TFTC: A Bitcoin Podcast - #610: The Basis Trade That Could Crash Everything with James Lavish

Episode Date: April 23, 2025

Marty sits down with James Lavish to discuss the large scale basis trade hanging over current markets. James Lavish on Twitter: https://x.com/jameslavish The Informationist: https://www.jameslavish.com/ Bitcoin Opportunity Fund: https://www.bitcoinopportunity.fund/ 0:00 - Intro 0:36 - Educating financial literacy 7:05 - Bond Yields 10:54 - Fold & Coinkite 12:26 - Bitcoin decoupling and tariffs 16:19 - Diving into the basis trade 29:10 - Unchained 29:38 - Flights to safety - Gold & bitcoin 39:51 - SAB 122 44:09 - Strategy 48:59 - Hashprice 57:15 - Plugs Shoutout to our sponsors: Fold https://tftc.io/fold Coinkite https://coinkite.com Unchained https://unchained.com/tftc/ Join the TFTC Movement: Main YT Channel https://www.youtube.com/c/TFTC21/videos Clips YT Channel https://www.youtube.com/channel/UCUQcW3jxfQfEUS8kqR5pJtQ Website https://tftc.io/ Twitter https://twitter.com/tftc21 Instagram https://www.instagram.com/tftc.io/ Nostr https://primal.net/tftc Follow Marty Bent: Twitter https://twitter.com/martybent Nostr https://primal.net/martybent Newsletter https://tftc.io/martys-bent/ Podcast https://www.tftc.io/tag/podcasts/

You've had a dynamic where money's become freer than free. When you talk about a Fed just gone nuts, all the central banks going nuts. So it's all acting like safe haven. I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins. In the world of fiat currencies, Bitcoin is the victor. I mean, that's part of the bull case for Bitcoin. If you're not paying attention, you probably should be. Sitting down with James Lavish, the number one trending

trader in Substack's finance section right now. How's it feel, sir? I got to admit, it feels fulfilling. It's satisfying. Yeah. I put a lot of work into that newsletter. Well, it's really good. I've been a paid subscriber for, I think, a couple of months now.

not too long but you wrote an article on the treasury basis trade and when i hit the you must pay to read the rest of this i was like you know what i'm gonna actually pay because i want to understand it's better awesome awesome what do you think is driving people towards the informationist right now um well you know it's funny because this morning scott bassett was uh he was quoted is saying that we need to make people in America financially literate. We're not financially literate. We're not taught these things. Marty, we're not taught them in grade school, not in high school, not in college. Even a lot of these concepts are not taught when you go get an MBA, even a finance MBA, not marketing. And there's a need for just education, general,

big macro picture education, how all these things work, the Fed, the Treasury, bonds, bond yields you know um and then of course uh the new asset classes of bitcoin um and you know how it all kind of works together but the real need is for it to be simple and so um i started the newsletter a little over i guess it's almost three years ago because um i'm on what's got to be over three years now because i'm on i'm an issue over 162 163 and so once a week you get there so um But I started it because I noticed that there was just everybody talks and acronyms and high, real, real, like high concept, confusing topics. And I just constantly had people ask me, what does this mean? What does this mean?

What does it mean? So I just decided to start the newsletter that simplified it for them. And so the newsletter is supposed to be educational, really big concepts and the stuff that's really important about these. you know it's not it's not the it's not the simple stuff but it's simplified um you know so that was the point and it and it's been very well received people really like it so correct me if i'm wrong but if i recall correctly one of the things that led to newsletter you did a long thread on twitter it was twitter at the time on treasury auctions and how they worked yeah was that the inspiration for the

for the newsletter? There was kind of one of them, you know, uh, quite honestly, what it would really happened is I was toying around the idea of doing something crypto, something, um, something financial. And so he'll bloom of all people put out this request and he said, Hey, is there anybody out there who wants to team up and do a financial newsletter? There's a great need for a simplified financial newsletter. And so I reached out to him. He didn't respond. I only had like 10,000 followers at the time. So I wasn't a big enough account to, you know, to be in a teammate of his, I guess. So, um, and about, you know, two or three weeks later, I said, you know what, I'll do it. I, I, I can write, I've written for, I'm, you know, I've written many letters over the

years for our fund and I simplify stuff and I'm pretty good at simplifying topics for people. I remember, you know, I, I, I like to, I like to make people smarter, you know, like it's really fun to explain to somebody when they say, well, how did you start on Wall Street? And I tell them about arbitrage. And they're like, what is that? And then at the end of the four or five minutes, they're like, God, I think I could actually, I understand it. I get it. And that's fun. I like that. So it empowers people because then they can turn around and use the, not arbitrage, but they can use these concepts in managing their own portfolio, their own wealth and understanding what's happening around them. And that's really the most important part. And it's what you and

i get to every single day which is why is bitcoin so important today why is it so important for everybody to understand this this new asset class and um and that really i like to lead people along the path and have them make their own determination yeah it's a no-brainer of course this is what i need because of the evidence that's out there so well on that note i think for me personally i actually sent a tweet out a few hours ago before hopping in the studio that it has never been clear to me that the world needs a neutral reserve asset for the digital age than it is today if you hold bitcoin tying in everything here yeah you are basically arbitraging the information asymmetry that exists because i i saw that tweet actually i saw that that's a great that's a great

quote actually i love that so actually i want i want you to actually read the tweet because there's actually it's a great tweet and uh and i uh and it resonates because it's exactly what we're talking about there's an asymmetry there's an there's an arbitrage of of understanding right yeah it's uh and again i think that's something me personally many people in bitcoin that they're they understand this but most they don't understand that most of the world doesn't and i think to what you're just saying too i think while why the information is so important right now i got a paid subscriber but a big fan following your your threads but you've heard about something that i really don't understand which was this basis trade and i paid to

understand you write about it very clearly and i understood it way better after reading it but i think as you mentioned scott percent out there we need better information i think people are are looking at the world looking what trump's doing with tariffs looking at equities markets right now looking at bond yields and saying something's wrong here uh what is it what where is the signal and i personally think bitcoin's the signal but there is this information asymmetry that people don't realize and i think what excites us is people who are in bitcoin for for many reasons one of which is if that information arbitrage sort of that gap closes that means bitcoin's going to go up significantly and so i think it's trying to tie all those things together

to basically highlight to people there are some alarm bells over here you should be worried about it here's why bitcoin's a solution yeah i mean today uh bitcoin diverge you know the divergence from bitcoin and and uh risk on assets like the nasdaq and and uh regular stocks at the same time that bond yields are going down. Actually, I'm sorry, the bond yields are going up, so bonds are going down. So you would think that the flight of safety would be to bonds. And for people who are new to this whole game, when you buy bonds, you're buying them at above or below par, right? And if you buy it below par, that means you're buying it at a discount, which means that the interest rate you're effectively paid, because you're getting

paid coupons on these things. Those coupons are set. So, if you paid less for the bond, then that coupon becomes just a larger percentage. And so, that's why yields go up when bonds go down. And that's the way it works, right? So, what you would think, stocks going down, well, then bond yields would probably be going down too because bonds are going up because that money would be flowing into safety assets, like the risk-free asset, which is the US Treasury. Not really risk-free. We know that. We talk about that all the time.

But that's the quote on Wall Street. Risk-free is the U.S. Treasury. It's not. It's not risk-free. We learned that the hard way during the pandemic when we way overprinted money. Not we, the central bank, the Fed, way overprinted money, caused massive inflation from the expansion of the money supply, massive asset inflation, massive inflation across financial assets. And because we're so financialized as a nation, everything went up in price, along with supply issues and supply chain issues and bottlenecks and all that.

But that was kind of a goat that should have gone through the bow and gotten out the other side. It never did. And we had this crazy inflation for years and years because of the expansion of the money supply. Let's just call it what it is. So you saw bond yields. what happened was bond yields spiked because Fed funds went up and bond yields went up in order to compensate investors for that high inflation. So if you're a bond trader, you're not going to buy a 10-year treasury at 2% if inflation's at 5%. You want to be compensated

for that. And so, when that interest rate goes up, the bond price goes down, and all these banks, all these community banks that were holding these treasuries got absolutely annihilated. And that's ultimately what caused the collapse of Silicon Valley, Silicon Valley Bank two years ago. And that's kind of, if people remember back, well, that's not risk-free to me. That sounds risky to me. It's risk-free in the sense that, yeah, if you hold it to maturity, it's a non-zero probability that the US will default, hard default on that. But it's about as close to zero as you can think of because the US Treasury has the ability to team up with the Fed and print money to buy its own bonds. So of course, they're not going to default. They're just going to just print

money and make sure that these things are always trading. And so it's called the soft default. And that soft default is inflation through expansion of the money supply, which is debasing the US currency every single day in order to keep this whole debt charade going. And that's kind of the point, right? Listen, Freaks, I know you're tired of me talking about Fold, but i'm going to beat the drum i'm going to beat the dead horse if you're a bitcoin or living in the united states and you're not using fold i'm just going to ask one question what are you doing you're leaving sats on the table they've got gift cards they've got their debit card you can use your credit card just connect your credit card to the fold app use the fold out to pay off your

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and you're looking to get it off secure it in the best way possible pick up a cold card queue go to coin kite.com find the cold card queue use the code tftc for five percent off if you're a power user of bitcoin like i am if you're running a business on a bitcoin standard if you're just a bitcoin or wants to secure your bitcoin get the most secure hardware wallet on the market go get the cold card queue it's a beautiful thing and i think that's the question of my mind right now i've uh jumped the gun quite a few times over the last 10 years trying to trying to say something like this but this and it's one day of price action but uh yields going up stocks going down bitcoin going up divergence people have been throwing the decoupling

meme out there not quite confident enough to do it but i think for the longest time like you said treasuries have been that flight to safety you know that the fed is going to monetize the debt that the government needs them to which happened historically many people rightly or wrongly assume that will continue to happen but i think is there something special about the environment we find ourselves in today particularly with trump uh posturing as he is towards jerome powell that is beginning to stoke uncertainty in bond uh bond investors and the fed's willingness ability uh to do that moving forward and that's why we're seeing this dislocation of markets that one day could be anomalous but if it continues yeah is that what that's signaling well there's

there could be cross signals here there's a bunch of signals right so you let's just let's back it up and talk about like big picture what's been happening well trump has threatened uh to enact these uh to enforce these tariffs on on all these countries and uh big tariffs and so um that has caused quite a bit of angst for a number of reasons there's angst with uh people who import materials and goods to sell here in the united states so you you're getting some misinformation of the actual demand, the underlying demand of the economy, because you've got manufacturers and suppliers who are importing goods in order to get ahead of that tariff. The underlying economy has not been doing that great. There's a lot of negative indicators out

there. And so we're just watching these things and seeing if they continue to kind of snowball. especially things like the unemployment rate, now that you've got government jobs coming out and all of that. So you've got the economy is clearly softening. You've got cross-current of information of what are the actual trade numbers? What are the actual purchasing and index and the PPI and all that? What's PMI? What are all these telling us? And then at the same time, you've got investors who are worried that the earnings of companies are going to get negatively impacted. At the same time, you've got bond investors worried that, well, if we're going to hammer China with these huge tariffs, they're going to turn around and they're going to shore

up their own currency. And they're going to turn around. And the way they do that is by selling treasuries that they have. So if they sell U.S. treasuries, what does that make the treasury do? It goes down in price and yields go up. Something we may be seeing here, right? And so, or it could be traders getting ahead of that, worried about that scenario where China starts selling bonds and not just China, other countries too, selling U.S. treasuries in order to get dollars to sell those dollars and buy their own currencies. Those are all, those are possibilities. You're seeing the dollar go down in value against other currencies across the board here. The DXY is down. And that suggests some of this is happening or just the confidence in the

US dollar, the US treasury is waning. That's all happening. And then you layer on top of it, Marty, that basis trade I was talking about. And that's kind of like the powder keg that is behind the scenes that the very, very intelligent investors know about. They understand it. And they're watching carefully. They're watching credit spreads. They're watching the spreads of the bonds to the futures, the bond futures. And they're gauging whether or not this trade is going down the path of blowing up in hedge funds' faces. And there's a reason that this matters. And we have a history of this, right? So you are younger than me. You likely weren't paying much attention to this back in 1998. But I was a trader at a hedge fund. And we were doing

all kinds of arbitrage strategies, convertible arbitrage, merger arbitrage, risk arbitrage, pairs trading between different companies. We had books and books and books, billions of dollars to work in these arbitrage trades. And there's a hedge fund, large hedge fund called long-term capital management. People have heard me talk about this before. And in 1998, long-term capital management was doing very similar things that we were doing, plus other things, which included something along the lines of the basis trade that we talk about today, where they're arbitraging bonds that are similar, and they're just pulling out a few basis points from these trades. but in order to make it really profitable they had to lever it up and so they levered their book up

like about we we we estimate it was a hundred x or more a hundred times leverage or more so they had a billion dollars of capital but they had over a hundred billion dollars of trades in swaps that we that we estimate so now go back to 1998 when all this this is going on and these i mean these are geniuses that came up with the Black-Scholes model, by the way, the pricing model for derivatives, for options. But they weren't very good portfolio managers, took on way too much risk. And so, the problem with this is it became binary. And what I mean by that is that once the Russian ruble was devalued and these bond spreads kind of blew out just kind of overnight, All these trades, they went against long-term capital management so quickly and so largely

that the entire street heard about it and started unwinding all their similar trades that they had on that were similar to these arbitrage trades that they had on. Even stuff that had nothing to do with the basis trade, had nothing to do with currencies. It was just like merger arbitrage. So we had a billion dollars of merger arbitrage positions and they blew out. Like these positions blew out huge. When you have a spread in a merger arbitrage trade, it stays very tight from the time it's announced all the way to the close.

That spread gets smaller and smaller and smaller and smaller until it closes and then it goes away. You deliver one security to another, you take that arbitrage and walk away. because it doesn't matter what the market's doing. Only thing that matters is whether or not that merger closes. Well, all those trades were blowing out, not because of anything that was going on with the companies and whether or not they were going to all merge or not.

It had to do with liquidity. And everybody knew that long-term capital management was unwinding these massive trades. They're like, oh, get out of the way. I'm going to let this thing go. Let them unwind their trades at a loss. And then we'll come in and scoop them up, which is exactly what we did. We came in and scooped them up. We made these huge spreads that we should never have been able to make.

We had an extremely good year in the merger arbitrage book because long-term capital management blew up. But going back to the basis trade, what happened was these guys had those interest rate arbitrage trades on, and they started going against them in a big way. And their counterparty risk in this whole trade was their main prime broker, which is your main broker for a hedge fund. Goldman Sachs was on the hook for a lot of this stuff. And so it spread around the street that they were going to blow up, that Goldman Sachs was going to go under. And if Goldman Sachs goes under, they're going to take down the whole street with them.

because the counterparty risk just would just then it would it's called contagion where it goes from one bank to another bank to another bank and all of a sudden you have all these banks that just fail and so the the fed the new york fed was in panic they orchestrated a bailout for for goldman sachs overnight so that sets the stage for where we are today it's been done before the fed helped orchestrate the trade they didn't they didn't print any money they didn't do anything but they helped orchestrate it, right? They led that bailout basically by strong-arming other banks into helping Goldman. Well, now you fast forward to today and you've got reportedly $1 trillion, a trillion dollars of these basis trades on, 10 times the size of the long-term capital management

books. But the difference is it's spread across all these hedge funds. It's not just one hedge fund. And it's spread across all these banks. It's not just one bank. And a lot of these positions are levered 20, 50, 100 times to one in order to make that one or two basis points into something that's actually attractive, right? Those few basis points, whatever it may be. And they're doing with very little capital. And so here's the significant part about it, Marty, is that we're watching all this. And I don't know if these trades are being unwound, but I can tell you that there are hedge funds that are anticipating problems of other hedge funds with them. And so they're getting out of some of these trades. And that's why you're seeing

some of the movement in the yields, I believe. But what's happening is, and what's so important about this is that to get an idea of how impactful and how explosive this trade is, they had the Brookings Institution. For those of you who don't know what that is, it's a think tank out of DC. And it's basically a tacit research arm of the Fed. I mean, it's a very strong statement. But what I mean by that is that there are a lot of former Fed officials that work at Brookings Institution. And they research and float ideas and policy there to kind of see how they're received, you know, and what people think about it and what the Fed thinks about it. And so they, for instance, they did, and I've said this before, the SOM rule, the Claudia SOM

worked at Brookings Institution. She was a lower Fed official. She worked at Brookings Institution. She came up with something called the SOM rule, which is that unemployment rate rule that if you – to keep the numbers very simple for everybody, basically, if the unemployment rate goes up by more than half a percent from the bottom in a cycle, that means we're in a recession. We've gotten very close to that. But that's a rule that the Fed looks at now. That's something they use as a gauge to say, okay, we're in a recession. We've got a lower rate. They haven't seen it yet. It's very close.

But that came out of the Brookings Institution. So now, go flash forward to today, you've got this basis trade. And the Brookings Institution put out a paper, a research paper. And they said that this trade is so big and it is so dangerous that the Fed has to come up with some way to ensure that we have liquidity in our bond market if this thing blows up. Because what happens if a trillion dollars of bonds come to the market from this basis trade? Well, it doesn't stop there.

It causes margin calls on everybody that is close to a margin call, which will cause margin calls on more people, so more investors. So if you remember back to the UK guilt crisis a couple of years ago, what happened there was something somewhat similar where pension funds in the UK were, they were leveraging up their bond portfolio in order to get better returns because the yields on bonds were so low because all these central banks were running very low interest rates for so long, for over a decade that you were, you know, you couldn't, 2% was not getting you what you needed for your liabilities in the future for these pension funds, because they know what their obligations are and they

weren't keeping up with those obligations. So what did they do? They levered those trades up. What happened? Well, you had a finance minister come in and announce all these tax cuts in the UK without a way to pay for them. And the bond market said, oh, my God, that means they're just going to print money. These bonds are worthless. We need a higher interest rate to be compensated for that higher interest, that higher inflation rate. So I get a real rate of return. So we need to step back and let these bonds go to a price that actually makes sense. And what happened was the pension funds blew up because they had all these levered trades

on, right? So then the Bank of England comes in because the pension funds basically just, they called up the Bank of England and said, we're like all going to fail this afternoon unless you bail us out. And so what did they do? They swept in, they came in, they printed money, they bought bonds, they bought the UK gilt, and they saved the market. Well, why does all this matter?

Well, it matters because what happened was one pension fund started selling, then another one had to sell, then another one had to sell because it kept going to prices that were tripping these margin calls for everybody, even in these treasuries, the UK gilts. This is crazy, right? Well, the same thing can happen here. And that's what the Brookings Institution and the Fed is concerned about. Oh, my God. What happens if we start tripping margin calls on treasuries?

The pristine asset of the world. This is literally the base asset of the world. It's the benchmark treasury, the benchmark bond of the entire world, the 10-year treasury. Well, what happens if that starts selling off rapidly, violently? Well, then you're going to start tripping these margin calls and it's going to snowball. And then first you get disorderly bond markets, then you get disruption, then you have a catastrophic sell-off. And they can't have that happen.

We can't have that happen because we got $36.5 trillion of treasuries that are out there um, that is on our debt and we are running multiple, like multi-trillion dollar deficits, regardless of what Doge is doing there, we're running deficits that we have to keep borrowing. We can, we, the bond market must go on. The U S treasury market must be liquid. It must be stable. And if it becomes unstable because of something like this, then it's a big problem. So here's the punchline. The Brookings institution came out with a solution. Well, we've got it. We've got the solution. What we're going to do is instead of printing money this time, the Fed will just take the whole trade off of the hedge fund's books. They'll take the long side and the

short side. That way, the Fed is hedged. They don't have any risk. And we save the hedge funds. You know, hallelujah, the bond market's liquid. Everybody just go home. Thank you for playing. And we'll just keep going on our merry way. Absolutely, utterly fucking maniacal. like literally out it's insane the thought of the fed becoming a hedge fund it's just it's it's it's nuts but that's a paper they put out for everybody to read and they floated this as an idea for policy and if you have if you have any question about how dangerous this trade is that should tell you everything you you want to know and need to know yeah so is that a roundabout way for them to introduce yield curve control without calling it?

I mean, that's a direct, like, well, we're just going to come in and just take this. So stabilize the yields exactly where they are. Exactly. Our good friends, Parker Lewis and Dhruv Bansal are two of the deepest thinkers in Bitcoin. While they come from very different backgrounds, they've landed on the exact same conclusion. It's Bitcoin that matters, not crypto. This masterclass lays out why 21 million is the key breakthrough, how Bitcoin, not blockchain, creates decentralization, why everything else will be built on bitcoin understand why bitcoin works and why nothing else does watch the premiere at unchained.com slash tftc that's unchained.com slash tftc and so this was happening i think

april 9th it's april 21st today so 12 days ago it was tuesday night and people it was right after it was a week after liberation day and everybody like at market close yields were going out and people like oh china's dumping they're pissed at us for tariffs but as the night got longer and we got later into the day towards the uh towards the 10th and the 30 year and the 10 year were screaming people were like it doesn't seem like this would be china dumping this is not how they would sell they were doing it and zero hedge wrote their piece that day too where they highlighted two years ago the citadel 0.72 millennium all these multi-strat hedge funds that were doing this basis trade yeah at the time two years ago were 20x leverage and you just play

that forward to today and you know people are saying 100x leverage i guess the question is like is there any feasible way to unwind that trade outside of overt intervention from the fed not rapidly not quickly you know i mean i would it would it would it would be uh it could be catastrophic to the market yeah so you've got it i would imagine some of these um some of them are unwinding some of it but i'd also imagine marty that you've got hedge funds who are stepping into it you know like they're looking for opportunity if they see an opportunity they think that they can stomach they're going to step into it so it might just be moving from book to book we don't know it's hard to tell and so much of it is on swap you just it's hard to tell yeah that's i

mean considering the the nature of how large this trade is and how entangled it was and the knock-on effects it could have on broader markets it doesn't mean like because that's another sort of narrative that's been floated out there and it seems to be confirmed by the administration is that you have the our economy isn't let them eat flat screens scott percent and trump saying uh what's good for the mag 7 isn't necessarily good for mega americans and like is there a sense within the administration that they they don't care about these hedge funds blowing up on this trade yeah but here's here's the thing though um we're so financialized like i was saying as

as a country as an economy if the stock market blows up i mean really blows up we we're headed for a deep recession and the only way we can pull out of that is by printing more money So, what happens to bond yields? Bond yields will go up in that scenario, because the bond traders, the vigilantes are going to want to be compensated for the clear and obvious inflation that's going to come from another expansion of the money supply. And so, that's the issue here. So do bond yields go down to 2% because we just grind into a slowly grind into a recession here?

Or do they spike up to 5%, 6% because we have blown up the economy and the Fed's turning around and printing money to oblivion to save it? It's a good question. And that's why you're seeing a lot of uncertainty in the market. People don't know where we are on that spectrum. And some of it has to do with, you know, headlines and a tweet, you know, from Trump. I mean, he could just tweet something and it just spooks the market to the point where, you know, you have the Nasdaq sell off three or 4%. Oh, well, look at that. It's down 2.5% today. You know, it was down over 3% earlier, I believe. But here's the telling thing. The telling thing is that bonds are not acting like they should as a flight to safety. That's number one. And number two, gold is absolutely

ripping higher, rocketing higher, because it is a flight to safety. And investors are looking for a place to put money to just protect it. And gold has been a strong store of value for centuries. And now we get to the question about Bitcoin. And Bitcoin diverging today is very interesting. It's interesting because is it following gold? Is it finally, are people just realizing, like you said, that arbitrage, is that closing, that understanding arbitrage? Is it just because the dollar is so weak, which means that the dollar Bitcoin price goes up? That's part of it. We were talking this morning on a different show, on the Macro Monday show.

And Dave Weisberg brought up a great point that over the weekend, Charles Schwab talked about having a platform to trade crypto. and you know i've been talking about this for a number of months now that sab 121 the repeal the full repeal of that through issuing sab 122 for those who don't do not know what i'm talking about this is where the fed a couple years ago did an end zone run around legislation and they they put out this bulletin that basically said that banks had to hold bitcoin as a live had to hold Bitcoin in crypto as a liability on their balance sheet, even if it was just in the customer's account. So it basically prevented banks from dealing at all in crypto.

And this was kind of an aspect of Chokepoint 2.0, where they just didn't want the banks to be involved. And, you know, you can kind of speculate who would be driving that, but up in D.C., it's clear that Elizabeth Warren and her anti-crypto army were a very big part of all this. Um, because when the Fed did that, and then, um, a number of months later, almost a year later, I think, uh, Congress met and both, um, Congress and the Senate passed legislation to repeal SAB 121, which is that bulletin. And, uh, and then it got to Biden's desk and, and he vetoed the repeal. And that was clearly, clearly he was pushed and advised by that psycho, the psychopath from Massachusetts, Elizabeth Warren, who has absolutely, she has done nothing good for this country, clearly.

Just a lot of talk and a lot of money going into her pockets. Insane. I don't know how Massachusetts keeps voting for that person. But in any case, he was advised by her team and other teams to repeal it, to veto that repeal. Finally, we get Trump come in. Trump comes into the office. Gensler resigns.

A new bulletin comes out, SAB 122, that repeals SAB 121 and says that banks can own and hold crypto and Bitcoin for customers without having to put it as a liability on their balance sheet. And so now that's a very, very, very, very, very big deal. It's a really big deal because you will have banks like Chase and Citigroup and Wells Fargo start dabbling into this space, especially in Bitcoin. And I expect other ones. I expect Ethereum and Solana and other ones.

But they're going to start dabbling in these and allowing customers to buy and hold them right there at the bank, which is new. This is huge. you know, because you don't need a brokerage account. You know, you can do it right there. You can do it right to your bank there and they'll hold it for you. Like this is going to be a big deal. And I think it's, I think it's under appreciated just how important it is that banks will now get into this game. And this is part of the first, they, they, they fight you. Right. And then at the end, they join you and here they are, they're, they're right on the cusp of

that. And that's a big deal. So that could be part of this too. But I think it's a combination of things, Marty. First of all, I think unless we get another meltdown of the market where everything correlates to one and that's just reality, the only thing that may not go down in that case is gold. But I think that even gold would. Because when everything correlates to one, it means that you're getting margin calls everywhere and you sell what you can not what you not what you want to you know um and so everything ends up going down because you have to meet you have to get cash to meet margin calls because everybody's levered so in that case bitcoin will go down but as we as it stands here today it appears we've we've um hit a local bottom

in Bitcoin down at the $74,000, $75,000 range. And we've recovered from that. And now we're bumping up against some serious resistance at the $88,000, $90,000 level. And we've got to kind of break through that mentally and hold that for this to stand. But I think that Bitcoin's catching a wave similar to gold, where you've got investors who are putting money in both gold and Bitcoin. And that the US dollar being weaker is making Bitcoin stronger as well. And so it's a long way of saying that the decoupling, I appreciate it. I like it. I want to see it continue. And we're going to have to see weeks and months of this for it to really hold. But it's that information understanding arbitrage you were talking about. And that's

really what's going to drive this long term and uh and that's going to make people understand that bitcoin is something that should be allocated separate to every other asset class out there not only that but to your point of first they fight you or first they ignore you then they laugh at you and they fight right then you win or they join you like that you wrote about it a couple months ago too or maybe last month but like if now with sab 122 with this administration and the regulatory overhang that existed under biden uh gensler yellen is gone like embracing bitcoin as a collateral asset um in the private sector and in the public sector like everything you just described with the basis trade and the amount of debt that exists in the system and how

everything's levered up it's uh unnerving just to look at it and the gravity of it and think oh my gosh how do i how do i fix this um you're gonna have to print money but at the same time when you're doing that it's like all right you begin to introduce the antidote to that and i think like bitcoin as collateral whether it's via something like bit bonds um so that the treasury can roll over debt at lower rates to solve that interest expense problem and hopefully take care of the debt at some point in the future or the private sector where it's like your underlying collateral as either treasuries or assets that are suboptimal as collateral assets and using sab 122 as a way to begin introducing bitcoin as better collateral into the system right and that's that's

that's exactly right so we'll come up with all these different um products that are just not available now you know lending products uh collateralized products exactly you're talking about you know put them in mortgages put them um allow you to borrow against them to to have lines of credit you know like that's going to be it's going to be interesting that's not going to happen today but that's happening it will happen yeah what do you think this does for bitcoin if we truly do decouple and you basically run with the fact that bitcoin's more receptive banks can use it seems to be decoupling now but also taking the fact like how much money is probably going to need to be printed to solve this well yeah yeah and so when you take that into account marty what what

happens is the smart investors start reallocating money out of bonds and into bitcoin and that and then that's it that's like bitcoin will gain so many assets like there it will be it it will be um the total market value could double you know very rapidly um and um now that's i i still believe that's a little bit ways off because of what you said in your tweet earlier your post earlier which is there's an understanding arbitrage you know there's an information arbitrage people are not getting it yet but when they do and it does decouple completely and it starts acting a lot more like gold does and uh but it's gold on rocket fuel because it's its adoption phase and of course it's going to have its volatility because any any asset in

adoption phase is going to have a volatility but volatility to the upside of course you and i have talked about this both before is it it's a gift a volatility is actually attractive in a rising asset because it gives you the opportunity to dollar cost average in or find spots that if you're if you're a savvy investor to find spots to add extra capital during those super volatile periods so um yeah i believe that that's the key though when you start seeing investors allocate reallocate out of bond portfolios or out of their bond allocation into bitcoin man that's it that's going to be that that to me is where that's really the um that's the that's the pool that once Bitcoin starts drawing from, it's a $330 trillion pool. Once Bitcoin starts drawing from

that, lights out, game over, watch out. I would not be short this thing. Do you think strategy and how they've been tapping the convertible debt markets is a canary in the coal mine for that larger trend? Well, I mean, it's a little bit different for them, because what are they doing? So MicroStrategy, now known as Strategy, what they've been doing, and I've had long talks with their treasurer, Sharish, about this. They've found a way to capitalize on the underlying volatility of their stock that's tied to Bitcoin. Well, how did they do that? Well, volatility is attractive on Wall Street in some instances. And this is one of those instances where the volatility of the underlying stock allows strategy to issue bonds that are convertible into common stock called convertible bonds that the investors, hedge funds, love because this is a rising asset.

And MicroStrategy's Bitcoin is a rising asset. MicroStrategy's stock is directly correlated and tied to Bitcoin because it owns so much Bitcoin on its balance sheet. And so the volatility to the upside is attractive to convertible bond traders, the hedge funds, because they can buy these and have that optionality of converting these bonds into common equity later at a price that is highly profitable and it goes through the strike price and they get a whole bunch of extra money out of it basically. So that's one part that's attractive. The second part that's attractive is just the volatility intraday, day-to-day, week-to-week because

they can trade around these things. What do I mean by that? Well, they own the bond. It's convertible into a certain amount of stock. I know you know this. You're a savvy investor for 1031, but for the listeners out there, it's convertible into stock. And so what these convertible bond owners, the traders, the hedge funds will do is they'll do something that's called a delta hedge. The delta hedge is the delta is the optimal amount of stock to be short against the bond. So you're short the stock, you're hedged-ish. So when the stock goes up, you can shorten more and when it comes in you can cover and you can trade around that all the way through to expiration and make money on this volatility and so it becomes

it's the volatility is attractive it becomes an asset to microstrategy to strategy and so because of that they're able to issue these bonds with zero coupon so the bond traders are not like we don't care about the interest rate. We don't care about getting 5%, 6%, 7% interest on this. We want the big stuff. We want the big moves. We want to be able to delta hedge this thing to give us a better strike price. Give us an attractive strike price instead of attractive yield. We'd rather have that. And so that's basically what they've been able to monetize that. They've been able to monetize the underlying value of that volatility that's attached to their stock. And here's the best part about it is they do it every single time they do it, it becomes more closely tied to Bitcoin and that volatility creates more opportunity to do more.

And so, of course, they continue to do it. And so that's that's what they're doing. So it's a little bit different. And I would say that rather canary in a coal mine, more just the largest signpost out there that this is an asset you should have on your balance sheets because this is something that is going to be extremely viable for any company to have on their balance sheet in the future. as long as you think it's not going to collapse and go to zero which every the the funny thing about bitcoin is that the more it goes up in price the more stable it is the the bigger the the network grows the the you know the higher the hash rate i mean the hash rate is that's the canary in the coal mine that's the what is going on with the hash rate is it is absolutely screaming to all-time highs and i would love to hear your thoughts on this

because i have thoughts but it's almost mental where this has gone it really is i mean especially considering i mean we had two very good years from a return perspective in 2023 and 2024 but hash price like the value uh in sats or dollar terms per hash he produces a miner is still at basement levels i think it's like four and a half cents a terahash per day right now which is not a lot it's historically it's been anywhere i mean i think the the mean of last cycle was around 10 11 cents and at the time it felt very low for people so we're 60 below that and despite that hash right screaming i think it's a combination of things number one the machine's getting extremely efficient the amount of terror hash you can

produced per joule of energy provided to the machine is going up significantly becoming more efficient so the machines you can do more with less energy um so that that's definitely affecting uh hash rate i would imagine but i i have to think that there are nation states i mean you play into the game theory of bitcoin you want to acquire it without signaling to the market and And I think it's very hard to keep rumors of OTC desk out of the broader market. So if you want to acquire Bitcoin without going through that mechanism of calling a desk and saying, hey, I'm from Y government and I need X amount of Bitcoin. And then that broker goes and says, hey, guess who I just sold to?

You buy ASICs in an obscure way. You plug them in and you mine that way. if you're a nation state you're you plug them in in in nowhere siberia that nobody can see what's going on yeah and you start mining bitcoin that's right and you do it at with very efficient machines at a very high hash rate and you don't care you don't care what it's costing you because you're printing your money anyways yeah it doesn't matter yeah so that's what i think and we already have examples of this i mean nobody would know that bhutan has been mining bitcoin since 2020 if they didn't get caught up in the bankruptcy proceedings of celsius and block fi like i would not be

surprised if those companies didn't go bankrupt or if the the drug holdings the bhutan sovereign wealth fund didn't have assets on those exchanges that they would still be under the radar today um but now they've sort of been forced into the public and yeah i mean that's an example if if those bankruptcy proceedings didn't happen like nobody would have known that the small nation the kingdom of bhutan has been acquiring bitcoin since 2020 you have to imagine so how many of those are out there exactly yeah a lot more so it's very interesting and that's it the game theory and that goes back to well yeah the the united states is signaling a very strong signal they're going to be buying bitcoin here at some point and it's you know we've got people in

the administration who understand it i don't know how well trump understands it that's that's kind of beside the point but senator lummis understands it besant understands it lutnik understands it These guys get it. They understand what this is and how important it can be. And so you were talking about before the Bitcoin bonds. Yeah, that could be a very important way for us to monetize this new asset for the United States and stabilize a treasury market that could get unruly here if we continue down this path of money printing to save the treasury market over and over and over again. And so treasury traders, investors are going to demand, they're going to need a higher return. Pension funds can't meet their obligations unless they have a return that's matching

inflation or better. So that becomes a big challenge for them. So the point is that other nations, they're not asleep at the switch here. They're watching this. There's a lot of confusion, a lot of noise about the tariffs and all that stuff. But they're listening to what the United States is doing. They're watching this. They're saying, man, if they corner this Bitcoin market, and it really does continue to be nation state level resistant because of the amount of energy it would take to create a fork or whatever, then they have no choice.

That's the game theory right there, but to just start doing anything they can to accumulate themselves now. And I believe that has begun. I don't know how, in, you know, how large, like how widespread that is. We could just have a couple very large nation states doing it. And that's why hash rate is screaming higher, but it's not the public miners that are doing it. they're not out there pushing hash rate up like this it just doesn't make sense so mathematically and financially i think the share of unknown blocks mind like a quote-unquote unknown pool which is like pools that aren't publicly marketing themselves i think it hit 13 at one point last year um which wouldn't surprise me i could be wrong on that exact number but

somewhere in a material amount of hash rate it was defined as unknown there you go on the network right now and when it comes to like bitcoin in the united states so that that has been a bit shocking to me it's like this outward signaling considering the game theory we just walked through if you're going to acquire bitcoin the last thing you want to do is tell people you want to get it first and then and then tell people that you got it which is like it's like trading 101 yeah you don't say okay we've enacted the bitcoin strategic reserve we're gonna go buy a million bitcoin like the bitcoin would double like that yeah makes no sense and yet there's people within the administration that get this and so that makes me wonder like do they actually have more bitcoin

than people think like they're right uh david sacks yeah are they accumulating in a way yeah dave tax another one that understands it yeah um he follows all of us right so yeah um so that's interesting and i do truly think like bitcoin is this com if it's bitcoin combination of bitcoin and gold like i think the treasury the fed and we'll just focus on the treasury is at a point where they need to think creatively boldly to reorient the the american economy and particularly debt markets and yeah i think bitcoin is one of the only ways to do that and it seems like percent understand understood this well before he was even tapped for treasury secretary i mean i'm sure you've seen at the manhattan institute fireside conversation where he's like there's

going to be a grand economic reordering and i want to make sure um on the ship while it's happening because my whole career is built building up to this and so to your point about tariffs and everything i think that's noise i think there is some grander reordering or reorienting going on on the back end i can't wait to see how it works out neither can i i think bitcoin's gonna benefit massively despite that's the beauty of bitcoin whether or not they're successful i think in both scenarios the government's very successful and they're this geopolitical uh global monetary system reordering successful or if it fails i think we would hope for a success model because failure could lead to some chaotic situations but in any either of

situations bitcoin succeeds because if you're gonna have this reordering it's like all right we need to do do it around this reserve asset and if that fails it's like nobody can trust anybody so everybody naturally is gonna be like all right let's get to the protocol that nobody has to trust right yep that's the beauty of bitcoin either way yeah well james where can um anybody listen to this find out more about the informationist and what you guys are up to at the bitcoin opportunity fund yeah i mean that's the whole point of what you just said is why we're so we're we're so optimistic and i know you guys are at 1031 also we're super optimistic about about the environment and even if we have drawdowns it's just opportunity for us um to to

find value in the market so we're a little bit different for for the listeners uh the bitcoin opportunity fund is a little bit different than what you guys are doing um we are a hedge fund we do invest in both public and private companies but we're you know we're we we focus on more mature companies the core of our portfolio is on more mature companies a lot of them are public companies um and uh or private companies that are further down the road that are revenue generating rather than true you know venture capital we do have some that we think are very attractive but you know our portfolio is definitely different than what you guys are doing uh and it's uh and we just launched fun too um and we're we are now open for for investments as you guys i think i'm

i think you guys are raising two but different again i think they're the kinds of things that you ought to have uh in your portfolio you have to have your bitcoin and you've got different ways to invest in the in the network the protocol the the you know um how this uh this growth engine but um it's for accredited investors like yours is and so but if you're interested you can go to bitcoinopportunity.fund and just fill in some information we can talk to you um and we'd be happy to and then uh the informationist is on substack and there's a link to it right in my bio on twitter on on x which is just james lavish that's me on x there's a there's a lot of clones like we all have out there so make sure it's the one with the blue check mark but um yeah i

appreciate being on here uh it's uh it's good to talk to you finally for for a longer period of time than just passing at a conference and so um and i appreciate i appreciate the kind words it was a long time coming i can't believe it took took this long but i'm happy and hopefully this are the first of many james you're crushing it thank you for coming and educating us about all this and like i said hopefully we can do this again at some point in the future absolutely marty it's great to be here and i look forward to the next time all right peace and love freaks freaks thank you for listening to the show i hope you liked it if you did like it please make sure you subscribe rate review the show it helps us out a lot and also if you like these conversations

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