Unchained - Bits + Bips: Vanguard's Crypto U-Turn, Tether/MSTR FUD & Picking Future Winners - Ep. 967

Episode Date: December 2, 2025

Monday’s selloff rattled the entire market—Bitcoin, equities, commodities, you name it. But beneath the volatility, something more structural may be happening. In this week’s Bits + Bips, Austin Campbell, Ram Ahluwalia, Chris Perkins, and B+B OG previous host Alex Kruger break down one of the most confusing macro weeks of the year. They debate why high-beta assets snapped, whether a rotation into quality is underway, why institutions seem unfazed even as retail stays skittish, and share initial thoughts on Vanguard finally allowing clients to buy crypto. The crew also unpacks Strategy’s chaotic comments about selling BTC, the Clarity Act’s political hurdles, the CME outage that exposed systemic fragility, and the never-ending debate over Tether—profitability, reserves, and what institutions actually want from a stablecoin issuer. Sponsors: Uniswap Mantle Hosts: Ram Ahluwalia, CFA, CEO and Founder of Lumida Austin Campbell, NYU Stern professor and founder and managing partner of Zero Knowledge Consulting Christopher Perkins, Managing Partner and President of CoinFund Guest: Alex Kruger, founder of Asgard   Timestamps: 🎬 0:00 Intro 💥 2:13 What triggered Monday’s selloff—and why Chris is still long-term bullish 🤔 6:57 Why Alex was a bit surprised about this week’s volatility 🔄 12:37 Is there a rotation out of risk and into higher-quality assets? 🗯️ 15:11 The chaos after Strategy CEO floated selling BTC to fund dividends 🏢 18:33 Which types of companies Ram thinks are positioned to win in the near term 📺 22:39 Why Polymarket appearing on 60 Minutes is a positive signal for the industry 🏛️ 25:37 Why passing the Clarity Act will require far more political work 🧠 31:30 Why markets feel like a “Rorschach test”—and whether Fed cuts are actually coming 📉 36:06 Why Alex says we’re entering a new era for the Federal Reserve 💵 42:40 Tether’s balance-sheet drama—and what kind of stablecoin institutions will really choose ⚠️ 52:36 How the CME outage exposed dangerous single points of failure Learn more about your ad choices. Visit megaphone.fm/adchoices

We still feel long-term bullish. We're going to talk about all the good things happening across the board. I mean, even Vanguard just came out as we were launching. They're going to start offering crypto ETFs. So it's all slowly happening. I think this is part of my greater thesis around retail is ebbing and flowing. They're still recovering from 10-10. There's still market makers are still recovering.

Institutions are still marching forward. Evidence today is Vanguard coming into the space. This high-beta sprint that we've had since April, is just giving way to a rotation to value. All right. Hello, everybody. And welcome to another episode of bits and dips, where we explore how crypto and macro collide one basis point at a time.

I am still your host, Austin Campbell, high scholar of Zero Knowledge Group. I'm here today with friends Chris Perkins, the Golden Hand of Coin Fund, Ram Alawalia, Mastor of Wealth, Leader of Lumida, and coming to us from an undisclosed in secret location, one of the original hosts of bits and bips, Alex Kruger of Kruger Macro,

protector of the realm and apparently enemy of the regime. We'll find out more, depending on what he wants to disclose. But we're here today to discuss the latest stories in the worlds of crypto and macro. Please remember that nothing we say here is investment advice. Check UnchainedCripto.com Bits and Bibs for more disclosures. Now before we begin, we're going to start with a quick word from the sponsors who make this show possible. Are you a builder who needs to add on-chain trading to your product? The Uniswap Trading API from Uniswap Labs offers plug-in-play access to some of the deepest liquidity in crypto. It's on-chain execution at an enterprise level.

More liquidity, less complexity. Visit hub.uniswap.org to learn more. Mantil is launching the Global Hackathon 2025 to accelerate the future of real-world assets. with a $150,000 prize pool, backing from a $4 billion treasury, and direct access to ByBits 7 million plus users. This is the ultimate ecosystem for builders. All right. So we're going to start with the topic that has led to some indigestion in the crypto market right now, which is the Bank of Japan rate hike. So the BOJ signaled a likely rate hike at the December 18th to 19th.

meaning, pushing yen higher and bond yields higher. USDJY is moving significantly. And markets are currently pricing well over an 80% chance of a hike to 0.75%. It's the clearest signal yet of tightening from the BOJ, framed as easing off the accelerator rather than applying the brakes as real rates remain negative. But the genesis of this is that one of the most common funding trades in foreign exchange markets is the yen-carry trade, where you're borrowing in yen converting to another currency and usually lending out at a higher interest rate. Thoughts are that maybe this will unwind. I'll be curious what people have to say about that. But overall, the market had a sharp pullback on this.

Bitcoin fell below 84K briefly. Ethan Saul were down 10%. The biggest loser, of course, Z-cash, because the market. the Bank of Japan strongly opposes privacy. Maybe correlation is not always causation, but let's start with Chris here. Chris, what do you make of this as somebody who's been at Forex markets here? Look, I think we talked about it last week. And the unwind of the carry trade has been looming in the background. It's obviously, if you have a scoreboard, I think it's a negative on the sheet. We're going to talk about some of the positive things that we're seeing as well. But it's a little bit

different than the last correction that we saw, which were markets were shocked in August of 24. That really hit prices. But I think our thesis is generally that if you look at recent weakness in Bitcoin, particularly around November 20th, 21st, the world's changed a little bit since then. And yeah, maybe you still have some of that carry train unwind weakness in the background. But look, if you look at like a polymarket right now, there's just about 100% chance now that rates are going to, the Fed's going to decrease rates by 25 basis points. Back the last time Bitcoin puked out, you know, we can maybe even try to share a screen here. You know, last time

Bitcoin puked around the 20th, 21st, there's only a 34% chance that the Fed was going to decrease. Now, that's probably been priced in the markets already, but that's positive. I'll stop there, but, you know, it is what it is. We still feel long-term bullish. We're going to talk about all the good things happening across the board. I mean, even Vanguard just came out as we were launching. They're going to start offering crypto ETFs. So it's all slowly happening. I think this is part of my greater thesis around retail is ebbing and flowing. They're still recovering from 1010. There's still market makers are still recovering. Institutions are still marching forward. Evidence today is, is Vanguard coming back into coming into the space. I guess high level I'd say, look, I think high

beta assets are just under pressure. They've been lagging, you know, value stocks are being growth. If you look at the S&P value index, the all-time high is last Friday, the SMP is right behind it. The growth index was eight points lagging that. So it's a bigger issue than digital assets. It's true for uranium. It's true for the Palantiers and the Robin Hoods of the world. This high beta sprint that we've had since April is just giving way to a rotation to value. USJ. JPII, I think, is still not a primary driver. It looks like a one-and-done. You know, we've had pullbacks in the USDA-JPI of similar magnitude, including as recently as October 10th. Yeah, like the attractiveness of that carry becomes less as US dollar funding rates

go down and Japanese funding costs go higher. That's true on the margin. But it's a slow-moving thing and people see it coming. So it's hard for people to get off sides on it. I think it's really simply that animal spirits are just fatigued. And they're pulling back after what's been an incredibly strong kind of performance in assets away from digital assets, mainly these other categories of animal spirits. I think people has this need to always have an answer to why something happened. It's very powerful.

And oftentimes, you know, after it happened, it doesn't really matter. It's already happened. But that being said, there's been a lot of discussion of what triggered this last move. Things were looking good. I felt extremely confident that the test of 80,500 on the 21st was the bottom. I'm not as sure anymore. given the violence of today's move but i was i was feeling very confident based on pretty much almost every single metric out there from ib to skew to rsi to a fear and greed to you name it

everything screamed bottom now this is not a market that is trading like the bottom is in so i don't know anymore like the what the way i see it is is very asymmetric at the time um um what's the way Bitcoin is behaving versus other risk assets. Yeah, granted things like all quantum stocks got crashed last night as well and today, but that being said, it's the news and what happened on Japan didn't really warrant a, what was it, a drop from 91 to a 6% drop in like no time. Some people argue that it wasn't really Japan, but if you, if you zoom in and you're if you put a chart on you're going to see that basically the move starts

at the exact same time in synchrony with basically the jgbs the japanese bonds and the nikai and everything moves at exact same time and it opens it's basically at 90m japan which is 7 p.m eastern time that's the move it that's the trigger that doesn't explain why bitcoin moves so much more and then basically crypto collapse that's that's i think is it's what what uh chris alluded before is uh an unfortunate uh corollary or um aftermath of 10 10 and and yeah i think i think that's it right now things are looking a little bit better it's been very interesting the um micro strategy it's pulled back almost entirely uh today's move so again the way i see it is first was Japan overnight and second at the open micro strategy brought the entire crypto complex down.

So now things are bouncing and yeah, that's it. I think a common thread between a lot of the things that are moving around. If you're looking at Bitcoin, if you're looking at alts in the crypto space, if you're looking at quantum stocks, if you're looking at micro strategy, is it's all one, the momentum stuff writ large, as Rom was alluding to, or a little, earlier because value seems to be doing comparatively better. But two, it's a lot of the things that people seem to like to, we're going to call it, over lever themselves on.

So I wonder how much of this is a core, call it economic flush, like something based on fundamentals where if people had been unlevered, we'd still have seen this level of violence and how much of this is people, especially in crypto, just not being able to help themselves with the leverage that produces, you know, market moves like this. Sunday night, you know, relatively notorious time for large crypto moves on thin liquidity because of leverage. And so when I'm looking at, call it this level of market reaction to what should have been a pretty expected headbine in some ways, sometimes the trigger that I'm looking for is leverage pain

points there, which, you know, has interplay throughout all these other things. I mean, Rob, you were earlier talking about the animal spirits component of that. What do you think is going on? with like, call it leverage dynamics in retail in this company? I mean, retail investors own a lot of the same positions that are cross-correlated, even though they appear distinct on the surface, whether it's digital assets or uranium or quantum stock or like SoFi stock. It's all the same trade. It's all just like high beta.

And so when one sells off, they've got to sell the others. And so high beta is just selling off in unison. And the other thing you see out there is like there are quality stocks for the first in a very, very long time that are attractively priced. Quality has been in a bubble. Costco had a 50 times PE ratio. Now it's 45 times. It's still a bubble.

But the other things out there that are not, like S&P Global or maybe ICE. So if you're an investor and you're looking around, you say, gee, where do I park capital? I think people park in quality assets. That's what you're supposed to buy when they're cheap. So I don't know that you'll get the same reflexive response from animal spirits this time around.

Previously, those other assets were just priced high. Now they're priced low. So why wouldn't people go in that direction, especially if there are concerns around the strength of the economy, whether that's legitimate or not, people have those concerns. Why wouldn't they just park in that direction? Thesis there being ultimately a rotation to,

for lack of a better way to phrase it, defensive stocks on a forward basis? Quality value, yeah, defensive stocks. And I think even small cap value, which would benefit from rate cuts because a lot of these names have a lot of leverage. And if they can refinance their debt, they would benefit. So, you know, value stocks in general have more debt than gross stocks. So they'll benefit from lower rate cuts.

I think it's another reason why that's been outperforming. I expect that would continue to happen in the future. Like we are positioning in that direction. All right. So then I want to ask the follow on question as we sort of take that thesis and move it to other markets. Do you think following that corollary means that we should be expensive? I think better performance out of Bitcoin than alts, if we're going to see similar behavior in crypto, or do you think it all just trades correlated?

Bitcoin should outperform else, I would expect. I think that's probably an easy view for probably all of us to have here. I don't know if anyone would disagree with that. That's probably an easy view to take. It's an easy view to take. I always worry when something's an easy view that we're wrong. Fair enough. Yeah.

All right. So let's talk a little bit about one of the drivers for Bitcoin then, which is. strategy. Oh, go ahead, Chris. Yeah, I know. I was just going to jump on strategy. It's a, you know, the CEO, you know, Michael Saylor is the executive chairman. People, a lot of people think he's the CEO that is actually not the CEO. The CEO piped up and said, yeah, if we went to a negative, MNAV less than one, well, yeah, I can see a situation where we could sell some Bitcoin. And I'm paraphrasing, market didn't respond very nicely to that. And like, the other thing about Bitcoin that's a little bit curious right now is it's, it's really

decoupling from gold. It's acting like that risk asset, again, not digital gold. I think many of us think in time that's going to fix itself, but, you know, we're still, it's still being perceived as a risk asset. But like, honestly, it's a little bit concerning when something, which I think is kind of obvious. We talk about DATs all the time in the show. DATs need to have thoughtful treasury operations. They need to be prepared for times when MNAB is less than one. They should have adequate reserves to be able to manage those situations, ideally not dumping their underlying assets. But the market seemed to be acting a little bit asymmetrically to that one comment on a podcast or whatever, which is a little bit unfortunate. But again, I think that's like retail

being retail. And I do still think that there's, like I said, like Vanguard is now saying they're going to buy ETS for the first time. It's a pretty big deal. I think there's a pretty big deal. I 11 trillion under management. So again, I think time fixes a lot of this stuff. Yeah, I mean, so to fill out the strategy thing, their current MNAV is slightly positive. Continued price declines will push that lower. They announced they have a 1.44 billion reserve to cover 12-ish months of dividends and debt interest. And the CEO, Fongle, said, math says sell, emotion says don't, but math usually wins. Chris, I would say responding to you and especially knowing the amount of retail interest and strategy, I think one of the problems with

his comments was not on the fundamentals. I agree with you. DATS should be thinking about treasury management and they should be very careful with debt and pre-funding is not a bad idea from a long-term stability standpoint. I think the problem was a narrative violation, right? Which is to say people viewed sailor is like the diamond hands the one guy who would never sell and now here's the CEO of strategy being like no we would totally sell if we had to like there are corner cases where if we're putting that or at least in their eyes corner cases where if they're put in that situation they will be selling bitcoin to fund dividends or debt and again i'll remind everybody that stuff's not optional if you don't pay your debt you go into default and then your company is going to end up

being restructured or forcibly unwound. So from a corporate responsibility standpoint, this is kind of the thing they have to do, right? It's fundamentally not really optional. It's the same problem. Many DATs are going to face trading at an MNAV discount. But I feel like strategy was perceived as the one that would never do that. Yeah, they have an operating business. Go ahead, Alex. Go ahead. Yeah, the CEO did mention that the level that would require them at the time right now to sell Bitcoin for dividends. We put 25K. And that's been absolutely not reported absolutely anywhere,

but he did say that. So very big against the only goal that he did, because of course it's not going to be reported. You said what you didn't have to say. No, there's always, what is the right way to say this? All right. So for anybody who has not worked with media in the past, one of the things to understand is one of the unfortunate parts about the ecosystem for many news outlets, not all, many, is that attention drives advertising revenues. So they sort of start mining for clicks rather than mining for information content. It's like infotainment, if you will. And so with a comment like that, if somebody says, oh, yeah, we would sell Bitcoin if it hits 25K, they're just going to report the first half of that sentence.

Like, this is a thing you've always got to keep your antenna up for financial news writ large. I do think that Bitcoin debts are harder than other debts. And the reason why is they don't have more than any other deals. Right. In the case of strategy, they do have an operating company. It does generate revenue. I think it was Matt Hogan, I think he said, who stasis for Dats. is not an MNAV of one, right? Because you have a lot of costs associated with running a public

company. And then, God willing, you have operating companies and businesses that you invest in using that permanent capital. So, you know, there should be a natural state that's either a positive MNAV or if you're not doing anything and sitting there, a negative MNAV. Look, I think ETH has a very compelling real yield. It's organic. And that in some ways makes it easier. So briefly, I'd say one You know, selling the underlying spot asset, I agree there's a corporate responsibility component to that. However, it does pressure the spot asset of which the instrument is fundamentally a bet on. And the debt can add beta in that direction. It's just not a good story.

It's like saying Santa Claus doesn't exist. This wasn't supposed to happen. It's not part of the story. Tactically, there's an opportunity for Bitcoin to run here. I'd say tactically, that's highly speculative. It's a very hard call to make. But I would expect once again that rallies are sold. Take a step back.

QQQQ is up 23%, 22% over the last one year. Bitcoin is up, is down 10% year of year. So people are looking at that and say, gee, there's a 30% spread. People have migrated their trading and investing to equity markets now. And they have a whole universe of assets they can invest in. And the psychology of that investor now,

has got to be like WTF, I'm going to go by pick your favorite semiconductor stock or Mac 7 stock. That's why I expect you'll continue to see performance lagging here despite potential for a tactical bounce. I think another component of this and this is where Japan actually could be a trigger to bring it all the way back to what we started talking about. rate environments and higher rate environments put significantly more pressure on things that are not cash flowing, right? Essentially the cost of holding things that are doing absolutely nothing when

you could sit in government debt and earn something at take no price risk goes sort of monotonically up, right? It's the reverse of the zero interest rate era where if you had a discounted cash flow model that shows a positive cash flow anywhere at any point in the future it's potentially a good investment. Like as rates go up, the reverse is true. And so part of what I think we are still experiencing in the world as various regimes, the U.S. may be like loosening slightly. Other regimes are now having to tighten significantly as people just dealing with the time value of money once again, which was a thing that we kind of got to ignore from what, 08 to like 2020, you know, which was a pretty nice time for that trade. But, you know, once you're back to the real world,

it reveals to people that leverage has a cost, borrowing has a cost, storing assets has a cost, right? Like these are not things that just exist independent of the cash flows of other things. And Rom, in that environment, wouldn't you expect, like, operating companies with cash flow to outperform? Yeah, no, no, I agree. I mean, operating companies that have free cash flow, I think will do well. And, again, companies with high levels of debt that can now refinance with a prospect of, of lower rates with a more benign Fed leader coming into view. I think that's an interesting angle.

I mean, some of the best performing themes out there have been like retailers. By the way, this happens like every time around the holiday, especially around Black Friday. So I wouldn't, you know, just be mindful of that, be mindful of that. But yeah, you know, I think, look, one of the things is that assets are now in public equity markets. those investors can look around, they can make other choices. And I think it's going to take time to get through that. I was going to say the other thing I've been observing is we've been looking at markets too. Like this was flying around on Twitter recently, and I forget who said it.

So apologies for not citing it. Is as institutional investors come in, we're starting to relitigate some of the previous debates around sort of the internet and like things like fat protocol like versus app layer type stuff. I think there are, what is the right way to say this? I think there is maybe a repricing effect going on within some of these sectors as well. Chris, I want to ask you about this one. Like in the long run protocol tokens versus apps. Where is your mind?

We relitigate so many things every cycle. We're talking about tether now. Again, awesome. Let's have that conversation. Guess what? China is now banning crypto again. Oh, my God. But you're right. We like go through the same discussions every single time and it typically has the same outcome. Let's talk about 60 minutes where you're you're the star there, Austin. You watch it last night. I'm so I was going to say I did not watch 60 minutes last night. You should have. They had

polymark. Polymark it was on. Polymark. Yeah. Yeah, so like here we are, like week after week now on 60 minutes, 60 minutes has 8 million viewers plus or minus. I think your episode probably had twice that. But boom, you're like, there's Shane Copland walking on the New York Stock Exchange talking about his, you know, his $9 billion company, all the focus on apps in that segment, which is kind of really exciting. And I think many of us believe, you know, the last 10 years, a lot of focus on infrastructure. Not a ton of apps that worked. But then bam, Polymarket is out there.

Now, Cali, whatever, we can talk about all of them, want to give them both their due. But it seems like that's a very, very positive spot for the, for the crypto industry. And then like I turned to my teenage daughter and she's like, I want to do that.

Because I know, I know better than everybody else, right? I can, I'm going to, like, how do you do this, dad? I want to do it. Right. So, you know, being on a mainstream, I mean like 60 minutes, I think is very positive for the crypto space. Again, the slow methodical move forward that I keep seeing. Here's one other element to introduce.

It is like the political dynamics, right? So remember just a few weeks ago, we had these elections and there was a blue sweep. Since that blue sweep, you've seen healthcare outperform, which would benefit from the house being more favorable on, say, you know, ACA, you've seen stocks like First Solar upperform, which you'd expect to perform if Congress goes blue. So we're seeing the inverse of what we saw a year ago, which was the Trump bump, right? The Trump bump helped support animal spirits, uranium, digital assets. So I think markets are starting to discount the probability of a shift in the House.

I think it'll be far more competitive, the closer we get, by the way. I won't over read into the actual fact of the thing. but I do think that is playing a role in shaping the performance of digital assets right now. Yeah, I mean, if we look at sort of the forward path for things like clarity, the odds of that getting through the Senate in December of this year, a rounding error on zero given the educational lift that has to be done there. And again, for people who are not like in D.C. or like inside the Beltway on these things, you've got to remember.

The average senator has a list of concerns. that probably start right up at the top with things like the economy in the United States, immigration, public spending and keeping the government open, what's going on in Venezuela? And you're just going down the list. And somewhere way down here is crypto, right? It is not top of mind. And the reality is it's not a yes, it's not a no.

It's when you talk to some of them about, hey, what's your view on defy? They go, well, what's defy? Right. Like, not even in a malicious way. and hey, we genuinely need to like dig into this to understand the thing. I think the poll there is longer than people think. Like, Chris, do you remember when was the first stable coin bill introduced in Congress? Was that like six years ago now?

It was something like that before it passed, right? Yeah, I don't know. It was a while, right? And it was originally like the Waters bill and then McKenry Waters. And then it moved over to the set. Like there were iteration after iteration after iteration of that thing. clarity like is a more complicated problem earlier in the legislative process and that brings me to the second point that I think will impact markets which is it gets late fast for somebody who's

only going to be a one-term president right like Trump can't serve a third term midterms are coming in 2026 if Republicans lose the house that's game on Trump right in terms of legislative priorities without like bipartisanship and I don't think clarity is going to be the top of the list if they're in that situation. So the other part here that I would be thinking about for people is, as Rahm said, the political situation is maybe a little bit different than people would have felt right after the election. That's what, you know, time is not on our side. We don't know what the next regime is going to bring. But we do know that we have really amazing, proactive pro-innovation regulators right now. Atkins is going to make some kind of a major announcement tomorrow. Fam just put out a piece

how she's going to end lawfare. Now, this stuff is great. It's not enshrined in law and it could pivot and it likely will. But at the same time, you're going to get two and a half, three years of precedent. And that's why the more of the stuff that happens now, something as simple as what's a commodity, what's a security, that's very, very powerful. And so from my perspective, the sooner seal gets in a seat, the better. And then let's get as much precedent behind us. But these are very positive impacts to the crypto space, particularly when you look at how we were. Like, again, today, I think the house or was yesterday published its findings around Operation Choke Point 2.0. They're like, guess what, guys, it's real.

We all know it's real. We experienced it. The fact that we were able to move forward with so much innovation and building during that bare period, it's pretty profound. Now, the markets haven't responded yet to, so it's like, I don't know, maybe it's a trailing indicator or something like that. but the conditions are being set very positively. Well, I'll close with this thought before we go to our advertisers, which is one of the things that I think sticks out in tech investing overall was Jeff Bezos back in the day after the tech bubble popped,

saying I was in this weird position at Amazon where every day I was watching our fundamentals get better and the price of our stock go down. So, Chris, exactly as you're saying, like the state of the world and what animal spirits are doing do not have to be a lion. back to where ROM was earlier, and it's something that people should always be thinking about is like markets being like in the short term of voting machine and in the long-term away machine. All right. On that thought, we have two advertisers that you need to hear from, and then we're going to come back and talk about the Fed.

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B. Musaulam Barr. Yes, our Waller Williams Bowman, Myron's probably in a special category of not just yes, but fuck yes, cut it to zero. And then we have three that are unclear between Powell Cook and Jefferson. But I would say, so I'm going to start with the following framework, and I want you guys to challenge this if you think I'm wrong. Right now, I think we're kind of in a Roershack test of the market, which is you're seeing data that if people are worried about inflation, they can probably find enough in there to continue to hold that belief and to hold to their votes. But if they're worried about unemployment, right, or financing conditions, you can probably find enough in there to hold on to that belief. And I think it's kind of an eye of the beholder situation.

Do we think anybody changes their votes from last time around? We have an NFP coming this Friday, right? That might shift. We'll see. But by and large, I think you're right. I think even the FOMC is becoming more politicized for the reasons that you just cited. Moran got that job for having a view. So, yeah, I don't think people really shift their views here. One thing I would add to the mix, though, is that you're right, it's a Roershock test. Always is a Roarck test, by the way. Always is, right?

88% chance of Fed cutting rates according to the futures markets right now. But, you know, again, on the political backdrop, The first half in a midterm election year is often weak, often weak performance. There's something to consider. I do think the macroeconomic backdrop is actually good. But you're just starting to see the uncertainty starting to weigh in on how people are pricing assets now. I'll see if I can pull up a chart for them. There's a few guys that change their views, actually.

And that's why we had quite a bit of reprising about what was it two, three weeks ago. Two weeks ago. Perfect example is Gulsby. Gullsby is a guy who is usually very dovish and he got hawkish in the last, basically after the FONC into the shutdown. And usually Williams boats with Powell. So that's why on the 21st, the Friday. of the bottom it was so important because Williams came out and I'm sure very knowingly came out to calm the markets and and he put very explicitly in that he was in for a cut in December.

So right now they have at least seven boats the way I see it. So it's a it's they're going to cut which won't make that much of a difference because it's I think last time I checked was 80% priced in but it's still good it's not 100% and and for me what is way more important than that is the the the election of the next chair which seems it's going to be HACID and it's a it's a car that Trump wants to use early to put pressure on the Fed I can talk about HACID for a long time so like I've got passing on to you guys. Yeah, I'll say one of the things I'm always cautious with with nominations is that's not done until it's done. I agree that's the way the cards are pointing right now.

But as we saw with the CFTC 8-A over until somebody's confirmed, so to speak, good luck, Mike. We're pulling for you. I do agree with you that I think they have the votes for the cut here. What I'm a little bit worried about is the forward path because some of these Fed folks are very data driven. And one of the things we're also going to see is an interruption in data thanks to the length of the government shutdown or at least maybe some irregularity in there. I'm not certain how people will interpret that. I'm curious. Ron, what do you think?

No, I love to just double click on Alex. Your read of Hasse. It sounds like you've got deep, consider, informed views there. Do you think he can actually move the needle as? Yeah, definitely. Go ahead. HACSA is a super much-side economist. So the way I say it is we are about to enter.

This is extreme. We're about to enter a new era for the Federal Reserve. The first era was when it was founded. The next one came with the Great Depression. Then Second World War and the 50 one accord with the Treasury. Then comes in modern Fed with Volker, 79 to 18,000. 81, so he takes over. That's when the modern era of monetary policy begins.

And then is the great financial crisis, Bernanke, so we have Bernanke-Gillel and Powell, who's been kind of like one regime, which is a way of it is like a sub component of the Volcker Greenspan era. This is going to be entirely different, because has it is supply side economies and The other one that has a very high chance is Borch, which is another Kevin, both cabins. He's also a supply side economist, and what that means is these people, they think differently.

They're not thinking in terms of, okay, if growth goes about 1.8% the spit limit that the Fed takes into account in their models, actually, which are Kenishable models. If growth goes about this bit limit, the current Fed thinks inflation. We need to be restricted. Hacet and Walsh, they think differently. They think this is growth that is productivity driven. We can withstand more growth without causing inflation. Let's push the envelope. So you get those two guys in, and the balance of boating of the Fed changes.

from power well it's like the most of the Fed is around power well he he's a he's on the dogish side ironically people think he's a hawk he's not a hawk but he's not ultra-dobbish I put him on a scale on the dogish scale from from one to ten he's a four Hassett and war shartous so you you and they determine the the the check here determines the agenda of the Fed and can't do something something else that nobody's talking about. And I think they will do it either of them. Which is basically change the after the stuff. People who determine the projections that use the models that the Fed has in their hands every FMC member before both. Before every Forms, see they get

what is called the Teal Book. And with the Teal Book, what it has is the projections on where inflation growth, etc., all the macroeconomic variables, where the staff meeting the Fed sees the economy will be. If the new chair changes the staff director and they change, start tweaking the models and they change the economy and who is building those projections, you're going to get more dowage projections that they would influence the rest of the Fed. So one thing I'll say to counter that, though, is it's important to remember that the Fed's a pretty fragmented institution, right? Like, yes, the chair at the board level can start controlling a lot of these things. That's not going to have nearly as big of an influence on regional staff.

So, like, let's take an example of somebody who we referred to, change you could vote previously, Gouldsby. Right. If you're President Goulsby and you are sitting on top of the Chicago Fed, you have a whole staff of people who are answerable to you. and kind of under your remit, who are going to be giving you one set of projections. And then the board can be giving you another one. I think something that I always try to caution people about the Fed is we talk about the Fed, like this is a unified single entity. But when we say the Fed, we may as well be saying the large banks, which is to say J.P. Morgan

does not agree with B of A, who does not agree with Wells Fargo, who does not agree with City. Like if you get any six economists into a room and ask a question, you get at least eight opinions. right and so one of the things that i think will continue to happen is the fed is very factional i do think board level changes will be influential but i'm always cautious about predicting large changes out of them just because kind of ironically for crypto the fed is more decentralized than people think in terms of how it is designed yeah i it's uh it's a very personal view i think they will whip it around. And it may not happen.

We could also get, what I would define as worst case scenario, which is Powell doesn't resign in May. And he stays as governor, meaning he keeps voting in the FOMC. That would mean Trump doesn't get

a second guy in. And it would mean whoever is a chair is going to be, like a could potentially be and possibly be, and I think would like it be like a sitting duck. So that also to me that means is that it's very hard for markets to price in a Dovish fete until they get a better sense of a foul staying or not. It's very hard.

And we have no idea when he would, if he does, announce his first nation. Yelan did, I think it, was 18 days after, but it could be 30, could be 60, could be 90, or maybe he doesn't do it, you know. I think the feds actually continues to overindex. They're very concerned about presenting to be apolitical. And that's where I see Powell's heads at. He does not want to be any of his behaviors. He wants to maintain this pristine vision of the Fed in a way that he proves.

to the world that he's not being impacted by political anything. And I think it's going to be very interesting to see once we move past him. So let's talk about something that will be impacted by interest rate policy next, which is Tether. Chris, I promised you we'd talk about this. So Arthur Hayes has been out warning that USDT could become insolvent. If it's gold and Bitcoin holdings drop 30%. He called it a massive interest rate trade. Tether's CEO, Palo Ardeno hit back, calling it Fudd, noting that they also have $30 billion in equity, $7 billion in excess reserves, and $500 million a month in profit from treasury yields, at current yields.

Many have argued that Hayes overlooks Tethers' unreported corporate equity, mining, Bitcoin, other assets, and that it is highly profitable with $10 billion in annual earnings. But I think one of the things that really creates traction in this debate is the opacity around Tether. Like we don't know the entirety of their holdings or what the scale of those are. Either while we know the aggregate amount of assets, the aggregate amount of liabilities with some degree of specificity, composition is also a question. I would remind people on both sides. So, Chris, we'll start with you since you brought it up earlier. What's your take on Tether? I'm sure you have big thoughts.

I'll start with the story. But by the way, they made $10 billion just through this year. And yes, with the projection of rates, some of that revenue may come under stress, but they only have like less than 150 people. So this will continue to remain a very profitable company. Mind you, one that did just fine since it was started where rates were close to zero. And I'll start by saying like, I don't know, every cycle has one of these like times where we go foot on tether. It always comes up.

And the one thing that all of us have learned who've been in the crypto space is very, very simple. You just got to survive. And I remember like 2017, 2018, buddy mine grabbed me, pulled me aside. He's like, hey, you know what this thing, Tether? Like, yeah, what about it? He's just like, dude, they're not back. They're going down. They're going to take all of crypto down with it.

It's going to be over. It's going to be done. Fast forward to today. These guys are printing $10 billion through 2025. So I've learned over the years, don't bet against Tether. That said, I was at Lehman Brothers, right? No one ever in a million years thought that Lehman Brothers was going to go down. And then a couple months later, off you go.

And we saw what happened there. So look, I think when it comes to, Tether's done something very special. They've created utility. You can go, you know, parts of the developing world. USDT is recognized as a dollar. It's accepted as a dollar. And they've built that social consensus and confidence. So it's kind of theirs to lose.

That said, you know, given the choice between a regulated asset and an unregulated asset, I would say most folks will probably, and crypto is a little different because a libertarian thing and, you know, they don't want to be under control, whatever. But if you're truly looking for a store of value, I think there's going to be preference amongst many institutions for scale around a regulated instrument because it gives them confidence. And, you know, they can have the comfort to tell their board that it's fine to hold this on treasury. So, again, I think institutions are going to come in and prefer the regulated asset. Well, Tether also has a regulated asset.

Bo Hewines is running it. And he's building out what he's doing. I think it's going to be a very, very vicious space going forward. There's going to be incredible competition. I call it like a yield vampire attack. Dude, I'm going to take your stable coin. I'm going to dump it. And you're going to take mine.

And you're going to see these ecosystems evolve where they only take their, their stable coin, you know, from prediction markets beyond. So look, I am not like staying awake at night wondering what's going to happen to tether. They have to make, they're still printing money. They have plenty of reserves. That could change and the market will. Remember what happened the last time we had an issue with stable coins? People pulled out of USDA into Tether when Silicon Valley Bank had its struggles.

So I'm not staying awake at night worrying about Tether right now. I don't think the insolvency is relevant. You know, the banks were largely insolvent in October 2008. It was a great time to go by the banks. The banks were insolvent in the U.S. and during the Latam banking crisis in the late 80s, it was a great time to go by the banks then. There's good arguments using Tethers' public attestations

that they may have been insolvent in October 2022. 40% of their assets were in rate-sensitive names and spreads widened everywhere, everywhere. So all of those assets would have been trading below par. So you could have argued that they broke, they would have broke the buck if they had transparency. But it didn't matter. If you had a chance to buy equity in tether at that time, would have been the best investment you could have made. The bigger issue for tether is that with the rates are coming down, they're going to generate less free cash flow.

So a doveish fed hurts the earnings power for tether. I'm less interested in owning tether as equity now. I would wait for an IPO to happen. and then I'd look to maybe pick this up at the bottom of an easing cycle. And essentially, tether is now this rates play. When you expect rates to go up, you should go by tether. Simple fine a bit. I mean, as I look at that thing, too, the other part to look at,

Rahman, your comments about banks start leading this way as the liability side of the balance sheet. Like, I'm going to remind people, if you think about tether, you probably need to think of it sort of three segments to their liability stack. One is demand deposits, right? Which is to say, can I go demand redemption of this thing right now and feasibly have that happen? Number two, I would suggest I'm going to call this money that doesn't feasibly have other dollar options, which is like, okay, if I redeem my tether, what am I doing with it?

If you don't have good banking access, if you don't have like some degree of ability to receive funds, you're not going to be redeeming out of tether, but if you want to hold dollars, you're going to hold it. So if you're like in a third world country without good ID, can't easily onboard, engaged in great market activities, evading your own country's capital controls, like all of these people are stuck in that trade. And then the final part is a decent amount of tether is probably just straight up bricked. Like somewhere between billions and 10 billion is like lost on chain. That's like Chris intending to send money to Alex and sending it to the wrong wallet, now it's gone forever, like protocols that got hacked and the funds are frozen.

And like, you know, like one thing after another, and all of these numbers are maybe small individually, but when you've been operating since 2014 and there's been a lot of bleed onto things, they have a lot of like, I'm going to call it equity capital trapped at the bottom of the stack. So the other part I would say is as you look at tether and think about speculativeness, you've got to understand not every penny of that is redeemable at this point. So I think people, really misunderstand the stack you're right on the mark you can't get a bank run on tether fundamentally it is a bank it's acting like a bank that borrows and it funds asset but how do you get a bank run it's it's difficult to even find the bank that powers tether and it's very difficult people spend

years trying to find out which bank enables tether you get an offer from tether's point of view that's a feature not a bug yes no i agree with that also cancer fitzgerald um no i'm just giving people a hard time here. But I think it's one of those things where if I'm worried about the future path of tether, it's not insufficient assets. It's what Chris said earlier, which is as you breach into more institutional spaces, somebody starts asking the question, hey, yeah, where does the yield go? Right, which is something tethered doesn't have a great answer to. Like, if I'm a corporate treasurer at a company like Apple or PayPal, I'm not using tether because I'm like, I get paid for my money. Like, you're trying to get me to pay you to use my own money and I can just dump this in

Fidelity's government money market fund, bro. Right. And so it becomes when you're dealing with the global south and people who did not have access to dollars, getting out of something like the Bolivar and to dollars is the trade. Like, they don't care about the interest rate. Right. But when you're talking about institutional payments, Chris can tell you they're pretty bitchy about interest rates. And they're vicious. Yeah, I think it's not well understood. You have a regulated asset, the issue that you have is everyone's on the same playing field. And so that interest, if there's a way to get it if you're that institution, you're going to get it.

And it gets squeezed to zero. And your profitability in the context of rates coming down gets squeezed. And so the only way you survive is through mail. You see it over and over again. Regulation forces consolidation and scale because margins get so complex. impressed. So it's going to be a really interesting battle that's going to happen. Places with trap liquidity where maybe, hey, you come into my arcade, you got to use my token. That's fine. Maybe like certain, I don't know, prediction markets or something, but the big boys are

going to be squeezed and they're going to be big. I mean, the hard part about the prediction market thing is even like, say one of Kalshi or like polymarket starts paying people the interest on the stable coins there and the other one doesn't. well, now one of these is positive carry to put your money on, right? Like it just takes one. Yeah, look, I think that I'm surprised if they're not already pocketing that interest. If you run an exchange, you make money from fees, interest, and maybe data, I think over-indexing on the data, but like you should be capturing interest in fees.

They're waiving fees. They're one, like switch away or deal with Circle to be materially profitable. Yeah, I agree. All right. So speaking of one light switch, there was a CME outage recently, 10 hours at the main data center in Illinois that halted futures trading across U.S. equity bond and commodities markets. The cause was apparently a cooling system failure pushing server temps to 120 degrees Fahrenheit. As is always the case, the backup systems didn't kick in fast enough. Probably hadn't been tested.

It disrupted prices globally. It's a single point of failure. Guys, is there any technology that we could think of that might fix some of these issues that we could engage with? Look, I ask that sarcastically, but I want to say this is a point for people as like a market structure person. Any system with a single point of failure, it's a matter of time until you have the failure. Well, all these companies have big disaster recovery policies in the wake of 2001. on every bank. Everyone on this panel knows that. But I guess it didn't work. Like, did the regulation actually deliver what it's supposed to go do? It seems like it did not. How many of those do you think

actually work? I don't think it's policies and procedures that collect dust. It's someone's job to read it. And then reality happens. And, you know, I think they're less robust. I saw a ton of that I think it's actually part of a bigger issue. And like if you go back to the global financial crisis, I mentioned earlier as at Lehman. Derivatives back then and CME is obviously in a derivative space, unregulated largely, and they were disaster because there's interconnectedness and counterparty risk everywhere.

And so literally the Fed called and they're like, hey, banks, they got us all in a room and they're like, you got to figure this out. And the problem back then is we didn't have technology. And so the solution was, Right. We're going to centralize it. We're going to put all this capital into it. It's called clearing houses. And we're going to make sure that we're going to watch it and we're just going to call more and more capital. And that's it. It's going to be this humongous point of failure. And we did that for $700 trillion worth of derivatives notional. It was humongous. Having if I, we didn't have

technology. You know, given the choice today, if we were to have that conversation, I'll probably say it's not the best model, right? Because if I had technology that would distribute that risk, make that risk resilient, much better system than having a freaking air conditioner blow up and take down, you know, one of the most important markets in the world for 10 hours that people need. Thank God, honestly, it was like over the Thanksgiving holiday. Could you imagine if it happened like during, you know, a stress or payrolls or something like that? It would be just that. It's awful. It's inexcusable. And so, Yeah, that's why we need to continue to get regulators focused on principles,

not enforcing compliance for compliance sake, forcing intermediaries, saying, hey, we had this new tech. Like, why are we forcing, and this is what I do every time I go to the global market advisory committee. And you just saw SIFMA published another piece today that we should all read, talking about how, hey, don't move so fast with this tokens. It's going to blow everything up. That's the whole point, guys. The point is that there is a cheaper, better, more efficient way.

And then institutions have to figure out, am I with, am I going to be trying to solve problems or am I going to protect my moat? We all know how that story ends. The SIFMA thing, I think, is particularly interesting. And the timing, it's like, guys, didn't the CME just break apart? And here you are saying, don't innovate better systems, right? Like, what are we doing here? I mean, look, I wrote a paper on equity market structure with V about some of the pathways. dependency of history, Chris, to pile on your point, which is, I will remind everybody that the

current system of like a centralized depository to hold all the shares was a hack, because originally they were like, well, every TA should be robust on a standalone basis and things should be able to move between them. And that's too hard when you're calling everybody on the phone, like for the fast version of communication. But now we live in a world where actually the market structure, everybody agreed at the start would have been better if achievable is completely achievable. And we have people saying, no, no, no, we do it this way. We should keep it. I guess it feels very two-faced to me when people are saying, oh, we're the much safer way. And yet all their systems are breaking constantly.

You know, talking about systems is kind of ironic that for many years, the SEC didn't want to approve an ETF for Bitcoin because most of the volume was basically taking place offshore, right? And then, I mean, and that meant basically Binance. And we got the ETF approved and a year and almost two years later, 22 months later, we get basically Binance crashing and literally making the entire industry collapse at least short term. But the tokens of the ETFs were fine. Though I will also say, yeah, to some extent, I think that's a little bit of the SEC lighting the house on fire and then saying that it's a fire hazard. Right.

Like, why was all of the trading offshore? Because they kept trying to blow up all the U.S. exchanges and drive U.S. business out. Well, it's sad. And like, let's be honest, a lot of that activity. And it's a round peg in a square hole. We just can't. It's been very difficult to apply perps on an intermediate market structure on shore. I mean, I testified in Congress in this a couple of years back, and it's just been very, very difficult. So yeah, this is what happens.

You force it offshore to an unregulated market, and then 10-10 happen. And everyone's like, it's crypto's fault. Maybe, maybe not. Yeah, good point. And I was going to say, and then later on, after we've decided crypto's at fault, the CME has an air conditioning problem and nobody can trade regular way. futures. I was going to say the punchline here, people, is multiply like redundant systems. Because I will also remind everybody to

what Alex just said, which is a really good point, it is Binance that broke, right? Like it was still possible to operate things elsewhere if you had multiply redundant systems. Nothing was stopping you from trading on chain. It was the centralized exchange that broke. All right. So on that note, we're at time. We have to let everybody go home. So thank you for joining us for this episode of Bits of Bips. We'll be back in one week to discuss more about how the worlds of crypto and macro are colliding. Until then, keep your air conditioning running, please. Thank you,

everybody. Good night.