The Wolf Of All Streets - $1 Million Bitcoin, Is It Possible? | Macro Monday

Episode Date: June 17, 2024

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Our favorite hyperbolic price predictor Bernstein is back saying that Bitcoin could hit a million dollars in 10 years. And this is based on their analysis of MicroStrategy, which they've given a target over $2,800. Now we've seen a lot of these million dollar predictions coming back in, Cathie Wood, of course, always talking about that and much higher. Is this really possible? And how could it happen in context of the macro environment, which we're obviously about to dig into here with Dave, James, and Mike, the team here for Macro Monday. Let's go. hour of the week, macro Monday. Without further ado, let's bring on the crew. Mike McGlone, James Lavish, and Dave Weisberger. You lost. Chad,

someone had a bet on Dave to get up and close the blinds on the window. You're in a different room today. You didn't do it. You lost your bet there, Chad. Sometimes we get Dave in the car. Sometimes we get him in the office with the blinds. Right before we get him, we're talking about blinds. And right before we get an energy

drink. Every show. Monster. One monster. All right. So obviously, we're going to dig into whether one million Bitcoin is possible to make it interesting. But we're going to start first with the morning meeting date, Mike's morning call. We want to know what's happening in the macro. It seems that all eyes are still on France here. Yes. Our chief equity, I'm sorry, FX strategist, Audrey Child Friedman said, now there's no chance of Brexit.

But the key thing is it also kicked in the trend of the dollar outperforming. And one of my takeaways of what she said was, I just watched the Eurostox index and just published on it today that go back 20 years. And that Eurostox index looks like it's finally backing away from getting 20 percent above its 100 week moving average. It's never sustained above that level for more than a couple of weeks ever. OK, you can go back 30 years. So maybe it's reversion. So one thing our chief strategy,

our equity strategist, Chris Kane is our, he's more quantitative. He said, you know, we can stay overbought for quite a while. He's talking about us equities. Our economist,

Estee Lou came on and pointed out the expects the FOMC to cut and SEP and ARC. I'm sorry, SEP in December. Now the market's price for the first cut in November and expects a steady slowdown in spending this year. Retail sales might be a little bit weaker. That's a key thing this week is retail sales.

And pointing out that consumers have stopped lightening up. I mean, market's still strong, but stopped dipping into their savings and lightening up sales. Our chief FX strategy, I'm sorry, income rate, interest rate strategies, Ira Jersey says, he says, 10-year notes might drop below 4%, maybe in high threes. And I tilt over to my view on that. I'm just looking at the key thing I've been watching for quite a while now is the CGB yield in China. 10-year note yield has dropped to 2.26 it's been stuck at 2.3 for a

while give the context a year ago is about 50 basis points higher is closer to three it's plunging and then the latest data we see about the housing market in china so i see severe deflationary forces coming out of china we see a potential peak in the euro stocks market from a really expensive level u.s stock market's never going down again. We know that. And then I tilt over just a few things for commodities. Virtually every commodity I see is heading towards that low price cure. It's just logical.

What always happens when they get too expensive, they always go down and they have to get cheap. It's definitely happening in the grains, the most supply elastic. It's happening in natural gas. Natural gas positions are way expensive copper put in the new highs all tilting lower natural gas net positions are still way long as a natural gas but the one exception right now is crude oil the one that matters the most hedge fund positions have completely sold out remember they put in that high up at 87 a barrel back in april flushed out to 72 just a few weeks ago.

Right now we're at 78 right now. They're completely sold out. And typically that has to kilt in. So I'll end with what I see is gold breaking out higher at some point. I still watch, love that. My favorite, like I should say, cross rate is Bitcoin versus gold. It looks to me like it's rolling over, unfortunately, that leading indicator. And I think it's just getting a little bit of spark from Europe, a little bit of backup

from what's happening in Chinese rates. And as we tilt towards that recession that didn't happen last year. Any thoughts there from Dave or James and everything we just unpacked there? I guess Le Pen kind of she backed off of the Brexit type rhetoric is what you alluded to there. Right. So we sort of saw a move up in European equities this morning. Confidence that the market wasn't going to fall apart. But then that seems to have sort of slipped since. Yeah. I mean, you can see it anytime you have political upheaval. I don't think it's about Frexit as much as it's just about uncertainty. Markets hate uncertainty.

They don't know where to put money. So you see a lot of rotation. So are you going to move money out of that green energy and the environmental kind of companies out there? You're going to start putting them into more classic energy companies. Like where's the banking, where the financial regulation is going to come in. And so I think the markets were more spooked in my opinion, but I don't, I don't know. I'm not invested in France, but Mike, you tell me, and Dave, if you know, I think they were more spooked with Macron calling a snap vote because then it just, it's political upheaval immediately. And so that's, that's kind of, um, something that markets don't like.

And you could see that bleeding over into exactly what Mike is saying and into, into some safety trades. I mean, I always shake my head whenever Mike talks because he, he, he says 90% I agree with, and then kind of goes off and talks about correlations that are literal correlations, not causation. And whenever you think causation and correlation are the same, trouble results. Bitcoin's doing what Bitcoin's going to do. It literally doesn't have anything to do at this point because of where it is in terms of its optionality,

its network growth to gold. It will. And that's hence your title is going to ultimately be right, but it isn't there now. And just because we got a few years of data and just because we made all time highs that were basically four times a network and inflation adjusted high in 21. And so the chart since 21 makes certain things look, I mean, you may as well be looking at a Rorschach painting

to say, okay, well, you know, these dots prove, this picture proves the market's going to move in a certain direction. I think astrology is probably more accurate than trying to predict Bitcoin based off of a post-21 with 2022 in the middle of it correlation to anything. So that's the first thing. That said, every time these severe deflationary forces comes out of Mike's mouth, I throw up a

little in my mouth. I just do. Not because he's wrong, but he's wrong in a weird way. What he really means to say is severe recessionary forces, because that is what's actually happening. You have value, you have assets that were built that were priced at a level that made no effing sense, buildings that are completely empty, things that they built just for the sake of employing people that are not being used. And that's all true. But that has nothing to do with inflation on consumer goods that people actually do need. In fact, it's the opposite relationship because the government is going to need to print boatloads of money, they already are, that when they inject liquidity into the system to stabilize those stupid things they built

that were malinvestment, it will obviously find its way into the costs of things that are proper investment. And that's the problem of looking at averages. I say it every week, but my thought, I'm trying to come at it a different way today as to why I disagree. The reason I disagree is because undeniably loose money policies over the last 40 years across the world have caused enormous amounts of malinvestment. Malinvestment being defined by Dave Weisberger as things that you would, under normal circumstances, never invest in because you could never rationally expect a profit. But when money gets so cheap that it looks like there's a chance of it and people are willing to speculate with a put, meaning that they

could just walk away if they're wrong and they place their bets where they do. In Wall Street, we used to call this the option. You end up with enormous amounts of malinvestment. And we've seen it. We've seen it all over the world. We've seen it here. But the poster child for this, as Mike rightly points out and is undeniably true, is China, where they built entire cities that were effectively malinvestment. And that's a big difference. And so what I want to say is, when you have recessionary forces triggered from malinvestment, what are we going to see? Well, we saw it two weeks ago. The ECB cut rates in an inflationary environment. You want to know what Le Pen is going to do? Le Pen wants to get elected. So what's she going to do? She's going to go more mainstream. What's mainstream? Print money. Her issue has nothing to do with the economy.

Her issue has to do with forced immigration. That's her issue. I mean, it has something to do with the economy, I suppose, but her issue is immigration. So instead of Brexit and the splintering apart of the European currency block and the euro, I don't think she has any interest in that because that undeniably brings stability. And, you know, she'd get, you know, bounced out on her butt and her party would lose favor, lose power forever if they broke apart French economy and caused depression. But what she wants to do is stop refugee taking. What she wants to do is stop the, I don't know what they call it in French, but they have a word for it, where the local French speaking people become a minority. She wants to stop that. That is literally her signature issue. Now, there are other issues that she has that I thoroughly disagree

with, but that's her signature issue. So understand markets kind of looked at this and it was like, oh my God. And then it's like, well, you know, it really doesn't matter why, because there is no leader that is likely to change the money printing psychology. There's no leader that isn't going to fund deficits. There's no leader that doesn't realize that collapses in malinvestment won't be met with liquidity. And that's why you end up with our title. And, you know, I'm going to stop there to let Mike respond. But I just want to understand the macro set that said it's summer and they're to say a colloquialism sounding like Yogi Berra here. There ain't nothing happening.

volatility is dropping, settling down, you know, Bitcoin ether bounced off of ranges about a little bit either slightly outperforming because gensler waved his arms and said oh i think we will probably have it at some point you know in the summer and you know on the etf yada yada yada but the fact is that the money is kind of sidelined people this is the lowest volume lowest volatility part of of, certainly for crypto assets, effectively ever, always is. It's been, you know, in our data since CoinRoute has been around, this June, July into August period is always the weakest in terms of volume. It's not necessarily price. Even in some of the biggest up years that we've seen on record post halving, August generally has a swoon before September corrects that swoon.

And then later in the year, the market rallies. So that's been Scott's thesis. That's actually been my thesis all along. The only thing that could change that is big institutional investors taking money and going from weak hands to strong hands. And we've been seeing that in spades. But, you know, last week we saw a rollover of the Bitcoin ETF. Yeah, some of the short, hot money users took their money out. It happens, right? You expect it. At the same time, we need to talk about micro strategy. Hold on, we'll do that later.

Yeah. Just so you see what he's referencing, Bitcoin investment products saw over 600 million in outflows last week. That's from CoinShares. Obviously, with dropping prices, not entirely unexpected. Right before that, we had a record 19 days in a row of inflows into Bitcoin spot ETFs that ended the beginning of last week. So I think it's fair to say that maybe we shouldn't put too much stock on the day-to-day inflows and outflows, which we've been saying for quite a while because they're misleading. But Mike, I'll give you a chance to respond. And then Dave, you did give us a nice segue into that's how a million dollar Bitcoin can happen. So we'll talk about that.

But go ahead. So that's also part of the problem is when you, I enjoyed when Bitcoin was really getting beat up and I was writing bullish comments and people would send me stuff. It's going to zero. And then when it gets really expensive, you hear silly stuff like that. It's going to a million. You have to know when to pick pinpoint when people are just human nature, just too bullish or too bearish. So here's the fact I want to point out about markets. The fact

is I see all markets as a tinderbox waiting to spark for reversion, as Dave would call a recession. I'm just calling it typical, normal, deflationary trends after the biggest inflation in history based on the biggest money pump in his in history it's going to happen it's just a question when and i've seen all the signs and then i look at the leading indicator the fastest horse in the race you keep 27 contain trade 24 7. it's showing me that already i just you know the gold bitcoin ratio is breaking down again i'm sorry bitcoin gold ratio it looks like it put in a good peak and breaking down for a good reason. We had this greatest reason ever for making new highs in Bitcoin. It's over. Halving's over and we've launched ETFs. And then so I look over the bottom line is where all the indications. I definitely see that clear sign of deflationary

recession in China. I see copper failing. I see gold being the only major commodity that's really doing well, major commodity. Crude oil can't go well, do well. And then I always said the bottom line, as you look at the US stock market, volatility is as low on a 52-week basis and interest rates are as high as right before the great financial crisis in 2007. As Dave pointed out before, some value risk models broke down, but mine didn't. And me with clients and with the hedge fund I was at was one of the best trades ever. We just pointed out volatility has always been reverting. It's waiting for a spark. So maybe it started with the election cycle. I don't know, but it's just a matter of time. So that's why I tilt over to Eurostox. That chart you showed, Scott, on Eurostox,

it's just a normal reversion. It's way too expensive. It goes back to its 100-week moving average and it resets. Bitcoin's a leading indicator. And everybody tells me it's not. I'm like, OK, it's not showing that at all. So I'll just point out facts. The last time S&P 500 corrected 5%, which was a month or two ago, Bitcoin corrected 20%. The last time S&P 500 corrected 25%, Bitcoin corrected 80%. I have not seen any sign yet in the markets

of this highly speculative risk asset not going down more and outperforming the equity market, or acting like gold or a treasure or a risk-off asset. It's still very much of a highly risk on asset. And risk to me is that we're going to have a normal version reversion in beta which means bitcoin goes down and so far it's to me it's been a good leading indicator again today i mean bitcoin doesn't look great today obviously i think it's trading 65 755 right now but 65 68 62 i see d shrugging as well. It's kind of all the same number. The bottom line is in S&P 500 set record highs. Bitcoin keeps, it's giving you that divergent weakness. Yes, everybody. I agree with you. Maybe someday it's going to come back, but I look at it as a trader. Show me the, show me the beef right now. It's, it's showing divergent weakness with

all the inflows and it's showing what you'd expect after a good hangover. And Scott even pointed out after the halving, after the launch of ETFs, it's still in a hangover mode. Show me strength. And it's not showing anything but divergent weakness so far. Well, in previous halving cycles and with this sort, with essentially $15 billion worth of marginal Bitcoin sellers, because all that is now in the ETF, but marginal Bitcoin sellers from the crypto world, what price would Bitcoin be at if it weren't for the fact that we now have a fairly solid base of accumulators? That didn't exist before. And my answer is I think we're in the 30s or 40s. So a large part of the reason Bitcoin is in this range,

and I'm shrugging my shoulders, is because from a supply point of view, there are a lot of people, most holders are selling for one of two reasons. There are traders like Mike who, from a trading perspective, it looks awful. And I'll point this out every week until we recognize it as fact in our pantheon and our zeitgeist here, which is, if you miss 15 days of Bitcoin holding

in the last 10 years, you're toast. You know, if I could, if I could selectively go back and say, Okay, you were out of the market these 15 days, you got nothing, because that's where all the price rises happen. And so long term holders who believe in the in the title of this over the next 10 years, which I do, by the way, and I do actually think it's conservative, I think that a million dollar Bitcoin basically is Bitcoin, taking, you know, demonetizing gold, not demonetized, demonetizing is the way gold demonetizes silver. Silver is still a monetary metal, just not the leading monetary metal.

When Bitcoin becomes the digital gold for the Internet, its price is a million bucks based on current trends because I expect gold to be somewhere around $3,000 over the next 10 some odd years. It might go beyond that, but whatever. Just basically assuming money printing the way it is, because I will constantly point out that every asset that it needs to be, have a denominator and a set of value.

So when you look at a stock, it's based off of discounted future cash flows. Now, frankly, you can say that about GameStop. Okay, well, I'd love to hear it. Best analysis on GameStop and a lot of meme stocks is, well, GameStop's case is we created this frenzy. The company sold a lot of shares, is now sitting on a pile of cash. And so effectively, it's a special purpose acquisition vehicle with a ton of cash that can't be taken from it. And so we expect they're going to grow and build something. Okay, cool.

Well, you know, whatever. I mean, it's not a horrible idea. It may mean that it's undervalued. I don't know. But the fact is stocks are tethered to their ability to do something with their cash other than buying back their own stock. And so I agree with Mike, the S&P as a writ large is way overvalued because there's no way relative to other than buying their own stock back, what are they going to do with the cash that they're earning in an inflationary environment as we print more money? But Bitcoin is something else.

Bitcoin is valued based on its network and its network effects, and it's dramatically underperforming that. It just is by every fundamental Bitcoin metric. So that looks different. Gold, well, other than an asteroid, which of course would completely change the equation, but other than an asteroid, assuming gold mining in the way it is, gold is also not tethered to the ability to discourage future cash flows. It's based on its value in the ground as divided by the value of dollars and euro and yen and won and et cetera.

And based off the fact that that stuff is printing, you'd expect gold's price to go up. And so that is much more like Bitcoin, but Bitcoin has the additional network effect that will eventually be there. And while I agree that when we're not in the 16th and 17th day of Bitcoin price rises, that it will behave the way Mike's saying. My divergence with Mike is don't be out of the market during that time if you have this fundamental thesis, because I mean, Mike Alfred

had this great, you know, funny tweet or post or whatever the hell we call them these days. He basically said, yeah, I was a long term Bitcoin holder, but unfortunately, I missed the big rally because some technical traders told me that it looked like it was experiencing weakness and I should sell. And that's kind of my point here. My point isn't that Mike is wrong, because that's on the trading side. If you're very nimble and can jump back in and whatever and you're trading in and out. Yeah, I think that what he says is absolutely accurate. If you're a long term holder, my God, that could cost you. And that's really the point. It's really very simple. So everything has a place and a place for everything. We need to delink this notion of macro in influencing trading versus macro influencing investing.

And I think that's the point. Yeah. James? That's a fair point. I mean, look, the market isn't experiencing uncertainty as much as it's experiencing different beliefs, right? So you're watching the Fed and everybody's eyes are on the Fed. Why are their eyes on the Fed and the CPI and all? Because they're trying to figure out what's going on with the economy. And there are different experiences in the economy right now for different people. And that's what's going on with the economy. And there's, there's just different, there are different experiences in the economy right now for different people. And that's, that's, what's going on. You're seeing the market rise to all time highs, which, uh, in it, it, um, usually, uh, historically would,

it leads to people spending their net, their net worth, right? They're not spending their income. They're spending their net worth. They see, wow, I'm worth all this money over here. I can spend some of my savings because look at my house. I bought it for two grapes and a walnut and now it's worth $7 million. But everybody's watching the Fed. The problem is the Fed doesn't know what's going on. If you look at the Fed dot plot, does it really match up with what the Fed futures are saying, which is the Fed futures are saying it's a 60% chance of a cut in September, right, Mike? I haven't looked at this morning, but I think that's where it is. And there in a month ago or eight weeks ago, and now they've got two cuts penciled in. So then you then you look back at the history of the Fed dot plot and they're wildly wrong a year out. I mean, wildly, not even fucking close to right a year out so many times. So it's like, we're watching this happen in real time

and you're seeing bond prices kind of fade. You know, they're rising and the bond yields are fading. The 10 year yield is fading. We're going on two years of being inverted, two years. So there's going to be an event here at some point that just restabilizes our yield curve. And that means that yields will be higher long-term than they are short-term. Everybody's trying to position around that because there's one constant that we've been taught over and over and over again for the last three decades. And that is the Fed will come in with a put and print for you. And that's what

you're watching. So if you're thinking about risk assets and the S&P and there's exuberance around AI, there's so much money. The breadth is awful. The rally in the S&P is really due to just a handful of stocks. And really, Nvidia and Apple and who else, Mike? You watch this every single day and you know that it's extraordinarily concentrated in just a few stocks. And so there's a false sense of security here. And I don't know who wins what, when, how, but I do know that the market is not really reflecting everything, in my personal opinion, that's going on. It's kind of reflecting very strong pockets of it.

And so we're just going to, we have to see where this shakes out. And, you know, the Fed doesn't know. We don't know. Maybe we do have a soft lane. We just keep rising forever. And there's, there's no looking back. MMT is right. And, you know, we're just going to print money to oblivion and yeah, Bitcoin does get to a million dollars, but it gets a million dollars in three years, not 10. But that million dollars is worth $100,000. So I got to follow up on both of what you said. And so, and then it makes sense is completely remember Bitcoin's a baby. It's only been around since 2009.

It's never seen a bear market in the stock market. It's seen maybe a year down, maybe see 25%. But the things we remember when a stock market goes down and stays down for a couple of years, it hasn't seen that yet. That's my point. And a lot of investors and portfolio managers in their 40s have never seen that either. And I'm not saying I'm an old fart. It's just going to happen. And my point is people need to understand that this asset that trades three times the volatility of beta is going to go down when beta goes down. We all agree with that. But the thing is, beta is so overdue for a really significant reversion. That's it, just normal reversion. And that's the point I've

been making with right now we have CPI at 3.4% or so in this country. It's exactly where it was in 2000 when the S&P 500 was 1.5, sorry, market cap of US stock market was 1.5 times GDP. Now it's two times GDP. Inflation is going to stay sticky until the stock market goes down. It's just the way markets had worked in the past. And that's why I point out where if you're long Bitcoin and you expect to outperform the market and when beta goes down, good luck. It just, my point is, and I completely agree with Dave, long-term, it's going to go up. I shouldn't be trading it. Traders are great. They should stick with it. And one thing I've learned being an ex Long-term, it's going to go up. I shouldn't be trading it. Traders are great. They should stick with it. And one thing I've learned being an ex-trader is it's certainly the market's working against you.

But I have to point out those divergent weaknesses, trends. And my point is that those who did not sell when it made a new high, most of those still calling to make a new high. I'm like, okay, we just did that. You had the best trade ever. If you bought ETH, you crushed it. If you bought GBTC, you crushed it. To me, the next big trade is going to be TLT potentially. So I want to respond to that in a couple of ways.

The first one is the amazing part about all of this is, you know, there's two points that James and I have both made in different ways that we have a differential market, right? You know, the, the, how you experience it is very different. The entire progressive movement is theoretically, of course, it's not in practice, but it's theoretically based on the notion that, that, that all the gains in the economy that we've seen have left people behind. Now, many modern progressives have abandoned that. They don't really care anymore. Now they care about all sorts of weird esoteric shit that I don't want to delve into, but it's complete insanity. The fact is that those of us who actually believe that wealth inequality

and income inequality are a problem, particularly when we enforce policies to increase them, which we are, it's a big issue. Now, why am I coming back to that? Well, I'm coming back to that in a world where the stock market is the engine of growth, as opposed to small business formation. It's sort of like a body that has some form of cancer. I mean, the economy has a cancer that is eating itself alive. And how do you see this? Well, the people who are in power, knowing the smart ones know this is true. The others basically just kind of froth at the mouth and say stupid shit. And as much as I dislike her, Elizabeth Warren's one of the smart ones. So she understands what I said is true. She would never admit it, but I know she understands it.

But what's her response? Her response is to take every action to keep power. Well, how does one do that? Well, one manipulates the market. And the cabal of people at the top of countries are manipulating this market. There's two years of negative, of inverted yield curve. That's by design. I mean, I look at it, if I'm Powell and I took the weekend off, which I'm sure you didn't, then I wake up this morning and I see the 10-year below 4.4 and price change of almost a

full point and the yield actually below 4.3. So when I see the yield below the coupon on the 10-year, I'm doing backflips. I'm thinking, hey, who's the best manipulator of the economy? This guy, right? It's not me, obviously, but that's what I'd be thinking if I were him, because the reality is, this is what he wants. You may very well be right on TLT, Mike, but it's specifically because that's what the Federal Reserve wants. They want to get yields lower so the government can fund itself full stop. Sorry, I'll keep looking back at what I'm doing. But I think, but also, but David, even if it is, and I would agree with you, maybe it is, Mike, but short term. I mean, I would not be holding any kind of long-term duration because I do expect inflation to, to hit a level and whether or not they admit it,

it's going to be higher than, than two or 3%. I mean, it's going for a while. There's no other way around it. We have to have negative real yields for a while to get this thing under control. And they all know that. There's no chance, James. No chance. You can't take this amount of money and have, unless you can stuff the genie back in the bottle. I mean, Congress, for Christ's sakes, has asked for a raise. I mean, you know, it's like anyone who's running a business knows that there's demand for increased wages right now. Right. So you need inflation. You absolutely need, you're going to have inflation.

There's just no way around it. It has yet to cycle itself through the economy. Look, the game playing here, which is very Mike McGlone-ish, is the 70s. People forget what actually happened. I think it's the 30s. Well, whether it's the 30s and Bitcoin is home stake mining or it's the 70s and Bitcoin is gold, I don't know or care. But both in both cases, in both cases, there was a massive delinking in assets that had nothing to do with the ability to generate future cash flows and ones that did. And that is going to happen. Now, the question is, in this manipulated market where we actively in the 30s and in the 70s we did not have a federal reserve that believed that that it could buy stocks yeah we do know what china's doing and just following the japanese

model well we do just keep that in mind so that in the 30s the 30s won't happen well maybe it will happen but it won't i'm just showing similar deflationary trajectories. But you're right. But people always – I agree with these kind of things will happen. But remember, we didn't break the gold standard FDR until the stock market was down 80% in 1933. These things you have to remember. I think people forget about, oh, we're going to punch out all liquidity and all that stuff. These things only happen after the shoe drops.

You got to take the assets down first absolutely but but honestly our leaders yeah they care about the stock market sure they care about their rich donors sure but what they really care about are votes and you know and what they don't want to do is is you know that's why you you know, I can't tell you how many really smart, uh, left people far more left than me, uh, think that, oh my God, look at the data. There's a D-link. Why do people say that they're unhappy with Biden's Bidenomics and the economy and his opinion ratings? The polls are just off the charts, bad for him on that. You know, they're crazy. Look at this and look at that. And they ignore the things that James and I keep talking about, which is decreased full-time jobs and more part-time jobs, people having to work multiple jobs, decreased hiring for native-born Americans

versus people who are here, increased, you know, you get rallies. Did you see Trump having a rally in Detroit because people are sick and tired of migrants taking their jobs? You know, it's like a South Park episode. What's going on now? Actually South Park has been unbelievably, you know, they've been, South Park has been on a Simpsons like roll recently. So there are predictions of what they're saying, but, but the point is, is that we have a lot of things, a lot of weird stuff going on, but it all boils down to a simple word, which is the political sect. And it's not just in the US. In fact, the US is probably the least manipulated market of all the major ones, but it's still manipulated and they want to control the bond yields and they want to keep the

stock market up. But look, if I were making a long-term trade, the best long-term trade and make it carried out in the short run, which is why I'm not doing it or doing anything like it, is short the S&P long pick one. Why two times a stock market market cap of two times GDP is insane. What could happen? There's only two ways that could resolve itself. One, the inflation just continues to drive nominal GDP higher to the point where stock prices catch up. Or two, boom. There's really only those two ways and boom might be a unwinding process but mike had a great question there dave what's your waiting how would you wait that oh one to one no i would say my expectation i would actually no i would not be one to one

probably five to one or four to one on the short side versus the long side, because the long side is going to catch up. And I might adjust that. That's more what typically is. That's yeah. That's yeah. And that's because you would expect the five is on the S and P just to be very clear. Right.

So you're assuming by that trade for people that Bitcoin is going to drop initially. So I think it's going to be five X when the S and P and meet the S and P, then I want one fifth. I mean, if I think Bitcoin is going to 5x and meet the S&P, then I want one-fifth. I mean, if I think it's going to 10x, I want one-tenth, whatever the trade is. That's the thing about pairs trades. So I'm looking forward to... Yeah. I mean, I think we're breaking up for a little bit. I don't think it happens. Look, I don't think anything major happens in either of these markets. I mean, Bitcoin might do something.

It's based on the opinion polls. I think we need to see, first of all, we need to see who the Democratic nominee is actually going to be. Full stop. I think markets are waiting for that. I mean, they're having like Ro Khanna holding this Bitcoin roundtable without a lot of Bitcoiners there and without the key people from Elizabeth Warren. You know, it's interesting, Dave, just for some context, I spoke with Ro Khanna. I had him on the podcast probably now a year and a half, two years ago, just so people know this was an idea he actually had back then

and invited me at the time to a roundtable that didn't happen as a representative of the Bitcoin industry. And I was like, dude, I'm just a guy. Maybe, you know, call in the miners and the rest. But people think this is a reaction to Trump's sort of pro-crypto stance. And I will tell you, this was something that at least they were iterating on for ages, Ro Khanna. But it wasn't with the Biden administration at all. Right. So we may have Biden administration officials, but it won't be, it's not going to be, look, Biden just put Carolyn Crenshaw up for renomination. And Carolyn Crenshaw, which I actually put in print a rebuttal to, wrote arguably in my entire lifetime of reading SEC opinions, in her case, it was the dissent on the Bitcoin ETF. worst written, most factually challenged thing I have ever seen written by anyone in the SEC. And if that was her term paper for being SEC chair, she failed. And frankly, that's why I wouldn't re-nominate her. And I would tell her that to her face. I mean, I'd put it in writing.

The things that she wrote, her best arguments were ones that the courts actually said were wrong. And those are the best ones. And there were some other ones that were really horrible. So when you have a Biden administration nominating a rabid anti-crypto army member, none of this, all this other stuff is window dressing. It's just fricking, it is a photo op. It's by the way, the ice cream with some constituency that, you know, that doesn't like him. It's Trump kind of trying to pose around, you know, deep minority communities who distrust him. It's the same stuff. And, but on the other hand, if people like Roe, who I follow him, and I don't disagree with everything he says by any means,

I actually tend to think he is sincere in what he says. I don't think his economic understanding is great. And he doesn't understand incentives, what minimum wages do, et cetera, et cetera, and in California. But I do think he understands technology. And I do think that that makes sense. But that's what needs to happen. If there was a change in the Democratic Party, that would be massively bullish, regardless of who won the election. So let's tilt on something we all agree on. This is something that's happening and delighted to see, but it's completely expected. We've been writing about it for five years.

And that is the only people in this country that are going to, that the regulators or legislators are going to push back on an asset that's adopted the dollar as a base layer that helps improve the technology in the world. And I look at the number one trade of crypto is Tether. And that invests in US treasuries. Only idiots are going to pull back on that, push back on that in the long term. In the short term, yeah, we have to have the people disagree with technology. It's delightful to see that. And I just, I love the click on my CoinMarketCap Tether volume, double on 24 basis of Bitcoin. It's what

I learned traveling overseas. And it's, Mike, this is how you get 24 basis of Bitcoin. It's what I learned traveling overseas. And it's Mike, this is how you get access to the dollar. Bitcoin's an speculative asset, but it's assets, but asset. But this is the technology that's allowing the tokenization, which I think is next, where this technology can allow us to trade not just the dollar, but treasuries and commodities and stocks. But then that's why I point out then that we have Bitcoin, digital gold trying to get there, and then 30,000 speculative digital wannabes, which is part of the reason inflation's high and then the Fed has to keep rates high is because there's so much speculative excesses in our system. And you see it with stock market, two times GDP. Now we all know the whole system designed to help the stock market,

it's been that way forever, but you get to a point where it just gets too high. So I think this is going to continue. So at some point, we'll have an ETF tracking the Bloomberg Galaxy crypto index. It's all good for cryptos and Bitcoin and all that. But the point is still that this highly speculative digital asset, Bitcoin, has got to face what Dave said. It's that 5 to one ratio. When beta normally reverts, it's probably going to drop a lot more than gold and treasury bonds.

And we have to make sure people understand that everybody who tells me it's going to go up when beta goes down, I'm like, good luck. I just haven't ever seen that kind of thing happen in history. And hopefully it'll happen soon. The only time it happened, Mike, is a collapse of uh of silicon valley bank yeah for sure it did happen for a month there um or eight six weeks but i mean look the the bitcoin as a as a political um you know platform it's it's at best a sideshow for these guys they all know that the number one without without question the number one uh issue on the on the platform today for these politicians is inflation

they all know it and then right behind that is probably immigration but these are the big problems that people are talking about they're're worried about. They're frustrated about. They're frustrated about. Like Dave said, there are people who are frustrated about, you know, the foreigners coming in and taking those lower skilled jobs that in Detroit, you know, for instance, we're seeing a little bit of pushback in these two areas. And Biden, I think, their administration is a little bit surprised by it. They're confused. You see it in the mainstream media every single day. Why are people not happier? Look at all we've done for the economy. And they're not seeing that their savings are depleted, their credit cards are maxed out, you know? And this is not, that's a blanket statement,

you know, not to be, you know, not too hyperbolic, but the point is that you do see large pockets of the economy that are struggling from inflation and depleted savings. And so it's starting to kind of ripple through. It's like and it's that that's the goat trying to make its way through the boa. And and they're going to focus on those things. This whole thing about Bitcoin and, you know, talking to their constituents about Bitcoin. They know they can win millions of votes that way.

And it's kind of a low-hanging fruit for them. And so- The disproportionate marketing advantage to talking about Bitcoin in a favorable manner versus what you would get for your budget of talking about any other topic is not even close. We've seen it over and over again. You get this riled up constituency,

they have money, they're passionate, and you get tons of PR and media just by talking about it. Whether it moves a needle or not, it's like the ultimate PR and marketing move. It's a little bit of a poor constituency here and look at why. And people, it all comes back to a very simple thing. I mean, Cliff Asness at aqr has been bitching about this correctly for 15 years which is why private valuations are higher than public valuations and that's with the stretch public valuations right you know it's like oh they get a premium because there's no liquidity because they don't have to mark the market during downturns you know this is a constant thing that all sounds very esoteric but but it's very real. And I'll tell you why. It's real because only less than, you know, somewhere between six, five or four to 6% of Americans

even have the ability to get into, you know, private investments. And so with a literal, you know, flywheel where the VCs make money by pumping up investments and then IPOing and dumping it to retail bag holders on it, which is literally the opposite of what the SEC was established to do. We now have a system with the accredited investor rules that people can see, and they get to read about it. And the difference between now and in previous administrations is now we have all this content on the Internet and Reddit and subreddits.

Anyone with a library card, even if you're really poor, can have a computer and read about this. And kids are certainly reading about this. And so the kids look at crypto. It's like, OK, wait a minute. We can get in here. And yet there are VCs dumping on them in a lot of these coins, too. But at least their eyes are open and they're talking as a community and dealing with it. And then they see the SEC coming after this and say, well, wait a minute, we want to put this back into the same framework that screws the regular person and makes money for the elite. And it becomes a very passionate issue for people very, very quick. Why do you think Stan with crypto has been able to raise, what is it, $150 million? I think in between the two major funding bits. I mean, the reason is because people are pissed that their casino

is being taken away, the one that they are less disadvantaged than the rich people. It's a big deal. This is not about Bitcoin. This is not about crypto. It's about economic freedom and people seeing the elites trying to put them back in their place again, where they are in the equity market. And yeah, equity markets are stretched and people aren't stupid. I mean, they kind of know that's true. So why are they buying it? Yeah, some people are playing with GameStop and other stuff like that. These are not the people who are buying. Yeah, some people play with NVIDIA and have gotten wealthy because they made that decision. But that's the undercurrent here. It's a raw emotional response in people

who see the current financial system as exclusionary. That's why it's a big issue. And they've felt it before, right? They felt it back in the late 90s, the early 2000s, when the internet stocks, they couldn't get access to them. The IPOs came out, they got dumped on. They inherently know that they were able to front run the institutions in Bitcoin recently. They look at it that way, but I want to point out a couple of things in terms of the market. So let's bring it back to the market. First, my thesis is we've already seen alt season, in a sense, of money rotating out of Bitcoin into alts only for money to rotate out of the entire crypto ecosystem. I mean, I think that that is why Bitcoin survived and then money rotates back into Bitcoin

and it's not too pretty. Every single time we've had a major all season, there's been a word attached to them. Just remember this word because we've heard it. We've all heard about ICO summer. We've all heard about DeFi summer. We've all heard about NFT summer. We've all seen these major crypto non-Bitcoin rallies have all been coincident with a kind of swoon before it and into the summer. Will we see an AI summer? I don't know. I have no idea. But it is possible.

What? In crypto, we did. It wasn't summer. But in crypto, we saw this massive move on everything AI adjacent, just like we saw the meme stock craze. That was one of these sort of little DeFi summer NFT type bubbles we saw months ago. And in every one of these cases, well, DeFi was different because it looked to have something and the technology has enormous promise.

It just hasn't delivered into, it just hasn't delivered into it just hasn't evolved into what it needs to be which is uh interest rate swaps and other massive markets but the fact is every time we get one of these summers and we see a lot of crazy crap you know ether rock being worth whatever the hell it was you know that kind of stuff i mean people both scott and i are like shaking our heads like what the f is going on with these people you know it that kind of stuff. I mean, people, both Scott and I are like shaking our heads, like what the F is going on with these people, you know, it is whatever. Traders on the other hand love it because they get to ride that volatility up and down. I just see that we have this sort of bifurcated market and we have this election. And I think that when you put, there are a lot of people out there who don't know what the election is even going to be.

I mean, you know, if you look, you know, there is a not, there's a integer, like double digit integer chance on all the prediction markets that Biden won't actually be the nominee. Considering the fact that it very much depends who is the nominee, you know, is it a shadow Obama term? What will he want to do? Is it, you know, someone like Newsom? Is it someone that we haven't heard of yet? Right now, the mathematical equation is Biden equals Elizabeth Warren when it comes to the economy. There are lots of Democrats who do not like her, and there very real possibility that crypto isn't a major issue in the presidential election or economic freedom isn't because the nominee of the Democrats is

likely to at least somewhat embrace and get rid of the anti-crypto army. But that hasn't happened yet. And anyone who thinks that it's happened yet is just not paying attention. Debanking and Operation Chokepoint is still in operation. Talk to other founders and you'll know this. James has talked about it himself. I literally experienced it. It's like we have five banks and we have two others that want to bank us.

We're a software company, so we're much less risky. But two of the banks that we use are under serious threat right now. I'm not going to disclose who they are. I don't want to go into it. It doesn't really matter, but it's an issue. Serious threat because of their holdings or serious threat because... Unclear. When's the last time a politician said, this is the thing that you're doing wrong. If you fix this thing, you know, everything will be fine. They don't do that.

They say, this is the thing that's going wrong and we're going to take you down for it. It may very well be that they're doing something that is that has nothing to do with what they're doing. It's just something that they're using as an excuse. But what I can tell you is, what I can tell you with certainty is, there are still major issues and there's still a lot of power in the, quote, anti-crypto forces in this administration that are really going after the industry. It hasn't stopped. We felt choke points. We felt choke points where money couldn't be moved around from traditional banks into partnerships and even from traditional bank to traditional bank in partnerships that were named with anything that had Bitcoin on it. And that was problematic. We ironed it all out, but it was a headache. I don't have continuous problems with it because

we're not moving money around from traditional banks into the fund anymore. But I could see problems with that. Something Dave mentioned, which is interesting to me, is all this private equity out there and the marks of the private equity and venture capital. You remember that these funds are going to start seeking liquidity here after seven to 10 years, they're seeking liquidity and they've got these things marked up on there. So when people get their statements and they calculate out their net worth, they see that their net worth is marked up, whatever it is, two, three, four, five X of what they put in to that fund that adds their net worth. And they're going to be out there looking for liquidity. There's interesting times ahead with private worth. And they're going to be out there looking for liquidity. This is going to be there. There's interesting times ahead with private equity.

And there is and we're talking about endowments and and and pension funds that are in these private equity vehicles that are just now getting some some serious liquidity after after the great financial crisis they dumped into them in 2013. So this isn't 2013, 2016. These are interesting times. We'll see what happens. But remember, when you have a private equity mark, it's marked to market that some of these firms have created themselves, right? So if you have an additional funding for something, you market to

that funding, even if it's just a minority funding of a deal. But going back to Bitcoin, and everybody is focused on Bitcoin and how it's just kind of stagnant here for months, and how Dave is, I agree with Dave, it would probably not be anywhere near this if we didn't have the ETFs right now. Not near this price. So what is going on? Well, you know, there's, I think there's a confluence of factors. And part of it is what Mike is saying, where there's uncertainty about risk and it's kind of tip of the spear. It's also that you've got miners that have had the rewards cut in half. And so there are smaller

miners that are struggling, that are absolutely selling Bitcoin. You can see it on chain. Is it massive? No, but it happens after every single halving and they, they capitulate because they, they're, they're trying, there's plain chicken with the price and hoping that price catches up and they can just dole out some of their, their war chest to keep going. And,

and hopefully they can, they can do that. And then you've also got the OGs, these really old coins that haven't moved in a long time that are, that are being sold. People are, they're ringing the register. You know,

these OGs are ringing the register. Is it a massive amount? No. Was Mount Gox part of that? Yes.. People are, they're ringing the register. These OGs are ringing the register. Is it a massive amount? No. Was Mt. Gox part of that? Yes. So it's all of these things. And when you add to that, the confusion around the market and Bitcoin has been the tip of the spear of the risk on asset class. It's just reality. Should it be? No. Will it be in the future? I don't think so. I think that it will mature out of that as institutions do understand this better and they do add it to their portfolios, even in small, non-meaningful allocations that will grow to meaningful allocations. And we get a ballast there where this doesn't have the same volatility and it becomes an asset that people can escape to. And it does become that first step. It becomes that true

digital gold where that's where investors are hiding in tough times. Are we there yet? Nowhere near. This needs so much more capital in it that this market value has got to be up near, it's got to be at least half the size of gold or if not the full market value of gold to get to that point. That's just reality. So we're talking about four or five, $600,000 Bitcoin. It's going to take a while. One point before we close, Scott. I'd like to address MicroStrategy for a second because it's important. So what MicroStrategy to me has almost perfect analog. And we saw it. And the perfect analog is Amazon. Bezos, one of the smartest things he ever did. People, a lot of people today don't know this

because you have to be a gray beard like me, having been alive, or you have to read it in a book. Well, what did Bezos do? During the internet bubble, even as it was whatever, he had a choice. He had to build out, he needed a couple billion dollars, which by the way, was worth a lot more back then than a billion dollars today. I don't know what, how you want to, whatever your math is, this is a, this was a monstrously big deal. What he realized is the volatility of his stock meant that he could raise $2 billion and at a conversion rate, 35 to 50% above the current stock price and get that done without having to actually sell stock or take dilution at a current price. So it's the moral equivalent if you're in VC land of a massive up round without having to show

any growth by using the volatility of his public stock. That is quite literally exactly what Saylor is doing in MicroStrategy with Bitcoin. If you think he's not going to be copied by any of the 2,400 CFOs that have come in, it is a strategy that will make sense so bitcoin's volatility becomes a way for it to collect assets that pipeline we are there that is the toe in the water to that pipeline is what's happening now and will that change the fact that we're in a trading range no i mean i've been calling this a trading range from you know basically 62 to 70 something or the wider range from mid 50s to 74.

I've been calling it to stay in this range for months and I still think that that's true. But understand that this is a big deal that as Bitcoin is falling, he comes out with a convertible note for 500 million and raised it by almost 50. Became 700 a day. That's my point.

He raised it by 40% because people saw it as a good deal because they could get a coupon and downside protection, but get Bitcoin upside. Yeah, sure. They'll lose the first 35, 40% of that Bitcoin upside because that's what they have. But that's okay. But that playbook matters because when the financial plumbing turns towards supporting and causing potential massive price increases in an asset, don't fight that. That may be the second biggest force on the planet other than the central banks, which I'll buy.

If you believe that the company is not going to go bankrupt, then you're happy to own those converts because even if they're subordinate to other debt, because if you're a hedge fund, you're trading around those converts. This is the point is that you're trading around those converts with a Delta hedge on your stock on it. You're shorting stock against it.

So it's like nirvana for micro strategies. The same thing as Amazon. You have stock that is highly liquid, that is highly volatile and not that hard to borrow. And you can trade around it in a Delta hedge all day, every day, just clipping profits. And that's what they love about it. You know? Yeah. It's not really the Delta hedge. It's the initial option value. That too. Absolutely. The upside, no doubt about it, but it, but that allows him them to just suck it all out, you know? Right. And so the other, the last point that I read at block had a story about it. I didn't see, I didn't have a chance to have a chance to read the underlying report, although I will, is the option if Bitcoin implied volatilities every time bitcoin implied volatility gets like it

is today which is implied volatilities are are start to get toward below or around realized volatility that's generally when you get a massive move now it could be like mike said it could be because the whole thing is going to collapse and be quite a massive move to the downside, or it could be the opposite. I personally think it's the opposite because I believe the politicians have way too much invested in keeping the markets going and they will continue to put liquidity in. And it's not just in the US, it's around the world. That's my thesis. I look at this and it scares the hell out of me. We keep calling, we use the words can kicking, Scott. We say, okay, they're kicking the can down the road. But what does that mean? It means that we've gone from

1.5 times GDP to 1.6. Oh, I can't stay here. And then it goes to 1.7. And I'm like, ah, can't be here. Come on. Get serious. Now we're at two. And we're saying you can't stay here. And then it goes to 1.7. They're like, ah, it can't be here. Come on. Get serious. Now we're at two. And we're saying you can't stay like this. It has to relax. Well, guess what? In six months, it could be 2.5. And we'd be saying, you know, at a certain level, when it's ridiculous, it could get more ridiculous.

You know, the market could remain irrational longer than we could remain solvent. That doesn't mean I don't agree with Mike that at two times GDP, it's insane. It is insane. All I'm saying is that we have an entire political class around the world who wanted to get even more insane. As much as I would let this run for hours, I got spaces in 10 minutes and we're over time. Thank you, gentlemen, as always. Amazing conversation. I've just come to the fact that we basically just disagree on whether the Fed put exists anymore or not, and whether we have deflation or inflation and everything else is just a symptom of those two arguments and what's going to happen moving forward. I really think that that's where we're at. And of course, whether Bitcoin will be a risk asset or not in the short term. Love this conversation.

But in the long term, the really, really, really important in the long term, what Dave said earlier is that Bitcoin tends to be explosive in very short periods of time. So just be careful. And if you're trading around it, which I don't, we have to move around a little bit in the hedge fund, but personally, I don't. If you are trading around it, just make sure you have your core position for the long, long term, because who knows? Don't use leverage.

Especially, is it coils like this? Yeah, it could be down 20%. It could be up 50%. You just don't know. Yeah. And don't use leverage if you're going to do that. I love that Dave said he would short S&P and long Bitcoin, but then it was five to one, of course, because you would get liquidated on that Bitcoin position when the S&P actually did what you wanted it to initially. So, yeah, right. So it would go horribly wrong. That would basically accommodate your

everything goes to a correlation of one in the short term, Bitcoin crashes, and then what happens afterwards. Just so you guys are clear on that. Exactly correct, Scott. Thank you. Just so everybody understands why he would say that. All right, guys, that's all we got for you today. Thank you so much. Literally my best favorite hour of the week every single time. So I thank you guys for that. Always a pleasure.

Bye, everyone. Let's go.