The Wolf Of All Streets - Macro Monday: Recession, Rates, Inflation, Crypto | Frances Coppola, Mike McGlone, Dave Weisberger

Episode Date: January 9, 2023

Macro Monday special guests: Frances Coppola, Financial economist: https://twitter.com/Frances_Coppola Mike McGlone, Senior Macro Strategist at Bloomberg Intelligence: https://twitter.com/mikemcglone11 Dave Weisberger, CEO of CoinRoutes: https://twitter.com/daveweisberger1 ►► JOIN THE FREE WOLF DEN NEWSLETTER https://www.getrevue.co/profile/TheWolfDen Follow Scott Melker: Twitter: https://twitter.com/scottmelker Facebook: https://www.facebook.com/wolfofallstreets Web: https://www.thewolfofallstreets.io Spotify: https://spoti.fi/30N5FDe Apple podcast: https://apple.co/3FASB2c #Bitcoin #Crypto #trading Timestamps: 0:00 Intro 2:30 Recession: what’s different this time 5:20 Ethereum is up 6:30 We won’t see QE again 10:00 The consequences of stimulus checks 13:40 The biggest macro event 16:50 Crypto will rise 18:20 Global recession 21:00 DeFi 28:50 Where the demand for Bitcoin comes from 38:00 Venezuela is an outlier 40:30 Everything in economics happens on the margin 42:30 Crypto is a better way 49:40 CBDC is a complete government control 54:30 Control of information The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

I know that we all miss the days when we could talk about Bitcoin and talk about the crypto market without having to be experts in what's happening in macro markets happening around the world. But that is not the case anymore. I think at this point, we can all admit that we were wrong about the lack of correlation between those markets. And of course, the crypto has traded largely like a risk asset. Now, as usual, when I have questions about what's going on with macro, which is not necessarily my core competency, I bring on experts on Monday. Today, we have Francis Coppola, Mike McGlone, and Dave Weisberger. This is going to be an incredible panel. You guys don't want to miss this. 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 hit the like button. Now, you may notice that I'm not sitting in my studio today. I had to make a very last minute trip to the West Coast. So I'm the victim of the red eye, two hours of sleep and a very glamorous airport hotel room, as you can see here with spotty internet and my AirPods as a microphone. So I apologize in advance if we have any slight technical issues or anything of the sort. But as I mentioned, you can't talk about crypto anymore without talking about the stock market, without talking

about the Fed, without talking about Forex, without talking about everything else that's going on in the world. Now, did I necessarily foresee that I would have to talk about Bitcoin in the context of wars in Ukraine and Jerome Powell. No, I didn't necessarily think that when it was this beautifully uncorrelated asset for a nice decade. But that clearly is not the case anymore. Now, as I said, I'm going to bring on our incredible guests right now. I've got Francis Coppola, Dave Weisberger, and I'll bring on Mike in a second. Here we are. We got Mike McGlone now. You guys obviously know Mike and Dave very well. Francis, the first time you're here. So welcome.

I'm really honored to have you. So, Mike, I want to start with you because I think that you've been nailing it for a very long time. Every time you come on this show, more pain to come, more pain to come, more pain to come, more pain to come. Has the Fed broken enough things yet? Or are we still in the more pain to come train? Unfortunately, I have not

broken enough things yet. And we're still in the more pain to come. It's simple. The Fed's still tightening and the global economy is heading towards recession. That's just the facts of a year ago. Don't fight the Fed and still don't fight the Fed. It's just the facts of a year ago. Don't fight

the Fed and still don't fight the Fed. It's not that complicated. I'm sure Francis and Dave can comment on that. But here's the fact. The latest ISM manufacturing survey, which measures all services in the U.S., dropped below 50. It's never dropped below 50 after a period of about a year with the Fed tightening. It's always happening when the Fed was easing. So that's what's different this time. I just got off the call with my Bloomberg intelligence colleagues this morning. We go over all the information this week. Economists expect the CPI to continue to come out weaker and expect that's completely what happens in recessions. Inflation plunges. I fully expect that. Gina Martin-Adams, our equity strategist, talking about resistance in the stock market.

Last year, she only talked about support. Our interest rate strategist thinks 10-year yields can continue to drop. The key thing is right now we're in a bit of a unique stage where markets not realizing inflation data is coming out weaker than expected because the world economy is plunging. And it's not just dropping. I can show you one example. U.S. unleaded gas demand is dropping at a higher velocity than it did in 2008, and very similar than it did in 2000, the first quarter. And the key fact is the Fed is still tightening. So the way I see what's happening this year is we should see more of what happened last year. But the difference is we can give the Fed to start easing by the end of the year only because they have to. And that's going to happen at the least

aggressive stage in my lifetime. In the past, they could ease like on a heartbeat when things started flipping over and it kind of got annoying after a while. Now it's going to be like, well, we've learned the lesson of inflation. We're never going to ease with the ease we have in the past. So to bring it down to the micro, I look at it, stock markets probably got another 20% to go and S&P near 3000. And to stay down for a long time, the key question I ask people who are bullish is what's going to save it? It's not going to be the Fed. Okay. So that's kind of there. I think gold and long bonds will be some of the best performers way too early last year. But remember when you buy things like gold was unchanged in the year,

if you buy things like long bonds, U.S. Treasury long bonds, you always get that premium unless the government defaults, because they're not going to. And I fully expect Bitcoin and Ethereum are going to come out ahead, but they still have to be pressured if the stock market goes down. The key thing I'll end with is one of the best performing assets I've been shocked by and still stick with is Ethereum. Ethereum's up about 10% this year.

Yes, it might give some of that back, but it's holding that $10,000, I'm sorry, $1,000 support. Back to you. I really wish it was holding $10,000 support. You figured me to go click over very quickly to the chart. And you make the point that maybe the Fed will return to quantitative easing. But in the past, you've sort of talked about that not being the same quantitative easing that we've seen before. It's more of a ceasing of the tightening than it is back to an easy money policy. Frances, is that your take on it? Do you think that we will see decades of easy money again in the future? Do you think that they've perhaps learned their lesson no i think we this tightening cycle cycle is going to go on for quite a while i mean that doesn't mean we won't see um the fed at times putting liquidity into markets um as it did in september

2019 for example um really to stop markets seizing up because when we're going into this kind of a long scale a tightening cycle we are going to see liquidity squeezes in markets and central banks do have a responsibility to make sure that markets don't freeze because of them so there will be episodes of liquidity injections into markets but not a return to the years and years of QE that we had before. Among other things, I think central banks now are beginning to understand that actually that sort of QE actually doesn't achieve very much. The short-term QE that can ward off a dangerous deflationary spiral or a market freeze is well worth doing. But the kind of long-term keep money really loose, keep putting more money into the economy because your governments are tightening like mad and the banks don't want to lend actually isn't really very productive.

And there are better ways of reflating an economy than that. Well, you wrote a book called The Case for People's Quantitative Easing, right, which basically made the case that quantitative easing, as you just said, can be good, but not when it all goes to the top 1% and the government and cronies. But when it actually goes directly to the people. I think for the first time, we actually saw that tested on a grand scale in 2020. Although I don't know that a $1,200 stimulus check was quite enough per American to either prove or disprove your point. But do you believe that there still is a way that quantitative easing could be beneficial? Yeah, in my book, actually, I talk about several different types of quantitative easing. And one of them is this providing liquidity to markets, which is essential.

Another is supporting investment, for example, which is also essential. The American government actually did experiment with quite a lot of the things that I suggested, and in my view actually slightly overdid it because they did the helicopter money at the wrong time. You know, because giving people stimulus checks and massive QE to increase demand in the economy, which you are simultaneously shutting down, doesn't strike me as awfully bright. You know, what you would want to do is just keep people alive and try and keep businesses afloat during that time.

You know, mothball them, really. And then keep your powder dry for maybe doing some helicopter money as you start to reopen. As it is, they did it too early. People then did it again. I think they did it too early people they didn't then did it again um i think they did about three times in all and people lit up massive savings plus also you had people who were continuing to work during lockdown um working at home didn't have their commuting costs couldn't spend any money um because nearly everything they would have spent their money

on was shut down built up enormous savings and lots of them still got those savings that's one of the reasons why inflation took off and why it's actually proven quite hard to bring it down i thought that they all just bought damn stop and dogecoin well they did instead of saving it was yolo It was YOLO. Jake, what do you think? I just would joke because the easy money ended up obviously driving speculative assets. I mean, look, I think the bottom line is that quantitative easing after decades of below real, you know, basically zero to negative real interest rates was an interesting situation. Basically, you had decades of capital being substituted for labor, which created off-the-charts wealth inequality, but effectively kept consumer inflation down because the substitution effects of being able to offshore and automate, even when it wouldn't be

otherwise profitable to do so, is relevant. With that as a backdrop, as Francis said, to say it's not too bright may be one of the world's great understatements. The fact is, is they basically took, they had been laying kindling, laying dry tinder for decades, and then proceeded to throw gasoline on the fire by giving money to individuals, which is guaranteed to trigger demand. Now, maybe you didn't see it where you are, but the market, the economy was open down here. And the effect in Miami was an incredible microcosm. What we saw was unbelievable discretionary spending by all parts of the economy, including the poorest strata. You saw South Beach overrun. I mean, literally overrun by people who ordinarily couldn't afford it.

Driving, renting Lamborghinis and other things, you know, whooping out of the sea. I mean, I'm not kidding. I mean, it caused a crisis down here. The mayor and referendums to try to get things closed, it completely shut down or changed the tenor of the place. My own drive from New York down to Miami when we were there, we stopped in Lumberton, North Carolina. And I kid you not, every single hotel room in Lumberton was booked. And when we finally ended up getting the last room in a quality inn that my wife was sure we were going to get shot in, and the clerk at the front desk said, well, everybody's all spending their stimmy checks. That's why it's so bad. It really was incredible. And to not see that flood of money coming in was a problem.

So, yeah, I agree with you. I think that if anything, you've understated it. Now, the result is the Fed has to and has had no choice but to slam asset prices to try to break the wealth effect. That's all they can do. But if we're going to talk macro, one of the things that we have to talk about is fiscal profligacy. I mean, the central banks are fighting it, but the governments aren't doing a damn thing to restrain spending or restrain deficits. And something's got to break there. And obviously, the Fed, their most important goal that they don't talk about, but is obviously very true, is keeping long rates low. I mean, people keep saying, well, the yield curve is predicting a recession. And Mike, I'm totally with you. I think that it certainly is. Look at the Baltic Dry Index. Look at other things that are indexes of real economy.

I mean, there's no doubt that real economic activity is slowing down. There's no doubt capital investment has ground to a screeching, if not halt, a trickle of what it was. But let's make no mistake. If long rates went up, we'd have a huge problem. The government, you'd have no discretionary spending left whatsoever in a balanced budget. You forget about the fact that they'd have no interest about balanced budgets, but nowhere outside of maybe Germany in the G20 is there a government who could afford long rates to go up. And I think that's a real issue. So I really wonder, you know, what happens if that ever get called. So far, they've done a masterful job, to be honest. I mean, they've kept the long end down and they're causing the, you know, they're causing the air to come out of the

speculation. And that's great. I mean, in the long run, it's not terribly fun as we sit here in markets, but the absolute reality is that's what they're trying to achieve. But let's make no mistake, that is the issue. At some point, governments can't keep spending money they don't have. Does that mean we move from QE to the conversation being yield curve controls and everybody becomes the Bank of Japan? So can I follow up on that? Because that's very profound. We are. We just had a blip in the trend.

We're all turning Japanese. I mean, that was the narrative for at least a decade. We've had a two year blip. And why did we have this blip? Francis and Dave described exactly human nature and what humans did to respond to this hundred year pandemic. We threw too much liquidity at it, rightly so from a politician's standpoint. Remember, two years ago, we didn't even have vaccines. And now we gain those vaccines within months. And typically that takes years.

What country didn't do that right? China. Why? Because China's system did not allow that type of intellectual property development. So here's the key thing I think they meant to note here is we had a 100-year event. We had this 100-year war in Europe. And now people are – you hear an average consensus on the street that, oh, we're going to have a mild recession.

I'm like, what are you smoking? When you had the – I mean, just finding this entertaining. But that's what sell-side people do. And that's one I think is really enjoyable with your three guests, including me, Francis, and Dave have. I'm much more neutral in Bloomberg Intelligence. And I like to point out I can write whatever I want. Just don't be an idiot. And to me, when you have had the hardest tightening ever after the biggest liquidity pump in the history of mankind, that pump is just going to dump like a normal cycle it has in the last 200 years of history. Now, Francis could us about the the boom in bicycle manufacturers in 1890 in the uk i didn't know about until i read the

recently read the book boom and bust i had to get that smile on a princess because we're going to write the book about this and here's what the book's going to say this is my view this is the biggest global macroeconomic reset in history and it's so. We had 100-year events add up. The war, Trump as president, definitely the plague. And it's all dumping. The key thing is, what do we do right now? So I think we're in a stage right now where we're going to get inflation numbers are going to come out a little bit weaker than expected, that people are going to cheer and then realize, oh, that's bad because we're going to recession. And to me, that's where we have to come out of this. Where do we think this is going to come out ahead?

The key thing you've got to bring out of this is a massive, rapidly advancing technology. Francis can tell you this. I just read stories about how in Germany they were able to bring in LNG imports in 200 days. And typically they take two years to set those up. Why? Because we can do it so fast now. This is a basis of the book from Jeff Booth, The Price is Tomorrow. And that to me is what happened. I just was on a call recently,

what's happening in the Corn Belt. And we just did an odd lots program on all the electronic surveys and trucking. It's happening so fast that you have to expect the deflationary forces to kick in. It's just going to come that way. I did a little report on Friday showing the U.S. stock market relative to U.S. income reached the highest level ever just before the COVID. Now it's all going backwards. So here's what I think we're going to do this year. This year, we head towards that recession. It's going to be worse than everybody expects. The Fed's going to be, there's going to be so much pressure for them to ease. There'll be death threats. Paul Volcker got them. But it's

going to take a while. And then we should gravitate towards cryptos coming out ahead. And I don't mean things like Dogecoin and Shibuino. I mean the top ones, Bitcoin and Ethereum. The key thing you have to point out is particularly what Francis will probably see is the most significant trend in cryptos is the proliferation of crypto dollars. I mean, the dollar has gone for that base scale. So U.S. regulators have to get on that properly. But getting back to the big picture macro is, yeah, Bitcoin might get down to $12,000, $10,000, and then it goes back up again.

But the key thing I look at as a commodity guy, this time last year, every day crude oil is going above a little bit above 100 and it's at 75 why is that because we just don't need it anymore technology is moving so fast and cryptos are a key part of that so i love the debate between people like peter schiff and you know fidelity who are accepting and adopting cryptos is why would any rational smart educated money manager investor push back on this technology and not just allocate part of their portfolio? And that's why I look at it. Why would you take that risk of technology moving so fast that we're not going to need that analog gold anymore?

We're going to need digital. But that's kind of a ramp. But to me, the key thing is, remember, we're writing. This is going to be Francis and I. Maybe Dave will write the textbooks about the story about this. But this is historic. And expecting the key thing I'll end with expecting a soft landing of the hardest tightening in history is just kind of irrational. Francis, I see you shaking your head.

No, I was nodding. I mean, I think this is going to be much. I do actually think this is going to be much worse I do actually think this is going to be much worse recession than people are expecting. It's going to be a global one. I mean, we keep talking about the Fed, but we should remember that whereas in the past, in say 2017, 2018, the last time we had a crypto bear market, it was really just the Fed doing tightening and other central banks were still easing. The ECB actually didn't even start doing QE until 2015. Whereas now, everybody's tightening all at once. There's this massive sucking sound of liquidity being just withdrawn from the global economy at an extraordinary rate. And as ever, when you have

that kind of liquidity squeeze, it hits risk assets first and hardest. And that's why crypto is being so badly hit. It's not the only type of risk asset being hit either. Typically, in this kind of tightening cycle, we also see emerging markets debt being quite hard hit. So we might find that we'll see some crisis in emerging markets, I think, if we want to go look beyond crypto. When we have this kind of almost like a tectonic plate shift, I think, if we want to go look beyond crypto. When we have this kind of almost like a tectonic plate shift, I mean, you know, I live in the British Isles where we don't have tectonic plate shifts, but you do. So and you know that when you have a shift in the San Andreas Fault

or something like that um then you get earthquakes and you know with other folks you might get volcanic eruptions and so forth and so the kind of all that we've seen in crypto with you know collapses of coins and bankruptcies of exchanges and things like that i think the earthquakes and volcanic eruptions, they cause massive devastation all over everywhere. But the underlying problem is this shift in the macro landscape, if you like, and tectonic plate shifts morph the landscape into a new form. What's going to come out of this is going to look different from what went into it. It's not going to look like what we had before. And the difficulty, I think, and the challenge for us all is to try and work out what it's going to look like in the future um where it's all going and you know where the winners are and who the losers are and

kind of where to position ourselves really i mean i think it's really i would almost argue dave go ahead go ahead that's okay go ahead i was just going to say that I think she's 100 percent correct, obviously, that macro was the initial trigger for the ground to start shaking. But it was the old Warren Buffett. When the tide goes out, you see him swimming naked. And the entire industry effectively was. I'm not saying the assets. Everyone's heard me say this a million times. There's nothing to do with Bitcoin, Ethereum. But largely the industry was greed, corruption and human error. Right. I mean, those those unsecured, uncollateralized loans were made whether it was good or bad. It just I want to go back to that.

Yeah, I want to go back to that in a second, because there's there's something very important to be said there. In fact, actually, let's just go there first. I mean, you and I have been talking for a while, and you know that my opinion of most DeFi is very, very strong. I've had two hugely strong opinions. Strong opinion number one, I always start with a crypto show, because people get really angry if I don't start with number one, which is I think that distributed finance is the future. I think that everything that is financed, whether that's security financing, stock loan, whether it's interest rate swaps, whether it's repos, et cetera, will eventually use distributed technologies to break the cartels the big banks have on those processes where they're earning

enormous economic rents. I think that is the future. I think that is 20 years out probably, but I think that is the future. And I think there are a lot of people building a lot of really interesting things to get there. Okay. With that caveat out of the way, most of what we've seen in DeFi was complete and total bullshit. And while there was, but before fireblocks help make the crypto markets more efficient, being able to move coin from one exchange to another, there was some demand for borrowing for arbitrage wars that evaporated and evaporate completely. But, you know, effectively, not a lot. And if you graph the curve of yields that you could get by loaning Bitcoin and Ethereum compared to what you could get by putting money into T-bills, when the T-bills became a higher rate, that spelled enormous problems for a multibillion dollar industry. In fact, the death of that industry because they were all over leveraged and over collateralized.

I wish to God I had thought about how I would have assured it, to be honest with you, or really had considered the knock on effects of it. But the entire notion of that corner of the industry has been annihilated. There's no other word for it. There's no need for crypto. I mean, if you look at gold, for example, there is an industry in gold lease rates. It exists. It's not very large, but it exists. There will be an industry for some crypto borrowing, clearly, and arbitrage and whatnot that needs to be done. But it got very, very large. So that's the first thing. I just wanted to comment on that. I mean, it was sadly as predictable as one of my old bosses in the trading forum would say, as mushrooms after a spring rain, right? You know, it's just unfortunate. But on the macro side, I think that it's really important to understand that we've been talking, there have been many people, now, admittedly, I follow mostly

Austrian monetarist types, because that tends to be, despite having gone to Northwestern, I tend to agree more with Milton Friedman's Chicago school. Used to infuriate my professors. And that was a long time ago, but so be it. The fact of the matter is people have been talking about kicking the can down the road on the fiscal side for years. I mean, literally decades now. I remember reading Bill Fleckenstein in the 90s, where he would talk about the Fed and he would have people on, you know, he wrote a book about Greenspan and it wasn't very complimentary. And all that seems like ancient history. My point here is, yes, I think there's been tectonic shifts. I'm still wondering whether the people in control really believe there's been a tectonic shift or if they can actually run this and kick the can down the road again in a different fashion. I think politics is going to enter it. I agree with Mike. I think

this year is going to, to use another word on the macro side, suck. But going into a presidential election, is the Fed going to, I mean, I think they're going to let things get bad this year and save their dry powder for the following year. Just because I'm very cynical. I can't help myself. I am extremely cynical about politics. And I just wonder, you know, is that the year that the Fed might pivot? They may very well delay their pivot more than people think, because I don't know that they really care. But we'll see. I'm curious what Mike thinks about that. Well, I also want to ask Mike. Mike, you've mentioned crypto dollars, which I love because it's a much better term than stable coins.

But interestingly, what Dave just described, the lack of yield or safe yield in the crypto industry has been sort of the death knell. But for a stable coin provider, for a company like Tether or USDC, it's actually a massive boon because they can just park all the money in short-term T-bills and make four and a half or five percent. And running a stable coin has become an incredible business. That is, I like to call them crypto dollars because that's what they are. And maybe Dave or Francis can show me. I hear 98% of all. I've never been able to see a good, solid stable coin that tracks anything but the dollar that's got more than a billion dollars of AUM market cap. So to me, that's the key thing. Let's talk about those key. I like to point out, like Dave mentioned,

getting mushrooms in your grass after it rains and like having warmer than normal winters in Europe. That's like, oh, well, that's kind of the trend. We're going to worry about global warming in summer. It happens in the winter too. So it was just kind of one of the things I enjoyed pointing out as a strategist is that we talked about yield a little bit. Dave mentioned yield. If you want yield now, what I hear from some of the real hot, big money now is they're looking at GBTC. Now, yes, they did before they got stopped out, but it's a 50 percent discount. You look at BITO, B-I-T-O, the number one traded, at least it still was, exchange traded Bitcoin ETF.

It now is rolling in the back relations, outperforming Bitcoin. It outperformed Bitcoin last year. And it's part of the win win. When are you going to go back to contango in Bitcoin? It's in backwardation. That's very unusual. It should be like reflect the measure of T-bill rates like gold does. But when you can get a better than, and when you can outperform the actual underlying with a product, you can just push a button with Schwab.

To me, that's happening. But we're in that stage now. The news is so bad. And the key thing I've been enjoying really pointing out last year, when everybody is so bullish commodities, there's one key problem with commodities, open interest was declining. I've never seen that in a bull market. Gross open interest in crude oil and copper and corn, everything was dropping in futures. And there's only one major market in all the markets I watch. We see increasing increase in open interest in futures, and that's in Bitcoin and Ethereum. Yes, it's still a very small portion of the market.

I see the institutional side, but to me, that's where everything is going. And it's so small. I mean, maybe 1% of total investable assets is cryptos. That's when it was $2 trillion. Now it's $1 trillion or less than $1 trillion. So that's why I like to point out those trends. And then I look at it, okay, if you're from an American standpoint and anything but China, which has pushed back on it, and you see it's gone for the dollar, no offense against Europe where it had negative rates, you're not going to mess that up.

Now, of course, I'm an optimist in some ways. But to me, that's the key thing is what are the trends? What should change these trends? And there's a potential that the trajectory will actually accelerate. To me, that's where the risk is for people who are not allocating to this space. So to me, that's the bottom line. A chart I'm looking at right now is that open interest in Bitcoin futures. And people say they're still talking about banning.

In the U.S., you can't. It's like banning crude oil. You can't. It's already in the CFTC regulation. People are trading futures on it. It's way past that. China's right. I want to tie one thing that you just said, Mike, to something Francis said, and then I'd love to hear Francis's comment.

But, Francis, I agree with you on emerging market debt and what's going on in emerging markets. The thing that I always point out about Bitcoin, and less so with Ether, but Bitcoin for sure, is the demand for Bitcoin fundamentally. In the US, the demand is based on people who, like me, and obviously Mike, believe in asymmetric return that if it achieves digital gold status, right, you know, that's a 20x from here, and it's an option. And Bitcoin trades like a risk asset because it is that option. But if you're sitting in an emerging market country, you know, and basically 30% of the world's population is that way, and your currencies are deflating, depreciating, or wildly erratic.

Bitcoin provides a lifeline. And people out here, it's very hard to understand. But when you start talking to people and when you're in Miami, you get to talk to it all the time. I mean, anyone who ever if I ever wear my coin route shirt, you know, my wave the flag shirt out there and I get in an Uber. The odds are high that a Venezuelan Uber driver or, you know, whatever, and I've had plenty, will say things like, yeah, you know, we understand Bitcoin because our currency is worthless and we need something. And if, in fact, the macro picture does slide towards more fractures and stresses in the third world, that is yet even more adoption being driven as a groundswell. And that's kind of my thesis, which is decidedly not, you know, the thesis from some of the people who you tend to fight with on Twitter about Bitcoin. But I mean, I look at it from a very practical point of view. I mean, adoption network strength is shown. I mean, you know, we've talked

about this hash rates and Bitcoin, terrible for miners, but great for the asset are still pushing all time highs. And that's because there's the real demand in the world's periphery. And, you know, I'm curious what you think about that, because to me, that's that that's the the asymmetric, you know, reason that a lot of smart money. And that's why Bitcoin is held in at this price. I mean, you know, it's basically been at the same price. It's like watching paint dry this market has been unbelievable it drives scott crazy it drives me crazy but it is what it is francis uh please feel free yeah um kind of hard to predict because i keep coming back to this kind of dual nature of crypto really. I wrote about this a while ago that actually the stablecoin phenomenon in a way solved the problem of trying to reconcile a store of value with a medium of exchange when they do very different

things. You know in an emerging market economy if your currency is deflating then yes you have an inflation risk um depending on how exposed you are to imports really um and but you have to ask yourself whether something like bitcoin is necessarily a good substitute for that it may be a better place to put your savings and it may be a way of getting money out of the country. And I venture to suggest that that's what your Venezuelan Uber drivers are actually doing, is getting their money out of the country. Because Bitcoin is actually quite good at that. And it's not even, or it hasn't been in this particular bear run, a particularly good place to keep your savings. Because as inflation took off, Bitcoin's price went down, which is not what you want from an inflation

hedge. So I would suggest that probably if we see an increased demand in emerging markets, it would be because of capital flight. Interestingly, I think you could – please, go ahead. Scott, I have one thing on that. I think that is part of – we both – I think Dave and Francis both nailed the main reason to not reject this know, let's look at the world population. How many of us are banked? I mean, it's less than 50% that grew up with the privileges we have. If Dave mentioned the thing you can really get in Miami is just not only access to Bitcoin, but to the dollar through your phone, instant settlement. Your government doesn't need to know about it. China, one example. And you've never been able to do that in history mankind be able to do that unless you're you know stuffing you know spanish pieces of eight in your in your um pockets

this is the first time in history you can do that and to me that's why the dollar is winning and that's why i love this narrative when you see though china and russia pushing back and in pressuring the dollar and i'm like are you? The whole world is going back towards the dollar, particularly because they can do it easily. Stable coins. They don't have to go through your CBDC. And by the way, they don't, you know, I always like to use that example. Who wants to immigrate to those countries?

So to me, this is the macro of the technology. And it really hit me on a panel in Miami recently asked me about it. I'm like, yeah, I don't understand so much some of the interworkings of cryptos, but I get the technology and having come from the trading pits, which no longer exists, you just got to adopt it or you're going to fall behind. But to me, it's getting access to the dollar in this. I know they have, you know, can get phones like this for a couple hundred dollars. Everybody in the world is getting access. I think one other thing that's interesting, you mentioned China. I mean, China is fascinating, right? I don't think it's remarkably surprising that zero COVID goes poof after Xi gets power, because now he can afford to and the hong kong is is making a play for more digital asset uh companies to be there and they're trying to promote digital assets or trying to starting to

promote crypto that is a big deal because anyone who thinks that that come that that's completely i mean it could be a trial balloon from china but it's certainly not without a blessing from the from the ccp and that's a big, because I think they need Hong Kong as their, people have used the word escape valve, you know, basically, you know, to be able for economic pressure or to be able to deal with these things. I mean, there's no doubt you're right. You know, the whole notion of petrodollars vis-a-vis Petro-ruan, and I've read a lot about that recently, is a very big deal. You know, wars have been fought over less, so it's a very big deal. But the fact that China, at the same time as all that is going on, is effectively relaxing its stance towards digital

assets, maybe it's just to reward their wealthy people, but it's a non-trivial thing, and it is interesting. I'm not sure what to make of it yet, but I think that we will look back and say this was interesting. Francis, you made the point that you think that the perhaps primary use case is capital flight. I would just respond to that slightly and say it's actually also a two-way street. I mean, I'm only speaking anecdotally, but a lot of people try to get money into the country to their families via Bitcoin as well. So it's not always about getting the money out. And Dave, then to your point, obviously saying that, you know, you'll buy Bitcoin in a hyperinflating economy comes back to my point being not a skeptic, but I have to look at it from both sides, that May stable coins are also better for

that. I mean, don't people in emerging economies want access to dollars? Isn't that what they truly lack and not necessarily access to a volatile asset? I mean, anyone can respond to that. Yeah, 100%. I mean, and that's why, I mean, let's be honest, that's why the Bitcoin USDT market is so incredibly big, because it is a two-way street. I think that it's eventually, and I will continue to say this, because if I don't, people will misinterpret. Bitcoin does trade like an option for the reason that I've said, but to people whose currency devalues by a thousand percent, Bitcoin dropping 70 percent from its highs is not that problem. I mean, if you're writing it out, but when they want to spend it, being able to convert it to USDT seamlessly and easily on any one of a number of exchanges that will let them or even DeFi platforms platforms if they have to, is a big deal.

And I think Mike is right. I mean, the biggest policy mistake U.S. policymakers could ever make, I think, would be to abandon dollar hegemony in the digital asset markets. So, Francis, what did Churchill say about Americans and doing the, you know, until they finally come down to the right conclusion? Something about, you know, they'll do, find all the available options until the right ones discover, something like that. Didn't we just do that with our, you know, electing our House Speaker? You're on mute.

You're on mute. Yes, everything we heard about the EU making sure we run referenda until you've got the right results. I mean, honestly, the House of Representatives have just done that on steroids. I've never seen anything like it. Extraordinary. What I was going to say, actually, was to do with this whole dollar demand thing, because this idea that dollar hegemon is somehow going to end, that everybody's going to shift away from dollars to something else, I think we've seemed to be talking about that for the last 20 years,

and it's never actually happened. And I remain unconvinced. So I guess, Mike, you've been reading Zoltan Pojar, and with his idea that there was going to be this, can we move into a multipolar world and the Chinese and the Russians and the Indians are gonna split us all up. And they're going to back everything with commodities. And I just think, yeah, okay,

we seem to have had that one for a very long time too. And I remain unconvinced. But I think with with with emerging markets I wanted to just pick up something Dave said because I think that we although I think that emerging markets we are going to see some crises in emerging emerging markets to do with their debt and maybe to do with their currency values as well. The kind of falls in currency values that we've seen in Venezuela are outliers. We don't see falls like that even in emerging markets currencies very often. Hyperinflation is rare.

It's a rare event and tends to be associated with a particular set of economic circumstances. Venezuela's hyperinflation was very much to do with a particular set of economic circumstances. Venezuela's hyperinflation was very much to do with a brutal terms of trade shock in 2015 following on years of profit fiscal profligacy as you know and then you know and then a regime that basically didn't want to let go and didn't want to change its stance and thinks it can kind of gamble for resurrection and that's Venezuela and that's not necessarily true everywhere. It's concerning that we are seeing some quite bad terms of trade shocks all over the place at the moment including my own country. We're all going to be much poorer but that doesn't necessarily mean that just because the UK is suffering a very bad terms

of trade shock that its currency is going to hyperinflate i don't think we should necessarily extrapolate from one to the other i mentioned that because there's actually been some speculation about that or there was in september anyway yeah i'm not i'm much more much more calmer and practical than that although it is kind of strange for me having lived in the UK when the dollar, when the pound was almost two to one to the dollar, it was a while ago, admittedly, but you know, I lived there for five years and things actually feel cheap there now. But, you know, so be it. It really, it's all, everything in economics, as we all know, I mean,

we all take it for granted, but I think a lot of Scott's listeners don't. Everything in economics, as we all know, I mean, we all take it for granted, but I think a lot of Scott's listeners don't. Everything in economics happens on the margin. And I'm not talking about things going nuts. I'm just talking about the marginal issue of not being able to trust your currency is relevant. I mean, Turkey isn't hyperinflation, but the Turkish market for Bitcoin is maybe the most active in the world per capita. And that is literally not an accident. They love gold, too. Why? Exactly the same thing. And so, you know, my point is more that the groundswell, if you if there is going to be a groundswell for Bitcoin and obviously the market is pricing the chance of Bitcoin achieving gold status,

depending on what you think the monetary component of gold's market cap is. I mean, I tend to think it's around 75, 80 percent, give or take, based on demonetization of silver and relation to platinum and scarcity. And you can go through that and that could be an entire panel. But, you know, we don't have to do that. But whatever you think, whether it's 50 percent, 75 percent or more, it's a substantial amount. The market is telling you that Bitcoin, they're pricing it at less than a 5 percent chance of it achieving that sort of status. That's what it's saying. So to me, it's an option. And I just look at the adoption metrics and I'm much more confident about that happening now than I was four years ago.

I have to piggyback on that too a little bit. The one thing I enjoy doing is I'm including yours, Scott, I'm addicted to podcasts and I do enjoy young people, nothing wrong being young, who get into cryptos talking about macroeconomics and the thing, the thing that Francis mentioned and Dave mentioned, I've heard it since I've been in the bonds since the eighties is how a foreigner is going to sell us bonds. And I'm i'm like okay then where are they going to go

it's true and i know you're laughing like good luck with that one you want to go buy canada sure maybe you can buy some swissies maybe you can buy some chinese i'm like that's improving that's getting more and more and it's it's a lack of better words is pissing off people like china and russia because they can't even compete. It's getting worse for them. So that to me is where Bitcoin and cryptos fit into the space. And I love that narrative of using commodities as currencies. Commodities deflate over time almost always historically.

And look what's happened to the U.S. We just had this example of Russia trying to do a 20th century invasion in the 21st century, completely failed with just a little bit of technology. Remember Afghanistan, stinger missiles, us comes in there, helps out the North and Western countries, help out with a little bit of intelligence and some good technology blown away.

Commodities are the same thing. The key thing is that I like to point out is people are bullish commodities. I'm like, look at cryptos. Commodities have a problem with the elasticity of supply and demand you will always be able to create more for less unless you expect humans humans are stupid commodities are stupid but cryptos are the opposite you look at the declining supply of ethereum the base layer for the dollar in the world now because of cryptos the kind and the supply of bitcoin what dave, this adoption is still so fractional.

I look at this five, 10 years from now, like I remember Netflix when it first came out. And I remember when the first day I walked into a trading pitch in Chicago and said, there's a better way. And this is a better way. Yeah. I mean, I think that people, unless you're Paul Ehrlich, who for some reason 60 Minutes gave airtime to. I mean, he's been wrong for longer and worse than any professor ever. I mean, I think it would be hard pressed to find someone who has said dumb things more consistently for longer than Paul Ehrlich. And I don't care if they're devotees.

And I remember because I was a high school and college debater. And so if you're a debater, the one thing you learn is how to predict the end of the world. And so he was incredibly well quoted. And, you know, Malthus, Malthusian argument. Good point. Read the treatises and all this stuff. Yeah. Mike succinctly explained why these people were dumb.

They were dumb then and they're dumb now. Commodities are something there. Yes, there's a people say, well, there's a finite amount in the earth's crust. Yes, mankind's ingenuity to extract them has gotten better and better and better. And mankind's ingenuity to use them has gotten better and better. And so, yeah, that is a very important macro force that I just had to expand on it, Mike, because after seeing the Paul Ehrlich stuff over the last few weeks, I mean, I'm like, oh, my God, are you kidding me? I mean, if anyone believes that the dollar is going to lose global reserve data and is going to hyperinflate, I invite them to short it

long term and see how it goes for them. It's the same argument. Like you said, it's been happening for decades. And I would make the argument that if the dollar hyperinflates, it's going to be the last one to go and right before the entire world is on fire. It's not going to be because something else superior replaces it. That's my take. Well, that's a key point. You have to replace it with something. So it's like Teddy Roosevelt said, unless you're saying things bad about something, unless you come up with a solution, you're complaining.

I'm like, what's the solution? And that's why cryptos might be, but you don't want to spend them. You want to spend your dollars. And you don't want to have to hold on want to spend your dollars and you don't want to have to hold on a currency that's deflating rapidly. There's no better case. But to me, what just happened in the U.S. Congress to me was actually in many ways, very profound and very bullish. Because here's the key thing I remember having lived in Europe and having traveled there

a lot. And sometimes you only get the Dave and Francis know the best information when you're with people who run money, when you're having drinks and alcohol with them away from cameras. The truth is, thank God for U.S. protection. Now, it ain't perfect, but without that, we're all screwed. And everybody just saw what happened with these two autocratic regimes trying to do that. It failed. But the key point is, I think, is this period right now is going to mark a major inflection point where they say empires last a thousand years. What are we, 200 years, 300 years in the U.S.? To me, this is accelerating.

Yes, I'm very biased, but I see what's happening in the Midwest, in the Corn Belt, where I'm from. It used to be the Rust Belt. It's booming. We can make commodities. They cost almost nothing to make money. Energy supplier, energy surplus, agriculture surplus, and a lot of dumb decisions, yes, but much worse decisions in Europe. And what's happening now? You have this situation between China.

They need all this commodity energy because they weren't able to produce it. In the U.S., we got past that. And they're getting it from the dicey source, Russia. I mean, good luck with that relationship. We've moved past that already. We don't really access. And in fact, the key thing to remember is energy is part of this. U.S. energy consumption peaked about 20 years ago. It's been declining. And that's just rapidly advancing technology. You make an interesting point. You talk about being dependent upon Russia. I mean, three months ago, all we were talking about ukraine russia's situation ended up being

another massive moon for the united states because now we're the supplier of natural gas to all of europe the producers never really happens the way yeah it's great for commodity producers north america's haven i mean just look at america you don't have to the joke here is well maybe we can just invade canada and give them a free ride to florida and they're happy i mean it's just it's safe i mean it's come on it's just it's silly but it's true and you don't have but in china how many borders do they have to worry about um and have to and will have to more it's just and it's just thank god for the system let's not mess it up but that open debate is a key thing i wanted to get to is if you're investing in the U.S.,

you don't have to worry about one person or the dollar. You don't have to one person wake up one morning, make a decision. You're screwed. It's open debate and it will be open debate. And that's what you saw. Open debate. You don't see that in a lot of places where they want to have a CBDC, like good luck. No one's going to want to invest in your country or your currency when there's

not going to be open debate about what happens with things like we just did. Yeah. I think this, sorry, Francis, go ahead. Carry on. No, I was just going to say the CBDC thing. A lot of people have been talking about that lately. I mean, you just made a point without, without explaining. I just want to elaborate. I mean, you just made a point without explaining. I just want to elaborate. I mean, the issue with CBDCs is almost complete government control. There's never been a tool invented quite like it where you could literally program money centrally.

I don't think it ever flies here for the same reason that I think it's really hard to get rid of cash. There are a lot of countries who are going to want it. I mean, having a currency that is controlled by the government where they can effectively inflate it or deflate it at whim and effectively stop people from spending it by programming it or allow it to be spent or not spent or freeze. I mean, I just think of the panic that I felt. And I didn't really feel panic, but it was annoying. I mean, I couldn't get into TD Bank branch because the card readers weren't working. And just that, you know, because we were at a flea market, my wife wanted cash. Now it turns out we scraped together enough to buy the thing that she wanted. But, you know, because most of them, we don't use cash, so I don't really care. But just not being able to

get into a stupid bank branch, you know, cause intense frustration. Now take that same thought and say, okay, the government can say you could get to the, you know, to the checkout line, you can hand your card to a waiter trying to spend your CVDC. And they say, oh, no, sir, you can't. You've eaten too much beef already this week. And that could happen. I mean, and that is, I mean, while it's hard to imagine it here, believe me, that is what certain countries, certainly China, seems to be moving towards. And that is a very scary thought. So what has the U.S. done with banks and credit cards and primary dealers? Regulate them, let it happen, and you hope they don't dig into all your personal information, but it's worked. Why not do that with crypto dollars?

Frances, what's your take on central bank digital currencies? Well, I think we should be careful not to assume that one size fits all. The creation of national currencies, this is just the latest iteration of the creation of a national currency. How that currency is used and controlled is to a great deal, a great extent culturally determined. It's interesting that Dave for example reacts the way you do to the whole idea of a government controlled currency that can tell you what you should do with your money. We react similarly in the UK to the idea of there being some kind of money that government can deny people the right to use to spend it on cigarettes or whatever they want to do with it. Right. We're very in. And these are cultural things.

This is, in a way, one of the strengths of our respective democracies that we do react like that to excessive government control. And not all countries have that kind of bloody-mindedness, if you like, that says we are not going to be told what to do by government. There are countries, and I have to say Russia is one of them and China is another, where state control is much more traditional, if you like. It's much more accepted. I remember, and that's true not only in those big economies some smaller ones as well i i recall um years ago um having um is sitting next to vito costanzo who was at the time at the ecb um at a dinner which we were talking about Latvia and the enormous crash, I don't know if you know,

Latvia was hit almost worse than any other economy by the financial crisis and it had to have an IMF bailout and the IMF told them to devalue their currency versus the Euro, they weren't part of the Euro at the time. And they said no. They stuck with their peg because they wanted to join the euro. And they took a 25% drop in GDP in one year. And I said, that's extraordinary. Why would they do that? And he said, you have to remember where they've come from. They were a command economy. And I went and did a bit of research and found they'd actually had a bigger drop than that in 1992 after the dissolution of the soviet union it had dropped by 32 percent um you know and then they'd gone through the russian default because they still got ties to russia they it had been this roller coaster

ride really and so their their cultural background was one of we will just put up with this. And I think that other countries, particularly those that have come perhaps from a communist background, have had experiences of communism particularly, or simply state dictatorships of one sort or another, or empires, might well be more accepting of state control of money and really quite intrusive state control

of what you can do with your money than the Western democracies are. I wonder, having studied this historically, how much of that is because the state has had so much control that they were able to do that? And what happens as the nation's youth in this internet-connected world sees what's going on in other countries and what does that portend? that? And what happens as the nation's youth in this internet connection, connected world,

sees what's going on in other countries? And what does that portend? I mean, I'll leave that as an open question. But I do think it's interesting, it's really hard to completely control media. Whereas 50 years ago, it was really easy to control, you know, the information that your public consumed. I mean, I always joke about the New York Times being Pravda on the Hudson. And the thing is, the funny part of it is Mike gets the joke. You talk to a 20-year-old and they go, what's Pravda? That, of course, makes me start feeling really old, but we won't go there. It's just, the fact is, is control of information is getting, is much harder. I mean, we you know, everyone's up in arms about the Twitter files and yada yada.

But even there, that's really on the margin. I mean, this is right. Culturally, we are expect we just assume we have free flow of information. So that's the cool thing about having an offspring. I'm my 22 year old. He's home from break. I said to him, Danny, so how's where's your book? He goes, it's charging.

I mean, when I was 22, the concept of charging a book did not exist. I was like, whoa, that just ran me over. My book's charging. Go ahead, Frances. Go ahead. So, I mean, I mentioned Latvia, and Latvia has moved on even since then. But the long shadows of the past do remain. And really, I mean, even just having war in Europe again is an example of the long shadows of the past do remain. And really, I mean, even just having war in Europe

again is an example of the long shadows of the past, because that fault line along the border of Russia, and that's been a melting pot for thousands of years. So if we were going to have another major war in Europe, it was always going to be along that fault line. It was only arguably a matter of when. And I don't think we should, on the one hand, we can say, well, we do move on. The younger generations are different from the older ones. You know, I call the Telegraph newspaper in UK Tory Pravda. And I'm sure my kids don't know what I mean. So same thing. But that said, but these long historical shadows do remain, and they come back to haunt us. So we are going to recycle in new forms some of the events of the past, I think. But one key thing here, I think, to mention that is important is people keep talking about the interconnected world and how that's breaking apart.

I think cryptos are really, I mean, look at the calling. The cryptos and pandemic really brought the world together. One thing it did shift is it made most of the world realize that China is a poor supplier and an irresponsible supplier of goods anymore. And you see so much in this country. It's just a beginning massive shift. Not only can we do it cheaper with technology, but we've got Mexico right next. We've got South America.

The McAleod doors are kicking in. That whole trend, I think President Xi finally realized that in G20, that he made one of the biggest mistakes in history by closing up on a country that only exports energy and does not import goods. So to me, this shift that's happening is much more, and crypto is at the center of the world, becoming much more interconnected. I don't know how many times I'll speak with people who are in, you know,

what part of the world, and they're mining Bitcoin, and they're working on nodes, and we're all transacting at the same time. To me, this is part of what's really solidified the world away from autocratic regimes that are trying to control you freedom is contagious once people experience it historically the the autocracies fall not when things are bad they fall when things are improving and people have the ability and see what's better and you know i I look, I'm a huge believer, almost a zealot for economic freedom. For that reason, I think that, you know, I hate,

you know, the fact that in colleges in this country, more than 50% of the students surveyed have a positive thought towards socialism, considering 5000 years of human history says it's never worked. But the reason is because what people call capitalism might not very well be free. It could be cronyist. It could be many, many things. And, you know, economic freedom is something one can be for and not be for large corporations dominating the economy. In fact, they actually should be the opposite, but it tends to be that way. So when you start getting philosophical, it's interesting. I mean, the point about that Mark Yusko makes, he always calls

Bitcoin the base layer of the Internet of Value. That's his point. Whether he's right or wrong, we know history, as I said, will speak. I think that there's certainly a more likelihood of that type of thing emerging than less. And given the fact that the market, as I said, pricing it at less than 5% probability, my math brain says that's a good bet. But, you know, then again, you have to look at things within historical context. And Francis is exactly right.

There are, you know, history has shown, you know, what happens with autocracies. Some of them have lasted thousands of years. I mean, not thousands of years, but a thousand years. And our timescale sitting on this call, Scott has people who want to know what's going to happen tomorrow. And we're not talking about tomorrow. We're talking about years. And that's kind of a very important point just to bring it back. I'm sorry for waxing on philosophically. I think tomorrow they're going to watch this stream in China and drop all four of us some social credits. That's probably what we all have going for us. But we are actually well up against time. I've actually kepted you guys over time, and I really appreciate the

incredible conversation. I'm glad I was able to make this work on the road. You're all welcome back anytime. I think Mike and Dave, you guys are just generally here on Mondays, but Francis, you're welcome back anytime. I really appreciate the perspective

and playing nice because I know that you've probably had a few things where you've been talking today. I would imagine. But thank you all so much. I will be back hopefully tomorrow morning. I'll let you guys know. Might be an even worse internet situation. But thank you all for joining.

Everyone, Francis, Mike, Dave, please follow all three of them on Twitter. They're tagged in the description. And everyone else, I will see you guys tomorrow. Thank you all once again. Bye-bye. Cheers. Bye. Let's go.