A (4:07)

All right, so I want to talk about one thing really quickly before Dave, you jump in because I have a specific. So Mike, there's been a consensus in the bitcoin community that bitcoin will follow gold. A lot of people believe that means that bitcoin is going to follow gold up here. You're saying that bitcoin is going to lead gold down. And then Dave, I want to talk about your take on the bull market priced in gold because I think that it's really, really interesting. But Mike, you think that bitcoin right now dropping is actually a risk to gold and other metals, is that correct?

C (4:35)

Yeah, 2008 scenario de risking and as Dave knows, points, not many times when you got to sell stuff, you sell what you can, not what you, what you, what you want to. And that's exactly what happened the last time bitcoin got similarly stretched as it is now versus most long term moving average. Now the last time was 2008. That put in a hive around 1900 for about 10 years. But right before that was 2006 and seven most nearly 2007 it popped up to a thousand and then dropped to 700. As a whole stock market kind of heading lower now that's the kind of situation I'm worried about. Now just the key thing is I have to switch over from what really matters in markets. When you get markets this stretch versus all long term moving averages which were gold is right now I back off and point out the risks and that was the key risk. Now it looks very similar to me. What kind of the signs I noticed in bitcoin last year. Yeah, it was too early but shown signs of peak bull marketness and same in gold. The thing is gold is obviously all know the fundamentals Dave and anybody can pick into those. I just switch over to the my spidey senses and my risk management hat it's just too expensive. You want to be careful. And that's part of. I've been to that mode that if the stock market volatility just picks up a little bit from these record levels, everything goes down except for bond yields. I'm sorry, bond yields go down too.

A (5:48)

Dave, you have a slightly different take on the bitcoin gold relationship right here. I thought this was a great tweet so I wanted to unpack it a bit unpopular opinion. The biggest, this bitcoin bull market has not started yet. Perhaps you can dig into that for us.

B (6:00)

Yeah, so I mean all the cycle bros thinking 2025 was you know that because we had you know, a bump from Trump which was basically a one time revaluation upwards on the theory that. And remember he declared bitcoin a strategic asset. Etc. It, it's fascinating because the miners clearly agree and the owners clearly did not. And so if you look at gold as hard money and you see that, you know gold is. If gold is hard money from the past and the current and you think bitcoin is going to be hard money in the future, then it is clear that this cycle has seen zero, I mean zero bullishness. And so it's not a cycle. You know, basically this notion that we'll know soon whether the four year cycle is dead is the, is absolute absurdity. This four year cycle died early in 2025.

A (6:58)

I think it actually died when the ETF caused Bitcoin to make an all time high way ahead of the cycle.

B (7:05)

Right. So cycles are cycles. Look, it's funny, there was an article and here, let me. There's an article on, from BlackRock and I think it's fascinating. BlackRock, the title of the article is BlackRock. Bitcoin clients focus on digital gold, not payments. If you want, I can post it or you could find it, but what matters is the narrative of what Bitcoin can be. And that's the long term narrative. And there's been nothing in 2025 to say it. Now, Mike is right in a sense that if in fact gold and everything else drops because we have a massive sucking out of liquidity in all markets. Right? There you go. Now the payments use cases. What they're saying, you had it, There you go. What you have is a market where we are debasing the dollar. We are printing, printing, printing. There's no end in sight. Doge was never going to get very much done because it threatens the pocketbooks of both sides of Congress. And so it was stopped.

A (8:14)

They don't exist anymore. There you go. Doge fought the swamp and the swamp won. Breaking Department of Government efficiency no longer exists.

B (8:21)

There you go. So, you know, DeSantis set up his own Doge in Florida. It's actually found a fair amount of savings, but you know, because he thought it was a good idea, but it didn't really do anything. And so we have the only fight, this fight over the government shutdown, which did suck liquidity out of the market for a while. And James did a really good job in this weekend talking about it. And I think you should talk about your newsletter because it was really good this weekend on this topic, but we haven't had a bull market. And so that's the point. So the other big point, the other meta point here is what is the most important chart in Bitcoin? And I keep coming back to this. There are two huge stories that are going around on crypto Twitter that, that I'm not sure which one is dumber, but they're both incredibly dumb. The first one, which we're going to talk about later is MicroStrategy. So a lot of the takes on MicroStrategy are just mind bogglingly stupid. But it doesn't matter. You know, it's just really people who, who literally can't do basic math. But the one that I want to highlight is this notion of where are we? Let's do this. See if I can make it work. Share screen. I want. Yeah, this is. I show this every week, but if you look at this, this is the Hash rate versus price. Hash rate is the blue line. Price is the black line. I have seen tweets on crypto Twitter proclaiming Bitcoin hash price lowest in history. It means further downside. Okay, possibly. But if you look at this going back since the beginning of time, this black line is now farther below the blue line. Blue line is what do the people investing in mining equipment, power etc think the price is going to do? The black line is what is the current price of the asset. This line is now the most extended it has ever been. This creates one of two possibilities. The miners will all have to have a massive capitulation, including sovereigns etc which have free power. And people keep making the stupid idea that well, the average price is, you know, to produce it is a is is, you know, above it. It's exactly the same FUD that you get in the first six months of the previous, you know, three having cycles where it's like oh my God, the network can't survive this. And then when it obviously continues to survive it, at some point there's capitulation and the price rockets up to catch it and goes past it. So you know, you saw it here, you can't see it because the chart massively passed it, saw it here, massively passed it, started to drop and then went. So you pass it again and then eventually converged after ftx, stayed below in the post FTX hangover for a while, caught it, came down again, caught it, went above it with the ETFs first going, went below it, caught it, went above it, below it. You look at this chart as a someone who has traded statistical arbitrage. This is like the Homer Simpson pork chop slide. This is the time to be buying, this is not the time to be selling. Yet people keep looking at it the other way. So to me it's extremely obvious and you know, I don't even know how to articulate how people look at that and see that as bearish. Now in the short run momentum was a big deal and I think James should talk about it because you talked about it specifically the type and the fundamentals behind what went on in crypto. It is one of two possibilities is true either Mike is right, in which case Bitcoin signals a drop in liquidity that's going to become permanent, that's going to take down all risk assets or Bitcoin overreacted due to a a confluence of events including Athena de pegging, ADL deleveraging and funds having to do for selling at the exact same time that we were in the middle of how many weeks was it of liquidity being drained out of the system, James? I mean a fair amount. One of those two things is true. I lean toward the latter, but there's no doubt that there's risk. One last note on what Mike said. The reason the Mag 7 is now cheaper relative to earnings than it was than the effective equivalent in 2000 is, is because corporate profits are at an all time high versus gdp. And sadly it doesn't look like there's any policies in place that are going to cause that to reverse anytime soon. In fact, the big beautiful bill will probably turbocharge that. I'm not saying that's a good thing by the way, because at the end of the day it's causing the K shaped economy to get, get wider of a gap. But it is what it is. And as macro analysts, we're supposed to look at what's actually happening, not what we think should be happening. So that's an interesting case. Does that mean that there isn't risk and risk assets? Hell no. If they screw up. Yeah, I mean big time. I mean if the, if they can't, if they lose control over and we get into a liquidity death spiral. Yeah, that's a real problem. Right. You know, there's still a lot of, of potential negative catalysts out there in terms of corporate real estate. You know, we, we all know what they are lurking beneath the surface. But it's a, it's risk and you'd be crazy not to do it. But the point is, is if you look at this in macro, you're saying, okay, you know, why was price actions? I'll close with this. To use, use a mic thing to land the plane. I would say. I tweeted something over the weekend which I think is absolutely profound, is too strong and too egotistical a word. But basically we understand it is incredibly ironic that we, we talk about narratives and how markets will always price the long run narrative eventually, correctly. But in the short term we don't, we make up narratives in order to justify what happened in the short term price. So the price moves and people create narratives that don't exist. And we see that all the time.

A (14:11)

And so a lot of those this week.

B (14:13)

Yeah, exactly. And so we'll talk about microstrategy later. But when you have multiple, literally multiple dumb. I mean, just. I don't like to use stupid words. I don't like to use ad hominems in tweets, but I, I keep seeing raging stupidity. I mean you could say bitcoin's overvalued. Nothing Mike said is, is stupid. It all has the, you know, it's all reasoned but there's so many takes out there that are just dumb. And when you see dumb takes and you see a cons around stupidity, that's when I want to be on the other side.

A (14:44)

Yeah, James, you can run with any single part of that that you would like, my friend.

D (14:48)

I mean all I can, where I come at this now is that look, four year cycle is, is absolutely dead. I, I just, I can't get to a spot where we have a four year cycle still intact. And that had to do with one of two things. It was either that it was very tied to the mining reward over the course of the last number of cycles or it was very tied to the, the political party that was in power. Now this last cycle, what we saw was the ending of the last kind of meaningful reward for miners in my opinion. And moving to a completely different administration which that on top of the ETFs being introduced, I think that just blew the four year cycle up completely.

B (15:42)

Right.

D (15:42)

So like David said, we revalued Bitcoin under a new administration that was not antagonistic but was actually supportive of Bitcoin and crypto. So that's a big deal. So what does that leave us? Well, it leaves us with liquidity cycles and we keep talking about this and I fully believe that we are experiencing a severe drawdown in short term for bitcoin. I mean bitcoin 30 is nothing. But the last couple of months are just showing that Bitcoin again is the best liquidity barometer, global liquidity barometer in the world. And so what we've been seeing is that you're, you're having a tightening of liquidity from central banks, you've got tighter liquidity coming out of the Fed, the ecb, out of Japan, China's not stimulating as much as people had hoped. And so you're seeing a drawdown of liquidity and bitcoin is, is just, it's demonstrating that. So now it comes to the question, the all, you know, the big question in the room which is does gold and do the other, other risk assets? Because we all agree that bitcoin, as much as we believe it's not, it's a risk off asset, the world believes it's a risk on asset and it's going to continue to be that until the world changes its mind. So are we going to have a drawdown in the other assets or is bitcoin going to catch up. And my answer is, unless the Fed and other central banks change their, the how they're managing liquidity, then we're going to have a draw down in other risk assets and gold. That's just, that's just the way it is. And it, we can hope and pray for something else. But I think Bitcoin made its move. I think it's found its local bottom here for a moment. Whether or not that that means that we're gonna recover from here and go straight back up to 100 or more, it really depends on liquidity. And, and by the way, 25 basis points is, it's not significant in the world of liquidity. It's more of just a nod towards which direction the Fed is going.

A (18:03)

It's a signal. Exactly. Because we all know that fiscal dominance is driving the trade right now, which.

D (18:10)

Gets us to the position that we're in now, which is the treasury is now playing a game of they have to roll over half a trillion dollars of liquidity weekly now in treasury bills, which is just insane. So what is happening, they're going to continue to do this and they're going to inject liquidity into the banking system. We heard Powell say it. Now we've had this massive fight. Again, talk about nuance and stupidity like there. Whether the bank, whether the central banks are injecting liquidity short term or long term is QE or it's qe, not qe, it doesn't matter. It's liquidity. It's if, if you're injecting liquidity into the system, that's what we're talking about. So you can call it qe, you can call it qe, not qe, whatever you want to call it. But the game they're playing right now is, is a game that benefits Main street because we continue to run deficits, we can continue to fund those deficits. We're going to, the treasury is going to do what it needs to do with the Fed to shore up the bank balance sheets in order to continue to roll over these treasury bills week to week to week to week to week. And that benefits Wall Street, Main street, but not Wall Street. We're going to have to find a way to benefit Wall street if risk assets are going to, are going to stay at these levels, which goes to Mike's point, which is are we going to have a drawdown in risk assets or are we going to have a catch back up with Bitcoin to everybody else? And that really has to do with the, with central banks. And I'm not talking about a 25 basis point cut. However, you can see, like Scott said, it's a signal that the Fed. On Friday, Williams came out, who is the, the president of the, of the New York Fed. Pretty significant. He came out saying that he sees a, you know, a, a 25 basis point cut as warranted in December.

B (20:18)

Yeah.

D (20:19)

Yeah. What's that?

A (20:21)

And so did Waller. I just want to go to Waller.

D (20:23)

Yeah, Waller. Not surprising. He's a, he's a, you know, Trump pick. But Williams is that, that is a pretty significant opinion because he's, he's usually aligned with Powell.

B (20:35)

Right.

D (20:37)

If I'm, if I'm getting that wrong, Mike, please correct me, but he's usually aligned with Powell. And so that, that means that we have a better than 50 chance now. We get a 60 or 70 chance of a rate cut. Again, the significance of this is really, it's a signal to the markets of which way they're going. Now if I'm Powell, this, you have Trump over the weekend or late last week saying, you know, this is a true, that he's calling Powell a tremendously stupid man. He's made so many mistakes. You know, we could so much better in there. We have good people. Somebody commended him to me and I, and I made a mistake in appointing him. You know, like how I'm gonna be like, I'm gonna do everything I can to not do what Trump tells me to do because, meaning, I mean, just right. However, this is the position we're in. This is where we're at. And you could see the liquidity has been draining down then. One of the main drivers of this has been the government shutdown. Well, filling back up the TGA of half a trillion dollars, number one, so getting it back up to $850 billion. And number two, having the government close for over a month, which means that that money is just sitting in there, that that checking account not being spent, which means that, you know, it slows down liquidity and it's barely trickling out now. The government is reopened, but it's just barely starting to trickle out. And you're not going to see the effects of this right away. It's going to take a minute. The problem is the, the checking account. It's like if you have a budget and your budget goes from $5,000 a month to $25,000 a month, you can't keep $5,000 a month in your checking account. You got to keep 30, 40, $50,000 in there to to make sure that you have enough in there for larger expenses and that you don't get out of line. You can't, you, we can't get to a situation where we're suddenly, you know, dumping half a trillion dollars of, of treasury bonds on the market because we need more liquidity in the treasury, in the treasury general account. So you've got to keep that treasury general account full. Well, that means that we're going to be keeping 5, $600 billion in there at all times. So you're not going to see that drawdown be as significant as people hope. So what does that mean? That means that that qe, not qe, has to be larger than anticipated or hoped, which is not just 20 billion or $25 billion a month. It's got to be more than that or we've got to have real qe. Now when that happens, I have no idea. But make no mistake, it is coming. It is going to come. It's just a question of when. And the big question now is, is it going to come before the stock market draws down and meets Bitcoin or is it going to, are we going to have a nod to that toward the end of this year before we have a drawdown and going into the next year, which is a major year for the political party and the Republicans for midterms? That's the question. And I'm, I'm, I'm gonna make the bet that number one, you can't, you have no idea if there's going to be a black swan between now and, and the time that I'm saying this is going to happen. But I'm going to make the bet that, that this government's going to pull out all the stops to make sure that we don't have a massive drawdown in, in the stock markets going into next year. Because that is a major driver of the economy and there's no way you can dispute that we are so financialized. That's reality. And whether it's K shaped economy or not, that's the reality. And everybody knows this in the government and they're going to try to avoid it best they can, at least on the Republican side.

A (24:16)

So I got a lot to ask you here, Mike, and I see you bringing up some charts. But before you dive into whatever you have planned, what do you make of the absolute schizophrenia of predictions on Fed cuts and how much do they even matter? Well, exactly. I love it.

C (24:30)

And sometimes I put things in my DI list called deliberately ignore because I don't have to focus on because people talk about it so much. To me it's and I think James nails it. The key thing is and Dave touched on this too is we are at the point now and even our morning meeting that the feds Mr. Trump wants to stack the Fed counsel with his like minded people. But he did appoint Chairman Powell. Let's remember what happens to a responsible human being when gets in that position and wants the whole world in history to remember him accordingly. And the key thing is by trying to get the Fed to ease creates more inflation which is a great way to get unelected. We just started alerted I was like dude, didn't you figure out like first Trump administration. I love writing about stable coins and crypto dollars because he didn't figure out this base layer went to the dollar. It's awesome. Now he figures out he tilted over and he's got to finally figure out that I think he's getting it. Oh by the way Scott Besson might be telling Donald number one issue right now is inflation. If we cut rates to earth that's inflation. You're not going to get elected getting crushed an election in the midterms and by the time it comes up to your next election if you don't control inflation that tell you will be remembered. Sorry that's just the way we are. That's where things right now. That's why I want to show in some charts and bitcoins. The leading thing about this the key thing is that's all big picture macro. I'm so concerned about the next 25 or so actual sessions in the market. If I can show my screen that to me that's all that matters. And that is how we end this year. And James touched on I think we're more likely end the year following bitcoin in the stock market rather than bitcoin catching back up and sales just the bounce. And here's part of the reason why I love when people say oh look at the chart. Well here's an annual candle chart of Bitcoin 50,000. The last four years has been nothing low, high, low, high since 2020 it's nothing going back to the it means nothing. One thing that is different is this 120 day volatility on the S&P 500. It hasn't been this low on a closed basis since 2017. When it gets this lower known it can go up. That means bitcoin goes down. So it's a lose lose right now. Maybe we'll get lucky. And I just want to point out something that's never happened. When we have this bitcoin to gold ratio collapse like it did this year, we always get red bars in S&P 500. So far we' green. We might tilt to red on this year. And if we do that, that's a major domino effect. To me, that's what might be happening in the next 20 or 30 days. And here's a good reason why this is just versus 200 day moving average. MicroStrategy led the way. We've seen this before in the past. Bitcoins follow. We've seen his Ford's getting a little bit oversold goal even has a problem this stretch above its 200 day moving average, the most since 2006. And here's the stock market S&P 500 by the end of the year, man, just go back to 200 day movement, which means nothing but good leading indicators to do that. And here's one key thing I want to end with. That's completely changed from this time last year. This headline, the Crypto crash is eroding wealth for Trump's family and followers. And that's the thing that's fundamentally different when you expect pension funds, endowments and teachers and things to get involved in this space now they have to be at their discussions, at their meetings, thinking, oh, by the way, you know, if we're buying anything in cryptos, we're supporting the Trump administration. Check mark. That's completely different from what was in the past when people got into space to get away from the administration or any administration power. This world has changed and we're now, we're just purging. So I think the purge has started.

B (27:40)

So could I. There were three things I'd like to point out in that, in that tirade. The first one is to agree completely with the last point. I think that our bifurcated world is such that supporting crypto in the minds of the pea brained is relevant to whether you're protesting Trump or not. And you know, honestly, we saw this with, we've seen this with esg, we've seen this with all sorts of stuff on the margin. When one invests based on political beliefs or, or social beliefs, one loses money. You basically, you do better taking your pile of $1 bills and making a bonfire out of it than you would by investing that way. But people never learn and they do it and it is absolutely happening. There's no doubt, Mike is 100 right, that it is 100% impacting the buying universe. On the other hand, it also Entrenches the other side to people who pay stupid amounts for things that have no value, like Trump coin. I mean, Trump coin, Melania coin. These things should never have existed. I don't think you could find anyone in the crypto world who's half serious or isn't, doesn't have their, their lips totally glued to Trump's ass that they, they don't see it. In fact, one could argue that the bull market was doomed, One could argue the bull market was doomed to. When, you know, those things came out early in the term because it was, it was wrong on so many levels. And there are some of us who basically have been saying that since the beginning. It was undeniable grift and I don't like grift and, and I'll call it out on both sides. Now that said, I'm very supportive of most of the administration's policies, but not of that, not even slightly. And I do think that was important. So that's the last point you made, which I agree with. I mean I have my statistical brain. When I see someone pointing to 2, and I repeat 2 data points on a chart, 2 to try to consider that statistically significant. I'm going to avoid using any pejorative terms, but let's just say that it's non persuasive. Gold is up because the Chinese government has been amassing gold and other central banks have been amassing gold more than Treasuries, full stop. And that is something that had never happened before. And to not take into account on your charts these two data points which occurred in the past, it's different now. Why is it different now? It's different because gold's rally is indicative of the fact that central banks worth a lot of money, which have massive positive deficits, massive, not structural surpluses of dollars that need to put it, they put it in gold instead of in Treasuries. And so that completely invalidates the charts because that wasn't happening in those other two data points. And so understand, you know, what's going on. Hell, I love the fact that I think I saw Kramer basically saying gold is going to stop, you know, stop here. I, I personally think that, you know, gold has been basing at 4,000 for a long time. It's going to do one of two things. It's either going to stay here for longer and bitcoin is going to catch up or it's going to go on another rally back up over 5,000, I don't know which. There's no scenario I think where gold drops to 3,000 none. Because it say extended over the 280 milliliter average. Yeah, that's true. But a huge amount of its supply. And the marginal buyer. The marginal buyer is still running structural surpluses. The marginal buyers are still running structural surpluses and they're not going to sell any. There's no need to. I don't think there's anybody who thinks China is going to sell gold for Bitcoin or gold for US Treasuries. I just don't see that happening. It doesn't make any sense that they would and therefore the opposite.

A (31:13)

We've actually seen the chart where foreign governments now hold more gold than US Treasuries.

B (31:17)

Right. But that's the chart is going to continue.

A (31:20)

Yeah, it's a one way street.

B (31:21)

It's for structural reasons. It's not cyclical, it's secular. It's a structural change and you have to adjust based off of that. All of the charts, every one of them assumes a static supply of dollars to measure against it. Assume static supplies and demands for gold. They're not. And that macro trend is huge. Now that doesn't change the fact that bitcoin is correlated to the stock market. That if there is a major correction that Mike will be right. Bitcoin 50,000 is not at all impossible. Bitcoin 10,000 is impossible without Bitcoin being broken. But Bitcoin 50,000 is not impossible. And I'm glad to see you changing the rhetoric because that makes sense. I mean in a accelerating sell off or if we get a stock market that drops 15, 20%, Bitcoin from this level could easily drop another 30, 40%. Double that amount. It could happen. Is it likely? I don't think so, but it absolutely could happen. For all the reasons we have.

D (32:17)

If we have a black swan or. And the market falls apart. Apart, of course it could. But I mean that's what, that's what it would need.

B (32:23)

Right. So the third point is on the Federal Reserve, five months from now, five months from now, there will be a, A Powell will be quacking as a lame duck completely. At a bare minimum, he's gone in May by April. He's not making any decisions that matters. Yeah, right. The question is, does he want to take a parting shot at Trump? If he, for example, holds rates steady at this and has a hawkish tone for January, February, not only won't there be a Christmas rally, but you could see some really bad happening. Now there have been all sorts of weird rumors. I Don't know if any of them are true. Right. But if he does, you will see a massive pullback. Is that something he wants in his legacy? Does he want to have the next Fed chair be the one who is the white knight robbing, you know, riding in to fix his mess? Or does he want a more extended pretend and get the hell out? The latter is. If I'm him, I want to do the latter. I actually don't think he's done a bad job at all. I have not been that critical. I think that the biggest problem I have with the, the on the way down. The biggest problem I, I have with the way the biggest problem I had with the rate cut. Whoops.

A (33:44)

The rate cut.

B (33:45)

Right before, you know, the election last summer, that, that didn't make any sense except for politics, but now it's different. You know this notion, Mike, that you, you treat something.

A (33:56)

We got to move on from the Fed in a second, Dave, because I.

B (33:58)

Just want to say the notion that you treat interest rates, cutting interest rates as inflationary to the consumer as axiom is wrong. Interest rates to the. Cutting interest rates to the consumer will create more aggregate demand. It could easily cause consumer inflation if in fact supplies are, are, are constrained, but it's not at all clear because owner's equivalent rent will drop, etc. Etc. And the, and the statistical correlation over the last 25 years has sucked. And, and that's where Moran is coming from. You know, you could agree with him or disagree with him, but he academically believes that cutting interest rates will lower inflation because it will spur business investment and cause more supply. Now is that necessarily true? I'm not saying that either, but I'm saying it's at least in dispute.

D (34:45)

And so that would definitely take time.

B (34:48)

Of course it would. Of course it would. I think that in general you will have a, it's, it's a question of running it hot. And that's why he want. And there's, there's no question that's why the notion of stimulus, direct stimulus is being talked about. Because I mean, all you have to do is look at the mom dummy, you know, Trump meeting where they both talked about how important it is to make the life more affordable to understand the party that would be.

A (35:13)

What political party that would be the two of them.

C (35:16)

Just one key thing about rining it hot. It's a license to lose election. It means inflation, full stop, as you say.

D (35:25)

Yeah, but again, Mike, it's not like to start lowering rates and issue QE this next year before the Midterms. That's not going to cause inflation before the midterms. They may, may after the midterms if it's, if it rages out of control like it did back in 2021, 2022. But that might have come because they, they printed $5 trillion.

B (35:55)

Thank you.

D (35:56)

So it's a big difference.

A (36:00)

Inflation is always a monetary phenomenon. Right.

D (36:02)

Here's the thing though. Let's go. Just, just the last thing about the, the Fed and, and, and injections of liquidity. Just think through that for a moment. The banks are nowhere near the same levels of reserves they were in 2021, 2022. They're, they're, they're way down. Okay. And GDP is up, the bank assets are up. That means the reserve capital is, is low enough that they can inject a lot here and it would, it would just shore up the market from having a sharp drawdown. It's not, we're, we're sitting at a spot now where they could inject a lot more than people realize next year. And, but I don't think they're going to, I think they're gonna, they're gonna wait until they have to. I do think they're going to start adding, but I don't think it's gonna, it's gonna come with a fire hose unless there's a reason, unless there's a, some sort of credit event that they need to. And that's it. I mean so we, we have to, we're, we're watching carefully and we're waiting for a possible drawdown. But I do think that bitcoin has led the way. And so now the question is are they going to come in sooner or later and we're going to find out a lot in the next couple weeks.

C (37:13)

Yeah. So one good way for the Fed to get the Trump what he wants. The Fed the ease inflation go down as the stock market go down. And no, I haven't changed my narrative for bitcoin. I'm using the same one I used in 2018. It's going to lose a zero. My target still to get to 10,000 initially right now it's 50,000. But again it's this next couple month and a half that are going to matter completely for markets. And if we just have a little pickup in stock market volatility, 120 day volatility right now is 11. That's the lowest if we end here since 2017, just a little pick up there, everything starts tumbling. You'll get all the QE you get The Fed to cut and we begins the cat and mouse game. I think we're gonna expect for a while when markets go down following cryptos, most of them go to zero. Let's get that over with sooner. And the Fed cuts rates and we get to a situation like following Japan, which is what China is right now.

D (37:59)

And here's the other side of that, is that with the stablecoin legislation and stablecoins now allowing to continue to run fiscal deficits ad infinitum, we're, you know, there. This is, this is a big structural change and that will help this, this issue that Dave pointed out of central banks buying gold instead of Treasuries, they're going to find pockets of liquidity everywhere for Treasuries with stable coins. That is the, the entire point. That's why they pass this legislation. That's why they're pushing it and they understand that. So we're going to have this, is going to allow this to just continue. And you know, to, to Lynn Alden's point that literally nothing stops this train of fiscal dominance and spending from the government. Nothing's going to stop it. We just saw Doge Commission got shut down. Why? It's not because it was unsuccessful. It's not because, you know, they don't want to cut anymore. It's that they can't. Where else are you going to cut? They found the fraud in Social Security system, they found the fraud in the health care system and now they're trying to just focus on that with legislation rather than just firing people and cutting programs. Now they've got to focus on legislation to, to somehow fix that. God help you fixing Obamacare. You know, that's, that doesn't seem like that's gonna, it's gonna happen. If it does, it's going to be almost a total scrap of the program. But we'll, we'll see what that looks like. But you can't cut enough out of the government to get to, you know.

A (39:32)

You can't cut out the government to offset it.

D (39:36)

Balance budget and get to a surplus is, is almost impossible.

A (39:38)

Before you jump in, I want to move on to MicroStrategy and JP Morgan.

D (39:42)

Yeah, we need to talk about that.

A (39:43)

All that everyone's talking about and we're just going to run out of time. So first of all, a lot of it, I don't even know where to start, but there is this article, Trump's Gambit, the quiet war between the White House and J.P. morgan. James, this speaks to exactly what you were just talking about which is effectively that there's a war between the Fed and the treasury and that stablecoins are going to effectively render the Fed useless and that JP Morgan is the actor that's basically the arm of the Fed that controls central banks and policy. Okay, we don't need to dive so deeply into that. But you did just basically allude to it without alluding to this, which is that if they have stable coins, those can help them manage the debt much better than perhaps the Fed now has a power to. Now we have. I don't even know where to start. Literally like JP Morgan then debanks, some strike customers and Jack Mahlers himself, leading many to say what the hell is going on with Operation Checkpoint 2.0. And then of course we dive into the very long controversy over whether JP Morgan is actually manipulating the price of MicroStrategy because MicroStrategy is part of the tools of the Fed. But basically that they changed the margin requirements for JP Morgan customers on MicroStrategy which has caused a structural massive sell off. I like listen. And then of course this is so far over the edge it blows my mind. Unconfirmed. J.P. morgan appears to have an existentially threatening short microstrategy position that could potentially bankrupt J.P. morgan. I would put the odds of that at negative 97. But like. Okay, but the idea here is that there's massive manipulation in microstrategy.

D (41:24)

Yeah, let's be, let's talk quickly about how the bank works with custody. And Dave, you can get pretty deep into this too, but at a very high level. Prime brokers, JP Morgan as a prime broker, that for people who don't know what that is, that's your main broker. If you are a financial institution. Mainly hedge funds are the ones who are super active with prime brokers. And the reason for that is because they use a lot of margin and leverage. Okay. And so they love hedge funds. Back in 1993, we were a hedge fund and we couldn't, we couldn't get coverage from, from Smith Barney. And we were, and we were a Travelers group fund and we couldn't get attention from them. But they started realizing in the early 90s, mid-90s, that wow, you know, these hedge funds use a lot of leverage. So you've got these, these prime brokers that operate and they give margin capacity, derivative capacity to hedge funds. They also allow them to borrow shares. So they, they do something called rehypothecation where they get everybody's shares, they, that they cover all these hedge funds and all of the institutions, the endowments, the, you know, very large investment funds, the pension funds, they get their shares, they sit on them and then they lend them out. So for instance, if Texas teachers owns a million shares of MicroStrategy, they can loan those out to a hedge fund to short them in some sort of long, short strategy that they're running. So does that mean that they're manipulating it? No, it doesn't mean they're manipulating. What it means is that they are. Maybe they're, they're running a very high margin on MicroStrategy now and I haven't heard this yet, I haven't seen it. My, but we don't get margin on our accounts from, from rbc, but they do run margin at other places. Typically the margin on these bitcoin related companies is very high, meaning the haircut on, on some of these, these stocks that you see like Apple, Microsoft, the Mag Sevens, it could be like 5, 6, 7%, meaning you could borrow 95 to 97 or 96% of what you're, you're putting up as collateral. Okay. But when you put up a micro strategy, you put up a meta planet, you, you put up a, you know, a cipher or an iron, they're not giving you.

B (43:59)

How it works because, you know, I, I, it's very simple. And I don't know whether they deviated from this here, that's, that's what's interesting, the haircut that you're talking about. And this is a hugely important thing for people in crypto to understand because it's coming to perp Dex is near you, it's coming to everyone. Because this is the right way to do it is you, you vet, you give collateral value on the basis of liquidity and volatility.

D (44:28)

Volatility.

B (44:29)

So a stock that trades a lot of liquidity, that has a volatility of say 30 is going to trade with a much lower haircut than a stock with a lot less liquidity that has a volatility of 60. And so when you have huge spikes in a stock during a year, the volatility by definition is going to be high. If you have a lot of movement or huge drop in a stock, you're going to have a lot of volatility and therefore the haircut's going to go up. Now, mechanistically speaking, there's no need to tamper with that. I have zero idea. I have not dug into the math.

D (45:05)

But, but they will, they look, they, they, they have been taking high haircuts on these things, meaning they're at best you're going to get. At best you're going to get your New York margin. Right. So New York stocks.

B (45:18)

And this is an open question. Yeah, Microstrategies, volatility, Microstrategies, you know, it's been going down. Yeah, Undeniably. Mike showed the chart. It's very clear. But his volatility, I don't think has moved a whole lot. Its liquidity has been excellent and it's M nav is now dramatically lower.

D (45:34)

Yeah, it's fine if you're.

B (45:35)

If it's. If instead, if basically the volatility and liquidity meant that naturally it requires a higher haircut. That's perfectly legit. If, on the other hand, you're making an assessment that there's more risk in MicroStrategy now and an M nav of one than when it was trading as an m nav of 1.8, then you're, then at that point you're making a human decision to do something because you think it's vulnerable. It is entirely possible and it's based on that. And I don't know, these are.

D (46:09)

But you're talking about, you're talking about the prime broker desks and the risk desks that are, that are, that are making these evaluations. They may or may not understand the underlying business of MicroStrategy. All they see is that it's basically a bitcoin proxy. Okay. So that, that, that may be part of the situation.

B (46:26)

Yeah, but that's been that way for years. That it has been.

D (46:29)

It hasn't changed. So, but here's the other side of that coin. Okay? This is where, where it's really important is that, okay, you've got the margin requirement, all that. That's one thing. They may just have decided that the risk desk made an assessment, decide you need a higher margin on, on MicroStrategy. Now. I don't know. I'm not a prime, I'm, I'm not a prime broker client of JP Morgan. However, this is the other side of the coin. They have MicroStrategy shares in their house. They're, they're sitting on them in, in custody. Are they lending them out? Are they lending them out at, at a high price or at a comparable or like a competitive price? Likely they're, they're lending them out a competitive price. Here's the question and this is what it gets to. I don't have an answer for this, but sometimes they will call shares and cause a, a short squeeze where you're getting bought in because you've borrowed these shares and a client wants them back to sell. Sometimes they'll do that, other times they'll, they'll slow foot settlements, meaning they'll let settlements, you know, perhaps not settle on time for a day or two and fail for a day or two. They know they're gonna, they're gonna, they're gonna settle at some point and that eases that, that short pressure and it allows the settlement without a, a short squeeze. Whether they're doing any of that, I have no idea. I've seen other prime brokers do this. I'm not accusing them of doing it, but I have seen this happen a lot in my career over 30 years now. There is, is there, are there, are there any things like, like this going on right now? I can't speak to that. But that's the question there. You know, it's, it's a pretty, it's very straightforward.

B (48:12)

But there's one mistake that you made. The prime brokers in general don't have. I mean some do certainly, you know, the ones that have big retail arms, have boxes, you know, but the prime brokers are middlemen that have, because of the nature of the cartel, take around 90% of the benefit of the financing business. But they're generally have their, it's their clients that are the, the providers of the, you know, of the shorts. You know, of the shorts and hard to borrows are obviously significantly more lucrative. It's their clients.

D (48:47)

I'm not saying it's a prophet. It's their, the, they're the custody of the shares that they've got for the, on behalf of the client.

B (48:55)

Here's the thing.

D (48:56)

They re hypothecate into one big bucket and lend out.

B (49:00)

Okay, so, but here's the thing. You know, there are lots of people, I won't name them, who believe that there's, that it's a criminal enterprise, that it's evil, blah blah blah. I don't go there. But it is a factual matter that JP Morgan was accused and settled for billions of dollars for manipulating the gold market when they got themselves short. That is a factual matter. It is not in dispute. And money we have, we have zero idea what they are in the bitcoin market. I, I do not believe Max Kaiser is necessarily right, but if he is, it is. It would not be the first time. And what are the levers they can use to play what is these? What, what are the two pieces of FUD that are, that have been been touted to be driving this market down and one is quantum, which I think at this point people understand what the real risk is and it's overblown, at least in the short term, you know, and, and we could dive into that in a different macro Monday. But the other is microstrategy. And so if you were to game theory it out, if they were short, what would they do? They would deviate from their normal liquidity volatility rules to create, to make it harder, you know, harder to be long microstrategy. And, and, and let the people who are short microstrategy have it easier. And so you would give less margin. You, you would do that. That's what you would do. Now, I'm not saying that it happened. What I'm saying is mechanistically, if it were true, and I don't know whether this is true, if it were true that they deviated from their normal rules of volatility and liquidity, then there's smoke and may even be fire. If they did not, and it's just simply an adjustment based upon the way the damn thing is trading, then it's overblown.

D (50:46)

One last, one last point on that though, Dave, is it may not. So people get this confused is whether it's for their prop desk, which I don't think it, I think their prop desk is, it's long micro strategy. But whether it's for the prop desk or their, or their client base, or is it for a major hedge fund that they would be doing this at. If that hedge fund blew up, it would be a massive problem. That's possible, but is a problem. I, I mean, like, I don't, I haven't heard anything.

B (51:14)

As I said, it's mechanistic. I don't want to talk about the reasons because that's the point.

D (51:18)

The point, the point is it would be on behalf of a massive client that's pushing them. Maybe that's what it would be.

B (51:23)

Maybe. I mean, we, we don't know is the short answer. But the fact is that the, a lot of the, the, the dialogue around micro strategy has been ridiculous. Like the index thing. MSCI announced this months ago and they did. That was a shot against all crypto digital asset treasuries. MSCI is going to exclude them. And that's, by the way, foreign money. That's not U.S. money. There's no U.S. money indexed using MSCI indices in the United States. United States IFA is what the US clients use. But MSCI US is used by foreign investors. So let's understand that MSCI And S P are totally different. Totally different people. I have basically said from the beginning I thought MicroStrategy's inclusion, the S P until Basel rules change almost. Almost impossible.

A (52:06)

Question one of you might know the mechanics of. So obviously there's this large controversy that could be removed from msc. If they're removed, does that mean forced liquidation of those index funds of MicroStrategy? Like what are the mechanics? So that. Because I read that that's about $9 billion worth of MicroStrategy sitting in those funds that would all be sold off, Correct?

B (52:25)

Correct. Yeah, that's exactly right. At 9 billion, given its market cap of like, it's like 10% of its market cap in MSCI index in the U.S. it doesn't strike me as even remotely possible. It seems way high. But you know, it's. It's just different. I mean, just because msci. I used to trade indices. I did that for. I ran program desks. Right. MSCI is what is used by. It is, is the biggest index for American funds investing overseas in the IFA index, you know, Europe and Far East, Europe, Africa, Far east, etc. But it is not the biggest. It's for U.S. investors. It's the S and P that matters the most, the NASDAQ that matters the second, the Russell 1000 that matters the third. Blah, blah, blah, blah, blah. The FT, you know, their old S and P indexes, it's all there. So, you know, there's a whole, there's a whole game on indices. So I don't see how MSCI for a US company is that big of a deal. It just strikes me as odd. But I'm sure it's real. I'm sure there's some. And there's. For selling NASDAQ would be a bigger deal, but I'm not sure on what basis NASDAQ would do that and why they would do it. The real question with MicroStrategy, and it's very straightforward, is if you view it as a bitcoin proxy and it isn't, but if you did, you would. It's a proxy. In actuality, if you view it as a bitcoin proxy, as opposed to building a capital stack on top of Bitcoin, then you're going to have a very different approach. That narrative really depends upon accounting rules and it's nuanced. And that's why the story of the last. Last week I was important when the head of the Basel committee admitted that they needed to change their rules for crypto. Yeah, that is the key. And, And Understand, index committees aren't stupid. The last thing they want to do is what was the worst thing you could do if you're running an index, you remove something that a year later you have to put back in at a higher price. It makes you look stupid. And index committees don't, aren't generally risk takers at this point. Adding it to the S and P would be a risk. That's why they're not going to do it. But at this point, subtracting it from an index is a risk and they're going to look stupid if they do it and the rules change. And so you, you have to take all of this. We don't know what's going to actually happen. But I think that understanding that these things are not what, what are how it's being portrayed. It's not a political thing. Indices, index companies, their goal is to follow a methodology and be a firm hand on the tiller. They don't drive it like a race car, they don't even drive it like a boat. These are aircraft carriers, right? You know, you get moving in a direction, you keep moving in that direction. So we'll see what actually happens. But MSCI did telegraph this, nobody else did. And that does matter. But the other big piece of FUD is this notion. There's all these stories that microstrategy, microstrategy is even though they're actually in profit right now on their bitcoin position that they're gonna have to.

A (55:20)

There's people saying that they're at a discount. There's people saying that they've missed that the amount of money they raise not enough to their leverage is dividends.

B (55:30)

It's.

A (55:30)

Taylor said he was like, bitcoin just has to go up like 1.5% for the next hundred years for us to continue to pay out the dividends. He's like, and it's a 70 year problem if it doesn't. So yeah, that's right.

B (55:40)

So all that fudge is worth, the actual number is very, very fascinating. And to me, at the end of the day right now, it's, you know, being if I'm not going to do this trade because I'm not trading it. But I think there are a lot of people that are looking at this as, you know, buying micro strategy and maybe hedging with bitcoin, you know, with, you know, bitcoin option strategies or, you know, or hedging it by delta. Shorting less bitcoin against it might be a very smart trade. There are people who are Actually flipping the other side now. Now because it's starting to get cheap. And if there is a big index event, that's exactly what will happen. Meanwhile, sailor doesn't give a crap. He's going to continue to do what he's doing and you know, until forced otherwise. And I don't see why it isn't. But yeah, look, if Mike is right, you chop a zero off a bitcoin. Yep. They're going to be in big trouble. There's no two ways about it.

A (56:28)

Mike, you get the last word here as we're coming in until 10. When you hear about all this microstrategy chatter. You get your flowers, by the way, for saying that microstrategy chart looked awful, it was breaking down and that it was going to lead Bitcoin. Because that absolutely did happen.

B (56:42)

Yeah.

C (56:43)

And then so the key question is, and to me it's all about the next, the end of this year. And again, I think the risks are with the domino's tumble and follow microstrategy. But I completely agree with Dave as a trader, I look at it like, yeah, it's just how you manage the delta now at a discount on mnab, you're supposed to look at buying that microstrategy and how you hedge and how much you hedge your delta. With Bitcoin, obviously neutral. Delta neutral is a bullish position. So it's kind of, it's just the arbitrary key thing. Remember about this space. It's about trading. It's a great environment to trade. Just don't get married to longs anymore. Just look at Theorem. It's been trading unchanged between 2000 and 4000 for almost five years now. Look to the trade. I think we're probably heading to lower in the range. The bottom line for me, everything is about come next Monday. I hope you can tell me, Mike, we're wrong. The stock market's doing fine, we're doing great. To me, the risks are this thing is just starting to tilt to lower.

A (57:34)

So I will say this. I just listened to this conversation and as I was listening to this conversation, I was reading through these articles again and I think that microstrategy is screaming by right now. This reminds me of the Elon Musk is on Joe Rogan smoking weed and he's not a serious person, which means Tesla's going to zero. Nonsense. Well, if we're gonna have. If we're gonna have the really. Well, right, But I did, I did very publicly actually. But right now, I mean people are literally like we are at the it's going to zero point in the narrative. Yeah, that's a buy. I'm gonna buy MicroStrategy right after we get done with this, on my way to the studio where I'm going to do a recording with James Lavish.

B (58:17)

Oh, James, James, you're in Tampa.

A (58:20)

No, I'm going in there. We're going to do something longer for him since it's been a really, really long time. So. Yeah, we're doing that for. In a few, in a 20, 30 minutes. Yeah. So, guys, this is a great show. Is there anything else that we missed? I mean, I feel like the JP Morgan micro strategy stuff.

B (58:36)

Are you gonna be, are you gonna log in, you're gonna be here next, next Monday you're back, or are you going to be in surgery?

A (58:42)

I, I will be. I, I have some minor surgery next week, so I think either Noel Atchison will be joining you guys or we'll find you a fourth. And Dave, you can run with the hosting. God help us.

C (58:55)

Sorry, Mike.

B (58:56)

I love it.

A (58:56)

Dave's gonna cover for me. Hopefully he's gonna cover for me next.

B (58:59)

Week when I'm hosting. I bend over backwards to be fair.

A (59:03)

No, you don't want. We don't. We can't have fair.

C (59:05)

Appreciate that.

B (59:05)

You don't want that. Besides, Noel's awesome, so it'd be great if she could.

A (59:10)

That's the loose plan, but that's all we got for today, guys. Thank you very much. Thank you everybody for listening to Macro Monday. Yeah, I will have shows tomorrow and Wednesday and then we'll be off for the rest of the holiday and then, you know, coming back. That's all we got for you today. Apparently you need to go close your JP Morgan account and buy MicroStrategy. Everybody have a good one. Thank you, gentlemen. Bye. What's up Wolfpack? Scott Melker here. And today's show is powered by Easy Bitcoin app. The app that rewards you for buying and holding Bitcoin. Set up a recurring buy and earn 1% extra in Bitcoin automatically. Then let that stack sit tight and start earning a 2% annual Bitcoin reward dropped into your wallet monthly after a three month recurring buy streak. On top of all that, earn up to 4.25% on dollars you keep in your USD interest account. You can even opt in to have the interest auto converted to Bitcoin. It's friction free. Set it and forget it. The best way to let you grow both your Bitcoin and your bucks. Easy. Bitcoin is live right now. On iOS 8 and Android. Hit Pause, click the link below, download the app and start stacking sats the smart way your capital is at risk Crypto markets are highly volatile. This content is informational and not financial advice.