The Breakdown - Does the Bitcoin ETF Have A Downside? With Jim Bianco

Episode Date: March 27, 2024

The Bitcoin spot ETF has been the biggest narrative driver (and financial driver) in the Bitcoin space this year, but are there some hidden downsides? NLW explores this question with macro analysts (and Bitcoin and crypto bull) Jim Bianco. Find Jim online: https://twitter.com/biancoresearch Today's Show Brought To You By Kraken - Go to https://kraken.com/thebreakdown and see what crypto can be Ledger - 5% to Bitcoin Developers When You Buy https://shop.ledger.com/pages/bitcoin-hardware-wallet Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me and LW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? Today on The Breakdown, we are talking to Jim Bianco. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link at the show notes or go to bit.ly slash breakdown pod. All right, friends, today we have a returning guest. to the breakdown friend of the show Jim Bianco. Jim is an investment analyst, advisor, thinker,

extraordinaire, and you may have seen him and even argued with him on Twitter. Jim has been talking a lot recently about the potential negative sides of the Bitcoin ETF, and it's not because he comes from a place of bearishness. Jim, in fact, is one of those TradFive folks who's been in on Bitcoin in crypto for more than a full cycle at this point. Our conversation tries to dig deeper into what some of his concerns are, and particularly what they mean for the long term of Bitcoin. It's a great conversation. I know you're going to enjoy it, so let's dive in. All right, Jim, welcome back to the breakdown. How you doing, sir? Thanks for having me back. Yeah, no, it's been too long. And I think it's a very, very interesting and good time to have you here, I think. Obviously, lots and lots has changed since

we last chatted on the show. And so we're going to talk a little bit of macro today. We're going to talk a little bit about Bitcoin. And where I want to start is with the conversation that has dominated, obviously everything in the Bitcoin and Crypto space and a lot of your online Twitter engagement as well, which is ETS and what they mean. And so, you know, let me try to characterize your perspective as I see. And then you can tell me if that's actually accurate. We can jump off from there. I think you've been accused of all manner of bearishness, let's say. But my sense is that it's a lot more nuanced than that. And really what you're just trying to point out is some things that aren't necessarily strictly bullish and are worth considering.

So I don't know if that's correct, but how would you sum up kind of what you've been thinking about vis-a-vis these ETFs over the past, you know, month or so? Yeah, nuance is something no one wants to hear in a bear market, a bull market right now. Let me start with the big picture about ETFs. So everybody's got a understanding of where they are. ETFs, there's 3,400 of them that trade in the United States. In full disclosure, I have an ETF as well, too. UTBN, it's a symbol, and it's a fully invested fixed income ETF.

And of those 3,400 ETFs, they account for something around 40-ish percent of the trading in the New York Stock Exchange. They're trading vehicles. They are investing vehicles. That's why we've got inverse and double and fixed income and equity, international, and now Bitcoin. And everybody uses those for various purposes. The other thing to understand about an ETF is it is a tool for an asset,

manager to gather funds. He gives up, I give up with my ETF, the transparency of who's buying it, because it's listed on an exchange, and anybody can show up on the exchange and buy it for the ease of letting people into my fund. It's not like it was 30 years ago if I had a fund where, you know, we'd have to sit down and then lawyers would have to draft contracts and we'd have to have specific rules and no one wanted to do that. So you give away that certainty of who's my investor and how long they're going to be with me for the ease of anybody coming in, but you don't know exactly who they are. I can tell you from a lot of ETF providers that I know that they'll say, look, we had a big inflow today of some number. Who do you think it was? And they're hoping

that that person reaches out and lets them know. So we don't really know who's investing in these Bitcoin ETFs. We have informed opinion about it. And the, this, the, the, the, the, you know, Crypto crowd, the Bitcoin crowd, seems to think that ETFs are the tools of wealth managers and only wealth managers. They're actually a big part of it, but they're a minority part of it. The majority of ETF trading is not by wealth managers. It never has been. It's been by individuals. It's been by other asset managers.

There are hundreds of funds that only invest in other ETFs. My fund only invests in other ETFs. Why is it? because it's cheaper and more efficient than buying the underlying securities. So let's put apart this side that it's not, you know, it's just wealth managers that are doing this. So what are we left with? We're left with when you see a rush of trading like this. I'm arguing that I've seen this with the ETF community before.

It tends to be a bunch of short-term, short-term weaker-handed trading type of accounts, whether they're asset managers, small retail investors, or the like, arbitrageeers among the 10 different ETFs, that's who I think is piling in. My concern is that on a downturn that they pile out. Now, we're not going to lose all $15 billion that has come into the ETFs, but what they could wind up doing is creating a giant volatility event. You know, you go up a lot, you go down a lot, you go up a lot. And then those wealth managers and all those boomers that everybody's believing that they're the ones putting the money into it, they're going to be scared away from it. Because it's going to look too much like a trading tool to them. It's going to be looked too

much like the red chip at a casino or the orange chip at a casino and that they're not going to want to play it. So let's understand who's going on this. And instead, what I see is, oh, no, no, this is diamond-handed money coming in. And we've got brokerage firms now saying we're going to have $200 billion come in in the next two years. There's never going to be an outflow day ever in the history of this stuff. And that's why I tweeted out this, the ruler analysis, my old mentor used to say, when everybody drags out the ruler and starts drawing the straight lines, it says, here we go off into infinity, that usually that's the end of the move. And that's kind of where we are. ETF flows are highly cyclical. They're coming in because everybody's chasing an uptrend.

It is somewhat self-fulfilling because if you look at the float, of Bitcoin was 1.3 trillion-ish or so 1.2 trillion of market cap. But 80% of those coins have moved in the last year or so. So you're talking about an effective float of about $2,300 billion. Yeah, yeah, yeah. And that's why all the ETFs are coming in and they're buying more than the float. And that's why the price goes up. Yes. And look out when they decide that they want to take their profits. So on the ETF front, that's kind of my basic argument about the flows. The other argument I'll give you is a little bit other nuanced argument. And I'm going to make it with a strong statement.

The ETFs represent failure for the crypto community. What do I mean by failure? Obviously, there's this gigantic crowd, whether or not they're short-term weak-handed or long-term strong-handed, there is a gigantic crowd that is interested in Bitcoin. And they were never interested in self-custody or centralized exchanges or decentralized exchanges. They weren't going there. You put it on a regulated exchange and they trade something on a regulated broker and man, look at them come into this thing. So this idea that, oh, this is going to be the gateway to getting people to self-custody. No, there's going to be people in self-custody going,

this is too hard. I'm done with my ledger. That's it. Close my account. Let's send it all back to my, let's send it all back to my Schwab account. I'm going to just buy the ETF. It's going to go the other way. the higher price is going to drive VC money? No, I think it's going to be the other way. No one's going to say it, but you're going to try and raise money for some new protocol. I'll just buy Ibit and watch that go up. It's much easier and it's simpler and I can get out anytime I want. Investing in startups with protocols, that's too difficult.

That's what I mean by failure. If Bitcoin represents something new and something different, the crowd was telling you they didn't want something new and different. they wanted a trading chip in their existing brokerage account. And that's the other thing that I'm worried about is that we're kind of losing the narrative. I've heard you, W, I've heard you say that, you know, is the narrative now number go up? If that is the sole narrative, then I am very worried. The narrative should be something a little bit more overarching.

Is the narrative a new financial system? Is it a store of wealth? Is it a medium of exchange? We say those tangentially, but the narrative now, number go up, that all this money is going to come in the Bitcoin ETFs and it's going to buy more than the miners are producing and therefore the price is going to go up perpetually. And I saw this movie in 1999 with tech stocks and it didn't end well. And that was probably what was my triggering moment about making these claims about the ETF. So hopefully I explained

myself. Now, you don't have to believe me, but at least you understand where I'm coming from. Absolutely. So I want to break apart these two sort of distinct points that you're you're walking down the paths up. So the first, let's talk about the question of who's buying. A couple of things. So this was self-evidently an important question to me when things first launched and has been in the context of gray scale just to know what percentage of the ETF volume is just movement from out of gray scale into these other products, right? That has a hugely impactful, I mean, a huge impact on what we think about, whether these are new. buyers or old buyers or whatever. So, you know, in the first week or so, we were asking that

question a lot. What do you think is the reason that it matters? So to play out kind of your thesis a little bit, it seems like one of the reasons that it could matter is that it's almost a, it's almost like all of those people that Bitcoiners had hoped the ETF would be able to bring into the fold. The wealth managers, the investment advisors, the other types of folks who I haven't previously had access. If we view them as still watching, observing and auditioning, right, as Bitcoin auditioning for them based on how things go, it sounds like part of your argument is that the sort of the volatility and chaos of it could actually push them away and make them decide not to opt into this

where they might have come in. I mean, A, is that part of how you're thinking about it and just be more broadly, you know, why does it matter ultimately, you know, which set of people are buying? So let me start with that first, that A part. Let's remember, let's, let me be blunt. And I've tweeted this exact words out. Why does somebody use a wealth manager? They're already rich. They're telling you to have fun staying poor. They're not poor. And what is the wealth managers job one, job two, and job three? Not to make them poor. No one goes to a wealth manager of $15 million and says, do you got a scheme to make it $100? No, they go to a wealth manager saying, don't make it five. is what they want. So when you look at something like Bitcoin, it does smack to a lot of wealth managers like a scheme to turn 15 in the 5. And that's what they're most worried about. So if we wind up making it a volatility event, they're going to look at this and say, it is a scheme to make 15 in the 5. I'm not interested in it. They are not shooting the moon trying to be rich. These people

that put their money with wealth managers have already made it. I tweeted out the example of I am already driving in my Porsche to my lakehouse, talking to my division manager about my quarterly earnings. I am not sweating it out that I don't have enough of my wealth in Bitcoin. I am fine, thank you very much. My wealth manager is to make sure I can afford the next Porsche. I already have one. I don't need him to shoot the moon to get me something else. That's the mindset of a lot of these wealth managers. So if what we're seeing in these ETFs is just a bunch of trading and it triggers volatility, it's going to take a longer time to get that wealth money that everybody wants into Bitcoin, into crypto. It will come over time, over many years, if it fulfills its

promise of being a medium of exchange, a store of wealth, or an alternate financial system, as opposed to a number go up. It starts to fulfill one of those roles. I would even argue to you that Tim Buckley at Vanguard would say, now I get it. Now we'll add it to it. to the Vanguard slate of offerings because it now has a viable seeing alternative. It is not just a number go-up scheme. That's the concern I have. Now look, I'm long Bitcoin. I am long crypto. I like the idea. I am a diamond-handed hoddler and I'm not going anywhere. But that doesn't mean that I'm also going to just say that what I'm seeing with these ETS is all sunshine and rainbows from where we go on from here. You have made a deal to get a lot of the short-term,

week-handed, trad-fied money into this. And we haven't seen the other side of what that means, because the short-term trad-fied money eventually wants to take those BTFs and turn that into cash and buy a Porsche. And when they want to turn that into cash and buy a Porsche, what's going to happen to the Bitcoin ETFs on the other side? Now, as we're recording, the price has been staggering, a little bit here. We might be close to testing my hypothesis here any day or any week. Yeah, it's interesting. I think that part of the reason that I wanted to play this out a little bit is that I think that there are, what makes this such a fascinating conversation is you have, there are two wildly different interpretations of the same phenomenon, right? Lots of trading

looks exciting. We're outperforming all expectations. Therefore, those folks, who are, you know, those wealth managers and the investment advisors and the funds who are considering recommending a portion of it say, damn, this is performing better than I thought. This is what I would characterize as the popular narrative right now and why I think people have been so hostile to you presenting this sort of alternative view. I think that what makes your view at least worth consideration, even for people who are focused just on the sort of, they're not worried about the long term, as you are not. They're worried about just the, like, what it looks like to get this new set of people in. I think that you're just sort of painting a

a different view of how this could play out in the psychology of that potential as yet unactivated group of investors. Yeah. And let me just let me go back to my first part. We don't know who buys these things. They're listed on the New York Stock Exchange to get into the weeds for a second. Most of most of the buying is what's called street name. So when you get a list of who the dividends you got to pay to and stuff like that, it says Charles Schwab X millions of shares. Well, Charles Schwab has hundreds and hundreds of maybe thousands of customers that that X millions of shares is divided up within Charles Schwab. They don't have to tell you every single person unless you take the security in your name and virtually no one does that. And they're not going to tell you

because that's proprietary information for them. So we don't know who's buying. Like I said, we have informed opinion about who's buying us. And when Bitcoin completely blows all the expectations out of the water. It isn't, well, we thought that the wealth managers were going to come, so they must have come times 10 because it's 10x more than we thought. Or maybe it's other players, or maybe it's not what we thought it was in the first place. And, you know, like I said, I am not suggesting this is going to lead to a winter or I'm not suggesting that this won't lead to adoption over the long term. What I am suggesting is the setback could be if you wind up with wild out of control of volatility in the trad-fi space, you're going to start to scare a lot of

those wealth managers because their job one is don't turn 15 in the five. And don't forget job one is job two. It's not how do I make you disgustingly rich. That's what everybody in Bitcoin wants to make of themselves. Wealth managers' kinds are already rich. They just don't want to be poor. And wild volatility smacks of being poor. And so you, you could set this back a little bit along the way. And like I said, in the other side of the equation, too, is that, you know, for all the talk about, you know, self-custody and centralized exchanges in Defi, and we're going to get everybody into all that, man, this just strikes this. No, they're just not interested. They're interested in playing the game. They're just

not interested in how you presented them to play the game until the ETS came calm. Let's actually talk. So let's move into that side for a minute. The idea that it's sort of of represents a failure or at least could flow the opposite direction that people think. So basically, again, try to paraphrase, I think that one of the ways that people look at a new market of people, a new set of proto-Biccoiner's, let's call them, is these people come in for the number go up as basically almost everyone does. Very few people come to Bitcoin from a pure, you know, sort of moral stance or a theoretical stance. It's a, you know, a theoretical stance. it's usually because we're paying attention to the number going up. But the notion is that some

portion of them stick around for the principles, for what it represents. They move into, you know, towards self-custody. Your point is that the flow could go the opposite direction as well, that there were some people perhaps who were on the borderline of those things, but because the ETF exists, they don't have to further sort of walk down the path of self-custody, of the sort of principled stance with Bitcoin. Is that it or is it something broader? than that. Let me ask you this. Why should they? Why should they walk down the path of self-custody? If they come in for number go up, and I'm wrong, and it is more diamond-handed, and the price goes to some insane number, why would they want to leave? They made all their money in their regulated account.

What is the advantage that self-custody is going to give them? What is the advantage that a centralized exchange is going to give them? Now the self-custody and centralized exchange is, is going to try and compete with this, and it's going to have a harder time. Let me tell you where I think it will work. As I've argued, I'm here, because I saw this being the whole crypto space, as the burgeoning of a new financial system that is sorely needed, but not in the United States. It's needed everywhere else. It's needed in Latin America.

It's needed in Asia. It's needed in Africa. It's needed in the Middle East. There's billions of people that live under the rule of shaking. currencies and corrupt financial systems. And this self-custodied digital currencies can offer them an alternative. So the problem I have with the Bitcoin community is, no, we're going to start at the Greenwich Country Club, and we're going to get them to convert first, and then we're going to work our way down. And I was like, no, that is the absolute last place on the planet that's going

to give up the current financial system, because they're the apex predators that have won in this financial system. You need to really be pushing self-custody and more of this other stuff in the third world to give them the option. But Kelly in El Salvador was a great example of that of an attempt of that, more of that, more of those kind of ideas as well. And then it will then become a toehold there and then come to us last. So what I see this doing with the regulated exchanges in the ETS is telling people, in the first world that have a stable currency. Oh, the dollar's not stable? Yes, it is. That's the other thing. The dollar will be the last currency to go. Every other currency will go before it. It will be the

last one standing. It won't be the first one to go. And so everybody that's in the regulated exchanges in the United States, the trade in dollars, most of them are very happy with this situation in the dollar and with a regulated account trading a product on a regulated exchange. And they're not going to leave that for the wild west of self-custody. If anything, the self-custody people in the United States will want to move that way. So I think you've got to start to think about what it is we're trying to do. Or do we not care about that? All we really care about is number go up. All we really care about is that we just get more flows than it's being mined every day so that we have a perpetual shortage and just push the price up. Is that the narrative right now? And none of these other

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form of a certified secure chip and a proprietary operating system, but also brings ease of use. This makes Ledger a safe and secure way to manage your digital assets without all the stress. Check out the link to the Bitcoin Ledger Nano in the show notes. 5% of all sales of the Bitcoin Ledger Nano go to support Bitcoin development. Thanks once again to Ledger for supporting the breakdown. Let me reframe that question just a little bit, because I think it is worth interrogating. So the question that I asked when we were talking about ETFs, like why does it matter if it's a trader set that's sort of adding volatility to the market, right? And there was an answer,

right? The answer could be that a set of buyers that we were excited about coming in actually goes the other direction. It takes them longer, not shorter to come in. Let's talk about the same kind of question in this case. If it is the case that there's this bifurcation, there's people who need Bitcoin for the full totality of what Bitcoin represents in terms of self-custody, in terms of access to a non-sovereign currency system that's outside of whatever they happen to be sort of born into. What is the impact? Like, is it okay if it's just the job of the Greenwich set, as you put it, to drive up the price? I guess the question is, do we have to care all that much about whether they're engaging with it on those sort of pure Bitcoin terms? Is there a risk if people are just engaging

with it as number go up to the way that others, you know, could use it who need it in a different way? again, I guess it really comes down to what you think the purpose of Bitcoin is. If you think the purpose of Bitcoin is number go up, no, it doesn't matter. It's just another way to just create a trading event for you. It goes up, it goes down, and you can just kind of play it every which way you want. But if you've got a higher ideal beyond number go up, that the higher ideal will lead to number go up like self-custody, like a sovereign currency, then the higher ideal, the higher ideal will lead to number go up, like the higher ideal, that the higher ideal will lead to number go up, like a number go up, like a number go up, like the then this is not going to help you get there. If I could throw an analogy here, we always compare this to tech stocks. And I think it's really interesting to look at what's going on with the AI stocks right now. What kicked off the last AI boom of the last 14 or 15 months that's gotten these AI stocks going crazy? It's chat GPT. It was an app, a application of AI that people said, oh, I get it.

I see what this can do, and the stocks went up. It wasn't, you got to buy Navidia because there's more buyers than sellers, and Nvidia is going to go up more tomorrow because there's going to be even more buyers that come in. And so that's where I think that if you want the wealth management community, if you want the vanguards of the world to basically come to agree that Bitcoin is a viable thing for the Vanguard platform, show them an application for Bitcoin. other than number go up. Because that's what I hear Buckley saying is it sounds like a number go up scheme and they're

not interested in a number go up scheme. If you show them an application to bring a self-sovereign currency and self-custody to the rest of the world that doesn't need it, he'll be all in. That's my opinion. He'll be all in on it. But we're not showing them that. We're just talking about that they're buying more coins that are being mined and that the money just keeps coming and we're just going to keep on this virtuous cycle until we get $220

billion in two years and the price is going to be like $400,000. That doesn't sound like a viable ideal for somebody in TradFi. And that's where I think the mistake is coming. I hope that makes sense. Yeah, no, I think it's an interesting point. And I'm actually going to use another analogy to sort of play this out a little bit too. Again, refraising just a little bit, I think that what you're not arguing is that the fact that this Wall Street set cares about number go up somehow undermines the use of Bitcoin in Argentina, right? The person who's trying to escape the peso can still escape the peso into Bitcoin. So it's not about that. I think that what it sounds more like what you're saying is that the power of number go up to overwhelm all other conversations about Bitcoin and what it can

mean is a profound thing that could have consequences that, you know, that again, don't necessarily undermine the individual Argentine's ability to use it, but don't really bring to fruition the larger system change that this thing promises. And I think that the problem. the interesting analogy here that, I mean, should Bitcoin is not like hearing, is the ICO boom. So if you go back to 2017 and look at ICOs, let's cut aside the like, I don't know, 80% that we're just straight up trying to scam money out of people. There was this core, it was a small core, but there was this group of folks who really genuinely did want to have this sort of different approach to organizing technology companies in particular that had sort

of the, there are no separation between the ownership class and the user class. That was really what the promise of these sort of tokenization projects were. Decentralized Amazon, decentralized whatever, right? They wanted to have a situation where the people who use the application were the owners of it and sort of, you know, it went from there. The ability to, the incredible power of tokens as a financial instrument, as a liquidity force, as an ability to speculate on, completely overwhelmed the ability for any of those other things to ever come to fruition. That's my assessment is that this has been the problem with tokens the whole time, is that everything that they could mean and be in the long run is totally overwhelmed and eaten

by just how utterly frictionless they are as a financial speculation instrument. And so practically what happens is just that's where people focus. This is why we shifted from the tokenized the world projects to just defy again and defy and define sort of the financial games that are represented in defy. I'm not even arguing that none of those things are interesting or valuable or relevant, but it is pretty undeniable to me that any of those ideals of, you know, decentralized, token-based systems have not come to fruition in part because they were sort of upended by just the financialization of them. And it sounds to be like that's sort of approximate to what you're

talking about here, whereas if number go up is the only narrative going on in the biggest market in the world for this stuff in the U.S., it's going to impact. how much the disruptive potential of Bitcoin, you know, how fast it becomes real. I agree. I agree. If you look at, you know, in the TradFi world and in the ETF world, if you look at, you know, what had been the successful technologies that really take off, it's really been around founders that have a vision for a technology, a web browser, social media, AI, everything else that we've had in between. And they focus on those. And they focus on making that product the best they can. the reward of that is that their stock price goes up 100x or 200x. And that should be the driving

force for cryptocurrencies. What is that higher ideal we're trying to do? Let's do that. If we do it properly, we will be rewarded with much higher token prices. But you're right, the frictionless of speculation comes in. And that's where I got back with the whole idea about the VC money trying to bring in, you know, for protocols. Look, we want to try and approach this higher ideal. No one's going to say it to their face, but they're going to look at him and go, but that's hard, that's risky, that's unknown. I could just buy ibit, accomplish the same thing.

You know, we've totally defeated the purpose of the higher ideal. And that's what we've always got to fight against in this business, is that every good idea is just taken over by too much speculation and too much trading, and it winds up killing it. The ICO boom was like that. Defi was like that. A lot of people on Wall Street came to crypto in DeFi summer because they understood it. They understood.

Oh, I see what Ave and compound and Curve and Uniswap are trying to do. I know that Bitcoiners are hating me for saying that. But I see what they're trying to do. I see what they're trying to accomplish. I get it. I understand it. Let me jump in. And then all the DeFi 1.1.0 projects, one completely insane.

ballistic and the speculation took over all the way to when we had Matt Damon doing commercials, and we had the crypto in Super Bowl of a three years ago. And then it became too much and then it all come crashing down. But if we had stuck with one of those and said, look, we're trying to reorganize either through Dow's or through ICOs or through Defi, the existing financial system and just keep doing that. And the reward will be a higher price on your token, I think we'd be much better off than letting this insane speculation take off and kind of drowning out that initial purpose. Do you think that I think that I think that Bitcoiners have a plausible argument that they have been at least moderately successful in trying to anchor a narrative given that you have Larry

think speaking Bitcoins or language when he's talking about this stuff. You know, he's obliterated the blockchain versus Bitcoin narrative. He just will not participate in that, which I think is a really notable shift. He's recently been talking about his trust in the state goes down, Bitcoin goes up. You know, he's sort of like, he's speaking to some of those things. Do you think that it matters that he is at least sort of, you know, giving some voice to those? Or is it ultimately no one cares really what Larry says. What matters is sort of what the numbers are doing? Yeah, I'm kind of in what's what the numbers are doing. Because before Larry, I mean, to go backwards in time, you know, before Larry, there was Elon. And before Elon, you know, there was Zucker,

and Zuckerberg into, he changed the name of his company to Meta. And before that, he was trying with his Libra project to do a stable coin in 2019. And you had Dorsey changed the name of his company to block. There's been no shortage of what we would refer to as Tradfai people, you know, trying to embrace this technology. In looking, even before that, I can even remember, I'm old enough to remember 2020 when we were all excited that Gensler was going to be the SEC chairman because he taught a blockchain class at MIT. And he's going to be friendly to this industry. So this industry is like the hot girl that keeps dating the wrong guy all the time. And it's got this long history of doing that.

Maybe Larry is the right guy that we could settle down with and have a long-term relationship with, or maybe he's just the next one and a long line of guys that they should have never been dating in the first place, remains to be seen. That's why I said, look, if you just do things right, whether or not Larry is just being an ETF salesman for his latest hot project, or whether or not he's actually a true believer in what this stuff is doing, it won't matter right now. I guess you're right. I'd rather have him saying what he's saying now than calling it an index of financial fraud or whatever he was calling it about three years ago. That's definitely an improvement. But, you know, I saw this with Elon and I saw this with Zuckerberg, you know, and I saw this with Dorsey,

as far as, you know, rich tradfai guys in the past that have embraced it and we saw where it went. Lots of great stuff to consider. Before I let you out of here, I want to talk a little bit of macro. So we're recording this on a Tuesday, March 19th. So FMC meeting is happening now. We'll hear what's happening tomorrow. What's your read on where we are kind of broadly speaking? The economy is doing better than people think it's doing right now. It is humming along. the economists have a term called potential. What will the economy grow at if no one is trying to speed it up or stimulate it or slow it down or restrain it? And the belief is that the economy is right now growing at least potential, if not better. In other words, it's not soft landing.

It's no landing if you want to keep with the airplane metaphor. As a consequence of that, we're starting to see inflation start to stay a little bit stickier than we thought. It seems to be bottoming, in my opinion, it seems to be bottoming around 3%. It's not on its way to 2%. And that's going to keep interest rates at these levels, if not higher. I'm talking about market-based rates being higher. Fed funds rate. There's been all this incessant talk all year that the Fed's going to cut rates. But as every day passes, it looks more and more like there's not going to be a rate cut until maybe the end of the year, if then, only if the economy slows. And last off, we real quick on this, every time there's been a financial crisis in history or a recession in history coming out of that,

the economy changes. Change does not mean worse. It means different. What changed after 2020? It's clear in the data that people have a higher propensity to spend. They want to spend more of their paycheck. They want to buy more things. They want to buy more services or experiences.

Just on a unit basis, not just because the inflation rates up. They just want more stuff. What happened to saving? What happened to getting that nestache up, having emergency wealth or emergency savings? That all, I believe, went out the window in 2020 when we started mailing everybody thousands of dollars. So a famous Wall Street economist once asked about all of this spending, and he said they can't continue, what are these people going to do when they're 62? And my argument was they're going to worry about it when they're 61. But until then, they're going to take a trip to Italy.

They're going to buy a new car. they're going to keep doing stuff like that. So that's going to keep the economy strong. And since we're buying things, that's going to keep inflation, not at 810 Zimbabwe level inflation, but three or four percent inflation, which means four or five percent interest rates are probably a baseline from here. And that will present itself with a lot of challenges for the economy that we've got higher interest rates. It's fascinating. We've talked a lot, admit, you know, we, the collective we have talked a lot about the impact of those checks being mailed. But I think that there's another piece

which is starting to find an enter into the conversation right now, which is this sort of larger financial nihilism discussion. And if you go on TikTok or any, you know, Instagram reels or whatever, the default economic conversation among younger generations is an utter disbelief in the idea that there will be able to achieve any of the sort of norms of past generations. And in particular, I feel like there's an increasing shift where it's just accepted now. It's not even something that people are bristling against in the same way. It's

just we've moved past anger into just acceptance. And so in a world where you're not saving for a down payment on a house because you don't believe that it's literally possible at all, you're just going to rent forever, then it makes sense that you would spend more of your disposable income now. Because, you know, I agree with your point entirely that it's a problem for later. I would go farther when it comes to that 62 argument. I think that people assume that they're going to be working at 62. and they're going to be working at 70, you know, because it's just going to be the norm. Not that these are good things, but I do think there's this sort of fundamental shift that might be showing up in these numbers a little bit, too.

Sure. You know, and as far as the nihilism goes, yeah, you could definitely see that generational shift, too. I mean, you know, the younger kids, let's say under 35, just to put a number on, maybe under 40. You know, that there's more, and as you get younger from there, there's more nihilism, especially like you said when you get on the TikTok, it's almost accepted. Yeah, they have no money, and that's why they're playing a crypto and hoping for a number go up. But the boomer set, like I said, they've got it and they've given it to a wealth manager and his job is not lose it and they're driving the Porsche to the lakehouse. They're not nearly as nihilistic as the younger cohort has been because the current system has treated them very well, or at least has given them an opportunity to be treated very well.

And that's going to be kind of the push pull as this generational wealth kind of trickles down to the next generation, what it winds up doing with it. Does it wind up going in a different path? Or is crypto, is digital currencies kind of like just their way to kind of stick it to the man to use another previous generation statement? But then when they get to the point that they actually got the wealth and they got kids and a career that they can. kind of fall back into the fold into the traditional generation. So yeah, I think that's where it is. But yes, coming out of that recession, something changed and caused people to spend more money and spending more money does keep inflation going up. And this is what economists are struggling with to try and understand because a lot of economists are saying, yeah, they're spending more money,

but they can't keep doing this. Sure, they can. And well, how long are they going to keep doing it? to the next financial crisis or the next recession, and then it'll change again. I mean, maybe they spend less, or maybe we mail even more money on the next one, and they spend even more coming out of it. We'll have to see how that one unfolds. But this cycle is definitely seeing more spending, and that spending is leading to stickier inflation and to stronger growth, which feeds in inflation. So when I say that the economy is doing well, yes, but the consequence of that is definitely

going to be more inflation. Last thought for you, too. 50% of the top of the top 50% of the country in income owns 90% of the assets. The top 10% owns half the assets in the United States. The bottom 50% in income has the majority of debt in the United States. That is an unfortunate reality that's been the case for at least a generation. We're in a stronger economy, stronger inflationary world. That drives a wedge right through society. The top half have assets.

They have fixed income assets that are generating them the yield. They're doing just fine. Stock markets are an all-time high. Their price is going up. Their money market funds are yielding 5% a year. That's better than zero. The bottom half doesn't have any of that. They live paycheck to paycheck.

Maybe they have a home with an over-levered mortgage, low LTV, on their mortgage. They are seeing higher inflation. They are seeing their paycheck not keeping up with inflation, and they're very angry. Inflation is a very toxic thing. and that's why it really has to be brought under control and not accepted in any way. The people that say that we should accept it are usually in the top half because it doesn't infect them. People in the bottom half are really being affected by it. And that's how you can have two things to be true at the same time.

One is, I could say to you, the economic data shows the economy is doing well because the top half does 80% of the spending too and that they're spending this economy up and they're pushing prices up. the bottom half is unhappy, the president's approval ratings down, and they all tell them it's because the economy's terrible. So how can everybody say the economy is terrible, but yet it's doing well at the same time? Because a small number of people are pushing it higher, and the result of that might be inflation, which is affecting a much larger cohort of people in the lower end of the income scale. Why do you think the investors have just been so unwilling to listen to Powell when he

tells them what he's going to do or not do, as the case may be, for the last, you know, 18 months. It seems like, you know, taking a step back, every assessment of sort of when rate cuts are going to come, for example, none of it has been based on anything that Powell has said. It's just been sort of based on hopes and dreams. At least it's felt like, to me, as someone who's sort of like an insider outsider kind of, you know, what is it about, is it something about Powell or is it just the market wanting a thing to be real, you know, regardless of whether it is? Up until 2020 and even through 2020, a lot of people in the financial markets thought that the Fed had three mandates. Now, by law, they have two mandates, right?

Try to maintain as high unemployment level as possible and a low inflation rate as possible. But a lot of people thought there was a third mandate, and that was financial stability. And so what has been driving a lot of this belief is Jay won't keep raising rates, Jay won't keep being hawkish. Jay will cut rates because if he doesn't, the stock market will struggle. And if the stock market struggles, that's bad. And it's bad for me because I own a bunch of stocks. So if it's bad for me, it must be bad for everybody.

So there's this belief that he is taking measure of financial markets and kind of trying to be, you know, the nation's chief investment officer in addition to being the Federal Reserve chairman and trying to push up financial asset prices. But what we learned in 22 and 23 was he was very clear that his job was to bring inflation down, and he said over and over, and still does, that inflation hurts the bottom half of the country. And if we don't get this under control, it's going to lead to terrible consequences. Yeah, yeah, yeah, Jay, whatever, whatever, it's down enough when you're going to cut rates. That's kind of where the markets or where people at the top half have really been.

And, oh, but inflation is fixed. inflation isn't a problem. That's their other argument as well. But that, to me, seems more like a justification. So I think it really comes down to this whole financial stability argument that they don't believe that the Fed would do anything hostile towards financial assets because they believe that they have this third mandate. And I think, yeah, they used to.

When there was no inflation, they could actually replace the inflation mandate with the financial stability mandate because from 2010, even earlier, to 2020, they could pretty much ignore the inflation thing. It was down. It was low. It was never a problem. Now that inflation has become a problem, it's taking dead center again as we move forward. And I think that that financial stability argument is being pushed aside. Jay Paul even famously did this in August of 22 when he went to Jackson Hole. He gave an eight-minute speech that was dubbed There Will Be Payne speech. And it was, if you want to know what it said, he basically said, look, we need to get inflation down because it was 8% at that point.

And the way we need to get inflation down is we need rich people to stop spending. and the way we need to make, to get them to stop spending is we need to make them poor. So we need to butcher the stock market. So they get the, the Jesus scared out of them and they stop spending money to slow down inflation. That was his mindset in 22. And I think it's still his mindset today. It's just not as necessary because we've got a 3% inflation rate. We don't have an 8% inflation rate.

But I think it really revolves around that whole financial stability argument. You have to think, too, that whatever position that he's had is probably been bolstered over the last couple years in terms of not having to care about the stock market, given that there's been so consistently these countervailing pressures which have made, you know, macro take a back seat. I mean, I think one of the ways that historians will look at this sort of period is basically AI enthusiasm on the one hand versus, you know, macro turbulence on the other. I mean, there was a headline in Reuters today literally about that still, you know, and it's something we've seen over and over and over again. But if you're Powell, you have to be sitting there, you know,

extra not caring about the impact of things on the stock market, given that it just sort of keeps being fine if that's what your main care is. Yeah, you know, one other thing to keep in mind, too, when you said historians are going to look back at this period, let's go back to 2020. Dave Portnoy was, you know, Davy Day trader and was picking letters out of a scrabble bag to buy stocks and stuff like that. Let me bottom line it for you, we live in a fan dual draft king's world. We are a gambling culture right now like we have never been a gambling culture before. That is why the NFL has got all-time record ratings because everybody's gambling on it. That is why the week we're recording is the beginning of March Madness,

probably the biggest sporting event of the year in the United States, because it's such a great betting event that everybody loves to do over three weeks. And then you look at the financial markets and we've got zero-daste expiration options, and we've got inverse and levered ETFs. Everything revolves around gambling. our culture. And right now, it's hard to divorce that gambling idea from what's actually happening in investment markets. And, you know, getting back to what we were at the beginning, talking about the Bitcoin ETFs, you know, the question is, can we really tell the difference between rational

investing and just DGEN gambling? You know, for a while, they both look exactly the same. And it's only over time that we're able to discern whether it's one or the other. And right now, in a gambling culture like we are, whenever I see things like, you know, the AI macro debate or what's happening in the Bitcoin ETF debates, I just keep coming back to, is this just a bunch of DGNs trying to beat the point spread? Or is this true believers that there's some kind of a new technology or some new way to do things that they want to invest in? And we won't know that number.

We won't know the end results of that for many years. Perfect way to end, Jim. Awesome conversation, as always. really appreciate you taking the time to be here. Thank you.