The Pomp Podcast - Will Money Printing End Bitcoin Bear Market? | Lyn Alden

Starting point is 00:00:00 This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales. Using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. Lately, Bitcoin is almost perfectly correlating with like the software stock indices. Really no way around it.

Starting point is 00:00:35 There's just not been a lot of retail demand for Bitcoin this cycle. I'm pretty bearish on the broader crypto space structurally. And I think if anything, they are weighing on kind of the quote unquote brand of Bitcoin. That's going to weigh down probably for a period of time. There's still something like a trillion dollars in crypto market cap that I think is overvalued. I always think of you as the rational person who uses data to understand what is happening. we've been talking for three days now about what is going on in the market

Starting point is 00:01:02 maybe we can start with the macro stuff it feels like it is very confusing there was a lot of concern about inflation now there's talk of deflation I think that a lot of people over the last 15 years at some point it clicked if they print money inflation shows up

Starting point is 00:01:17 they seem to be going back to QE they're lowering rates data is saying that inflation is going down though that shouldn't be happening how do you just evaluate what is the regime we're in and what's really going on? Well, I think in recent times, the changes we're seeing with the balance sheet and rate cuts,

Starting point is 00:01:33 that's not fueling inflation because it doesn't really fuel money supply growth. Even things like tariffs, they're not particularly inflationary in the broad sense because they're not impacting the money supply. They can just around the margins show up. They can obviously increase the price of one thing. They can also reduce the demand and therefore reduce the price of other things. So it just kind of shifts things around. I think right now we're in a transitional phase in macro, which is we're exiting balance sheet reduction, going toward balance sheet increases, but the numbers are not large. This isn't COVID printing that people think of now when they think of QA. It's more of a steady state. And then we're also in this, because we're

Starting point is 00:02:10 in a period of fiscal dominance, a lot of the traditional metrics just work differently now. We have these larger average fiscal deficits, which injects capital constantly and apart to the economy. So senior spending, basically anyone who's on the receiving side of the deficit. So the defense department, all the contractors there, the healthcare system, social security spending, that's where the capital is going into the economy. And of course, other parts are squeezed. So we're in this like holding pattern. And as long as energy is flowing and cheap, right? So as long as oil is not a bottleneck, that keeps the lid on inflation. And so they have quite a bit of runway, I think, to go forward with probably some rate cuts. And I don't think the balance

Starting point is 00:02:53 sheet expansion will be particularly inflation in the next, call it year or two years. One of the things that's always interesting to me is if you look at the U.S., that is not the whole world. And so there are times where the U.S. is doing something and the rest of the world may be doing something else. Michael Howell is now starting to talk about liquidity being drained from the system. But I think that it's very interesting you have these like deflationary forces. Now, whether we actually get deflation or what the end result is, I think it is pretty clear to people things like the deportations um artificial intelligence robotics tariffs even to a degree how do you think about money printing and their relationship to a deflationary pressure

Starting point is 00:03:31 right because there's one argument where it's okay if we go print a bunch of money then that should be devaluing the currency that should lead to higher gold bitcoin etc prices if there's this deflationary component to it though maybe it's kind of hidden like they're printing money but it's being eaten up by the deflation just talk a little bit about you know how you think through that? Yeah, so I think inflation is a spectrum, because it doesn't show up evenly, obviously. And there's a pretty simple calculation, which is you have the debasement rate, basically money supply growth, and then you have some amount of productivity growth. Right now, obviously, AI is a big factor, but over time, it's automation, it's everything, all of our technology,

Starting point is 00:04:06 all of our organization, we're, you know, billions of people every day are trying to make things cheaper, essentially, and finding new ways to make things cheaper. So you have that, you know, let's call it 7% money supply growth over the long term. And then you might have 4% productivity increases every year. So that difference, roughly speaking, that 3% in a longer term pattern is the price increases. And around the world, central banks are basically doing their best to counteract the deflation that

Starting point is 00:04:34 we would get from productivity growth with that money supply increases. And so, but there are periods of time where we don't get like much more productive in a given five-year stretch. It could be because there's energy shortages. It could be because there's war or something like that. And other times you're in that period where productivity is flowing. And then as that money supply growth happens, it doesn't show up everywhere equally because we're not 4% better at making gold this year. We're always just marginally better at making that. We're not better at making Bitcoin this year, obviously. And then you go down the

Starting point is 00:05:08 stack from there. So every year, we're not way better at getting more oil out of the ground. We're a little better. We're not way better at making houses. We're a little better. But we are exponentially better, for example, making software. We're exponentially better over the several decades of making electronics. So when that happens, when you have that kind of longer term money supply growth, it shows up in the assets that we're not getting better at making. Same thing with like the best stocks in the world. We're not getting better at making Nvidia stock, for example. And that's where all that debasement capital shows up. And then the long tail of things that were way more abundant and they get cheaper, then they weigh down the CPI basket. And that's what allows the central bank to be pretty dovish. For a decade, Bitcoiners had a blast mocking the gold holders, saying things like Bitcoin is gold, but works or, you know, Bitcoin is gold with wings. I think I said once on television, we've been eating crow for the last 12 months. The gold bugs are now mocking the Bitcoiners saying, hey, why is that thing not working? what is the relationship between these two assets and why do you think gold's been working so well

Starting point is 00:06:09 and bitcoin hasn't well the cool thing about assets is you can own both uh there's i think there's been an unnecessary animosity between uh bitcoin proponents and gold proponents i mean there are plenty of us the macro side that own both um you know i think a lot of things it's always surprising how things can happen all at once so i've been in the gold bull camp but for example if you would have asked me a year ago would we have seen five thousand dollar gold by now, I would have said wouldn't be my base case. And of course, once gold runs, you get runs in silver and platinum with a lag. I mean, I think most of the narratives we see around it are at least directionally true, which is that we are seeing countries diversify, you know, in percentage

Starting point is 00:06:48 terms away from treasuries and toward gold. No major selling is going on, but there's like the marginal interest is more in stacking tons of gold. And then you get momentum building from there. And so if you look in history, kind of, the U.S. stock market had kind of four main bear markets against gold, right? So when we price things in dollars, it's always tricky because dollars themselves that we just discussed are debasing. When you price S&P 500 in shares of gold, I mean, in ounces of gold, we've had kind of four major bear markets over the past, call it, a little over a century. I think right now we're in the fourth ones going on, right? And so equities, although there's many good ones, they've been debased pretty heavily against the money supply. And globally speaking, there's just been an influx in demand.

Starting point is 00:07:36 Lately, Bitcoin is almost perfectly correlating with like the software stock indices. Like everyone's pointing out that ETF, IGV, I believe it is. And it's almost a one-to-one correlation. It could be the algorithms doing it, but really no way around it. There's just not been a lot of retail demand for Bitcoin this cycle. It's almost all been in the corporate sector, all been in the institutional sector. To the extent there is retail demand, it's mostly been in higher net worth retail that have brokerage accounts, that they have access to the ETFs now. And so right now, there's not a lot of retail buying.

Starting point is 00:08:08 The interesting thing is that as euphoric as precious metals got, the retail only really came at the tail end of it. So when Bitcoin was kind of I mean, when gold was in a kind of a shadow bull market, maybe 18 months ago, there really wasn't much retail participation. They only came in on the tail end. And I think Bitcoin just this cycle pretty much lacked retail. Why do you think that is? Is it just like the retail folks who were interested in Bitcoin already owned Bitcoin? Is it the kind of shiny, you know, object syndrome? And now there's AI and prediction markets and, you know, silver or whatever that kind of caught their attention.

Starting point is 00:08:42 Is the media now because they kind of like it? less of you know an opponent maybe even like that there's not something that every single day to get excited about because the media is attacking it what's driving the lack of retail interest i think part of it is the shiny object syndrome partially for good reason i mean ai has obviously captured a lot of mind share i think that's a a big factor um and i think broadly speaking the the kind of the lack of the crypto cycle this time uh probably weighed on it i think i mean i you know i'm on record not being i'm pretty bearish on the broader crypto space structurally But they tend to have a lot of capital.

Starting point is 00:09:18 And so they kind of fuel some of these cycles. And they didn't really have a season at all at this particular cycle. And I think if anything, they are weighing on kind of the quote unquote brand of Bitcoin. When people, you know, when media, and in general, when people talk about Bitcoin,

Starting point is 00:09:34 they lump Bitcoin with crypto. So they think of meme coins, scams, you know, the broad array of issues. They think of losing money when they think of that. And I think that that's going to weigh it down probably for a period of time. There's still something like a trillion dollars

Starting point is 00:09:51 in crypto market cap that I think is overvalued. And I think it is kind of a gradual stagnation. And, you know, it'll have cycles up and down. But that's kind of just an anchor, I think, around the real story, which is basically Bitcoin and stable coins and, you know, a small tale of other things, tokenization in general.

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Starting point is 00:12:54 Some would say, you know, that's a good thing. You don't want to spend something that is going to be worth more in the future. And so it makes sense you would spend dollars. But that also is a diversion of interest and demand and just mental energy that Bitcoin, I think, previously had. How much of an impact of the success of stable coins do you think is, you know, holding down Bitcoin in terms of, you know, capital flows and interest there? I think to some extent, but I think it's inevitable. Basically, stablecoins, they attach the existing network effect of the dollar and, you know, to a way lesser extent, other fiat currencies are almost all dollar stablecoins. And when people are, you know, using money for shorter term, like working capital, volatility is something they want to avoid. And so I think basically as long as people have liabilities denominated in dollars,

Starting point is 00:13:41 and like, so whether it's debts or whether it's things that, you know, other things they owe in the future, whether their paychecks are denominated in dollars or other fiat currencies, there's going to be interest in stable coins. I think that market cap is going to keep getting higher for the next five years.

Starting point is 00:13:56 And, you know, we'll see how that goes. And also every Bitcoin transaction is taxable, right? So I think that, I think, you know, it would go a long way to have kind of a de minimis exemption on Bitcoin capital gains to make it more flow as money. And then in addition, one of the downsides of stable coins, of course, is that they can be frozen when they are centralized. But the vast majority of people, especially for their working capital, they don't lose sleep over that. So I do think that stable coins are going to continue to be around for a long time. And I do think that they somewhat

Starting point is 00:14:27 pressure um kind of the bitcoin narrative but i think at the at the end of the day bitcoin has that decentralization aspect it has that long-term capital aspect um and i think not until bitcoin is much larger and less volatile would it really kind of catch on as something that that people regularly pay with um but when you look at you know when you look at like say river funny like when they do a analysis on lightning network and volumes the volumes are actually pretty decent uh on lightning for example there is volume happening there are billions of dollars of transactions happening just not the trillions that many people would have maybe hoped for if ai is successful i think that there are a number of ramifications people are thinking

Starting point is 00:15:08 through there's the whole ai agents and agentic payments and that whole world but also there seems to be a lot of questions about the job market and you know last night at dinner i asked a table full of maybe 25 people you know raise your hand if you think your job is going to get get replaced by ai in the next five years nobody raises their hand right it's like hey you know they're coming for the jobs but not for mine yeah everyone else's job yeah of course um so how do you just think about like if ai is successful what are the things that you're paying attention to either macro or bitcoin related well i think it is a um i think the biggest factor is it is a productive force uh so over the call it five ten year period uh as we discussed earlier it does

Starting point is 00:15:47 way down on aggregate inflation. Even if other things go up, for example, if the cost of power goes up or eventually we have another oil bull market and that gives us some inflationary pressure, it is a deflationary force on white collar work. If you look over the past 25 years, most of the reduction in inflation we've seen is mostly in manufacturing, electronics, textiles, things like that. And that's where the combination of offshoring and automation has weighed down basically, you know, blue collar deflation in a sense. And what this does is it kind of puts that same sort of force we've seen over the past 25 years into white collar labor. So things, you know, accounting can be way more efficient and translation can be way more efficient and editing

Starting point is 00:16:30 can be way more efficient. And it kind of goes up the stack from there. And that's, I mean, in the U.S. it's obviously tens of millions of jobs that are impacted. I tend to be an optimist in the sense that obviously it's disruptive when it happens. But I think that people adapt. And I think that, you know, productivity is a good thing. You know, when they invented the tractor, it's not like, you know, it was an apocalypse of farming jobs. It's just that every farmer got way more efficient at farming. And then some of them, obviously, as generations went by, could go into other fields. So instead of having 6% of the population work in farming to feed everyone, one or two percent of people can work in farming and feed everyone and i think we have a similar

Starting point is 00:17:11 thing kind of ahead of us for white collar work which is the whole back end of a business can just be way lighter uh because you have a smaller number of people overseeing the bots do a lot of it uh which frees up them to work on other things and that you know they have more abundance obviously the the big risk factors are in the concentration of gains that come how societies deal with this so i do think that we are in a period of heightened you know polarization that we're going to be for the foreseeable future. But I think ultimately, productivity gains are a good thing. You're now famous for nothing stops this train. I think that pretty much everyone in this room probably believes that. Is there a world where the people in this room actually

Starting point is 00:17:50 ask the government to print more money, not less because of AI tariffs and these kind of deflationary forces where, you know, it's almost like we're so used to money printing is bad. That leads to consumer inflation. I want to avoid this. Yelling at the government is a good idea because they're dumb. It does feel like, hey, wait a second. If we get these big deflationary forces, we may need them to print money. How do you think through good or bad on that front?

Starting point is 00:18:18 I think people tend to like money printing when the printing goes toward them, right? So, for example, during the whole stimulus in the aftermath of lockdowns and stuff, industries are trying to make sure that they're getting bailed out. Uh, and, and so I think that it's, it's one of those tragedy of the commons situations where, I mean, everybody suffers from the debasement, but not everyone suffers from it equally. I mean, if you're in finance, it's like people here, you can short the fiat currency and be long assets, and you can actually benefit from debasement. Whereas people who, uh, you know, they, they, they work every day, their, their salaries are, uh, denominated in dollars. Um, that's a friction

Starting point is 00:18:53 that they have to go through every time they're trying to get a raise, every time they're saving. But I do think that, yeah, going forward, the reason deficits exist is because people want them and they're all fighting over the pie to make sure that they're getting it. Right now, it's going toward health care. It's going toward the aging demographics, you know, the top heavy Social Security system we have. It's going toward defense to the extent that we do get, you know, job losses from AI. If we get a more pessimistic scenario where we do get kind of pretty weak labor market, yeah, I think you'd see more people clamoring for answers from their politicians. And if it hits a critical mass, then that's an additive of money printing, and that's a whole other part of the deficit that I think we'll see. It seems like right now we have a higher growth, lower inflation environment. They're obviously the administration saying, hey, we're going to get to five, seven.

Starting point is 00:19:48 I think I heard Trump say 15 percent. These are really high GDP numbers. Historically, high GDP growth means high inflation to some degree. Do you think we can reach some of these numbers on the GDP side? And then what do you think would happen on the inflation side? Is there still going to be that kind of correlation? You know, one of the tricky things is that the GDP growth we're seeing is very concentrated. And the deficits, they feed into the GDP calculation as well.

Starting point is 00:20:14 So basically, anything that's kind of focused on AI or on the receiving side of deficits is generally booming. Whereas the long tail of other things is the classic K-shaped recovery that it's called or two-speed economy. That's very real. The short answer is long as energy is flowing and there's no bottlenecks, that does a lot to keep inflation down. Almost any kind of major inflationary cycle in history usually has high oil prices associated with it. So anything that either the administration or globally can be done to make sure that oil is not the bottleneck and natural gas is not the bottleneck and power is flowing in general and pro-nuclear type policies, whatever the case may be, depending on the country, that's the place you can get to where you have pretty high growth with inflation that's at least under control. um and so really when analyzing inflation is going to come back or not at scale i think you start with the oil market and go from there every time you put out your free monthly

Starting point is 00:21:14 piece i send it around to as many people as i possibly can it's always excellent where can people go and subscribe to that uh lindalden.com all right lindalden everyone thank you thank you

The Pomp Podcast - Will Money Printing End Bitcoin Bear Market? | Lyn Alden

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