We Study Billionaires - The Investor’s Podcast Network - BTC125: James Lavish On Why Bitcoin Performs From Here (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 bring back by popular demand, Mr. James Lavish. James comes with decades of experience as a fixed income investor, VC, and overall Bitcoin educator. On today's show, we talk about how the evolving macro environment doesn't seem to be hampering the price of Bitcoin, despite the numerous liquidity in central banking actions plaguing the global economy.

Starting point is 00:00:27 We cover how we see the upcoming quarter-shaped. up and how the actions in Europe might leave the broader global economy with no further options but to aggressively debase moving forward. James is a talented educator and makes complex topics really accessible, so sit back because he's really providing a great interview in this week's show. With that, let's go ahead and hop to it. 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 James Lavish. James, welcome back. Well, good to be here, Preston. Always like talking to you. And I appreciate you have me back on.

Starting point is 00:01:19 Likewise. Love chatting with you. Here's where I guess I want to start is when you're looking at everything happening and there's a lot happening right now. What stands out to you as really kind of the big chunk kind of thing to focus in on that is upstream of all the other stuff that people might, you know, hone in on that's actually. actually just noise and a byproduct of this bigger thing. What would you say the bigger thing is, James? The bigger thing. I mean, look, everybody is just laser focused on what is the Fed going to do next, right? I mean, if you look at interest rates, you look at the yield curve, you look at how much it's moved. You listen to the Fed presidents and governors, you know, that anybody who is in those chairs,

Starting point is 00:02:05 they keep talking about how they're going to keep raising rates and keep them high. and you can just see the market doesn't believe them. Yeah. Market absolutely does not believe them. It says, look, there's either a recession coming, something's going to break, meaning, you know, we have some sort of credit or the quidity event in the markets, in the credit markets. And they just don't believe it.

Starting point is 00:02:26 And so you're watching the yield curve inversion just continue on. And the likelihood, there's going to be rate cuts has grown to the point where I think it's now the market is. pricing in rate cuts down to just about 8%, just under 4% by December, right? I mean, the market doesn't believe it, period. And what are we missing here? Where's the disconnect? You know?

Starting point is 00:02:54 And that's what I'm kind of zeroed in on. Like, what's the disconnect here? And I would be interested to hear what you have to say as well. Yeah, no. The thing where I'm struggling is I'm looking at the U.S. markets. And the credit market, when you're looking at the yield curve, is screaming. that the feds got it wrong, there's going to be a correction, and it's imminent. But then when I look at the yield curve over in Europe, it's not looking that way. It's looking like it is still aggressively

Starting point is 00:03:22 selling off and that nothing is under control. And you know what? I got these charts. Hold on. Let me bring up these charts so people can see what we're talking about. The first one that I'm bringing up here, and just let me know if you're not seeing it, James, but I have the U.S. yield curve. And you can see how it's going sideways. So it's not selling off anymore for the most part. I guess the short duration stuff is continuing to sell off, but the long duration stuff is actually catching a slight bid over the last, to call it four or five months. But across the yield curve completely, it's going sideways and it's upside down. It's inverted. And this is basically what you're saying is the credit market saying, yeah, we don't believe this. You're going to have to ease soon. But where I'm having trouble is I'm looking at the

Starting point is 00:04:08 UK, and to me, this, this looks like it's still aggressively selling off to me, right? And then here's the European yield curve. And it's still well within just like the standard volatility, and it's selling off like crazy. And so I guess when I'm looking at this and I'm saying, yeah, I hear that narrative. I definitely hear that narrative in the U.S. that the credit market's pricing and this big change. I'm looking over to Europe and I'm not seeing it. I'm seeing double-digit inflation in the UK that just got print. I think it was 10.2. Yeah.

Starting point is 00:04:45 You see their yields, what are they? They're one year is the highest yielding at 3.9%. So you still got a 600 basis point spread between that and their inflation. Negative yield. Yeah. Negative real yield. I guess where I'm like really struggling is I'm saying everything's systemically connected. Like it's not like you got the U.S.

Starting point is 00:05:06 market. It's completely disconnected from Europe. It's totally connected. I guess how do you interpret that quandary and that difference between these two markets? It's funny. You're watching Europe, the central bank in Europe has just been acting in slow motion this whole time, right? I mean, they started out last summer. They were still at negative rates in July while there was double-digit inflation. And they then raise rates to be what, if I remember correctly, they've been so far behind on this. And I think there's a few things going on. In the U.S., we're hyper-focused on what's going on, what the Fed is going to do.

Starting point is 00:05:46 And it's not just the U.S. The whole world is focused on this, right? Because the Treasury market, the U.S. Treasury market, being the global reserve asset, and everybody's looking at this. And so the question is, how lagging are all these indicators that the Fed's looking at? And when does it catch up? And when it does catch up, does that mean that's it? We're already in a recession because we have this watershed moment, you know, this like a steep drop-off

Starting point is 00:06:12 and productivity. We have large layoffs or whatever it may be. Well, we saw it in the industrial numbers this morning. There were some pretty dismal numbers. And what is showing is that inventories are up, you know, orders are down. And what does that mean? That means that we don't have that supply issue that we had before. And now you've got OPEC that comes out.

Starting point is 00:06:31 So they're going to cut a million barrels of oil a day. So that just keeps energy priced high. So you keep inflation high and you're trying to battle it. You know, you're crushing demand and it just isn't working yet. But when it does, I think it happens in a way that just sends us spiraling into a recession. And so that's what the market is telling us. But the Fed is so laser focus on just this inflation number that they're, you know, they don't have enough firepower yet to say, okay, we're going to step back.

Starting point is 00:07:03 they thought about it. They thought about it this last meeting. You heard Powell admit that in the last press conference. He said, yeah, we actually considered pausing this round. But the inflation numbers are still high enough that we couldn't. And we felt like the liquidity event that they faced, that interest rate risk event that happened with Silicon Valley. I'm not, and I don't think you and I have talked about this on your show yet.

Starting point is 00:07:30 But they felt like they had put that fire out. the credit markets were short up. And so they still need to keep inflation down. And so the market's telling them, look, you're, you're going to raise these rates too high and something is going to break because, first of all, the bank problem is not finished. Like, that's not over. And so now we're starting to talk about the commercial real estate market and all of those leases coming due and the low occupancy that you're seeing in office buildings. Like, that's going to be a problem. And the biggest problem is that that paper is being held by the smaller regional banks, the vast majority of that paper.

Starting point is 00:08:09 The market's saying, like, look, this is going to happen and it's going to happen quickly and you're going to have to pivot. And so that's what the market's saying. And yet you still have Fed and all of its reps out there every day saying, no, no, we've got to keep rates high. And part of that, I believe, Preston, is part of it is they're trying to instill confidence in the system saying, oh, there's no problem. with the banks.

Starting point is 00:08:33 Like, that's, that's okay. We, we've taken care of that. Well, how did they take care of that? They injected liquidity into the system. They're already doing it, right? So you see that we're supposed to have quantitative tightening. And though you can't call what happened a couple of weeks ago, quantitative easing, it's not really QE, but it is injecting liquidity into the system that would not otherwise be

Starting point is 00:08:54 there. There's just no way around that. But at the same time, what's funny about that is at the same time, you're not seeing banks lend to each other. They're pulling capital and putting, you know, they're taking their money market capital and putting into repo, the reverse repo and just parking it there. It's like you're having this liquidity, you're having this liquidity crunch between banks, but then they're shoring up the banks with this fake QE, like the, you know, and we can talk through the math of that for your listeners. It's a really strange dynamic. And to be honest,

Starting point is 00:09:27 I've never seen a market like this. And I've never seen so many managers struggle trying to figure out where to put capital because it's a very uncertain situation. There's nowhere to hide, yeah. There is nowhere to hide, right? Let's talk about the backstop facility. There's a lot of people debating and arguing over the semantics of what it's being called. And it's amazing to me how passionate people are about it not being called QE or not being called this. Meanwhile, I guess from my vantage point, I'm not only looking at it as being QE.

Starting point is 00:09:58 I'm looking at it as a form of yield curve control. Yeah, I want to hear you talk about that. Right. So let's talk through it. Let's talk through what it is. What happened, right? Okay, for your listeners, for anybody, anybody who hasn't already heard what happened at Silicon Valley Bank, basically we're going to simplify it for everybody.

Starting point is 00:10:17 I like to do that. We're going to simplify it for everybody so they understand it. There are nuances here. This is not exactly the way that works, but in essence, this is the way it works. For customers put their deposits in a bank, the bank uses those deposits. it puts some in the reserves and then it lends the rest out and uses it as a form of leverage so they can make other loans using your capital and generate income on that, right? But the capital they keep in the reserves, they have to do something with so they can keep in

Starting point is 00:10:43 cash or they can try to battle inflation and help their margins by investing it. And they invests in treasuries typically. Well, at Silicon Valley Bank, what they did is they took that capital. They lent most of it out. They kept a little bit in reserves. And then what they kept in reserves, they were listening to the Fed, right? So the Fed, one year December, okay? So December of 2021.

Starting point is 00:11:08 And I'm going to actually do a threat about this. I've written about it. I'm going to do a threat about this very soon on Twitter, maybe by the end of this week. So people can understand, I mean, the Fed is just not a good predictor, right? You can listen to what they say and what their intention is, and that's helpful, but the Fed is not a good predictor. So if you're somebody trying to invest, don't listen to what the Fed thinks they're going to do because they have no clue. Here's evidence. Back in 2021 of December, 2021, they put out their Fed dot plot where they all plot out where they think interest rates are going to be now and in the future in the next couple of years.

Starting point is 00:11:41 Well, on that dot plot, they said that at the end of 2022, December 2020, they expected the average Fed rep expected that the interest rate was going to be. at 0.86%. 0.86. I mean, Preston, they were off by 4%. Yeah. And when you're buying, when you're buying treasuries

Starting point is 00:12:07 that are 10 years, 20 years, 30 years out, that 4% is massive. It's a massive move on your principle. Because when you go into the market and if you own that bond and you have to sell it in the market, it's worth way less than it was because you have to compound that 4%

Starting point is 00:12:25 over all those years, and it generates a loss for you that's massive. Okay, so let's go back to what happens. They've got these deposits. They put some of the deposits in treasuries. They buy elongated treasuries. They hear the Fed saying, well, rates are not going to go up. Inflation is on a problem. So they think, oh, we'll take a flyer on that.

Starting point is 00:12:44 We're going to generate more income by holding treasuries that are further out. Then the Fed starts raising rates. Well, people say they should have hedged that interest rate risk. immediately having that much capital. They should have, that's what you should do at a bank. You hedge out your interest rate risk. How do you do that? You can do with swaps.

Starting point is 00:13:04 This is where swaps are good where you can hedge out risks that you don't want to take on. If you don't want to take on a variable interest rate, you can hedge it out by locking that rate in, getting a little bit less of a rate that you would otherwise, but taking out the risk. You can do that. They didn't do that. So instead, they watch the rates start ticking up higher. And once they start taking up higher, the only thing they could do is lock in a

Starting point is 00:13:25 loss. So it's too late unless they think they're really going to go higher, which the Fed kept saying, no, no, no, no, no, inflation, it's just going to be a minute. So they took these massive losses on the books, you know, that they didn't even have to list on the books because they can say that these are, these are assets that we are going to classify as held to maturity assets, which means that you don't have to mark them on the gap accounting as a loss. They say that they've got this many assets in their reserves. They don't really, if you market to market, it's down 20 or 30 percent. So then investors start getting wind of this, right? Or depositors. We've got two types of depositors, right? You've got your everyday depositors, you and me. And then you've got your business

Starting point is 00:14:11 depositors, you know, which are these venture capital firms and these venture capital, the actual companies, right? So these very young companies, these tech startups that have a bunch of capital, raised from these VCs and they've got deposited in the bank, but they use it. That's what they do. They raise capital and then they use it in big chunks to buy equipment, to do software development and whatever it is. And they use it in big chunks. So you've got to match your deposits and the turnover of your deposits and the duration of your deposits to the duration of your reserves. But they didn't do that, right? So they had these big withdrawals. And then people started getting win that Silicon Valley Bank's got some big losses on their books if they mark to market.

Starting point is 00:14:58 Obviously, depositors get nervous. They start taking out their money. They have a run on the bank. Then what happens? Silicon Valley has a choice. They can either sell those assets and take a loss or borrow against them. But either way, if you borrow the overnight window, you borrow from another bank, you're taking a haircut.

Starting point is 00:15:15 So there's nothing they could do except sell them down. And then you had enough depositors asked for their money back. that they became insolvent. They just didn't have it. And so, okay, in steps the Fed and the Treasury, and they say, okay,

Starting point is 00:15:31 well, we can't have Silicon Valley just go under. We've got to shore them up because if we let them just go under and all their depositors that take that loss, then this could cause some contagion. It could cause run on other banks,

Starting point is 00:15:48 runs on other regional banks. So they wanted to shore, it up and make sure everybody knew that they weren't going to execute what is called a bail-in. What I wrote about this. It's funny because I wrote about this to maybe three weeks beforehand talking about bail-ins with credit Swiss and just making sure everybody understands, hey, look, if you have your capital at a bank, if you have a deposit at a bank, you're only backstopped in the United States for $250,000.

Starting point is 00:16:16 And now after 2008, we instituted through Frank Dodd a new rule, a Dodd-Frank, a new rule that the U.S. couldn't just bail out any institution individually, right? So it had to be a globally systematic, you know, important bank. Well, we learned that wasn't true. Well, yeah, that wasn't true. Right. So, but the point is that if they executed this new law that says, well, you can can execute a bail in, which means that any asset, which includes depositors, deposits can be used to pay off creditors in a bankruptcy situation. Well, anything above $250,000, that's fair game for them to claw back and use, and you could lose it, right? Because it's not protected under FDIC. That's a lot of information. But the bottom line is the Fed and Treasury came in and said, no, no, if you have your

Starting point is 00:17:15 deposits at Silicon Valley. We're going to make you hold. Don't worry about it. What we're going to do is we're going to institute this new rule. Okay. And we're going to have this new funding program, right? And it's just ludicrous, isn't it? It's insane. Well, they make the rules. And then when it comes like crunch time, it's like, well, we're not going to actually do what we said we were going to do. We're going to do this other thing. And we're going to manipulate the market. We're going to manipulate the market. It's more manipulation, right? Why? Because, well, there was a lot of very noisy people who were very rich and very wealthy who needed this to be backstopped, right? Now, there are definitely some companies that we would not want to go under, some small tech companies that were going to get

Starting point is 00:17:57 hit sideways with this. It was just, you know, it was unfortunate all the way around. It was just, it was just poor risk management. To give people an idea, Roku, right? What did they have on deposit at Silicon Valley? It was like half a billion, right? It was half a, yeah. It was like half a billion dollars. And so, like, they would have been bailed in. They would have got $250,000 back. And they would have bailed in. They would have been bailed in the rest of that deposit. That's right.

Starting point is 00:18:24 Just to show people how insane this is. But so amazing job laying that out. Where I want you to kind of explain why I'm calling it yield curve control. I'm curious if you would agree with that definition of it. But explain what you think it should be called or. All right. Well, let's back up. The bank term funding program, BTFP.

Starting point is 00:18:43 I mean, okay, what is it? And so people have to understand what it is to really get their head around it, right? Basically, they're saying if a bank is in need of capital, right, and they're eligible, they're FDIC insured, they can borrow against their securities instead of selling them on the open market, right? So they can go to the treasury and they can borrow them, right? And not everything is available to borrow against, but U.S. treasuries and high-quality mortgage backs and BSs, right? Here, they've got a few kickers. first of all, they get to borrow at par value.

Starting point is 00:19:15 They don't have to borrow at the market rate, which is, you know, what they could sell it in the market for. So they get 100%. Next thing is they don't take any haircut, right? So it's not just the market value. They don't have that 5% haircut either, okay? Then the rate is the one year overnight swap rate. So it's a year out plus 10 basis points. Okay.

Starting point is 00:19:35 So it's not what Fed funds is. It's a year out. And we all know that the heel curve, it's inverted. So yields are, they're lower a year out. There's no prepayment penalty. The loan term is for one year. There are no transaction fees. And then this is the best part.

Starting point is 00:19:54 So Greg Foss and I talked about this on spaces the other day. If you're a bank and you need capital, you go to the overnight window, which means that you borrow from another bank. And that's kind of the typical thing. we go to the overnight window and you borrow from another bank and it's just what they do. But when you have a capital like crunch, liquid be crunch, other banks won't lend to you because your credit is like, then we're not going to, you know, JP Morgan's not going to lend to you, sorry, because we don't believe that you'll be able to pay it back.

Starting point is 00:20:27 And it's really embarrassing. You have to go to the discount window, which is actually borrowing directly from the Fed. And it's a bad, it's a stigma, it's negative. Right. So you don't want to say that you borrowed from the Fed. it's kind of, right? Okay. What they've done is they said,

Starting point is 00:20:42 you can borrow from us and we'll keep it secret. We won't tell anybody. So nobody has to know that you borrowed from us for at least a year after the term of your borrowing. All right. So that kind of sets it up. So what does that mean mathematically? Well, it means that, look,

Starting point is 00:20:59 if you have 100% value of whatever you're trying to borrow against, well, if you went to the overnight window, and you want to borrow or the discount window. If you want to the overnight window and you want to borrow against that, well, you'd first have to mark to market value. So let's take a 30% haircut there. So now you've got 70 cents on the dollar that you can borrow against. Then you have to take your haircut.

Starting point is 00:21:23 That's another five cents, right? So now you're at 65 cents on the dollar that you can borrow against. So for a million dollars, you can borrow $650,000. And this is just all in the hope and the prayer. This is all the hope and the prayer that rates come back down. so that you don't get crushed even further while it's sitting on deposit with them. Right. Right.

Starting point is 00:21:44 Exactly. But if you go into the BTFP program, you can borrow all 100%. You can borrow your million dollars, whatever it is. So what does that mean? That means that you basically are getting 35% more for that you have access to 35% more liquidity than you otherwise would have. 35% over 65. I mean, it's literally 50% more than you would have otherwise, right?

Starting point is 00:22:11 Yeah. So you get $350,000 for a million more on top of the 650 that you would have gotten. So in 350, divide by 650, that's like 50% more than you would have been able to get otherwise. It's 50% boost in your liquidity. And this is why I'm saying it is liquidity in the market. Because, and people are saying, well, you've got to pay it back. Yeah, you do. But it's an absolutely short term liquidity that you would not have access to otherwise.

Starting point is 00:22:37 because that liquidity is not in the market. It's not like I'm borrowing from J.P. Morgan and taking it off of their books. That liquidity is in the market. I'm taking it from the Fed and putting it into the market. So it's adding liquidity to the market where that isn't there otherwise. Yeah. Yeah, you have to pay it back in a year, but that's absolutely a form of QE. It's not traditional QE, but it's absolutely form of it.

Starting point is 00:23:01 Well, so James, so let's pull the threat. Okay, so we all know the Fed's playbook is that, they're going to create a recession, this is what they think's going to happen, right? And maybe it is what is going to happen. I'm just saying this is the only way that this works for them is they create a recession. All the rates come collapsing back down to the zero percent across the whole duration of the curve. Then all these banks can then go back, take all these dead instruments that are sitting on deposit there. They put them back on their books because now the values back to the par value that it was, right? They quickly pay back the loans. And everything,

Starting point is 00:23:37 And it's like time stops in their minds, time stops right there and doesn't progress forward ever again. For this to all work, right? For this to work, you have to be able to stop time in the year from now if all of that actually happens what I just described. Because what nobody plays out is the step after 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

Starting point is 00:24:12 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, many of them operating on the front lines of history. This is where you hear firsthand stories from people using. Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people

Starting point is 00:24:48 are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to, but end up having dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedom Forum.com with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference.

Starting point is 00:25:34 It's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI Cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system.

Starting point is 00:26:07 And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the NetSuite AI connector, you can use the AI of your choice to connect directly to your real business data. This isn't some add-on, it's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, NetSuite help you stay ahead. If your revenues are at least in the seven figures, get their free business guide

Starting point is 00:26:39 demystifying AI at net suite.com slash study. The guide is free to you at net suite.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats. Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10% of all e-commerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms.

Starting point is 00:27:28 You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing... Sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show.

Starting point is 00:28:09 And second, third step. But yeah, go to the first step after. So then they're going to flood the system with more monetary units as all these rates come collapsing back down. It's going to, like, you think the supply chains were broke on the last zone with COVID. Just wait till the next round. And wait till the next round of what happens. inflation-wise as they try to restimulate this economy as they just literally broke is a recession.

Starting point is 00:28:35 That's the first question. How bad is the recession? Like how hard does it hit? And that's what we're trying to figure out. And I mean, nobody knows. It has to hit hard. I mean,

Starting point is 00:28:44 look at the amount of manipulation that happened here. It's not like it's going to be this soft layup that everybody can recover from it. They don't need to induce a lot of stimulus into. That's right. And you have, so you have two things that could happen. I mean, of course,

Starting point is 00:28:58 there are other things that we can't even, imagine, but you have a harder session. There's not going to be a soft landing. That's just ludicrous. I just can't see it happening. I mean, they're saying softish for God's safe. Yeah. I mean, look, I would put a low probability on that.

Starting point is 00:29:12 Yeah. It's on zero chance, but I put a low probability on it. All right. And then you have a harder session, which is high probability to me. Another high probability to me, which is not, maybe not more than 50%, but it's a higher probability than a softish landing is we have a real credit event. like a real credit event, where you have some sort of lockup in the repo market or lock up in the treasury market where the Fed has no choice but to flood the market with massive liquidity

Starting point is 00:29:43 immediately, like in an emergency measure. And that's a distinct possibility. And so why is that? Because of just the sheer amount of leverage that's in the system. You pull one string. I mean, okay, let's back up. You had one bank. It was a seven. 17th largest bank in the nation at the time, Silicon Valley. And the Fed was so worried that there would be a spread of contagion and a real credit event from this, a run on banks, a lockup of the treasury market, whatever it may be, because of a fleet of capital out of these banks. And I mean, it was a little bit nervy there that weekend, right?

Starting point is 00:30:22 And so they rushed in to save this bank, number 17 in the nation, because they had a run on deposits. Do you know many other banks we have that don't really have their liquidity short up? I mean, they can go to this new BTFP window. But J.P Morgan is talking about that adding $2 trillion of liquidity to the market because they had to rush and save them to be sure that this doesn't happen again. So then asked in front of, was it the Senate or Congress, I can't remember who she was talking to, but Janet Yellen, when point blank, she was asked, will you backstop every bank. If this happens to another regional bank,

Starting point is 00:31:01 are you going to be there? Right after, I mean, this is the kind of clown show. We're in a circus, right? It was within 30 minutes of each other. In one tent over here, you've got, you know, this guy is telling us the Fed snake oil

Starting point is 00:31:16 and he says, we're going to keep raising rates. Everything's good. Everything's fine. The bank situation is we've dealt with that. We're not in a panic about that. We're not particularly worried about that now. if you have money and deposits in the bank,

Starting point is 00:31:30 you can assume that it's safe. He says this. And then in the other tent, just two doors down, at literally the exact same time, Janet Yellen is telling her audience, oh no, we're not backstopping every bank.

Starting point is 00:31:43 You cannot assume that. I mean, literally, I mean, you couldn't have scripted. They're literally saying at the same moment, like which tent should we be in, which tent should we listen to? So, James,

Starting point is 00:31:54 I want to pull the thread on, You basically said, I think it's a real low probability that they get a soft landing. I agree. You think it's a high probability that they get a hard landing. And when we look in Europe and we're still seeing 600 basis points spread between inflation and their yield curves, I think that's... For everybody to understand, for everybody to understand, that means if you buy a bond in Europe and you hold it for two years, you're basically losing 6% a year on your purchasing power when you get paid back. So go ahead. Well, when I'm looking at that, that's the reason why I think this thing's not only going to hit. It's going to hit really hard is because none of this is under control.

Starting point is 00:32:35 Looking at, like, where we're at right now, there was a big announcement this past week with OPEC plus saying that they were going to cut the amount of supply that they're adding into the market. I've heard two different scenarios on this. It's, hey, they're, they're wanting to play ball with the U.S. and European Central Bank. Bank of Japan and they're basically not going to be held captive to the dollar dominance. And this is a big middle finger to those planners and their ability to get inflation under control by controlling the number one input, which is energy. Input to the inflation numbers, right? Yeah. It's derivative. It's derivative to all of it. The second side of that that I'm hearing is people that are saying, no, no, no, no. They're just doing what they normally do. I think Jeff Snyder, this is kind of his take. I'm sure Joe Carlos Ari would agree. And other people

Starting point is 00:33:31 would look at that and say, no, this is just what they do at this point. They're expecting it. The Treasury market here in the U.S. is suggesting we're getting ready to go in the recession. And this is a standard cut in order to make sure that the price doesn't collapse too much. And it's a preemptive move. Which side of that do you side on? And based on where you see it, what do you think that impact is in the coming six months? I think that they're using the typical playbook as kind of a front, but they are exploring other avenues of currency to the Treasury and or to the U.S. dollar. And that is the danger. I mean, if you just look at it, I mean, there were already rumblings about brick, the bricks getting expanded to bricks with two eyes and two S's.

Starting point is 00:34:24 So, you know, Brazil, Russia, India, China, South Africa getting expanded to also Iran and Saudi Arabia, right? They're clearly sending a shot over the bow. And just because they say they're going to do a million. What was the, I don't remember what the number of? 980,000 barrels a day less. Yeah, they're going to cut it by 9,000 and 8,000 barrels a day. So if I'm them and I am going to exercise the more aggressive strategy middle finger to the essentially. Planners of the West, I would come out with what seems to be a pretty normal announcement.

Starting point is 00:34:59 And then that doesn't mean I actually have to implement the number I said. I could be maybe way more aggressive in how much I pull it back. And I guess that's what I'm afraid of. That's what I think is actually the most probable that they're going to cut more. They're going to cut more than what they're already saying that they're going to cut. Yeah, but we look, we stepped into this, right? Preston, we stepped into it by weaponizing the treasury against. Yeah.

Starting point is 00:35:22 I mean, it's just, it's nonsensical. That was just the worst chess move I've ever seen in U.S. Treasury, you know, playbook. I just can't believe that we actually did that. If you're a country that's on the margin and you're using U.S. dollars and U.S. dollar denominated debt, you know, you're looking for other avenues because you're worried about, let's say, you know, if you're China, you don't want to be holding treasuries because we can use it against them, obviously. We've done it now. We've set the precedent that we're, that we, that we will weaponize the treasury against you. And, uh, and so of course, if you're Saudi Arabia, wouldn't you be doing this? I mean, wouldn't you be looking for avenues? I mean, it does make sense. It seems like they have a lot of

Starting point is 00:36:09 these deals already in place to start coming off of the dollar. You're already seeing a lot of the pricing happening in the, in the yuan. Yeah, it's already starting to happen. That's right. And China executed their first, uh, LNG purchase in. new one. Well, so let's tell people the consequence of what we're talking about. So let's say they cut more. Oil rips. Let's say oil starts going over 100 again. 120, 140. What's this mean for inflation? And then what does that mean for these treasury markets that here in the U.S., people are thinking are under control and that maybe need to start getting to be bid when, in fact, none of the inflation is under control still? Yeah. So the inflation, it continues to spiral out of

Starting point is 00:36:52 control. Well, it hasn't spiraled out of control. Inflation is coming down, but that's because we're crushing demand. But the problem is, as you're crushing demand and we're going into recession, you're raising the price of energy. And energy is derivative to everything we do. It's derivative to food, housing, like every material, everything that we need because we're importing so much that we have to pay, you know, higher import fees to actually get materials here. Everything costs more when you include it. Obviously, when energy is more expensive, everything costs more, so everything inflates. And that gets passed on to the consumer. There's only so much that the manufacturers and, you know, these companies can actually, they can swallow themselves that they, that they don't pass on.

Starting point is 00:37:40 So they have to pass on a certain percentage of it. That's, you know, so it's just what it is and keep their marches eye. What's your base case on oil? Because I kind of think it goes sideways or maybe even up in the coming six months. I'm curious if you agree with that. I agree. I agree. And so if you look at, I mean, look, go through the machinations of what happens in a recession, right? So you start having layoffs.

Starting point is 00:38:06 You start having a decrease in demand. You start having margins are compressed for companies because they're not selling as many products. And then on top of that, now the cost of everything is higher because of energy. And so the layoffs are even steeper. The demand drops even more because the prices are higher. So you wind up, and this is what, this is the problem of the soft landing is that it almost makes a certainty that we're going to have a hard landing. If you have energy prices going up as you have demand coming down and we're going into,

Starting point is 00:38:42 like we're going, we're driving into this recession with all of this leverage. I mean, it just makes it almost a certainty that we're going to have a hard landing in the next six to nine months. How do you see Bitcoin performing through that? Because I think that that's, I think you have a lot of people that looked at the 2020 big giant credit event that happened and they saw Bitcoin. I think it was, you know, 10,000 got punished down to like 4,000. But there was a lot of froth leading up to that where we saw Bitcoin go from four up to like

Starting point is 00:39:14 14,000. And so I think you still had a lot of speculators in the market just prior to. the 2020, the March 2020, like really quick sell-off, where I look at the market today, and the past year and a half has just been a bloodbath. Like, it's been aggressive selling. Obviously, we got a nice bid since the start of the year where it's up like 80%. Bitcoin, that's just normal performance for a quarter. Day. That's normal volatility.

Starting point is 00:39:43 Day in the life. But I think that I don't see a lot of speculators in the market. I think there's been tons of selling. So how do you see Bitcoin performing if your base case of something really breaks down here in the coming six to nine months? How does Bitcoin perform through all of that? Well, let's start from the top, right? So when you see, when you have, okay, let's say that we have a steep market selloff that we do have, you do have some sort of crash and risk on assets.

Starting point is 00:40:13 Well, when that happens, we call it the correlation just becomes one. That means investors sell everything just to have liquidity and go into cash. They don't care what it is. They're just like, take 20% off the books. Just take it off the books. I don't care what all of it. Sell it all. I mean, sell it all.

Starting point is 00:40:29 And that's what they do. And so you see all correlations go to one. It doesn't matter if it's a treasury. Doesn't matter if it's a stock. Doesn't matter if it's gold. All correlation goes to one. And especially normally you could see treasuries actually take in some of that capital. But in this market, people are worried now because they've gotten so hurt.

Starting point is 00:40:47 with Treasuries last year. They don't know what's happening. Yeah. Right. So it's just, everything goes to cash. So in that scenario, Preston, what I see happening is Bitcoin selling off. I think it sells off. But I think that assets like that like Bitcoin and gold solidify quickly and Bitcoin in particular has a V recovery. Like it just comes right back. I see it as if it's a sell off, that's a tremendous opportunity. I don't see it as something where we sell off to 9, 12, 14,000 and just, you know, then we're in purgatory for another year. I don't see that happening. I see a sharp sell-off and a sharp recovery. And so do I know? Of course not. Bitcoin, I mean, it does what it does. But that's what I would expect if we have all all assets correlate to one event, especially if it's some

Starting point is 00:41:42 sort of like credit event. Now, backing up. Could we see 40,000 Bitcoin before something like that would happen, 30,000? Or could we get like, absolutely. Yeah. Absolutely. We're like, we're bumping up against 30 already. We can absolutely see 40,000 this spring.

Starting point is 00:41:57 It's the absolutely, which means that in a sell-off, well, if it sells off 50% from there, it's down to 20. It's very difficult to pinpoint. Also, it really depends on what is happening with rates. If the Fed comes out and says, let's back up. First of all, look, Bitcoin right now, this is the, this is the funny part is you said it so well the other day. You said it so well when we were on that space of stage. You said, look, people, what people are discounted, they don't understand is that we are psychopaths.

Starting point is 00:42:26 We are not selling this coin. Like, we own Bitcoin and we're going to hold it because we are psychopaths. We are. We got conviction. I mean, that's really what I'm just trying to make it funny, though. It is, but it's, it is funny. but it's it we have and look this is one of the first pieces I ever wrote way back when I first got into Twitter this is my first thing is like look you have to have deep deep conviction

Starting point is 00:42:50 in something that has a very very high reward to risk you know and so it's something that gives you a tremendous risk adjuster return and you have very high confidence in that and it puts it up in this quadrant that you want to put more capital to that's where you want to to put your capital. And that's where you want to have a very long-term view and weather these little storms as you see that going out. So that's so important as an investor to have these high, high-high-conviction investments that aren't emotional, but you really do understand it, deeply understand it and deeply believe in it for a long term, like a very long duration asset, right? But let's back up for a second. Bitcoin is straddling between being like

Starting point is 00:43:38 the leading risk on asset, it's like the tip of the spear risk on assets over the last couple of years. Bitcoin goes down while the market just follows and Nasdaq follows with it. Bitcoin goes up, well, then all the thing stocks follow after it. There's a lot of reasons for that, but it's straggling between being that tip of the spear risk on asset and being the financial lifeboat in the event of like an all-out banking crisis. So it's kind of benefited from the recent turmoil. And now the prospect that the Fed could be done tightening. So what I could see happening in your scenario is the Fed calls it quit in the next meeting, or they raise and say, this is probably north of a neutral rate, okay, which the neutral rate

Starting point is 00:44:22 is where it does not affect the economy at all. It doesn't have a tightening effect. It doesn't have a loosening effect, right? But if you're above a neutral rate, that means you have a tightening effect on the economy. And if you hold that rate there, then you're expecting the, that, that unemployment will go up, that the productivity will go down, that prices will come down, and you'll tame inflation if you're above that neutral rate. Europe has been below the neutral rate for, like, in perpetuity.

Starting point is 00:44:55 Not even close yet. Not even close. So where we are is, I think what they may do. And look, we're speculating on the Fed. Who knows what they're going to do? But let's just say that they do raise one more time, 25 base points. And they signal like, that's it. That's it.

Starting point is 00:45:09 We're above the neutral rate. We think that inflation is coming down hard enough that this is probably where we end. This is our terminal rate. That's the highest the rate goes in the cycle, right? That's your terminal rate. And then that's your terminal rate and then you back off from there. Well, if they do that, I could see risk assets, stocks, or stocks, fang stocks, and particularly Bitcoin just ripping.

Starting point is 00:45:33 And it could easily get over $40,000. Does it stay there? Well, do we have a credit event? How bad is the recession? When does it hit? And what tips it off? What company collapses? I completely agree with the way you're describing this.

Starting point is 00:45:47 This is, it's exactly how I see it going down to. Like, especially if we get like this cascading contagion. Cascade. That's it. Cascating. It just one event just leads to another event and then suddenly you have a credit crisis. That's distinctly possible. That's the part that worries me, you know?

Starting point is 00:46:06 That's the part that worries me. the credit event. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up and customers now expect proof of security just to do business. That's why Vantza is a game changer.

Starting point is 00:46:23 Vantza automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, Vanta gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Riter

Starting point is 00:46:49 spend 82% less time on audits with Vantta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd won in place. Get started at Vanta.com slash billionaires. That's Vanty. Vanty.com slash billionaires. Ever wanted to explore the world of online trading, but haven't dared try? The futures market is more active now than ever before, and plus 500 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&P 500, NASDAQ, Bitcoin, gas, and

Starting point is 00:47:30 much more. Explore equity indices, energy, metals, 4X, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity, you'll be able to trade it in just two clicks once your account is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited, risk-free demo account with charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets.

Starting point is 00:48:08 Visit Plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors. Private Credit. Now, the same passive income strategy is available to investors of all sizes thanks to the Fundrise income fund, which has more than $600 million invested in a 7.97%

Starting point is 00:48:46 distribution rate. With traditional savings yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise Income Fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund's prospectus at fundrise.com slash income. This is a paid advertisement.

Starting point is 00:49:30 All right. Back to the show. How do you speak to the boomer population that maybe understands Bitcoin or wants to have some of it in their portfolio based on this setup? When we said it earlier, we're like, there's no place to go that is definitely not comfortable. So how would you construct a portfolio for somebody like that? Yeah. Well, they have to own goal. because they understand it. But they also have to understand that gold's been confiscated before. And some of them have been around

Starting point is 00:50:00 right after that, right? So they know that this is possible. They also, what I explain is like, gold has a massive amount of paper around it. Like that market is so much... That's my biggest concern with it, is just the manipulation of it. The manipulation of it.

Starting point is 00:50:17 And so that right there, just understand that. Okay. Yes. I do tell them they should own some gold because they're very comfortable with that. And it has been a good asset to, you know, store your value. Well, it's low vol.

Starting point is 00:50:29 I mean, at the end of the day, if you're 60, 70 years old, like, you can't afford to have 80% fall in your entire portfolio. Like, that's, you know, people who are saying that they should, they just aren't actually putting themselves in their shoes, right? Yeah. And I disagree with that. Look, if you're a 25-year-old, even a 35-year-old kid, you know, a kid, 35-year-old. But if you're a 35-year-old in a person, then you want to have 80% of your, your network.

Starting point is 00:50:54 worth in Bitcoin, well, you know, that's that's your prerogative. If you, if you can, if you have enough daily liquidity that you don't need access to that capital, fine, you know, because you can lose it all and you could make it back. That's your deal, you know, I don't recommend it. I wouldn't, but, you know, now that said, if you have the kind of conviction that you believe in this asset, deeply believe in it long term, and you don't need access to that capital for a while, then you don't care about the volatility because the volatility is actually a positive and that's okay. But if you're a boomer and you're 65, 75 years old, well, you can have periods of volatility. There's so massive that it could impact you too much to have that kind of.

Starting point is 00:51:39 So I agree with you. But they need to have some position. But I tell you must have some. Why do you need to own some? Well, because, well, there's a number of reasons, right? We're seeing now that they're, first of all, you want some sort of store of value, right? And Bitcoin is the best digital store of value that's ever been created. It's like it's not even close.

Starting point is 00:52:04 And I explained to them, I start with the money. You know, Preston, I start with the money and what the problems are with the money, how badly it's being manipulated. And so your purchasing power is going to go down. If you own bonds, you're going to lose purchasing power. There's just no way around it. Why? And I explained to them about how the Fed needs negative real rates in order to keep the debt spire from spying out of control in the next five to 10 years. They need negative real rates of return by having high inflation. Well, that high inflation means that it's going to impact

Starting point is 00:52:39 wherever you have your assets. Your house is not liquid. You know, you don't want to have three Airbnb's, that's probably not the best choice. So what do you do? You have to, you have to store your value somewhere. And if you have a complete collapse of the system, Bitcoin is the only asset that you can take with you anywhere. And it can't be confiscated. Yeah. It's anti-inflationary. I mean, like, and when I, when I start talking about the money, that's where they really do get it, because they do understand, they've seen prices go up their whole lot. They've seen these prices get out of control. And so they do understand that. And they do and so I tell them, look, have one, two, three percent of your money minimum in there. If you lose

Starting point is 00:53:24 the two or three percent, who cares? You know, who cares? It's the asymmetry of it. Yeah, it's the asymmetry that provides. And the asymmetry of it is it could save the whole rest of your portfolio. Yes. If the world does collapse and Bitcoin does take on that crown of store of value, it eats up gold, it eats up bonds. It eats. I mean, like, it, It would eat up massive chunks of the investable assets of the world. Then it'll be worth 100 times what it is today. Is there anything that you're excited in the Bitcoin startup or things that are being built through this deep recession that we went, the Bitcoin recession that we went through?

Starting point is 00:54:02 I mean, look, I just got off and I can't disclose details. But as you know, I've launched the Bitcoin Opportunity Fund. We're closing funding soon. But with Greg Foss, Larry Lepard, Corey Clipson from Swan, Mark Moss, and my co-managing partner, David Foley, we're doing a distress. We've launched this distressed investment fund. It's focused on distressed and deep value opportunities in the Bitcoin space on Bitcoin. But what we're seeing is I just talked to a company and they're going to have a down round that's going to be, it's deeply in the hole.

Starting point is 00:54:36 And it's a fraction of the valuation that they got their first round of capital in. Now, they're doing fine. They're doing great. But I think that they're going, they're an excellent company. They're very strong company, but they're struggling to raise capital right now because of all the damage in the space. There's so much damage in the space and so much contagion in Bitcoin from all the garbage, from the FTX and the Celsius and all the, you know, the fraud and mismanagement,

Starting point is 00:55:03 complete lack of risk management. There are tons of opportunities out there. And I'm excited because it's just like back in a year, in 2000. when we had the complete tech wipeout and you had the pop the tech bubble, if you pick the right companies, you pick the right spots, the internet, the explosion of growth in the internet from that period to now has been just tremendous, you know? And so it's kind of like that where you can make multiples of your capital and finding the right companies that are very levered to this growth. We're excited about it. We're super excited. So we're working on every day.

Starting point is 00:55:41 I have to say it's for accredited investors only. I wish it wasn't. It's an SEC rule. I wish I could change that, but I can't. But, you know, it's just reality. But if anybody wants more information about it, you can go to Bitcoin Opportunity. Fund and just put in your information.

Starting point is 00:55:56 We're happy to send packet to you. But that's about all I can really say about it without getting in trouble. But, you know, we're excited. Yeah. Awesome. James, I could talk to you all day. Love these chats. truly love these chats and just trying to figure out where this is going.

Starting point is 00:56:13 Well, and your listeners can hear us. They can hear that. Look, we're navigating this too. There's a lot of uncertainty. And I like to talk in percentages and probabilities because, I mean, it's just reality. None of us know exactly what's going to happen. But what I'm looking for. So you ask me what I'm watching.

Starting point is 00:56:32 I am watching the credit markets. I'm watching the credit markets. So for your listeners, is watching what's happening with the treasury market, what's happening with a high yield market, what's happening with bonds and their yields and the yielding inversion and exactly where those rates are going and not just where they move to, but the rate at which they move. Like those are indications how quickly they move. There's a move index that you can watch, the MOVEE that shows the volatility of bonds.

Starting point is 00:57:04 And then the other thing that people can see, and even if you don't have a the Bloomberg terminal. You can see the sovereign CDS rates online. And then we talk about them all the time on Twitter, where some of these companies credit default swaps are. And that's the best indication of what's going on in a company. Because when you own a bond and you're high up in the claims ladder of that company and you feel you need protection because that company might trip a covenant or go bankrupt,

Starting point is 00:57:35 you're buying a CDS. If those CDS prices go up, again, you're watching the rate at which they move. That is a huge indication. So Greg Foss and we're talking about it months and months and months ago about Credit Swiss. Why? Because you could see the credit default swaps just suddenly just making moves that we're just like,

Starting point is 00:57:52 they're huge moves. It's like, okay, there's something going on here. It's just a real quick indication. If you're not an investor that's deep in that company all day long, and you're just watching from the periphery and you see the credit default swap just spike, well, that's a major red flag. Those are things we're watching. We don't know anything, but we're keeping an eye on that because the thing that scares me

Starting point is 00:58:15 the most, Preston, is the credit event. That's what scares me the most. And so I'm just trying to keep an eye out and see if there's any indication there to help people and to make people aware. Well, thank you so much for making time and coming on. I know you highlighted the Bitcoin Opportunity Fund. I know you're active on Twitter. We'll have links to that in the show notes.

Starting point is 00:58:37 Anything else that you wanted to highlight? No, I mean, you know that I write the informationist. Oh, yeah, yeah, yeah, the newsletter, of course. Yeah. And so, and, you know, I do that every single week, and I pick out a topic that I simplify for people, just make it super simple for anybody to understand. And so it's been awesome. I think it suddenly jumped over 15,000 subscribers this week.

Starting point is 00:58:58 And it's been fun. It's a great community. I get a lot of good interaction from people there and people trying to understand what's going on. It feels I love helping people break into the knowledge of the space because it's so opaque, especially in the institutional side with the treasury and the Fed. Everybody talks in acronyms and nobody understands what everybody's throwing around, you know. And it's so much jargon. So much jargon. And I love simplifying for people. And so yeah, that's a man. I love that. I love that about you. Yeah. Thank you. Well, we'll have links to that in the show notes. James,

Starting point is 00:59:33 Thank you for coming on today. Of course. Always good to talk to you, Preston. I appreciate it. 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

Starting point is 00:59:50 listener. 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.

Starting point is 01:00:19 This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - BTC125: James Lavish On Why Bitcoin Performs From Here (Bitcoin Podcast)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.