Podcast Summary
FTX Scandal Impacted Bitcoin Market with Fake Supply: The FTX scandal introduced fake Bitcoin supply, suppressing the price and potentially compressing the next price cycle
The FTX scandal, which came to light a year ago, may have significantly impacted the Bitcoin market by introducing fake supply and suppressing the price. The scandal involved FTX selling customers' Bitcoin deposits without their knowledge, creating a false sense of availability and leading to an increase in the perceived supply of Bitcoin. This fake supply met real demand, preventing the price from rising as much as it could have during that period. The recent court findings confirm this, and from a Bitcoin investor's perspective, this discovery serves as validation of the community's suspicions about FTX's activities. The question now is whether this manipulation has compressed the spring for the next Bitcoin price cycle. Despite the large traded volume of Bitcoin daily, the halving's impact on new supply issuance should not be underestimated. The price finds its equilibrium point when the supply and demand are balanced, and this equilibrium point is crucial in determining the market's direction before the halving.
Bitcoin Halving in 2024: Potential for a Larger Bull Market: The Bitcoin halving in 2024 could cause a significant supply shortage, potentially leading to a larger bull market due to a 'flywheel' effect of net inflow of capital and decreased new Bitcoin supply.
The upcoming Bitcoin halving in 2024 is expected to cause a significant supply shortage in the market, potentially leading to a larger bull market than the one seen in 2021. The impact of the halving on the net inflow of capital into Bitcoin, as well as the decrease in new Bitcoin supply, could create a "flywheel" effect that drives up the price. Traders and investors looking at the market in dollar terms may be missing this bigger picture, as a true Bitcoiner sees the market in terms of the stock of existing coins versus the new flow of coins being mined. The scarcity of Bitcoin, as more people see it becoming the new global settlement layer, means that even if the price goes up significantly in dollar terms, hardcore Bitcoin holders are unlikely to sell, as they believe the price will continue to rise in Bitcoin terms. This dynamic could lead to a parabolic increase in the price of Bitcoin.
Small holders stacking Bitcoin unlike other markets: Small Bitcoin holders are hoarding more Bitcoin than mined, not selling even at new highs, unlike traditional markets. Bitcoin's issuance is permanent and indifferent to demand, recognized by investors like Paul Tudor Jones, Bill Miller, and Stan Druckenmiller. Mining rewards newest entrant with Moore's law, contributing to Bitcoin's growth and security.
Bitcoin's unique characteristics, such as its scarcity and the conviction of its holders, set it apart from traditional commodities and markets. The on-chain data shows that small holders are stacking more Bitcoin than is being mined, and they are not selling even when the price reaches new highs. This behavior is unlike anything seen in other markets, where small holders typically take profits when the price rises, expecting new producers to come online and suppress the price with oversupply. Bitcoin's issuance is also permanent and indifferent to market demand. Paul Tudor Jones, Bill Miller, and Stan Druckenmiller are among the investors who have recognized this unique dynamic and have positioned themselves accordingly. Additionally, the mining side of Bitcoin benefits from Moore's law, which rewards the newest entrant as long as they have access to cheap electricity. These factors contribute to Bitcoin's continued growth and security, making it a compelling investment for those who are able to understand its unique properties.
Navigating Complex Economic Landscape: US Debt and Interest Expense: The US debt and interest expense are growing, and if not addressed, could surpass tax receipts, signaling an unsustainable economic situation.
The current economic landscape is filled with unusual occurrences, making it challenging for investors to navigate. Mortgage rates are high, but home prices remain steady. Bonds are selling off, yet some claim there's no recession in sight. The fiscal position of the US, particularly its massive debt and deficits, is a significant factor in this complexity. The interest expense on this debt is becoming a significant burden, and the US has not been able to balance its budget in decades. As a result, the national debt continues to grow, and the interest expense on it is a substantial and increasing expense. The tax revenues are not enough to cover this expense, and the situation is approaching a point where the interest expense will surpass tax receipts, which could be a sign of an unsustainable economic situation. However, it's important to note that this is not an absolute event horizon, but rather an effective one, meaning that there are actions that could be taken to prevent this outcome, but they are not currently being implemented.
US adding $6.5 trillion in debt per year, equates to $12 million per minute: The US is adding unsustainable amounts of debt, equivalent to $12 million per minute, which translates to thousands of new retirees worth of debt daily, raising concerns for future generations and the economy.
The current rate of increase in the US national debt is unsustainable. To put it into perspective, the US is adding $6.5 trillion in debt in one year, which is a 20% increase from the current debt level. This equates to adding $12 million in debt every minute. While this may seem abstract, it translates to 7,000 to 10,000 new retirees worth of debt being added every day. This exponential growth is unsustainable and raises questions about the future implications for the economy and future generations. It's important for individuals to stay informed about the national debt and its impact on their future. Additionally, investing in community and resources, like the TIP Mastermind, can help individuals stay informed and learn from each other in the ever-changing financial landscape.
The US following Japan's path of unsustainable debt and money supply growth: The US, like Japan, is increasing its national debt and money supply, which could lead to a fragile financial system and potential danger within 5 to 15 years.
The current approach of adding to the national debt and having the central bank buy it back to prevent bond yields from soaring is unsustainable and could lead to a fragile financial system, similar to Japan's experience over the past few decades. This process, known as "Japanification," increases the money supply and makes the system more leveraged, which could become dangerous in the future. The difference is that Japan was able to get away with this for a long time due to its status as a net producer in the global economy, while many other countries, including the US and European nations, are net consumers. This means that they may not be able to sustain this approach for as long as Japan did. The Treasury's plan to start buying treasury bonds and putting them on their balance sheet in 2024 is a sign that the US is starting to follow Japan's path, and this could compress the time frame for dealing with this issue significantly, possibly within 5 to 15 years.
Significant expansion of the economy with low interest rates could have major societal implications: Low interest rates leading to a significant economy expansion could widen economic disparities and potentially result in a default, with AI accelerating these effects and potentially obliterating the middle class and small companies.
Federal Reserve Chair Janet Yellen's prediction of interest expense being only 1% of GDP in the coming decade implies a significant expansion of the economy, potentially requiring quadrupling the GDP or dropping interest rates significantly. This would have major societal implications, as continued expansionary monetary policies could worsen economic disparities and potentially lead to a default. Adding to the complexity is the rapid advancement of AI, which could accelerate the effects of these policies. Jason Brett expresses concern that these policies could obliterate the middle class and small companies, as capital gets shoved into the hands of dominant players. The combination of these policies and AI could lead to a challenging future for those trying to keep up. While not intending to paint a doom and gloom picture, it's important to consider these realities as we move forward.
AI and Bitcoin: Interconnected Trends Impacting Wealth and Economy: AI's potential to create wealth and disrupt labor markets raises questions, while Bitcoin's scarcity offers protection against machine-generated wealth and serves as a foundation for value in a hyper-intelligent world. Understanding the roles of finite resources like Bitcoin and commodities in a digital economy is crucial for wealth protection and growth.
The advancements in artificial intelligence (AI) and the scarcity of finite resources, particularly Bitcoin, are interconnected trends that will significantly impact the economy and financial markets. AI's ability to surpass human intelligence raises questions about its potential to create wealth and disrupt labor markets. Bitcoin, as a scarce digital asset, offers protection against machine-generated wealth and serves as a foundation for value in a hyper-intelligent world. The commodities super cycle, including gold, oil, and energy, also plays a role in this narrative as finite resources that cannot be created in the digital realm. Ultimately, holding assets that are scarce and understanding their interconnected roles will be crucial for protecting and growing wealth in the face of these technological and economic shifts.
Discussion on AI's impact on economy and traditional currency: AI and advanced financial technologies are disrupting traditional currency and financial transactions, with innovations like high yield cash accounts and tokenized securities leading the way, but subject to regulatory oversight.
The advancements in artificial intelligence (AI) are expected to have a profound impact on the economy, potentially disrupting the value of traditional currency. This was a topic of discussion during a philosophical conversation at Stanford in the past. Currently, there are various financial innovations, such as high yield cash accounts offering 5.1% APY and the use of blockchain technology for tokenized securities, which aim to streamline financial transactions and increase efficiency. JPMorgan's recent announcement of a tokenized collateralization network, where securities are tokenized for immediate exchange, is an example of this trend. However, it's important to note that these innovations are subject to regulatory oversight and approval. Overall, the integration of AI and advanced financial technologies is set to reshape the financial landscape, making it more interconnected and efficient.
Traditional financial institutions becoming trusted intermediaries in digital asset space: JPMorgan's entry into digital tokenization of securities signals a shift towards traditional institutions as intermediaries, challenging decentralized crypto platforms and leading to a separation between real-world asset-linked tokens and purely digital assets.
JPMorgan's entry into the digital tokenization of securities marks a shift towards traditional financial institutions becoming the trusted intermediaries in the digital asset space, rather than decentralized crypto platforms. This move challenges the decentralized nature of crypto assets, particularly Bitcoin, and may lead to a greater separation between digital assets linked to real-world assets and those that exist solely in the digital realm. Furthermore, the discussion touched upon the evolution of institutional custody for Bitcoin. With the upcoming 4-year cycle, organizations will have to make a choice between outsourcing custody to ETFs or managing their own keys through multi-institutional custody solutions. The debate highlights the importance of understanding the value proposition of holding one's own keys versus trusting third parties for custody. Overall, these developments showcase the ongoing transformation of the digital asset landscape, with traditional financial institutions and decentralized networks continuing to shape the future of digital currencies and securities.
Unlocking Institutional Investment with Multi-Institution Custody: Multi-institution custody combines self-custody security with third-party expertise, allowing institutions to minimize counterparty risk while maximizing Bitcoin security.
Self-custody of Bitcoin comes with significant challenges, such as technical complexity, security concerns, and the need for perfect security indefinitely. Institutions and high net worth individuals often default to third-party custody due to ease and expertise, but this introduces counterparty risks. Multi-institution custody offers a solution by combining the security of self-custody with the expertise of third-party custodians. This setup involves a multisig vault with three keys held by three different institutions, requiring two keys to move funds. The client maintains ultimate control, minimizing counterparty risk while maximizing security. As the adoption of Bitcoin continues to grow, multi-institution custody is a crucial step towards unlocking trillions of dollars of capital from other store-value assets and making Bitcoin a viable option for institutional investors.
Understanding the implications of holding Bitcoin through ETFs vs. direct custody: Institutions considering Bitcoin exposure via ETFs should weigh potential yield opportunities from layer 2 tech against counterparty and custodian risks.
As institutions look to gain exposure to Bitcoin through ETFs, it's crucial to understand the implications of holding the underlying asset versus an ETF that holds the asset on your behalf. The multi-institution solution for digital asset custody offers advantages such as multi-signature security and reduced risk of unilateral control by a single institution. However, institutions that opt for an ETF may miss out on potential yield opportunities through layer 2 technologies. Furthermore, trusting a counterparty like BlackRock and an outsourced custodian like Coinbase comes with its own set of risks, including potential hacks, rehypothecation, and government intervention. Therefore, it's essential for institutions to do their research and fully understand the technological advancements and opportunities in the digital asset space.
Consider the flexibility and tax implications when investing in Bitcoin: Investing in Bitcoin through a self-custody solution or multi-institution custody platform offers better access, minimizes taxable events, and provides future flexibility in investment strategy.
When investing in Bitcoin, it's essential to consider the flexibility and tax implications of the investment vehicle you choose. For instance, if you invest in GBTC, you may not be able to redeem your Bitcoin, resulting in a taxable event when you sell your shares. To avoid this, starting your Bitcoin investment in a self-custody solution or a multi-institution custody platform could be a better option. These platforms offer better access to Bitcoin while minimizing taxable events and allowing for future flexibility in your investment strategy. Additionally, multi-institution custody is a growing trend that provides a solution for individuals and institutions looking to securely invest in Bitcoin without having to trust a single custodian or leave their funds on an exchange. This new custody model offers a more accessible and secure way to invest in Bitcoin, making it an attractive option for those looking to enter the space. To learn more about multi-institution custody and OnRamp, you can visit their website at onrampbitcoin.com or follow Jesse Myers on Twitter at croesus_btc. For more insights on Bitcoin and investing, be sure to check out Once and Asphalt's weekly newsletter at onceandasphecies.com. Investing in Bitcoin requires careful consideration and planning, but with the right tools and knowledge, you can make informed decisions and maximize your investment potential.
