Nothing Stops This Train with Lyn Alden

25:17And then the question is, is it being set well?

25:20Alex Thorn:I think there's a lot of, I mean, you can always debate that. And I think, you know, for my money, I think Powell's done a pretty decent job. Maybe you can expand with that as a stipulation that I'm positing here. Because I think the other point that you mentioned that is really interesting to me is this rock and hard place when they've, you know, they should be turning back and saying, Mr. President, you need to cut the fiscal situation down in order to get inflation down at this point. Has Powell done a good job for the role that he's in? So I would not say he's worse than any of his predecessors.

25:56If you think, would I rather pick any of his predecessors to be running things right now than him? Probably not. I think he's been better at articulating what he's doing. I think at the end of the day, he's trying to do the right thing as he sees it. I think there's valid criticisms. I think they were ignoring the risks of inflation and then in some ways then over-indexing to inflation, almost like playing catch up for the prior mistake. And I think there are banks that kind of got impaired unnecessarily from some of that, that kind of whipsaw that you did when you had the central policymaker just kind of going 180 degrees like that.

26:32Another criticism I think is you could say that during the heart of the economic crisis in 2020, he specifically called for more fiscal support. So he made a rare comment by the Fed about fiscal policy. And yet, when we got inflation from multiple rounds of fiscal policy, which I was actually writing about at the time, saying if we get a lot of this, we're going to start to get actually inflation most likely, he has been silent on that part. And he would go back to the normal talking point of the Fed is not really supposed to come in a fiscal policy. So it's kind of like that asymmetry that I think he can criticize for.

27:11So I think if I were to say if there's one thing he could be doing differently, it's being more transparent about the fact that the current fiscal situation is making their job harder and more uncertain. So I wouldn't go to – I'm not really – I don't think the problem is who's running the Fed right now. I think the problem is the broader situation.

27:31Alex Thorn:Yeah, it is. And I think it's pretty unlikely that any Fed chair would have handled any of this much differently. They are attacking their central banks around the world. I saw that the Australian central bank's been under like a review for their inability to forecast the inflation, right? And obviously here, Secretary Yellen at the time had said it would be transitory, right? And they were just obviously wrong. It is ironic that you point out that he intervened to basically say print more money and would ultimately cause inflation. But now that people want him to speak up about the fiscal, the debt situation we're in, he's now, now he's too independent to talk about.

28:04Alex Thorn:It's like we only seem to, the dam ever only seems to break in favor of more spending, right? People don't, you have a phrase that you like to say for that. Like what is going to stop that in the future? Yeah, I think nothing stops this trade. Yeah, and that basically for the next five, 10 years, any sort of investable time horizon, I think the U.S. fiscal deficits are going to be very large. Historically, when you look at this kind of situation, when you get to over 100 % of GDP in the public ledger, so the problem there is the path dependence that we got here. First, there was a, and we saw this back in the 30s and 40s too, in 20s.

28:38So like 1920s, you had the big private sector debt bubble. Then it all blew up in the Great Depression. They kind of rotate a lot of that debt onto the public sector and then really kicked it into overdrive during the 40s, during the war era. And then a combination of inflating it away and productivity growing out of it, basically bonds underperforming almost everything else, they took care of the problem. So they kind of move where the debt is and then kind of soft default over time. And that's basically what we're seeing the playbook happen as well. So in the 2000s, you saw the peak of the apex of the private sector debt bubble.

29:19First, it was a stock bubble. Then there was a housing bubble, which is the worst kind because that's leverage. Then it all blew up. And then we rotated things toward the public sector. And then we had the next crisis, which was COVID. Much like wartime finance, we treated it basically like a war, like a big disruption, printed a ton of money. Basically, bonds spent five years underperforming everything else. And the issue is that when you get to that high of a public debt to GDP, there's really nowhere else for it to go. If an emerging market gets that indebted, they're likely going to default.

29:53They're going to restructure. Whereas if the liabilities are in your own currency, you normally default through purchasing power, which is that bondholders get every dollar they're owed. And just those dollars buy you less stocks, less house, less gold, less Bitcoin, usually less commodities and goods and services. and that's what we're seeing play out. So the hard part of the whole thing is that there's really no simple way out of it because it's the result of multiple decades of decisions. And so you're kind of in that default scenario, but nobody wants to be responsible for that default. So everyone's deflecting blame, everyone's saying it's not their job, and it's challenging because there were decisions made 20, 30, 40 years ago that are playing out here, but no one's blaming them.

30:39They're saying, well, is Biden or Trump responsible for inflation? No one is saying, hey, maybe the Iraq war is contributing to inflation because that's where part of our debt came from. Or, hey, maybe decisions decades ago around how certain of our entitlement systems are structured. Those politicians are long out of office and we're dealing with them now. And that's kind of the whole thing of fiat is you can defer things long enough that those who made the decisions are not the one that ever have to deal with them.

31:06Alex Thorn:Yeah, it's not like our two-year-olds that are voting on this stuff either, right? Like they're the ones that will settle, you know, just like we're bearing the debt burden from our, you know, our parents and grandparents, like they're going to bear it from us. And yeah, that is a structural inefficiency of our government in general, of our style of government. And it makes me wonder, like, this is where you could say like a benevolent strongman that can govern for decades is able to make longer term decisions, right? It's like a private company. I was just reading about how Cargill is this giant like food company that is private.

31:38Alex Thorn:It's one of the largest private companies in the world. And thus they can make very long term decisions. And I used to work at Fidelity, one of the largest private companies in the world, totally private, family run business. and they were much better at long-term innovation thinking than you know companies that i've seen you know there are some great obviously public ones but the quarter-to-quarter mindset it's almost like we have that same problem in not just our government structure but perhaps all democracies right like it's it's much easier for china or russia to take a long-term view in my mind than you know a government that's beholden to very frequent elections it's kind of sad i I wonder if they are, you could correlate them, you know, fundamentally.

32:19Well, I think that's true, but I think it goes in both directions, which is that if a authoritarian style government is wrong, they can also be wrong consistently for decades and no one, there's no really capacity for course correction. Totally. And so they can be right for decades or wrong for decades. And if you look at the numbers, I mean, basically countries that have some sort of representative government tend to be outperforming on a per capita economic basis over the past 50 plus years than authoritarian style governments, with a handful of exceptions. And even the exceptions tend to curtail themselves in some way, like China makes these top down decisions, but then still has competition on the company level.

32:57So they basically say, we want banks to lend more to car makers. But then out of all the car makers, it's going to be this big battle royale. So we determine what sector and then they figure out who wins in that sector. That's kind of their approach. I totally agree with you that when it comes to a company, a long-term founder, generally speaking, there's a good precedent for them outperforming because they're thinking years and decades ahead, not quarters ahead. And the good thing there is if they are not the right leader, either they'll eventually get pressured to step aside or their company will just become irrelevant and those will go around them.

33:36Whereas in countries, they have basically a monopoly in some cases. And so that's the issue. So it's that classic quote where democracy is, you know, it's kind of like bad, but it's kind of the least bad thing in many cases that we have access to. And I think it's specifically the combination of democracy with a money printer. That's the real kind of combo that is brutal. Like if you have a, you know, constitutional representative situation, but then constraints on the money where that kind of forces things to be transparent and more near term. Like we had our founding fathers talking about, at least some of them were talking about the irresponsibility of leaving debts to future generations.

34:17And yet that's what we're doing today in large part because we have a money printer.

34:21Alex Thorn:Yeah, you're totally right. It almost makes you wish that they had codified an amendment to the constitution related to like debt to GDP or something like that. Because it feels very obvious that nothing stops this train because of with our current setup, but it seems like it could have been possible if you could have somehow shackled Congress on what it was actually capable of doing on the spending side. Granted, they probably have unshackled themselves from those shackles by now anyway. Let's go into Bitcoin. You pretty famously got interested, at this point, probably five years ago, I think is when you posted your first thing about it, if I recall.

34:59Alex Thorn:When was that? How did you get interested? And was it this train not stopping that sort of made you find it? So my first article was actually back in 2017. So nearly eight years ago. But at that point, I was more interested. At that point, it was kind of in that raging 2017 bubble. So I was like, I'm interested. And I had two main hangups. One is it was quite euphoric. And two, I still wasn't sure if, so Bitcoin's scarce, but I was still in the Bitcoin versus crypto analysis part where I was like, is any sort of use case here going to fracture among 100 different coins or is it going to be winner take all um and so i was like okay i'm interested but it's euphoric let's let's wait and see and then it did underperform or the broader space including bitcoin underperformed for the next two three years uh from that point uh but i you know i paid attention during that bear market i had i had heard about it before i was always interested but you know it just kind of didn't wouldn't pay attention to it in bear market this time i did um and so i saw the block size war play out And I kind of basically, the key factor was I determined that it has a network effect, that this is like an emerging communication protocol, a new standard that has basically won.

36:10And therefore, that not only is it valuable, it's not likely to fracture too far. And then it just became a question of price. And really, the trigger for me there, I was already kind of interested. But during the 2020 sell-off, it behaved just like gold and silver did, especially silver being more volatile, where kind of everything went down in March. And then we had the Fed liquidity bazooka, and then we had the fiscal liquidity bazooka, and all these things started going vertical, and Bitcoin was doing the same thing. So it was April 2020, where I said, okay, you know, now I'm in. And so I've been in ever since.

36:44Alex Thorn:And you beat Paul Tudor Jones by a month. But I remember at the time when you came out very strongly in favor of Bitcoin, it was a pretty watershed moment. You were one of the first and smartest like macro people to to recognize bitcoin's place and and your point too about the the fracturing i i frankly it doesn't surprise me as a long time you know supporter of bitcoin and owner of bitcoin but it is sort of still kind of surprising that you know 50 million altcoins have been created in the time maybe i mean even more it's really frankly impossible to even count them. And still, even still, I guess now 16 years after Bitcoin launched, it's still like, even by the naive metric of Bitcoin dominance, it's still 60 plus percent of the entire value of the entire space.

37:35Alex Thorn:Despite all of the IBM going to put tomatoes on a blockchains and all of the smart contracts and all of the DeFi, it's still well more than half. And frankly, the number is even higher for other reasons. That network effect really does exist. It really is real. Yeah, when you exclude stable coins and also when you take into account liquidity, so the actual kind of liquid market cap, it's even higher. And that was basically my – that was kind of the final observation I needed to say not only does this have value – because basically the question is can digital scarcity have – is it truly scarce?

38:08Can it have value even if Bitcoin is scarce? will fracture. And the final piece was, yeah, network effects matter. Liquidity is self-reinforcing. Security is self-reinforcing. And the ecosystem of apps and even hardware building on top of it is self-reinforcing. And so just like how USB, when it gets in every device in the world, that's pretty self-sustaining. And it can even upgrade gradually over time. So that's kind of the last straw I needed. I was lucky that I have an engineering background. So that weird blend of engineering and macro is kind of, I think, what drew me to it a little bit before other macro people, not as early as some of the tech people, but a little earlier than other macro people.

38:49And like, for example, part of what catalyzed me to write that 2017 article, even though I'd already heard of Bitcoin, I'd already, you know, I was never really opposed to it. It just wasn't big enough to really be on my radar. But I was basically overseeing the engineering finances of a facility in 2017. And we buy a lot of GPUs at the time. And all the GPU prices doubled. And I was like, why is this happening? And one of our entry-level engineers was like, oh, that's the Ethereum bubble. I'm like, what's an Ethereum bubble? So I'm like, I have to clearly have to. So that was like the early stage of the 2017 run.

39:27That was like, you know, spring or whatever. And then so I kind of did a deep dive on it. And so by later that year, I was finally kind of a little caught up on what's actually going on.

39:36Alex Thorn:Yeah, it's super. That was a crazy time. And in fact, one of the interesting things, CoreWeave, one of the biggest GPU providers and data center managers in the world, they were an Ethereum miner. That's how they started. And there were many. And now, obviously, you know, Galaxy's doing this too. But just as an aside, with the AI boom that's happening, people are like, oh, man, we need these. If only there was somebody who'd been building tier one data centers next to massive energy sources. And it's like, oh, Bitcoin miners have been doing that. A lot has changed and grown. It's really quite crazy.

40:12Alex Thorn:I wanted to ask you now, given – so we've talked a bit about fiscal dominance and the overall view of where the government and debt and spending are headed. and you've obviously done a lot of work on how Bitcoin plays its role. You mentioned how it traded in 2020. Like, are we going to see, and I get asked this all the time, they're like, oh man, like someday there was a day, I think it was on Monday or Tuesday, markets were all down, everything was down on Tuesday and Bitcoin was down, but gold was up. And people were like, oh, it's not trading like gold. And I'm like, well, it's pretty short, you know, like one day example.

40:44Alex Thorn:But where is Bitcoin going to go long term in your view, given the situation in markets and with government debt? Much higher is the short answer. I mean, right now, I mean, Bitcoin's about the 10th of the size of gold and it's been around for 16 plus years instead of thousands of years. And there are multiple periods of time where, I mean, people are always concerned the government was going to like ban it or make it add frictions, get in its way. And so that's part of why it never really had like a safe haven perception, even among people that are deep in the rabbit hole of understanding it.

41:20They're like, you can self-custody your own money, so they treat it as a safe haven. But in a price action standpoint, big pools of capital wouldn't treat it as such. Being still volatile and still fairly new, I still think it has some ways to go before it reaches that level. Partly, the way it responds to crises, I pointed out, and I've had debates with some institutional people on this, is that it mostly depends on is the crisis pro-liquidity or anti-liquidity? So for example, the March 2023 regional banking crisis, Bitcoin responded quite well after the initial few hours because the market's immediate reaction was, oh, we're going to print money for this.

41:58And so that was like a pro-liquidity crisis. Whereas other types of crises where you get, say, an oil spike or a dollar spike, something like that, even though probably the answer down the road is going to be money printing, it's not necessarily like next day. And so you tend to get a sell-off in things that, and Bitcoin's like the strongest correlate with global liquidity compared to every other asset that I've studied. It's not the only variable that matters for Bitcoin. There are other things, I mean, election outcomes, for example, regulatory changes obviously had a big impact on it. Technical details, just, you know, idiosyncratic aspects to the asset itself, but it happens to have a pretty strong liquidity correlation.

42:41So So that's how it tends to respond to crises. Whereas gold has a hybrid of a liquidity correlation, but also that safe haven status that Bitcoin is, I think, getting there, but not there yet. So I think when it gets bigger, more liquid, more widely held, when it's just been around institutional spaces for longer, I think it can start to bridge that gap and trade more frequently like a safe haven.

43:03Alex Thorn:Yeah, you wrote with Sam Callahan, a friend of ours and who's appeared on this show, about that in 2024. I guess it was almost a year ago now, actually, but it seems pretty recent. Bitcoin is a global liquidity barometer. And you found that 83 % of the time in any 12-month period, the highest Bitcoin moves in the same direction as global liquidity. Is that that chart with the M2 chart with the delay or the people like to show the correlation? Is that what you look at for global liquidity? Or how do you think about global liquidity? So there are multiple ways to measure. I don't like those charts because people pick the time frame arbitrarily and then just change it when it doesn't play out.

43:45So, yeah, we didn't have any of those charts in our article. There is a correlation between Bitcoin and global M2. So global M2 is interesting because it takes into account broad money supply from multiple major countries. But then it's tied to dollars. It's basically translated back into dollars, which is relevant because dollar strength matters because there's so much dollar denominated cross-border debt. So when the dollar weakens, that's generally good for global liquidity because it's like if you take out a mortgage in pesos and then the peso goes down, that's good for your liquidity profile.

44:18That's what happens to countries when they take out dollar diamond debts. Now, there are more proprietary things you can do, like Michael Howell of Cross Border Capital has more sophisticated liquidity measures. The problem is then they're not very transparent. Right. And so for that article, we wanted to give something that's just open. People can check it. They can check it for themselves. We point out, instead of trying to fit to say, if liquidity does this in three months, here's what Bitcoin's going to do in three months, we weren't getting that granular. The smallest time frame we used was six months, but we also looked at 12 months rather than trying to cherry pick specific time frames.

44:55And generally speaking, just liquidity is a really big impact on Bitcoin for a couple reasons. One, liquidity tends to correlate with risk-on assets, or at least assets that are treated as risk-on. So that's Bitcoin, equities, things that generally have volatility. Whereas gold and bonds, being more safe haven type assets, don't have a perfect liquidity correlation. If anything, sometimes they're inverse. And then also, but unlike stocks, if you take Bitcoin versus stocks, stocks also have the earnings component. So you could have an environment that's good for liquidity but bad for earnings. It's kind of a stagflationary environment.

45:28And so stocks might not do well. And yet Bitcoin is more purely because it doesn't have earnings. It's just it's an alternative money. It's more trading on that on that liquidity. And so that's, I think, by almost like by process elimination, it just it has the most pure liquidity correlation. and what we generally found is that the exception so the 17 of the time that it doesn't trade well with liquidity that tends to be from starting points where bitcoin is very hyped up and we used market capitalization compared to realized value or on-chain cost basis basically when there's unusually large dislocations kind of top of cycle stuff that's when almost like for the next six months if there's if there's any sort of cracks anywhere liquidity could be fine but bitcoin is just falling from such a hype level.

46:15So if you look at kind of those, just one is euphoria in the Bitcoin space and two global liquidity, if you combine them together, you're likely to at least do pretty well and protect your downside when trying to forecast probable price directions.

46:29Alex Thorn:Yeah, I guess if you if you take it from the top of that MVRV, it's always, you know, it's a matter of selecting your window. I think that makes a lot of sense. And sort of stemming from that, in that piece you talked about, and you have, well, in your latest piece, let's talk about this, the one you guys just put out, you just put out Rise of Bitcoin Stocks and Bonds. You talk, you expand on this idea a little bit in the context of these pubcos like Strategy and MetaPlanet, many of them now. But you talk about Bitcoin as having tactical convexity. I'd love if you could explain what you mean by that and how that makes Bitcoin really an interesting, you talk about giving you optionality, like it's portable capital, and it has this really interesting like convexity in the sort of right-sided upside.

47:22Alex Thorn:Can you explain what that means? Yeah, well, mostly what I focus on the article is trying to basically justify why these companies exist and why they do deserve, in normal market conditions, some degree of premium over NAV. And so the first reason was that they took Bitcoin and put it in an environment where it really wasn't before, which is basically stock managers, bond managers, and all this. And then the second layer of kind of why they exist is that they have access to better types of leverage than most people have. And when you combine longer duration leverage with an asset that has a lot of upside potential, that's kind of rocket fuel as long as it's managed conservatively.

48:05I mean, leverage adds convexity in both ways. And so in this capacity, it actually gives something to institutional capital and to some extent retail capital that doesn't really exist in other packages. And therefore, people will generally pay some at least mild premium on a pretty sustained basis for that. You also see, and we talked about fiscal dominance earlier, when you see a country like, let's say, Turkey or something have a currency crisis, you'll see a lot of companies, if they can help it, they'd rather own dollars and then borrow any amount of lira that they can get their hands on or buy gold and short lira and all that.

48:44And so then there's usually restrictions on like credit creation. They'll say you can't, you know, banks can't make loans for these industries or these purposes. Then you get really top down management of the banking system and it becomes kind of a negative flywheel. And so we kind of see in developed markets a slow motion version of that, which is you have an asset that is, you know, kind of truly scarce and is going through some degree of tech adoption. If you can attach a fiat currency short to it and do so conservatively in such a way that you're not caught out by Bitcoin's cyclicality, it really is a value add, especially because certain types of leverage, like you need capital structures or you need scale in order to do that leverage.

49:28Liquidity also matters. So having an active options market, having enough volume to do all that is relevant. And so that's kind of my case for why these companies make sense, at least when bought at appropriate prices.

49:44Alex Thorn:Yeah, and a lot of people have asked and wondered, I think, if the treasury company movement ends up being a bubble and somehow pops or something, would that create systemic risks for the underlying asset, Bitcoin? What are your thoughts on that? i would say not at the current time uh i mean i can i can imagine scenarios where it is but right now i don't consider it any more dangerous than prior cycles so it's like one of those things if you ask is was bitcoin a bubble in 2013 2017 2020 kinda but only in only in the cyclical sense it was a it was a local bubble on top of a structural thing that's real that's really growing and actually actually a new thing that matters um and so i certainly think that you can have a bubble in Bitcoin treasury companies.

50:33I think we've had little local ones. I mean, generally speaking, when MicroStrategy would trade well above three times MNAV and all on Twitter X is all you see people talking about in the space. That's like a local bubble that sets you up for at least a six-month consolidation correction. Had a couple of those. We've had MetaPlanet at pretty high levels. It happens. By the time this cycle's done, I wouldn't be surprised if there's maybe an oversupply of less than stellar quality treasury companies coming to market. And we already see this happening in the altcoin space now, altcoin treasury companies, I think even like NFT treasury companies or treasury assets.

51:12And I think there will be a washout eventually. And that can include some Bitcoin treasury companies if they don't manage their debt well, if they get over their skis, if they don't have protections in place. But it won't be a fundamental bubble or just be over enthusiasm. And the terminology I've used before is that Bitcoin needs upward volatility to reach its potential. That's how you grow from a zero network size to a multi-trillion network size. Anytime you have upward volatility, you're going to get enthusiasm and leverage. So you need, just inevitable, you're going to get periods of downside volatility.

51:50And we saw that last cycle. I think we probably will see it to some extent this cycle. so far at least it's generally speaking more sophisticated actors attaching leverage to it but that doesn't mean that they're always right so some of them I think will get caught out I would eventually like to see more companies with cash flow have a treasure strategy it's almost like Bitcoiners were waiting for companies to follow MicroStrategy's lead and start adding Bitcoin to the balance sheet and so few did that Bitcoiners just started making companies to do it but I would like to see those two kind of come together where we see a greater number of companies with cash flow decide to add Bitcoin to their balance sheet or for new ones to pop up that have more of a goal of getting some cash flow.

52:37Alex Thorn:Yeah, I agree with that. It's kind of like we have, yeah, we wanted Bitcoin for corporations. I'm thinking about Michael Saylor's conference I went to last year and it was all about what you just said, the end of what you just said, which is, hey, you don't have to do what we're doing but you should have some Bitcoin and instead we still don't really i guess figma just went public they own it they own a fair amount of bitcoin i believe on there was something like 70 million dollars i think of bitcoin and eth but i don't know michael right he presented to who did he present to microsoft board or somebody he did a pitch towards obviously it was like almost unanimously voted down um what is the delay here a lot of them are sitting on like hunt billions or even hundreds of billions of cash that is losing value at pretty historically quick rate in the scheme of things.

53:23I think it goes back to your prior point that when a company is not led by a founder or a long-term CEO, they're more of just like a manager. They're looking a few quarters ahead. And then with Bitcoin, it's one of those things where the most successful companies will often look at it as a distraction. So if you're a Mag7 stock, you're more thinking of, you know, how many tens or hundreds of billions of CapEx and AI am I going to have to do over the next five years? Bitcoin's just a distraction to that point. If you overcommit to Bitcoin and it goes down, then you look like an idiot. If you undercommit, it doesn't matter.

54:03I mean, if they put a billion into Bitcoin and it goes up to 10 billion and Bitcoin's a million dollar coin, that's a distraction for them because they're so big. So that's just kind of why it's not on their radar. I think the market that's more ripe for it is companies that value stocks that are profitable, but just not growing. And so instead of just always either buying their shares back or it's kind of slowly melting, some of them have an asymmetrical opportunity here to buy something that would excite the market and be good for the balance sheet longer term. And then it just comes down to which ones have the vision to do it.

54:41But we have generally seen, you'll see like these Bitcoin brokers report that a lot of small businesses add Bitcoin to the balance sheet. And that's because they have the situation where the founder just, you know, like either one or a small group of people own the company. They can do whatever they want. They don't have to go through seven committees to make a decision. And so I think you basically need to see some publicly traded value stocks that are in that side. or you need to see the rise of new companies that are founded by Bitcoiners that come to market and enter more of those value or cash flow type of spaces.

55:16Alex Thorn:Yeah, it's almost like it's just a natural growth and rotation. It's the same way that like, you know, the great wealth transfer that's been talked about for so long. Eventually, Bitcoiners, you know, there are so many Bitcoiners and there will be more and more people who love Bitcoin. Like adoption is growing up. So eventually, just naturally, there will be more Bitcoiners on all boards, corporate boards and in all companies. Yeah. It is funny though to watch, Like I think Apple has like over a hundred billion in cash just like sitting there. And it's like, you know, the real, the real yield is, is they're losing money.

55:44Alex Thorn:Even if they, even if it's sitting in the, in the, um, you know, in treasuries or something. And I guess is it, it's like maybe like corporate treasury, like they must have an annual corporate treasurers conference or whatever. And like just nobody's innovated for decades. And like what those guys are doing, basically, they're just, you know, they're just, they're, most of them are just running this, the risk averse playbook of like, you know, have most of this in cash. Pretty much. I mean, Apple's kind of an exception compared to Alphabet and others because they have a lot of cash, but they also have a lot of debt.

56:13So they're kind of in almost like a neutral dollar position. And they locked in a lot of long-term debt, which is good for them because they could issue bonds cheaper than almost anyone else. And the funny thing is I think ExxonMobil did the same thing where they had a decent amount of long-term debt, and then they had a decent amount of cash. and they're almost like an inverse bank. Banks were caught out because they were borrowing short at higher rates and they had lent long and some of them were in trouble. Companies like ExxonMobil and Apple had borrowed long at low rates and then were earning higher rates on their shorter term treasuries.

56:51So that's not the end of the world for them. The ones that just have a ton of cash and no debt or a little debt, just a gigantic net cash position. That has basically been a melting ice cube. That's what MicroStrategy was in before they adopted the Bitcoin strategy. There's a lot of big ones. Now they're retaining some optionality for the amount of like CapEx they are increasingly finding themselves having to do. So they actually, for years now, they kind of hit their peak collective cash levels and kind of gradually rolled over as they actually finally find a thing to spend that cash on, which is GPUs basically in data centers.

57:27and so we'll see how that plays out and i've made the case before that like one of the best products that like a company like coca-cola procter gamble ever sold were their bonds and that's part of what a corporation has done in recent decades to be so successful and why big corporations tend to outperform a smaller industry is that they they play the fiat arbitrage game even though they don't really describe it as such so a company like coca-cola will have tens of billions in debt, even though they've been profitable for like every year for like a century. And it's like, why do they have debt?

57:59And the answer is because they can. They can issue a 20-year bond at 2%, at least they could, and sell it to the market, buy their own shares back, pay dividends with it, which is a better use of capital. And so they're shorting, they have like these long-term shorts on the fiat currency at rates that are way below the growth of money supply. So they do. And so companies have actually, I think, played that game pretty well. And just there's a bias against risk and volatility, which kind of makes sense for tens of billions of dollars or hundreds of billions of dollars companies. But I'm surprised we haven't seen a little bit more forward thinking.

58:41I mean, I think Meta's been in it. They have a position where they could have had some Bitcoin on the balance sheet like Tesla. Just haven't done it. That's a little bit surprising. So yeah, there's a little bit of a stagnation there that's pretty inexplicable.

58:56Alex Thorn:Let's talk about, before we wrap here, I want to ask you a little bit about the government and its crypto policy. And so I want to ask you about the strategic Bitcoin reserve concept also. But even before that, since it's even more directly related, is the passage of the Genius Act, the stablecoin bill. One of the big arguments that Secretary Besant has made, the Treasury Secretary, is that it will create, I mean, he was citing a B of A study, but, you know, trillions of dollars of net new demand for our debt. What is the meaning of the state? Obviously, stable coins can be better for payments than like traditional, I don't know, crappy dollar rails that are, you know, expensive or slow or old.

59:32Alex Thorn:But like they're making, they seem to be making a much more geopolitical, strategic decision and argument with stable coins. Do you see it that way? Less than they do. I don't think it's entirely wrong, but I view it as less. So for example, There was that Citi study, and the Treasury Secretary was citing it. So in their study, they estimated by 2030, there'd be$1.6 trillion in stablecoins as a base case, with$3.7 trillion being their bull case. And the Secretary cited that number. But if you actually break down, they had a chart in that report, Citi did, where they had the different sources of where they expect – what do they expect stablecoin supply to replace and eat into?

1:00:16A lot of times it's existing pools of capital that own dollars and or treasuries. So they expected, for example, some degree of physical banknotes, holders of those, to want to be in stablecoins instead. They also expected some people that are in bank deposits, either onshore or in some cases offshore dollar bank accounts, to want to be in stablecoins. But the way that currently works is those dollars are backed up partially by treasuries and partially by things like loans. And this just shifts it more toward treasuries if you own stablecoins that are backed by treasuries. And so a lot of that is actually just eating from existing pools of capital that already own dollars and treasuries.

1:00:57where it starts to create new demand potentially i think is is a couple of capacities one is that it's easier to get stable coins into countries at scale than physical dollars uh and so there's like a and i've i've spoken a little bit with with uh andy constant about this he's kind of brought up the point that there's a gray market premium or black market premium in many markets uh for the price of dollars uh because there's a friction in getting dollars by those that want them. And stablecoins generally make it easier to get them. So it should, in theory, close that gray market, black market premium more so than create new demand because that demand is already there.

1:01:34And it's just the question of, can they get it? Now, the point you could make is that once you close that gap, it creates more demand because it's viewed as a better thing to get access to. In addition, stablecoins give you cross-border payment functionality that physical dollars don't in all those countries, which is particularly relevant for like smallish businesses. I mean, there are over 40 currencies in Africa. There are over 30 currencies in Latin America. If you're any sort of business that has vendors or lenders or customers in a cross-border sense, and imagine how many companies in the US have customers that are not in their own state.

1:02:10Imagine if every one of the 50 states had their own currency. And so stablecoin balances can matter for that. So I do think that acknowledging and allowing for stable coins does, in some sense, have a geopolitical role. But that's like a fraction of whatever headline number you're going to see, because it's only a fraction of that that is actually kind of new, fresh demand for dollars and treasuries.

1:02:34Alex Thorn:Interesting. Yeah, very interesting topic. I know everyone's trying to figure out the answer to this, too. And by the way, even the government is trying to figure out how exactly this is going to shake out. I think also a lot depends on where the rulemaking actually comes. Treasury has, I think, a year from the signing of the law to actually establish all of the related rules. And then the rest of the issuers have a year to comply with them. So I think more is the impact of genius is still yet to play out. Another big question, you mentioned this, is what will be the impact on bank deposits? Like the ICBA, which is the trade that represents community banks, was vociferously opposed to this bill.

1:03:12Alex Thorn:They seem to think that this will cause, you know, that everybody will start using stable coins instead of like the local bank of like, you know, Paducah, Indiana or whatever. Right. And I don't know the answer to that. I'm working on our own study of perhaps like a bottoms up analysis of bank deposits and what sectors or geographies or types of payment flow might be more likely to be adopted with stable coins. But to me, I feel like most of the, and this question, you know, most people, even if they, if you're a merchant and you're getting paid by your customers for goods and services, or if you're labor getting paid your salary, most people are just going to turn around and deposit their, if it's in stables, they're going to be depositing it back into a bank account anyway, most likely is sort of my, or, you know, I don't think there's going to be that many freaks like me who decide to self custody their digital dollars.

1:03:59Alex Thorn:Most people put it back into the fintechs and banks they already use. So I think some of those fears are overblown on the retail banking side. I genuinely agree with you. I think that it's normal for them to be concerned because banking used to have kind of a monopoly on both savings, like liquid savings and payments and lending. That's kind of what the collection of services banks did. And fintechs didn't really break that because fintechs are basically just layers on top of banks anyway. It's just the customer doesn't realize they're operating with banks, but they are through this intermediary.

1:04:31And this technology actually starts to break that up more, which is basically you can have payment services that are just things that own T-bills, that are unconnected to other types of lending or connected to other types of things. And then banks become more optional to you in that sense. And so then the question was, well, where does lending come from in that environment if people aren't stashing their money in banks? but like you, I think that most people don't want to custody all of their own money some do, but it's just not businesses, individuals don't want to, so they put it somewhere then the question becomes that bank runs can happen faster now because it's digital, we saw that with what happened back in 2023 instead of literally a line of people trying to draw

1:05:18Alex Thorn:outside the Bailey Savings and Loan or whatever exactly, yeah, with an API, you don't even go to the website and now it's like your AI agent is going to do it for you And so it changes how banking works to some extent. It challenges some of the fractional reserve model and liquidity assumptions that you have. Because the whole point is you have illiquid assets and liquid liabilities, and you just hope you don't get called out, or that you can borrow from other banks or a central bank if you do temporarily get called out. Basically, it increases the estimated liquidity threshold that entities like this need, which is not necessarily good for their business.

1:05:54But I think it's natural for that to be challenged because I think it was an artificial construct based on the technology that existed at the time. And I've made the point before that when you have fast transaction speeds starting from the telegraph, but you don't have fast settlement speeds until Bitcoin, that's the golden age for banks. And now we're gradually kind of getting out of that era. And so banks go through a period of disruption. doesn't mean that there's no such thing as banking services, but it just means the shape of banks doesn't look like it's going to like it did in 1980. It's going to gradually keep shifting over time and primarily more toward higher liquidity estimates.

1:06:34Alex Thorn:Yeah, I agree with that a lot. I recall your analogy about sort of like the speed of the media versus the speed of the settlement. And the Fed governor, Waller, who I believe is in charge of payments for the Fed, he made he also made this point. He said, hey, guys, banks, it's going to happen. I forget the exact quote. It was at a roundtable within the last month, maybe a month ago. Hey, banks, we're not here to protect you. Sorry. He literally said that in relation to the adoption of new payment rails like stablecoin. I would say also this government is one of the least pro-Fed governments that I think we've had in at least recent memory.

1:07:12Alex Thorn:Not that they're anti-Fed necessarily. I mean, putting Trump's, the stuff we already talked about with Powell aside. But even like the Treasury, like they're not like particularly not only the Fed, but even particularly pro-bank. I mean, Genius Act is going to disrupt banks in some way for sure. And everyone's fine with that. Veto-proof majorities in both houses to vote for it. That'll be very interesting to play out. And before we finish, I want to ask you about the strategic Bitcoin reserve. We talked a lot about how companies and also individuals, how Bitcoin is useful in this fiscal dominant era that doesn't seem to be changing.

1:07:45Alex Thorn:the government can't be like short dollars and do the trade that micro strategy is doing quite well with government so like right i mean they're issuing the dollar so um what is what is you think the strategy here you know assuming that they end up buying and doing what the executive order requests of them like how do you think about what that means for the government or what it means for the dollar or what what yeah how does that fit in well the funny thing is like the whole bretonwood system was kind of the micro strategy trade which is that they held gold and they issued liabilities and then made way more liabilities in this case and then be like, nope, it's not redeemable for gold anymore.

1:08:20And so in some sense, holding gold and issuing currencies has always been what countries do. And even Saylor has said, I think his quote is something like, the first country that prints currency to buy Bitcoin wins. So basically he's saying do the microtrategy thing on the sovereign level. Now, for the U.S. Strategic Bitcoin Reserve, My kind of stance since the election when asked about it is it certainly increases the odds of something that happening compared to the prior administration, which would be near zero. And my first base case, and this is before it happened, was they were going to probably ring fence the existing assets they have, at least the portion of it that are actually potentially theirs rather than still owed to someone.

1:09:04And so that's kind of the low hanging fruit is just not sell we already have. then my assumptions from there were that I'm almost purposely ignoring it because I want my estimate for what's going to happen with Bitcoin over any sort of investable time horizon to not be reliant on what one entity does. And so my view is regardless of whether the US government ends up accumulating Bitcoin, all the conditions have been there for it. And that's played out so far. And if the US government wants to buy half a million coins or something, that only adds to the upside thesis that I already have. I just keep erring toward conservatism in my expectations, which so far has been accurate, but we're only half a year in.

1:09:45So we'll see what happens the next three and a half years of this particular term. They could, around the margins, find ways to accumulate a little bit of Bitcoin. I wouldn't over-index to it. And also, I paid a lot of attention to the bills that tried to exclude small Bitcoin transactions from tax to assist with payment innovation. That's like an unnecessary kind of overhead that sort of suppresses innovation. It's one of the last things that governments try to do is say, well, you can hold an asset, but you still can't use it for money without the tax man showing up at your door. So it's not easy to get things like that through.

1:10:24But I think it's, if anything that's more important, it's empower the people to use Bitcoin in all of its various capacities, more so than the government holding a big stockpile that they can choose to rug people on later. And you always have to assume that whoever owns the Bitcoin now in the government, picture your least favorite politician 10, 20 years from now, they're going to have the Bitcoin. What are they going to do with it? So I'd certainly rather see Bitcoin in the hands of the people.

1:10:50Alex Thorn:Yeah, I think that's a great point, great place to end. I also counsel conservatism here on whether government's going to come. I don't think we need it at all. I think in the end, governments will probably need Bitcoin more than we need them to buy it from us. So try to stay humble and stack those sets. I think certainly don't sell your coins to the government. I know I'm not doing it. Thank you so much, Lynn Alden. I appreciate it. And check lynnalden.com. She's got a bunch of her great content is there. Follow her on X at lynnaldincontact. And Lynn, thank you so much for coming on Galaxy Brains.

1:11:25Thank you.

1:11:26Alex Thorn:That's it for this week's episode of Galaxy Brains. Thank you to our guest, Lynn Alden from Lynn Alden Investment Strategies and our friend Vimnetta Beebe from Galaxy Trading. As always, everyone have a safe and happy weekend and we will see you next week.

1:11:45Alex Thorn:Thanks for listening to Galaxy Brains, the weekly podcast from Galaxy Research. If you enjoy the show, please like, rate, review, and subscribe wherever you get your podcasts. To follow Galaxy Research, sign up for our weekly newsletter at gdr.email, read our content at galaxy.com slash research, and follow us on Twitter at glxyresearch. See you next week.