Bitcoin & the $40 Trillion Debt Reckoning | Nik Bhatia

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35:03Like they see the AI, the open AI is the anthropics of the world, and they're essentially cutting them down at the knees. So China is an easy one, but being at sort of economic war with Europe is, is that unprecedented? Like certainly in our lifetime, that's crazy. Yeah. So let's, let me be a little more specific. I don't believe we're at financial war with China. We're in a Cold War of sorts, a tech war, a tech race. And actually, China is an ally in many ways to the United States. So we are in a race with them. We are in a defense buildup. That's not financial war. Does China launch financial weapons at the United States?

35:49sure and and but they're actually more china's more of a deliberate slow-moving society they're trying to play for the long game yeah and they still have this shame of the opium wars that they're that they're still trying to get rid of so china thinks more in in decades and centuries then we might want to give them credit too. So I don't think the US and China are firing direct financial weaponry at each other.

36:26China leverages the euro dollar system which is an international banking system. It is housed in Europe but Europe is not the only place where the banks operate. They operate in London, Paris, Zurich, Singapore, Toronto. And the first bank to be sanctioned in Operation Economic Outcast was a United Arab Emirates bank. All of these banks use the euro-dollar system. they all facilitate China or I shouldn't say they all they facilitate China Iran and Iran is the you know it's the avenue to launch this I'm not saying that they're I don't actually think that Iran itself is the main target it is the euro dollar system and it's this it's about U.S.

37:31power So U.S. and China are in a power game. They are in a war for power. They are in a global dominance fight. I'm not ignorant to that. But I don't think the United States and China are the ones, when I say financial war, I'm not talking about China. I'm not talking about Europe either. They're not at war with Europe. European banks are the architects of the euro-dollar system. and so maybe the puppet masters are mostly in Europe. That's not, I mean, it's not my game to try to get too much into that, but I don't want to say the United States is at financial war with China. It's not at financial war with Europe.

38:17There is an international dollar system that works to the disadvantage of the United States. As per the U.S. diagnosis, go back and read the Stephen Myron speech. days after the Rose Garden speech. I believe Rose Garden was on the second Liberation Day, second of April last year. And then the Myron speech to the Hudson Institute was on April 7th of last year. That is your instruction. The current administration views it like a free ride. Myron called it the dual public good. We provide, and I mean America, United States of America provides a navy to the world for free for them and provides a dollar system for free for them both are going to be addressed by this administration it's in their speech I covered it the day it came out they tell if you don't read the speeches from Besant Myron Warsh you're gonna miss what they're doing I'm trying to figure out what they're doing, when I see what they're doing with Operation Economic Outcast, Iran wasn't mentioned by Dr.

39:35Stephen Myron in April of 2025. Okay? But you can see the trail. You can see the crumbs being laid out for you where they want to go with this. The Genius Act. Here's the last thing I'll say before I pass it back to you. The Genius Act. It was the first thing that they did. One big, beautiful bill and the Genius Act. They got the Genius Act. I wrote a paper about the Genius Act several months after it was passed into law, fully law, already in the past. And I'm thinking how the government can use the Genius Act to its advantage. And what was my conclusion, Danny? What I'm writing, they already know this or else they wouldn't have passed it.

40:19Like if you read the what they're trying to do, they don't need me to tell them, use this as a tool of statecraft to wrestle some control back over the euro dollar system and get it onshore again and take some, now it's where it affects China, take some firepower away from China at the margin by damaging this system and bringing it back. They did not need my paper. I'm telling you the truth. I wrote this. I spent months on it. And halfway through writing, when I had my aha moments, the aha moment was they already freaking know this. They passed the law last year. They know what they're doing. And what is that?

41:05So for a layman, this can all sound like financial plumbing. What's going to happen here? If the UK fails, like it or you can start printing a lot of money same with germany same with france like what does that mean for the world what does that mean for the u.s what happens i i don't i don't know danny i mean i what i know is that they're trying to wrestle back power i you know the the last financial true collapse that we had was in 2008. And the one that we briefly touched up against in 2020 was arrested very quickly by policymakers in a very unprecedented way that had a lot of ramifications.

41:53But we didn't lose the system. We didn't lose countries. We didn't go into revolution anywhere, you know, they, we didn't. And so I don't, I don't know if these actions bring some big next crisis. I see it more as part of the power game, diminish the ability at the margins where you can and try to live for the next 250. So I really don't know. And I, I try not to, I try to stay in my lane. I mean, I just, I'm just being honest with you. And when you, you ask me the questions, when I had, when I have an answer or an opinion, I tell you. And when you ask me a question that, you know, I would have to pause, take your question, write it down, think for a week, bullet it out and come back to you and spec it out.

42:48I think that Bitcoin is the best representation of what you would want to own, not knowing what's going to happen with all of this stuff, because it can't be printed. And so the big thesis is Bitcoin. And people have liked gold for many years. I was one of them before I liked Bitcoin or I was aware of Bitcoin. They like it for this reason. They understand. But they also know they don't really know how it's going to play out. They know they need to own something scarce. and so that's the best answer i can give you is what do i do not knowing i i think bitcoin is the play and if i thought it was gold i would be in gold but i'm not the the last thing on this because i do want to get into bitcoin is in 2007 2008 which was the last like real global global financial crisis like covid was quite short-lived like you say um policymakers stepped in really quick and and we had high inflation but it wasn't the same as 2007 2008 but that started in the us and then there was obviously contagion all around the world it definitely hit europe very hard as well it sounds like what you're saying is this might be a european crisis that the us manages to distance themselves from and not be as impacted by?

44:18So I think that there will be something that happens in Europe to the extent, what extent it impacts the United States. I don't know. To say that it won't come back home, I think that's naive. But I do want to correct you. The crisis started in August 2007 with BNB Paribas. It did not start in the United States. The mortgage insanity was U.S. underwriting. So the bad assets were American. That's for sure. You can check out The Big Short. The first fund to say we can't mark a price on our assets was French. and it was a crisis in funding because in the end there weren't enough euro dollars to go around.

45:18But 2007, December, is when the first euro dollar backstopping central bank swap line was issued to the European Central Bank and Swiss National Bank. December 2007, August 2007, four months before that, was when the LIBOR spread to onshore rates started to widen. And that happened the day after BNP Paribas said, we can't publish marks on these assets. They were subprime mortgage derivatives of some sort. So it actually didn't start in the United States, the financial crisis itself started in Europe. There's some history. I got that wrong. Let's do the Bitcoin part then. This is why we're here.

46:09So like you say, Bitcoin is the best bet here with all the uncertainty going on around the world. But what like looking at this in a sort of very Bitcoin specific way, how are you looking at the market right now? Do you think the bottom's in and we sort of in the next bull market? I think the bottom is in. Next bull market, no, you can't say that yet. There's not enough momentum at all. You haven't even really cleared 82 ,000, 83 ,000, which is the local high post-bear drop. So no, not in a bull market yet. Yes, I think the bottom is in. I was picking up the seller exhaustion over the summer, and yes, I think the bottom is in.

47:00But Bitcoin is still very reactive to global liquidity. And so even if I think the bottom is in at 60, and now Bitcoin closer to 80 than 60, could it leak lower, stay flat, not get any escape momentum over the next several months because rates go up, volatility goes up, the dollar strengthens back after a period of several weeks of weakness post USD JPY intervention, again from Scott Besson's name coming back in here. that that's all quite possible so what we have done at the bitcoin layer is we've tried to strip out my opinion for the short term and so we're fully quantitative in our approach in the short term it makes my job a little bit more relaxed because i can think about what is happening over the medium term.

48:07Think about what Warsh and Besant were discussing on the plane and what that means for the next year, not what it means for markets today. TBL Liquidity is designed with four pillars, banking assets, interest rates, treasury volatility, and the dollar. And together, every day, we get a read on what's happening in liquidity. And then for the math people, we go into the rate of change and then the first derivative of our cyclical wave. And we try to basically isolate for people, are we in a buy zone or a sell zone? Is it green or red? And with that green dot, red dot approach, Danny, we've tried to make it really simple, like what's happening in the short term.

48:54We got a green dot on August 13th. It was about a week before Bitcoin's pop. so we were in a red dot before that um we we captured the up move we also captured a couple of the large down moves with the red dot earlier this year it's led to some pretty large out performance if uh with our active strategy versus just buy and hold bitcoin so we're trying to offer valuable signal to people especially people that are making portfolio decisions more often than not We're not really for this indicator itself. It's not really for the long-term DCA people or the buy and hold people. If you want to be more active in your DCA or more deliberate in when you buy, then this is a tool to help them.

49:49For people that like to hedge on both sides, this is a tool to give you a sense of, hey, the market is leaning against us right now. So I've taken my opinion out. We're full, you know, in this methodology. We back tested it. It's worked so far this year. We're going to continue to publish our track record. People get the indicator the second that it flips that are signed up with us. Okay. So this is, we've got the liquidity cycle. We've got the index relative returns. Okay. So talk me through it. What am I looking at here? Yeah, so this right here is available to everyone for free. This is our TBL liquidity index, and you can catch that at thebitcoinlayer.com.

50:31This is available to everyone. This tracks those four pillars I was telling you guys about. This is the index, and this is basically synthesizing what we're doing. So you can see here, liquidity peaked at the end of January. And this is, by the way, has nothing to do with Bitcoin. The inputs here are rates, vol, and the dollar. This is the peak of liquidity and then the bottom somewhere at the end of March. And you can see since then, we've basically flatlined. So Bitcoin has kind of mirrored it, right? I mean, Bitcoin peaked around here at the end of the year and then saw a big drawdown. It's bounced and it's kind of been flat since it first hit 60, except for that little pop that we've had.

51:21So this is what we publish every day. Then we've taken this data and we've applied a cycle, done some math. We don't have to get into it. This is what the cycle looks like. So right now we're cycling up and then we've taken this information and we've given you our indicator. So these diamonds are when we send our signal, hey, we've gone from buy to sell or we've gone from sell to buy. So this is our last diamond here, confirmation green dot on August 13th. So that's what we provide and that's a look at it just on a raw basis. Now, I'll show you relative to Bitcoin so that you can get a better sense of what we're talking about here.

52:07Okay. TBL liquidity performance. I'll come back to this performance chart in a second. But you can see here a little summary of what is going on with the trades. And then here you have our dots lined up on the chart. And you can ignore these little circles here. It's the diamonds that matter. those are our confirmations. So you can see, this is when we started, by the way, Danny, in we started in 2026, which is right here. So no position, a sell in January, a buy here, a sell here, a buy, sell, buy. So you can see that's the dots on the Bitcoin price itself. And you can see them on the stock market if you're interested in that too.

52:54We test everything versus both the S &P 500. This is the track record line by line, basically the trade history of the year. Now, the chart I shared with you was this one. This is the relative performance. So the orange line is Bitcoin. So Bitcoin now down 11.3 % on the year. The purple line is us. So selling here, this period, it's leaking higher because we own bills to accrue a little interest. Then we buy here. So then you can see from this period to this period, we're the same as Bitcoin. Then we got a sell. So then we're flat. Bitcoin went down. And then we buy. So then we're tracking with Bitcoin again and so on.

53:36So you can see our active strategy again. And this is reflecting perfect timing, no tax, capital gains, tax implications. Listen, guys, we are not a hedge fund. We don't manage outside money. We're a data researcher. And we're trying to help people and we're trying to help your portfolio. We're trying to help our own portfolios here as well, actually. Spoiler alert, some of us are trading TBL liquidity more actively than we were before we had our, you know, dots published to everyone. So anyway, you can see that here we have over 60 % outperformance versus Bitcoin. And it does compound every trade because when we avoid those losses and we buy again those gains compound as opposed to having the high watermark in Bitcoin where if you're down and then you go back up, you're just getting back to where you were.

54:33So it's worked well. We don't want to pat ourselves on the back ever, but not even with this green dot that we got a week before the pop because unless we get a red dot before it goes down, it's not a closed trade. It's an unrealized gain. And so we're thinking of this current one as an unrealized gain. We think, and we can see, we've done a lot of work on this, that macro drives Bitcoin and that you can actually use macro to trade Bitcoin or to get a sense of if it's a bullish or bearish impulse. This is the short-term look. This is what I've removed myself from. This is purely quantitative. A lot of R &D has gone into this and that allows me to you know, do more zoomed out thinking and also teach, like, why does this work?

55:25So I spend a lot of time writing and recording about why it is that this is actually happening. Why is macro affecting Bitcoin like this? And now we've added all sorts of stuff like back testing it against other assets here. You can play around. So a really powerful tool that we've built called TBL Pulse, and people can start for free at thebitcoinlayer.com. I mean, that's impressive outperformance. And obviously, so you're never going short Bitcoin here. You're just going getting out of your position. Correct. We're not insane, Danny. And, you know, we don't want to advise people, recommend people to do that sort of thing.

56:07What people are doing are, you know, they're putting bearish bets on versus bullish bets on as the indicator moves around. We've gotten some fun messages from people saying that they have been using it to their benefit. So we do want to help people. We need people to understand that we are not an investment advisor and that we don't provide that money management service. What we're doing is research and we hope that people will do their own research in addition to using our tools. So, I mean, it's very impressive. Outperforming Bitcoin is hard. trading Bitcoin's hard. And for me, I don't bother trading Bitcoin.

56:48Obviously, you've done incredibly well. And this is a very short-term view. What's your more medium-term view and how are you looking at that?

56:58The financial war is there haunting me. It's in the background, it's haunting me. And what is behind the next move from these people, it's hard to know. Bitcoin remains my play. Like, you know, people talk their book, Danny. We know that. And so, you know, my book reflects what I'm saying, which is that I think Bitcoin is the right place to be positioned looking out. So I'm a young person with a young family. I can take risk to the point where I think Bitcoin is still the place to be allocated for me. And that's my view over the medium term. Now, I think Bitcoin can catch back up to maybe even some of its more recent levels.

58:05Bitcoin was at$120 ,000 not that long ago. So I think even that is a nice little 50 % pop from where we are today. Those are massive gains, and I think that's out there for Bitcoin. So unless, and I can just go back here for a second to TBL liquidity, just look at the raw index that everyone has access to. We can zoom out here a little bit more. Liquidity trended down during 2022. This is the rate hiking cycle. I'll zoom out even more. This is the rate hiking cycle, the inflation wave. since 2022 at the end liquidity had been supportive it clearly has topped in january february of this year it the moving averages are heading south we are below the moving averages and it doesn't look like it's popping zoomed out at all it doesn't look like it's popping So is there a lid on liquidity that is preventing the bull from getting going?

59:16Possibly yes. Possibly yes. So I'm not very short-term bullish on Bitcoin. There is a green dot. Maybe a lot of that gain has already been captured as rates have gone a lot higher this week to open September. volatility spiked yesterday in the bond market. There is clearly a move out of fixed income in Europe, all around the world, that damages collateral values that directly affects TBL liquidity. So I like now having this purely quantitative side where I can just look to the chart and say, hey, it doesn't look supportive. This doesn't look supportive. The fact that this drop has not been even flirted with is good.

1:00:13The fact that this peak is not being tested is not, it's not very good. I mean, it's not anything to celebrate. And it does, you know, liquidity does cycle up and down, but we don't yet have a cycle approach to liquidity. It's one of the things we're working on in our research and development so that we can maybe identify that this peak was in fact something to mark as a turning point in the market and maybe something that you don't want to get back into Bitcoin until you get some sort of much larger swing higher on the medium to longer term of TBL liquidity, we're still working on that. And there's probably great answers there that we'll just have to wait until we get to.

1:01:02But that's what we enjoy doing. We enjoy the work. And I think our TBL pros are enjoying it as well, Danny. So just to close out on the liquidity thing, because I had Michael Howell on the show, who you actually introduced me to a few months ago, and he was saying the same thing, that liquidity had already peaked and that we were in basically like the downtrend at this point. How long do you think that will last? And is there no way that Bitcoin has a very sustained long rally while liquidity is down? We've learned a lot from Michael Holland. This is where I would suggest that he and I differ a little bit, but maybe it's because we haven't done that cycle work that I just mentioned.

1:01:40so that's my answer is actually the same we don't have a cycle approach to liquidity uh in in the sense that he has this uh 60 65 month cycle i believe it is if i remember and it's and it's a sine wave and he lines up his cycle against that we don't we don't have one of those we're doing the work to see if there is something that we want to establish there but we don't have a 65-month sine wave, so we don't have any anchoring in what he's talking about, meaning that something could happen in the next week that turns the dollar lower, turns rates lower, quiets volatility, and sends liquidity higher, and we want to ride that.

1:02:23We'll get a green dot, or we'll maintain our green dot, and we'll want to ride that. So we don't anchor in a cycle. Maybe we should. Maybe that's our inexperience. He has 40 years on us. And by the way, the reason why we read him and why I made that introduction, he's a great teacher and he brings a school of thought that isn't well known to the masses so that we can consume. it. I've tried to do that in my own little way with repo because, you know, I've traded repo. So I want, I want people to know what I know. I know repo because I traded it. Well, Michael Howell worked at Solomon brothers and watch flow of funds data and witnessed this school of thought from the inside.

1:03:17I did not. I have actually learned this from people before I got to Michael Howell. my mentor's mentor is harley bassman the creator of the move index bond volatility and so my mentor worked for harley on the street and i was very lucky to get that liquidity school of thought you know taught to me when i was on the desk but then when i read howell then i learned so much more and a shout out to my friend joe consorti joe was the one who said hey you got I interviewed Hal. Joe interviewed Hal on TBL before I ever did. So everything happens for a reason. And I'm really glad that people are learning from Hal because I'm one of them.

1:04:05And we've tried to do right by his teachings and really, really learn it and do all the math from scratch. Everything we do is our math. It's not copied from hell. We didn't, you know, lift anything from him. We just read his stuff, interviewed him a ton of times and built it ourselves. Another shout out to Augustine Carrasco from the Bitcoin layer. He's our lead statistician and our head quantitative analyst. He's the architect of the numbers that you see that have come from what I have learned from Hal and others over the years. So I'm interested, though, in terms of like Bitcoin performance while liquidity is dropping.

1:04:50In Bitcoin's sort of short history, has there been a time when liquidity has been dropping and Bitcoin's performed well, or does that not exist? It's a good question. It absolutely exists, Danny. And what we have seen is that But post-2022, Bitcoin has responded to liquidity a lot more than it did before. And that would make sense to the casual observer. Bitcoin was more of a hobbyist asset until 2017, to be very honest. and then during 2018, big boys started to arrive and you didn't get ETFs coming online until 2023. So now Bitcoin is much more intertwined with the markets. I don't want us to over-anchor in the past data.

1:05:45Since 22, 23, Bitcoin has responded nicely. There are always false calls or calls that it doesn't work 100 % of the time, of course. But what we want to express is that when liquidity leans positive, that's when Bitcoin can really achieve great things. And when liquidity is negative, that is when to not expect the runaway moves and to have huge down moves as part of your realm of expectations, your probability distribution. So it's never going to be 100%. And maybe the signal runs out, right? Maybe it stops working. And we have to be open to that as well. We can't just, we can't over-anchor. And you know that I don't do that.

1:06:53I don't over-anchor in narratives either. Like, clearly the world is in a different place after Trump 2 and Liberation Day. And that was only a year and a half ago. So, you know, how can you anchor in like a Biden era CARES Act, you know, way? that narrative has to shift in some way. And some of them stay the same, like the fact that the U.S. is, the deficit is still what it is. Actually, the CARES Act and the$2 trillion fiscal deficits that we started getting during the pandemic, that by itself is its own regime shift.

1:07:44So a lot of moving parts. and we've actually identified about 25 of them in global macro that we're trying to assemble for people to again you know just take that teaching and understanding to the next level because even people that spend all day every day on this are not able to juggle every moving part all the time there's just too much but again that's what makes my job fun i love it man so to distill your ideas it sounds like you think the bottom's in, but you think there could be time until we see a real bull market again. The dollar, the financial war, these are keeping a lid on things. And until there's some more clarity, like the USDJPY Scott Besson intervention of a few weeks ago, that felt like a shift.

1:08:41That was like, okay, maybe the dollar is going to stop going up now and it's going to trend lower. Those are the shifts that I look for. And even with that, the path to some grand pump in liquidity isn't there yet. So I'm a little cautious as we go. And I'll, again, remove myself and my opinion as I'm seeing the markets digest, you know, what's coming out of Washington, New York and the rest of it. I love it, man. Well, thank you very much, Nick. I'll make sure I include all these links in the show notes so people can check this out, but always good to speak to you. Thank you. Thanks, Danny. Appreciate you.

1:09:36Thank you.