Unchained - Bits + Bips: How Trump’s Tariffs Are Bullish for Bitcoin Both Long- and Short-Term - Ep. 778

Episode Date: February 5, 2025

Subscribe to our newsletter! https://unchainedcrypto.beehiiv.com/subscribe Trump’s new wave of tariffs has reignited the debate: Are they good for the economy or a disaster waiting to happen? Some say tariffs will crush trade, boost inflation, and slow growth—but others argue they could weaken the dollar and send bitcoin soaring. On this episode of Bits + Bips, Jeff Park of Bitwise, along with James Seyffart, Alex Kruger and Noelle Acheson, battle it out over the real impact of Trump’s tariffs, whether they could spark a new Plaza Accord 2.0, and why ETH took a harder hit than BTC in the latest selloff. Plus, is Trump’s economic strategy really about making America great again—or just about keeping his own real estate empire afloat? Jeff makes a bold claim outlining Trump’s #1 goal—one that his personal wealth depends on. Show highlights: 2:38 - Why Jeff believes that people’s reaction to tariffs was bizarre 7:09 - Why Jeff is convinced that tariffs are good for bitcoin 10:18 - Why Alex is so against tariffs 21:37 - How tariffs actually affect consumers 27:36 - What’s Trump’s number one priority is, according to Jeff 36:26 - Whether inflation will eventually come back to previous levels 41:05 - Why ETH got hit the hardest on Sunday night 49:56 - Whether the ETH/BTC ratio has bottomed 51:03 - How Hyperliquid’s HYPE held up so strongly 53:02 - The significance of Tether adding USDT to the Lightning Network Hosts: James Seyffart, Research Analyst at Bloomberg Intelligence Noelle Acheson, Author of the “Crypto Is Macro Now” Newsletter  Alex Kruger, Founder of Asgard Guest:  Jeff Park, Head of Alpha Strategies at Bitwise Previous appearance on Bits + Bips: The Real ‘Trump Trade’ & Why Trump's World Liberty Financial Was a Flop Links AP: Canada and Mexico agree with Trump to postpone tariffs by at least 30 days Eric Trump on X: "In my opinion, it’s a great time to add $ETH." Unchained:  USDT Integrates With Bitcoin and Lightning Network ETH Crashes After Trump Imposes Tariffs  Learn more about your ad choices. Visit megaphone.fm/adchoices

A lot of people just died in financial market terms. There was some crazy stories. You started seeing all of these people talking on Twitter, how they just blew up this. This crazy story about this guy who's supposed to be like OIG of source in the Mimcoin space. I had like some massive mug and pepebacks. And he goes and uses them as collateral for levered longing with 1.1 leverage. It's like, I mean, just to put in perspective, the kind of thing that people are doing out there is like using a meme coin that has no fundamental value that is insanely volatile as collateral for longs, leverage.

You already have a lot of leverage on that meme code by itself. So, yeah, easy comes as it goes for Sam, unfortunately. Hi, everyone. Welcome to bits and bips, exploring how crypto and macro collide one basis point at a time. I'm your host, James Safert, Tradfai Archmaister, Lord of Bloomberg's End. Here with Alex Kruger, Kruger of House Asgard, Protector of the Realm. Hey, guys. Also with Noel Atchison, high seer and keeper of the Crypto is Macro now newsletter.

Hello, everyone. We're here to discuss the latest stories in the worlds of crypto and macro. Just remember that nothing we say here is investment advice. Please check Unchained Crypto.com slash Bips and Bips for more disclosure. Today we're also joined by Jeff Park, Master of Alpha, Warden of House Bitwise. been with us before. So I think he's our first repeat, repeat guest, but I could be wrong on that. But Jeff, for anyone who hasn't heard you, why don't you give us a little brief rundown on what you do, how you're involved in crypto, what you do at Bitwise, and then we'll get into it.

Sure, happy to. And if I am indeed a first repeat guest, that is an honor that I will have to admirably carry through. What a thing. Yeah, I'm Jeff. I'm the head of Alpha Strategies at Bitwise, asset management. For those who may not be familiar, Bitwise Asset Management is a U.S.-based crypto asset manager. And today we manage over $10 billion of assets, most famously known for the largest index market cap weighted index fund that is publicly traded. I lead our multi-strategy alpha effort, mostly focused on the opportunities that are available within the arena that is orthogonal to the beta exposure that most crypto investors are aware of, sometimes focusing with a macro, but also looking at on-chain opportunities as well.

Right now we're recording this. It is February 3rd, 2025. It seems like ever since Trump took office, there's going to be a lot for us to talk about on this podcast. But specifically, I mean, the big news right now is the tariffs. Everybody has been talking about the will-day, won't day. And he's basically come out and said he was going to do 25% tariffs on Mexico, 25% percent tariffs on Canada and 10% tariffs on China.

At the time of this recording, they've, at least walk back the Mexican tariffs for at least a month due to Mexico saying they were going to do more at the border and work on fentanyl and stopping illegal crossings. There might be news by the time this drops about whether Canada is going to happen or not. China is going is basically saying they're going to fight the tariffs in international court, essentially, with the World Trade Organization. That's the background. I guess I'll turn it over.

Noel, you probably have a lot of thoughts here. as somebody who's not even in America. So I'm curious, like, what are you thinking here? What are you looking at? No, Europe is definitely next. I mean, Trump has made no bones about that. Europe tariffs are coming soon. We've known this for a while,

and European politicians have been criss-kossing the continent trying to figure out what on earth they're going to do. There's really not much they can do. But the whole tariff thing is fascinating, and I'd love to get Jess' take on this also. I'm fascinated by how the mainstream media are reporting on this. All of the comments that I've read pretty much, except for what Jeff has written are invariably bad.

They were saying this is the worst thing that could happen to the U.S. economy. There's going to be bad for assets across the board. Jeff has had an interesting take saying that this is going to be very good news for Bitcoin, probably good news for the U.S. economy also in the longer term. And I'm interested if anyone, also Alex, I hear from you on this, is there a silver lining here? Because from what I've been able to dig into today, this is the, beginning of a rewiring of the global economy. And that is going to be volatile, but not necessarily

a bad thing. Yeah. I completely agree with you, Noel, that the sentiment that people brought to the energy of these tariffs have felt almost emotional. And I find that in itself a little bit bizarre, because actually, if you take a step back and just close your eyes and imagine what most of the world looked like upon human history, the idea of charging attacks to do business in your country was actually the standard course of all economies, right? I mean, if you just think about the idea of why colonialism existed in its first place where all the European countries went to open borders, foreflows of production and economies where it was actually almost imperial rule, the idea of tariffs in itself is fundamentally part of economic policies.

And so the thing that I feel most people are not calibrating correctly is the narrow window in which we are basing our biases since the 1990s, essentially post the WTO era and the NAFTA era in which we're conditioned to think actually this is the norm, when in fact the norm for most of human history was tariffs. So I think that's the first thing that I'm really fascinated by. As a Korean-American, Korea has actually experienced all kinds of versions of terrorists, I think, since essentially its inception post-World War II dividing with the North. There's, of course, been Japan, colonial rule, but we've also had protective tariffs in Korea that fueled the industrial revolution through what it's become. And of course, now Korea is representative of one of the biggest open markets in global trade.

as an ally to America. So I think that's really important. And so we should be more open-minded to thinking about what tariffs can do. I think also tariffs is their one component of a larger multi-component fluid system that is the economy. So you have to also recognize there's a lot of different path dependencies that it could play out. But largely, I agree with you that this is an exciting time where we're rewiring the entirety

of what has been kind of adopted as de facto. And the US is leading it, which is actually something we should all be really really. rooting for, that the U.S. is championing a new regime that ultimately, I think, as you've said, is beneficial for Americans. The question is, what is that end state? What is the end game? Where are people trying to get to? And is tariffs actually a permanent feature of the fabric of American society going forward? Or is it actually just a temporary tool that Trump is using right now for the moment of negotiating for something else? And I think that is even something that I found most people don't agree on in the course of what this tariffs are going to look like. Before we go to

Alex, Jeff, why do you think that it's like specifically, you said it was good for Bitcoin, you kind of got into why you think it could be for a good for America, but you didn't really talk about why you think it's good for Bitcoin. What's your, what's your logic there on that, on that side of it? Yeah, my logic is ultimately is, is informed by two trends. One is, if you believe tariffs are actually going to be a part of a tool to renegotiate some of the imbalances that we're seeing in the trade structure for this country, the thing that is most obvious to people today is the strength of the dollar. And the dollar strength has been something that for many folks has been a problematic thing to target. And there is a version in which, of course, tariffs are

going to exacerbate that, but there's also a way you can imagine how it's a tool to bring everyone to the table, to have a consortium and reorganize the multilateral agreement on what the role of the U.S. will be in part of that in that global arena. So, you know, I just imagine a world where there's two ways can play out. One, the tariffs are permanent. And two, it's, it's temporary. The temporary path is what I alluded to about the Plaza Accord 2.0, where we're actually going to find a way to make our trade partners invest in longer term duration bonds that will fund the things we need. By the same time, not hoard dollars as part of the ways in which we can roll out the financing a little bit further than the short-term financing that is largely driving Treasury

functions today. That's great because dollars lower. That means risk assets actually will do a lot better. It also means that if it was a permanent feature, there's probably a tax cut associated with it. We all know actually tariffs are in some sense regressive, right? Impacts kind of the most at risk the most. And so having a version of it where it is actually going to come with a tax cut that is also in many ways regressive, you know there's going to be a pool of capital going for risk assets. So no matter what you think, whether it's temporary or permanent, there's a pool of capital opening up that's going to chase risk assets. That's the U.S. story and why it's good for Bitcoin with dollar lower, potentially. And then the other side is if you're actually

Canada or Mexico or China today and you just realize that your world leader failed you in the inability to actually protect your economic livelihood. in the ways that the U.S. might has overtaken, and you know that they're going to continue the game of debasement that they need to do in which it's almost like a death spiral, you would imagine the intuition for these populations are also going to turn to, well, what's next to protect my wealth? And that thing is Bitcoin. So actually, whether it's speculation, such as risk-seeking U.S. behavior, or its insurance that is coming from foreigners, they all point to the same picture. They both want.

Bitcoin. And so to me, the narrow, the window is getting narrower in the path in which people's demand for Bitcoin is likely to increase by the induction of these tariffs and the aftermath of it. Interesting. Alex, what are your thoughts? I want to see as many people as Jeff as possible because that means we have less, more likelihood of basically prices going up. That's good. I find tariffs, I have a very different take on tariffs. For me, tariffs are everything we don't want. It's everything we should be standing against.

Tariffs are taxes, quite literally. Taxes, taxes that basically reduce efficiency. They trade GDP, they hurt GDP for the U.S. for the world. They lower equilibrium GDP for everybody as a whole. Tariffs are just bad. Using them for short-term as a short-term measure for basically getting widespread. you want in certain aspects can be positive for whoever has the power. But long run, tariffs are bad and tariffs have been actually, it doesn't matter that they're used or not, tariffs are bad for the

economy. We could go into like tons and toss of research how tariffs bring down global GDP on aggregate equilibrium, regardless of them being used historically and even nowadays, like many countries do use tariffs. The thing about the U.S. is the U.S. is a different beast and other countries, right, because the U.S. is, well, first of all, the U.S. is the only country with a global reserve currency, which means everybody wants the dollar for basically trade or storing value pretty much those, mainly those two things. When tariffs hit, it's basically, we enter a world of literally major uncertainty. We don't really know what's going to happen.

Are these people going to enter into an insane war that spirals out of control and everybody starts retaliating? Well, likely not, but we just went from probability of 0.1% to like something actually that is not negligible anymore. So we added risk. So like, excuse my French,

basically higher probability of shit happening. Now when shit happens, you flock as an investor, you usually flock to the US because the US is the safe heaven. The US, the dollar is the safe heaven. The main safe heaven asset in the world with treasuries on the gold and gold, right? So people flock to the dollar. Also, it's the only country that has really, really thick capital markets. So money has to flow in the US.

Then on top of that, the US is a country that has a very large domestic. economy. It doesn't really need the rest of the world. I mean, yeah, it would suck to not have the rest of the world, but it doesn't need the rest of the world. So tariffs can actually drive a lot of growth internally, and you could even argue that on balance, the daughter would appreciate, could appreciate, not only because of risk of safe haven variables, but also because of increased demand for investing in the U.S. economy, right? That being said, what that Tarves bring, again, is a very, very significant uncertainty. We're rallying very sharply today, partly because, yeah, I think, I mean, the move was a little bit overdone, and which just happens regularly. Secondly, because there is

very good news on the Mexico side that basically they very quickly, Mexico puts its pants down, again, excuse my French, and they reached some sort of preliminary agreement pausing the implementation of tariffs for 30 days. Yeah, deep down, I think, is they're negative, but they don't change. They don't have to necessarily start. Like, if you were all about tariffs, I think things will be very bad, but there is so many things happening. Trump is a whirlwind of change.

So it's not just about tariffs. And then something else that is very interesting is again, it's like Trump is, the reason Trump is bringing tariffs up is to make things better and more fair for the U.S. workers, right? Yeah, middle class. And yeah. And for that he wants basically trade imbalances to basically balance, I don't know by how much. one thing is that that is kind of like unrealistic to achieve because of precisely because everybody demands the dollar

so you're you're battling against the consequence of the best thing you could wish which is basically your currency being the global reserve currency and being able to print at will and everybody just has to eat it so it's kind of like you can't eat the cake what's the saying in English you can't have the cake you need it to Yeah, there you go. It's like short term you can try, but long term, it's not going to work. Eventually, you go back to the beginning.

And one last thing with this, I pass it on because I know there was a long monologue. So the implementation of tariffs for balancing trade, supposedly, with, say, Canada and Mexico, what they do is actually they increase the, they heard more Mexico. Mexico and Canada, plus the risk-off factor, they actually bring the currency rate, the exchange rate. The dollar goes up versus those currencies, which it goes against exactly what Trump is trying to achieve. So it can be likely if they take this very far.

In fact, Descent even talked about it. What Jeff was talking about, which is basically a Plaza Accord 2.0, down the line to basically and do what he's done. It's like put Taurus, bring the door up. Hey, we don't want the door up. We actually want it down. Turn around. Hey, guys, let's negotiate again.

Bring it in. And the Plaza Accord in the 80s was in 85. It was insanely bullish, actually, for risk assets. And it drove, basically, ended up in Black Monday a few years later. So very good things could come out of this. but it's a tricky, it's tricky, right? Yeah. I think one of the things you pointed out is so, so perplexed and interesting at the same time,

which is usually when rates go up in any sovereign debt, the associated currency tends to go down, right? you described, the US's ability to have the dollar as reserve currency has this weird perverse effect where actually the last two months you've seen rates go up on the back end and you saw dollar strengthening. Something about that is actually very abnormal. And it's as you've described because people love having dollars. And if you really twist this knife a little bit further to understand the crux of what the problem is, you can almost imagine Well, is one way to make people not want our dollar so much is to actually self-sabotage the strength of your own creditworthiness, right?

Imagine that because the U.S. is in such good standing that you might actually continue to run such an amazing fiscal deficit until the brinkmanship is actually crossed, where they finally then decide, hmm, actually, maybe I do not want dollars anymore. And that's the thing that I think is really unknowable about American policy. When Trump says he wants to give tax cuts, of course that's going to raise the deficit further. But it's not clear to me that actually creates problems for the dollar demand in itself. Because the same risk assets basically chase American assets, right? And so some of it is really circular in ways that no one can truly know what the long-term impacts. of these things can be. The one thing, though, I will say is,

I'm not sure if it's conclusive that tariffs are always ultimately inflationary in nature. I know that's the conventional wisdom in the ways that we've understood the model to date. But if you saw even the past eight years when Trump first enacted tariffs on solar panels, for example, in China, you actually, I don't think. think saw that great price increase and the production capacity decreasing either. You actually saw price came in. And I know solar panels had its own dynamics. There's a lot of things with environmental credit, et cetera, that's obfuscating that math. But I think we also have to imagine that there is a way that the system is extremely dynamic and fluid where it may not ultimately pan out all the

ways where the inflation is as scary as people expect. And that I think is something that I'd love there to be more kind of discourse around people bringing up case studies. And I think Anthony Pompeiano actually this morning put out something really thoughtful about that, which was like in countries like Norway, you know, there's a 25% tax on all imports flat out. And they don't seem to have an inflation problem. And so there are structural things that require nuances and one that we're going to find out together because we're having these live actions happen in front of us today. In part, I'm going to pay slight devil's advocate here. In part, one way to offset the inflationary impact of tariffs is to have your currency appreciate, which arguably is not great for risk

assets because it drains liquidity from the global system, and that's partly what we saw over the weekend, I think. Or you cannot have your currency depreciate and get the inflationary hit to the economy from tariffs, and that pushes up in the theory. it pushes down expectations of interest rate cuts, which, again, is not necessarily great for risk assets, assuming it reflects in bond yields. So short-term volatility, short-term, perhaps not so good for risk assets, but again, that does increase the demand for, especially if you're not a US-dollar economy, it increases the demand for hedges against currency depreciation relative to the US dollar. That's going to be good for gold. That's going to be good for Bitcoin and in a circular fashion,

is going to be good for U.S. Treasuries. But longer term, the resetting of the economy and the liquidity that a lower dollar and lower rates together could unleash. That is the exciting part. And again, short term, good for Bitcoin because of the need for a hedge against dollar appreciation. Longer term, good for Bitcoin because of the resetting of the global economy and the search for alternative stores of value around the world. Yeah, I was just going to add this chart, which is like I just went online looking for this because this is what I think of, I just think of my macro. or economic textbooks that just show like supply and demand charts.

And net net is what Alex was talking about. Like assuming you're operating in a vacuum and there's no other sources or impacts that can happen from this, there is dead loss from getting that tax revenue. There is inefficiencies that are created for anyone just listening. It basically there are negative consequences. The problem is, right, these things are very complex. You don't know what the second third order effects are, which is the first problem. The second problem is what are you getting in return?

So for certain industries, like something like steel or energy or other things that are like key or chips in the sense of the last few years, you're willing to take that dead loss to solidify like the benefits or desires of your country, right? Like you're doing that for protectionist reasons for certain industries. Doing it blanket across the board is, I don't know, as somebody who's like, I'm pretty, I tend to lean very much free trade. I'm not a huge fan of these, but I guess we'll see how things play out. The other thing I would say is I think a lot of people just don't understand how these things work. Like, it usually you, it's basically the people buying these goods that pay this tax. It's not the people creating goods and importing it into the U.S. that pay the tax.

You pay the tax when you like bring it into the country, right? So and also, so one, it's the consumer that pays this. Prices go up. The problem, like Jeff's example, when you were talking about solar panels, part of the problem is solar panels have been in secular decline in prices for forever. So it's hard to know like how much of an impact. Pact did this actually have, again, because there's so many other confounding variables. The other thing, you look at washing machines, you had local, like, whatever you're tariffing, right, you have local companies building the U.S. that might not necessarily, like,

increase, like, their output. They could just increase their margins because now they don't have to compete with, like, things outside the country. Right. Again, another second, third order effect. It might just be that these companies are going to raise their prices because they can make more money. So, yeah, I mean, it really comes down.

to me, like, what are you getting back in return? There's a lot of complex thing. It really gets difficult when you, like, start thinking about, like, the automotive industry, which, like, we know in Mexico and in Canada, they have stuff that goes back and forth multiple times. And, like, if you're paying a 25% tariff or duty every time you're doing that, like, you're just breaking the whole way that that company is operating on a manufacturing basis. And the last thing I want to say is, like, this isn't just a 25% increase in prices across

the board. It tends to be, like, one thing you'll hear is, like, inflation only comes from printing money, But this is likely to be like a stepwise increase in prices in some things that you're importing. But it's also not 25%. Like if you're thinking of something that's $100, when you import it wholesale, you're probably paying $40 for it. And then there's all the money that costs to ship and market and do everything else in store. And you're paying the 25% on say, say you have a 60% margin before you do everything else. A good example would be it's $40. So 25% of that, you have to pay a $10 import tax or tariff. And then instead of selling it for $100, you sell for $110.

So it's really, it doesn't equate to like a 25% increase in your goods and prices. It's 10, that increase tends to be a little bit lower, which I also think is completely missed here. But I don't know. At the end of that, I lean more towards Alex's stuff. I'd like to see what it's doing. I think targeted tariffs in certain industries that we have decided is critical to like, I don't know, United States sovereignty and safety and what have you.

But I don't, I don't know. I tend, like I said, I tend to lean a little more free trade. And I'm hopeful that they sort this out. Maybe it's just a big stick, you know, trying to. to get things that Trump wants, but we're very early days into this administration. I mean, we're, what is it, like 14 days into two weeks into him being president. And I feel like there's stuff happening every other day. Yeah, those are my thoughts. I don't know if anyone disagrees or has alternative views. I'd like to raise the question of the timing.

The timing is so interesting. I mean, can you think of any other time in history that this kind of an economic experiment could take place at this level? We have a president who's not running again. We have, he has a majority in both the House and the Senate. I mean, what are the odds of that confluence of factors being present at a time when it's becoming more important than ever that the role of the U.S. dollar in global commerce is addressed? I mean, don't say, I mean, there is a House that there is a bill that's been introduced to try and allow him to run again, which I mean, I don't, I really hope not. We don't need to go there. I think part of it is yeah, he's trying to just, he's just, he's a bowl in a China shop. He's trying to get everything

done as quickly as possible and move quickly before midterms. And honestly, if he's going to do a lot of things he wants to do, it's not like, like these tariffs aren't going to, like, we talk about second, third, fourth order effects of this. Like that stuff, those effects, those second, third, fourth order effects don't happen in months. Like, it's going to, it's going to take a long time for some of the trickle out to see how these things work out before he can. So the earlier, I think he can get the stuff done that he wants to get done, the quick, the better he'll be able to see during his presidency. So interesting. Sorry, Alex, I interrupted you. It's exactly that. It's second order effects.

We don't yet know exactly what kind of second order effects we don't have. That's the same thing. It's like, for example, why, like having like Norway, like attacks, a one-time tariff that doesn't cause any second-order effects and doesn't cause retaliation or anything. It's just a one-time pass-through. it causes basically a one-time inflation that from the perspective of the Fed would be a supply shock and they ignore it. It doesn't matter. So, yeah, not a fan of that.

I saw that Norway example. I'm not a fan of it because it's the kind of thing that is just a one-time thing. They put it in and it didn't really matter. Yeah. And the currency adjusted to offset a lot of that because Norway doesn't use the era. Yeah. Well, Norway also is an exceptionally rare example where they're naturally endowed, right? I mean, every citizen is born with basically a million dollars in their pocket from to soft.

So I completely agree. Norway's not like a relatable country in that experiment. You know, can I see the thought? We might not know, actually, what the second or third or fourth order variables on any of these things can be. But the thing that I feel perfect clarity on, and this is actually something I know so confidently deep in my bones as I go to sleep every night, is there's only one thing. Trump wants to accomplish. One thing. He wants the long 10-year rates down. And the reason is because his personal bags depend upon it.

And you know, this man has done everything as he has communicated, he will ever do for the insanely transparent profit, like maximization goals he's never been shy about. And so when I walk around New York, I can see commercial real estate, especially is in total despair. There are buildings that are being auctioned off at 90% off the 2007-2008 trading prices. It is in total distress. And you can imagine for someone like Trump, the number one thing he actually cares about is he wants 10-year rates lower. So I actually completely agree with all of you guys. We don't know how any of this plays out, but I know what the

end game is. The end game is he wants rates lower. And so if you solve it backwards, and this is how I'm thinking about the mental model, you solve it backwards. Well, how do we get rates lower? Well, you need foreigners to keep buying long-dated bonds, which has been halted by Yellen's changing of the program. And Scott Besson has also made it clear that this is something he wants to revisit and reshape the duration profile of the Treasury program. And so you can almost kind of like solve it backwards. And I also agree that tariffs ideally should be a temporary thing. Like as a net thing, it's probably eat negative EV because there's just more friction. Like that's just a fact.

Now, EV can be calculated differently than just economic reasons. You know, maybe as James pointed out, like there are protectionist things we care about as a national security concern where the finance isn't driving all of it. But all that aside, tariffs are generally not a productive thing. So the inclination I have is this is part of a negotiating tool to ultimately drive 10 years lower. And if you think the 10-year rate is going to go lower, I mean, that's the fuel that you need for Bitcoin and generally risk assets to continue its rally through. Yeah, I mean, he keeps, he keeps saying it. He keeps saying that he's going to keep jawboning Powell to lower rates.

He wants rates lower. It's part of the reason why he wants to have us pumping a ton of oil. He wants, you know, he wants everyone to pump oil, so bring inflation down so the Fed can have better opportunity to cut. He wants to, yeah, I agree 100%. He definitely wants rates, lower. But ironically, as we've talked about on here before, like the last few cuts, tenure went actually up, which is like the curve steepened like crazy. That's exactly right. I don't know if you guys caught this, but Trump actually said sometime last week he was actually complimenting Powell did the right thing. Yeah, I saw that. That was a double take moment. And you think that's, that's chess there. That's a long game he's playing. Well, I also think he recognized Powell's not

going to fix the tenure rate. He has no control. The Fed has lost. and any credibility to control that portion of the curve. So actually, his battle has changed. It's not going to be focused on the Fed policies. It's going to go to weaponizing tariffs and bringing all these global players together foreign creditors to buy our long-dated debt. I think there's a little bit of that kind of long-term game plan that he may also be thinking through the U.S. Treasury.

Yeah, that's good. Hi, I'm Matt Hogan, CIO of Bitwise. Every week, I write a five-minute memo on the biggest stories in crypto. This week's memo is about why Trump's tariffs are actually good for the market. In fact, I think they could send Bitcoin prices to new all-time highs later this year. To find out why, check out my memo at bitwiseinvestments.com slash CIO memo. That's bitwiseinvestments.com slash CIO memo. Carefully consider the extreme risks associated with crypto before investing.

Yeah. The other thing I want to say, which we did touch on that I didn't hit on before, was basically, we import everything except for the we export the U.S. dollar is really what it comes down to, which has kind of hollowed out the manufacturing class in the United States. That's not nothing that's never been said before. It's one of the things that J.D. Vance was running on has been preaching about. So it's kind of he wants a weaker dollar to help bring back manufacturing. He probably, they probably love the tariffs. Trump wants a strong dollar because he likes having the sort of hegemony, but we'll see where that goes. So there's these like two conflating factors that are going on. But the one thing we do export very well is the U.S. dollar around the world, which again, as Alex said, it's kind of like you can't have your cake and eat it too.

And the excess dollars is largely what's been driving Wall Street for the past few decades. People want to park their excess dollars in treasuries. That's what Wall Street lives on. So here we have Trump essentially choosing real estate over pure finance, which is an interesting strategic shift as well. Yeah. And the other thing is the U.S., we are like, one thing we do well is we consume. So if you are trying to export into the U.S. or import your stuff into the U.S., we are a very good consumption economy. That's for damn sure. Anyone else have any thoughts on tariffs?

Not on tariffs, but on rates under 10 years. The most important thing on rates right now is the so-called term premium. And that is, in my opinion, mainly driven by deficits. like deficits and basically supply, higher deficits, I mean basically higher supply bonds on aggregate. And the debt to GDP of the U.S., as we all know, and this has been becoming a topic of conversation repeatedly in the last couple of years, it's starting to matter.

Historical in the U.S. supply of bonds doesn't really matter. It's not a supply in the band-driven market. It has become to matter. And to bring that more into equilibrium, that's where Elon Musk comes in and dodge, right? So if they can bring down deficits and fiscal deficits and make the US more efficient, that would bring the term premium down

and basically the 10-year down more in line with the front end. I think that's really the key. Anything else is like a patch that doesn't last. For those listening at home, can you define the term premium, though? Because I have a feeling there's a bunch of people out there that don't really know what that means. It's basically what you need to, is the premium you need to be paid to compensate for the added risk you take on for holding longer term debt instead of basically TVILs, three-month T-bills. It has higher risk. so you need to be compensated for that risk, a duration risk.

That's what the term premium is. So in a world where you have basically unsustainable debt issuance and unsustainable deficits, the term premium becomes more of an issue or a issue, which was not the case till recently. Yeah, that's right. And, you know, the U.S. is unique in the sense that it runs basically a trade deficit and a budget deficit and has been for many decades now. And as you pointed out, it's related, right? If you have continual need for borrowing to which there's then constant demand for dollars,

that driving of dollar strength means that you're basically not going to run an export economy. And so your trade deficit also increases. So they're actually kind of conjoined at the hip. You know, sometimes I think folks also assume the Fed is independent of every influence of policy and governments. And you realize actually, even when you connect those two dots together, that just cannot empirically be true. It cannot be possible that you operate out of a vacuum. Independence can mean different things, of course. But the idea that the Fed has two mandates, the two mandates being unemployment and inflation target, is total fiction.

And I think there's also this awareness that people are now realizing by this twin deficit that is being brought forth to the table by discussions of tariffs and what it would do on the impact of both deficits. Jeff, do you think we're ever going to get inflation down to the target? Or do you think, especially with the review coming up in a few months' time, we're going to see some fudging on that target? Yeah, it's a great question. I have actually for a long time, I truly believed that we were going to go back to a zero rate world. I was so confident emerging out of like the last eight years from the ECB crisis and everything that like we would just go back to a zero rate world. Especially post-COVID, I thought it would never come back to this moment.

I've started to change my mind on it a little bit. And I think it goes to this idea that there is the chance for U.S. exceptionalism in the growth model that it is seeking where it will be at the cost, unfortunately, of the global trade alliance that we have come to know and enjoy. And I as a Korean especially know how much South Korea benefited in having that relationship through global devobilization. But the truth is, U.S. productivity is on the rise. Like there's just so much things happening here in really important things where there's going to be pricing power and a command premium. And I think AI is one of those. I think space technologies, I think all of the things that have high IP, it is born out of this country.

And so, you know, there actually could be a model where we do have some inflation back, but then we may actually have that paired with real, real growth, not just like financial economy growth, but like real economic productivity growth, which I actually thought was not possible. Like for a long time, I actually thought real productivity cannot increase much further than what we've experienced in the U.S. and everything has been financialized. And I'm maybe coming around to the corner that that might not be the case. But it'll be at the cost, unfortunately, of our trade partners. You know, at some level, these are competitive dynamics. And there's also the narrative that a lot of this has to do with preparing for greater global

conflict. After all, if you're not making the steel you need for your weapons, you're not making the chips you need for your weapons, you don't really have control over your weapons supply. And while hopefully we live in a world in which that's no longer concern, recent history has shown that we can't count on that. Yeah, that's exactly right. I think that's exactly the energy that James was alluding to when we have strategic initiatives on national security agendas, too, that prioritize economic gains. They're totally the intangible value of a nation's strategic interests that supersede any

of the comparative advantages that were taught in Econ 101. It is not actually in the real world how people think about real politic at the core. And such a radical departure from what we've known for the past 50 years. Yeah, I think this is the coming of the clash that people have been eluding for a long time, that what's happening between U.S. and China has been on a collision course. And we are at that moment where we're trying to reset that social contract. And I think the great benefit is the U.S. actually, I think, has a lot of advantages to getting the terms to drive that in their benefit in a way that the U.K. did not back post-World War II to drive those terms. So, you know, I think whatever comes of it, I'm optimistic. I'm hopeful that, like,

the U.S. will land in a good place. But we'll see. Trump's a volatile person and the market I'll tell Ezery is on with him. So one comment, like things are riding like crazy right now, right? Like right now. And we're recording this on Monday evenings. Yeah, it's 520, 520 Eastern Time. And there was basically Trump told CNN that basically had a very good call with Trudeau. Equity is starting running even more.

Crypto just blew up like positively. higher retracing finally even east entire dump and you see the dollar cad um it it just collapsed basically the the the canadian currency recovering like the entire move and a little bit more in like just so yeah the whole thing just retraced everything um let's get so let's talk a little bit about what happened that they're now retracing so i mean it was on sunday night it was uh I mean, pretty much a bloodbath, I guess is what I would call it. Heath Wick down to 2100. There's a whole bunch of really bad price action that, as Alex was just saying,

is basically completely reversing. But Alex, I guess I'll turn to you. Were you trading on Sunday night? What were you seeing? What were the things that really jumped out to you? Everything broke. Basically, I was expecting a big flash on the open just based on on the Tariff's news

which basically Trump signed us on an executive order on Saturday in like very early afternoon yeah I was pretty much expecting what happened which is like very strong down open what I didn't expect was the flash on crypto to go that deep I mean the market literally broke

East traded back down to 21 hundreds, literally retracing the entire 24, 25 bull market temporarily. Like, we'd love to know who got carried on a stretcher. There's some very big players that clearly went past. Yeah, that's what happened. Things broke. So we started basically with Bitcoin at around 98, 97, 6 p.m. Eastern time on Sunday. and then in like an hour later, we traded down to 91,300 or so.

Alex, do you think that we would have had a similar correction even without the tariff news? In other words, was the market primed for a walkback anyway? No, no, absolutely not. No, no. No, I don't think so at all. I mean, I have, there's a tweet up here from the ByBit CEO. And like, there's a, there's plenty of stuff online where you can kind of. of like, they try to say how many people got liquidated. And it was showing 24-hour wrecked at

$2.18 billion. And the by-bit CEO came out and said, I think the number was closer to $8 to $10 billion because it was $2.1 billion on by bit alone. It's just that like so many things were getting liquidated that they couldn't pull the data fast enough to really to really look at it the way that those APIs worked, which is absolutely fascinating. So I mean, this was like a worse liquidation event than like FTCS borderline, depending on how you look at it. I mean, things were everything. Ironical, I mean, Bitcoin was down into like the low to mid-90s, but really it wasn't that bad for Bitcoin.

But ETH was the one that got hit the hardest as we talked about. I mean, its volatility index was at 130. As Alex said, it went down to 2100. I mean, any alt coin, all those AI coins, any, any sort of shit coin basically got taken out on a stretcher in any way. But I would say Bitcoin held up pretty damn strong, comparatively speaking. But yeah, everyone on Twitter. was acting like it was the end of the world.

And if you look at way some of those coins price actions went on Sunday night, I kind of get it. I'm with Alex. I would love to know who got taken out on a stretcher there because the price action was rather insane. Do you think it was just leverage? Do you think it's just built up leverage in the system? And it just calls the flush.

Otherwise, you don't blow up. If you don't have leverage like that, you don't blow up. It's not just retail. Some very big players blew up because of leverage. That was for many people, it was literally the end of the world. A lot of people just died in financial market terms. There was some crazy stories. You started seeing all of these people talking on Twitter,

how they just blew up this. This crazy story about this guy who's supposed to be like OIG of source in the Mimcoi space. I had like some massive mog and pepebacks. And he goes and uses them as collateral for levered longing with 1.1 leverage. leverage. I mean, just to put in perspective, the kind of thing that people are doing out there is like using a meme coin that has no fundamental value that is insanely volatile as collateral for longs, levered longs. You already have a lot of leverage on that meme code by itself. So yeah, easy comes as it goes for Sam, unfortunately. I want to say, by the way, it's just quickly, it's like right now the funding. is insanely negative across the board, especially for Ethan and Seoul. So it looks very good. Open interest on ease is absolutely collapsed.

And yeah, market looks very good. Defined funding. You're talking about the futures market, perps, right? Yeah, the perps funding basically is the funding rate is the interest rate that is used for balancing long, some short. So basically the funding rate is very negative. the longs are getting paid by shorts to basically be in the market and keep the perpetual future in line with spot price it's a very clever mechanism for lining perpetual futures with spot so if the funding is very negative means that the the that shorts are basically if the money is very negative and price is going up means that shorts are

trapped and they still need to flip and get out. Plus, again, we're recording this on Monday night. It's about half an hour ago as I speak. Eric Trump just tweeted and I'm quoting here, in my opinion, it's a great time to add Eith. Well, I don't even know what to say to that. I mean, I mean, Alex, what is your, like, why did Eith? of everything, E's seem to get hit the hardest by far.

Is that because most of the defy and the leverage and stuff tends to be involved, like using ETH and people? Yeah, I think so. Yeah, it's a combination of mechanics. It's mechanically driven, but it's also the fact that basically it's a hated currency. It's a hated asset because it's on a relative valuation basis. It's actually overvalued relative to its peers. It has a lot of competition.

it feels, it's not, doesn't feel it is. It is somewhat archaic, prehistoric. They have leadership problems and on top of that is heavily owned by a lot of people. So it doesn't have that novelty demand. We, we, I include myself, I changed boats on time. But we expected ETFs to bring significant demand and you called it right, Jeff, it didn't happen. And yeah, it's like nobody wants ETH, right?

It's an underperformer. One last thing there is that it's a very good point how ETH is the East or is becoming the institutional settlement layer. And that is, I agree with that actually, but that doesn't necessarily drive value to ETH, the asset, even if it's being used. that's an issue. In the meantime, this is great, it's sprawling.

I hope everybody makes money and it's happy and doesn't blow up. And negative funding is great. And Eric Trump likes, and Eric Trump likes ETH. For anyone looking on watching this, I have the ETH to BTC ratio up on a screen from my Blumer Terminal. I mean, that thing whicked all the way down to 0.0234, which is like the lowest we've seen since the 2020 rebound, the doldrums. if you will. Right now, we're getting up near .03 again. So, ETH is coming back as relates to Bitcoin. But I mean, it is in a brutal downtrend that it has been since basically the middle of 2022. So, I mean, Alex, when you said last time, you're like, maybe we'll get some, if we get staking in the Ethereum ETFs and other things that could be a rebound, like, do you think we just bottomed at 0.0234 on the ETH BTC ratio?

Or do you think? Absolutely. No, no. Near term, you think it's a bottom. Yeah, absolutely. Whenever the market breaks like that, you have bottom. It just, it broke. It's notable that we didn't hear, at least I haven't heard, of any decentralized exchanges or lending platforms have issues. The fact that they coped really well against the frenzied activity of the weekend is a sign that it's pretty mature now. Honestly, that's not something I remotely even thought about.

But that's a very good call out, actually. Yeah, a lot of people got liquidated. A lot of people lost a lot of money. But I didn't hear too much about like any sort of complete implosion of any protocols on this volatility, which kind of goes back to what we saw with Trump launching the meme coins. I mean, Solana didn't handle it perfectly well. But I mean, it didn't go down completely. Yeah, a lot of people had failed transactions and things. But they handled like a serious amount of transactions per second during that mania last that weekend.

So just another kind of test, I guess, that the system is getting better, more. stable. When shit was going down right before, I had to play some, some trades. Solana, no issues whatsoever. I'm not just if it's like one of these faster L2s. It's like, yeah, I had problems with the transactions going through, which is not what you want to face when basically you need a trade to go through in second. Like, actually, it should be instantaneous, not even seconds, pending transaction. So was there any other coins besides Bitcoin that you thought held up pretty well, surprisingly well, Alex? And did you think it means anything longer term?

Yeah. So you tweet about some coins holding up. Hype, which is the coin for hyperliquidate. It held extremely well. It held 20. It's one of the best charts and it has been one of the best charts in entire space for a month now. and it's an extremely good platform that has a very large number of catalysts coming up.

I'm of course long. I'm not one of the early life. I assume so as you were halfway through talking about that. Yeah, yeah, yeah. I had to mute Twitter for like a while because I was pretty upset at not being long and they were giving me fomo. So I had to mute hype and hyperliquid for quite a bit of time. And then it crashed and I started getting in. But the thing about also hype is like they have they have their own EBM coming up,

which basically means that hype is going to become, it won't be a hype one asset anymore. And it would allow from, this is my understanding, by the way, I'm not an expert on everything. But my understanding is that it is going to enable exchanges to be able to list hype. Right now, there is not a single exchange with hype listed, maybe Ku Koi. Because it's from an infrastructure point of view is challenging. So the EVM move would enable exchanges to basically start listing hype, which would be great. So how did you get your, how do you get your hype exposure? Did you do a un-swap or something along the decks?

No, you have to go to hyperliquid to their own platform. That's how on-chain. It works very well. All right. We're nearing in an hour, but I mean, that was that what we just talked about basically took up the last 36 hours of my life. Do you guys have anything else you want to talk about before we wrap up? Actually, one thing, one thing. I'd like to get your take on Tether, on USDT moving to Bitcoin.

I don't have a complex take. I like it. Moving on to, they're using the Lightning Network. They're going to put USDT on Lightning, right? And Mainnet, right? Yeah. I mean, it makes sense to me. I mean, Bitcoin is the most secure network out there as far as I'm concerned. And the one killer use case that we've talked about a billion times on this podcast is stable coins and Tether is the king of the stable coins for all its issues that it might have had in the past. So I mean, I think stable coins and payments on the blockchain is going to be a critical use case. And if Bitcoin wants to be a part of that system and the lightning network can actually handle that sort of load, it's, I don't know. I don't have like a super complex lot. How about you, Alex?

Do you have any more nuanced? I mean, I don't think it's going to be used much. I think it's good to have it. But people don't really use the Bitcoin chain any longer. Aside of like basically transferring value across exchanges. Why? Because it's low, right? There is a few layer two solutions that could benefit from this.

But that aside, I think it's mainly like, I mean, I haven't studied. this, so I may easily be wrong, but at first glance, I would say is mainly a marketing thing with like very low, low cost of implementation where they perceive that having Tether on Bitcoin, it's worth the additional work. Lightning Network, nobody uses lightning. Maybe there is some sort of like agreement there between the strike, the lightning, the lightning, provider that they use in Salvador because Tatar just moved their offices to El Salvador, their headquarters, so maybe there is something going on there. I don't know. That's all I know.

Well, any any thoughts? I've been digging into Bitcoin Defi a bit recently. I mean, again, just starting to dig into it. And there's a lot more going on in that area than I realized, not just the layer two such as lightning, but there are Bitcoin-based smart contract platforms emerging. The thing is, I was always somewhat skeptical because they're not practical without a stable coin. Only if they get a liquid, reliable, stable coin, then defy on Bitcoin does become more practical. Does that mean there'll be demand? I don't know, because Ethereum or Salana or any of the other network or ecosystems, they're established, they're comfortable. We know how they work. Bitcoin does have the added security, but when you're after speech,

that's not necessarily your priority. So I think Bitcoin Defi with this gets the missing piece. Is that going to be enough to kickstart demand for more building and more users on the system? If it does, that is good for Bitcoin, but it is a big if for now. Yeah, I mean, particularly if we get some of those upgrades to Covenants or OpCad and these different things, you can start seeing a bunch of other more unique things being. built on Bitcoin, which we don't need to get into now because there are some people that are very pro that and some people who are much in favor, much more in favor of the ossification

of Bitcoin and just being used store value mostly, maybe a medium of exchange a bit. But it's a reminder that we just don't, as human beings, we are really bad at knowing what new technology is going to be used for. I mean, we didn't get the internet right. We didn't even get steel right. So we don't know yet what Bitcoin is going to be used for. Yes, there is a predominant narrative, safe haven. Yes, there is another narrative competing with that, which is risk assets. But we don't yet know how it's going to evolve once as it

expands. And my belief has always been it's going to be everything you want it to be. It doesn't have to be just one thing. But Bitcoin Defi, I would love to see that because Bitcoin is how I got into this industry in the first place. And Defy is compelling. Is it enough to kickstart a whole new flywheel of demand? I hope so. But I'm, I'm, I guess proof will be in the pudding and it'll take some time. However, it is exciting to see the rejuvenation of interest in building on Bitcoin. It went really quiet for a while. It seems to be coming back.

And again, who knows where this is going to go? Yeah, I think it's going to be quite big. It'd be a bitcified, to be honest. It's going to take some time because why is going to be big? Because a percentage that is not minor of bitcoins that they hold their Bitcoin and they love that Bitcoin, they actually would like to be able to use it. it to get yield in ways other than simply basically selling, setting options against your collateral.

By the way, is going to be one of the huge new areas of ETFs, like covered call, Bitcoin ETFs, all these different things, get lower VAL, lower downside risk and you get income. Just wait.

We're going to see a bajillion of these products launch on Bitcoin, Ethereum, all these other assets because, I mean, it's kind of like in the way that Seller is using the VAL as like, you know, a tool in what he's doing with micro strategy. and selling of the bonds and now the preferred stock.

These things, like, you can get some really unique exposures just by like packaging the volatility that is Bitcoin and some of these cryptocurrencies that some people think make no sense, but they, I think they just don't understand TradFi. They look at like the 100% downside protected Kalamos Bitcoin ETF, which has a cap of 11.25%. And people like, why would you do that? And it's like, you got to realize you're not really necessarily buying Bitcoin exposure, you're basically like being able to create almost like a cash like instrument that instrument that has an upside of potentially 11% that's basically completely benefiting

from how volatile Bitcoin is because you couldn't do that with another asset that's not nearly as volatile. So there's a lot of things that are going to come from what Alex was just saying. And this theoretically could be better ways to do it. But TradFi is going to package a whole bunch of this stuff for anyone looking to get a more or wooded down or unique version of exposure to Bitcoin, which at the end of the day, it's still, at the end of the day, they're going to have to buy exposure to Bitcoin to do these things in varying ways.

So interesting. And for listeners who are wondering why you haven't heard from Jeff for the past few minutes, he had to hop off early. Yeah. Thanks for joining us, Jeff. That was great. I'm glad he was here because he gave us a bit of an alternative viewpoint on the tariffs, which I think Alex and I would have been pretty negative.

The one thing I think that's missing from that tariff argument that I see every time is like people are always willing to talk about the damage the tariffs do. And then they don't, they kind of ignore what Trump's trying to fix with like the fentanyl, the legal immigration, all these other things or the benefits that you would get, like protecting certain things with national interests. And like it's like two people talk. The people who are pro-tarist talk about what I just talked about. And then the other people talk about the others and they just kind of talk past each other

and all the arguments I've seen online and comparing a zing. It's like they refuse to accept either side of the argument. And it's like some people are like, I'm willing to give up those efficiencies if we're going to protect different industries or we're going to get rid of the fentanyl in the US, things like that. Who knows if it'll actually happen. But I think that's the big thing is missing. You hit the nail on the head there, James, of why I've been so fascinated with the mainstream take versus some of the deeper narratives, such as which Jeff was explaining to us. And it's related to what we battle with in crypto or have, you know, for the past few years. There's the established mainstream narrative,

what we used to, this is how things work, and it's how they're going to continue to work. And then there's the, yes, but what if things worked differently? What if we were able to implement meaningful change? And so you see, but the two narratives are actually running in parallel here. We are looking at a lot of change. Change is the given that we have coming up. And so it behooves us all to start thinking outside the box, put aside our expectations that what has been will continue to be. And, you know, the saying, when you throw out certain economic theories, you open a window for new ones to come in.

And that's an exciting time, especially at a time we have new economic technologies in the toolbox. Great. Very well said, Noel. All right, guys, thanks for joining us for this episode of Bits and Bips. We'll be back in one week to discuss more about how the worlds of crypto and macro are colliding, one basis point at a time. Until then, everyone.