The End of Fed Control? Bitcoin & Macro Outlook | Checkmate, Joe Carlasare, Matthew Pines

27:24And the Fed as like a, you know, as an institution is very resistant to being used as a tool for any of those other purposes. And that's why we see this political conflict play out, right? When the federal government and the commander in chief and the executive agent in charge of running the country decides that there's a certain set of statecraft and trade and economic policies they want to pursue. Like history tells us usually the Fed gets subsumed. But we're sort of in the middle of that process playing out and the Fed's heavily resistant to that. But that's like ultimately the Fed becomes less and less of the story and more, OK, like how much of a resistance are they going to put up to what seems to be like a structural shift in how the U.S.

28:06government is attempting to wield a much more command driven economy. Yeah. So, Danny, if I can jump in, because I have a question for Matt in this. So, what I don't understand is this. There are very bright people in the administration, and surely they must understand that the overnight rate set by the Fed doesn't amount to a hill of beans compared to the all-on-end rate, right? I mean, you pointed out there that's the most politically sensitive part of the curve that really matters for people, matters for households, matters for mortgages, et cetera. So, what is driving, in your mind, the emphasis on the overnight rate, which to me, I think, at least from the rhetoric, they seem to suggest that you're conflating those two things, that if the Fed were to somehow cut tomorrow by 150 bps, that that necessarily would bring down that long end rate.

28:53And I'm not so sure that's true.

28:54Checkmate:What we have seen is that the long end goes up when they cut. Yeah. Yeah. It might even be counterproductive. I think that's a bit of, I mean, whether it's just like they brief Trump and Trump gets told the rates are too high because you know, Powell's not cutting rates. And so he just tweets rates are too high. Whereas the real like, quote, technocrats just want to capture the Fed. And they want to be able to use these other tools, swap lines. They want to basically do much more strategic cooperation with buybacks. Right. So like ultimately, control over the long end has been shifting over the last several years to the Treasury, you know, versus the Fed.

29:26Right. This got started under Yellen with activist Treasury issuance, strategic use of buybacks. That's only going to increase. But the sort of Effect of that is blunted by moves the Fed can do in terms of how it manages its balance sheet. And then obviously now, like, Besson comes out and says, we're going to give$20 billion swap lines to Argentina. Like, a swap line is actually a Fed facility, right? Like, he can give loans through the Exchange Civilization Fund to another country, but like, a swap line is an instrument that the Fed has control over. So, like, there's just a de facto subsumption and a sort of irrigation of a lot of the capabilities of the Fed.

30:02And I think they're just sort of using the short end like pressure as like a rhetorical tactic. Because I agree, like if you just jam short rates down, it doesn't mean anything for 10, 30 year. In fact, it might, you know, be counterproductive, but it's a rhetorical cudgel to try to like jam the Fed into submission. And that seems to be their strategy, right, to get to sort of stack the board and squeeze. So the complaint about the front end is pretext in your mind. I mean, it could be a mix of both like underlings that have like, you know, a 5D chess and then political apparatchiks that just want to like say the line and believe what's, you know, what's convenient for them to believe.

30:37Because I agree, like there's no like immediate stimulative effect really from bringing down short rates except for the, you know, the refinancing of the government. Right. If we have to issue whatever, 25, 30 percent more on the short end, maybe more now. Well, again, that starts to add up more for the government's borrowing capacity.

30:56Checkmate:Is this not where this sort of quiet third mandate comes in? I know it was mentioned in the, or I think it was mentioned in the last FOMC meeting that they want to try and influence the long end. Do you think they will try and do something akin to yield curve control? I mean, I think they have to, right? If you really run the numbers, at some point they have to. And I think this is what makes this time in economics. I mean, for me, I consider myself a macro tourist, right? I kind of try to study it because I find it fascinating. We're at this point in time where they have to do it, but the path from here to there, the path dependency, if you just say to the long end, oh, by the way, we're going to do yield curve control, who's going to want to own bonds?

31:34Checkmate:And I think Luke Roman does a good job. He basically says they have to anesthetize the bond market, lull them to sleep, boil the frog, whatever your analogy. That's the path they're going to. But if they say it outright, and if they say it explicitly, This is why they say it's not QE, but it's QE. It's some bank funding program. It's some, you know, adjustment to a regulation over here. There's ways that they do this to keep the wheels on for as long as possible. And I often like, I wonder, because, you know, my engineering background, I look at this and I go, of course, this is what they have to do.

32:06Checkmate:Like, this is the machine. There's sand in the gears. You've got to get sand out of the gears. This is how you've got to do it. But the average bond trader, they still have to plug in CPI. We all know that the CPI number is bullshit. but that's the number they have to plug into their bond models because they know that's what everyone else is using so it's like a shelling point it's like i know i've got my own inflation number but i know that this guy's going to trade off cpi and this guy's going to trade off cpi so everyone gathers around the room and watches as the cpi numbers come out knowing that it's complete shit and they change the basket of it all the time and it's super core and it's magic core and it's special core and it's all these different versions of inflation and we all know it's much higher.

32:42Checkmate:So it's just part of this kind of fugazi game. Kayfabe, I think people call it. I think it's going to be a mix of things. It's going to be a mix of, you know, creative use of national accounting. But it's also going to be, I think, more clever use of geopolitical instruments of kind of soft coercion for other allied pools of capital, because you ultimately, to first order, you want to extraterritorialize your financial oppression, right? You don't first go after your domestic political, you know, constituencies and your donors, you go after the folks at the periphery of the dollar imperium and you make them take as much pain as you can.

33:14And so you see these headlines like South Korea was, you know, committing to invest$350 billion in, you know, AI, semiconductor energy, et cetera. But they said, we don't actually have the money for it. Like, and we'll basically give them a backdoor swap line. So we'll sort of, you know, that's effectively like in a certain sense, like geopolitical yield curve management.

33:35You're that are oftentimes like managed by, you know, sovereigns, whether it's explicitly or implicitly. And you're sort of directing their, like their choices of where to allocate those portfolios into, you know, U.S.-based securities on conditions that we impose, right? Where we can either get that capital deployed for strategic, you know, national reshoring technology purposes or to help, you know, fund our deficits. And that's easier said than done because it requires a joint integrated state craft. It requires actually being able to cajole slash twist the arms of the Taiwanese and the Japanese and the South Koreans and the folks in the Middle East.

34:12And it's sort of what was the plan that Zoltan drew up last summer that Steve Moran put in his white paper. But they're like the whiteboard technocrats. In practice, you have to get Lutnik to cooperate with Besant to cooperate with the State Department and Rubio. And it actually requires a high degree of state capacity and competence to sort of wield these different instruments to steer capital and suppress the long end. And I think they're learning how to do that more effectively. And then there's these moments after Besson comes out after Liberation Day and the 30 years spiking to 5%, and it's like five-long fire, and then it generates a coordinated reaction.

34:50And then everyone just goes back to the normal beefing where Besson's going to punch Pulte in the face, right? And so... What's the coordinated reaction? Is this rhetorical? Well, I think when push comes to shove, right, the sort of allied network, you know, kind of the Five Eyes Alliance plus kind of NATO plus, at the end of the day, everyone has a mutual interest in the dollar based system, not just blowing up overnight. right and so you know at the same time that they also want us not to renege on our security commitments they also want us to give them access to cutting-edge gpus and our frontier models they want us to like continue servicing the you know crappy f-35s etc so there's like lots of like you know other other sort of carrots and sticks that the government could use in like a you know optimal bargaining strategy with say japan or taiwan um and but that's really hard, right?

35:40And actually, how do you price each leg of those different, you know, carrots and sticks requires like a lot of state capacity. And when push comes to shove, maybe they can do it well on like a handful of deals, but then other deals get lost in the cracks. Yeah, but Matt, that buying doesn't even account for 40 % of the treasury market, right? I mean, like the external, ex-United States. I mean, the bulk of treasuries are owned by U.S. institutions and entities and individuals, you know. I think there's buying time. I think it's just like Besant doesn't want the 30-year to blow up on his watch.

36:10And so he's looking at like a quarter to quarter basis to see how much do I have to issue? How much will be taken down by domestics versus foreigns? How much can I sort of, you know, play this game of activist treasury issuance that Yellen started? And, you know, he only needs like an extra 20, 30 billion to prevent an auction from going bad, right? And so he's just playing, I think, the game to last to the end of the term. I don't think this is like the one weird trick, strategic game changer for the government's fiscal position. But it's sort of like they're looking around and they don't want to have the 30-year go above 5%.

36:45And so they're just going to try to pull the different levers to bring it back down. And that doesn't require hundreds of billions of dollars. It requires, you know, Japan coming in with 20 billion on a Sunday night or something. Got it. I mean, to me, the original question about the yield curve control, I continue to believe we're far way away from that. A long way away. I mean, I don't really see that. I think there's far more softer measures that you can do before you even get to something remotely close to that. That's what strikes me as sort of an extremist measure. And everything Matthew's talking about, and I think would come first.

37:18And to me, ultimately, you know, a huge factor in the long end discussion is the implications for inflation and for economic growth generally. So if your view is economic growth is going to remain robust, then yeah, I could see an argument for how the 10-year and the 30-year continue to sell off. I mean, they're driven primarily historically by nominal growth rates and inflation. So, you know, what's your forecast for the economy? What I don't understand, Danny, and this is what frustrates me. We talked about this in the last interview we had, like, you can't have it both ways. You can't say growth's going to collapse.

37:50We're going into some, you know, hard-down recession, and yields are also going to skyrocket. I've never understood that logic. I can think of some sort of tail events that could possibly trigger that, but those are, you know, they're tail events. They're not sort of your, they shouldn't be your base case.

38:07Checkmate:Because that's emerging market behavior, right? Where people sell the long end or they don't own your bonds when you go into a recession. So I think that would be the case against that is if we do have some kind of a recession and the market goes, okay, so you're running 8 % deficits in the good times, those deficits go to 14, 15%, right? They shoot through the roof in a recession. So the reason someone would sell the long end and your long end would go up is actually emerging market type behavior. Now, whether the US is going to get there, I think there's always going to be that just like built-in response where they bid the dollar, bid the bonds.

38:39Checkmate:But the fact that we're seeing this like cut rates, long end up, gold up, all of these things are just starting to US equals EM. We're not like full emerging market, but we've got the initial flavors of it. Well, I mean, we cut rates last fall and we cut rates just recently, right? And the long end 4.70 as of today. I mean, we were at in October of 23, we were at 4.14. So, I mean, you're 40 bps lower, 45 bps lower roughly in change. From October of 23, we've run structural deficits, 67 % deficit GDP for the last two years. So if it was purely a supply issue, if it was purely a – now to Matt's point, it's like, well, we've been relying increasingly on the long end, so you don't have a supply catalyst to cause that.

39:28So that's another compounding variable there. But I don't know. I'm not as convinced that cutting at the front end is necessarily going to trigger it to sell off aggressively. I think the more likely scenario, Jack, is in my mind, it's to stay structurally higher. I mean, regardless of all these efforts that Matthews is talking about, you're stuck in the fours, say, the higher fours. That seems like the base case. Higher for longer.

39:52Checkmate:Yeah, yeah, 100%. And I think the other thing to bear in mind is if you look at the U.S. is the cleanest dirty shirt, look at the U.K. I mean, look at Japanese bonds, look at any other market. Now, granted, a lot of those, Japan is much lower than the U.S., so you could argue there's a bit of a normalization going on there. But if you look at UK, for example, they are trading like an emerging market. They're above the list trust moment. So it could just be that the US being the privilege of the global reserve asset and currency, it's going to take longer to lull that bond market to sleep. But over time, it's going to happen.

40:27Checkmate:But I agree. I don't think these things are going to happen straight away. There's going to be a whole process. And coming back to the original Bitcoin conversation, I just think a lot of people miss how glacially macro moves. like we can see a lot of these things coming down the pipe you know i looked at um when i started really grokking bitcoin 2019s where it properly clicked for me i didn't really understand anything about macro but i understood that the debt situation was a problem and a lot of the things we're seeing playing out now i couldn't have described that to you back then i wasn't experienced enough with it but i had this feeling that it was going to look something something like this there was a reason why you wanted to hold hard assets so i made that decision back then so it's one of those dynamics where it's going to take a long time for this stuff to play out.

41:10Checkmate:You can see it years in ahead. But pricing then into the next daily candle is where a lot of people get stuck because they think, but hang on a second, why doesn't everyone else see this? Because there's a thousand and one incentives that cause them to not see it, or there's regulations, there's mandates, there's all this other stuff going on in the background. So things just move slower than you expect. Do you wish you could access cash without selling your Bitcoin? Well, Ledin makes that possible. Ledin are the global leader in Bitcoin-backed lending, and since 2018, they've issued over$9 billion in loans with a perfect record of protecting client assets.

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44:10Checkmate:If we are going to see a lot of that, where will it come from? Is this going to be like AI robotics type stuff? Well, I would argue you're seeing it for the last, like, one of the reasons why the recessionistas have been consistently wrong is what Matthew alluded to earlier with this CapEx boom. I mean, this is a massive deal. There's some forecast, I can't remember what the note it was, but, you know, it's still in the pipeline. We've got, you know, maybe you saw this note. It's on the tip of my time. Three trillion. Is it two trillion? Yeah. I think it's three. Three by five. Three trillion dollars are coming in over the next couple of years here in terms of CapEx.

44:45Those are jobs. Those are private sector stimulus. That money's been secured. It's not - From where? Where's that money coming from? Well, some of it's just cash reserves of these mega caps. I mean, they're flush with cash and they're spending in a very smart, intelligent way. They're trying to build out this industrial revolution type moment here. And that money is going to flow through and it will have a multiplier effect. Private sector spending has a greater multiplier effect than government sector spending. I mean, there's some studies that say the money multiplier is declining to really sad levels when it comes to government spending, right?

45:16But the private sector, you're not seeing that. You're seeing massive, I think, investment here, and that will continue. And this was specifically alluded to during the last FOMC. We don't know exactly when the CapEx boom is going to end or come to a halt here, but we do know that there's at least stated intentions for the next couple years now, at least, to put trillions of dollars into the economy to do this build-out, which is essential. It's non-negotiable. I mean, it's for winning the next couple decades, potentially, in the AI race. So I don't think that's going to be deferred. I don't think no matter what the economic conditions are, I think that money gets spent into the real economy.

45:51So in terms of growth, right, that's a ton of private sector capital that's going to propel. And I mean, this is a Matthew question, really, if you're going to get the return on the investment. I don't know. I can't forecast that. I'm not smart enough to figure that out. But I do know that I think it is a big mistake to just say, no, you're never going to get any growth from this. This is another tech bubble like 2000. None of these companies are going to make money off that. I think if you make that calculation without doing perhaps the homework that Matthew or others have done on this call, you're potentially committing a catastrophic error.

46:21Checkmate:So can I throw a question here? Because this is something that like the one thing I have been looking at is just like the concentration of stocks on this AI boom. You look at all the indices, you've got the hyper-financialized economy. If NVIDIA falls, because if you look at really the, it's all the same customers. NVIDIA is trading chips with Microsoft and they're paying open AI, it's kind of this big circle of like, you know, 12, 15 firms. And you can kind of look at that and go, look, there's a couple of like left hand paying the right hand type dynamics. Is the ROI there? Matthew, I'd love your views on like how sustainable is this thing?

46:55Checkmate:Because like I get the statecraft element. I understand that the administration wants to win this AI boom, but there's only so far I can imagine companies running non-profitable strategies. And I almost think about it in the world of Bitcoin mining, where you've got the subsidy, which is all these models getting trained, guaranteed massive load. And then you've got to move to inference costs, where people are actually using it, it's getting built into businesses. That's kind of the fee model. And I would imagine that we've got to kind of hit that critical mass where people are really integrating in everything that they do.

47:26Checkmate:But I'd love to know your thoughts on how this sustainable, this inverted commas bubble is. We're moving from a regime of analyzing AI, where it's kind of a firm-specific ROI analysis to a point where you're understanding, is it going to have macroeconomic effects and could create a financial bubble? And it's like, well, just that fact alone means that if you're trying to analyze the next few years of your macroeconomic forecast, like, and you don't take very seriously what's already in the pipeline and what, like, the folks making these trillion-dollar investment decisions believe about the future, then you're just kind of in denial or you're going to get smacked in the face, right?

48:01Now, those people might be wrong. Their assumptions, you know, might be ill-founded, but like they're the ones gonna be in charge of borrowing trillions of dollars and deploying that into the economy and so like whether you like it or not like that's just going to be a baseline feature and now from like the perspective like an individual um firm's uh best use of a particular you know uh capital structure whether it's going to pay pay back their investors i don't know right there's like idiosyncratic business decisions that could lead to failure the the overarching feature of this uh new era that we're entering to is going to be accelerated creative destruction where you could have like a absolute unicorn darling pop out of nowhere, get$10 billion at ARR and then go bankrupt the next year because somebody else figured out how to basically automate their business model.

48:43And so you could have enormous amounts of capital destruction, you know, equity and debt losses, but people picked the wrong horse, right? And so yes, very clearly, I think there are going to be business models that everyone falls in love with that are the next big thing that absolutely blow up. And I think we'll point to those as the direct analogy to like pets.com or whatever is like there's hype, there's froth, There's massive capital misallocation. People are just trying to ride the wave, meme, hype, et cetera, right? Typical story. I think there's something fundamentally different. The folks deploying this capital now, as Joe mentioned, most of them are deploying it out of their existing balance sheets, right?

49:19They just have huge amounts of capital and cash flow, right? So Google, Microsoft, these hyperscalers are cash flow generating machines, right? And they can take pretty healthy leverage on that without really getting their balance sheet upside down. And there's other folks like OpenAI that have to do these really creative, you know, sort of deals with Oracle and NVIDIA to try to, you know, bootstrap the scale of this investment. But it's not fundamentally different than just taking somebody else's massive cash flow generating balance sheet to deploy into the next generation of models. Then the ultimate question is like, OK, well, where's the beef?

49:48Like in the Internet in the late 90s, it was kind of like e-commerce wasn't a thing. Like it was just all a belief system, right? Right now, like people are paying for tokens, right? They're economically valued and they're generating massive amounts of revenue at a pace that no other technology has ever generated. And so it's like there actually is a huge amount of demand for these things. Now, the real macroeconomic question is then the productivity downstream effects of that. Right now, people have lots of different ways of trying to measure that. I think they're terrible. We don't really understand how to measure productivity with these tools.

50:20is because the rate of change is going so fast that like most by the time you do like a good economic study it's like 12 months out of date and if you just look at the scaling curves for most of these uh most of these different uh benchmarks um their doubling time is like six to six to eight months um so like the median task uh that a model can perform is doubling about every seven months and so by the time you feel like you've got a really good econometrics analysis of the effect of these things it's kind of out of date and so you're principally just relying on trust in the scaling curves. Will these scaling curves continue to go up?

50:51And that's what's convinced most of the capital in the world to deploy the marginal unit of their holdings into something related to AI. So I think there will be massive amounts of like, there'll be unprecedented amounts of capital destroyed in this AI boom, right? Just because the amount of money that's going to be deployed will be unprecedented in scale. I think Joe put it right. This is an industrial scale transformation, right? Compressing maybe 100 years of industrial 10 at most. And we're not even at the point of seeing the downstream implications of what sort of this order of magnitude step change in intelligence gives you, right?

51:28When, you know, you get to an era of, okay, people can book tickets more easily through, you know, whatever, Stripes, OpenAI integration, great, right? But like, secretly, they're all working on trying to solve fusion, trying to solve room temperature superconductors, trying to create like breakthroughs in quantum computing trying to like unlock what would be separate trillion dollar, you know, sort of breakthroughs in our sort of economic substrate. Who knows? Like those could be just figments of the imagination. But if you draw out these curves, like these frontier math benchmarks, these like, you know, very, very difficult areas of human knowledge and skill are like quickly being reached by these models.

52:14so I think you're going to enter a much more volatile regime where just the amount of investment will distort the the the GDP statistics right could actually kind of you know turn what would otherwise be a soft recession into positive GDP just because of the of just the the capital investment but then if you think about you know effects on total factor productivity if that goes up by just a few percentage points over the next few years well that's going to have a pretty significant, you know, fiscal effect as well. But I think in the CPI statistics, you're probably going to see like very kind of conflicting inputs.

52:47You're probably going to see, you know, cost deflation in a lot of services as you get more things like automated that will have labor and political effects. But then you're going to have bottlenecks in the economy, like, you know, anything connected to energy, essentially energy and commute is going to go up. So like, you know, power prices are going up, you know, whatever, 15, 20 % per annum, which is like unheard of. So you're going to see different parts of the economy be sort of strained differentially and sort of aggregate statistics will not really capture that, right? You're going to have unemployment at, you know, at the bottom, you're going to have a lot of people that can just be massively more productive and capture lots of different value.

53:21So it's just like a, it's a massive shock to the, to the, a system that normally likes to be in like a few percentage point kind of change every year. And when you have something that changes things like, Like, you know, like we saw the pandemic when you like all of a sudden third of the workforce is like not working anymore. You get, you know, massive ricochet effects. I think we're going to see something like that instead of over the course of like three weeks during COVID. It's probably going to be over the next three years. So it'll be a bit more smoothed out. But the scale will be just as significant.

53:48So I would say, you know, anyone who picks a particular forecast for like by X date, you know, we'll all be driving, you know, sort of flying cars and a robot will be doing my laundry is just kind of picking a dot on the wall to throw. but I just say like do not you know the one lesson I have from bitcoin is when a bunch of like hyper autistic nerds become obsessed with like an early part of an exponential curve right like don't fade them right and there's like a whole cohort of our most sort of gigabrained autists are like looking at they're spending all day just like plotting new lines on this exponential curve and they're like yeah like this is where it's gonna go and so in general right like the same thing we started in covet a bunch of hyper autistic people were drawing dots on a map and being like oh okay this is this is a curve now there's no such thing as a true exponential right ultimately it becomes a logarithm right the question is you know how far are we from that curve um so anyway that's a bit of a soliloquy i would say yeah the the impact of transformative ai is going to be um hard to hard to under appreciate um and it's going to have downstream effects on everything else right everything in terms of how we measure inflation statistics how how we measure GDP, how we think about the labor market, how we think about the political effects and starting as soon as the next election.

55:00And that will become, I think, the defining conversation of our political lives in the next few years. Yeah. So just Danny, just hearing all that, just real quick, you know, I cannot help but think you've got these paradigm shifting, transformative, I mean, even go as far as to say revolutionary effects that are coming in from the private sector with these tools. And then you've got how much digital ink spilled over whether the Fed is going to cut 25 or 50 or hold steady. I mean, it just seems, you know, the old chair Eccles comment about pushing on a string in the 1930s, like wondering if monetary policy has any effect to revive a depressed economy.

55:38I mean, I think it holds true here in sort of a similar way, right? Like you've got this massive, these massive forces coming into play. And then you've got people fixated on whether Jerome Powell is going to cut or hold. I mean, it just seems so misguided. It's like you're not even focusing on remotely what was close to being important here.

55:54Checkmate:Yeah, I totally agree with that. But one thing that did make me think is, if we're going to see massive capex, potential positive growth in GDP, but at the same time, we'll see potentially a lot of job displacement, how do you calculate what that actually means for the economy? And do you think this is just like another turbocharger on wealth inequality, essentially. Yes. I mean, yeah, like the short answer is it will lead to more wealth inequality. It will lead to higher structural unemployment, but it will also potentially lead to higher tax receipts because asset prices are absolutely going to moon.

56:29Like high end wage earners will see their incomes disproportionately go up. And so you'll see the hourglass economy becoming even more of an hourglass. And I think that's the real risk is that it stretches too far and the rubber breaks and then you get a massive political reaction, blow up the data centers, you know, sort of expropriate Elon's wealth and kind of, you know, the political system we're sort of evolving into is one where you have these techno feudal sort of oligarchs controlling their own like full stack estates. Like they're getting to the point where they're sort of seceding from the normal public goods world where they want to build their own, you know, fully integrated ecosystems from their own power, right, to their own chips, to their own, you know, distribution centers to like, you know, again, like their own e-commerce platforms where they can take the VIG, it looks like, okay, the government's going to have to actually exert a lot of power on that really hyper-concentrated techno capital stack in order to try to get some amount of the surpluses to then redistribute to the folks that are massively displaced.

57:27That's going to be like basically, you know, UBI quote, like, or an AI dividend, like how we, how we approach that is going to be like a very contentious, I think issue, right? Because I think these disruptions are going to come, right? Like I talked to these folks at Frontier Labs and they're literally like, they have entire teams like with mass amounts of resources trying to automate as many jobs as they can. They have a whole list of them and they're paying billions of dollars to try to like get people to train their models on how to do all of those tasks. Everything from like, you know, health insurance claim automation, DMV, you know, processing, you know, like you name it, kind of like white collar labor back office functions.

58:05they're like pouring billions of dollars to try to automate as much of that as possible. And that will happen kind of in a nonlinear phase transition. Like you want to have someone do your QuickBooks. You don't just get to take someone off the street or give a college student that job because it's important that the numbers be right. And so you're going to try to get these A models to do QuickBooks for you and it's not going to be good enough right now. So you're going to like, nope, not going to do it. But as soon as it hits the point where it can do your QuickBooks reliably, everyone in the economy is going to, you know, fire the person doing their QuickBooks for them.

58:34And so you don't just get this like incremental kind of attrition. You get like an entire new job class just gets eliminated, right? In a matter of months. And that we haven't, we haven't really seen that yet. But I'll say like people are worried about Bitcoiners being the subject of like$5 rent attacks and like the hyper Bitcoinization scenario, right? Which could be still a thing. But like, you know, like when you have just like entire occupations just kind of being like iced out like overnight and people are not ready for that um is this why the

59:03Checkmate:ai tells people who are clearly wrong that they're absolutely right just to maintain social fabric is that what this is all about Well, it's an interesting lesson from Bitcoin of like, you know, a really niche kind of out in the wilderness subculture that had very idiosyncratic beliefs about the future. This sort of transformative technology was going to come in. It was going to be really significant. And then there was, you know, the laughing, you know, chattering classes sort of sneering and saying, no, no, no, you're just a bunch of anarcho-capitalist nerds. And then we're like, OK, well, now the president thinks, you know, we're like legit now and the government is holding their Bitcoin and it's like a thing.

59:39But that transition was very, very awkward and it still isn't quite complete. I think with AI, it's like the PR for AI is very much a, you know, wherever you sit. And I think that you talk to an early career graduate, you talk to somebody who's too old to be retrained. Folks like us, they're like professional talkers or we've got a niche client base and I think we're feeling pretty, pretty relatively confident in our economic mode of being. I think there's a lot of people that are feeling really, really anxious and uncertain, and they don't like change. Bitcoiners think we are used to change, reach the volatility.

1:00:19It's kind of the whole, you know, what we sort of signed up for. The average person does not like that. The average person wants, you know, predictable returns. They want to send their kids to the same college they went to. They want to retire. They want to go on vacation. And when the outside forces just like, you know, can't be contained by the government, they look for someone to sort of provide that stability. And I think that's just something we have to deal with. Well, and that's how you get to deal with that. That's the core of the issue here, Nanny, because to me, and my view is consistently that despite all of the hand-wringing about economic collapse and catastrophe of the monetary and fiscal authorities, I still think that the biggest threat that we have to overcome is this wealth and income inequality issue because it transfers into a political dispute.

1:01:04And if the type of disruption that Matthew is talking about does come to effect, that's going to have massive political implications. It could lead to the rise of very pronounced socialism in the United States, even more radical views. And I think that should be on everyone's radar. Even if you're just following markets, you have to understand the disruption this is going to cause is going to be felt by certain cohorts of the population more so than others, and they probably outnumber the ones that are going to benefit from it and profit from But I will note, which I completely agree with Matthew on this, is that I think it's so funny that we go into these rooms a lot and talk to people on Twitter and other spaces about the overvalued of the tech stocks, how the tech stocks are so significantly overvalued and how if you're buying the S &P, you're concentrated in those few different names, right?

1:01:50The reality is, though, if those names and they have the type of integration Matthew's talking about, if they continue to reap most of the benefit and they exacerbate that income inequality that you're talking about, I can't see that the argument that those stocks are all going to collapse coexisting with an argument that, well, these are going to dominate and transform the planet through AI. One of those things has to not be true. Either this is all just fluff, which I tend to fade pretty hard, that it's not going to be as transformative as Matthew was saying. I think that it will be. Or if it is that transformative, you should expect those things to just rocket, that those things are, those assets, those securities are probably undervalued significantly.

1:02:32I see this as like, yeah, kind of hyperbolic equilibrium, right? Like either they, maybe there's like three scenarios. One, it's like it's complete, you know, over the skis hype, you know, the debt that's being built up will never be paid back and there'll be billions of dollars of losses and it'll It'll be like a black eye will never recover. I think that's like less than 5 % scenario, but it's like you can't eliminate it. But I think there's also a failure scenario where like they hit takeoff, but then there's a political reaction that like caps your return, right? There's nationalization. There's, you know, forced breakups.

1:03:08There's, you know, I think that's also why you see so like$100 million super PAC being raised by the AI companies, you know, taking a page out of the crypto playbook to realize, oh crap, we are about to hit this inflection point. Everyone's going to see our asset prices absolutely run. And everyone, Elon's going to be a trillionaire. And everyone's going to be so much wealthier that holds Nvidia stock. They're bracing for the political counterreaction. Because they know that that's one majority vote away from being taxed out of your hands. And so I think that we're in a very weird dynamic where if you do see these exponential returns, like if they happen too fast, that was also like the concern Bitcoiners have.

1:03:47Like if we do get to this like, oh shit moment and everyone's like a veto on the US government for whatever reason, and you know, Bitcoin's gapping up a hundred thousand dollars in a night, well like that's almost too fast because the political reaction to that could potentially like stop it in its tracks and you know, you maybe never recover. So I think there's, I think folks at the top of these capital stacks and tech stacks are now positioning themselves politically to try to like, you know, mitigate that counter-reaction so they can kind of protect those rents, right? Ultimately, you're talking about these techno-feudal estates where they've got essentially a monopoly to a certain extent between, you know, monopoly, they've got like a hyper-concentrated set of very competitive, but ultimately like a handful of companies owning all this compute and they can charge, you know, a ton of money for that.

1:04:34And the question is, how does that massive surplus get distributed to the rest of the society? I'm really interested what Joe and Techmate think of

1:04:41Checkmate:what Matthew said just before in terms of UBI because ever since like the last few years when AI has become apparent it's going to be insanely disruptive like UBI is the only thing I can see happening here like I don't know how we get to this AI world without it like ideologically I don't really agree with UBI but I don't see how they'll have another option do you think that is probably coming I think so I mean when you really just look at how this plays out you almost end up with like a permanent underclass like we already have the the bones of this now and if the wealth inequality keeps going which it sounds like it certainly is you kind of just end up with these folks who are almost unemployable in many ways if you start wiping now yes there will be jobs that get created but you know it's kind of higher level you know your electrical engineers and things like this it's it's a not a you know something you can go from working in quickbooks to suddenly being electrical engineer right these things are hard to retool in so So very, very challenging.

1:05:36Checkmate:And I do think that's probably where it ends up. It's also where a lot of these things end up if you just look through history, right? Periods of inflation, regime change, it tends to end up in these more social policies because people feel left behind and they feel left behind today. So if that's going to accelerate, you can expect it to accelerate. Yeah, I agree. I think politically, we'll start with the stipulation that I think we have in many countries, UBI light already through various different social programs, through tax credits, et cetera. I think that only has more mission creep and trickles towards more proposals.

1:06:14Whatever you want to call it, right? And politically, you might not call it UBI at first, but I can see various efforts to sort of curb the overnight influence of the forces that Matthew's talking about. And they will be increasingly creeped out in any form, whether you call them a tax credit or other transfer credits or displaced workers' credits. I mean, this is not new. And in many ways, it's an older playbook that has to be recycled and probably to a larger degree. So I think it is inevitable. It's just a question of, you know, the sequence and how it gets rolled out. Joe, I have a question for you.

1:06:46So, like, you know, connecting to the Fed, right? So if you were briefing the Fed and you're like, hey, there's several trillion dollars of CapEx coming in, assume baseline several percentage points increase in total factor productivity, say that means like the R star, which is like they're kind of like shibboleth, they're like, you know, their internal target. Say that means that that structurally is going to rise. Should be higher. Yes. Several percentage points. Meanwhile, you have potentially like increasing structural unemployment because of, you know, the labor displacement of AI. So like AI both causes long run growth to increase.

1:07:23You are going to be running the economy really hot. You get nominal GDP is really high. Tax receipts are great. Maybe the government can even cover some of its deficit now because, you know, it can just tax capital gains. But the unemployment figures are also skyrocketing, right? So like you have - Well, define skyrocketing. What does that mean? Say that, you know, if, you know, a mass, and also maybe like it's, it's contrary in certain cohorts. So maybe like the, the under, under 30 cohort is reaching, you know, 30 % unemployment, 40 % unemployment. It's like a great depression for some parts of the economy.

1:07:53It could even be in like a lot of blue cities, right? Where it's kind of most PMC class jobs just get like, just decimated. And like Accenture and Jolloy just announced 20, 30 % across the board cuts. And all of a sudden you've got people in relatively wealthy, you know, congressional districts being like, what the hell, right? Like, I could see this happening. The Fed is like, okay, they're potentially coming into the bottom of a cutting cycle next year when this starts to kick in. Like, what do you see the Fed like doing in that environment where our star is higher, unemployment's also going up, you're heading into an election.

1:08:23It seems like everyone says that they're in the worst of all possible worlds right now. Like, I can see it's only going to get 10 times worse for them next year. And then Trump's just going to have his guy in there. Yeah, I just, like, wherever the conversation about the Fed is today, I just see that conversation is getting more insane in the next 12 months. Yeah, it's going to get more insane. I think, to start off, I think they should revisit all of their models, right? All of their models are broken, as we like to say, because they are. Let's be honest. First of all, the R-star discussion is, I think the R-star is, you know, they'll say they're still sufficiently restrictive.

1:08:58I'm not so sure about that. I think R-star is going to be structurally higher moving forward. But to answer your question more directly, you know, comparing the labor market dynamics to the inflation dynamics and the neutral interest rate dynamics, what they have said and what Powell has said repeatedly, they've actually analyzed this and looked at this a couple different times with their mission statements or equivalents. and they said, look, if you take the two targets, you got to figure out which is more out of whack. Are we farther from the inflation target or farther from the labor market target?

1:09:25To me, I think it's an easy call currently. I think they're much further from the inflation target. Now, the problem why I started off with like, let's check your models is because is the 2 % target, given the forces and dynamics you're going to talk about with growth and inflation expectations, is that a realistic target given the rate of our economy, given the rate of growth, given the rate of government spending? I don't think it is. I think that the most likely scenario is sort of a, they'll never admit it actually, but a realistic abandonment of the 2 % target in favor of three. And I think that's mostly how they're going to square it.

1:09:57They're going to say, look, this is beyond our control. We're dealing with things that are outside of our ability to effectively cajole or influence. So we can prevent us from collapsing the labor market further. So when push comes to shove, I think they're going to take the structurally higher inflation for a variety of reasons. one which is government debt and burning away the debt, the run it hot narrative, et cetera, in favor of keeping unemployment to the modest degree they could influence unemployment, a lid on it. Now, all bets are off if you're that's why I sort of interrupted you rudely with the like, what is runaway inflation, right?

1:10:29Or runaway unemployment, excuse me, because if you're at 10 percent unemployment, that's drastically different than five or 5.5. You know, to me, runaway, you're getting let's let's get about five percent on unemployment. But then you got folks that say, like, look, the unemployment rate is being confounded by this mass exodus of retirees and the boomers living in the job market, workforce participation, immigration. So, again, structural issues beyond which the Fed has control. And going back to Danny's earlier point, like, I still, for the life of me, I know there's political justifications for it, but I don't understand all the ire that Powell is drawing here.

1:11:08Like, I mean, look, like we all know behind the curve, misforecast inflation, the transitory rhetoric was awful. Let's stipulate all that. But what do you want the guy to do with some of these forces that he's having to deal with here? One of which is the constant, you know, berating from the president on this rate issue. So I guess my my in summary, my view is I think they're going to have to sacrifice our star in favor of the labor market. I think that's ultimately how push comes to shove when they have those two goals and they're in conflict with one another. And I think that's the choice they'll make every time.

1:11:41Checkmate:Which is effectively grow your way out of it, which is another euphemism for inflate it away. Yeah. And at the end of the day, they can pound the table as much as they want about fed independence, fed independence. We know they're not truly independent. I mean, they have to. It's similar, you know, and I kind of learned this with the court system, right? And I have a profound amount of respect for justices and judges, so I don't mean to besmirch any of them. But I'll just tell you, like, I think it's very naive for people to completely say they're objective in every regard when they're put into places by, you know, a political party or partisan.

1:12:15And that is in the back of their mind. It has at a minimum, it has an appearance of potentially tainting their views or tainting their decisions. And there are very noble people that try to disabuse themselves of any influence. I get all that. But it still has an effect, I think, in my view, when they're human beings, they're not computers. They think about these things. They think about their career. They think about their legacy. They think about their friends. So I think that's an influencing factor that people discount no matter how much they say they want to be objective.

1:12:47Checkmate:I mean, I think you're absolutely right to say we don't really know how independent the Fed is. We know it's certainly not completely independent. But if Trump gets his way here, I'm sure you all saw the meme yesterday of him saying he's going to fire Powell. He's obviously been ramping up the pressure as much as he possibly can. But if he brings in Moran or someone else who is essentially just a stooge for the government, like are there severe negative impacts from that? You know, I'll start with that. So first off, I will note it's kind of an interesting thing. this challenge to Lisa Cook as being briefed in the Supreme Court, you had every living Fed chair sign off in support of Cook's position, as well as, I mean, I don't know, was it over two dozen Nobel laureates in economics?

1:13:35I mean, it was a huge number, and I'm double counting some of there. But the point is that I think that the mainstream view would be that the erosion of Fed independence is a systemic risk to the economy and to the monetary system. I do believe there is strong arguments that historically we have gone through periods where Fed independence has been undermined. It has been much less independent or central bank independence. The United States more broadly has been less independent than it is currently. So I'm not so sure that I can draw easy conclusion on that. My general view is that I think it's a more stable feature consistently across history to have an independent central bank.

1:14:18However, I question whether they have been independent for the last 20, 30 years. I think they have had significant political forces thrust upon them and political influence that has been asserted on the Fed really since the GFC, perhaps before that. So I guess I question whether this is really just an acknowledgement of sort of the current status quo, but people finally are being forced to admit it. I mean, I mean, the PBOC is not an independent central bank. And if you model, if you model the decision environment for national leadership is one of acute and only increasing strategic competition between U.S.

1:14:58and China and the U.S. is, you know, way of prosecuting the conflict is try to like emulate as China as much as possible, which seems to be our strategy of industrial policy, subsidies to critical industries, and picking national winners and losers, forging national champions that hew to our strategic interests, then the monetary independence of the central bank is, from that perspective, seen as a luxury of peacetime that is sacrificed in order to prosecute geopolitical competition, just like we did in the 40s and 50s. And that, you know, the hope would be, okay, well, that doesn't do permanent damage to the institutional DNA.

1:15:40And that when those exogenous geopolitical conditions relax, then the kind of inherent kind of structural division of responsibility between the Fed and the Treasury. But like, we haven't declared a war. So we kind of live in this ambiguous Schrodinger state of, you know, political polarization where all the presidents, all President Trump's moves are viewed as essentially political actions against his domestic adversaries. But at the same time, the president is the executive agent commander-in-chief. And so his actions are also strategic moves in at least nominal defense of the national interest.

1:16:15And in many cases, it's hard to tell which is which. And so the political subsumption of the Fed could be viewed as just his henchmen going over to take over the one entity that hasn't bent the knee. But from another perspective, it's, hey, we need to have all the tools at the the president's disposal to fight, essentially, a total economic war with China. I think you could have a fair view of that, and it's probably a mix of both. Yeah, I don't know. I agree with everything you said there. I'll just note that I think that the way to defeat, if you're in a geopolitical sense, in an economic war, the way to defeat the people's role of China is not to emulate them.

1:16:51I think there are other avenues. I agree with you. That's been my main criticism for the past year, is you're not gonna out-totalitarianize China. You're not going to outstate capitalism China. It's just like our ace in the hole has always been our ability to weld relatively free capital markets, innovation, the most high density talent clusters in the world, and turn great ideas into world dominating businesses that preserve our competitive advantage, drive GDP growth, and better quality of life. That's kind of been our whole thing. If we're like, oh shit, we need to like bail Intel out and like pay above market price for a rare earths mine and like distribute friends to our cronies that come to the White House, like you quickly get to more like Argentina style model where so it's like, we're kind of on a nice edge here, right?

1:17:39You could do like really good industrial policy. That's like you're picking your spots and it's like well calibrated and it's like, you know, ultimately fair. Or you could just do like ham fisted, you know, handouts to your capitalist cronies and you don't get the strategic advantage, you know, or the competitive advantage. You just kind of get money going into different pockets.

1:17:59Checkmate:I want to get onto like the US and Bitcoin. Matt, when you were consulting for the government a few years ago, you've talked about working on these low probability, high consequence things, one of which was Bitcoin, one of which was AI. Are they no longer low probability? How has that changed? Yeah, I mean, I guess they went from objectively like less than 1 % to like the probability, for example, of Bitcoin reaching parity with gold by say 2030. If that was a scenario, I think when I was doing that four or five years ago, I would say it was less than 1%. I would say that's more like 10 % to 20%.

1:18:32So like a 10 % to 20X increase of the relative likelihood of a pretty strategic shift in the distribution of monetary assets in the global system. And I think that's probably a reasonable estimate of what some people think inside the DoD as well. I think, you know, just to give the TLDR, like right now and across the federal government, there's like different views of Bitcoin of like a policy as a policy instrument. Some folks view it as like a handout political kind of favor, right? That's owed to them because of campaign contributions. Some view it as a, you know, oh, this is now an established financial instrument.

1:19:08It's normalized, regularized. We need to have all the right regs. me to sort of right the wrongs of the previous administration's kind of heavy-handed, you know, somewhat punitive approach to the industry. And then you have other folks that see it as like a true strategic ace in the hole for the United States. And you have all of that. How would you break those down? Yeah. I'm just curious. I would say White House, some political appointees, more like the former. The Treasury Department, SEC, CFTC is more like in the middle camp, right? It's just a new instrument. You know, it's now legitimized, meaning to like, you know, make it safe for, you know, mom and pop in the 401ks.

1:19:39And then there's the folks in the Pentagon, the CIA that are like looking in the next five, 10 years and realizing the strategic vulnerabilities of the current system. And they're like, OK, well, Bitcoin, we have about 33 percent of it. Relative to gold, we have maybe 8 percent of the total above ground gold stock. So if you just assume like gold and Bitcoin are going to like move up relatively in tandem over the next five or 10 years, then we have like a four to one advantage by having Bitcoin monetized relative to gold. and it happens to advantage us relative to our Eurasian adversary. So like Pentagon is very much pro-Bitcoin.

1:20:14CIA likes to use it, but they don't make government policy, right? So Treasury makes a policy on the SBR and CFTC, SEC are involved in all the clarity market structure stuff. So you're in kind of this ambiguous zone where, you know, it's not like the government has one view of things and there's political priorities, it was clearly stable coins, clarity, and then maybe SBR, depending on, you know, what happens. I'll just point to the fact that the current new Bo Hines in the executive position, executive director position at the president's working group on digital assets at the White House, the top crypto policy advisor to the president, is a gentleman named Patrick Witt, who is still dual-hatted in his acting director of the Office of Strategic Capital at the Pentagon.

1:20:54So he comes out of the Pentagon, he's got a lot of sort of NatSec bona fides, and he's now leading the crypto policy role at the White House while also having strong connections into the Pentagon. So he's getting his sea legs under him. Obviously, the political system inside DC has put all their chips on market structure. Obviously, BPI, we're trying to get the Blockchain Regulatory Certainty Act linked into that bill. So we have a Save Your Wallets campaign. Check out our website. We want to get that protection for open source software riding along with that bill. And then, yeah, we'll see 2026 what happens with the SBR.

1:21:32I'll just do one last little political update. Yeah, so like the executive order required the Treasury Department coming up with like budget neutral means of acquiring additional Bitcoin. We haven't heard anything about that, right? Now I know I've had a number of conversations. I've written a few memos, laying out all these different ideas. Again, it's their job to come up with the final legal analysis. And nothing I've heard has been like a legal objection. It's more of a matter of like political will, whether and how far do they want to go. and from this menu of options, like which ones do they feel comfortable going forward with and what's the, you know, someone at the top has to kind of do this.

1:22:09I mean, the Deputy Secretary of the Treasury was involved in those meetings, Falkander, and then he got fired. And so it's like, okay, you know, you're kind of back to square one sometimes where it's like, you think you're moving and then the guy gets bounced, right? So there's a lot of like contingency here. I'd say like the SBR is kind of like Chekhov's gun. It was like put on the table in Act One and it's just kind of forgotten about. And we'll see. Like maybe they don't complete the story, but usually, you know, it's a nonlinear thing. When the government decides to like buy Bitcoin, if they ever decide to do that, it's not going to be because like, oh, they just had to like do that.

1:22:43It's going to be like a strategic decision.

1:22:45Checkmate:I've always been of the thought, sorry, just riffing off what we were saying before about the US emulating China. China's been, which is ironic for a capitalist government, they've been saying to their citizens to buy gold for a long, long time. and i've often thought like for me the sbr it's a fun narrative but like i'm not that convinced of how actually useful uh government buying bitcoin actually is sure there's a signaling there but like okay i've always thought it to be far more powerful to the sbr is just americans balance right whether it's in the etfs whether it's just private holdings you're actually better off having americans owning bitcoin and then it monetizing than the government only because what's the government going to do with it leave it in the vault aren't you better off having the capital gains taxes, the wealth effect, all of that of Americans owning it.

1:23:29Checkmate:So I've often wondered if a much more strategic option is just to kind of green light and say, hey, we actually want you guys to own this, allow Americans to get access to it, which is obviously happening. In my view, that's actually a far more effective and probably productive means of generating the same effect. I guess it's a policy judgment of like, what's the role of a reserve asset on the national balance sheet. If the government's going to pursue a policy of making Bitcoin a global reserve asset, just like gold is already, well, we have about 5 % of the total above ground gold stock international reserves.

1:24:05If you add up all the ETFs, it's maybe 8 % to 10%. So you'd be like, all right, well, if we are by policy going to create a world where Bitcoin is going to be the new gold, then as a matter of national strategic positioning, you should have a proportional share of it as you have of gold, right? Now, you could obviously get all the collateral effects by encouraging Americans to hold it as well if you also want to pursue that as like a strategic shift. And you can get a lot of the benefits out of it. I think the real benefit, though, of holding Bitcoin in the national balance sheet is actually to ensure, it's actually kind of a socialist policy in a certain sense of like, the right, you know, people that are tracking Bitcoin can buy ETF, but like not everyone can.

1:24:40So if the government's going to, as a matter of national policy, encourage the adoption of Bitcoin, it's like, okay, we'll hold some on the national balance sheet to ensure that every American and has some sort of upside exposure to it and not just people that have the wherewithal to buy in an ETF. And there's others outside the box ideas like BitBonds, et cetera. Andrew Hohn's has a great idea of like how maybe you could engineer actually a paydown of the national balance sheet a bit more speculative kind of if then, right? But yeah, that's like a policy choice. It's a question of the government.

1:25:08If they decide to make Bitcoin into a national strategic asset, that they actually want to be monetized disproportionately relative to gold in the holdings of other countries, well, then you should make good on that, right? If you don't think that's your policy objective, you just want it to be adopted as a financial instrument, another commodity-like synthetic digital asset that you don't want to displace gold or you don't want to reach parity with gold, well, then you should not adopt it in your national reserves. But those are different objectives. If you're like, we only really want Bitcoin to kind of slowly go up to$5 or$10 trillion, and we never want to live in a world where Bitcoin is surpassing gold, well okay then that's fine right but if you're if you're assuming that that's a world that you have to prepare for or even engineer you want to make sure that your balance sheet is well positioned for that for that for that scenario and you don't think that's accomplished with the currently held finally resolved coins that are in the u.s government's possession you think they have it has to be combined with a signal of additional acquisition i actually think it should be one of two things.

1:26:11I think there should be no... I think you should ultimately have a proportional share of Bitcoin as you hold of gold if you're preparing the country for a future scenario where there's... Where Bitcoin is basically paired with gold. So that's the end state I think you should get to if that's the world that you're preparing for. So given that... Why is that? Why does it have to be proportional to gold? Well, it's kind of your... Gold's function on the national balance sheet has always been this kind of with backup plan, right? Not really, because we hold, as a percentage of our GDP, I think we're at an all-time low with our gold holdings, right?

1:26:48We have 800 billion, if you add it all up. Maybe, depending on the valuation, now maybe it's closer to like a trillion. So that's been kind of steady. But relative to GDP, it was substantially higher, I think, in the 80s, our gold holdings, right? Yeah, and we've been aggressively trying to neg hard assets as a national policy for the past 50 years, right? So if we expect the next 50 years to be like the last 50 years and the treasury dollar standard to just be basically unscathed, then you don't need to have any change to your National Reserve policy. Like plan A is just the system as it is continues indefinitely.

1:27:25And you can just like keep just like let it ride. Right. And so like plan A is plan A. The question is, what's plan B? You know, always governments have to have plan B. Monetary regimes tend to change on generational timescales. And if you're looking out for the national interest over 50, 100 years, you got to think about, OK, what's our backup plan? As a reason why we haven't sold off our gold, countries don't sell off their gold. It's not because it's some barbarous relic. They just haven't gotten around to it. It's because countries think about, you know, generational shifts and wars. And it's like the thing that, you know, the old standby.

1:27:56They don't really want to give it up. And so if gold still plays that kind of, again, we don't like to talk about it, kind of, you know, back of house plan we've really underinvested in. China, meanwhile, has been dramatically investing in their backup plan for the current dollar system. Okay, what's our backup plan for a shift in the global dollar system? We don't really want to talk that shift into existence, right? So you don't really want to talk too much about your Bitcoin acquisitions, right? So I wouldn't recommend they do like a bunch of symbolic buys, which are just kind of like, you know, pump the price, but actually don't change the strategic position of the country.

1:28:27I would actually prefer they just quietly acquire as a matter of national policy over the next several years, just like we did with gold, and it just becomes like a new architecture that we have bought a relatively cheap option. Or you don't do it at all, right? It's kind of... Because, yeah, kind of like signaling just to pump the price would kind of just, you know, would be seen as like a payoff to serve your donor base without actually moving the strategic needle for this downside scenario. So I see this as kind of like a binary. I just like hold what you've got and just like let it ride. It's good, right?

1:29:02We've got maybe$10,$20 billion worth of Bitcoin on the balance sheet. That's fine. I wouldn't expect that to like provide much of a strategic insurance policy for a world if we really mismanage the dollar system. We got that number from Besson too. Didn't he say$20 billion on like a news show or something? I thought he was interviewed, right?

1:29:23Checkmate:yeah and it came it was something when you did the math it was less than the 200 000 that people talk about right so they've either they've either lost some coins or there's a few missing keys or yeah well that's the other thing is like as a matter of public transparency we should know how much bitcoin we have right like seems and i know that the i know like there are lots of other like couch cushion pockets of bitcoin that have been sitting there when it was like 5 000 bitcoin when bitcoin was a thousand dollars and it wasn't like that much money sitting somewhere in the cia or the FBI or whoever, and now it's worth a lot of money.

1:29:53And now the Treasury comes knocking and goes, hey, guys, we need you to give us all that juicy coin. And they're like, I don't know about that. So I actually think that the real number is kind of a mystery. And it's probably classified reasons why they don't want to talk about it. It's also logistical reasons, right? Because there's individual... All those different offices and, yeah. Yeah, there's individual U.S. attorneys' offices that probably have Bitcoin. And is it finally resolved, right? Have victims been paid their restitution? Like it's, you know, I think the government doesn't have as much as you expect a sort of a uniform database that's sitting out there with all the Bitcoin.

1:30:32Like that's not how they're constructed. There's branches and regions and localities. And, you know, I think that is a tall order probably to gather all that information. And one of the most like just good housekeeping reasons to do an SBR is just to clean that up, right? There are people with like manual spreadsheets with private keys on like sticky notes. and like you'd want you want the nation's bitcoin to be like custodied and secured and like a just a a well-managed fashion so like at a minimum i think everyone should be in favor of the sbr just so we don't like have some you know random u.s marshal service guy like you know delete delete a key with a billion dollars of bitcoin on it to checkmate's point earlier though like i do i do

1:31:11Checkmate:agree with him that it would be good to see americans hold as much bitcoin as possible rather than or people from anywhere in the world rather than the American government. And this is one of the reasons I really like the BitBond idea, because I think if you did BitBonds at every level from sort of like mortgages to city and municipality level and then the Treasury, like and then a shared upside in Bitcoin gains, that seems like the biggest win win. Do you think that we'll actually see BitBonds within sort of Trump's administration? I mean, actually, I prefer the BitBond idea to the straight SBR idea.

1:31:40Right. It just requires it's a bit more involved. Right. It requires, you know, a lot of arrangements and the Treasury developing all sorts of studies. And because it'd be them issuing a new debt instrument that Congress would have to authorize. So they would have to pass the law. I don't see that like likely obtaining unless there's like crazy majorities. Now, maybe there's like some clever way of interpreting statute that would allow them to issue some like experimental bond. I don't know. It seems a bit of a a bit of a tall order. But the prospect of other government entities issuing something like that might actually be more realistic, right?

1:32:18So states and local governments could get in the action. The basic principle, right, is there's kind of a way to kind of arbitrage the risk and distribute that risk to different people that want to have a different exposure to Bitcoin. and, you know, leverage existing debt markets that are otherwise quite liquid and can't hold government instruments, but they want exposure to Bitcoin. And so here's like a way the government could kind of, you know, create a kind of win-win, kind of the sailor style strategy, but in sort of public finance. So I think it's definitely a great idea, right? It is, you know, it's like for the stack of things you have to buy into, right?

1:32:56It's like at the top of a pretty tall stack. And so I think Andrew Homes has done a great job of laying out the math and even within various assumptions, why this is at least worth exploring as a pilot, but could have a lot of benefit because it puts Bitcoin in the hands of lots of people that wouldn't otherwise maybe be able to get it and help defray public expenses. So I actually like it. It's a great idea. Realistically, though, administratively, legally, there's higher hoops for that to go through. Like the SBR can be established to a certain extent with executive authority up to maybe $20 billion using the funds in the Exchange Civilization Fund.

1:33:31That requires just like political will, doesn't require new legislation. Doing like the Bitcoin Act, the Lummis Bill, that will require like, you know, majority in the Senate, which could happen, but is a much higher lift.

1:33:42Checkmate:Last question on this stuff. When Trump came in, obviously there was a ton of momentum. He signed the SBR executive order. um there's some and he's been very sort of open to bitcoin businesses in the u.s with the huge caveat that he's still putting privacy developers in prison maybe not directly him but that's still happening um do you think the momentum's waning or do you think there's still positive stuff going to come out of this administration for bitcoin um i don't think momentum i think well the brca right getting the president or at least getting the white house to um really vocally support that it's not just good for Bitcoin, it's good for everyone that digitalizes its ecosystem, it's good for folks that want civil liberties, it's already got co-sponsors in the house, but it requires strong support to make sure it gets through, so we'd love to see more of that come, I think people are definitely in support of it, but there's always more they could do to make sure that it passes, people have said that if they get Clarity passed then the SBR will come up for discussion as the third of the sort of sequence of three major crypto legislative priorities from the White House.

1:34:52We'll see if they make good on that next year. But then we're quickly going to run into the political calendar, summer 2026 elections that fall, and then everything's basically a crapshoot depending on what happens in those elections. I think the politicization of crypto policy is definitely a risk, right? Kind of, you know, his personal family involvement in it is going to be like a major feature of the campaign. And if the Democrats take back the House, they'll have hearings, they'll subpoena, you know, all the different folks involved in Trump's crypto businesses. It'll be a thing that they'll like keep lacking on over the course of the rest of his term.

1:35:32So that environment would be kind of not that conducive for many more like pro Bitcoin things. So it's like a window of time, I think, between now and the summer of next year, where if they're going to be big moves, they're probably going to happen then. After that, you know, unless he can keep the Senate and the House majorities, then it's probably going to be, you know, stasis. Yeah. I think it's even, my view is even earlier than that. You really have to like the late spring, right? Or April-ish, May, maybe perhaps, but that's it. And, you know, if we punt until next year on the Clarity Act, right, you get that across the line, it's going to be really tight to get a turnaround, something like, you know, getting authority for bit bonds or anything like that through Congress.

1:36:18I just think it's going to be too tight. Now, obviously, that can all change, right, without the midterms roll out. If the midterms are a Republican sweep, they retain both houses, then that gives you more runway to make good on some of these other promises. If not, obviously the opposite.

1:36:35Checkmate:All right. Before we close out, is there anything else that you guys want to talk about before I do my last bit checkmate what's the price in 12 months that that's literally my last question the CIA is always watching you Danny come on uh look I mean no one knows but look honestly like my view has been so I can't remember when it was it went about six maybe eight months ago um I wrote a piece it would have been around January February and it's when we just hit 100k We're kind of starting that chop around 95, 100. And I've got this model that I use and how much capital needs to flow in in order to justify each market cap move.

1:37:14Checkmate:Now, my case back then was, I think we justified 100K, but I wasn't sure we had the juice to get that extra 50 % to get to 3 trillion, which is 150K. And my base case was, we probably have to see the ETFs approximately double in size because I won't go through all the numbers, but that would approximately be the amount of money because the ETFs are about 20-25 % of the demand profile. That means if you multiply that by four, that's kind of the amount of money that we need to see come in to justify 150. If you take the amount that JustStrategy has bought and the ETFs, you now have that doubling.

1:37:49Checkmate:So in my view, if we had gone in January from 100 to 150, we'd be exactly where we are right now. We would have come back down because we just didn't have the real capital coming in to absorb that sell side we didn't actually belong at 150 we kind of belonged at 100 i think we now have the juice to not only go to 150 but stay there honestly so that's my base case now as i said at the start i think they're just being very aware like at the moment the bears haven't even cracked the first line of defense if we get down to 105 things start to get a little bit hairy just in the amount of people who are going to be underwater you go below 95 it's it's it's a hard shot to get past there's a in every single previous bear market that is more or less being that tipping point now we're not there yet so that's really the way i'm looking at it path dependency if there's some kind of crack and that's really why i want to pick uh pick minds on the ai was there any risk that this thing bubbles out and implodes because that's the kind of dynamic where suddenly you're below 95 and now you've got a bear market in play if that doesn't happen we belong at 150 and you know the journey is we've kind of proven a trillion dollars back in 2024 market cap i think we've now proven two trillion does bitcoin belong above silver yes where's silver going up so you know in my view three trillion is kind of the next move so um and then it's just a question of how many more trillions so uh 12 months from now at least 150 there we go i'm gonna call it by the end of the year but um listen i really appreciate this joe thanks for pushing us to do it i think we should do this i mean matt's gonna take a step back from podcasting potentially so maybe we should do this every quarter or so and we can have a a rolling guest instead of matt yeah happy to let's do it before we go i just wanted one comment on this okay for as long as i've been in bitcoin this idea of the four-year cycle has been this sort of ball and chain, I think, on the Bitcoin price.

1:39:43And Bitcoin is extremely sentimental, as we all know, right? Up 5%, we're all going to make it down 5%, you know, we're headed to Goblin Town. If you can break the back of this four-year cycle, I'm just telling you, I think that changes fundamentally the market structure in Bitcoin. It changes investor allocation. I mean, even right now, anecdotally, I'll tell you how many people, I was playing poker the other night, and a guy who's owned Bitcoin said, yeah, I'm probably going to sell a little bit going into the Q4 of this year because it's a halving cycle and Bitcoin's going to tank next year.

1:40:13If you were able to rid this sentiment of the market and push it more towards like an equity mark where I don't hear that at all in traditional finance, somebody talks about like a four-year cycle for the S &P. Obviously, there are liquidity cycles and recessions, et cetera. But if you can get rid of that narrative, I think that has very profound implications for how Bitcoin will trade into the future. So we talked about that earlier a little bit in this podcast, but I mean, that's going to be fascinating. And the most fascinating thing is it comes against the backdrop of that Fed independence, potentially weaning or the curtain being pulled away from in the early part of next year.

1:40:48That's not that far away. It'll be into the early part of next year. You'll be, you'll probably be getting an announcement of a new Fed chair. I mean, Besson said it was potentially November or December that they were going to give that name out there. And then the confirmation hearings will start obviously. And you're going to have somebody taking over for Powell in May. So that is almost like a poetic backdrop for Bitcoin and where it's had in its cycle. So hopefully we can crack that.

1:41:15Checkmate:The four-year cycle is already broken. People just aren't aware of it yet. I hope you're right. Cycles are dead. Bitcoin's going to a million. Let's fucking go. Thank you, guys. Appreciate the time. Thanks, Danny. Later.

1:41:41Thank you.