C (4:28)

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D (5:23)

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C (5:27)

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D (5:28)

The Defi Report is one of them. The week before the October 10th flash crash, Michael from the Defi Report emailed his entire newsletter saying he's going aggressively risk off and sold the majority of his book from crypto into cash. This is when ETH was about $4,000 and Bitcoin was 110. Michael runs the Defi Report, an industry leading research platform built on data cycle o awareness, risk management, transparency and most importantly skin in the game. We like Michael at Bankless. We like his analysis and that's why you hear him on the Bankless podcast.

B (5:56)

About once a month.

D (5:57)

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B (6:12)

Check it out.

D (6:12)

There is a link in the show notes.

C (6:14)

I'd like to just take a moment and really define illustrate what you mean by the fourth turning. We're in the. We're in the fourth turning. This is a kind of a intergenerational phase change concept popularized by Michael Howell. I think his name is his name Neil Howe. Howe. Neil Howe. Yeah, it's pretty similar to Ray Dalio's long term debt cycles, but it puts it into a framing of cross generational, intergenerational like roles that they play across about like 80 years. So when you say a fourth turning, there's four chunks of an 80 year year period and 80 years is one big cycle. And we're what you're saying is we're kind of at the end of one big cycle and it's a pretty big deal to be at the end of an 80 year cycle of a fourth turning of, of Ray Dalio's, you know, long term cycles. And maybe, maybe to really to illustrate that we're on the other end of what came post World War II. The, the world order that came post World War II, which was, you know, 40s to 60s, a great era for the world, like lots of prosperity, lots of growth, lots of, lots of growth all over the place. And what you're kind of illustrating is we're on the downside of that, that world order is kind of coming to a close. It's a big phase change across generations and it's one of the most chaotic times to be in. If you believe in this fourth turning cycle concept idea. Maybe Lynn, you can kind of just like illustrate a little bit more about what does it mean to be inside of the, the downside, the chaotic side of a. Of a fourth turning.

A (7:46)

Yeah, that's a good way of putting it. And you know, to the criticism of fourth turnings, let's start with those. Is that people will say it's kind of like astrology in a way, like demography, generations kind of like, you know, cultural woo woo. And you know, I think that there's, there's truth in that, which is why I tend to focus on the more Dalio side of that topic which is that the parts we can quantify. I generally find that Neil Howe and his partner's framing of it is useful because the social aspects are less close to my area of focus. But I find them useful. But the parts that I find the most interesting are that historically the kind of the sovereign long term debt cycles match up with the fourth turnings which I don't think is an accident because kind of part of going through fourth turning is, is having a sovereign like debt issue. And these things kind of, they have cause and effect. Like it's not like these things randomly pop up every few decades is that these things kind of build and they can only, only kind of go on so long. So. So the economic cycle, the debt cycle is that you have kind of structurally falling interest rates, you have rising debt as a percentage of GDP and for a while that's both private and public debt. So every time there's a crisis they cut interest rates, they try to restart the debt engine, the fractures or bank lending engine, the sovereign debt engine and you'll get these little periods of deleveraging but you never deleverage back down to the earlier part of that particular kind of five or ten year cycle and you start building up from there. And when you string enough of those together, you get the very high debt levels and you get interest all the way to zero. And then you have basically maximum fractional reserve in the system. And what happened Both in the 30s, this last time that happened as well as the 2008 crises, those were kind of the peaks of the private debt cycle bubbles. And what happens when you get private debt maxed out as a percentage of gp? You can't really cut interest rates meaningfully lower. That's when they generally shift toward printing money and then gradually shifting the debt from the private sector more toward the public sector. So that happened throughout the later 30s and into the 40s. Obviously there are other factors going on, but they were interlinked. And then we've seen that over the course of the 2000 and tens and here into the 2000 and twenties, that more of that shift from where we're not as leveraged in the private sector as we were in the eve of the global financial crisis in kind of the US and many developed countries. But that's been put toward the sovereign. And when it's on the sovereign level, it can't really go anywhere other than currency devaluation because most sovereigns, at least the ones that have their own currency, will rarely ever default nominally. So they'll default through purchasing power debasement, sometimes trimming prior guarantees about retirement or things like that. They'll make a series of kind of smaller defaults, more invisible defaults to deal with that. And that's kind of the stage we're in now and we've been going through. And then like I mentioned, these things tend to coincide with legal resets in a way, changes in the social contract, loss of faith in institutions that were built in like, you know, the, the prior four generations ago. Obviously that exact timeframe can differ. I mean, some institutions, like the US Constitution obviously will persist through multiple of these massive cycles, whereas other ones might only persist through one. But basically there's, when you look across the board at public trust in media, public trust in Congress, public trust in big corporations, they're all, you know, especially, especially the first two, they're all really kind of the low end. You know, there are some institutions like military or small businesses and things like that that people have more trust in, but those really kind of big structures people have less trust in. I think mostly for good reason. And so everything's kind of on the table when you're going through a sovereign debt crisis, while people also don't trust the government or don't trust some of the institutions that, that we've kind of had in place for, for many years. There's rising polarization and so a lot more big outcomes can happen. And then in addition, when you have that kind of rotation from the private sector to the public sector of, of debt, you tend to get more of a centralization. And so in the 1930s-40s, you had the whole FDR centralization. You had really big industrial policy. Obviously whenever there's a massive war, there's going to be sovereign centralization. But even without that you just have that more industrial policy, that more top down capital allocation that tends to happen. And we've been seeing that generally more recently. Obviously who to bail out in the global financial crisis was a pretty centralized decision and then how to bail out, who to bail out during the whole lockdown crisis was another set of kind of just centralized control. And then in more recent times, as we see just kind of say trade issues coming ahead and these big imbalances that have been building for a long time, again based on institutions that were set up during this, like the earlier part of this just kind of structural cycle that we're in, the dollar is a reserve currency and all the mechanisms that support that. We've got more top down industrial policy around rare earths or around semiconductors, around AI to some degree, around trade, basically saying that we're going to do this supposedly for the country rather than free trade, for example. And these things tend to come together. They don't tend to happen in isolation. A sovereign that's in a major imbalance rarely just says, well, we're gonna let the market do what we're gonna do. They start using the tools that they have available to try to contain or redirect that issue. With the difference of course being that compared to the last time that developed countries went through this was the 40s that, you know, the 1940s, you had obviously major war at that time. We also had very centralized media. So now it's. Everything moves faster, the information moves faster. So that obviously introduces a lot of complexity as nation states try to go through this while people can kind of in some ways figure out more quickly what's happening.

B (13:31)

I mean, it is incredible to see the symmetries here to the last Fourth Turning, which was lasted from 1929 to 1945. That was sort of that, that chaotic period, right. And now the fourth turning now if you kind of line the dates out would have started around 2008 and last until about 2030 to 2033. It is interesting that both fourth turning on the social level and maybe you read that as horoscopes or, you know, some do. That lines very nicely with Dalio's long term debt cycles. It's kind of an equivalent period of time. But I like what you've been saying, Lynn, because this really rings true. I think for me and probably for many listeners that we sort of generationally, by, you know, kind of the fourth generation, we, we, we tend to forget why we set up these institutions in the first place. They atrophy and atrophy in many ways too. They become prone to corruption and we just like forget the purpose of them. Maybe one of those institutions that has been essential in the world order that we have lived in since the 1919, 45 and beyond is the Fed. And that nicely ties kind of, I guess, fourth turning types of events. And then also they are at the center of debt cycles as well. I reached out and asked you to come on Bankless as part in trying to understand what was going on with the Fed in particular fed independence. On January 11, the Fed Reserve Chair Jerome Powell had this announcement and he put it out on Twitter. It was a video announcement and he said that he was under criminal indictment by the Trump administration. He said the stated reason was that he had. They were accusing him of lying about budget overruns in a Fed building construction. But then he said the actual reason and he went right to the American people with this. Right. He said the actual reason was that Trump wanted him to lower rates and he didn't do it. He preserved Fed independence. Your, your tweet above this clip was just simply, whoa, like this is new. Whoa. What happened? And then you followed up and you said this was the most direct clash between the Fed and the executive branch since 1951. The 2000 and twenties equals the 1940s thesis is still on track. We've had you on in the past and I know you've talked a lot about the 1940s being similar to where we are now and you are so well adversed in the history. I'm wondering if you could map that out. Why was this a whoa moment? Why was this like the 1940s and what happened in 1951?

A (16:12)

Sure. So basically after the Great Depression began, so throughout the 1930s and then especially in the 40s, the Federal Reserve lost a lot of its independence. I mean, it started basically with the treasury taking its gold, giving it gold certificates in place of its gold, which is a non, a non redeemable certificate. Is basically a meme coin. It's like here's some gold meme coins that legally will shore up your balance sheet and we're going to actually take the actual gold.

B (16:38)

So the Fed had some gold sitting on its balance sheet and treasury went yoink, we're going to take that and we're going to give you IOUs instead.

A (16:45)

Yeah, IOUs, which they still hold by the way. They basically plugged a hole in their accounting that was massive at the time, that is now tiny because of how nominally everything grew. But they still have those gold certificates on their balance sheet. And so we had kind of a more treasury takeover of things. And that was also at a time of course, when it was banned for individuals to own gold, which is crazy to think about. In Land of the Free, you couldn't own gold for like decades legally at scale.

B (17:12)

It was literally like the executive order at that time was literally if you have gold bring it in, you have to force sell it to the government at a haircut at like a 40, 50% haircut discount, something like this.

A (17:23)

Well the way they did it was you could sell it at that price, which was pegged. And then as soon as they had their kind of deadlines met, then they went and devalued the dollar relative to gold. So it's like they didn't, people that didn't know that that haircut was about to happen. Okay, so it wasn't. Yeah, it was a little bit of a rug pull. Yeah, it's like old school analog rug pulls going on. And I mean Britain did kind of similar stuff around World War I. So that was basically when you have a world like a total war scenario that happened in multiple countries. And that was kind of the US's particular history. And so really starting from the 30s, the Fed was severely weakened. Basically. They, they increased the monetary base with this kind of gold revaluation. They kind of shore up the commercial banking system. You know, it's not like these things are done in isolation. They, they, they pick enemies and say there are people hoarding gold, there are people hoarding X, Y, Z. For the sake of, of public well being, we're going to have to do all these things. We have to ban the gold hoarders, we have to centralize things so we do that. Now obviously most places you can be living in the world, like America was one of the best places you could be living. It's like in many ways a lot of places went kind of full on authoritarian and the US only went like halfway there. It was Kind of the logic at the time. So we did all that. And then, of course, as you're going through the whole Great Depression in multiple countries, this was in some ways still a hangover from World War I. I mean, a lot of the imbalances that World War I caused then fed into the Great Depression, kind of created these bubbles that then popped. Then we're going through the Great Depression. Obviously, when you have a bad economic environment, political extremism grows in multiple places. This, this in multiple ways contributes to World War II. It's not the only factor, but it's. It's a factor. World War II happens. And then there's basically another reason to centralize everything, which is we have to go. It's like a total war. So both in the US and the UK and elsewhere, you're doing price controls, you're doing, you know, supply shortages, saying like, you know, Americans can't have this because they need it for the war effort. And then part of that was the Fed was totally captured by the Treasury. So they did yield curve control. They said, look, we have to rack up all this debt to go fight this war, but we can't have market clearing interest rates when we have all this inflation happening when we have a hundred percent that the GDP going on. So the Fed was forced to do yield curve control. So they held the short end of the curve at just over zero, just over zero percent. They held the long end of the curve at 2.5%, and they just held that pretty much firm. They made little micro adjustments as they needed. But then throughout the 40s, the peak inflation officially was like 19% year over year. The average inflation, even outside of the peaks and the valleys was very much above target. It was like the 70s, while all the yields were pegged, like, submerged below the inflation rate. So if you were holding currency or bonds, you just got absolutely killed. You'd really want to be in equities, real estate or bootleg freshest metals, which were illegal or fine art, maybe kind of these scarcer assets. And then the Fed was, in the later period after World War II ended. The Fed's like, hey, can we have our independence back? And then the Treasury's like, well, we still gotta rebuild stuff, guys. It's like, who wants to give up power, right? So there's, you know, there was like this legal wrangling going on. And eventually they passed the Treasury Fed Accord, which more formally separated them. It kind of gave the Fed a significant degree of independence, which, of course, you know, no central bank is entirely independent because the, you know, the officials are picked by the government in some capacity. It will differ by country. In the US you can kind of think it almost like a fourth branch of government, kind of like the Supreme Court in a way where the members are, you know, nominated and then confirmed and then they have these fairly long terms. The Fed, of course, it's a, it's a public and private hybrid. So we're talking about the Federal Reserve Board of Governors here and including the chairman. So they, there's this kind of staggered thing which is saying, okay, it is, it is serving the government, but it's not as though it's easy for administration to say, cut interest rates right before the election and things that are kind of very short term oriented. It's supposed to basically be a kind of a black box that they can't really touch too much unless there's some extreme reason that could lead to impeachment or, you know, just removal for cause, which is, you know, in the modern environment, becoming more relevant. And so what was kind of interesting about this recent one is that, you know, we've had more outspoken criticisms of the Fed's policy, sometimes on the right by Trump and sometimes on the left by like Elizabeth Warren for example. And in this environment, you know, Trump's made no secret of the fact that he would like lower rates for better or worse. I mean, people can agree or disagree with the decision. Powell's kept them higher even though he has been cutting them. And of course it's not just his decision, it's the entire 12 member FOMC at the Fed. And what's interesting is that, you know, when Powell's been criticized in the past, he would generally kind of roll the punches a little bit or kind of legalese his way through it. You know, when asked if he's going to step down, he'll say no directly. But like, other than that, what made this, this one more interesting was that they kind of, he kind of took the scorched earth response, which was, you know, not only he's like, basically, you know, not, not even like avoiding it, he's saying this is going on. But also here's what I believe the heart of it is going after Fed independence. And so it's by no means the type of capture that happened in the 30s and 40s yet, but generally speaking, whenever you have debts this high, you start to usually get some degree of soft capture at least. So I wouldn't say that the bank of Japan has true independence. I wouldn't say that the ECB is immune from political influence, given what's going on in Europe. And I wouldn't say that the Fed has true independence at this point, even though they still have some degree of control. And the further we go into fiscal dominance, kind of the, the, the tools of the Fed start to narrow themselves, even if they're not captured. And then they do risk outright being captured, either because they kind of the administration could put the new board members in over time that are more, you know, less about kind of the historical reasons why you might hire, raise or low interest rates and say, okay, well, now we're going to do things, you know, the way that the President wants, for example, or sometimes more legal attacks, you can say, well, we're going to try to legally see if we can remove these members, see if this counts as for cause, so that we can accelerate our changeover of the board. Because generally speaking, to fully remove control would go through Congress, which would be harder. So then it's like, well, how can you round the edges get soft control?

B (23:57)

This is what's so fascinating. So you're saying in the 1930s and the 1940s, the Fed really had no independence. It was kind of an arm of the treasury and the executive branch, and maybe that legislative act in 1951, it started to establish more independence. And that's the regime we've been in until kind of these modern times. And now we're in somewhat of a hybrid where it's unclear how independent the Fed really acts. And I want to run one theory of the case by you with respect to, like, kind of Trump, because he is a central figure in this, in this fourth turning in many different ways. But one idea behind Trump is Trump is the guy that just says the quiet part out loud. And he is just saying something out loud, basically, like, I control the Fed. I can fire the Fed if I want. But it has been the case at least until 2008, with all of the intervention that the Fed did in the aftermath of the great financial crisis in 2008, that the Fed really wasn't independent at that time, that it was a political entity. Now Trump is just coming on the scene and he's just, you know, calling it like he sees it. He is just saying the quiet part out loud. And the idea, I guess, is that the Fed hasn't been independent since 2008. What do you make of that? And what do you make of the idea that that's kind of what Trump is doing right now with the global order? He's effectively just saying the quiet parts out loud.

A (25:28)

I think that's a pretty fair characterization. I mean, I would say it depends on the particular part of the global order we're talking about. I mean, I think in some areas, he's accelerating it more than just saying it out loud, and other parts he is saying it out loud. Things that have already been building for a while. So sometimes saying them out loud accelerates them, or sometimes the goal is to accelerate them. In the Fed's case, there's kind of multiple factors here. So I do agree that really, ever since the run up to the global financial crisis, you had much less Fed independence. And what made it kind of a more invisible type of, of connection there is that there generally was a lot of agreement between the Fed and the executive branch, which was. They both said, okay, this is really big crisis. We hit kind of peak fractional reserve bank lending, so we're going to be super dovish on things. And there really wasn't any disagreement. And so when you don't really have disagreement, there's really no test about independence. It's only when you have some degree of disagreement do you have, you know, kind of a more overt potential test of those independents. And so, you know, in, in Trump's first term, toward the later part of his term, Powell and the Fed were raising rates. Trump was not thrilled about that. They started to cut them in late 2019 when we had more recessionary indicators even before everything that happened in 2020. They obviously were super dovish in 2020 and 2021. It was kind of another moment where they all agreed on what they're. You know, in hindsight, there's pain from it, but at the time, there's really no, there's really no disagreement at the moment. But as we got into 2022, it was kind of like that moment in, say, the 40s where, like, the war is over and the Fed's like, okay, so, like, we're going to get a little more hawkish now. And then the executive branch is, well, not yet. So we had the Fed try, you know, they were, they would said, okay, we totally misjudged inflation. I mean, they were, they were really, they did not expect inflation to occur. They had forecasts for low rates when inflation did occur, which many of us were kind of pointing out that it very much likely was going to occur. But they started to then, you know, rapidly turn more hawkish. And this was, this was during the Biden administration, but then they kept it up in the Trump administration. And, you know, Trump's been very outspoken about wanting more dovish policy. And I think there's also, whenever you have a period of higher uncertainty about what policy should be, I mean, this is like, you know, central bank rates are literally price controls on, like the price and time of money. So they're in some ways the most important price controls around most people. If you say, should this thing have price controls on it? Most people say no. But that's how the, that's how central banking works. You have price controls on money and time. And so you have, on one hand you have still above target inflation, but it's mostly outside of the Fed's wheelhouse because it's not excessive bank lending that's causing the inflation, it's more fiscal deficits that have been causing it in this cycle. So it's different than the 70s and rates don't really affect that. And two, you have big variables like AI, where very experienced people can have very different assumptions for how deflationary AI might be due to how rapidly its productivity gains might impact the economy and how spread out or concentrated those impacts might be. And so, for example, the new Fed nominee, the new chairman nominee is saying that AI is likely to be so disinflationary that we can probably cut rates and not risk inflation because you have this other deflationary force. And that is, I mean, there are a higher number of kind of variables than normal. So you can get pretty divergent views on what the best policy rate should be right now. Should they be hawkish, try to curtail still above target inflation, or should they be more dovish in expectation of productivity gains? And that's where there's a disagreement right now. And that's where that Fed independence is more tested. And I would say it's again, it's still way more independent than it was in the 30s and 40s, but being challenged in a way, it's being chipped away at to some periphery degree. Right now.

B (29:22)

Powell is on his way to phasing out, of course. So you mentioned the new nominee. His name is Kevin Warsh. Let's say he gets through the process and he gets confirmed by Congress. Kevin Warsh was picked, of course, by Trump. Right. So that's an interesting element of the independence, of course, is the executive branch does pick the Fed chair. I can't quite figure out what Kevin Warsh wants to do. And I think there's two questions here. There's one is what's his bias? And what are his proclivities? And then the second question is what can he actually do in the position, how long is his leash? Even if he wants to do a particular thing, is he too constrained? And is the path at some level already laid out for him so that he can't do what he wants? Some people are talking about him as a hawk indeed. Like, was it 2010, 2011? He was on the FOMC and he like rage quit because of quantitative easing. So that's interesting. But then he also talks a little bit like a populist. So he talks about the last 15 years of the Fed and talks the way we talk, which is basically like, hey, the Fed had some irresponsible monetary policy and pumped up asset prices. And that was great for Wall street, but it kind of sucked for, for Main street and Trump. Populism fixes this. Right? And so you have that element of what he's saying and then there's the other, other element that just feels very much like Trump is going to pick. No matter who he picks, he's going to pick someone who's going to cut rates. I mean, that's why he's been hammering Powell. So I have no idea what to make of Kevin Warsh. What do you think he's going to do when he gets in there? And maybe it's a moot question. Maybe there's not very much he can do. Maybe he's just another arm of treasury, as the Fed was in the 1930s and 1940s. How do you think about this nominee?

A (31:19)

Yeah, I'm not sure anyone could tell you the full story or what's definitely going to happen. It's more like there's a set of variables we can point to that can help us predict what might happen. So I think the first starting point is that although the chairman is powerful, he's just one of 12 members on the FOMC. So he's still working within a kind of institutional apparatus that he doesn't have full control over. And so his ability to kind of unilaterally change things is, is somewhat limited. And so that's kind of the first point. Given his historical record and given his kind of latest commentary and who nominated him, I would my assumption is that he will be leading dovish on interest rates, likely using AI and other kind of productivity forces as a kind of a catalyst for that or reasoning, while probably attempting to be a little bit more conservative on balance sheet growth. So these are kind of the two main tool sets that the Fed has. Maybe the third main tool set is that they can either unilaterally or in many cases with other Federal agencies, they can affect regulations on banks. So using these kind of the three kind of major tool sets they have, I'd probably lean a little dovish on rates and a little hawkish on the balance sheet. But that's in the confines of two main things. One is that he's only, you know, he doesn't have unilateral power. And then two, he's got, you know, kind of uncomfortable things to try to manage. So one is that without major regulation changes, it's very hard to meaningfully reduce the balance sheet from current levels. The Fed has been predicting for about two years that this is roughly when they'd hit their bottom and we started to get liquidity. Shortages show up in the past four months and they indeed hit their bottom myself and other kind of like Fed watchers and macro analysts have been also kind of predicting around this time. And so without kind of major regulatory changes, it's really hard to get below the current floor. After these years of quantitative tightening, there are things they can do that could trim the balance sheet somewhat, but they generally require a lot of consensus buy in to do it. And they wouldn't necessarily impact markets as much as people think because they just kind of change where liquidity is. So for example, if you make it easier for commercial banks to hold Treasuries without affecting their various kind of regulatory ratios and things like that, then it potentially allows the Fed to own a little bit less and stick a little bit more of them in the banks on fractional reserve, which is not that different than, you know, the Fed having its own printed reserves to hold Treasuries. In addition, the Treasury Department's been in a rough spot because, you know, they want to keep longer term rates down. So all this talk about interest rates doesn't necessarily affect longer term rates, which is where like, you know, most house financing happens, for example. And one of the things the Treasury's been been trying to do to some extent is that they shortened the, you know, they issued more T bills and less long duration bonds to try to have less supply of the longer term bonds so they don't drive interest rates up too much. Now this ironically has somewhat of effect on the Fed balance sheet because by shortening the average duration towards T bills, they have to refinance it a lot, which means they need to hold a bigger cash balance and that's at the Fed. And so one thing that the treasury could do is they could kind of work with the, the Fed and say, well, we're going to reduce our average cash balance from 800 billion to 400 billion. And to do that we're going to term out our debt more. We're going to issue fewer T bills and more long term debt. That's an option. But then they risk putting pressure on the long end, which they don't want. And even Secretary Sent has been in this troubling thing where he criticized his predecessor Yellen for having such a high ratio of T bills and has been slow to tackle this, I think because it's a politically sensitive thing to tackle, to do things that might put pressure on the long end of the curve. And so I think that once you're in the position of operating with all these constraints, the overall outcomes are kind of maybe less divergent from what's happening now than we think. Even though around the margins it could shift things to the right or the left a little bit compared to what they realized going to do. And I've been, I've been terming this, the gradual print, which is to say that we are, we are away from, you know, Fed balance sheet reduction. We've shifted toward gradual Fed balance sheet increases. I tend to take the under on those that are called, calling for like major printing this year or next. There are scenarios where it could happen, but those aren't in my base case. And with this new nominee nominee, I have to look at the other side of the scenario which is, you know, what are scenarios that could reduce the balance sheet because we have potentially new leadership in place. Again, they'd be somewhat outside of my base case, but they've somewhat increased in odds because of this.

B (36:09)

Okay, so you think Kevin Warsh is going to orchestrate with the treasury and the rest of the administration something that you're calling the gradual print? I think David and I were sort of under the impression that whoever Trump picks, it's going to be like Cutty McCutface. You know, he's just going to like shave rates all the way to zero because you know, Trump wants, he wants election results and he's going to take shortcuts if he needs to. He's, you know, that type that, that's his proclivity and he wants a high Dow, high Nasdaq high S and P. And he's just going to print money like no tomorrow. At least if you gave him total charge of the Fed, that's what he would do unconstrained. But you're saying basically there are all of these constraints in place, including the long end of the yield curve that make that like impossible or else something breaks or the market starts coughing up blood and Trump gets an undesired result. So you see the future as being so somewhat of a gradual money print rather than a massive injection of additional liquidity for, you know, whomever Trump picks.

A (37:15)

Yes, I would add a couple caveats. So one is that industry policy and balance sheet policy could be quite separate. So you could have them be quite dovish on interest rates and say we're going to cut by 150 basis points rapidly, for example. But then they also might say we're not going to increase our balance sheet for the next six months and we're going to try these other regulations to let banks hold more Treasuries, for example, and then interest rates. There are some environments where interest rates are the bottleneck and that they are what is say holding back bank lending which would contribute to broad money supply growth. And there are times where they're not the bottleneck. And so you can have a situation where you cut interest rates and it's not that impactful because they weren't the bottleneck. So that you cut short term interest rates and maybe long end rates just stay flattish. You know, there's in their range up and down depending on, you know, macro conditions, not really going any trending in any direction. And you can cut interest rates by a decent amount and the house financing doesn't really get any easier. And so that more affects currency differentials. It can have an effect on more shorter term business borrowing, which is relevant, it's just not massive. And so I would generally think that whoever you pick is going to be pretty dovish on rates. I think that's been pretty much set in stone. Balance sheet's a little bit more of a question. But I generally think balance sheet is kind of gradually up and to the right. And I think that the combination of rates and balance sheet will keep the broad money supply kind of gradually up and to the right for the next couple years. So I generally am fading more the extreme ends on either side. We have gone through a shift more toward that balance sheet increases and kind of the note on Fed independence because we've gone back and forth about this a little bit. It's like the set of circumstances sharply narrowed with the global financial crisis. And that's why in many cases it's kind of seemed like Fed independence has gone away because there's the number of options they have has shrunk. And so there's generally been this case where the government and the Fed are moving in the same direction. And it seems like Capture, which I think is partially true, but it's also that it's not really captured if they both agree anyway. They're just both going in. It's like the circumstances have captured them. The high debt levels have captured them. If their shadow mandate is maintained financial stability, by extension, it means maintaining treasury market stability, which means even as treasury markets blow out, you have to sometimes print money to keep them stable. So the circumstances have kind of reduced the number of options they have over time. And then only in kind of recent times has there been more overt challenges to independence, which is that we're not in an extreme environment right now. We're not in a global financial crisis. We're not in a, you know, lockdown scenario. So there's a somewhat competing opinions around what policy should be. And that's where that, that actual independence is kind of challenged for the first time really ever since this era. Even throughout the global financial crisis, there were only little mini challenges to it. I mean, Trump in his first term did a little bit of a mini challenge on it, but. But this is a more overt challenge on it.

C (40:30)

This conversation about Fed independence has been a reoccurring theme. Lynn, every, every time we have you on, there's always some flavor of this conversation that's relevant into just a macro conversation. And this seems to be kind of the, just like the, the latest rendition of that. We two, three years ago, we were talking about post the Russia invasion of Ukraine and the. And then we froze a bunch of Russian bank accounts. We talked about how that kind of just impacts the nature of the dollar as a global reserve currency and whether or not other countries want to even trade in that currency, if that's what we are proven to do. That was another rendition of a pretty similar conversation, I think, even before we had you on to talk about that current event. We talked, we talked about how Trump was kind of downstream of the Triffin Dilemma, about how we've hollowed out manufacturing domestically. And that's because we have this exorbitant privilege of the United States global reserve currency of the dollar.

D (41:25)

We.

C (41:25)

Every time we have you on, there's some sort of conversation pointing towards what I think we kind of illustrated in the very beginning of this episode is like this fourth turning this phase change of the monetary order. And now it kind of seems far more real than it ever has in the past. There's that famous Internet gif of like the, the van rushing towards this wall and it's going to crash into the wall, but right before it does, it Cuts, and then it's rushing towards the wall again. But then it cuts. It never seems to actually crash. When gold does what it's done over the last, you know, months, maybe, maybe six months, it actually starts to. When it shows up in financial markets, it really starts to feel present. And I want to ask you about, like, well, we had that, that Powell talking about how he's being persecuted by Donald Trump. How could it be any more real than that, you know, gold is actually running. How could it be any more real than that? Can I want to ask you about just like the, the price run of gold and other precious metals and how related it is to the subject we just talked about and many of the other subjects we've talked about. Maybe is it finally time for a lot of the inputs that we've been talking about every time we have you on over the years to show up in gold prices? Or if not, then what's the deal with gold? Why is it doing the thing that it's doing?

A (42:40)

Yeah, I think, I think these things we've been talking about are a big factor in this. So, I mean, we talked about trade years ago, and now we are seeing more extreme trade policy around the severe imbalances that it's gotten. And then in addition, we talked about, you know, inflation, money supply growth, how the war and confiscation of reserves could impact the, you know, desirability of the dollar and the Treasury. And now we see, you know, precious metals soaring and kind of central bank accumulation. So these things are accumulating and there is kind of cause and effect here. You know, when you have major entities like Citadel, for example, talking about, you know, threats to the dollar and things like that. Obviously, Dalia has been talking about it for a while. I've seen personally over the past several years that, you know, the topics of fiscal dominance and, and things like that have just become more of a known variable among major, you know, Wall street institutions. Whereas, you know, back in the 2010s, this would have been more in like the gold bug newsletter community. Right. It's like the periphery, maybe people that were really earlier sensationalist on average, is kind of, that an industry might be known for has, has become. We've kind of reached the point where it's becoming real, in a sense, reaching into major, you know, institutions and, and sometimes within government itself, and it's more addressed outright. And so I, I do think that we, you know, we are seeing pretty tangible things. China over, over time is holding less treasuries. There's a Little bit of a financial cold war going on between the United States and China, which is very different than the 2000s and the early 2010s and it's of course accelerated in recent years. Then there's a, you know, with the whole kind of war in Eastern Europe and what can happen to reserves? There's just, you know, more countries saying, well, maybe I want to hold some gold more than I have been, or maybe I want to diversify reserves a little bit. And then when you add a trade war on top of that, right when, when just the United States can say, well, we don't like you, so we're going to tariff you 50% or, you know, you don't do this, we're going to, you know, so it's like they just want more options. They want a little bit more wiggle room on, on, you know, when they, when just things that they assume won't happen but then suddenly do. It's like, well, how reliant are we? It's like if an individual has 100% of their money in a bank account and it's just frozen and you realize they had no alternatives. They didn't have any gold and silver stashed in their sock drawer. They didn't have any Bitcoin or stable coins or whatever else they might like on their multisig, whatever the case may be. They didn't have any other kind of sovereign options. They only had this like permissioned thing. That's how sovereigns are kind of acting right now. Now in Wall street tends to, and retail investors tend to make momentums out of things. So I think that the fact that it's all happened in this 6 to 12 month period kind of exaggerates the issue in some sense. Because once something's rising in price, it can just rise in price because it's rising in price. And more people want to be on that. So that can take a life of its own, which is far larger than the actual issue. So I, I've been of the camp that these things will still be playing on for quite a while. In fact, one of the criticisms of the fourth turning is that it, it kind of puts these timeframes on things which I think are somewhat arbitrary. This fourth turning has already kind of gone on longer than their original base case was. And I think that's probably going to continue to play out, which is that the whole situation in Japan is going to last longer than people think. You know, the people that think it's going to blow up tomorrow or next year. I think are going to keep not seeing that for quite a while. I think the dollar, while it has weak years and has inflation and has debasement, it's not going to blow up in kind of the near term. And I think these things are going to go on for quite a while. But it doesn't mean that the consequences wait to hit. They start hitting already. The political polarization we've seen is partially a consequence of all this. The inflation that happened after the shutdowns and the money printing was a consequence of this. The diversification of central banks toward gold was a consequence of this. And the trade war is a consequence of this. These are imbalances been building for a very long time that many of us have been talking about. And they come in bursts and they are growing. And it is real. It's just that the most sensationalist takes are rarely correct and that they generally take longer to truly play out than people think, even though they are punctuated by these little exclamation points here and there. Yeah.

C (46:59)

One of the exclamation points I feel like is the gold price. In the last just week or so, the volatility has been crazy. Trillions has been going in and out of the gold market in valuation just in just seemingly a few hours. Is there anything to that other than just like it's getting frothy and the market's euphoric and despite gold being the largest asset in terms of market cap in the world, it doesn't really matter because herd mentality is going to be a herd no matter what. Or did something acute and noteworthy happen beyond just investor psychology? Or maybe, maybe it was just like a bubble and it's volatile and that's.

A (47:34)

Just what it is.

C (47:35)

Do you have any takes there?

A (47:36)

I think, short answer, I think both happen, which is that when you have a, a bubble, it only takes a small reason for that bubble to eventually pop, at least temporarily. Now I'm on record saying I don't, I don't think precious metals structurally are in a bubble. I think that this has mostly been a revaluation from undervalued more toward fairly valued. But in the, in the near term sense, I think it clearly got overbought. So it's like a more local bubble rather than like structural bubble. And when you have that kind of, at least local bubble, you're prone to, if you're, if you're that volatile upside, especially when you don't have a great reason why it just kind of momentum built like that, you don't have a Great. You don't need a great reason for it to come down, you know, a quarter of the way or a third of the way and give up, you know, some of those gains. Now, there have been analysis that I've seen where, you know, a fund in Asia, you know, got damaged by one trade and then shifts into another trade. So you can often point to bodies that float to the surface or entities that have been a kind of a last mile cause in a particular daily volatility event. But those end up still being symptoms of the kind of momentum that built it in the first place. The other kind of big structural thing that people talk about is the yen carry trade, which is that, you know, Japan has been a, you know, they had a structural trade surplus. They, they still have a current account surplus. They, you know, they build up all these assets. And then many other entities say, well, if you're going to be very dovish in your monetary policy, I'm going to borrow yen and I'm going to use it to buy other assets. So Japan, both, both directly and indirectly, is a really big funder of assets globally. And that can include U.S. treasuries, U.S. stocks, that can include just private equity in country XYZ, I mean, across the board. So when they get more hawkish, there can be these little pockets that no one was looking at that just kind of blow up one day and they could be long the asset you like and they got to deleverage. And again, I would fade the idea that it's like this big unwind that's happening this month. But it is a real issue behind the scenes that as Japan gets a little more hawkish, the bond market kind of revolts a little bit from very low levels. Anyone who's kind of like the financial term is swimming naked, basically, you don't really know who's not covered until the tide goes out in some way. So Japan getting more hawkish is a little bit of the tide going out. In the US quantitative tightening was a little bit of tide going out. These little tides go out sometimes, and sometimes that causes a little bit of implosion somewhere, which can be really big in the moment. But it's still just kind of an exclamation point that months or years later, it's just one of many along the path.

D (50:13)

Hey, bankless nation, it's David. If you're hearing this, that's because you are listening to the free Bankless podcast feed. Did you know that there is a premium bankless RSS feed? The premium feed has extra interviews that I do for my own personal research and just deeper questions that I want answered about the crypto industry. Questions that I want to answer so I can be more informed as an investor, both at Bankless Ventures and also just in my own personal portfolio too. Also, there are no ads, which means if you listen to the premium feed instead of the free feed, you'll get about 20 hours of your life back back every year because you choose to support Bankless directly. So if you're interested in getting extra content all while skipping the ads, or you just appreciate what we do here and want us to keep doing it, we'd appreciate it if you signed up for Bankless Premium and there is a link in the Show Notes to get started. Cheers to a good 2026 what if.

C (50:56)

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A (52:31)

Yeah, good question. I would answer it in two parts. So for the first part, I think it's a little bit more complex than us stepping back. I think that's one of the solutions we could have picked. If anything, I think it might have been a more elegant solution. But instead we've kind of been trying to have our cake and eat it too, which is we still want countries to use the dollar. We want countries to kind of come to all these trade deals with us while also stepping back in a way. So it's like we're almost again, it's kind of the quiet part out loud. It's almost like we're saying we world to pay tribute to the empire in a way. And I think it's untenable. I think it's adding volatility. I think it's unlikely to kind of work in the longer run. Even though I do think that some of the causes, I do think it's a noble goal to try to fix the trade deficit. There are just more elegant and less elegant ways to do it. And there are ways to kind of acknowledge that you're overstretched, military wise, currency wise, economic wise, and to pull back. I think we're, we're kind of trying to pull back, but also not pull back, which is messy. So I think that's, and that's part of, that's adding to the volatility, that's adding to the fourth turning. It's kind of like the institution debating with itself because even within, even within one administration, like the Biden administration, especially in the Trump administration, there are factions. It's not as though the whole administration moves as one. And so you can have one faction that wants more free trade, another side that's really on board with team tariff. Then there's other ones saying, you know, we, we could really use a dollar devaluation. It would really help with our trade, you know, deficit issue. And the other side saying, no, we want strong dollar policy. And so you have these kind of competing factions where the, the end result is messy and therefore maybe less impactful than it could be if it was more aligned. So that's the first part. The second part is I, I think China only wants to go halfway. That's in all the analysis I've seen, which is that they, they want to reduce their dollar like requirements, meaning that they want to have their own currency system strengthened. They want to have their trade partners increasingly accept it as payment in contracting for almost anything. They want to be able to buy commodities and energy in their own currency. They want to keep their currency stable enough so that entities can then hold it, knowing that they can then trade it for a lot of Chinese goods and services in the future or can exchange it for gold on their exchan change. And so they have these kind of mechanisms to try to make the, their, their bonds more attractive. And I think all that is real. But I don't think that they want to recreate the Triffin dilemma issue that the US has had over the past several decades. I think that that's, that's at this point, somewhat common knowledge. They say, well, you know, we don't want all. We don't want to extend that far. In addition, you know, China's obviously got a long history of human rights issues, but it tends to be pretty localized around their region. They've got certain areas that they say are theirs, and they've got certain mandates they say they can do on their people. But in terms of like wanting to project force over long distances, that's not really culturally in their wheelhouse, as I think it's a fundamentally different way of looking at things. So I think that my take is that they want to go halfway. They want to, they want to have their own ecosystem. They obviously want to be like the center of their ecosystem because they've got the economy that can do that, you know, potentially. But they don't want to. They don't want this kind of world empire triffin dilemma situation that the US has kind of found itself in.

B (55:53)

So what I think a lot of people are trying to figure out is what happens next? What is the next monetary order? I mean, that seems relevant for investors. And we're in a world where the US dollar, or let's say Treasuries, US Bonds, is diminishing as the world reserve asset, while the dollar is still the world reserve currency. From a medium of exchange perspective, treasuries and U.S. bonds, dollar denominated assets are going down in particular relative to gold. And Michael Howell has this framework of capital wars, basically, and he sort of positions China and the US engaged in a capital war. Of course there's other factions, other players, but those are the two big players right now. And there's very much a question of what China wants, let's say, or what the rest of the world wants as the store of value of reserve assets. So there's this idea maybe that China is helping with the gold price, buying lots of gold, of course, because they don't want Treasuries US Treasuries to be the world reserve asset. They want gold to be the world reserve asset. They don't want the yuan to be the world reserve asset, though, but they're stacking that, and then maybe they, they pull off a central bank digital currency payment type of network as well. So they get the medium of exchange in their currency, but their store of value is gold. Now, the U.S. of course, has enjoyed, they're coming from an incumbency position where they've enjoyed dollars, treasury assets as the world reserve asset, but maybe that's not tenable any longer. And some of those factions within the Trump administration somewhat win. And so maybe they're swapping out the model too, where, I mean, the US does have a lot of gold, so I guess a gold standard would be okay. But then they also have a crypto stack too. Maybe bitcoin becomes a reserve asset as part of gold as a store of value. And then of course, a lot of investment in the stablecoin stack. Right. So you could imagine that being sort of the medium of exchange in a way for Besant and the future Fed chair to sort of export dollars across the world. So it's almost like two stacks are emerging, China and gold versus and maybe their central bank digital currency thing, payment network thing versus the US and gold a little bit. But then crypto assets and stablecoins. Which do you think? Or do you, do you accept this kind of. We're trying to forecast what the world's going to look like in, you know, the2030s and the2040s. What do you think? Do you think one of these visions win? Do you even agree with that framing of things?

A (58:30)

I would say I mostly agree with that framing. I do think the more multipolar side wins, which is more of the China side, the more that they get some degree of dollar independence and neutral reserve assets like gold get elevated. But that's not even necessarily bad for the US it's going back to my prior point around Triffin's Dilemma and things like that. It depends how the US plays its cards while this is happening. So, and I've written a couple pieces on this one was back in 2020, I talked about the more the rise of this kind of multipolar world happening. And then of course, I featured it in broken money in 2023, this kind of shift toward a more multipolar world. And, you know, I can't say exactly what's going to happen, but there's kind of a couple options you can lay out. So one, one kind of point there is that there's, there's really no currency in the world, including the dollar, let's say no fiat currency in the world, including the dollar. That's big enough to serve the whole world anymore. So when this dollar system was established, I mean the US was over 40% of global GDP. We were the only thing standing after World War II. And we had all the gold, we had all the manufacturing, we had 40% of global GDP. We could run the ledger over decades. Triffin Dilemma has poisoned that well to some degree. In addition, China, India, Europe, they've kind of recovered from the whole period of colonialism that happened, the whole period of total war that happened. We've kind of gotten closer to historical GDP ratios where these big population centers are rising back to their kind of normal place as pretty big economic powers. And there's really just no currency block big enough to solve their whole world without Triffin Dilemma being a really big deal. So even China's not big enough. The US isn't really big enough. And so that means you generally need one of two things. Either you need diversification. So maybe you have two really big hubs, you have the US and China has two really big hubs. Maybe Europe, it's kind of its own third smaller hub. And so no ledge is trying to serve the whole world. The challenge there is that money has network effects. It tries to trend toward one. Liquidity begets more liquidity. And so it puts pressure on that diversified model to some degree. And then the other option, the part that kind of alleviates that is neutral reserve assets. So you can have a diversifying of the ledgers, but then also these neutral things that bridge them. Gold being the incumbent, neutral reserve assets. The obvious first choice is the one that central banks already hold. It's the one that almost everybody in the world can understand to some degree. It's got this multi thousand year track record with the main caveat being that it's really slow and expensive to audit. So it's, it's great as savings, it's not great as, as settlement. Like when Germany wanted to repay repatriate part of its gold, it took years and they finished ahead of schedule. And it still took, it took years. It just took fewer years than they thought. And that's, I mean, you know, whereas like you know, a bitcoin transaction, you could, you get six confirmations in an hour on average. And so you know, that's, it's just like a different world now. Bitcoin is, I mean it's a settlement rails and is a store of value. It's got 17 years of track record now. But it's, you know, we're talking depending on if you're in A bull or bear market. At the moment it's a 1 to 2 trillion dollars asset. So it's still small on the network effect scope. It's still, even though it's got reasonable liquidity, it's still pretty small on the liquidity spectrum. And then sometimes you know, there are people that just don't understand it. There are people that, that are say well I mean is it, is it prone to risk XYZ, let's say quantum for example in a 5, 10, 15, 20 year time horizon which sovereigns are going to think in. So I, I, I think that's a rising contender but I think this is a very long game and really not until you know Bitcoin has like an extra zero on it would it like its market cap would it be like a contender at the scales of, of dollars and, and Chinese currency and gold. And when we, when we look at stablecoins that goes back to the, the prior issue of an administration or a country that wants multiple things. So the widespread use of the dollar is historically good for Washington and New York because it lets us sanction anyone. All the stuff's kind of priced in our currency, it lets us see everything and we can generally makes our currency overvalued. So it lets us project power and military bases pretty well. But the downside, it's not great for Main street, it's not great for industrial usa. It hurts our export competitiveness and over decades it can get so imbalanced that even Washington struggles to benefit from it. And as we previously talked about, we have seen the shift away from sovereigns, away from Treasuries especially as a relative part of their stack. Now what stablecoins potentially do is say well even if sovereigns aren't buying, people still might want to buy the dollar like on the streets of Cairo in black market currency markets it's the dollar that people want. It's not Chinese currency, it's not Brazil's currency. It's the network effects of the dollar for the most part. And that's true for many countries around the world. And they say well there's that bottom up demand that technology can potentially let us meet. And there's truth to that. I've been bullish on stablecoins for many years. Couple challenges is that one, I think you do hit a ceiling at one point which is that people only want so much non interest bearing dollars for starters. Two, some countries will push back with regulations and crackdowns to at least add frictions to it. They can't stamp it out entirely. But you could push it toward the gray market or just kind of fracture the liquidity in some partial way. And then two, the US still has a trip and dilemma issue, which is if you do manage to get stable coins into more hands, it's hard to fix your trade deficit because you're trying to fight two battles. You're saying, we want to pull back and focus on ourselves, but we also want to keep our currency dominance. That's more in the Washington and New York camp. So I think that that's part of why this takes so long is that not only are there big factions competing against each other, but then there are internal factions competing within themselves too.

B (64:35)

Let's talk more about bitcoin because we do have the debasement narrative in full effect. And you're right that that has moved from kind of gold bugs who used to talk about it in the 2000s, 2010s to now it's mainstream right now. The big financial houses are acknowledging it, talking about it, and gold has been a massive beneficiary of this. Some people look at gold and then they compare bitcoin and they say, this was bitcoin's moment to shine and it is underperforming. And I mean, obviously we've, we've had you on and talk about broken money and they might say, well, Dalio was right, Lyn Alden was right, money is broken. But the solution doesn't seem to be bitcoin. Are you disappointed with the way bitcoin has performed relative to gold? And does that shake any of the thesis you've had around bitcoin, the long term thesis that you've had?

A (65:30)

So I've been in the camp that as I see this world get more multipolar, it's hard to know the timeframes that these things happen on. Which is, it's funny because some bitcoin proponents really don't like gold. Some gold proponents really don't like bitcoin. I've been in the camp that likes and is long both. So I've been.

B (65:48)

That is an option, by the way. You could be bullish on more than one thing.

A (65:52)

Yeah, it's been an option. In fact, I've been long precious metals longer than bitcoin, because initially my thesis, okay, this is all happening. I'm going to go own gold. And then as I learn more, I'm like, well, okay, I'm going to add bitcoin to this thesis too, because it's many ways better. Bitcoin's outperformed during that Time even though it's underperformed more recently. And to answer the other question, I have been Bitcoin has underperformed my expectations in this particular cycle. I started out with conservative expectations which was the, I thought the 2021 cycle, I thought we'd get to a trillion market cap. We did. Once we got there I was like yeah, I could see us hitting 100k this cycle. We did and we only got to 69k. So my kind of revised bullish take wasn't quite met. Even my first one was then we go into the bear market. Then I basically said I'm not really going to try to make a price target this cycle but when pushed I would say anything under 150k is kind of disappointing. And we only got to 126. So I would say it is kind of a second kind of a lackluster cycle. I think treasury companies took some of the euphoria out of it. So some of the money that might otherwise have gone into say just cold storage Bitcoin goes into leverage shares of these treasury companies that are trading at X times, you know, M Nav which takes some of the price action out. So I think maybe without those you could have gotten a little higher. But then also they, they were also partially fueling the buying of it to some degree, especially microstrategy. So yeah, I think that overall this was a somewhat disappointing cycle. It doesn't change my long term thesis about it that basically a, a decentralized ledger is still very valuable. It's the only way to do, you know, that we know of to do permissionless payments and portable secure savings. And then the second part of the thesis is well that these things have network effects. So you pick one that you view as decentralized secure and is likely to win basically the liquidity war, the network effect war. Obviously we had disagreements around say Bitcoin versus Ethereum and others. I've been in the bitcoin camp which is okay, so a decentralized ledger is valuable. That's the largest, most liquid one. It's kind of the one that's kind of geared towards simplicity and kind of, you know, maximal decentralization. And so the thesis is that would would continue holding up and also has bullish on stable coins along the way as well even though they run on largely other rails. And I would say in this cycle, you know, bit Bitcoin is still, you know, dominant cryptocurrency. So 17 years in, I think that part of the thesis continues to hold up. Well, you know People have their, their views on quantum and other factors that contribute over the next five, 10, 15 years. But so far I say that part of thesis on track and the part that's going slower than expected is just the demand for any decentralized ledger, which is, I still think it's valuable but I do think the world's kind of maybe a little slower to recognize its use. And a monetary asset unlike if you're out of oil, you have a problem like that day. Whereas if you, you know, if you haven't recognized good money yet, a lot of people, they're just not harmed by not, you know, it takes time. It's not like someone can have a bitcoin shortage. So unless you're an exchange or something like it, basically it's like there are people that are blocked from making payments and they, you know, they get around in other ways sometimes maybe they haven't found the best way yet. There are a lot of other people that say well debasement's happening but my payments aren't shut off. So as long as I own AI stocks and gold and stuff like that, I'm fine. So I think these things can take quite a while to play out. So I think the long term thesis is intact. But it's that is true that it's underperformed my expectations this cycle. And the softening blow is that I have been in the camp that you can own multiple things. Also I mean my history more starts with equity analysis. So I'm also long stocks to a very significant degree. So when you have stocks, gold, bitcoin and some cash liquidity, you generally get through these things pretty well.

B (69:43)

I was going to say Lyn, if you were disappointed with Ethereum this cycle or sorry Bitcoin this cycle, you should try being an Ethereum bull because I think it's been pretty, it's been a pretty painful from that perspective. Maybe we could talk about that in just a minute. So somewhat I wonder if the adoption around bitcoin it's sort of, it's very clear for individuals why bitcoin has a lot of benefits versus a store value asset like gold. But then when you kind of scale up and you get to kind of central banks and nation state level, right. It's fairly easy for them to buy gold in abundance and to secure it and to even transport it. And it's a massive liquid market like and it's much larger than bitcoin. Seems like we're sort of hitting a little bit of a ceiling. Maybe that's a temporary Ceiling. But with respect to Bitcoin adoption at the nation state level, I mean the nation states haven't yet started buying campaigns. I mean the best they're doing even with the Bitcoin strategic reserve in the US is they're just holding crypto assets that they've seized. So maybe we have to get through that first. I want, I want to ask you though about four year cycles in crypto, like are you a believer in that? Because one explanation for all of this, the Occam's razor type explanation I think is that it's always played out in four year cycles.

C (71:01)

It deemed itself into existence.

B (71:03)

Yeah. And basically it's now a self fulfilling prophecy. And maybe there's things tied into liquidity which also happens on like for global liquidity which it happens on four to six year cycles. But anyway it was just Bitcoin's time. It's, I mean the, the you know, the fourth year and a four year we, we have a, it's time for a bear market. So we're going to have a bear market and that's why this is happening.

A (71:22)

Yeah. The way I look at it is that so in the early stages obviously the four year cycle was, was impactful because the supply, the new supply was so large and meaningful that a, a half reduction in that new supply really affected market dynamics and could be a catalyst for the next bear market, I mean bull market until that euphoria gets overdone. Now as the supply, the new supply has gotten so small relative to other factors like the rate of OG selling or not selling, the rate of big new buyers coming in, these are all much bigger factors than, than, than the new supply that comes from bitcoin in a halving. And so fundamentally I don't think there's any reason to have the four year cycle expectation in play. I do think that behavior tends to change with a lag from fundamentals. So even though the four year cycle, I don't think it mattered fundamentally this cycle and I think last cycle still probably wasn't the biggest factor but was a little bit more of a factor than this time. I think it takes a couple cycles for the psychology to catch up. And so I do think that there was some self fulfilling prophecy which is that people say well if Bitcoin's only going to get this far in the cycle and then I'm risking a two year bear market, might as well get out now and see if I can buy back later. And if enough people think that then you get that happen. And then of course when it's down versus expectations, you have some people panic, sell or get liquidated if they were leveraged. So then it fees on itself and you clean out pretty much anyone who owned it for the wrong reasons or that owned it on too much leverage. The one part that I have been careful of is we want it was about this time last year I would get on podcasts all the time and people say well what do you think about the sovereign bitcoin reserve? And that's the part I would push back on and say any of my models are not going to include it because I'd rather be surprised at the upside than surprised the downside. My default view was okay, they're probably going to ring fence the bitcoin they already have, which they've largely done, but that I wouldn't bet the farm that they're going to go out and buy a half million coins regardless of what some of the proposals were. Just because the status quo for governments is no change. Now obviously in a, in a Trump administration there's more variables. We just talked about how, how does rapid things can be. So if you asked me would the tariff were have gotten this elevated a year ago, I probably said it wouldn't be my base case. Right. So that, that hit kind of the unusual levels but the, the bitcoin sovereign, sovereign bitcoin reserve didn't. So I think it is right to be cautious on expecting one big pool of money to come in and save a cycle. It's nice if it happens to the upside if you're long, but I wouldn't bet on that. Instead I think you want to have conservative expectations and be more just prudent with expectations. I think that the we've generally. So there's obviously this career risk, right? So if you're a central banker and you buy bitcoin and bitcoin goes down, you probably lost your job. Same thing if you're a corporation. So generally speaking the ones that do it are ones that operate like an individual or a small company. It's because some, some owner, like some, some CEO is like either the founder or a major major shareholder. Unlike most corporations where the ownership is pretty diffused. So someone like a sailor, someone like a Bukele, that they have kind of a higher than normal level of control of the entity that they're overseeing and that they can make not maybe not fully unilateral decision, but closer to unilateral decision to do something the way that a small business or an individual might operate where it only takes you or your, you and your spouse to make a decision. And I think that that's kind of the cycle we're in now. No one followed strategy really in that first cycle. They did it. And obviously we've had more imitators this cycle for better or worse. So I think these things take time to catch on. So every cycle I think you probably would get more of them. But I wouldn't bet the farm on any one giant one saving a whole cycle. So I think it pays to be kind of prudent with expectations.

B (75:22)

On Bitcoin. Are you worried about strategy? Are you worried about digital asset treasury companies and them going perhaps belly up during this bear market? And then also how about Quantum? Is that a worry for bitcoin for you?

A (75:38)

So I would separate strategy from most other treasury companies and I probably would put Meta Planet in the more stable one too, which is that there are several of them that I'm worried about. I mean, basically I think they got way overdone, didn't structure themselves super well, expected the bull market to go on longer strategy. Obviously the share price taken a massive hit. If you look at their actual debt ratios, they're still pretty reasonable even after the sell off of their collateral. And I think one of the best decisions they made was they made that dollar reserve, perhaps somewhat ironically, but they have this dollar reserve. They can cover currently approximately two and a half years of their preferred dividend payments. And then their convertibles are a pretty small percentage of their asset base and are not due for a number of years either. So they, they've kind of structured themselves for a pretty big drawdown. And it's, I mean I've gone on 2 of their earnings calls as an analyst. The one was six months ago. And I asked about stress testing like downside scenarios. You're right at the euphoria phase. And I was like, well, if everyone's gonna ask bullish questions, I'm gonna ask the bearish questions. How are you thinking about stress testing this? So they, and they basically said they were trying to gear toward 80, 80 to 90% drawdowns and still be, you know, solid. So we'll test that. But you know, so far it's gone down pretty far and they're still functioning and I don't really see anything breaking them in the next few years now that, especially now that they have this kind of dollar reserve. Obviously if you were to have like a five year plus bear market, you know, if you fast forward to like early 2000 and 30s and we're sitting at like $40,000 per bitcoin. They're probably massive trouble, but I don't see them any in sort of near term trouble. But then I would separate that from weaker ones. Weaker ones that have just not structured themselves, that don't have the liquidity network effects of microstrategy, that maybe haven't termed themselves out with like long duration convertibles or preferreds or they got over their skis in other ways. As far as quantum goes, my view is that fundamentally I'm not worried about it in any sort of investable time Horizon, call it five, 10 years. Bitcoin being rather decentralized, tends to upgrade slowly and take a lot of consensus. And of course it's a complicated problem because quantum resilient signatures take up a lot more space. So when you have a pretty limited block space, I mean, this is a trade off. And then there's debates that are way higher than my technical pay grade which are what are the, what is the best signature scheme, you know, in quantum to make it? What is the most efficient way to do it or the best blend of security and efficiency? And that that's still being, you know, determined and litigated over time. Now I'm personally, you know, bullish on both. I think it's going to take quite a while for quantum computers. But attack Bitcoin. And I do think that bitcoin has plenty of kind of there. There are people in place already trying to figure this out and I do think that as it becomes, if it becomes more urgent, I think they would figure it out. That being said, I've got a lot of contacts in institutional firms and over the past six to 12 months the quantum risk has hit them in a way that it wasn't maybe a year ago or more. So I would say it has affected their buying or selling decisions at least around the margins. And one way of thinking about that is if they say there's a 10% chance that something happens in the next 10 years and they'll say, I don't even know how to handicap that. I don't know if it's five percent, I don't know if it's two percent, I don't know if It's 15%. They say there's this kind of variable there that is just outside of our technical pay grade to know. And so when you build an expected value model, a lot of firms will say here's our bull case, base case and bear case. They can make their bull case and base case the same as they were all for the macro Reasons and all for these other things. But then in their bear case they say, well, let's say an X percent chance we get zeroed out or X percent chance or some like messy chain split where one's trying to be quantum resilient and the other one's not. And then this all hits and we lose 80% of our value. They have to like fatten that left tail bear case which then brings down their average price target or makes them say, well, we might have put in a 5% position, but now we're going to put in a 3% position, you know, or maybe just it doesn't get past committee and you would have had, you know, five out of nine votes to get it in there and now you've only got three or four votes, so it doesn't go in. So I do think that even though I think that the technical threat is able to be mitigated, I do think that it actually has impacted price.

B (80:10)

This like Lyn, I think it was 2022 when we had you on actually for a debate with Justin Drake and the episode, I think it's called the proof of work versus proof of stake debate.

A (80:23)

Great episode.

B (80:24)

Yeah, it was a fantastic episode. The topic was two experts debate which is better, proof of work or proof of stake for creating a global crypto money system. So Justin Drake, of course on the ethereum side is a big proponent of ether the asset as a store of value, as a money. And so has historically. You know, David and I have been with, with Bankless and I think you've been pushing against that. I think your reasons are Bitcoin has the network effect. It was kind of the, the original chain. Also you really tend to like proof of work and it's tie into kind of energy. Now I want to fast forward through another cycle to 2026 where we are right now. And I want to congratulate you so far on being more correct. At least the market has dictated that you've been more correct on that side. I will point out that it's not over yet. This will play out over many years and many decades and I'm sure there will be things that come into play for both of those networks in the future. So I personally haven't given up. But one has to look at that and it has to look at the bitcoin to ETH ratio and basically say, okay, Bitcoin won this cycle as a store of value asset for certain versus ether and the ethereum position. I would just catch up to bitcoin right away and Then flip it as a store of value asset that has not played out so far. So first of all, congratulations and you know, you deserve a victory lap. I know you're too humble to take one, but I want to ask the question, why do you think the ether as a store of value asset has not played out as well, or any other crypto asset for that matter, not just Ethereum versus Bitcoin?

A (82:11)

Yeah, I think, I mean I put in a couple major arguments. One is that network effects really matter and that once you have the liquidity network effect, once you have a security network effect, brand network effect even to some degree, you can't just be marginally better, you have to be way better to dethrone it. And then the second one is that in protocol design generally simplicity wins, which is, you know, if you're going to build the whole Internet, you want to build it on a pretty simple substrate and then complexity you want to push to the edges. Same thing with like simple mail transfer protocol and Ethernet, many other things like that. So my general view is that, you know, this is the protocol of money and that I've been in that more layered design camp, which is I want the foundation or I expect the, the winning foundation will be this kind of simple dumb one that is kind of maximizing for you know, pretty tight bandwidth requirements, pretty tight storage requirements, minimal governance or governance like things to keep it going, to keep the wheels on the cart. Also I do like proof of work more than proof of stake, at least for the most robust. You know, not to say that you can't use proof of stake for like a stablecoin chain or some sort of like function like that, but the, for like the, the money for enemies type of one. I, I've been more in the proof of work camp and people can I guess go back and watch that debate, see their take on it, or watch any of the other people that debate on it, but I think those are the factors that really combined to keep it going. But like you said, it's not just been Ethereum, it's really, it's the, it's the thesis that you know, outside of just the usefulness of stablecoins that basically all this kind of broader altcoin stuff, I've been kind of structurally bearish on it, which is say that these cycles happen but that they're unlikely to accrue kind of multi trillion dollar market caps. And I, I continue to hold that thesis. Now obviously even the bitcoin one's been tested in this cycle, which is that we Just mentioned we had kind of two at least somewhat disappointing cycles. At least we got higher highs, but still just kind of a little bit slower to catch on than many of the bulls would think. And I tend to be in the bitcoin camp. I tend to be more of a bearish bull, which is that people have very high price targets. And I'm like, okay, let's take out the sovereign reserve, let's do this. Let's hit 150k before we talk about, you know, 2 50k. And so even the bitcoin side is like a little bit just slow to catch on. But I continue to hold that the broader space outside of stable coins, outside of some degree of tokenization and things like that, I tend to be pretty structurally bearish across the board for the most part.

C (84:43)

2026 is certainly shaping up to be an interesting year in financial markets. And I think a lot of, a lot of investors in crypto probably are following in my footsteps, which is there's kind of a lot of stuff to be invested in, to have exposure in outside of crypto. So maybe I should like ask some of those questions. You know, I have some of my theses. Like I'm really interested in companies that are producing some pretty strong monopolies on some pretty core components of what makes the world. Like Google is trying to, you know, commoditize intelligence. Same thing with anthropic or OpenAI. But Google's really doing it and they have a lot of excess resources in order to make that monopoly happen. SpaceX trying to do a similar thing with energy AI data centers in space. Sounds futuristic, but Elon Musk is the man behind that. Tesla trying to produce a monopoly on labor with, with robots. It seems like the future is here in 2026 has a lot of these events that are going to be some of the early ways to get exposure to that, especially with the OpenAI IPO, the SpaceX IPO. Some things, some very big things are happening in 2026 with all of the current events and the modern technologies that are unfolding. What are you looking forward to in 2026 to have exposure to some of these very promising, very nascent technologies?

A (85:58)

Good question. I mean, it's, I, I, I, I shared your opinion about Google Alphabet. I, I, I was long that one for quite a bit. There was a time when people thought AI would disrupt them. My, my view was it could, it could disrupt part of them, but then they've also got these other things. And I also thought that disruption would go slower than people Think because you know the, the things that it like AI disrupts a lot of Google searches about non transactional things like you're looking up, you know, what is Napoleon Bonaparte's wife's name. You can ask AI instead of Google. Google doesn't care because they don't make money from that search. Whereas if you look up plumber near me, right, that's the search that Google wants to make money from. So my view is okay, it chips away at their, at their irrelevant searches first and it gives them plenty of time while they're literally building their own AI stuff. And so they've done that now as they've gotten pretty expensive and then as they've, they've increased the had to invest in capex. I've been more concerned, I've kind of divested part of my position to some degree. I've kind of stopped leaning into that the way that I was before. It's not that I'm bearish on it, but I'm more like neutral on it compared to previously having that kind of bullish view I think. So throughout the 2010s, a lot of the value occurred in these big network effects. So, so social media and you know, search engines and things like that. And I think one of the interesting things going forward is that a lot of the value will accrue in the hands of people using it. So there are investments that people can make. But I do think that the, the value capture at the corporate level is going to be thinner than the whole capital light social media era because they had to put very little capital in. They got these network effects that were very hard to dislodge and they could take all that free cash flow and just plow it into buybacks or dividends and it was just this flywheel that was just monstrous. And whereas now they are in so much competition with each other that they have to plow back into CapEx. And when they, when they kind of do all that the winner ends up being the end user. So the loser is someone who all this, all this productivity growth is happening and they're not using it and they're, they're caught off sides like they're getting disrupted by it without benefiting from it. The winner are those that are harnessing it, being ahead of the curve, making use of it out of as well as obviously those that are at the bleeding edge of getting it out there. But they're in heavy competition. And in some ways I like some dumb investments. I have been in AI, I have been in bitcoin I have been in these more technological things, but I've also been in natural gas pipelines to say, well I want this other thing that's just grows like clockwork, maybe at a slower pace I don't have to think about and just hold it for five, 10 years. I've been enjoying that kind of trade. My view throughout the 20, all of 2025 I was bullish on like Latin American banks and it's like who had on their bingo card that during a trade war Latin American banks would do well but they had this pretty explosive year. So maybe they're a little overdone. But I still think there are like emerging market investments out there where they have regulated, you know, monopolies or they have, or they're doing real world stuff like they're, they're, you know, producing something of. It's hard to disrupt with AI. So I partially think on the other side, which is okay, I'm long all this stuff but because I think that the value capture is going to be thinner and it's filled with more risk that in some ways are pretty selective with my investments. You know, I was in AMD and then it soared and I was like out of amd. I was, you know, I'm still in Taiwan semi but it's got, you know, it's run pretty well. So I like to buy these things on corrections but then I also like to buy just real world stuff. So I've been more bullish on financials than the average person. It's funny, I'm on bank lists right now.

B (89:39)

So it's you betting on the banks.

A (89:41)

Kind of shilling a little bit and we're like, you know, on a value type basis. I mean I'm in the bitcoin stablecoin camp and I'm still long some financials and the energy I think is going to obviously it's a necessary component of compute and so I'm bullish on things that are real world assets but that have the balance sheet to withstand volatility. So I didn't expect that oil would get quite as cheap as it did. But my energy stocks held up quite well because they were geared toward that possibility and that's why I picked them so long kind of real world assets that also have the balance sheet and the strength to kind of support it. Another example I've been long like Warren Buffett bought all these Japanese trading companies and they have a trading company is a different term there but basically they're these kind of like conglomerates that are involved in a lot of real world assets. And I analyzed that back in 2020 and went long as well because the thesis was so strong and these things have just been explosive. So like Japanese, Japan's having all their long term currency issues and it's like one of the best ways to play it is these corporations, they borrow in yen, so they're short the yen. And then their own real assets, they generate free cash flows and they're cheap. So you just let them run for like five, 10 years. And again, the trades I think partially played out already. So I'm not really putting new capital there, but I'm not selling. And I'm always kind of on the lookout for what is the next thing like that. So in a world of AI, when people think, okay, what AI stack wins? I think it's a very invalid question. But it's also what is still here in 10 years that is short currency and long, all the stuff we're still going to want in 10 years, and that is trading at 12 times earnings because no one is thinking about it right now. So that's a lot of where my attention is outside of some of these more tech spaces.

B (91:31)

So Lyn, can you translate that into a Lyn Alden 2026 portfolio in terms of percentages? So you have bitcoin, you might have some gold, precious metals, maybe you have commodities. I think a lot of listeners are trying to figure out what to do with maybe their US equities portfolio. What's that going to look like in 2026? Is there an AI bubble or not? Anyway, how do you think about your own portfolio when it comes to kind of categories and percentages right now in 2026?

A (92:01)

Yeah, obviously you would adjust that based on age and it can give individualized advice. I have one portfolio that's public in my newsletter. I generally have that three pillar approach. So one pillar is high quality, mostly profitable equities. Another pillar has been is that US equities? Then it's a blend. It's US and foreign. I have been over the past couple years a little bit leaning more foreign just because of the partially valuation difference and partially because of the capital flows that can weaken the dollar and kind of start a flywheel in the other direction. So like Latin American banks and you're.

B (92:36)

Picking stocks there and sectors or are you doing indices?

A (92:39)

So I pick fewer stocks internationally. I pick some. I play it a little bit more with ETFs than I do in the US so for me it's a blend of ETFs and stocks or at least certain sectors. And I'll pick kind of the leading stocks in that sectors without trying to get too complicated, just because it's not my market. India had a rougher year in 2025 relative to other emerging markets. I could be wrong, but my base case is that India probably does better than the average emerging market in 2026, or let's say the combined 2026, 2027, two year period to give myself a little bit more room. So I do think that there are pretty good investment opportunities in India.

B (93:15)

That's the first pillar.

A (93:17)

Yeah, that's one. It's just kind of broad equities, including having an international focus on things that you think will be pretty resilient to disruption and that are maybe just under owned. So all they have to do is not die and then they have a good return because they're kind of priced for half death and then they just don't die and then you get a good return. Another long term pillar I've had is just hard assets. So that's a combination of hard money. So for me it's been gold, silver, platinum and bitcoin and then various energy producers and occasionally some other commodity producers. I still like that camp with the precious metal surge. I'm a little bit less enthused on that side than I in almost any other interview I would have loved that side. Now I'm a little less enthused with the bitcoin sell off. I like that quite a bit. And then also I do like the energy infrastructure quite a bit. So boring things like natural gas pipelines, these things that are just trading pretty cheaply and that often just pay cash flows, things like that. Kind of the boring value type investments. And then I've been structurally bearish on currency and bonds, but I do like having some dry powder. So the third pillar is just cash equivalents. And I'm less bearish on long duration bonds than I used to be. I still don't think they're a good investment, but I think the five year carnage we've had in that space, it's been so devastating that I used to be a super bear on bonds and now I'm just kind of a neutral lukewarm bear on bonds. And I do think that at times they can be. If you're going to buy Costco at 50 times earnings or a US treasury bond, I might pick the US treasury bond. I don't know. There's certain valuations of equities where I think that even if the fundamentals as equity goes pretty well, it's just valued to do even better. So I almost rather want to own the treasury bond in some cases. So for me, it's diversified equities, a little bit of an international and value focus, Bitcoin. And then whenever some of these more AI type of investments, the hardware makers and things like that, whenever they have this kind of sell off, and people say the whole thing was a bubble, that's when I generally like to get back in. So I try to fade the spikes up and I try to lean into the spikes down. I haven't played that as well as I wish I did and kind of make the bets as big as I wish I did. But that's kind of my approach so far.

C (95:33)

I have a question about the cash. You always want dry powder, right? There's opportunities. Mr. Market comes knocking at the door and one day he offers you $61,000 Bitcoin, and you want to have the cash to be able to take that deal. My problem, Lynn, and I think probably a lot of bankless listeners, is that I just like taking deals and then I run out of cash and I'm just fully exposed most of the time, which is like, you know, as somebody who has a podcast that's living inside of a very financial ecosystem, I'm happy to be fully exposed. But like, also at the time, sometimes I just don't have the dry powder to have to take access of deals. So I'm kind of wondering, how do you maintain a strategy there? So when Mr. Market comes knocking and you deploy your cash and your cash position goes down, what's your strategy to keep it topped back up? Like, where do you, from what pocket do you decide to pull from to keep your, your cash actually available at all times?

A (96:29)

Yeah, I mean, it depends on someone's liquidity. I, I tend to try to keep that more 5 to 10% level available so that if you have like a major sell off or a major opportunity come your way that you can pull on it. You know, obviously if you have a, if you have a large stock portfolio, you can take out a small margin loan, like a very low loan to value ratio.

C (96:50)

Yeah. But then you take out again and again, and then all of a sudden your small margin loan turns into a big margin loan and then you're in trouble.

A (96:57)

Yeah, I agree. Well, that's. Yeah, I tend to be always kind of cautiously bullish, which is I tend to have probably a little more liquidity than I need, less leverage than I could have just because my, my personality is more geared that way. And then it just depends on someone's lifestyle. Like, I, I have many people dependent on me in various ways that I, I have to be a financial rock for a, a liquid financial rock. So that kind of keeps me, I think, a little bit. I had to be pretty stable in that regard. And so if, if we do get a curveball like 2020 or some major opportunity, I, I tend to have a little bit of spare liquidity that I can, I could pull out of things.

B (97:35)

I'll just add for David, sometimes you got to sell things on the way up, man. Sometimes you got to sell a little. Okay. That's where the dry powder comes from. Lyn Alden, as always, this has been absolutely fantastic. I feel like I know so much more about the current environment than when I started. I bet a lot of listeners are the same. Thank you so much for joining us today. It's been a pleasure.

A (97:54)

Thanks for having me. Always happy to come back, guys.

B (97:57)

We'll have resources to everything where you can tune into Lyn Alden, all of her writings, her Twitter, everything else in the show notes. Got to let you know, none of this has been financial advice. Crypto is risky. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot.