What Bitcoin Did - Bitcoin & the $40 Trillion Debt Reckoning | Nik Bhatia

Episode Date: September 3, 2026

“There is a reckoning. There is a point at which something has to be addressed.” Nik Bhatia returns to get into America’s $40 trillion debt problem, why the real danger is the share of tax revenue being consumed by interest, and how continued Treasury bill issuance could eventually trigger stress in the repo market and force the Fed to intervene. We discuss whether Treasury buybacks helped drive Bitcoin’s recent 20% rally, why the UK, France and Japan may face major monetary intervention before the United States, and how Washington is attempting to reclaim control of the offshore dollar system. Is the world entering a new kind of financial war? Nik also explains why he believes Bitcoin’s bottom is in but the next bull market has not yet begun, what his liquidity indicators are signalling, and why the bond market could determine Bitcoin’s next major move. THANKS TO OUR SPONSORS: LEDN SWAN ANCHORWATCH BITKEY CAPE FOLLOW: Danny Knowles: https://x.com/_DannyKnowles Nik Bhatia: https://x.com/timevalueofbtc The Bitcoin Layer: https://www.youtube.com/c/TheBitcoinLayer

There is a reckoning. There is a point at which something has to be addressed. If the Fed raises rates, they'll be able to issue the debt. It'll just be all in bills. The bills will crowd out the money market. There'll be a repo crisis and the Fed will have to buy bills. The UK, France, and Japan are much more likely to see some massive central bank and or slash government. intervention over the next six to 12 months than you are to see out of the Treasury and the Fed. What you basically just ask is, are we really at financial war and who are we at financial war with? Great to have you back on the show, mate. So much has happened and so much of what has happened is right in your wheelhouse in the treasury market. Bitcoin obviously, what was it, a week or two ago, ripped 20% in a week up to like, 80K, we're now sat just below 80K, and everyone was claiming that this happened off the back of the Treasury announcing they were going to double the number of buybacks they were doing.

Do you think that's what actually caused this move? The Treasury buyback announcement is a suppressant of volatility at the margin. So from our liquidity perspective, it's going to help because rates maybe come down a little bit, volatility comes down because people are less worried. The Treasury has some backstop there. And so at the margin, yes, there's a positive liquidity move. It ends up in Bitcoin and there's some behavioral follow through. Then you get the short squeeze and a few levels get taken out and Bitcoin does its thing. So yes, zoomed in, Danny, where there was an impact there. But zooming out a little bit, I think Bitcoin, in the grand scheme of things, is going to seek the price where the whole market is.

So the last eight months, the market has been bearish. And over the last month or so, you can see the seller exhaustion in the market. The dips are not as intense, all sorts of momentum indicators. There are a bunch of ways to measure it. Even the most common on-chain indicators or the most frequently used on-chain indicators throughout cycles showed that capitulation had pretty much exhausted itself in the 60s. So then that sets up the next wave, which is Bitcoin resuming some bullish price action. What are the trigger points and how they can move? It just, honestly, it's anybody's guess. And, you know, I'm, my background is as a bond trader and a bond trader that became fascinated with Bitcoin. Then I started writing about the relationship between macro and Bitcoin.

But I'm here guessing just as much as I'm analyzing. And I think it's important to admit that nobody actually knows how these things are going to go. And that's why the majority of fund managers underperform the S&P. So I want to get into the bond market a little bit because with this move, people have called it like not yield curve control, yield curve control. There's obviously, they're putting in a bigger backstop. But how do you assess it? What do you think this is? Do you think it signifies anything deeper than just $4 billion of buybacks? The buyback program has been active for many years since gone across administration. So when I think about the latest announcement, on buybacks from a dollar for dollar basis, very small, and is it really a change not necessarily? The buyback program is targeting off the run securities, so it's targeting a better functioning

of the market, not necessarily yield curve control. With that being said, they're going to be issuing bills to do this when they get involved. So it is dollar for dollar also a yield curve flattener because you're issuing bills to buy longer-term securities. But the Treasury doing the buyback program, and actually this is part of Drucken Miller's critique of Besson in his Wall Street Journal op-ed, that you can't paper over what the truth is, which is how much debt there is, how much issuance there needs to be digested by the market. really comes down to supply and demand. So the demand is its own dynamic, but the supply is what the Treasury has control over. And when you think about the Treasury supply and Scott Bessent, he has

no power, basically no power, to lower the deficit. It means that the amount of bonds he has to issue, whether they're bonds, notes or bills, and what part of the curve, he's going to have to issue everything to make sure all the payments get made to the bondholders and all the government contracts and government employees get paid every single day and week that the government spends money. That, he can't change. You can't do anything about it. The only thing he can do is dance around the yield curve, try to issue more bills than bonds so that you're not increasing the supply of bonds.

you can call the managed long-end supply, meaning the fact that he hasn't raised the size of 30-year bond issuance, you can call that yield curve control as well because you're not issuing, you're not increasing the supply pro rata with the debt and the deficit. As they continue to skyrocket, you're basically stuffing all that in bills. That by itself is a much bigger yield control. yield curve control, de facto or pseudo, then anything to do with the buybacks. The buybacks, this is, you know, the bond trader in me speaking, the buybacks themselves are actually smart because

these 26-year bonds that are 30-year bonds, four years aged, nobody trades them. They have no liquidity in the market. And so in any period of disruption, they will gap lower in price, higher, it yield, they'll trade sloppy. The reason we know they will trade very sloppy is 2020, February, and March. We bond traders had never seen a, a chair, you know, a rug pull on the bond market like that. And it wasn't like yields were crashing, meaning people were just dumping money into treasuries as the pandemic was happening. Then at the first sign of, you know, yields got too low. there needed to be a liquidation, the off-the-run treasuries, like 26-year bonds and nine, you know, eight-and-a-half-year bonds, these things traded, I shouldn't actually say

the eight-and-and-a-half, it was really the long end. These 20-to-30-year bonds, they traded so poorly that it caught everyone by surprise. So when we think of not to do too much of a sidebar, but when we think of the standing repo facility, it is a response to the 20, 2019 repo crisis so that if we ever get it again, we have the standing repo and it will cap repo yield so they don't go to 10% for any particular bank or dealer. The buyback is a little bit like the emergency response from the March 2020 price action in off-the-run treasuries. You can't let it happen again. So you have to do something to mask this illiquidity in those parts of the curves. But the buybacks themselves are much less material to me. And I do agree with

the common sense, which is that you can't hide from the deficit. And the last thing I'll say before I pass it back to you is that at the G20 on Monday, Besson specifically said the equilibrium interest rate is not in my control. He told me. hold the market. It was my favorite soundbite of the day. And it's honestly my favorite soundbite of the year. Because if you want credibility, you want to in the market, like for treasuries. The U.S. Treasury needs credibility. It needs the market to understand. It's not going to just ask the Fed, hey Fed, can you print $10 trillion tomorrow and dilute the dollar market and backstop the government because we can't get our shit together.

We can't stop spending. So we need somebody to buy the bonds. We're going to have the Fed bail us out. That's what the market, you know, half the market is worried about this. And when I say half, I mean, you know, that's the balance between buyers and sellers always. The sellers think, yes, that's going to happen. The buyers think, you know, no. and Bessent saying that I can't control yields is the best thing he could do.

And that tells me when he does the buyback program, it's not, and even the bill's issuance and that type of yield curve control, which it is a type of yield curve control. You're flattening the curve by doing this. You're preventing these tens, 20s, and 30s from hitting the market. They should be hitting the market, but they're not. They're keeping them in and they're keeping it rolling short. He is manipulating the yield curve where he can, but there is a point in which he cannot.

There is no, and there is no QE going on right now. Actually, the Fed had to increase bills at the end of 2025. That was because the repo market was tight. The repo market isn't tight. There's no tightness in funding. Funding is fine. the reason bond yields are going higher all around the world is because the time value of money is structurally higher. Interest rates go up and down and have for hundreds of years.

The period in which they were going lower, it was a 40-year period, it put everyone to sleep. Now, whether or not they're going much higher from here, the move from zero to five, is in the grand scheme of things to be expected, and it is a result. It's a direct result of global behavioral change in the economy. 15 years ago, it was sleepy money. Everyone was just sleepy with their money. There were no opportunities.

There was no inflation, so there was no rush to get involved with anything. So you just hide out on treasuries. Now you get the pandemic. It triggers this global supply chain disruption. it triggers inflation. Then you get government response. It increases the inflation. Then you get an AI boom and an investment boom.

And all of a sudden, the rates of return offered by investments are very handsome and secured by excellent cash flows and invidia chips now. You throw those into the mix. Then if a great company is offering you 7% on your money for a, a cash, backed by a cash flow that you are almost certain is going to come, why would you ever own a treasury in that environment? And that's what you see. The slow evolution of getting out of sleepy money, putting it to work, and then Warsh, my favorite soundbite from him yesterday, was that he said the global savings glut is over. And that was a term that was thrown around.

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of debt. No, because it's always a relative game, Danny. So when you talk about a yield of Amazon at 6% and the yield of treasuries at 4.8, that is the market telling you, Amazon is a higher risk to the treasury. The treasury yield going up is a response of people selling the treasuries. The price goes down. Yep. They sell the treasury to buy Amazon. It's not a, Amazon is a better risk than the government, then the yield would be lower. And so the corporate spread is the market telling you exactly what the relative risk is. But is that risk shrinking in favor of those like mega cap companies? Well, corporate spreads are very tight and they're not going.

Tech has had waves of credit spread widening, meaning some increased risk coming into the market. over the past few months. That comes with a lot of bonds being issued. Nevertheless, on aggregate, corporate spreads are near the lows. They're not on the lows. They're near the lows, and they're not widening, meaning it's not getting to the end of the credit cycle. You are in a period where confidence is high, credits are issuing,

And spreads are not widening to the point that anybody is alarmed by it. Of course, like, there's Oracle. Oracle has really struggled. They've issued a ton of bonds and some of their corporate spreads are wider. I'm not a corporate bond trader by nature. I watch spreads in general and the averages. And right now, corporates are doing well. There's no big reversal in U.S.

government risk versus credit risk. There's still a spread. It's not on the lows, like I said, and it's not gaping higher. The thing that I can't quite figure out is the U.S. debt is now around $40 trillion. They obviously have to roll that debt over as well. And the 10-year, I'm just having a look now, is just under 5%. When does that become an issue, those high yields become an issue? And at what point? How high can this go? Yeah. It's, already, it's already a massive issue because the interest itself eats into the tax revenue to a point that it's already a big issue. So the plug, by the way, is with bills, so just more and more bills onto the market. And the bill supply will increase such that you will necessarily

get a repo market shortage because there's only so much cash to buy those bills and there's almost only so much cash to finance them in the overnight market. So at a certain point, the bills that are issued by the Treasury will end up in a repo market tightness. And that repo market tightness will have to be addressed by only one player. That's the Fed. And that's when you'll see this not QEQEE that we got at the end of 25 where they bought bills into 26 a little bit, then they didn't need to because they grew the balance sheet enough. They addressed the repo market, repo market stabilized. So we'll watch the repo market for when they are unable to fund it via cash. But it's not on a, the crazy thing is that it's not on a deficit basis by itself.

meaning that even if interest costs go up and up and up, they plug it with bills, the bills get sold only up until a point where it causes repo market tightness, then it forces the Fed to buy. So maybe a little bit of a repeat of 2025, and we'll watch, you know, we watch the repo market every day. But the repo market is one that sometimes you just can ignore it for years at a time, and then all of a sudden, oh, the crisis is coming, it's building up,

You can see it's widening, and then boom, the Fed comes and does what they did at the end of 2025 with their repo. So, but let me also say, Danny, that there is a reckoning. There is a point at which something has to be addressed. There are a few. There are really only four moving parts. that can be addressed to fix this enormous problem of the United States debt and the interest costs. The debt by itself is fine. 125% of GDP is bad, but it's not death.

Japan is much higher. It's the percentage tax revenue that's going to interest, which is at like a quarter now. That's the thing that's bad. Okay. So forget the 40%. trillion, it's the 1.2 trillion out of the 5 trillion of tax revenue that's going to interest. That's the number to focus on. So you have, let's call it, a trillion in interest cost, 5 trillion in tax revenue.

You have 3 plus trillion in Medicare and Social Security. you have a trillion in defense, but you can't assume you have to move that way to the back of things that could change. So essentially, what are the things that you can do to address this? The interest has to come down, the rate has to come down so that the roll is cheaper. Because the roll at a trillion is really, really painful. But if the role goes to $500 billion, that's a lot easier for the government. to stomach because that's a collapsing amount relative to your your tax revenue. So how can you get a lower rate? You have to have a recession, meaning people go back to sleepy money. They hide

out and they drive rates lower. The Fed cuts in response to a recession and all of that. You have to have inflation come way down so that the compensation for inflation goes down, meaning the demand, people's demand for compensation goes down. They just are willing to take three and then two percent because there's no inflation. We don't have any of that. We don't have signs that we're going into disinflation or deflation. Inflation isn't raging, but it's not coming down. That's very clear. So, and we're not in a recession. There's an investment boom. Even the employment levels are quite good. And so you don't have anything there. So the only way to get rates down is for there to be a managed, meaning the all of the 1940s, the Fed coming in and capping the yield on treasuries.

And by the way, they didn't really have to buy. They just said, we will buy at this level to keep the yields. the reason why is because the United States spent so much money on World War II and they had to manage the interest costs. And that break in independent monetary policy lasted for nine years until the 1951 Treasury Fed Accord. So my point here is that unless you get the, unless you get some grand agreement or some closet agreement also that actually gets the Fed to drive. drastically cut rates, that interest portion of the tax revenue, that is not going to go away. The rest of it, we can get into, like, what's the Medicare solution? Because there is one there.

It's not necessarily feasible tomorrow, but there is one. That's something important. And then on the tax side, can the United States raise its tax revenue, not via economic growth, which they're trying to do, but via increased tax rates? politically that might be feasible after 2028. So we're still a couple years away from that tax revenue line item conversation. So then you're basically left with Medicare reform in some way or Social Security reform. Those are also politically very unlikely. Like I can get into specifically how we might address the Medicare.

that's not in the political conversation. So it's a waste of my time for us to have how to fix Medicare. I think we've even talked about this once on the show before. I have a whole rant about how you could fix that. It's not feasible. So the only thing they can do right now is something very drastic, like a managed interest rate cut by the Fed. And last thing, Danny, if you'll allow me,

there's this other scenario in which the Treasury creates this new separate style treasury bill, which is explicitly for stable coin reserves, and they artificially keep that rate near zero, and they use that to finance a little bit of their debt on the margin. But that's, like, again, a long shot. It doesn't really address the, it doesn't address the 40 trillion, which is already averaging in the threes and is rolling in the fours. It's getting worse every single day at these yield levels.

And so they have to do something on the interest side or else it will, there will be some other force function to get it more in check. all those options you outlined there, none of them really seem likely. I think the only one that does is actual yield care control from the Fed. That one seems potentially doable. I don't know if it would work. I don't think it necessarily be a good thing, but it seems doable at least. But they couldn't really cut rates now with inflation way above target. You'd imagine inflation then runs up even higher. So what will they do, do you think? My guess right now is a man- situation between the Treasury and the Fed.

What does that mean? I mean, it means that Kevin Warsh, if he were to hike rates sometime over the next three months, he is going to cause some, he's going to cause a bond market disruption. I don't want to call it a cry as some. He's going to cause something bad. Like if the Fed raises rates here, that, that's, not good for the U.S. fiscal picture. They're going to, in the end, if the Fed raises rates, remember what we said about what will happen. They'll be able to issue the debt. It'll just be all

in bills. The bills will crowd out the money market. There'll be a repo crisis, and the Fed will have to buy bills. So they're going to shoot themselves in the foot by doing this. And so Besson and Warsh on the plane together, they have to be talking about how do we address this? Like, you and I having this conversation, we are not the only ones talking about what are we going to do? Besson and Warsh are trying to figure out what are we going to do? And let me also say something from the bullish side, because we've been quite bearish on treasuries. There is a yield at which money stops pouring into the data centers and comes back into treasuries because right now repo is funding at in the below four and treasuries are carrying at above five in part of the curve and that one let's call it one and a half percent

carry can get multiplied by 30 40 and 50 in the repo market through leverage and now all of a sudden you're talking about an extremely attractive leveraged carry opportunity for bond investors because leverage is quite cheap in the in treasuries. And so any any yield curve steepness will bring buyers. So you should be worried about Europe. Like you should be really worried about Europe. You should be worried about the UK, worried about France. France can't print its own money.

These are the places that you should be expecting, like massive money printing, before the Fed is forced to do it. I honestly believe that. I'll say it, you know, again, the UK, France, and Japan, not so much Germany, but these three are much more likely to see some massive central bank and or slash government intervention over the next six to 12 months than you are to see out of the Treasury and the Fed. They are in some ways the conspiratorial side of me thinks that Warsh and Bessent are fine with yields going up as long as somebody over there breaks first and that the ECB baby has to do some sort of reverse course QE. But the ECB is hiking rates to respond to this higher time value for money.

But what do you think the US would do in that situation if Europe does, you know, start printing money, start falling? Because presumably they would open swap lines and try and help. That's what has happened in the past around the world. Do you think that would happen again? That's, wow, that's the best question because that's what I've been writing about, Danny. You know that the euro dollar system is at the core of my framework here. And so is the United States trying to attack the offshore dollar system deliberately break something and then not provide the swap line because you didn't play ball, you didn't send a

ship to Hormuz, you didn't do the stable coin thing. That is a very possible yes. I think that that's where things are going. I wrote a paper earlier this year for policymakers, my first one. If you want a stable coin adoption, you have to address the fact that they are free writing on the euro dollar system, which is not asset backed. By stable coins, it's leveraged on correspondent banking. And now take that bit of information and go listen to Scott Besson's 17-minute press conference on occupation economic outcast. And listen to it with a Eurodollar lens.

And what you hear him saying is we're going to prevent you from dollar banking in the ways that don't agree with us. And we're going to cut you off if you do it. So the question you just asked is the granddaddy of them all. What you basically just asked is, are we really at financial war? And who are we at financial war with? I have big theories about this. And I absolutely don't know the answer.

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Visit anchorwatch.com to get started. That's anchorwatch.com. So what's your big theory, though? Because if you say who we're at financial war with, China's the obvious one, and I think China is squeezing the US, I think that's at least a reasonable part of the AI battle that's going on right now and the open source models coming out of China. They see the open AIs, the anthropics of the world,

and they're essentially cutting them down at the knees. So China's an easy one. But being a sort of economic war with Europe is, is that unprecedented? Like, certainly in our lifetime, like, that's crazy. Yeah. So let me be a little more specific. I don't believe we're at financial war with China. We're in a cold war of sorts, a tech war, a tech race.

And actually, China is an ally in many ways to the United States. So we are in a race with them. we are in a defense buildup. That's not financial war. Does China launch financial weapons at the United States? Sure. But they're actually more, China's more of a deliberate, slow-moving society. They're trying to play for the long game.

And they still have this shame of the opium wars that they're still trying to get rid of. So China thinks more in decades and centuries than we might want to give them credit to. So I don't think the U.S. and China are firing direct financial weaponry at each other. China leverages the euro dollar system, which is an international banking system. It is housed in Europe, but Europe is not the only place where the banks operate. They operate in London, Paris, Zurich, Singapore, Toronto,

and the first bank to be sanctioned in Operation Economic Outcast was a United Arab Emirates Bank. All of these banks use the Eurodollar system. They all facilitate China, or I shouldn't say they all, they facilitate China, Iran, and Iran is the, you know, it's the avenue to launch this. I'm not saying that they're, I don't actually think that Iran itself is the main target. It is the euro dollar system. And it's this, it's about U.S. power.

So U.S. and China are in a power game. They are in a war for power. They are in a global dominance fight. I'm not ignorant to that. But I don't think the United States and China are the one. When I say financial war, I'm not talking about China. I'm not talking about Europe either. They're not at war with Europe.

European banks are the architects of the Eurodollar system. And so maybe the puppet masters are mostly in Europe. That's not, I mean, it's not my game to try to get too much into that. But I don't want to say the United States is at financial war with China. It's not at financial war with Europe. There is a international dollar system that works to the disadvantage of the United States. As per the U.S. diagnosis, go back and read the Stephen Myron speech days after the Rose Garden speech. I believe Rose Garden was on the second Liberation Day, second of April last year.

and then the Myron speech to the Hudson Institute was on April 7th of last year. That is your instruction. The current administration views it like a free ride. Myron called it the dual public good. We provide, and I mean America, United States of America provides a Navy to the world for free for them, and provides a dollar system. for free for them. Both are going to be addressed by this administration. It's in their speech. I covered it the day it came out. If you don't read the speeches from Bessent, Myron, Warsh, you're going to miss what they're doing. I'm trying to figure out what they're doing. When I see what they're doing with Operation Economic Outcast, Iran wasn't mentioned by Dr. Stephen Myron in April of 2.000. 25. Okay. But you can see the trail. You can see the crumbs being laid out for you where they want to go with this.

The Genius Act. Here's the last thing I'll say before I pass it back to you. The Genius Act. It was the first thing that they did. One big, beautiful bill and the Genius Act. They got the Genius Act. I wrote a paper about the Genius Act several months after it was passed into law. Fully law. already in the past. And I'm thinking how the government can use the Genius Act to its advantage. And what was my conclusion, Danny? What I'm writing, they already know this or else they wouldn't have passed it. Like if you read the language, what they're trying to do, they don't need me to tell them, use this as a tool of state craft to get some wrestle some control back over the Eurodollar system and get it onshore again and take some, now it's where it affects China, take some firepower

away from China at the margin by damaging this system and bringing it back. They did not need my paper. I'm telling you the truth. I wrote this. I spent months on it. And halfway through writing, when I had my aha moments, the aha moment was they already freaking know this. They passed the law last year, they know what they're doing. And what is that? Like, so for a layman, like, this can all sound like financial plumbing. Like, what's going to happen here? If the UK fails, like, or the UK has to start printing a lot of money, same with Germany, same with France.

Like, what does that mean for the world? What does that mean for the U.S.? What happens? I don't know, Danny. I mean, what I know is that they're trying to wrestle back. power. I, you know, the last financial true collapse that we had was in 2008, and the one that we briefly touched up against in 2020 was arrested very quickly by policymakers in a very unprecedented way that had a lot of ramifications, but we didn't lose, we didn't lose the system, we didn't

lose countries. We didn't go into revolution anywhere, you know, they, we didn't. And so I don't, I don't know if these actions bring some big next crisis. I see it more as part of the power game, diminish the ability at the margins where you can and try to live for the next 250. So I really don't know and I try not to I try to stay in my lane. I mean, I'm just being honest with you. And when you ask me the questions, when I have an answer or an opinion, I tell you. And when you ask me a question that, you know, I would have to pause, take your question, write it down, think for a week, bullet it out, and come back to you and spec it out. I think that Bitcoin is the best representation of what you would want to own, not knowing what's going to happen with all of this

stuff, because it can't be printed. And so the big thesis is Bitcoin and people have liked gold for many years. I was one of them before I liked Bitcoin or I was aware of Bitcoin. They like it for this reason. They understand, but they also know they don't really know how it's to play out, they know they need to own something scarce. And so that's the best answer I can give you is what do I do, not knowing. I think Bitcoin is the play. And if I thought it was gold, I would be in gold, but I'm not. The last thing on this, because I do want to get into Bitcoin, is in 2007, 2008,

which was the last like real global financial crisis, like COVID was. quite short-lived, like you say, policy makers stepped in really quick, and we had high inflation, but it wasn't the same as 2007-2008. But that started in the US, and then there was obviously contagion all around the world. It definitely hit Europe very hard as well. It sounds like what you're saying is this might be a European crisis that the US manages to distance themselves from and not be as impacted by. So I think that there will be something that happens in Europe to the extent, what extent it impacts the United States? I don't know. To say that it won't come back home, I think that's naive. But I do want to correct you, the crisis started in August 2007 with

B&B Pariba. It did not start in the United States. The mortgage, the mortgage insanity was U.S. underwriting. Okay, so the bad assets were American. That's for sure. You can check out the big short. The first fund to say we can't mark a price on our assets was French. And it was a crisis in funding because in the end there weren't enough euro dollars to go around. But 2007, December, is when the first Eurodollar backstopping central bank swap line was issued to the European Central Bank and Swiss National Bank.

December 2007, August 2007, four months before that, was when the LIBOR spread to onshore rates started to widen. And that happened the day after BNP Paribas said, we can't publish Marks. on these assets, they were subprime mortgage derivatives of some sort. So it actually didn't start in the United States. The financial crisis itself started in Europe. There's some history. I got that wrong. Let's do the Bitcoin part then. This is why we're here. So like you say, Bitcoin is the best bet here with all the uncertainty going on around the world. But looking at this in a sort of very Bitcoin-specific way. How are you looking at the market right now? Do you think the bottom's in

and we're sort of in the next bull market? I think the bottom is in. Next bull market, no, you can't say that yet. There's not enough momentum at all. You haven't even really cleared 82, 83,000, which is the local high post-past bear drop. So, no, not in a bull market yet. Yes, I think the bottom is in, I was picking up the seller exhaustion, you know, over the summer. And I think, yes, I think the bottom is in. So where, but Bitcoin is still very reactive to global liquidity. And so even if I think the bottom is in at 60 and now Bitcoin closer to 80 than 60, Could it leak lower, stay flat, not get any escape momentum over the next several months because rates go up, volatility goes up, the dollar strengthens back after a period of several

weeks of weakness post-USD-JPY intervention, again from Scott Besant's name coming back in here, that's all quite possible. So what we have done at the Bitcoin layer is we've tried to strip out my opinion for the short term. And so we're fully quantitative in our approach in the short term. It makes my job a little bit more relaxed because I can think about what is happening over the medium term. Like think about what Warsh and Bessent were discussing on the plane and what that means for the next year. not what it means for markets today. TBL liquidity is designed with four pillars, banking assets, interest rates, treasury volatility, and the dollar.

And together, every day we get a read on what's happening in liquidity. And then for the math people, we go into the rate of change and then the first derivative of our cyclical wave. and we try to basically isolate for people, are we in a buy zone or a cell zone? Is it green or red? And with that green dot red dot approach, Danny, we've tried to make it really simple, like what's happening in the short term.

We got a green dot on August 13th. It was about five, about a week before Bitcoin's pop. So we were in a red dot before that. We captured the up move. we also captured a couple of the large down moves with the red dot earlier this year. It's led to some pretty large outperformance with our active strategy versus just buy and hold Bitcoin. So we're trying to offer valuable signal to people, especially people that are making portfolio decisions more often than not.

We're not really for this indicator itself. It's not really for the long-term DCA people or the buy-and-hold people. If you want to be more active in your DCA or more deliberate in when you buy, then this is a tool to help them. For people that like to hedge on both sides, this is a tool to give you a sense of, hey, the market is leaning against us right now. So I've taken my opinion out.

We're full in this methodology. We've back tested it. It's worked so far this year. We're going to continue to publish our track record. people get the indicator the second that it flips that are signed up with us. Okay, so this is, we've got the liquidity cycle, we've got the index, relative returns. Okay, so talk me through it. What am I looking at here?

Yeah, so this right here is available to everyone for free. This is our TBL liquidity index, and you can catch that at the Bitcoin layer.com. This is available to everyone. This tracks those four pillars that I was telling you guys about. This is the index, and this is basically. synthesizing what we're doing. So you can see here liquidity peaked at the end of January. And this is, by the way, has nothing to do with Bitcoin. The inputs here are rates, ball, and the dollar. This is the peak of liquidity and then the bottom somewhere at the end of

March. And you can see since then we've basically flatlined. So Bitcoin has kind of mirrored it, right? I mean, Bitcoin peaked around here at the end of the year and then saw a big drawdown. It's bounced and it's kind of been flat since, you know, it first hit 60, except for that little pop that we've had. So this is what we publish every day. Then we've taken this data and we've applied a cycle, done some math. We don't have to get into it. This is what the cycle looks like. So right now we're cycling up. and then we've taken this information and we've given you our indicator. So these diamonds are when we send our signal, hey, we've gone from buy to sell or we've gone from sell to buy.

So this is our last diamond here, confirmation green dot on August 13th. So that's what we provide. And that's a look at it just on a raw basis. Now, I'll show you relative to Bitcoin so that you can get a better sense of what we're talking about here. Okay, TBL liquidity performance. I'll come back to this performance chart in a second, but you can see here a little summary of what is going on with the trades. And then here you have our dots lined up on the chart. And you can ignore these little circles here. It's the diamonds that matter. Those are confirmations. So you can see,

This is when we started, by the way, Danny, and we started in 2026, which is right here. So no position, a sell in January, a buy here, a sell here, a buy, sell, buy. So you can see that's the dots on the Bitcoin price itself, and you can see them on the stock market if you're interested in that too. We test everything versus both the S&P 500. This is the track record line by line. basically the trade history of the year.

Now, the chart I shared with you was this one. This is the relative performance. So the orange line is Bitcoin. So Bitcoin now down 11.3% on the year. The purple line is us. So selling here, this period, it's leaking higher because we own bills, so accrue a little interest. Then we buy here. So then you can see from this period to this period where the same is Bitcoin.

Then we got to sell. So then we're flat. Bitcoin went down and then we buy. So then we're tracking with Bitcoin again and so on. So you can see our active strategy. Again, and this is reflecting perfect timing, no tax, capital gains, tax implications. Listen, guys, we are not a hedge fund. We don't manage outside money. We're a data researcher and we're trying to help people. We're trying to help your portfolio. We're trying to help our own portfolios here as well. Actually,

spoil alert, some of us are trading TBL liquidity more actively than we were before we had our, you know, dots published to everyone. So anyway, you can see that here we have over 60% outperformance versus Bitcoin, and it

does compound every trade because when we avoid those losses, then and we buy again those gains compound as opposed to having to like the high water mark in Bitcoin, where if you're down and then you go back up, you're just, you know, getting back to where you were. So it's worked well. We don't want to pat ourselves on the back ever, but not even with this green dot that we got a week before the pop, because unless we get

a red dot before it goes down, it's not a closed trade. It's an unrealized gain. And so we're thinking of this current one as an unrealized gain. We think, and we can see, we've done a lot of work on this, that macro drives Bitcoin and that you can actually use macro to trade Bitcoin or to get a sense of if it's a bullish or bearish impulse. This is the short-term look. This is what I've removed myself from. This is purely quantitative. A lot of R&D has gone into this. And that allows me to do more zoomed-out thinking and also teach. Why does this work? So I spend a lot of time writing and recording about why it is that this is actually happening. Why is macro affecting Bitcoin like this? And now we've added all sorts of stuff like back testing it against other assets

here. You can you can play around. So a really powerful tool that we've built called TBLPulse and people can start for free at the Bitcoin layer.com. I mean, that's impressive our performance. And obviously, so you're never going short Bitcoin here. You're just going get out of your position. Correct. We're not insane. Danny. We, and, you know, we don't want to, we don't want to advise people, recommend people to do that sort of thing. What people are doing are, you know, they're putting bearish bets on versus bullish bets on as the indicator moves around. We've gotten some fun messages from people saying that they have been using it to their benefit. So we do want to help people. We need people

to understand that we are not an investment advisor and that we don't provide that money management service. What we're doing is research and we hope that people will do their own research in addition to using our tools. So, I mean, it's very impressive. Outperforming Bitcoin is hard. Trading Bitcoin's hard. And for me, like, I don't bother trading Bitcoin. Obviously, you've done incredibly well. And this is like a very short-term view. What's your more medium-term view and how you you looking at that? I, you know, the financial war is there, is there haunting me kind of. It's in the background. It's haunting me. And what is behind the next move from these people? It's hard to know. Bitcoin remains my play. Like, you know, people talk their book, Danny. We know, we know that.

And so, you know, my book reflects what I'm saying, which is that I think Bitcoin is the right place to be positioned, looking out. So I'm a young person with a young family. I can take risk to the point where I think Bitcoin is still the place to be allocated for me. and that's my view over the medium term. Now, I think Bitcoin can catch back up to maybe even some of its more recent levels. Bitcoin was at $120,000 not that long ago. So I think even that is a nice little 50% pop from where we are today. Those are massive gains, and I think that's out there for.

Bitcoin. So unless, and I can just go back here for a second to TBL liquidity. Just look at the raw index that everyone has access to. We can zoom out here a little bit more. Liquidity trended down during 2022. This is the rate hiking cycle. I'll zoom out even more. This is the rate hiking cycle, the inflation wave. Since 2022 at the end, liquidity had been supported. It clearly has topped in January, February of this year. The moving averages are heading south. We are below the moving averages, and it doesn't look like it's popping. Zoomed out at all.

It doesn't look like it's popping. So is there a lid on liquidity that is preventing the bull from getting going? Possibly yes. possibly yes. So I'm not very short-term bullish on Bitcoin. There is a green dot. Maybe a lot of that gain has already been captured as rates have gone a lot higher this week to open September.

Volatility spiked yesterday in the bond market. There is clearly a move out of fixed income in Europe all around the world. that damages collateral values that directly affects TBL liquidity. So I like now having this purely quantitative side where I can just look to the chart and say, hey, it doesn't look supportive. This doesn't look supportive. The fact that this drop has not been even flirted with is good.

the fact that this peak is not being tested is not it's not very good i mean it's not anything to to celebrate and it does uh you know liquidity does cycle up and down but we don't yet have a cycle approach to liquidity it's one of the things we're working on in our research and development so that we can maybe identify that this peak was in fact something to mark as a a turning point in the market and maybe something that you don't want to get back into Bitcoin until you get some sort of much larger swing higher on the medium to longer term of TBL liquidity. We're still working on that. And there's probably great answers there that we'll just have to wait until we get to.

But that's what we enjoy doing. We enjoy the work. And I think our TBL pros are enjoying it as well, Danny. So just to close out on the liquidity thing, because I had Michael Howell on the show, who you actually introduced me to a few months ago, and he was saying the same thing, that liquidity had already peaked and that we were in basically like the downtrend at this point. How long do you think that will last? And is there no way that Bitcoin has a very sustained long rally while liquidity is down. We've learned a lot from Michael Howland. This is where I would suggest that he and I differ a little bit. But maybe it's because we haven't done that cycle work that I just. mention. So my answer is actually the same. We don't have a cycle approach to liquidity in the sense that he has this 65-month cycle, I believe it is. If I remember, and it's a sign wave, and he lines up his cycle against that. We don't have one of those. We're doing the work to see

if there is something that we want to establish there. We don't have a 65-month sign wave. So we don't have any anchoring in what he's talking about, meaning that something could happen in the next week that turns the dollar lower, turns rates lower, quits volatility, and sends liquidity higher, and we want to ride that. We'll get a green dot or we'll maintain our green dot, and we'll want to ride that. So we don't anchor in a cycle. Maybe we should. Maybe that's our inexperience, right? He has 40 years on us. And by the way, the reason why we read him and why I gave you, you know, made that introduction, he's a great teacher and he brings a school of thought that isn't well known to the masses so that we can consume it. I've tried to do that in my own little way with repo

because, you know, I've traded repo, so I want, I want people to know what I know. I know repo because I traded it. Well, Michael Howe worked at Solomon Brothers and watched Flow of Funds data and witnessed this school of thought from the inside. I did not. I have actually learned this from people

before I got to Michael Howl. My mentor's mentor is Harley Bassman, the creator of the Move Index, bond volatility. And so my mentor worked for Harley on the street, and I was very lucky to get that liquidity school of thought, you know, taught to me when I was on the desk. But then when I read Howell, then I learned so much more. And a shout out to my friend Joe Consorti, Joe was the one who said, hey, you got

an interview of Hal. Joe interviewed Hal on TBL before I ever did. So everything happens for a reason. And I'm really glad that I'm really glad people are learning from Hal because I'm one of them. And we've tried to do right by his teachings and really, really learn it and do all the math from scratch. Everything we do is our math. It's not copied from hell. We didn't, you know, lift anything from him. We just read his stuff, interviewed him a ton of times and built it ourselves. Another shout out to Augustine Carrasco from the Bitcoin layer.

He's our lead statistician and our head quantitative analyst. He's the architect of the numbers that you see that have come from what I have learned from Howell and others over the years. So I'm interested, though, in terms of Bitcoin performance while liquidity is dropping. In Bitcoin's sort of short history, has there been a time when liquidity's been dropping and Bitcoin's performed well, or does that not exist? It's a good question. It absolutely exists, Danny. what we have seen is that post-2020, Bitcoin has responded to liquidity a lot more than it did before. And that would make sense to the casual observer.

Bitcoin was more of a hobbyist asset until 2017, to be very honest. And then during 2018, Big Boys started to arrive, and you didn't get ETFs coming online until 2023. So now Bitcoin is much more intertwined with the markets. I don't want us to over-anchor in the past data. Since 22-23, Bitcoin has responded nicely. There are always false, you know, calls or calls that aren't, that it doesn't work 100% of the time, of course.

and but what we want to what we want to express is that when liquidity leans positive that's when Bitcoin can really achieve great things and when liquidity is negative that is when to not expect the runaway moves and to have huge down moves

as part of your realm of expectations, your probability distribution. So it's never going to be 100%. And maybe the signal runs out, right? Maybe it stops working. And we have to be open to that as well. We can't just, we can't over-anchor. And you know that I don't do that.

I don't over-anchor in narratives either. Like, clearly the world is in a different place after Trump 2 and the Liberation Day. And that was only a year and a half ago. So, you know, how can you anchor in like a Biden-era CARES Act, you know, way? That narrative, it has to shift in some way. And some of them stay the same, like the fact that the U.S. is the deficit is still. what it is. Actually, the CARES Act and the $2 trillion fiscal deficits that we started getting during the pandemic, that by itself is its own regime shift. So a lot of moving parts, we've actually

identified about 25 of them in global macro that we're trying to assemble for people to, again, just take that teaching and understanding to the next level. Because even people, people that spend all day, every day on this are not able to juggle every moving part all the time. There's just too much. But again, that's what makes my job fun. I love it, man. So to distill your ideas, it sounds like you think the bottom's in, but you think there could be time until we see a real bull market again.

The dollar, the financial war, these are keeping a lid on things. And until there's some more clarity, like the USDA JPI Scott Besson intervention of a few weeks ago, that felt like a shift. That was like, okay, maybe the dollar is going to stop going up now and it's going to trend lower. Those are the shifts that I look for. And even with that, the path to some grand pump in liquidity isn't there yet. So I'm a little cautious as we go, and I'll, again, remove myself and my opinion as I'm seeing the markets digest what's coming out of Washington, New York, and the rest of it. I love it, man. Well, thank you very much, Nick. I'll make sure I include all these links in the show notes so people can check this out. But always good to speak to you. Thank you. Thanks, Danny. Appreciate you.