What Bitcoin Did - BITCOIN & THE U.S. DEBT CRISIS w/ Avik Roy

Episode Date: March 18, 2025

Avik Roy is a policy analyst, and the president of the Foundation for Research on Equal Opportunity. In this episode, we discuss why Avik believes the U.S. fiscal situation is heading toward a crisis within the next 20 years, the growing debt problem, and the likelihood of government-imposed capital controls and repression. We also get into Bitcoin's role in this economic landscape, whether the U.S. could adopt Bitcoin in a strategic reserve, and how past monetary shocks—like Executive Order 6102 and the Nixon Shock—inform what might come next. THANKS TO OUR SPONSORS: IREN: https://www.iren.com/ RIVER: https://river.com/wbd CASA: https://casa.io/ LEDGER: https://www.ledger.com/ ANCHORWATCH: https://www.anchorwatch.com/

Imagine a U.S. in which all of your ETF holdings are forcibly converted into fiat U.S. dollars at a discounted rate for the government. Imagine that the U.S. government bans corporations from holding Bitcoin on its balance. It forces those corporations to sell their Bitcoin to the government at a discounted rate. Imagine a world in which, like in 1933, the U.S. says if you self-custody your Bitcoin, that's now illegal. you need to convert all your Bitcoin into ETFs or other instruments that we can control. What Bitcoin did is brought to you by our lead sponsor and Massive Legends, Iron, the largest NASDAQ listed Bitcoin miner

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which is i are en dot com well first of all it's just great to see you dann it's great to see you this is your this is the first in-person interview i've done so you're the first one yep everything's been remote so far incredible i am truly i'm truly honored that's amazing well while i was here in austin i couldn't miss the opportunity i don't think well uh that's really cool and and just congratulations on taking this franchise over you deserve it i mean those of us who've been on your show know how much the real work you did not that peter did do any work peter worked hard to But yeah, it was all me. And, you know, I'm just great, so glad for you that you have this opportunity.

Thank you. And yeah, it's great also to do this in Austin where, you know, I moved here 10 years ago. And I remember going to Bitcoin meetups when I first moved here. And it was a small but hard event. If you've been here almost exactly 10 years. I moved here in like February of 2015. And we're recording this in March of 2025. So, yeah, about 10 years.

And those early crypto meetups, they were, like, held in the back lot of a grocery store called HEB that's popular down here, HEB Central Market, for those who remember. And yeah, then it was right around the time of the dawn of ETH. And so there were some ETH things, but nobody really thought of ETH as a thing. And then ETH became a thing. And then the ICOs started happening. Then the crypto people and the Bitcoin people kind of split off from each other. And then the Bitcoin community really started to build up. kind of in the, let's call it the late 2010s in terms of like what it is today.

Yeah. And you were saying at a meeting you and I were at yesterday, I believe it was, you know, that you don't, where you live, you don't have a community like this. We've got a, so we have a meetup. It's small and it's, um, it's not as good as it could be. But yeah, we don't have a space like this or like in Nashville. And I think it's, every time I come to these places, I'm just so jealous of what you have here. It's a great reminder for me because it's easy to take for granted that we have it here in Austin, but you're right.

I mean, we have an amazing Ecoin community here in Austin between the unchained guys and a bunch of the kind of thinkers that we have in town and a bunch of the, you know, obviously the mining industry has become pretty big here in Texas, thanks to China. Thanks, China. I'll never forget that day when China banned mining and literally overnight, there were all these planes with the S-19s. It was crazy. I remember being in Austin probably not long after the China mining ban. And I was at like a, someone was starting an event. And there was like three or four people that in the last month had come over from China to start setting things up in Texas. Yeah, it was nuts.

I mean, I remember Greg Abbott had had a kind of a, kind of a Zoom call into a big conference that the miners were having in China saying you're welcome here before the ban happened. And then the ban happens and boom. Yeah. They were all on planes that night. And really just proud of Texas for. for taking that initiative. And obviously, we have an enormous sophistication about energy here that I think really helps. Definitely.

And so you combine that. Like, it's not just, like, in San Francisco, there's obviously a lot of tech people, but they're not necessarily energy people. So to have the combination of the energy people and the free market orientation and the Bitcoiners, we've got something pretty amazing here. And, you know, it's just a reminder that meeting that we were both at, just to appreciate that I'm so lucky that we were able to have these meetings in person. There's so many that I go to like one-tenth of the ones that happen here.

Yeah. It's really cool. It is very cool. But we are, we're here to talk about your latest paper. Okay. Do you want to give us a bit of a background? You've written this for BPI. Is that right?

Well, it was written for this project that the Texas Bitcoin Foundation launched, which I'm on the board of. It's led by Natalie Smolenski called the Satoshi Papers. And her idea was to. This is the book that, this is the book that she had this idea of. Let's have a book called the Satoshi Papers where we. really try to take the long view and the philosophical view about Bitcoin, really try to think in a broader, bigger picture sense about what Bitcoin is and what it could be. And she asked all of us who were on the board if we wanted to participate in some of us have.

And so I asked her, I said, well, what would you like me to write? And we kind of hashed it out a little bit. And she said, well, what do you want to write? And I said, well, I wrote this paper in 2021 called Bitcoin in the U.S. fiscal reckoning. that you and I first met when we did a podcast for Peter on that topic and obviously had an amazing reception in this community. But for those who haven't read it, I published this paper in a quarterly policy journal called National Affairs published out of Washington, D.C. And the idea of that paper was what I was observing, I had been kind of quiet in terms of

being public about my involvement in Bitcoin. Why was that? Is that because of what you were doing with FreeUp at the time? It was more for security reasons. You know, I just didn't want to, at that time, you know, I didn't, the security infrastructure wasn't what it is today. And I just, you know, just didn't want to be super public about it. And that was number one. Number two was, I'd say that it wasn't really until the late 2010s that Washington started

becoming relevant to Bitcoin. Even in 2021, so the reason I published this piece was there was an attitude then in the Bitcoin community. There's a couple of reasons. The first one was there was an attitude then in the Bitcoin community that, look, we're censorship resistant, we're permissionless. Who cares what Washington is doing? It doesn't matter for us. You know, we're fine. They can, they can, you know, complain all they want about Bitcoin. Nobody can ban Bitcoin. Remember there was all the thought about, oh, they're going to ban Bitcoin. So people had this had built up this kind of like, look, the government can't do anything to us. Who cares what happens in Washington? And on the flip side, a lot of, of course, Washington people felt like Bitcoin is completely stupid. It's a fad. video game money, blah, blah, blah. So the point of this article was to kind of speak to both sides, speak to Washington and the policy world where, you know, I had a lot of relationships and had a following and just kind of explain to them like, hey, guys, here's why you should

care about Bitcoin and not merely, you know, reciting the Satoshi Nakamoto gospel, so to speak, but really trying to explain from a standpoint of their own way of thinking about the world how as the federal debt gets bigger and bigger, this is going to matter more, that people haven't had to think about the dollar. They've taken for granted that the dollar is supreme, but the dollar supremacy is actually a relatively recent phenomenon. You know, I wrote about, I literally cited what WTF happened in 1971 in the paper because I thought it was so important for people to look at that as a departure point or everything that's happened since. And, and so I was trying to explain to the Washington crowd, like, hey, actually we've been living

in this untested experiment since 1971, where the dollar is untethered completely from gold, and that's why we've been able to run the debts that we've had. So I wanted to walk people through that kind of thinking. And then on the Bitcoin side, explain to Bitcoiners that Washington can actually make it very, very hard for us to achieve our goals as Bitcoiners. If the goal of Bitcoiners is to make Bitcoin something that everybody can use very easily for payments, obviously for store of value, but also as a medium of exchange and a unit of account, if you want Bitcoin to have all those uses, the U.S. government can absolutely, absolutely make it very hard for those, for adoption to be broad.

That's something that I've always struggled with, because I, I personally don't really care about politics. Like, I would much rather stay out of that as much as possible. But, like, it's the thing where you may not care about politics, but politics cares about you. Completely. And so since those days when you were, like, first going to D.C., obviously, I saw you there on Tuesday. We were there for the Bitcoin Policy Summit. Yeah. How radical has the shift been? It's been huge. So, you know, I, part of the goal, so the takeaway from the paper, the thing I concluded the paper with is there are three things we got to do or we got to try to do. The first is let's try to get ETFs legalized because ETF legalization will allow ordinary retirees, mom and pops in their 401ks, excuse me, to buy Bitcoin in an easy way if they're intimidated by self-custody.

It's a gateway drug. That's really important. Number two, we have to block CBDCs because if CBDCs ever go online and at that time, the Federal Reserve was seriously considering adopting CBDC, then they could, really have censorship power over Bitcoin. And then particularly in terms of the Fiat to Bitcoin conversion, if you can block people from transferring Fiat to Bitcoin, you make it very hard for people to use Bitcoin, right? And then the third piece was, could we, we should convert 10% of our gold reserves into Bitcoin. Let's have a Bitcoin reserve, which at the time seemed like, you know, that seemed like the craziest idea that I was proposing. Yeah. So, so, so they,

and the point of those three ideas was to say, these are the things that we need to do to further entrench Bitcoin so that once the politicians start to really care about Bitcoin and if they really do try to fight us, we have enough entrenchment in the system and enough people have adopted Bitcoin in their everyday lives that politically it becomes hard to take it away from people. One thing that's kind of bad about our system, you could say, is that once you've given people something, it's hard to take it away. That makes performing things like, you know, government programs very hard. But in the case of Bitcoin, that can be something we use in our defense to say, hey, the more and more people have

ETFs, the more and more people use Bitcoin, the more the government itself owns Bitcoin and the less the government has the power to censor fiat to Bitcoin transactions through a CBDC, then those are the things that are going to give us enough runway that four, five, 10 years down the road, it'll be that much harder to unplug or uproot Bitcoin from the US. This episode is brought to you by Anchor Watch. The thing that keeps me up at night is the idea of a critical error with my Bitcoin called storage. This is where Anchor Watch comes in.

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Visit anchorwatch.com today, which is anchorwatch.com. This episode is brought to you by River, the best place for Bitcoins and businesses to buy Bitcoin. With River, you can set up zero-fee recurring buys, making stacking sats effortless. And while you're waiting for the perfect buying opportunity, River lets you earn daily interest on your cash balance paid in Bitcoin, which outperforms most high-yield savings accounts. What really sets River apart is their unmatched dedication to security.

You have peace of mind knowing the River has monthly proof of reserves and holds all Bitcoin in multi-sig cold storage. And with US-based phone support, you'll always have someone ready to help. To open an account, go to river.com forward slash WBD and earn up to $100 in Bitcoin when you buy. That's r-I-V-E-R.com slash WBD. Yeah, I think that's actually one of the things that with the strategic reserve, people are kind of missing. There's been a lot of talk about like it's going to

incentivize civil asset forfeiture. And I totally get you have to remain very skeptical of the government. I'm not saying it should be something we're not considering. But I think if the US government holds a lot of Bitcoin, the likelihood of them doing that decreases. Yeah, you know, I actually think the likely, the likelihood in terms of civil asset for the incentive for civil asset forfeiture being increased or decreased, I think it's going to be neutral. And the reason I think that is that the government already has a powerful incentive to do civil asset forfeiture in the sense of like if they just take your money innocent until proven or guilty until proven innocent, they can already do that up to a point, particularly at the

local level. But at the federal level, you know, that's where a lot of the Bitcoin gets seized in these ransomware attacks and things like that. They already have the incentive to do that. But they've been just dumping it out of the market, right? So now they're just going to hold it. That's the difference. But if you're, they're not Bitcoiners, right? They're not, they don't really think, oh, cool, I get to hold some Bitcoin. That's pretty awesome. They don't really think about it that way. They just think about it as money or value.

So I don't think it's going to make a difference to them at all. If anything, there's a whole constitutional set of arguments and set of litigation that goes on in the U.S. By some of my colleagues are not at Freeop, but at allied organizations, where they're trying to limit the government's power for civil asset forfeiture just so that it can only be used when it's really, when there's a real, a real crime has been committed as opposed to the guilty until proven innocent version, which in the

case of Bitcoin is usually what happens. Usually, again, there's a ransomware attack. They actually figure out who did the ransomware attack through chain analysis or some similar technology. And then they just literally, literally, they raid the people's offices and houses and get their stuff.

So that's how they get the keys. I mean, that's what happened with Silk Road, for example. So all that to say, I don't think that's going to be an issue. I would be much more worried if they started to really get involved in mining. Yeah, because the government has a lot of cryptography chops and could get involved in mining. So, so long as they stay out of mining, I think, I think we're okay. Yeah, I think that would be interesting because Trump obviously said he wants to mine all the Bitcoin

here in the U.S. Who knows what that actually means? I think he just means the miners should be in the U.S., right? And I think he's very proud of the fact that the miners are here. He's a big believer in let's unleash our energy economy here. I think that's what he means. And frankly, he's not, he's, he's not that, I don't think he has the level of sophistication and understanding about Bitcoin where he's thinking about, okay, let's, you know, let's be able to do a 51% attack or something like that. I think he's thinking about that.

No, I think he made that clear when he was signing the executive order and he looked over at Sachs and was like, is this a good idea? Right, exactly. Exactly. And Sax is kind of patiently explaining, yes, sir. So, yeah, I think. And so, I mean, just to think about. So that was in 2021 when I published that paper. Here we are about four years later. And we got the ETFs legalized. Basically against Gensler's desires, he basically, the courts forced him to do that. Incidentally, the person at the D.C. Circuit Court of Appeals who wrote that opinion, she and I went to middle school together. We're old friends. Did you help with it? No, I made a point of not staying out of it so that there would never be that.

kind of question. But, but, but, but, I know her and she did a great job with that opinion. And that's what forced Gensler to kind of retreat because he's like, look, the courts are basically telling us we, we don't have a leg to stand on here. So let's just, let's just fight, fight a different battle. And so that was huge, getting the ETFs online. And then obviously the stuff with the strategic reserve is great. And the policy, and we can talk about it. The policy, I think, has worked in terms of what is in the executive order has turned out to be pretty good policy, and we weren't sure that that's exactly what was going to happen. So a lot of people to thank for advocacy to get us to this point. We're still, we still have to formally ban

central bank digital currencies. We aren't there yet. There's been some legislation that's been introduced. Yeah, did Trump not sign an executive order? He signed an executive order, but the thing about executive orders is a new president can come in and issue a new executive order. So that doesn't give you permanent relief. It gives you temporary relief. But if Elizabeth Warren becomes president, she can just, you know, rip all those old orders into shreds, a terror him into shreds and do something different. So in order to really have a permanent or at least, you know, reasonably permanent solution, you've got to have Congress pass what's called a statute, an act of Congress. Then even presidents don't have the freedom to really act. Which is why the Cynthia Lemmas bill is so important. Yeah, there's been, there's a couple of different bills. Mike Lee has a bill. Ted Cruz has a bill. There are a couple of different. ones out there. But that's the one that still needs to get done. But to get two out of three,

you know, in a four-year time frame is great. And I think what's been really interesting is if you look at the November 2024 election, the power of the crypto community broadly, but especially the Bitcoin community, was so important in that election. The amount of money that Bitcoin and crypto gave to in the election to not only in terms of the presidential race, but in congressional seats and senatorial races was so important, so big that I think a lot of Democrats came out of the election saying, hey, we can't be the anti-crypto army that Elizabeth Warren wants, because if we are literally $100 million or more, every election cycle is going to go to Republicans. We've got to get some of that support ourselves.

Yeah. And that's exactly the kind of thing I was hoping for in 2021. And so all that to say that while we didn't get 100% of what we wanted to get as much as we want, let's say we got two thirds to three quarters of what we wanted in 2021, what I was hoping for is pretty amazing. And I think forget about the number go up stuff or the price of Bitcoin. Because frankly, from where we are right now to where we were four years ago, the price isn't that much higher. It's a little bit higher. But the progress in terms of the infrastructure and the political economy of Bitcoin from then to now is incredibly important. And we should just stop to appreciate that.

Yeah. And just back to the point on Bitcoin needs to be bipartisan. One of my favorite things from the Bitcoin Policy Summit was Rokana speech. It was only very short, but at least it's a Democrat coming out saying we're not against Bitcoin. And I really do hope that grows in that party. Yeah. And look, I mean, Rokana represents Silicon Valley. So he's going to have, you know, an orientation that's friendlier.

Same thing. You see it in the New York City area. A number of the Democrats in Congress in the New York City area are similar to because they're connected to the financial. community. Those are the two areas where you see Democrats in particular be more sympathetic. But I thought his speech was great too. And just, you know, he said all the right things. He said, look, we should be, you know, he gave a very kind of pro-Bitcoin principle pro-Bitcoin speech. It wasn't simply the kind of speech you hear politicians give all the time where it's sort of like superficially

pro-Bitcoin, but does he really get what it's all about. He clearly does. And he's obviously clearly connected to a lot of people in the area. Yeah. How much power does he have within the Democratic Party? Not a ton. I mean, he has influence. He's, he's, he's a respected member of the Democratic caucus and has, I mean, he's not a fringe member of the caucus. He's particularly because Silicon Valley, a lot of Silicon Valley Democrats fund Democrats through O'Connor. He has a lot of access to that. He's, he's pretty important within the Democratic Party to the degree. You are a conduit for fundraising. That gives you power within any party. And in case of O'Connor in the Democratic Party. So he's a, he's a reasonably important guy. But I think ideologically, more people are in Warren's. It's kind of like, I mean, I would say that, for example, the Biden administration was basically staffed by Warren. Warren staffed all the crypto-relevant positions, whether in the Treasury Department, in the CFTC and the SEC, et cetera, et cetera, the Federal Reserve. She had some influence there. So anything that had to do with financial regulation, she was very involved because she was very motivated, whereas Roecona, I don't think did as much.

Maybe that'll change in the future because of what happened in 24. Okay, so let's get into this new piece now. Let's fast forward to this. So the title is, then they fight us. Is that right? Then they fight us. I think, or then they fight you. And so you kind of frame three potential outcomes up to the year 2044.

Yeah. So why don't we start by why 2044 and what is it? Like, give us the framing of the whole piece. It's that that adage that a lot of us tend to recite in the Bitcoin community. First, they laugh at you, then they ignore you. Then they fight you, then they fight you, then you win. Is it Gandhi that? It's attributed to Gandhi.

But if you actually look up to quote, people say, well, I don't, nobody, nobody can confirm that Gandhi actually said it, but it's attributed to Gandhi. Whoever first came up with it, it's, it's very apt. And so the point of this piece is essentially it's like a sequel, and that's the reason I spent all the time on talking about Bitcoin in the U.S. Fiscal Reckoning, the National Affairs paper, because this paper is meant to be a sequel to that. So, like, if that paper was about, okay, let's effectively stall for time. Let's make sure that Bitcoin doesn't get obliterate in the way the government can make it very

hard to use and that we have the runaway to get entrenched, become more politically powerful, be more economically powerful so that we can make sure we can build on Bitcoin for a long time. But the next question is, okay, if the fiscal collapse actually happens, that many of us, if not most of us, fear or predict will happen. I mean, a lot of the attitude in the Bitcoin community again has been, oh, it's going to be so great when there's a sovereign debt default in the U.S. because then Bitcoin's going to go to $2 billion or whatever, right? And everyone gets very excited. And I'm like, if there's a fiscal collapse in the U.S., it's going to be pretty bad. Like civilization could collapse. Like civilization collapsing is not good for any of us. We shouldn't want civilization to collapse. And we have to be, we have to be careful of what we wish for. And so I took that line from that. that aphorism, then they fight you to basically be like, okay, if the government really does fight us, what is the worst case scenario? What are the different scenarios in general? Let's think of the kind of the worst case, maybe a middle case and a best case scenario. And then based on that,

what do we need to do as bitcoinsers to protect ourselves from the worst case scenario, which in my view is the most likely in a sense of just if you look around the world where there have been fiscal and monetary collapses, what has happened? Look at Venezuela. Look at Argentina pre-Malay. Look at these various countries that have had fiscal collapse throughout history, even the Roman empire, right? What happens? There's more repression. There's more capital controls. They say, no, you cannot convert your dollars to gold in the case of the famous executive order by Franklin Delano Roosevelt. So they do all these things to basically make it hard for you to escape local currency and basically force you to eat the devaluation that serves the interests of the government

and doesn't serve the interests of the citizens. So how do we protect ourselves? So the whole point of the piece is to think through those scenarios. And to your question, like, why did I pick 2044 as the year? I picked that year because based on the math of the way the U.S. federal debt is accelerating and growing, we have, in my view, no more. than 20 years. We may have less than 20 years, but we have no more than 20 years, which is frankly a terrifying thought. My children are eight and seven years old. And so if I'm right, their entire adult lives will be saddled with the consequences of what's happening right now. And that's a big motivator for me to make sure I try to build a world that they can inhabit, right? But we have no more than 20

years. And what I mean by that is if you look at the federal debt and the standard thing to do that people do when they talk about the federal debt and the future of the federal debt is they pull the projections from the congressional budget office. So the congressional budget office is this agency within the Congress that is response. It's like the government's official nonpartisan scorekeeper. And they build out these projections based on current law, meaning if no laws on the books change, what will the federal debt be like? in the future. And based on their projections, the federal debt will increase by about $2 trillion a year, and it'll be like, in 10 years, it'll be like, you know, 50, 60 trillion dollars. That seems way

low to me. Exactly. And so I actually rebuilt, reverse engineer their model at Friop and the think tank that I run or have run. And I asked the model, I said, okay, the model has some interesting elements to it. I can spend a whole hour and a half on that. I won't bore you with that. But just to give a simple example, one of the things that, there are two things about the model that are wildly unrealistic. I think I know at least one of them. Okay, go ahead. Give me yours. So when I was reading through the piece, their projected GDP growth for the next 20 years was 3.6% every single year. Forever. And so I did a little bit of research on this. And I looked back at the last time the US had 3.6%. And 2021, they did, but I think those numbers are skewed because it's coming out of COVID.

And before that, it was 2004. Right. So, like, to think the next 20 years are going to be 3.6% seems wildly optimistic. It's, it's, it's shockingly optimistic. I mean, it's not even, like, I don't mind being somewhat optimistic, but it's like 1% of a probability kind of optimistic. Yeah. And do they go into detail of how they project that number? Like, where do they think the growth's coming from? If you read the paper in which they produce their economic forecasts, they come up with an argument, but it's an argument that if you read it, you wouldn't find persuasive, basically. It's meant to be, it's basically this is historical, the historical long-term growth rate excluding inflation, so nominal GDP growth will be this. And it's like, you're not going to have nominal 3.6% GDP growth when the debt's at like $100 trillion.

Because all the things you have to do to finance the debt are going to really pressure the economy. So all is to say, and there may be other reasons why the economy, you know, doesn't grow at 3.5%. Well, that's one of the other things I was going to say because there's it, AI is a huge unknown in that as well. Like, I don't know if that means more or less growth. I don't know where you kind of fall on that. Yeah, I mean, I talk to people who are like, AI is going to add like, like, let's call it 50 basis points or half a percent to GDP growth or something like that. It's possible.

We'll see. But all this to say, like, if you just ask, so when we re-engineered the model or reverse engineered the model, if you ask the model, what if GDP growth over that time frame average is 3.0% instead of 3.6%. So still pretty good, but not like crazy good. The chart goes nuts. And I have that chart in the paper where... I pull that up on screen when we're this.

If you have that, the debt to GDP ratio really skyrocket. And the reason for that is the power of compound interest. So the GDP, when it grows at 3.0% so to 3.6% over a 20-year period, that really adds up. So your GDP is lower. So your denominator is lower. And then your numerator is higher because tax revenue is geared to GDP. If the economy grows at a faster rate, there's more tax revenue. If the economy grows at a slower rate, there's less tax revenue.

So you have less revenue, which means you have higher deficits along that same time frame because the spending goes regardless of whether you collect the tax revenue or not in our system. And so the deficits grow every year and the GDP is smaller and that means the debt-to-GDP ratio just explodes. And that's just on economic growth. What if the other thing that the CBO projects, which is mind-blowing, is that we'll be able to borrow at 4 to 5% interest rates for that entire period. But when the federal debt is at $100, $150, $200 trillion, are we really going to be able to borrow at 4 to 5%?

Now, I will say in the CBO's defense, they do project a slight increase in interest rates, like 0.005% over that period per year. So they do project sign. Can you explain why that's not possible? So the way the bond market works for, and I'm sure there are lots of people who don't spend their time thinking about bond markets. The way to think about the price of a bond is it's basically inversely related to the interest rate.

So think about your credit cards. If you don't have a good credit score, you're going to pay higher APR rates on your credit cards, right? Because the banks think, okay, this guy's not going to make his payments on time. There's less credit. There's more credit risk. There's more risk of default. So we're going to charge you a higher interest rate in order to, protect ourselves from you not paying us back. Bonds basically work the same way. So in other words, bonds that are more expensive in terms of the price of the bond, they're more expensive because

there's more demand for them relative to their supply. Why would there be more demand relative to the supply? Because people think there's low credit risk. Oh, I'm going to lend you money and everyone else is going to lend you money if they think you're absolutely going to pay us back, which means the bond price is high, which means the interest rate is low. Like, we're going to all compete. to lend you money at the lowest rate if we think you're a low credit risk. On the other hand, if you're a high credit risk, if you're piling

up debt after debt for debt and you're not going to pay us back or we start to increasingly worry that you're not going to pay us back, the price of the bonds goes down, which means the interest rate goes up. So the only way they could actually follow those projections and keep the interest rates low as if the Fed just buys all the bonds. Exactly.

So that's what's been happening. So the reason why interest rates were zero from roughly 2008 to 2022 were because even though our debt was increasing and in a true free market, interest rates should have risen to reflect that. And used to, the Federal Reserve, after the financial crisis, basically created and was given to a degree by Congress the authority to buy a much broader range of debt than they did before. It used to be that the Federal Reserve only bought short-term bonds, bonds with a very short

maturity of one year, say, to kind of play around with the market and manage that short end of the market. But under Ben Bernanke, and this is something he wrote about in the early 2000s, I talked about in Bitcoin, the U.S. fiscal reckoning, he had this idea back in the early 2000 when he was just an academic at Princeton and a governor of the Fed border reserve. or Federal Reserve Board, that the Fed should actually buy all the bonds, intervene in the and basically enforced price controls on the bond market by buying whatever it wanted to buy. And that's what it's been doing ever since. And how does it do that?

By massively printing money out of thin air and then using that extra money that it prints to buy the bonds that the market doesn't want. So that's how the Federal Reserve has manipulated the interest rates. There's one part of that that I've never quite got my head fully around, because the Fed can't buy them directly, right? So they go to the primary dealers who then go and buy the bonds. Is that correct? There's a range of tools.

The simplest way to put it is there's a range of tools that the Federal Reserve has to manage interest rates, one of which is a more direct purchasing. And another is, for example, they'll pay an interest rate to the banks to hold treasuries at the banks. There's a bunch of different things they can do. And again, a lot of this was created by Bernanke. It didn't exist prior to the financial crisis in 2008. That was the real delta point or step change when a lot of these powers the Federal Reserve has today became, you know, came into the world.

But all this to say that, so you could ask, the original question was, if the federal debt's $100 trillion or $150 trillion, then is it really true that interest rates will go up because won't the Fed just come in and intervene by buying up all the supply that the market doesn't want. And the answer is they'll try. But as the debt gets larger and larger, the amount of money printing they have to do to suppress interest rates become so large that it starts to create inflation. Yeah. Right. And you're talking like very high inflation about that. Yeah. And so that's the catch 22. And again, I talk about this in that in that 2021 article, that the catch 22 the Fed will soon be in and in a sense already is in is the more money.

printing they do, the risk is that inflation will get worse. And inflation's already still above their 2% target. And so they're constrained in how much money printing they can do. And so the question they will face in 2035 or 2040 or 2045 is how much money printing are they, do they think the economy can absorb without driving inflation? And you say they're going to think about that in 2030 or 2035. Do you not think they're already thinking about this? They are for sure. They are thinking about it and they have been tightening the money supply to a degree. If you look at M2, which is a commonly used measure of monetary supply of the U.S. dollar, it isn't, it's lower than it was at its peak in the kind of post-COVID time frame. So they are trying to tighten, but the the tightening

came after a historic expansion of the money supply. And so the problem is going forward, they're still going to have to print money if the bond market, the broader bond market, doesn't want to buy our debt, doesn't want to lend money to the United States. And that's, again, the catch-22 they're going to be in as a debt keeps getting worse and worse. And as much as I love tax cuts, if the Republicans are successful in renewing the tax cuts without putting in spending cuts to go alongside them, then the deficit will increase even more. So I'm hoping that they'll figure out how to do both at the same time, but that's not looking likely at the moment. And there's the other part of it, which is like when the U.S. sanctioned Russia, which seems like just a massive

strategic mistake, even if this conflict ends, they're not going to be buying treasuries. China are like buying less and less treasuries, buy more and more gold. So where is that demand going to actually come from? Stable coins. But again, so they only buy on the short end, right? I mean, yeah, I mean, I guess I think they buy up to 10 years. I mean, they don't just buy the short-term treasuries, I think. I haven't looked at Tether's reports recently. But, you know, I'm being a bit cheeky because, you know, the scale at which Russia and China own treasuries, that stable coins aren't there yet, but they could get there. And it could be that they certainly are absorbing some of the slack in the market. Ted, there is something like the 18th biggest buyer of that. I mean, for a while, China was number one or number two. So they were up there. But as you said, China and Russia have been shaving down their treasury ads for the simple reason that they don't, like, let's say that the U.S. and China get into a war over time. I want. China doesn't want to be holding any treasury debt at that time, or at least they want to

minimize it. Now, they have to own some because we're a large trading partner of China's, and so when you buy and sell American goods and pay U.S. dollars for them, you're just going to have to own some treasuries to deal with that. But they're trying to minimize it to a point where it doesn't affect their economy of, say, we freeze their treasury bonds or, you know, default on them selectively or something like that, which is also a fear of Russia's. So that's where we're headed with that. I think Both of those countries look at it and like, we don't want the U.S. to have that power over us, so we're trying to minimize. It may not go to zero, but they're going to try to minimize the amount of treasuries they hold. And so who is going to buy treasuries? It's generally our friendlier, friendlier countries, our allies, the UK, Canada, places like that. Japan is a big holder of treasuries. The Cayman Islands, not because the Cayman, the government of Cayman owns a lot of treasury, but a lot of hedge funds are headquartered in Cayman. And so it shows up on the reports as it's the Cayman Islands and owns a lot of treasuries, but it's actually often U.S. or Western financial institutions that own treasuries that are domiciled in Cayman.

But that's way it is now. But over time, it's going to get bad. And again, this gets us to the topic, the main topic we want to talk about today, which is this paper, because you get to this point where there's just those entities, Western, financial institutions, governments like Germany, Japan, the UK, Canada, they don't have enough assets on their balance sheets to park them in treasuries. I mean, they have some, but as our debt gets so much bigger, if our debt doubles in the next 10 years, it's not like the size of the West balance sheets are going to double in the next 10 years and be able to, they want to, that they'll

want to park it in, in treasury. So it's just the supply of debt is outpacing the demand for, our debt from all these entities. And that's what's getting worse and worse and becoming less stable. This episode is also brought to you by Ledger. If you're serious about protecting your Bitcoin, Ledger has the solution you need. Their hardware wallets give you complete control over your private keys, ensuring that your Bitcoin stays safe from hacks, fishing, and malware. With Ledger's easy-to-use devices and the Ledger Live app, managing your Bitcoin has never been more convenient. Whether you're a long-time holder or new to the world of Bitcoin, Ledger makes it simple to keep your assets protected. If you want to find out more, visit ledger.com and secure your Bitcoin

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Okay, so where does Bitcoin then fit into all of this? Right, so in the paper, I basically first, the first part of the paper is walking through this thesis, that we only have 20 years, because a lot of people may not agree that we only have 20 years. Like, what are you talking about? of it. You sound like a doomer. So I try to walk through the math of just what we just went through this point that the debt is growing and growing and growing. The supply of debt is massively outpacing the demand to lend us money, to demand a buyer bonds. And that over time, the Fed won't

be able to make up the difference by printing money because the scale will be so large that it will lead to more inflation. And that's the catch-22 the Fed will face. And we have about 20 years before they basically are screwed. We're screwed. They're screwed. We're all screwed. So then the question becomes, what happens to Bitcoin? And obviously, Bitcoin's, it's very likely that Bitcoin's value will increase because there will just be over time, gradually more and more people allocating a certain percentage of their portfolio of Bitcoin as a hedge against that problem rearing its ugly head. And Bitcoin presumably will go up value as the demand increases in the supply, say, is constant or actually declines in the sense that,

you know, the Michael Saylers of the world are hoddling. And so there's only so much Bitcoin available that's trading every day. So Bitcoin will go up. And obviously, if you're a hoddler, you're going to be in theory happy about that. But then the question becomes what happens in the crisis? So if there's a bond market auction failure or something like that where Literally, we can't sell, issue the treasuries, we can't sell the treasuries in the market that we want to, we need to in order to finance the debt. And then the Fed has to intervene by printing more money and we're in this kind of cycle of problems. The funny thing with that is it sounds like a really out there scenario, but it literally happened in the UK not so long ago. Wasn't there a really bad bond auction here in the US?

There was. There was. It was in 2024, if I'm not mistaken. and there was one, it didn't, you know, it didn't get a lot of play because it's one of these technically complex things. A lot of people understand. But yes, there was one that failed, a failed treasury auction, I believe it was 24, I might have been 23, that basically followed this pattern where the Fed just intervened to make sure that, you know,

they cleaned up the mess, so to speak, and it was just a one-time thing, but it will be more than a one-time thing, much more frequently than that in the future. So when we get to that point, and it's really only a matter of when, not if, at this point, we're going to get there if nothing, if we don't do the things that Free app works on, you know, outside of Bitcoin like health care reform and a bunch of these other things, social security reform. But if we don't fix those things, what's going to happen? What's the government going to do?

And so that's where we get to the meat of the paper, this new paper, then they fight you, where I describe these three scenarios, which I describe, which I title or term, one is the repressive scenario, the worst case scenario, a kind of middle to bad case, called the the, the, the, uh, the, uh, the, uh, uh, palsied scenario. And then the third case, which is the more optimistic scenario, I call the munificent scenario. So repressive, palsied and munificent. And we can go through each of them. Yeah, I'm not going to lie. I did have to Google palsy. It's a bit of a medical term. I went to med school. So sometimes I, I throw some medical language out there. But the point is like, it's paralysis, right? That, that,

that, that you, you basically are unable to move, uh, unable to, uh, unable to, the government's not able to act because the Republicans and the Democrats are kind of like fighting each other and power is distributed enough in our system that nobody, we're not able to solve the problems that led to the debt crisis, but neither are we able to engage in the repression. Yeah. And so really, like, these are the very negative scenario, the one that's kind of neutral to negative and then the bullish scenario. So let's start with the very negative one. In that scenario, what do you think would actually happen? So we've had crisis, our markets are failing. What happens?

So in the repressive scenario, it's basically your classic Venezuela type situation where we do all the kinds of things that Venezuela does with its currency to prevent people from, say, converting the Venezuelan Bolivar into dollars, in their case, just map onto that preventing Bitcoin from being converted into, I mean, excuse me, dollars converted into Bitcoin. So just like Venezuela does, imagine a U.S. in which, um, all of your ETF holdings are forcibly converted into Fiat U.S. dollars at a discounted rate for the government. Imagine that the U.S. government bans corporations from holding Bitcoin on its balance sheet, forces those corporations to sell their Bitcoin to the government at a discounted rate. Imagine a world in which the ability of exchanges like Coinbase and Cracken to convert your U.S.

dollars or stable coins into Bitcoin are abolished for U.S. residents. Imagine a world in which, like in 1933, the U.S. says if you self-custody your Bitcoin, that's now illegal. You need to convert all your Bitcoin into ETFs or other instruments that we can control. And there's precedence for all of this, because that's essentially like the Nixon-Sharker in 6102 together. Completely. Maybe it's worth actually explaining those two things and what actually happened. Yeah. So that's a great point. All these things are, they sound crazy, but they've actually, they are things that the United States has done before.

So in the case of, of 1933, the executive order 6102, if I'm not mistaken, FDR basically ordered everyone who owned gold in a kind of monetary way. I think you could keep your gold jewelry, but gold bars, you had to turn into the government. And you had to turn into the government at an exchange rate that was slightly below the exchange rate that it was that the US dollar was fixed at. Or maybe it was the, maybe it was the same exchange rate, but then they immediately devalued after they collected all the gold. They immediately devalued the US dollar relative to gold like a couple months later. Something like that. I remember I'm flaking on the exact history of it, but they basically forced everyone to turn in their

gold and then devalued the dollar related to gold after they collected all the gold. So everyone took with 40% haircut or something like that? Basically. And basically that was the whole reason. The whole reason of confiscating the gold was so that the government could devalue the dollar relative to gold and people would have to basically eat it. It was effectively a massive tax increase on anyone who had saved money in gold. So the government has done that, and that was done in the context of the Great Depression, which was a crisis for the U.S. at that time, right? Very similar in a sense to what we're talking about now. And in the, in terms of the other stuff, that's also not dissimilar to what the government has done.

In the financial crisis, the government did all sorts of things that we've kind of forgotten about because it happened in this crisis where we were sort of like running around like chickens with our heads got up. But there were a lot of interventions in, for example, the way the stock market work, short sales were banned in the stock market. I didn't actually know that. Oh, yeah, temporarily. I did. Lawrence Lepard was telling me about it. So he was on the right side of that trade in 2008, and then essentially they said, you're not allowed to do that. Yeah, and he lost however much you would. Yeah, a lot of people who were short, you know, the big banks who were betting on this collapse, they got their hats hands for them because of that, among other things.

I mean, some people still found ways to make money. If you weren't just directly short the equity and you had a different kind of trade on, you could still make money. And the big short, the movie and the book talk about this. But there were a lot of people who got destroyed in that. And there were a lot of other things that happened in the financial crisis that were, you know, again, because it was a crisis, emergency measures were justified. In World War II, emergency measures were justified. In COVID, we saw, again, not so much with the financial markets, well, I guess some with the financial markets in terms of the Fed's interventions, but just the way that the lockdowns happened and our individual liberties were suppressed. You couldn't even go to church, which was a violation on the First Amendment. The Supreme Court struck that down at the time, but would a future Supreme Court stick up for Americans? You just don't know. So all this is to say that, We have lived in an environment between the financial crisis, 9-11 and COVID. We've had three massive crises in which the government did things we never thought the government had the power to do. And or Congress gave the government the power to do because it was a crisis.

And that's just in the last 25 years. That's not even counting the Great Depression, the Nixon shock, where to your point, you're asking, you know, how does that relate to all this? Basically, in 1971, the U.S. government effectively violated a treaty. said, okay, guys, I know we agreed in 1944 that this Bretton Woods thing and all this stuff, we were going to all going to exchange our money in this way, and you guys would be able to get your gold out of us whenever you needed it. But we're just ending that unilaterally, and we don't really care what happens to you. Tough luck to you. Sorry for, you know, too bad that you trusted us, which is kind of probably how the Ukrainians are feeling right now.

So all that to say that we've done this before, and there can be little doubt, or I should say there is a high likelihood that the government will have that temptation to do it again because all the incentives are there. The incentives are to say to Bitcoiners, ha ha, you know, it's great that you had this great one with your Bitcoin, but now we're going to take it from you. Tough luck to you. On the sort of price control side of this, one of the things that stood out most in this paper that I never would have guessed. And this maybe just shows like the echo bubble that I live in. So price controls clearly don't work, to me at least. It's more central planning. No one's going to make something if they can't sell it for more than they make it for.

Like it's going to break market. But in the article, you wrote that this is actually being seen as a very good thing by economists kind of like over the world right now. Yeah. There's actually there's been some papers written in places like the World Bank and other kind of what we might call mainstream macroeconomic institutions where the view is like, yeah, like, of course we should have these tools to manage fiscal and monetary shocks. I mean, that's the whole point of the Federal Reserve, right? Like, the mainstream view of economists is, of course, we should have a Federal Reserve. But before we had a Federal Reserve, there were all these bank panics and all these shocks.

And now that we have a Federal Reserve, I guess bank panics and shocks never happen anymore. I guess that's a theory. But the argument is, oh, yeah, we should give governments more control to manage these cycles. and to control the way the way kind of ordinary people or markets are able to navigate these things because that will allow governments to manage these inevitable fiscal situations. And so, yeah, the temptation is massive. That's why I think it's my view that the repressive scenario is by far the most likely scenario, just because if you look throughout history, it has been the thing that's happened

far more often than any other. So just on the history point, you have to give it the highest probability. And then if you just look at it from what's the incentive of the government, the U.S. government's incentives are very powerful to say, hey, we're in this pickle. What's the easiest way out is basically to force everyone who was a saver to take it on the chin so we can pay ourselves. Yeah, I mean, it seems crazy. So that's like the price control and capital control part of it. Right.

But there's also a taxation part. of it. So do you want to explain that? Is that really the likelihood that the government comes in and starts taxing unrealized capital gains and things like that? So I'm glad you brought that up. So we were pretty close. People, again, this is one of these things that may people, people might forget. People, it's easy to forget the things that didn't happen, but that almost happened. Yeah. And when Biden got elected in 2020 and for people who have long enough memories, remember the Democrats also controlled the House and the Senate. after that election. So January 2021 comes in. The new Congress is installed. Biden is inaugurated.

And one of the first things that they float as one of the big ideas they want to implement is taxing unrealized capital gains, which means, let's say you bought Bitcoin at $100 and now it's, and then it's or let's say, let's use a more reasoning though. You bought Bitcoin at $10,000. Now it's at, you know, 80,000 bucks and that 70,000 in capital gains, until you sell the Bitcoin, you're not taxed on it. When you sell it, that's called a realized gain. The whole idea of the Elizabeth Warren, Joe Biden, idea, Janet Yellen, actually was really pushing this, was we should tax unrealized capital gains as a way of unlocking some of this money. Now, technically, taxing unrealized capital gains is much more complicated than it looks, because, let's say you own a Picasso, and the Picasso has gone up in value. Like, there's not a stock

market to really prove that the specific Picasso you own has X price in the market, right? So there's certain things that are very hard. But some places have tried to do this. I think Norway has a tax on and realized capital gains, if I'm not mistaken, a couple other European countries have experimented with this. Plenty of European countries have wealth taxes. You can't do a direct wealth tax in the U.S. because the Constitution doesn't allow it. At least that's the way we understand the Constitution today. It's becoming more and more of a conversation in the UK now as well. So this is a, this was something they were really pushing. And they could, it technically, they had the power to pass it. So tax policy you can pass with just 50 to 51 votes in the

Senate, which they had. They had 50 plus the vice president Kamala Harris as a tiebreaker. So even if they had unity among the Democrats, they could have passed a tax on unrealized capital gains. And they couldn't do it because two Democratic senators, Kirsten Cinema of Arizona and Joe Manchin of West Virginia who's now retired, they were going to vote against it. Only two, though. That's shocking. Only two. So 48 out of 50, 48 out of 50s were going to vote for it.

Wow. And two blocked it. And Joe Manchin is now out of the Senate. He's been replaced by a Republican. But the next time there's a Democratic Senate, let's say they have 54 seats. Then even if they lose a couple, they can pass it. And so this may happen sooner than we think. Like literally, like right now, Trump is empowered.

Republicans are in Congress. But if there's a backlash to four years of Republicans in 2024 and Democrats take over again, look out. So, but in other countries, whenever this happens, whether if they like implement a wealth tax or whatever it is, you just see all the rich people leave. Why don't you think that would happen in America? Well, this is one of the quirks of America tax policy is that America is, the United States is one of two countries in the world, the United States and Eritrea, two countries in the world that taxing. you regardless of where you live if you're a U.S. citizen. So if you're a U.S. citizen living in, I don't know, let's say you live in Switzerland, which, you know, is not a low tax place anymore, contrary to

maybe it's image, but the taxes are lower in Switzerland they are here. So if you live in Switzerland, and you want to pay Swiss taxes, you will pay the Swiss taxes, but then you'll pay U.S. taxes on top of that as kind of a top off so that your tax rate basically stays the same as if you were still in the U.S. So you basically cannot. lower your tax rate if you live in a lower tax place in the U.S. Whereas if you are French and you move to Switzerland, you can actually, you pay Swiss taxes. You do not, you do not pay French taxes. And for the American listener, the way to think about is, like, if you move from New York City to Miami or you move from Silicon Valley to Texas, you move from a high tax state to a low tax

state, your state income tax goes to zero in Texas and Florida from what it was before because you now live in this zero tax place. Internationally, that's how it works from most countries. I mean, it's what happened to me. Like, I obviously didn't make this move for tax reasons because the tax is high in both countries. But when I went to Australia from the UK, like, I no longer pay UK tax. Right, exactly.

You pay Australian tax. They don't ask you to file UK tax. But if I move to Australia, I have to pay both Australian and American taxes. So that's one of the things that they really hit you on and why the government has a lot of power. to tax you even if you try to leave the country. So leaving the, as of today's law, now Trump has said he supports fixing that, but I don't, right now I don't believe, I know there's a bill, there's a bill been introduced by a congressman named LaHood from Illinois who's really

interested in this particular problem, but generally speaking, Congress is not really spending a lot of time worrying about people, the expat problem. So the likelihood is this is still, this still remains the policy when this fiscal crisis happens and the crisis happens. And then the government can say, oh, you're trying to leave the country. Oh, well, you still owe us, you know. I mean, look at Roger Ver. Right. So, but you mentioned obviously you have different statewide regulations here.

Do you think some states would stand up against this and become sort of sanctuary states? Like obviously Texas being a prime example. Well, they, from the international standpoint, they can't, right? So Texas can say, yeah, we won't, you know, you'll have a zero state income tax. But if your federal income tax capital gains is, you know, if your tax on unrealized capital gains at the federal level, there's nothing Texas can do about it because it's the IRS that's coming after you. Texas can't prevent. Yeah, the tech, yeah, they could secede, but they couldn't or they could try to, but they couldn't, they couldn't, you know, stop the IRS. The IRS has its own agents. They can put you in federal prison. They can put a lien on your bank accounts. They can do all sorts. The IRS has enormous power. Yeah. If you don't pay your taxes, the IRS can get.

you. So that's not a, that's not a thing to try to do, uh, uh, if you can help it. And so in this world, in this like worst case scenario, geopolitically, what does that mean for America? Uh, it could be very bad, right? So, uh, that's, you know, I talk about in the paper that the work in the, the absolute worst case scenario, we could have war, right? Because when there, if there's a fiscal, massive fiscal collapse of the U.S. and the U.S. becomes weak and is consumed with its own problems, that's a perfect time for if you're China to take Taiwan. That's a perfect time for Russia to attack the Baltics because they would say, well, you know, the U.S. isn't going to want to fight us over the Baltics when they can't even pay for their own defense budget.

So it would test NATO. It'll test our alliances in the Pacific. It's going to be every country that has long wanted to take over its neighbors or attack its neighbors. And the only reason they're not doing it is because they worry about the U.S., that's going to go away, or that could go away. And in that scenario, a war is possible. But this fiscal situation is not limited to the U.S., right? Like, it's most Western, most nations. So, like, why would you think that the other countries won't be going through the same thing? Some more than others. So France is in a bad situation, for example, Germany, much less so, although they're doing some things to change that. But Germany, because they have the memory of the Weimar Republic from 100 years ago,

they are much more careful. They have a balanced budget amendment effectively. So it varies by country, I will say. But the U.S. has the particular, the exorbitant privilege of the U.S. and being able to borrow in its own currency makes things different here. Even in Europe, there's this kind of funny system where you borrow in your own currency. There aren't European Central Bank bonds in the way there are. are U.S. Federal Reserve bonds. So the situation is a little different in terms of there, there's a

bit more of a check and balance in terms of individual country's ability to borrow in Europe. So Western countries have these problems, but they are limited by the appetite for, like, if you're Australia and you run up a huge deficit, people don't have to buy Australian bonds. People feel they have to buy U.S. treasuries because so much of global commerce is in treasuries, it's thought of as a safer asset on a relative basis. If that starts to change, then it really affects the overall economy. I mean, that's assuming the EU still exists in 2035, which is a big question mark. I have to say it's a little bit, if you had asked me 20 years ago, I would have been certain that the EU would have already disintegrated.

So the fact that it's stuck together suggests it might have more staying power. So that's the absolute worst case scenario. you lay out the kind of neutral to slightly negative scenario. Do you want to go through that? Yeah. So we talked about a little bit earlier, which is this palsied scenario where there's paralysis. And the good part of this scenario is the repression doesn't happen. The capital controls, the incredible, the Bitcoiners will be in the policy scenarios,

Democrats, or let's just say, it wouldn't just be Democrats. I think there would be Republicans as well. People who want to have that control over your money will not have a. enough political or legal power to make it happen. They'll be blocked by others who feel differently. And maybe it's the courts, for example, the Supreme Court could say, hey, you know, we're going to block all these measures. We're going to say they're unconstitutional and then they can't get executed, for example. If that were to happen, then Americans would be able to continue to exit the U.S. dollar, put their money in Bitcoin and escape the system to some degree. Maybe they would still get

taxed, but they could at least, there would be a flight from the dollar to Bitcoin under that scenario, which would still be bad for the U.S. economy for the world, but at least as a individual bitconer, you might be able to protect yourself in that scenario. But, as I said, the scenario would still be bad in the sense we still wouldn't fix Social Security. We still wouldn't fix Medicare and Medicaid, the big health care and pension programs that drive the federal debt and the deficit to where they are. So we're not going to solve any of the problem. under that scenario, we'd still have a default, but as a Bitcoin or you would still have, you wouldn't have the same repression or capital controls. You'd still be able to get out

of U.S. dollars, put your money in Bitcoin, at least protect yourself and your family that way. So that's the silver lining of that scenario. But it's still a pretty negative scenario because we don't solve the problem. We still go broke as a country and experience all the instability that that would imply. So the first scenario is bad for both Bitcoin. is and for America. Right. That's the way to put it. Second scenario is like, it's all right if you're a bitcoiner, but America's still

going to collapse. Right. And so. Which could also be bad for your Bitcoin. True. But it may be less bad. Yeah. All right.

Let's get into the good one. Yeah. What happens in the best case scenario? Right. And I'm just going to add to that. Like, I know you've been writing this paper for a long time, so a lot's changed sort of in the interim. Do you think with the things like the SBR and potentially the Lummis bill that we're actually

heading to the good scenario? Yeah, good question. So let me start with the first part, which is like, what is the good scenario, the munificent scenario, and then are we making progress towards it? So the munificent scenario, as I describe it, is imagine there's a, there's a Javier Malay of America in 24. And so there's a charismatic leader who actually persuades the country that it's time to finally tackle the deficit in the debt. There's going to be some pain in the short term. but we'll come out the other side and will be prosperous. And Bitcoin could be a part of the solution in that we may basically by the time 2044 happens, there's no easy fix.

Like in order to get out from under the federal debt, there will have to be a default, basically. But the default could be a structured default, like a structured bankruptcy for a company, like when General Motors went bankrupt in 2008, there was a structured bankruptcy where if you're somebody who was a bondholder of General Motors debt, you know, you lost some money. But GM also then restructured its union contracts and a bunch of other things that it was able to shed and thereby come out of that period with effectively a new company that had been restructured so that it could be profitable in the future. And so similarly, the U.S. could do a structured default where there's a default on existing treasury debt, which would be very bad. A lot of banks would go under in that scenario. So this is not in any way a wonderful thing. But the end result would be in exchange for that structural default, we do fix Medicare. We do fix Social Security. We eliminate the budget deficit. And so then bond investors can say, okay,

I know I took a massive haircut on my existing treasury debt, but I'll be willing to lend money to the U.S. in the future because the deficit has been fixed. The entitlements have been fixed. The government has agreed to back its bonds in the future with Bitcoin. And in this way, we can now have confidence that the U.S. will be on the right track. And it will be, actually. So there will be this period of instability, but we'll come out of it on the other side. in a very good position because the debt and deficit will be solved and we will be back on a pre-1971 hard money standard. So I don't want to kind of jump the gun here because it's very early days in the Trump admin, but could you argue that he may be the kind of Malay, Buckeley type person with things like Doge and SBR and that kind of policy that he's putting in? Unfortunately, no. And I support all those things that you just described, but they're not enough to solve the deficit debt problems.

To solve the deficit in debt problems, the Doge stuff matters and is important if it's successful. But the big ticket items in the federal budget are the entitlements, Medicare, Social Security, Medicaid, Obamacare, things like that, and interest on the debt. literally 75%, three quarters of what we spend every year is on those topics, on those programs. Crazy. Only 25% is on national defense and what's called discretionary spending, things we can, you know, like funding the National Institutes for Health or funding highway repairs. So if you just solve these things like, oh, let's trim the federal workforce by, you know, percentage here and let's get rid of the waste fraud, abuse.

there. That helps, and I'm all for it, but that doesn't get you to two trillion of savings year, which is our federal deficit right now. And unfortunately, Trump has been very aggressive, in fact, in saying, under my presidency, we will never touch those programs because he looks at it, he looks at it as a, it's a political loser to reform those programs. Why does he care? This is last term? That's a great question. I don't know the answer to that other than he, I think, again, he thinks of it as a political loser and he wants to be popular. And he looks, he wants to be liked. He wants to leave office in high regard and believes that repairing these programs is not worth the fight. It could also be that he's convinced that, you know, we can solve everything with Doge,

that we can solve everything with some of these easier tools. And that's not the case. If he genuinely believes that, he's actually wrong on the facts. And it's possible that he's been convinced by status quo advocates that that be fine. But the fact is it's not, you know, and the numbers don't lie. And the numbers are if we don't reform Medicare, Social Security, Medicaid, there are ways to do it while protecting lower income people. That's, again, what my think tank, the foundation for research on equal opportunity.

This is what we work on all day. So there are ways to do it, but he has effectively foreclosed our ability to work on those problems while he is in office. And that means four years out of the 20 are already basically gone. Yeah. And every year that goes by, the problems get harder to fix. So all of these scenarios and all the like historical examples are kind of like knee-jerk reaction to a crisis. And even in the sort of best case scenario, it's still relatively knee-jerk. Like, are we, is there not a way to like pave the path so we don't have to have an idiot reaction?

Because they always seem to be bad. Yes. Well, so there's a couple things. I mean, we could be doing things on the, on the health care reform and social security reform side to fix things. And I talk about that in an ideal world, we would do those things. And we'd make progress on that and make the eventual restructuring or reckoning, fiscal reckoning, less painful than it could otherwise be.

Right now, we're not doing that. In fact, if anything, we're going in the other direction overall. But that would be nice. Now, if we don't do that, and this is kind of where I get to at the tail end of the paper, the back third of the paper, if we don't solve the entitlement problem and the deficit and debt crisis that I'm predicting will happen, does happen, what should Bitcoiners do to ensure that Bitcoin is maximally resilient to that scenario? Yeah.

And that's what I get to at the end of the. paper. And one thing to also point out that is a big problem is, like, again, to the degree Bitcoiners are like, well, you know, it's fine because my number will go up if there's a crisis and because everyone will be going into Bitcoin. Don't be so sure that the repressive scenario won't happen that should be able to escape it. And one of the things I point out in the paper is if you look at the distribution, the wealth distribution of Bitcoin today, if you look at wallet addresses, which is, of course, an imperfect measure, but it's the best measure we have. the distribution of Bitcoin wealth is much less even or much more unequal than the distribution

of Fiat wealth. Yep. So something like, I can't remember the exact math that's in the paper, but I want to say something like 88% of all Bitcoin is held in like 3% of the addresses or something like that. It's some huge skew. Whereas for Fiat, it's more like 30%. And that's especially skewed because of exchanges and things like that. It's partly skewed because of exchanges, but it's also skewed in the other direction

because, you know, a lot of people who own a lot of Bitcoin spread it across multiple wallets. I mean, even Satoshi did. Like his million coins are across hundreds of wallets. So those wallets you may think of as, oh, this is one guy who's hodling, you know, a hundred bucks, but maybe that's actually some guy who's a miner, and that's like he's got a different wallet address for each mining distribution or something like that, right? So there's a lot of things that can be going on again, so we don't have a lot of precision. But even if you sort of say those two things even out, if the Coinbase and Crack,

on the one hand and distribution of wallet addresses on the other hand even out, it's still pretty extreme in terms of where wealth is, wealth is located. And the point of that is not to criticize Bitcoin is to just say from a political reality standpoint in a democracy where 50 plus 1% of the votes gets to decide what public policy is, that's not a good place to be, right? If the vast majority of Bitcoin is owned by a small minority of people, and if it's, let's say, if you don't believe it's 3%, let's say it's 10%, let's say it's 15%. Whatever the number is, it's well below 50%, is my point. And that means that in a democracy, there's going to be a lot of political incentive if you're a politician. Just like Donald Trump says, I'm not going to fix entitlements because he doesn't think there's a political incentive to do that. There's going to be a lot of political incentive for enterprising politicians say, hey, let's just say, all the Bitcoin because these guys are profiteering off of our misery. This is just the new tax the rich thing. This is exactly what happened in the Great Depression and every other financial crisis.

Going back to the Romans, you know, Emperor Diocletian, when he put in his price controls in 300 AD, you know, he basically had this whole speech about the terrible speculators, the greedy people who were taking profiting from our distress. And literally every single time that there's been a crisis, the elites, the political elites blame so-called financial elites for the problem. And the ordinary person says, yeah, that makes a lot of sense. Let's blame them. Let's take what they have. And I think time in some ways fixes that, because we know just like empirically over time, like the people who hold a lot of Bitcoin distribute it. That's true by selling it. Yeah, selling at high numbers. But it just,

I guess, depends if that happens quickly enough. Yes. And so, so one of the things, so in this transition from, okay, here are the three scenarios to why do we? as Bitcoiners need to think about resilience. I make this point that, look, today we're not very well equipped to be resilient, even with these progress on things like the SBR, because the fact is just too few people own Bitcoin or have a stake in the Bitcoin economy. So how do we fix that? So there's a couple things we need to do. One is just more broadly, can we get more people to have a stake in the Bitcoin economy, whether it's by hoddling Bitcoin themselves? or by participating in a Bitcoin-based business, or, you know, whether it's like Layer 2 or other kinds of, you know, whether it's blockchains or other technologies that are built on top of Bitcoin, the more we can have an ecosystem of businesses and economies in which Bitcoin's success makes them more successful.

the more we can give more people a stake in Bitcoin. Because now with Bitcoin at, you know, 80 to 100K, you know, the average person who's, you know, saving, stacking stats at like, you know, 100 bucks here, there, 50 bucks there, you know, the amount of a Bitcoin they're going to be able to accumulate is relatively low relative to the hodlers who have a lot. But even if it is small, if they can, if it matters to them, if it's a significant part of their net worth, their savings, then the, the, the, the, the, the, the, the, the, the, the, the, the constituency, the political constituency for the success of Bitcoin can increase. So that's an

important thing for us all to do. And of course, a lot of people are working on that every day. I mean, that's just education, right? It's not just education. Education is part of it. It's what you do on this show. But it's also, you know, to the degree a couple years back, there was this debate between the ossification side of the debate and the, you know, whatever you would call, the anti-osification, the organic side of the debate, the evolution. side of the debate. I'm on the evolution side insofar as so long as Bitcoin's core properties are protected, it's very important that we maximize the number of other forms of businesses or financial technologies that are built on top of Bitcoin that create more value. Like, you know,

if you own stock in Coinbase, that's in a sense a kind of, hey, you know, you benefit from Bitcoin's success, right? So there's, so it's also. a degree to which we as a community have to, I think, side culturally with, hey, if you found a way to build a business on top of Bitcoin that can give more people an opportunity to use Bitcoin or a Bitcoin derivative product, that's good. We should be for that. This is why I think the Bitcoin bonds is a really exciting idea because that brings in a whole new cohort of people. There was obviously talking to that again at the summit in D.C. Do you see that as a even relatively likely outcome? Because the problem I've always had with it, like I think it's a great idea. I

think it would absolutely crush. But the SBR in some ways, at least to me, this could be a total mid-curve take, but seems to signify some weakness in the dollar. A Bitcoin-back bond signifies both weakness in the dollar and the treasury market to me. And I don't know whether that's, again, like politically palpable. So we've got to give a shout out to Andrew Hones of New Market Capital, who came up with this particular specific proposal. I mean, I talk about it in, you know, the 2021 paper in a very sort of like throwaway line way. and he really developed the idea in ways that I think are really interesting. And I want to, I'm going to spend some time digging into his proposal and thinking about it and seeing if I can come up with some tweaks that can or some other ideas of ways to advance the idea.

Because I think it's really important his contribution to like how would we actually come about having a Bitcoin-backed treasury bond. It's really interesting stuff. So if you haven't been following his work, please do. to the listeners. But so I think that's interesting. And it gets to this point of like, how do we, how do we make the government, how do we give the government more of an incentive to not blow up Bitcoin? And that could be a way that both a strategic reserve and Bitcoin-backed bonds, if they

become a meaningful component of U.S. debt, that could be a form of resilience for sure. So that's a great example of it's not just about cultural, you know, getting everyone to buy Bitcoin or to have a stake in Bitcoin's, etc. but there's policy elements to it as well. Yeah. So that's one layer. So what can the government, what can we encourage the government to do to make, to help protect Bitcoin from this attack that could come in the, in the repressive

scenario. So that's one category. That's, let's call that category two. So if category one is just, you know, broader constituency for Bitcoin because more people use it. Category number two is what can the government do? What can public policy reforms do to give the government more? of a stake in Bitcoin success, that sort of category two. And then category three, at least in my

paper, is can we do the things that make Bitcoin resilient to the confiscation capital controls scenario? For example, what if we could build a peer-to-peer robust, instead of like, you know, local Bitcoin style peer-to-peer, like a scalable peer-to-peer mechanism, peer-to-peer mechanism for exchanging U.S. dollars for Bitcoin so that if the government shuts down Coinbase and Cracken, you still have a way in a scalable way to exchange dollars for Bitcoin. How could we do that? There are various people working on this using things like Noster and Lightning. There's a couple other projects out there, and one can have different opinions about those projects and how good they are, and I'm not trying to endorse them in any way, other than to say, directionally, these are the

kinds of things I want people to think about. The more the Bitcoin community is thinking about, how do we create a peer-to-peer decentralized network for converting fiat to Bitcoin, the more we make Bitcoin resilient to capital controls in the repressive scenario? I think that's incredibly important. So part of the goal, this paper with all this verbiage, is to sort of explain to people, if you're trying to look around the corner, what are the most important things for Bitcoiners to be building today so that when that scenario happens in the future, it's kind of like the Laura Hamilton character and the Terminator when she's like, okay, I'm going to prepare for SkyNet now. Like, what are the things that we should be doing today so that 20 years from now, Bitcoin is resilient

to that repression? I think the most important thing we can do is that develop a peer-to-peer mechanism for converting fiat to Bitcoin. And it may be that what we need to do is actually scale up a peer-to-peer mechanism for converting fiat U.S. dollars to stable coins because then it's a lot easier to convert stable coins to Bitcoin in a decentralized way. So it may be a two-step process. The real peer-to-peer piece is fiat to stable coin and then stable coin to Bitcoin can happen anywhere. Yeah, I totally agree with that. And then on the other side of that, I think the announcement that David and Grant made in D.C., like a huge shout out to them. What they've done is absolutely incredible, especially considering, like, I think Grant was like 18 when they started BPI.

It's truly amazing. It is. And they honored me by approaching me before they got the thing started saying, hey, do you want to be involved? And I'm their senior advisor. And David is actually a visiting fellow at Friop. You wanted to be involved in FRIOP. So I love that Friop and the Bitcoin Policy Institute to have that relationship. and he, yeah, it's been, it's been really, they've worked really, really hard.

Those kids, I can call them kids because I'm an old guy at this point. I don't think I'm old enough to call them kids. I remember this one time we were, it was one of, I think it was one of the first events, public events that BPI did. And we had a dinner beforehand and the night before. And that guy, David Zell had like, like, I think he literally had had like he had eight cups of coffee in front of him. I'm like, dude.

I don't want you to have a heart attack. You're too young. And so hopefully if he's listening, he's cut down on his caffeine. take, but he's probably just replaced it with nicotine. But like what they've done is amazing. And one of the announcements they made at the summit was that they're going to try and put a Bitcoin in every congressional office in D.C., which is very cool. Do you think that moves the needle? Well, not every congressman or woman wants to have a Bitcoiner on staff. So that's, there's going to be some work to get there. But I think it's a smart.

strategy and that the more you can get bitcoinsers into the staff these staffers who work for the members of Congress are very influential. They're very powerful because they have the ear of the member of Congress or the senator. They are gatekeepers to act often access to that member. So the more you get staffers and staffers are often the ones who write the legislation or certainly work on writing the legislation. So the more relationships you have with the staffers, it really does help. And, And so I think they've, as they've worked on with Senator Lummus on some of her legislation and with her team, which is probably the most, arguably the most Bitcoin forward team right now in

Congress, I think that's allowed them to start to learn some of these things. And obviously, I've done my part to be useful as well. Yeah. So like I said earlier, you've been working on this paper for a long time. A lot's changed. and you said that you think the most negative outcome is the most likely outcome. Is that still the case? I would say it is the most likely outcome today.

If you just had to say, okay, based on what we know today, it's the most likely outcome, but we can avert the most likely outcome if we build the resilience. So if bit bonds become a thing, if we build a peer-to-peer network for, say, converting Fiat dollars to stable coin, and or somehow because we legalize stablecoins and come up with a great regulatory framework for stable coins that really works that basically the banking of the future is all in stable coins.

So maybe today, instead of having fiat dollars at, Wells Fargo Bank, instead I have them in stable coins at Wells Fargo Bank. But in a way that I can take self-custody of the stable coins whenever I need to, imagine that scenario.

if we just make that transition from everyone banking with Fiat at Wells Fargo or Chase or Bank of America, and instead it's a stable coin denominated system, then the conversion of stable coins to Bitcoin is presuming the stable coins are designed the right way. Yeah, I was going to say, because like the big red flag going off in my head is that like they're still a huge centralization issue. And is that just like another kind of CBDC? There's risk of that. And I bring all this up to say the whole point I'm kind of. of getting to with this is stable coin policy is actually very important for Bitcoiners.

So again, Bitcoiners have a tendency to say, well, who cares about stablecoins? I'm out of Fiat. It doesn't matter. It actually matters a lot because if we want more people to buy Bitcoin, they're coming from the Fiat world. We need to make it easier for them to convert Fiat into Bitcoin. Stablecoins is a really important gateway. It's the single greatest, by a wide margin, the single greatest use case for non-bicto crypto. And so I make the argument, and I think there's now more and more people who agree with me on this. The stable coin policy is very relevant to Bitcoiners. Same with CBDC.

A lot of people, again, at the Bitcoin community, like, who cares about CBDC? It's not that important. I think people have come to appreciate now in the four years since that older paper that is important. This is what we got to be working on. We Bitcoiners have a huge stake in stable coin policy being designed in a way. that stable coins are censorship resistant and stable coins can be free from, and it can be as permissionless as possible. So all that to say that a big part of what we have to do if we want to make Bitcoin

resilient is to pay attention to stable coin policy and be thoughtful about it and advocate for the right kinds of stablecoin policies. Yeah, that's why I was glad to see Paolo here, because if there's someone fighting that fight, like, I'm glad it's him. Yeah. And he came out swinging at that. I was, you know, I hadn't realized until he said it at the big, Bitcoin Policy Institute Summit that he'd never been to the United States before.

But I can understand it. I think he just thought he'd get black bailed. Right, exactly. He'd get arrested or something. And so that just shows the sea change in policy that he feels he can come to the U.S. and he's not going to get arrested. That's amazing. Well, he's got Lutnik now, hasn't he?

Well, yes. And that's certainly why. But this is kind of my point is like, this is the moment. Like, if we, if Tether can be plugged into the U.S. banking system in a way that, you know, the whole point of circle was. okay, we're going to be compliant. We're going to do the OFAC things that we're going to work with the Treasury Department. We're going to be able to censor transactions or monitor terrorism and all the things that the U.S.

wants us to do. That's what Circle's kind of angle has been. The market is shown that that's not the angle people want. Like, it's been a winner-take-all market. And I don't know who the question is. I mean, circles doing all right, right, but they're not doing nearly as well as Tether, to your point. And so if tether and look, it doesn't have to be tether in the end, if other people come up with a version of tether that works great. But as you said, Tether has a network effect now.

They clearly are the, they have the first mover advantage or whatever you want to call it. If Tether becomes the, becomes mainstream and gets legitimated in terms of the U.S. banking system, that would be huge because the ability to convert Tether to Bitcoin around the world, obviously is pretty smooth. And it's been done, you know, trillions of times at this point. So that would be an amazing victory. So all that to say, I think Paolo being here, huge, huge signal in the positive direction. But I just want bitcoinsers to be aware that these are the kinds of things that we need to be thinking about if we want Bitcoin to win 20 years from now. Yeah, I agree. I mean, I think there's still reason to be cautious. Like, they are freezing accounts on the whim of the U.S. government. And like, there's things to be careful of there. But we don't need to labor that point. Yeah, nothing is perfect. Even Tether's not perfect. I think that's a good point to make, which is why stable coin policy design matters for us. Like if we want, we should want there to be, we want to solve these problems, right? Like, the fact is the bank, the U.S. government is never going to allow a completely permissionless, a stable coin. Because for all the reasons that that are fairly obvious, I think. But can you minimize the harm? Can you create a low harm, low risk product that gets you as far as you can? And then again, and that's why I think, like, being able to store your, your bank, your savings account at Wells Fargo in stable coins, that's going to be the key step change. Because if you can do that, then you can self-custody it and pull it out if you need to.

So last question on this, and I'll let you get back to your family. But one thing that I thought while reading this piece is what are the likelihood that we have kind of a mixture of all these scenarios, where the US does things like Bitcoin back bonds, it has a strategic reserve, it stacks Bitcoin, but at the same time, it bans things like self-custody and the right for like a person to own Bitcoin. It's possible. I think this is where the ETFs, to me, are, that is the risk of ETFs. I would obviously, I'm very for the legalization of ETFs. I think they're very important. But if ETFs become a dominant way in which people hold Bitcoin, then the government could easily say, we're going to require you to park your Bitcoin ETFs. You can't self-custody it. Let's say your micro strategy. They could say, all your Bitcoin has to be in an ETF. It can't be self-custodied, for example. Banks. It has to be an ETF, not self-custodied, which of course centralizes the custody within the ETFs, which the government can then control in a certain way. So that's a possibility that we have to be.

be mindful of and, again, create resilience around that. So how do you create resilience around that? Make sure that ETFs don't dominate the market and that to the degree that they're going to remain a big player, but let's just make sure there's not a one winner fit, you know, you know, a sole winner like a Black Rock that can dominate the market. Let's make sure the 10 players or whatever it is all do well enough that that you have alternatives in case one of them becomes more sympathetic to the government's interests over the others. Well, this has been amazing. Thank you for my first in-person interview.

I look forward to reading the book when it comes out. But give us a bit of an update on Free Up before you go. Yeah. So for those who know about me, I've founded this organization in 2016. So nine years ago called the Foundation for Research on Equal Opportunity. It's a non-partisan nonprofit think tank that focuses on how to use economic freedom and technological innovation and individual liberty to improve the lives of lower and middle-income Americans. How do we show the people on the bottom half of the latter benefit the most from

freedom, including through Bitcoin. And so historically, we worked on Bitcoin policy, being against CBDCs, and also stable coin regulation, because that's the other side of the coin with CBDCs. And we're going to continue to do that work. The big news on my front is that I stepped down at the end of February as president, free up. So now I'm chairman of the board, but I'm no longer going to be running the day to day. We have a new president who's starting later in March, and I will announce that at the right time. But that's going to free up my time to write more and to be more active. And it's a big part of my goal is to be able to do more of these papers and articles on Bitcoin and just this kind of stuff. How do we see around the corner? How do we become more

resilient? How exactly should the government be involved in owning Bitcoin? So my goal is the thing that I feel like I've been able to, the way I've been able to contribute to this community is, is to bring in that Washington or that policy point of view and say, okay, let's see around the corners here. What are the things that five, 10, 20 years down the road could trip us up and how can we protect ourselves today from those landmines that are in our future? Amazing. It's important work. I'm glad you're going to be doing it. Really appreciate it. Thank you, Ovik. Thank you.