What Bitcoin Did - Bitcoin’s New Era: Liquidity, Macro, and the End of Four-Year Cycles | Nik Bhatia

Episode Date: July 25, 2025

Nik Bhatia breaks down why Bitcoin may have broken free of its four-year cycle and what that means for the next decade. We discuss Bitcoin's market maturity, compressed volatility, and how new corporate demand are reshaping price dynamics — and why this could mean an end to drawn out bear markets and blow-off tops. We get into how macro forces like liquidity, rate policy, and U.S. fiscal dominance intersect with Bitcoin, whether Powell vs. Trump really matters, and why Bitcoin could hit $1 million by 2032. In this episode: Why the four-year halving cycle may be over How corporate treasury strategies are changing Bitcoin’s market structure The role of liquidity and treasury markets in driving Bitcoin price What Powell vs. Trump means for rates, inflation, and Bitcoin THANKS TO OUR SPONSORS: IREN RIVER ANCHORWATCH BLOCKWARE LEDN Follow: Danny Knowles: https://x.com/_DannyKnowles or https://primal.net/danny Nik Bhatia: https://x.com/timevalueofbtc

liquidity is exploding higher as we speak. If the gentle ascent continues, does that extend the bull market beyond our typical four-year cycle? I believe we could be in an environment now where the accumulation of Bitcoin remains steady for several years. I would expect the price to be between $100 and $150,000 here over the next several months. as that 50,000 realized price goes to 80, then the range then moves from, you know, to 160,000 to 240,000. I've never been able to put a year on Bitcoin hitting a million until this year. But it's, I don't feel like it's speculative now. Now it's within, you know, our current market reach.

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Good to be with you again. Good to be with you. I've not, we've not bumped into each other in a little while. This has been probably long as I've not seen you for in a bit. Yeah, you're busy out in Australia. That's why. I know, just traveling all over the place. But things are going good, man. Bitcoin's absolutely ripping. I want to talk about macro with you, but we've got to start on Bitcoin. We're at what we at. Just over 117K right now. That's pretty surreal on its own. But what's been your kind of take on the Bitcoin market over the last few months? Slow and steady is my big takeaway for this bull market and a very impressive slow and steady because slow and steady is not really in Bitcoin's DNA, Danny, if we go back to its early history.

and even its recent history. So I find what I'm looking at more and more is the gentle assent of Bitcoin's valuation relative to its underlying metrics, for example, realized value is one that I watch really closely. The gentle assent versus a violent assent. And if the gentle assent continues, does that extend the bull market beyond our typical four-year cycle? I think anybody that claims they have the answer as to whether we are in another four-year having cycle or not is ahead of their own skis. But I was joking around with our readers and community that I'm about 51 to 60 percent on the

side that we have broken through this bold. bear, this, you know, Bitcoin winter, two to three year Bitcoin winters every four years. I'm 51% certain that we've broken out of that. But any odds maker will tell you that any, even 6040 is 50-50. I mean, 60-40 is how an odds maker just tries to get the action when they don't know when they're really 50-50. So I say it as a joke, meaning I'm somewhere between 50-50 and 60-50. that we've broken out at that.

But that is my, that's where I have a lot of my focus, trying to analyze that and trying to explain to the readers whether they should be thinking in terms of caution in six months, or is it okay to get, to have a aggressive strategy for the next six months, as opposed to a cautious strategy for the next six months? that's where a lot of my analysis is living right now. Yeah, I like that framing because I would be the same. And I think probably some of that comes down to a little bit of PTSD.

So last ball market, the super cycle narrative was pretty pervasive. And I've been really reluctant to say, has the cycle broken, are we in a super cycle? Or is it even just like an elongated cycle? And that's probably the one that I think is most likely that this may just end up getting dragged out for another six months a year for a few different different reasons. One being, I think going into the midterms next year, Trump's going to want to run these things really hot, and that's going to be good for Bitcoin if that happens. But at the same time, like, I'm not willing to put my head on the line and say, no, the cycle's broken. So what would be the thing that breaks the cycle? Is this time, like, structurally very different?

I think that let's start with the word cycle. Because if we start with the word cycle, then we're assuming that, or let's actually start with the word super cycle. Because I don't even want to use that word. What I'm thinking about in terms of what, you know, the 60, 40, what I'm thinking is that I believe we could be in an environment now where the accumulation of Bitcoin remained steady for several years, and the Bitcoin price oscillates around a multiple

to realize value. As realized value continues to increase, Bitcoin continues to chop around two to three times its realized value and just

is in a structural bull market that can have periodic consolidations or, even bare markets where Bitcoin falls 20, 30, 40%, but it's in this oscillation around 2x its realized price. So right now the realize just crossed over $50,000 and the cap at a trillion. So two times that is $100,000. Three times that is $150. So I would expect the price to be between

$100 and $150,000 here over the next several months. As that $50,000,000, as that $50,000,000, price goes to 80, then the range then moves from, you know, to 160,000 to 240,000, and that we're oscillating. Now, if you go from 240 to 160,000, that's a pullback of 33%. That could happen even over a year. And it still wouldn't be this previous, what I would call the cycle, the having driven cycle where you get these rises up to four times realized price and then a crash back down to one or even point nine. So that is the way that I'm thinking about the next few years. And would that be a super cycle?

I wouldn't really describe it as that. It wouldn't be the word to describe it because super cycle might mean that you just continue on into elevated valuation metrics, so not that. But, and then you use elongated cycle. Perhaps that could be a better way to describe what I'm thinking about, is more of this. But I wouldn't even use elongated. I would just say that actually you break out of a cycle. And then you're more subject to global macro factors when rates.

get hot, it's going to be punitive, etc., that type of thing. And then more on the adoption story. So the reason why, let's go back to the reason why we get a market price to realize price ratio of 4x. The reason why you would get 4x, for example, Bitcoin at $70,000 in 2021 when realized price was at around $15,000, 17,000.

you get that type of gap when you don't have structural selling in the market you have so much exchange-based futures-based leverage trading and you get this extreme profitability in the market that is not really tapped because you don't have structural selling you don't have selling calls on ETFs, you don't have all of these vehicles that are managing the volatility down. So one of the charts we've been charting is

Bitcoin's trailing 30-day volatility historically. And if you, it's just compressed, compressed, compressed. And the last three years, the volatility can be described as muted versus trailing five to 10 years. Even if you look

at 2021, the volatility was so much more than it is today. And so this compressed volatility is the new structure of the market, I believe. And compressed volatility prevents the 4x MVRV ratio. And if you can never get to 4x, then you can avoid the winter because the winter is so much destruction on the technical chart. And so you avoid the destruction. And I believe that the structural buyers, for example, the strategies of the world, they would love to prevent overheated Bitcoin prices because they believe that it could lead to a more winter-like environment in the subsequent months or years. So that's, I hope, Danny, I've answered a few of your questions in terms of how I'm thinking about this current.

market. Yeah, no, that makes sense. And so, like, what you're saying there is we won't get the blow off top like we have in previous cycles, but at the same time, it mutes downside volatility. I'm in that 60-40 that we would avoid it. Yes, I'm hoping that. Yeah. And I like that idea for a couple of reasons. One, just I would prefer that. But I also think it makes it way more sustainable for people to build Bitcoin businesses. Because like when we have the, you know, two years of just down only, obviously, like the first company is to go, in the last cycle or all the fraudulent ones. But then there are real good Bitcoin businesses that just can't survive two years of negative price action. So I think that's a way more sustainable path if we can manage to do that. Is this just part of the market maturing? I do think that it is part of the market maturing.

And I use the word market structure a lot because it is about structure, options, hedging, calendar. Calendar is so important for risk management. If you can sell options one month, three months, six months, and 12 months forward, you can buy options three months and six months forward. You can plan. You can manage risk. And all of that mutes the volatility so that when you get, let's say we got a rise from today at 117 to 138, which is around my medium, short-term, medium-term target. I'm not the only one that's looking at a 61.8% Fibonacci extension from previous breakouts. Everyone has their stop orders and their call options and their structure around the risk.

And they understand that as this market matures, it's not going to go from 138 to 170 in the blink of an eye. They're not going to miss out. So they need to sell, lock in, create the income for themselves based on this basically herd mentality that we're not going to get the blow off top. So I see the call option volume at higher strikes. And it's not just Bitcoin. It's I bet. It's MSTR. It's there's so many vehicles.

And so all of them. that you're talking about maturity it's the maturity of the structure the vehicles the options the calendar that's what suppresses the volatility because remember volatility is a function of options pricing not realize volatility realized volatility statistical look back which in bitcoin is declining right the realized variance looking backwards is declining However, volatility is priced based on implied volatility is based off of options prices. And so if you are buying options, you are increasing volatility, but if you're an option seller, you knock that price of volatility back down.

So it's the volatility sellers that have graduated from basically not even having the vehicles to now having the full suite of vehicles selling options on iBit, Bitcoin Futures, MSTR, across multiple vehicles across the entire calendar, the structural sellers physically mute implied volatility and dampen forward price action. That's how the stock market works, Danny. And so when we look at SPY options across the curve

and across the calendar, that's how we manage risk in equities is that we know that there are levels at which volatility will, I'm sorry, the price will stop rising or stop falling because there's just a lot of buyers and sellers around those areas. Bitcoin players will always get rinsed in the absence of good risk management. And so it is alarming, Danny, the number of companies that are popping up. You have to think then they're all competing over capital. So which ones are able to raise the most equity?

And of the equity holders, how long are those equity holders going to be willing to be patient? Not all of these companies are going to be able to issue debt or borrow in order to sustain. So the corporate finance expertise, I don't know if you just, caught the news that strategy released yet another vehicle, which is now targeting the shortest duration of fixed income, money market funds, and is trying to offer a dividend or a yield with a stable net asset value at around 100 or par, as we call it in money market fund land. So completely giving up capital appreciation, but also combining with a short duration. This is sophisticated layering of the liability side of the balance sheet.

liability plus equity, all of that to leverage the assets, leverage up the assets and buy as much Bitcoin as possible, not everybody is going to be able to compete with that. So yes, if you have more companies, you have more Bitcoin demand, but the Bitcoin demand from the companies comes with owing debt and equity to people. And so their patient, will be tested and they will withdraw when they don't see the results, and that can create bankruptcies and all of that.

But if you look at the number of coins that has come to market, let's just say with these recent 2011 coins that have started to move on chain, come into the custody of Galaxy, which we know is a big shop, maybe the coins are moving for taking dollars out, against collateral, maybe it's to sell, doesn't really matter. 80,000 coins, how does it knock the market? It just doesn't. So you have strategy at 600,000 coins, but the rest of these companies buying a few hundred coins, or I don't even mean to dismiss a 4,000 coin purchase, but that's what micro strategy does when it's sleeping, you know, it'll buy another 4,000 coins. So,

If you have a few companies go under 4,000, 8,000, 20,000 that are spot liquidated, really doesn't matter. I don't know that it hits the market. I mean, in a material way. Now, to all the people investing in the equity and debt instruments of these individual companies, I can't give all those people a pat on the back and say, best of luck to you. It's more, you know, may God be with you in your endeavors. But it's not my game.

As you know, as a macro analyst, you can't necessarily be an equity analyst. And so I'm not going through the capital structure of these companies and saying which ones are good, which ones are not. Management will matter. And what I can tell you, Danny, is that reading the sophistication of MSTR's capital structure, the different vehicles, and how they are layering their approach to liability management, because that's the name of the game, I can promise you that the level of sophistication is going to be in the, I'm just making up a number, 10x to 20x the skill level that some of these other companies will employ. And that's not me, you know, discrediting the corporate finance officers

at these companies. It's just the size that strategy has, the way that they're able to, to layer it out, it's very impressive to me as more of a corporate finance tourist myself. And I'd proudly call myself that a corporate finance tourist. I teach corporate finance in its minutia as it applies to fixed income, U.S. Treasuries, thinking about economics, but I'm not a, you know, corporate balance sheet analyst by trade. And so, but I can recognize those that are really good at it. And I can also understand that those that are not really good at it can maybe fake it till they make it, but that won't make, you know, every one of those last forever. Yeah, that makes sense. Just quickly back to the cycle thing. I've spoken to like a ton of macro people on the show over

the last few months. And one of the things that a lot of people tie the sort of traditional Bitcoin cycle to is not necessarily the halving cycle, although that definitely plays into it, but more a global liquidity cycle. First of all, do you think that's the case? And then Secondly, do you think that could mean that we don't actually exit this kind of four-year cycle that we're in? And instead, like, rather than staying in a super cycle or extended cycle, whatever you want to call it. So, as you know, Danny, I'm a liquidity. I've built a lot of the analysis that we're building at the Bitcoin layer around liquidity. We have our own index.

Liquidity maxi. I certainly am. But I'm not a liquidity cycle. Maxi. Okay. Okay. And so I don't know that just because we had an inflation wave that was mostly supply side driven, as we saw inflation go from two to nine back to two percent, that was a pandemic-induced, a one-off. Not it's it's one-off structurally increased inflation from the 1 to 2% to now the 2% to 4%. I genuinely believe we're in this structurally higher inflation.

But that doesn't mean that because there was restrictive in 2021 and 2020 as rates were skyrocketing, that then we get easy in 24, 25, that then it's followed by restrictive in 26, 27. I don't necessarily follow that approach. I'm looking at liquidity in the way that we analyze it, which is the size of the banking system, treasury volatility, and I'm analyzing it as a in the spot market. Like where are we, where have we gone? Rate of change matters a lot.

But I'm not thinking it in turn of three, four, five, six-year cycles and how that liquidity cycles through the system. Now, you know, my mentor, Michael Howell, has this five-year number that every five years because of the quantity of debt and the size of the economy that every five years there's a rollover risk for the debt of the system. I don't disagree with that either. But again, I'm more Or let's look at treasury volatility today. Let's look at the rate of change over the last 30, 60, 90 days. How is it going?

Well, I'll tell you, it has collapsed. Volatility has collapsed in treasury land. The move indexes collapse. I ran the numbers last night. 12 or 14 red weeks on the move index. What have stocks done? They've gone straight up. And so that is the framework working in real time.

For me to, I'm not like other analysts and that I can always think in this two to three to five year in advance and where the cycles are, I have to more live in the now. I was also running the numbers on treasury, 10-year treasury rates. They're at four and a third today, approximately. Well, guess when we were at four and a third, two months ago, four months ago, 10 months ago, 18 months ago.

I mean, when we tagged in October of 2022, we tagged four and a third on the way up, but then you've been flat. So the rate of change was punitive in 2021 and 2022, but then it stopped being punitive so that four and a third looked like a disaster in October of 22. But today, it's not a disaster. In fact, it's actually a supportive. It's not even normal. It's supportive because stocks are at the all-time high. And that's crazy. That's how we have to think about it.

So where is liquidity? Liquidity is exploding higher as we speak, despite four and a third on tens, because if you think about four and a third on tens three years ago, you're thinking about it wrong. It's four and a third today and collapsing volatility as opposed to four and a third three years ago and spiking volatility.

While stocks are at the all-time high today, it means that four and a third is a good liquidity condition. It's providing liquidity. And that's how I have to live in my analysis. You have to look at where we are, rate of change, how it's affecting multiple asset classes, I don't, I think for sure that Bitcoin's 2022 bear market is driven by a spiking of broad macro volatility due to the inflation wave due to interest rates. And we talked about it.

It's not that the Fed is hiking. The market sells the bonds before the Fed hike. So it's the market punishing and liquidity being sucked out of the system, volatility spiking. Markets stop being, you know, to be made. People pull back from their Bitcoin position. And then the reversal happens in the subsequent years. So that's how I'm thinking about it. So I definitely want to get deeper into the macro stuff and what that means for Bitcoin.

But before we move on from kind of the cycle stuff, do you have a sort of target in mind for this year, next 12 months, whatever it is? And no one's going to hold you to this, Nick. But I did see you tweet recently that Bitcoin's going to a million, but it's not going to be straightforward. I mean, we know Bitcoin's going to a million. It's when, not if. Right. And I think that that's part of what's making this new era of Bitcoin fun is the increasing certainty that it gets to a million in the 2030 to 2032 area. That's, I mean, that's something itself that I've never been able to put a year on Bitcoin.

hitting a million until this year. So this is the first year I've been like, okay, by 2032, you might expect Bitcoin to be at a million dollars. That's seven years from now. You know, the next order of magnitude, we hit 10,000 in 2017. So seven, eight years from 10 to 100, another seven to a million. And you can really put it there and be like, yeah, you know, the next order of magnitude is seven years away.

that's amazing and I love that it also means that the obsession over a million on this current cycle it's not that's not where the action is or the analysis is to me it means that at this portion of the cycle we should be thinking about 200 250 and so that I am I am starting to think that to 200 to 300 is what my expectation has been for the last few years, but it's starting to lock in. I think I was doing some back of the envelope that, you know, 225, somewhere around there in the next 12 to 18 months, seems very, very realistic to me. The numbers that I was using there, 70,000 on Realized, and 3X on the MVRV puts us at 210. And I really like thinking about 210.

it's a nice multiple of 21 as well. And so we'll put it there at 210, Danny. I don't want to put a time on it, but I'm not talking about five years here. I'm really, I really am talking about one to two years now looking at like the next. When we, remember when you guys were in my corner and we did that in person, we were talking about,

we were talking about 300, and what would it take to get to 300K? And that was, I felt like it was much more speculative at the time. But it's, I don't feel like it's speculative now. Now it's within, you know, our current market reach. It is wild, though, that the idea of throwing out a million dollar Bitcoin isn't that crazy anymore. I remember saying to people that Bitcoin's going to go to a million dollars in like 2017, and people looked like you like you were fucking nuts.

And if I say that to people now, even if they're not very into Bitcoin, people are, okay, I can see that. And that mind shift is crazy. It's wild to see and it's bullish. It is. You have to lean into it too because you have to normalize it. And it's my responsibility to normalize it to the readers because, you know, I'll single out a reader that I have and God bless him, but he,

pinged me around the week of liberation day and he said I sold it all. He's an older gentleman, not an American, had set himself up very well, but, you know, he's out. And he was a, he was a long-time reader. And it wasn't enough what we were doing wasn't enough to keep him from doing that. Not that it's our responsibility to prevent him from selling or to hold it all the way to the end. But, okay, then yes, we do need to do a better job. or change the language, alter it to make it more as something that people expect. Yeah, that's one of the reasons I do it as well. It's more to kind of shock people into taking it seriously.

Like, I want people who I care about to own Bitcoin, and I feel like that's a really easy way to make them take this thing seriously if they think it's going from $100K to a million in a relatively short amount of time. But let's get on to the macro stuff. I think to kind of set everything up that I want to talk to, about. We should probably talk about Jerome Powell and Trump. Because Trump seems to be doing everything he possibly can to push Powell out of that seat. But let's start with Powell. Do you think if you take into account everything that he's gone through sort of after the pandemic and

high inflation, do you think he's done a good job as Fed Chair? The reason I like Powell, Danny, has less to do with his policy. We can, wait, we'll talk. We'll talk. We'll talk. about his policy too but the reason I like pal is coming off of Yellen and Bernanke and I was on the desk for both so I got to experience you know it's my third Fed chair let's just say in my career I like Powell because he doesn't insult my intelligence when he talks doesn't mean he doesn't have a political slant sometimes you can hear his political slant but he doesn't talk down to the financial participant and try to tell them the condition.

He's more descriptive and he's a financial market practitioner, so he does understand things like volatility, bid-ask spreads, and options pricing. He's not that economist guy that Bernankeenian. Yellen were and are. The hardcore academic economist. He's a private equity guy. He's a private sector background guy.

He is a long fed career. So I don't want to just put him as, you know, as like a Bessent, for example, which, you know, spent four decades in the private sector, a drug guy, a Soros guy, and then he comes into the Treasury Department. So I've always liked Powell more than the previous, too, because when he does the presser, I don't feel offended. And I mean, it might sound silly, but whenever Yellen or Bernanke spoke, I felt personally insulted that you think this, you're taking my time.

If I'm going to listen to you, I don't want to hear. hear propaganda, I want to hear more ascription of the situation. So that's how I feel about Powell generally. The policy, yeah, he was late in 2021 by a mile. The 2022 QE, 2021 and 2022 QE will, I think, forever be inexplicable from a pure, Fed independence standpoint, but if you, and I know that you've done lots of work on this, Danny, the arrangement between the Treasury and the Fed Department during the 40s up until the 1951 Treasury Fed Accord when, you know, they unpegged rates from where the government was setting them. The 40s were a war period, and this was a non-war period warlike spending program,

and the government needed to do that to prevent collapsing GDP. So instead of blaming Powell, maybe we assume that he didn't really have much choice on the 2022 decisions to do extended QE. Maybe he didn't have any choice. Maybe he was tapped on the shoulder to do that because of the CARES Act and, you know, the $3 trillion that had to be rolled out to the market. in the excess treasury supply that needed to be absorbed to not shock the market. So we're on the topic of Fed Independence.

That's where this conversation is going. Let's think about whether even that was independent, pal, or whether it wasn't. I don't think there's much of an argument to say that he was independent when they were doing that secondary QE infinity. that doesn't i mean it's it's it was terrible monetary policy but what if you didn't what if you didn't do it and those and that spending package was still had the green light what would that have done to the treasury market so what about palace policy another thing is the sofa wave. He was one of the architects. I believe the acronym was AARC. I was studying it when I was on the desk. The Alternative Rates Committee, that's what the ARC, I can't remember exactly what it. The alternative rates committee, it was like the LIBOR cert, the search for the replacement of LIBOR. This was going on during 2017. Powell was one of the architects of this.

and then he came in, he pounded the table on Sofer, and it all went over my head at the time. I did not understand this. I was barely getting into LIBOR. Like my first real LIBOR mentor was 2018 as SOFER was popping up. I'm like, what is LIBOR? Why is it so important?

I was actually asking, why are all these bonds that I'm trading issued out of London and trading off of LIBOR? I don't understand it. it was the offshore dollar system, but I didn't understand what I was trading at the time. So I definitely didn't understand the foresight of trying to bring a repo rate into the into the U.S. dollar capital market to anchor activity going forward.

I understood repo. I understood why it was a great rate. I traded repo. So I understood why this is a brilliant rate to use. I still didn't put the pieces to take. together. So Hal's ability to help the nation, or I shouldn't even say help the nation, maybe he is patriotic in that way, or maybe his directive was to protect the United States of America as a nation. But from a capital markets perspective, he was trying to reduce the

influence of non-US banks. Where is that in any of the conversation? See, it's not really present. So how do I feel about Powell versus Trump? Well, I don't actually know that it has anything to do with Fed independence at this point versus 2022 versus 2024. This episode is brought to you by the massive legends, Iron, the largest NASDAQ listed Bitcoin miner using 100% renewable energy.

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being a problem then or not really? It sounds like you're saying that may not even be a big issue. It becomes a little bit political in that it's going to be more overt as opposed to the 2022 when it's less overt, that it's just the Fed responding to conditions, independent monetary policy. Oh, and it so happens that the, you know, that Congress and the president are passing two trillion dollar deficits also. So is it a problem? Perhaps Besson is on the tape today, again, saying that the independence of the Fed is so crucial to the health of the U.S. economy.

So they're saying all the right words in terms of the independence of being saying, but they also are doing all these other things. There's mission creep. So we have to open up the whole thing to investigation. I think that it would be material if they overtly strip away some of the independence, but material to what? Material to the current politics, but if you go back to the 40s, it's not even remotely different different than something that's happened only eight decades ago in a period that

Hey, we are also in a new period to what happened in 1944. Bretton Woods Agreement. There was a new monetary system that was arranged in 1944. It didn't even really kick off until 1958 because of capital controls in Europe. That's something that was in my book. And I know it's something that, you know, you've talked about on your show as well, that the Bretton Woods Agreement and the system didn't even really get going until 58, and it basically died in 68.

So what are we living through? So if 44 was a time that the U.S. had to redo the monetary system and protect itself, and it had a Treasury Fed accord for many years during that time, how is this that different and if it's the same is that bad or is that in the national interest and if it is in the national interest should we criticize a faltering of independence when you're you have it's not even a speculation whether it went non-independent during the 40s until 51 it that's what it was it was not independent the the treasury was pegging rates of the bills and the Fed would buy them at and actually

what you learn when you learn about the history is that the Fed didn't really even have to move the market the Fed didn't really have to participate it just kind of guides by its policy and then the market adheres to it so it's quite natural I think for it to go back this way

it doesn't mean you won't get critics of the faltering of independence. But again, that's probably another 10 questions. Because obviously, like, the start of this fallout between Trump and Powell is really that Trump wants to cut rates and Powell's been really reluctant to do so. Do you think there's an argument that Powell should be cutting rates? Yes. What is that argument?

The argument that Powell should be cutting rates is that the curve isn't necessarily steep enough. It's at about 50 basis points. I'm talking about two's tens. It could be at 100, and that I would argue would be even healthier for the economy. A steeper yield curve is good for banks. They borrow short, and they lend long, and they capture the curve, and with more steepness in the yield curve, they have more protection for their profitability. and the two-year yield has been guided a little bit lower than where the Fed Fund's rate is today, which means the market has room for them to cut. I don't know that rates need to be at 2%, because, again,

it goes back to what we said about 4 and a 3rd, and I realize that's 10s, and we're talking about 2s, different parts of the yield curve. With 10s at 4 and a 3rd, and the stock market raging on, do we need lower rates? No, I would argue no, we don't really need lower rates because stocks are doing great with feds, with tens at four and a third. So why do you need twos to go from four and a third to three and a half? Not necessarily. Can I ask you a question on that just so I can understand a little bit more?

Are rates at that while stock markets are basically all-time highs because the market is factoring in inflation? Is the market saying they think inflation's coming back? No, and I think that we talked about this last time, when you decompose the yield of tens into the tips yield, which is the real yield, that's a market yield that you get plus inflation. You get this coupon plus inflation. You strip out the real yield, then what your leftover is the break-even, the inflation break-even, the assumption of CPI going forward. It's frozen at two. it just doesn't really move from two to two and a quarter and hasn't for the last three years. So there are not, there are, the expectation for inflation going forward is somewhere in the two to two and a half percent.

It's not interesting. It's not very high. And the real yield is also around two to two and a quarter percent, and which means that if you own treasuries, you have an option. I can either get 4% from the notes or I can get 2% from the tips. I expect them to come out even because I could either get 4 or 2 plus 2. That's going to be the same. If it wasn't, if you had, let's say they expected 5% inflation, you know, in three years from now, you would be buying tips at 2 because you get 2 plus 5.

I'm going to get 7% next year or in two years. That's a buy all day, all day. But it's not. I mean, tips would be trading at 0% or negative, which they had. Tips had traded at a negative yield for quite often over the last few years. I should say going back 10 years, it's traded negative. It just means that the influence. inflation expectation going forward is not much more than two.

If it was, you wouldn't be able to buy tips at two because it's free money. That makes sense. It's free money, right? It's a break-even. So if we get into the more speculative side of this, then let's say Jerome Powell does get ousted, Trump brings someone in. I imagine the easy assumption there is the first thing they do is to start cutting rates. Does that then lead to a higher chance of inflation going forward? Of course.

Well, when you pump the economy, you, when you lower rates, we'll just go first, second order, third order, right? When you lower rates, you spur borrowing. When you spur borrowing, you create new money, right? That's credit creation. When you create new money, you increase aggregate demand because they're just new borrowers. There's just more money. When you create, when you increase aggregate demand, inflation goes up.

So it's one, two, three, four. happens, boom, boom, boom. That's it. So yes. And do you think the, I guess the question is, what else do you think the next Fed's chair will likely do? Do you think things like QE will come back? I don't think you need. And I think they're trying to go away from that. I think they're trying to go away from the swelling of the Fed's balance sheet being such an influential part. I think back to the dual public good that this administration is trying to address.

They have come out and said, we are providing the world a dual public good of treasuries as a reserve asset and global security. We are going to reduce the public nature of that good, meaning you have to pay for it now. So the defense is easy. because you just have to purchase more weapons. If you purchase the weapons, then we will protect you. So that's easy. But how do you get them to reduce their reliance on treasuries as the reserve asset? You actually have to buy less from them on net.

And so you send less dollars out. So if you send less dollars out, they have less money to buy treasuries. Well, then you better not issue so many treasuries. You better reduce the amount of treasuries that you're issuing. And so the shift into Bitcoin policies and supporting the idea of Bitcoin, even talking about gold, you know, the whole Fort Knox thing, something that's so funny because I saw an absolutely epic meme of Trump. It's the mom in the pool holding up a baby, smiling baby. the smiling baby is Coca-Cola with real sugar.

The other baby is drowning, and it's the Epstein files, and then at the bottom of the pool, the skeleton is the Fort Knox audit. Yeah, we didn't get that live stream audit that they promised. We certainly did it. But I say all this to say that increasing the legitimacy and popularity of gold and Bitcoin as neutral reserve assets reduces the necessity of foreign governments to stockpile treasuries as the reserve asset because, oh, the U.S. is doing it too. You know, stockpiling these other reserve assets, this is going to be good for us.

So your question was about QE. I say all of this to say the U.S. government, from a policy perspective, actually wants less debt relative to the GDP. They want that number to go down. And if it goes down, you are less so reliant on the central bank to stockpile treasuries and all of that kind of stuff. Do I think that they need that they're trying to get their own Fed share so that they can do their own version of the CARES Act or this big, beautiful bill cubed where they borrow and spend $10 trillion on energy grids and energy infrastructure and new. nuclear power plants, I don't really think so, Danny, that that's part of what they're trying to do

is like a blank check for 100 new nuclear power plants and rewiring the electricity grid around the country and, you know, rebuilding bridges and ports and all of that kind of stuff. I don't think so. I actually really don't believe that that's what they're trying to do. They want the private sector to do it. They want U.S. banks to lend.

It's actually the same thing as the CBDC versus stablecoin thing. It's all about public versus private. They want digital dollars. They just don't want to issue. They don't want the central bank to issue. They don't want to issue them. They just want the banks to do it. So they want the private sector to do all this growth, build out.

They want the banks to land. lend and they just want to be supportive, low regulation, low taxes. I know it's a very long answer, but I don't believe that it's a QE for the blank check for 100 nuclear power plants funded by the US Treasury. Okay, interesting. So on the Bitcoin stuff, I got you to speculate a little bit. If you had to speculate here, do you think, again, let's say in the next 12 months, probably sooner, power loses his job and rates get cut? politically I do believe that's where we're going. I don't know how healthy it would be to slash rates, let's just say, right?

Stocks at an all-time high. Inflation isn't rained in. It'd be good for Bitcoin. I want to see Bitcoin weather all the storms, not just get a free ride, which is why I don't really believe that, again, four-and-a-third stocks at all-time high. You don't need stimulation. It's actually stimulative. It's unbelievable to see the economy and the stock market both do what they have with tens at four and a third for three years.

It's incredible. You actually, one must marvel at it. Think about Danny all the, and I'm going to pick on maybe some of the people you interview. Think about all the hysteria about treasury auctions. Oh, my God. Treasury auctions are failing. Every three months, like, one, 20 year goes bad. And everyone's like, treasury auctions, are you kidding me?

Three years with rates absolutely flat, the last five, 10-year auctions have gone, stop through, meaning more demand in the moment than where the going in price was. It's called win-issued, the one-issued market. Five straight months that tens have beat the when-issued market. This is a, I wouldn't say you're in a raging bull market, but this is a very stable market. Not only is it stable, but volatility is collapsing, which rewards all the risk holders. Treasury market stability has been the name of the game for three straight years. So what does the Fed, what does Trump or Bessent need to get the Fed to do for?

them other than one thing annual interest expense right which feeds directly back into how much they can cut taxes and all that kind of stuff that's this fiscal dominance idea annual interest expense the actual dollars that they spend they're like hey please cut the rate so that our actual interest dollars that we spend can go down so that we can cut taxes and not get scored by the CBO in this, you know, negative way that makes all the headlines say you're increasing the deficit. They're not actually increasing the deficit. They're reducing taxes, hoping that the deficit doesn't continue to spiral. But, yes, that's the way that it gets spun and that the CBO scores it is that when you reduce

taxes, well, if the interest rate doesn't come down, you're going to. you're going to have a deficit and it is going to grow. That's just math. So it is about math. They want it lower because of this first order effect reason not to not to do all this. And I want to mention one more thing. I was in Washington in January and I got to go to the Capitol and chat. It was obvious to me that this false narrative of poor Treasury auctioned,

was an underlying scare tactic for the government to get the votes, to get stable coins so that you can have an additional buyer of treasuries. It was a si-op. It's everyone was talking about it. It was obvious to me. It doesn't, I actually think it's good, right? The stable coins being another source of treasury demand. It's good.

It's not going to save the treasury market. It wasn't necessary to save the treasury market, but they got it. it's another buyer the treasury market didn't need saving it is again it's stable it doesn't mean that they can ignore it like they're doing everything they can to structurally reduce the amount of net imports right i mean everything from tariffs to the tomato the tomato ban on Mexico, every little marginal thing that they can to prevent the export of dollars, the stockpiling of treasuries abroad, they can. They're trying to do.

And maybe it is contributing and maybe it's not. But the U.S. Treasury right now is in a decent place. And look at the June numbers. I literally fell out in my chair when I saw that they had a surplus in June. I mean, is that a weak treasury market or a good treasury market where you're actually turning a surplus? Even if it's one month, it's a little surprising to the upside. To try and take this back to the start of the conversation when we're talking about Bitcoin cycles, Is there a bit of a strange irony here where someone coming in to replace Powell, cutting rates might lead to Bitcoin pumping and be one of the things that mean we stay in the four-year type cycle if we have more of a blow-off top type event and things do have to pull back down?

I can't really see that happening. I don't think that a new Fed chair pumps Bitcoin. There's the quote. I just I don't think that one person, even Donald, you know, Donald Trump can have that type of effect. Remember that the current wave of pro-Bitcoin policy is driven by the electorate. Trump is responding to the electorate. It's not a Trump.

Trump is not the one that's like, let's use Bitcoin to save the nation. He tells us that it's him pumping Bitcoin. He loves himself. Yes, that's clear. Well, Nick, you're the best. I've really enjoyed talking to you, always do. Where do you want to send anyone to find out more about Bitcoin layer, the Bitcoin age, all the work you do. The Bitcoinlayer.com is where people can find all of the work.

So it links to the channel. It links to our research offering. And my two books, layered money and Bitcoin Age. So the Bitcoinlayer.com, you guys can find everything that we're doing over there. Amazing. Thank you so much for this, Nick. It was good. And we'll definitely catch up in October as well when I'm in L.A.

Danny, all the best. Thank you so much. Appreciate you. Thank you, man.