What Bitcoin Did - The Debt Spiral, Stagflation & Why Bitcoin Wins w/ James Lavish

Episode Date: June 3, 2025

James Lavish is a macro investor, former hedge fund manager, and managing partner at the Bitcoin Opportunity Fund. In this episode, we explore the fragility of the U.S. bond market, how sovereign credit ratings work, and why the U.S. is now priced by markets as a default risk on par with Greece. We discuss the structural privilege of the dollar as the world reserve currency, why that privilege is under threat, and how the Triffin Dilemma is playing out in real time. We also get into institutional adoption of Bitcoin, the operational hurdles that ETFs have now removed, and what it would take for companies like Apple or Meta to trigger a wave of corporate Bitcoin treasury adoption. Finally, we look at the macro setup heading into 2026, the risk of stagflation, and why expanding global liquidity could mean Bitcoin peaks sometime next year. Follow: Danny Knowles: https://x.com/_DannyKnowles or https://primal.net/danny James Lavish: https://x.com/jameslavish THANKS TO OUR SPONSORS: IREN: https://www.iren.com/ RIVER: https://river.com/wbd ANCHORWATCH: https://www.anchorwatch.com/ COINKITE: https://store.coinkite.com/promo/WBD BLOCKWARE: https://mining.blockwaresolutions.com/wbd

The issue is that you start seeing companies closing defaults. There's some contagion there, and they start getting laid off of these companies. Unemployment starts to rise. You go into recession, yet prices are still going up. It's awful. Investors will flee to things like gold, and I think they would flee to things like Bitcoin because you still have inflation rates rising. Now we're running such high deficits, fiscal deficits, and you get into recession,

just makes the deficits wider. The whole world. It's not just the U.S. I mean, our whole foundation is built on borrowing leverage and debt. And so that means that you must have expansion of leverage and debt to keep going. Well, mine's 24 and 22. Damn. So, yeah, they're both working in Dallas full time.

What are they doing? Lizant is, he's a cybersecurity analyst, but not really. He basically gets paid to hack into companies. Damn, that's cool. Like pen testing kind of stuff. Exactly what he does. He's a pen tester, but he also, he's on Red Team, so they actually physically break into places too. No fucking way.

That's the coolest job ever. He's literally like telling me the stories. I'm like, seriously, you sound like Jason Bourne. That's so insane. So what like the other red team got arrested. Serious. Yeah. So what happens?

It's like the CEO say, you can break it. Yeah. Do, do, okay. Find the, find the vulnerability. vulnerabilities and he they'll they'll figure it out you know and so and they'll social engineer it and if they get arrested if they're like physically breaking in i assume not on this can be in the podcast because this is fucking interesting um well we can do it if i mean we're recording if if they actually get in and they get arrested i assume nothing happens well that's the thing is like so the when that team got arrested um they didn't have the breakers in place to uh protect the team so they allowed them to to get arrested and get brought to jail. And then they had to, because they didn't want the employees who were there at the company, you know, to see that it was not real.

So they let him get arrested and they had to go to jail and they got them, they got them, you know, obviously released. No way. So now they put in, you know, fail safe where if they do get caught or arrested or the police come, then there is always somebody on site who knows what's happening. That's the coolest job I've ever heard. I know. Isn't that crazy? That's insane.

And is he into Bitcoin? It seems like he should be into Bitcoin. Well, he's actually the one who got me into all this. Oh, really? Yeah, he's the, because when I was, I've told this story a little bit before, but when I was leaving my hedge fund back in 2020, 2021, I was, I was the CEO of a hedge fund in Fort Worth. And I was leaving because I'd left Texas. And he didn't know, he's like, dad, I know you don't know what you're going to do next,

but you should probably give this crypto. thing in another look because he knows I had seen it before. And that's when I started looking at everything. And I bought the garbage, you know, I bought Cardano and Ethereum and started and some Bitcoin. And I started doing research. And of course, back then, you know, this is 21 now. Back then it was my brain was like I was way behind where all you were at that point. And I had, And I just looked at Bitcoin as the old boring, you know, first cryptocurrency. Yeah. I was so ignorant, you know, even being on Wall Street all those years, just completely

ignorant to it. But that's when I started doing research, listening to, you know, you and Peter and watching anything that Michael Saylor was doing and his podcast and figured out pretty quickly that I had to get my money out of the other ones. And so I sold all of that and put it all into Bitcoin and just started Dollar cost averaging and doing more research and buying more and doing more research and buying more and doing more research. And eventually I was like, I want to be in this world because this, now, now it all makes sense to me. And so that was one of the things that clicked for me was like,

because I did the same thing where I shit coin for a while. And then like 2018 is when I properly came around to being like Bitcoin only. And I remember thinking like, where are the smart people? Like that's where I want to be. And all this like the really smart people were in Bitcoin. Yeah. It's funny. When you first, So was that about 2021? Yeah. I remember when you first, like, started appearing on Twittermore, and I saw your playlists, and I was like, this guy's interesting.

We were looking at getting you on the show for the first time. And there's always like a degree of skepticism about anyone new in Bitcoin, I think. And so I was like, is this guy legit? And I reached out to a few people and like, no, this guy's legit. You should get him on. And so I remember being in Bedford and talking to someone being like, who's this James lavish guy? James here?

Yeah. But you came in firing. I did. Well, what happened was I was, you know, I just started sharing stuff. It all started, it all started, actually. I was, I had started doing research and listening. And I knew that I had this, I was coming from this world of hedge funds and institutional investing.

And I knew that I had this knowledge and experience that just wasn't being talked about in the world. And then I was sitting there. And it was only a few, you know, months into, you know, maybe five months, six months into my Bitcoin journey and like really getting down the rabbit hole. And I was sitting there on Saturday morning and there was a Twitter Spaces. And it was kind of new, you know, because we had Clubhouse during the pandemic and then kind of shifted over to spaces.

And so and it was something, the title of the of the spaces was like institutional investing in Bitcoin. I was like, oh, that looks interesting. And I click on it. And there's some guy named Mike Alf. was running it and I was like cool I'm just listening and I'm just like sitting I'm probably watching Premier League just sitting there listening and all of a sudden I get this notification says you've been invited to be a speaker I'm like wait what why and I think I maybe had 500 followers and the vast

majority of them Danny were writers because my wife being an author yeah I followed all the people who were in her world, but I wasn't active on Twitter ever. And so I didn't really have any followers. Like if I posted something, I might not get any engagement. So I'll tell you a story about that in a second. So, but anyway, so I get invited up on stage. I'm like, okay. And I had been in Clubhouse.

And so I knew what the deal was. And then Mike just said, hey, your background looks interesting. You know, basically he was calling me out saying, are you legit? You know? And so I just started talking about the challenges. of institutional investors buying Bitcoin properly, you know, getting keys and all that stuff and getting their key phrase. So and that, and I remember I was watching and I started talking and then like five people

followed me and then 10 people follow me. I was like, wow, okay, this is kind of interesting. So if I get on these spaces, I can actually start forming a community and I realize really quickly that what I was talking about wouldn't, hadn't been talked about much. And the real behind the scenes, how this stuff actually works and in the investment. been committee meetings and how they come to a decision and it's collective and there's a lot of red tape and it's you know it's sometimes it's glacial because these institutions are they just move very slowly so yeah so that that's that's kind of that's kind of how that came about it's interesting

because back then I assume when you're talking about institutional adoption of Bitcoin this is since sailor bought really this has been like a topic that everyone's talked about and everyone thought that after sailor, we'd have tons and tons of these companies piling in and it never really happened until quite recently. And it does seem like that's now snowballing. When you talked about the issues of institutional adoption then, are those issues now no longer relevant? Do you think that kind of red tape has been removed? It has with the ETFs. One fell swoop. It was so, so fast. That's the operational issue because, you know, when you, when you're institutional investor, you've got fiduciary responsibility. And then you've got like this personal risk as well when you're doing this stuff,

which is professional risk. So you've got to, you know, perform your duty. And you can kind of hide behind that sometimes. Because if you don't want to take on this professional risk, what do I mean by that? I mean, if you're, you're going to buy Bitcoin, real Bitcoin, and you're going to, you're going to have your key phrase. Well, okay, well, who's going to, who's going to take control of that wallet that signing device is it going to be you are you going to do it with a chief investment officer are you going to have your legal counsel involved i mean like that's just the first thing yeah you know like how is that really going to work and that's actually what people think about first but when you're sitting in those meetings that's that's kind of down the line it's first

all it's like what is this thing where does it trade i'm only take career risk well yeah because that's first like even if you think you love it even if you're in an investor and you know portfolio manager understands it gets it and loves it wants to invest in it it the problem is where are you going to trade it coinbase cracking like what are these things back then 2021 yeah coinbase was there but institutional wise it was you know we don't we don't really know you had then you had ftx happen everything so it was really sketchy and so um so that was just a big hurdle to get over and then where do like who holds it like you don't custody normally so what these institutions love is they love having custody taking care of for them through, you know,

at least with the big banks and hedge funds. They want like their prime broker to take care of that for them. It's funny that that's what they want because multi-sick seems perfect in that sense where like CEO, CFO, like legal counsel, all these people can have a key in like a three or five whatever. That seems perfect. But they're just not willing to touch that. Well, what if they all go down on a plane?

Yeah. Because they often travel together in the executives. So it's like all that stuff comes up in the. in the boardroom and it's like well what okay i don't know just let's put a pin in it put it over and then you had the ets come out and boom it was so simple it was like well we know it's issued by black rock fidelity bit wise fine okay so we know who those institutions are those the the um the larry think stump of approval yeah so we know who the sponsors are but then you know where does it trade on the new york stock exchange where is it settle dTC at your prime broker who's custody in

your prime broker, it's just like buying a regular stock. It's like buying the spiders. There's no difference. And it supposedly owns the underlying Bitcoin, so it's attached to the asset. And you can see if it's a premium or not. I mean, it's all very simple. And so that brought in some institutions who were sitting on the sidelines and a lot of hedge funds really quickly. This might be a stupid like Bitcoin in question, not understanding how these like institutions actually work.

But would they ever consider? of the fact that they're not actually taking custody of this being like a security like basically being a risk yeah well that what it is we all know that is it's a risk it's a non-zero risk you know um their most by and large most them are not thinking about that because it's a bigger risk for them personally to hold keys yeah and that it's it's much more likely in the in the realm of possibility that they lose keys than you know black rock doesn't have the yeah that's true so So they're not thinking that way. It's higher career risk.

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So back to like you coming into Bitcoin. One of my favorite things that you've always done is break down these pretty complex topics. Like I never knew a fucking thing about macro before Bitcoin. Like this was my introduction to this whole world. And you break these down so simply. And you've done two newsletters recently that I really enjoyed. One, which is on the US debt being downgraded by Moody's. So I want to talk about that. So Moody's were the last ratings agency to downgrade it. Is that right? They were. So yeah, the other two had already downgraded, S&P and Fitch had already downgraded them. you know, over the last number of years.

And then Moody's just sat on the sidelines. So what are we talking about? Well, the highest rating in debt is AAA. That's prime, right? And so the U.S. was always, you know, I mean, it's the global reserve asset, right? The U.S. Treasury. You surely can't get back to debt. Surely you can't get better debt.

Like, this is riskless. Like, this is supposedly the 10-year U.S. Treasury is supposed to be riskless. Yeah. that's the point. Well, then we had a couple of things happen, and one of them was a budget battle. And I believe it was a S&P that downgraded them first, if I remember correctly. Just S&P obviously is not the actual S&P. That's standard.

Standard and PORs. It's the same company. It's just that this is a different area, different division. This is that, yeah. So they down. not because they think that the that the US is going to default and not pay the bonds so this is where people get a little bit tripped up um triple a is like you there's no risk whatsoever that you're ever going to default right then you've got double a um which is you know it's like

as close to triple as you can be obviously but there's something there okay so why would they downgrade the U.S. if they're never going to default, really. And even when they did default because of this budget battle, it was back in, I want to go back and, you know, I've got the newsletter here, so I don't want to quote the wrong time frame. But it was, yeah, 1979 is when they technically defaulted. So what happened? So they were in this budget battle. And back in 1979, everything was done by paper, right? So they're in this battle. And, the congressmen are going back and forth. They're fighting about a fighting about it.

They didn't want to raise the debt ceiling. Finally, they get to a solution and they raise it, but it was at like the midnight hour. And it didn't give the Treasury enough time to stamp the envelopes and get them out the door with their interest payments. And so they tripped a payment. And they made it up really quickly.

You know, they made everybody whole, but technically they defaulted. So that's what we're talking about. here because you know Lynn talks about all the time is like if you're if you're a sovereign that issues debt in your own currency you would never default you'll just print more currency and buy the debt to make sure that you're you know that you're not defaulting yeah and so um but the technical default is that you trip a payment and then you make everybody whole later which is what happened in 79 so so no one

actually you're actually not default on the debt for anyone there's that's just like the fact that it was politicking for too long They decided to raise a debt something too late and they missed the payment that made up. Right. Okay. Right. And then back in 2011, it's the same kind of thing happened. That's when S&P, so it was Fitch who did it first and S&P did it.

Did what? No, no, no, I'm sorry. SMP had downgraded the U.S. first. In 2011, after financial crisis. And yes, in 2011, then 2023 is when Fitch joined them. Okay. But why does it matter? And why do you see that?

So you see bond investors get worried about this. And how do you know that they're worried? Well, you see term premium. You know, you see premiums that meaning that the debt trades at a higher yield than it normally would. Because and you can calculate it out, the term premiums are somewhere around 80 basis points or 90 basis points right now for the 10 year. It should be higher, but we'll get to that in a second. But the reason that you have that is because investors are concerned about inflation, you know, and just this deluge of debt who's going to buy all of it, which means that they want to be compensated for that deluge of debt that's coming. We're seeing that.

People are a little bit worried about inflation, which gets us to stag inflation. We can talk about that in a minute. But the people are concerned about that. Investors are concerned about that. And bond investors are like, they don't want to buy 10-year, 20-year, 30-year treasuries and have what happened back in 20-year. 2022 all over again where you know interest rates go up the bond is worth less and they're sitting on this portfolio of marks that are you know down 20 30 percent again yeah so how do they compensate themselves and protect themselves well they demand a higher rate this is where the bond vigilantes come in

bond vigilantes are the ones who are saying no way it's not like a group of you know it's just that investors are looking around yeah they're looking around they're saying yeah we need a higher rate here yeah they're not colluding but they're recognizing each other like yeah i need a higher rate too everyone's seeing the same thing right so that so then you get this term premium and the last piece of that so you've got inflation worry about uh interest rate risk concern of interest rate risk because of um you know both inflation and because of the delusion of debt that we know is coming i love doge it's great that they're getting rid of fat and um you know um and fraud but they're not going to balance the budget. Of course. It's just not going to happen. That seems more clear than ever

right now. You're right. I mean, I've been saying this for, for since the start. It's, it's too much. The math is not going to work. So, but that's fine. The issue here is that, um, the last part of that is now you've got this deeply divided political faction, right? So you've got the, the Democrats and the Republicans just don't, they almost can't even, they, they can't even speak. Like it used to be back in, you know, the 80s at least and the 90s, they could at least, they could at least talk across the aisle and really, you know, kind of be reasonable. Totally. That's out of the window.

Irrational. Like, they're totally unreasonable between the two parties now. So that means that each party is trying to trick the other one into making cuts into their programs to hurt their constituents to get fewer votes. We know that. It's the way it works. But the issue here is that they're so, they're so entrenched in the battle that the risk is that we go right up against that window again, it closes and we trip a payment. Of course, they'll make it up,

you know, and they'll, they will make everybody whole and they won't fully default. It'll be a technical default. Then why do the credit default swaps on the U.S. bonds start to get more expensive? So I do want to talk about credit default swaps, but can we talk a little bit more about the ratings first? Because what I want to understand is, like, how do they, actually judge this stuff? Like, what is the criteria they judge it on? Yeah, it's pretty funny if you did, you know, if you're looking at, if you're looking at, um, if you're looking at, um, if you're looking at, like Microsoft or Apple debt, it's very clear the metrics they're using to determine, you know, your, your debt, your coverage ratio, like how much you're earning versus how much

interest you have to pay and all that. There's all these metrics that they look at. It's pretty mathematical. Then you get to sovereign debt. And I've got a, uh, you can share this, um, this chart that I've got in the newsletter, but it's basically they look at like all these touchy-feely things, you know, economic strength, institutions and government strength, fiscal strength, the susceptibility to event risk. And that all kind of feeds into each other. And it goes into this kind of waterfall of scoring. And then they come, then they add on other considerations, you know? This is what you describe as just fives. Yeah. Exactly. And so it's basically just like, I don't know. How's it feel?

And that's literally it. So the funny thing, before I read your newsletter, the only thing I really knew about the ratings agency was that scene in the big short, where they go to, I think it's to S&P, and they're talking to the lady there. And it comes clear that basically they just give the banks whatever rating they want.

Correct. Because they're being paid by them to rate them. Yeah. So it's not like us. We're being, I don't know what it's like in Australia, But in the United States, we've got, you know, we've got the three credit agencies and they just determine they don't have your address right. Yeah. They don't have your banks right. It's just like, but they're just like, they just determine your debt to, you know, coverage ratio or whatever. Your debt usage is a certain percentage.

You have this much turnover or whatever it is. They have their metric and then they just give you a score. But I don't pay experience to give me a score, you know. They just do it. So that's the, yeah. So are they meant to be independent, but in reality, they're. just work with the banks. Kind of.

They're meant to be independent. They're supposedly independent, but I mean, you can see there's a little bit of a conflict there. So in terms of going from AAA to double A rated, what does that actually mean? Because does it change in any of the dynamics for like the banks buying these bonds? Or is it kind of just still? No, it's like it's, you know, the US losing its AAA status is more symbolic than anything. So no, the only time it starts to really hurt a sovereign is when you fall below that investment grade, the double B plus. Once you fall, I'm sorry, the triple B plus or triple B minus, the double B plus is non-investment.

So once you fall below investment grade, below triple B minus, so when you go to double B, right, so it goes triple A, double A, yeah. Then they're just institutions that can't hold you. Like, you're not investment grade. So they, like, pension funds or they can't put, they can't put them in their portfolio. So you go to being, like, rated as speculative rather than investment? Exactly. And, like, just interestingly, what would a micro strategy bond be rated at? Do you know?

They haven't been rated well. So I think they just withdrew the ratings is what they did. I see. So that's the and that's that's that's the issue for them but you know they're not looking for Maybe eventually they want pension funds to be obviously yeah you're gonna need so the the the challenge from Michael This is his challenge and you you kind of hit on it right away here with the speculative grade of his or no grade The issue is He he he's tapped into this massive

convertible bond market with the hedge funds but he needs to move outside that to really be able to soak up 42 billion dollars more of debt yeah and so or even more than that he's like 70 billion so the issue is that he's got to find a way to to to move out into different um you know securities that that these institutions can buy so because of that he needs a larger pool of capital and he's got to move out of that hedge fund speculative space and get into pensions and endowments that can actually do it. So he'll have to eventually get ratings. But he's kind of found a way around that there's actually ingenious in that he's

got these, you know, the perpetual preferreds and those are not debt, you know, but they do pay a coupon. And so institutions can own those and get a nice rate of return on those. So it's an interesting way to get around that. And it's actually less dilutive. Yeah, that's interesting. I've never quite understood the preferred. But so when people talk about like junk bonds, when does something become a junk bond?

That's it actually, it trips over junk when you hit, when you're in the like the B rating. Okay. Right. So it's like anything, anything is like that, that non-speculative, that non-investment and it's speculative, that's kind of junk area. Okay. The difference between, and this is where people got to get mixed up, the difference between,

the important difference between junk and distressed is like, once you hit, like, triple C, like, minus is then you're, now you're junk, meaning you're not paying your interest payments. You've tripped interest payments. and now you're you're declared junk and distressed so um i'm you know i mean i mean yeah you're you're in default it's you're in distress so you've gone you've gone from junk or speculative junk to distressed and now you're you know you're in the death spiral you're in the debt you're in deep trouble so now you know as an investor that you're not getting your interest payment so if you're and we we traded and invested in a lot of distressed in my early

days in the hedge funds. And what you would do, like TWA, for instance, we owned TWA bonds and they were speculative and, you know, junk and going into distress. But you buy them for less than par, which means that if, so the calculation for people understand is that if you buy a bond for less them par and it matures and you get par for it well you've made that so if you bought it for 70 cents of the dollar you just made 30 cents of the dollar which is a huge return yeah you know and so you can have some great returns even if you're not getting a coupon if you believe that you're going to get par back with the distressed stuff you don't ever get par or very rarely you get par you have to have enough enough asset coverage that they sell off the assets and liquidate or whatever or get

bought out or something that they make the bonds whole, really unlikely. Even though they're the bonds you're in the bonds you're buying or anywhere on that capital structure, right? So you can buy, you know, fully secured bonds that are secured by all the assets down to, you know, subordinate but secured, but not they're not that they're secured by assets, but it's a claim on them, right? So you're going to get, you're going to have tiers of where you are in the capital structure. And this is why people need to understand with stocks is like,

they're at the bottom. They're at the very bottom. So if you're buying something that a company that's debt is distressed, that means that if the company goes bankrupt, the stock is likely worthless. Yeah. Okay. So back to buying distressed bonds. So what you would do is you're going to determine where you like what the probability is and, you know, how much you would get back and all that. But you're really looking at when you're distressed investor, you're digging deep into balance sheets and obligations and other debt and all these, anything that may come before you as a claim to those assets if you're going to liquidate the company. Likely, the one thing that will come ahead of you is bank debt, which is totally secured.

And it's like they got this line of credit from Citibank or something. That's got to be paid first. Yeah. So, but back to TWA. So we, you know, we had this distressed debt. And it looked like a liquidation was, you know, was like we were going to be paid handsomely for the, against what we bought it for pennies on the dollar. And then they, a plane crashed. Oh, shit.

It was crazy. And so you see this debt and it would just trade like mad. Like you'd go from 20 cents to 30 cents to 15 cents. And it's, and this is, Danny, this isn't like trading on the New York Stock Exchange. This is all phone calls and you don't know where the market is. You're trying to get a sense. Pure chaos. So, and that's where Michael Milken made a killing back in the day because he was trading this stuff. And he was making, he was the man making the markets.

He would buy it over here for eight cents on the dollar, sell it over here for 38 cents on the dollar. You know, like, and nobody knew the market. Yeah, it was wild. And what happened? Did that end up going to zero? Oh, the TWA? Yeah. No, we got claims on it.

Okay. I can't remember exactly what the claims were. But, yeah. So back to, like, the U.S. being downgraded. Is this sort of purely symbolic at this point? And it doesn't actually matter. It's just like a signal. Yes, that's the point.

The whole point is unless it falls below investment grade, it doesn't really matter. But it's not going to, I mean, again, the whole point is this was this was the S&P Moody's and Fitch, you know, agreeing that our debt issuance is out of control. And we clearly must print a lot. lot to keep this whole charade going because we're not making and you know we're not covering the debt we're issuing so it's it's clearly it's a problem so and they they've they've said that in their in their issuance and i assume this isn't just a u.s problem because this like sovereign debt crisis happening all over the world so is is are all the sort of nation states getting their debt downgraded no no you know i think germany is still triple

right so it's uh yeah no that the u.s is is getting tagged and this goes into um you know the whole triffin dilemma which i'll be talking about with lynn and mark moss on wednesday on the on the nakamoto stage here but which is if you're the global reserve currency everybody needs your your your dollars and so you're you have to be in you know constant deficit yeah constant deficit constant exactly trade deficit. And so it produces issues for you because you're not exporting as much. And so you have this dilemma, right? And so how you're covering that while you're running deficits.

And so we should talk about the credit default swaps. Yeah. Because that's like the market that trades this, right? Do you want to explain what that is? Yeah. So, I mean, you guys all saw on the big short, the credit default swaps. And they did explain it simply, but let's just go through it really simply. A credit default swap is a derivative contract.

It's literally just a contract, a piece of paper. And these things are governed by ISDA, the International Swaps and Derivatives Association. And so you have standard ISDAs, which is just a document that it's standardized on how these default swaps work. And then you put in the terms according to your negotiation. Okay. So you got a boil of a boilerplate agreement and then you put in the terms of how this is going to go. For credit to swap swaps for countries. Okay.

So it was different with the housing market. Like this is these are housing like these are mortgage backed securities that you were default swaps on. And so now you and those are all over the place. So many of them. But with this, it's like, okay, you're getting a credit default swap on all sovereign bonds of the U.S. So if the U.S. Treasury trips a payment, well, that likely triggers the credit default swap to be paid out. So you're betting on default essentially.

You're betting on default, whether it's technical or not. And so you're paying as of now or as a last week or a couple weeks ago when I wrote that article was like 59 cents. is $59,000 per $10 million of credit default swaps. So these things trade in chunks. Like you and I couldn't just buy a credit default swap for our PA, our personal account. Like you're trading tens of or hundreds of millions of dollars for these swaps. So that legal contract just says that if they default, technical or not,

then you get paid out. So why would, if you know that they're not going to, They're not going to really default fully. Then what are you protecting against? Well, you're protecting against, you know, two to four weeks of non-payment because of a gridlock in Washington. You know, we all know you're going to get made whole. But the problem is if you're a hedge fund and even if you're going to get paid whole and made whole, the issue is, well, first of all, you can just make it a bet. But there's a reason to hold those because you own these bonds as collapse.

So you need liquidity. And you may need liquidity, exactly. So if you don't have liquidity, then you may miss an obligation over here that you are depending on these securities to have to meet that obligation. And if they're not available. Right. So that's insurance on the bonds. The most interesting thing to me in this newsletter when I was reading that is how the U.S.

Credit Default Swaps compared to the rest of the world. Isn't that crazy? It's crazy. So, like, to put it into, like, context, how does it compare to, like, the major European nations, like the UK, Germany, France, etc.? Yeah, I mean, typically the U.S. would be right there with them or better, meaning the swaps would be trading cheaper. But today, if you look at the, if you look at the monitors, and you can see all this on Bloomberg. And you can all see, I think, World Sovereign CDS or something online, if people want to look at, that's not. quite as as dynamic as the Bloomberg like this Bloomberg is like that's the

standard you're going to be trading off of this but so to give you context the UK is trading at 22 it's $22,000 per 10 million France is so you have the UK Germany is trading at 13.9 or 14 right I mean pretty good Sweden 13 Netherlands 13 Switzerland 11 Okay. Japan, 19. Even though Japan's going through an absolute, correct, meltdown. And that interesting. Okay. So, but they have demonstrated they will, they will backstop everything.

Backstop every single thing. Exactly. So Australia is 13.7. Okay. So what about the weaker countries in in Europe, right? So the, what we call the pigs, you know, Portugal, Italy, Greece and Spain, which was, We're back in a great financial crisis. They were all in distress. Yeah. You know, and so Germany was, I mean, Greece was kind of forced to restructure their debt.

Greece is like the economic basket case of Europe. Correct. Right. So you would think, you know, those would all be worse than the United States, right? Well, Italy, 55. Remember, United States is 56. Okay. Portugal, 27.

Spain 36 and Greece the worst of them all 57.7 that's wild yeah so the US is right there with Greece so the US is basically as likely to default as Greece is that's what that's what the market is saying that's fucking insane and really the reality is that the market is saying that a whole lot more people need protection if the US trips which means that there's a lot more demand for protection. That means that, you know, there's just more demand for this insurance. That's really what it is. But when you glance at it, you're like, oh, wow, that's really ugly. This episode is also brought to you by Iron, the largest NASDAQ listed Bitcoin Miner using 100% renewable energy. Iron are not just paring the Bitcoin network. They also provide cutting-edge

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So I did a show recently with Lynn, which was all about the trade deficits, and this idea that the U.S. might be intentionally pushing people to move away from the U.S. dollar as the world reserve currency looked at like neutral assets. Does any of this tie into that? Well, that's the Triffon Dilemma right there, right? So it's forcing us to keep these trade deficits and forcing us to continue to print and have these massive deficits. the issue is that I believe the world is catching on. And we saw sparks of this, and you and I talked about this, I think 18 months ago about the BRICS nations. When we were talking about the game theory of adopting Bitcoin as a strategic asset to secure your bonds with.

And that was when the people were kind of talking about, oh, Bricks is gonna come out with their own currency. It's gonna compete with the US dollar. And that's not really, really the case. What's happening is that the BRICS nations want to get away from the U.S. Treasury, meaning the Treasury bonds, because they see how, number one, that it, just in basic, you know, investment terms, they're losing money on real return on those because of the inflation in the United States and because of the relentless, you know, deficits and sorry, the relentless

this fiscal deficits and obvious expansion of the money supply, which means that they're getting a negative real rate of return on those bonds. And so that's one thing. Of course, the second thing is when we seized and, you know, the U.S. treasuries from Russia. Again, I've said this on stage many times, monumentally stupid play. Yeah. Because we need everybody to own our bonds.

And then we basically told them, oh, by the way, if we don't agree with what you're doing, we're going to take them back. Yeah. And say, we need you to buy them. Yeah. Insane. Stupid policy. Anyway, so, yeah, so you hear these rumblings, but that's not really the case.

They just want to have a way to do business without having to hold treasuries and lose money against them. That's the reality. They want to get away from that and not have be at risk to be, have them being seized or frozen. And so that's why they'll move away from, that's why the BRICS nations. And for people who are sitting here saying, what is the, the BRICS nations, Brazil, Russia, India, China, South Africa. Like, those all got together.

And there's others that are trying to attach on. And they were talking about using like a basket of currencies. Yeah, maybe gold. It's never going to happen. But it's still, again, it's just like another symbol, isn't it? It's like another thing that you can look at to be like something's changing in the world right now. Right. So if you're going to do business in one, you know, then when they're doing it, oops.

Well, now you're not doing business in dollars. So they're not cross borders and the dollar. Now it's these other currency that they're trusting. You brought up BitBonds before. The really interesting thing there would be to see what they would be rated. They would be because presumably they'd be AAA. Yeah. Well, I guess.

Yeah, presumably. But, you know, it's a long way down the line. Yeah. And they won't have a rating for a while. They'll be with micro strategy with no rating for a while. Even if the U.S. issued Bitbonds. Yeah. Well, I mean, it really depends on how they do it and how they, you know, how they secure it.

And we're, honestly, Danny, really depends on where the understanding of Bitcoin is globally at that point. Yeah. So, it's so misunderstood right now. Totally. And so that's the big thing. Going back to institutional investors, that's the big thing.

Yeah, we got the ETFs. But that's not the watershed event. The watershed event is when you have somebody big enough who understands it, gets it, adds it to their treasury, like an Apple or Microsoft or something like that, like one of the biggest companies the world or Amazon, then it starts this watershed of everybody's like, wait a minute, this thing is really for real.

Like I've got to go get up to speed on it. Let me get some while I get up to speed on it. And that's when you get broad understanding because then it's like, well, this is clearly here to stay. This really is digital gold. It's funny. I've been convinced that META are going to do this for like two years at this point. And I'm constantly shocked that they've not already.

I really thought they were going to be the big company to kind of take that leap. I did too. Last thing on this, before we move on to the stagflation stuff, in the newsletter, you said structural privilege is being re-evaluated. And I wasn't 100% sure what you meant by that. Well, I mean, meaning structural privilege being the global reserve currency gives us privilege that we get to run all these deficits with the global reserve asset because fiscal deficits, trade deficits, fiscal deficits.

So meaning that our government spends more than we create through GDP, right? So which means our tax dollars are lower than what we spend. So the structural privilege is that, well, because we have the U.S. dollar, well, we can be irresponsible over here with our spending because everybody needs dollars. So, and it almost have to be because everybody needs dollars, they need debt to use it. we need to keep, like, we just keep issuing debt. And so the privilege is we get to overspend. Everybody has to get these dollars that are being debased rapidly, and that's the privilege.

It's structural. And it's now people are looking at and saying, hold on a second, time out. Is this really the way we want to, you know, is this, do we really want to own these? Yeah. Truly. And so, you know, Michael Howell argues that he just put out a newslet of, in this last few days. And he argues that the 10 years should be like trading above 5% already.

It's at 4.5%. But he's like the 10 year should be trading above that because the, you know, the issues that we have are being, they're actually being swept under the rug by the way that we're issuing bonds. And what I mean by that is that Scott Bassett criticized Janet Yellen. You know, really, he was really critical of her over the last, you know, few months before he took over in the campaign. But he was really critical that she had not termed out the debt. Yeah. She'd been issuing everything on the short end.

So for your listener, meaning they didn't issue a lot of 10-year, 20-year-year debt. you know they stayed in the earth like the like the like the short belly to the T bills like the one to three year kind of range correct and so or even less than that so and so now you have all this debt as being issued in the short end which makes it easy for investors to buy because there's no there's really no duration risk or straight risk so you can buy those easily and so but it's artificially you know it's kind of QE it's kind of yield curve control Because those bonds are more money-like than the long duration. Correct.

They're treated more like money. The money market, when you buy a money market, you know, on your fidelity account, you're buying bonds. You're buying T-bills, you know, that's the money market and the repo. That's what you're buying. And then Besson came in after criticizing it for doing that and did the same thing. He realized, oh, my God, there's nothing I can do here. There's just no demand for the long duration. Well, he made the bet.

He made the bet that the Fed was going to lower rates enough that he'd be able to term out some of it. But they haven't. The tenure's still at four and a half. So if he starts terming out now, he makes the interest payments for the U.S. He locks in a, you know, that the deficit we're already running. He makes those interest payments. It's already at $1.1 trillion. They're going to be, you know, even more.

So he doesn't want to do that. So they're still playing chicken with the Fed. And so, you know, some people speculated that Trump was trying to crash the market enough that the Fed would step in and say, oh, yeah, we'll lower rates, but they didn't. And, you know, did Trump, was he trying to do that? And then did he blink? Because the market did crash and there was no movement from the Fed. And they still were like, we don't care. We're not concerned about the stock market.

We're concerned about inflation and unemployment. I don't know. So that's been really interesting. Like Trump and Bassett have been really pressuring Jerome Powell to lower rates. even trying to find ways to fire him, I believe. So Jerome Powell is clearly concerned by inflation. And this kind of gets onto your stagflation piece. Like maybe it's worth defining what stagflation is and then explaining what you see coming.

Yeah. So for people who don't, who didn't live in the 70s. So stagflation is where you have high inflation. So the price of goods are going up while the economy is going down or grinding sideways and lower. And so we saw this in the 70s when I was a kid in the early 80s where, you know, we had this, we had the oil shock and you, you know, you had a conflict in the Middle East and the price of oil went up like mad. Now remember, oil is the number one component for prices of everything, you know, because everything costs money to transport and create. So so many the goods we have are created with. oil or crude driven energy and then they're shipped around the world with crude driven energy so prices of everything were just skyrocketing not to mention the price of gasoline i mean i've told the story in my newsletter before like i had to miss hockey games because we didn't we didn't

have the gas really and so you know because you were allowed to get you had even number an odd and you can go depending if you were even or odd you could go that week to get gas no way and so my parents were both driving to work and they didn't you know they're like well We don't have enough gas. That's crazy. I didn't know that happened. And then when you finally did get into line, it was like a two or three hour line to just get your tank, one tank of gas.

That's insane. It was wild. Yeah. And so, like, obviously, after COVID, we lived in a high inflation world, but at the same time, like, the economy was, like, technically doing well, as in stock prices were going up. Because they printed a mother load of... Of course.

But in stagflation, you would have the same high inflation, but presumably stop prices. share price is going down. Well, no, well, it really depends on, it depends on the situation. But yeah, you could absolutely see that because what you're not seeing is an expansion of the economy. And so depending on the company, some companies are antipsychical. So across the board, it really depends.

But yeah, if you have a stagflationary environment, it's bad for everything, for sure. Yeah. So in that scenario that we had since COVID, like it sucked to be poor. because everything was getting more expensive, you didn't own real assets. In stagflation, it sucks forever on an issue. Yes. Because you have both inflation and asset prices not.

Yeah, grinding or falling. Yeah. And so why do you see that as like the coming scenario? Well, I don't know if it is a coming scenario. It's one that worries. It's one that I'm concerned about. And I'm watching economic indicators closely to see if we're getting anything. But Danny, every time we get an indicator,

it kind of conflicts with the last one. So it's like there's no clear signal that the economy is rolling over or grinding lower. There are signals that it is and whether, but there's a lot of noise around it too. So if you look at producer price index, which is literally, it's typically one of the leading indicators that you can see what the producers are paying for goods

and then they're gonna, you know, use them to manufacture or whatever. to sell to companies for them to pass on to, you know, the pricing to the customers. Well, what's hard to know is like in the last few months, how many of these goods were imported because, you know, the companies are trying to get these producers are trying to get ahead of tariffs. It's hard to tell exactly what all that is. So there's been a lot of noise in the numbers. That makes sense because in the newsletter you compared the oil shock in the 70s to tariffs today.

So is that why that comparison makes sense to you? Yeah, it's exactly why. So if you do, if you have the oil shock would create, it created exactly what I said. And it's a similar thing would happen with the imported goods, you know, because remember, we're a net importer, right? So that would impact the price of goods.

And they would be passed on. OK, so here's the issue. The companies will pass them on to the consumers, as much as they possibly can, but the smaller companies are gonna get crushed because they'll have to stop passing them on at some point. And then they just won't be making enough of a margin, a profit to continue to do business.

And they'll start tripping their own debt payments. And then that's it, they go under. And so that's the worries that the small companies get crushed by high tariffs because they can't pass on that increase in pricing to their customers. And then you start getting into what we're talking about, which is an economy that starts grinding lower. Because remember, these small companies, really,

they drive our economy, the U.S. economy. So by and large. And so the issue is that you start seeing companies closing defaults, and it kind of rolls because you have this guy default that might trip somebody else default. And then, you know, because you have this guy's depending on this guy. So there's some contagion there. And then you just start getting people laid off.

And they start getting laid off these companies. Unemployment starts to survive. rise, you go into recession, yet prices are still going up. It's awful. And that's, you know, that's where the stagflation is. You've got the market coming down, prices of everything going up. And that's literally the opposite of Nirvana, which is Goldilocks, which is you have the stock market rising and rates are either steadier lowering, you know. So it's literally the worst case scenario. So in that scenario, just for a second, assume Bitcoin doesn't exist. How do you like position yourself to do okay during that?

During taxation? Yeah. You weather the storm. It's awful. Yeah. There's literally nothing you can do. There's literally nothing you can do. You could, people will, investors will flee to things like gold.

And I think they would flee to things like Bitcoin because you have, remember, you have, you still have, you still have inflation rates rising. So, um, it, the issue with using stocks as a store of value is that you have inherent economic risk. If you're using gold or Bitcoin as a store value, well, it doesn't, it's not kicking off earnings, you know, so people aren't looking for earnings from that. They're looking for the health of the company. It's like, oh, God, I just got to park my money somewhere. That it's not going to get eaten away by inflation. And if you look over the long period of time, obviously gold and Bitcoin will keep you protected from that. So it's funny. Now,

matter which of those scenarios were in, whether it's like high inflation, stagflation, or this like Goldilocks zone, you explain. To me, when I look at them, it's like Bitcoin does well in all of them. Yeah. Yeah. Yeah. Yeah. It's got to be the most unique asset in the world for that. Yeah. Yeah, it does. It is. It is. It is. Recession is not good. But, you know, again, people will still flee to safe haven assets. But, you know, that's a scenario where if you get into recession, it's kind of funny, Danny, because now we're running such high deficits, fiscal deficits and you get into recession, it just makes the deficits wider. So normally you would see this rush into the 10-year treasury, and the 10-year treasury would go from 5% or 4.5% down to 3, 2.5% or lower because it's a flight to safety asset.

But in the scenario that we're talking about, which is why we're seeing term premiums is, oh, God, if we get into recession, that means that the deficits are going to be even large. It's going to be more 10-year treasuries, and they haven't termed out the debt yet. So then what happens? So right now, I've not actually looked at the price today. Bitcoin's at like 10,9, 110K or something. How do you see like the next 12, 18 months playing out for Bitcoin? I think it all has to do.

And this is why I do agree with Michael Howell, you know, from cross-border capital is he looks at the assets like gold and Bitcoin and really attaches the cyclical values of that to the cyclical you know expansion and contraction of liquidity. Okay, why is liquidity matter? Everybody talks about M2 and that is very important. It's part of liquidity, but what liquidity is, we're living in a debt like structure economy.

So the whole world, it's not just the US. I mean, our whole foundation is built on borrowing, leverage and debt. And so that means that you must have of leverage and debt to keep going. Yeah. By definition. So and so what happens is you're looking at this cycle of liquidity and that's a whole bunch of things.

And again, it's like it's it's the amount of it's central bank liquidity, you know, QE, that kind of stuff or acronyms that create liquidity or, you know, not terming out debt, that stuff. It's shadow banking, which is like hedge funds. And like your dollar market. Yeah, yeah, euro dollar. It's all of that stuff. And one of the, some of the factors that go into that are not just, you know, the amount of bonds that are out there or whatever, but it's the, it's the amount of collateral that is, that is needed to borrow. And so when you have volatility in the markets, the increase in volatility means that you have an increase in margin.

Why is that? Because when you have a really big increase in volatility, it's usually because you're seeing drawdowns. And so you have the banks and the prime brokers raise the minimum collateral, which is called the haircut. So if you're going to go buy a stock, you're going to go buy an Apple or Microsoft and blue chip S&P stock, you would typically have to put down 6% for that

and you would get portfolio margining on the rest of it. You could borrow 94% against it. But then in times of shock or times in high volatility, that 6% might move up to 20, 25%, which we saw in the great financial crisis, even in blue chip stocks. And so that means that you need more liquidity. You need more collateral for that borrowing,

which brings down the borrowing, you're obviously going to sell part of your position to get enough collateral to secure that position with your with your lender and so that draws liquidity out of the market so when you see high volatility that's not good especially in bonds because bonds are the the base asset to borrow against and in you know repo markets and shadow banking repo markets not just with the fed and so that's that's bad when you see the move index get higher i was talking about this Yeah. Yeah. So that's the issue, right? And so yeah, I think Jack and I have talked about it. So that's the issue and that's part of the calculation. Okay, so this goes back to your question, what do I think is going to happen with Bitcoin this year? Well, I still think that we're expanding liquidity. And you can see it. You've seen liquidity expanding recently. And so, and Michael's studies have shown that liquidity goes in five to six years cycles. The last cycle bottomed out, and it's going to be five years. coming at the end of this year, I believe. So his point is that liquidity is going to peak at sometime in the first quarter of 2026. Okay. So you would think, well, that means Bitcoin's gonna peak in the first quarter of 2026.

Yep. Not so fast because what happens is Bitcoin lags by about three months, by about 10 to 12 weeks. So now Bitcoin's gonna lag that. So if all things being equal, you don't have a market shock, which takes everything that I'm talking and throw out the window. Right out the thing. Yeah, exactly.

But if we don't have a market shock and we just keep continuing doing what we're doing through the end of this year, then I think that Bitcoin's going to peak out somewhere in the first quarter of next year to, you know, half. Like the first quarter of the first half of next year, it's going to peak out. What's that number? I don't know. That does make sense though, because one thing that I've had stuck in my head for a little while now is that going into the midterms next year, Trump is going to want that economy running

really hot. Really hot. And so those two things then kind of align perfectly if that is how it plays out. It's exactly right. And he wants it right before midterms, right? Yeah. So, yeah, exactly. And I know you say you're not going to pick a price, but like I assume you're not

thinking 150 is the top. No, I think we're going to be 150, 180 by the end of this year. I don't know where the top is because if we get into one of those blow off top instances, it could be 300. I have no idea. I mean, truly. I'm not the guy who says it's. It's going to be a million this year, but I don't know.

It's big. You might be wrong. I mean, I might be wrong. I'd be happy to be wrong. Well, thank you so much for this, James. Where do you want to send anyone? Tell them how to get the newsletter. Yeah, so the newsletters on Substack.

It's just the informationist. You can find the link in my Twitter profile. It's just James lavish.com. And of course, you know, the Bitcoin Opportunity Fund, we just launched Fund too. Nice. Yeah, we're doing well. We've raised 20% of our goal already in the first.

What's the goal for? Yeah, 50. Yeah. So yeah, so we're, and we're doing well already with it. We've got some crazy, like these investments are just, they're wild right now. We have some huge paper profit. They're paper profits. Of course.

But, you know, until shares are issued, I can't really talk about all of any of them yet. But yeah, so, and if you're interested in that and you're an accredited investor, just go to Bitcoin Opportunity. Fund and, you know, just fill out your name and stuff. can get on the phone talk with you and tell you what's going on so love it well thank you for this james it's been great awesome it's been great to be here always dame baby love it this week's going to be an absolute shake show but i'm excited it's going to be mental all right thank you ma'm all right thanks buddy