What Bitcoin Did - Bitcoin & The Coming Liquidity Boom | Nik Bhatia

Episode Date: October 24, 2025

Nik Bhatia is a financial researcher and the author of Layered Money and The Bitcoin Age. In this episode, Nik explains why last week’s repo market spike was a potential warning shot that liquidity in the system is drying up. He breaks down how the Fed’s plumbing actually works, why banks are hoarding reserves instead of lending them, and what it means when the “floor and ceiling” of the system stop holding. Nik argues that quantitative tightening is reaching its limits and that a new era of liquidity is coming, not necessarily from the Fed, but from a massive private credit boom. He lays out why this will supercharge U.S. industrial growth, fuel long-term inflation, and make Bitcoin one of the most valuable forms of collateral in the world. We also discuss the run in the price of gold, what it could signal geopolitically, and why Bitcoin’s volatility compression might mean the end of traditional market cycles. THANKS TO OUR SPONSORS: IREN RIVER ANCHORWATCH BLOCKWARE LEDN BITKEY Follow: Danny Knowles: https://x.com/_DannyKnowles or https://primal.net/danny Nik Bhatia: https://x.com/timevalueofbtc

What happened last week was the most alarming thing I've seen in the money markets for some time. If those treasuries, let's call them $3 trillion, are not funded tonight. The whole system collapses, literally. I'm a big fan of consolidation in Bitcoin. Well, it's just compressing and volatility. And that's a sign of it maturing. And the more compressive volatility is the less likelihood of an 80% decline. Is more money created into the system and flowing around the world, Bitcoin becomes a really valuable collateral as time continues to pass.

Nick Bartia, we're back, back on the show. Things are getting pretty wonky out there at the moment. You did a video last week on the repo market, and you were kind of saying this could be signaling a bit of a crisis in the market. So do you want to explain what's going on? because this is the world that I don't follow super closely. Sure. I would love to get into what happened last week, but let me, before that, Danny, just tell you and your audience that I'm a rates analyst, and I used to trade rates, it used to trade repo.

One of the things that I like to do is look for problems, but be really hesitant to call anything a crisis or to put up these big alarm bells on, you know, a recession is coming or a crash is coming or a crisis is coming. So when I do actually get cautious, it's not that common. Okay. And I also still want to say that I'm not calling for a crisis. So before we get into it, This, what happened last week, was the most alarming thing I've seen in the money markets for some time.

So I decided to make a video that was dedicated to it. Now, what happened? We can start directly with this chart that I sent you. This slide compares the two rates that I think are the most relevant to my video last week. You can see the spike that happened. Today we are at 0.01 on this spread. So basically a spread of nil. This is recorded on Tuesday, October 21st. Now, on Thursday of last week, this spread blew out to 14 basis points. And when I say blow out, again, it's material and warranted a video. This spread represents the difference between. the repo rate and the risk-free rate. So in this situation, the risk-free rate is the green line, which is interest on reserve balances. This is the rate that, say, J.P. Morgan has their reserves.

This is their deposit account at the Fed. Fed reserves. The line item on the Fed's side of the balance sheet is $3 trillion right now. So on that $3 trillion, the Fed. is paying all these banks 4.15% annualized interest rate. The orange line is the SOFA rate, which is a market-derived rate, a repo rate. You can think of it as the average repo rate that money market funds are making by funding dealer balance sheets and other banks with Treasury collateral. So the spread represents the pickup, the yield pickup. that a bank can get by letting go of reserves

and funding a repo transaction. Basically, being the investor in the repo market. So lending the money and receiving the rate. So when the spread is going up, it means that banks that hold reserves, even though they can get a 14 basis point pickup in the repo market, they're still not lending the reserves,

hence there is reserve scarcity. And I'll pause there because that's the main takeaway from last week. And you can see that yes, in Friday, I mean, sorry, in the Monday and Tuesday time series, the spread came back down. Okay. So I kind of want to go back a little bit here. So you're saying that we're at or we were at a point here where banks were unwilling to lend out their reserves. But can we talk about why they do that anyway? Like in normal market dynamics, why are banks lending out the reserves for this overnight rate?

It's a good question. It's all about yields, Danny. So in the end, the 4.15% IORB is meant to be a floor. So why don't you pull up the slide 2 here? this pack. This is the corridor. So the Fed controls these flat lines. The zigzaggy lines are repo rates that are market transaction rates. But the flat lines are the Fed's policy rate. So you can see here it's the purple line, the 4.15, the interest on reserve balances. That's a rate that the Fed has as a floor, meaning that, hey, banks, I will pay you 4.15%, so don't go lending your money to anybody

at lower than 4.15. Don't go lending to somebody, a bank at 4.05. I'm paying you 4.15, and I'm the Fed. So in that way, it's a floor. So I guess there's a few things I want to know in there. So one, when we talk about like the Fed raising or cutting rates, which of these are we talking about? The Fed funds rate? No. That's the key. The Fed funds rate, which is the green line, and the repo rates are what they're trying to control. What they actually lower are the reverse repo rate, which now the facility isn't being used. That's a floor. They lower IORB, which, which is also a floor. They lower the discount rate, which is a ceiling.

They lower the rate on the standing repo facility, which isn't pictured in this chart, but it's another ceiling. And so they're raising ceilings and floors. Because remember, I explained the floor, right, the interest on reserve balances. What about the ceiling? Hey, I will, that's the red line.

I will let you borrow from me at 4.25. if you post good collateral to the discount window. So don't you dare go borrow from somebody at 4.35? I'm the Fed. I will lend to you at 4.25, so that's the ceiling. So they move the ceiling and the floor down, and then what they're doing is they're guiding the Fed funds rate and the repo rate lower.

Now, I want to point out one thing quickly, Danny, before we get to the next question, which is that you see how the green line at the current moment is creeping up and it's not flat. But in the previous interest rate zones, it was flat. Yep.

So that's exactly the point here. And the 4.11% Fed funds rate, it is a rate that is based off of transaction. actions. It's not the Fed's policy ceiling or floor. And so the Fed funds rate is calculated by what is the rate at which banks are lending to each other? You ask an important question, which is, is that the Fed funds rate that they're moving? No, they're moving the interest on reserve balances and the discount rate, the standing repo rate and the reverse repo rate. Those are the rates that they move and they guide rates down. So the observation about Fed funds ticking up

right now means that, hey, there is some dynamic in the market now where there's a little bit of reserve scarcity and this rate, it is going up in the transactions, banks lending reserves to each other. You know, Fed cares about largely is going to be these repo rates and to make sure that those are also inside the corridor. They don't want them above. the corridor. It means that their ceilings aren't working. Do you wish you could access cash without selling your Bitcoin? Well, Leiden makes that possible. They're the global leader in Bitcoin-backed lending, and since 2018, they've issued over $9 billion in loans with a perfect record of protecting client assets. With Leiden, you get full-costly loans with no credit checks or monthly repayments,

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of it. What's happening there? What's driving that above the ceiling? That's the answer to the question also what happened last week. In repo, it's almost always the same answer, which is the calendar. So the calendar means that on month end, quarter end and on year end and on tax days, big movement in reserve balances, big movement in payments, tax days meaning, you're going, you. You're going, you. You're you know, large checks are written. Large bank transfers are sent from the banking system through the Federal Reserve into the TGA, which is the Treasury General account. And then window dressing around month end, which is that banks have to borrow funds

to make sure that all of their treasury positions are funded in the market. this is what causes the repo rate to go above the corridor. It's basically, it's going to be either a calendar event or a tax day event, which is also a calendar event. That is all, it's almost always the answer, Danny. So, you know, in my episode last week, I said, hey, repo desks are saying that this might be a mid-month roll calendar issue triggered by October. 15th. Even though rates came back down, right, we saw the spread is now down to one basis point from 14 basis points. Even though it came back down, I am not fully buying this mid-month role explanation for the current spike. I think that there is some reserve scarcity that

is developing in the repo market. Powell has actually admitted this. So I'm not. not necessarily speculating there. But the answer to your question is always going to be month end, quarter end, tax day. So one of the reasons that I was really interested when I saw this video is when the repo market gets dysfunctional, it's sometimes it's almost like foreseeing something that's about to come in the market. And I remember back in 2019, the very end of 2019, we did a show on the previous what Bitcoin did with Caitlin Long. and Travis Kling. And they were basically saying something was just blown up and this can't be sustained. And then, I mean, I'm not conspiracy theorist enough to say COVID then happened because

of that. But it like almost called the black swan of COVID and it said that something wasn't sustainable in the market. Is that why you pay such close attention to this for reasons like that? Yes. The sensitivity of the Fed to problems in the funding market, which are treasury problems, right? The Fed always responds when there's a problem in the treasury market. So the repo market is the treasury market. That's people need to understand that, that the repo market exists because you have this huge, basically,

multi-trillion dollar tranche of treasuries at all times that is not in the final investors' hands. It's this interim pool of treasury. that haven't gone to their ultimate investor yet. And if that number is several trillion dollars, which it is today, Danny, I mean, the SOFA volumes are $3 trillion. It means there's at least $3 trillion of them

that need to be funded every night, three on 38. So, and I would suggest that it's closer to $5,7, $9 trillion of treasuries that are always kind of, at any point looking for some funding. There are only $7 trillion in money market funds. So it's not like there's an unlimited pool of capital to fund these interim treasuries.

That's why the repo market is so important, is that if those treasuries, let's call them $3 trillion, are not funded tonight. The whole system collapses, literally. So the Fed can't afford anything like that to happen. And yes, you do have to go back to September 2019 because it's an important moment in money market history and the standing repo facility exists today.

The Fed realized that they didn't have a ceiling. They didn't have an effective ceiling. Now they have the standing repo facility. So what we've been waiting for the whole time since 2019 is the point at which we get to test the standing repo facility. and that's one of the things that alarmed me last week is that, wait a second, why are participants starting to use the standing repo facility? And I checked this morning there was another $3 billion in usage.

These are not massive numbers, but somebody is struggling at the margin. The Fed Funds market, if you go to the New York Fed website and you look at the Fed Funds webpage, what you actually see. is all the transactions on a curve, they show you where most of them get done, and then they show you the 75th percentile and the 99th percentile. And you can see that 99th percentile means the edge of the system is paying 4.18, not 4.11, which you see on your screen there in green. It's 4.18. The standing repo facility, somebody said, I need three.

billion today. These are not crisis numbers, but they are like, it's time to pay attention more than ever to the repo market because this is the moment we've been waiting for to test SRF, standing repo facility. We're getting the test. It's a baby test, but it's non-zero. Okay. So I want to just go back a little bit because I want to understand this better, the repo market and the reverse repo market has been explained to me so many times, but I still struggle with it. So just help me understand. If all these banks are sat on a ton of reserves, which is their collateral,

what drives them to use the repo facility overnight? Why don't they just sit on that collateral? Is it just to try and chase the tiny little bit of yield they can get on it? Because it's such a large amount. It's sort of meaningful. Okay. You're going to have to ask it one more time because I'm going to answer one thing that you set up for me there. which is that reserves are not there you can think of them as collateral but it's the wrong way to

think of them collateral is fungible in that you can post it elsewhere like outside the system for example or or to some other party reserves are not they can't move them you can convert them into assets like treasuries and things like that. But reserves are not collateral for the banks. They are a tool for interbank settlement in the onshore system. So they need reserves to do business, like regular business, to settle checks and wires, including the purchase of treasuries. So sending money to the TGA, you have to have reserves to do it. Because it's a swap for the Fed. They debit the reserves and they credit the TGA when you buy Treasury.

So now I'll please ask you to ask your question again, but it's an important differentiator there. Okay. So I think possibly you've answered that question in that, in that they can't just sit on them because they actually have to use them for the operations of the bank. But is that the reason that they have to go to these. repo facilities because they might be either short on treasury or sorry either short on reserves or they have excess reserves and can just make a little bit of money overnight on them no the the the treasuries that they need that they rely on the repo market for are separate are separate from reserves so think of two types of financial institutions you have a dealer and you have a bank

J.P. Morgan is the bank. They have a trillion of reserves sitting at the Fed. J.P. Morgan Chase has their dealer also, and the dealer has, let's say, $100 billion in treasuries on its balance sheet. So the dealer needs $100 billion in cash from the repo market to see the next day, as Perry Merling says.

Repo is how you live to fight another day. Well, they have $100 billion in assets. They need $100 billion in cash to fund that overnight. So every night they're in the repo market trying to get that $100 billion so that they can have the inventory of $100 billion in treasuries so they can traffic, buy and sell, and make money. That's the dealer. J.P. Morgan, the bank, has a trillion in reserves,

and it has tens of millions of clients. around the country. Those clients are sending wires to each other. They're sending wires to customers of Citibank. So J.P. Morgan, the bank, needs reserves so that when, let's say, Nvidia banks at JP Morgan and Sam Altman banks at City. And it's time for Nvidia to pay open AI for something and they send a hundred million or let's say they send a billion dollars to open AI. J.P. Morgan has to send a billion in reserves to city. So they need that money for their operations. So the bank needing reserves for its operations is a completely separate dynamic than a dealer that has treasuries and needs to, and needs cash tonight. Who's the

provider of the cash, Danny, it's the money market funds, my seat where I used to be, where I have, you know, I'm a fiduciary for corporations and governments and I have, you know, billions of dollars in short-term cash, and I have to decide what to do with it. J.P. Morgan, the dealer, says, hey, I'll pay you 4.16% overnight, secured by Treasury collateral. Can I borrow from you? And then the money market fund lends to the dealer. So they are a little bit separate issues that we're talking about. Does that help?

Yeah, that does help. So then I want to go back to that first chart you brought up because the spike that you were talking about last week, I think I understand now that's the dealer going to the repo market and JPMorgan or whoever not being willing to part with their reserves until the price was higher. Exactly. Okay.

Exactly. And so that's signaling that they, they feel what a lack of confidence in the market that they can actually part with those reserves it's and that's the key it's why they're not parting with it that's the key so my theory here is that um the percentage the reserves as a percentage of GDP is falling to a more dangerous level because reserves are used for banking activity, as we're explaining, wires from JPMorgan to city and back, the larger the economy grows, the more reserves you need inside the system to allow people to send wires to each other. Big banking deals, bond deals, even treasury auctions are important to throw into that.

So the larger the treasury auctions and the larger the economy, the larger the economy, the larger the deficit, you just need more reserves so that Jamie can say, I'll lend you my reserves. Or I'll pull out reserves and put them in the repo market tonight. So my big theory here is that we're at a point, yes, the Fed's balance sheet is declining and reserves have started to trickle down now that reverse repo is gone. As reserves decline, there's a mathematical. medical minimum to a healthy amount of reserves to let the money market function. And that's where I think we are.

So the answer to your question, why wouldn't they do it is basically they realize we're at the point that they need to just hold on to it, even if they're being offered 14 basis points pick up. It's not worth it to them because they're risk managers first. Their arbitrage or second, but they have to make sure their bank wakes up the next day. And holding onto your reserves is sometimes better for your health as a bank than picking up that extra 14 basis points for one night. And remember, it's 14 basis points divided by 360. I mean, it's pennies, right? But the banks do it.

That's how they squeeze every penny out of, you know, in arbitrage. But at a certain point, they don't do it because health and safety, risk management and PTSD also. 2019 PTSD. And honestly, the banking system is still, you know, in a 16. your hangover from the financial crisis. So there's a lot of PTSD in the system. I don't know why. This is obviously really in the kind of financial plummings of how banking works, but this element of like macro is the bit that I find the hardest to understand. And I don't know why is it just, it doesn't seem like very intuitive to me. But obviously you spent years and years and

years working in this and living in this. So is this the most important thing to watch right now? And do you think it's actually showing signs that QT might be over and QE is about to start? So QE is going to be relative because they might call it something else. The point is that I do believe that reserves do need to be introduced back into the system. So the mechanism will be QE-like. I do believe that QT does have to end because of the mechanics of. this that we're talking about. Is it the most important thing to watch in the system? You know, that's a lot of, the answer to that is actually, do you think that the Fed is the most important

actor right now in the global macro economy? And I would argue no, because I don't think that the response is going to be more liquidity creating than what I do expect is going to be happening in the private sector. So it, it, it, it, it, is. There's some worrying stuff in the money market that's going to put the Fed back in play. It's going to make them have to end QT. It's going to make them have to increase their balance sheet. I've said for a while that I believe it'll be, they'll call it something like nominal GDP targeting for the balance sheet. Like the balance sheet will now follow GDP targeting, something like that, where they don't have to call it QE.

They can call it something else. We'll know what it is. You know, it's balance sheet expansion. But QE are these, they used to call it L-SAP, large-scale asset purchases. The LSAP days, I don't see that happening right now. We could get L-SAP in the future. You get this huge balance-sheet expansion, but that's not really what I see. I actually see balance sheet expansion in the private sector.

I'll point people to the J.P. Morgan announcement of $1.5 trillion in funding that they are planning for 27 key American industries to rebuild America's competitiveness on a technology defense mining front. That's where I believe liquidity will be created. So is it the most important thing, Danny, that we should all be watching on the macro side? It's not, actually. The CAPEX boom that has already started and we're witnessing is the more important macro story. I believe the standing repo facility plus Jerome Powell are capable of negating a repo crisis, avoiding large-scale asset purchases and introducing liquidity in a more gentle way

through the Fed that would make it not the most important thing. Okay, I've got like five questions in that, but I'm going to try and keep us on track here before we get onto the private sector stuff. If they do a kind of GDP-denominated expansion of the of the, of the, what's the word I'm looking for? Yes, of the balance sheet. Is that sustainable?

Can they do that for a long time? Or just with the way the system's designed, does it need those huge expansions every now and again? Yeah, it's a good question. I think it comes down to how much the US government needs to rely on the Fed. So at the moment, or, let's say during 2020, 2021, the government was entirely reliant on the Fed to finance the CARES Act and emergency response. Entirely reliant. There was no private sector capacity to absorb that type of

fiscal deficit. No capacity. So the Fed and the government teamed up. There's actually there's a way to categorize what the government did as pinning the Fed into the QE. Like, you know, we're going to spend $9 trillion, and you guys, you can't do anything about it. You're just going to have to do trillions of QE, and they did. So the balance sheet expansion that they did. back then was warranted by fiscal activity. So your question is, can they just do baby increases? Well, if the government is able to reduce its fiscal deficit

from where it was at seven to now it's under six, if they're able to get it to under five, et cetera, keep going, then perhaps, yes. If there's no financial crisis that the trend Treasury Department goes and bails out banks, like what happened in 2008 and 2009, that required LSAP because you take on the debt of the banks, basically. You inject liquidity means what? The government borrows, issues treasuries, and then sends the money into the banking system and recapitalizes the banks. Well, who's going to fund the treasuries that they had to

issue? They had to borrow the money from somewhere. You get L-SAP. So the L-SAP, the large-scale asset purchases are triggered by the government spending the money if we really look at the history of it. Now, the L-SAP that happened in 2010, 2020, which is that QE2, QE3, and the LSEP that happened in late 2021, which was not emergency, right? COVID was already, the emergency itself was already a year and a half in the rearview, and they kept going. Those are the ones where you say those were unnecessary or you didn't need to do that. So you will need QT eventually because you went too far. So I hope that answers your question.

I don't think it needs to come with the large scale unless the government does something. And I'm quite bullish on the United States private sector over the next coming years, which might reduce the marginal, or might reduce the deficit as a percentage of GDP at the margin, right? We're at 5.9% today. I believe that that could creep down and put any risk of the Fed having to come in and do these large-scale QEs, maybe punt it down.

And I could be completely wrong, or I could be right and just not see that a crisis is maybe three or six months around the corner. And then the government comes in and has to bail out a sector that we might not even think of right now and then have to. borrow than the Fed has to do QE to join in. What Bitcoin did is brought to you by the massive legends, Iron, the largest Nasdaq listed Bitcoin miner using 100% renewable energy. Iron are not just powering the Bitcoin network. They're also providing cutting edge computing resources for AI, all backed by renewable energy. We've been working with their founders Dan and Will for quite some time now and have been

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Watch.com today. That is anchorwatch.com. I love Larry Lepard. He's on the show fairly regularly. His book is brilliant. And he always talks about this idea of like the big print coming. And he doesn't put a time frame on it. He's not saying that it's going to happen tomorrow, but he's saying just the way the system is set up, it has to happen at some point. Do you think he is missing something there? It's not that he's missing something. It's just that I don't agree with the, with the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, might have been on. So, I think that the whole system is in a state of flux, and it's responding to unsustainable past that it might, that it might, might have been on. So, I believe much more in the self-correcting, as opposed to the big print to just inflate everything away.

again, it probably comes back to my bullishness on the U.S. productivity and private sector in that I just don't see the big print being inevitable in the same way he does. Now, Larry is a brilliant historian in the way that he set up the history of the United States financial system and the different periods in which sound money was the basis of the system, and the days in which the fractional system was more controlled, or better controlled, or more perhaps the free banking system was a more free market system, but prone to crisis too. So, you know, one can like another's history and context, but completely disagree with, you know, the result. And Larry and I have had great conversations. We even were on stage together in Vegas and discussed some of it. But I've read

his book before we did the panel because I always like to learn about American financial history. There were some great nuggets that I picked up there. I think that as a trader, a former trader, of U.S. Treasuries, I can see how strong the asset class is. So this idea that the asset class itself is on weak footing is something that I wholly disagree with. And again, it's not that today it's just a great asset class. The government has to get its act together for it to be a great asset class for another 20 years, right? So maybe that's the disagreement is that my outlook is more bullish than his on the U.S. government's ability to have a sustainable deficit, a sustainable debt, grow the private sector, have the right taxes and regulations

to have a sustainable debt to GDP ratio that allows the government and the private sector to both prosper. So that, you know, that would be. be my I thought on the big print. Yeah, I can I can understand that viewpoint and I've spoken to Joe Carlos Ari on this and it sounds like you probably agree with Joe on a lot of these takes because he's also like a big believer in the productivity. And the thing that I always struggle with there is I can believe that the US becomes far more productive. I think automation, robotics like AI, all this stuff is going to have a massive boon. But what I don't know is what that does to jobs. Like I don't know if if AI like the number of jobs that AI will replace but I think it's going to be

high. And if the U.S. has like positive GDP growth while joblessness is going up, what happens then? It's a good question. There is a dynamic at play already, Danny, in which the S&P 500 is going up, but job openings are going down. So we're already living in this era, as a Like it's in front of us. So if we're already living through an era in which job openings are going down, and anecdotally, too, we hear about, you know, it being tough to get a job for entry-level people, for example, but the stock market's going up and GDP is doing fine, what is the sensitivity of US GDP to the middle of, you know, the middle of,

jobs, the middle income area of jobs, or the lower income area of jobs, it might be zero. What is the sensitivity, right? That's always what we're thinking about. Yes, the labor market might be an issue. Yes, AI might replace a lot of American jobs. But how much does aggregate consumption go down if that's the case? And aggregate consumption is 70% of US GDP, so it's the main driver. So if people are losing their jobs due to AI, but aggregate consumption goes up 3%, then there's no more sensitivity to, I shouldn't say no more, but there's no sensitivity to this particular dynamic. Now, what if it continues and starts to wipe out enough jobs so that it hits aggregate consumption and then hits GDP and tax revenue and all that kind of stuff? I mean, that's not my base

case at all. Now, I'm looking at how is AI going to replace jobs and hit the economy and the labor force and how does that feed back into consumption in the US GDP? Okay, but what is GDP? If you go back to econ textbooks, GDP equals consumption plus government spending plus savings and then the export factor, the net exports. So throw out next net exports for a second. So you have the consumer and the government. Let's say the government doesn't spend more money because we don't really want it to if we're in this bullish American thesis where we want sustainable debt to GDP. We don't want the government spending more and more money or increasing as a percentage of GDP. We don't want that. Now in the Econ 101, your whole income,

is either consumed or spent. There's nothing else to do with it mathematically. You only have two choices. You either spend it or you save it. Now you zoom into savings. Econ 101 suggests that savings equals investment, S equals I. It means that if you save a dollar by default,

you are investing it. Now, you can invest it in a T bill or you can build a factory. my bet is that all of the consumption that is not spent, basically all the money that is not spent, in a previous regime, let's say the last 20 years, it's saved and hoarded and sent treasury yields lower, but not anymore, or on the upswing of the, you know, of yields. and I'm not a big believer in this big bond bear market, but the era of zero rates is over. You have healthy rates now.

And that healthy interest rate in the market is not enough to say to people hide out in T-bills. We're going to go build a factory. And that's where a lot of my bullishness comes from is that it's the factory building. I did a video just today, Jensen Huang, he's talking about the CEO of NVIDIA, he's talking about the United States building thousands of factories and using millions of skilled workers to do it.

It's a very bullish vision. Where's the capital going to come from? Where's the labor, the skill? All of that. That's TBD, right? I don't have blinders on and, you know, just think we can build a thousand factories tomorrow. But they already built the fastest chip in the world from my understanding in the United States this year already. And he's on TV talking about it. And attributing almost everything to

President Donald Trump and his efforts and the tariffs specifically. That's wild. It's actually way more accelerated of a timeline than I expected that you can go from a new president to tariff policy to the fastest chip ever made already in United States done, manufactured. Where that's what you asked me what's the most important. That's the most important story. It's these next thousand factories and the build out of tens of trillions in AI infrastructure, which includes energy grid, electrification, and all of that. And by the way, is it going to be all government financed? No. part of my bullishness is that J.P. Morgan releases $1.5 trillion dedicated to these 27 key industries.

And it includes 6G mesh networks, drones, robotics, mining for all the material space exploration. So this is a wealth and credit creation and money. It's not, it's very fleeting. That's why people love Bitcoin and they love gold. It's more tangible. They can feel the numbers. They can feel the metal. Real estate also, very popular.

But J.P. Morgan and its cohorts, Danny, could create $30 trillion in loans over the next decade, profit off of every one of them. and the United States could end up with thousands of new factories and industries that are world-leading and it could lead to the importing of skilled labor where education is sourced and skills are sourced from around the world and you have two decades of American prosperity in just the building out of it and not even the benefits that could come from the buildout. So this is me being very patriotic, bullish about the future of the country, of course.

But the point here is that it's not the government itself that needs to spend the money. J.P. Morgan can create it out of thin air. City can create it out of thin air. They've been doing it for hundreds of years. And with a new regime, which if anybody is paying attention, you can see we're in a new global order, whether it's a global trade order, a political order, the death of globalism, the revitalization of nationalism, the return of the sovereign, the end of the UN, whatever you want to call it. this era could unleash bank credit creation in a way that we've never witnessed. That's the biggest story to me. It's a Bitcoin story too if people know where to find it.

So with J.P. Morgan, you're saying they want to create $1.5 trillion. How can they even do that? I understand, like, loaning money into existence and credit creation, but, like, how do they do that well in a sustainable way for their balance sheet? They make loans that they know that the customers can pay back. So that's all it comes down to. If they lend money for a 10-year project, the payback has to, the participant, the borrower, has to go out, build a factory and sell goods, products and services, and then pay back the loan. So how can they do it? Well, there's two answers to your question.

Number one, the changes in regulation are key in this. And there's two components. The first regulation change they need is the elimination of this penalty for holding treasury capital. Basically, they should be able to hold treasuries without any capital charge on their balance sheet. That's one thing. The other thing are just the actual lending. standards that are being, I mean, they're overly restrictive and it's one of the things that Treasury Besson wants to unwind are some of these overly restrictive regulations on lending.

So if you get some good banking deregulation, you get the treasuries off of the penalty. It's called the SLR, the supplemental leverage ratio. If you eliminate that penalty on whole holding treasuries, you automatically unlock lending. There are numbers that Goldman and Merrill did studies on this, where if you eliminate that charge, you automatically allow within the current banking regulations a couple trillion in lending. I think it was somewhere in the $2 to $4 trillion that gets unlocked. I mean, overnight from one regulatory change. So those are the regulatory changes.

So that's one place the capital can come from. But another place the capital can come from is out of these instruments that these entities hold that are for safety. Okay, enough with the safety, it's time to invest. Remember, S equals I. So it's either S or it's I. So it's turn the S into I. Go invest the capital. There is equity all around the world. And that's existing capital. It's not fresh credit creation. but if you get that capital out of a hoarder's mentality and you put it into bank equity, you can go leverage it again. So if these banks can boost their equity positions, it's the basis for more and more. Lending is fractional.

So the answer to your question, actually, it's you unleash the fractional reserve. How do you do that? You have to have regulations go your way. and if you can get some new capital in there, you can really do it. But it's a behavioral thing. I think it's a behavioral thing first, that they just have to get into that mentality, that, okay, we're going to go out and make these loans. And they're hitting the tape with, you know, $1.5 trillion.

And they say, oh, yeah, we're, you know, $10 billion in equity, too, which is good. You know, they're actually going to take stakes, but it's the lending that is material. And if all this capital does get unlocked and we have trillions of dollars from the private sector, created for these businesses. What impact does that have on inflation when it's coming from the private sector rather than from the government? The same. The same. And because it's a raise, it's a, it's an increase in aggregate demand, right? Because when consumption and investment go up, or let's say investment goes up and consumption goes down, but investment is going up, that is a purchase of materials, labor, and it sends money, you know, credit creation that comes from

the private sector sends money into the economy. So, you know, you ask the right follow-up, which is what's the take on inflation? The take on inflation is that it'll be sustained. It will be sustained. I'm not a big believer in this 5 to 10 percent inflation on the broad level, but on a more zoomed level, there will be sectors that will experience this type of inflation throughout this entire KAPX boom, if that's what we are to see. And the bond market right now says that that number is, you know, in the two to two and a half percent range. you know that might be a little low but i'm not i'm not into the um i don't believe that double digit inflation is going to be the result of the cap the cap x boom especially with the productivity

gains and maybe driving down the labor cost as well the government by the way will need more of a social safety net if the if i really does just show the labor force and replace so many jobs, you know. That's where you need UBI or something similar. Yeah, transfer payments and all of that kind of stuff. It should be near people's base case for the next couple decades. If we're in these new regimes expecting something like that. But again, it would have to be sustainable for my, you know, stability of the Treasury market thesis to play out.

See, I could be being naive here, but I can't see a world where if AI does what I think it's going to do and what a lot of people think it's going to do, I can't see a world where we don't have QE. And that's going to be a serious increase in the balance sheet going forward as well. You know, it has to, again, it has to, QE has to be triggered by some sort of crisis. So if the crisis is 1% increase in unemployment every three to six months, you know, is there a bailout package that needs to be sent to every citizen in the United States? And if that's the case, then yes, I would agree with you that it's going to come along with some balance sheet expansion. but I don't think it can be triggered without some big spending package or some big financial crisis. It seems like the future we're going into is just more and more wealth inequality as well.

That and that, there's no doubt about that, especially with what we're talking about with the stock market going up and job openings going down. and even the premise that a poor labor market doesn't affect aggregate consumption. That screams wealth inequality. It's a little bit of a scary future. But to summarize your point, do you think sort of QT is probably coming to an end, maybe ending? QE in some form might be coming back, even if it's sort of GDP denominated. there's going to be a massive private credit boom. What does all this mean for Bitcoin?

Yes. Bitcoin now, I believe, is, the way that we've been thinking about it is a liquidity asset. So as liquidity comes into the system, Bitcoin is the recipient of some of that. When liquidity tightens up, we see Bitcoin's price suffer. So if Bitcoin is receiving a passive flow from all credit expansion dynamics, and it is a superior asset to other assets in terms of the relative catch-up, then Bitcoin should perform very well. Especially as more money is created into the system and flowing around the world, Bitcoin becomes a really valuable collateral as time continues to pass.

So the thesis on Bitcoin is very bullish. If we think about what are the big risks for Bitcoin going forward, I would say credit contraction is probably the biggest risk. But we live in this world where credit reaction is responded to by bailouts, which are backed by QE. And that world is, we're going to have to see some dramatic event to have to change our thesis. Right. It doesn't feel like it's the right thesis to say, well, there will be, you know, I'm sure that there will be credit losses somewhere.

And then the government is going to let all the banks fail. and a big contraction of the credit system, the government, you know, it won't be there and the Fed won't be there either to backstop it. Big destruction in credit, big destruction in stock prices, Bitcoin,

dollar sores, and that's the risk. There's a number, Another risk, which is separate than that, which is that inflation gets out of hand and interest rates have to go way up or the market drives them up because the market is saying, hey, inflation's at 6, 7%, 7%. I'm pulling my money out and putting it in fixed income, pulling it out of risk, and liquidity is affected through a big bear market in treasuries because of inflation getting out of hand. I would say that that's a risk to Bitcoin. Bitcoin is not, I don't believe, ready to act as an inflation hedge in that example. In a big bear market in treasuries, Bitcoin isn't going to do great. You can look at 2022 for a good example of that. And I still

believe that dynamic is, is there. So in the absence of a big wave of inflation or a big contraction and credit that isn't responded to by policy bailouts, I think Bitcoin does very well in this middle ground of big CAPEX, passive flows from spending incomes, and even if it is only a certain portion of the economy that is earning in an AI world, that some of that money ends up in Bitcoin as well. Why don't you think Bitcoin's ready to behave as an inflation edge because like I think we both probably agree that that that kind of is what it is and what it will be in the future but why do you think it's not ready now what is it that makes sort of gold able to do that but not bitcoin yet I don't even think gold is the inflation hedge so it when

it comes down to looking at the statistics the correlations the drivers gold has had an incredible year with inflation being totally stable around 2.9, 3, 2.8. I mean, trending down, trending flat, no real tariff scare. Gold is just ripping. So gold is not ripping as an inflation hedge this year. It's ripping. We can talk about that. But it's ripping for other geopolitical reasons. It's not ripping because people are dumping treasuries. are trading very well this year. So I don't think gold is functioning as an inflation hedge. This year's price action tells me that gold is performing well in the absence of inflation,

especially with the economy being in that kind of so-so area, rates trending down. Remember, rates trending down means lower inflation expectations going forward. So why isn't Bitcoin? Bitcoin ready to trade as an inflation hedge because the market shows us that when volatility spikes on a pop in interest rates off of an inflation scare, the Bitcoin doesn't do well. It goes down. So the market is just still treating it like a risk asset? It just is.

It's treating it like a liquidity asset. We should talk about gold because I saw in that recent video, you were kind of of alarmed at gold performance and you weren't really sure why it was happening. Checkmate, who a good friend of mine, I know you know well as well, he talks about gold as it's kind of showing us the path and Bitcoin sort of follows. Why are you nervous about what gold is doing? So let me specify the word nervous, I guess, in this context. First of all, I've, I traded gold back in the day as a hobbyist, not a professional. Trated rates professionally and money markets professionally. So when I give my opinion on these markets,

it comes from, you know, former professional practitioner. So I'm not a gold trader in any sort of professional practitioner sort of way. I'm also not a gold researcher either. Now, I am very passionate about geopolitics. I was a former gold bug before finding Bitcoin, a big proponent of sound money before finding Bitcoin and after understanding QE. So that's the context for gold. So why am I nervous about it? I'm nervous because when the gold price, or let's just say, the gold price going up the way that it has this year

makes me feel like there's some very large geopolitical move being played. Is it a United States move? is it a Chinese move? Is there some fear trade associated with a big blow-up in Europe? Like European QE, ECB-QE. These are maybe three of the options. I don't know. And I, I, I, you know, reading theories, reading some street research on it,

nothing is super convincing to me my hunch has this like the fact that trump and besant are absolutely silent on this matter to me means that it might be something that's u.s caused and that benefits the u.s because if somebody was doing this let's say it was a let's say this was China buying and delivering and driving the gold price up, which there's a lot of evidence that gold is getting delivered to the U.S. this year, like U.S. gold delivery. So there's a lot of evidence that this might be American driven. But let's say it was China driving the gold price up. And let's say that the price of gold going up was hurting in some way the U.S., U.S. banks,

or the U.S. government in some way or the Fed or some position, you would see Trump do his thing and, you know, hit the tape and, you know, talk a bunch of smack and blame somebody or something. But we don't see that. And so why am I nervous? I'm nervous when I don't know what's happening. So, and I, I, I, only have, you know, a limited amount of time, you know, to do research.

And it also means that some of the more theoretical, you know, I believe this is happening, Besson is doing this or this is some squeeze. You know, I'll shout out, you know, some of the street research that I've been reading that's been excellent, some of it out of Merrill and, you know, mostly out of Bank of America, Mara Lynch wrote some good stuff on this, nothing has me convinced because I'm too, you know, conspiratorial

minded in thinking about this, that who's getting squeezed and who's getting hurt and who's benefiting from this, that nothing I've read really fits the bill and the stuff that is more conspiratorial that I maybe want to believe, I can't prove. and so all of the not knowing makes me nervous and also that this this hunch that maybe Europe is blowing up and the ECB is setting up for some massive QE or there's somebody in Europe that's

being squeezed like out of London maybe the bullying banks or something like that that has me nervous because that can come with a big financial crisis, panic, you know, perhaps a sharp fall in risk prices that scares a lot of people, forces liquidations. And, you know, the people that are over-leveraged, God bless them, but it's the people that actually are not leveraged but still get shaken out of their position that I worry for them because that's happened to people, you know, that they get shaken out and then they don't realize that everything is going to get bailed out so they miss, you know, the pop back. And, you know, we don't know if we're still in a bailout culture or not.

We'll never know until you get to the crisis. But I hope that answers your question as to why I feel nervous about the gold price. My money's on. We still are in a bailout culture. But, I mean, I think it's interesting because earlier this year, tons and tons of gold were leaving London coming to America. I don't really know why that was. I think people called it like an arbitrage trade. I don't know if I really buy that.

China are the biggest producer of gold. I'm sure they've been stacking a ton of gold over the last year, probably multiple years. So is your worry here that the US and China might be an almost like a silent war to stack as much gold as possible? You don't know who's going to come out on top at the end of that. You know, that's less scary because that's just an accumulation. So that would be less scary to me. And we do know that China is stacking gold. We have, you know, the Shanghai gold contract volumes are up also.

So we know that China's been stacking gold for many years. That's not a surprise. The United States is not admitting to any sort of gold stacking it as a large gold position, but it would be the private sector banks or whoever that's importing that gold and taking delivery not necessarily the U.S. government unless they're doing it. It covertly earned the table in some way like that. So I don't think that a U.S. China fight over gold would scare me. When a market goes up this quickly and there's not a lot of explanation, it's like, wow, you know, there really is something going on behind the scenes.

And as a macro analyst, it's all fascinating to me and you're limited by, time and you're also limited by what you want to be well versed in. I want to be a great rates analyst and a great Bitcoin analyst, but I don't feel that I can be also a great gold analyst. So it leaves it out of my immediate research purview. And then when something happens in it, I'm caught off guard by the speed at which gold has gone up. And not knowing is probably, bothering me. Yeah, I get that. It's funny because in previous cycles

where Bitcoin's been doing well, you see a ton of retail people turn up and we've not really had that this cycle. I've not noticed it that much. I think potentially it's starting, like I've seen a lot of new listeners on the podcast, but nothing like previous cycles. But then at the same time,

I'm sure you've seen the picture of queues outside gold dealerships. And it seems like the retail fomo is in gold this time, which is a really interesting. dynamic. With everything that's happened over the last couple weeks in Bitcoin, last time we spoke, you said you were sort of 60-40 on the cycles being broken. Has anything changed? I was seeing the sort of sharp drop in Bitcoin and it's looking a little more uneasy. Yeah, I would say, I would say creeps up every day, that 60-40 number. You know, I don't necessarily feel like I want to put a a number that's higher than 60 today on the show.

But yeah, I believe with every day that goes by that we're not really beholden to this cycle, I haven't seen any of the FOMO trade in Bitcoin this time around like you just mentioned. And the cycle that we saw in 2017 and 2021 both had just completely different. different behavioral patterns. And now we're almost, you know, through with October here, and the Bitcoin price just isn't going anywhere. It's still consolidating.

I think that's super healthy. I'm a big fan of consolidation in Bitcoin because it means that Bitcoin is not in any, well, it's just compressing and volatility. And that's a sign of it maturing. and the more compressive volatility is the less likelihood of an 80% decline. So when I see volatility start to peak up, to pop up like it has in the last couple weeks, you start to wonder, oh, are we in for one of those big moves? But, no, I still believe consistent with our last interview.

All right, Nick, this has been awesome. I mean, the repo stuff, I don't know why it just doesn't. fit in my head very well. But this was super useful. I think I learned a lot. It's going to be an interesting time coming up. We've got an interesting sort of 12 months ahead of us. We'll see what happens. Absolutely. And the gold, the gold weekly candle this week is one of those candles that, you know, the chart analyst in me says, oh, now, you know, the gold run is over. It's going to consolidate maybe for another six to 12 months and all that. But I think, that a couple times over this current bull market in gold where I saw a candle and just,

you know, a reversal. And I said, oh, that's it. And then it keeps going. So the, you know, that's one of the things that's the most fascinating thing. And on the repo side, it just takes so much repetition. And I remember just being on the desk. And it just takes, you know, months and months and months of reading about it every single day to really understand what's going on. So I appreciate you letting me teach you and others. No, I appreciate it, Nick. Thank you. And tell everyone where to check out your videos and the newsletter, all the stuff that you do. Yeah, everything you guys can find at thebitcoin layer.com. So we have a show channel. If you like to watch, listen, we have a great research newsletter and the links to my books as well. Everything is at

the Bitcoin layer.com. How's the sales on the Bitcoin Age gone? It's gone great. I really feel blessed to have so many great readers. And the fun thing about Bitcoin age is that people are genuinely learning things that they didn't expect to learn. So Bitcoiners that said, oh, I learned this particular thing and that always makes me excited. I got to teach both of my books together as one product this summer, which was excellent. And I'm going to get to do that again next year. Love it. I've actually, I've not got it on the bookshelf yet, Nick, but I'm going to buy it as soon as we get off this call and put it on there. I was waiting for my signed coffee, but I'll have to just get two.

Oh, Danny. Well, I'll send you one, absolutely. All right, Nick. Thanks so much for this. It's been great. Thanks, man. Appreciate it.