TFTC: A Bitcoin Podcast - #617: How Trump's Tariffs Should Have Worked with Lyn Alden

Episode Date: May 12, 2025

Marty sits down with Lyn Alden to discuss Triffin's dilemma. Lyn Alden on Twitter: https://x.com/lynaldencontact Lyn's Newsletter: https://www.lynalden.com/may-2025-newsletter/ 0:00 - Intro 0:36 - Triffin's dilemma 8:15 - Debt leverage 11:10 - Fold & Coinkite 12:41 - Trump's goals and tariff policy 19:54 - Unchained 20:24 - China is not weak 30:07 - Energy 37:15 - AI/robots 41:11 - SBR 48:47 - Bitcoin credit products 52:40 - Eventful week for bitcoin 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/ Newsletter tftc.io/bitcoin-brief/ 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 bold case for bitcoin if you're not paying attention you probably should be probably should be probably should get the headphone hair i'm all out of whack land it's been a long week here in austin yeah i can imagine it's been a long time since we've

talked on the show it's been two years i was checking which is astonishing to me but no better time than now uh i think quite literally based off of all the conversations we've had uh over the years i mean you're famous saying nothing stops this strain i think we're coming to a juncture where that's becoming abundantly clear and you wrote a newsletter earlier this week i believe you sent it out sunday that basically highlighted the crux of the problem which is the dollar reserve status and the almost impossible tasks that Trump would like to accomplish, but likely isn't the case, which is sort of solving Triffin's dilemma of reshoring manufacturing while keeping

U.S. dollar dominance. So I think diving into this from first principles would be great. Sure. Yeah. And that's the, I can imagine the administration's challenge of trying to communicate this because the intricacies of how trade deficits and the reserve currency kind of pair together is very wonkish. It kind of has this academic quality to it that doesn't go over well in kind of political-oriented speeches. Like I would be terrible at a political rally,

for example, when I try to explain any of this. And so we kind of have this situation where, and this was outlined back during the Bretton Woods system by Triffin, as you mentioned, which is that having the reserve currency does come with a bunch of benefits, It's historically called an exorbitant privilege, but then it has certain costs to maintain it. And those costs can vary a bit depending on how the system's structured.

So, for example, back in the Bretton Woods era, the cost was that we kept draining our gold reserves. We basically had to kind of keep paying out our gold reserves to maintain that part of the system. And in the current formation, instead, we kind of pay for it with our industrial base. We keep kind of sending out little parts of our industrial base over time to maintain the global reserve currency status. And there's a few reasons for that. One is that because unlike every other fiat currency, the dollar has all these extra demands for it by countries all around the world. All these different purposes, there's this extra demand for dollars, which sounds good on the surface. And as for Americans, for example, we have tons of import power.

When we go on vacations to the rest of the world, we have pretty strong purchasing power compared to when they come to the U.S. These things seem good on the surface, but it also means that it's pretty expensive to manufacture lower margin things here at home. And so we have this kind of situation where our imports are very strong. Our exports, especially lower margin stuff, is less competitive, whereas we can still be competitive on really high margin stuff, technology, finance, healthcare, that kind of thing. And then the other aspect is that even if you could somehow solve that, there's a more fundamental problem, which is that the whole world needs dollars for the global reserve currency status to use it for international contract pricing, cross-border financing, one side of every trade pair that they do, all these different purposes as a reserve asset. And when you step back and say, well, how do they get all those dollars? If they're all using dollars, how did all those dollars get out there? And the answer is trade deficits.

um basically that overvalued aspect forces open the u.s trade deficit and every year we send out hundreds of billions or sometimes a trillion dollars in net outflows and over years and decades these have accumulated out there and so uh kind of the way it works is that if you want to fix the trade deficit which i've been i've been writing about since 2019 i think that's a i think that's a valid mandate to do um unfortunately does come with trade-offs uh some of the some of the benefits that that you know that we enjoy at the cost of the trade deficit um if you do want to kind of fix that imbalance it comes up you know with basically giving away at least some of those benefits and prioritizing that that industrial base a bit more

and one of the dynamics that you highlighted in your newsletter which makes sense but wasn't very clear to me before is that via these deficits we flood international markets with dollars because we're sending parts of our industrial base over there but then it's like cyclical they take those dollars and then reinvest them in u.s financial assets so it has this sort of flow where it goes out but then it comes back in into the financialized economy via equities and real estate and other such assets and that is good for asset owners here in the united states but Again, I think that's part of the MAGA mandate is that sort of cycle has led to this large wealth gap in the United States that they're trying to fix. Yeah, exactly.

And so basically the opposite side of a current account deficit, which is basically the trade deficit plus things like interest and dividends. So we run a structural current account deficit. And the opposite side of that is a capital account surplus, which is that funds flow in the rest of the world and buy our financial assets. And so the trade deficit is often described as us sending out pieces of paper and getting goods and services, which sounds like a really good deal. But then the extra step of that that you mentioned is that they take those slips of paper or really those electronic digits that they have, and then they buy our stocks. They buy our real estate. They buy our private equity. They buy our corporate bonds and government bonds.

And so they end up owning a larger and larger share of corporate America as part of their kind of accumulated trade surpluses and reserve assets and international private assets. And the kind of the consequence of this, if you kind of like view the foreign sector as an intermediary, we're basically constantly kind of taking economic vibrancy out of Michigan and Ohio and rural Pennsylvania where the steel mills were. we're kind of taking out of our rust belt, causing it to become the rust belt. And then we're stuffing it back into financial assets in New York and Silicon Valley and certain other places, mainly along the coasts. And this went on for approximately four plus decades, really ever since you can say kind of the early 80s, this really kind of started. And these are cumulative. So one year of that is not a giant deal. But when you have four plus decades of it, that causes major imbalance. And a lot of academics will say, well, there's still room to go. This is

not kind of an emergency. But on top of that, there is this political overlay that basically that voters get angrier and angrier when they're on the wrong side of that imbalance. And although many of them, they don't work in finance, they might not be able to articulate the exact mechanisms that are causing it, but they have this feeling that something's rigged against them, that something is just not right, that they're constantly going uphill, that they're on a treadmill. And so we start to see this, and it manifests in rising voter populism. It manifests in different priorities of when people vote. And so I do think that there's a pretty strong mandate to try to go after the trade deficit. But I think the way I look at it is that because

it's decades in the making, the best that any kind of one term can do is try to start changing the direction of it um but it's inherently kind of a multi-year potentially multi-decade project to kind of fully reverse um these really long-term trends and doing it on extremely fragile ground because as you point out the amount of debt that exists both domestically and offshore for the u.s it's a leverage ratio of 20 to 1 so i think we have 5.8 trillion in base money and over uh let's say 120 trillion in debt held domestically and offshore entities holding u.s debt yeah that doesn't even include derivatives that's just loans and bonds basically um that doesn't include derivatives because derivatives are more opaque more ephemeral um and and the bis has

kind of um like bank for international sediments has kind of tried to uh map out the estimated the size of that, but it varies. So even the conservative measure is 20 to 1. Realistically, it's higher. And part of that, so all of that debt creates demand for dollars. All of that is inflexible demand. If you've got a mortgage on your house denominated in dollars, you have a demand for dollars, whether or not you like the dollar or not. And that applies to the whole world and multiple domestic entities. And that's why a lot of views that the dollar is doomed in the year term are always off because there's literally way more inflexible demand for dollars than there are dollars in the system. And that's why this system kind of perpetuates itself for such a long

period of time and why the network effects of a reserve currency are so strong. It's not as simple as a bunch of countries getting together and deciding to repudiate the currency in search of another currency. Kind of like how social media networks have network effects, kind of like how communication protocols have network effects in financial markets. Anything with liquidity has network effects. And the same thing applies to money and debt structures. And so there's this big inter intertangled Gordian knot, both domestically and globally, that kind of has to gradually be undone

as these rebalances reform themselves and any sort of shift in direction tends to be jarring. There are people that are on the wrong side of it that become on the right side of it, but that transition process itself could even be harmful and uncomfortable for those that have been on the wrong side of it because they could go through periods of inflation, they can go through periods of recession, potentially, as some of those big forces turn around. Because whenever you have a disruption like that, it tends to harm productivity. When you have less certainty in planning purposes, when you have higher taxes in this case,

there are these kind of frictions that happen during this turning event where everybody can feel like they're losing and then the question is is it going to be well executed is that trend going to start going in the other direction and kind of shifting some of those imbalances or is it going to be a lot harder than it seems 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

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policy but i think just generally taking everything we've already discussed into consideration the fact that sending dollars out to the world doing that by sending an industry to other parts of the world they're flowing it back into financial assets which is where a lot of the wealth of the uh of america of the american population sits is in these assets and you look at what trump's been doing since he got back into office and he's saber rattling basically saying hey uh we're done with this deal we're trying to fix it but then you You have to factor in like they make all of our stuff. And then on top of that, they have a bunch of U.S. assets that they could dump and cause havoc over here.

And so how do you navigate all of that as you're trying to force the warship to move in a different direction? So I think I would separate into three things. One is kind of the mandate. Two would be the plan. And three would be the execution. And I think the issue is that they start off good and then they kind of deteriorate as you go through those three steps. I think the mandate is there. So there are some people in politics that would disagree that the mandate is even there.

They say we shouldn't be going after the trade deficits or they're not a big deal. I disagree with that. I do think that – and I've been writing about this for years – that the imbalances have become big enough that they're actually starting to really matter financially, politically. They're actually a big deal now. and if you don't if you don't ever focus on addressing them given the network effects involved eventually it forces itself closed anyway but that's from a position of weakness so it's better to kind of get ahead of it before it's kind of fully metastasized and there's really no options left you generally want to try to correct it from a position of strength so i do

think that there is a genuine rising mandate to reverse some of these multi-decade flows that are basically all going in one direction. So I think that part is sound. The second part would be the plan. And if you look at probably the smartest version of the plan, it would be Stephen Myron. That's Trump's chair of the Council of Economic Advisors. He's an economist. And he laid out this paper back in November 2024, so right after Trump was elected. And he outlined, it was like, I forget exact title but it's like basically how to how to realign global trade um and it's it's this paper that kind of articulates the problem so he talks about triffin's dilemma he talks about the over valuation of the dollar due to it it uses as a global reserve currency how the cost of that is

basically undermining our industrial base making us less competitive in manufacturing um and how some of those imbalances uh where the downside that system have surpassed the benefits of the system uh for america broadly and so he kind of analyzes different ways that this might be addressed uh and then also goes over some of the risks of addressing them like it's not it's not treated as like a a surefire solution but like if you were to go about this what are the ways we could do it what are our options um and they include things like you know starting with some mild tariffs um which kind of uh is like the you know if you treat it like a carrot a stick that's the stick uh and then when you know this kind of multiple mile tariffs on that are that are

somewhat disruptive um that they could use some sort of currency accord a series of trade deals um that are in the united states favor um that could then bring down some of those tariffs and start to maybe balance out trade somewhat um then he faces the issue of okay well what's next what's after that because he's still there's still the issue that if you want the dollar to be the the global reserve currency you have to supply the world with dollars um and so he focuses on well one you could give up some of the reserve currency status um so it's not a boolean thing it's not like you either have global reserve currency status or don't um it's really a percentage thing um and so one thing i've been pointing out for years is that you can have a

multi-polar world where you know chinese currency is kind of the main currency over in east asia um the united states is dollar is you know the currency in our hemisphere and other parts of the world and europe's is kind of you know their part of the world and their their biggest trade partners in periphery so you can have kind of three currency blocks of different sizes um you can have an elevation of neutral reserve assets so he specifically calls out the discipline would be good for gold and cryptocurrencies which you know realistically we mean bitcoin he uses the the phrase cryptocurrencies um and so uh over time funding currencies that are cross-border can shift a little bit um there can be different incentives to maybe have the world shove less of its like

asset flows into u.s assets and instead buy things like gold or bitcoin or potentially some other assets from other countries and kind of diversify this to some extent and then there's also various Because if you weaken the dollar, you risk higher inflation, you risk higher bond yields at a time when fiscal deficits and U.S. interest expense are very high. So he talks about as part of trade negotiations, terming out the debt, convincing countries like China or Japan to increase the duration of their treasuries and basically agree to get their reserve assets inflated away. And so I think the plan overall, it's articulately described. I'm somewhat critical of it because I think it overestimates the U.S.'s negotiating position and overestimates the willingness of other large countries to kind of play along with that. But it is, I would say, a semi-realistic picture of kind of – if you were to describe how it would work optimistically, that's kind of how it would go. So that's the plan. And then when you look at the execution, that's where I think it got messier because they ramped up tariffs super high, super quickly that in many cases were so high that they hurt us as much as some of our trade adversaries.

um and even you know it takes years to reshore and build a manufacturing base so if you throw on really high tariff right away we pay the consequences right away but we don't really get the benefits anytime soon um and so other countries like china can just say well we'll just wait then because uh you know your tariffs are hurting yourself as much as you're hurting us um and so so far that the u.s has kind of rolled back some of those tariffs they made exemptions for like Apple and phone makers, they made exemptions for automakers. And the problem there is that you're basically exempting big businesses, while little businesses that make all the widgets we don't think about, they have all the uncertainty and all the problems.

And so now there's like, you know, groups of small businesses asking for tariff exemptions. And so I think that the overall outcome is that they're not going into the next phase in the negotiating power that, you know, Stephen Myron would have, you know, hoped for, I think, as articulated in that paper. So I think when you go from plan, when you go from mandate to plan to execution, each step was kind of a little weaker than the prior one. Bitcoin isn't just a balance sheet asset. It's the benchmark. On May 14th at 11 a.m. Central, Unchained and Strive are hosting a live online event, Every Business Will Buy Bitcoin. The discussion will explore why capital allocation is being redefined through the Bitcoin lens, how performance looks different when

measured and sound money and why building a bitcoin treasury is becoming a strategic imperative rsvp at unchained.com slash tftc that's unchained.com slash tftc yeah they sort of went leroy jenkins with the with the tariffs there and i think optically just as an external observer it seems like there was a faction within his administration that was in his ear saying let's get aggressive with these tariffs let's get aggressive they did pretty bad reaction from the markets and trade partners and businesses here in the united states across the board and it seems that within the last month month and a half that maybe scott percent has sort of taken the reins and said hey let me be the forward-facing voice of the administration and really try to be the

adult in the room and try to navigate this because i mean he has said publicly he was saying publicly leading up to the election that he did believe there was going to be a global economic monetary reordering that he wanted to help the president navigate and it seems like there were probably some um power brokering going on within the administration about who was actually in his ear and giving the recommendations. And it seems like they went Leroy Jenkins, noticed they messed up a bit, and Scott Bassett has stepped in and has been much more public-facing since then. Yeah, one of their goals is to get the 10-year Treasury down.

And during the peak market turmoil, one of the issues is that – so as stocks were going down, which is normal given all sorts of tax increases and uncertainty, Normally, you would see the dollar strengthen and the bond market go up, meaning yields go down. Capital would basically get out of stocks, get into, say, for treasuries. It would get out of other currencies and get into the dollar temporarily. And even in Stephen Meyer's paper, he talked about initially this would probably be dollar strengthening. And unfortunately, it kind of backfired. So instead, there were net outflows, similar to what you see in emerging market, which is we saw stocks go down, bonds go down, meaning yields up.

and the dollar go down altogether. And so instead, capital was going toward gold. Bitcoin was holding up better than you normally see in an equity sell-off of that size. Other currencies and markets were holding up better. And it's really not the playbook, I think, that they expected. And then, of course, percent as the Treasury Secretary is pretty dialed in to what's happening in the Treasury market,

which wasn't looking very good. The MOVE index, which is the volatility index for Treasuries, spiked to near record highs. basically the type of thing you normally see in a crisis. And so, yeah, I think they had to reverse a number of their policies, dial down the rhetoric back up a little bit. And then there was an interesting shift in strategy. So instead of going after everyone at once,

they paused for 90 days for most tariffs on most of the world. They're still the baseline tariffs, but they kind of paused the bigger things. And they tried to redirect everything toward China. And they kind of focused on, let's build a coalition against China. If you can get Canada and Mexico in your court, You can get Europe in your court. Then you could put a lot of pressure on China because China is such a kind of big central part of this. In recent days, that seems under friction, too, because, for example, Asian, that group of like Southeast Asian nations, ASEAN, one of those acronyms that has like a double meaning. Um, they announced along with, uh, China, uh, South Korea and Japan who are not members,

but that are obviously near the region, they kind of announced together that they're going to increasingly tie their trade together. Uh, and they're increasingly going to focus on all these internal mechanisms between themselves. Um, and so that, that's, that's not China being isolated. That's actually China kind of strengthening their connections with, um, trade partners that they're sometimes frictions with, but that they're otherwise all in the same region. So even that attempt to kind of isolate China seems to not be going well, which is what we'd expect given the fact that China is the biggest trading partner with the majority

of countries in the world. So if you look at, I assume some listeners have seen that map that shows like, you know, 25 years ago, the whole world was kind of, say, blue, which is that like the U.S. was biggest trading part with most countries in the world um outside of certain pockets of of asia basically kind of you know maybe 80 percent of the global map was blue and then over 20 25 years that map turned red emitting out of china which is that china gradually became the biggest trading partner in most countries in the world um and so few countries are in a position where they can say yeah we're going to help you know go against chinese trade because for many of them china

is the biggest trading partner that they have or at least bigger than the u.s um and so these are just ongoing challenges and then of course gives you know market participants a lot of uncertainty that gives businesses a lot of uncertainty and as of this recording we're still kind of in limbo to see what the next weeks are going to look like yeah like i mentioned before we have record i've been at a conference last two days so did not catch that asean announcement the fact that japan and china together sort of saying yeah we're gonna do that's a bit it's surprising considering how much we've been leaning on japan for many decades since the since the 80s after we um after we sable rattled at them and i think china's obviously whether trump wants to it

it does seem like he is implicitly admitting it but that seems like the big elephant in the room Like when you shared some charts in your newsletter, when you look at their energy production, steel production, manufacturing base, and the fact that while politicians and pundits may like to position that China needs the U.S. because we're their largest trading partner, it seems like that they're even diversifying away from us in real time too. So their link to the United States and the United States being crucial to their long-term success may not be as true as it was maybe two decades ago. Yeah, the whole world's interconnected, but it's not as though the U.S. is just the pure center of the whole system. There are a lot of connections that go around us. And so 20 years ago, China was kind of known for sneakers and plastic trinkets and things like that. But now they've kind of rised up the capital stack toward more complex goods. And so one of the things I point out is that literally in a four-year period, China became the largest auto exporter in the world.

So for years, they had kind of pretty minimal auto exports. And then from 2020 to 2024, a lot of their pieces fell into place. And then just like they had a hockey stick of just rampant exports. And so they passed South Korea, they passed Germany, and then they even passed Japan as the biggest auto exporter in the world and still climbing, still taking market share. And we don't see it in the U.S. because, one, we have kind of extra tariffs on Chinese cars. And two, their kind of key market is kind of – if you think of like Hyundai two decades ago, they were kind of known as cheaper cars, like starter cars, for example. China is really kind of in that market right now. And that's kind of the pattern that automakers go through.

So, you know, back in the day, like Honda was in this position. They were kind of cheaper cars. They moved up the quality spectrum. Then Hyundai was in this position and other Korean makers. And now China kind of entered the market and saying, well, you know, in emerging markets around the world, cars are a massive expense. I mean, that's true even in the developed world, but especially in the developing world, cars are a huge expense. That's why a lot of people will ride mopeds, motorcycles, or just not have a vehicle. So China would come in and say, well, here's like a $15,000 vehicle or $20,000 SUV or $25,000 SUV, for example, with decent quality.

And they kind of hit that inflection point where the quality and price were very attractive. So every year when I go to Egypt, there's more Chinese cars on the road than there were the prior year. just growing their pie in that country and many other BRICS countries around the world, emerging markets in general. And that's just a part of the capital stack that they're going through. They also have a near monopoly on solar production. They have a bigger lock on the solar market than Saudi Arabia and all of OPEC has on the oil market, ironically. then they have near dominance in rare earths, and then they have financial measures they can do.

By holding a lot of U.S. assets, they're able to sell some of those assets if they want to and disrupt U.S. treasury market functioning temporarily. And so there are kind of big moving parts here, both in terms of trade, in terms of financial interconnections, that are harder to unravel quickly. And it does give them a pretty substantial negotiating position. Now, they have weaknesses, too. I mean, you know, they don't want, you know, to lose like 10 percent of their exports or to face margin pressure, especially given some of the other challenges that they've had.

I mean, they went through a really big real estate deleveraging that, you know, their demographics aren't aren't great. They face a lot of challenges on their own. And so there are there is ammunition that both sides have, but it is kind of a protracted, complicated relationship. yeah as an american i look at the the chinese energy generation charts and i'm a bit jealous i think we need to bring that that type of growth back to the energy sector here in the united states and it seems like with chris right at the head of the department of energy and um sort of the posturing of trump leading up to and after the election inauguration is that that is going to be focus moving forward and i guess like what are your thoughts on how that actually gets implemented and what it will take to to catch up on that type of energy generation growth that i think is

desperately necessary yeah i think that's a that's a key aspect i mean as part of our stagnant industrial base we've had stagnant uh electricity production uh in the us uh for decades uh whereas china has ramped up to like unfathomable degrees i mean they produce more than twice electricity we do now part of that's because they have a bigger population but it's also a big chunk of it goes toward their manufacturing base and then there's other ones that don't go directly to electricity like if you're in heavy every steel making and things like that you need these big thermal you know high powered energy production um i mean china makes like 10 times more steel than the united states does something like that order of magnitude um which is relevant in ship making

it's relevant and all sorts of stuff um and you know for china a big chunk of that is coal because in general asia doesn't have or at least east asia doesn't have a ton of oil deposits compared to other parts of the world but they do have really big uh coal uh deposits so and also like when you build coal plants they're quick to build it's one of the fastest ways to kind of ramp up energy um so they've been focused on coal but you know they're kind of across the board investing in everything's nuclear solar pretty much everything that they can throw money at their building i think in the us it's probably less about coal and more about nuclear um and but that's you know that's that's been tied up in red tape red tape for a while uh it's not been a priority of any

administration really um and i think that that's that's one of the ways that we could you know ramp up our electricity production and overall energy production and i think that one of the positive catalyst and that this happened really starting a year or two ago but i think is is accelerating now is that the data center needs you know as ai kind of took off and became something that the people and businesses use on a regular basis rather than just something we talk about um that's a very energy intensive thing unlike you know the prior uh round of tech growth which is mostly communication social media not very energy intensive ai is is quite hardware and energy intensive as you know um and so that's that's been like a catalyst for these big

trillion dollar companies are basically they have the you know ear of the president saying we need energy i mean if we extrapolate this out three five ten years the energy needs are enormous and some of these things take years to build uh hardware is notoriously more difficult than software um and and so it just moves at a slower pace and then ironically some of the parts for like electricity transmission or distribution, transformers. A lot of that is made in China. And so even to kind of start rebuilding our own power base, it's not like we can snap our fingers and make it here.

We have to kind of build it again from the ground up. And so I think, yeah, getting energy right is one of the key things. And we saw that when Europe fumbled their energy over the prior years and then they got kind of called out on it due to the war, that's economically impaired them. and we wouldn't want the u.s to be in a similar position no it would not i i think the pressure from big tech and ai it's funny because bitcoin miners been fighting for this for years and uh been getting a lot of pushback but as soon as silicon valley gets involved and say hey we need

this for ai it's like okay let's go drill baby drill it seems like uh nuclear is definitely becoming more in favor i think we had oklo um get some of the red tape cut for their smr projects they're going to be doing some government some government uh applications uh military bases i believe which is a good sign but it is perplexing not perplexing but just like it does feel like there's a needle to be thread here and i think the next i'd love to get your thoughts on this What is the window of time where we need to execute the threading of this needle? Is it six months? Is it a year?

Do we have this whole four-year administration? Or does something need to happen rather quickly in the near term? I think there's no cutoff, but the earlier you go, the better. There's no benefit from waiting, only cost from waiting. And so anything that cuts red tape and can accelerate energy production here at home earlier is better. And even things we don't think about, like, for example, going back to my prior point, why does China dominate the solar market? It's ironically because of their other energy sources, which is to say the process of turning silicon basically into solar panels is actually really energy intensive.

And that's part of why we've – the whole world's kind of pushed a lot of their dirtier businesses into China. um so uh you kind of put on their their balance sheet um and you know that has optical benefits temporarily but then it gives us costs um and so um you know same thing for rare earths i mean basically like the despite the name rare earths are in general not that rare uh it's that they have pretty big environmental impacts when trying to get them uh out of the ground and and and process them and everything and so we all the whole world was kind of like yeah china can handle that part uh which is great until it becomes the national security bottleneck or you're kind of um antagonistic with them then it's like oh wait maybe we need some of that here at home too

um and then even things like um refineries like the us hasn't built a brand new refinery in decades um you know for hydrocarbons uh there's been some expansions um but really no new ones um and so even though we've kind of ramped up our oil production you know we still have to import a lot of oil because different refineries have different types of oil inputs that they need it's not like all oil is the same it's not all fungible so different refineries are built for different purposes so we ironically can export some of our energy but also have to import some of our energy because we're not really building the types of refineries that we need um and so There's trade-offs with a lot of this, and I think that just in general, the U.S. probably faces a more hardware decade, which is that we need more power production.

We need more infrastructure here at home, which then allows us to manufacture. So even when people talk about the U.S. kind of automating a lot of its new manufacturing, which is likely true, it still needs energy. It still needs kind of reliable, low-cost energy in order to be competitive. yeah i mean china's getting to the point that i forget if it was byd the uh the car maker but they had that sort of drone view of the san francisco size factory like we're getting to the point particularly with ai if these humanoid robot form factors accelerate and the software and the firmware gets to a point where they can actually complete tasks like china you could squint and see within the next decade they could have uh a system where humans aren't needed to

build anything even the factories themselves and you look at the state of the industrial base here in the united states we're we're nowhere near that and that that's the other thing i mean i'm sure you've been diving into this as well but just playing with the ai tools myself and over the last two years and seeing how much they've accelerated and advanced just month on month the advancements that are being made are mind-boggling and we really need to make sure we ride that wave as it's happening not only in the tech sector but i think it's going to be just important just as important in the physical industrial world as well yeah i agree and i You know, like I've used it for AI-generated art for a couple years now.

And so it's really interesting kind of every month seeing the improvements that happen there. And then, of course, for research as well, that's a big area that I use it for. And just seeing it become a smarter and smarter assistant over time is very powerful. And there is a big gap between, say, data center AI and portable AI or, you know, robots and drones, which is everything gets harder when you have to make it portable. um and so um you know i think humanoid robots at scale are probably farther out than than the average person thinks um even though they'll be increasingly relevant um so uh back in you know decades ago industrial automation became a thing you know giant robot arms building cars more so than people for example um a lot of that low-hanging fruit's been used but yeah i think we

we're gonna have more mobile robots in factories and then over the long arc of time even more mobile robots outside of factories which is also harder because you have less control over the environment that they operate in but basically across the board we should expect to see more and more automation prior decades there's a lot of automation of blue collar work this is kind of probably the era of automation of white collar work as well or at least a really big chunk of it and so rather than just robots moving things for us and doing things for us they increasingly can think partly for us um which depending on how you use it i mean the kind of the meme is that you know humans don't think and just robots think for us but when used correctly

it extends your thinking you know you can learn more when you have like a robot assistant helping you learn and organize information for you uh and it's it's more efficient for information acquisition than googling stuff often uh it kind of can do the work of like 10 google searches in in one organized question or prompt um and so i think the output's going to keep growing i think the energy usage for that whole field is going to keep growing the economic relevance of being on the right side of that trend is going to become increasingly important um and what it all shows in common is you need energy you need infrastructure and so um and that's really different than the whole 2010s decade of just social media and communication technology kind of running

everything yeah it's insane i've been uh i've been i find myself using it more and more every month i've gotten to the point where if you're not using these tools to extend your knowledge you're you're going to get left behind not left behind but you're at a disadvantage to those who are using it absolutely it's extremely powerful but shifting this back toward this current administration and going to the treasury secretary how do you think if at all they will incorporate bitcoin like you said steve uh myron talking about the the demand for for gold and cryptocurrencies these neutral reserve assets should increase as we go through this transitionary period uh obviously here in the united states this

administration has come in and said we love crypto we want you guys to have fun we're going to support your your industry and it seems like the priorities out of the gate have been the stable coin bill market structure and a distant third is this bitcoin strategic reserve bill uh yesterday genius act the stable coin act failed to to get through um the senate democrats blocked it it It looks like you're going to try and get that back on the floor to revote for that. But what are your thoughts on the priorities as it pertains to legislation for our industry, the Bitcoin industry, and whether or not Bitcoin is something that the Treasury should be implementing into what they're doing? Or should it simply be a private market thing that people build their balance sheets around? Well, yeah, I think the first step is just not to be in the way.

So it's basically to say that if people want to send money to exchanges or brokers to buy Bitcoin or other assets, their banks shouldn't be told to block them from doing so or debanking them just because they work in that industry or are sending money to buy those assets. That's been a big trend for years now. So yeah, I think just getting out of the way is step number one. I mean, I think a bigger benefit would be exempting Bitcoin from capital gains, at least on a small level, to basically say when everyone gets like a write off every year of an equivalent of several thousand dollars. So it's easier to spend with Bitcoin, to experiment with Bitcoin, to not have to worry about that every little thing, every little micro activity is like technically like a taxable event, for example. that would relieve a lot of administrative burden and economic disincentives from it. I view that as more important than a strategic Bitcoin reserve overall, even though obviously strategic Bitcoin reserve is fun for price potential. If you go back to Stephen Myron's

paper that I mentioned, when they talk about kind of a currency accord to weaken the dollar, they mentioned ideally they wanted to use multilateral approaches. But there are some unilateral approaches that they can do which includes putting dollars to buy reserve assets so so a lot of countries in the world especially a lot of these asian mercantilist countries that have these really big surpluses when they get these um big inflows of capital from all the exports that they're doing their currencies would naturally strengthen somewhat and so instead they deliberately print more currency and accumulate reserve assets to present to prevent their currencies from rising that that's kind of the manipulation that they do um and the us doesn't

really do it uh we actually have the least reserves pretty much of countries around the world as a percentage of our gdp uh including our gold reserves um so so many developed countries have five ten percent of their gdp in reserve assets uh many developing countries have 15 plus uh um you know percent uh many countries with like long-run current account surpluses have 25 or more i mean some of them have over 100 of of gdp and reserves uh and the us has something like two percent um because we're the axiom of the system we're the ones that didn't need reserves because other currencies are kind of managing themselves around the dollar rather than the dollar ever really managing itself around others but if we do enter a more balanced world um

then the US can have higher reserves too, 5%, 10% of GDP in line with other developed nations. And that can include buying other countries' bonds, which is not very attractive. I mean, do we want to own euro-denominated sovereign bonds and yen-denominated sovereign bonds? I mean, that was discussed in the paper, and obviously that comes with inflation risks, outright default or repudiation risks. Gold is an obvious market because it's so big. mean it's over 20 trillion dollars now in terms of estimated market size very liquid um you know there's already a big sovereign precedent for it um when you look around the world um there has

been an uptick in gold demand recently especially ever since the the russian invasion of ukraine and the associated sanctioning of russian reserves um but really that trend goes back to 2009 the global financial crisis if you look at the at the prior trend for decades uh global tonnage of official gold reserves was decreasing um and it bottomed in 2009 and it started to inch back up for for you know 15 plus years now um and i think that trend probably has legs to it and now of course that the bitcoin is you know roughly a two trillion dollar asset um that's in the discussion now it's still somewhat small uh for a reserve asset but we can we can easily imagine that once it becomes a five trillion plus asset and you know maybe a little bit lower volatility and

and more liquidity. That's in the discussion. In addition, when we see all these different countries in the world, they're trying to build these like alternate payment mechanisms that go around the dollar. So whether it's built on Chinese settlement, the BIS was like emphasizing Enbridge, you know, with a couple different central banks or several different central banks to kind of this like, kind of like cross border CBDCs to kind of go around some of this. And all of these are like closed solutions competing with each other. And then staring them in the face is this big open source settlement network um that's capable of settling unlimited value um and you know it does come with risks volatility and things like that up front but as as it grows and becomes

more mature uh then in addition to being a reserve asset for many countries it's a settlement network a non-dollar permissionless settlement network for many countries um for the us i mean if they want to they can use as you know a dollar devaluation tool um they can they can accumulate more Bitcoin. And they've already kind of emphasized that they don't necessarily want to do that. They want to, if they're going to accumulate it, they want to do it on a revenue neutral basis, which is the more conservative approach. But yeah, I do think it makes sense for the US to hold Bitcoin, but I purposely focus less on covering it. There's more than enough voices in the space covering every single move of strategic Bitcoin reserve and cheering

them on um i like to focus on kind of more bottom up you know i'd rather have people buy it business you know small businesses buy it large businesses buy it then nation states buy it you know that's kind of the i think the ideal approach uh or even small nations first and then big nations we can't always pick the path that happens um but for me uh i like to focus on generally bitcoin helping smaller entities um than the biggest of all entities but basically i would phrase it that anytime you're running capital whether it's a household a corporate balance sheet an institutional fund or that the finances of a sovereign nation if someone gets bitcoin and they want their thing to succeed they they should own bitcoin it's kind of simple as that so it

depends on what your incentives are and what you're what you're responsible for running yeah i completely agree i think the strategic bitcoin reserve isn't nice to have but i think And what's going on now with all the corporations and launching their pure Bitcoin treasury plays interesting, good development. MicroStrategy has definitely proven the way. It's repeatable. We will see. But going a layer down, just entrepreneurs, individuals holding Bitcoin on their balance sheet and incorporating Bitcoin into their financial lives in any way that they can. And I think, like you mentioned, that grassroots way is going to create a much stronger foundation in the long run.

And that's, I'm sure you've been following it, but I think that this development of Bitcoin and structured credit to help sort of recapitalize credit products in the commercial real estate and other markets is very interesting to me as a theme. Because I think that's an incredible bridge product to an inevitable Bitcoin standard where you sort of co-mix the different collateral assets a bit slowly, but surely over time, Bitcoin becomes the dominant collateral asset. and i think that has benefits twofold one you find a way to solve this massive credit problem that exists particularly in markets like commercial real estate um in corporate debt throughout the country and the world more broadly but then two since these are structured credit products with durations you sort of have a forward-looking duration curve of bitcoin that's going to be held off the market for a certain amount of time so to your point about decreasing volatility, giving governments more confidence in using Bitcoin as a reserve asset, I think

something like that is necessary to develop that confidence. Yeah, and I think, I mean, one of the biggest trends overall is that there is mandated capital or walled garden capital, which is to say there are really big pools of capital that have a specific purpose. It could be that they're a stock fund and they buy stocks and you're a manager that buy stocks. There's bond funds, there's credit funds, there's real estate funds. There's all these different types of entities that have kind of a specific mission. And if you happen to work in that industry and be a Bitcoiner, like you're bullish on Bitcoin long-term, structurally

bullish, but you work in buying stocks, buying bonds, buying credit, buying real estate, then one of the cheat codes you can do is incorporate Bitcoin into what you're doing. So if you're bullish on stocks and you say, well, this stock is buying Bitcoin with kind of smart leverage. So if I want to outperform other stock managers and I happen to get Bitcoin and say most of them don't, I can buy the companies that are buying Bitcoin. Similarly, you know, I can buy their bonds that have a Bitcoin component to them. If I'm in credit, I can see how Bitcoin can fix credit or give a price kicker to credit. If I'm in real estate, I can look at, you know, real estate tied bitcoin uh and so basically it's this kind of like you know uh way to slip into all these different

kind of walled garden types of capital um and i don't view that as competing with the cyberpunk aspect of bitcoin um you know part of what makes bitcoin successful is just being large and liquid so the more entities that want to use it the better as long as those ways don't get in the in the way of of individuals using bitcoin and self-custodial permissionless ways um so i think there's a bunch of different problems that bitcoin can solve from small to the big and they're all kind of happening together and i you know individuals have their own backgrounds they find certain things more interesting than others but basically whatever skill set or experience someone has they can bring it to the bitcoin network or or bring the bitcoin

network into what they're already doing and this week was an incredible validation of that thought you just put forth which is we had here in texas we had in austin specifically we had the texas energy mining summit tuesday wednesday we had bitcoin plus plus wednesday yesterday and i believe it's still going on today at the same time we had a group of bitcoiners going to the capital uh to talk about the the texas bitcoin strategic reserve and they were pretty confident about that at the same time in orlando you have strategies uh bitcoin for corporations conference going on and i think that's just like emblematic of um everything you just said we have all these different events going on literally at the same week covering these different areas of the economy

that bitcoin um can can help alleviate some of the pains that exist in the those particular sections of the economy and i spent my time at texas energy and mining summit and bitcoin plus plus here in the city and energy mining in a very good spot looks like the future is bright for the intersection of those two industries and then bitcoin plus plus too like this i do think the cypherpunk the highlighting the cypherpunk technology that's being built out has sort of flown under the radar and strategic reserve and corporate balance sheets have been the memes of the last 18 months but become abundantly clear to me that on the tech side the protocol stack we're reaching a level maturation particularly on second layers where you have

the lightning network acting as this connective tissue between different second layer protocols and the maturation of the interoperability of all those is getting to a point where we can build some really really cool stuff that can enable incredible payments and savings tech and even um fixing things like mining pool incentives like i think we're firing on all cylinders uh across the bitcoin landscape right now i agree and it's funny because i because i analyze macro but i also am involved in in bitcoin venture uh via egodeth capital and so i i kind of have like these windows into both sides of this like kind of cool stuff that's being built but also how it interacts with macro and it just seems like especially outside of people that that focus

on this so much most people just fall into one camp or the other they're either technical or they're just talking about the financial decisions whereas like across the board it's just so interesting um and i don't really view them as in opposition at all i mean there are people that are like you know bitcoin's been captured or bitcoin is lost it's it's it's cypherpunk root um but But Bitcoin is what you make it. It's an open, permissionless network that works. And we shouldn't take for granted that it works, but it works and it's getting better. And, you know, there are people that buy it and make Bitcoin IOUs and Bitcoin financial products.

And, you know, it works for them. But then Bitcoin is still a technical stack with plenty of design space, you know, in the current configuration to still build on and use. And then especially as demand increases, we have to make more efficient use of block space, more efficient use of resources. Sometimes during periods of abundance, if fees are low and if demand is low, there's not a ton of incentive to build vertically. But whenever there is excess demand, one reason or another, it's kind of like necessity is the mother invention, as they say. And so these things can develop. And I'm so optimistic on that whole – all the technical aspects of Bitcoin. yeah that was uh the most i ran the the live news desk at btc plus plus wednesday and yesterday and

matt corallo one of the most pessimistic people i've met in bitcoin he was a core developer for a long time he's been working on ldk for those who are unaware he was co-founder of blockstream back in the day um he was optimistic yesterday and he actually to your point about um the bear verse bull market building like he he was he's pleasantly surprised at the amount of progress that the developers are making on second layer solutions despite the price going up above a hundred thousand dollars usually the price goes up and people are like ah we don't have to work to get too distracted they can't build stuff but the pace of development is pleasantly surprising matt corallo who historically if you've listened to the show

throughout the years i believe he was our second guest has been um he's one of the he's very bullish on bitcoin he works on his dedicate his life to it but he's a sober analyst of bitcoin's long-term uh potential success and he's very optimistic now which i was pleasantly surprised to find out yesterday that's good to hear what at the conference what would you say biggest takeaways are for l2s um i think lightning as this interconnective um this connective tissue for these second layers is becoming clear and um so for example like the development of cashew over the last year specifically that that chami mint protocol and for those who are unaware listening to this chami mints allow you to lock bitcoin up you get

a commensurate amount of e-cash tokens back and when you spend those tokens whether it's in the mint um or outside of the mint it's it's very private it's uses a blinded signature scheme where the mint operator doesn't know what people are transacting but it comes privacy benefits fee benefits um instant settlement benefits in terms of the speed but you can have these individual mints and what we're finding is that these mints can have lightning gateways the lightning network they can communicate not only with other mints but people simply using the lightning network people using other second layer solutions like liquid or arc and i think the key takeaway as it pertains to second layer solutions that i've got after having

many conversations over the last two days was the sort of synergies that are beginning to emerge due to that interoperability are accelerating development of really cool applications one of which we talked about was hash pools. This is this idea that you can create a new mining pool sort of structure where for anybody who's listening, Lynn, you typically pull in a lot of macro people who aren't focused on Bitcoin. So trying to explain this to them,

mining pool layer of Bitcoin right now is particularly centralized and that's due to the trade-offs that are necessary to get consistent payouts for miners. so miners are pointing their hash rate at free pools predominantly foundry amp pool f2 pool they have a big portion of the network and they're able to attain this because they can pay out pretty consistently so hash pool is trying to combine e-cash mints with lightning to make it so you point your hash at a hash pool and you exchange immediately your bitcoin mining hashing shares for e-hash tokens that you can then immediately sell for bitcoin over the lightning

network to people that are willing to stomach the variance risk of bitcoin mining so you can create a liquid market for your hash an immediate liquid market for your hash combining e-cash and the lightning network which is pretty cool so you can spread out the volatility of the payments yes it's not all just focused on the miner yeah that's smart yes i like that and you can sell you can basically pull forward revenue by selling to people want to speculate on the luck of that individual pool that's powerful yeah yeah it's happening it's happening is it like do you are you finding yourself having to pinch yourself because it seems like it almost seems like have you uh starfox 64 level 2 it's quiet too quiet when you get ambushed it's like it's too good

it's too good are we about to get ambushed great reference i love that game i played that a ton as a kid. I think it's a good position. I like seeing Bitcoiners pessimistic and arguing with each other because that's healthy. But I think when you zoom out, the network's in a great space. I think the network has years of potential political cover. So at least less chance of attacks, including attacks against privacy, attacks against ownership, that kind of thing, at least in the US. Europe's kind of a different beast. But there are pockets around the world where it's politically pretty in a decent place. And then the whole tech stack, that allows the tech stack to flourish pretty well. I think the fact that Bitcoin's kind of forming this price

base above and below $100K, and $100K is kind of boring now, I think is bullish. So whether you at potential price action integration into into you know existing financial structures the tech stack the political um you know risks and opportunities around it uh i am bullish um you know i i it's not something you want to take for granted um but i think that everything i see now the future is pretty bright for it and you know that still takes a long time we talked about the network effects of the dollar and the network effects of all these existing things um so never expect too much to happen in one year or two years um but looking out in the in the longer term it's it's almost all bullish it's it's a great it's a great place to to work in uh to be

following um and i think it's only going to get better i agree i think that's uh as bitcoin turned 16 people that have been in it for a while they're sort of uncomfortable with how nice people are playing with bitcoin and talking about it they're like wait a second i thought you were supposed to hate this thing and now everybody's like well actually it solves a problem we have and i think a lot of people are trying to uh come to grips with the fact that like oh no people are waking up to bitcoin it's actually happening we've been talking about this for for quite some time i mean it's funny the people that push back against it the game theory has been not the game theory the sort of people have described the adoption um the order

of operations of adoption over the course of the last 15 years it's always been we'll start with individuals then maybe companies will get involved and eventually if bitcoin is as good of a monetary asset and network that we believe it is then governments and other large entities will want to use it as well it's happening i think uh i think david bailey said it best it's like your your favorite band went mainstream and you got to come to grips with that pretty much i mean that's that's part of bitcoin becoming a multi-trillion asset that that's that's what happens uh if it's successful um and then the cool thing about it is it doesn't have to lose any of its traits that existed you know when it was smaller uh it's still permissionless um you know the the tech is more

useful than you know years ago uh there's more ways and easier ways to interact with bitcoin than ever before i mean harder wallets and and nfc cards and things like that are better uh lighting network is is easier to use more liquid um e-cash is great um there's all these different things that work together um so it's you know on the individual level it's great and then as these bigger entities buy into it um over time they can dampen the volatility somewhat um because instead of having tons of coins in mount gox or ftx or you know these other places and like you know kind of one thing can kind of blow up the market the more distributed the more entities that hold it um the more can kind of remove at least some of those those price shocks

um and then allow people to use it as money uh first and foremost um and so you know it can just keep seeping into everything and you know the existing global financial system i mean global broad money is over 100 trillion then you have bond markets that add hundreds of trillions more um and bitcoin is this you know relatively unlevered two trillion dollar market that's just kind of growing into that over time getting its tentacles into everything um and the way i often describe it is that it's not bitcoin changing to get into those things those chain those things are changing to incorporate bitcoin um so it's not like bitcoin did anything to get included in etfs the sec and asset managers changed in order to incorporate bitcoin um so

you know they're locked in here with bitcoin bitcoin's not locked in there with them uh and that's that's how i see it for the next several years Bitcoin is catching on. You may want to get some. That's the part we're at. Lynn, let's not take two years to catch up on the show next time. That's on me. I agree. But this was incredible. Thank you for the work that you're doing. Thank you for joining. And hopefully we can do it again soon. Always happy to catch up, and I appreciate the work you do in the space.

Peace and love, freaks. Okay. Greeks, 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, I've come to realize that many people listen to the podcast. They don't know we have another sort of layer of this media company.

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