The Wolf Of All Streets - Bitcoin Is Pumping, Smashes $45,000 | Bitcoin Spot ETF Approval Today?

Episode Date: January 2, 2024

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Happy New Year. Bitcoin is trading at $45,700, making a massive move to the upside on January 1st. Exactly what we all wanted to see. All in anticipation of a potential approval of a Bitcoin spot ETF, which some, including Reuters, are saying could happen as soon as today. Bitcoin is pumping. ETF is coming. Kind of washing out a lot of the bad news that we've discussed on this channel, at least for the crypto and Bitcoin market. Can't wait to do Macro Monday on a Tuesday again with James Lavish, Mike McGlone, and Dave Weisberger. Guys, you do not want to miss this one. Let's go let's go what is up everybody i'm scott melker also known as the wolf of all streets before we get started

please subscribe to the channel and smash i said smash for the first time in a long time, smash that like button. It is a new year, new me, new you, new all of those things. But what we do have is some new price action with Bitcoin and some new hype about the approval of a Bitcoin spot ETF. Let's get right into it now. I've got Mike, James, and Dave, all four of us, guys. It feels like it's been a while. Welcome back. Happy New Year. Is this thing getting approved today? Is that really a possibility? That's coming from Reuters right here, not me. The SEC may notify Bitcoin spot ETF issuers as soon as Tuesday or Wednesday. They've been cleared to launch the following week said sources of course uh we wouldn't probably hear about that today let's be honest if they're gonna find out

that doesn't mean that we will but uh this i think after that yeah i think after that uh um that reuters article came out i think blackrock had a comment that they would they don't expect anything you know before the end of this week at least. I think I saw that somewhere as well. The fifth is the last day of the comment period for one of them. So that's what our buddies say, Scott. I think that's the most likely. So that gives us till Friday.

They don't usually do those things necessarily on a Friday. But like I said, either way, this seems like we're getting into the inevitable phase. We have a ton of updates. I don't necessarily have the full summary. I can just tell you, we've seen a lot of them naming their APs. Ironically, JP Morgan being the leader AP for many of these filings as Jamie Dimon goes on TV and in front of the Senate and Congress and talks about how cursed we are and we're the worst and Bitcoin shouldn't exist and we should kill it all. Never.

But they're fees. But you said they're fees? Oh, okay. Yeah. I can make money. But I mean, and now we're already seeing two other things. We're seeing the marketing war begin.

We have a Bitwise commercial. I know a VanEck commercial. Mike, as you said, grayscale advertising all over the place, everywhere you go, every airport. And now we're having the fee battle, right? I know I saw that Invesco, Galaxy, Novogratz saying they're going to waive fees for the first six months. We're seeing some come in, I think, as low as like 0.49%. I don't want to quote it wrong, but this is really, really beginning to happen. And it also demonstrates just how strongly Bitcoin has decoupled from risk assets and is absolutely beholden to this ETF event horizon. So this is an event driven trade at this point for some people. And long-term, obviously it's not, we all will, I'll own it forever. But at this point it's acting like that. Well, you'll own it forever also not in an ETF. Correct. Correct.

So there's the new arm of the game. Go ahead, Dave. Yeah, go ahead, Dave. Well, the one thing that's amazing today, and I just got to just look at the, well, I mean, that's kind of stupid, but the future spread to the CME futures right now is up to, right now it's around 230 basis points. The scale is kind of crazy, so hold on. Now, 240 basis points, which is insane. We're talking literally something that's going to expire in 24 days.

So even no matter what your interest rate is, that's crazy. So what it's telling you is this rally is there are people who got caught short in the U.S. that only use futures to buy it and they're buying it, which when this spread inevitably comes down, you'll see some softening. But, you know, that's assuming that whoever is short has been able to get what they needed to get. And it's you know, we've seen this a couple of times. The last time we saw the rally that they go like this, the rally had legs until this spread came down. Probably the single most important indicator for traders to see, just so you can look at what I'm looking at really quickly. Where are we? Let's do that. This is our dashboard.

But you can see this is the thing I'm looking at right here where I'm waving my cursor around. That's the spread between Bitcoin USD spot and the January future on the CME. And those numbers are big. I mean, that number, realistically, the way it normally trades, you would expect that number to be somewhere around 120 basis points would be healthy, but still high. You could make money at it. 240 is crazy. It's a thousand dollar spread to put that in perspective. So it's kind of nuts. I'm just interested in how,

just how many tabs you have open on that window. It's because I'm lazy. You know, I open stuff, close them. I can't help it, but you know, it's like when I'm looking at stuff, it's like, so I have one stuff it's like so i have one of the of the the dashboards that have the spread situated another one that has other pairs of all coins and things and then looking at statistics who's trading through a system alerts and all the other stuff and then all the stuff that i'm writing like specifications and stuff so it's kind of nuts but you know what yeah i mean when we're looking at funding dave you're talking obviously about the spreads when you're looking at funding on those perpetuals it's kind of nuts, but you know what? Yeah. I mean, when we're looking at funding, Dave, you're talking obviously about the spreads. When you're looking at funding on those perpetuals,

it's literally the most expensive it's ever been in history to be long. By the way, that's not generally a bullish signal. I mean, this is the funding rates on every... And when you look, I mean, when you annualize it right now, it's costing 66% interest annualized effectively to be long Bitcoin right now. You're getting paid massively to be short. And this is the setup. Which exchange are you talking about? This is for Matrix Point.

If you annualize it, like I said, you know these roll like every eight hours. Okay, but I'm looking directly on the exchanges. So Binance Futures funding rate is 0.06%. Yeah, that's right here. 0.0678, I'm seeing. Yeah. What? I'm seeing 0.0678, but this is on CoinGlass. Yeah, yeah, yeah. Same thing. It's been much higher. But yeah, the fact of the matter is they're doing, the reason they're doing

that is that their inverse perpetuals right now are trading at about a $60 premium, not $1,000 premium, $60 premium, which is, and until that premium goes away, which it will, I mean, it's lasted, I can remember the first all-time, when they made the all-time high, and then the second time, one was two weeks, one was three weeks where the futures were trading, the inverse perpetual swaps were trading between 50 and $80 above. Actually, no, it wasn't quite that, but whatever it was, it was around these levels, maybe a little bit higher for two or three weeks, which is insane. It just basically goes to show you that there are speculators out there that are covering their shorts. I mean, I made a tweet this morning, and I think it's important for people to understand. When you think about the Bitcoin market, you have to understand that the ETF is bringing in a sea change.

I always look at it this way. It's a mental model that we have crypto native folks, us, who when we trade, and I don't trade on leverage anymore, but there are the crypto-native folks who rotate between Bitcoin and Ether. Yeah, sometimes you get new money to invest. Sometimes you put cash on the sidelines, et cetera. But it's crypto-native folks. And those people, quite frankly, tend to be the chasers, the leverage pushers, the reason we get blow-off tops and big sell-offs and all that stuff. That clearly has flipped as we turn into January from cautiously negative to uh-oh. And so that's what we're seeing today.

The second category are the, you call them the DCA-ers, the Mike you know, Mike Alfreds, you know, I think you, Scott, me, myself, James, people who are Bitcoiners, who believe in Bitcoin and who are putting available assets into Bitcoin, but for the most part are holding onto what they have. They're not selling anything and they're very patient in buying. Those people are starting to get less patient and getting closer toward fully allocated. So you're seeing that. The third category is the one that matters. That's the one where Mike and I disagree on. And the third category are the news, the people who are yet to be converted to Bitcoin, which is the vast majority of humanity. As much as we don't like to admit that, it's just true. And it's all the big

pools of money. Those people will dip. There are a few. It's a trickle now of people dipping their toe in ahead of the ETF stuff. But the reality is, is the actual approvals will turn that trickle into a stream. So you'll get more. But eventually for it to turn into a raging flood takes time and the marketing and whatnot. And people have to become convinced. And there's a concept in every building of a network. And Bitcoin is a network at its core called critical mass. At some point, you reach a tipping point. And that tipping point, which we are a long way from, is Bitcoin at a market cap beyond gold, where people say this is the new store of value and volatility starts to decrease. Why?

Not because of the price, although that certainly won't hurt. It's because that third category, it becomes mainstream. Bitcoin goes mainstream and the control of the asset price is much less in the hands of the crypto native speculators. And that's really kind of my mental model. So I look at this morning. Yeah, I'm pleased to see it. But it looks like the kind of move that can easily get faded when they don't approve an ETF today because there's common periods open.

But clearly, there are some people who are just afraid that this could happen. They read the Reuters story and it's like, oh, yeah. I mean, listen, it's trading. I'm not going to say it's been approved. But like I said, the approval could be direct from the SEC to the issuer and not public for quite a while. I'm just showing a chart. I mean, it had obviously a pennant it was in for a month. If you are a classical chartist, this is the most classic bull pennant you get.

Right. And this is targeting. It never hits target, but 54,000, but you're up seven, 8% since that Reuters story came out. I'm not saying it's the reason, but maybe there's somebody that knows that these things are approved and it's starting to move, or maybe it is just hype. But I mean, this is a absolutely beautiful chart. And I mean, it's, you know, it's been 2024 for all of like 36 hours and we're trading, you know, up 7, 8%. Right. But the key word here is de-linking. And I know that, you know, you said it makes me smile. It's my victory lap-ish, but I don't really want a victory lap.

What I really want is to, is for things to play out in the way that I want them to play out. The absolute reality is the backdrop of all of this, let's not kid ourselves. The biggest headwind that Bitcoin faces is still macro. If you believe that we are going to see a dump in risk assets, that is still the biggest potential headwind, which is why we don't teeing you up, Mike, so be ready. It's time for the first morning call of the year. They didn't have one today, right, Mike? But you do get to respond and give your opinion anyways.

Well, I need to point out, we do agree completely on the macro. I just got so sick of writing about it five years ago when Bitcoin was cheap. When it looks expensive to me, I like to focus less on the diminishing supply, increasing adoption factor and ETFs. I mean, it's something that we all get. It just when it was this time last year when it was extraordinarily cheap and Solana was down 97% or so, it was just silly, stupid, cheap. Now it's getting a little silly expensive. But to me, and I completely agree with the macro is is what's happening today is insignificant. Even with this morning with the equities down about 1% and Bitcoin up 8% on the year so far is kind of a little bit bubblish. But the fact is that if you look at the last two years, the risk this year is just a normal reversion of what happened last year.

So everything went down in 2022. Bitcoin went down the mostion of what happened last year so everything went down in 2022 bitcoin went down the most everything went up last year in 2023 bitcoin went up the most what's the problem now we all have the here nothing but the bullish hopium which is great it's this way it should be but as a responsive rational risk taker you got to be careful getting overweight long here now 15 at the end of last year was, yeah, you take the risk there. But here's the problem now is we look at one asset I see settling and reaching all-time new highs, that's gold. And another asset that's continuing to creep lower and showing major economic, global economic risks, that's crude oil and copper. And then we look at, you mentioned bond yields and they're still declining.

This tilt towards recession, I think, might accelerate partly partly because last year was too many people leaning that way. Now we're all leaning the other way. So I look at 2024 is going to be a very simple year. Now we're going to have issues that we can't predict, but very simple in terms of doing the exact same thing it did last year. Reversions, your biggest risk. Now, less on commodities, I think, because they're still too expensive and they're heading lower. But the biggest risk is risk assets. We've all seen the NASDAQ up almost 50% in one year. And China's hailing towards recession. Europe's heading towards recession. The Fed hasn't started easing yet. We're still well behind that. And Bitcoin is one thing we've certainly, I think, concluded in the 20 minutes we've been talking

already this morning. This Bitcoin is the world's number one 24-7 traded vehicle. And it's still a risky asset. I mean, it still trades two to three times the volatility of gold than S&P 500. So I look at it as this year, if you were extraordinarily bullish and you bought some GBTC at the end of last year, are you overweighting or are you lightening up this time of year? Rational. You know that we always get the silly people in at the peaks and the troughs, but now it's getting a little silly and we haven't had the ETF yet. And I completely agree. Yes, ETF is going to change everything. But, you know But some of us have been waiting for this for five years. We've had a decent appreciation. Yeah. Go ahead. Well, I mean, look, you guys have done this as well. I know Mike and David have also done this. But when you're in the event-driven world, the beta to the rest of the world goes to pretty much

zero. It doesn't matter when you're in an event, purely event driven situation, and it's trading off of that, right? And so what's interesting about this is exactly what you just said, Mike, is that it is a risk asset. It's the leading risk asset. It's been the leading risk asset. It's the tip of the spear of risk assets for years. But the reality is that if and when we do get ETFs approved, there will be capital that comes into this. And it eventually will have, there will be enough capital that comes into it that dampens that volatility, in my opinion. And that in and of itself is part of this event driven kind of, I hate to say trade, but activity, price action. The event-driven price action is also factored into this. So that's the interesting part about this. Nobody knows where Bitcoin is going to go, obviously. However, this is the most fascinating

event-driven trade I've ever been involved in. It's incredible how this is acting as opposed to what it was acting like just a year ago. And so that, yeah. I mean, well, it's supposed to be a year ago. The funny thing is, is like, you know, I kind of wanted to write about this. You know, if you ever study, you know, when I went, I was in school, I took so many intro courses. It was crazy, but intro to sociology, they teach the Yamamamo Indians in Amazon, slash and burn agriculture. And basically what happens with this group of people, and this is why there's issues in the rainforest, by the way, is they realized that the most fertile ground ever is if you burn down an area of the forest and then till that into the soil,

it makes the soil incredibly fertile for crops. Yeah. 2022 crypto damn near got burned down. And, you know, you saw so much happening. And in 2023, crops are being planted. And people are saying 2024 is when we're going to start being able to harvest some of those plantings. Now, it's not a perfect analogy because the reality is, as part of the reason that it needed to be done, is we had fraudsters in our midst, right? You know, Mashinsky committed fraud, Steve Ehrlich not convicted, but I think that his representations, I believe,

were fraudulent. I'm sure Scott would agree. God knows Sam Bankman-Fried's been convicted of fraud. Do Kwon hasn't been convicted yet, but it's common. And lots and lots of people around that. And there's still a lot of crap in the industry. We all understand it. Whenever you have this kind of money being made by people, it's a honeypot. Anyone who traded internet stocks or OTC stocks in the early 2000s and the late 90s know you're going to attract enormous amounts of fraud. And in fact, the crypto frauds on a scale were still tiny relative compared to WorldCom and Enron and all the other crap that was going on back then. But the fact is, is that needed to be cleared out. Binance, it was a big overhang.

And we've talked about that in the market. And more or less, that's cleared out. There really isn't any overhang except for what's an existential battle for DeFi and for self-custody versus the Elizabeth Warrens of the world. But I don't think people in crypto think they're going to lose that.

The difference is there were lots of people in crypto who believed there was a chance that every one of those other bad things could be an existential killer of Bitcoin. Those are gone. And so when you're looking at an environment, now the question becomes, really, is Bitcoin going to lead the pack by being the global store of value? And if it gets to critical mass because all these potential impediments have gone away, then those bullish flags become very interesting, right? Because where's price discovery? The funniest part about all this is if we were having this conversation and 45,000 was a new all-time high, it's a different call. But the reality is the all-time high, not just once, but twice,

was over 60,000, right? You know, months apart. So we're not even recovered back to where we were when the hopium was being mainlined. I mean, when Mike was completely right, and I'm sure, you know, I don't know, we weren't really talking back then, but the fact is, is when Bitcoin traded past 60,000, not once but twice, there was a lot more hopium. Understand the network, the hash rate of the Bitcoin network is more than triple now.

And by the way, I think yesterday was an all time high for a single day in Bitcoin transactions. Right. So if you look at what's going on, you know, compared to the previous all-time high, you have triple the size of the network. So arguably people who care about fundamentals in Bitcoin will look at it and say, okay, well, we're triple that. So we should be at 180,000. Okay. Cool your jets. But the truth of the matter is that's what they're going to say. The second thing they're going to say is that, wait a minute, it's about to be unlocked for 90% of the world's wealth, which it was previously really inaccessible to, at least 90 may be too high, but 70. And we don't know what that's going to be, but we know that's going to be

large. And at the same time, you had Michael Saylor two years ago pitching to thousands of corporate CEOs and CFOs. And basically all of them said, but our board won't let us buy this because the accounting treatment has changed. As of today, anyone whose fiscal year starts from now forward can adopt Bitcoin on their balance sheet without any issue. And I urge everyone to read Ross Stevens from year-end missive talking about why he stealthily, not stealthily, he told people about it, but no one really thought about it, used Bitcoin on his balance sheet to understand that's another pool of capital that's available. That's why I think of the D-Link. That's my reason. I mean, statistically, we've had the D-Link for almost a year. I'm not saying that they won't link again.

I think we all know that all correlations go to one in a black swan or in a major collapse. Right. Bitcoin's kind of been doing its own thing to some degree. But it's important to understand Mike's base case for the stock market, which I tend to agree with, is this will not be different. When the Fed starts cutting, it's going to be, the market's going to sell off. Mike, I want to talk about that right now, because Bloomberg just did their outlook 2024. And we kind of just, I see in the comments, and I see people talking about this consensus idea that everything is mega bullish, new bull market. I don't know that that's really the consensus. I think people are very bullish on Bitcoin specifically because of the ETF, the cycle. I think there's a lot of reasons,

but I don't think people have gotten there yet on the macro. You talk about here's almost everything Wall Street expects in 2024. By the way, they're always wrong on the consensus. So if you read the article, they say, listen, everybody's sort of in the middle. So we're probably going to get either a massive sell-off or a massive pump, right? We won't have a calm year as everyone's predicting, but we can just superficially look through these, right? This is literally like institution by institution. BlackRock, our bottom line for 2024. This is a regime of slower growth, higher inflation, higher interest rates and greater volatility. Brandywine, the odds of recession are not trivial. BNY, we expect a healthy and welcome slowdown next year. The consensus I read through a bunch of these, Every single one says probably a recession, but maybe a shallow one for the next year. But everybody hedging. Invesco, we think the global economy is entering a brief period of below trend growth driven by recent monetary policy tightening, blah, blah, blah, blah, blah. Guys, there is nobody willing to stick their neck out, at least from an institution right now, and say, hey, man, new bull market,

this is going to go crazy. I mean, Mike, what are we missing here between what it seems like people are talking about on X and what these institutions are saying? Because it seems like everybody's sort of in your camp, although maybe not expecting quite as much downside. Well, I think it's classic human nature. Anybody who was wrong in the stock market last year, which I was, has to really be careful and hedge. And he can't keep saying the same things. But it reminds me of that famous quote from Roger Babson in September 1929. Is that right, Pete? What I said to you the year before and a year before that when he was bearish on the equity

market and he was wrong. And I think it's a similar situation. But here's the key thing, the way I look look at is I have never in my many decades in the business, seen a market, a global market, so completely dependent on one thing going up this year for us not to tilt towards significant global deflation. That's a U S stock market has to have an up year. Cause if it doesn't, everything I see from commodities is tilting towards global deflation. I mean, gold's the only thing up. Everything else is down.

Okay, that's already starting there. The hikes that we – we're just hiking. Every country, most central banks were just hiking back in September. That's right when crude oil peaked. Crude oil goes up. What does that mean? Well, they can't cut because it means inflation. It's just one of those things.

I just look at the risks are so great that it probably says to me is why take that risk? I mean, just be underweight and there's alternatives. No, there's Bitcoin, but I think Bitcoin, if the equity market goes down, I think Bitcoin will lead it. And obviously today's not the best example. It's one key, but that's the thing is the bottom lines are so much risk tilted on this one asset. I say the U.S. stock market, because if you measure it versus global GDP versus U.S. GDP versus the rest of the world's stock markets, it's the most expensive ever. It's just, okay, thank you.

I mean, U.S. is a great place, but at some point you have to expect just a little reversion there. And then you have that deflationary tilt, which I think I'll end with this is completely history will look back. And if we get deflation this year, it'll look back and it's, oh, it's completely a normal reciprocity to the extreme inflation we had to the peak in 2022. So I have a question for you, Mike. What do you think about this theory? I feel like the S&P, NASDAQ, basically the magnificent seven uh and the stuff that's it's carrying along feels to me a lot like it did in 2000 or so 2001 when uh tack when people had to sell because of capital gains in

in march caused some rather vicious downside action which recovered before it finally you know, it did rally back and then got crushed again in the fall. But the spring was the shadow dump. I feel like the stock market, which is still dependent upon cash flows of companies, as opposed to protecting the value of one's asset. And I will always, always do that is set up for, and back then it wasn't everything that fell. It was all the high flyers that got crushed, but the internet stocks had a shadow crush. It feels to me like everything that people had to sell, because we know that people have needed to take gains to

fund their Christmas presents and all their spending, which we've seen been pretty high. It feels to me like there's a real potential that tax season could be a little bit of a pin to that balloon that you're talking about. I'm not saying it's going to happen, but it feels like a real possibility to me. It makes a lot of sense. One thing I really enjoyed about cryptos early on, and those of us who've had to write checks to the IRS all our lives for capital gains and deduct the losses is when they were, all these people made so much money in cryptos, I would speak to them and off the record was, yeah, I'm not paying taxes. I'm like, are you nuts? You got to pay your taxes. The IRS will always get you. It's just a lesson I've learned

from my brokerage friends who their accounts would be cleared out because if IRS would just jump into their accounts. But that to me, I think that's a key factor. I'm glad you brought that in. But something I want to tilt over to also is the amount of easing we have priced in, which James is an expert on too, and SOFR Futures, is right now about 150 basis points for the year. And I look at that as, okay, we raised 100 basis points last year. And you look in the big picture, that's not a big deal, but what's going to take from the really cut a lot and the cut that much? We all know, I think it's going to take weaker equity markets. And I look at it as the key thing is also with the election coming up is the market's just priced for so many, it's just so expensive now in terms of stock market. And there's so much easing priced

in the system. It's just almost a complete opposite of last year. We all know, okay, is it going to be that easy in 2024? Were you supposed to just say, yeah, okay, made a lot of money. Maybe I should just take some. And as we head towards tax season, then you're forced to take some and you don't want to be doing it on a down take. James, I think you said last week how every single thing was priced to perfection right now. I would say now they're overpriced beyond perfection, but Mike obviously just brought up, so for, you wrote a newsletter, by the way, I'm going to give the soft pitch right now for the information is for all of you guys out there. I don't know why I don't tell you about this on literally every show, but it's one of my favorite newsletters that James writes weekly. Incredible. But that's

exactly what you talked about this week is sort of this smoke signal and the cost of borrowing overnight shooting up massively, which Preston Fish, your friend said here in the tweet. I mean, maybe this isn't the biggest smoke signal we've ever seen from this indicator, but it's just yet another one of these, how is this all happening in the background and things are still going up situations. Yeah, exactly. And it's not the biggest smoke signal. First of all, let's back up really quickly and thank you for the soft push.

So what is SOFR? SOFR is the Secured O rate, right? And it's basically what they, what, what the Fed has created to take the place of LIBOR because LIBOR, so the basic difference is that SOFR is, is based on real transactions and LIBOR was based on, uh, like surveys of transactions, like estimates. And so it was really easy to manipulate LIBOR. And so the thing is, when you have a SOFR trade settle, something that's based on SOFR, it's based on collateral. Whereas LIBOR, I mean, we had LIBOR trades and LIBOR-based interest rates on things that didn't have any collateral and hedge funds, basically just derivatives, you know, and so derivatives on derivatives. And so super, super easy to manipulate. So that's really important to understand that SOFR is difficult to manipulate that when you see a SOFR, when you see a SOFR pricing, it's real, it's a real trade

and it's, they're monitored. And so you. It's a real trade and they're monitored. And so you can see what's actually happened and they're accumulated and they take averages to simplify it. But basically what you're looking at is you're looking at the SOFR. What's important to look at when you see SOFR is what is the spread between SOFR and the effective Fed funds rate. So you have the Fed funds rate, which the Fed sets, but then the effective rate, which is actually where transactions are being settled in the market. Remember Fed funds, I mean, these are day-to-day borrowings and lendings from bank to bank that they're charging each other close to the Fed funds rate, but they're not demanding, it's not based on collateral, let's put it that way. So on the last day of the year,

SOFR jumped. This is not atypical, right, Dave? I mean, we see this where it will jump, where you have banks and you have financial companies, hedge funds move large amounts of capital in order to rebalance their balance sheets and their positioning and their risk parameters. Really, a lot of it is just window dressing often. So at the end of the year, you'll see these things move and it could be just window dressing just window dressing so i expect today for this to go down to where you know back to kind of the level where it was is it a big move yeah it is i mean when you look at what happened to so the sofa spread compared to uh svb collapsing this is above that so it's a big it's a big move uh so what it does tell me though, is that there is a larger need of liquidity out

there, possibly a much larger need of liquidity out there than people are maybe attributing. And so it's a smoke signal in that, hey, if we do have a problem, let's go back and look at what happened in 2019 and look at where SOFR went then. And that is that don't blow people's minds because and many people probably don and Dave remember this well, you had a situation where there was so little liquidity that SOFR pushed all the way up to almost a 300 basis point spread to Fed funds, which is just mind boggling. So obviously the treasury and the Fed had to step in and inject liquidity because it was just a confluence of events where the treasury had a big auction, it was settling the same day as tax payments were due and companies were moving money around for tax payments. It was a fumble, let's put it that way. It was a liquidity fumble from the Treasury and the Fed. And they had to step in and basically shore up the Treasury market because it did get unruly.

And so it was a pretty scary moment for people in that financial sector of the market. And so that's the kind of thing that I'm looking for on a red flag. Hey, we have a Houston, we have a problem in the SOFR world. But by then, honestly, it's too late. So it's really, you're looking at things like, all right, the reverse repo balances are being drawn down. Once those are gone, then you're going to start seeing repo balances go up. Because what the Fed did is they instilled, it's just a daily repo facility that these companies and financial companies can use, the banks can use,

to prevent something like this SOFR situation. So if that all makes sense. Yeah, that all makes perfect sense. I think, like I said, it's just one of those multiple smoke signals when you look at the plumbing. Yeah, it's going up. I mean, it's on an upward trajectory goes and what is going to trip that and make people realize that there's so much leverage in the system that when there is a need, it's going to be too late. There's going to be the need like long-term capital management. There's going to be the need for one or a few entities that are interlinked that will cause so much contagion that it would threaten the collapse of financial systems. There's just that much leverage out there. I'm not saying that's happening, but I'm saying that the problem is

that it's a non-zero probability. And if and when it does, hang on tight. Yeah. Mike, Dave, I see you have something to say. Go ahead and then I'll ask Mike a question. Well, I mean, I think it's really simple to understand that a lot of the, and I love Mike's words, something that kind of plagiarizing it, a lot of the hopium that exists in in some markets has to do with the the you know look 150 basis points of cuts priced in is insane unless you actually believe there will be a credit event because there's you you be simple there's no effing way they're going to cut that much unless there is a threatened seize up in the financial system if all of a sudden now the market is betting that the Fed is going to see this

in advance and prevent it from happening, then that would be the first time that they ever acted, they ever were successful proactively. Have you ever been proactive in your in your estimation, James? No. So I think it's really important to understand that when it sounds very clinical, but a non-zero risk of a credit event sounds clinical. What James is saying is there's a non-zero risk that 2008 repeats. That's right. And so the problem is, it's not that there's a high, I'm not saying that there's an 80% chance of a credit event. What I'm saying is, and risk reward probabilities, you have to include that delta move off of where you are.

So when you look at a credit event, it's not just the likelihood of a credit event. It's how big is that credit event going to be? Is it going to be like we saw in the UK with the guilt situation and how their insurance companies were so leveraged with these leveraged debt instruments that it was possibly catastrophic. And that's the problem is that it's not just that there's a zero probability. It's that the probability is if something does happen, it's likely catastrophic. And so that's where that risk reward calculation gets skewed. Yeah. Mike, the question that I wanted to ask you is about what's happening with oil before we circle back to Bitcoin to end. Obviously, as I'm reviewing things, I saw there was a nice little jump in oil this morning,

maybe 2%, not trivial, but not huge. But as a result, I don't see it here, but largely what's happening in the Red Sea, right? I think an Iranian warship entered the Red Sea. The Houthis are attacking everything that passes by. And I guess there's some fear the supply chain could be interrupted. But what's happening with oil? So I want to stick my neck out and allow people to, at the end of the year, say, hey, potentially McGlone, you're an idiot. I think you're going to see a 40 handle on oil this year, maybe going down to $40 a barrel. Raise my hand. If I'm wrong, tell me I'm guilty. It's the way crude oil has worked since I've been trading it in the 90s in the pits when Saddam Hussein initially invaded Kuwait. It went to 40, dropped down to 20 and took 14 years to go back above 40.

We're doing the same thing, but in a much worse case now. And that is what's happening in crude oil is the simple facts of elasticity of supply and demand are kicking in exponentially. So what you're seeing is noise. I mean, there's always going to be violence in the Middle East. We grew up with that. And can that cut supply? And if it does, where is it going to cut supply to? To the U.S.? No, that's change. The world's changed. We are net exporter.

If you see supply bottlenecks, that kind of makes us build up our inventory. The short term is bad. But what you see now is still the backward end of the downward cycle from Saddam Hussein. I'm sorry, not Hussein, putin's invasion of ukraine and i had to say one person because it's more him than a country um and it's very likely you have to shut off what's really pressured crude oil for the last 10 years and that is the excess of u.s and canadian supply versus demand it's it's accelerating it's actually near six million barrels a day if you include liquid fuels i come from a farm background we We've got a lot of ethanol, which is now being matched by

OPEC spare capacity. They're cutting as much as it's just, it's just a lose-lose. So I see crude oil right now, 71. I'm going to write, probably publish in tomorrow's set of editors right now, if you saw me typing a little bit. The next 20 bucks in crude oil, I think, is down. And that's towards 50 and gets to 40 to get cheap. You got to get cheap to shut it off, to shut off what's pressuring prices. And that's the U.S. supply and demand surplus. So what you see out of OPEC is just, it's silly that people still focus on it because they're reading from the textbooks and the answers have all changed. It's a quote from Einstein. The answers have all changed. The world's completely different.

I think it's heading towards 40. And when people are saying it's going to 150, I'm like, are you ignoring copper and corn? You got to watch the whole space. So that's part of the reason I think I'll end with this. I think normal commodity deflation, just follow natural gas, you'll see crude oil at 40, is going to continue to fuel gold inflation. And part of that is giving the Fed reason to ease. But here's the problem. Let's say we have a little bit of an issue in the Middle East and crude oil something spikes to 90. What does that do for Fed easing and all this hope young people have for lower rates? Poof, it's gone. Dave, you're muted.

I really wonder about that, Mike. I think that the Fed isn't stupid. I mean, they may be slow. They may do a lot of things. But everyone knows that when oil prices spike, it actually holds back consumer spending, consumer demand. It is a tax on the economy. And so, yeah, the headline inflation goes up. I don't know precisely how the PCAE deflator, which is their preferred inflation index, works compared to the CPI. But I'd be willing to bet that it will move less than the CPI in such an oil shock and they'll see aggregate demand getting crushed.

So I wonder if that affects it. I think that the real question from the Fed is James's question. They won't ease until financial plumbing looks like it's about to seize up or has already seized up, I think. And I think the world is basically saying they think something is going to seize up. Or they just say, doesn't that imply that, yeah, I was going to say, doesn't that imply that at the last meeting that Powell knows something we don't because he basically said that they were going to pivot or ease without that happening? It implies it's an election year in my very cynical way of looking at things. Well, that's part of a bear spent for crude oil.

It is an election year. And the world's largest energy producer, net exporter, was more likely incumbents will get elected if prices are lower. Yeah. And there's tremendous, I mean, look, is the Fed run by the executive office and by Congress? No, but there's tremendous political pressure and pressure from various non-political entities for the Fed to start lowering rates soon. And look I've never thought that we would get to the 2% normal inflation and, and kind of stay there. I think we're going to have a trajectory that shows that we are, whether or not the CPI, you know, I mean, how accurate is that? We we've

talked about that ad nauseum. But I just believe that we're, we're, we're going to allow, we're going to need and allow for higher perpetual inflation. And so in order to do that, you're, you're not going to be able to crush the economy. Like that would be, that would be the nightmare scenario. There's two nightmare scenarios, right? There's the scenario where the fed goes and raises rates again, and, you again and just annihilates the economy. Or the other one is the Fed eases up too quickly and allows for inflation to run rampant. So they're trying... Yeah, Mike, go ahead. But they're trying to annihilate, right?

That's a key thing of human nature. I i think people are underestimated when they're pricing so for you know for 150 base points of cuts i think that hike too much but that's the part of human nature that's changed forever that we grew up with it and that is the fed had a good reason to ease through the last 12 years and somewhat aggressively because inflation was gone but now we've learned that lesson we learned what happens when you create too much liquid you get inflation so that to me is why we're supposed to get this normal reversion. Now, obviously we didn't get it last year in terms of equities, but the market's going to learn, I think, a lesson this year that is the Fed will just not ease with the ease it has in the past until it gets that bad. They might start with a 25 basis point cut

if stock market's down 10% and inflation's declining. But the key thing here is I want to point out in terms of the facts also, let's just look at PPI right now is deflating. It's down nine tenths of a percent, the latest PPI reading. The Bloomberg commodity index is down 11% over the same 12 month basis. I think that's going to get worse. I think there's going to be reason for it to cut, but I think for it to really get worse, you have to see that just a little baby reversion in the equity market. That's where I see the dominoes just tumbling for deflation this year. And here's the main definition of deflation. It always comes from a base level that just gets too high.

I mean, it's always the way it's happened. 1929 was the best example in history. The base just got too high, and then we deflated until we debased the currency in 1933. Yeah. Listen, I mean, if things start to collapse, James, they're going to save us. Right. But it's interesting when we look through all these Wall Street projections, and I do want to go right back to Bitcoin in a second. But if you read through them, almost every one of them actually thinks that inflation will kind of be a little bit stickier now, right? And that we will

be dealing with exactly what you said, which is a slightly higher inflation environment. Maybe it's 3% instead of 2% becomes the base level. Yeah. And they're not going to point to it. They're just going to say that, well, we're comfortable with a range of 2% to 3%. And then it might be more like 3% to 4%, but they'll hide it. And look, we have to have confidence in the US dollar. Why? Because we have to have confidence in our treasuries. And so it's a simple, I mean, it's not that complicated. Do I think that there's a diabolical plan from the Treasury and the Fed to debase the dollar and make people poor in this country? No, I don't think that. I just think that it's just pure economics how this is working out. And the Fed understands a range actually works better. He's more incentivized that the Fed is more incentivized to have a range that rather than overstay their welcome and push the economy into a, into a recession or allow for that,

you know, Arthur Burns rate and inflation to rage out of control a lot in 1980s, you know, it's, it's easier to have a range and be able to dial, uh, and, and adjust accordingly because it, it makes, it just makes their job easier and it allows for the, the treasury to keep issuing as much debt as it needs to. And, and it just inflates it away. Yeah, that's the part I was thinking about. Yeah, exactly. Dave, do you have something to say before I move on to the Bitcoin? Yeah. Well, actually, I want to talk about Bitcoin. Just as we were talking, I watched the hyper funding rate on Deribit go back to zero as OKEX and darabit were both offered right around spot like no premium bobby is still well above spot uh and then just as i was about to say that it started moving higher

again um so you know it was down at at 45.2 now it's at 45 uh the iprp around 45.4. Nobody knows anything about nothing. The point is not only is the price volatile, but all the people trying to do all this stuff are moving crap around. And if you can't see it, it kind of reminds me of an old Odd Couple episode where I'll cut to the chase. There's some actor, basically, it was about an occultist. He said, we have a saying in the spirit game, what you don't know can hurt you very much. I will tell you that people who are trading directionally and trying to day trade or

minute trade, who aren't looking at every single market and seeing what's going on here, are getting crushed. They're getting whipsawed by every single move, which is, you know, professionals can make a lot of money when this is true. But if you have to ask yourself the question, you know, what are other people doing? They're trading against you. And it's just, it's an observation from looking at a market, you know, with professional tools and understanding what you're up against. Today is like probably the poster child day for day traders who are sitting at home, who are on one exchange or one place just getting run over constantly either way because they can't see what else is going on it's just it's fascinating sorry but i just piggyback

on that a little bit it's that's the key example extremes of last year we all knew we were going to go into recession and bitcoin was cheap okay so we all know now we're going to go a soft lane, guaranteed. And we see Bitcoin's expensive, but the difference is with the equity market. It's just those known knowns that, yes, they're going to be having, yes, there's an ETF. They're just such known knowns that, great, a lot of that's been priced in. Dave, you nailed that from 15 to 45. And then I just look at, well, okay, here's the macro. Your day trader, yes. But that's

the key thing I like to point about Bitcoin is it's the number one place on the planet. If you're any type of trader, and this is from someone who comes from the trading pits, all those ex-traders, they all have gone to Bitcoin. Why? Because there's no better place to set up your bots and just have it knock around. And today I'm sure there's more people getting stopped out than there are people getting long. Yeah, I haven't heard that story. I mean, just trade 24-7. It's incredible. That's the most incredible thing.

It's psychotic. I mean, just being in arbitrage, we would trade things everywhere from Australia, New Zealand, all the way overnight. But you had a couple hours of reprieve here and there so even though i was trading at 2 30 in the morning you know from from 4 or 5 p.m until about 7 or 8 p.m it was a nice little lull there is never a moment that bitcoin isn't trading and i mean it's it's an incredible ad that and that's what makes it so attractive, right? I mean, that's the point. I mean, all I can tell you is, is, is volumes through, through coin routes this past weekend, you know, over 150 million average a day on a weekend. And, you know, that's just because it's 24 seven, but there's one thing I will point out. That's

interesting is I was just looking at it. The amount of liquidations for this size move is tiny. I don't know if you noticed that. I mean, long, short liquidations. It's being pushed spot. I mean, spot is pushing. Yeah. But that's important, right?

You know, the short liquidations, 133 million on a 10% move, that number is usually double that. So it's about half the amount of liquidations, $133 million on a 10% move, that number is usually double that. So it's about half the amount of liquidations. And yet, as you pointed out, people were still paying more to be long, which is, it's a really strange situation. I'm not going to lie. So listen, as we come to the sort of last few minutes here, I talked about earlier the fact that we're largely going, we're going to see this large, maybe massive marketing campaign for Bitcoin a la ETF, right? So it won't be a marketing campaign necessarily for Bitcoin, although that's how some of them are pushing. It'll be for the products, but it might actually just basically be a marketing campaign for Bitcoin. You're talking about 14 humongous

companies, large budgets coming into Super Bowl commercial season. Not trying to say that'll happen or that that's even a good thing. And if we judge by the past. It wasn't good the last time. Yeah. But we're about to see this massive marketing campaign for Bitcoin and these ETFs with 14 people competing for AUM. We have three commercials already. I'm just going to show them. They're really short, but here's the Bitwise commercial. I don't know if you guys have seen this. I thought you would like to know. Satoshi sends his regards. Look for Bitwise, my friends. Okay. So that's a kind of a Bitcoin commercial. I know it's for Bitwise, but he talked about Satoshi, which is very vague.

I'm surprised they went that route. This one's just for Bitcoin. This is VanEck. That's a Bitcoin. That's just a Bitcoin commercial, by the way, right? Doesn't even mention the ETF and then hashtags. To me, the tremendous impact that the home computers have had on everyone. And yet it seems the people I've talked to say that it takes you longer to do something by putting it into a computer and calling it up again than if you just kept simple records yourself in the house i thought that they'd all be marketing their specific product and how it, you know, is. There may be regulations on just how much they can do that. It's, you know, it's going to be interesting. That's why they're doing it, right?

Yeah, exactly. Just get their names out there. And yeah, but they're all trying to clearly trying to find their footing. I mean, people look, the reason Bitcoin is trading where it is and not already at your target price scott is because there's still a lot of people who expect that gary gensler is playing the role of lucy and we're all playing the role of charlie brown with the football for those who don't know it's a very famous comic strip on your list yeah and i fully and i really maybe it'll happen i don't know but i fully expect that they will have their their tickers

and they'll they'll be pushing them very hard once they do get approved this is right now you're in this funny period that this is signaling to the street that we're going to get approved we're just going to get our companies are not spending money unless they also agree there's a 90 to 95% chance it's going to happen. They're still probably pricing in that 5%, 10%. Yeah, probably. But what is clear is that there's going to be some massive jockeying between these companies to try to be some of the three, four, five winners out of this, because you're not going to, I just don't see 10 or 12 Bitcoin ETF surviving for five years. Maybe I'm wrong, but I, you know, I would see two, three, four as being the lion's share,

you know? And so they're going, they're going to spend a lot of money on marketing to get there. Clearly. Love it. And I can't wait for it. I'm here for it. Now it's 10 AM guys, a little bit of housekeeping. I saw a comment here to Scott, even read anything from here. Well,

they just, that made me notice that the X comments are now coming up in my stream yard feed for the first time. So we used to only see the YouTube comments. So the answer is yes, I am seeing those now guys. That's a B guys. We tapped just on YouTube for a second there.

We tapped 2,000 viewers. It was really exciting. I remember not so many weeks ago when we were tapping 1,000 viewers. So clearly there's a heavy thirst for this. Really, really exciting. And to that end, if you are watching this on X, you scroll off and all of a sudden it stops. I don't know if anyone's actually tried to watch a live video on X. It's really subpar.

So if you are, come on over to YouTube, subscribe here and watch it. It's a much, probably better experience and you might get more comments. See, someone just said, Jiro said, whoop. That means I'm seeing it. See, I saw your comment there on X. Guys, very excited to start the new year with all of you. I haven't talked to any of you about this, but I have big plans for Macro Monday outside of my channel. I really kind of am thinking about separating it and creating it into something bigger because I think we have something special here that's different from the rest of the content. So I plan to start aggressively pushing and marketing this show and creating more content

around it. You've probably seen all the shorts I've been cutting your guys' faces up and, or my editors have and sharing it. And those, I absolutely love those things. So I want to thank you guys. I know, man, we're still, it's like almost a holiday. First day, we all show up. You guys are amazing. And Macro Monday is going to become huge in 2024. I can just tell the three of you and everybody else that. So guys, thank you, everybody. Thanks for watching. The last housekeeping is at Crypto Town Hall on Spaces after a two-week hiatus that was not my choice is back today. So we will be back on Spaces at 10, 15 a.m. Eastern Standard Time. Thank you, gentlemen. I will see you soon. See you, fellas. Let's go.