2024, the Year of the Bitcoin Bull with Lyn Alden

SHOW NOTES:
https://www.whatbitcoindid.com/podcast/2024-the-year-of-the-bitcoin-bull

Lyn Alden is a macroeconomist and investment strategist. In this interview, we discuss the success of Lyn’s book before delving into the complexities of the current economic landscape, including the correlation between global liquidity and asset prices, notably Bitcoin. The conversation covers the bond market, inflation measures, bank insolvency issues, and the impact of fiscal policies on the economy. Lyn also shares insights on Bitcoin’s price cycles.

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TIMESTAMPS:
00:00:00 Introduction
00:03:44 Fed/Macro review
00:15:45 Bonds; banks; bitcoin bull run?
00:27:18 Macro vs elections; wen recession?
00:36:18 High inflation; Bitcoin sentiment
00:46:04 Bitcoin is legitimate; macro forecast

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#Bitcoin #Finance #Economics

****

“The United States is just set to structurally run these massive fiscal deficits…that’s called fiscal dominance, it’s where the central bank does not have full control…because the amount of public debt and the amount of public deficits are too big and forcing them to assist it.”
— Lyn Alden

Lyn Alden is a macroeconomist and investment strategist. In this interview, we discuss the success of Lyn’s book before delving into the complexities of the current economic landscape, including the correlation between global liquidity and asset prices, notably Bitcoin. The conversation covers the bond market, inflation measures, bank insolvency issues, and the impact of fiscal policies on the economy. Lyn also shares insights on Bitcoin’s price cycles.

– – – –

Lyn Alden provides a comprehensive overview of the fiscal and monetary forces shaping 2023 in this podcast. She details how the Federal Reserve’s tightening measures were counterbalanced by the Treasury’s actions, leading to a stabilization in global liquidity measures. This balance is crucial for understanding asset price movements, with Bitcoin’s sensitivity to liquidity dynamics serving as a prime example.

We evaluated the Federal Reserve’s performance, monetized fiscal deficits and the state of the bond market. Lyn acknowledged the central bank’s challenges and the limitations of their tools in addressing fiscal deficits, a primary inflation driver. Despite relying on potentially outdated models and theories, the Fed has shown adaptability in adjusting policies to the economic climate. Albeit, the level of public debt and deficits may limit the central bank’s control.

Lyn posits that inflation, driven by unresolved fiscal issues and energy dynamics, could define the next decade. She discussed the historical context of high inflation and the role of gold and Bitcoin as hedges against currency crises, noting the increasing institutional interest in these alternative assets.

We covered the outlook for Bitcoin in 2024, with Lyn underscoring the importance of viewing its price in logarithmic form, revealing a pattern of resilience and potential normalization among institutions. We also discussed the need for scaling solutions in Bitcoin to make interactions with the asset easier, cheaper, and more efficient. Lyn mentioned the possibility of soft forks and covenants, aiming to empower hubs in the Bitcoin network and improve the user experience.

So we’re going to start the year with a bang by ending the year with a bang Lynn um firstly how are you Merry Christmas Happy New Year what an amazing year you’ve had uh Merry Christmas to you uh both of us uh talked before the recording that we’ve had quiet uh Christmases for

Change um and so I I’ve had a good time it’s definitely been a big year um you’ve had a big year too you’ve been traveling uh you know kind of doing some of these major I think uh pieces of journalism I would call it uh I think they’re really powerful yeah we’ve got

The Lebanon one coming out uh very shortly actually I need Danny’s help we’ve got to record the monologue for that but they’ll come out shortly yeah no it’s been uh it’s been an incredible year even though it’s been a bare Market it’s been uh it’s been an incredible

Year so okay there’s a bunch we’re going to want to get through we want to recap last year we want to talk about next year everyone’s eyes are going to be glued to the show on Monday the Oracle ly Oren everyone’s going to know what you’re thinking what you’re saying uh

Just before we get into that congratulations on the book I know it smashed it I’ve seen Relentless Relentless I even saw it yesterday people people were posting their Christmas present and it was Lin oron’s book well I appreciate your support of it early on uh you know we did those

Interviews about it and so that helped it you know get a strong start and of course Amazon algorithms and things like that always like strong starts so I appreciate the the assist you gave it well do that can you don’t I don’t know if you can do this can you talk about

How many copies You’ sold or is that secret uh yeah I mean it’s it’s over 30,000 uh copies sold uh since uh it came out in late August uh which for a 500 page Finance book is um numbers I’m happy with and it’s still the good news

Is though after the initial burst uh it’s reached kind of a steady state where it’s it’s not really diminishing at the current time it’s it’s selling as much per day now as it was last month uh and so there seems to be a pretty long

Tail with it so I think that we’ll sell tens of thousands more uh and reach more and more people do you know if it’s penetrated many people outside of our kind of Bitcoin world uh so the the two main areas were Bitcoin world and macro

World um and I so I it is reaching a number of people that are not kind of you know fully Bitcoin native uh it’s you know it’s reaching people that are generally familiar with my work or uh that come across me on interviews and things like that you know there’s not a

H huge distribution globally um and so the distributions uh you know coming from people that come across my work somewhere or another uh we’re also working on translations I mean over the next couple years we hope to have you know 10 plus languages uh translated so

You know the I don’t I as much as I can I don’t want language to be a barrier for people to put access it especially because the the people that it needs to reach the most are not necessarily English-speaking or at least uh English speaking as a first language in many

Cases and so uh we are working on that kind of second stage which is um you know making it more globally accessible it has I some of my favorite purchases are people you know posting piics from Norway or Korea or you know Japan or wherever else kind of showing their copy

So it is available uh in a lot of different jurisdictions but it’s it’s currently only the English version it’s a bit like that with the podcast when you go into libson and you look at where are people listening and we’ve got this one listener and I think it’s in South

Sud and I really want to know who this person is but yeah you see all these random little locations you’re like this is amazing well listen congratulations I’ve got no idea how much work goes into writing a book I know you were busy and it’s got to be a lot so congratulations

On that that’s it’s amazing what you’ve done okay it’s been fairly crazy year um what I will say is that it kind of feels like we haven’t had a meltdown that I feared we would it feels like things have kind of stabilized a little bit

Obviously if I put that to you you might be like yeah Pete you’ve got no idea the Meltdown that’s coming or what’s happening in the background or the reason things are stabilized but certainly during the time of the banking crisis I was very fearful that some kind

Of huge meltdown was coming and I know we’ve still got risks of yo Ying in and out of inflation over the next decade you’ve been telling me you think this is a decade of inflation but I I think a good place to start is to say Lynn where

The hell are we at right nowo I know it’s a broad question but you know across across the macro across the economy kind of where are we at and how have we not gone into complete meltdown so I think 2023 was a story about fiscal forces and monetary forces uh offsetting

Each other uh roughly equally and and if either one was winning it was more the fiscal side and what I mean by that is that you know throughout 2022 the Federal Reserve as we all know was tightening monetary policy they were raising interest rates they were reducing their balance sheet and most

Assets uh had a very bad year in 2022 so stocks had a big problem especially growth stocks um Bitcoin obviously went down a ton uh most other assets did poorly uh normally in those types of environments bonds hold up pretty well but even they went down and so pretty

Much across the board uh if you were not in cash or you know small select uh uh set of idiosyncratic investments just about everything went down uh but by early 2023 uh we started to see a little bit of a reversal in fact it it kind of

Started in late 2022 which is basically that the treasury began offsetting some of that fed tightening and so throughout 2023 the Federal Reserve has still been tightening they you know rates rates are ending the year higher than they started uh the federal reserve’s uh balance

Sheet is lower than at start of the year so the Federal Reserve has even though they’ve decelerated their course of tightening they still are tightening uh but what’s different about uh kind of late 2022 and all of 2023 compared to the you know the first three quarters of

2022 is that the treasury is offsetting it and they they’ve done that in two primary ways so from the fourth quarter of 2022 uh through the first quarter uh first two quarters of 2023 so you know that kind of eight n month period um they were drawing down their cash

Balance and pushing it back into the market um partially that was because they had too much cash above their Target and then it it accelerated because of the debt ceiling so rather than emptying some of their cash into the financial system they had to empty

Literally all of it up until the end of May of this year um and then the second stage was that the treasury then had a choice uh you know if they went back to normal operation you’d have the FED tightening and there’d be no offset and we probably would have had a second

Stage of liquidity crisis instead the treasury said okay we’re going to issue a ton of short duration bonds T bills uh instead of the the longer duration or basically the the the overall ratio of debt issuance is going to be very much skewed uh abnormally much towards that

Short end and what that did was allowed money that was sitting in the reverse repo markets uh which is you know for lack of a better word it’s kind of money that’s like excess demand for t- bills it’s like excess cash that’s sucked out of the banking system it’s it’s it’s

Kind of parked at the FED um but not owned by the FED it’s parked at the Fed and issuing a ton of extra T bills allowed that Capital to come in back into the financial system uh and so that was another lever that the treasury pulled to to offset the fed’s

Quantitative tighten and so for example Bank Reserves are not any lower now than they were in the banking crisis that kind of that kind of stress tested their lower end uh and you know almost a year later you 10 10 months later um Bank Reserves aren’t any lower even though

The Federal Reserves still been tightening and that’s because the treasury has has used these other offsets uh to offset it and so basically the the story over the past two years was you know three quarters of tightening overall fed tightening and kind of a neutral Treasury and then

About five quarters of roughly balanced Treasury and fed actions and so various Global liquidity measures are higher now than they were in kind of the worst point which was late 2022 uh and bitcoin’s price action and many other risk assets price action tends to be highly correlated with

Global liquidity and it also just so happens that Bitcoin is is from my analysis more correlated with liquidity than any other asset that I that I track okay would you say the FED has done a good job like how would you gr would you

Give them a grade are they an F are they an a are they a b how have they done so it’s challenging because if if you don’t really think Central Banking is the best uh framework to begin with it’s hard to evaluate how they’re doing uh in terms

Of following their mandate um I think they’re doing a fairly good job um at least in the past couple years I think they they made missteps in 2020 and 2021 by not anticipating that inflation would come I think they basically underestimated the uh quantity theory of

Money uh you know they qu you know the supply of money is not the only Factor inflation but it’s a big factor for inflation uh and they severely underestimated it uh I think their models were wrong their ethere was wrong um and they got punched in the face

Basically because of it they got embarrassed um now not all the inflation was their fault a lot of it was the fiscal Authority right so it’s not just the FED deciding how much money exists they’re they’re working with the treasury to to supply it so it’s not

Just them that caused it although they contributed to it now once inflation came uh they pivoted and they got very tight uh and which is generally what they’re supposed to do uh in that you know they basically wanted to to curtail credit growth they wanted to curtail speculation they wanted to bring down

Asset prices because that helps reduce demand and therefore get back to a supply demand equilibrium which can help get prices down I think the big challenge that the FED faces is that a lot of this is outside of their control their their tools are mainly around um basically adjusting the level of Bank

Lending so there’s really two two main ways that broad money comes into existence one is very large f deficits are run and monetized by the central bank and the broader banking system and number two is that Banks decide to lent for various reasons um and for example

The 1970s most of the money supply growth was from Bank lending uh in the 1940s and then again in the 2020s these were other inflationary environments most of the new money creation was not from Bank lending it was from monetized fiscal deficits and the problem is that

The FED has no control over fiscal deficits uh you know they their main tools are kind of built around the assumption that bank lending drives most money supply growth um and so they can they can slow down the rate of Bank lending which they’ve done uh they can

You know they can damage the wealth effect to varying degrees and therefore slow down spending which they’ve they’ve you at least for a while it was working um but their tools can’t really address fiscal which is the primary driver of inflation in this cycle so given the

Tools they have they’re they’re kind of following the textbook of what they should be doing so it’s hard to give them too too bad of a grade um even though I I you know I think the whole model is is challenged and Antiquated I mean I really wrote a book called broken

Money to kind of bring attention to how how uh you know this is very outdated Tech but I guess the the people managing the tech are you know doing a decent job of it at least ever since they pivoted right I managed to follow almost all of

That I think uh I think after doing 20 odd interviews with you I’m starting to pick some of this up up but sorry just explain to me monetized Fiscal deficits just exactly what that is okay so there’s two sides that one is fiscal deficits and one is whether or not it’s

Monetized so fiscal deficits are just they’re spending more into the economy than they’re taxing from the economy right so we’re our deficits are very large uh both in absolute terms and as a percentage of GDP monetized basically refers to who financing that deficit uh if they issue a ton of bonds and the

Public buys the bonds then it’s a it’s not a monetized fiscal deficit basically uh money’s coming out of the real economy through taxes and people that are voluntarily buying these bonds so they’re giving up spending and they’re inad buying these bonds or paying these taxes and then that money is being put

Back into the economy somewhere else uh and you know that that can be inflationary uh but to a somewhat limited degree because it’s not really aggressively increasing the uh money supply because money’s being pulled out and put back in however when the Central Bank increases basically creates new

Bank Reserves and buys a significant portion of the debt issuance to fund those deficits then money’s being spent into the economy that’s not being pulled out anywhere from the real economy so just more money is coming into existence like our our our aggregate deposits are and and money in circulation is all

Higher now than it was three years ago for example and is that when they are uh buying the bonds themselves but also maybe buying up debt from Banks is that similar are they both count Yeah so basically it depends on the country in the United States uh the FED can’t

Really directly buy from the treasury instead they buy from the banks mostly that serve as intermedi it yeah so basically Banks go Banks go out and buy the bonds then they turn around and sell it right to the FED that created new base money to buy that and then that

Allows those Banks as middlemen to go out and buy more bonds and then sell them to the FED uh in addition um they can also buy from non-bank entities you know Insurance funds Pension funds things like that they can uh you know a lot of times that will go through banks

As intermediaries but basically yeah they buy in the secondary Market uh and that helps those secondary Market participants go out and buy more bonds again uh and so basically the the end result is that money is spent into the economy that’s not extracted from the economy the other way to the other way

To monetize deficit is to get uh other commercial Banks to buy the bonds because they you know their fractional Reserve Banking and so they can they can still contribute to Broad money supply increases by buying bonds um and so there are some eras where that becomes important too so for

Example the 1940s it was not just the FED buying treasuries it was also commercial Banks were buying a lot of the treasuries and therefore the money multiplier was increasing so as long as the the um non-bank public is not bu buying a lot of those um bonds then then

You know they’re being monetized but especially if the central bank’s doing it now in the past uh little while um neither the commercial Banks or the FED are buying most of the bonds and so at the current time it’s not really being monetized early in in kind of the whole

Pandemic response those initial deficits were heavily monetized in the United States in Europe uh many other places um but ever since central banks have been trying to tighten they’re no longer mon izing them at least for as long as they can uh they’re that’s part of what

They’re trying to do by being more tight monetarily is they’re trying to get more of the private sector to absorb those bonds and therefore spend less or bid up other asset prices less but they they have struggled to have people buying the bonds there was that pretty clamorous uh

Bond auction that James lavish uh wrote about uh I’m going to say was it like three months ago I’m trying to remember what what is the state of the bond market because it it does feel like I mean I don’t fully understand it but it does feel like uh it’s a lever that’s

Doesn’t have the power that it used to have for raising Capital so it’s better than it was three months ago for now um and it’s better than it was at the end of 2022 so I I previously mentioned that kind of the worst part of liquidity was

Late 2022 that was when the uh UK guilt Market blew up uh basically the the central bank was you know trying to do quantitative titing had a a meeting scheduled for uh balance sheet reduction uh which they had to cancel the next day because instead they had to go out and

Increase their balance sheet to buy bonds um because you had a negative feedback loop uh that was going to go on and they had to come in and fix that with monetization at least temporary monetization and we and we lost the Prime Minister over it yeah you lost the

Prime Minister over it shows these things are non-trivial the United States at the time uh you know the treasury market didn’t break like the guilt Market did but it did get very wobbly uh so you know back in March 2020 the treasury market broke uh like literally there were there were treasuries that

Just went no bid essentially the bid ask spread blew out liquidity was insufficient it was kind of like a crisis in markets uh the FED came in and gave a liquidity bazooka uh in in late 2022 you know that kind of September October time frame the US Treasury

Market was starting to show early signs of that but not quite outright breaking like UK guilt Market did uh but that’s also when the US stragegy started coming back in uh flooding the market with liquidity the bank of England was doing the same temporarily and then these

Other factors are kind of caught up uh and so you know at the current time you know 2023 has been a a pretty you know Vol like a high volatility year for bonds they’ve rided towards the end of the year and a lot of that triggered

When the treasury decided to issue a ton of t- bills instead they basically gave a negative Supply Shock by saying hey we’re not going to issue as many long duration bonds as as you feared and today we’re going to issue a lot of T bills um and so that that’s taken some

Of the edge off uh the bond market now I still there’s still an ongoing issue of so much Bond issuance as far as the IE can see especially in the United States um but you know these things are not linear and so there the market has cooled over the past quarter and with

Inflation down to 3% well actually I’ve got a couple of questions on that uh inflation supposedly down to 3% do do you believe it is 3% and I know it’s all subjective it depends what what you’re buying um is there a chance also that they may overshoot and we may see sub

Two even sub 1% um where are we at with inflation well so people were worried about that um more so earlier this year when they were talking about recession quite a bit uh you know it is possible they could go below 2% temporarily um the answer the

Question of of whether or not inflation is that low it partti depends on what you’re looking at but for example if you look at Energy prices you know they’re they’re generally lower than they were a year ago uh if you look at um say house prices in the US uh they’re about flat

From a year ago so they started to fall a little bit from their bubble Peak but then they started Rising again and they’re roughly flat um you know worker wages and consumer prices are generally still uh inching up some of it is measured with a lag and so for example

The official CPI statistics for house inflation like shelter inflation uh in my opinion they underestimated um how much inflation occurred there um you know there’s there’s various kind of sophisticated ways to look at this you can look at you know what is what is actual house price

Inflation doing what is what are actual rents doing on a real-time basis versus kind of this this like janky six month lagging CPI figure so they under underestimated it uh but that over time starts to reverse itself a little bit which is there’s actually a few months I think where they were overestimating

Shelter growth because their lagging indicator was still catching up to what already happened uh so in general yeah I think inflation is still not uh low but it is somewhere in the ballpark of what they’re measuring it to be even if you know there’s independent inflation measures like true flation some of them

Are you know showing numbers that are slightly below the official averages and again that’s that’s largely because shelters probably with a lag so yeah we are in a what I would consider a genuine uh disinflationary environment uh from a high level um but the reason a lot of

People don’t feel it is because this inflation does not mean prices go back down to where they were at least on average like oil prices can and you know some specific prices can but prices and aggregate don’t go back down to where they were three years ago uh they just

Stop increasing at the high rate that they were during their Peak uh and so there’s a there’s a permanent increase in the supply of money and then there’s a permanent increase in at least the majority of prices with the uh bank insolvency issue

We had and the um I call it the by the print program um has that also stabilized I know there are people still or there are banks who are still accessing that program but has that itself stabilized do you think we’re at risk of any other Banks being lost so

That stabilized as long as um bond prices don’t completely blow out again I mean as long as as bond prices stay relatively range-bound uh that’s that’s fixable over time because those aren’t defaults those are duration problems um that program went through a couple phases so it was heavily used initially

Uh and then over time it Consolidated and some of the other types of you know that’s not the only lending that the FED does um that happened to be basically the most generous facility um uh but there they have other kind of more punitive facilities that were being used

And over the course of you know roughly a year some of the lending ads kind of come out of other pockets and and gravitated towards this so the overall fed lending has decreased quite a bit even as uh the btfp program has has been kind of stable and then in the past

Couple months it’s been increasing again uh initially there were people saying oh this this is evidence of bank failures whereas me and mothers are pointing out that there’s there’s Arbitrage taking place uh that basically those facilities um are more you know kind of like cheaper than what the FED pays on

Bank Reserves so there’s actually this kind of perverse incentive to go out and borrow from this facility and deposit it at the fed and earn a risk-free spread um that’s hilarious yes it’s you know you can borrow from you know you borrow from the FED make funny off the make

Money off the FED it’s it’s not great uh it’s a pretty small number as far as overall banking capital is concerned so it’s more of like a narrative joke than something super meaningful um but yeah that that program has sowhat stabilized the big question is that uh by the end

Of quarter 1 of 2024 that that program is supposed to expire and there’s still some capital in there so the question is do they let it expire do they extend it or do they you know do they transform that liquidity into something else uh to try to avoid some sort of like temporary

Liquidity shock uh I I think in general uh you know while I’m not super negative on liquidity for 2024 uh it might not be quite as smooth as it’s been for the bulk of 2023 I I think that you know people ask me for my liquidity predictions or my Bitcoin price

Predictions I I have been hesitant to give 2024 ones because there’s some decision points ahead uh but I keep reiterating that I think the the spectrum of 2024 and 2025 will be positive for liquidity and positive for things like bitcoin price and other things like that but there are some

Turbulence factors I think ahead in 2024 where they might not materialize but there’s a decent chance that they will so my my conviction is more about the two-year period than the one-year period if that makes sense what’s your range you don’t have to give us a price

Prediction I’ll tell you my I’ll tell you my bottom end I’ll tell you Danny’s top end tell me well I I I think I think it would be very cool and incredible for Bitcoin if we get to around 150,000 Danny’s like nope we’re going to half a

Million dollars for Bitcoin I can’t get my head around this neither number would particularly surprise me to be honest um when yeah when I that’s how it works it’s you have a supply scarce asset it’s high volatility um there’s a multiplier effect so when Capital comes in the

Price you know if like 50 billion in capital comes in that can drive the price by several hundred billion the market cap by 700 billion um when I review my price predictions from the last cycle you know when Bitcoin was like 9,000 I was talking about 30 to

50,000 uh and I was talking you know when it started to kind of hit hit that 20 30,000 Mark I was doing interview saying I think it’s going to hit a trillion market cap which is you know a little under 50,000 a coin and it touched all that after that I said well

You know if the bull Market’s playing out I you know I’m I’m looking for like 100 120,000 uh I wasn’t trying to be too specific I was kind of on the conservative end of what a lot of estimates were we didn’t really touch those you know we only got to around

69,000 so we we met my first estimate we did not meet my second estimate uh last cycle uh this cycle you know one thing I I keep stressing about my liquidity correlation that I’ve been pointing out is that Bitcoin is highly correlated with with um you know Bitcoin is highly

Correlated with liquidity in terms of Direction but there’s very little way to judge a price from it right it’s not really useful for magnitude so it’s not one of those like stock to flow models where you can say okay at this date it should be this price like I I I think

That a lot of that is really hard to judge uh you know I my base case expection is for new all-time highs hopefully over 100k so hopefully six figures but then literally that range like you you you both gave your numbers that range I think is entirely

Reasonable and I wouldn’t I I actually be hesitant to guess where that ends up I think that something like a 100,000 plus would would be kind of disappointing for a bull market cycle especially after the prior bull market cycle was on the disappointing end too

So I’d kind of hope for two ,000 or more um over the next two plus years um but again I you know other than other than kind of stressing that Bitcoin does tend to be very correlated with liquidity and then I think it’ll be materially higher

In two years um the range for what it could be is based on so many things that are hard to judge what are the Bitcoin you know are are the ETFs indeed going to be approved as everyone expects uh what’s the amount of capital is going to

Flow into them um are we are we going to get any other surprise Nations St shocks or or changes uh what’s going to happen with some of these liquidity effects we just talked about for example if we have a negative liquidity environment say the middle of 2024 uh

You could have a pretty big correction uh before eventually going higher and so there’s there’s there’s a huge array of variables that I would be very hesitant to try to guess and a negative liquidity event in a election year is a pretty disastrous scenario for an incumbent right

Uh that would be I think that there are liquidity shocks that go unnoticed by the public because they’re addressed quickly um and so an example of that was September 2019 repo Spike uh that’s something that if you’re in macro Twitter uh that was like all you talked

About for that month it was a huge thing but the average person had no idea it happened um the March 2023 banking crisis was somewhere in the middle where it made headline news but the majority of people were not in any way affected by it like barely any jobs were lost

Over it you know most deposits were not affected any way it was kind of this like little brief industry shock that you know a lot more affected Silicon Valley Bros than like the average person uh and then of course there’s something like extreme like recession or or even bigger than recession that affects

Everybody uh and so statistics show that you know presidents rarely win reelection if there’s a recession that year uh liquidity shocks are different because it depends on what the response to the liquidity shock is uh basically we have to ask questions like you know I talked before about the two leverage

That the treasur is doing to offset the Fed so one uh was draining their cash balance and two was reverse repos so uh this year they they realistically can’t repeat the first one uh technically it’s possible but it’s unlikely and reverse repos only have about a trillion left so

You know more than half the facilties been drawn down um they could still draw down more by issuing more and more T bills I expected to generally gradually I I expected to probably end 2024 matly lower than 2023 they could aggressively draw it down in half year or less um and

The question is what happens after that will the FED get more doish um and go back to kind of gradual balance Sheed expansion um but you know there could be frictions along that path uh I wouldn’t necessarily expect them to be huge I I I kind of think of the September 2019

Reest Spike or the March 23 banking crisis as as probably closer to what we’d expect from any any sort of liquidity shocks in 2024 as I mentioned earlier Lynn everything seems relatively calm now in the kind of macro environment we we haven’t really had the recession that

We feared that was coming uh the bond market seems to have stabilized the banking crisis seems to be over um uh yeah the inflation coming down even so here in the UK but I keep thinking back to what you said to me I can’t like towards the start of the year I think

You said you said uh the story of this next decade is going to be inflation so is this just mathematically things of being like we’re in a period of Calm before re-entering a a very similar scenario at some point in the future where it’s going to be all the same

Issues where it’s going to be back to high inflation even like even higher inflation higher interest rates like we mathematically in that direction or is there a route out of this I mean there’s always some uh Roots out but in general that’s the direction things point in uh I think the the

Catalysts and magnitudes could be different so you know the first few years of this decade were characterized by you know lockdowns huge supply shock print a ton of money literally give people stimulus checks uh give like wealthy people PPP loans it turn into grants you know kind of this whole all

All sorts of different types of stimulus checks uh and so increasing money supply uh frictions on the supply side it’s a huge recipe for inflation uh so that kind of extreme uh is is not necessarily going to repeat itself instead I I think basically the the key risk this decade

Is that the US uh and and certain other developed countries can experience what Emerging Markets experienced on a regular basis where you just have kind of a higher backline level of like a background level of inflation due to an unresolved fiscal problem um and so the United States is just set to

Structurally run these massive fiscal deficits and at some point uh you know when things like the reverse repo were drained and other things like that the fed’s going to have to go back to expanding their balance sheet uh to accommodate those bonds and that’s that’s that’s called fiscal dominance

It’s where the Central Bank does not have full control over its decisions for things like you know what its balance Sheet’s going to be and other things like that because the the amount of public debt and the amount of public deficits are kind of too big and forcing

Them to assist it um and I think that’s the story of the 2020s and probably the 2030s although you know the longer you predict out the more nonlinear things can happen and and invalidate what you’re saying but basically that’s kind of the background structure um then there’s questions like What’s the timing

Of that going to be um what kind of productivity offsets are we going to have so you know the story of the past Century not just any given decade but the century is money supply goes up a lot but we also get way better at making things

And so the the scarcest things you know waterfront property van go paintings uh to a less extent gold and things like that they they go up in price by quite a bit whereas it’s partially offset by you know we’re better at producing Electronics we’re better at building

Houses we’re better at you know building cars there’s other things that kind of offset it and going forward we have we have obviously certain areas of massive productivity gains AI being being kind of the the top of Mind example but there’s other areas like energy abundance that I think could face

Recurring issues um you know we saw last year there’s some acute energy crises uh in 2022 and I don’t think we’ve seen the end of those this decade um at the current time you know China is in kind of near recession uh much of Europe is in kind of borderline recession um there

Have been certain developing countries that are struggling and therefore have demand destruction um we’ve had new Supply come online around the margin and so things are kind of at equilibrium at the moment but it only takes a small handful of um either um Supply disruptions or marginal new demand in

Say re reaccelerating or higher liquidity environment to cause another wave of energy inflation you know maybe not as bad as what Europe experienced there but you could have a broader one you could have one in the US you could have just you know kind of more globally

Um you know kind of oil issues and so I think that you could have an issue where you know maybe CPI is not as high as as people think because things like AI are offsetting it but the price of what’s actually scarce is going up by by quite

A bit uh and so I think that’s probably the story going forward and you could have more structural loss of confidence in you know the the budgets of the United States and other major countries basically the market is able to put up with temporary things because the market

Says okay this is temporary uh the fed’s going to get control of this but over time as the math becomes more and more apparent and they say okay these bonds are going to like trillion dollar deficits as far as the eye can see uh that’s when you get more structural

Nonlinear shifts in perception and then you can have these nonlinear inflation events kind of like the 70s uh kind of like the 40s and I would expect I’d be surprised if we end the decade without without having uh more of these kind of spikes and do you think they will get more

Extreme that I don’t know to be honest um you because you can depending on policy you could spread it out you know you could you could average 5% inflation for several years you can Spike to 9% and come back down to 2% and Spike to 9%

Again or 20% or come back down you know a lot of a lot of people when they when they talk about this happening to developed countries they they make it sound like it’s Doom but like you know in Egypt they’re they’re dealing with 38% inflation at the current time and

Life is still going on um you know you can you can have basically during times of war or sovereign debt crisis developed countries have similar kind of effects of what you see in Emerging Markets just generally at a less extreme level um and so you know you have that

Kind of double digit type of inflation not necessarily like the triple digit inflation you can get in some of these countries it’s not out of the real of possibility but it’s it’s generally it airs towards being less extreme uh and so I I hesitate to predict magnitude other than it just

Predict predict what is the what are the dominant Trends going to be which I think on average is our energy situation is not as abundant as it was last decade and the fiscal dominance is a lot higher going forward which all us being equal tends to be a more

Inflationary uh kind of just uh things are running hot a little bit more whereas last decade they were they were running pretty cold Luke wowman said to us earlier in the year that he thinks there’s a potential that we may see high double digit or even triple digit

Inflation as a way to kind of eviscerate the debt he thinks that that’s a tool that might be used I I found it hard to believe but the way he did explain it he said he explained how Israel did it it kind of sounded like a like a tool that would

Work but just something that people in the west wouldn’t accept but you also then mentioned um developing countries go through this a lot but like my experience from traveling is the reason a lot of people kind of cope and survive is they have access to dollars so they

Get dollars they know what to have instead but when the dollar hyperinflate I mean we know we think well maybe gold or Bitcoin but I don’t think a lot of people think that I don’t think people naturally have in know in the UK people don’t think oh it’s high inflation I’m

Going to get dollars uh and I don’t think people in the US saying well you what what alternative they have because they are you know the dominant Sovereign currency so is it not a slightly different scenario for for coping with this if it’s the US that hit High even

Say High digit inflation yeah I think the close example would be the 70s um and if you put if you put yourself in the role of the 70s um for the first time ever the United States and the rest of the world was on a completely fiat

Currency standard so it was like a a new era and you know a lot of people saying this is this is never going to work um and and and you know oil embargos were happening and money supply growth was above average and in inflation over time

Was kind of spiraling out of control um and so there was a it resulted in a massive gold bubble a lot of people piled into gold gold became a very large asset relative to equities relative to the bond market relative to the money supply a lot of people poured into it uh

And it you know it took like decades to to kind of surpass that that prior high in in gold price that’s how that’s how big that got so basically that that shows what can happen when you know the even the dominant currency faces a major uh crisis of confidence and people

Poured into what is available which in that sense was was was gold um in the modern times it probably be a combination of gold and Bitcoin depending on you know how old you are what scale you’re operating on um you know what you know what you’re what

You’re um researched on things like that um we’re already seeing around the margin central banks are buying more gold so there’s there’s not been a ton of demand for like gold ETFs and things like that so without Central Bank buying probably would have seen lower gold but

Because there is a pretty big Central Bank bid uh and that’s partially inflation conc concerns but I think a bigger uh chunk of that is is confiscation concerns basically that the the moneyness of treasuries and dollars is at question if you’re a country that’s not in like perfect harmony with

The United States they say well at least or at least I want to a backup I don’t want to have a 100 I don’t want to have all my eggs in one basket I want to have some of my reserves in like self- custody in our you know Central Bank

Vault uh in our in our borders um and so I I think that there there could be a shift towards that um and that’s where you get those types of nonlinear events right that’s why I would try to I wouldn’t be like bold enough to say okay I think we’re going

To hit 12% inflation by this year and then we’re going to come back down you know that that’s it’s there’s too many nonlinear things that can occur and so instead I just kind of keep track of the biggest things there’s the ongoing fiscal issue there’s the energy Supply demand

Situation um and then there’s other technology offsets things like Ai and these are kind of the big forces that are coming at each other and so on a quarter by quarter year by-ear basis I’m kind of seeing okay how big are these forces which ones are winning which

Things are surprisingly one way or another which things are kind of on track exactly how I thought and so I’m I’m very hesitant to give magnitudes it’s more just like focusing on these drivers and trying to give an under or an over like basically 2020s I expect to

Be a more inflationary decade than the 2010s but magnitude who knows yeah will be interesting to see if we do hit these higher inflation numbers again what kind of volume of people consider Bitcoin and I’m always interested to know because you you do live in these two uh worlds

You’ve got your kind of Bitcoin world and your macro world and I know they kind of overlap but how much sentiment shift are you seeing towards Bitcoin I mean I’m feeling it myself I think I think we’re gradually starting to see more Pro Bitcoin or let’s even say neutral Bitcoin articles within the

Mainstream media I mean Forbes have been pretty Pro with some of their articles I even think the economist article calling Bitcoin a cockroach which was kind of like a backhanded compliment but actually it was still a compliment because you can’t kill it they’ve come to that acceptance are you seeing a

Shift within your macro circles are you seeing some people who were maybe yeah reticent to consider Bitcoin maybe thinking hold on actually this might be an asset I should consider well so before I answer that question I’ll answer um that among institutions I am seeing more of a recognition of fiscal

Dominance and concern around these on fiscal deficits um and you know that’s I I’m I have some of a bias sample because I often find out about this because they read my work but you know for example there will be major um institutions that you’ll know the name of and someone will

Give me like an internal report and it’s like literally like it looks like something like me or Luke groman wrote and it’s like you know major institution XYZ this is like their report on the fiscal dominance problem and I’m like wow okay so that that’s things that were considered Fringe or outside

Perspectives are now more normalized right so that’s kind of the first part of of this whole thing is like is that happening among macro circles not all macro circles but certainly around the margins uh including at Major institutions I would say yeah there’s an ongoing realization that these fiscal

Issues are not a multi-decade problem now that they’re actually starting to have material effects in the present uh and that’s largely because you know we’ve had 40 Years of rising debt to GDP offset by 40 Years of falling interest rates and so if indust rates merely go

Sideways from now on let alone up but if they just go sideways those deficits no longer have an offset and that debt level no longer has an offset and so that it it becomes more spiraling um which has consequences so that’s kind of the first step for Bitcoin specifically

I mean there are you know I talked to some Bank boards that invite me to talk you know kind of talk to them about Bitcoin or again some of these fiscal problems um you know there are institutions that you know think it’s rational to have an allocation you know

Sometimes you’ll see um people kind of people that are not in the ecosystem are like oh yeah bitcoin’s all the Millennials just kind of um you know they’ll kind of mix up Bitcoin and crypto and just kind of put all one basket and say oh that’s what the crazy

Kids are doing and it’s like well you should see the people allocating to bitcoin Venture because you know these aren’t kids um at least most of them aren’t and and these are these are serious pools of capital uh and and so there there is a increase L I think

Aware um perception and the way that I phrased it uh I was I was you know giving doing a Fireside with Preston pish and I pointed out that you know we’ve all seen like the the logarithmic Bitcoin chart you know how I forget how many uh Peaks and trout it’s had now but

We we see all those Peaks you have to remember that the vast majority of people in the world have not seen that chart uh in fact I remember the first time I saw that chart you know I never looked at bitcoin’s price in logarithmic form before um I’d always when you look

At it in linear form you see one of two things it’s either in what appears to be an insane bubble or it appears to be a broken bubble and it’s dead uh it rarely looks like anything other than those two um whereas when you look at it in

Logarithmic form and you go back and study okay what was happening during these highs and lows each time uh you see this this recurring cycle and it it’s done this like three times you know kind of three times it’s had a higher high after a 75% draw down or more

Sometimes like over 90% And there’s a handful of stocks that have done that but I I haven’t found any stocks that have done it more than three times and so if Bitcoin has another higher high it’ll be like the fourth time it’s done this um and but what we have to keep in

Mind is that again most people have not seen that chart and instead what most people see is only the ones that were happened while Bitcoin was big enough for them to be aware of it so for example they saw the 2017 Spike and then the crash and then they saw the 2021

Spike and crash the higher high higher low so they’ve seen two right and and you know so they think okay there was a bubble and then there was a stimulus bubble and then it it’s dead that’s how a lot of people saw it um whereas if

Those of us more in the space are saying no no this is uh still going strong under the surface when they see like a third higher high and you know maybe a third lower low and that that’s where it becomes impossible to ignore because it’s not just how many times bitcoin’s

Done it it’s how many times they’ve they’ve experienced it happen and therefore it’s fully on their radar whether or not they’ve seen that logarithmic chart or not and so I think that’s where Bitcoin becomes more and more normalized among the institutions um and it becomes less

Crazy to talk about it because it’s it’s this asset that is just it’s not displaying characteristics of a traditional bubble you know people keep calling it tulips but if you look at the Tulip chart it’s like this three-year chart of just this insane Spike and a crash it didn’t come back higher and

Higher multiple times over 15 plus years uh and so once people see that happen more and more they it becomes normalized because it’s a cockroach yes uh if you check your Twitter DMS there’s a there’s a chart I have permanently open as a tab I’ve sent

You the one I have permanently open it is a logarithmic chart it is a long-term logarithmic chart with a few lines that I have drawn on it uh and it’s the thing that just gives me most confidence in Bitcoin as an asset it’s like a it’s it’s like my confidence chart but it’s

Basically just it shows me that there’s like this consistent always uptrend and it doesn’t matter which of the lines you look at because there’s like four on there it’s still consistently always up and so it just makes me feel like this is a secure and safe at to be to be

Holding now um just along those lines um the reason I’m asking about you know what’s this Acceptance in wider circles it’s it is one of the most annoying painful things about Bitcoin point is the lack of legitimacy it still has uh the fud that we have to deal with the

The the politicians raging against it but I always try and look at what the story will be of the next kind of cycle um and like the last cycle for me was very much macro which is why I think you’ve absolutely killed it because you’re somebody understands macro and

Bitcoin and and we’ve seen a lot of macro people have’ done very well Luke Gman does very well you Preston pitch does very well all these macro uh people who understand Bitcoin have done done very well but I my head started to go into the space where I think the next

Four years or the next cycle is really a cycle of legitimacy it’s the one it’s probably my favorite thing about the ETF it’s not the price run that will happen it’s not the institutions will be getting because I don’t really care but it’s the legitimacy that it gives

Bitcoin when you have these large financial institutions with their influence creating the ETF and marketing Bitcoin it’s suddenly making it legitimate in front of their customers eyes it’s making it legitimate within the industry it’s kind of probably making it more legitimate with regulators and it feels like we might

Come out of this next four-year cycle where and the anti- Bitcoin stuff won’t just seem stupid to us it might start to feel stupid to everyone I think that’s a reasonable expectation I think it’s somewhat tempered by if you see how um traditional pools of capital treat gold

Over decades um so multiple studies show that if you add a slice of gold to an otherwise stock Bond portfolio um the risk adjust of returns of that portfolio are better and that’s because gold tends to do well in decades where neither stocks nor bonds do particularly well so

The 1970s the 2000s for example uh it’s it’s that non-correlated asset or it’s a differently correlated asset um and having that rebalancing slice in your portfolio was helpful even though um that was not very accepted uh in in traditional pools of of of capital uh even after decades right and and so

There are kind of these these things that are on the periphery that they’re you know they’re the whole point is outside money right and so even if it’s sometimes outside money that’s encased an inside rapper um there’s still kind of skepticism about it so I think that

Somewhat tempers it but I do think you’re right that so this past cycle was about macro I think the next cycle there’s kind of two things I’m I’m kind of looking at one is I would call it macro 2.0 um which is basically kind of the meme last cycle was insti are coming

And they never really came I mean around the margins they came you know hedge funds would trade Bitcoin there’s some entities that would do it but for example companies didn’t really have the guts to follow follow Michael sailor into you know Bitcoin corporate treasury uh we didn’t see any um Bitcoin ETFs um

And so this cycle assuming that these some of these Bitcoin ETFs get approved and you know again these institutions see another higher high that kind of shakes them out of what they thought Bitcoin was um I think you could have more normalization among institutions and actually have you know not just

Narratives about it but actually allocations um and so I think that’s that’s one um number two is I you know I think the for me the more optimistic one is the rise of these little Bitcoin hubs and so you know Bitcoin Beach is is an obvious early example um but there’s

Bitcoin jungle there’s Bitcoin Lake um there’s Bitcoin a Cassie I probably pronouncing that wrong I always written rather than yeah um there’s you know the I think two years running the Bitcoin Indonesia conference um you know run by a woman named Dia um there’s two years running uh the Africa Bitcoin conference

Uh with Freda and others and the basically these little uh recurring hubs uh around the world and in some of the markets where it’s most important uh that I think is more powerful then even things like the Bitcoin comons Bitcoin Park real Bedford um pubkey uh uh these

Pubs these kind of locations within developed countries that are kind of these recurring you know Bitcoin hubs um I expect over the next cycle uh those to reach more critical mass so this cycle was like the cycle of like those coming into existence or at least you know

After the initial few there’s been a spread of those uh I actually did a um a podcast with um uh Kathy Wood the other day and they’re they they like track this and they they kind of have like this number of how many of these little hubs that they’re noticing and it’s like

A crazy number per quarter uh most of them don’t reach necessarily the awareness of the ones I mentioned but there’s a lot of these um and if you fast forward four years um I expect these be much bigger and more numerous um and that’s that’s in my view one of

The healthiest things if that occurs that’d be one of the healthiest types of Cycles yeah I love that so that’s that’s I think the other half of the coin it it’s you know institutional liquidity institutional capital is good because it can add liquidity to the Bitcoin Network

And take some of the edge off of volatility potentially like you know that kind of rebalancing effect from portfolios and big pools of capital and widen the ownership to varant degrees that that’s healthy for liquidity and and volatility but I think a better thing is the actual you know self- custodial or Community

Custodial um hubs that are that are popping up I think that’s more important are we going to get Bitcoin pyramid I would like to see it um Egypt is not a market where it it there’s kind of a combination where you need like countries with currency problems that

Also have hubs that are techsavvy have have tended to gravitate towards it um so Nigeria for example ragged very high in adoption uh Argentina obviously Turkey um a bunch of you know Vietnam a bunch of these countries have that blend that’s really powerful Egypt I think the

Challenge with Egypt is that until very recently their currency problems are are non continuous uh and so instead of having inflation every year um they’ve masked it with Reserve um modification so even though money supply is growing by like a very smooth rate of like 20% a

Year in Egypt um the peg to the dollar goes years without changing and then it changes all at once and it seems like a one-time thing and then it goes back to not changing for years and then it changes all at once again and I think that over the next several years years

It’s going become more and more apparent that this is not going to stop uh and I think that could wake up more people to um Bitcoin in addition there you know there are a lot of people doing the work to kind of argue that um uh Bitcoin is

Is like uh you know halow money like it’s you know that the fiat currency is based on ribba it’s based on interest rates it’s based on credit it’s based on on things that you know some interpretations of of religions would prohibit and Bitcoin is is you know more

In line with with you know how how those those um places view money and so I I do think that the Middle East in general um you know really could catch on to bitcoin um I don’t know if it’ll happen next cycle I’d like to see it happen um

But I do think in general these hubs are going to pop up around the world yeah I love them I I love the confidence people have now to do them that you know people go to Pub Key and they’re like well what can I do in my community there’s a lot

Of I mean there’s I think there’s now four football teams that are Bitcoin clubs now uh no I love it it’s it’s one of my favorite things about this I’m conscious we’re running out of time Li we could talk to hours today okay um

Let’s we need to wrap up um I’m going to try and keep this almost like quickfire just to get through what we’ve got to get through okay what are the things that we should be looking at with regards to the FED what do you think is

Going to happen do you think they might pivot um so I think that they’re going to like kind of consolidate for a period of time um we’ll see how much they cut uh I’m not as doish as maybe the consensus is that I think that they might try to hold rates higher for

Longer than they think um we could see a period uh especially after the reverse repo drained where they go up to to gradual balance sheet increases so we might not see some gigantic QE but they could go back to Growing their balance sheet roughly in line with the rate of

GDP growth uh I wouldn’t be surprised to see that happen um and so I think that that would that would be a a kind of mildly doish pivot if that were to occur okay what about the bond market what are you looking out for there what should we keep an eye

On so you know right now there’s been you know it got it got really over at skis in terms of bearishness it’s been there’s been a bounceback um I I tend to view it as range bound um which is that you know yields going way below 3% would

Be kind of surprising to me whereas yields going way above 6% would also be kind of surprising to me um and so so I you know I think that the shock and all of the bond market um a lot of that’s probably behind us now uh and instead

It’s more range bound um and to the extent that it gets out of that range uh is where you could have some of those previously mentioned fed liquidity changes to get it back into the range um so I think it’s a a pretty broad range like three to six% is actually a pretty

Broad range for bonds um uh so it’s not exactly some like you know major call there but basically I I I think that that’s kind of the trend we’re in probably for a period of time because that’s kind of the Goldie Locks that keeps keeps Banks from blowing up um

Still keeps the cost of capital um non zero uh and I think that that’s probably what they’re going to try to Target um but again on a quarter by quarter basis I see what what major variables are hitting that were not expected or that are change and so you know you don’t

Just lay out a a case and never change it but that’s kind of my starting assumption all right last a of Bitcoin also you are a an investor uh with ego death I assume that’s public I’m not sure I’m saying anything isn’t public what are the things that you’re most

Interested excited about in 2024 outside of ETFs and outside of harving um what I mentioned before is basically the the hubs Bitcoin hubs spreading around the world and therefore any technology that empowers them anything that allows them yeah exactly uh and anything that helps that so anything that allows

Communities to set up their own custody anything that allows them to um you know build build their own custy solution build their own wallets uh get liquidity um deal with scaling in a high fee environment uh you know the the worst case scenario would be you know that all

These hubs arise and all their Bitcoins held by binance or held by custodian XYZ right some gigantic you know multi-billion dollar Honeypot outside of their borders outside of their Community uh it’s much healthier I think to distribute that Empower communities as much as possible to be able to hold

Their own Bitcoin and so cust is not entirely a booing thing of like the person custodies it or there’s two extremes like there’s you custody it which it’s not extreme but it’s it’s one end of the spectrum is you custody yourself the other end is it’s all in

One gigantic shared Honeypot and then there the Spectrum on there is okay if you know some people you want to encourage as much as possible to self- custody if they’re if they can hold it if they can deal with the fees if they you know if they have that long enough

Time um to be able to deal with that but if you want to have something in the middle is at least at least distribute that custody away from these gigantic pools and closer to their own Community ideally in their own Community um so I think that’s important I think anything

That makes lightning more solid is good we’ll see what happens with things like soft Forks Covenants uh to see if there’s other scaling Solutions or even just things don’t require Forks um any you know any sort of promising scaling things that just make um interacting with Bitcoin easier to do and cheaper to

Do and more efficient uh while while preserving as much of the the ethos as possible so it’s really about those hubs and then about uh empowering those hubs because you know Bitcoin has to win not just on its hardness but on its you know what is the user experience of someone

Who comes to bitcoin um you know what is it like for them to to use um the asset uh and so I think that you know that’s it’s gotten way better like I’ve really liked for example the um the tap sign or nunchuck combination and I’m not investor in

Either of those um but that’s an example I think of of a good sweet spot for ux especially for smaller amounts um and so I I I’m looking forward to see more of these kind of hybrid solutions that you know see how can we how can we get utxos

Spread out more how can we get custody closer at least closer to the person um and and how them kind of experience Bitcoin as it’s meant to be Lyn you are a freaking rock star it’s such a like honor and pleasure to get to talk to you

So often I I I know it’s going to dwindle over time as you become more famous successful sought after and we absolutely love that uh perfect way to start the year it’s l and ly Oren on the show also 2024 going to get you to Bedford into a football match which I

Cannot wait for which is amazing looking forward to it and I just wish you continued masses amounts of success and just thanks again for always being available to us thank you as well and I appreciate you do for uh for doing the hard work like go you know not just

Talking about the same Echo chamber stuff but you know going to countries uh and seeing what their what their experiences are and kind of reporting that to the world I think that’s important thank you all right have a great New Year and uh I think we’re

Seeing in January at some point so see you soon y bye