We Study Billionaires - The Investor’s Podcast Network - BTC122: The US Treasury May Need Private Stable Coins w/ Matthew Pines (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. On today's show, I have a very astute global macro and security intelligence thinker in Mr. Matthew Pines. Matthew has made quite the splash online in the past few years for his deep critical thinking and complex understanding of the global dependencies and incentives. On our discussion today, he talks about China and its deeply manipulated market conditions, Japan being a major choke point for international interest rates, Central Bank digital currencies and why there might be an incentive for the United States to not

Starting point is 00:00:34 implement a CBDC relative to multiple private stable coins and many, many more interesting ideas. So without further delay, here's my chat with Mr. Matthew Pines. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. Hey, everyone, welcome to the show. I'm here with Matthew Pines. Matt, I've been following you on Twitter and your content and the things that you're publishing is phenomenal. So I'm really excited to have this opportunity to chat with you. Yeah, I've been a long-time listener, first-time guest.

Starting point is 00:01:20 So I appreciate you having me on. Yeah, great to have you. I'm curious, and I'm sure the audience is curious, just with your background and cybersecurity and macro and advising as a consultant, how did you come across Bitcoin? I've been curious about lots of kind of emerging technology for a while, kind of have a, I have that nerdy streak. I actually, though, came across Bitcoin through like a college buddy of mine who I think was like, you know, really into the kind of crypto ICO phase back in the day. And I remember having conversations with Tam, Barr and kind of various kind of friendly gatherings. And I was like very ill-disposed to it initially, right? Because I just got a very scammy vibe. And I really didn't

Starting point is 00:01:58 dig too much into it. I sort of read all the major fun pieces. And I was like, all right, this thing is dead after this sort of bubble fades. And it didn't fade. And so I paid more attention to it over the years. But like my professional career was mostly in the sort of national security kind of thinking through kind of bigger challenges to the U.S. government across lots of different dimensions, whether it's counterterrorism, whereas sort of nation state, whether it's sort of like emerging technology forecasting. And so Bitcoin was never like directly involved in that. It was only in the past, I'd say like a year and a half or so have I sort of started to think through more about Bitcoin as relevant on the geopolitical stage. I think even folks were really

Starting point is 00:02:32 bullish about Bitcoin five years ago, you know, still that was a very speculative kind of far out of the future idea that like Bitcoin would have a sort of macro and even a geopolitical sort of role to play. And so that's really where professionally my sort of analytic background and my sort of experience thinking through kind of these different questions and the sort of dynamics at play, you know, started to be applied to thinking through how Bitcoin could play a role. And I think that's been sort of where I've been focusing the last, you know, year to two years is starting to try to apply some more at least tentative, rigorous analytical thinking to like those different what ifs. I did a lot of stuff.

Starting point is 00:03:07 scenario analysis in my time of lots of different emerging technologies. And I just didn't see that being applied to Bitcoin as an emerging, not only technology, but emerging sort of social phenomenon and emerging kind of macro asset class and transmission system for her value globally. So that opened up a lot of different possible avenues for questions that, you know, I just like to get out. Yeah. Yeah, that's kind of what got me into it. Matt, I'm curious if the balance of payments between net producers, net consumers, like when we look at the Russia-Ukraine situation, would you say that events like that is where it really kind of started showing up on the global stage as far as ways to conduct payment that are in a decentralized way where you don't

Starting point is 00:03:48 have to trust the dollar? Was it really kind of the erosion of the trust in the dollar? I mean, this is where I think through in terms of, so historically speaking, right, like monetary regimes are somewhat downstream of geopolitical regimes. and monetary regimes are, you know, hard to dislodge, right? Like, so, like, there is a certain stability, at least in terms of, like, human lifespan, right? Like, there's a certain generational existence that people become accustomed to. This is the unit of account. There are sort of periods, I'd say you call like punctuated equilibria, right?

Starting point is 00:04:22 So use, like, the evolutionary where there's, like, long periods of stability that sort of breed their own instability as a result of those long periods of stability, sort of latent frictions and stressors build over time, and they create conditions for a more disruptive rupture. And that's usually where you see those more kind of chaotic dynamics that in the past, we've associated with like phase transitions in terms of both the monetary regime, but as well as like the geopolitical regime. I see these different indicators of stress in the global system, not just in the monetary system, but in the global geopolitical order, kind of the whole set of arrangements,

Starting point is 00:04:57 institutional sort of frameworks and sort of modes of thinking that have sort of grown up in the post-war era and sort of evolved over the course of kind of really the last 20, 30 years of unipolar, hegemonic dominance of the United States and sort of neoliberal kind of globalization is reaching what we think of as like this potential instability point. And so events like the sanctions on Russia's central bank reserves I see as like indicators along that sort of overall trajectory of larger, you know, hitting different threshold points for instability. And so Bitcoin I see in that larger context. So I think Bitcoin is just one indicator.

Starting point is 00:05:31 So what happens to Bitcoin, I think, is indicative of or you're sort of looking, using it as a measure potentially of these stresses that are really hard to get a handle on in the global system, which are really interdependent, hard to pull apart. And these are non-linear systems. Like I studied physics as an undergrad, like you're not going to just like plot the line and say this is like where you're going to be in five years. You're really trying to figure out are we hitting some critical threshold points where like aggregated hedging behavior leads to sort of vicious feedback loops, right? And this is where you get to sort of dangerous states in that graph, right? Where certain destructive jumps can happen that would be sort of unthinkable if you were just looking at the past history. And so that's where I think I pay analytic attention to Bitcoin because it is potentially one of those, I think Luke Gromopold was like the last functioning smoke alarm, right?

Starting point is 00:06:17 Like it is highly sensitive to even sort of marginal changes to first order to liquidity. But in a geopolitical layer, I think it's also potentially going to become another indicator in the next few years about this potential fractures. And then, yeah, that happens the door about like, well, how would you interpret changes in Bitcoin relative to the sort of the larger shifts at play? But yeah, I don't think it's as simple as like loss of trust in the dollar. I think it's a combination of like overall like loss of trust in trust itself as a stabilizing force in a global order that had an unquestioned hegemonic sort of status quo

Starting point is 00:06:52 power that was going to set the rules and enforce the rules sort of with unquestioned of capability. When that starts to be called into question and when sort of the monetary commons that that sort of security monopolizer has sort of created in the post-war era starts to become gated and conditionalized, then you see potential avenues for folks to start to hedge against that sort of weaponization being used against them. And that's where I think about where geopolitical actors can start to have a vote in how the global monetary arrangement is structured. And this is like the lesson in history is that things like, things like is stable until they're not. And then everyone constructs an irrational explanation post hoc

Starting point is 00:07:30 that tries to make it seem inevitable. But in the real time, it's very hard to predict. I'm going to jump to a question I had later because I'm just too excited to ask this particular question. So you do consulting with other nation states. And I'm curious companies in different countries, how often are they bringing up Bitcoin in particular, central bank digital currencies. And I guess if they're not bringing those up, what are kind of the number one or two things that they are bringing up? And have they ever brought those types of things up? I'm just trying to understand like what does conversation sound like as you're talking with these multinational type entities? Yeah, it has not come up. Bitcoin and CVDCs has been the subject of zero of

Starting point is 00:08:14 these engagements. The driving, I'd say friction, turning into potential fracture that a lot of companies are trying to assess and then recalibrate themselves to Israel or the U.S.-China dynamic. I mean, we were involved a lot in sort of the acute response and sort of warnings about the Ukraine invasion. And that was like much more like acute response. Like how do you exit Russia? How do you lock down your critical IP? How do you handle kind of, you know, this disruptive like effect on your overall organizational strategy? But then everything sort of shifted to China. China's like the elephant in the room here. Because China is, like, you know, the locus of the globalization. I mean, that was really what globalization was built on was

Starting point is 00:08:55 bringing China into the globalized economic order. And every multinational, you know, had to have a China strategy for the past 20 years. And so all the C-sweets that are sort of running these companies in their mental model, China was the sort of the growth engine. China was the next big market. And that was often how they built their careers or at least how they thought about this globalized world where it was just a matter of sort of arbitraging and efficiency and, you know, maximizing shareholder returns. That's all I really had to focus on and making sure they were on the cutting edge of technology, product development, et cetera. Now what's really coming into the boardrooms and the C-sweeds that we are helping to engage

Starting point is 00:09:28 is really, one, like, that world is not going to exist anymore. It hasn't, it basically broke. It's just sort of in the process of shifting and no one quite knows exactly where it's going to go. And how is that received? Is everybody kind of nodding their head whenever they hear you say what you just said, or are they kind of battling and fighting back and saying, well, I don't know that I necessarily agree with that point of view?

Starting point is 00:09:50 because I agree with you 100% but I'm curious It's definitely a spectrum Some companies, some multinationals have identified this risk early and actually came to us and say like we know this is a problem for us How can you help?

Starting point is 00:10:03 And it really depends on the nature of the business, right? Like some are professional services firms where it's mostly like a matter of data flows and sort of critical IP and client information how can they still deliver how do they sort of have a China for China strategy versus you know kind of their global strategy some have made like deep capital investments in China

Starting point is 00:10:20 They've got billions of dollars of physical plan and infrastructure and local partners and relationships and upstream and third party vendors. And that's a harder thing to just like relocate. And China is not an easy thing to just like replace globally. It's not like a China equivalent. You could just go to the, oh, like the better, like the less risky China. It doesn't exist. Different companies that either are faced more direct or more indirect risks from China in

Starting point is 00:10:43 various ways, whether it's, they're posturing more for just a more like a more messy world, right, where they just have to have more redundancy in terms of their supply chains, or they have to recognize the fact that China is really interested in their IP. So it's like a cyber threat, they have to be really sort of postured against China for particular reasons, just, you know, in terms of their particular technology. All the way to like the more acute scenario planning, which no one really expects as like the central case, but now has to be sort of increasingly looked at as a plausible scenario to assess

Starting point is 00:11:14 is like acute risk of a conflict, right? like a Taiwan-style scenario where that would be a very disruptive event to many multinationals. And several years ago, it was kind of this tail risk that didn't really have to have a plan for or a contingency work it out. Now they do. A lot of them are thinking they have to do this. And so that's a lot of what's happening now is more and more companies are waking up to this fact is this is not a risk that they can ignore and it's complicated for each business.

Starting point is 00:11:42 And so we're seeing that start to shift. But some folks are further along. I mean, with the Russia thing, some companies were like, yeah, we're out. Other companies were like, even after the invasion, we're like, well, we've been here for 20 years. Nothing's going to change. We're like, okay, good luck, you know, you do your thing. So everyone's in a different spot. And for the folks that are, but I think that window is moving broader.

Starting point is 00:12:05 You know, if I was just going to generalize it into a single word, it's trust. The trust is eroding. Companies that used to do business in China, it's eroding. You can't trust them to deliver. on at the prices, the schedule, the, all of it like you did five, 10 years ago. What's driving that, particularly with China? What's driving that? Yes, this is a complicated question.

Starting point is 00:12:31 I won't give the full, you know, historical analysis. And it is kind of a, you get into this game of like security dilemmas where one person's defensive move is perceived as an offensive move from the other side. And so attributing like who's to blame as sort of as an animal. and as a consultant, sort of not my job. It's just assessing the dynamics at play and understanding where they're going to go. And the dynamics we are in is like in a clear deterioration of the U.S. China relationship, which if I had to like simplify it, went from one of like really close and almost strategic

Starting point is 00:13:02 alignment in the Cold War era where we saw them as a strategic partner to support our containment strategy for Russia. And that was, or the Soviet Union. And that was really effective. And, you know, we had Biden and Deng Xiaoping, you know, sign like intelligence agreements. Biden helped sign this agreement when he went over to Beijing in the late 70s. I worked out like intelligence sharing a partnership basically through the 80s. We had like CIN NSA analysts stationed in the remote parts of China with Chinese like PLA

Starting point is 00:13:31 signal analysts helping to jointly monitor Russian missile launches. Like that was a close working relationship. And through the 90s, you know, this really turned into, okay, how can we bring China into the global market? And so bringing them and sort of giving the most favorite nation trade status, helping them get into WTO in 2001, and then really try to like hypercharge this sort of globalization machine, which like a high level sort of schematic view was basically how can we leverage this sort of low-cost labor to produce the consumer goods that the American consumer like wants to consume?

Starting point is 00:14:03 And in order to do that, we have to basically send dollars to China. China is going to accumulate those dollars and they're going to recycle those dollars into back into the United States economy, in particular our assets and in particular our sovereign debt. And that like chimerica system, right? Like surplus matching deficits, consumption matching savings. Like this was the system that like from an economic perspective kind of balanced. What we've seen in the past 20 years is that that system generated more and more imbalances. So more and more surpluses and more deficits on each side, more and more ownership of our assets by China and more and more debt obligations to China from us.

Starting point is 00:14:40 as well as trying to got richer and wanted to climb the value chain, their ambitions for where they wanted to move strategically, you know, equivalently went up the chain. And so those went into things that you would expect, like their military modernization. And so they aggressively accelerated their military modernization, especially when Xi Jinping came to office in 2013. That is usually where people mark as like the major turn

Starting point is 00:15:03 in this strategic relationship being one of like potential competition, but still kind of in this like friendly, globalized world. to like one of more rivalry. And the acute sense of anxiety in the West and the U.S. in particular about that rivalry has like only gotten worse and worse as China's like the pace at which they close the gap, especially in the military domain, has been really fast. And so I think there's now this anxiety in the West, the U.S. defense planners in particular, that we may not be able to prevail in a peer-to-peer conflict with the degree of certainty

Starting point is 00:15:37 that we had five or ten years ago. And that's like when your job is to basically be the global security guarantor and you're the hegemonic power, like that is the thing that keeps you up at night. And so that is what is generating a lot of the underlying anxiety. And now it's manifesting in the overall, what you might call like securitization of the relationship. So from the trade war under Trump, which is kind of a blunt instrument across, you know, just overall economic trade has now spread into a lot of different, like very specific areas where we're trying to aggressively restrict China's ability to keep up with the technological frontier. particular in domains that we think are sort of dual use, according to China's civil military fusion strategies. So things like AI, broader sub-conductor technology, quantum information systems, even moving into things like biotech, synthetic biology. These are the strategic

Starting point is 00:16:23 technologies of the future that China has aggressively put out a roadmap that say we want to be the global leaders in these technologies. And it's not to those, it's also broader energy, sort of renewable technologies, a whole suite of things that they want to try to capture the industrial sort of leadership and globally. which is a real strategic challenge to the United States. And so that is this competitive dynamic, which is one moving potentially from like this one where it's like you're in a race. And at first you're focused on just running faster than the other guy

Starting point is 00:16:50 to then realizing the guy's catching up to you. And so you want to like try to throw some sticks or some rocks back to slow him down. To like at the end of the stage is you just like stop running and you try to tackle it. Right. So it's like we're in that kind of, I'd say we're in the second phase right now. Right. And at each step of the escalation, you're willing to take more. personal costs in order to prevent the other guy from winning, right?

Starting point is 00:17:12 And that's, I think, where we've seen the relationship shift over time, like strategic competition, strategic rivalry to, like, strategic enmity. We're, like, ruling to, like, impose costs on ourselves and our allies in order to make sure China can't advance. And this is, yeah, it hasn't gotten better. We've seen things like export controls, like investment screening, the sort of reverse Siphyas proposal come out, a whole bunch of things on sort of pressure campaigns,

Starting point is 00:17:38 to our allies like the Dutch and Japanese and South Koreans to restrict subing conductor technology in China. Yeah, so there's a lot there. But it is generally speaking, we are more elements of relationship. What's what I call it like a sort of geo-economic war, right? It's not just trade war. It's sort of a securitization of lots of different policy

Starting point is 00:17:58 that affects technology flows, capital flows, even people flows. And it just generally speaks like this tension is growing. And it's sort of this mutual suspicion about, just China have larger ambitions for Taiwan? And what does that mean for U.S. strategic posture globally? This is why this is the central, like, geopolitical anchor for how the world might shift in the next five or ten years, why so much attention is on it is because China is still at the heart of globalization.

Starting point is 00:18:23 And if that fundamental dynamics starts to change, then that's going to have ripple effects to everything else, including Bitcoin. I mean, that is hard to think it's going to stay in isolation like that. Let's take a quick break and hear from today's sponsors. All right, I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together activists, technologists, journalists, investors, and builders from all over the world.

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Starting point is 00:22:51 tweet a little bit better than I'm going to do here. But it was in reference to Japan and the People's Bank of China. and that relationship really kind of being the keystone to watch from a central banking standpoint. And I think you even got into some of the interest rate dynamics from a global perspective. Talk to us about what you mean by some of that. I think Japan is very critical to this overall geo-economic competitive dynamic for lots of reasons. But in particular, the role that the Bank of Japan plays, I think, is a case study in how important Japan itself is to this. You can zoom in on like the monetary dynamic.

Starting point is 00:23:25 And that is a good way to understand how, has a similar dynamic playing out these other domains, whether it's technology, whether it's military, etc. These are all interrelated from a strategic point of view. But just from the monetary perspective, Bank of Japan is very critical. For like the bumper sticker is that, essentially Bank of Japan's yield curve control

Starting point is 00:23:40 has been de facto US yield curve control. Because they, by running essentially yield curve control on their domestic savers, they've suppressed, you know, essentially financially repressed their domestic savers. So those domestic savers who hold yen have to look for other ways to get yield on their assets. So they need to, you know, convert those yen,

Starting point is 00:23:57 of dollars and then go buy dollar denominated debt assets that can give them a slightly better yield. And so that structurally has meant a flow of capital from the Japanese saver in yen into saving a dollar, mainly U.S. treasury securities, but also other dollar denominated corporate debt. Yeah. Yeah. So that structurally means there's like a, there's a net bid that's coming out of Japan for U.S. debt, which has kept all things equal U.S. debt yields lower than they otherwise would. There's an there's an extra bid for them. And so this has had like the mechanical flows of how Bank of Japan monetary policy effectively impacts U.S. yields. And they are the single largest holder of U.S. Treasury security debt. So this is not like a

Starting point is 00:24:37 second order thing. Like their flows make a structural difference. And I don't have the numbers off top of my head, but like what we saw last year in the sort of high degree of like, say, especially like 10 year U.S. Treasury note bond volatility, now that folks have kind of looked back at the different accounts that track these things on someone of a lag in terms of like central bank holdings around the world. basically drawn the conclusion that a lot of that was driven by Bank of Japan or Bank of Japan related selling. So like Japanese institutions, insurance companies, essentially selling their treasury portfolio to get liquidity. And that was why we saw the move index reach levels that were potentially dangerous and why Yellen came out and said,

Starting point is 00:25:17 we're acutely monitoring liquidity in the treasury market, which for them is like a major red alarm, right? They've had issues in the past where the off the run, meaning like the sort of not freshly issued debt. securities in the treasury market require this sort of smooth plumbing of dealers and sort of collateral transformation using those debt securities where everyone is willing to essentially hold it as effectively money goods. But whenever there's like a sort of a run in those in that shadow banking collateral transformation system for liquidity, they sell treasury securities and the collateral transformation sort of plumbing gets clogged and those markets essentially frets. And we saw that in March for 2020, where there was just like no bid for off-to-run treasure securities.

Starting point is 00:26:00 And so that was really what precipitated this crisis response by the Fed, among other things, associated with the pandemic, but like trillions of dollars of QE very quickly. So this is why I paid really close attention to the Bank of Japan because they're, what they do on the margin can affect liquidity in the treasury market like we saw and also affect yields. And this is sort of mechanical transmission of the Bank of Japan's policy. And we're seeing potential changes in that structurally with Corona leaving and his successor, potentially being not quite the same guy.

Starting point is 00:26:28 So I follow a really great analyst. He's super hilarious, named Weston Nakamura. I think he's at Real Vision. He used to be a Goldman Sachs and a trader as well. And he's like laser focused. So all this stuff I sort of steal from him about Bank of Japan. He's like done some really good analysis like not just the incoming leadership, but like the policy signaling that we really was like premised on Corota, the man.

Starting point is 00:26:49 He was like a unique personality. He was this kind of like somewhat comical character in the central bank world. And he was running for the past. 10 years, the most aggressive, most innovative experiments in central bank monetary policy. Like the first one to do quantitative using at scale, then like quantitative and qualitative using QQE, then ZERP and then NERP, and then all of these different yield curve control policies is bringing different parts of the curve down. Like he was this aggressive. We're just going to keep doing, keep like anying up. And that worked up until really Ukraine.

Starting point is 00:27:19 And then structural inflation sort of being embedded in the system because Japan is a net energy importer, and now they're a structural competitor for LNG imports from Europe that's cutting off their dependency on Russia. And so now we as sort of the net sort of gas provider to our geo-economic allies and both sides of Oceania, mainly Western Europe and Japan, like, it's kind of, okay, who's going to feel more pain and trying to balance the pain across those two things? But structurally speaking, this means that there's just inflation in Japan for the first time ever in decades. And that's why you're seeing these caps on the yield curve being tested. And so that is why so many people pay attention to it because if that goes away, then the ripple effects to the U.S. Treasury market can be asymmetric.

Starting point is 00:28:01 And it seems like when you look at the Japanese yield curve, it seems like none of it's under control. Like it's not aggressively selling off, but especially for everything outside of the 10 year over there because the 10 years for people listening, the 10 years, the only thing, at least my understanding is, is the 10 years, the only thing that is having the yield curve control applied to it. It's at 50 bips right now. And everything else is supposedly free and open as far as the movements on the 30 year or the five year or whatever. But when you look at that 10 year where the yield curve is applied, you can see it's just been pegged at whatever before. I think it was 25 bips.

Starting point is 00:28:40 I mean, that yield was pegged at 25 bips relentlessly through the whole period. Now it's been pegged at 50. The others are selling off. I think their eight year has actually gone through their 10 year. for a higher yield. So it seems like they're just going to have to keep, in the current environment, it seems like they're going to have to keep raising that yield curve control on the tenure with nothing in sight suggesting that natural forces are going to bring it back down. I don't know where I'm really going with a lot of that description other than just providing a little bit of

Starting point is 00:29:10 clarity for people that are listening to our conversation and what it might mean for the broader context. But if they can't get it under control, it almost seems like the rest of the market is being wagged by their tail of their ability to kind of control this very substantial, large credit market over in Japan and it being the lowest yielding credit on the planet and everybody else being a kind of a yield premium to them. I'm with you. I find it fascinating. Yeah, I know. And this is where I'm connected to like the geopolitical stories that like these sorts of decisions aren't made in a pure vacuum on like what's best for the Japanese bond market. right? Like what I think is, what I read between the lines and some other smart people I follow read between the lines is that like Japan is critical to any military scenario involving China.

Starting point is 00:29:56 We have been aggressively pushing them to expand their military, you know, formally, right? They don't have a military, but like they made changes to the constitution in the past. They'll have to expand the military. They're going to sort of double their military budget. They're going to increase basing access for Marines to be able to, you know, do significant military operations in a Taiwan scenario. like our bases inside Japan, I think maybe you've been, maybe even based there at one point of your career, have strategic consequence for our ability to project force in that region. So like we will not, like these decisions aren't made in a vacuum. And when push comes to shove, like the U.S. has strong influence on Japanese monetary policy. So the very reason that it affects U.S. monetary policy. Yes.

Starting point is 00:30:39 And these decisions about who gets to run the bank of Japan will not, like, they pick this guy I'm not going to pronounce his name because I'll butcher it. I'm not a Japanese speaker. And it was like a surprise pick. The guy who they thought they were going to pick, like turned it down. What's his background? Is he going to come in and be very dovish? Is he going to come in and be...

Starting point is 00:30:56 He was more an academic. And he was... So no really knows what he's going to do. Because honestly, he was like kind of surprised, I think. Everyone was kind of surprised that this guy was picked. The real action is going to be his like number two guy who, again, I remember the name of Ueda, I think. He's been like the technician who's been ex-examines. executing these monetary policy kind of experiments for the past number of years.

Starting point is 00:31:18 And this is the guy who's almost like a day trade, right? Like to run the bank of Japan's monetary operations, you actually have to like do daily like almost open market operations. And there's certain parts of the 10 years to your point like they own because every part, every different, there's like different like issues, right? And certain issues have more liquidated in others. The Bank of Japan is like selectively trying to do these purchase and repo operations to keep things from totally freezing out,

Starting point is 00:31:42 even though they own sometimes more than 100% of the total issuance in a particular tenor. And so they're buying everything up and then they're relending it to the market, like dealers, who are then allowing other folks to short sell it. And that creates this feedback, but Japan has to buy it again. So they're buying like multiple times. And that's not a great place to be in.

Starting point is 00:32:02 It's insane. But this is where like Japan, Japan matters for a lot, right? One is like all these dimensions, like semiconductor export controls, defense modernization and strategic kind of, conflict scenario planning. Overall kind of economic sanction strategies, not only against China, but like they were

Starting point is 00:32:18 critical to the sanctions against Russia. So Russia, when we sanctioned their reserves, there was a blocking sanction put against the Russian central banks, G7 Fiat reserves. It wasn't just dollars. It was all the G7, including Japan. And yen is a major reserve currency held by the Russians as part of their overall portfolio. And those deposits were held the bank of Japan. The euro deposits were held at Bundesbank, essentially in an account custodian for the

Starting point is 00:32:41 European Central Bank. So when we did those blocking sanctions, the Japanese government had to agree. And actually, they didn't sign on to that statement until like a few days later. So, like, the Europeans were like pushing the L and we need to do this. And they said, okay, we're going to issue this statement on like a Sunday. But the Japanese didn't sign on until a few days later because they were caught kind of black, but they were like, they basically were like kind of told you're going to do this. Right. And they were like, oh, we need a few days to actually figure out how we're going to do this because we didn't think this was going to happen. Because that's my read of the situation. But that is like,

Starting point is 00:33:11 really revealing sort of historical episode of just where Japan ranks in sort of the geo-economic pecking order in terms of like, okay, when push comes a shove and we need you to like play on one team, this is what's going to happen. This is where these dynamics come into play. It's not just the monetary stuff in a vacuum, right? Especially when the strategic competition and the geopolitical rivalry is starting to heat up. The last point in Japan is like, we don't have any direct Japanese clients, but we've had some conversations. And it's interesting, like Japan business is heavily invested. in China. Japan, money center banks have made massive loans to China. So like economically,

Starting point is 00:33:47 there's a really tight dependency and coupling between the Japanese economy and the Chinese economy. And this is, I think, a similar dynamic you see play out. It's very different from Russia, which is like there wasn't a whole lot of direct like economic coupling. There was like energy coupling. And that obviously was been the major issue with that conflict. But it's much more complicated, much more kind of inextricable with the degree to which sort of Western economies and the Chinese economy are like, they're tied at the hip. At the same time that like at the political layer,

Starting point is 00:34:16 there's this like drive to decouple and pull. And those are opposing forces. One force being driven by, you know, the security stakeholders like the intelligence, the military and the political officials. And the other is sort of the economic officials, the economic interests. So Wall Street, Silicon Valley,

Starting point is 00:34:33 the equivalent in Japan, who don't want to go into that decoupling direction. And that is what we're seeing right now is this sort of game of sort of political economy test of power, right? Who has more relative power in this era? Do the geopolitical and military security prerogatives overweigh the economic and kind of capital interests? And yeah, we've seen this play out in different historical periods of time where during peacetime, the economy and capital usually runs. It's when the bombs start flying, or when the missile

Starting point is 00:35:02 start flying, that the state comes in and starts setting the rules. You know what I love hearing from you, Matthews, just a lot of the times, in myself in particular, I get so focused on just the financial lens. And there's so many other pieces to this. And I think that when you talk about government officials, a lot of the times, they might have just one area of expertise and it might be military. It might be finance. It might be, you name it. And they don't understand maybe the other very important lens inside of the government itself. So like your description of how intertwined Japan is with China from a financial standpoint, will be in stark contrast to a person looking at it from a military lens from U.S. to China and not realize that there's huge interdependencies

Starting point is 00:35:50 back to the U.S. from the financial piece of the interconnectedness. And so I love how it gives the listener kind of this glimpse as to the left hand might not be talking to the right hand in some of these policy decisions. And it might not seem like it makes sense, but that's because they're looking at it from a very myopic. Their lane-only stove-pipe kind of lens is they're making some of these decisions. It's fascinating. One thing that I wanted to highlight for people listening is, and I'm curious, your opinions on this map, but it seems like the pivot has already taken place from, if we

Starting point is 00:36:24 were looking at it from the U.S. lens. For the past 10 years, it's been really kind of easy to understand when the Fed is conducting a pivot because they're either doing quantitative easing or they're doing quantitative tightening. Now, they're doing quantitative tightening, but they're also releasing liquidity through the repo market in the Treasury General account, which is why I suspect the markets are going sideways is because there's liquidity coming in while they're tightening at the sign. It's almost like they're hitting the brake and they're hitting the gas pedal simultaneously. And this seemed to have occurred back when you had mentioned the quote about Yellen saying

Starting point is 00:37:00 that things were getting liquid in the Treasury market. And this is when we saw this pivot really kind of take place right at that moment in time. I want to say this was back in end of November, maybe. Do you have any thoughts on some of that or what that might mean moving forward for Bitcoin or markets at large? Yeah, I mean, this is the multi-trillion dollar question, which is this like, how does the tightening path? What is the terminal rate, right? And what are the inputs to that, you know, Fed reaction function? And then what does that mean for overall sort of asset valuations? Again, like, I'm not a trader. So, you know, I don't have like a whole lot of skin in that particular game. But I would say mechanically, the objective that seems to be, at least in the

Starting point is 00:37:40 back of Powell's mind, is to try to take the air out of some of these like securitization Ponzi's and like asset back security schemes that have sort of popped up in an era of ZERP where the Fed put provides essentially a guarantee to the mezzanine and all of these complex funding transactions that Wall Street's been able to basically manufacture safety off of the implicit Fed put and just like print money effectively off the back of the Fed's policy. And I think that has created, you know, distortions in the overall financial system that got really hypercharged with pandemic because we just had to kind of just throw money out the door and guarantee corporate credit and do all sorts of things that would be

Starting point is 00:38:19 sort of unthinkable. And now the Fed's trying to like put the genie back in the box, right? Trying to unwind a lot of the moral hazard that may have been implicitly baked into the market and priced into a lot of these different securities markets. And I think they're trying to put in a control. holdway kind of do a control demolition of those parts of the market that they feel like were overly inflated on the backs of this implicit moral hazard. If it was just going to guarantee all this commercial paper and, you know, when push comes

Starting point is 00:38:46 a shove, the Fed will just be there. I think they're trying to chip away at that slowly. But they also have, as we mentioned, like this geopolitical prerogative, which is like, cannot let the treasury market break. Like, when the target breaks, it doesn't matter. Like, everything else you think is important. They have to come in. And so they're trying to do two things.

Starting point is 00:39:03 They're trying to both stabilize the Treasury market, which you, I mean, it's the most important market in the world. And yet it's also like very inefficient from the perspective of overall pricing. Like there's no common like feed, right, for the Treasury market. There's all these different issues. And so this is complicated, fractured trading market between dealers and OTCs. And it's like a complicated thing. So they're trying to do on that side like stabilize the Treasury market's market structure

Starting point is 00:39:27 with things like central clearing where and then like more like real time pricing potentially. there's lots of potential risks there too. Like there's a reason they want to have some non-transparency in the treasury market because most of the sellers and buyers in the trade market are like sovereigns. And those people don't want to have all of their bids placed, you know, with Citadel in real time and have everyone be front run, right? They want to buy $10 billion in a clip with like a phone call and no one knows about it to like a month later.

Starting point is 00:39:53 So like there is a tension there between how they want to try to reform the treasury market and make it more efficient and therefore more controllable and put in more these buffers. So if there's like a March 2020 style like off the run, just dealers say no bid and it just like freezes up and then the Fed loses their mind, they want to prevent that from happening. And so they're really worried about market dysfunction, but they have to have this sort of credibility for their quantitative tightening. And it's going back to like this nonlinear thing is like the overall reserve like what's the what's it called like the lowest. I know there's like the lowest kind of, I was right to say like what's the level of reserves in the banking system? that's like the equilibrium level, right? Like, roughly eight some trillion now,

Starting point is 00:40:36 we want to get to roughly estimate of like six trillion. They need to like pull down about two trillion in QE over the next two years. And that means you need to find $2 trillion with a balance sheet capacity to absorb those treasuries. So the game is try to find balance sheets that either you can incentivize with higher rates or like compel with regulation or geopolitical pressure to like absorb the treasury issuance that the Fed wants to get off. its books, but they also want to do that in a way that doesn't create this, hit some sort of

Starting point is 00:41:05 air pocket instability where, so they want to do it slowly, right? And this is the game, right? It's like, they can manage that, but like they're not the only person potentially doing QT. Like Bank of Japan could be doing QT. The Saudis could be doing QT. Anyone who's a seller of treasuries is contributing to QT and the inverse, right? And so they can only control one input to this system. How do you think they view, and when I say they, I'm talking governments at large,

Starting point is 00:41:29 particularly the U.S. government view stable coins potentially answering that question that you just proposed, which is who has a balance sheet large enough in order to soak up all these treasuries? Yeah, that is an interesting kind of interesting development, right? Which I don't think was in their models a few years ago. No. Here's a net new bidder for treasuries. And like, I have a nuanced perspective. I think on one dimension, it's good to have a new buyer of treasuries when you might be missing buyers of treasuries, you know, from existing sources.

Starting point is 00:42:00 Like, you know, the market will find a clearing yield. And if there's a net buyer, you know, maybe the yield is lower than otherwise would be for you. And that makes your your servicing costs lower. The question for me is, though, where on the curve does that actually matter, right? And if, if they actually are functioning more as like money market funds or like highly regulated, you know, like kind of just like simple narrow banks that have. to just only hold the most high quality liquid assets.

Starting point is 00:42:29 That might be like three months or one year or less. So, which is really in the policy rate area where the Fed kind of controls that rate anyways. And so they might not have that much of an effect unless they're allowed to buy longer dated paper. They can go out and buy 10-year paper and then do more complicated kind of hedging. I don't think they're incentivized to do that because they, because of all the interest rate risk that's due to inflation. you know, you go and you buy 30 year credit with these types of, with the volatility that you have in inflation. And I mean, you could get absolutely wrecked on the face value of that debt over, over such long duration. So I think they're incentivized to go after short duration credit to put on their balance sheet and protect their buying power with just a reason.

Starting point is 00:43:19 I guess you could say the yields higher than the 30 year yield right now. So they're double incentivized. Fairst wise. Yeah. Well, I think it's more in the second order effects, and honestly haven't thought this all the way through because it's very complicated. It's more in the international domain where net dollarization of economies that are currently not dollarized. If stable coins can help affect the dollarization of those economies, then the local institutions and banking systems that get then sort of crypto dollarized, maybe not by their own sort of national level decision making, but sort of through the organic adoption of these dollar-based stable coins, that they have to hold matching dollar. assets and that contributes to kind of a net liquidity bid to a broader spectrum of dollar um you know dollar debt securities internet in the international funding markets so there could be like an

Starting point is 00:44:06 indirect effect where just in general there's more dollar demand and therefore there's more uh demand for dollar substitutes along the money curve and so like that raises the net demand across the curve and that affects and they need this they need this yeah i mean this is the thing i mean the history and this is all stealing from lyn alden is like these periods of high structural debts lead to this sort of no-win situation for different fiscal authorities that have competing obligations. And so we running into a period,

Starting point is 00:44:37 I think Powell just today talked about how, you know, globalization or the reverse is going to be net inflationary, right? Like this kind of, duh. But like, really what I was trying to internalize what that means is like a lot of things. They're like that I don't think our assumptions were aligned with, you know, only a few years ago. So things like, okay, we have to find more redundant supply. chains. We have to change business models. We have to move out of an area that may have been

Starting point is 00:45:01 optimal for production to an area that's like second order production because of geopolitical risk. We have to increase our net spending on defense from like maybe a peace dividend era to three percent to like a more conflict prone era of three to four, maybe five percent of GDP. We have to meet these climate objectives that we set for ourselves across the world for net zero. and that means doing a lot of heavy capital investment in rewiring the grid and new energy infrastructure. We have to pay out these obligations to our elderly in terms of Social Security and Medicare, these entitlements that are also like pegged to the cost of living. And that we have to like sell down.

Starting point is 00:45:42 I think Lou Grumman point is that we're actually like net liquidating the like the Treasury portfolio to pay out these entitlement obligations. So before they were like a net bid for those because they're sort of mass. matching assets and liabilities, and now they're paying out. So all of these things are like on the margin, don't break the Campbell's back, but like you're moving into an era where collectively they're putting more stress on the on the treasury market. And then you're just waiting for some black swan, right, to come in and like really mess up the apple cart.

Starting point is 00:46:12 And like you might assume there's no such things of black swan. And I think we know that it's not the case, right? Or even a gray swan. Like a Taiwan scenario is not even a black swan. That's like something like we could reasonably put up. Oh, yeah. Yeah. And that would, that would mean, yeah, I mean, that would be ill-growth control instantly, right? There's no way that you get to that scenario when the Fed isn't owning $20 trillion in a few in a few months, right? It just, yeah. So, like, that's a great point. Yeah. That's a great point. Yeah. So this is where these, these are all pointing in the direction of structural stress on the treasury market. And yeah, my broader thesis, and this is maybe the connection to Bitcoin is that like we've, we premised a lot of the geo-economic, um, sort of power of the United States on the fact that we can leverage our sort of this this sort of seniorage that we get

Starting point is 00:47:00 to just like, you know, reinforce this sort of military complex that allows us to then keep structural demand for our assets high. That has worked in an era where the military deterrent credibility was really high, and therefore we could just have this trade from our assets for consumer goods, basically. We will sell off to OPEC plus in China our most desirable assets, which we have a lot of. We have got a lot of great farmland, a lot of desirable real estate, a lot of great tech companies. All that is really desirable scarce assets that folks in Russia and OPEC and China kind of want to buy. And so that was the trade is we'll buy your energy, we'll buy your commodities, we'll buy your cheap consumer goods and maybe even more expensive consumer goods as you move with the value chain.

Starting point is 00:47:45 And in exchange, you get to acquire our assets. And that's why you have the fire sector grosser. much, right? Because the function of the fire sector, financial insurance real estate is to recycle those capital flows from the net surplus nations into our assets to help, you know, that's like the consultants, right, to help, okay, we're going to create a nice debt security for this Middle Eastern Sheik to buy into as part of this complicated investment trust. And this is why all we, you know, all the London city lawyers, this is how they make all their money. That is a world built around this dollar surplus recycling flows. And it really enriched certain elements of society. and really undermine other elements, right?

Starting point is 00:48:22 You can imagine the pathological political consequences of expanding your fire sector and then undermining manufacturing and industrial heartland, right? And that creates the political reaction that we saw in the last few years in the West. But it's now also creating a geopolitical and military dynamic where the military is now realizing we don't have a defense industrial base

Starting point is 00:48:39 to actually make all the missiles and artillery shells and ships that, like, let alone just keep supporting this traditional war in Ukraine, is straining our capacity. we would run out of missiles in like two weeks in a in a Taiwan war right and then who's got the and then it's a game of who's got the industrial capacity to gear up for an attritional fight and guess what China has all the shipbuilding capacity China has all the factories

Starting point is 00:49:04 China has all the surplus labor we've lost those high you know high skilled trades lost the industrial capacity the manufacturing capacity the shipbuilding capacity that creates a strategic danger zone and so this is where the connection between the dollar system that functioned really well for the United States and its sort of its security position in the world is now kind of come back to bite us and we're trying to struggle with like, well, how do we reconcile this? And it's a political economy problem. Back to my point before, it's like,

Starting point is 00:49:30 DOD and the IC recognizes this is like a big problem. But Wall Street, Silicon Valley, private equity, like the status quo is working, right? And so it's like how do you, how do you, how do you, how do you, it's not like a, it's not like a, it's not like a lot of people who have a lot of money. That buys a lot of influence. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 00:53:06 This is a paid advertisement. All right. Back to the show. Going back a little bit to where we were talking with the stable coins, when you look at this between a central bank digital currency and keeping stable coins as a private entity or shell to issue tokens that represent treasuries or actual U.S. dollar value, it almost seems like the U.S. should be incentivized to stick with the private stable coin issuance model because I think it, it demonstrates. It demonstrates trust and will demonstrate to the rest of the world that they're not going to issue some central bank digital currency that that basically turns into a coupon that only lasts for six months or one year or whatever that they want to put a duration to the quote unquote money, which it's definitely a coupon at that point. Do you agree with this? And more importantly, do you think that this is something that policymakers are going to understand? and try to implement because they understand the importance of trying to protect that trust

Starting point is 00:54:18 by allowing it to remain private. Yeah, I would agree. I think, you know, in general, I'm in sort of the George Sheldon camp of sort of at least this part of the monetary kind of philosophical space where, yeah, I think, you know, letting competition for these dollar substitutes in the crypto space work is just an extension of what we've currently allowed in the Eurodollar system with dollar substitutes that are generated by shadow banks. And there's been always the history of basically

Starting point is 00:54:49 the post-war era has been a history of the Fed, you know, trying to either contain or allow the expansion of the sort of Eurodollar market, right? And really what that means is the issuance of dollar substitutes, right, that aren't direct liabilities of the Fed through this sort of hierarchical monetary system and where you have commercial bank money in the United States that has direct access to Fed money

Starting point is 00:55:09 in order to make money good all of its deposits, and that's the premise of the onshore dollar system. Then the offshore dollar system, which are dollar substitutes being issued, essentially invented by other financial institutions, also not being financial institutions, that do not have direct access to the Fed liquidity window. And that's sort of been this sort of like acceptable,

Starting point is 00:55:32 and it's created like a bunch of moral hazard potentially because that's where that's the situation right now, which is, and I'm coming back to stable, stable coins because this is just a new version of an old problem, which is how do you allow elasticity in the dollar markets to function in equity needs of the private sector and all of its manifestations that the central planner can't possibly see and recognize with the central algorithm attuning and apportioning credit, right, to whoever needs it for whatever business or consumption of purpose at any given time, this sort of, you know, that's just like,

Starting point is 00:56:03 like from a computation perspective, not something essential issuer can do. So there's just like sort of this free market for money in the global system, and it's regulated by access to collateral, and then the inner dealer market of, well, do I accept your collateral in order to trust your sort of dollar token? And that's exactly what you see in like Tether, right? It's like, do you trust the collateral? Maybe you do, maybe you don't, but there's a market for that, right? And so people will accept that token, that dollarized token to the extent that meets the purposes, right? And it might be a risk premium attached to it. And that's just the nature of the market we see right now. There's dollar substitutes like that floating around.

Starting point is 00:56:38 And so it's like, okay, if we allow, and that's been pushing a pool because if they let that go too much, and then they get ahead of it, they get over their skis and then things really blow up. And they become the cause of the freeze in the global dollar system. That's why you have swap lines. That's why we have these global repo facilities to essentially make money good, all of those implicitly money, like dollar promises, right? Like there's a bunch of dollar promises out in the global dollar system that maybe don't exactly have a one-to-one Fed liability to back it up.

Starting point is 00:57:10 And so, you know, but if everyone gets offside and there's a major run in the offshore dollar system, the function of the Fed is to be the global lender of last resort, liquidity provider to the shadow banking system. And that's what they've done, but it creates a moral hazard in that global system that they're still struggling with, right? So I think dollar-based table coins are a version of that same sort of give and take, where here's another mechanism to potentially dollarize the world in a more efficient way in a way that actually helps dollarize, like, individuals who have a need for dollars to feel like their immediate, you know, daily needs, as opposed to dollar, like, repo to support the, like, you know, maybe shady dollar funding and, like, speculative gambling by different shadow banks in the global dollar system.

Starting point is 00:57:56 So if we're okay with, like, a bunch of, you know, Dubai banks, like, going leverage happy, right? Like I think giving access to dollar stable coins to, you know, the man in the street in Nigeria should be like acceptable. And I think a private space table, a private stable coin issue is much better position to meet that mean than like, you know. Not to mention the technical risk in decentralizing the technical risk. Oh, 100%. Yeah. And the Fed is recognized this. They put out of the white paper like cyber security risk is what I do.

Starting point is 00:58:26 And my day job is looking at, you know, different like threat models for different corporate networks and other systems. And yeah, the CBDC for the Fed would be like top of the list for China, you know, because that's just, you know, creating the most juicy target. And yeah, that would be a, you know, a big, I mean, you want to talk about an Achilles heel on a global scale. Like literally, that's it as far as I'm concerned. You don't want to have single points of scale. And I think in general, right, like we've had decentralized money. We just haven't really recognized it, except when it breaks. and then the urge is to centralize it and regulate it and corral it.

Starting point is 00:59:03 And that has mattered because the backing collateral for that decentralized the money network has been the U.S. Treasury security. And that we've allowed to like, you know, minor dysfunction to happen. The problem is because our, because of the global monetary system is structured, economic system structured that like we have to, you know, run more and more deficits. Like structurally that means we have to just like print more treasury securities. And so this like, like this is creating like attention that is now coming to ahead, which is like they can't let this decentralized dollar system continue to operate the way it

Starting point is 00:59:34 has because then it won't effectively absorb all of this, all of the treasury issuance that the sovereign needs to get. That's on the way. That's on the way. Yeah. So it's about corraling global capital into a nice killing pen. Give them the treasury securities and then do the Lin-alden, financial repression, inflation, come back, you know, to like kill 30 to 60% of their, their purchasing power over a decade. That's like the best case scenario for, for the for the government right now. Yeah, so I think CBDC, even the, I think the Powell, I mean, I've heard is like, he's not a fan of CBDCs.

Starting point is 01:00:07 Kashkari's not a fan. Most of the Fed doesn't necessarily want a CBDC. People pushing it are more in the White House, especially in the Treasury Department and some people on the Hill that see this, that see the same problem. And their solution is just going to be doubled down on control, right? Eventually, like there's some people who actually just want to cut the Fed out, right? It's like the horseshoe theory, right? Bitcoiners and the Treasury, you know, like MMTers are both like, you know,

Starting point is 01:00:29 you know, end the Fed, right? But they want to end the Fed and replace it with essentially direct control by the Treasury Department, going back to essentially the, you know, the World War II and the immediate post-war era where the Fed was just an arm of the Treasury. And, you know, monetary policy was a, was a political decision. And I think that's not necessarily the best course of action. But that's, that's really what you're seeing behind the CDDC argument is this political argument over how to resolve this imbalance. and does this mean we need to go to more control? That means we need to undermine the Fed's independence,

Starting point is 01:01:04 or do we mean do we like try to take advantage of these new technologies in a way that maybe gets us out of the jam? When you see the head of the BIS, Augustin Carston's, he says that central banks have defeated crypto, was the quote, I think this was from last week or the week before. What is your take on such pronouncements and why such pronouncements are being made? So if you listen to what central bankers say,

Starting point is 01:01:28 I'd have nothing against them personally, right? I'm sure, you know, a lot of them are just technocrats, right? Maybe some of them are power-seeking, malign people. But, like, I'd at least try to treat them as, like, their institution first. And then the person is usually just, like, an artifact of the institutional prerogatives that they grew up in. And they don't hold that job unless they supports institutions's prerogatives. And if they don't, they leave. And someone else comes in who does.

Starting point is 01:01:47 So he's like a character to easy to sort of personifies, like, big bad man. I try to step behind. Like, what is institutional incentives of the BIS, which represents essentially the central bank of central banks? and they view the sort of fiat liabilities that circulate as money in the economy, really the banking system. They view this their product. Like they actually view it almost as like a company views a product that they make. Yeah.

Starting point is 01:02:12 Right? Except they have a, they have been given a state monopoly to issue that product. And so they view any competitors to that product as a threat. And like what else everyone else does, you know, in a competitive environment is you talk down your competitors. And you try to like make it seem like it is even a competition. and these competitors are bad and they'll give you cancer and they,

Starting point is 01:02:31 and if they weren't, and if they weren't competitors, you wouldn't be talking about it, right? Yeah, I mean, it's a clear demonstration. Like,

Starting point is 01:02:38 they actually listen to what they say, right? They actually have a view the liabilities that the issue is like their property, that they control access to, right? So like they have the responsibility and the authority, not only granted to them by the constitutional processes of the states who have given that charter,

Starting point is 01:02:53 some of which may be more legitimate than others, right? And there's certain challenges in the, in our current institutional framework that even central bankers have pointed to. So like Paul Tucker, who was the number two Bank of England, super well respected, monetary official. He's also, I think, Nauer Harbor. He's written a book called Global Discord.

Starting point is 01:03:09 It's a great read, kind of very technical and academic. But he's really drawn a bright light at this issue of the potential legitimacy problems that central banks have, especially in the modern era, and how this is now becoming overlaid with the geopolitical frictions to really put central banks in a difficult spot. And I think Bitcoin is like a convenient stalking horse. for them to kind of like poke at when they're really anxious, like in their heart of hearts. They're actually more worried not about Bitcoin. They're worried about state capture over them, taking away their independence.

Starting point is 01:03:37 BIS has diplomatic immunity, right? It's like that could be taken away pretty quickly. Like they get nice, they have a nice life based. A lot of perks. A lot of perks. And they had a lot of power. And they were sitting, if you think about it from the perspective of like institutional power and like how that conveys like personal status, human beings are status animals.

Starting point is 01:03:54 Like we always want to be at the top of the different status hierarchy. And in the sort of halcyon days of the American Unipolar Order, globalization, finance capital, ran the world, central bankers were like the top of the pyramid. They were able to make the argument successfully that they were independent from politics so they could sort of step aside the sort of scrum of national politics. And they could sort of take a larger view, a more technocratic view of the global order and try to like smooth out the business cycle, coordinate policy across all the major leading economies meet together in these small cloistered clubs and say, this is our plan for the world. We're going to do this, right? It wasn't like this nefarious cabal of like, this is our scheme.

Starting point is 01:04:32 It's like, this is what the world allowed them to do because we were in this sort of more stable arrangement. And they could effectively do that. The problem we're running into now is like, geopolitics, technology change, national political pathologies that are coming up

Starting point is 01:04:45 and essentially undermining that claim to legitimacy that they've relied on is funnily threatening their existence. And I think Bitcoin is just like the most obvious, most overt challenge to them. Right? It's like literally addressing them, on is like, we're here because we don't like you and we're going to do our own thing. And if we succeed, it's sort of a demonstration of your, of your lack of credibility.

Starting point is 01:05:05 So that obviously like that is like a political challenge, right, more than even a monetary challenge in the scheme of like we're in a narrative world, right, where it's all about memes. It's like memes and vibes run everything. They're trying to, you know, win the memetic war, right? Is framing the issue in a way that's favorable to them. I also think where we are now. But yeah, I think social bankers are defending themselves more than from, from, from,

Starting point is 01:05:27 just Bitcoin in this current world. I think they have got a lot of challenges. And I think this has manifested in some anxiety that comes out with remarks like that. You were a congressional intern for a member of the House of Representatives. I've had a couple friends that have done this type of job. And it's always fascinating talking to them about what that's like working in the member's office and just interactions with the district and the people from the district. And I think a lot of Bitcoiners, and we're obviously talking about Bitcoiners here in the U.S. are extremely suspect of actually having their voice heard from members of Congress. And so I want to ask you this, from your point of view, if the staff or the members receiving calls on a weekly,

Starting point is 01:06:15 twice a week kind of basis on a particular topic, how is that viewed? How is that perceived? Does it actually have an impact on their thinking? Does it have an impact? on bringing awareness. And it's a little bit of a leading question because my personal opinion is that it does have an impact and it is important, especially for people here in the U.S. that are trying to have policy shaped. Bitcoin's going to, in my opinion, Bitcoin's going to be successful whether it happens or not here in the U.S. because it's such a global phenomenon. But as an American, I would like to see us get it right and for politicians to maybe dig in a little bit deeper. So can you tell us what that experience was like and then also tell people the impact that reaching out and maybe voicing your opinion or your concerns to local representatives does?

Starting point is 01:07:07 Yeah. So one of the main jobs is interns, aside from giving tours and learning slash making facts about why a certain stain on the marble might have been from a duel that happened 100 years ago and actually is probably just someone's coffee they dropped. Right. You got to spice up the tour when you're doing it for the 10th time was responding to constituent emails. And every email had to get responded to, every phone call, you had to take notes on what the phone call was about, write up a summary of what the phone call was, and then respond to, so like every single, in my representatives, it was like every single contact had to be responded to. Now, most of the time you have, like, standard issues,

Starting point is 01:07:41 like, because someone complaining out gases or tax, gas prices or taxes or the war in Iraq or whatever. And so you had like a standard form letter. So you had like dozens of these form letters. And that you had, you could like go to and be like, this is the congressman's position. and we appreciate your interest that is he's got an upcoming vote.

Starting point is 01:07:57 So you have to like tailor it a little bit but like that was a key function of the office was respond to constituents and we tracked what topics are being asked. And like what are new things being asked about? So if he goes to a town hall meeting it doesn't get like surprised on the spy doesn't have anything to like go to.

Starting point is 01:08:13 Worst thing that can happen, not just in Congress, but like any environment is like your principal, whoever that is your boss, the C-suite executive, the cabinet official, the president, the congressman, the senators. Like the worst thing that can

Starting point is 01:08:24 happen to them is they get asked a question in public and they have like no idea what to say. And so they always want to feel like they have a little some position, whether it's tentative or somewhat. That does matter. And I know folks that I work with at the Bitcoin Policy Institute, which is sort of this organization that we fill you with on the side, just to like help out with Bitcoin policy in the national security space, kind of analysis and outreach. Grant McCarthy in particular, who's the co-founder with David Zell of BPI, he's had dozens of meetings on the hill with staffers from both sides of the aisle. And I talked with him about what that experience is like.

Starting point is 01:08:56 And he's going in there and he's a really good talker and a really good listener. And he's not trying to like, it's not advocating really for much. He's just like, we can be a resource to help you as you're confronting this really complicated thing, which is digital assets more generally. And in particular Bitcoin in its role and how it works and how it could help in these different dimensions. And here's some like rigorous research and here's how to sort out sort of signal the noise. And that's been really well received, at least that I've heard from him, is these are

Starting point is 01:09:23 junior staffers, their 20-somethings that are tasked with like a broad portfolio and they're just going to Google their first response to a question. That's an easy thing to like improve. Like that's low-hanging fruit. So like the first thing isn't just like a DeVries digital economist thing. It is like they're going to find that matter what, right? Because it's been search engine optimized everywhere. But like getting something else. Let's say you took 10 calls in a week in your particular office, your member's office, about Bitcoin or stable coins or you name it, right? If that topic keeps getting hit by a different caller, like talk us through how that awareness, would 10 calls be kind of a big deal with three calls, a hundred calls?

Starting point is 01:10:08 We just don't really have an idea of what that would look like and what the protocol would be for addressing a high volume event. It's probably different age. depending on how responsive their particular congressman feels. But it doesn't take much. I'd say like even like a handful of like personal letters or personal phone calls could get elevated. Someone certainly asking a question at a town hall meeting and like someone who's credible and was like, I want a response, right?

Starting point is 01:10:34 That will get a response. Congressman will remember that. He's like, oh, that person was asking about that thing and I didn't know quite what to say. Like I don't want that to happen again. So it doesn't take much. It doesn't like you need like thousands of people. It just, yeah, it doesn't, especially in the House of presenters.

Starting point is 01:10:47 Senate, it's a little bit more of a machine, much bigger population. The threshold is probably an order of magnitude higher for this typical senator's office. And then for the White House, it's like an order of magnitude higher there. So it's like, that's probably my heuristic. I guess what I'm getting at it is. So we have all these meetups that happen all around the US. And I think it would just be extremely powerful for the organizers of a lot of these meetups to put together talking points or to collectively kind of, I'm going to say the word bombard. But That's not the word I'm looking for, but just to collectively work together, to start informing and most importantly educating, like bring the awareness through the volume and then work towards

Starting point is 01:11:27 helping the member understand why proof of work is far superior than proof of stake and more of these nuanced things so that we're not getting these people up on the hill, completely not understanding anything they're talking about and just buying into that some crypto-salana person or you name a crypto token person went in there and was lobbying on behalf of whatever they were trying to sell. But we actually get real people who have real interest in getting sound immutable money working together to inform elected officials. Yeah, I think the key is it's also, it's important to be respectful in this, right? Yeah, yeah. What will be not productive is if it's like a harassment campaign.

Starting point is 01:12:07 Yes. You don't get it. Bitcoin's going to succeed. Great point. It's like, sorry, that's not going to win you any friends. So being polite, be respectful, be curious, offer to help. These things are pretty common sense, right, in a civil society. But sometimes you have to say that.

Starting point is 01:12:23 No, I think that's such a great point because I think that anybody who's reaching out in that type of way is just immediately written off as just being a crazy person. It's like same thing on Twitter, right? Like, do you respond to like trolls? Like, no. No. You're not contributing to a positive discourse. So people are going to just tune you out.

Starting point is 01:12:40 I know you have a hard stop here very soon. But last question, real quick, I know you have time in the nonprofit space and have interactions in the nonprofit space. How do you think Bitcoiners can leverage that more for getting grants, getting funding in order to do some of the things that they're working on? That's a good question. This is the thing that I'm not like deep in fundraising for BPI. I just don't do with national security stuff. But I do know that like it's heavily like cyclical in terms of like bulls and bear markets. And Bitcoiners, you'd be surprised.

Starting point is 01:13:09 don't want to just easily give up their coin. So this is, I think, a tough environment for nonprofits in general to try to fundraise, especially where Bitcoin is a decentralized open source project, right? There's no corporate interest on the line. There's no shareholders or public or private financial interests that can easily see, like, I need to protect my moat. I need to get this regulatory provision in because my business model requires it. Like the function of lobbying is structured around having those sorts of outside incentive

Starting point is 01:13:38 structures drive particular lobbying and advocacy and advocacy efforts. In general, Bitcoin doesn't have it. There's no CEO. There's no like central planner who's like, this is our strategy for Bitcoin, you know, regulatory priority. It's kind of kind of had to just like, you know, talk to the right people and like make the argument. I don't know. It's probably a larger question for how Bitcoin should just be a little bit more attuned to, again, it's kind of the irony of like this originally kind of like libertarian project trying to create like common goods, especially in their own civic jurisdictions, right? It's a global project, but it has, very much like a local territory depending on where you live and what jurisdiction you're subject to, right?

Starting point is 01:14:16 It's not about protecting it's like Bitcoin on a global basis. It's about protecting, like, your access to the Bitcoin network wherever you live, right? Which I think you have two options in general, right, any political theorist like voice in exit. You can always leave, but that has a hike, that has lots of costs to leave, you know, a certain political jurisdiction. I think Bitcoin has been too quick to think, I just take my seed phrase and I bounce. And it's like, okay, maybe you're like a single dude who's got no material possessions and no family and social attachments. You can just post up in some Costa Rican jungle and like live off your coin and your Starlink. Great, right.

Starting point is 01:14:48 For you, maybe you don't have a whole lot of territorial attachments. But most people have like civic and social and political and familial attachments to where they live. And that means you got to engage politically with where you exist. And that means voice. That's where I would say. Like people, I think, or index on the exit like properties of Bitcoin. and I think that makes the discount the importance of voice. So, yeah.

Starting point is 01:15:10 Matt, I have thoroughly enjoyed this conversation. You're just a wealth of information on the global macro side. I would love to sit down with you and Luke Roman together for a conversation. I think that would be a blast. It's great. But, yeah, thank you so much for making time. This was very enlightening and such a pleasure to have you. Yeah, yeah.

Starting point is 01:15:29 Next time we'll talk aliens. So, on that, on that topic, I have a teaser for those people. So on that topic, I reached out on Twitter and said, hey, does anybody have any questions for Matt? And there were so many alien comments. And my personal, I don't know what it is, I just find that topic to just not be that exciting. So I saw the topics like people bringing that one up. And I was like, I'm not asking that. It gets the people going, man.

Starting point is 01:15:55 It gets people going. It's, I think that's a long conversation. Yeah, it should be interesting few years, I think, on that issue. Matt, give people a handoff if they want to learn more about you. Yes, so certainly I'm on Twitter. I sort of just think in public at Matthew underscore Pines. Just hit me up. I just tweet about random things in geopolitics, cyber, macro, whatever things that seem to catch my eye.

Starting point is 01:16:19 If you happen to be a C-suite executive and are confronting some strategic coupling between your geopolitical and your cybersecurity risk, that is my day job. We spend a lot of time advising multinationals on the exact questions. We're on the director for security intelligence at the Krebs Stamless Group. So you can look us up there. You want to engage me in a professional capacity. And then I actually published a novel, expectation value. So it's basically a science thriller about quantum computing and AI and espionage. Check that out.

Starting point is 01:16:47 It's on Amazon, Kindle and Print. It's actually this thing right here. That's pretty cool. Yeah, it's a little bit thick. And then DPI, Bitcoin Policy Institute. That's where I'm a national security fellow. And yeah, I think they're going to be doing a DC Policy Summit in April. So look up the Bitcoin Policy Summit.

Starting point is 01:17:03 It's invitation only. But if you're in D.C. And you have interest in Bitcoin, national security, and larger policy questions, reach out to me. David Zell and Grant McCarthy are the ones putting it on. We look to get folks invitation for that. And also support BPI's work. They take donations. And yeah, I think they have, I think, higher ROI on every Satoshi they receive in terms of their broader educational efforts inside D.C.

Starting point is 01:17:25 So, yeah, it's getting myself busy. Fantastic. We'll have links to all that in the show notes. And again, thanks for joining me. Yeah, thanks for having me. If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires. The Bitcoin-specific shows come out every Wednesday, and I'd love to have you as a regular listener.

Starting point is 01:17:48 If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it's something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening. And I'll catch you again next week. Thank you for listening to TIP. To access our show notes, courses, or forums, go to theinvestorspodcast.com.

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We Study Billionaires - The Investor’s Podcast Network - BTC122: The US Treasury May Need Private Stable Coins w/ Matthew Pines (Bitcoin Podcast)

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