Unchained - Bits + Bips: Why Bitcoin Is a Leveraged Bet on Global Liquidity - Ep. 710

Episode Date: September 26, 2024

Listen to the episode on Apple Podcasts, Spotify, Pods, Fountain, Podcast Addict, Pocket Casts, Amazon Music, or on your favorite podcast platform. In this episode of Bits + Bips, hosts James Seyffart, Alex Kruger, and Joe McCann are joined by Sam Callahan of The NewsBlock to explore how macroeconomic factors and liquidity conditions are driving Bitcoin’s price. They dive into the Federal Reserve's recent rate cuts, the impact of Solana's token unlocks, and why many investors are concerned about a potential liquidity crunch. Plus, the panel discusses whether Bitcoin’s price is increasingly dependent on global M2 money supply, and how BlackRock’s Bitcoin ETF options could impact the market.  Is Bitcoin simply a leveraged macro bet? And could Solana’s unlocks cause a price squeeze?  Show highlights: Alex and Joe’s takeaways from Token 2049 and Solana Breakpoint Why there’s so little attention on Bitcoin at these conferences The SOL vs. ETH trade debate Why Sam thinks that the Fed cut rates to help the Treasury Whether they think inflation will persist  How China's rate cuts aim to boost its economy amidst export challenges How Bitcoin's correlation with global liquidity can break down during speculative bull runs, despite its typical sensitivity to liquidity conditions The pros and cons of the approval of Bitcoin ETF options Why fears about BlackRock and Coinbase's bitcoin holdings are unfounded, according to James Sponsors: Gemini Stellar  Hosts: James Seyffart, Research Analyst at Bloomberg Intelligence Alex Kruger, Founder of Asgard Joe McCann, Founder, CEO, and CIO of Asymmetric Guest: Sam Callahan, Current Free Agent Analyst & Scribe of the NewsBlock Sam’s research post with Lyn Alden Links Coverage of Unchained on Token 2049 and Solana Breakpoint: Should the Solana Foundation Be Dissolved? Yes... and No... $1.3 Billion Market Cap BONK Caught Asymmetric Financial's Eye at $28 Million, Founder Tells Solana Breakpoint Event Bring Back ICOs, Says Multicoin Capital’s Tushar Jain, Winning Agreement From Debate Adversary Qiao Wang of AllianceDAO PYTH Stakers Get Carrots and Sticks as Douro Labs Rejigs Staking Mechanism DeFi Protocol Sky, Formerly MakerDAO, to Launch on Solana Blockchain Firedancer Efforts Bring Solana a Step Closer to Leap in Processing Power, Says Jump Trading’s Science Chief  Stoner-Originated Proof-of-Liquidity Network Berachain Scores a Hit at Token2049  SOL vs. ETH Unchained: SOL on Course to Flip ETH, Says Multicoin Capital’s Kyle Samani Alex’s tweet: “Ironically $SOLETH is barely up in 2024” Rate cuts and macro: Fed Cuts Rates for First Time Since 2020 China: Reuters: China's central bank unveils most aggressive stimulus since pandemic |  ETF options: CoinDesk: BlackRock Bitcoin ETF Options to Set Stage for GameStop-Like 'Gamma Squeeze' Rally Decrypt: SEC Hits Pause on Ethereum ETF Options Following Bitcoin Nod -  Kamala Harris: Unchained:  Kamala Harris Makes Her First Comments on Crypto Harris Commits to Prioritizing Emerging Industries Like Blockchain in Speech Timestamps: 00:00 Intro 02:55 Takeaways from Token 2049 and Solana Breakpoint 07:14 Little Bitcoin interest me at conferences 12:23 The SOL vs. ETH trade debate 17:32 Sam’s view on the Fed’s rate cuts 28:55 Will inflation persist? 41:14 China’s rate cuts and economic boost 49:44 Bitcoin’s correlation with global liquidity 1:02:43 Pros and cons of Bitcoin ETF options 1:13:23 BlackRock and Coinbase Bitcoin holdings fears Learn more about your ad choices. Visit megaphone.fm/adchoices

The central banks are the only game in town. And then monetary inflation fuels asset price inflation. And so understanding that dynamic is really critical for investors to navigate the markets and manage risk where we are in the liquidity cycle, how different assets respond to those changes in liquidity. And Bitcoin is just a really useful macroeconomic barometer, even if you're not going to invest in it, but you should probably keep an eye on it. 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 Joe McCann, Lord Commander of Asymmetric and Master of Bunk. Alongside, Alex Kruger, Kroger, Macro of House Asgard, Protector of the Realm. We're here to discuss the latest stories in the worlds of crypto and macro news. Just remember that nothing we say here is investment advice. Please check UnchainedCripto.com slash Bips and Bips for more disclosures. Also joining us today is Sam Callahan, current free agent analyst and scribe of the newsblock. Today's episode is brought to you by Gemini, a U.S.-based crypto exchange built for new and advanced traders.

Gemini is offering new customers $15 in BTC when they trade. Sign up today to earn your Bitcoin. If you're envisioning ways to make an impact on transforming global systems through blockchain, the Stellar Meridian 2024 conferences for you. Get $50 off your ticket now at Meridian. by using the code Unchained Pod. Sam, before we get into this, why don't you give a little background on who you are and we'll get into the show?

Yeah, first off, thanks for having me on, guys. A big fan of the show, Joe Alex. It's nice to meet you, James. Good to see you again. Yes, I've been in the space. I've been kind of closely following Bitcoin since early 2017. I've been writing content across social media, blog posts, that kind of thing, couple years and then I went more, you know, professional, became a Bitcoin analyst, and then

the lead analyst at Swan Bitcoin. Recently, I've been doing more contract work, just released a report with Lynn Alden, and I'm also an advisor for multiple companies throughout the space. And yeah, just, you know, I focus more on macro and Bitcoin specifically and just write everything from developments with things like Lightning or Arc, mining, as well as how Bitcoin fits into the broader macro picture. So kind of span all different kinds of thing with my research. Awesome. Before we get, we're definitely going to talk about that report that you did with Lynn. That's the primary reason that I thought you'd be a perfect analyst for today. Also, I'm a little sick today, so I apologize to anyone listening that I sound nasally. I did the best I could to correct that.

But before we get into thinking, Joe, Alec, you guys were just over in Asia. You were at Token 2049. You were at Salon at Breakpoint. Let's get in the rundown of what happened there. thing of what was of most interest? Let's get into it. I think the most interesting thing for me was the divergence between sentiment behind the screens and in chat rooms and the sentiment in situ in the conferences, right, in both breakpoint and 249. It's especially in the summertime sentiment actually reflected very well, the downwards chop and especially price action alcoins has been, it was, it's been really, really bad until recently. And you wouldn't believe that that's the case if you're not behind the

screens and not basically chatting with people throughout the summer and go to Singapore and basically see and perceive the exact opposite, basically, quite literally the exact opposite, both from traders to builders, to founders, to business development guys, to you name it, right, to just fans, everybody, extremely, extremely high spirits. And, yeah, that's my main takeaway. Yeah, I mean, from my perspective, I think there were a handful of things that really stood out. First, Token 2049's Exhibitor, exhibition floor, I mean, this might just be my own filter, but I didn't recognize 90% of the companies, which is, by the way, I think that's bullish,

because there's a ton of stuff that's getting built, and that means there's a ton of stuff getting funded, that I think we don't see necessarily, certainly here in the United States, because unless somebody's raising $150 million round for story protocol or something to that effect, you just don't see a lot of, like, super small startup-y-type businesses getting these sort of announcements and funding.

They are out there. There's a ton of stuff that's getting built. The exhibition floor was massive. I mean, and I just, you know, I was actually wandering around aimlessly looking for the speaker's lounge and I just kept walking around. I could not believe my eyes how many companies were exhibiting, right? So I think that there is something to take away from that, meaning there's capital globally that's funding businesses globally that isn't necessarily coming out of the United States. And I'm not suggesting that this is some, you know, brain drain effect because it's so difficult to. to do startups in crypto in the United States, even though that is true.

I just think it's the nature of crypto is a global phenomenon. It always has been, always will be. And that really stood out to me. The second thing that stood out to me was Vitalik's singing. If you guys see this? I did not. I mean, who knows to him, dude? I would not have the stones to do something like that.

But man, that was tough to watch. that was definitely like a highlight whether you like it or not that was a highlight and then third this is probably somewhat self-serving but i i was on a panel with myself igie ozelia and ansem to talk about you know mean coins and the attention economy and i really feel like she just crushed it i mean she took she took the kind of air out of the room so to speak and then just has carried it on the internet since she threw a huge party. We announced a thing together and it was amazing. But like I was,

I had multiple people come up to be, some guys with like huge, you know, kind of YouTube channels and, et cetera, just being like, I was dead wrong about Iggy. Like,

she's the real deal. And I was like, I try to tell you guys, right? Like, she's not playing. So, yeah,

it's a little self-serving, but like genuinely the response that, that I got from people about that panel and her specifically with what she's doing with, mother, her token, but she's basically building a brand, was a big standout. My understanding there's also 20,000 attendees, which is just crazy. I thought it was really well executed, to be totally honest. For a conference of that size and scale, it's obviously very hard to pull it off, number one, let alone have a decent amount of signal that's coming from the industry.

And I think that the folks at token 2049 did a great job of that. Can I ask a question for you guys? Sure. How many panels or how much discussion revolves around Bitcoin at conferences like that? Oh, I would say very little. Why do you think that is? I mean, I think on the one hand, a lot of folks are trying to find the thing that's going to make them the most money, and that's probably not Bitcoin, you know, right? So, like, if you can find some new, like, I remember last last year at Salana Breakpoint, there was a company called NOSANA that, you know, talked about this kind of AI-related token project that, or excuse me, AI-related project, they did in fact have a token.

No one had heard of them. And they turned out to be pretty legit. And, you know, their token went up a zillion percent, you know, from Solana Breakpoint last year to, you know, call it end of Q1 this year. I know a lot of folks that are like looking for that type of alpha. and, you know, Bitcoin's what, 63,000 or so, whatever, 64,000 right now. I mean, I don't think a lot of people are like talking about Bitcoin, the thing that's happening with respect to Bitcoin.

That being said, the layer two meta protocol stuff, there was definitely a lot of activity around that. But just pure Bitcoin, I didn't see a lot of it. Again, maybe it's selection bias. Yeah. I'm just curious. And I just haven't been doing a conference like that. I'm just kind of wondering how much of the conversation goes there.

But it makes sense, just different culture, different kind of type of people looking for that next big percent gain. I get it. It's more like VC in my mind. Yeah, it's kind of like VC. It's kind of the same way. Like you're going to take a gamble on, I don't know, 50 companies and a couple of them will do okay. And you're just hoping you hit one or two that do what Joe was just talking about, those massive percent gainers. Yeah.

Yep, exactly. Something else is the BTC FI on a market cap basis is only 0.5% of all of crypto market cap. So it's still pretty small, like very small, you know. And so what about Salon of Breakpoint? Is there anything particularly there? Were you both at Salonah Breakpoint? I was. Yeah, I spoke on like a fireside chat about finding Alpha and liquid hedge fund strategies.

And at that point, I was so jet lag, tired. I was like, I barely remember what I said on stage, but apparently it was fine. But I actually, like, I really do want to give a big shout out to the organizers Lily and actually, they, like, I think one of the things that's really cool about what the breakpoint is doing is that there's so many conferences are like, come show up, see all the famous people, you know, in crypto, talk on a panel, maybe there's a couple of keynotes, bunch of exhibition, like, they just fundamentally change. changed the programming model for a conference.

And it was extremely well received. But even the way that they did the food, it was like food cards and stuff. It was just cool, the way that they actually ended up doing it. And the announcements that came out, obviously you guys know I'm biased here, but like massive amounts of institutional news came out last week as it relates to, you know, these institutions adopting and utilizing Solana, let alone like countless fundraising rounds and huge updates to certain projects and, you know, primarily jumps firedance or client, which is the Salon of Validator client that, you know, can reach an upper bound of a million

transactions per second on commodity hardware. They've got that running on TestNet now. And I may be mistaken, but I thought I saw them say that it's actually run on Mainnet as well, but only for voting transactions, not actual transactions. That's like, I don't know, pretty big deal. Considering, you know, Jump, it's been working on this for a while. It is an open source project, which is great. I think everybody was kind of expecting it, but you never know, right?

Like, as a software developer myself, like, you know, the number one thing you learn is to never give a date when you're going to ship something because you'll never hit it. So, you know, overall sentiment was like pretty positive. I think Alex got a little sick of it. But, yeah, I think overall, like, you know, one of the fascinating things that happened in token, 249, that kind of bled into breakpoint was Kyle Simani at Multiquine, give a talk about how Sol is going to flip Heath.

And he makes a very compelling case. When that video comes out, I think he might share the deck at some point. You can call us biased all you want. It's just the data. Data is there to support it. He made a super clear argument. And then you see, like he made that argument at token 2049. And then you see what happened at Breakpoint.

You're like, man, I don't know. This is like a higher. probability chance. I think people actually believe because a lot of people just suffer from backholder bias and they can't seem to let go. You're talking about a lot of eth maxis there. I'm not coming. I'm not coming on defense of ethmaxes, you know. It's like, all right. While we're talking about the sole east stuff, so I guess like what's your take of that, Alex? I know you talked about this, the sole eth. I mean, right now the big story is how down bad ETH-BTC ratio is.

We're sitting real low. But you have a tweet out there recently talking about the fact that Seoul ETH really hasn't moved all that much. What's your take on Kyle Simani's view that Sol's going to flip Eid? I think it's very feasible on the long run. I mean, I'm not putting my, how to put it, I'm not betting on that trade, but I think it's very feasible. It's all has reached the way I see this,

Role is the only chain outside of Eiff that has reached escape velocity. They have nothing to prove. They have everything they need to make it happen. And yeah, there is volumes are there. Innovation is there. My comment was just on the fact that, yeah, it's because a tweet I put recently, right? I'm looking at charts and I'm looking at the euphoria and I just pop up the breakpoint euphoria and I just happened to pop up this whole East chart.

and it was up if you change the window by seven days, it would be flat on the year. So, yeah, of course, you know, picking the window is very... Nice little scary. If you just use these seven days. Yeah, exactly.

It's kind of unfair, but still, it's like, okay, it's like the differential in implied volatility, for example, and between Seoul and Anith is about the same as the performance differential price performance. of 2024. So, like, I was just thinking and reflecting that by looking at the euphoria and the attacks,

because the attacks are regular, this, if, Eve going after Seoul and Seoul going after Heath, you would expect the price differential to be 2x, not 25%. Yeah, that's pretty much about it. I'm bullish, Saul versus Eve, say, one year out. six months out it's hard to say because there's a lot of unlocks coming up early next year so i would i would move by window further out yeah i mean Alex brings up a great point with the unlocks i'll give that in a second i think it's no surprise i've been beating this drum for a long time that you know the sole eat trade is pretty obvious going to break out it broke out to a new all-time high this

year i think it's up like the the rv trade itself relative value trade itself's up probably like 25 26% year to date, which, you know, if you lever that, it can be great. Not recommending anybody to do that, but you could lever that trade and get some extra juice out of it. But, you know, being up 25 for the year when ETH is actually flat to, I guess, slightly up small now year to date, like be long, sole, short Eth and do, you know, a massive outperformance of just being long Ethereum. With this break into Togo unlocks, I think there's some internal market workings that I don't think a lot of people are aware of, mostly because most people aren't running hedge funds that invests crypto.

And so when those, the FTX estate sale for the lockshole happened, there are various like rolling windows of when people buy into those things. And a lot of like, I would say non-traditional crypto firms, you know, these are firms that aren't in crypto bought a bunch of that stuff. and they bought it, and they hedged it. Well, how do you hedge it? Like, if you get a 50% discount on something and you import, like, you know, a futures contract against it, you can capture the basis.

And that's about 100% annualized. It's pretty damn good. The problem is, and I don't think a lot of people recognize this, is that these folks that hedged it, they can't post the locked soul as collateral. And if they can, it's only some percentage. And that means they have shorted a perpetual contract or a forward and then the dealer goes and shorts perpetual contract with cash. So for how big these unlocks are, the big bullet payment is at the end of March next year,

there's a lot of people that are really short to hedge that with cash. And that means if Solana goes on any sort of run towards, you know, all-time highs, makes a new all-time high, they're either going to get blown out of those shorts causing a squeeze, or they're going to have to post significant capital to meet the margin requirements for those hedges. This is an aspect that I don't think a lot of people are recognizing, and I think it's probably pretty obvious that people would be selling ahead of the March unlock. Who knows? Where price could actually be before then that could actually trigger a lot of these hedges to unwind just because of the margin requirements.

I have not heard any of that before. So all I've been hearing about is like everyone's worried about the massive unlock of those, the locksalana from the FTXA. I have not heard the other side of it, which is interesting. Let's move on to macro rates. Joe, I'm sure you were happy. I mean, I was saying I thought the Fed should do 50 bibs, but I thought they would do 25.

I didn't think they'd actually go 50. I think I said in the last episode, I think after Jerome Powell's Jackson, whole speech, it kind of seemed like he was on board with doing 50 and he was just trying to convince the rest of the Fed to kind of get on board with him. And I guess he did for the most part. There was one dissenter. But yeah, the Fed went and cut 50 basis points. Markets rallied. I guess the question is like, has the Fed achieved a soft landing? Sam, what's your view on how the 50 basis point cut impacts Bitcoin, crypto, the economy more broadly? Did you think it was the right

move? What are your thoughts overall? Yeah. Well, it's hard to say like, whether it was the right move or not. I think it's very telling that they're cutting rates. I thought it was telling that there was one dissent from Bowman, and she kind of said, well, the economy's, you know, doing pretty well, all things considered. You know, why are we cutting 50 bips right now? And, you know, Powell can say they're concerned about these data points

that have come in over the last couple months and that the labor market's deteriorating and all this jazz. But the fact is that core CPI actually went up to 3.2% in September and I think the real reason they're doing this is to basically help out the Treasury. I think we're in a period of fiscal dominance, and they can talk all they want about deteriorating economic data, but the real reason is around the fiscal situation. And I think we're living in a time of financial repression, and what they're doing is they're lowering interest rates to make the debt burden more affordable.

And so I think this is a telling sign for what's to come over the, the more long term. I think what we're going to have is a period of higher trend inflation above 2%. I think they're going to be okay with it around 2.5%, 3%. They're going to let this go. They're basically going to liquidate the debt in real terms. And so this is after the Bank of England cut, Bank of Canada, ECB, Bank of England. So they've all kind of cut rates. And now the Fed kind of is doing it too. So in coordinated fashion, they're cutting rates. And I think that improves liquidity conditions. I think that's going to improve asset prices.

And we're in this period where the monetary policy is at odds with the fiscal policy. And one has to bend the knee to the other. And the Fed just bent the knee to the fiscal side. And so that's kind of how I see things. Yeah, I mean, it's a great take. and is also supportive of why in early July I was out pounding the table saying the Fed's going to have to cut 50, especially if they don't cut 25 in July. There's a couple of other things to point out, which I've probably echoed in the past, which is there's a huge amount of time between the September and

November meeting. And there's an election, right? And so I think, you know, on the one hand, even if you don't believe the Fed is political, imagine the scenario where in October we get some really bad data for September and they only cut 25 in September. Well, oops, now, you know, are you doing 75 in November? Are you doing an emergency cut? No. But the point is, with that window of time, there is a case he made that they're hedging against that and getting out in front of it. Now, let's discount that to zero. The real rates have been hovering over 3% for quite some time. It's incredibly restrictive. From a historical perspective, it's usually around 1%. Our star is usually around 1%. Trading around 3%, like ridiculously high. You can have a Goldilocks

economy where you cut rates, even with stocks at all time highs with the economy doing, call it 2.5% GDP or 2.5% GDP. I think that that's, it's not super common, but it's reasonable because we've been in a restrictive environment for so long. And to Sam's point, I see all these doomers on FinTwit talking about a trillion dollars and interest payments and this and that. It's like, all they got to do is cut rates. And now you can kick the can and also your interest rate to service the debt is down significantly. So this is one of the reasons why we had this view so early on because if you put it all

together, it's not crazy to think that they would do 50 in September. Just because the economy's doing okay, yes, Sam mentioned the CPI number, but if you look at inflation forwards, they're way below target, one, two, and even five year at or well below 2%. So even the market is assuming inflation comes down. And for me, I struggle to see a situation where we have a reacceleration of inflation in a meaningful sense with crude oil basically collapsing. I think popped up a little bit this past week, over 70 again, but it looked pretty bad. China actually has a record amount of unsold inventory in their cities where they manufacture, where it would take 18 months for them to unload all the inventory. They have more stuff. They're just throwing it away at this point.

They have so much stuff. And they're a huge export business, right? So prices on that, dirt cheap. Even, you know, other countries, we saw South Korea yesterday come out with a negative CPI print. So from my perspective, yes, there's the coordinated central bank, you know, easing programs that are in place. Brazil is an outlier. They actually hiked, which was interesting. But for the most part, this is a pump for global liquidity through a central bank, coordinated effort of easing policy, coupled with, I think, some of the hedging that the Fed wanted to do heading into what is arguably going to be one of the most contentious, if not the most contentious presidential elections of history.

Alex? I think for me, the most interesting thing about this Fed cut was that like the market was really split about direction. Like how would the market react to the cut? So even regardless of 25 or 50, a lot of people thought that, and it's not just people, is asset allocators, they speak with their pockets, right? So they were expecting actually a cut, either 25 or 50, to trigger the beginning of a very significant downturn

in both inequities and by extension in crypto. And it didn't happen. Yeah, of course it can still happen. But when you're talking about such a massive short signal, you would expect the short signal to begin with the, the trigger, which was the, uh, the, uh, the, uh, the, uh, the, uh, the, uh, the FOMC, right. Uh, and what we got instead was, uh, basically, uh, a normal reaction where basically the market is, is, that the Fed is coming in more dovish and expected a little bit. Uh, and, uh, the market taking that positively. And, uh,

and I think it also speaks of how many people were, uh, not properly positioned for, for this. Precisely because of this fear. That's why the fear is so important. that's right yeah i mean you know i was i was saying for weeks that if they cut 25 equities are going to get smoked if they cut 50 they're going to rip people are like what no if they cut 50 people are going to think it's like the economies and shambles is not look at what happened during covid and the global financial crisis and i'm like right those were like horrible black swan style events right like to alice's point the positioning was pretty neutral heading into it and so you had a lot of cash on the sidelines. Real money was not buying. You had, you also had programmatic

buying for programs, the programmatic buying through CTAs as well as corporate buybacks. Those ended the week of the Fed, but those were also like basically a permiss, a passive bid in the market. And then, you know, even Arthur Hayes was saying like 50 bits will crash the markets. Like, no, no, it's not going to happen. And it didn't happen. The opposite happened. What is most telling is what happened in the metals markets. You saw gold and even even silver, silver absolutely exploding, gold hitting you all-time highs. I think that's telling you where things are headed, especially as it relates to something like Bitcoin. Because when you start to, you know, see that the dollar devalue and also people get less yield on their real yields come down,

that cash has to go somewhere. And that cash is like you're going to chase risk or it's going to chase, you know, debasement hedges like gold. And eventually that should catch up to something like Bitcoin crypto. The one thing I would say that's a little bit different. that I kind of do agree with some of Powell's concerns about the economy, specifically with jobs. It's like when you see unemployment, it's very momentum. Like it kind of like pedals on top of each other. You see a couple people losing their jobs. They're spending less than more people lose their jobs. And the trend is going in one direction right now. The unemployment is going up. So it kind of makes a little sense to be worried there. And then also if you look at like even if you assume like the neutral rate, even if you assume the neutral rate has risen a significant amount from where everyone kind of assumed it to be in the

2010s and early 2020s, we're still really restrictive. We were still really restricted at five and a half percent. So I don't know that they needed to be so restrictive. And also to Sam's point, like I think I think the Treasury's fine with a little bit hotter than, you know, the 2% target rate of inflation because of the debt that we have. So I think for all those reasons, it kind of makes sense to do 50. I think it also, like you said, it gives them more optionality. I think maybe they could have gone 25 in July and then 25th of September, and we wouldn't be having this conversation. Right now, the markets are pricing for another three cuts before the end of the year. So at some point between November and December, the markets are expecting another 50 basis point cut, whether that's 50 in November,

and then 25 in December, what have you. That's what the market is expecting. So they're expecting more cuts. So I think that's going to slow down. I think the market's pricing too many cuts, but again, I thought they were pricing too many hikes when the Fed had to go crazy and start hiking stuff. So I'm not the person to listen to on that front. I'll just tell you what the markets are saying. Well, the, you know, what's interesting is I was having this conversation, I think on another podcast or with somebody basically saying like, you know, if they, if they cut 50, like, shouldn't they just cut 25, then do 50? I'm like, if you do that, then you're, you're more or less admitting that you made a mistake. It's way easier to start high and then taper down

from there, as opposed to, let's just do, you know, a 25 dips cut and then, oh, shit, we now need to do 50 or 75, right? So we actually still believe that they're going to do a fifth, they're going to do 50 again in November. I mean, this is obviously pending a lot of incoming data. But yeah, market's still pricing 75 bits of worth of cuts. Like, there's only a couple more meetings. So one of those needs to be 50 and it's unlikely to be December. Like, why would you do 50, then 25, then 50? You just do 50, 50 and then just do 25 through the rest of 2025. I just, you know, I just, I don't even know if a 50 or 25 rate cut is going to be that stimulative to the economy based on how much fixed debt people have.

You know, 30-year fixed mortgages around 2% or businesses that have turned out their loans to 2030 and have a super low interest rates. Just like how spiking interest rates didn't cause a terrible deep recession like everyone predicted, I'm not so sure that reducing interest rates by this small amount. is going to have that big of an impact, given those dynamics. Which brings me, again, of why they're doing it. And, you know, I just, you look at everything. You look at everything in terms of the amount of lending that's happening in the economy.

You know, domestic banks, net percentage of domestic bank tightening standards have been falling all year. GDP's at 3%. According to GDP now, you have retail sales pretty good. Consumers pretty good. unemployment rates still pretty low. This is why it always brings me back to the fiscal side of things because in an area of fiscal dominance with that's GDP this high, it's actually worsening the inflation picture when they keep interest rates higher because it widens the fiscal deficit, right? And so it actually could probably help them bring inflation down by lowering interest

rates because it will reduce the ballooning fiscal deficit, especially if we don't see politicians ramp up the spending more. Now, that's a whole different discussion, but I really think this is more about the fiscal side of things. And I think most of the inflation that we had was more fiscally driven. Now, inflation came down drastically because there's other confounding factors due to the supply shocks, the pandemic. That caused to spike all the way to 8, 9%. And I think once those things kind of relented, now we have it kind of at the baseline. And this is where you have the trend inflation that we're going to see that sticks around.

It's super sticky. And this is what we've seen throughout the 70s. where you see these like spikes during the supply shocks, like the oil embargoes. But over a long period of time, it stays kind of above average because of the fiscal, the easy policy. And so it wasn't until the 1980s,

even after Volcker spiked interest rates up, you didn't really see inflation fall in the early 80s until Ronald Reagan came around and actually started to have some fiscal policies and pass some tax policies that actually brought the budget back in. And so until we see kind of any kind of austerity measures or tax hikes or things that balance the budget, I really think we're just going to keep seeing inflation kind of

run here. And, you know, whether these, I think the rate cuts have to go, I think there will have to be multiple rate cuts to actually see some kind of meaningful stimulative activity in the real economy from it, given the fixed debt dynamics that I mentioned earlier. So again, I just, I always go back to the fiscal picture. And maybe I'm just like focused on that. Maybe maybe I'm just kind of like really focused on that. But I really think that it's an important thing to understand because it's unique. It only happens a few times the last century where we've been in this position. And I think it's important to factor in. Interest rate policy, just real, like interest rate policy, it's broken. Everyone's focused on interest rates. But they should be focused on like other things,

like the Fed's balance sheet, like in May, when they reduced their QT from 60 billion to 25 billion, you know, that's, that increases liquidity. And so they can use other tools outside of interest rate policy, which becomes completely ineffective when the debt levels get this high. They're going to use different tools to try to, you know, pull their levels with liquidity and make sure everything's working okay. And the treasury market's working okay. You know, everyone's focused on interest rates, but I don't think it's the right thing to really focus on. Question. When you say if inflation is going to run, do you think we're going to go back to 8, 9% in the next couple of years, or do you think it's just going to run hotter than the 2%

for an extended period of time? Well, this is the other thing. We are in this period in terms of structural inflation, I would say dynamics, which is heightened geopolitical risks. So another thing that factors into the inflation picture is basically like access to trade routes. and if we see continued conflicts arise, that's when you can get these like spikes of inflation, right? It's like supply shocks. And so I think there's heightened risks there that could get up to those levels again.

But really what I'm talking about is more of like this like above trend, 3%. The thing is they want that to liquidate the government debt. Yeah. But they don't want it too high because they don't want like civil unrest, right? So it's a very balancing act where they wanted to run a little bit hotter, but they don't want to piss everybody off too much. Yeah, you don't notice 3%,

but you damn well notice when it gets above like 7%. That's what everyone has been so pissed at Biden for. I mean, to your point, like it doesn't really matter who gets into office as far as I'm concerned, because if it's Harris and the Democrats, they're going to do a whole bunch of subsidies and increase the deficit probably.

And if you're Trump, you're going to do tax cuts and probably increase the deficit. And it's all, honestly, it doesn't really matter from that point of view who gets in as far as I'm concerned. But I mean, obviously some people have different views. You know, on that, I think it's like, like, I would agree if it's Trump or Harris and it's a split Congress. But if Harris comes in and she gets the, she gets both the house on the Senate. Valid, valid, valid point.

We're going to get taxes on unrealized gains. And it could get very ugly, I think. That would be something. That would be something. There's a couple things I want to comment about. Sam's view where I agree and then respectfully disagree on a couple of things. The first is I agree the fiscal dominance is super important. That piece is Yellen is, it's Yellen's show right now. And it has been for a while. And it's probably going to continue to be for quite some time. The one thing I want

to point out though, and you know, I think James, you and I talked about this on the last episode, we call it the K-shaped economy. I call it a bi-hotal distribution is that on the average GDP is good. On the average consumer confidence is high, on the average retail sales up. But if you actually split those cohorts from people that are like, say, you know, wealthy kind of upper class, if you will, to, you know, lower income earners, they're struggling, right? Like, there's a major issue with higher rates. And this also is reflected in, you know, the Russell 2000 versus, say, the NASDAQ or the SP 500, whereas the Russell 2000 companies are having to pay exorbitant borrow rates to, you know, the Russell 2000, fund their businesses. Meanwhile, like Meta and Apple and Google have zillions of dollars

earning 5% in T-bills, right? So, like, I think it's important to distinguish that, yes, on the average, those data points are correct. But there is a case to be made that the second, you know, the left side of the bimodal distribution is part and parcel to being stimulative to the economy when they start cutting rates. And in fact, just today or yesterday, We saw the mortgage refinancing index spike. That's not a coincidence with a 50-bibs rate cut, which is, I think, you know, on the margin at a minimum, stimulative because people have more cash in their pockets. And furthermore, like this should eventually, for new homebuyers, I think I saw somebody yesterday

got quoted a four-handle on a 30-year fix for a new home. I think that this is actually stimulated to the economy. I think 2025 by time rates and cuts are down another 7,500 bips from where they are here, you know, the housing market should explode. Now, is that inflationary? It's asset inflation for sure. But that's what the government wants. They want to tax capital gains so that they can actually have revenue, right?

So it almost feels like this is all part of this plan. I don't want to give the government that much credit, but like it just feels like it's all part of the plan. and maybe you're right, say, and maybe there is like they run a higher target, two and a half percent, et cetera. The inflation towards markets currently disagrees. But I think that there is some truth to the claim that cutting rates is, in fact, somewhat stimulated the economy for the aspects of the economy that have been struggling since, you know, the tightening cycle became. Yeah. No, I think that's fair. I do think about the statistics like, you know, what is it, 60% of spending comes from, you know, from the top 10% or something like that.

Right. And then how much of the S&P 500 return has been max 7? Exactly. If you're just going to see more concentration. Equal weights catching up now, I will say real quick. Totally agree with that. Absolutely. Yeah, we're starting to see a bit of a catch-up in the other one,

other names in the S&P 500 over the last few weeks, I will say, which is like new as of like very recently. But the other, the only part I would just, I also agree with Joe. on is like the one area of the market that in straight hikes impacted for sure was the housing market like it froze the entire housing market and I think if you had told people they were going to hike how many hikes they did and the housing was still going to go up though it's kind of stalled I don't think anyone would have believed you I feel like this the last like three years have broken people's like if you look at an economic textbook like it's it's kind of broken everything

like none of it makes for the most part in the way that people are taught traditional economics Yeah, I'm wondering if it'll improve housing affordability that much. I think it will. Will raise home prices and that'll offset any kind of savings from a lower mortgage rate, you know, and kind of what the balance there would be. We'll see. I hope it does. I hope it does.

So people could move more, unfreeze the housing market a little bit, and it's just more affordable for people to buy homes. I think it's important. Before we move on to China, which I'll let Joe talk about. do it? So do you think that the Fed has likely achieved a soft landing, Alex? No, yes, I do. Joe? Yeah, yeah, yeah.

Sam, what is your, I do too. So maybe Sam will disagree with us. I don't, I think he does disagree with us. I just don't think it's, I don't think the Fed should get credit for it. That's fair. You think the supply shocks were bigger. The Fed has achieved anything personally. I think they're just taking credit for it now. So you could argue that the Fed at least, uh, has achieved a decreasing volatility. They've been very good at basically delivering what the market,

what the market wants and getting the market to where they wanted to be talking about basically what's priced in by on rates futures. Yeah, that's the one thing I disagree. I think market expectations for interest rates are mispriced. That's what I'll say I disagree with the market in terms of like the five, and things like that. Gemini is a crypto exchange with tools for all traders. Cameron and Tyler Winklevoss founded Gemini in 2014 and have been pioneers for the crypto

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conference hosted by the Stellar Development Foundation in London, England, from October 15th through 17th, 2024. Meridian is where developers, builders, policymakers, and business leaders convene to discuss the present and future of everything from tokenization to defy. Get $50 off your ticket now at meridian.stellar.org by using the code unchained pod. All right. Joe, why don't, so China is also doing massive amounts of rate cuts and stimulus. Why don't you talk about what they're doing over there and why you think they're doing it and the downtrend impacts to crypto and markets more broadly? Yeah, I've been talking about this for probably like five or six weeks now that China is basically in a liquidity trap. and that they were going to have to find a way to stimulate.

They have effectively zero domestic demand. Consumers are, like the consumer confidence in China is just, it's so bad. And inventories are super high. They're clearly an export-based business, excuse me, country. And so what we saw earlier this week was the PBOC come out with kind of three major, three major adjustments. the first being, you know, monetary policy adjustments. So they cut by 20 basis points, the seven-day reverse repo, and a 30 basis point cut in the

medium-term lending facility, which is, you know, accredit to liquidity. They also cut their reserve requirement ratio for large, medium-sized banks by like 50 basis points. That increases liquidity. The second big piece that they did was property market support. And this is the part that I've been actually focusing heavily on because the biggest driver, or in this case, drag on their GDP is their property market. They ended up lowering interest rates on existing mortgages by 50 basis points.

So that's benefiting not only new homeowners, but existing homeowners. They also changed the down payment ratio from 25% to 15%. This is just super, it's intended to be super stimulative from a domestic standpoint. point, they're also making it easier for foreigners to invest in real estate in China, which I don't think anybody's going to do. So I don't think that really matters. And then the third one is they provided, you know, it was like close to a trillion total liquidity through equity market liquidity. So they're just, they're providing, you know, security firms with like 500 billion yuan to basically buy stocks. And then providing them. Yeah, I know. You know, it's

they're also providing share buyback support. So they created a specialized relending facility of about 300 billion yuan that's been set up for listed companies and major shareholders to facilitate share buybacks. So you put all this together and it's like, yep, there's the beginning of the stimulus. Now, what's interesting about this is in the past when China or PBOC has done these kind of like stock market stabilization, you know, plays. within a few months, people realize that it hasn't done anything, and it just goes right back lower. And so our perspective at asymmetric is that we think that they're going to clarify what this actually means. Because at the headline level, you're like, okay, great. They cut interest rates on like the reverse repo, the median-term lending facility.

They cut the reserve requirement ratio for banks. They're doing this stuff for mortgages and down payments. and they're kind of propping up the stock market. But that's probably not enough. And we think that there's a case. You'll see this phrase around Fin Twit called the bazooka is coming. Because this is like, you know, even today, they just gave away $22 billion worth U.S. worth of like air dropped money to the kind of extremely poor people within China.

I mean, it's nothing. It's a tiny amount of money. But they're like, you know, dribbling this kind of stuff out there. And our view really is that there's a risk for she to deal with a Trump win where he slaps these tariffs on imports from that are being exported from China. China is an export driven economy. And if they actually all of a sudden, like, you know, have all this inventory that they're not willing to pay these tariffs on, what are they going to do? Right. So yes, this is a little bit of like, you know, path dependency conjecture. But, you know, we think that there's a good chance that they come out and really clarify and say like, hey, this is the beginning. Here's how we're going to go much bigger because they don't really have a choice. If you look at their fixed income, like their 10 and 30 year bonds are trading at like the lowest yields ever, that they look like late 1980s, early 1990s, Japan right now. And so you either. recapitalize or you try to earn your way out of it like Japan did and look what happened in Japan.

So I don't think this is anywhere close to being done. I think this is the beginning. And given that there's this risk with a Trump win and the tariffs that he's talking about, I think they have to get out in front of this now as opposed to later. Since most people probably know what happened with Japan, but I don't know if everyone do because everyone just usually someone somebody says this is what always happens. there's always a reply, now do Japan? Why don't you tell us what actually happened to Japan after the 90s? Well, they basically had like a lost decade due to the same issues that China is facing. It took them, you know, forever to kind of get out of it. I mean, we started to see the

result of that recently. So you have like a declining population, you have negative interest rates, you have to institute things like yield curve control. These things are not what a, what a country wants to do. Now, to be clear, we've seen this movie before. in the United States and even in the EU. So, you know, in the United States, we had TARP, where the U.S. government said, hey, banks, all that toxic shit on your balance sheet, yeah, we'll just buy that. Now you're good to go. You're basically free and clear. And then in Europe, they did the same thing. The ECB said, we'll do TLTRO, which is effectively the same thing. So China knows the playbook here for the liquidity trap they're in. The question is, are they going to go the route of Japan of trying to

like muscle through it and not sort of like socialized losses, if you will, or are they going to do something like a tarp or a TLTRO? Alex, what are your thoughts on this? How do you think it impacts crypto and equity markets more broadly? What are your thoughts? I think it's marginally good. It's not China. It's not the driver of neither of crypto nor it has a very little impact on U.S. equities.

I think it's marginally good. And I think there is more to come. So they have fully aligned with Joe there. So marginally good is going to get better. And something, by the way, for the audience, I think. Talking about Japan in the 90s, heavily recommend the book called Balance Sheet Recession by Koo. It's a classic. It's really good.

It covers that in detail. So one thing I'll disagree with Alex on, again, finally, we're like constant disagreement on Twitter and on the pod. I actually think China is the final boss for all-time highs for people. And I'll be writing about this in the upcoming asymmetric market update. You can go to readdottasemetric.financial. It's subscribed. It's free. The reason I think that's the case is China thus far has injected the least amount of liquidity

for a year to date of any major country. So they have a lot of catching up to do that they can do on the liquidity side. Two, the majority of spot trading volume, it's in the range of like 70 to 80 percent of all spot trading volume for crypto comes out of Southeast Asia. Now, a lot of that is South Korea, but historically, when there's, you know, stimulative policies in place in China, you start to see people get their money out of China through two ways, Bitcoin and Tether. And so I think actually there's a case to be made that by having these, you know,

stimulative policies in place, this could actually be a major beneficial tailwind to crypto. But of course, we'll have to see if they come through with the policies that are I'm suggesting, and then see if that actually transfers into things like Bitcoin and eventually Tether. You know, on that, I don't recall seeing outflows out of China via Bitcoin. Teter, yes, Bitcoin, no. There are guys that cross the border with suitcases of cash into Hong Kong, so that's probably why you don't see them show up on chain. I, this is a perfect transition to talk about Sam's piece that he just wrote with Lynn Alden about liquidity and its impact on Bitcoin and other markets. I mean, for as long as I've been looking at Bitcoin professionally, like it's always been like this is a liquidity play.

And I don't know how many times you just said liquidity, Joe, but I mean, like everything we're talking about quantitative easing liquidity. Theoretically, over the long term, this should be good for Bitcoin, but just how good for Bitcoin should it be. So Sam, why don't you go through what you found in your piece and how you measured liquidity and what type of data came out of it? Yeah, so, I mean, Lynn and I aren't the first ones to, you know, look at the relationship between global liquidity conditions and Bitcoin. I think it's, you know, I think Raul Paul has talked about it for a number of years. Michael Howell also, but he is kind of like a proprietary liquidity measure. And so we didn't have access anything like that, but we thought Global M2 is a pretty solid measure of global liquidity. And, you know, if you're bullish on Bitcoin, you should be

bullish on Global M2, which I am. I think that's going up. And so- Wait, so define Global M2 real quick for anyone who has no idea what that actually means. Yeah, it's a broad measure of the money supply and includes basically any like readily available cash or cash like equivalence. So I think like physical currency, checking accounts, savings deposits, money market securities,

any like readily available cash that can be used for spending or investment in the economy. And Global M2 is just a measurement. This is actually Bitcoin Magazine Pro came up with this. It's just like eight of the largest countries. I think it's a China, United States, Eurozone, Japan, Australia.

I think I'm forgetting Russia, maybe. But anyway, it's like, it's like eight of them together, so it's their global LM2. So it captures kind of like the amount of money readily available. Or you can think of it as just like an amount of credit creation happening. Another way to think about it is a amount of currency debasement happening, just the amount of monetary units increasing in the global economy. And we specifically denominated in U.S. dollars, and we think that's important because

the amount of U.S. dollar denominated debt out there. And so when there's a strengthening dollar or weakening dollar, that really affects liquidity for these emerging market economies who have a lot of the U.S. dollars denominated debt. And so we think that the global M2 metric denominated the U.S. dollar kind of encapsulates both of those things, both the relative strength of the dollar as well as the pace of money creation happening. And so we think that's like a reliable proxy for global liquidity conditions.

Now, it doesn't include things like the euro dollar market or T-bills, like short-duration bonds, which are kind of like cash-like. And so probably an ideal measure would include something like that. But again, that would be more like a proprietary liquidity metric. And so we used Global M2. And so we looked at it. We wanted to actually quantify the relationship between Bitcoin and Global M2 to actually see, you know, is it the purest, most sensitive asset relative to other asset

classes when it comes to changes in liquidity, changes in Global M2? And we had like a thesis. We thought it would be because, you know, stocks are driven by other things like, you know, corporate earnings, dividends. There's also passive flows from retirement accounts that help buffer it regardless of changes in liquidity conditions, helps buffer stock valuations. And so we think, you know, stocks wouldn't be as closely tied to liquidity because of those factors as Bitcoin. Gold is kind of like a mixed relationship with liquidity because it's also seen as a safe haven asset. So yes, it benefits from a pro-liquidity environment because of its scarcity, but at the same

time when liquidity gets drained out of the system and people go risk off, they go to gold as like a safe haven. So it kind of has like a mixed relationship. So again, we thought Bitcoin is kind of like a risk off on asset right now, given where it is in its adoption cycle. And it's very scarce. And it doesn't have these other confounding variables driving its price. We thought it would be like the purest liquidity measure. And that is actually what the data bore out, which 83% of the time, Bitcoin moves in the same direction as Global M2 across any 12-month period over the last about 10 years since 2013.

And then it kind of leads to the question, well, you know, so Bitcoin, if you're a manager, so if you're managing money like Joe here, and you have a view on global liquidity, you know, where is it headed? This kind of shows that Bitcoin's a really good vehicle to use to express that view because it's like the most sensitive to liquidity conditions compared to other asset classes.

But then it's like, what are moments when it breaks down? And can we identify when that correlation is prone to breaking down? Because there's 17% of the time it doesn't move in the same direction. And what we found was, you know, when Bitcoin gets over its skis, when looking at certain on-chain metrics like MVRV, which I can explain, it's basically, you know, when Bitcoin hits these bull market peaks and then kind of collapses, its internal market dynamics override its long-term

liquidity correlation. And so you want to be watchful of that because if Bitcoin is on a big streak and it's speculative access everywhere compared to other asset classes just having this huge bull run, even if it's in a pro-liquidity environment, it could be more prone

to breaking that correlation. And so it might not be the best time to play that. And so you can kind of identify by using these different on-chain metrics, combined with looking at global M2 when it might be a good way to express that liquidity trade. And so that's what the report looked into.

I have been to answer any questions, but we just kind of wanted to add to the literature, quantify the relationship, and then try to use on-chain metrics combined with it to identify periods where it breaks down. So if you could explain to what MRV is, it'd be great, I think.

Yeah, MVV is an on-chain metric, and it's historically been a good, you know, a reliable indicator. It really hits bull market tops. And what it is, it's basically a ratio between the market value of all the Bitcoin on chain, so just like the market cap,

and the realized value, which is the average price that all the Bitcoin last moved on chain. And a good way to think about it is just like the cost basis of all the Bitcoin. And so when the market value, when there's a huge gap, between the realized value and the market value,

what that means is that a lot of the Bitcoin holders basically are sitting on unrealized profits. Now, intuitively, that's a good thing. I mean, during bull markets, you know, yeah, like the price runs. A lot of people bought in lower. They're in profit. It's a good thing. But historically, what you see is that older holders

typically take profits around that time, right? The smart money take profits off the table. And that can lead to big corrections. And so, yes, it's a good thing when the MVRV goes high, but there is a moment where it gets unstable. And so any time where MVRV gets over seven, historically that's been a sign that we're near a bull market top. And so it's hit 2021, 2017, 2013 pretty accurately.

Now, it's a short data set, but we use MVVZ score for that reason, and it makes sense to us, you know. It's like if that gets too wide, it kind of is a sign that Bitcoin potentially is getting over at skis, overbought, overvalued conditions. And in those moments, that's when it doesn't matter what is happening in liquidity, you know, when Bitcoin is just in these crazy, you know, speculative fevers, you know, that's when you want to be like, all right, you know, watch out because even if

it's a good liquidity conditions, Bitcoin can suffer, you know, break that correlation. The only other thing I'll say is that the correlation breaks when there's any kind of like idiosyncratic factor event that leads to like a rapid shift in sentiment or large scale liquidations like a Mount Cox hack, BitFinex hack, plus token Ponzi scheme blow up, ICO bubble blow up, or the crypto contagion that happened with like 30s Capital, Terraluna. When industry specific events like that happened, that's when a correlation can break down as well. But it's not as actionable for investors because obviously those are kind of like black swan events. Now the same thing can happen the other side was a white swan event. So earlier in the year, I would say the ETF's being

approved was actually one time where we saw kind of break down a little bit because that's a good news, right? Bitcoin's price really benefited because of those internal market dynamics. So that's not as like actionable because they're not, they're hard to predict, obviously. But that's another kind of things to keep an eye on or just be aware of that like these idiosyncratic events could break that correlation too. That's awesome stuff. I mean, I predicted that white swan event, but just kidding. Plenty of people. And I did.

Any other questions, Joe or Alex? I mean, the one thing that I will say that stood out to me was I was shocked at how high the S&P 500's correlation was, which I guess kind of makes sense. The SPX investment, the S&P 500, has become almost kind of monetized in a way. Like people are like, they have to put their money in there or else they're going to lose value over time. And I guess when money comes in, everyone just defaults. to putting their assets into, you know, a broad-based equity index, typically SPX, sometimes

the Q's, maybe broad, global, whatever. So it's kind of interesting to me that there was such a high correlation with the S&P 500, but obviously, Bitcoin is the top. I've heard people refer to it as leverage liquidity trade, which kind of is completely borne out in your researcher. Look, it's a liquidity sponge. We just call it a liquidity barometer. We just think it's a major driver.

it's long-term price performance. And then, yeah, you know, like that, you know, we're not the first people to say this. I mean, since the global financial crisis in 2008, it's become liquidity-driven markets, right? It's a shame because the stock market's supposed to be this, like, you know, tool of, like, price discovery, and it's very important for the functioning.

Not anymore. Yeah, not anymore. Not anymore. It's like a liquidity on an off switch. And that's what Stanley. I quoted Stanley Drucken Miller in the piece, because he said like, you know, you got to look at the FOMC, you know, liquidity drives these markets anymore. Fundamentals don't matter.

Seth Clarman, you know, the famous author of Marchant of Safety, the billionaire value investor, he's just like, you know, pounding the table because he's just like, man, they killed it. They killed the market. And now it's just liquidity. Like there's no, you know, value here. It's just, it's a boring game. Howard Mark says the same thing. You know, the central banks are the only game in town.

and then monetary inflation fuels asset price inflation. And so understanding that dynamic is really critical for investors to navigate the markets and manage risk where we are in the liquidity cycle, how different assets respond to those changes in liquidity. And Bitcoin's just a really useful macroeconomic barometer, even if you're not going to invest in it, but you should probably keep an eye on it. I think for the most part, like, four years ago, that wasn't, people wouldn't have, like, agreed with that statement.

Obviously, people on this call would have. But I feel like it's become pretty much accepted now, like across most people, even in TradFi, that they look to, they look to Bitcoin for this type of stuff. So, to be honest, I think it's the new thing. You just nailed it for me. It's four years ago I would have not agreed. Now I do.

I think the market changed. a lot. What do you think, do you have any thesis for why that is? Before it was, there was no macro guys and it was strictly an adoption story. Now it's a combination of an adoption story plus a lot of macro guys trying to see what they want to see and eventually it's a new asset, right? So eventually if enough money is trying to see the same thing, that thing becomes reality, self-fulfilling.

Goes back to our prior guest, Noel, heard, newsletter is crypto is macro now. I think Bitcoin is the quintessential piece of that. I agree with that, Alex. I just, I disagree that you just seem like so much macro come into the game over the last four years, hands down. Yeah. We're actually, we went pretty long. This has been a really, this has gone really quick for me personally. But one thing I have to touch on, moving on a bit, ETIF options. Ibit, BlackRock's Ibit, got the approval, the nod from the SEC, which we've talked about on here. I was saying it was going to happen. It was only a matter of time. The SEC has approved. That does not mean Ibit has options right now. There are more steps that have to occur.

This isn't like the ETF approval or the SEC is the final arbiter. Unfortunately, the CFTC also needs to sign off and there needs to be worked on by the OCC, the options clearing corp. The problem is there's no deadline. So like with the SEC, we know the deadlines. These are hard rules. They can't, they can't push, kick it down the road any further. With the CFTC and OCC, there is no deadline. I think it'll happen before the end of the air. If not, it'll happen before the end of Q1 that we see options on a bunch of these Bitcoin ETFs. So yeah, I mean, that's critical. I think it's huge. I think for people who are interested in investing in Bitcoin, for all the things we just talked about, betting on global liquidity, what have you, but are concerned

about the immense volatility it has, I think if you're in Tradfai world and you want to, you know, invest in it and maybe do a covered call strategy or buy put protection. Right now in the Tradfai world, it's just not that easy to get exposure. Yes, there are ETFs out there. There's leverage ETFs. There's future ETFs. But the basis or the correlation between that and actual spot, Bitcoin isn't great. The leverage ones reset on a daily basis.

So they're very volatile and they don't really give you like the same sort of coverage over a longer time period. So I think there's a lot of benefits here. And then I mentioned cover call, but that's really like if people want to do it and they want to generate income on top of Bitcoin. I know there's some crypto faithful out there, Bitcoin hardcore Bitcoiners that are like gouging their eyes out hearing this. But like for the TradFi world, this is a good thing. More people are going to get interested in it. I think it will help drive adoption. The one downside is I think this does kind of like, there are ways that this is going to decrease volatility. It will probably decrease blow off tops in ways. I think the

ETFs in general will do that. I think the options might do that as well. I don't know what your guys' thoughts are on the options. Overall, I just think it's a good thing that the, you know, the federal agencies in the U.S. are now kind of starting to accept things a little more liberally than in the past, but we're still a long way off. I wrote about this back, I think, in March of this year, where the options were going to get approved. It was a foregone conclusion. But the reason is not necessarily because people are going to buy PIP protection or they want to earn some income on a cover call strategy, et cetera. It's that the banks make a shitload of money on structured products. And so for those of you don't know what a structure product is, it is kind of similar to what James

is describing, right? So a bank can go to, say, a pension fund and say, hey, we'll create a $100 million product for you where we'll buy Bitcoin and we'll sell calls against it on a quarterly basis. And this is going to be your yield on it, like 8% annualized or something, right? They do that and make a ton of money on it because they control the bid offer spread, right? They're going to charge fees for the actual product itself so that the pension fund doesn't have to do it. And this is the piece that I think is, largely missing from the discourse is that, yes, options are going to be good for all the reasons you mentioned, James, but banks are seeing this as like another big cash cow for them.

So I think that that's going to actually be, well, let me back up. I don't know if the structured product that will roll out will have a dampening effect on volatility. One would, you know, kind of assume that it would. but it's Bitcoin, right? So, you know, I don't know, right? Like, how many times are these guys going to get called away if this thing goes parabolic, right?

And then what are they going to do? So, but that's what I think is like the big takeaway for me is that this is just a further, you know, sort of another step in the direction of the institutionalization of Bitcoin is, yes, having the options is great, but ultimately creating these structured products is what the banks are after. I think that's a great point.

I actually hadn't thought about that, Joe. I think it's just provides more regulatory clarity, you know, another sign of the maturation of the industry. All the things James said. James, I'm wondering, do you think that, and Joe and Alex, like, do you guys think that the lack of options, the lack of having those hedging tools, has kept some institutional investors from allocating or maybe increasing their allocation size? I mean, that's a really good question. I think, oh, this is complete speculation, but I think what happened with like when the spot

ETF's got approved. And James pointed this out actually as a reason why the Ethereum ETFs haven't seen a lot of love on the inflow side is that, you know, the, the issuers went out there and said, hey, get your like 1% allocation or 2% allocation to Bitcoin to this ETF and then they're done for the

year. And maybe that's going to be the same thing next year. So, you know, I don't really know if it's going to make like a huge impact longer term. But, you know, to James's point about when these things get approved, it would make sense for it to get approved by Q4 so they can actually roll these things out in Q1 next year.

Yeah, I would say like the options just adds to the liquidity profile of an ETF, more generally speaking. So people come to trust it more readily, I guess you would say, and they'll be able to trade these things, which I guess if you're a Bitcoin or you don't necessarily want that. You want it to be actually used as Bitcoin on chain stuff. You want people to hold it and store it. but what it does for an ETF is it just, it's like a solar system with the ETF at the center. And like you have all these people trading it and it's options and futures. And like you just,

it becomes the center of the solar system essentially. So like you look at something like spy, it's the most traded security on the planet, the S&P 500 ETF. It has immense opt, the most immense options liquidity out there, all these different things. And people like that's what they go to to trade and do things.

So it's good for the issuers more so than I think it necessarily is good for the ETF because that's going to basically, It's going to be a flywheel of getting assets and getting people interested in trading these things. I don't know for sure. I mean, there's a potential. I saw one of the Bitwise analysts talked about potential for a gamma squeeze because there's going to be a lot more money that can access this with options, with options, Greek letters, if you will. That said, one of the things that we saw when all of the issuers in these exchanges withdrew their applications for Bitcoin ETF options was like the new applications had all this stuff.

about like manipulations, market manipulation potential, and like the limits on how much you could actually hold. So it'll be interesting to see like how that's actually played out over time. But the SEC and CFTC were definitely worried about manipulation of Bitcoin prices using these spot Bitcoin ETF options, which obviously hasn't happened. Or we'll figure out, I guess, is whether it's going to happen. Yeah, the bitwise, I think that was Jeff Park, who wrote that. It's very interesting because he did say, like it's like regulated leverage with a supply constraint, you know, fixed supply asset that functions in a decentralized parallel system that you can't stop. And then he brought up the GameStop. And it's interesting

because obviously, you know, he had Robin Hood restricting users from buying at one point, trying to stop the volatility. You had trading halts. None of that's possible in Bitcoin. And then even last summer, where there's another kind of like short squeeze on GameStop, GameStop the company issued the five million chairs. They can change their supply. Yeah. I mean, the one thing I will say is understand like the logic. And so I mean, that's interesting. Like I wonder what could happen. Obviously, options can skew the other ways to the downside as well. But it would be fascinating to see that play out. I mean, that would be wild. I was just going to say it kind of makes paper Bitcoin in a way, though. So, like, you don't need, like, you know, you don't need a billion dollars to, like, get a billion dollars of exposure in options market, I guess is the other side that I would say. So, like, there's a lot of leverage in there, and it's not necessarily exactly the way that could play out.

But I mean, I mean, anything could happen. Sorry, go ahead, Alex. Well, so we're just discussing this, sambr up, this tweet or a thread, whatever, that basically talks about something. called what the OP calls Banna Gamma squeeze. It sounds really sexy, basically. People, like the market being short gamma and basically in a squeeze. What was the, let me rephrase this. So the concept was that basically Bitcoin's volatility increases on the way up rather than

decrease as it happens with equities. Therefore, the author's view was that this would cause what he called Vana Gama squeeze, Vana being acceleration of volatility, and gamma being basically it's the second derivative of price. But on that

point, I thought was very interesting. The author is extremely hyperbolic and just keeping things simple. Bitcoin supply may be limited, but when price goes up, supply comes out of the woodworks, basically.

You don't need new supplies like holders come in and sell. The same thing happens in gold. When gold goes up, you're going to see supply of basically from the recycling part of the industry. Recycling supply when gold prices spike increases dramatically as people try to cash out and take advantage of it. So the fact that the Bitcoin supply is fixed, I don't think it is that as important as people

may think. you do see that right that's kind of what I was just mentioning with the mvrv with the old traders kind of taking profits yeah but it's interesting because it's depending on where you are in the bitcoin cycle like how much of those coins eventually land in long-term convicted holders you know whether you do get in this situation just depending on where you are on the bitcoin cycle and you get one of these like gamma squeezes at the same time like if the if the conditions are right I guess I could see how that could happen but I understand what you're saying as well. I think people take profits and new supply comes

onto the market as volatility increases and they take advantage of these like expectatives access moments and take profits to buy lower. So I totally get what you're saying too. It goes back to the whole commodities trader's trope. What cures high prices is high prices? Because then all of a sudden people are going to come out to meet them. In the case of Bitcoin, it's just people selling their stacks or pieces of their stack for, I don't know, whatever else they're going to do with that MVRV ratio. I guess we're tight on time here. The one thing I would say is there's been a lot of concerns around BlackRock and Coinbase and the Bitcoin that they hold and whether or not they actually hold it and the fact that like Coinbase is letting Black Rock just hold paper money. There's also

been conspiracy that like Coinbase is ripping off BlackRock and not actually putting the Bitcoin in there, which is just preposterous. Like I've talked to BlackRock. They are not releasing their addresses. So we don't know their addresses. You can kind of snoop and guess some of them. But they know it. And they're running a Bitcoin node. So they're checking it. So they can see throughout the entire blockchain, like whether or not the Bitcoin they were supposed to have is actually in those addresses

that Coinbase says they're in. So like it's not like something they can't check. And I don't know. This whole like conspiracy theory stuff, I understand don't trust, verify all this stuff. And if you're an institutional investors, BlackRock will tell you what their addresses are. They just don't want to get more dust and all this other stuff. It's not Coinbase's right to like share BlackRock's.

addresses, right? If BlackRock doesn't want it out there, Coinbase isn't going to release it. We have Bitwise out there if you want to go to somebody and who's releasing their addresses. Bitwise is doing it. Arc and 21 shares have done things to like do proof of reserves. There's other stuff coming down the pike, I would say. But BlackRock is not going to like risk their whole entire reputation in this world on like doing some funny money stuff for a couple extra, you know, a couple hundred thousand dollars, a couple million dollars to eke out as a 10 plus trillion dollar asset manager. But again, like no one's forcing to use them, right?

So if you're worried about that they don't actually hold the Bitcoin, uh, a go out and short the short Ibit or B, just don't buy the product, right? Like buy some real Bitcoin. Yeah, buy actual Bitcoin, right? Like put in your own cold storage, what, what have you. Um, no one's forcing to go out and buy I bit.

Um, I get it. People have been burned by FTX, Terraluna. Like, I mean, Sam rattled off like 15 different things that happened in the space that have been bad for the space. But I mean, BlackRock and Larry Fink are, they're not going to be playing these games. I don't think. The other thing that people get confused about is these things settle T plus one. They're OTC trades. They settle T plus one. So people look at stuff that's happening on chain and they think, oh, this is happening right now. But really, like, that's trades that happened yesterday that are just settling on chain now in the metrics. And they updated some stuff in their

custodian language to make sure that they can take stuff out within 12 hours of them requesting it, which I think is just norm for the process. So I think all of this is just the norm of like black rock growing into the space, understanding how the process works, fine-tuning things. But for the most part, like, I don't know, I'd be absolutely shocked if Coinbase wasn't actually holding Black Rocks, black rocks Bitcoin.

I think that's just like complete like aluminum tinfoil hat type conspiracy theories. I don't know if you guys have any other thoughts on that or views. I fully agree. I fully agree. I think it would be absolutely detrimental to Coinbase. is institutional custody product too, right? Destroy their reputation to do anything like that. I mean, Coinbus has been around for 12 years, right?

Like, it's not, they survived FTX. They survived BlockFi. They survived all this other stuff that has happened over the last, like, decade plus. So, like, I'm not saying to trust them completely with everything that they're doing, particularly with the stuff. I know a lot of Bitcoiners don't like the fact that they focused on a lot of other stuff in the crypto world.

But, I mean, there are plenty of other people to go after that you, should be worried about with what they're saying and doing. I think that's just the risk you take for the convenience of ETFs, right? I mean, that's straight up. You've got to understand, like, there are pale risks to consider. And then it's the Bitcoin ethos to always think adversarially, right? Don't trust verify. And so there are options if you want like Bitwise who share their addresses, like you said,

or Bitcoin itself. But just understand the risks you take by using these proxies. You know, you pay for the convenience. Yep. That's it for ETFs. Sam, thank you very much for joining us. Thanks for joining us for this episode of Bits and Bips. We'll be back in two weeks to discuss more about how the worlds of crypto and macro are colliding. Till then.