pay attention to Canada because I'm stuck here. I didn't know you guys had one. I know, right? There's like five buyers probably. It came down like 13 bips as well. Now,

Starting point is 00:16:29 correct me if I'm wrong, Nick, but like 10 to 13 basis point moves intraday feels large to me, but maybe it's not in the grand scheme or the history of fixed income trading. Like, is that a volatile move? And then additionally, to Joe's point, do you think that even at these current levels, if it's sustained for too long, that that will end up becoming a problem for the U.S. economy that's currently not really showing distress? Okay. I hope you're ready for a long rant here. Let's do it. So many things. The first one on the 10 to 13 basis points.

Starting point is 00:17:01 So you're right historically that those are large moves. But the way that markets work is we have these things called Bollinger bands, but that's maybe too technical. The idea here is that we have, let's take a U.S. Treasury. You have 100 years of price history. So you have an average over 100 years, but then you have a average over the last. 10 over the last five, over the last year, over the last two weeks essentially. So the market is not thinking about 100 years or even 10. It's thinking about the last three years, one year, six months, et cetera, and then zooming in. So then when the bands start to increase, that means

Starting point is 00:17:42 that actually the moves are starting to increase. So the expected moves tomorrow are larger than they were a month ago because the moves over the last month have been larger. So that's a long way to say that today's 10 to 13 basis point move is not a surprise at all because of what happened yesterday, the day before and on Friday. So Friday set up today's move where it can, you know, you moved up so high that the snapback is, it's in proportion. So today's move totally in proportion. Now, I'll get to the 4.5% thing in a second because it's essential to talk about. But I wanted to talk about Taco first because I want to get Joe's opinion on this also. He probably has read me right about this.

Starting point is 00:18:35 But Taco is not the right setup for this to understand. The better way to understand this is that best. is the secretary of volatility. That's the correct framework here. Now, what's the difference? Taco means Trump always chickens out. It means that when he sees the stock market get skittish, he changes his opinion and then changes what he says.

Starting point is 00:19:08 It's a superficial way to see what's happening, even though it captures the emotion of it. So, but I think it's the wrong way to set it up. The reason is because if it was really taco, do you think he would have ended the war when we got that first major oil shock, oil up to 120, the world completely freaking out, the straight closing, that is when you chicken out and give up on the war and literally chicken out. But he didn't chicken out.

Starting point is 00:19:48 He continued the military excursion, as they're calling it, and achieved objectives that went on for weeks beyond that initial price shock. So I actually think that objectives are more important than what the markets do. With that being said, you have the Secretary of Volatility, Scott Bessent, watching the move index, and seeing, hey, at what point are the global markets genuinely concerned about what we're doing? So let's dial it back. So the better way, instead of Trump always chickens out, is this administration has objectives. It will do everything it can to push the limit.

Starting point is 00:20:34 And then it's hired a hedge fund veteran to be the secretary of volatility and make sure that the market is not, exceeding the limit to the point where it collapses everything. So that's really different than Taco, even though Taco's like a new, catchy way to describe the fact that when the market tells them that they've hit the limit, they walk it back. So both things are accurate,

Starting point is 00:21:03 but it's important to really dive into Taco, pick it apart, and label it as the wrong framing. Because if you believe in Taco, So then how do you explain the fact that the war continued to go on after the oil shock and that we still haven't had a deal yet, even though oil is still at 100 plus, depending on which day you're looking at it? So maybe Joe wants to go there or you want me to continue with the four and a half percent. I'll let you decide. Joe, let's get your response.

Starting point is 00:21:38 I like it. You know, Nick, you always have a really good way of breaking things down and dispense. and, you know, ultimately, I think these are all different variations of a very similar thing. And it all really harkens back as well to sort of the original version of this in markets, which is the Fed put, right? When the equity market declines below a certain level, the Fed decides to reverse course, right? They put the floor underneath the market in the same way, managing treasury volatility. That's sort of Scott Besant's MO. And I know I'm not nearly as smart us that guy. He lives in a four and a half million dollar house. So he must be, you know,

Starting point is 00:22:15 he has this 40 tress all mapped out in his head that I don't quite have. It's pink too, isn't it? It is pink. It is pink. It looks like a Barbie dream house. But the guy is brilliant. And apparently he also fights people in the White House, which is pretty ball. I heard that too. Yep. Can't argue with the guy. Yeah. Beautiful. So they continuing, Nick, the four and a half, and additionally, too, is there an upper limit you think in like the 10-year treasury that, like, no, that wouldn't be sustainable. We would break quickly if it continued to rise past. Absolutely. And it's more mathematical than anything else because when the yield goes up, this is not a market that is controlled. It's a market. So when the owners start selling, I mean, that's a disaster. So yeah, at a certain technical level, the selling accelerates, the put buying accelerates, volatility goes through the roof. And at that point, the finance. financial system at large starts to seize up because treasury markets are not functioning. Therefore,

Starting point is 00:23:18 repo markets can't really fund the right activity. You get dislocations and you get a straight up financial crisis. That's why the move index is the largest weighting in TBL liquidity, our liquidity metric. It absolutely is. So yes, there's a level. And what I'm looking at with the move index where it is and yields are where they are today versus two years, three years ago in various parts of the curve, I'm sitting here saying the odds of that type of level being breached and, you know, an all-out spiral in volatility is low. Like it's less than 50 percent, in my opinion, in my probability. In my probability, ability distribution, and I would say significantly less than 50%. So I always like to play a game as the odds maker is I give the odds to myself, and then I say,

Starting point is 00:24:17 hey, would I take that bet? And if I would, then the odds aren't right. Like if I'm quick to make the decision, then it's where I'm indifferent to take the bet. So would I take a, let's say the odds were 33%. So I'm going to. getting I'm getting two to one on my money. What I take that, that we're going to get a, that we'll get a financial crisis or that, you know, let's say yields break a certain level and we get, I think, I think 33% is too high because, you know, I wouldn't, I wouldn't, I, I, I just don't think that that the risk reward is there for that type of bet. And that's how I, that's how I come up with these, you know, odds in my mind of what I think the probability of something is happening.

Starting point is 00:25:09 So I'd say it's pretty low the probability of something like that happening. Now, on Friday afternoon, I made a prediction to my TBL pros that I think policy response is coming outside of the country. It could happen at Paris next week with the G7 finance ministers. So I'm watching that Tuesday and Wednesday went by, what happened on Wednesday? They said, we have no plans to do anything. And so the bond market continued to, you know, sell off. It wasn't until Trump said something about Iran that hit the oil market and then helped the bond market come back down and yield. So the policymakers, you know, in Europe didn't have anything to do. But what happened this morning, India, Indonesia and South Africa, central banks, governments are all starting to get involved

Starting point is 00:26:04 already. So my expectation on Friday was this could be a financial crisis. It won't be in the United States. It might happen abroad. Whether or not it's a crisis, we got a policy response by Wednesday. So about five days, six days after I made this prediction. So that's more the way that I like to think about these odds. And so now I actually have to reset because the prediction and the odds that I set for myself and my expectation on Friday, it already resolved to the point where, you know, if you bet on Taco, you get to pay yourself out because that's the framework that you had that, oh, at a certain level, Trump would come out and say something in the news to hit the market down. So again, that's why Taco has some validity to it, but it's really, it's, it's from my perspective, no, it was the rest of the world

Starting point is 00:27:04 that had to come and actually do policy response. So I think that the U.S. is in a good position, and to answer your question directly, probability is low for a move event. When I first got into Bitcoin, I was overwhelmed. The jargon, the security risks, the fear that one mistake could cost everything. I remember staring at my screen and wondering, are my keys safe? Did I do this right? That experience is why I started BTC sessions. For over a decade, this channel has helped millions of people like you learn how to use and secure Bitcoin. But I realized something. For many people, videos aren't enough. Everyone learns differently. Some need to ask questions in real time as an expert walks through their setup, their goals, and their threat model.

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Starting point is 00:28:33 If you're ready for that level confidence, then head to bTCmentor.io and book a call with us today. Very good. I just want to quickly jump on two things. Then I'll come back to you there, Joe. In terms of the repo markets, because it's not something that I watch or I mean, I don't think even without a terminal,

Starting point is 00:28:50 I don't know that I can. Has there been any issues in the repo markets? Has everything looked great there over the last couple months? Joe, I can hop in with this latest on Sofer because I was just looking at it. Repo markets are showing the opposite of crisis right now. And I think that that's something that you just don't hear with all this dollar-dumerism culture that we're in. The repo market is showing that it's flush with cash as people sell foreign assets, come into the dollar, put their money in money market funds, which then have extra money to fund the repo market

Starting point is 00:29:31 because it's secured by Treasury collateral, which they still view as very good collateral, pristine collateral. So the sofa spreads have actually gone down and are approaching the floor of the policy window. So the opposite of tightness, the opposite of a shortage of cash, the opposite of a worry to fund dealers in the U.S. backed by Treasury collateral. So it's a flight to safety bid going on right now. One of the things that I wanted to respond to with Joe's opening rant was the carry trade and the carry trade unwind.

Starting point is 00:30:15 It's all about carry. This is like one of the first things that Joe and I discussed. is his understanding of care. And when I say Joe and I, I mean, four years ago in 2022, when I hired him at the Bitcoin layer and, you know, fresh out of college. And I'm like, hey, let's talk about markets. And I hired Joe because he was already, you know, an autodidact. So he's learning, you know, these things.

Starting point is 00:30:42 He's reading books about carry and asking me what I think about them. So the whole carry trade component of this is essential to understand. And when you see the Treasury repo market onshore flush with cash, it's actually evidence that a lot of the carry trade built up over the last several decades might be unwinding. And actually, I think a lot of it has unwound to a great degree and that the attack on the Eurodollar system through the LIBOR mechanism. mechanism and through things like stable coins, which are forward-looking, it's not a current attack on the dollar system. But I think just tightening policy from zero to five and a half percent was an attack on the euro dollar system. Keeping rates higher for longer was as well, keeping them here. And, you know, this whole straight of four moves crisis, it really is an

Starting point is 00:31:45 attack on the euro dollar system in many ways. And the way to think about that is, through the carry trade. So I've just introduced a lot of complexity there. I was going to say. Yeah, I'd love to hear Joe, Joe's the brainiac. So I want to think, you know, I'm curious what he thinks about all these things. I'm the brainiac. What are you talking about?

Starting point is 00:32:06 Get in there, Joe. What's your thoughts on that? Yeah, you know, it's interesting, right? I think the stable coin conversation is a really interesting window. The straight being closed is an interesting window. I'm not sure if you guys saw the latest news a couple of days ago. but Iran obviously late last month, early last month, they said, oh, we're going to be accepting a toll in Bitcoin.

Starting point is 00:32:25 And then Trump shot down a bunch of their planes. Then they said, okay, we're not doing that. But then five days ago, they announced that they would be accepting, they launched a Bitcoin-backed insurance policy. That came just three days after they had about $400 million worth of tether frozen. And they said they specified on their website, which talks about this, this specific insurance policy, that they only accept Bitcoin, which is very interesting because the decision in early April said, oh, Bitcoin and other

Starting point is 00:32:57 crypto. They tried doing it, and then the assets got frozen by the other. And so this is a really interesting moment for Bitcoin, specifically as it pertains to this rate, not to change the subject matter, but that's the thing that I hear is perked up about. You know, we've seen, obviously, else I would or adopt Bitcoin, but in my mind, this is perhaps the most important geopolitical political Bitcoin development in history. And I think this is going to be the first of potentially many moves from other nations who are looking to move out of the U.S. dollar system. And I'm not a U.S. dollar dumer. I was trained by Nick on this. The dollar is going to remain the preeminent world reserve currency, the incumbent for decades to come in my mind. But it's going to get a bit

Starting point is 00:33:37 spicy because we've had these BRICS countries who have been purportedly trying to assemble a hard money-backed basket of currencies. It hasn't worked. You know, they've threatened to arrest one another, like none of them are friends. And so clearly in a very multipolar fractured world order, you need a money that doesn't really rely on any counterparty and that cannot be frozen by any other entity. And Bitcoin is perfect for that. It's money for enemies. And so this begs the question, with Iran moving to do this and showcasing that, look, we can do this at scale and our assets won't get seized. What does that do for Russia, who has had its reserves frozen in 2022? What about China?

Starting point is 00:34:16 Who's trying to move away from the U.S. dollar system? What about India? What about South Africa, right? Smaller countries, but certainly emerging markets, all of which are trying to move to a hard money-backed basket of currencies. And then you have the strategic Bitcoin Reserve, reportedly, there's an announcement coming about that very soon. Don't know how true that is.

Starting point is 00:34:36 Either way, it brings up some very interesting questions, right? Is Bitcoin finally breaking into the mold as a reliable, alternative to trade over the U.S. dollar in a world that's increasingly fractured. I'm of the belief that this is, of course, a multi-decade process, but I'll be curious to see how the U.S. responds here. And if that response will include buying a crap ton of Bitcoin, which I think it might, because if you want to make the lives of Iran and China and Russia really difficult if they're trying to move away from the U.S. dollar system, is buy a ton of Bitcoin before they can.

Starting point is 00:35:13 I want to see if I can bridge those two ideas together there. And Nick, let me know if I go completely astray here. One, I also want to highlight there is the, what is the Indo-Pacific Command, is running a node and exploring Bitcoin strategy as well, too. So you've got that additional U.S. layer to throw on top. With the, so Nick, you're proceeding this potentially as an attack on the Eurodollar system, which, if I understand correctly with the offshore dollar system, are you saying that it's basically trying to have the price of money be set domestically or actually have liquidity, back to the U.S. versus outside the U.S. domestic gain system. The latter, right? Trying to raise rates so much that you're draining liquidity from emerging markets.

Starting point is 00:35:52 Yeah. So the first, the former, they've already, they've already had enormous victories trailing five years to reprice money in the onshore dollar market. That's what Sofer is. Yep. It's a secured rate by Treasury collateral. The latter is, is, is, the attack. It's trying to get money back to the United States. But it's more that you're trying to get money issued by the United States. The Eurodollar system is dollars issued outside the country. So where are the dollars issued? So right now, U.S. companies don't lend to a Brazilian trading with a British company. They don't, they're, they're not involved in that transaction. Those dollars are created by offshore banks to facilitate that trade. The dollars have claims on onshore assets

Starting point is 00:36:55 through banking liability daisy chain, but it's, it's, you're, you're right that you want the dollars to come back to the United States, but it's really that the dollars exist because a bank creates them. So where is the location of the creation? I think that's, what the attack on the on the on the euro dollar system is it's a desire to weaken the ability for offshore entities to create dollars to meet the demand that is there and reorient a lot of the trade through the united states like the attack isn't isn't okay what is the attack it's when the united states says hey send all your tank bankers to the West Coast, load them up, and send oil back to Asia. Well, when the oil is here

Starting point is 00:37:53 and leaves the country, that becomes an onshore transaction. So that's the attack. It's, it's trade flows because the Eurodollar system arose to meet the flow of money outside of the country. So I hope that that clarifies it a little bit on on the Euro dollar side. And I have an idea on the Bitcoin as strategic reserve as well. Okay. So I definitely want to double tap on that as well. And yes, the Eurodollar system, I've tried going down that rabbit hole. It's massive and it's a black box. It's quite hard to unravel. But let's go into the Strategic Bitcoin Reserve, your comments on that. But also, if we're having less dollar creation issuance outside of the U.S., which within, I think, lower liquidity, would that further incentivize people to switch to a different reserve asset like

Starting point is 00:38:47 Bitcoin beyond even the censorability of it? Does Bitcoin have more of a use case outside of the US if we're trying to remove the dollar creation ability from the offshore market? So I think that what you're discussing is what the U.S. government is thinking about. It's also what I told them that they should be thinking about when I was in Washington. So very subtle. Flax. Very subtle. Bessent said this last year, we need better neutral reserve assets. So what he's saying is, we wish you to hold our treasuries to a lesser degree.

Starting point is 00:39:30 I mean, they've communicated this starting at the beginning of Trump, too. We want better global reserve assets and we want you to use them so that you. you are not using treasuries and increase the imbalances that are in the global economy because the U.S. purchases so much stuff from abroad that everybody just has all this dollar stock and uses it to buy treasuries because that's the global reserve asset. That's part of the big problem. And it's everyone's fault. It's not China's fault. The U.S. can blame China for depreciating its currency, devaluing its currency and undercutting the world and dumping.

Starting point is 00:40:18 It's all about dumping, really, when we think about this trump to their approach. They're like, the number one sin is the dumping, right? And that's a currency, that's a currency result. Like, it's just cheaper. And it's, you know, an overproduction, you know, mercantilist sort of way as well. But blaming now as the analyst, I can see why the U.S. pins it on China. But as an analyst, it's everyone's fault. It's the U.S.'s fault also for buying all that stuff.

Starting point is 00:40:53 Like we didn't have, I mean, we meaning the U.S. didn't have a policy to protect us against their devaluation. They could have, but they didn't. Because historically going back forever, and most of the thing that I do, you know, after hours is read history. Protection is over your industry and protection against unfair trade practices is like the number one theme in all of economic history when it comes to policy and governments and kingdoms. So the United States asleep at the wheel, absolutely the U.S.'s fault. bipartisan, by the way, across both sides over multiple decades, you can start it in, you can start blaming them starting in the 60s, 70s, 90s, 2000s, however you want to slice it. It's bipartisan.

Starting point is 00:41:51 And because everyone is at fault, the United States has to understand that China, its policy toward China is not going to fix it. everything. It has to figure out how it's going to fix this issue. And one of the ways it can fix it is to have less foreign ownership of U.S. treasuries. And that seems like it would be a bad thing because you're removing a buyer, but the long-term benefits are going to be there. So it makes it very difficult. This is not an easy task. And Bitcoin, I'm not saying anything original. Scott Bessent said gold and Bitcoin fit this role last year. It is part of their approach. I don't know how much is part of their active plan. It's not like I have some grand insight

Starting point is 00:42:52 into what they're doing. But I do read and watch all the Bessent speeches and public appearances to try to get that sense. So you're circling what they've been talking about it is bitcoin and gold that's that's all that we have in that realm and that by itself is it's so bullish for bitcoin that i really it's a case of man if you're missing that angle you're going to miss out on the next 10 years of bitcoin you know the people that think i missed it on bitcoin they're not they're not seeing this angle because you did miss the first the first five orders of magnitude going from or seven or eight if you want to start at a cent going from one cent to a hundred thousand dollars so you missed every single one of

Starting point is 00:43:47 those orders of magnitude but are you going to miss the next order of magnitude from a hundred thousand to a million dollars you will probably miss it if you don't see the the the forward demand for a neutral reserve asset. Beautiful. You did make a comment there briefly about the strategic Bitcoin Reserve, so I just wanted to see what you had to say about that. And then, Joe, I got some questions for you. Yeah, it actually wasn't about the SPR, but what he said reminded me of another story that nobody talked about. And I wanted to tweet it out, but, you know, some, the day is short.

Starting point is 00:44:29 Fair. this was the headline that the it was the you know I'm going to pull it up because I really don't want to watch it but the SEC essentially allowed crypto stock trading so this is two days ago the Reuters headline is SEC ready's plan for trading crypto versions of stocks Bloomberg News reports so you can you can make the shares crypto form and and trade them on that platform, what does that do for the layered money thesis and Bitcoin and Bitcoin

Starting point is 00:45:06 as the reserve asset of that type of asset? And this will be a walled garden where you probably won't be able to take it out of the exchange and like self-custody your crypto-invedia shares. But maybe you will. And maybe there are markets that develop. And the more that the more that cryptography based transactions are the norm globally, the better Bitcoin looks as the

Starting point is 00:45:38 reserve currency of all of that activity, and the less that the dollar feels like the reserve asset. It'll just feel like another interim crypto thing like a you know, can I curse on this show, Nathan?

Starting point is 00:45:54 Oh yeah, you fucking can't. Like a fucking stable coin, okay? So it really I mean this whole stablecoin thing is like It's the gateway drug to Bitcoin This is not me saying that I don't think that this is an original Take here but it really is in this crypto stock trading Not crypto stock trading the shares themselves are going to become in crypto form So that in whatever native environment there's

Starting point is 00:46:27 there's crypto share trading going on, Bitcoin becomes this natural digital gold. That's the entire layered money thesis. That's why Bitcoin is best described and understood as digital gold. It's why I wrote layered money to explain to people that Bitcoin and PayPal are not the same thing. And I take accounting based offense to that statement. It is just not the same thing qualitatively at all. The only thing you can compare Bitcoin to is gold. Coin Kite has been in the game for years creating hands down the best and most secure hardware when it comes to securing your Bitcoin. The cold card Q is an absolute powerhouse and my daily driver and it's ideal for newcomers and advanced users alike.

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Starting point is 00:48:03 parts, labor, and repairs. They also guarantee uptime. If a machine goes down, their hash rate redirect system routes hash power from their fleet, so earnings don't just stop. And every machine is insured at full replacement value. Everything is hosted in the U.S., powered by Hydro, and mining equipment may qualify for 100% year one bonus depreciation. Learn more at abundant mines.com slash sessions. Joe, I'd love to get your response that I'll even throw in there. I think I saw the CME was pushing for the Clarity Act talking very favorable. I'm not sure if CMEA trades Bitcoin futures already at this point in time, but it seems like

Starting point is 00:48:40 maybe that was their angle. Your thoughts on the, what you say, like the tokenized stocks, it almost to me feels like a push, like stable coins going for dollar usage abroad under the control of the treasury, it almost feels like a reach for more capital flowing into U.S. markets if that can freely move around the world. 100%, right? It's like we are now in this world where it doesn't make sense to restrict access to U.S. capital markets right now.

Starting point is 00:49:10 And also, I just saw a stat and I put out a post about it. It said by 2030, one in five Americans is going to be over the age of 16. And I quote tweeted it and I said, wow, you know, like, if you still think you're getting a dime of your social security check and you're, you know, under 40, you won't be unless they decide to print a ton of money. But the point there being, like the necessity for asset prices to increase no matter what has never been higher, right? All of these people are now going to be drawing on their 401ks. Uh-oh, right? Massive sell side pressure. What do you do?

Starting point is 00:49:41 You make it so that you have tokenized equities. And then you make it so that perhaps you don't need an American depository receipt in or to invest in international companies or whatever the foreign equivalent is to invest in American companies, you just buy a tokenized version of the stock. It also allows for 24-7-365 liquidity. So maybe instead of having the market open and the market close, everything trades like Bitcoin now. So that's sort of the other angle to it. But I think the biggest story, the biggest angle is, you know, the demand for this sort of flywheel of obviously stable coins are one of the biggest on ramps into Bitcoin. Stablecoin legislation really aggressively trying to pass it. We need a

Starting point is 00:50:22 marginal buyer of U.S. Treasuries. It is just so abundantly clear that they are trying to make it so that stablecoin legislation gets passed. It's very favorable. They hold U.S. Treasuries in reserve. More stable coins get issued, more Bitcoin gets purchased, rinse and repeat. And so now, you know, the very thing that Bitcoin was designed to replace or allow the every man to hedge against is the thing that the system is depending on to survive. Very cool and very ironic. And as far as Bitcoin being a better option as a neutral reserve currency than gold, 100%. I mean, this is the reason that Bricks is failing with its current plan of creating

Starting point is 00:51:00 this gold-backed currency, not just the fact that all of these countries' leaders hate each other, but the fact that you can't settle high-frequency, high-volume international trade in something that weighs a ton, like several thousand, several million tons. You're not going to be able to do that in a physical commodity, but you can do it with the digital commodity. And I think now the lines that were previously blurred between Bitcoin and crypto, they were never blurred at the Bitcoin layer. I always threw crypto and quotation marks. We still absolutely despise crypto. But it's like, you know, now at the governmental level, they're beginning to be distinguished.

Starting point is 00:51:36 You see the CFTC talking about how they're going to be the ones regulating Bitcoin. It is a digital commodity, right? Whereas the SEC has jurisdiction over basically everything else. And the Clarity Act, one of the big things is that they're trying to make it so there is a true test that needs to be passed in order to determine actual decentralization, what goes under SEC jurisdiction, what goes under CFTC jurisdiction. And so not only do Bitcoin's monetary properties serve countries who want to settle trade in Bitcoin and hold it as a World Reserve currency better than gold, but also we're now saying that at the. governmental level, right? And that's very important. We're saying that this thing is a commodity. So it's all one big step in the right direction. And in that world where everything is tokenized, you know, equities are traded more via this tokenized form than they are on the New York Stock Exchange,

Starting point is 00:52:30 then you're going to need an asset to hold in the meantime when you're not trading those equities. Obviously, you've got stable coins for that, but more importantly, you've got Bitcoin, too. beautiful all right gentlemen a couple more questions here quick it's so wonderful to have you both on screen i'll just get put you in a nice precarious situation joe end of year bitcoin price what do you think i know there's a good reason though have you ever seen that clip on cnbc where the guy says sorry i can't hear you my audio cut out i was not going to play that trick um my goodness well it all depends on what happens with the war in my mind that is the key thing we know markets have always sold off over the last like six or seven new fed chairs over the 60 days that in

Starting point is 00:53:09 after it, the S&P 500 has always been down, right? So we know that this summer is going to be choppy. It's also going to be choppy because of the war. And so in my mind, the sooner the war can end, the less of a likelihood of extreme demand destruction, the oil shot getting worse, and inflationary recession. And in that world, right, where the war ends, many experts are saying mid-delay June. So I'm saying mid-to-late June, too, because I'm not a geopolitics guy. So if the war can end before mid-delay June, I think that the likelihood is very high, that Bitcoin ends the year at a brand new all-time high, right? Whether that's marginally above where we were, whether that's at $150,000, I do not know.

Starting point is 00:53:48 But I do believe that the balance of risks are tilted in Bitcoin's favor, probabilistically if we can end the war before mid to late June. If we can't do that, in my mind, the risks are extremely high that the oil shock continues. At that point, it will have been four months since the straightforward-form moves was closed. Obviously, we export, we import extremely cheap oil. And it's responsible for 20% of the world supply. We've already begun seeing the effects of that. You pair that with a consumer that's sort of on the brink,

Starting point is 00:54:17 despite the fact that right now, the economy, the U.S. economy is in expansion. I think the longer you allow the war to drag on, the increasingly likely it is that we start to see. We see an even bigger asset sell off the long we see now. We see a true inflation or a recession occur. So that's sort of how I'm thinking of things. So I'll say that. I'll be probabilistic about it. I think if war can clear up soon and later, $150,000 Bitcoin, I wouldn't put too.

Starting point is 00:54:43 I would assign that a high probability. If not, maybe this price is a good price to end the year at. I don't know, maximum pain. Beautiful. And then just for the fun of it, Nick, your old colleague here, let's assume the war ends mid-June, over, under on the 150 call. Under, but I like Joe's probability distribution. That's how I like to think.

Starting point is 00:55:06 I think if you have a range and you think, well, of this, and then if that, you're approaching it the right way. So I'm very in line with the way that Joe's thinking about it. I think the distribution somewhere between here and 150 is right. I've also been thinking all-time high by year end. I'm around 50-50 that we can get that. So, I mean, that I think just with what Joe is saying, I want to, can I just on the 4.5% because we didn't get to finish. Yeah. I wrote it down because I'd like to close the loop.

Starting point is 00:55:39 The U.S. economy can take four and a half. The U.S. stock market can. Can it take five on both fronts? I think potentially yes. But where can't? Where can't the economy globally take U.S. 5% rates? It's many, many places. And so DXY, the dollar index is the best place

Starting point is 00:56:05 to watch when it comes to what that tolerance level is for the world to stomach that type of inflation-induced higher interest rates, which that's why a lot of this talk comes down back to the straight. I love it. Nick, where can everybody go to check out your work? The Bitcoinlayer.com is where you can find everything that we're doing. So a couple places that you guys can go from there. You can go to TBL Pulse.

Starting point is 00:56:35 This is our new data terminal. It's free to try. You guys can see TBL liquidity index for free there. And if you want a more intensive research experience, we do that on Substack, the Bitcoinlayer. Dot substack.com. Absolutely love it.

Starting point is 00:56:51 And I just want to reiterate. It is so at least personally nice for me to have you guys both on the screen together again as well. Joe, where can everybody go to find you and your work, sir? It's a true throwback Thursday. This is being uploaded on Thursday. not that it's a throwback whatever day of the week it is. But yeah, if you want to find more of my work,

Starting point is 00:57:07 you can, if this is a collab post, you can click right there, and then click Joe Consorti, the one with the glasses. And then if you're watching this on YouTube, you can search Joe Consorty up there. Find my videos. If you enjoy this episode with Joe and Neck,

Starting point is 00:57:20 check out the previous episode with Doomberg and James Lavish or the recent live stream.

BTC Sessions - ‘Bond Market Fire Alarm’ The Next Financial Crisis | Bhatia & Consorti

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