Transcript+
Before we get into the episode, a quick reminder that the last trade is for informational and entertainment purposes only and nothing should be construed as investment or legal advice. Now for a word from on RAMP on RAMP is a Bitcoin asset management platform built on multi institution custody. We serve high net worth individuals, institutional investors and financial intermediaries with the best in class suite of products which include multi institution custody, a spot Bitcoin fund, Onram Wealth for Rias and private wealth services for high net worth individuals. Leveraging our partnership with Bit Go and other industry leaders, Onram's Multi Institution Custody is a first of its kind institutional grade vault requiring two of three institutions at any point in time to sign once a client's unique permissions have been met. Our multi institution vaults utilize cold storage, key signing and authentication at the direction of the client to maximize security for client assets. This pioneering approach to custody is the foundation of On Ramp's financial products which reduce counterparty risk associated with trusting a single institution. To learn more about how On Ramp can help you secure a new or existing Bitcoin position, please visit our website at on rampbitcoin.com, where you can schedule a consultation and connect directly with our team. What you're telling me is that music is about to stop, and we're going to be left holding the biggest bag of odorous excrement ever assembled in the history. Of doctors. 1974. 1987. 90. 297-2000 and whatever we want to call this, it's all just the same. Thing over and over. We can't help ourselves. I say when we sell, hey, I say when we sell. We can jump off from there and we're live. Nick Bhatia, founder of the Bitcoin Layer offer, author of Layered Money you've been charting since 4:00 AM your time. I have been. I woke up at. I woke up at about 4:30 today and. It was right into it because this morning 5:30 we had jobless claims, 7:00 was we had factory orders as well and just the as a West Coast rates person your day, you have to be on the desk by 5:30 so. You have to if if you want coffee, if you want anytime in the morning to do anything, you have to be up way before 5:30. Because once 530 starts, the analysis has to be the the analysis has to start. And it honestly has to start before, because Europe has had time to digest what happened yesterday here, which was a massive miss on ISM, so. It's not every day that I force myself to be on the desk, 'cause that's what I have to do. It's that when the markets are moving, because there's material information that either has or even might happen, I I just have to be on it. And so yesterday's ISM was material One of the biggest. I think one of the biggest releases that we've had in several months to give us an indication on what's going on. So, yeah, I've been in the last 24 hours, especially yesterday with Fed day, last 48 hours have been absolutely plugged into the markets, but it's not always like that for me. Before before we jump into all that it was before the restart hit recording. We were talking about the time zone difference and appreciating Nick for jumping on. And it was almost like a flex. It wasn't. But like Nick was like I've been. I've been charting since Marta, you you were sleeping on your having dreams about this pod and when you when you started the pod where you're like you've been charting since I was in diapers, it was that's where I was going to go with the whole Nick. Nick flexing on on working at 4:00 AM. But I I felt this. We were in Vegas last week. I don't spend a lot of time on the West Coast, but I mean, obviously Jesse has and. Being, you know. Pacific Standard Time. It's a it's a whirl. When you wake up and the whole world's already like, moving around, you're like, holy shit, I just lost three hours, so yeah. I went to bed. I went to bed before 9:00 PM yesterday. So that's it's it is an adjusted schedule. But you know, that's just the life of that's kind of our lifestyle, that's how we operate, the three of us in this family, me and my wife and our daughter. Yeah, it's a grind and there's a lot going on. Like you said, a lot of news. You know the ISM, Logan, if you pull that up, pretty abysmal. Today's IMISM showed that a grand total of 11% of industries, 2 out of 18 posted any growth in October, the same depressed share as in the spring of 2020, in the fall of 2008. But there's no recession, right. So in your mind, how are you reading this IMISM print? What were the expectations and? What does this print essentially say? Yeah. So ISM is a is APMI, it's that means purchasing managers index. It is a diffusion index in which the 50 line is on average a response of no change to our activity, no change from last month above 50 means. Stronger orders, stronger hiring below 50, weaker hiring, etcetera. So the reason that we love ISM is that it's the longest data series that genuinely correlates with GDPI. Look at ISM as a live GDP, and it's realized in that it's last month's data. On the 1st of the month and it is a series, a series that's been out for the 40s from the manufacturing side. So it's just it's just a great series, it's the best series that we have and so when ISM misses, but where it is, is is probably the most important. So we've been below 50 on ISM. For quite some time and it's been trending down since 6 from 60 range two years ago. So the economy has been in decline for a couple years and it it has been from a manufacturing perspective in contraction for a few months. But there's there was a recent bounce up to 49 and this this draw down back to I believe 46.9 is the number that we were at. And I'll pull it up just to make sure, but the the fact that the bounce in the economy was short lived or is not there based on this ISM means that red flags are going off from every research analyst that takes this stuff seriously. Every alarm bell is going off that the recession that we thought is coming is coming. And that's that's the basic, as much as I can summarize it, but this mess, basically it it puts the oh, we're going to avoid recession. It puts that narrative firmly, firmly on watch. And of course, no one data print tells us everything. And so we're gonna be looking for other things to confirm this. But the way that yields responded yesterday in all parts of the curve tells me that many, many read it the way that I did yesterday, which was that it's it was a bad sign for the economy, for the US economy. So, so Nick, does that mean that you are thinking that this is a soft landing, medium landing, hard landing situation that that we're looking at and and also for some clarity for for everyone when you're talking about yields reacting, I saw yesterday that the I forget which two yields uninverted after you know the last year of being inverted. Is that what you're talking about? Is that it? Yeah, twos, 30s, nine inverted. But I. The shape of the yield curve wasn't necessarily what I didn't actually. I don't think that the yield curve move was material important yesterday. The signal was the bull move and the fact that twos declined as well as 10s and 30s declined the whole curve. The whole curve was bit yesterday and that is what I. Am talking about here, it's not actually the. Sometimes the shape of the curve is the more important thing, sometimes it's the direction, sometimes it's the magnitude. Yesterday it was just the magnitude lower in yields breaking to new lows of recent range. Of course that's relative, because yields have been screaming higher. In especially the long end of the curve, in the short end of the curve they've actually been very flat and we're and we're well bid yesterday that's almost the most important thing was kind of the action in twos and the action in twos did UN invert twos 30s as twos were bid right and and 30s were not bid as well and it UN inverted that shape of the curve. So twos 30s is material in that. Yeah, the two year part of the curve. Was the thing that I watched most closely yesterday and you know I have, you know I have half an eye on it today here as well. Yeah, I saw a few days ago, I guess Stan Druckenmiller said that he is, it has a big bullish position on treasury bonds because he does not believe that hire for longer is possible and and then the move yesterday kind of suggests that the market is starting to see that as well. Yeah, I I probably read it the same way as him on this one. I know he had a dollar bear call recently that I didn't I didn't agree with. And so, but yes, I don't, I don't really believe in hire for longer either in that the average is around 7 to 8 months and I think you know. I think we might get 12 months of it tops you you mean specifically between the the last rate hike and the the first rate cut historically has been an average of of seven or eight months and and I guess now we're at like 3 months or something like that. Yeah. So the last rate hike was in July, yeah. And so you know by mid next year? It is my base case that the Fed goes into cuts. It might still be in QT, which is the. I think that's one of the most important things to watch and might be more important than interest rates. And in fact, I do believe that the balance sheet is potentially more of a serious impact than. Rate direction yeah this was something I was I was going to make sure to to check in on you with. I came on your show about a year ago and you you felt that the the Fed was going to continue rolling assets off their balance sheet and and they would have no problem doing that and and I didn't see how that was possible. They still have managed to keep that going, but at the time I I was indexing back to the last time they they tightened and they tried to roll assets off their balance sheet. They managed to get 14% of their balance sheet off before they had to reverse and right now they've managed to roll 11% of their balance sheet off. Do you think that that continues? Do you think that they run into some sort of brick wall, you know and and are forced to, you know, in the next six months if that lines up with rate cutting that they are forced to start, you know, reversing that? Yeah. So I definitely don't know when I don't really have a projection there. But the the key is that the wall is there because the whole framework is an ample reserves framework. So that's what the Fed calls what they do. It's a defense or an explanation of QE. X post. So what they did is they did QE and then several years later they said, OK, we're calling this an ample reserves framework. It's actually hilarious. It's actually hilarious. But this is the framework that they give us. So they have an ample reserves framework. It means that we our goal is to keep an ample amount of reserves in the system. So as to not affect the money market curve having a disruption, and as long as there's a as long as they're ample reserves, then onshore U.S. banks have the ability to move money around to protect against or basically to arbitrage away any differences in money markets based off what the Fed is offering. In repo and reverse repo which are essentially it's policy tools now the reverse repo facility the the interest on reserve balances that it pays banks, those are you know what they use as floor rates and then the ceiling rate is the standing repo facility which they're willing to to lend out into the market. So they if the Fed has these repo rates, and by the way, both of them are relatively new. They've had to start them after the ample reserves framework to manage the reserves. So the the Fed is operating under an entirely new monetary regime today than they were ten years ago, and then that itself is magnitudes different than it was pre 2008, yeah. So we're in an ample reserves, this ample reserve to answer your question when they draw down the reserves. The reserves hit a level at which they are no longer ample and that is all you need to understand. I really want to explain the basics here. It's ample until it's not and that level is there. They hit it in 20/18/19 they had to reverse. The reverse was way before the pandemic and they are going to hit it. I don't know when. But this is what this is, what we're watching here. As Parker Lewis would say, it's a very simple equation. There's too much debt, not enough dollars. Interest rates are high, reserves are being drained and pulled off the market and at some point it will hit that wall. And I think it's very interesting. We had the ISM print yesterday. Obviously we had Jerome Powell getting up and giving comments on on the continued pause and he I think this was like the most. Unorganized, he's ever been in. It was complete word salad trying to frame like, oh, we don't know what we're going to do. We're going to look at the indicators. We don't want to tighten too much and we don't want to loosen too much. On top of that, you had the Atlanta Fed come out and cut GDP forecast down from I believe 2.4 to 1.3% for Q4 this year. So all that in aggregate is basically saying, all right, we might be in a recession and bonds. Bonds. Reverse stock market is up. And I think it's indicative of the fact that right now we live in a market where the tail wags the dog Like it became glaringly obvious that we're either entering A recession or in the middle of a recession yesterday. And markets pumped because they see that and they're like, oh, the Fed's gonna have to drop rates and pour more money in. So party's back on, which is completely insane. My book. And. I was just gonna say, pal, pal can't say anything other than what he said because he's he's totally trapped. Like he he can't. He can't say that. Oh, it's looking bad, 'cause then everything screams higher because they they sense the the stimulus. And he can't say, he can't say it's that great because it's not. Sorry, Mike. No. No, no, it's fine. I was, I was curious. I come at this from like just the way my brain works from a qualitative like. Not first principled but like in the market perspective of of and it's always challenging. We have folks on where we have conversations that we basically talk in Fed speak even whether we know it or not. We talk about interest rates and recessions and soft landing in like from anybody in the market. It's completely a hard landing. We're in a recession deeply, and it's ISM. Never heard of it, right? Coming in. I believe it. Just speech. But like the angle, what I look at it is. The, the and it's just funny and it's just just just. Juxtaposed. Juxtaposing what happened with Wework yesterday with Wework file for bankruptcy and anybody looking at that. I didn't catch that. Yeah. And anybody looking at that is like that was clear before let's call it three years ago, but everybody knew you're sitting on these firms venture you know back that. Are have, don't have cash. Flows. It was a big kind of almost Ponzi in the middle, and I don't know if you know. Nick, I was at we work in the middle of the Ponzi but and it's no longer there, which is why they bank went bankrupt. Exactly. But the but the point being is that like we've seen in these charts and there was a recent Carta chart that shows the the number of startups that have just completely like gone under either you know are completely insolvent and gone away the amount of capital coming into the system. So it makes complete sense that we work's model, but that's we work, it's just like a microcosm because that means real estate, that means everybody that's using that. When we talk about interest rates, amount of consumer spending, so it's like obvious whatever the ISM stands for, stands for, had to have gone down. But it's just like a big shock and now we're like, oh, we're in a recession. It's like we knew this 12 months ago. And I I'm more curious like how do you manage that from like your own intellectual kind of like two sides of the brain and how you talk to folks that are looking at it, 'cause you can't really say that to people because the Fed's saying something else and we have to play that game. But it's always just been curious how we we we're basically saying two different things anyway. Yeah, it's a great the the way I address it is the way I teach it to my students, which is cycle theory of investing. And in a cycle theory, you have a business cycle when the cycle is just getting started, meaning a recession has just happened. The worst out of the after the worst part of the recession is when things seem the most pessimistic for everyone out there. The most number of people have lost their jobs, the most contraction has happened. Spending has fallen off of a Cliff, 'cause everyone is terrified of everything. At that point. If you invest in risky assets, you will outperform. And if you get rotate out of risky assets into conservative assets right before the recession hits, you can outperform this idea of a 6040 portfolio. That is what I teach my students and how to approach this whole game of macro market analysis. Because what's the whole point of macro market analysis? It's to be able to to have performance on your assets. Now if the performance on your assets has a benchmark, then you can compare yourself. If it doesn't, then you can do whatever you want with investment. But for 99% of the investing world. And so just the way that you teach it or you've come from the perspective is that if you can just buy the S&P and go to sleep every night, then that's what you should do. But if you think you can outperform the S&P, which most people cannot by the way, most professionals underperform, Marty knows this, we've talked about this, most professional managers underperform. That is the law of numbers. So if you think you can outperform the S&P or whatever basic benchmarks are out there, you have to have an approach other than by the buy and hold the S&P. And so that's that's just how I approach it. Your question was how, how do you like boil it down 12 months in advance. You just say, hey we're tracking the business cycle and the business cycle is ending. That's what we've been talking about for 12 months at the Bitcoin layer. Look at the cycle, it's over and you should rotate into conservative assets from risky assets as just a one. We don't give investment advice, but it's it's the, it's the binary approach to investing, risky or conservative, not stocks or bought versus bonds or Bitcoin versus stocks or Bitcoin versus treasuries. It's just A or B. And that's how I teach it. So you look at the cycle, you show them, you show them one or two metrics that show where we are in the cycle like World Trade or ISM. And you just tell them, look, there's a correlation with returns and the cycle. You can perform better than the average if you rotate between A&B and you time it right over a 5 to 10 year time horizon. And that's the way that we approach it, not in a trading mode or looking at every little thing. I do that because I have to do that as well as the longer term. That's my job, that's my profession. It's the analysis of this sector itself. So I analyze every rate from overnight to 30 years and but when we're boiling it down, you just say, hey look at the cycle and the yield curve is another indicator. So when that went into inversion a year ago, that was your red flag two, almost two years ago now. And and just to pull on that a little bit more, the thing that reminds me of is it's a cousin of in 21 talking with individuals, the Fed speak was transitory when it was clear it wasn't like we we knew the amount of money supply. What what what would that play have been or how would that have been realized in the market to protect an individual or you know, middle of 21, I remember talking with Goldman Sachs private investors saying it's just transitory. They believed it in their soul and they were telling everybody the exact same thing and. That was what was being related to them. But what was the play there 'cause I'm just trying to understand in my own mind, how do you? Take the market for telling you and realize that it's it's not what's actually happening. And then how do you protect yourself, or at least have a like a fundamental frame of reference to manage what's being, like, drained in people's heads? That's just obviously not true. The play in going into the hiking cycle with if you see the inflation, the play is to go into bills, It's to go into actual cash so that you get the new rate every three, you know one to three months when it goes up and you just stay in bills and the rotation from bills to like longer term treasuries is I think happening now. Then rates will come down across the curve and then the time to get into risk will be right at that point where the Fed comes in with the with the with the rescue package etcetera, etcetera. So it is a playbook that you have to follow, you have to time, but even for people that aren't trying to time the market, I think just understanding generally what's going on is is advantageous and at the point in which the Fed it's it's guaranteed the Fed is going to start hiking rates. You have to get out of both the treasuries and the stocks because yields will go up it'll damage your returns and and stocks will come down because yields are going up and making the present value calculation of equity go down. So the only way to avoid that is bills because you never lose you, you you buy it for three months, it matures, you get it the higher yield, it matures you get the higher yield and you outperform everyone. And that's what people say go to cash they mean go to bills and of course Mike of course Mike it looking Expos hindsight is 2020. Of course we know everything is that's going to happen in advance. No, that's not the way it goes. That's why I I'm not in the, you know, my career track could have been toward portfolio manager one day, but I didn't want that because it's not that's not what I want. I know Marty also is at an asset manager. Jesse, you've worked in asset management if I remember correctly, or you have a background there as well? But. Yeah kind of like I I ran a little crypto hedge fund so yeah yeah so you know what it's like to be fiduciary you guys are are fiduciaries with with your your VC as well it money on the line is a serious serious endeavor and from a from a multi billions of dollars perspective and playing these markets for me it was more just go toward the research instead of trying to time the market because it's it is a unique skill set that whether or not I had it I didn't choose to pursue that I I chose to pursue the education side of things because it's a really really tough job to try to time this stuff. And this brings up an interesting topic I think we should dive into Because Michael Yu. Mentioned we work going bankrupt. We talked about them a few months ago when the news of the corporate bond yield trading at like 90% or something like that popped on to our radar. And I was like, oh, this is very high risk. And obviously with the rate hike regime of the last two, 1 1/2 years, we can safely assume that there are probably a lot more Weworks out there and despite the fact that we're getting. These bearish economic indicators and cutting GDP growth forecast, Fed still has rates where they are. And I guess that's the big question like to put yourself in Jerome Powell's mind. And even though the indicators are saying all right, maybe it's time to reverse course with our interest rate policy as. We mentioned earlier the amount of time between the last hike and the first cut is typically 7 to 9 months or something like that. So that would put us at what, beginning, end of Q1 next year? If we're, if we're using that as barometer, we're at middle Q1. So a few months from now. And I guess that's the big question. Can all of these corporations out there with bond yields that are screaming debt service? Levels that are still high because interest rates are high, like can they survive the next few months before the the rate cuts come if they do materialize, if Jerome Pal decides to do that, who knows, maybe he can be stubborn and be like, no, we're keeping them higher for longer. But I guess that's question one and then question 2. I forgot question two. So let's focus on question one and I'll remember question 2. All right. So the, the way to the way that I approach this again, it kind of goes back to Mike's question as well. There are going to be defaults and bankruptcies on the fringes and then move toward. It keeps moving toward the center, but the way it moves toward the center is that the customers of the center are at the fringes. So when the bankruptcies happen, happen out, then it affects the next level and then the next level. And then ultimately the core earnings of the mega caps do decline as as unemployment has spiked enough to actually damage the consumption component of GDP, which you guys know is about 3/4 of the economy is what people spend. And when people spending goes down, it only happens after the spike in unemployment. That can only happen after enough companies contract or go bankrupt and and all that. So in the cycle, these things do take time to play out, but you only need one indicator and it's not ISMI promise. It's the S&P 500 because the Fed they pretend that their mandate is unemployment and inflation, but it's not. It's the S&P 500. It's the wealth effect and to a lesser extent home prices, but it's the S&P 500 and and to a lesser extent home prices. That's it. You could remove the Fed's entire framework and them just move rates based off of what stocks are doing. So when how long can the Fed stay on higher for longer? They can stay at higher for longer as long as you don't get go into violent decline on the S&P 500 and even if you go into slow decline they can even hang on for longer. But I will give you a threshold which is that at a 50% decline from the all time highs, you are guaranteed to see a complete reversal in policy in that QT stops QE, either QT stops QE resumes rates are cut dramatically or a combination of the sort to get really things started. So the answer is that there can be a lot of pain on the fringes. And the bigger the bubble grew and let's not even call it a bubble, the more the economy expanded based off of just natural tendencies to leverage up and start new businesses and invest in projects like we work or you know other pockets of the economy. That only happened during these times when all of the the larger that expansion is, which you we can argue has been 15 years in the making now or 12 years in the making somewhere in that range that all of those will contract before you see a 30% decline in the S&P 500. And so can they hang on for a 30% decline in the S&P 500 without fully like a full pivot? Yes, is, especially if it's slow. If it grinds out and that is all that's, I would say that's almost my base case and so. And that would be like a soft landing, sure. And because again and I know that your question was about the the type of the landing Jesse. But when I think about that question and how to answer it, it's a landing it it doesn't have to be, you don't have to characterize the landing because the remember if we're focused on investment returns it's when you go out of cash to treasuries to treasuries to stocks in the binary sense of the and so when the landing happens it's when stocks are going down South. Measure the stock decline is, is how you should characterize it and what is the stock decline? I don't, I don't really know. I don't know how to characterize that. I do know the Fed. It's it's it's the Fed's mandate to not allow that to crash. So you have a you do have a put. But I do know that they you better take them seriously in that the put is nowhere, it's nowhere close. It's nowhere to be found. It's not a 10%, it's not at 20%, it's not at 25%. So it is somewhere between 25 and 50%. That's again, that's the framework. Thanks for tuning in to the last trade. If you're enjoying the show and want to dive deeper, check us out at on rampbitcoin.com where you'll find a full suite of institutional grade research and analytics, including our recently published white paper, bitcoin's full potential valuation, and our new tool, the On Ramp Terminal. Now back to the show. Isn't there like a an escape velocity point where that decrease happens and then it starts to compound because you just like reduce margins if interest rates are higher. So margins are reduced from profit centers in people's personal balance sheets are decreasing whether it's because inflation is still running. So there we know like credit card and all the things associated with that coupled with their purchasing power is reducing and they're spending less. And now you just start and so they're that cycle starts to go backwards and you hit that 20%. Next, you know, you're at 40%. You know, like it is, Yeah, I'm smiling because you're describing it. You're describing it in a way that is both accurate and wrong at the same time. I'll explain why. OK you it's completely right that once it hits 20, it's easy to get to 40, but it's not because of the stuff that you're describing, It's because of market structure. And this is the scary thing. And This is why I smile 'cause now I'm remembering my mentors and their words in in in my brain literally right now. My mentors taught me that you guys know what the terms OK, A2 Sigma event, A5 Sigma event. What that means is that you have a 2 standard standard deviation move or A5 standard deviation move means that this is like a one in you know it's a one in 100 occurrence or this this should only happen one every 63 years. I'm just making up a number, right. The events that are supposed to occur one every 63 years are occurring one every five to 10 years in these financial markets the way that the structure is. So Mike, it the answer is yes, but it's because of this not necessarily just that leverage got out of hand so that the contraction kind of feeds on itself. That does happen, but that's what drives GDP from 5% growth to 1% contraction. But it's not what drives the S&P 500 down 550%. The what drives the S&P 500 down 50% is the fact that five Sigma events are happening every few years now. And the reason that those events are happening is because of hidden leverage and hidden counterparty risk that we can't see on the surface of the market but we almost have to assume is there, which I smile because it it it is a danger zone that you're talking about and not something I cover too much because I don't. I don't, I don't want to try to scare people about the speed at which financial crises can happen, because talking about a financial crisis is coming is not, that's not, it's just not my business. I'm trying to, you know, analyze the cycle while in the background you do have to understand this, this component of market structure. And I try to explain that through the existence of the euro dollar system, the offshore dollar system, the existence of interbank risk, shadow money, forex swaps repo, which is all kind of this shadow money world that there's so much leverage and risk in there that you never know what's there. We, we do know that the Fed is willing to step in the swap lines with the ECB and the Swiss National Bank are there. They've been exercised. They will be exercised again. So all of that stuff is there at the surface. Yeah. I guess the the point in bringing that up and where the risk is, is because it's like micro or macro where it's like the individual that has it's overextended and. You know, stock market starts to fall. They have to sell the boat or they, you know, get foreclosed and that person owes, you know, the manufacturing facility all the way to the hedge fund. They're both, you know, two sides of the same coin of that. Like the it's more the Fed having to be prepared for that. And at what point, I know you're referencing it could be the 20 to 30% but it feels like that, you know, risk. They know it exists and so is it really 30% or is it 12% or 15% where it's like, oh shit starts to break. And you have to step in before I guess is maybe where Jesse was a little going to. It was like how much can they really take before somebody comes in? How much? Yeah, yeah. I mean in the end the unemployment rate, if it does get high enough they they do have to pivot before stocks but. My point is that stocks will exhibit that long before unemployment and the unemployment will maybe even lag and could lag. And those are structural, you know, those are structural problems with the US economy that have to solve each time we go through a cycle. Because in a recession, old business models do die off. And so that comes with that, comes with recessions, and recessions bring unemployment. And unemployment brings, you know, can bring a lot of devastation. Yeah, I I think one of the assumptions I have when thinking about how this plays out is that the Fed is inherently reactive and and managing based on you know the last 12 months of data they're driving in the the rear view mirror. So fundamentally they're always late to to make shifts in policy that they should make and if you play that forward into you know you're you're you're landing the plane is it it's a crash landing is it going to be a soft landing or or hard landing. But you're managing your descent based on data from 12 months ago. You're not going to have a graceful landing there and and that you know in in how these. And how a recession sort of becomes a gradually then suddenly kind of event the the the track record of the Fed is to always be ham fisted until the crisis becomes acute and then they swing hard in the other direction and the pendulum goes to stimulus in a big way very quickly. So they're always kind of, you know, bouncing from one guide rail to the next because they're inherently managing based on old data. And and that's just how it works out. So you know based on that history and that just kind of reality that they are so conservative in managing based on data and the data sets that they're they feel comfortable with are 1218 months long that they're they always miss it. And so they're going to miss the time when they should be pivoting into a graceful, you know, like going neutral in order to hit that 30% decline. And rather than avoiding and avoid a 50% decline, you know assuming if that's what the the Fed would would view as a optimal outcome which I think is reasonable. And I think it's probably their dream, you know to to deflate the housing market a little bit but not kill people and do the same with the S&P. But they're they just don't know when to actually go neutral. They're gonna. You know, drive this thing into the ground and and go to that 50% decline and then you know, swing too hard in the other direction and we're going to see $10 trillion of stimulus over the next few years. That that just feels like the scenario that that we're on track for in my book. Well, and I think we have to bring in inflation too. I think that I think yesterday, if there was one thing to be gleaned from Powell's comments is that he's still wolf like petrified of inflation remaining high. Because if. You know, we do go into a recession and we get into like a stagflationary event and he's forced to lower rates and pump more money into the system. It could be a complete collapse in confidence. And so I guess, I I mean, I think we believe so. I think they're trying to pretend like they can avoid it and it's a big game of chicken. And I think enough, I think probably the majority of policy makers genuinely believe that that. Stimulus is not directly causing inflation and and I I think that that is the world in which our our policy, the majority of policy makers believe that still and they will will learn that lesson the hard way over the next decade or so. And you know, so I think that like the number one thing that they need to be cognizant of avoiding if they want to keep inflation down. They are not going to be aware of like, you know, they're they're going to think of it as a saviour, like stimulus as a saviour to get out of an economic crisis. That's what, that's what you know, everybody is trained in in this sort of Keynesian economic cycle of interventionist approach to to monetary policy. Like that's that's the bread and butter is you stimulate your way out of a crisis and that makes it less bad. And and you're literally not taught that like, oh the the stimulus, the growing the monetary base causes the price of everything to inflate. Well, and there's another factor here that Nick, I'd like to get your thoughts on, which is with raids staying higher for longer, who knows how long, but as we've seen. Over the last six months the Treasury is on a bit of a a debt binge, issuing new treasuries at higher rates. Like, how much does that factor into the Fed's decision too? I know Powell made some comments about the fiscal side of things earlier this week, but he definitely he can't admit it. But there's definitely that thought in the back of his mind. He's looking at Janet Yellen issue $1.7 trillion worth of debt in the course of of the 1st 3/4 of this year. Or maybe it was just an. Q3 this year. And we're up to .1 trillion dollars since the the actually more than that now since the debt ceiling lifted in June. Yeah. So four months. Yeah, yeah. So Q3 almost 2 trillion. So Powell's gotta be seeing that, seeing where he has rates at and be like, holy shit like you're gonna completely bankrupt the country and have the interest rate explode through the roof. Which Logan bring up that chart? Of the ratio of GDP to interest expense, comparing how quickly it grew in the last three years, comparing it to the gross of the ratio in the 70s. What took 20 years in the 60s and 70s took three years in in the twenty 20s. Wow. I wow. I didn't. I've never seen that chart. That's incredible. And so real yields, so we can real yields have risen substantially to account for this real yields right now at about 2 1/2 percent above and beyond the 10 year inflation expectations which are at about 2 1/2 percent they these are multi decade highs. So the fact that people are demanding more of a real return for their treasury investment above and beyond longer term inflation expectations is a result of how much debt is being issued that's I mean that's been the the driver here. The answer Marty to your question is just remember March joint statement from Yellen and Powell. Saving the system BTFP Silicon Valley joint statement with Lagarde about Credit Suisse, that's what that's where we are. It's the five Sigma events happening every couple years. The next one will bring a joint statement from Yellen and Powell, or whoever is in power at that time. And it'll be another because they can't not right the structural size of the debt, the structural problems in the system. They're too big for the stimulus to not be the answer in some way. My my point in terms of how long they can, you know they can extend and pretend doesn't have. It doesn't, It won't necessarily be driven by all of a sudden interest rates as a percentage of GDP back to 5% which is multi decade highs. It is more going to be the result of something more within the financial plumbing side of things, not just a raw or nominal. Interest expense regime. Because remember, if this goes back to what Jesse was saying about the Fed being lagging, the Fed is lagging. One of our slogans at the Bitcoin layer is rates lead the Fed. It's a core principle of what we do. the Fed is almost irrelevant. When inflation was going, you asked, Mike asked what do you do when inflation is going. Look at the two year yield it got, It went from essentially 0. To 3% faster than the Fed could even get like its first trip and shoot, you know, shoelaces tied out of the door with the rate hikes, the market is so ahead of the Fed it's not even funny. You don't even have to really look at what the Fed is doing. You could just look at the twos part of the curve fives 10s and understand what's going on with investors and what they demand for current inflation. Which if you looked and 2021, you would sell the shit out of every single fixed income investment that you owned because of duration. And so look, he he pulled back. No, no, I'm sorry. Like us back 'cause this is. I'm glad you brought this up, Nick. This was a key thing and I don't know if it's a general, general consensus on this and I don't think it's in the standard market. But I heard you a few weeks ago bring this up with Peter on this exact aspect that basically private markets are driving interest rates and then the Feds, the lagging lagging indicator, lagging behind. But what started to like and I'm just curious the thoughts and like if this makes any sense is that we talk about feds because it said in the beginning, we say it all the time and there's like this inflation and that you even said it. You said real rates. And I make the case that the real rates aren't even real at the long, you know the 10 year that they're still you know very out of water in or underwater. And so it feels like it's in. And then Jesse said or maybe it was Marty that referenced the that they believe or it was Jesse that said they don't believe that printing money drives inflation. And it's like it's the common thought of people like what BlackRock knows what the fuck Bitcoin is. Like, they're not in this. You know, they, they have research, they have all the money. It's like these people in my mind working through this is like they understand exactly what it is, but it's a confidence game. And if your assumption or what you said is correct and I think it is where the market is driving, then they have to signal that inflation is not what it is, that it's coming down, that we're soft landing. Because the second you start to signal that this thing is actually 12 to 15 to 20% to what you're describing completely blows out, you know, the treasuries and what the actual yields reform and so like. How do you does that make sense? It does. So I'll answer it with the real yield question. The real yield is a market rate and that's why I quote it because the TIPS yield, Treasury inflation protected securities are market instruments. They have a market yield and when you buy them. You get that yield plus ACPI look back and then that that sum is paid to you as your coupon. So it's not a it's not a fixed coupon security in that it's a floating coupon. It pays a different coupon based off of whatever the look back of inflation is for that period. But it has a fixed portion and that fixed portion is the market yield. So when you buy that bond at 2 1/2 percent, you are getting 2 1/2% plus the look back of CPI. And I know that CPI has its faults and it it is a government statistic and it probably has tremendously understated inflation over. And which compounds each year that you do it. So I'm not dismissing any of that and I do try to, I do I'm. I'm definitely guilty of the feds speak. But I do try to make sure that I'm choosing my words carefully too. The real yield going up is genuinely people saying we don't want zero plus last year CPI. It's probably we call bullshit on last year's CPI. So we want more and more and more and so that real yield going up has driven yields where they are and they and yes the market does lead the Fed in that the people when they demand an amount of interest they are doing so not based off of. What the Fed is going to do but what inflation is in the market and what the alternative opportunities for investment is. And it's not that the Fed doesn't matter the the rates lead the Fed because the rates people have to arbitrage what the Fed is going to do. Because they do raise the policy rate they do decrease the policy rate. There is a. Mechanical, like I said, the repo windows there is a math component to the way that they raise the rates. But when you invest in the two year, five year, 10 year part of the curve, what you're doing is you are arbitraging whatever the Fed is going to do based on your expectation. So bring it back to the beginning of our conversation. What did I wake up thinking about today, the two year yield because it is the best expression of what the market genuinely thinks the Fed is going to do. And as it creeps lower, the higher for longer narrative fades away and it just means that the cuts are actually going to come because it's even if just to get into the bond math of it, even if the Fed funds is at 5 and a third right now twos are at 499, so 5%, they're trading at 33 basis point discount. It doesn't mean that the market necessarily thinks that you're going to get. A 25 basis point hike one year from now and then maybe one more a a year from now, a a year from then, and then you get like 30 to 50 basis points of hikes over that period. It actually means we think there's a 50% chance of them cutting by 60 or there's a 20% chance of them cutting by 100 roughly. I'm just saying, I'm just giving you the example there. When the when this two year yield trades lower, it's saying hey there's more and more of a chance that they have to just cut rates in three months. So that's the way that the fixed income investors approach it. They have to do this probability math. And they have to assign a probability that hey, the Fed is either going to cut by 100 basis points in the next six months as shit hits the fan or it can go on hold for another 12 months and probably ends up cutting the year after, which would be your actual soft landing Jesse scenario, right. So they they it's like 50% actual soft landing, 50% shit hit the fan and we this is our discounting mechanism now. So that's why I watch these markets. It's like. Who cares what the Fed is doing or saying what they even think about inflation? What cares what the market thinks about inflation with twos at 5 and the policy rate at 5 and a third? The market isn't worried about 5 to 10% inflation. It's it's wondering are we going to be between 0 and 5% inflation? Where are we going to be there? Because if we're at like 3 status quo, maybe soft landing. If we're If we're at 2 or below, shit has probably already hit the fan because CPI is lagging to what's happening in the economy. Remember, prices go down if the consumer stops showing up. The consumer stops showing up if the consumers been fired. The consumers only fired if the businesses have gone under, and the business don't only go under when they can't make their debt payments, which has just started to happen. So that's the runway. Yeah. So at the front end of that order of operations, we. Could be, could be, but then you also have this five Sigma risk always, which is ironic because it's supposed to be 5 Sigma. It's supposed to. These are not supposed to happen every few years. Or if you, you shouldn't even have to worry about them happening every, you know, twice a year. But they're they're there somewhere. And so it's tough to, it's tough to forecast something like that. So, so let's I guess to kind of expand on, on that point there like these five Sigma events happen more frequently in a system that's becoming increasingly fragile, you know because of the level of debt. You know all the macroeconomic factors that are that are playing into that this system is is overly leveraged versus historical norms and we swing, you know our swings are more radical. So that's how you get the like increasing frequency of five Sigma events because the the data set is based on historical norms and we're living in a more radical time and then you know. I guess when when when I'm thinking about how the bond market is reacting to everything I've it, it seems like the the core assumption that the bond market continues to have is that everything is going to be OK like that. We are still within the normal range of like a healthy balance sheet basically for, for the country, for the G7, you know in private markets and public. And I think the bitcoiner perspective, you know that the the the hardcore bitcoiner perspective is that we've already passed the the effective event horizon on on Fiat and the and our debt system and that we are going to have to inflate away the debt and we're necessarily going to see a high inflation as a as part of that. And that you know the purchasing power of the dollar is going to erode at an increasingly rapid rate and and the bond market seems to behave in a way that doesn't doesn't believe that that is on the table or or if it is on the table it's like a 1 to 5% chance and and it's otherwise business as usual. Do you think that that is a fair characterization first of all? And do you think that that is starting to shift, I mean? Inherently like if you're seeing a a greater frequency of five Sigma events, you have to reassess why that is happening and and start to think, OK, maybe we're living in a changed environment and we can't rely on 50 years of data because you know things are breaking. Yes, it's a great question, Jesse, and this is the one that we could just go go on forever about because there's so much there. First of all, it is a fair characterization that the bond market isn't too worried about the fundamentals of the US fiscal picture. In a long term basis. However, real yields have risen from from zero negative to 2 1/2. So there is there's definitely more of a premium. They call this term premium or? Risk premium even for owning treasuries themselves, which is why it's not usually referred to as a risk premium from the treasury perspective. But there is some, there is some statement from the market that we want more compensation, OK, but generally they're not at record levels, they're at multi decade highs, but they're not at record levels or anything to be too alarming. So I think it is a fair characterization. That the bond market isn't generally too worried. One caveat though, I won't say G7 because I just don't. I just don't. I can't say that for those, OK, I'm AI, am a predominantly US analyst and I also have a bias toward the dollar versus all the other Fiat including the euro, the pound. The yen, the Chinese one, etcetera, I do have a strong bias in that. I think that the US can outlast, outlast every single one of those countries, both on the sovereign debt market and on the FX market, which are two sides of the same coin, especially when you go into offshore banking. So that's the first thing. Second thing is that while the debt to GDP is above 100%. I would characterize it as an unprecedented situation that the US is in from a global financial systems perspective and the privilege, this privilege of being the reserve currency, is much larger than I could even try to quantify. That's the second thing. Third thing is you have to compare the size of the US Treasury market, which shameless plug for my YouTube video last night. You guys should go subscribe to the Bitcoin Layers YouTube channel. I got a really fancy new charting tool that has changed the game for us on the longer term, so we're really excited about that. Anyway, comparing the treasury market I showed comparing the treasury market to the stock market. To the size of real estate wealth, to the size of the euro dollar banking deposit market and to the size of the FX swap market. OK, the NYSE Plus, OK, the US Treasury market right now 33 trillion from bottom to top Offshore dollar. Banking market 17 trillion FX swap market 30 trillion, 30 to 35 trillion. New York Stock exchange plus NASDAQ 47 trillion and US real estate wealth that's non corporate. So household and non corporate business wealth real estate wealth 60 something trillion I believe 67 trillion or so. So you have all this wealth around the world and if you think about the treasury market relative to that market. And assigning a risk factor to those things relative to the fact that the US will pay you back in the nominal dollars regardless of what you think inflation is, regardless of what the TIPS yield is, which would be the real yield, and regardless of what CPI is, you will get the yield that they promise you nominally in USD and in onshore custodied. USD not a banking. A claim that turns immediately into a banking liability that could be at any bank around the world. Which dollars exist in that form? Probably probably to a much greater size than they exist in the United States because of this FX swap market factor. So I in in summary. The treasury situation and the fiscal situation not being all that bad based on where bond yields are and where real real yields are, I would somewhat agree with the bond market's characterization of that risk, which is that it is not that present and I do feel like this opinion specifically. Separates me from a lot of bitcoiners, but I don't think you need, I don't think you need a a, a, a cascading US fiscal and monetary crisis to spur Bitcoin adoption long term. I think, I just don't think you need it at all and I don't necessarily think that that is our near term, medium term future. Wait, you're providing me with a good segue? Sure, you could have. Could hear it earlier, but I screenshotted some charts and I think it's a good opportunity to look and bring up the chart. The second one I sent and just let's just reflect on the year that's been we've got Bitcoin verse, TLT, KB W, which is a regional banking index in the S&P 500. It's been a year about performance for Bitcoin some. Would say like the the year of the decoupling, I said that last week, so I'll just I that's what I believe this year is proving. And then obviously we're staying elevated around the $35,000 level. It'll be interesting to see with these new economic indicators and the markets be getting the signal that the Fed is has to reverse at some point if Bitcoin's success continues. I think that would be a validation of what you just said. Nick, which is that Bitcoin could succeed in any of these markets 'cause there was a a big meme in the space that Bitcoin can only go up when the monetary base is expanding. But it proved that that wrong this year. And I think what we're getting at here is that Bitcoin is its own unique animal that is sort of external to all these factors. And so when you said that, Nick, are you really? Saying something like Bitcoin's unique properties are such that it is a step function improvement on anything else we've ever seen, so people are gonna adopt it regardless of external factors in the bond market or stock market. Yes, Bitcoin is certainly a step function improvement type of technology that will continue. To demonstrate usefulness and adoption for many, many years to come, regardless of what is happening with QE rates, blah blah blah. I say blah blah blah because really, Bitcoin has nothing to do with what Yields are doing and what the Fed is doing. On the margin, it has everything to do with a technological solution to decentralized currency. To never been done, doesn't need to be done again. I I, I that's how I teach Bitcoin versus crypto. You don't need to reinvent the solution to the Byzantine Generals problem. Just doesn't need to be done. You don't. And so that is a binary. It's a zero to 1 moment for for Bitcoin. And it demonstrates immediate usefulness in its scarce supply, in that it's a juxtaposition of the current monetary system, which has an infinite supply from a theoretical perspective, and that is also binary, infinite versus finite, though the difference between those two is so stark that. While Bitcoin was aspiring to be like gold from Satoshi's own words and rhetoric and even word selection, the. The. The. Difference between Bitcoin and the current monetary system and Bitcoin plus Bitcoin as a technical solution means that over any any time horizon. That's not I think 12 months or or even you could even go out to five years over any time horizon that's shorter than that. There's no impact, I would say no impact from what the markets are doing. And but that again assumes, assumes that you have already tagged Infinity, right. You have to assume that that's what your tag is here. In the difference between Bitcoin and the current system, then if you assume it's infinite, there's nothing that they can do to shock you. And I think that Bitcoin's market value over the last 14 years has demonstrated that thesis and that is not clear to everybody in the world yet, but I think it's very clear to many people. Which ends up driving the market value and contributing to the thesis that the rate stuff doesn't actually matter. We know what they're gonna do. They've already done it. Yeah, I think it's a yeah, go ahead, Michael. I I was gonna say I think it's a there's a component of asymmetric information and the value problem Bitcoin. But then also the current market cause, the anchoring back to the, we were thinking there was $22 billion that evaporated that somebody's in, you know, counterparty risk becomes real. In the world that we're heading to where somebody thought they had a bag of something and now it's either 110th of it or zero, we've seen that this increase in. And so to your point Nick, like if that continues to occur, people recognize that you can take possession, delivery, there's finite supply. There's all these things associated with the even if like the the amount of dollars in the system stayed at a static state at this exact point. It's being more, it's being priced against other assets, which is just something we've talked about before that most people don't bring up of like. The counterparty risk because it hasn't really existed in the traditional world of other things. And SVB was an example, but there could be others in other markets where it's like you thought you had something and you didn't anyway. So it's just like kind of further reinforces that there is a, there's a component. To that. Yeah. And as Americans, that's an that's a particular challenge to education and adoption is there's no tangible, there's never been a tangible worry of. Monetary safety or even financial security from a banking relationship perspective because of things like FDIC but but many other insurance type mechanisms and psychological honestly, a psychological operation from the entire banking complex. That liability money is normal and OK and preferable. That that itself is not well understood by Americans. It's much better understood by people in more unstable currency regimes. And so a huge portion of the world is more is more familiar with that. And then again, a large portion of the world is intimately aware. And familiar with this concept. So Bitcoin as a technical solution. You talk about storage, Mike that that component can only be discovered by the people that are looking for a solution to something like that. Each SVB will drive a few Americans towards that. But maybe still, from a storage perspective, Bitcoin doesn't exist. As that for Western people as much as it does for people in other countries, and those people that do have an intimate fear of liability, money and banking money and credit money, etcetera. Those people drive the education on a global scale because they're like, hey, look what it does for us. And I just, I do my best to try to empathize with those people and step into their shoes and hear their stories. But even even I as an American have a relationship with the dollar and liability money and credit money that would be maybe for some people unfit for bitcoiner. Because you have to. There is a there is a security that we do have and insurance mechanisms. In this country, you guys are setting up financial vehicles that have all these traditional banking relationships. That is how things function and we can March toward a Bitcoin world. But we all know that from a Bitcoin denominated perspective, you're still only building, You're still only building. You're not there. You're not actually even getting to a full denomination system anytime soon. You're not even necessarily. Striving for that in the short to medium term, but you're focused on the tools and the ability to do it in Bitcoin. Yeah, interesting. So. So I, you know, I share the view that I, I characterize it as like digital gold that you know that that's the easiest value proposition of Bitcoin to to wrap your head around that, like that this thing is scarcity embodied and and you know, the increasing scarcity function of the halvings creates very attractive investment properties And that's enough, you know, like in my book that is enough to get anybody excited that, you know, this thing can go to 500,000 per per Bitcoin just based on matching gold. And then but that doesn't even touch these other forms of utility, I guess different types of utility. You know, there's that disintermediation utility of like Bitcoin can disintermediate Western Union, Visa, even banking, all sorts of financial intermediaries and in theory can eat the market cap of companies in in that that get disintermediated by Bitcoin And you sum up the value of that and that adds to the total market value of Bitcoin in time. But I think that's small relative to store value digital gold. And then there's this other piece that you know, we we I I think we do a bad job of parsing out that there's digital gold and there's as Foss, Greg Foss characterizes the credit default swaps CDs on shit going to hell and and Fiat money collapsing and and that Bitcoin has has value as an insurance policy. It's the lifeboat idea here of what's the value of insurance on the Fiat system. And you know Foss's calculations come up with that portion of the value of Bitcoin is $2,000,000. So you know in it in his mind Bitcoin should be $2,000,000 per Bitcoin based on properly baking in the insurance value of the risk of everything going to hell in in the Fiat monetary system and that's a a separate from digital gold. And So what what what I'm hearing is that you maybe you don't characterize it as digital gold, but you think that that you know there's value As for for Bitcoin as a digital store value, even if you think that the CDs value is less than most Bitcoiners believe. Yeah, I. I I I don't. Because insurance is insurance. The cost of insurance is the cost of insurance. So today the cost of Bitcoin is what it is to say an insurance cost and then model it based off of what you really think it is. I'm not so sure about that because you're extrapolating something that's not necessarily there. The price of Bitcoin is what it is today, so whatever. The insurance premium of shit going to hell. Is in the price today? I would argue that, but how do you value Bitcoin? Is it digital gold the best way? I mean, that's what I went with and layered money I I explained to people that hey, this is a digital store of value and if it went to the gold size, it could be 500,000 per coin. But how do you really value Bitcoin? It's by the utility of the people using it. So if the utility goes up and the number of people go up, then the price should go up. So I think about, I just think about from the adoption perspective, how useful is Bitcoin and how and the the utility of Bitcoin goes way beyond gold and I think. Jesse that's what you were trying to hint at as well. It does definitely go way beyond gold. And gold doesn't even begin to characterize what it feels like to move Bitcoin around the world. Because I know all of you have experience doing that. It is an the power is unreal. You have unleashed from banks and governments at the same time. Such a game changer. It's not even funny. So that gives Bitcoin a ceiling. Which is hard to define. It's going up forever, Laura. Well. I'll say that that is actually a report that we just put out at on ramp and and if anyone listening to this is interested you can go to our website and right there at the top of the page there's a button to download the full potential evaluation analysis for Bitcoin. And you know, this is a thought problem I've been. Working on for three years and and this latest version is the most expanded iteration of it and you know I I try to analyse like what defines the ceiling for Bitcoin and it's it's you know it starts by having to take stock of what defines the ceiling for other store value assets and and. Based on my understanding of of these things, the ceiling tends to be dictated by what is the new supply issuance for any given commodity that has to be absorbed every year by the market by by demand in the market. And that equilibrium kind of sets the the ceiling for what's possible for a given commodity, whether that commodity is is gold or or real estate. And that Bitcoin, because it it has this terminal absolute scarcity where there is no new issuance, is not constrained by that typical ceiling. So then the ceiling becomes not how much supply the market can absorb every year, but instead how how much of A portfolio do people end up wanting to have in a perfect store of value relative to other assets that that you want. You know, whether that's real estate or stocks or bonds or fine art. And so that that ends up becoming the framework by which I analyze what is the full potential valuation for Bitcoin. And the result is shockingly high. You know, like 2025% of, based on my conservative assumptions, 2025% of all the wealth out there. Whereas today it's 12000 put a number on it. Well, it comes up with $10 million per Bitcoin in today's dollars. That's what Hal Finney said. Yeah, it aligns with Hal's. With some different assumptions, but I ended up at yeah, at the same place and and, and it's worth noting that a lot of other people have sort of gotten to that number with various approaches. To pat myself on the back, I I think I as far as I'm aware, I I it's the most like rigorous triangulation that I've seen out there. Yeah, my original, my original price target based on my understanding of the size of financial assets and what I thought Bitcoin could or might become was in the 2 to $4 million range. You know that. Put it at you know in the 40 trillion you know zone and just you know thinking thinking it out loud you you can get to much higher numbers and then the only thing stopping you from getting there is network adoption And the only thing that can happen, you know that can prevent that is time. So it it does just. Whatever your ceilings are, and even Foss with the 2 million, he just thinks that it's for him. It's insurance that's worth 2 million, and so he buys it today at 35 S The price is always the expression of what people are willing to pay for. And you know, you, you you buy if you think it's undervalued. Right. And the people who do their homework on it end up coming up with a valuation that's above the current market price. I know we have to keep happening. Right. But I I hesitate saying this, but I'm going to say it because it's it rounds out what I wanted to say earlier is that I don't I 100% believe that there is no top and the reason why there is no top is I think of like human action from a micro example. That's the best way I can explain any of this stuff that comes from just like real world application of we're talking about the stock market and we could have been a little bearish on like or we traditionally go in that version on this pod of like shits getting messed up. But the reality is cost of capital increases, people go out of business. People have to step in from unit economics of Ubers and all these things in the world. It's a real big opportunity if you can actually think through a business model from an entrepreneurial perspective to deliver value to the market. So if that exists, and then to Jesse's point, information asymmetry, we learn what the value of Bitcoin is, then you're always starting to actually. Think of the most productive way. Do you hold the Bitcoin or do you start the business? Can you think of a better, more productive way to deliver the value and services that were given to the market but weren't really having the right unit economics and margins to be sustainable because of the cost of capital being zero? You end up at this point where you end up stepping in. Somebody steps in and finds a floor because you can deliver those services. That justifies making more Bitcoin back than the actual units that you're holding. Which is effectively, partially what we're doing here. When you think about building a business and what we're we have a choice that we can, you know, hold Bitcoin. We can, you know build a business and potentially make more Bitcoin in the future state. And if you do that right and you do that with a sustainability, you can deliver more value to the market which increases you know, GDP and all the things associated. And so that's where I think this whole thing doesn't necessarily have a top because if you end up with a base unit that has those properties and all the things get repriced. But then at the same time it's those things getting repriced, people are providing more and more value, which increases the purchasing power of that capital. And so I really think like, you know, it's a meme, but you know, says there's no top. There really is no top because it's this whole thing works. It changes the dynamic of how people produce goods and services. Yeah, I I agree there's no top in nominal dollars and but I. Take the stance of like, I actually think that I think that I'm going to say something controversial here, that I I think that the everything divided by 21 million, the Infinity divided by 21 million concept is wrong. But it's very helpful. Like I'll I'll I'll admit that it's very helpful to help Orient people's thinking about the potential scale of this. You know it it it approaches Infinity. I'll, I'll say that. But but I think that ultimately like there is a value to other assets and you're people are going to want to hold other assets in addition to just holding Bitcoin. And so if there's anything else out there you're you're not you know Bitcoin doesn't eat everything. Bitcoin doesn't become Infinity. It becomes a percentage of what's out there And you know like for that matter, like I I think that. And it's a weird thing to say, but the ultimately there's there's not 21 million Bitcoin worth of value in the world. There's 100 million Bitcoin worth of value in the world. Or maybe it's 60, maybe it's 200 because people choose to to to value other things, even if they're priced in Bitcoin. So there's a hundred $120 trillion of Fiat money in the world today, but there's $900 trillion of store value assets. So, you know, even though there's there's $120 trillion, we we understand that there's $900 trillion worth of value out there. I think that, you know, Bitcoin ends up long term, you know, becoming the unit of account and slots in into that $120 trillion role. But it's a better money. So it ends up being a a larger percentage of the world's assets and ends up it ends up sucking a lot of value out of that $900 trillion bucket. And like we're focusing on real estate specifically like real estate should be somewhat of a consumption good with some premium put on it for aesthetic, aesthetic, location, land, whatever it may be. So you have the, like, the consumable, like how big is the house? How many bedrooms does it have, how many bathrooms, what is that worth to consume those luxuries? And then a premium on the aesthetics and location, school, district, whatever. But it will not be like what we're seeing now where people are just shoveling money into real estate because it's the only thing that's holding value relative to the dollar. The counter that there was a productive asset like the counter to what Jesse's saying is you basically have two forms of assets. One that competes with money and then the other one's a a claim on a productive asset which would be like a a equity or a piece of real estate because it's a productive asset that you can provide utility. So that would be the the, the counter that's like you basically competes with money. So Bitcoin owns it. And then if it's a productive asset, like a piece of real estate or Amazon stock, because you're taking Bitcoin as a dividend from it and everything else, and it wouldn't be in between, that's why it's Infinity. But there's. But then there's you still have to allow for, like, fine art. Like people are going to want to own Monet's whether or not, you know they're producing any Bitcoin or not. Michael says no. He'd rather Michael would rather hang a big coin on the wall than a Monet, because Michael's got terrible aesthetics. You can. You can tell by the I'm kidding. We're we're rambling here now, though. Well. OK, but I I'm going to tie it back to I I cringe every time I see Infinity divided by 21 million and I feel like. It's very helpful for plebs. It's very helpful for people who don't have a traditional finance background to understand the scale of what they're buying. But I think that it doesn't do us any favors when we're talking to traditional finance to. Be talking in Infinity terms? No, I think a better meme is there's 8 billion people and only 21 million Bitcoin. I love that. Yeah. And I think the productivity claim is that the important factor there is that we've seen a lot of unproductive capital. And again going back to the we work is when you have this like no cost of capital. It changes that dynamic. On what goods and services are delivered and that's where that purchasing power continues to increase. You can get more efficient as a society. That's the idea behind, I think that the essence of an Infinity is that, like, you continue to grow the purchasing power of the money, which is what money was supposed to do. Yeah. And you're echoing something that Stan Drunkenmiller said earlier this week, which is the Fed has introduced a hurdle rate back to the market, which should make capital allocation the due diligence behind it more more intense and actual. Do actual diligence. Not gonna be Sequoia, just watching SPF play League of Legends and talk about turning bananas into digital currencies and being like, I love this founder. Here's $200 million. Those days may be gone. One of my favorite takes from that is from from safe. That said that like they should have let. SPF and that whole thing, it reminded me of what Nick was talking about with like just Counterparty risk in the States versus international, like the BTFP program. If they would have let SPB fail, like so many people would have found Bitcoin right off the bat. Same layers like FTX people would have learned like, oh, it wasn't Sam's fault, it was in exchange and all the things associated with it. Now you think about like the Counterparty Risk associated with the asset. Yeah, Nick, is there anything on top of your mind that we didn't cover that we should touch on before we leave? Writing my second book. It'll be out next year and I'm extremely excited about it. It is a Bitcoin focused book, which is a little bit different than Layered Money, which was a more monetary focused book. So I hope people will stay tuned for that and you can catch everything we're doing at the Bitcoin layer. So subscribe. Definitely check out our research, publication and our YouTube channel podcast. Awesome. Thank you for your insights. I think your perspective on rates, bonds, fed actions is really unique and this was a great conversation on that. I'm very happy this was a very rates focused episode 'cause there's a lot of questions out there. Yeah. Hear more from Nick on that. The last Peter McCormick pod I listened to, it was really great to get more insights into that. So yeah, if you want to hear more. Yeah. And and Nick, I'd I'd like to thank you for, you know in in the Bitcoin sphere we we discount the bond market as like not being perfectly right but. It's the biggest market in the world for a reason. You know, like you know the the the smartest people in the world are dealing with the biggest market in the world because it's the most money there. And so you know, I think it's really helpful for bitcoiners including me to have that like dose of reality, that reality check of like you know the bond market is rational even if they may in my opinion be not appropriately. Baking in the the potential of of hyperinflation or or inflating away the debt. At least they're more rational than bitcoiners tend to assume. And it's very helpful to have your expertise and your voice and your knowledge about the bond market out there. So hopefully this is valuable to to bitcoiners listening. Appreciate that. I'm I'm very glad, Nick, that you gave Marty an outlet because I think he really genuinely enjoys talking about this. Obviously he's here every week but his Co host on his other podcast really does not like talking about bonds and so he at least you know Marty gets to scratch both sides of the the brain. Yeah I'll try to dive down a a macro or rabbit hole metal. Just be like yeah just stay on the stacks. That's there's nothing that shit out on. ONS are a shit coin and then it's just. Shout out to Matt, Marty, Mike, Jesse. Appreciate you guys a lot, man. Alright, Nick, thank you. Enjoy the rest of your day on the West Coast. Michael, Jesse, we're all in Texas now. We should meet up. We should get together in person. I'll look through the screens. We'll see you guys next week.
Transcript source: fountain